Internationalisation through franchising is a well-documented strategy in both academic and industry literature, particularly in the US and UK. Franchising has emerged as a pivotal approach for companies looking to expand beyond their saturated domestic markets and tap into new opportunities globally.

Franchising, in fact, has become a cornerstone strategy for many companies aiming to expand globally, driven by both the need to escape saturated domestic markets and seize new opportunities abroad.

However, for Small and Medium Enterprises (SMEs), international franchising involves more complexity compared to larger corporations. Success in this area requires meticulous planning and attention to several critical factors.

Key Considerations in International Franchising

Market Selection: Strategic vs. Opportunistic Approaches

The process of market selection is crucial and involves various models and approaches. Walvoord’s four-stage model and Root’s market selection model offer valuable frameworks for SMEs. Walvoord emphasizes a detailed macro-level analysis, while Root focuses on narrowing down to the most favourable markets. The choice between an incremental (waterfalls) and simultaneous (splash) market entry approach also plays a significant role. The incremental approach allows for gradual learning and risk management, whereas simultaneous entry facilitates rapid expansion but demands greater resources.

Cultural and Geographcial Vicinity: factors to consider

Geographical and cultural proximity significantly influence the decision-making process in franchising.
SMEs often start their internationalisation journey by entering geographically closer markets due to lower costs, reduced risks, and fewer barriers in terms of cultural differences.
Economic indicators such as GDP and GDP per capita are vital in assessing the market potential and purchasing power of these regions.
As franchise SMEs mature and gain international experience, they may expand into more distant markets, despite the increased transaction and logistical costs associated with such moves.

Practical Examples and Decision-Making

In the UK, Pret a Manger and Greggs are considered two good case studies. Pret in particular has been able to expand to multiple countries amongst which Switzerland, the US, Hong Kong, France and India.

The story of Pret is quite interesting. The first shop opened in the late 1980s, when Marks and Spencer were offering, for the first time, packed sandwiches in their shelves. Allegedly, Julian Metcalfe and Sinclair Beecham founded Pret A Manger to offer freshly made sandwiches.
Over the years, their brand has come to signify and represent quality and freshness. The brand’s ethos has driven Pret’s success, leading to global expansion.
Despite challenges, including international growth and a partnership with McDonald’s, Pret remains committed to its core brand values and they have been able to create an extremely scalable business model.

Franchising in the UK: where are we?

As of August 2024, franchising in the UK stands as a dynamic and influential sector, making a substantial contribution to the economy. According to the British Franchise Association (BFA), franchising generates over £17 billion annually and supports approximately 700,000 jobs. This significant impact highlights the model’s effectiveness and scale in driving economic growth.

Franchising’s global impact is also notable. For instance, in Spain, the sector supports up to 1.4 million jobs.
These figures underscore the vast potential and robustness of the franchising model across different markets.

The UK franchise sector is comprised of around 48,600 franchise units, predominantly within the food and hospitality industries. This concentration in specific sectors demonstrates the model’s adaptability and scalability.
However, it’s important to recognise that other sectors also exhibit significant success, reflecting franchising’s broad applicability and flexibility.

Remarkably, the success rate of franchising in the UK is exceptionally high, with over 90% of franchisees reporting profitability. This high success rate not only illustrates the effectiveness of the franchising model but also its potential as a reliable strategy for business growth and expansion.

Essential Takeaways for SMEs: Maximising Success in International Franchising

Internationalisation through franchising presents a strategic opportunity for SMEs seeking global growth.

The process involves meticulous market selection, cultural and geographical considerations, and effective risk management. For CEOs, managers, and small business owners, understanding these elements is crucial to making informed decisions and achieving successful international expansion.

Navigating the complexities of franchising can be challenging, but with the right support, companies can turn these challenges into opportunities.

Our team specialises in helping SMEs explore and implement internationalisation strategies.

From market research and strategic planning to execution and risk management, we offer tailored solutions to guide you every step of the way. If you’re ready to explore franchising for global expansion, reach out to us for expert assistance and take the next step toward your international growth goals.