What needs to be taken into account when investing in a franchise from overseas?

John Pratt writes:

There’s a view that if a franchise works in a franchisor’s home country, it will work in the UK. That’s not always the case and you would expect the system and concept to be pilot tested in the UK and necessary adaptions made to reflect the market.

Secondly, franchisors have a number of options when expanding overseas.

The most commonly used method is to appoint a master franchisee in the territory, who will in effect be the franchisor in the UK.

The foreign franchisor may be a wonderful franchisor, but may have made a mistake in choosing the local master franchisee. This often happens.

Thirdly, are there local suppliers that will be approved by the franchisor. If not, would the cost of shipping such supplies to the UK be prohibitive?

Lastly, the foreign franchisor may be a substantial entity that would have the wherewithal to pay any claim you may have, but can the same be said of the master franchisee if that’s the way the business is operated?

Further, if the franchisor does not make use of a local master franchisee or other partner, would proceedings have to be commenced in the foreign franchisor’s territory, which would be challenging and expensive?

John Pratt is senior partner at specialist franchise firm Hamilton Pratt and has advised franchisors for over 25 years.