FAQs about international franchising

Why going international might be a good idea for some franchises?

There are multiple advantages of international franchising and some of these may include:

  • Exposure to new markets and a growth in a franchisor’s customer base
  • It’s a lower risk model than traditional company enlargement
  • Lower time and financial restraints and resources required for the expansion
  • Take advantage of a local master licensee’s experience and knowledge
  • Overcome language and cultural barriers to market more effectively
  • Have a greater understanding of the political climate and regulations
  • Enjoy lower tax rates and a favourable business operations climate
  • It can be a highly efficient way of securing a new revenue stream while expanding globally

What are the challenges of international franchising?

Because this is not a one-size-fits-all approach, the disadvantages of international franchising must also be considered. These may include:

  • Possible brand dilution
  • The need for prior water-tight legal protection and clarity of each party’s rights and obligations
  • Local regulations may make it hard to operate owing to some unfriendly business environments
  • Sales and marketing processes can be influenced by local customs
  • Cultural differences
  • Human resources
  • Protection of intellectual property
  • Financial risks could arise
  • Unforeseen global circumstances such as the Covid-19 pandemic could delay project implementation and business success.

What are the types of international franchising models?

Because global franchising has gained popularity over the last few decades, it has also evolved in terms of complexity. There are currently several “vehicles” a franchisor can use to approach an international franchising opportunity. These include:

  • Master franchising: as one of the most common methods of franchising on an international scale, master franchising involves the franchisor selling the franchising rights to a third party (the master licensee) to specifically grow and expand the business in a new country. The master licensee then takes on the role of franchisor and recruits and trains new franchisees in that location. Royalties earned from these franchisees are then split between the master licensee and the franchisor.
  • Direct franchising: in direct franchising, the franchisor’s role is exactly the same as the one they fulfil in their domestic markets. They still recruit franchisees and train and support them. However, now they do so in new countries. This process can be highly time-, labour- and resource-intensive. 
  • Joint venture: in this case, the franchisor and the “developer” of the franchise in a new country enter into a joint venture agreement. Through this agreement or newly created “vehicle”, the franchisor retains varying levels of control and shareholding in the joint venture.

How do you start an international franchise?

Since international franchising is a highly complex process, franchisors will begin by relying on the help of legal consultants to ensure that they are fully compliant with the new country’s regulatory frameworks for franchising. Of course, franchisors are free to explore the topic themselves and as such, some helpful resources to help get you started on your journey include: International Franchise Association and Franchising World, among others.

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