Many franchise systems that are successful abroad can be successful in Italy as well. But When considering franchising as an option for business expansion in Italy, a carefully planned approach is required. In fact, it is of paramount importance to avoid future legal risks and to ensure the solidity of the Italian franchise network.
Franchisors have a variety of legal solutions to enter the Italian market. They can franchise directly, by using a subsidiary, or a joint venture, or they can appoint franchisees in Italy directly or through Area representatives.
But direct franchising has some relevant disadvantages. Training, supporting, supplying and monitoring franchisees abroad can be difficult and expensive. Usually the foreign franchisor does not deeply know the characteristics of the Italian market. And, from a legal point of view, it keeps all direct liabilities vis a vis the franchisees.
Therefore, in the majority of cases, franchisors will need to have recourse to third parties to manage their franchise in Italy. The two main options are:
- Appoint a n Area developer, who is charged with establishing an agreed number of units of its own in the area granted to it. Such an agreement provides the advantages of Multi-Unit franchising, such as accelerated growth with less investment on the franchisor and direct control over the franchisee. However, it creates difficulties in terms of achieving the schedules by franchisees, given the scope of their territory, and managing Multi-Unit franchisees by the franchisor.
- Appoint a Master Franchisee, who is granted the right to use the mark and the franchise system in a given territory for a certain period of time. The Master Franchisee is typically responsible for entering into a number of sub-franchising agreements, for training the sub-franchisees, for supplying them and collecting from them fees and for monitoring compliance with system standards. Master Franchisee may be also required to open company-owned units and/or to develop a certain number of franchised units according to an agreed-upon development schedule.
This is by far the favorite solution adopted by foreign franchisors in Italy, since a Master Franchisee can provide not only local market and culture knowledge, but also capital, management and support to sub-franchisees in the Italian territory. Therefore, the master franchise relationship allows for significant expansion without significant expenses and risks.
However, since the franchisor loses a substantial part of control over the network, selection of the Master Franchisee is a crucial endeavor critical to the success of the relationship. Indeed, the Italian Master Franchisee should have solid business experience, financial reliability and high commercial standing.
Typically, the decision to expand in Italy comes as the result of a qualified third party expressing genuine interest in taking your concept into our country. Successful international franchising often depends on having good local business partners. Therefore, an accurate due diligence investigation of the Italian possible business partner is highly recommended.