Frances Michaelson, Joan Carter and Bryan O'Rourke respond to a club considering expanding internationally. Their answers, in Ask an Industry Leader, cover many areas.
"We are a US club considering expanding internationally. What are the most important factors to take into account when exploring foreign markets?
A. US clubs looking to expand internationallyneed to consider the impact of cultural and local market demands - factors often quite different than those that drive success in the USA. Simply exporting the US model rarely works and serious investigation is required to evaluate and adjust to the barriers to market entry that vary from country to country globally. VAT rates, for example, in some countries (such as Australia) are so high that they severely impact an operation’s P&L. Other cultural differences, whether they are gender-driven (as in the Middle East), or hygiene issues (such as in Japan), need to be addressed.
Key staff with extensive local market experience should be brought on early in the process because some cultural sensitivities will significantly impact the way the facility is built and operated. Recruiting and retaining key staff is likely to be the greatest challenge.
Your business model needs to reflect the financial impact of local cultural and market conditions. Be sure to consider how you intend to repatriate profits taking into consideration exchange rate fluctuations. One of the first steps should be to retain local legal counsel to advise on recruitment procedures and labor laws, rules of business ownership, trademark and franchise laws, and compliance with local health and safety laws.
Expanding into markets outside the US can be highly profitable, especially in countries where the fitness industry is less developed. But to be successful will likely require a different business model than the one you have in the USA – a model consistent with the customs and cultural mores of the country.
A. 1. Start with one country or a select region to focus your efforts and learn the various logistical, legal and financial aspects of international operations. Avoid a “shotgun approach” and target your expansion.
2. Identify markets that have good opportunities characterized by unmet consumer needs, limited competition and high growth potential. If you are based in the United States, consider staying closer to home in Mexico or Canada. These countries have relatively less capital risk and their proximity enables better monitoring of your operations and customers.
3. Learn how to conduct business in the country or region you decide to expand in. Attend trade shows and seek information from other health club owners in the region. IHRSA is a great resource to rely on.
4. Identify reputable real estate, legal and industry experts who can help obtain optimal locations, weigh in on trends and advise you legally. Critically evaluate successful and failed health clubs, determining the best opportunities considering your competitive capability. Construct a thorough business plan using in-market representatives to insure your business model has the best chance for success.
5. Borrowing for international operations can be challenging so being realistic about capital requirements is important. If you don’t have access to significant capital think about identifying possible strategic partnerships, licensees or franchisees for your international growth strategy. While international partnerships encompass risks, experienced advisers can help identify the right partners and structure the best commercial terms and relationships.
6. Once you have established a few successful regional operations consider other countries or regions where your health club business model format has good growth potential. Developing countries or non-OECD (Organization for Economic Cooperation and Development) countries like those in Southeast Asia and the Middle East offer the best short-term growth prospects.
Principal & Chief Executive
A: Expanding internationally is a huge decision and must be done carefully. When looking at foreign markets a club must take into consideration many factors including; the economy, currency, culture, workforce, education, language, cost of doing business and of course local competition, to name a few.
Doing your due diligence on a foreign market is key to determining whether or not a club will be successful in a region. The state of the current economy is one of the best indictors when looking at expanding internationally. A downed economy with cutbacks and job loss, results in a lack spending, specifically on luxury items such as a club membership and or personal training. In addition, identifying local competitors within the foreign market, their share of the existing market, understanding their pricing structure, their growth and/or expansion strategy over the past 3-5 years, will be important to help determine the opportunities for your club in that region.
Other factors to consider:
- Understanding language laws, which may require local branding and local marketing materials to be bilingual;
- Is the culture of working out and health conducive to your club being successful in that region;
- Cost of doing business, you need to carefully consider local wages, building costs, land costs, taxes, financing and available incentives of each region.
Muscle Up Inc.
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