Global Market Leaders: A Franchising Overview

Global Franchising in an Era of Regulatory Scrutiny and Technology Transformation: Uncertainties Abound

The global franchising landscape is currently defined by a paradox: while appetite for cross-border expansion has reached new highs, the legal environment has become increasingly granular and jurisdiction-specific. The regulatory landscape resembles a kaleidoscope – basic structures reappear, but the patterns follow no uniform template. For franchisors and their counsel, success now requires navigating a world where jurisdictions increasingly adopt franchise-specific laws and regulations driven by local policy objectives. Some recent developments illustrating this around the world are set out below.

Australia

Australia’s new Franchising Code of Conduct (the “Code”) took effect on 1 April 2025, with further obligations becoming mandatory for agreements entered into, transferred, renewed, or extended on or after 1 November 2025. The new Code eliminates certain ancillary disclosure documents but also expands civil penalty exposure and introduces new disclosure requirements regarding significant capital expenditures and specific purpose funds. Franchise agreements must also now provide franchisees with a reasonable opportunity to earn a return on franchisor-required investments and must include compensation provisions for certain early termination triggers, including where a franchisor withdraws from Australia or changes its distribution model. Additionally, the new Code restricts the use of post-term non-compete covenants in specified non-renewal circumstances. Unfair contract terms remain a separate compliance priority. Since November 2023, unfair terms in standard-form consumer or small business contracts may attract significant penalties, and the Australian regulators view many franchise agreements as standard-form small business contracts.

Costa Rica

After years of pending drafts, the Law for the Regulation and Promotion of Franchises (Law No 23,448) came into effect on 12 March 2026. In addition to mandating pre-sale disclosure at least 30 calendar days before execution of the franchise agreement, the law raises franchisor accountability, requiring evidence of effective know-how transfer and ongoing technical assistance. It also establishes a franchise registry to track activities in the sector. Continuing the recent trend of “intrusive” regulatory requirements by franchise regulatory authorities around the world, the law provides that non-compete clauses are now capped at five years, and post-term restrictions generally cannot exceed one year.

The EU and UK

At the EU level, the Vertical Block Exemption Regulation (EU) 2022/720 and the Guidelines on Vertical Restraints are central to assessing restraints in agreements between businesses operating at different levels of the supply chain, including franchisors and franchisees. Common restraints include restrictions on territories, online sales, distribution models, non-compete obligations, and resale price maintenance, which franchisors commonly use in an attempt to control those aspects of their networks.

In the UK, the Vertical Agreements Block Exemption Order 2022 (SI 2022/516) performs a similar function, though there are post-Brexit divergences; for example, wide retail parity obligations imposed by online intermediation platforms are treated as hardcore restrictions under the UK regime. A more recent UK development is the Digital Markets, Competition and Consumers Act 2024, which will significantly enhance the regulators’ civil enforcement powers and introduce new consumer protection rules on pricing practices (including “drip pricing”), subscription contracts and customer reviews in consumer-facing franchise networks.

Adding to the complexity, there is no single, harmonised franchise statute across the EU; franchisors must navigate EU-level competition, consumer, and digital rules alongside national franchise disclosure, agency, employment, and commercial-law regimes that may shape the same network differently country by country.

South Korea

Regulatory authorities in South Korea have intensified their focus on “cha-aek” (the margin on products supplied). Recent enforcement actions emphasise that hidden margins in supply chains must be clearly disclosed. Failure to provide transparency regarding these mark-ups is no longer just a relationship issue but, rather, a significant regulatory risk that can lead to substantial fines and contract rescissions. Not only has this resulted in high-profile actions against certain franchisors, but the Korean Fair Trade Commission has proposed to increase the penalty for repeat offenders in violation of the Fair Franchise Transactions Act and to limit the penalty reductions possible for for co-operation from franchisors, proposals that were open to public comment until 9 June 2026. In addition to increased enforcement actions by the Korean government, new amendments to the Fair Franchise Transactions Act are set to transfer significant power to franchisees. These amendments, passed by the National Assembly in December 2025, include a nationwide registration system for franchisee associations and the introduction of collective bargaining rights for franchisees in negotiations with franchisors. These amendments are expected to enter into force in late 2026 or early 2027.

Digital transformation reshaping global franchising

At the same time, the franchising industry globally is undergoing a technological transformation. COVID-era restrictions certainly provided a jolt to the digitalisation of the franchising industry, and this transformation has only accelerated in recent years. A growing number of European and Asian franchisors, along with innovative US brands, are leading the charge in pursuing omnichannel strategies and turning their systems into digital platforms that provide an ever-increasing array of services to their franchisees.

This combination of hyper-local regulatory requirements and the commercial appeal of fully integrating franchisees into a franchisor’s digital platform has led some well-capitalised franchisors to conclude that, for certain markets, it may be more effective to establish a presence in the local market, prove the concept with company-owned pilot units, and then franchise to a larger number of smaller operators who can leverage the franchisor’s digital platform.

For many franchisors, however, a more practical approach to managing these uncertainties is to find the right balance in their relationships with large, well-established, multi-unit operators. Over the past decade, multi-unit franchising has overtaken master franchising as the preferred growth model, particularly for franchisors in the restaurant and retail sectors, and in markets across the Middle East, East Asia, and Southeast Asia. By partnering with multi-unit franchisees, franchisors hope to simplify the regulatory compliance processes and leverage the resources and local expertise of these operators to establish the necessary digital and operational infrastructure.

Looking ahead, we expect more jurisdictions to follow the lead of the USA and South Korea in scrutinising “hidden fees” and undisclosed margins. This trend will pose particular challenges for two categories of franchisors. The first includes those deeply integrated into the supply chain and sourcing arrangements of their international franchisees. The second includes those providing comprehensive technology solutions to their franchisees and seeking to collect fees for these services beyond traditional royalties. For both groups, striking a balance between operational flexibility and financial transparency will be essential.

Speaking of technology, AI is penetrating global franchise systems at an unprecedented pace. We anticipate that disputes will emerge regarding IP ownership and operational control over AI-driven customer interfaces, as well as how the costs of AI system-wide implementation will be allocated between franchisors and franchisees.

For franchisors and their lawyers, the mandate is clear: franchising in 2026 and beyond requires a proactive, rather than reactive, legal strategy. By striking the right balance between transparency and flexibility, adapting to the digital economy, and staying ahead of a shifting regulatory landscape, franchisors can continue to thrive on the global stage.