Franchising is a huge market in the United States with 75 industries use franchising to distribute goods and services to consumers. In a recent study, Franchise Update Media revealed that around 6000 franchise companies operate in the U.S. and nearly 50% of all retail sales come through franchising. It is estimated that 1 in 12 businesses is a franchise and that they generate almost $1 trillion in sales every year. Spain is a great option for U.S. brands to franchise. If a brand chooses to come to Spain, there are trademark laws that advantage businesses as there is a single fee in the E.U., which means that the business can be trademarked not only Spain, but across 27 other countries as well. Consequently, if a business chooses to franchise in Spain, they can later expand across Europe.
The Spanish economy is developing in order to embrace more franchises and every year the franchise market is growing. According to a report by the Spanish Franchise Association, 18% of franchisors are from outside of Spain. This is due to a wide range of factors that influence the growth and success of franchise systems, including language and cultural similarities. It automatically makes it easier when two countries that are working together have similar work ethics as it eliminates many cultural differences. American businesses would benefit by expanding their businesses and increasing brand awareness across Spain and eventually across Europe.
The franchise sector in Spain has grown over the past several years. In 2010, sales grew 2 percent and are steadily growing. The sales were approximately $26.5 billion. Businesses in the United States would benefit massively from franchising into Spain due to different factors. Tax rates are significantly lower in Spain than in America. In Spain the tax rate is roughly 25%, whereas in the United States the tax rate is around 39% for corporations. Spain is considered 49th out of 183 countries in the World Bank Group´s Ease of Doing Business Ranking. The administrative and commercial rules and procedures are not as hard as in the United States. However, the exportation of a franchise model must follow an ensemble of formalities and precautions. The franchisor must register a franchise with the Franchisors Registry three months prior to opening.
Upstream or first steps to follow in Spain:
- Know perfectly the strengths and attractive features of the American franchise model, in the aim to be image-conscious and organize the distinctive signs; and also the organizational and managerial methods to put in place to extend the network abroad
- Study the exportability of the franchise model and the possible adaptation needed to suit the specificities of the business sector and the new (Spanish) market. Evaluate the needs and customs of the consumers. Acknowledge and analyse the local market (commercial customs, level of competition of the area, national and local legislation governing the activity)
- Obtain a deed or title of property to organize the trademark protection (territoriality principle) in order to establish a safe and controlled legal international development of the franchise
- Initiate the European (REGIPAT) or International (WIPO) trademark registry procedure.
Legal steps to export your franchise model to Spain:
Even if a franchise agreement distinguishes clearly the status of franchisor and franchisee, a trustful relationship is needed from both actors to establish a real common project. Choosing the perfect partner and verifying his or her skills are two fundamental elements in order to assure a serene and durable business partnership and development abroad
- Prepare and draft the pre-contractual information disclosure which must be provided to the other party 20 days before any signature
- Draft the franchise agreement including the modalities of know-how transfer and the provision of technical and commercial support
- Negotiate the non-compete condition and other provisions ruling the development of the network and its activity
- Plan a common advertisement strategy (investment and retributions) as well as the supply of provisions to guarantee the quality of trademark standards and the homogeneity between the different shops across the franchise network.
- Review the franchise agreement with a Spanish lawyer in order to comply with the compulsory inscription in the Register of franchisors in Madrid
- Verify the secured protection of the trademark in Spain
- Consider and prepare the social networks and online sales issues.
Which franchise model could we resort to?
There are several suitable strategies in order to export your franchise model to the Spanish territory:
- Master franchise
- Direct franchise
- Franchise Branch
- An alternative : the Joint Venture
Acknowledging a good overview of the specific market is fundamental to allow the parties to adapt and fit the agreement modalities and the powers (level of independence) given to the franchisee. A failure from the franchisee may result in a substantial delay in the development of the activity on the local market and may even give competitors the opportunity to take control of it. Therefore, the assistance of a local expert about these issues is the best way to export your franchise model to Spain under the best conditions.
Denys Peraud & Clément-Henri Girardot
This article is not considered as legal advice