INTRODUCTION Contributed by: Babette Märzheuser-Wood, Dentons
It is the author’s great pleasure to introduce the new Chambers Global Guide to Franchising. In this guide, the aim is to provide clear and practical guidance on the most important international franchise laws that will impact the international expansion of a company using the franchise business model. In this introduc - tion, an overview of key aspects of international fran - chising is provided. Because franchising is first and foremost a business system, legal regulation varies greatly by jurisdiction. It should not be assumed that a legal structure or solution that has worked in one country can be trans - lated without modification to another jurisdiction. For example, franchise disclosure documents in the Unit - ed States of America are extremely detailed, running to many hundreds of pages, whereas in Europe the expectation is that a summary is given. In some coun - tries, franchise registration can be a formality whilst in others the authorities examine the documentation and raise queries. Withholding taxes continue to impact financial models, and new franchise laws are being enacted by more and more countries – most recently, the Kingdom of Saudi Arabia and the Netherlands. After 30 years of working in international franchising, the author still comes across new aspects every year. Why Franchise? Franchising offers businesses a sophisticated busi - ness tool for international expansion. The estimated turnover of franchise companies in the United States now exceeds USD930 billion. As globalisation contin - ues at an unprecedented pace, more companies are looking to expand into the lucrative Middle Eastern, African, Asian and Latin American markets. The costs and risks associated with expansion into new markets can be prohibitive for small and medium-sized com - panies. Barriers to market entry for foreign investors can be considerable. Franchising in its different forms offers companies a unique opportunity for profitable international growth at a modest cost. John Y Brown Jr grew KFC from 600 stores to 3,500 stores through franchising by accessing the capital of third parties to drive fast growth. Companies do not need signifi - cant capital or a large head count to expand globally through franchising. According to a survey of mem - bers of the International Franchise Association, 52% of US-based franchise firms had units outside the
United States in 2006, rising to 68.74% in 2024. It has been suggested that franchising creates enterprise value faster than traditional business growth. Because internationalisation is inherently risky, firms favour low-resource-commitment modes of entry into foreign markets, such as distribution and franchising. As a result, franchising continues to be a popular alterna - tive to equity funded expansion. The franchisee gains access to a tried and tested business model, backed by a strong global brand. The franchisor relies on the local market knowledge, infrastructure and capital of the franchisee, thereby reducing the foreign market risk . A well-run franchise system creates a win-win partnership. Definition of Franchising There is no uniform definition of franchising. Each jurisdiction has a different approach. However, a uni - form characteristic of franchising appears to be the existence of a “system”. This typically takes the form of an operations and marketing plan controlled by the franchisor. This principle originates in the United States of America. At the federal level, the Federal Trade Commission (FTC) Franchise Rule uses the concept of “control”, where “…the franchisor has the right to exert a significant degree of control over the franchisee’s method of operation”. Various US states follow the FTC Franchise Rule’s definition but add the concept of a marketing plan for further clarification, referring to a “marketing plan or system prescribed or suggested in substantial part by a franchisor”. The US definition has influenced the approach to defining franchising in a number of international juris - dictions, such as Australia (where the Trade Practices (Industry Code – Franchising) Regulation states that “the right to carry on the business of offering or sup - plying goods or services in Australia, under a system or a marketing plan substantially determine controlled, is suggested by the franchiser or an associate of the franchiser”) and Canada (Alberta uses the concepts of “a marketing or business plan prescribed by the franchisor” and “significant operational control”), but other countries have taken their own unique route. One of the broadest definitions is found in France, where the Doubin Law on pre-contractual disclo - sure (Article L330-3 of the French Commercial Code) applies to any person who makes a trade name, trade
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