The Franchise Diaspora

 In an industry dominated by multinational operators, indigenous franchises need to at least consider the possibility of taking their concept to markets beyond Ireland. Indeed some franchise companies have been very successful in overseas markets. Paul Golden reports.

 any businesses reach a tipping point fairly early in their existence when the choice is either to stay small and run the risk of eventually being swamped by more aggressive competitors with a wider footprint and the resources to match, or expand in the hope of building the profile of their brand and benefiting from economies of scale. And the indigenous Irish franchise sector is no different.

It is estimated that there about 75 homegrown franchise businesses, conceived and developed by Irish entrepreneurs. While some have export potential, others need a lot more development before they can offer their concept to overseas franchisees.

Before they do this there are several questions any business with aspirations of international success should be asking itself. For example, is the concept ready to be taken into new markets? How much research is required when choosing these markets? Where do you find franchisors/franchisees and what kind of incentives do you need to offer them? How easy will they find it to raise finance from local banks or lenders? What happens if the relationship with these parties does not work out as planned?

 Leaving aside the legal issues and the supports available to companies exporting a franchise from Ireland (both of which are addressed in other articles in this issue), the first step is to determine whether the business is sufficiently developed to survive outside the comfort of its own patch.

 One of Ireland's most seasoned and respected players in the franchise industry is Michael Kearney, who established the Snap Printing franchise in the 1980s and is one of the backers of Home Instead Care, says the presence of a proven business model is the most important factor in determining when a business is ready to be franchised in the first place.

 "From scratch it takes between two and three years to build a track record. You need a unique selling point and the ability to offer a high quality back-up system (including training) so people coming into the business can avail of the knowledge you have acquired," he says.

 Another experienced franchise expert, Action Coach's Paul Fagan points to the importance of the business being clearly profitable in its own market so investors can see how they will make a return. After all if a business is not possible why would anyone want to buy into it or try and replicate it in a different market?

 But Wine Buff managing director Michael McDonnell adds that it is not enough for a business to be profitable - it must have accounting, marketing and operational elements in place and documented in the operating manual before it is ready to be franchised.

In the current uncertain international economic climate, raising money to invest in any business is likely to be more difficult than in recent years, which could give Irish investors added impetus to buy Irish-based franchises in other countries.

 The experience of Eddie Rockets is an example of how this could become more commonplace. The company now has three diners outside Ireland in Gran Canaria, Liverpool and Swansea, although group operations director Jonathan Parkhill admitted that so far its expansion has been on an opportunistic basis. For instance, the restaurant in Spain was opened by an Irish entrepreneur who had previous links with the company.

"It can be hard for franchisees to raise funding from local banks if the brand has no track record in that country," he explained. "If they have a business background in Ireland they might find it easier to raise funds in this country."

 It is sometimes said that one of the biggest obstacles to establishing an Irish-originated business in overseas markets - particularly those beyond the UK - is the different way business is conducted.

Leo McAdams of Enterprise Ireland, an expert in helping Irish companies doing business in Italy said that no matter how good the product is "you need to get over here, especially in the early days - without a close relationship the partnership won't work. Northern European companies often pull out of southern European markets too quickly, rather than realising the cultural differences and working around them. Initial enthusiasm is often followed by a drop off in activity and that is the critical time when the company needs to get over here and do something about it."

The more information you have the better your decisions are likely to be. Eddie Rockets' group operations director, who described the UK franchise environment as very similar to that in Ireland, underlined the importance of research.

 "Trademarks are very important and should be registered in your home market and any export countries. You would have to do some research in terms of demographics and disposable income levels as well as competitive analysis. You can use organisations like Mintel for this, but there is a lot of information freely available on the Internet."

 Another obvious step in preparing a franchise to be exported is finding the right person to drive the business in each new country. These master franchisors can be sourced through local commercial support bodies or industry exhibitions, with Paul Fagan suggesting that exhibitions are often the most fertile ground.

 "You can set up a sales recruitment office, use local advisors to help you find the right people or attend the various franchise expos. The last of these is the most visible option for sourcing people and you often find candidates with the right qualities at these events because you know they are serious about taking on a franchise."

 One of the stated aims of Franchise Development Services International (FDSI) is to help both Irish and UK companies expand operations domestically and internationally. Eamon Curtin of HJM Business Development, FDSI's Irish associate, said ambition often determines whether or not a franchise can succeed in other countries.

 "The owner needs to be determined to succeed," he said, adding that there is a significant opportunity for companies who can take advantage of the international reputation that Ireland enjoys for quality food, great pubs and craftsmanship.

Michael McQuillan of The Streat, the successful Belfast-based cafe franchise that opened its first outlet in the Republic of Ireland in early 2007 and has since established a base in Scotland, says a franchise with international ambitions must be prepared to build its expertise in areas that will help it establish and support the growth of the business in overseas markets.

 "This costs money, so your business plan must have this early stage investment built into it.

You also need to establish ‘expertise links' in your target markets. In our case this included legal (to assist in franchise agreement and property acquisition), architectural and planning (to assist in local planning and building control issues) and a supplier network for our franchised outlets," he says

Case Study: Business Cost Management (BCM)

It is unusual to find an indigenous franchise that has managed to establish itself internationally outside the food sector, but with more than a decade of experience taking his concept overseas, John MacNamara, director of Business Cost Management (BCM) knows what it takes to break new ground.

 The company, which specialises in helping businesses manage their costs and reduce unnecessary expenditure, was formed in 1993 and within four years had expanded outside Ireland.

 "I left a corporate position with a high-tech multinational with the idea of establishing a business consultancy practice," explained MacNamara. "I had seen similar businesses in the US during the late 1980s and within a year I was employing people and had moved into dedicated offices."

 In 1995 he put up a website - which was pretty uncommon among Irish companies at the time - with the intention of increasing the company's profile in Ireland. While it did not have the anticipated impact locally, the site generated enquiries from other parts of the world and by the following year he realised that he needed to capitalise on this interest.

 "We opened our first international office in Lisbon in January 1997 with a group of Portuguese businesspeople and in 1998 we had a second office in the UK. We now have 35 offices in 19 countries and plan to increase that figure by at least six every year."

 The modest rate of growth to date is illustrative of a desire to pick the right people, who are a combination of individual franchisees and master franchisors, including one who manages France and all the French-speaking territories.

"How you acquire clients varies from country to country, so we only look at people with local business experience who understand the culture," continued MacNamara. "We have had failures. Some franchisees will decide they don't like the work when they get into it and sometimes you just pick the wrong person. But in this business, personal skills are vital. The time you spend checking out candidates will pay you back many times over."

He is convinced the potential to grow the business further is sizeable. "There are very few white collar franchises out there and the fact that premises are not required makes it more attractive."

Case Study: O'Brien's Irish Sandwich Bars

The most successful - and certainly the highest profile - Irish franchise to extend its operations beyond these shores is O'Briens Sandwich Bars. Since the company opened its first overseas outlet in the UK in 1995, it has established itself in a further dozen countries.

"We are now in 13 international country locations - Australia, Canada, China, Germany, Gibraltar, Bahrain, Malaysia, Saudi Arabia, Singapore, South Africa, Spain, Taiwan and Thailand - in addition to the Republic of Ireland, Northern Ireland and the UK," explained CEO Fiacra Nagle.

 "There is an active interest in expanding to new countries and our franchise sales team is targeting suitable locations and partners," he adds.

 Unlike many other businesses, O'Brien's was intended from the outset to be more than just a local operation. "The business and concept was always developed with a view to international expansion. The name O'Brien's was chosen to express the Irishness of the brand," says Nagle.

The amount of research and legal work undertaken in each new country depends on the jurisdiction and location and this work is normally carried out in conjunction with the master franchisor, who has the benefit of local knowledge. O'Brien's provides the legal framework and detailed due diligence is completed for each new location.

When asked whether it is difficult to decide how much territory to allocate to international franchisees, Nagle pointed out that the company normally works on a staged basis against an agreed development plan so that exclusivity does not become an issue further down the line.

Despite the different business environments in which it operates, all O'Brien's franchise partners undergo the same training to ensure that brand standards are consistent throughout the group.

So what advice would O'Briens give to a franchise considering international expansion? "Do not underestimate the challenges you will be faced with," concluded Nagle. "But remember that with a focused, detailed and well researched plan being implemented by a committed and dedicated team, it is definitely worthwhile and creates a new dimension to the business."

First published in Franchise Options Magazine Summer 2008© to order back issues please call 01 6611660