Thursday, June 16, 2016

A Possible BREXIT and Franchising

FASTSIGNS is one of the latest U.S. franchises which push for more growth in the UK. The company is planning to add four more franchisees in Britain by the end of 2016, hoping to reach about 50 by the end of 2018. 
Continental European based franchises are also eying the UK as a natural market for international expansion. It is an interesting strategy given that once operations manuals and training modules have been translated into English, franchise brands will be able to re-use them with minor adaptations in other countries as well.
However, there is the referendum next week on whether the UK should remain in the European Union or not. Current polls suggest that a Brexit might just be possible. Interestingly, there is little analysis on what a Brexit could mean for franchised businesses in Britain. One expert stated that a Brexit “could impact different franchise businesses in totally different ways and I don’t believe there is one right answer for everyone”.
With the help of some friendly people at Bird & Bird, a global law firm, I came across an article by Dr Mark Abell, one of the partners, which spells out some concrete steps any franchisor in the UK can take. Below is an excerpt:

What Should Franchisors be Doing about the Possibility of BREXIT?

It is recommended that each franchisor should consider establishing its own 'Brexit business risk'  working group to consider the internal implications of a Brexit for both themselves and their franchisees, particularly if they have franchisees in the EU member States.
The role of this working group could include:
    To consider whether he franchisor and its franchises are particularly exposed to the risks of a Brexit in comparison with its competitor businesses (e.g. number of franchisees in the UK and EU, relative size of the UK business to other EU member states , service charge and royalty payment  currency etc.).
    To consider the impact on customer demand  in the shorter, medium and longer terms
    To consider communication with franchisees in other EU member states to show that the franchisor is on top of the implications of the referendum and of a possible Brexit. 
    To communicate that (i) there is a real risk of a Brexit, and (ii) this is not just a UK issue – it may have wider implications for other EU franchisees.
    To consider communication with both franchisor and franchisee staff as regards the potential impact of Brexit.
    To consider possible export implications if the franchise involves the export of products to franchisees in other EU member states. even in non-EU jurisdictions where it has control over a local affiliate.
    To consider the practical implications of a Brexit – for example, will it affect the free movement of the franchisor's support staff and audit teams? 

Also, will it potentially also affect the free movement of the franchisor's cash or other assets or the pay, net of franchise fees by franchisees in other member states?
Whether the franchisor needs to make any change to the terms of the franchise agreements it has with its franchisees in other EU member states.
So, Brexit will inevitably have an impact upon franchisors in the UK that are doing business in other EU member states.  It may also have an impact on purely domestic franchisors.  What that impact will be and whether it is likely to be positive or negative is something that franchisors should now start to consider carefully.  They should ensure that their franchisees understand that they are actively considering the potential impact and be pulling together a strategy for how to deal with Brexit if it happens.


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