Why Expand Internationally? 

Many franchisors consider international expansion as their business picks up steam. International expansion not only offers franchisors the opportunity to travel but can also present a largely low risk venture. If a franchise fails to take root in a certain country, the result has little impact on the business in the US.

Nevertheless, some franchisors prefer to take a more researched, calculated approach to international expansion. Many research potential markets in different countries. If they feel that their brand or service may have a large potential market in a foreign country, this factor may serve as a catalyst for international expansion.

If a franchisor feels their brand has potential in a foreign country, they expand internationally.

There are specific categories that a franchisor typically should and often does consider before expanding internationally. These categories include:

  • Business Potential
    • Is franchising a business model that is already being used in the country? Have other similar franchises been successful in the country?
  • Is there potential for new franchisees?
    • Are there people within the country that may be interested in becoming franchisees in the country? Is franchising something that a portion of the population can realistically afford? Is franchising realistic for the population?
  • What is the likelihood that a US brand or service will be successful?
    • There are certain countries that are more or less interested in US brands and services or goods. Some countries have a more traditional culture and certain goods or services may not have a potential market. Some US services likely won’t fit in certain cultures around the world. An analysis of the local culture is key.
  • How does the regulatory system in the country work?
    • How strict or loose is regulation in the foreign country? Is it conducive to or encouraging of a franchise business model?
  • What taxes are imposed on franchises in the country?
    • How does the tax system of the country affect the royalty payments (or other payments) from franchisees? How much could these taxes affect your business?
  • What are the ownership restrictions imposed on foreign investments?
    • Are there any restrictions that the franchisor may face?
  • What tariffs or duties may be imposed on your goods or services?
    • Are there certain costs or procedures that exist in the country and may make importing your franchise’s goods or services more expensive or time consuming?
  • Can you find suppliers within the country?
    • Can the franchisor find sources of supply in the country and can they regularly inspect or certify these supplies?
  • What are the franchise laws of the country?
    • How is franchising regulated in the country and how does it differ from the US? How does this affect your business practices, if at all?
  • Economic Climate
    • Does the economy of the country allow for successful operation of a franchised unit?

Furthermore, just as different states have their own franchising laws, different countries approach franchising in various ways, too. Understanding the general structure to international franchise law, however, can give franchisors a better idea of what to expect in the international franchise system.

Structuring your international franchise location

Among the primary aspects that a franchisor must take into consideration is the registration of intellectual properties in the foreign territory, according to the International Franchise Association (IFA). Each nation possesses its own laws regarding intellectual property and thus, the franchisor will be required to register any trademarks or copyrights again, pursuant to the relevant national law.

Franchisors considering expanding into a foreign country must also decide whether they prefer to operate their franchise directly or through a third party, according to the IFA. The use of a third party can be beneficial to franchisors, as it often frees them from certain liability if there are challenges or losses involved in opening the franchise location. A foreign third party may also make the process simpler, as they are likely to understand the nation’s laws, business practices, and overall language and custom.

Franchisors must decide whether they prefer to operate directly or through a third party.

Furthermore, should a franchisor decide to expand internationally, the standard franchise agreement must be edited and altered to reflect franchise laws of the nation. The same goes for any disclosure documents, training manuals, or support programs. All operations must comply with the foreign territory’s laws. It is therefore advisable that the franchisor consider consulting a franchise attorney from the foreign country. Both legal and financial structural challenges are likely to arise but can be more easily solved with the help of a specialized professional.

Disclosure laws in foreign countries

Currently, more than 20 countries have some form of disclosure law when it comes to franchising. Disclosure laws vary from country to country but most countries uphold disclosure requirements that are generally considered “less strict,” than that of the US. For instance, many Western European countries, including France, Spain, Romania, Italy, Belgium, and Sweden, impose disclosure requirements based off Europe’s first disclosure law, passed in 1989. Currently, these countries mostly require that a franchisor provide:

  • Information about the franchisor, trademark, and registering office
  • Information regarding the franchisor’s current financial situation
  • Five-year history of the business
  • Analysis of the relevant national and local market
  • Previous two years’ financial statements
  • Franchise network description
  • Startup Costs

Nevertheless, considering each country has its own national laws and regulations, these requirements may not apply equally (if at all) in each country. Often, the disclosure requirements can be unclear, which is why a franchisor can benefit from the help of a legal professional that specializes in relevant law of the country.

Trademark laws in foreign countries

A key distinguishing factor of any franchise is the trademark and they are usually the most vital intellectual property rights that must be protected. Protection of these rights is obtained at the national level, giving the owner the right to use this mark within the country of registration. Even though a franchisee may have registered a trademark in one country, he or she must repeat the registration process in any new country they plan to use the mark.

Once a franchisor decides to open a franchise in a new country, they must research the availability of the mark in that country. Once the franchisor locates an intellectual property office, they can use registers or databases to research existing and pending trademarks. This research can also give the franchisor an idea of competing or similar marks in the country that may conflict with their own. The franchisor should also consider whether their mark can smoothly translate in the foreign country. Is there a language or cultural barrier that may render the trademark ineffective? Perhaps it may even have a negative effect on the market.

the franchisor should also consider whether their mark translates smoothly in the foreign country.

When it comes to intellectual property, the franchise agreement should set up the process which the franchisee must follow in order to protect any trade secrets. There is no registration or protection system for trade secrets. For this reason, it is important that the franchisor consult a legal professional to ensure that intellectual property remains private.

How do the employment laws apply in the process?

Should the franchisor decide to employ local workers in the foreign territory, the nation’s employment laws must be closely reviewed. Does the franchisee qualify as an employee in the foreign country? Different nations approach this issue in different manners. In some countries, the franchisor did, in fact, qualify as the employer of the franchisee, thus giving the franchisor more responsibility as far as liability is concerned.

Different nations also regulate termination of the franchise agreement differently. Some countries, like Canada, for instance, uphold that termination requires reasonable notice. Not to mention the definition of “reasonable notice” can also vary in different jurisdictions.

Operations manuals should also be adjust accordingly to reflect the employment laws of the foreign territory. Work hours should also be edited and reconsidered within the operational manual as necessary. Are there certain health and safety obligations that must be considered or included?

Helpful resources out there

It is insufficient to expand internationally simply off the basis of projected success. There are many resources that a franchisor must obtain before they can successfully embark on international expansion.

Costs for franchising across seas are high. Not only must the franchisor factor in travel costs, but they must also obtain both US and foreign attorneys to guide them. A foreign franchise development team, too, must be handpicked and established, including members that know and understand the foreign territory.

the success of an international franchise depends on the diligence with which the franchisor chooses their resources.

The success of the international franchise location depends closely on the diligence with which the franchisor chooses their resources. The more knowledgeable the foreign team and counsel, the higher the likelihood for success.

Different countries provide franchise associations that franchisors can use as resources as they consider international expansion. The World Franchise Council includes more than 40 different countries, all of which provide their own franchise associations and councils.

International Franchise Associations

Different countries provide franchise associations that franchisors can use as resources as they consider international expansion. The World Franchise Council includes more than 40 different countries, all of which provide their own franchise associations and councils.

 


legalmediacompany.com

LEAVE A REPLY

Please enter your comment!
Please enter your name here