Chambers & Co

Taking a franchise abroad

Taking your UK franchise concept to another country will start in one of two ways.

The ideal way.
A properly planned international offer will be put together, the target market studied, suitable potential licensees identified, negotiations conducted and a master licence granted.

The usual way.
More usually, an overseas enquiry from a foreign franchisor will come through your website or at an exhibition. You then find yourself formulating an offer while still keeping the prospect warm before you can get to discussions and negotiations.

Either way is time-consuming. Overseas franchising sounds very glamorous, but can be very frustrating. A very high percentage of enquiries come to nothing, but often only after lot of time and effort has been spent. We can guide you along the way and start you off with a method which has been proven to cut out a lot of time wasters.

Prerequisites for going overseas

You should not really consider overseas franchising without the following:-

• A proven franchise system. If you have only operated through outlets owned by your own company you will need not only a successful track record for these outlets, but also a very clear idea about how to teach other people how to do it.
• A training module and a manual covering everything needed to teach an overseas person to be a franchisor and replicate your business model.
• An offer. This will include a financial model that shows a profit for you, but also for your master licensee and their network.
• A proper franchise structure. This will include a review of your current structure to see, for example, who owns the intellectual property that will be licensed; whether this could be held in a more protected or tax efficient manner; and whether other companies need to be formed to actually grant franchises overseas.

Overseas franchise structures

There are various methods of expansion overseas open to a franchisor. The target country and tax considerations will be major factors in your choice. This is a complex area, but can be broken down into the following basic structures.

• Own Branch. Any business going into another country must adapt its offering to the local culture in terms of ways of doing business, custom, and even taste. Larger franchisors such as the large American burger chains often do this by operating their own outlets in the target country for a number of years until the offer has been fully adapted and then expand through a combination of either company owned outlets and/or franchised outlets.
• Master Licence. This is the arrangement where by you licence another business ("master licensee") in the target country to act as the franchisor in that country by granting franchises. This is probably the most common way of expanding over seas and requires you to train the master licensee on how to be a franchisor in that country.
• Area Developer Arrangement. This actually covers two different types of arrangements. The first is where you grant a business ("area developer") in the target country the right to open their own company-owned outlets. The second is where the role of the business in the target country is to recruit and then support independent franchisees, but where the franchisees actually sign up to you as the original franchisor.
• Direct Franchising. This is suitable for where only one or two outlets will be opened in a particular country. It is also the structure that is used for the first type of area developer arrangements referred to above.
• Joint venture. Often an ideal combination is using your trademark and business methods, coupled with the target's knowledge of their own country. Businesses sometimes agree to pool these together in to a joint venture company. That joint venture can then operate its own outlets or grant franchises in the way explained above.

All of these methods can be used in any sort of combination and all have different advantages and disadvantages. If you are actively considering franchising overseas we will be happy to discuss the options in more detail.