International Franchising in the Post Covid World
International expansion has seen a growing trend for the past twelve years. Not only the American firms but also smaller organisations that are nimble and relevant to market place are expanding internationally.
Covid has changed the world scenario and challenged many businesses. However, franchising has seen growing momentum. The franchising business model is developing around the world.
In an exclusive conversation with Franchise India, Rod Young, Chairman, DC Strategy Group from Australia, has shared his insights on global franchising post-Covid.
Challenges Due to Covid
Much before the pandemic, consumers were more demanding and researching. But, covid has sprung five years ahead and businesses that do not have an internet strategy suffer. Habits change slowly, but covid has fastened it. Where Europe is facing difficulties in hygiene and economic structure, America is looking at what businesses and consumer needs are today.
Rod believes that franchising is an opportunity and that it can be measured in terms of ROI, capital gain, risk, and scalability. If you are in a business and want to franchise, you have to look for a potential master franchisee or area developer. Where franchising has to be relevant to the customer, it also has to understand competitors.
Rod says, "The global economy is going to decline by 10%, but 90% will still exist. That means consumers will still spend and there is scope for businesses to run. With the government also supporting, this 90% is a great opportunity. The market might shrink, but the market share should not. The survivors will have small markets but fewer competitors."
The strategy to survive will be to meet the changing consumer needs quickly. Those who adapt according to what consumer needs, thinks, and spends on, will sustain.
Is it the Right Time to Go global?
As more money flows, the opportunity to expand your brand globally continues to grow. There are billions of dollars with investors available for investment across the world. Going to North America is a great opportunity and the in the US, it is substantial.
India is one of the most exciting markets in the world. The amount of alliance with western markets is continuing to grow by the NRI’s in India. The economic growth in India is continuing at a bigger rate as compared to other countries.
For the past few years, brands from countries like the Philippines and Thailand are also coming in for global expansion. Some are opportunists and some are planned. But only 25% of these brands come are planned for a long-term setup.
Rod states, "The formula 80/20/20 works well with franchising. It says that 80% of the business should be easy to translate to an unknown market, 20% of which can remain ignored. The remaining 20% should be for local adaptation. The franchising partner is of utmost importance for this 20%. He should be considered as a partner and have local expertise."
DC Strategy Firm
According to Rod, acquisitions are being a good tool for growth. They are now buying companies in markets. Competitors are also looking for diversification into new business associated with day-to-day customers.
DC strategy creates the market entry strategy for the business. It does not end at setting up a master franchisee. They analyse how big the opportunity for a business in their market is. There is a strategy for both businesses entering India and Indian businesses entering internationally. In terms of buying an existing player, you either buy a part or the whole of the executive team of the business or have the local knowledge blend in your business.
The markets are diverse and there are lots of opportunities. Each market and each opportunity comes with its solution. Being flexible is important but it should meet the market needs and also consider a competitor.
Another market entry strategy to go to another country is joint ventures. There are several risks associated with joint ventures. The biggest risk is the people you choose to do business with. In franchising, the focus is on selecting the right master franchisee. There are three factors in this"
- There has to be goal alignment between the two parties
- The capital has to be enough to pay the franchisee and also fulfill the working capital needs for growth
- Individual corporations should have capabilities for entering new markets.
The other risks include due diligence, judgments in local knowledge, location, online presence, and supply chain to keep the product and services up to consumer demand.
At last, a consultant has to remember that the focus is on the benefit and outcome the client wants to achieve. The consultant should understand the client's needs from the business point of view as well as at a personal level like what kind of work he wants to do. Understanding the objective of the client is the golden rule for a consultant.
"You can get what you want only if you achieve what the client wants," Rod concludes.
Edited By: Vaishnavi Gupta