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Tips Before Buying a Master Franchise

Over the past several years there has been a marked increase in the number of Franchisors from the USA, Canada, Europe, Australia and other Countries expanding internationally.

As a consequence, there is an ever-increasing chance developer will encounter Franchisors with great sales pitch, lots of enthusiasm and, perhaps, the best of intentions, but not the necessary experience and resources to effectively support the developer.

An “area development franchise” is an agreement that authorizes an area developer to open multiple franchise units within a Country in accordance with an agreed-upon development schedule.

A “master franchise” differs in that the agreement allows the so-called “master franchise” to open franchise units itself and “sub-franchise” to others within its territory.

A franchise system that has not taken local consumer preferences into account be doomed from the start.
One of the best tools for discerning a franchise system’s potential for success in any country is to evaluate the concept at a prototype unit or through other market testing methodologies.

More often than not, international Franchisors want the full territory development fee before a pilot can be established.

If the Franchisor has conducted market studies in the Philippines, the developers certainly should request to see the results. If the Franchisor has not, but has conducted studies in neighboring countries, the developer should request to see those results.

This may offer some insight into what the developer may expect to encounter in the Philippines though, depending on the degree of cultural and economic similarity between the countries, the results may not be conclusive.

Even if timing makes it impractical to conduct market testing before a development agreement is signed, the Franchisor may assist in test marketing after the deal is signed.

The Philippines laws may prevent a Franchisor itself from opening and operating retail business, thus effectively precluding it from conducting market testing prior to entering and into a development deal.

Author: Rudolf A. Kotik of RKFranchise.com

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