Small US Franchises Target Other Regions

Regions outside of the United States are now targets for expansion for smaller franchisors.  These regions have been unscathed by the economic downturn, and they have appetites for American products and services. In a Wall Street Journal article, Angus Loten writes that small businesses are “turning to markets in the developing world where credit continues to flow, franchise buyers face fewer barriers to financing, and American goods and services are in high demand”.  One such company is Smashburger who plans to open a franchise in Kuwait in March next year.

Over the past month, a Smashburger outlet in Denver has had some unusual help in the kitchen: a group of Kuwaiti entrepreneurs.

The burger flippers were prospective franchisees looking to open Smashburger outlets back home—and the fast-food chain hoped the hands-on experience would help them better serve customers.

Kuwait might seem a remote target for a franchise that’s not anywhere near the size of, say, McDonald’s. But Smashburger Chief Executive Dave Prokupek has big plans for international expansion—not only across the Middle East but also Asia and Central and South America.

Why? Those regions were largely unscathed by the recession, as well as being places where middle-class consumers have a growing appetite for American goods and services. “Western premium brands have done extraordinarily well in the Middle East and elsewhere,” Mr. Prokupek says.

It’s a Small World

Before the downturn, small U.S. franchises typically wouldn’t stray far from an original location. Now economic uncertainty at home, and in other Western economies, has prompted a growing number of franchises to look farther afield. They’re turning to markets in the developing world where credit continues to flow, franchise buyers face fewer barriers to financing, and American goods and services are in high demand.

“Five years ago, few smaller brands would have considered these markets,” says William Edwards, CEO of Edwards Global Services, an Irvine, Calif., global franchise consulting firm. “The big challenge now is that in the U.S., it’s very difficult for new franchisees to get financing. Money is not a problem in emerging markets, and there’s a lot of demand.”

In a recent survey by the International Franchise Association, nearly 85% of more than 150 U.S. franchisers—including chains with fewer than 50 locations in the U.S.—said they planned to start or accelerate international operations within the next few years.

“Younger and smaller franchise companies are jumping into the global market,” says Scott Lehr, vice president of international development at the IFA. “They’re looking at markets where it’s possible to grow sales in double digits. That’s pretty enticing.”

Knowing the Territory

Still, setting up global operations is a “big financial and operations commitment,” especially for smaller chains with limited resources, he says.

Smaller brands can face unexpected challenges in these regions, where a business system developed back home can be difficult to reproduce with limited infrastructure and an unfamiliar business culture.

“Nothing is easy in this,” says Mr. Edwards, whose firm has shepherded dozens of U.S. brands into foreign markets over the past decade.

For starters, franchisers can expect heavy training costs for franchisees and partners who know the local market but might be less familiar with the American approach to brand awareness or customer experience, Mr. Edwards says.

Smashburger’s Mr. Prokupek says after the Kuwaiti franchisees are finished training here, company officials will follow them back to the Middle East to oversee the new restaurant, which he expects to launch in late March.

“We want to hit the ground running,” Mr. Prokupek says.

Mr. Edwards, who isn’t affiliated with Smashburger, says that sort of exchange between smaller U.S. chains and international partners can be a boon for the global economy.

“What we’re really doing is exporting American business know-how,” he says. “And that’s exciting.”

Photo by westchesterbuzz

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