As part of a direct franchise agreement, a British/American franchisor can take up residence in a foreign market in a simple and efficient way. The franchisor can re-use the general provisions of the original contract with its partners and negotiate new contracts with foreign entities. Compliance with the regulations in force in the territory concerned and translating documents relating to the franchise model such as technical dispositions, expertise, know-how and graphic standards is required. Direct Franchise agreements allows a franchisor to first test the success of its national business model in a new territory and grow it step by step, opening different shops, before creating a larger structure once the franchise has been anchored in the home country.
With direct franchising, the franchisor retains control of its development strategy. The franchisor freely chooses commercial partners, transmits its know-how and determines the establishment areas of the model. If direct franchising offers the advantage of being fast and simple, it is also better suited for border or Anglo-Saxon markets. Linguistic or cultural proximity, a good knowledge of specific markets and about local regulations are necessary to avoid the risk of losing control or improper governance of a business model.
Spain has a huge franchise market that is continuously growing. Currently, 78.7% of the 127 foreign franchise brands in Spain come from just six countries: the USA, France, Italy, Portugal, the UK and Germany. Multi-unit franchises like McDonalds, Burger King, and Subway have all successfully launched their franchises here in Spain. They are growing businesses and typically bring in a high income.
The direct franchise agreement, although it requires some effort and investment on behalf of the franchisor (in terms of human and financial resources), truly allows control of the exportation of the franchise concept abroad. Starting from the process of selecting a partner to manage the operation of the franchise, the franchisor has control over all components of the network expansion. Additionally, the franchisor must take into account the existence of different parameters such as:
- Cross-border transport costs and/or distribution of goods and supplies required for the operation of the franchise
- Investments related to the business model facility in Spain (sending staff on site, search and selection of new partners and training new franchisees)
- The advertising strategies and dynamization of new networks.
Thus, the use of direct franchising, framed by a properly planned development strategy and highly qualified legal advice, is a guarantee of security and expert control of a British/American franchise in Spain.
Denys Peraud & Clément-Henri Girardot
This article is not considered as legal advice