Are You Prepared For International Expansion?

1. Are You Prepared For International Expansion? Michael Woida Vice President, International CKE Restaurants, Inc.

2. 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?

3. 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.

4. 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

5. What Does An Organization Need?

6. 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?

7. 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

8. 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?

9. When Should You Begin?

10. 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

11. What Strategy Should You Employ?

12. 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

13. 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? Market Desirability Matrix

14. What Strategy Should You Employ? Market Desirability Matrix • Unit Economics • Labor Cost • Real Estate Cost • Cost of Goods Sold • Taxes • Construction Cost • Other Factors • Legal Environment • Franchise Legislation • Foreign Currency Stability/Outlook

15. 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

16. What Strategy Should You Employ? (Governance Models) Wholly Owned Via a third party JV Owned 3rd Party Owned Franchising Franchising Franchising Company Operated JV Operated Alliance/ License MasterLicense Control level Direct Area Direct Area Region Area Unit Examples CKE Asia CKE Russia / Asia CKE US / Mexico CKE US / Mexico / Middle East CKE US Level Of Brand Control High Low High Low High Low

17. 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.

18. 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.

19. Thank you!!