Business format franchising and its variations have become increasingly popular in developing countries. Muslim entrepreneurs should analyse and resolve to bring Islamic Business Ethics into the franchise business models.

Upon close examination, we can observe that the franchise model allows one to export not only a product or specific service, but also ‘cultural values’ including brand values, product composition and production methods.

Consider the fact that a service franchise permits offering a service under the sign, trade name or trademark of the franchisor. Under a production franchise, the franchisee himself manufactures in accordance with the franchisor’s directions. A distribution franchise requires the franchisee to sell certain goods in a store which carries the franchisor’s sign.

Once the Muslim entrepreneur truly appreciates the power a franchisor can exercise and the values it can export, it will be clear that franchise, distribution, and management agreements will take on new strategic importance. The Muslim lawyer’s role in drafting agreements must include skilfully fashioning acceptable terms and conditions to support the concepts of Halal and Tayyib (good).

We can also view franchises as either ordinary, investment, or conversion franchises. In the ordinary franchise, the franchisee is accepted by the franchisor, trained in the ‘know-how’ of the franchisor and franchisor’s ‘control systems’. As an investor in an investment franchise, the franchisee (individual or corporate entity) invests funds in a franchise but has little to do with operations. Operations are defined in the controlling agreements. For conversion franchisem we see the franchisee is in the same business as the franchisor and selects franchisor’s system. For example, if a restaurant selling fast food decides to acquire a Halal fast food franchise, all of these scenarios present an opportunity for inclusion of Halal and Tayyib on the franchise business operational agreements.

There are several alternatives to international franchising that provide control and facilitate exporting Halal and Tayyib products and business practices.

Muslim entrepreneurs can bring dynamic new meaning to the following traditional business models:

a)      Establishing branches abroad;

b)      Establishing overseas subsidiaries;

c)      Entering into joint ventures with local ‘partners’;

d)     Appointing overseas agents/ distributors to sell only Halal products provided by the supplier;

e)      Trademark licensing; and

f)       Acquisition of a target company to comply with the objectives of the purchasing company.

The advantages of international franchising and alternatives will differ in each particular case.

It can offer the Muslim entrepreneur the opportunity to avoid interest-based finance in order to expand and establish overseas ventures.

Depending on the business model selected, the franchisor will be able to manage and develop its international franchise organisation through a central office.

Proper structuring of the agreement will enable political problems, such as import distribution, and investment restrictions, to be more easily managed or resolved by passing the control of day-to-day affairs over to an indigenous developer/ sub-franchisor.

The Halal logo is one of the world’s most valuable trademarks. Its value is intrinsically linked to the credibility of the Halal and Tayyib standard, and of course the approximately two billion Muslim consumers that want products and services that are held to a higher standard.

Any company that wishes to penetrate international markets with a product or service that is market proven and fits one of the franchise models has the potential to be a global player.

**This article was first published in The Halal Journal Sep/Oct 2005 edition, and was written by Dr. Floyd A. Young.