Franchising route to international success for UK retailers

BRITISH retailers are missing out on opportunities for growth overseas and should use franchising to expand into emerging markets, a new report has found.

Researchers from Leeds University Business School looked at how one large UK retailer used a sophisticated franchising model to expand in the Middle East over several decades and found that the model had been critical in enabling the company to grow while minimising risk and investment.

The report, Best in class in international franchising, recommends that more British firms should use an Area Development Franchise model to expand overseas and includes a series of key pointers which large and small UK retailers should consider when looking at international growth.

Professor Mat Robson, one of the report’s authors, said: “Retailing is increasingly a global industry and it is vital for UK PLC that our leading retailers are successful overseas. British retailers have tended to focus on their core UK market rather than expanding overseas, and this means that they are missing out on higher rates of growth in emerging markets. 

“We found that the Area Development Franchise model was integral in helping one of Britain’s leading retailers to expand into markets where there is high growth but also sometimes political, economic and social instability. This franchising model helps to minimise risk and investment and other British retailers should consider using it given the lower rates of economic growth in Western Europe.”

The report makes a series of recommendations for UK retailers including: 

• Do not just expand into neighbouring markets - think big and look to emerging markets where UK-branded products are positively perceived

• Seek out and forge good relationships with a small number of area development franchisees. Listen to their ideas and make the most of their local knowledge and contacts

• Be willing to be flexible on things like price to suit local markets but make sure that customers are treated equally across different markets

• Anticipate that the global supply chain will be difficult to optimise so invest in IT and communications.

Co-author Professor Jeremy Clegg said that the Area Development Franchise model was different to other models of franchising seen in the UK. He said: “The traditional franchise model is typically employed by high street food chains. There is a clear hierarchy between the company and the franchisee, who are often small entrepreneurs, and the product offered is typically standardised.

“Clearly this system would not work for general merchandise retailers and their more complex and fast-moving product assortment. Under the Area Development Franchise model, the British company works with a small number of larger franchisee partners that manage and develop the store network in a country or across a region, and are able to exert their influence and local know-how. This is much more of a partnership between the two businesses.”