An expert guide on the different international franchising models
Franchising can offer flexible and cost-effective solutions for firms looking to grow internationally. Expert Andrew Pena takes a look at what firms need to consider.
There are a number of different models for international franchising. They usually range from franchising via a:
(1) Developer model where the regional franchisee will usually open and operate units itself or via wholly or partly owned subsidiaries
(2) Master model where the regional franchisee will usually sub-licence franchisees to open outlets
(3) Hybrid model that allows the regional franchisee to grow by opening and operating units directly and via sub-franchisees
Prior to international franchising, the franchisor will need to register its brand as a trade mark in the country in which it is looking to franchise.
It will need to consider very carefully the rights and obligations of the franchisee in the new territory and, in particular, whether the international agreement should be subject to English law and jurisdiction (which is preferable for reasons of consistency) and/or there are any local laws that may need to be considered, especially if there are local franchising laws that place certain obligations on the franchisor.
The franchisor will also need to give thought to the appropriate corporate structure for each country and, in particular, whether to create a different structure for franchising internationally and fee structure for each country (which is likely to depend on the size of the territory and the strength of the brand) and the speed of growth it will expect from the international franchisee.
Launching a business internationally provides a good opportunity to review the corporate structure of a franchised business and, in particular, review whether the ownership and licensing of the intellectual property (including the brand, business model and systems) should be separated from the main trading companies.
Most international franchising operatorswill look to create a separate company for franchising its business internationally. Primarily, there are two reasons behind this. Firstly, there may be tax advantages in adopting a corporate structure that is located in a different jurisdiction and is separate from the main trading company.
Secondly, having a different corporate structure protects the main trading business in case there are unforeseen issues and complications with the international model. Additionally, and by way of further protection, the franchisor may look to use separate vehicles as the franchisor for each country.
Andrew Pena is a commercial litigator who has worked at well-known City practices. Having acted for major international companies and many recognisable high street brands, he now heads up Cubism Law's franchise law practice.
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