Franchise, licence or distribution?
Three forms of expansion that companies most often confuse. The difference is how much of the business system the partner takes over and how much control you keep.
| Franchise | Licence | Distribution | |
|---|---|---|---|
| What the partner takes over | the whole business system: brand, model, processes, standards | the right to use a brand, know-how or technology | the right to sell products in a territory |
| Control over delivery | high, through standards, training and audits | medium, limited to the subject of the licence | low, limited to goods and terms of sale |
| Source of revenue | entry fee and ongoing fees; for products, the margin on supply | licence fee, usually on revenue | margin on goods sold |
| When it is the right form | service and protocol-based models where delivery is part of the brand | technology, platforms, brands without an operating system | products where the partner does not deliver a service |
| The risk companies overlook | an undocumented system cannot be replicated by a partner | a loose licence loses control of the brand | the distributor builds its own relationship with customers |
Master franchise or area development?
A master franchisee buys the right to develop a country or region and to sub-franchise within it. An area developer commits to open a defined number of units in a defined territory, but does not sub-franchise. In Europe the working form is area development; master franchising is appropriate only where the partner has the capital, infrastructure and a proven ability to build a network, and remains the usual form for markets outside Europe.
For product-based franchises, the main source of the franchisor's income is often the margin on supply, not the entry fee or the royalty. That changes what a master partner is tempted to do, and what the agreement must control.
Own units or partners?
Not every company should franchise. Where control of delivery matters more than speed, or where the model has not yet proved it can be repeated by someone else, expansion with own units is the sounder path, and the Expansion Readiness Review says so. The EU Market Entry Program has an Own Unit Track for exactly this case. Services
The first conversation is without obligation and takes 45 minutes.
Within five working days we prepare a proposal for a Focused Engagement or a programme, with scope, deliverables, deadline and a fixed price. The price is fixed, by work package, and is reduced only with a proportionate reduction in scope, a longer deadline or a larger contribution by the client.
Arrange a first conversation