The concept of franchising is nothing new. Yet, some franchisors can become baffled if they fail to seek legal help and ask the experts before entering new markets overseas. The purpose of this research is to provide a detail explanation as to why franchisors should take precautions when conducting business outside the United States. In the process, the researcher will supply information on companies, conferences, and programs designed to help franchisors network, learn the country’s customs, acquire proper licenses and trademarks, find investors, acquire tips, and gather consumer data before participating in a foreign market.
Types of franchises Franchising overseas is very difficult to do. A person wishing to become a franchisor overseas must first understand the necessary steps to take in order to be successful. This individual should become familiar with franchise systems, which include three types: unite franchise, area franchise, and master franchise. • Unit franchise: The business owner allows only one franchise outlet, and licenses all trade marks and other proprietary rights to only that one outlet.
• Area franchise: The franchisee is only allowed to operate under the trade mark or brand name in one designated geographical area, such as the province of New South Wales as compared to the whole of Australia. • Master franchise: The franchisee is entitled to operate in the whole country, sometimes with a right to create sub-franchises and appoint sub-franchisees within the country. (Ong, 2008, Franchising difficulties) Those wishing to franchise overseas must understand US regulations and legal issues are different than other countries.
For example, no foreign retail brands can franchise in China (effective as of February 2005) without two shops and at least one year of operations in China (Ong, 2008, Regulation and other legal issues). While laws and regulations are problems, franchisors face a number of other issues. Potential franchising problems Individuals or companies who partake on the journey to franchise overseas are faced with the following: • Problems for initial investment • The trademark problem • Copyright • Patents • Control over franchisees
• Being sued but not knowing which country’s court to show up in • Sub-franchising and exchange of goods • Raising public awareness first/advertising (Ong, 2008). Of the problems listed above, registering trademarks can be extremely devastating. Ong (2008) wrote, “The Madrid System for the International Registration of Marks (“Madrid Protocol”) and the Paris Convention for the Protection of Industrial Property (“Paris Convention”) are two very important international treaties regarding the registration of trade marks” (Registering your trade marks in foreign countries, para.
1). On the one hand, the Madrid Protocol enables the franchisor to file in all countries he or she desires to do business in at the same time. Yet, the trade mark is not valid in all the countries. On the other hand, the Paris Convention enables the franchisor to file early in his or her own country and then file later in a targeted country but use the same date originally implemented when he or she filed in own country (Ong, 2008, Registering your trade marks in foreign countries, paras. 2-3).
Do not be afraid to ask for help Franchising must be carefully entered into. When it is not, the franchisor suffers. Ong’s (2008) article discussed this factor: Take a real-life example of a Korean cosmetics company setting up its business in Singapore. It registered its trade mark first in Korea sometime in December 2005 before coming into Singapore. Upon entry into the Singapore market, it then filed for trade mark protection in Singapore under the Paris Convention sometime in March 2006.
However, the directors quickly received notification from the Singapore trade marks registry that there was an identical trade mark filed by their competitor in January 2006. Taking advantage of the Paris Convention, the Korean company was able to claim the earlier filing date in Korea of December 2005 as their date of filing in Singapore and this allowed them to effectively override their competitor’s earlier application.
This helped prevent a situation where the Korean company would either have had to shelve its plans in Singapore or embark on costly litigation to recover its trade mark. (Registering your trade marks in foreign countries, para. 4) Therefore, conducting research on the country and potential competitors is vital. Yet, the franchisor should also research consumer behaviors. Understand whether or not citizens of that country are willing to accept the product and take into consideration the differences in tastes, cultures, and market trends (Ong, 2008).