FRANCHISE: How you can acquire an international franchise

Thursday December 26 2019



Wambugu Wa Gichohi

Wambugu Wa Gichohi 

By Wambugu Wa Gichohi E-mail: info@worldaheadafrica.com or wambugu.wagichohi@worldaheadafrica.com

International market entry on the franchise model takes one of three options; the franchisor, the area developer or the master/regional franchise option. To take up opportunities under the Africa Continental Free Trade Area (AfCFTA) coming up on 1 July 2020, brands in each country wishing to grow fast and cheaply to other countries on the franchise model will have to decide between these options.             

In order for these brands to choose the right model, it is important for them to understand what each option entails. It is also important for individuals and businesses in a country seeking foreign franchises to understand where to find them, issues to consider when becoming either a master franchisee or an area developer and the structuring of the master franchise and area developer agreement.

But the most important thing to remember is that by acquiring a foreign franchise, you create wealth for the foreigner-who repatriates all profits- create jobs out there and create markets for foreign rather than domestic goods, pushing your country into a net importer position!

In the franchisor option, the franchisor sets up shop in the target market/region and starts recruiting franchisees as they do at home. This is rarely used because most franchisors acknowledge the difficulties of doing so in a foreign market and they would rather let locally-conversant franchise partners do so. However, franchisors with extensive experience like Coke use this model and set up a local office in the subject market, through which they also support franchisees recruited under this or in combination with other models discussed below.

In the area developer option, the franchise rights for a particular geographic area-normally a country or region-are granted to an individual or a company as per the franchisor’s franchisee profile. The franchisee may then either develop individual franchise units for its own account or find independent franchisees to develop franchise units or both. The area developer can have an equity interest in its “area franchisees”. The system reduces the resources needed by the franchisor. The area developer services franchisees in his/her area using the franchisor’s guidelines and standards, thereby reducing resources needed by the franchisor. The area developer takes a fee for this service performed on behalf of the franchisor, thereby reducing the franchisor’s income.

In a master/regional franchise, the franchisor grants the development rights in a particular market-usually a country or region-to a master franchisee who then takes on the responsibilities of the franchisor in the territory. The master franchisee then develops the franchise system within the territory in full accordance with the franchisor’s standards and quality control. Normally the parties agree beforehand on the target outlet numbers to be opened per period and the master franchisee goes ahead to develop them. The model is in particular used when the franchise operation is some distance from the franchisor base e. g. in a different country. Most foreign franchises you see in East Africa follow this structure.

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If seeking an international franchise, there are several sources from which one can get them. The first port of call is the national franchise association. In markets where franchising thrives, the national franchise association is the beacon of all franchising activity in the country. It is normally a member of the World Franchise Council (WFC) where forty-five national franchise associations meet. Members of these associations will, as a first option, post their desire to expand to countries in the WFC member’s list.

International franchises sourced this way are more professionally run than any other because they must be members of the franchise association at home, which itself subscribes to the WFC code of franchising conduct.

Unfortunately, in Africa outside South Africa and Egypt, prospective franchisees must deploy other avenues to acquire an international franchise because there are no WFC-recognized national franchise associations.

Almost all countries in East Africa have franchise associations which are, regrettably, dormant and therefore can not be relied upon as a source of any information on franchising, let a lone being sources of international franchises seeking market entry into East Africa.

In Summary

• But the most important thing to remember is that by acquiring a foreign franchise, you create wealth for the foreigner-who repatriates all profits- create jobs out there and create markets for foreign rather than domestic goods, pushing your country into a net importer position!

• The franchisee may then either develop individual franchise units for its own account or find independent franchisees to develop franchise units or both.

• Unfortunately, in Africa outside South Africa and Egypt, prospective franchisees must deploy other avenues to acquire an international franchise because there are no WFC-recognized national franchise associations

The writer is a franchise consultant working to promote adoption of franchising in Africa.

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