Master franchise agreements and international supply chains

With the recent election of Donald Trump, those of us who don’t know much about free and fair trade are learning it from our late-night cable TV news. Trump explains that it is unfair when we allow products to enter US markets without tariffs or taxes, but then those same countries like China or Mexico impose a 45% tariff on our products. Probably no one understands this better than an International Franchisor, someone who sells franchises or master franchise license agreements globally. I remember when I was negotiating the sale of a master franchise for my company in Mexico. The buyer of my franchise was in Monterrey, Mexico. The family was well connected to the government there and already had many distributions and licensing agreements with major American companies: car dealers, truck dealers, tractor dealers, soft drinks, etc.

However, it seemed perfect when we started talking about the cost of the master franchise and the requirement to operate at least one actual unit, for training purposes, etc. – I quickly learned that I would have to pay import duties or collect them from the buyer. This immediately added costs. It became an additional burden on the main franchise because every time it sold a franchise, the franchisee would have to source their equipment from the USA, also with a 45% import duty, dramatically increasing the franchise price. and hurting your chances of buying. a quick positive return on investment.

So we had to come up with some kind of manufacturing there in Mexico to sell in that market, but in doing so I risked revealing all the technical blueprints of the equipment that made it exclusive to our franchise company, and that’s a lot of intellectual capital. hard-earned, not in the patent sense, but in real terms, trial and error, developing and removing what didn’t work in evolutionary changes and upgrades along the way.

Interestingly, now 20 years later, the December 2016 issue of Global had a brilliant article; “The Fourteen Questions a Master Franchisee Should Ask”.

The questioned article; “Where does the product to be sold come from?” and declared; “The franchisor will demand that the quality standards established in its country of origin are duly maintained by the main franchisee and the sub-franchisees. This requires a protocol so that the franchise system in each Territory obtains access to the same products and / or services being sold The franchisee may supply the product to the main franchisee or sub-franchisees but, more likely, the obligation will fall on you, the main franchisee, in the foreign country to access the local distributors and obtain the approval of the distributors for part of the franchisor. “

In fact, it was about quality, intellectual capital, and supply availability. It turned out that at the time, I was unwilling to adjust my main franchise agreement to accommodate such changes, it wasn’t until I was more well established about 5 years later that I took the risk and resolved the business issues and figured out how to deal with our chain of supply. Consider all of this and think about it.

Author: admin

Leave a Reply

Your email address will not be published. Required fields are marked *