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Franchise 2020 International Comparative Legal Guides Franchise 2020 A practical cross-border insight into franchise law Sixth Edition Featuring contributions from: ǼLEX Dentons LLP Noerr LLP ALRUD Law Firm Faegre Baker Daniels Pehlivan & Guner Anand and Anand Freeths LLP Polsinelli Anderson Mōri & Tomotsune Hamdan AlShamsi Lawyers & Legal Consultants Rödl & Partner Arias, Charua, Macías & Prum, S.C. Hammad & Al-Mehdar Law Firm SCA Rubin, Meyer, Doru & Trandafir Badertscher Rechtsanwälte AG Hannes Snellman Attorneys Ltd Stewart Germann Law Office Bogsch & Partners Law Firm International Franchise Association The Richard L. Rosen Law Firm, PLLC British Franchise Association Jones & Co. THUM Rechtsanwaltskanzlei ǀ Law Firm Bustaman Kennedy Van der Laan TLT LLP Christodoulou & Mavrikis Inc. LINKEA Ventura Garcés López-Ibor Daniel Law Marsh & Maher Richmond Bennison ICLG.com International ISBN 978-1-83918-002-6 ISSN 2055-8082 Comparative Legal Guides Published by glg global legal group 59 Tanner Street London SE1 3PL United Kingdom +44 207 367 0720 Franchise 2020 www.iclg.com Sixth Edition Group Publisher Rory Smith Associate Publisher James Strode Senior Editors Contributing Editor: Caroline Oakley Rachel Williams Iain Bowler Editor Freeths LLP Nicholas Catlin Creative Director Fraser Allan Printed by Ashford Colour Press Ltd. Cover Image www.istockphoto.com Strategic Partners ©2019 Global Legal Group Limited. All rights reserved. Unauthorised reproduction by any means, digital or analogue, in whole or in part, is strictly forbidden. Disclaimer This publication is for general information purposes only. It does not purport to provide comprehensive full legal or other advice. Global Legal Group Ltd. and the contributors accept no responsibility for losses that may arise from reliance upon information contained in this publication. This publication is intended to give an indication of legal issues upon which you may need advice. Full legal advice should be taken from a qualified professional when dealing with specific situations. Table of Contents Industry Chapters 1 IFA’s Role Shaping the History and Future of Franchising International Franchise Association 3 Franchising the Next Generation Pip Wilkins, British Franchise Association Expert Chapters 6 Delivering Growth – The Third Way Iain Bowler, Freeths LLP 9 The Unprecedented Tariff Landscape: Why Franchisors and Franchisees Should Take Action for the Benefit of their Supply Chain Joyce Mazero, Michelle Schulz & Luis F. Arandia, Jr., Polsinelli 18 Building and Managing an International Franchise Network Pauline Cowie, TLT LLP 22 Franchising in a Sea of Data and a Tempest of Legal Change Paul Luehr, Huw Beverley-Smith, Nick Rotchadl & Brian Schnell, Faegre Baker Daniels Country Q&A Chapters 29 Australia 155 Netherlands Marsh & Maher Richmond Bennison: Robert Toth Kennedy Van der Laan: Martine de Koning 38 Austria 165 New Zealand THUM Rechtsanwaltskanzlei ǀ Law Firm: Dr. Hubertus Stewart Germann Law Office: Stewart Germann Thum, LL.M. 173 Nigeria 50 Brazil ǼLEX: Tiwalola Osazuwa & Frances Obiago Daniel Law: Hannah Vitória M. Fernandes & Antonio Romania Curvello 180 SCA Rubin, Meyer, Doru & Trandafir: Cristina Tararache Canada 59 Russia Dentons LLP: Helen Fotinos 187 ALRUD Law Firm: Maria Ostashenko & Vera Glonina China 68 Saudi Arabia Jones & Co.: Paul Jones & Xin (Leo) Xu 195 Hammad & Al-Mehdar Law Firm: Suhaib Hammad & Anas Jeser 76 England & Wales Freeths LLP: Iain Bowler 202 South Africa 86 France Christodoulou & Mavrikis Inc.: Alex Protulis LINKEA: Cecile Peskine & Clémence Casanova 211 Spain Ventura Garcés López-Ibor: Ricard Gené & Juan Botta 94 Germany Noerr LLP: Dr. Tom Billing & Veronika Minne 221 Sweden 104 Hungary Hannes Snellman Attorneys Ltd: Elisabeth Vestin & Sara Bogsch & Partners Law Firm: Dr. Tamás Gödölle, Dr. Pál Heikfolk András Gáspárdy & Dr. Márk Pécsvárady 228 Switzerland Badertscher Rechtsanwälte AG: Dr. Jeannette Wibmer 113 India Anand and Anand: Safir Anand & Twinky Rampal 237 Turkey Pehlivan & Güner: Haşmet Ozan Güner 121 Italy Rödl & Partner: Roberto Pera & Gennaro Sposato 244 United Arab Emirates Hamdan AlShamsi Lawyers & Legal Consultants: Hamdan 130 Japan Anderson Mōri & Tomotsune: Kenichi Sadaka & Aoi Inoue Al Shamsi 139 Malaysia 250 USA Bustaman: Adhuna Kamarul Ariffin & Nor Athirah Khairol The Richard L. Rosen Law Firm, PLLC: Richard L. Rosen, Anuar Leonard Salis & John A. Karol 148 Mexico Arias, Charua, Macías & Prum, S.C.: Elias Charua García & Oscar Arias Corona ICLG.comXX ICLG.com 18 Chapter 5 Building and Managing an International Franchise Network TLT LLP Pauline Cowie Introduction whether it has sufficient confidence to move forward to detailed discussions and the signing of a formal franchise agreement. It will The increasing globalisation of business means that even relatively also assist a company in evaluating the strengths and weaknesses of small companies may decide to franchise internationally, even when a potential franchisee and inform how the franchise agreement may they do not franchise in their home country. It is rare for a business of be structured. Companies that have already franchised their business, any size not to have considered franchising at some point in its whether domestically or internationally, will already have an under- evolution. Once first steps have been taken to franchise internationally, standing and insight into how critical it is to get the appointment of expertise developed and experience gained in setting up international the franchisee right. If things go wrong domestically, problems and franchise operations, entering into new international markets through disputes with a franchisee are much easier to handle than a disruptive franchising becomes easier as processes become more streamlined and and non-compliant franchisee in an overseas jurisdiction. lessons learnt on strategy and implementation are taken on board. Before starting the process, an understanding of culture and Whilst not without risk, these risks become easier to identify and custom, together with preliminary research on how familiar or manage. The key advantage of franchising over other expansion routes prevalent franchising is in the target country, will inform the is that companies are able to expand in international markets faster and approach to due diligence. In some countries, it is important to build more cost-effectively than company-owned operations which are the relationship with the prospective franchisee before any detailed capital-intensive, although company-owned operations can often be due diligence information is requested. Good communications in operated alongside franchised units. the initial stages are a means of building rapport and enable an assessment to be made as to whether the parties are in fact able to Key Considerations communicate without fundamental disagreement. When looking at the available options, companies can adopt a number Whilst companies who already franchise in the domestic market of strategies when building an international network. Choosing the will already conduct due diligence on franchisees, international due most effective expansion route is a key component and what might diligence will throw up a variety of additional challenges. Language suit in one territory, may not suit in another. It is not uncommon for may well be an issue, as well as differences in how the parties like to a company to have a number of different expansion routes. The communicate. There could also be cultural issues. All of these need choices made will depend on a variety of factors including: to be factored into the decision to proceed, and how best to ■ market potential; structure the arrangements. ■ numbers of suitable prospective franchisees; ■ how close the company wants its relationship to be with the Internal Processes and Procedures franchisees; When considering how and when a company develops its inter- ■ capacity to provide support and infrastructure; national franchise strategy, it should also review whether current ■ language and communication; internal processes are fit for purpose with expansion in mind. An ■ local law requirements and barriers to entry; in-depth look at how, practically, the company will manage multiple ■ taxation; and international franchisees is a crucial step and should be revisited at ■ financials, particularly the profitability of the franchise business appropriate points, remembering that the franchisees will be and the scope for deduction of potentially multiple levels of fees independent business-owners, rather than company employees, and from the franchise network. therefore require a different and more sophisticated approach. The company should assess current capacity and efficiencies of Avoiding Costly Mistakes procedures for developing and expanding an international franchise Whichever route to international franchising is chosen – having network, with a view to making changes to accommodate future made a decision to franchise internationally, whether in a particular plans. This can be achieved by: jurisdiction or generally – it is important to ensure that the company ■ mapping out current processes and identifying any existing and as franchisor complies with all compliance and legal requirements, anticipated day-to-day issues, making an assessment of their and that all necessary steps are taken to maximise success, bearing actual and potential impact and what should be prioritised for in mind the long-term nature of the relationship with franchisees. change. This will cover the period from
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