Due Diligence Tips for International Franchise Opportunities


For readers who have traveled overseas, coming across certain American franchises may be a welcome reminder of home. Brands like Starbucks or McDonald’s seem to have a ubiquitous world presence.
Indeed, franchising can now be found in over 160 countries, involving more than 70 business sectors. Many U.S. franchisors recognize the new opportunity that international franchising might provide, and consequently have turned to international franchise attorneys to understand the legal mechanism for launching their expansion. That process may require the franchisor to obtain a master license, as well as an understanding of the law of the foreign nation where the franchise will be located.
There are several types of international franchise agreements. A master franchise, sometimes called a sub-franchisor, grants the master franchisee the right to develop a sub-franchise in a territory or region. Other types include single-unit franchises and development franchises. It is important to thoroughly research a particular jurisdiction’s franchise laws, including the forum and means by which business disputes are resolved.
Finally, some aspects of due diligence are common to any prospective franchise expansion, whether domestic or international. For each new location, a franchisor should understand the target market, political climate, economic trends, culture, and process for how potential legal disputes are resolved. Even some U.S. federal laws may apply in an international franchise relationship, such as the Trade Regulation Rule on Franchising (FTC Rule 436) promulgated by the U.S. Federal Trade Commission.
I have represented U.S. franchisors with overseas franchises, as well as international clients who are seeking new U.S. franchisor opportunities.
Source: Franchise News