Should You Consider Buying a Foreign Franchise?

It's a well-known fact that popular U.S. franchise operations like McDonald's and Subway have become as ubiquitous overseas as they are in North America. What many people don't realize is that a wide variety of foreign franchises are popping up on our soil slowly but surely, including businesses such as Kumon Math and Reading Centers and the restaurant chains Pollo Campero and Jollibee.

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If becoming involved with a fresh name and product that's unfamiliar to most Americans piques your interest, take into consideration the below do's and don'ts when mulling over the purchase of a foreign franchise:

The first and most obvious thing you must do is thoroughly investigate the franchise you are considering buying into. Telephone or send an e-mail to the company's corporate offices and ask that all pertinent and available materials related to its history, product, performance record, and future goals to be sent to you by mail. Be sure you have a good handle on how this particular foreign franchise is doing in countries other than the U.S.

There is always a master licensee involved in the domestic branching out of a foreign franchise — you will need to contact the U.S.-based master licensee for the foreign franchise you're interested in investing with to see how the franchise's existing U.S. locations are performing. You also need to find out if the master licensee is competent and knowledgeable enough to assist you with your franchise should you hit a rough spot in terms of sales or finances.

Understand that foreign franchises work in essentially the same way American ones do. The same disclosure prerequisites are required in all transactions — the Uniform Franchise Offering Circular (UFOC) is presented to the franchisee, which lays out such items as litigation and bankruptcy history, trademark, patent, and copyright information, and the mutual obligations of both the franchisor and franchisee. Also, the same intensely specific codes of conduct that are used in the expansion of an American franchise apply during the sales process of a foreign franchise.

You must conduct an extensive amount of research on whether or not the foreign franchise will fly in the area you want to set up shop in. Foreign franchises in the U.S. (or anywhere, for that matter) can go in either direction — you could have a resounding, smashing success, due to the fact that you've introduced something new and exciting to a city burned out on the overly familiar and consumed, or you could have a massive flop, one in which potential customers are scared off by the unfamiliar. Understand the cultural trends of the area you see as ripe for development. For example, say you're interested in opening a hot new tapioca tea franchise, such as the Taiwanese company Quickly. Does the general population in the area in which you envision your restaurant have tastes that run toward the more exotic? Are people adventurous and interested enough to forgo their Starbucks lattes and try something new?

If you're the bold and pioneering type and wish to be the first-ever U.S. franchisee of a foreign franchise, you face a potentially rocky road ahead of you. However, there are some concrete benefits to being the first franchisee. Since you're essentially acting as a guinea pig of sorts, many franchisors will grant you price cuts on such things as marketing materials and even, in some cases, the usually steep initial franchise fee. Don't be afraid to inquire as to whether or not these discounts could be made available to you for the risk you're taking.