Choosing The Right Approach - International Franchise Association

International Expansion International
Expansion
Strategies: Choosing The Right Approach
International Summit Moderated By: Carl E. Zwisler
Speakers: Ned Lyerly and
Thomas F. Flaherty
Monday, February 14, 2011
1
Ned Lyerly
• Executive Vice President, Global Franchise Development ‐ CKE Restaurants, Inc.
– International
International Division
Division
– International and Domestic Franchise System Growth
– International and Domestic Franchise Real Estate Support
• 27 year multi‐functional background including international, operations, finance, marketing, , p
,
,
g,
franchise support, real estate and franchise sales
• Chairman of the International Affairs Committee at the International Franchise Association
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• 5+ Million Miles on American Airlines
2
Thomas F. Flaherty, CFE
• Vice President, Franchising, Agile Pursuits
Franchising, Inc., a Procter & Gamble
Company
– responsible for franchising for the Tide Dry
Cleaners and Mr. Clean Car Wash brands
• 23 years
ears of legal and franchising experience
e perience
– Papa John’s International, Inc.
• Vice President, Global Franchising
• Vice President, New Business Development
– Huddle House, Inc.
• Chief Development Officer
• Managed the signing of franchise deals for
over 2,000 units on five continents
3
Carl E. Zwisler
• Principal
Principal, Gray Plant Mooty
Gray Plant Mooty
• 35 years representing franchisors and master franchisees in domestic and international f
franchise transactions
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• Former IFA General Counsel
• Author:
– Master Franchising: Selecting, Negotiating, and Operating a Master Franchise, Commerce Clearing House, 1999
– International Franchising: A Practitioner’s Guide, chapter “Selecting a Format for International Franchising”
• Author/presenter of more than 100 articles and h /
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h
i l
d
presentations on all facets of international and domestic franchising
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What Are The Right Goals For g
International Franchising?
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• Sell products or services to un‐served “ t
“customers”
”
• Expand distribution of products or services
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• Optimize return on investment and i
increase system‐wide sales and t
id
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generate incremental EBITDA
• Seize opportunities presented by S i
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qualified prospective franchisees
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• Hedge against economic and political risks
• Obtain economies of scale Obtain economies of scale
• Preempt competitors
7
What Are The Options For International Expansion Strategies?
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• Company branch
• Direct franchise: unit, area development, area representative
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• Master franchise
• Joint venture
Joint venture
• Merger and acquisition
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Franchising Formats
Franchising Formats
Area Development Franchising
(multi unit franchising)
(multi‐unit franchising)
Franchisor
grants
↓
area developer
territory
Franchise Unit 1
By January 1, 2012
Franchise Unit 2
By July 1, 2012
Franchise Unit 3
By January 1, 2013
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• Area development agreement provides:
id
– Develop three units during next 12 months
h
– Sign a unit franchise agreement for each
11
Area Representative/
Area
Representative/
Development Agent Franchise
• 3 parties
– Franchisor
– Area representative or development
agent
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– Unit franchisee
12
Development Agent / Area D
l
A
/A
Representative
Development Agent
Franchisor
no contract
Franchisee
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Example 1
Master Franchising
Franchisor
↓
Master franchisee
↓
territory
Franchise Unit 1
By January 1, 2012
Franchise Unit 2
By July 1, 2012
Franchise Unit 3
By January 1, 2013
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Example 2
Master Franchising
Franchisor
↓
Master franchisee
Master franchisee
↓
Territory
Master‐
owned
Unit 1
Master‐
owned
Unit 2
Franchise
Unit 1
Unit 1
Schedule: open at least 1 every six months
Franchise
Unit 2
Unit 2
Area Developer
Unit 1 Unit 2
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What Considerations Dictate The What
Considerations Dictate The
Strategy Selected For International Franchising?
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• Resources of the franchisor
• Cost of adapting
• Resources and commitment of prospective Resources and commitment of prospective
partners
• Regulation of foreign ownership or other R l ti
ff i
hi
th
government regulation
• Size and profit potential of a market
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• Critical mass required to establish the
brand or to compete effectively in the market
• Distance from the franchisor's home or regional support office
• Cost of establishing a franchised unit
• Tariffs, duties and other barriers to foreign ownership or operation
• Culture, language, climate, logistics, availability and cost of labor
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Where Are The Most Logical Markets To Begin International Expansion?
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M k t With
Markets With:
• Desire/need for product or service
• Greatest numbers of areas with likely customers
• Proximity
• Common language
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l
• Lowest risks of political and economic instability
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• High growth and qualified prospects
• Low effective tax rates
• High scores on World Bank
High scores on World Bank'ss Ease of Ease of
Doing Business survey
• No exchange controls and no barriers to No exchange controls and no barriers to
currency repatriation
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• Developed legal system allowing for enforcement of contracts
• Logistics/distribution/supply chain g
pp y
infrastructure cultural fit of product or service
22
Market Matrix – Latin America
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Chile
Puerto Rico
24
Peru
Colombia
22
Mexico
Dominican Republic
20
Final Macrro Score
Panama
Brazil
18
Costa Rica
Uruguay
Bahamas
Guatemala
16
Argentina
El Salvador
St Kitts
Honduras
14
Venezuela
Paraguay
Bolivia
12
15
17
19
21
23
25
27
29
31
Final Foodservice Score
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What Is Needed To Develop
And Implement An International Franchising Plan?
g
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• Support from board, CEO and/or founder
• Buy‐in from all departments which will support foreign development and operations
• International support organization (operations, training, marketing, supply chain/distribution finance I T legal)
chain/distribution, finance, I.T., legal)
• Substantial investments in time and capital
• Realistic time horizon for return and unit R li ti ti
h i
f
t
d it
growth
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• Threshold for patience in selecting the right franchisees in the right markets with the right positioning of th i ht
the right products and/or services
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• Legal analysis, documents, budget, IP protection
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• Market research to understand probable costs of entering and b bl
t f t i
d
developing a market
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• Franchise marketing plan and budget
• Due diligence on prospective franchisees
• Identification of top priority markets
• Development of a franchising team D l
t f f
hi i t
with endurance and international b i
business acumen/sensitivity
/
iti it
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Thank you.
Carl E. Zwisler
Ned Lyerly
Thomas F. Flahertyy
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