In spite of continuing economic uncertainty both in the UK and around the world, the franchising sector remains in robust health and increasingly both franchisees and franchisors are looking beyond the UK to drive growth. The shift to remote working has amplified the existing trend to focus not on geographic location but on genuine business prospects, allowing both franchisees and franchisors to go around the world in pursuit of the best opportunities.
So, as a franchisor, what do you need to think about when going international?
Choice of Law
You have a decision to make with your contractual documentation – do you stick with your home jurisdiction, likely allowing you to recycle existing domestic documentation, or do you adapt to the jurisdiction you are expanding into? What works for you will depend on several factors. Is the plan to expand into just one country with multiple franchisees, or will you go into many different countries using master franchise arrangements? You will have to balance consistency across your network with the demands of local franchisees in different jurisdictions. The decision you make will have an impact on…
The starting point for any contract is that it contains obligations you can enforce. You need to know not just that your franchisee is contractually bound to you, but that if they step out of line, you can enforce your rights. Choice of law weighs heavily on this. You need to consider how easy it is going to be to enforce a Scots law contract in a court that may be on the other side of the world, versus how practical it is going to be for you to prepare bespoke contracts for each of your jurisdictions. This can be a difficult decision, especially when costs need to be incurred before the jurisdiction starts generating revenue.
Once the choice of law has been made, language needs to be considered. Does the franchise business model require a working knowledge of English or might your franchisees not be able to work with it to the required level? Translations can add cost and meanings can become, literally, lost. One operating language across your network will work best if it can be achieved.
Currency is a consideration for any business trading internationally and can be potentially highly relevant for franchise models where costs and fees can be fixed. Do you take the risk on that or pass it to your franchisee? In an industry where contracts can endure for years, if not decades, you also need to think ahead. Franchisors are increasingly aware that the world can change very quickly in only a few years and currency fluctuations that aren’t suitably covered in your contract can have a material impact on your bottom line. Don’t forget that inflation rates can vary widely across jurisdictions also, so what seems like a good deal now could look very different as your international network matures.
These points are a flavour of what you will need to think about before going international as a franchisor, even before commercial considerations and local customs and practice are taken into account, but with potential access to the world's fastest growing markets, for many businesses this is now a challenge worth exploring.