A system based on the licensing of the right to duplicate a successful business format in foreign markets. The franchisor grants to the franchisee the exclusive power to distribute its products or services in establishments which are equivalently equipped and furnished, as well as the right to use Intellectual Property Rights (commercial signs, brands, trademarks etc.). It also provides the Know-How (Franchise Handbook), and the technical and commercial support for distribution to be carried out correctly. The franchisee follows the instructions stated by the franchisor in regards to the appearance, commercialization and corporate image on the authorized premises. For the services provided, the franchisee pays the franchisor a series of different fees (sales fee, Front-end fee, advertising fee, etc.). The two principal kinds of franchise contracts in international markets are:
- direct franchise agreement, which are direct contracts between the franchiser or sub-franchiser and the operator of the franchise unit.
- master franchise agreement under which the franchiser grants another party the right to sub-franchise within a given territory.
In international markets, relationships between the franchisor and the franchisee are governed through a International Franchise Agreement. See also master franchise. Model of International Franchise Contract.