The Advantages & Disadvantages of International Franchises

When your franchise is successful, your thoughts may turn towards expansion as a way to access new markets and new financial opportunities. Expanding internationally can sometimes be a profitable venture, but there are drawbacks. Many businesses have flopped because they failed to take account of the financial risks involved.

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Advantage: Exposure to New Markets

When you expand the franchise internationally, you can sometimes take advantage of new markets that are unfamiliar with your business model. For example, if you own a sandwich restaurant, you might open the first sandwich restaurant of its kind in a developing market. When you own the first business of its kind in an international market, you may be able to bring in substantial profits. When a new business comes into a region and the people like it, it creates a cash cow for the owner.

Advantage: Favorable Regulations

Depending on where you decide to expand, you may be able to take advantage of favorable government regulations. In many countries, you do not have to submit to the same types of regulations that are required in the United States. You may also be able to save money on taxes and the fees it takes to get started. If you pay lower taxes in that country, it can help improve the bottom line for your business.

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Disadvantage: Cultural Differences

One of the potential problems of expanding into other countries is overcoming the cultural barriers. Just because something is popular in the United States does not necessarily mean that it will be popular in other countries. Every country has its own culture, and you may not be able to accurately predict what people in that culture will enjoy. Before getting involved in another country, it makes sense to do some market research so that you can minimize this risk.

Disadvantage: Compliance Challenges

Just as cultural differences can create issues with branding, public relations and corporate culture, regulatory differences can also pose a significant challenge. Business laws and regulations can vary significantly between countries, provinces, and states and you may find that these differences affect every aspect of your business, including human resources policies, employee rights and benefits, and even the ingredients you can use to formulate your products. Prepare to hire separate legal and compliance teams for your international offices.

Disadvantage: Financial Risk

When expanding into another country, you have to take into consideration the financial risks that you are taking on as a business owner. For example, the exchange rates between currencies could lead to an unfavorable return on your investment. You may also have a hard time getting access to the supplies and products you need in any other country. Some countries charge tariffs and fees to ship products in, which could make your business less profitable.

A United States trademark registration gives the trademark owner certain rights in the United States but not elsewhere. The foreign franchisee will want to know that your company has rights to the trademarks in the target country. The United States trademark should be registered as a foreign mark in the target country. The trademark laws in the target country may be different from those of the United States including actual use versus intent to use, initial term and renewal rights, the need for registered user agreements, sublicensing rights and the right to sue for infringement, to name a few. In addition, the laws may be substantially different, or do not exist at all, for the protection of trade secrets.

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