When a Franchisor wants to expand into overseas markets special care needs to be taken
Problem – The franchisor client sought to expand their franchise network overseas to markets they identified as having a high potential for success. Initial enthusiasm waned however when the franchisor researched what was involved from a legal perspective.
Issues – Each country have their own rules and regulations regarding the operation of a franchise network. Even within countries these regulations can vary from state to state. For an Australian franchise system to expand internationally, the franchisor needs to be fully across the particular requirements of the targeted country, and be prepared to comply with those requirements. A cost benefit analysis needs to be undertaken to ensure target countries with high levels of regulation have sufficient potential to offset the likely cost involved in meeting those requirements.
Solution – The client first expanded into a country with low compliance requirements via the appointment of a country master franchisee. This served as a ‘test case’ to see whether the franchise offering would be as attractive overseas as it was in Australia. It was! Inspired, the client then decided to take on the lucrative USA market by planning to appoint master franchisees in target states. As the US is one of the countries with the highest level of franchise regulation (including different requirements in each US State) , the decision was made to outsource the development work to a specialist franchise law firm in New York. New York was chosen as it has the highest compliance demand of any US State, and as such, documentation produced here is likely to also comply in all other US States (with State specific requirements being contained in schedules to the franchise agreement). The Franchise Disclosure Document (FDD as it is known in the US), was successfully developed and registered, and our franchisor client successfully appointed its first US master franchisee.