INTRODUCTION

Franchising is a form of licensing arrangement where the owner of intellectual property (trade marks, patents, copyrights and designs) authorises another person to make use of those intellectual property rights in exchange for a fee. The difference between franchising and other types of licensing arrangements is that the grant of the intellectual property rights is frequently accompanied by a comprehensive manual that not only sets out how the intellectual property rights are to be used but also the manner in which the business in which they are used is conducted. It is increasingly common for franchisors to impose their entire business system upon the franchisee, so that each franchised unit is essentially a clone of the original. This allows the franchisor to achieve ready recognition of their brand name and product or service that accompanies it and provides some business certainty to potential franchisees by reducing the risks of business failure that might otherwise occur if the potential franchisee had sought to develop and market a completely new product or service themselves.

Franchising typically starts with success in the domestic market before the franchisor will consider internationalising the franchise operations. However, smaller domestic markets soon become saturated and, in order to ensure growth of the business, a franchisor may have little choice but to look for opportunities overseas.