Franchising can be a good solution for an entrepreneur who decides to open his own sales points abroad, using persons who manage the business directly on site, through a distribution method able to enhance its brand and its products, ensuring to them a visibility that other forms of commercial penetration do not guarantee.
If the franchisor intends to open more than one distribution outlet, he must enter into a contract with the franchise called “master franchising”, whereby the franchisor is authorized to sign individual contracts with sub-contractorsfranchisee within the country or territory identified.
This solution is doubly advantageous for the franchisor who, on the one hand, has a relationship with a single franchisee – the franchisee being responsible for setting up the franchise network-, on the other hand, it is protected by the fact that the franchisee will receive any complaints from the sub-franchisees and will be liable for any violations of the franchisor’s rights by the sub-franchisees.
Other useful tools to define the relationship between franchisor and franchise are:
- the conclusion of franchise contracts through an agent so-called “Area representative”, which undertakes to procure potential franchisees located in a given territory;
- the establishment of a branch in the country and/or the establishment of a joint venture with a local partner and the subsequent conclusion of franchise contracts between the branch or joint-venture and local franchisees;
- the conclusion of an agreement by c.d. “Area Development” with a counterparty which undertakes to create and develop in its name and on its behalf several franchise units in a given territory.
Due to the absence of existing international conventions governing the contract, reference is made in international law to the model law developed by UNIDROIT in 2005, regulating in particular the obligations of the franchisor and the contents of the model contract developed by the International Chamber of Commerce.
However, in the case of Community legislation, reference is usually made to the Rome I Regulation which governs the case where, in the event of a lack of choice of law applicable to the franchise contract, the contract will be governed by the law of the country in which the franchisee has its habitual residence (cf. Art. 4, Rome Regulation No. 593 of 17 June 2008, on the law applicable to contractual obligations for contracts concluded after 17 December 2009).
Therefore, in the contract it is essential to choose the applicable law international franchise contract. This means that the franchise contract is subject to the law which it considers most appropriate to its needs, excluding the application of the rules which would be applicable.
The only limitation is that the franchisor may not disregard the law of the country of his franchisee rules whose observance is considered crucial by a country for the protection of its interests, to the point of requiring their application whatever the law applicable to the contract.
Ultimately, the company that wants to develop the franchise network in international markets must therefore have a clear capacity to propose, in addition to negotiation, towards level interlocutors who will be asked to have organizational structure and investment capacity such as to implement the development of the branding network in an area capable of meeting development objectives territorial of the brand, and to secure a contract which must be drawn up with the utmost care and which pays particular attention to the form and conformity of the clauses with the rules protecting competition, protection against franchisees and dispute resolution.