Entering Into A Global Franchise Agreement Exposes A Company

The duration of the master franchisee`s agreement must be long enough to allow him to repay his investment in the establishment of an adapted country-by-country infrastructure and to create sub-franchise contracts of sufficient duration to attract sub-franchisees and allow them to do the same, usually 25 to 50 years. Sometimes the potential franchisee may have all the other characteristics of the ideal local franchisee, but insufficient funding, which can lead the franchisee to choose to get involved. Advance fees, sometimes large and six-figure, are usually paid to secure development rights. The franchisee ends up parting with his rights to develop the territory in another way. Generalizations are dangerous here. Each company must carefully evaluate its approach on the basis of realistic business plans that take into account the needs of all parties, the costs of business in the new market and the level of profitability available, as well as the need to improve and preserve the image of the system and the brand. As a rule, the development agreement requires the opening of a number of points of sale within a prescribed period, for example. B a store to be opened within the first 12 months, with a necessary opening plan, which will be defined in the following years. In exchange for this level of commitment to invest in the market, the franchisee generally benefits from territorial exclusivity, provided that the opening schedule is respected, and long-term rights, usually between 10 and 25 years. In a master-franchise situation, it is also important to take into account the fate of the subcontracting franchisees in case of failure of the master franchisee. Will the franchisee in the country of origin want to intervene? It probably won`t want to be forced to do so, but it will certainly want to consider how contracts should be put in place from the outset under local law in order to have an enforceable option to do so itself or by a replacement master franchisee, in order to preserve the image and reputation of its network.

and also so as not to compromise its revenue stream from the country, which could become very important over time if an extensive network of sub-franchises is put in place. The basic strategies and techniques that can be used to open a new market are: business expansion, direct franchising, development franchising, master franchising and joint venture franchising. There are a number of problems and potential problems that may arise in joint venture agreements that arise essentially from the partnership relationship, such as for example. B the authority of the local partner, the limits of authority, future funding and what happens if things go wrong. Master-franchise is usually carried out on a national basis, while development agreements are as likely to be regional within a country as for an entire country. Gowrings is an example in this country of a major Burger King franchisee with several units, which today operates more than 50 restaurants. There may be a number of reasons for this. The franchisor may wish to participate in local profits and receive its income stream from ongoing fees as part of the franchise agreement. Of course, there will probably be a price to invest in the capital of the foreign company with the risks that the Arms`Length Franchising avoids, although the risk in this situation is naturally shared with the local partner.

Regardless of this, the franchisee is in a position of control of the rights of the joint venture to the operation of the system through the franchise agreement, from which he could be allowed to terminate the franchise agreement, so that the franchisee can start again with another franchisee, even if the relationship is broken within the joint venture. . . .

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