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International Studies

Competing in today's fast-paced real estate market isn't easy, but there are steps you can take to secure desirable properties all over the world.

At Subway, worldwide expansion is part of our strategic plan. It is our goal to be ranked No. 1 by consumers and No. 1 in store count in every market we serve.

As we continue to fill the U.S. market with Subway restaurants from coast to coast, we must discover additional ways to grow the business. Nontraditional development is one way (meaning locations in convenience stores, college campuses, health clubs, hospitals, etc.). The other way is via international venues. While we are huge in U.S. and Canada and have been growing rapidly in Australia, Mexico, U.K., Germany and New Zealand, we are only beginning to scratch the surface.

International expansion happens with quality contacts, research, dedication and focus. The Subway restaurant chain started 40 years ago as a corner sandwich shop in Bridgeport, Conn. Its franchising efforts began in 1974, and last year the company leased 3.5 million square feet of real estate worldwide. But Subway's success was a gradual learning experience: Development agents familiarized themselves with well-positioned, cost-efficient properties, made local introductions and convinced landlords and real estate developers that the restaurant's brand could help draw traffic to their sites.

Consider this a reference for recognizing the challenges of worldwide leasing.

Understand the market

This may seem obvious, but it is critical — and all too often misunderstood. Most tenants are concerned with opening a business as soon as possible so that it's generating sales and serving customers. But understanding the process is important for setting a timeline. Not knowing the government regulations and not having the right contacts can put a roadblock between you and your goals.

Without knowledge of the local customs you could offend the wrong person. In India, building a relationship is a prerequisite for doing business and it is considered rude to jump right into negotiations. In Japan, it is customary to present gifts at the start of negotiations and the process of presenting the gift is more important than the gift itself. Business cards are highly prized. Quickly placing a business card that you are handed in your pocket without carefully examining it is considered disrespectful. Being loud, overly aggressive or doing something that is perceived as impolite can be a turn-off and sink your deal.

Certain questions will reveal the site-specific processes of a lease. For example: From the date a site is identified, how long before we can operate? Who are the parties involved in the negotiation process? Is the custom of key money applicable here? Can a tenant negotiate directly with property owners or must one go through a broker or solicitor?

The responses will vary from country to country.

Key money is applicable in France and Ireland. It is rare in Australia and Canada. In many parts of Europe, key money is site specific, especially for prime “High Street” locations. And, if key money is applicable, it can mean hundreds of dollars to hundreds of thousands of dollars. It is important that you line up investors who are prepared for this eventuality and not undercapitalized. China, for example, has residency requirements regarding corporate ownership that may require you to have a local partner.

Developing the partnership and all of the required contacts can be very time consuming. On the other hand, in the UAE and Kuwait, things are so competitive that the process moves along extremely quickly that you often have to identify a property and commit to leasing a site, possibly years before it is even built. Things are done so far in advance that you're actually bidding and committing to a space that is still just a plot of dirt. Not acting quickly enough can mean that the property will go to someone else.

Things also move rather fast in Singapore and Hong Kong. Both are islands with finite leasable space. When valuable properties become available, they are snatched up quickly.

In the U.K., negotiations are usually held with a solicitor or a broker. It is very rare to deal directly with the property owner and they are often looking for long-term returns.

In Australia, it is common for a business, such as a restaurant, to require approval of the local planning commission. Not being properly prepared for the very next meeting could add up to a month or more to your timeline.

If you take these steps, you will have an advantage over competitors. Competing for a site is similar to preparing for a job interview. You have to sell yourself, your brand and your product and explain why you are the best fit. It's bad enough to lose a space to another tenant, but losing a prime space to a direct competitor can make things more difficult for your franchisee down the road.

Set goals

Successful negotiations often come down to personalities and people. For example, in the U.K., meetings usually are with solicitors or brokers, often taking place in more formal surroundings. In China, business is never discussed while eating. In France, business is not conducted during lunch or dinner. Sharing a meal is intended to help establish a personal relationship. If you must discuss business, at least wait until dessert is served.

It has been our experience, however, that some parties in Germany, the Netherlands and Latin America will allow meetings and negotiations to take place over lunch or dinner.

A dedicated team should live in the areas of the world for which they are responsible. They can best evaluate prime properties and gauge competition. Their familiarity with local customs and practices also means they understand appropriate negotiation styles.

For example, many Asian businesspeople do not like to appear negative and politeness is intrinsic to the culture. In many parts of Asia, “yes” does not always mean “yes,” and “maybe” or “perhaps” might actually mean “no!”

In the Middle East, a lavish dinner does not always signify closing a deal. Sometimes it is used as a way to soften the blow.

In Mexico, things are a bit more informal than in other countries. Agreements are often made based on verbal and social interaction at first and then followed up with a contract.

In the U.S., we look at the ICSC show as an opportunity for deal-making. In contrast, the BCSC in Britain is viewed as more of a networking and social function.

Have your key personnel capitalize on their innate knowledge and draw positive results from their experience.

Communicate early and often

Solid, effective communications and interaction is a necessity. E-mail, multi-location or conference-call systems and PC videocams make this task much easier than it was just 10 years ago. Diplomats have long understood that the first step to resolving issues and disputes is to get the parties talking. Be in a position to communicate and discuss real estate strategies, properties and negotiations with your team members. Require updates and status reports. Provide training and input.

In our office, we can review on e-mail the entire analysis of the property and its economics and give instant feedback. This really speeds things up in comparison to the days or weeks that it might take to do communicate the old-fashioned way.

We had a situation a few years ago in which a deal in Northern Ireland had reached an impasse. The legal representatives for the landlord were taking a hard line and it looked like the deal was not going to go through the way we wanted. However, due to our ability to network worldwide, a representative from the developer's headquarters in Australia, who we have done business with before, stepped in and helped push the deal through.

Although time-zone variations may provide momentary challenges, speedy, secure communication links have made the world a smaller, friendlier and more responsive place.

President of Subway Real Estate Corp.

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