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Vol 10 (2012) - Issue 4

Communication challenges in international franchising

Leonard H. Polsky, Partner, Gowling Lafleur Henderson LLP, Vancouver, Canada and William Edwards, Chief Executive Officer, EGS LLC, Irvine, USA

A key area of concern in international franchising is communication, in particular at the negotiation and deal making stages. Inter cultural, economic, consumer and geographic as well as legal system, such as common law and civil law, differences must be understood. Assistance can be gained from the use of commonly understood and defined terminology for the different franchise agreement structures which may be under consideration. This article explores the legal and cultural, language, economic and demographic challenges and differences, and provides practical advice and materials references for use in understanding and effectively dealing with these communication challenges.

Franchising in China – New rules, more enforcement coming

Paul Jones, Jones & Co., Toronto, Canada

This article provides an overview of recent Chinese policy, regulatory and judicial developments affecting franchising. China now has more than 4,500 franchise systems, more than any other country in the world. However franchising in China is still in a growth stage and there are a number of abuses and complaints that are too common. Recently the Ministry of Commerce (“MOFCOM”) released its plan for dealing with these issues, and revised its two regulations. While the changes are not generally dramatic (except perhaps with respect to FPRs), the key message is that MOFCOM has tightened up the requirements and now plans to increase its enforcement of the franchise regulations.

Alternatives to master franchising: Area development agreements, area representatives and joint ventures

Kathie Lee, Le Pain Quotidien, New York, USA; Judith Jarvis, Vantage Hospitality Group, Inc., Coral Springs, USA; Shivendra Kundra, Kundra and Bansal, New Delhi, India; Bachir Mihoubi, FranCounsel Group, LLC, Atlanta, USA, and; Susan Grueneberg, Snell & Wilmer, L.L.P., Los Angeles, USA

This article provides a comprehensive analysis of international franchising structures – direct franchising, exclusive master licenses, área development agreements, área representatives, joint ventures and hybrid arrangements – and discusses their characteristics, advantages and disadvantages. The authors discuss the various factors to consider in evaluating these stuctures and discuss the relevant practical, cultural and legal considerations in cross-border expansion. The legal issues include sanctions laws, anti-bribery laws, dispute resolution, intellectual property, recordation and the nature of the franchisors’ relationship with their franchisees depending on the chosen structure.