Leveraging IP Assets to Enter Foreign Markets

Transaction franchise company example

International Expansion

• franchising is an international activity• more than 400 U.S. franchise companies

– operating in foreign markets

• adds revenue sources and grows markets– KFC - U.S. vs. China

• reduces dependence on home market• leverages existing IP, know-how,

technology• no longer exclusively an American export• 2 key issues (below)

When to Enter Foreign Markets (1st Issue)

• sufficient maturity of franchise system• U.S. franchisor had 137 domestic outlets • tweak the business model (below)• selecting foreign business partners• selecting the right target countries

– TSS Photography - South Africa (late ‘80’s)– McCafe - tested in U.S. 2001: 33 countries

• the market leader in Germany (306 coffee shops)

• transfer of PBS to foreign partners• #1 trigger – inquiry from a foreign market

Tweaking The Business Model for Foreign

Markets (2nd )• modifying domestic expansion strategy • master franchising paradigm• removes burden of foreign market operations• and selecting the right foreign franchisees• master franchising risks (McDonalds)• one-time fee: $100,000 - $1,000,000 or more• master & franchisor split FF’s and royalties• master becomes a clone of the franchisor

Tweaking The Business Model for Foreign Markets (Cont’d )

• tweaking dual distribution strategies• tweaking the level of control• tweaking the training program • tweaking operations manuals• tweaking sources of supply, etc• developing the legal documents• strategies to reduce master franchising risk:

increase up front fees lower ongoing royalty fees

• > 2,000 master franchisees worldwide

Preliminary Research & Steps

• research business, cultural and political• research cost & ease of doing business• research competitors in each target country• research the market in each target country• protect the IP (mark) in target countries• develop a profile of the master franchisee• research legal compliance in target

countries• provide support, know-how & services?

International Marketing Steps

• add a page to existing Web site• process master franchisee leads• network with international systems (IFA)• attend international franchise shows (SG)• advertise in international publications• hold candidates to a structured process• Discovery Day

The Big Franchise Players

Company International U.S. outlets Company owned

7-Eleven 25,062 5,579 1,039

McDonalds 10,946 11,608 8,269

KFC 6,089 4,277 3,067

Subway 5,932 20,265 0

Curves 2,005 7,875 2

• 4,000 Best Western hotels in 80 countries• 2,000 North America• 2001: 6 hotels in Asia• 2007: 106 in Asia

- 17 more in China, Japan, Indonesia, Thailand

• 2010: 200 (projected) in Asia

Howards Storage World (Australia)

Howards Chronology

• 1977: first retail store in Australia• 1998: began franchising in Australia• 2004: chain of 35 outlets

- master franchised West & So. Australia- used the master model for international

• 2004: 1st master franchise in Singapore- master must own & operate a Howards store- master subfranchises; all training in Australia- Howards revenue: MFF + royalty (% split)

• 2005: 2nd in New Zealand

Howards (continued)

• 2005: 3rd in Spain• 2005: 4th in the Middle East• 2007: 5th in Ireland• 2007: 6th in the Philippines• Howards International: 14 stores

about 20% of sales

• changes to business model = 10%- supply logistics

• now 62 stores open in Australia