The United Kingdom often seems the logical place for overseas franchisors
from English-speaking countries to begin their European expansion.
The language is similar. There is a well-developed franchising community
that is supported by the lending banks. There are an array of experienced
legal and practical advisors, and a wide choice of franchise and
small business magazines and exhibitions in which to promote the
opportunity. Once established in the UK, the business then has a
natural springboard into mainland Europe.
One of the first questions to be answered is what should be the
entry strategy? Naturally most franchisors will eventually be looking
to duplicate what they do in their home market - that is, set up
a network of sub-franchisees, which will often be recruited and
managed by a master franchisee. Of course, there are other structures
available. For example, the franchisor can set up an owned subsidiary
to also become the franchisor within the new country/market. Alternatively,
the franchisor can appoint an area developer who only opens and
operates owned units. But master franchising with sub-franchisees
is often the preferred option for most businesses who franchise
in their home country.
An increasing trend involving international franchisors, from countries
that are much larger geographically than the UK, is to appoint regional
master franchisees, who in turn subfranchise or appoint actual operating
franchisees. Whilst there is no reason why this strategy shouldn't
work in practice in the UK [if it works in the home country], there
are problems - not least with the approach taken by The British
Franchise Association (BFA). Unlike many national franchise associations,
the BFA have strict membership criteria for applicant franchisors.
In instances where a number of different entities are going to recruit
franchisees into a system the BFA requires them all to individually
meet those criteria. Furthermore, if one does not qualify, or chooses
not to apply, then none can be BFA members. This will cause problems
as nearly all the lenders and franchising media recommend that potential
franchisees only consider those businesses that are members of the
BFA. Local advice on how best to structure your entry to the UK
is therefore important.
Whatever the chosen structure, the proposed network will be much
better received by the UK franchising community if it is properly
pilot-tested and proven before sub-franchisees are appointed. Overseas
franchisors are often surprised by the conservative and cautious
attitude displayed by potential UK franchisees. They will look for
a proven business format, for which some credible market research
has been undertaken, and which is professionally presented. English
people are not generally as entrepreneurial and willing to take
a gamble as is often imagined and will take a long time to examine
an opportunity before deciding to go ahead. However, once committed
they will give it all they've got to make it succeed.
The good news is that the UK has no pre-contract disclosure laws.
Indeed there is no specific franchise legislation whatsoever. Joining
the British Franchise Association requires submitting to a detailed
accreditation process as does exhibiting at any of the British franchise
exhibitions. Both organisations are keen to raise the standard and
quality of franchisors rather then simply go for large numbers.
One of the most surprising things for businesses with premises-based
franchises when they first come to the UK is the cost of real estate
and the difficulty and time involved in actually securing the lease
to premises. As a general rule expect sites to be a lot smaller,
rents to be considerably higher and for it to take a lot longer
to secure occupation rights. Taxation and labour laws will also
be different and all these things have a bearing on how successful
the transfer of the business format is likely to be. When the move
is made into mainland Europe everything will change again - often
in each country!
The most frequently asked question is "how much can we charge for
upfront and ongoing fees? As usual, there is no "right" answer and
it depends how badly you want to be here, how much you want that
franchisee, or how much that franchisee wants your brand and system.
Establishing the fee structure which is right for a particular business
in a particular market is one area where local professional guidance
One area of franchise development where the UK led (and probably
still leads) the world is the presence in nearly all the major banks
of dedicated franchising sections which keep tabs on all the operating
franchisors. Banks here love lending to franchisees because it is
proven to be a much safer form of small business lending for them
- providing of course the franchise has been properly set-up and
structured in the first place or, if it is an incoming system, that
the appropriate research has been done. There's that good old UK