Skip to 0 minutes and 10 secondsA business wanting to expand overseas could appoint agents or distributors, or could expand through franchising. What business models are available?

Skip to 0 minutes and 24 secondsThe first option is organic growth, where the proprietor expands the business using their own resources. This means they could always retain control. But they would probably quickly run out of money and could never fully understand the cultures of the countries they wanted to expand into. Or they could consider appointing agents. Another option is a distributorship. Distributors typically distribute several products for different suppliers. For example, a distributor might operate the tankers that distribute petrol to petrol station franchisees of several brands. Another option is offering a general licence to run a business using the same name. The company that grants the licence would however not have close control over the way the licensee operates their business.

Skip to 1 minute and 17 secondsIf a business wants to keep tight control over every aspect of how products or services are offered, the proprietor might choose a very specific form of licence agreement called a franchise. The franchisor dictates how the franchisee conducts its business and what services are offered, as well sourcing suppliers and advising on how to get customers.

Skip to 1 minute and 45 secondsWhen a franchisor wants to expand beyond its own region, it usually appoints an intermediary to manage the process. There are a number of expansion options, as this diagram shows. Firstly, a franchisor could move to the new target jurisdiction. It could set up the business with a local partner in the target jurisdiction. The local partner could be a joint venturer. The franchisor could directly appoint franchisees. Or they could appoint an area developer or master franchisee. They might choose several of these options depending on the laws and practise in the target country. Before making a final decision, the proprietor needs to understand what responsibilities are involved in each business relationship and what the business partners can expect of one another.

Skip to 2 minutes and 33 secondsIt is important to understand the consequences of appointing master franchisees, as opposed to area developers, and who will be responsible for each aspect of the business in each type of relationship. Different countries have different rules. So businesses would follow different entry models in different countries. The next video will explore the concept of culture and its importance when a franchisor is looking to expand its business.

Comparison of business models

Business Expansion Models There are a range of options available for a business wanting to expand overseas, these include:

  • organic growth
  • agency arrangements
  • distributorships
  • licencing

However, if the business wants to keep tight control over every aspect of how products or services are offered, the proprietor might choose a very specific form of licence agreement called a franchise. The franchisor dictates how the franchisee conducts its business and what services are offered, as well as sourcing suppliers and advising on how to get customers.

Franchise Expansion Models
When a franchisor wants to expand beyond its own region it usually appoints an intermediary to manage the process. There are a number of expansion options, the franchisor could:

  • move to the new target jurisdiction
  • set up the business with a local partner in the target jurisdiction
  • set up a joint venture arrangement
  • directly appoint franchisees
  • appoint an area developer or master franchisee

Before making a final decision, the proprietor needs to understand what responsibilities are involved in each business relationship, and what the business partners can expect of one another. The attached diagram and above video go into more detail on each these options.

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International Franchise Law: the World is Yours

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