We have been very fortunate as the result of the intense emphasis by USA franchisors to sell their franchises to investors in other countries. Franchise proliferation outside the USA is now the fastest growing market, with heavy emphasis on Asia, India and the Middle East.
There are significant differences in selling franchises outside the USA from the selling environment to which USA franchisors have become accustomed when selling to USA investors.
To me the most important difference is that in selling to non USA franchise investors the franchisor is looking more frequently to larger area wide deals and financially well qualified franchisee prospects.
The next most important difference, to me at least, is that the shrewder foreign investors are looking more and more to USA franchise specialist lawyers to aid them in sorting out the deal population to sift out the less desirable candidates and configure the deal to suit their essential circumstances more positively.
Only at the end of the list of salient differences do I consider the various legal structures of what has passed for franchise regulation during the past forty years. While I downgrade any franchisor candidate that balks at providing good requested disclosure in writing, the format for the disclosure has little value. If it passes my vetting tests it will be better than what is required under USA franchise law anyway.
The consequence of these differences will be that non USA franchise investors will be signing better deals than USA investors usually get. The deal quality improvement will, I hope, result in upgrading how franchises are marketed in the USA. While I am always happy to travel to any country to meet any non USA client and get to know them and their environment better, the digital age has made that travel less and less useful. The social aspects of franchise client representation are of much less significance, which makes the lawyer-client relationship significantly less expensive. With 50 years of franchise practice experience, my social presence is not what clients seek.
When representing overseas franchise clients, after vetting the client for financial and operating capabilities, I save them a lot of wasted time and effort sorting through the available opportunities. Working with their own local lawyers, the entire effort becomes almost seamless and much more efficient.
One way in which we improve the process is to eliminate the way USA franchisors tend to treat non USA investors. While the better USA franchisors may tend to be more patrician in their approach with anyone, the lower tier franchisors attempt to mimic this approach. That mistake consumes and wastes a lot of time and energy that our process eliminates. As the franchisor does not get to my clients until later in the vetting process, they seem to know not to waste their breath on the more obvious marketing ploys that work when they deal directly with the investors from the outset.
Potential franchisees from other countries may be accustomed to the way marketing works in their cultures, but their first exposure to some USA franchise marketing organizations makes them quite uncomfortable. Perhaps that is because the non USA well qualified investor candidate is more astute than the single unit franchise investor in the USA who was formerly in a position that had no relevance whatsoever to the business being franchised. That kind of candidate who is represented by a very experienced USA franchise lawyer does not take very well to the "fluff" (to put it nicely).
Many countries are geographically the size of a state here, and the scale of their economies tends to be smaller. Cultural issues also impact significantly upon how the business to be franchised will be operated in the franchisee's home country, especially if it is a Muslim country. Unfortunately, few USA companies have developed sensitivity for these cultural and religious differences. Compared to how the relationship must work elsewhere, the USA seems like a wild west show with swashbuckling conduct freely engaged in here without fear of repercussions.
Foreign franchise investors dealing with USA franchisors can, with experienced representation, change the pitch of the playing field far more than USA investors have been able to achieve. While the differences may seem to be more nuance than role reversal, the impact upon the future financial prospects of the franchisee's business is positive and substantial.
USA franchisors may expect that very few really good prospects for franchise investment in non USA markets will fail to take advantage of effective representation from the very first contact.
Author Richard Solomon is a Franchise Lawyer with 50 years of experience in business development, antitrust and franchise law, management counseling and dispute resolution including trials and crisis management. Give him a call at 281-584-0519.
