Differences Between an NZ Franchise and Joint Venture

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Table of Contents

• What is a Joint Venture?
• What is a Franchise?
• Key Differences
• Key Takeaways
• Frequently Asked Questions

When conducting a business, there are many structures you can adopt, from beginning a startup to buying an existing business. However, you can also buy a franchise or join a joint venture. The type of business you choose depends on your preference and business goals. Although they seem similar, they are pretty different. This article will outline the key differences between a franchise and a joint venture so you can make an informed decision. 

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What is a Joint Venture?

A joint venture is when two companies work together on a single project. You work with another business during this structure to provide goods and services in a new market. Moreover, costs and profits are shared, and both companies operate on the same principles. 

What is a Franchise?

As a franchisee, you can buy a franchise from your franchisor and operate the business based on the franchise agreement. Your franchisor will grant you a license to use their intellectual property, including logo, brand name, and goodwill. Moreover, you will implement the franchisor’s existing systems and processes in your business. 

With this structure, you can clone an established business, but you have less autonomy and individuality. 

Key Differences

There are some key differences between franchises and joint ventures that you should be aware of.

Risk Level

A joint venture often carries a higher risk. After all, there is always a chance that a venture fails or underperforms in the market. Moreover, in a joint venture, you need to start from scratch to create a:

• business plan;
• business model;
• logo and trade mark;
• marketing strategies;
• client base; and
• market reputation.

Alternatively, franchises have a proven business model and use your franchisor’s marketing strategies. Moreover, your franchise will provide you with trademarks, logos, and brand names. You can also benefit from your franchisor’s existing market reputation. Although, you will need to develop the client base if your franchise is in a new territory.  

Autonomy

A joint venture may be better if you want to express yourself through your business. With a joint venture, you can decide what products and services you want to sell, design your promotional materials and determine how you want to run your business. Although you should make such decisions in agreement with your business partner, a joint venture allows you more freedom with your business. 

Alternatively, when operating a franchise business, you must strictly comply with your obligations under your franchise agreement. Hence, you will need to use your franchisor’s:

• systems and processes;
• marketing strategies;
• logo and brand name;
• products and services; and
• approved suppliers.

You have less individual autonomy with a franchise and must follow what your franchisor says. 

Fees

A joint venture will have initial legal costs, such as incorporating your company (if you wish to do so), and other start-up costs. Additionally, there will be ongoing operational costs such as property rent, equipment and inventory. What costs you need to cover will depend on the type of business and the terms of your joint venture agreement. 

Meanwhile, a franchisor will require you to pay franchise fees. What fees you need to pay will be outlined in your franchise agreement. Fees can include:

• the initial franchise fee for set-up; 
• ongoing royalty fees; and
• marketing fees.

You should note that on top of franchise fees, you will have ongoing costs for: 

• rent; 
• wages; and 
• operations costs.

Training and Development 

During a joint venture, you and your partner will bring different skills and qualities to the business and should pass these on to employees through training programs. Generally, you will not receive any external training.  

However, your franchisor will likely provide you with training and ongoing support during a franchise business. Franchisors do this to ensure they have consistency across the franchise network. Your franchise agreement will outline the kind of support you may receive. Training and support can include:

• marketing;
• management;
• financial assistance;
• site selection; and
• initial training.

Level of Expertise Needed

A joint venture business relies on the partners’ expertise whereas a franchisee is provided training and resources from the franchisor. As a result, you must make critical decisions independently and ensure your venture is financially stable. Moreover, you need critical management skills to direct your employees successfully. 

In a franchise, expertise is desirable, but a high level is not required. Instead, your franchisor will provide training and support to ensure you properly implement their business model. Your franchisor will make most of the decisions, such as which suppliers to use and what products to sell. 

Key Takeaways

There are many differences between a joint venture and a franchise. First, a joint venture has more independence than a franchise. Further, a franchise has less autonomy, and you must pay franchise fees to your franchisor. Moreover, with a franchise, you will receive training and support from your franchisor. Comparatively, you will be responsible for training your employees in a joint venture. Lastly, a joint venture needs more expertise than a franchise. 

If you need help opening a franchise or starting a joint venture, our experienced franchising lawyers can assist as part of our LegalVision membership. You will have unlimited access to lawyers who can answer your questions and draft and review your documents for a low monthly fee. Call us today at 0800 005 570 or visit our membership page. 

Frequently Asked Questions