Growth in foreign markets is a huge opportunity for franchise businesses. According to IFA’s latest member survey, more than 84 percent of franchise businesses say international expansion is, “key to their development”. Many iconic American brands, such as Yum Brands’ KFC, are growing more rapidly overseas, due to market saturation and the pure potential of developing countries and markets like Asia and parts of South America.
Upon the recent announcement that Yum was selling its Long John Silver’s and A&W brands, the franchisor released a statement that highlights its focus on foreign markets.
“As we continue to sharpen our long-term growth focus on international expansion and improving our US brand positions in KFC, Pizza Hut and Taco Bell, Long John Silver’s and A&W no longer fit our long-term growth strategy,” Yum CEO David Novak said.
With international success brings a host of challenges. Chief among them are intellectual property-related concerns.
“When a franchise lawyer is asked by a client to assist in creating or expanding a franchising program, the threshold question is likely to be: ‘Is your trademark protected?” wrote Philip Zeidman in a recent article entitled “Franchising and IP: joined at the hip, all over the world.”
Zeidman, head of DLA Piper’s franchise legal practice, cautions franchise brands considering expanding overseas to beware of the lack of sophistication in certain markets regarding IP issues.
“Franchising regulation in the United States is now in its fifth decade and is sufficiently developed that most companies and lawyers are at least aware of its existence. Not so outside the US,” he notes.
One of the issues franchisors may have to deal with overseas has to do with copycat stores. What is an established franchise is to do when copycats begin popping up in foreign countries?
An International Dairy Queen imposter in China (photo by Melissa Powers for The Wall Street Journal)
“These copycat stores will likely dilute the quality of the brand, the products and the service a brand has worked so hard to protect,” according to international franchise development expert Bill Edwards, Chief Executive Officer of Edwards Global Services.
This topic was broached in a recent Wall Street Journal report and is something many franchises are dealing with in places like China. Edwards, who has been to China on behalf of U.S. franchise brands four times in the past year, has seen the challenges copycats pose firsthand.
“International copycats have gotten more sophisticated than they were just ten years ago,” he said. “Although this problem has been present in China over the past 10 years, the copycats are definitely getting better in their service delivery,” said Edwards. “However, what they cannot do is to provide the same highly trained customer service provided by the western brands or the consistent quality of product.”
Edwards’s advice to franchisors expanding globally is to show the outlet is the real brand. “Much like hotels display a sign as to who the franchisee of the brand is in their lobby.”
As foreign governments begin to welcome U.S. brands to their shores, they are also stepping up their enforcement of copycats. “The Chinese government has been getting better in the past 3 years in enforcing trademarks,” said Edwards.
Copycat enforcement has not been exclusive to franchise brands or the food service industry. The Chinese government moved on the fake Apple stores quickly when they were exposed in the press, as the aforementioned WSJ article noted.
Experts do point out that as the consumer becomes more sophisticated in developing countries; they want to be seen eating or shopping at the right brand and not a copycat.
“The increasingly well-to-do and sophisticated middle and upper class consumer knows the real brand and wants to be seen eating at the right brand,” said Edwards.
China is not the only place where there are copycats. Edwards points out other examples of franchise concepts outside China in Australia as some of the most challenging countries for expansion due to copycat brands that had already taken a hold in the country.
“Burger King® had to become Hungary Jack®. Two Men and A Truck® had to use Movers Who Cares® and Batteries Plus® had to use Batteries Staff® just to market their franchise in Australia,” he said.
For more information about protecting your franchise brand internationally, visit the IFA’s International resource page. Other information about protecting your brand’s intellectual property is available at the U.S. Chamber of Commerce Global IP Center web site.
Posted by Matt Haller, IFA Director of Communications