Recent years have shown a propensity for Canadian firms to expand their use of franchise arrangements. This expansion has included a robust increase in US-driven cross-border franchise relationships. As a result of both geographic proximity and cultural similarities, Canada has become an attractive entry point for US retailers contemplating international expansion.
Factors to consider when expanding into Canada
An expansion into the Canadian marketplace can happen under several different models. In determining the model most appropriate for an individual firm, there are a number of considerations. Franchisors should consider the following:
- the amount of control the franchisor desires over the franchisees
- how to best allocate resources between the franchisors and franchisees and
- the scope of the international expansion. If the franchisor intends on expanding to a number of different countries, the franchisor should choose an entry model that is flexible so that it can be adapted to the legislative and regulatory landscapes of various countries.
Potential entrants should be aware that having a trademark registered in the US does not guarantee that the mark will be available in Canada. In the early planning stages, franchisors intending to enter the Canadian market are encouraged to conduct trademark searches in Canada and reserve Canadian domain names.
Potential entrants should also consider some of Canada’s unique laws:
- Canadian Anti-Spam Legislation: CASL is relatively new legislation that governs the way commercial electronic messages are sent. In order for franchisors to send commercial electronic messages, franchisors must comply with three main requirements:
- obtain consent
- provide identification information and
- provide an unsubscribe mechanism.
- Québec Charter of the French Language: The Charter makes French the official language of the Province of Québec for government, education, commerce and the workplace writ large. The Charter, among other things, outlines French language requirements surrounding service, advertising, contests, packaging and labelling.
Taking a franchise corporate
When planning international expansion through franchising, firms would do well to consider how the franchise agreement could end. There may come a time when a franchisor wishes to buy out franchisees in a market in order to simplify its business model, regain operational control and limit profit sharing.
In Canada (as in the US and elsewhere), the franchise agreement will outline many of the terms of the termination of the franchisor-franchisee relationship. For example, provisions of the franchise agreement will outline:
- Which party may terminate the agreement and how (eg, notice requirements)
- Post-termination obligations such as how the remainder of inventory in the franchise will be transferred or sold and how employees will be transferred and
- Right of first refusal options.
The terms of a potential termination should be considered when entering into the franchise agreement.
The decision to expand into Canada, while exciting, requires careful and long-term planning.