For American Franchisors to Succeed Overseas, They Have to Be Open to Change

Published by Entrepreneur | Middle East
JULY 12, 2017

While international franchising opportunities are booming, franchisors must make adjustments.

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In heading overseas, however, Knowlton is following one of the hottest playbooks in franchising. “Thirty-eight percent of the unit growth of the 200 largest U.S. franchisors is now overseas,” says Josh Merin, a director at the International Franchise Association. “And over the past three years, 80 percent of the collective unit growth of these companies has been outside U.S. borders.” That growth is expected to continue, Merin says, as a number of large players consider going global for the first time. Among them in the restaurant sector alone: Sonic Drive-In, the Oklahoma City-based drive-through chain, and Chick-fil-A, the Atlanta-based chicken sandwich purveyor.

What’s more, the current economic landscape offers two distinct opportunities for franchising. “Developed markets have better infrastructure to support all the real estate, banking and supply chain requirements, but competition may be tough,” says Mark Siebert, the CEO of consultancy iFranchise Group. Plus the dollar goes further now than in the recent past. Meanwhile, “emerging markets have sketchier business frameworks, but often they will have fewer direct rivals and lots of new shopping malls and offices to fill.”

And yet, much like massages in Thailand, introducing an American concept to a different culture isn’t always easy. Beyond the usual pressures and challenges of franchising, franchisors and franchisees working in foreign markets have to wrestle with idiosyncratic business environments, unstable political climates and unfamiliar cultural norms. These hurdles can be surprising and significant, requiring hard work, good money and careful attention on the part of both corporate and individual franchisees to adapt the product to the local tastes and customs, all without sacrificing hard-earned brand identity. As Siebert puts it, “International franchising is not for sissies.”

Knowlton, for one, isn’t discouraged. He’s a seasoned enough operator to know that cross-cultural expansion does not happen overnight. A decade ago, as president of Cold Stone Creamery, he went through a similarly challenging (though less risqué) culture clash when trying to take the U.S. ice cream chain to Japan. The shop’s employees are famously theatrical; every time a customer puts something in the tip jar, they’re supposed to break out into song. Knowlton figured Japanese franchisees would love the idea.

“This was the land of karaoke, after all,” he says. “Unfortunately, it was also the land where nobody tips.” When singing did happen, he remembers, “people looked at us as if we were insane.” So he changed the tactic: Customers were encouraged to donate to a local hospital via the tip jar. Now, 10 years on, there are more than 50 Cold Stone outlets in Japan, and both singing and tip jars have become part of the experience.

One thing is clear: If any concept is to succeed at all in a new market, franchisors and franchisees alike may have to make some adjustments to the original business plan. For instance, every concept taken to Japan — where 127 million people live on a landmass smaller than California — has to be shrunk to work in a much smaller space, from the size of premises to the packaging of consumer goods for people’s apartments. Other tweaks may be down to local whimsy. Yankee Candle releases specific scents for its different territories. Honey Lavender Gelato, “inspired by the artisanal honey trend,” is available only in U.S. outlets. Europe gets scents such as Pain Au Raisin.

Yet there are often wider cultural chasms to cross. “There are countless examples that show that just because a system performs well domestically, it doesn’t mean consumers abroad will respond to it in a similar way,” says Siebert. U.S. food franchisors have invested heavily in studying local customs and taste profiles, and sourcing new ingredients. McDonald’s uses paneer, a cheese commonly served in curry dishes, as a substitute for beef in India, where cattle cannot be slaughtered. Pizza Hut uses squid, mayonnaise and seaweed as pie toppings in Japan. Starbucks redesigned its original seminude-siren logo for conservative parts of the Middle East.

How are these changes decided? Often, they don’t come from the franchisors themselves; they come from the local franchisees, who know their market better than executives in America. “IP holders will always want to maintain control of their brands, but they will understand that local tweaks are often necessary,” says Martin Hancock, COO of North America at World Franchise Associates, which hooks up U.S. companies with international partners. The level of customization of goods or services is often built into individual deals and contracts, but he says there will always be some room to negotiate. “Sometimes changes are suggested and implemented by the franchisee before the initial launch; sometimes they are ongoing.”

Take Wingstop. The fast-growing restaurant chain offers as many as a dozen wing flavors on every foreign menu, and up to four of them are adapted specially to local tastes. The company also works with its franchisees to develop locally focused sides, drinks and desserts, including fried churros with multiple dipping sauces, flavored bubble teas and fried seasoned street corn — which was developed for the Mexican market and now appears across three international markets.

The same goes for Dale Carnegie Training, which runs workplace courses on strategic skills and leadership in 120 franchises in North Africa, Asia, Europe and Latin America. The company is built on the work of Dale Carnegie, the 20th-century sales guru and author of How to Win Friends and Influence People. According to Maguid Barakat, vice president of franchise development, the translation of the courses is a particular challenge, as it has to capture Carnegie’s “language” but also be compatible with the local culture. Often it falls to franchisees to find the ideal middle ground. “Partners need to be resourceful,” says Barakat.

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