Ever looked at an international franchise concept and thought, “Hey! That would work here!”?
In many instances you may very well be right on the money and entrepreneurs who have launched international franchise concepts locally will testify to the success that buying a master franchise can bring.
Buying a master franchise can certainly be simpler, less costly and less risky than starting your own business from scratch. However, it’s not all smooth sailing and prospective buyers should be aware of some of the key challenges, as Anita du Toit of consulting firm Franchising Plus, outlines some of the potential pitfalls: “You take the risk of developing the franchise in South Africa and the expense and effort of developing the brand in this country will be up to you,” something to bear in mind particularly if you have overestimated the pulling power of a foreign concept. It also pays to be sure that the international franchisor is 100% committed to partnering you in making the franchise a success locally.
Markets differ vastly from one country to the next and what works in one market may need to be adjusted to suit local market conditions. “Insufficient commitment by the foreign company to understanding the local target market could be detrimental as the concept will not be adjusted sufficiently to suit local conditions,” confirms du Toit. She also warns about a lack of understanding, on the part of both parties, of the complexities involved in cross-border deals. “For example, South Africa’s foreign exchange control policies have an impact on the speed of payments to the international franchisor and this needs to be taken into account,” she explains.
Du Toit points out the importance of knowing what franchise will best suit your investment limitations, experience and goals. “If you want to operate a single outlet, a master franchise is not for you,” she warns. Good research is critical and she adds that you need to be sure the local market is ready for the product or service you are considering. “You need to make sure that there are enough people around who want to purchase it and, most importantly, can afford it,” she elaborates.
Above all, she warns against hastiness. Wait for the right deal with the right company. Remember that you will need to pay a licence fee, fund the pilot operation, create a franchise infrastructure from scratch, adapt the service or product to suit local conditions and incur overseas travel expenses.
Once you’ve taken these considerations into account and have done your homework on the local market, franchisor and product or service offering thoroughly, rewards are there for the taking. As a master franchise owner you get a ready-made franchise package, including the intellectual property, and can launch a unique concept to an untapped local market. Support from the established franchisor means you can draw on a wealth of experience from an established industry player who understands the challenges and pitfalls of the market. Another huge coup is the fact that you get the rights to sub-franchise in the entire country. As they say, the early bird catches the worm.
Evaluating a master franchise
When evaluating a master franchise, take the following points into consideration:
- Examine the product, management and operating systems, purchasing power and marketing prowess of the foreign company during at least one, preferably several, visits to the company.
- Have a lawyer with proven experience in international license deals review the disclosure document and master franchise agreement – what are your rights and obligations – are they protected in the long term?
- Have an accountant view the company’s financial disclosures.
- Take a long-term view – normally it takes more time, effort and money than envisaged. How certain are you that you will achieve reasonable returns over time?
Call Franchsing Plus on +27 11 454 2235 or visit www.franchisingplus.co.za