Business
It is commonly
accepted that
franchising was
officially born
around 1929, in
France and the
US.
Multilingual lawyers Patrizia Sangalli and
Dario Rizzi from the boutique international
law firm SDG & Partners explain how to avoid
the pitfalls of franchising and the questions to
contemplate when expanding overseas.
Franchising:
An Old, But Always Fashionable,
Business Model
12
If you wish to establish an attractive business
model to distribute goods and services
globally, or your company has a brand image in
the market and hopes to expand, or you have
a unique trend and wish to generate profits,
then franchising could be your best option to
earn worldwide popularity with a handful of
resources and a large number of profits.
A few forms of the proto-franchising model
can be recognised in distribution agreements
during the European middle age, in particular,
the trade of spirits. However, it is commonly
accepted that franchising was officially born at
the same time, around 1929, on both coasts of
the Atlantic Ocean, in France and in the United
States.
In France the purpose of the Roubaix’s woollen
mill was to assure a rapid and complete
distribution for the yarn produced by the newly
built factory. In the US, General Motors tried
to bypass the antitrust regulation, forbidding
the vertical integration between producer and
distributor in the automotive market. With
such a difference in the final objectives of
them both, it is not surprising there is disparity
between the regulations imposed by the
corresponding legislators. And that difference
is even more pronounced today, as franchises
are introduced into new markets.
With a booming international economy
and changes in cross-border corporate
transactions, entrepreneurs around the world
are looking to establish their brands in foreign
countries. Franchise organisations are often
approached by people from other countries
asking if they can become the operator or
master franchisee for that brand in their
particular country.
Everybody knows franchising is an arrangement
by which the franchisor gives the franchisee
the right to distribute and sell the franchisor’s
goods or services and use its business name
and model for a specified period, and possibly
covering a geographical area. In this respect, franchisors will need to
consider their true motivation for international
expansion, the costs involved (both human
and financial resources), local competition, the
laws in a specific country and the long-term
intention and investment. While franchising is
a good vehicle for entering a foreign market
- the local franchisee often provides capital
investment, entrepreneurial commitment, and
on-site management to deal with local issues, as
labour and employment - there are many legal
requirements to face, such as agreements to
license, protection of the franchisor’s patents,
trademarks, copyrights, or business know-
how etc. A standard approach to be used in all
countries is to be avoided.
Conversely, not many understand that the
relationships potentially attributed to the
general model of the franchise can vary
considerably. Such complexities stems directly
from the same origin of the phenomenon itself. Usually the parties are understandably more
familiar and, therefore, more comfortable
with the legal regime in their respective home
jurisdictions.
To avoid another obstacle
to getting the deal done, the franchisor
In order to avoid the risk of clashing
management difficulties preventing you from
achieving concrete goals, it is imperative to
correctly approach this many-sided business
model.
13