International Franchising…explained
With its roots in sales and distribution licensing, franchising has evolved in a number of directions, employing a variety of structures to fit different market models.
‘Franchise’ has become an ‘umbrella’ term for licences and distribution agreements as well as more involved business arrangements such as business format franchising. It is the latter that Franchise International defines as a franchise – a professionally put together concept in which the franchisee makes an investment with the franchisor in return for access to a proven business concept, strong branding and marketing strategies, full training in the systems and procedures and launch support from the franchisor. An ongoing franchise fee is then paid (as a percentage of the franchisee’s turnover) to facilitate the franchisor’s continued support and brand promotion.
Similarly, the proliferation of brands entering international markets has resulted in the establishment of alternative hierarchical structures, varying in the degree of involvement of the franchisor. Here, we describe these structures and the terms applied to them:
Master Franchising
Where a suitable indigenous individual or organisation is appointed in a target country as master franchisee to develop that country under the franchisor’s brand, trading style and system. Expansion is via sub-franchising on a regional, multiple or single-unit basis.
Regional Franchising
Where various suitable indigenous individuals or organisations are appointed in a target country as regional franchisees to develop large identifiable geographical regions (e.g Scotland, Texas, Queensland) in that country under the franchisor’s branding, trading style and system. Expansion is achieved via sub-franchising on a multiple or single-unit basis.
Area Development Franchising
Where various suitable indigenous individuals or organisations are appointed in a target country as area development franchisees to develop specific geographical areas (e.g. major cities, provincial areas) in that country under the franchisor’s trading style and system. Expansion is via co-ordination of managed outlets. Generally, multiple managed outlets rather than sub-franchised ones are preferred with this option.
Joint Venturing
Where a franchisor associates with a compatible business partner in a target country (e.g. an entrepreneur, a corporation or a government body) to engage in joint financing and development of that country or parts of that country under an agreed brand, trading style and system. Expansion may be via sub-franchising or development of a managed chain of outlets.
Direct Franchising
Where a franchisor directly prospects for, recruits, trains and supports franchisees in a target country through long-distance control from the headquarters, a subsidiary office in the target country or an appointed agent or broker. This option requires the lowest investment by the franchisor, but forfeits hands-on support – the most important element of successful franchising.
