Articles

TASA ID: 2534

The restaurant industry is not dead.  It just became a temporary tragic victim within a global traumatic condition that threatens its very survival.

There is a difference.

There will be many restaurants that will end up closing permanently due to how they handle the overwhelming challenges now facing them and the industry.  However, there will also ultimately be survivors and some of those survivors will once again thrive as vibrant hospitality operations. They will find a ways to navigate these crippling conditions and make their way back to dry land where they can begin to securely build up their businesses again.

TASA ID: 11532

PREFACE

International franchising has fascinated me for many years.  I still get excited seeing a familiar trademark when driving down a street in New Delhi, Cairo, or Paris.  While traveling outside the United States, my wife and I will frequently play a game seeing who can point to a recognized sign first such as McDonald’s or Gold’s Gym with the same exuberance of children playing car-trip games.  

Much has been written in recent years extolling the virtues of franchising as it exists in the United States.  However, there has been a dearth of information and analysis of the economic impact and potential of franchising, or similar economic expansion systems, in developing countries. Most of what has been written about international franchising has dealt with the legalities pertaining to franchise law, licensing, and trademark and patent law, and their disparities from country to country.  In spite of the scarcity of academic and research analysis, the period between the 1980s and the early-2000s witnessed a dramatic increase in international franchising and similar commercial expansion activity. This has occurred not only in Western Europe but also in Asia, South and Central America, Eastern Europe and, to a more modest extent, Africa and the Middle East. In this article, I attempt to point out some of the benefits and consequences of importing Western (essentially American) franchises and franchising techniques into developing economies.  

TASA ID: 11532

The process of seeking and finding qualified franchisees is not only the first step to building a strong franchise network, but it lays the foundation for attracting future stockholders that tend to retain their stock during good times and bad.

The reverse is also true; franchisees that own stock in the franchisor-public company are less inclined to be “breakaway” franchisees or vociferous disenchanted franchisees that are receptive to joining class action suits against the franchisor.

TASA ID: 11532

Many businesspeople and professionals think that franchising and licensing are the same, but the fact is that they are different. Given the prevalence of franchising and the interstate, national, and even international scope of so many franchise networks today, attorneys need to know about potentially applicable federal, state, and foreign franchise laws. Franchise sales in the United States are subject to dual regulation at the federal and state level, depending on where the parties reside or do business. The federal franchise sales law, originally adopted in 1978 and overhauled in 2007 regulates franchise sales in all 50 states, including wholly intrastate transactions, per the 2007 version of 16 C.F.R. § 436 (hereinafter “Amended FTC Rule”).

 

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TASA ID: 11532

There are references in American history to early business relationships which, while possibly not meeting the current FTC definition, were without a doubt, franchise/licensing relationships. These relationships existed in the selling of wares from town-to-town by peddlers, licenses granted for general stores at military outposts, and certain livestock sales and other goods in which exclusive territorial rights were granted to the "franchisees" by the holder of the rights. Unfortunately, while the relationships are mentioned in the literature, the names of these early franchise founders and the structure of the business arrangement are not. 

Throughout its long history, there have been four constants that have fueled the growth of franchising, the desire to expand, the lack of expansion capital, the need to overcome distance, and managing people from a distant location.

The use of franchising can be traced to the expansion of the church and as an early method of central government control, probably as far back as the Middle Ages. Some have written that it may indeed date back as far as the Roman Empire or earlier and given the necessity of large territorial controls, coupled with the lack of modern transportation and communication at the time, there is reasonable basis for this assumption.