The Master Franchise agreement, beyond an international commercial partnership, represents a contract creating franchise exclusivity in a target country. More elaborate than the Direct Franchise agreement, the Master Franchise agreement consists of a dual legal relationship: between the network headquarters (pilot plant) and the Master Franchisee (National Representative), and between the latter and the junior franchisee (local franchisee).
The national Master Franchisee can be an entrepreneur able to create a new company to host the franchise or a business already established in the market in question. It then appears as an extension of the model and the spirit of the franchise abroad. The Master Franchisee becomes an ambassador in charge of running a company by developing the initial franchise network in the country of which it is very familiar with and has in depth knowledge of the cultural characteristics and business practices. The Master Franchisee is the head of this new network and becomes the sole interlocutor and intermediary with local franchisees.
Three main benefits can motivate the use of a Master Franchise agreement for a British/American entrepreneur in Spain:
- The Master Franchisee shall bear the costs of its installation and costs relating to the development of its business
- The headquarters will benefit from the special position of the Master Franchisee: no financial investment or human resources will be required.
- Finally, the increase in the number of Master Franchisees in Europe will generate synergy between them, reducing problems and disadvantages associated with the distribution of supplies and products.
For these reasons, the Master Franchise agreement provides the headquarters – which wants to export its business model to a complex market or one that it does not know sufficiently – large legal and financial security. To the extent that the foreign concept is successful on national territory and the Master Franchisee is selected based on personal and professional skills, combined with a partnership contract written in perfect harmony with the expectations of all parties, the risk of exportation taken by the foreign franchisor is almost non-existent.
The use of a Master Franchise is a common model and many British/American networks have used this contract to export their concept legally and economically to Spain.
Finally, a British/American franchisor must always take into account the existence of success factors such as:
- Commercial and managerial skills and the expertise and experience of the Master Franchisee in the targeted market;
- The adaptation of the franchise concept to local market specificities (habits, necessity of a strategic study of competition, prices and products offered); the planning of a product distribution strategy (anticipating transportation delays, regulatory compliance for products on the local market or the payment of customs duties for exporting to non-European countries);
- Negotiating the degree of independence granted to the national franchisor within the Master Franchise Agreement.
Denys Peraud & Clément-Henri Girardot
This article is not considered as legal advice