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
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.
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