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International Business, International Franchising

Is Franchising the Last Bastion of American Business Leadership?

By Ray Hays

Blog: www.rayhays.com

 American concepts have historically dominated the franchise sector on a global level. During the late 20th Century, franchising, along with Hollywood, played a pivotal role in the projection of the American culture and brands. We can find McDonald’s from Moscow to Melbourne, Curves fitness centers from Caracas to Cape Town. The domination of American franchises seems all but unstoppable.

 However, a few decades ago, a quiet insurgency emerged in the form of non-U.S. franchise concepts. The manifestation of this rebellion can be seen in four concurrent trends:

 1.       Boom of national “home-grown” franchises outside the U.S. –

  • In Belgium, Mister Minit began franchising in 1964 and became the leading franchise in Belgium, and an early European franchise leader.
  • In Japan, Family Market launched in 1981 in direct competition to 7-Eleven.
  • In Spain, Telepizza launched in 1987 and quickly dominated their national market

2.      International expansion of non-U.S. franchises –

  • In the 1980’s the international expansion of Italian franchisor Benetton made it a household brand in over 100 countries.
  • During the 1990’s India’s NIIT training franchise entered about 40 new countries.
  • In 1998, the Spanish nutrition franchisor Naturhouse began international expansion, quickly entering 18 countries into the 2000’s.

 3.      Entry of foreign franchises into the U.S. –

  • UK-based The Body Shop expanded quickly in the U.S. franchise sector in the 1990s.
  • Established in 2001, Argentina’s ProntoWash car wash franchise quickly entered the U.S. market in 2002.
  • Founded in Australia, Cartridge World entered the U.S. in 2003 and has nearly 600 U.S. franchises today.

4.      Foreign acquisition of U.S. franchise brands –

  • The U.K.’s Bass group acquired the leading U.S. budget hotel brand Holiday Inns in 1988.
  • In 1991, a Japanese franchisee acquired controlling shares of the 7-Eleven parent franchisor.
  • In 2009, French multinational Sodexo acquired the second-largest U.S. senior care franchise, Comfort Keepers.

Despite the foreign franchise insurgency, the U.S. position remains pre-eminent in the franchise sector, at least for now. This U.S. dominance is even seen in the home markets of highly developed European franchise concepts.  According to the website Franchise Europe, of the top 100 franchises represented in Europe (in number of locations), 34 are American-owned franchises. Interestingly, if you compare the top 500 franchises in Europe, only 45, or less than 10%, are American franchises.

This suggests that the U.S. is leading the pack at the top of the European market (about 1000 units or more), but European concepts dominate their markets among the medium and small franchises under 1000 units. Similar trends are seen in other global regions as small international franchises enter the market.

Think about it. Franchising is a unique sector in which U.S. companies continue to dominate on a global scale. U.S. franchises have not given up significant market share to foreign companies, at least compared with the American auto industry, financial sector and increasingly, the IT sector.

In short, the U.S. has maintained its competitive advantage in the franchise sector for more than 50 years. This might be attributed to American innovation or perhaps the marketing power of American brands. However, the advance of the non-American franchise concepts continues.

 What do you think?

  • Can the U.S. maintain its domination of the franchise sector?
  • Will we see more foreign-owned franchises on Main Street America?

My next article will touch on the second question:

What are the facts around foreign franchises entering the U.S. market, and can they succeed on the American franchisors’ home turf?

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About rayhays

Ray Hays is an international executive and Member of the District Export Council of Arizona. Ray has over 20 years experience in franchising management, international business development and small business growth. He has field experience in over 50 countries, working for global market leaders in the service sector. He holds an MBA from the Thunderbird School of Global Management and a BS from Georgetown University.

Discussion

16 thoughts on “Is Franchising the Last Bastion of American Business Leadership?

  1. The US has clearly been the global leader in elevating the profile of the franchise business model. This has been accomplished through successful and innovative brands which have captured the loyalty of millions of consumers at home and abroad. Many of these brands are recognized as leaders in their respective industries despite their humble beginnings.

    Entrepreneurs worldwide see these success stories and hope to create their own. The majority of these new franchises will be limited in their geographic reach but will provide an opportunity to create local employment opportunities. Some will venture to the US. The expectation is that each of these new franchise systems will be defined by the quality of the service it offers rather than the location of its home office. What matters is how these new brands offer credible opportunities for perspective small business owners and the employees they hire.

    Franchising is a reflection of the global forces at work in today’s economy. No longer can it be expected that the US will dominate the market. We can expect US franchisors to lead by example. And as markets around the world have welcomed our franchise brands, we can do the same for theirs.

    Posted by Kathleen McDonald | August 4, 2011, 5:51 am
  2. Excellent points, Kathleen. In reality, we need to look beyond the ownership of the franchisor, and focus on the heart of the the organization’s success – the franchisees. Without successful franchise owners, no franchise is sustainable.

    Since they are typically locally-owned businesses, international franchise networks are in-fact global organizations with local ownership. As a result, their customers are truly “buying locally.”

    I also like your point about job creation, which is sorely needed in these tough economic times, regardless of the origins of the franchisor.

    Posted by rayhays | August 4, 2011, 8:13 am
  3. One area not to overlook in this discussion is the rise of “private franchising” aka network marketing. Network marketing has eveolved dramatically from the MLMs of the 70s and 80s.

    Companies like Amway, Arbonne, Market America are providing both excellent products and real income opportunities for “average” Americans. These are the best ways for regular folks to become entrepreneurs.

    One must of course be discerning which ones to join but this franchising concept is on the rise and will continue to grow dramatically as the rest of the economy continues to trend sideways for the next few years.

    Posted by Lewis McMurran | August 18, 2011, 9:40 am
    • Yes, MLMs are on the rise, and will continue to grow. Yes, the U.S. has historically led the charge with MLMs. As a franchise professional, I would take issue with labeling an MLM as a “franchise” business model for several reasons, most importantly because MLMs are not subject to the same FTC franchise disclosure requirements. I would defer to the Wikipedia definition of multi level marketing. Definitions aside, I would question the failure rate of individual entrepreneurs under the MLM model versus independent small business startups versus franchised businesses.

      Posted by rayhays | August 18, 2011, 10:30 am
  4. Ray, interesting article, as with most things complacency is a problem with any business and to just continue to doing the same thing year in and out will create opportunities for competitors. One has to be innovative with their franchise and offer that something special, different on a regular basis.

    Although not franchising one only has to look back at the automotive industry, America was the be all end all in this industry, that was until Japan came along and offered as standard what others had as extras, the same could be said with many other industries across the board.

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