Historically, Canadian franchisors have not ventured into foreign markets in great numbers. When they have, it has mostly been to the massive, franchise savvy, U.S. market, with very mixed results. However, times have changed. Today, we see more international expansion from Canadian franchisors, and more are expected in the future. What is causing this change?
Many factors may explain this shift in strategy. I believe the key factors are the increased franchise knowledge among Canadian franchisors; the growth of successful franchise systems, both in number and size; and the steady increase in demand around the world for North American franchises. With this shift, comes opportunities for Canadian franchisors. The key is to navigate and plan effectively. Below are some of my thoughts on the key legal and business considerations for international franchise expansion.
Plan Early and Take Into Account the Local Laws
Not surprisingly, franchisors are faced with many business decisions when embarking on an international franchise expansion. Some of these include: which markets to expand to first and when; deciding on capital and human resources requirements; and what adaptions should be made to the concept. The list goes on. Importantly, many of these business decisions are impacted by the legal system of the target country. As such, they should be considered at the planning stage, not just at the time of implementation. For example, when expanding into the U.S., less capital is needed if the first states selected do not require registration or do not have franchise specific legislation. Franchisors have similar considerations when deciding which countries to enter first.
Branding and Supply Chains
With the importance of brand in franchising, comes the need to ensure the franchisor can legally secure and license its trademarks in the target market. As well, supply chains need to be established in the new market, which may require local suppliers or be import-based ones, all of which are determined or influenced by local laws.
Adapt Documents to Adhere to Local Laws
Documentation, such as the franchise agreement and the franchise disclosure document, if required, will have to be adapted to comply with local laws. Even the operating manual needs a legal review and possible translation and the local tax laws, including such things as withholding taxes, should be evaluated.
As a final caution, a Canadian franchisor will want to know that it can protect its system in the target market effectively and within manageable budgets. The franchisor’s Canadian legal counsel can and should have input into many of these and other areas at the earliest stage possible and before major decisions are made and strategies created. Finally, on the implementation side, Canadian counsel can be more helpful and effective for the franchisor if they have a solid and extensive network of international legal firms who are experienced and capable in franchise expansions.
What legal and business questions come to mind with the prospect of expanding a franchise system internationally? I welcome your feedback and questions on this topic. Please post your comments on our LinkedIn page at: Dickinson Wright Canada, on Twitter at @DWrightCanada or on my personal LinkedIn pages at: linkedin.com/in/nedlevitt
