Franchise Lawyer Blog

Global Franchising Pt. 2

We have written recently about the efforts of American franchisors to franchise their businesses globally. New Yorkers who have traveled abroad know that it is often possible to find a taste of home in faraway lands. In Paris, we can grab a latte at Starbucks. In Hong Kong, we can have lunch at McDonald’s. In Stockholm, we can stop at a 7-Eleven for a Slurpee-although they reportedly call them Slush Puppies there.

In recent decades, international growth has been on the rise for these U.S.-based brands and others. Franchise brands often tap into new markets beyond U.S. borders because the domestic markets have been saturated, or simply because a franchise brand’s domestic success may be replicable abroad. There are considerable challenges when it comes to global franchising, however, and it is essential to have partners here in the U.S. as well as in the target market in order to develop and realize a vision for this type of expansion.

Denny’s recently announced that it has cancelled a deal with Great China International Group to develop franchise restaurants in China. It has not been reported why the deal fell apart, but Denny’s had planned to open the first restaurant there this year, with 50 more opening in southern China within the next 15 years.

Denny’s is reportedly still planning to expand its brand in China, and it is looking for another partner that will help it open as many as 45 franchise restaurants in the coming years.

In order to introduce a U.S. franchise to a foreign market, it is important to study a number of factors to determine whether the expansion makes both business sense and legal sense. This includes learning whether there is a demand for the brand’s products or services, and whether the products or services need to be tweaked to better fit the local culture. The initial cost of entry as well as plans for sourcing supplies and vendors also need to be evaluated. The local economy, as well as local laws regarding small business operations, franchise licensing, contract law and labor must be understood as well.

One of the most fundamental components of franchise expansion-either domestically or internationally-is to enlist the right partners who can help the franchisor navigate the various legal, economic and cultural barriers. Seeking legal counsel from an experienced U.S. franchise attorney can be the first step in this process, and such a professional may be able to identify and enroll additional partners.

Source: Wall Street Journal, “Denny’s Drops Franchise Plans with China Investment Group,” Debbie Cai, March 11, 2013

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