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The 7 Deadly Sins of Exporting Franchise Systems

Guest post by: Simon H Lord

Article Overview: Too many franchise systems fail to go global because they get lost in translation, say Simon Lord. Inadequate research, appointing the wrong master franchisee and failing to run a pilot operation are just three of the errors that can lead to problems.

The 7 Deadly Sins of Exporting Franchise Systems

One of the press releases that landed on my desk last year told me that the Franchise Association of South Africa has named a company called King Pie as its Franchisor of the Year. The company has 300 outlets throughout South Africa, a foothold in Mozambique, Namibia and Swaziland and plans for Australia, Malaysia and Canada. The South African press rightly reported the success of this home-grown franchise with pride. So why did I raise an eyebrow?
Well, back in 1996 the same King Pie, already with 200 outlets in South Africa, opened its first overseas outlet in Manukau City in New Zealand. The company planned 15 outlets in Auckland alone and a year later had six, but things were already going wrong. Within another year or so, outlets were closing and franchisees were taking legal action against the master franchisee here. The New Zealand master franchisee reportedly fled back to South Africa leaving a number of unsettled debts behind him. What went wrong?
The King Pie franchise clearly had a successful formula. It had good systems in place and a good product. But when it came to its first attempt at exporting, it made the same mistake as so many other franchises moving internationally. It didn’t do proper research into the New Zealand market and it didn’t devise a proper entry strategy.
Those mistakes were exacerbated by the fact that although the master franchisee they appointed here was himself a recent South African immigrant and a successful businessman in his own right, he lacked the experience and the skills necessary to create a workable and successful franchise network in an unfamiliar country. He knew little of the food industry, let alone the intricacies of site selection, lease negotiation or other vital areas such as franchise management. He had seen a great franchise working in his native country and thought, “There’s a gap in the market in New Zealand for a really good pie franchise.” He was right about that, as the Australian company Jesters has since proved, but sadly he didn’t have the necessary knowledge to exploit the gap – and his franchisor didn’t have the experience or the strategies to help him avoid the pitfalls.
The surprising thing about this story is how often it has been repeated, in one form or another. A great, well-proven franchise comes to New Zealand. It has huge confidence and high hopes and starts off with a bang, but a year or two later it’s all fizzled out. It’s an experience shared by some superb franchises too: Kwik Kopy, Lenards Poultry and Aussie Pooch Mobile are all award-winning brands in Australia but failed to take off in New Zealand. And, of course, it goes both ways. While a few Kiwi franchises such as Fastway Couriers and Laser Electrical have found huge success over the Tasman and beyond, they are very much the exceptions. In these days of the Internet, the damage that can be caused to a brand's reputation world-wide by such a failure is incalculable.
An article published recently in Franchise New Zealand magazine looks at the reasons why good franchise brands get lost in translation from country to country. Here are some of the problems we have identified so far.
1. Franchisors failing to research their planned market sufficiently thoroughly, or leaving it to an inexperienced local master franchisee to do so.
2. Failing to use local experts to create a proper entry plan addressing not just legal and financial issues but structural, territorial and other matters.
3. Making assumptions that where things aren’t obviously different, they must be the same. For example, one overseas café franchise snapped up a site near an Auckland suburban station without bothering to check how many people actually use the trains.
4. Failing to check out the market positioning of local brands. The niche occupied by the franchise in its own country may already have been filled – or may not even exist – in another.
5. Failing to adjust marketing to local conditions – not just products, photography or language but also approach. Brand leadership advertising doesn’t work if you’re not the brand leader.
6. Selecting an inexperienced or underfunded master franchisee or partner and failing to provide them with the specialist training they will need to replicate the franchisor’s business in another country.
7. And the cardinal sin: not setting up a pilot operation to test market acceptability and supply lines over a reasonable period before appointing franchisees.

These are important lessons for anyone thinking of importing or exporting a franchise, and they are ones that I am sure King Pie took to heart after its New Zealand experience ten years ago. Remember this: buying or selling a master franchise in another country is no guarantee of success. It’s only once multiple outlets are up and thriving that you can pat yourself on the back and say ‘this is a workable international franchise’.

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