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28-05-2018 | Brenda Rodríguez López
Business internationalization is a goal for many companies. An ambitious objective that can bring great advantages, but which is also associated with certain risks. During the hardest years of the crisis, many enterprises decided to face the difficult situation by taking the leap abroad and diversifying their business. It seems that for many of them it has been an appropriate position. Nowadays, whatever the type is, internationalization is increasingly becoming an imperative when it comes to facing a globalized and connected business environment in a competitive way. In this context of opening up to new markets, a relevant fact is the growth by 6.7% of the Spanish franchises abroad. Almost one in three chains have presence in foreign countries. What are the reasons for this leap? Why does this percentage grow?
Franchises are one of the formulas of business internationalization that boost the brand image best. Chains abroad project an image of leadership, strength and courage. The companies that face the challenge of opening franchises strengthen their position as brands, especially when they do it outside of their natural borders. Perhaps that is one of the reasons that the presence of Spanish franchises in other countries is becoming stronger. A fact that not only contributes to the consolidation of these businesses themselves, but also to the positioning of the "Spain Brand".
The franchises in figures
According to the report Spanish franchise in the world 2018 carried out by the Spanish Association of Franchisors (AEF) with the collaboration of Cajamar, 30% of Spanish franchises have presence outside the borders of the country, a figure that represents almost a third of the total. Currently, there are 334 Spanish chains that jumped abroad with 22,394 establishments. It should be noted that during the last twelve months the opening of stores has reached a total of 664 -3% more than last year-.
Fashion is still the main emblem. Firms such as Mango, Desigual and Inditex are some of the leaders in the international expansion of Spanish franchises. These chains account for 25.7% of the total and are spread over 10,111 stores in 123 markets. In second place, there is the hotel and restaurant business with a percentage of 15.8% and 1,577 establishments in 77 markets. These are followed by industries like beauty and esthetics, specialized stores and furniture and home-textile.
These franchises operate in five continents, in particular, in 139 countries, two more than last year. But it is Portugal, without a doubt, the country preferred by the Spanish brands. This nearby market concentrates 60.1% of the total of the national franchises abroad. It is followed by countries like Mexico, Andorra, France, Italy -by number of brands- and also by Brazil and Argentina -by the number of operational locations, although with fewer chains-. On the other hand, Colombia and Costa Rica are "quite remarkable markets that must be taken into account in the short, medium and long term" according to the words of Eduardo Abadía, the AEF Managing Director.
Why take franchises abroad?
This significant increase of the Spanish presence of franchises abroad has been accompanied, in turn, by a continuous growth -over four years- of the franchises within the national territory. More and more companies are adopting this formula as an expansive model. Another AEF study reveals that the number of brands has increased by 3.8% last year, an increase that has led to a 2.2% grow in the global turnover. This impulse of the sector may be related to the return of bank credit and the entrepreneurial spirit that characterizes Spaniards.
As we mentioned earlier, the brand image is greatly boosted by this decision to open up new markets through franchises. When someone renounces to launch their own brand by adopting the one from another, it is because they have great confidence in it. The firms that bet on this formula are consolidated with only one movement in two markets, locally and internationally. However, this is not the only reason that motivates enterprises to opt for this alternative.
One of the risks associated with business internationalization is the difficult adaptation of the firms to the new markets due to the cultural shock, the local characteristics, the different customer segments and son on. When there is a physical distance between markets, it is easy to forgo part of the philosophy, the culture of values or the working methods of the companies on the way. However, franchises offer advantages over other formulas for entering foreign markets because their structures are solid and reproduce their work dynamics more perfectly than other alternatives do.
Franchises are business models that allow a quick growth with a moderate economic outlay. Apart from receiving the timely payment for the entry fees and the operating and advertising royalties of the franchisees, as a general rule, franchisors also profit from the infrastructure and human resources that do not belong to them. In addition, the commitment to the brand is high, the franchisees are the first to be interested in the smooth running of their businesses.
However, although the advantages are evident, it should not be forgotten that, as in any international project, the franchisors also take risks when betting on this formula, such as the possible reproduction of errors, the complexity in communications between the different establishments, the problems caused by the transfer of know-how, the loss of direct contact with the market, the flexibility when adopting new strategies or the resistance of franchisees to follow the guidelines of the brand. As in any decision related to the access to a new market, franchisors must reflect on the reasons that motivate them to undertake this adventure in the first place.
We are aware that in a business world characterized by constant change, connectivity and globalization, professionals need a complete and practical training that allows them to acquire the knowledge and skills which are necessary for them to lead the industry. At The CEU IAM Business School we have designed an Executive MBA that addresses complex issues like change management, the fiscal and legal framework or the virtual and international business.