IFA Launches International Toolkit

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The International Toolkit is now live at franchise.org/InternationalToolkit.  The Toolkit is designed to be a core resource for IFA Members interested in international franchising.  At the heart of the Toolkit are webinar courses that comprise a curriculum in franchising across borders.  Six courses are now accessible with more to come.  The Toolkit can be found prominently featured on the main international page of IFA’s website.

The free courses now available are:

  • Preparing Your Company to go Global, presented by Edwards Global Services
  • Development Models for Global Expansion, presented by DLA Piper
  • Legal and Regulatory Requirements of International Franchising, presented by Gray Plant Mooty
  • Drafting and Negotiating an International Franchise Agreement, presented by Dickinson Wright
  • Commercial Strategies to Export a Franchise to the U.S., presented by MSA Worldwide
  • Legal Aspects of Bringing Your Franchise to the U.S. – Myth v. Reality, presented by Gray Plant Mooty

IFA’s International Toolkit offers a number of resources beyond the courses. IFA has partnered with Getting the Deal Through Guide to bring members profiles of franchise laws in 42 countries. In an effort to support your international development, IFA has posted a calendar of international franchise shows in 2016 online.

Country profiles on IFA’s site will soon be dramatically improved. IFA worked with the Department of Commerce and World Bank to rebuild these pages so fresh data relevant to franchise companies is constantly available. Finally, if you want personal feedback, look at the international tracks of the FranShip program to get mentoring from an IFA member expert.

Speaker Ryan Creates Environment for Vibrant Policy – Will Congress Deliver?

Yesterday morning, Speaker of the House Paul Ryan (R-WI) delivered an address geared towards future generations and the promotion of policy debates, noting that Congress can play a vital role in restoring the American people’s faith in elected officials.  During his speech, the Speaker noted the political climate in Washington has devolved from meaningful policy discussions and turned to a game of identity politics that often leaves the public yearning for more. Even worse, Ryan noted that Congress should be part of the solution, rather than part of the problem. This entire narrative comes full circle with the Speaker’s promise to focus on making America thrive again, especially for those who are most vulnerable.

The American people are frustrated, and Speaker Ryan’s address serves as an elucidating moment for Congress: start serving the people or run the risk of diminishing America’s future potential. For those in franchising, and small business owners in general, the message could not be more salient. Entrepreneurs serve as the foundation for America’s economy and opportunity. Franchising alone accounts for nearly 8.9 million jobs – with an expected growth to 9.1 million in 2016 – and nearly $900 billion in economic output. For a business model that is churning out jobs and income for so many, one would think those in Congress would be working to promote and protect the industry. Unfortunately, Washington bureaucrats and organized labor groups are orchestrating a strategy that will hamper job growth and threaten the dream of small business ownership for countless Americans over the coming years.

If Congress takes to heart the Speaker’s message detailing efforts to eradicate poverty and promulgate effective policy solutions, the franchise model is a perfect place to start.  Take, for example, the National Labor Relations Board’s (NLRB) nebulous new “joint employer” standard.  For years, franchisors were legally separate entities from franchisees until pro-union bureaucrats flipped the standard on its head. As a result, franchise small business owners are cast into an abyss of uncertainty. Last year, Sen. Alexander (R-TN) and Rep. Kline (R-MN) took the initiative to introduce the Protecting Local Business Opportunity Act, a bill aimed at restoring the traditional standard. Unfortunately, partisan jockeying on the legislation prevented a floor vote, despite the fact it passed the relevant committees. This legislation represents a clear opportunity for Congress to get back to policy making and facilitating avenues of advancement for America’s impoverished. Speaker Ryan has made his intentions clear; now it’s time for elected leaders in Washington to serve their constituents by promoting a business model that positively impacts millions of America’s success stories.

States Lead the Charge Against Joint Employer Overreach

The National Labor Relations Board’s (NLRB) August 2015 ruling in Browning Ferris Industries completely upended the standard definition of “joint employer,” throwing thousands of business arrangements into limbo.  In doing so, the NLRB ignored legal precedent and can now hold franchisors liable with their franchisees for labor violations.  Despite this sweeping federal regulation, a plethora of state legislatures are defying the NLRB and passing legislation that preempts the new “joint employer” standard, opting instead for the traditional definition that franchisors and franchisees are separate entities.

A recent Bloomberg BNA article highlighted the role that IFA, along with other business oriented groups, has had on facilitating this proactive franchise legislation across the US.  “We are actively pursuing this legislation this year and have a strategy to continue pursuing this legislation in as many states as we can going forward,” said Jeff Hanscom, IFA director of State Government Relations. The IFA has successfully passed bills in Michigan, Louisiana, Tennessee and Texas, while legislation is moving in Colorado, Georgia, Indiana, Utah, Virginia, and Wisconsin.

Michigan is the most recent state to codify the franchisor-franchisee relationship, and bill sponsor Rep. Eric Leuthesuer (R) explained why he chose to take action on this issue: “What you are seeing in the states is legislatures looking at things that probably never needed to be addressed in statute because they were largely considered settled, common sense or intuitive for a long time. And now, because of court rulings, a lot of things that were common sense are now being thrown into some confusion, or potential confusion, or potential chaos. That’s not good for anybody.”

Through the Coalition to Save Local Businesses, the IFA continues to pressure Congress to act on the “joint employer” issue and provide a remedy for small business owners in America.  Judging by the success the IFA has had in state governments, it is clear that these legislators see the negative consequences impacting business owners in their districts, and states continue to lead the way.

Berlitz’ Pioneering Role in the History of Franchising

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One of the earliest marketing efforts of Berlitz, from the Atlanta branch

Records accidentally discovered during a renovation, together with company archives, prove that Berlitz started franchising in 1889 and is perhaps, the oldest franchisor still franchising today.

In 1978, Berlitz was conducting some renovation works at its Brussels center.  During the renovation, one of the contractors accidentally knocked off a wall and, to the surprise of the construction crew and the center staff, they discovered a hidden chamber.  What they found in that chamber was a treasure of history; not only for Berlitz; but also, for the franchise community as a whole.

Berlitz was incorporated in Providence, Rhode Island, USA in May of 1878 by German immigrant Maximilian Berlitz.   Some of the files that were found in that chamber included student records, contracts, lease agreements, pictures, certificates of business incorporation and more.  For example, there was a memo from the then current Queen of Belgium, requesting to keep her enrollment with Berlitz discreet.  There were documents from Nicholas the II, last Tsar of Russia, records of Mr. Berlitz being personally responsible for teaching English to Emperor Wilhelm II and, more relevant to this publication, documents related to the beginnings of Berlitz franchising, dated over 127 years ago.

Records found in this incident, together with archives from Berlitz France, proved that Berlitz started franchising in 1889 and is, perhaps, the oldest franchisor still franchising today.  Singer, although it does not franchise anymore, has been often credited to be the oldest franchisor in modern history.  Nevertheless, if we go by the modern conceptualization of Franchising, Singer probably lacked one element: royalties.

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Maximilian Berlitz

In 1888, Maximilian Berlitz granted its first Area Development Agreement for Europe to Henri Mallat, a dedicated Berlitz professor.  In 1889, Mr. Mallat granted the very first Berlitz Franchises in Germany and France.

In 1907, the Société Internationale des Ecoles Berlitz (SIEB) was set up. The new company was managed by Benoît Collonge & Wellhoff. The value of the company was based on 30 schools owned by the SIEB, 20 schools belonging to partners, 27 British schools and the franchise rights of 260 centers in Europe, Africa, Latin America and Australia. North America and Canada were managed by the Berlitz Schools of America (BSLA), of which Maximilian Berlitz was President.  By 1910, Berlitz already had more than 400 centers around the world.

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One of the early Berlitz schools

At that time, French was a widely used language for business.  The French term that was used for Berlitz Franchises was “Concession”.

Berlitz started with five common types of Franchises:

  1. With obligation to open a Language Center in a city(ies), town(s) or a region (Designated Territory); within one year (Development Schedule)
  2. With obligation to open a Language Center in the Designated Territory within three years
  3. No obligation to open in the Designated Territory but payment of a higher annual [royalty] fee
  4. Franchise License for a private teacher to teach at a particular place; typically granted for smaller towns, or
  5. À la carte

Since the early years, the Berlitz Franchise Agreements were well-structured, and contained the modern Elements of Franchising.  Among other information, they contained:

  1. The use of trademark “The Berlitz School of Languages”
  2. The right and know-how to “open, operate and profit from a living languages school”
  3. Designated territory
  4. Term of agreement
  5. Renewal terms
  6. Use of “Operations manual” or detailed guidelines for the setup and management of the center, including advertisement, insurance, payment of taxes, heating and lighting
  7. Royalties, typically paid every 6 months
  8. Initial fee
  9. Transfer of Franchise rights upon agreement by Franchisor

By 1912, Berlitz Franchise Agreements where approximately 10 pages long and, in essence, they were very similar to the franchise agreements we use today.

Franchisees and their families were often housed in the school and managed the centers as family businesses.  Some centers were owner-operated and others had Center Directors, upon approval by Franchisor.  It was not uncommon for franchisees to own multiple units, even in multiple countries.

The Edwardian era was a period of expansion, where royals and celebrities were teaching or being taught at Berlitz Centers.  Alfonso XIII, King of Spain, was being taught English, French and German; while Leon Trotsky, James Joyce and Wilfred Owen were teaching at Berlitz centers in Mexico City, Trieste and Bordeaux, respectively.

Then, the period of the two World Wars came.  It was a veritable calamity for Berlitz.  The international and multicultural nature of Berlitz had encouraged mutual respect and admiration among its staff and students.  The company, which had always transcended borders, would become the victim of its own success.  Disaster was unprecedented.  Many schools closed following bombing raids, or as a result of regime changes or because of redefinition of national borders.  The Berlitz teams were largely made up of French, British and German teachers.  People who had been close friends would become future enemies**.

In 1940, during WWII, Thérèse Delpeux was elected President and Managing Director of Berlitz becoming, perhaps, the very first woman in history to lead a global organization.

After WWII, the era of The Wonderful World of Berlitz came**.  There was a fast recovery, mostly due to a special grant that the American Army awarded to all veterans based in Europe.  GI applicants living in Europe could register up to 25 lessons a week (1 lesson is 45 minutes) in one or more languages of their choice.  Then, in the Sixties, franchising took a second breath.  For companies and society, it was a carefree time of great optimism, renewal and rebirth.  Classes took place in an extraordinary atmosphere and coming to Berlitz meant combining the useful with the pleasurable**.

The Berlitz Opera center in Paris, also known as the “Palais Berlitz”, was a veritable hive of language activity.  It was frequented by stars from the world of entertainment (Maurice Chevalier, Louis de Funès, Gérard Depardieu, Claude Brasseur), politicians (François Mitterrand), members of royal families (the Duke of Windsor) , and other celebrities whose paths crossed in the enormous maze of classrooms (more than 100 in this center!)**.

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Gina Lollobrigida and President Nixon using the Berlitz Italian Book

In 1966, Berlitz was acquired by Macmillan Inc. and, changing corporate strategy, the new ownership did not allow franchises from 1967 to 1972, with the exception of those granted in perpetuity; these being mostly in Egypt.

Then, in 1988, Macmillan Inc. was acquired by Maxwell Communication Corporation.  Upon the death of Robert Maxwell in the early nineties, Berlitz became fully owned by Fukutake Publishing Company (now Benesse Corporation); previously, a minority shareholder. Today, Benesse is one of the largest privately held education companies in the world, with annual sales of approximately 4.5 Billion USD a year.

Today, Berlitz continues to be the leading language and communication skills training company worldwide.  It operates over 450 centers in more than 70 countries.  Berlitz has taught millions of people how to speak a new language, better communicate and helped achieve their dreams.

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From left to right: Mark Harris, Rogelio Martinez, Constant Reinders and Marc Verger, during the Berlitz 2015 Franchisee Convention in Zagreb, Croatia.

Special thanks to Mr. Mark Harris, Chairman of Berlitz Corporation, who appointed Mr. Constant Reinders to study, sort and protect the Berlitz archives containing over a century of Berlitz history.  And thanks to Constant Reinders who, after 40 years of service as Berlitz employee, took this new assignment and published the book “Berlitz – 130 Years of Innovation and Passion for Teaching”.  This article based most facts and figures from Mr. Reinders book.  ** indicates excerpts from Mr. Reinder’s book.

About the author: Rogelio Martinez, CFE, is the President of Berlitz Franchising Corp., www.berlitz.com.  He is a member of the IFA’s International Committee and speaks 5 languages.

New Study: Franchise Businesses Suffer Most Under $15 Minimum Wage Increases

Increasing the minimum wage has long been a popular tactic for liberals in the political sphere seeking “fairness” for workers.  To the casual observer, the idea that someone should earn a so-called “fair wage” appeals to their moral conscience without immediately conjuring up the economic impact of such actions on a large scale.

While there has recently been a national debate about raising the current federal minimum wage from $7.25, Congress has rebuffed those efforts, based largely on evidence from the nonpartisan Congressional Budget Office that 500,000 workers would lose their jobs, wiping out any improvement in wage levels for those entry-level workers who remain in the workforce. In response, an increasing number of states and cities are being pressured by liberal activists to raise their own minimum wage.

Most localities have passed new wages based on economic and cost of living conditions. However, in some places, a unique and potentially damaging characteristic of some wage proposals has a trend to include a provision requiring families in local communities who own franchises to pay wages higher and faster than those paid by non-franchise businesses.

Take the city of Seattle or the state of New York for instance. Each passed an increase in the minimum wage to $15 per hour, both discriminatory in their own way.  In Seattle, the legislation considers independently operated franchisees as ‘large employers’ because they contract with a brand, and subsequently forces them to implement the increase faster than local, non-franchise businesses. Meanwhile, in New York, Gov. Cuomo unilaterally targeted quick service restaurants through a “Fast Food Wage Board” which consisted of no small business owner representation. This wage increase required those families who operate a local restaurant with 30 or more locations nationally to pay a $15 minimum wage, and leaving other businesses at the more modest $9 state-wide minimum wage.

Perhaps the most perplexing notion in both cases is that wages were raised under the auspices of fairness.  What could possibly be fair about requiring one family who owns a small business to implement a wage at a faster pace than another, or leaving those employees who DON’T work for these businesses at a lower rate.

To address the impact of this new trend in policymaking, new research from the Employment Policies Institute (EPI) overwhelming disproves the notion that franchise businesses could absorb an increase in the minimum wage easier than non-franchise businesses.  According to the study, franchise businesses would be impacted more, with over two-thirds of franchise small business owners saying that they would be forced to reduce staff or reduce hours to compensate, compared to roughly half of non-franchise businesses.  Additionally, 54 percent of franchisees said they would likely use more automation, compared to just 37 percent of non-franchise businesses.

“This study confirms that local franchise businesses, who form the fabric of their communities, should not be unfairly targeted for higher labor costs than non-franchise businesses,” said IFA Director of State Government Relations and Public Policy Jeff Hanscom. “Arbitrarily forcing higher labor costs on franchise small businesses will reduce employment for those who need it most, while stripping neighbors of their ability to own a small business.”

As policymakers around the country continue to face pressure from local activists seeking to raise the minimum wage to exorbitant levels, it is clear they should avoid choosing winners and losers.

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