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  • About starting franchise of a foreign company

    Several domestic franchises are functioning in Canada. I was thinking about starting a franchise that has networks in all around the world. Now I need to know about the procedure to start the franchise of a foreign company. How the application procedure differs from the domestic franchise. If somebody has any idea about this, please share the details.

  • #2
    Starting Franchise of a foreign company- solution

    Hi Charles,

    I understand your problem and feel that I could be of some use.

    When franchise companies expand internationally, they normally do it in one of two ways. Either they master-franchise the country (or individual provinces or states in that country) to a local operator, or they use a local area developer to "develop" the new territory. Either way, you should be dealing with someone from that country who speaks the language, knows the cultural norms, has experience in the industry, and knows how business has to be done "on the ground."

    There are many individuals and companies in other countries who are interested in acquiring North American franchised brands for their countries.

    Here's the essential difference between a master franchisee and an area developer:

    When you master franchise a country (or part thereof), you enter an agreement with the local operator that he or she has the franchise rights for that country (or part thereof) and that all franchise agreements with individual franchisees will be with that master franchisee.

    If the country, province or state has franchise disclosure requirements, it will be up to the master franchisee to do its own disclosure for all its individual franchisees, although you might have to prepare a disclosure document for the grant of the master rights.

    There will be a fee for the master franchise rights, which will always be more than the franchise fee for one location, because you're selling more than one location, aren't you? You're selling a geographic territory that can conceivably support many locations. So the fee for the master franchise rights may be a function of how many individual locations are likely to be opened in the territory.

    Initial franchise fees and royalties paid by individual franchisees to the master franchisee in the territory will normally be split on a one-quarter, one-third or one-half basis, with the local master franchisee taking the larger chunk. There will normally be a development quota in the agreement, where the master franchisee must open so many locations in years one, two, three, four and beyond to keep those master franchise rights, otherwise he or she could lose them and the franchisor in Canada could sell them to another person.

    Certainly the Canadian franchisor would want to approve the form of unit franchise agreement that its master franchisee in another country is using. And there is a plethora of other issues that the master franchise agreement will have to cover, from currency exchange to local laws, to trademark protection, to tax, to franchisee and location selection criteria, to levels of support and service the master franchisee must provide to its unit franchisees like say for an aesthetic clinic, to what happens to the existing unit franchisees if the master franchisee is terminated.

    The other way it's normally done is by way of "area development." A local operator will be granted the rights to develop the franchised system in the territory (again, it could be an entire country or a select province or state in that country). The area developer will pay a fee to obtain those rights, just like a master franchisee. And initial fees and royalties will be split in much the same way, as will development quotas and location criteria.

    However, all individual franchise agreements are still with the Canadian franchisor. The area developer is really responsible for recruiting franchisees, selecting locations and servicing franchisees. All contracts with the franchisees on the ground are with the franchisor in Canada.

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