Sam:
Good afternoon, and welcome to today’s webinar on going global and expanding your franchise overseas. This is an exciting and relevant topic as businesses continue to explore opportunities in international markets. If you’re here now or watching the recording, you’re taking the right step in staying ahead of these developments.
To introduce myself, my name is Sam Andrews, and I’m a business development consultant here at LegalVision. Joining me today is Stephen Drysdale, who is a practice leader in our corporate and commercial team. We also have Corinne Whelan, a practice group leader in our franchising team.
Before we dive in, just a couple of housekeeping items. First, you’ll receive the recording and the slides in an email after this webinar, so there’s no need to worry about taking notes. Please submit any questions you have for the Q&A, which we’ll address at the end of the webinar. We’ll aim to get through all the questions. Also, we’d appreciate it if you could complete the short feedback survey that will pop up at the end of the webinar. It’s really helpful for us to improve our sessions, and it only takes 30 seconds.
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Now, I’ll hand over to Stephen Drysdale and Corinne Whelan to start the presentation.
Expanding your franchise overseas? Download this free guide to learn how to choose markets, structure your expansion and protect your brand.
Stephen Drysdale:
Thanks, Sam. Today, we’ll cover four main topics. First, Corinne will take us through the different international expansion models that franchises can consider. I’ll then discuss corporate structuring, tax, and compliance considerations for these models. Corinne will then cover IP protection and legal compliance, which are key to expanding your franchise network. Finally, I’ll talk about specific international expansion pathways in key markets, providing you with insights on what’s involved. We’ll wrap up with key takeaways and then go to the Q&A session. I’ll pass it over to Corinne to start with the expansion models.
Corinne Whelan:
Thanks, Stephen. When taking a franchise overseas, the business model you choose will determine three critical factors: how much control you’ll retain over your brand in those markets, your initial setup costs, and your long-term return on investment. It’s important to choose the right model for each country you enter because what works for one country might not work for another.
There are five main expansion models we generally see when expanding internationally. The first is direct entry. This means establishing a physical presence in the target country by opening your own stores or acting as the franchisor directly from that country. This model provides high control but also comes with high risks and significant setup costs. You’ll be responsible for compliance and management, and it requires substantial financial investment to establish operations.
The second model is direct single-unit franchising. This is when, for example, you grant franchises to individual operators in an overseas market directly from Australia. This model also provides a high level of control, but it exposes your Australian operations to foreign laws and claims. It requires medium to high finance, as it still requires some setup and training on your end.
The third model is master franchising. Here, you appoint a master franchisee to act as the franchisor in the target market. The master franchisee recruits, trains, and supports local franchises, and royalties are split between you and the master franchisee. This model offers medium to high control, but there can be a disconnect between what you require and what the master franchisee does, so you need to monitor compliance closely.
The fourth model is area development or master agent. This model involves appointing an area developer who establishes outlets and recruits franchises on your behalf. The developer is measured against performance targets, and you retain medium to high control. This model allows you to grant direct single-unit franchises alongside the area developer in the same market, so there is flexibility in your approach.
The fifth model is international licensing, where you grant a third party the right to use your brand in a foreign country. While this model has low financial investment, it provides the least control over brand development. The licensee is free to expand as they see fit, so this model may not be ideal if you prefer maintaining control over your business.
These models have different advantages and risks depending on the market, so it’s important to evaluate the market conditions and determine which model suits your expansion strategy.
Stephen Drysdale:
Thanks, Corinne. Now, I’ll talk about corporate structuring and tax compliance considerations for these models. There are three common corporate structures we see when expanding internationally.
The first is an Australian-centric structure, where all your IP and rights are held in Australia. This structure is simple and efficient but can lead to tax inefficiencies, such as withholding tax. This is something we’ll discuss shortly.
The second structure is a direct market entry structure, where a subsidiary is set up in the target market, such as a C-Corp in Delaware for your US franchise network. This structure helps with local compliance and makes enforcement easier if things go wrong. However, it requires navigating cross-border transactions and tax complexities.
The third option is a regional hub structure, where you set up an IP holding company in a low-tax jurisdiction, such as Singapore or Hong Kong. This model offers asset protection and potential tax benefits, but managing tax residency can be tricky.
When dealing with intercompany transactions, you need to consider withholding taxes, which apply when royalties are paid to an overseas company. If there is no double tax treaty between countries, these payments could be taxed at a higher rate. Intercompany service agreements can help allocate costs between entities, but the fees must be at arm’s length to comply with tax regulations.
Corinne Whelan:
Thanks, Stephen. Now, I’ll take you through IP protection in international markets. When expanding internationally, it’s crucial to develop a comprehensive branding strategy and protect your intellectual property (IP). Your IP is the foundation of your franchise’s success and differentiates you from competitors.
We recommend starting the IP protection process 12 to 18 months before entering a new market. Trademark and domain name registration are key to ensuring that your rights are secure and that potential franchisees can confidently enter into agreements.
You should also consider structuring appropriate royalty and licensing fees to ensure a fair and profitable arrangement. These fees should be adjusted to suit local market conditions and financial standards.
Once your trademarks are registered, ongoing monitoring is necessary to protect your IP. This includes preventing unauthorized use, mitigating brand damage, and taking legal action against infringement.
When expanding, it’s also important to localize your legal documents. Local laws govern franchise agreements, so using Australian documents won’t suffice in foreign markets. To avoid significant risks, such as regulatory action or disputes over brand control, always work with local legal experts to ensure compliance.
Stephen Drysdale:
Thanks, Corinne. Now, I’ll talk about specific international expansion pathways. When expanding into markets like the United States, the UK, and New Zealand, it’s important to understand the local legal environment. Each market has its own regulations, so it’s essential to tailor your approach.
In the US, for example, you must comply with federal and state-specific franchise laws, such as the requirement to file a franchise disclosure document. This process can be complex and varies by state, so it’s important to have the right legal support to navigate these regulations.
Corinne Whelan:
Now, let’s wrap up with some key takeaways. The main points are: don’t assume that you can use your Australian documents overseas; each country has unique legal requirements; and the expansion model you choose will depend on the market. Getting it wrong can lead to the inability to enforce agreements, loss of brand control, and penalties.
Investing in proper legal and IP protection will ensure secure brand protection, enforceable agreements, and a strong foundation for growth. Also, remember to engage local legal and IP professionals at least 12 to 18 months before market entry.
Sam:
Thank you, Stephen Drysdale and Corinne Whelan. That concludes today’s webinar on going global and expanding your franchise overseas. If you have any further questions, please feel free to reach out to us. We will also be sending out a survey for feedback to improve our webinars. Thank you all for joining, and we look forward to connecting again soon.
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