Try this test next time you are talking to someone about international expansion. Get them to explain the difference between master franchising, area development and area representation. Often these concepts are used interchangeably in Australia, and in our experience few people really understand the differences. However, they are very different relationships with very different consequences.
Master franchising in an international context is different to the typical Australian relationship. Internationally it essentially means appointing a local party to be the franchisor in that market. The master franchisee will enter into any unit franchise agreements, or for that matter any relevant area development or area representation agreements, in that market. Hot spot issues in master franchising include IP ownership and enforcement, sub-franchising rules and systems compliance.
Area development involves the appointment of a party to develop an area, usually by opening its own locations. The typical area developer is someone with a strong understanding of a particular region with substantial capital and an interest in opening multiple outlets within the person's area of influence. In the US, for example, an area developer may have a presence in one of the major US cities and may only wish to develop their area. Occasionally the area developer may sub-franchise, but that is a hybrid as opposed to normal area development. An area developer may even be an area developer for more than one brand. Hot spot issues in area development are development rules, systems compliance and cross default.
An area representative is appointed essentially to act as the representative of the franchisor in a market. An area representative would seek franchises and possibly area developers, but would not normally operate its own outlets. The franchise agreement and area development agreements would be between the franchisor and the franchisee or area developer, and not the area representative. As a matter of law, and in contrast to the other relationships, an area representative is typically at law the agent of the franchisor. Franchisor liability and consequences to others of termination are big hot spot issues in area representation.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
