CLIVE C HOULSTONCHAIRMAN

andMANAGING DIRECTOR

MR.ELECTRIC UKAIRE SERV UK

HOW TO ENTER THE EU MARKET ?

EUROPEAN EXPANSION

• It is through franchising that some of the world’s largest and best-known brands have achieved international expansion

EUROPEAN UNION

•Common language - NO

•Legal requirements the same - NO

•Common culture - NO

•Economic factors the same – NO

IT’S A MINEFIELD

UNDERSTANDING THE DIFFERENCE IS THE KEY

FOOTBALL ?????

PRODUCT / SERVICE EVALUATION

•Before considering entry into any other member country of the EU it is essential that proper needs-based analysis has been undertaken of the market

DIFFERENT COUNTRIES

•Never assume that all countries are the same

•Every market must be treated individually

•You have to be flexible and understand that market

WHAT ARE THE MOST EFFECTIVE MEANS OF

ENTERING THE EU MARKET ?

EXPANSION ROUTES

There are four main international franchise expansion routes:-

• DIRECT FRANCHISING – this involves the grant of franchise rights by a Franchisor directly to a Franchisee in another country:

– all Management Service Fees paid to Franchisor

– the Franchisor carries all costs associated with translation, support, legal compliance, training

EXPANSION ROUTES

There are four main international franchise expansion routes:

• A NATIONAL MASTER FRANCHISEE typically acquires the rights to an entire country with a view to establishing a pilot operation and then sub-franchising to single/multi-unit franchises

EXPANSION ROUTESThere are four main international

franchise expansion routes:

• Alternatively, a Franchisor may choose to appoint a number of REGIONAL MASTER FRANCHISEES either by sub-dividing a country or in countries where the economics don’t fit a Master– As with a Master, the Regional will sub-

franchise

EXPANSION ROUTESThere are four main international

franchise expansion routes:

• As a fourth option, a Franchisor may choose to appoint a number of AREA DEVELOPERS– As with a Master and Regional the agent

may have the right to issue a limited number of sub- franchise units

DIRECT FRANCHISING•This is NOT a common route to market

– Franchisor must consider how to generate multiple enquiries in the territory under consideration

– Franchisor has to manage brand image and quality

– Local legal requirements mean that franchise agreements will be different

MASTER FRANCHISEE•This is the most common route to

market

– It involves the Franchisor granting franchise rights for the whole or a part of that country

– Quickest way to establish the business in the country using someone else’s funds

– Franchisor has to sacrifice a proportion of both the up-front fee and ongoing fees

REGIONAL MASTER LICENCE

•A fast growing method of international franchising– The Franchisor retains some of the

operational support and central logistical support

– Regional Master Licensee will generally have a shorter term licence than a Master but will not have the same infrastructure requirements

– Franchisor takes larger percentage of shared MSF

AREA DEVELOPERS

•An approach often used in the USA– The Franchisor retains most of the

operational support and central logistical support

– Area developer will generally act as the representative of the Franchisor

– Franchisor may take back the territory when initial development complete

EXPANSION ROUTES

•Becoming a Master Franchisee involves taking a brand and adapting the existing business to suit a new market utilising your local knowledge

DOES YOUR OPERATIONS MANUAL TAKE ACCOUNT OF

UNDERSTANDING?

TRUNK ???

EUROPEAN EXPANSION

•The franchise business model has enabled companies to adapt swiftly to cultural and economic differences, capitalising on the local knowledge and contacts of their local representatives to build the brand in new markets

TRAINING & SUPPORT

•As technology has grown more sophisticated and the global market has become smaller, providing training and support to Master Franchises around the world has become easier

TRAINING & SUPPORT

•A Master Franchisee can expect to work on their own initiative, but like single/multi-unit franchises they should receive training and support as part of the franchise package

COMPANIES & INDIVIDUALS

• It is common for companies as well as individuals to become Master Franchisees

HOW SHOULD YOU ESTABLISH

A FEE STRUCTURE?

SOME CONCEPTS FOR DIRECT FRANCHISING

•POPULATION – many franchise concepts base territory fees on domestic population– a more accurate figure would be to relate

this to spend as a percentage of income

•BUSINESSES – sometimes based on average spend on a product or service– more accurately needs to be adjusted to

factor local cost base

MASTER FRANCHISING

•POPULATION – for service/product franchise concepts based on population a review of European populations by percentage identifies an immediate problem– Can the population sustain the

infrastructure costs of replicating the Franchisor’s business

MASTER FRANCHISING

•REMEMBER – a franchise works because everyone wins– When calculating the fee structure there

has to be a viable return at all levels in the chain

– You need to balance up-front fees along side ongoing revenue stream

WHAT ARE THE LEGAL REQUIREMENTS FOR ENTERING THE EU?

SETTING UP IN A COUNTRY

•Many countries welcome “reputable” franchise concepts and have no real legal restrictions

SETTING UP IN A COUNTRY

•Many countries welcome “reputable” franchise concepts and have no real legal restrictions

•Some countries however have taken the view that local Franchisees should be protected, and impose stringent registration or disclosure requirements

AGREEMENTS

•As a rule you should expect that a Master Agreement will be subject to negotiation and as such legal costs can escalate

AGREEMENTS•As a rule you should expect that a

Master Agreement will be subject to negotiation and as such legal costs can escalate

•Generally the Sub-Licence Agreement is non negotiable, however it is most probable that you will need to have agreements adapted for each country’s legal requirements

AGREEMENTS

•Where a franchise requires a number of employees you need to be aware of local employment law issues

TAXATION

•When calculating the viability of any entry into another country not only should you take account of the set-up costs but the impact of taxation on foreign earned income, e.g. withholding tax

SUMMARYBUILDING A BRAND ACROSS

MULTIPLE COUNTRIES CAN ENHANCE THE CORE BRAND VALUE FOR ALL INVOLVED

IT CAN CREATE NEW MARKET OPPORTUNITIES FOR

COMMERCIAL SERVICE BRANDS

QUESTIONS