Are You Prepared For Are You Prepared For International International Expansion?Expansion?

Michael WoidaVice President,

InternationalCKE Restaurants, Inc.

Focus of Today’s Discussion

• What does your organization need to be able to grow outside of your home market?

• When should you begin international expansion?

• What strategy should you employ? Direct Investment, Master Franchising, Area Development, or Single Location Franchising?

Reasons to ‘Go Global’• Increase your franchise’s equity and brand value

• Leverage your existing intellectual property, training, marketing and support resources

• Exploit new markets for long-term business growth

• Spread risk by diversifying your revenue source

• Generate incremental fees and royalty revenues

• Exploit the opportunity that the global marketplace offers.

Reasons to ‘Go Global’• Universal acceptance of franchising

As a legal and business relationship By consumers who value the brand By prospective franchisees

• Expanding global economy and rising standards of living • International Markets Maturing – Gateway Closing• Macro-Economic and Political Issues Always Exist -

Difficult to time markets• Takes time to build your International Business• Growth of global/regional/domestic franchise

competitors

What Does An What Does An Organization Need?Organization Need?

What does an organization need?

Strategic Benefit. . .• Will International expansion

augment/accelerate your organizations’ growth or simply reallocate domestic resources (and growth opportunities)?

• Is there a market for your concept outside of your home country? Can your brand flourish?

• Can you leverage your international growth to enhance your position at home?

What does an organization need?

Organizational Readiness. . .• Solid Domestic Foundation

– Mission, Vision, Values Well Defined– Positioning, Core Competencies Understood– Profitable Business Model – Strong Unit Level

Economics– Track Record Of Success In Home Market

• Executive Management Commitment– Corporate Mandate– Financial Resources– Human Capital – Realistic Payback Expectations

What does an organization need?

Strategic Plan. . .• Know where International expansion fits

within the firm’s immediate and long-term activities

• The scope of expansion (where & why) should be defined (Mature, Contiguous, English, etc..)

• What are the defined measures of success for an International venture?

When Should You When Should You Begin?Begin?

When should you begin?

Operational Infrastructure in Place. . .• Core operating system & support processes• Training systems and materials (i.e., translation)• Marketing platform & systems• Supply Chain/Logistics• Franchise Administration

Legal Systems & Processes Formulated• Trademarks registered• Disclosure/License Agreements drafted

What Strategy Should What Strategy Should You Employ?You Employ?

What Strategy Should You Employ?

• Geographic Expansion Strategy– Contiguous Markets– Targeted Regional Markets– Emerging Markets

• Utilize Market Selection Matrix– Identify Critical Success Factors– Assign Weights To Each Factor Based On Your Brand– Rank Countries By Continent, By Region or

Geopolitical Boundaries

What Strategy Should You Employ?

Market Desirability Matrix• Demographic Factors

– Age Distribution– Income Distribution– Total Population– Population Growth Rates– Under 30 Population– Urbanization– Education / Literacy– Lifestyle Trends

• Economic Factors– Gross Domestic Product– Purchasing Power Parity– GDP Growth Rates– CPI / WPI

• Cultural Acceptance– Appeal of Products & Services– Lifestyle Trends– Leisure Activities– Disposal Spending in Segment– Religious / Cultural Norms– Language

• Infrastructure– Import Barriers– Local / Regional Supply Options– Distribution Issues– Quality of Telecommunications– Quality of Road System– Probability of Natural Disasters

What Strategy Should You Employ?

• Unit Economics– Labor Cost– Real Estate Cost– Cost of Goods Sold– Taxes– Construction Cost

• Other Factors– Legal Environment– Franchise Legislation– Foreign Currency

Stability/Outlook

Market Desirability Matrix

What Strategy Should You Employ?Where should you avoid?

• Markets low on your Desirability Index

• Markets where you concept is not applicable

• Markets with restrictive franchise legislation

• Markets with restrictive foreign exchange rules

• Environments that exceed your firm’s risk tolerance

What Strategy Should You Employ?

CompanyOperated Direct Area

MasterLicense

Franchising

JVOperated Direct Area

Franchising

Alliance/License

Wholly Owned Via a third party

Control level

Franchising

JV Owned 3rd Party Owned

Level Of Brand Control

High Low High Low High Low

Region

Area

Unit

CKE US /Mexico /

Middle East

CKE Russia /Asia

CKE AsiaExamples CKE US CKE US / Mexico

(Governance Models)

What Strategy Should You Employ?

Basic Expansion Structures - Terminology• Direct - franchisor acts as franchisor to single unit

franchisees or multi-unit franchisees in the foreign market.• Area development - franchisor grants to a local “area

developer” the right to become a single unit franchisee multiple times, in a defined geographic territory.

• Master - franchisor grants to a local “master franchisee” the right to subfranchise in the foreign market.

• Area representative - less certain definition - franchisor grants to a local entity certain rights a new market.

What Strategy Should You Employ?

Basic Expansion Structures - Terminology

• Joint venture - franchisor grants to a local entity certain rights and itself owns some part of the entity together with a local “partner”.

• Hybrid – various elements of any of the above may be combined to suit individual needs.

Thank you!!Thank you!!