Importing international franchises

The importing of international franchise systems has, for a long time, been an area of business that is misunderstood and approached with trepidation on the part of many prospective investors. Anecdotally, a very small number (10 per cent to 20 per cent) of franchise businesses entering Australia succeed over the medium-term.

Given this fact, the trepidation may appear well grounded, but closer inspection provides some insight. There are a number of well-recognised success stories that demonstrate global businesses can be successful in multiple markets. In Australia, The Body Shop, the Gloria Jean’s Coffees franchise , Kmart, Hungry Jack’s, Bang & Olufsen, SIGN-A-RAMA, Mrs. Fields, the Domino’s Pizza franchise , and the Subway franchise are well-established businesses operating under some form of franchise or licence structure.

Choice of structure

The most common structure for an international franchise is the master franchise or licence. The master franchise structure will grant the rights to a certain territory or region for a period of time, specified in the legal agreement.

The master franchise structure is more commonly national, with the Australian master franchisor having the rights to grant and operate franchises and company operations with the country.

In a typical master franchise structure, the individual ‘sub’ franchises within Australia are granted direct with the Australian master franchise. The other option is for a master franchise model to operate on a state-by-state basis or with some break up of territories within Australia to individual franchise operators. The legal agreement will prescribe the details for the operation of the business, such as financial arrangements, territory, use of intellectual property and so on.

The direct unit franchise is probably the least common of the international franchise structures – at least in Australia. The direct unit franchise structure has each individual franchise granted direct between individual site or store and the parent company.

The real challenge with this model is the ability to provide the necessary leadership and direction to the group when the parent company is so removed geographically.

The geographic isolation of Australia explains this phenomenon. In Europe, it is more common to experience a direct unit franchise structure as the modus operandi for international growth between neighbouring countries.

The company-operated structure is self-explanatory and provides limited, if any, opportunity for an Australian franchisee. The exception to this would be if a joint venture arrangement were formed between an Australian investor and the parent company. The joint venture could operate a mixture of company-operated or franchised operations in a structure of master, area developer, or direct unit franchise. The latter is most likely as the joint venture involvement of the parent company demonstrates a level of investment or interest in the country that would predispose them to the direct unit franchise.

The Franchise Council of Australia is a not for profit membership organisation that is the peak body representing the franchising sector in Australia.