Canadian franchise good 1st test despite some regulatory concerns

Indeed, the U.S. government encourages American businesses contemplating global expansion to start in Canada first. According to the U.S. International Trade Administration, Canada is an ideal first stop because of similarities in business practices, attitudes and environment.

Franchise Times
September 1997

Canadian franchise good 1st test despite some regulatory concerns
Jill Schachner Chanen

TimHortonsCanada.jpg

Breaking boundaries: Tim Hortons, owned by Wendy's, is partnering with hospitals, drugstores and other nontraditional locations to sell its doughnuts.

The watchword for franchises doing business in Canada is regulation.

Long known for its free trade and anti-regulatory environment, Canada may soon be subjecting franchisors to disclose requirements that mirror some of those found in the United States.

Alberta’s provincial government is the only entity in Canada that now regulates franchises. The province’s laws require franchisors doing business there to provide disclosure documents and to release their financial statements to prospective investors. The province of Ontario, home to Toronto, may be the next government to regulate the franchise industry, experts believe, but they’re not certain that regulation will actually occur.

Ontario two years ago began studying the need to regulate franchises and recommended the province adopt disclosure laws, reports Frank Zaid, a partner at the Toronto law firm of Osler, Hoskin & Harcourt and general counsel for the Canadian Franchise Association (CFA).

Actual content of the laws has not been settled, Mr. Zaid says. The proposed regulations are not intended to be broader than the existing voluntary disclosure policy of the CFA, he says.

Mr. Zaid, however, questions whether the requirements will become law.

“The times are fading,” he says. “There has been a change in the government in Ontario along with a change in the ministers in charge of the franchise industry. I think it is becoming more and more dubious as to when, or if, this sort of regulation will ever be introduced.”

The talk of regulation has not slowed the growth of the franchise industry in Canada, says Leonard Swartz, worldwide managing director of franchise services for Arthur Andersen LLP in Chicago.

And, some industry watchers say, the government has helped to create more franchise opportunities through the privatization of services.

“The government is getting out of running hospital food-services facilities. Educational facilities also are turning to franchises (for food service),” Mr. Zaid observes.

Franchisors who have been in Canada long enough to view it as a mature market are following the successful partnering or co-branding strategy used in the United States to boost business.

“We are starting to see McDonald’s and (Tim) Hortons (a Canadian coffee and doughnut franchisor owned by Wendy’s) in drugstores,” Mr. Zaid says.

However, there also is a swell of litigation over encroachment and market saturation. “We are experiencing much of the same legal issues you see in the United Sates,” Mr. Zaid says. “Encroachment is a huge issue.”

Despite concerns over proposed disclosure legislation and market saturation, Canada continues to attract franchisors looking to test the global-expansion waters.

“Canada is a melting pot for ethnic groups,” says Ariel Shlien, president of the Quebec-based franchise Mad Science.

“Depending on which province you are going into, you have different governmental and cultural requirements. It is a tremendous springboard for international franchising,” he says.

Indeed, the U.S. government encourages American businesses contemplating global expansion to start in Canada first. According to the U.S. International Trade Administration, Canada is an ideal first stop because of similarities in business practices, attitudes and environment.

The cultural and linguistic variances in Canada’s 10 provinces also give first-time exporters an appreciation of the complexities of overseas marketing.

In Quebec, for example, local laws require all business to be conducted in French, regardless of the clientele. Laws like these can be trying, even for Canadians, says Mr. Shlien. “In the United States the market is much more of a common one. Everyone is using the same language and has the same culture.”

However, a franchise that can successfully wade through the morass of cultural issues in Canada is likely to have a leg up on the competition when it expands internationally.

Says Mr. Shlien, “Canada is a great training ground for understanding and dealing with various cultures.”


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