If you already have a successful franchise, you may be considering expanding overseas. While expanding your franchise network to new markets has many benefits, you need to be mindful of the potential risks. This article will explain how you can take your New Zealand franchise overseas and some of the considerations that apply if you are exploring this option.
Components of Franchising
Franchising is a popular model that a business may use to expand into other markets and reach new clientele. You, as the franchisor, let someone else, the franchisee, run a copy or imitation of your original business. Usually, this would be in another location separate from your original business, for a specific amount of time that you agree on.
You manage the overarching business, while franchisees manage the day to day business of their own separate operations. Notably, you get to determine how they set up their business and how they should run according to your policies. On the other hand, your obligations include providing support and resources for your franchisees. For example, these can include:
- intellectual property rights and branding assets;
- operating and management systems;
- staff training programmes;
- business know-how;
- marketing strategies;
- vital contractual documentation;
- instruction manuals; and
- products and distribution.
In return, the franchisee pays you an initial startup fee and ongoing franchise fees throughout the term of the franchise agreement. As a result, communication and transparency are essential in this relationship.
Should I Expand My Franchise Overseas?
With the franchising structure, you can feasibly find franchisees in locations internationally. As such, there is the potential to grow your business overseas and reach customers globally. However, this is a big step to take, which you should consider carefully.
First, you have to evaluate whether you are ready to expand your already successful New Zealand franchise overseas. Consider whether you have the resources and capital to manage the costs of this process while still being successful in New Zealand. For example, if something goes wrong, do you have the capabilities to deal with any fallout?
Notably, there are benefits to using the franchising model overseas rather than expanding one business. For example, the right franchisee should have local knowledge of their market, which be an excellent resource for your business strategy. You may also have access to a market that has not experienced your product or service before, allowing for new promotion of something that people may not have seen before.
One of the highest risks with dealing with overseas franchisees is ensuring they comply with their obligations under your franchise agreement. Therefore, you need to vet potential franchisees appropriately and keep up ongoing communication with them. For instance, ensure that your franchise agreement has robust intellectual property protections to ensure your franchisees handle these assets as you want them to.
Continue reading this article below the formHow Can I Take My Franchise Overseas?
Once you have determined that you can take your franchise overseas, you need to develop an appropriate plan. This process involves:
- defining your target market in the countries you wish to expand to;
- researching to find the political, economic, cultural, legal, and business attributes of the countries you choose;
- evaluating the international demand for your product or service;
- seeking advice from both franchise and local experts;
- determining the nature and level of support you will provide your international franchisees;
- accounting for risks unique to the international business landscape, such as currency exchange rates; and
- other evaluation and setup processes specific to your industry and business landscape.
The key is to seek advice where you need it, particularly from experts on the market in your target countries. Again, this situation is where your franchisees’ knowledge is a vital asset.
This publication provides you with the fundamentals for franchising your New Zealand business, including set up, branding and management.
Legal Considerations
Notably, New Zealand does not have a regulatory framework dedicated to franchising outside of the laws that govern general business dealings. This allows for greater flexibility in franchising in New Zealand and an increased need for self-regulation in the industry. However, many countries have franchise-specific laws that you will need to know about before expanding overseas. Some may be stricter, and some may be more lenient, but there will be considerable differences.
In addition, laws operating in other areas, such as product standards, consumer laws, and intellectual property, will differ across countries. For example, some of the following areas of your franchise business will likely be affected by different legislating operative in other countries:
- product safety standards and restricted goods;
- consumer protections;
- tax obligations;
- enforcing contracts with franchisees;
- dispute resolution with franchisees;
- human resources;
- intellectual property protections;
- employee rights and relations;
- workplace policies;
- trade restrictions;
- restraint of trade; and
- privacy protection.
Key Takeaways
Growing your franchise overseas can have multiple benefits. You can break into new markets with new customers with the right franchisees and their knowledge. However, successfully completing this process requires adequate research and planning.
If you need help with taking your franchise overseas, our experienced franchising lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. Call us today on 0800 005 570 or visit our membership page.
Frequently Asked Questions
A franchise is a business model that you may use to grow your business. You, as the franchisor, allow other parties, the franchisees, to replicate your business operations to create their own success. Then, you grow your brand and receive various fees or royalties.
Expanding your franchise overseas is an involved process that requires good planning, as international franchising can be quite complex. In particular, you will need to research the market you wish to expand to and what country-specific laws may apply.
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