The Misnamed Joint Venture

In the world of franchising, there are those who love the concept and dynamics of franchising at all levels, as well as people who are put off by the word alone. This, by the way, is often due to bad previous experiences and poorly informed decisions. However, the word “franchise” has the power to generate both hope and distrust.

Here we will not explore the origin of this love or dislike. What we will do is talk about this “attractive cousin” of the franchise: the joint venture. It is curious because, in the consumer industry and especially in the hospitality industry, many claim, with a certain pride, that they do not work under a franchise model, but through joint ventures. This, however, is technically incorrect, both in theory and in practice.

If someone feels more sophisticated talking about joint venture mechanisms instead of franchise rights, that is fine. But in my experience, there is a high probability that, firstly, both schemes are not fully understood and, secondly, that we are actually talking about an associative franchise. This franchise model implies that the franchisor owns equity in the franchised entity, but the franchisee has no participation at the holding level or rights over the intellectual property of the system.

Furthermore, even if we are talking about a fully-fledged joint venture, such an associative mechanism should be based on a franchise system to generate coherence at the operational level and ensure the dynamics necessary for any internationalization process. The associative franchise is a powerful tool within the world of international franchises, but it only works if it is articulated from its base: the structure of a franchise.

In regulated or emerging markets, confusion between models can lead to wrong decisions. Forewarned is forearmed, and understanding the differences between a joint venture and an associative franchise is essential for those seeking to expand through successful franchise models. Franchising remains one of the most effective strategies for consolidating a brand's presence in new international markets.