Risks such as the possibility of losing invested capital can be a major deterrent to those who want to start their own business.
Franchising offers the opportunity to operate an established brand and minimizes the risks associated with developing a new business. Bringing international franchises to the domestic market instead of buying into a franchise that already has a widespread market saturation is one way to stand out and attract consumer attention.
International franchising comes with different concerns and risks than domestic franchising. What mistakes do those investing in international franchise opportunities need to avoid?
Selecting the wrong market
Ensuring there is a market for the franchise is crucial whether franchising a domestic business abroad or bringing an international franchise to the United States.
Brands that are highly successful and popular in some locations may not be able to gain traction in others due to consumer loyalty to other existing brands or other consumer habits. Ensuring that there is interest in the market for the franchise is crucial.
Overlooking international tax planning
Calculating international income taxes can be complicated when an individual or business generates income in more than one country. The country where the business is initially registered and various other details about the business influence what taxes may apply. Failing to properly plan for international income taxes and making mistakes can lead to financial setbacks, business dissolution, or prosecution in the most serious cases.
Failing to secure support services
A franchisor who offers a variety of support services for domestic franchisees may not intend to make similar investments in an international market where there is only one franchisee. From on-site training to marketing contributions, there can be many forms of franchisor support provided to franchisees that may not be readily available in an international franchise arrangement. The lack of those support services might provide an opportunity for renegotiating some of the financial commitments that the franchisee makes.
Developing a franchise business is a complex process, especially when a franchisor operates in one country and a franchisee wants to develop the market in another. Aspiring franchisees who reach out for guidance and support throughout the process can reduce their likelihood of losses when pursuing international franchise opportunities.