As businesses grow and franchises expand, knowledgeable franchisors may wonder what the next step is for their franchise system. When a franchise system grows and expands here in the United States, the franchisor develops and perfects the system domestically, but how can the business grow further? If the system and the product or service is so successful here, can it also be successful abroad? There are several questions that deserve serious consideration when deciding to turn a domestic franchise into a global one.
Special legal and cultural issues exist when considering the global expansion of a franchise system. There are two ways to approach the expansion; the franchisor can either: 1) modify existing franchise agreements and documents to be enforceable in a specific country; or 2) create a master franchise agreement. Whereas modifying an existing agreement may cause the U.S. franchisor to be more closely involved with each franchise sale in a particular country, producing a master franchise agreement and relationship can allow the U.S. franchisor to give more authority to the master franchisee in a country or area, and the master franchisee is then charged with the work of expanding in that region. This has benefits for the U.S. franchisor, as the master franchisee is usually a native of that country and may be better at navigating the cultural and legal issues that may arise. However, it is always advised to engage local counsel wherever the expansion is occurring to make certain that all agreements will be enforceable in the country of expansion.
Aside from deciding how the franchise relationships and documents will be arranged, the U.S. franchisor must consider cultural and financial issues involved in going global. A brand or concept that is very popular in the United States may not work in other countries due to differing cultures or religions. The U.S. franchisor should make some effort to identify how its concept can be modified to make it globally appealing. Also, differing economies will require a different approach to price structure and sourcing of materials, and this will greatly impact revenue for the international franchise.
Deciding to expand a franchise globally can be a lucrative decision. U.S. franchisors should first complete the work in determining the regions in which their systems would be most successful, and then engage both U.S. and local counsel to draft appropriate documents and research the relevant laws to ensure a strong and enforceable system worldwide.
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