The concept of franchise refers to a contractual relationship between the franchisors and the franchisees, whereby the franchisor allows the use of franchisor’s trade name, trade mark, copyright, and other property in the distribution and sale of goods or services in accordance with established practices and standards. Basically the franchises can of two types:
i. Product and trade name franchises (like automobile dealership), and
ii. Business format franchises (the franchisor sells a “way of doing business” to the franchisee: as Pizza Hut, McDonald’s, and Domino’s Pizza are doing).
However, at the international level three basic forms are in currency. Master Franchise Agreement is the most common form. It refers to an agreement between the franchisor and the foreign national sub- franchisor authorizing the foreign national to develop and operate franchises and grant sub-franchises to others. Another form is called direct franchising in which the franchisor himself contracts with the franchisees in foreign country. And the last form may be a joint venture with an overseas partner.
Offering franchises outside home country brings in many legal issues. The issue of intellectual property in particular becomes very critical. First, the franchisor must determine whether existing marks, trade names, and logos will work in other countries in the context of separate identity and cultural and linguistic acceptability.
And also the franchisor must evaluate host country’s laws whether the IPR can be protected. Is the franchisor required to apply for additional patents? Most of the nations do not regulate franchises, but the franchisor must determine whether disclosures (applicable in the US) and/or registration laws apply; what securities or antitrust restrictions might be imposed; whether foreign investments and technology transfers are regulated; what contract, commercial, taxation, and labor laws apply, whether import export controls are in place; what packaging labeling or food and drug regulations apply; and what impact the immigration laws might have on staffing and personnel decisions.
In the field of distribution, direct marketing has recently become very important due to cost effectiveness. Direct marketing includes direct mail, catalogues, telemarketing, and electronic retailing. Because of several kinds of abuses of direct marketing, it is heavily regulated.
Telemarketing means selling of goods or services on phone or fax. The law deals heavily with unsolicited sale calls. In the US, the state laws are very stringent. The Telephone Consumer Protection Act, 2991 prohibits telephonic solicitation using an automatic telephone dialling system or a pre-recorded voice.
It is illegal to transmit fax ads without first obtaining the recipient’s permission. The Federal Trade Commission, under the Telemarketing and Consumer Fraud and Abuse Prevention Act 1994 plays an important role in regulating telemarketing.
Telemarketers are prohibited making calls between 9 pm to 8am and from calling customers who had previously shown their disliking. On the other hand, in India despite telephone and mobile users getting them registered with Do Not Call are still being bothered by the telemarketers.
Shop-at-home television networks and on-line retailing are included in electronic retailing. Over the years internet-based retailing has shown tremendous growth in business. Experts opine that consumer on-line spending in 2003 was around $ 108 billion. While internet has offered many opportunities, it has also led to many retailing abuses.
Junk e-mail or unsolicited commercial e- mail has mushroomed and many internet users are outraged at the use of spam. Recently one state of the US (California) has enacted law which prohibits any commercial e-mail message that promotes, directly or indirectly, the sale or distribution of goods or services, and that is sent to a party with whom the sender does not have an “existing business or personal relationship” or from whom the sender does not have “express consent”.
Labeling and Packaging:
Laws relating to labeling and packaging are designed to ensure that accurate information is provided about the product and its use or misuse. International marketers must be well aware of labeling laws of each country wherein they want to market their products. In some countries of Europe, such as Finland and Belgium, the print must be bilingual.
In Venezuela, prices must be printed on the label, but Chile does not permit it. In Italy, once Coca Cola’s distribution of bottles was banned because the ingredients were printed on the bottle cap rather than the bottle. Eco-labeling (information regarding the environmental quality of the production process) has recently raised numerous international issues.
Eco-friendly products and product packaging and its impact on solid waste management are drawing attention globally. Recently, Germany has come out with such green marketing laws to regulate the management and recycling of packaging waste. The new laws were introduced in three phases. In the first phase, all transport packaging, like drums, pallets, and Styrofoam containers are to be accepted back by the manufacturers and distributors for recycling.
In the second phase, manufacturers, distributors and retailers are required to accept all the secondary packaging, such as corrugated boxes, blister packs, packaging designed to prevent theft, packaging for vending machine applications, and packaging for promotional purposes.
In the third phase, retailers, distributors, and manufacturers are required to accept returned sales packaging, such as cans, plastic containers for dairy products, foil wrapping, Styrofoam packages and folding cartons (like cereal boxes). If any packaging material has a green dot, it shall be collected by the manufacturer directly from the consumers’ homes some of the countries prohibit certain type of containers, such as Denmark’s ban on aluminium cans.