One method of doing international business by licensing trademarks is called Franchising. This method dates back to the 1850s where the recurring royalty fee is the prime source of income. Good illustrations of this in the earliest times were the bars of New South Wales, the agreements between the breweries and these bars can be considered as the first foundation for the modern franchise businesses. Another good example of franchising hitting the international business scene is the telegraph system operated by various railroad companies but controlled by Western Union, and exclusive deals between automobile manufacturers and local dealers. Franchised-based restaurants paved the way for franchise businesses wave since the 1930s with Howard Johnsons traditional sit-down restaurants and then McDonald’s in the 1950s providing the US a franchise business dominion.
Presently, as declared by the Financial Times, if sales by US franchise businesses were converted into national products, it would be eligible as the seventh-largest economy in the world.
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The first step between the willing parties is a franchise agreement that binds the parties together through contractual provisions and strengthening it further by selling one’s own products or services through another person holding the license. The agreement also specifies the area of operation under the franchise holder, generally, the franchise provider will not grant complete and exclusive control of that area to the franchise holder alone over that particular area.
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Franchise in the US stands by the jurisdiction granted by the state and federal laws although there are no federal filing requirements for information or no federal registry of franchising.
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As per Federal Trade Commission Rules, franchise holders are required to have a Uniform Franchise Offering Circular that helps in disclosing the business transactions and purchases that remain involved.
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Franchise holders are authorized to work under the trademark by which was developed business system belonging to the franchisor and at the corresponding control from the franchisor, and therefore to use the advantages from positive factors associated with the given name.
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Franchise holders should make major investments from own resources and should be the proprietor of the business. The franchise holder owes anyway to pay the franchisor for the rights given and the constant services provided.
As defined by the International Franchise Association, Franchise represents continuous mutual relation between franchisor and franchisee at which knowledge, the image, success, industrial and marketing methods are given franchisee for counter satisfaction of interests.
Franchising often appears to be the best way to future business success, as the norm of bankruptcies is low, however, experienced businessmen may show that it is not completely a certain way to success.