Master franchise
The Franchise Market
Franchising originated in the U.S. and developed rapidly after World War II. It was applied across every sector, from food to clothing, from retail to real estate, from hotels to cleaning services. American chains first established themselves in the domestic market, then expanded globally. As we’ve seen in Turkey since the 1980s, entrepreneurs in every country first learned the franchise system from foreign companies, then adapted it to their own concepts.
Roughly speaking, there are 3,000 franchise chains in the U.S. market, which exceeds 300 million people. Among developing countries with markets exceeding 100 million, China has 5,000, India 4,000, Brazil and Turkey each 3,000, and Russia, Argentina, and Mexico each 2,000 franchise chains. Among developed countries with markets exceeding 50 million, Germany, the UK, France, Italy, and Japan have each produced roughly 1,000 franchise chains. As the saying goes, “Every rooster crows in its own backyard”; in every country that has produced many chains, the proportion of domestic chains is around 90%.
At first glance, the picture suggests the world learned this business from the Americans, is now surpassing them, and Turkey is doing well. But looking a bit deeper reveals a different picture. Again, using rough figures, the average number of locations for chains in the U.S. is 250, in developed European countries 100, in developing countries with large domestic markets 50, and in Turkey around 25.
This difference determines success in global expansion. The strength of each chain—its management team, operational system, experience, capital, etc.— grows with the number of locations. Expanding into foreign markets is arduous and costly; it cannot be resolved simply by finding someone to grant a master franchise. The advantage of American chains stems from their expansion within their domestic market; they grow in English-speaking countries and then expand globally. Indeed, approximately half of the chains that have granted franchises at 40,000 locations—such as McDonald’s, Starbucks, and Subway—are concentrated in six countries where English is the native language, while the remaining franchises are spread across 60 other countries.
To put success in concrete terms, the number of chains that have granted over 10,000 franchises across dozens of countries is fewer than 20. Aside from the Japanese education chain Kumon, all those that have expanded globally are American. There is one Japanese and one Chinese retail chain on the list, but they have only grown within their own countries. In summary, Americans hold a clear dominance in the global franchise market. Let’s examine the reasons.
What Sets Americans Apart
American chains have significant advantages. 1) They offer products and services that address basic needs, allowing them to easily establish themselves in every country they enter. 2) Their domestic market is large; after reaching thousands of locations, growing, and strengthening their position, they expand globally. They can easily raise capital for a proven business concept and invest in foreign markets. 3) They have established a franchise system and manage it efficiently. They have a marketing strategy and budget, and they persist until the business takes off. Through movies and TV shows, they introduce both their brands and consumer habits to the world.
Local chains in every country have significant advantages over American companies in the domestic market. 1) They offer products and services tailored to the local consumer, reaching the masses with reasonable quality and affordable prices. 2) Business investment is low; they make do with simple equipment and decor, easily find investors, and grant many franchises. 3) The franchise system is weak, and the marketing budget is low, but since the products and services are well-known, customers come intentionally, and they find staff who know the business.
Over the past 40 years, many foreign companies have entered the Turkish market; some grew to become industry leaders, while others failed to grow or closed down. In my opinion, the secret to success is committing fully to the business. If the brand itself or the master franchisee invests, it grows; if they don’t invest, the brand and system fall short, and once local competitors learn the ropes, they can’t keep up.
Master Franchise Roadmap
Turkey is a large and dynamic market. Turkish entrepreneurs are building highly successful concepts and chains. Turkey is centrally located between Europe, Asia, and Africa. What are the opportunities and risks in the global market, and what should a master franchise seeking to expand do? Let’s examine this.
The most critical decision is selecting the target country. Conventional wisdom has been overturned; there are no easy markets left—global brands are everywhere, and every country has local chains. Not all chains are the same; some have an advantage because they’re simple and affordable, while others have an advantage because they’re luxurious and expensive. Everyone will assess their strengths and enter markets where their core qualities provide an advantage.
Countries in the Middle East and North Africa—such as Iran, Iraq, Syria, and Egypt— with large populations and low incomes offer growth opportunities for our simply structured local chains. However, advertising, providing support, and putting in the effort are essential; those who simply say, “Let someone take my brand and grow it,” will end up having taught their trade to others.
In the wealthy, low-population countries of the Middle East, luxury concepts have a chance. Those who establish a strong management team and supply chain succeed. Many Turkish chains have established a foothold in that market by building their teams; local entrepreneurs don’t operate like we do. Opening branches is possible, but the market is small, so the number can’t increase significantly.
The Turkic countries in Central Asia are a natural market for us; our culture and language are similar. However, the population is small, incomes are low, so we need to train, support, and help the master franchisee grow.
Eastern European countries have income levels comparable to Turkey’s, but their populations are small, and support must be provided to many countries from a single hub. Regulations aren’t restrictive, but some countries and regions aren’t welcoming toward Turks. Those entering this market with concepts resembling Western ones have a better chance.
Wealthy Western European countries with large Turkish populations are attractive markets. However, regulations are strict, and some cannot secure or open stores. Competition is fierce; Western brands are strong and well-established, and consumers are affluent and discerning—merely selling cheaply isn’t enough. There are Turkish investors already established abroad, but targeting the ethnic market alone isn’t sufficient; one must understand the dynamics of the broader market. A brand expanding to the West must act like a Western brand and make investments and expenditures accordingly.
America is vast; the target market population is concentrated in just a few states. Competition is fierce, franchise laws are strict—there’s no room for error; thorough preparation is essential. It’s an environment where massive retail chains compete on price, powerful brands make their presence felt, and major franchise networks vie for dominance. Our apparel brands, which are market leaders in Turkey and operate hundreds of stores, sell products in the American market but do not open stores—this is why. On the other hand, in small businesses relying on individual effort and skill, everyone has a chance.
Among Latin American and East Asian countries, there are nations with large populations. However, managing from afar is difficult; establishing a presence, making investments, and building a team are essential. Turkish entrepreneurs running independent businesses are operating in every corner of the world, and I’m certain those who understand franchising will be just as successful.
Turkish franchise chains must select target markets that align with their own conditions and focus on them. They must promote their brands, attend trade shows, go out to observe the competition, understand the market, and decide how to succeed. There are two ways to expand globally. The first method everyone chooses is to find someone willing to invest and capable of running the business—just like the Americans do—and grant them a master franchise. However, our brands aren’t as well-known as theirs, we can’t find investors as easily, we can’t provide the same level of support, and we can’t achieve the same level of success.
The second method, unique to us, is to find an investor in Turkey and send them abroad. Our entrepreneurs, who know the brand and the business, will work much harder and succeed in selected markets that suit the brand, outperforming the locals there. We have many investors who want to settle abroad. Master franchises or single franchises can be granted, but in any case, support must be provided in the target country. For our franchise chains, competing with Americans in the global market— rather than clashing with locals—reviving the Turkish spirit of conquest to capture markets is the fastest and easiest way to expand. Be careful…