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Insight

Franchising in Latin America - an overview of Colombia

For businesses which have the scope for more rapid expansion than their capital and HR resources permit, franchising is tried and tested and can allow businesses to access foreign markets and generate For businesses which have the scope for more rapid expansion than their capital and HR resources permit, franchising is tried and tested and can allow businesses to access foreign markets and generate new income streams without the need for capital investment and an extensive management infrastructure.

Latin America

Businesses are looking increasingly at markets in Latin America, which are already generating healthy rates of growth for the likes of Carrefour and Casino. However, businesses should not be too fixated with the prospect of entering Brazil, one of the four "BRIC" economies, which has proven to be a challenging market, particularly for retailers which import a high level of products to their franchise partners. Instead, Chile, Colombia, Mexico and Peru are all emerging as stable, viable and attractive markets. This blog will now focus on Colombia.

Columbia

Colombia is a market of 46 million people, making it the third largest country in Latin America, after Brazil and Mexico. Colombia was included in the group of new emerging markets (the so-called CIVETS) alongside Indonesia, Vietnam, Egypt, Turkey and South Africa and is one of 19 priority markets for the UK government around the world. Colombia has a stable government (which has ambitions to join the OECD), a strong and growing economy and is shaking off its outdated and ill-informed reputation as a violent narco-state.

Indeed, the city of Medellin epitomizes this transformation, being named as the Wall Street Journal's Innovative City of the Year in 2013. This vibrant city is home to a wealth of innovative Colombian retail brands. Brands such as Tennis, Velez, Leonisa and Touché would rival the best fashion retailers anywhere in Europe or the US - so beware, the Colombian consumer is sophisticated and local competition can be fierce.

Preparing for Launch

Before a launching a franchise in any international market, businesses should carry our a thorough market analysis, considering whether the brand is appropriate for the market, whether there is a gap to fill and whether the size of the opportunity warrants the investment of time and resources. If the answer to those three questions is "yes", the next stage involves finding the right partner (the hardest and most important task) for the brand and agreeing the commercial and legal terms.

The Regulation of Franchising

Colombia is a relatively easy and low risk jurisdiction in which to do business. There are no pre-contractual disclosure requirements (although best practice is to offer some form of disclosure) and foreign franchisors only have to register themselves with the local authorities if the commercial model includes the payment of royalties. Colombia is a signatory to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards (although there is no reciprocal treaty in place between the UK and Colombia for the enforcement of court judgments). English law is a valid choice of law for franchise agreements, subject to the overriding provisions of mandatory Colombian law.

Conclusion

Colombia should be on the radar of most businesses looking to expand overseas. The political, economic and legal environment is favorable towards an expansion via franchising. However, it is important to ensure that the franchise relationship is structured appropriately and governed by a robust legal agreement which is enforceable in Colombia and takes account of mandatory local laws - specialist legal advice should always be obtained prior to entering this exciting market.

 

 

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