How to Identify and Avoid Problems in InternationalProblems in International

FranchisingModerator:

Jerry L. Crawford, CFE President

Jani‐King International IncJani‐King International, Inc.

Speakers:

Susan Grueneberg Yoshino Nakajima Kurt Ullman CFESusan GruenebergPartner

Snell & Wilmer L.L.P.

Yoshino NakajimaChief Development OfficerHome Instead Senior Care

Kurt Ullman, CFEVice President

International DevelopmentTasti D‐Lite LLC

Overview

• Pre‐Contractual Diligence Facilitates Avoidance of ProblemsAvoidance of Problems– Franchisor commitment & preparation– Selecting the right international target marketsSelecting the right international target markets– Selecting the right international “partner”– Crucial legal considerationsg

• Avoiding, identifying, and solving problems in an active international franchise business– Manageable challenges– Non‐controllable issues

Critical Steps BeforeEmbarking on an International FranchiseEmbarking on an International Franchise 

Relationship

Franchisor Preparation

• Leadership Commitment

l f d k• International Registration of Trademarks

• Robust Operating Model

• Franchisor’s International Team– Sales– Operations– TrainingS l Ch i– Supply Chain

• Support System

Market Research & Prioritization

• Identify markets with potential for high growth and lower riskgrowth and lower risk

• Macro‐level market factors– Economic, political, social & regulatory 

– Safety & security

• Concept‐specific market factors– Product/service feasibility / y

– End user demand assessment

– Unit franchise & master franchise economic modelUnit franchise & master franchise economic model

Foreign Market

• Economic KidnappingI f i i l– Importance of training personnel

• Kidnapping avoidance techniques

• Hostage behavior techniques• Hostage behavior techniques

– Involvement of insurance carriers• Training• Training

• Hostage negotiation services

Foreign Market

• Political and Ethnic ConflictA l i f h i– Analysis of ethnic groups

• “ranked” vs. “unranked” groups

• History of coalitions• History of coalitions

• Geographic disbursement

Foreign Market

• Political and Ethnic ConflictE l f E h i C fli– Example of Ethnic Conflict

• Affects local area

• Can affect strategic development• Can affect strategic development

140 Killed in Xinjiang Riots Instigated by U S FundedInstigated by U.S. Funded 

Hate Group (CCTV)

Legal Considerations

• Trademark/IP Protection

l• Contractual Provisions– Capitalization Requirements

– Territorial allocation

– Ownership and structure

– Transfer restrictions

– Force majeure clause

– Relocation provisions

– Dispute Resolutionp

International “Partner” Selection

• Defined qualification criteria

f f f l b l• Verification of financial capabilities

• Market knowledge, related experience & resources, leadership, people, language

• Cooperation in due diligence and business p gplanning 

• Shared vision and strong relationshipShared vision and strong relationship

• Management of expectations between parties

Local Legal Issues

• Franchise Laws

l• Commercial Agency Laws

• Technology Transfer Laws

• Currency Repatriation Restrictions

• Foreign Corrupt Practices ActForeign Corrupt Practices Act

Avoiding, Identifying and Solving Problems that Develop After theProblems that Develop After the 

Agreements are Signed

Problems Faced

• Unit economic performance

ff h f• Sufficient growth of new units

• Deficiencies in meeting operational standards

• Deficiencies in meeting brand standards

• Supply chain disruptionsSupply chain disruptions

Identifying Problem Areas

• Communication is the keyProactive and frequent– Proactive and frequent

– Project tracking and discussion of key performance areasperformance areas

– Regular market visitations– Ongoing market due diligence– Dig deeply to identify issues– Frequent reporting and follow‐up Q+AL t bl id tifi ti li it l ti• Late problem identification limits solutions– No news is not necessarily good news

Manageable Challenges

• Proficiency in execution

l• Capitalization

• Focus and energy– Shared vision

– Business systemy

• Ownership and management change

• Compliance• Compliance

Non‐Controllable Issues

• Economic/Currency Volatility

l/ l h• Legal/Regulatory Change

• Political Change

• Disruptive Technology

• Competitive LandscapeCompetitive Landscape

• Social Attitudes