Franchise Fundamental – Franchise Opportunities

Franchise Fundamental – Franchise Opportunities

The Upsurge in Economy

India is a vast country with a population of more than one billion people. financial institutions, excellent local financial and banking institutions and a government that is now open and willing to accepting foreign investment and other inputs. Following its phased opening of the many stifling government regulations starting in the early 1990s, the economy is doing extremely well with an achievement of attaining a GDP growth rate of 8% to 9% annually the last few years and a similar increase projected in the coming years. The services and manufacturing sectors with double-digit growth rates are doing exceedingly well and India’s lead position in the information technology domain is well-recognized all over the world.

The economy is backed by strong fundamentals, with a vibrant and well- regulated stock market with a stable interest of U.S.

The Revolution in Retail

This change is clear and visible not only in the large metropolitan cities such as Mumbai, Delhi, Chennai, Kolkatta, Bangalore and Hyderabad, but is fast invading the many tiers one and tier two cities, including Chandigarh, Pune, Ahmedabad, Kanpur and many others as well. The retail scene in India is currently undergoing a “sea change” with the emergence of scores of modern retailing malls, stores and multiplexes all over the country instead of the earlier dominance of millions of mom-and-pop stores and retail is the fastest-growing sector of the Indian economy.

With increasing purchasing power and changing lifestyles, particularly of the growing middle class of more than 250 million people (of this about 30 million have a combined purchasing power of US$230 billion and the six million “rich” have another US$28 billion, according to a recent Ernst & Young study, there is an increasing clamour for and acceptance of modern and convenience products and services leading to the entry of many new brands and products in all categories. Banks and financial institutions have become increasingly liberal with credit availability and terms and the credit-card revolution is playing a major role in increasing consumption in all sectors of the economy.

Franchise Fundamental - Franchise Opportunities

Franchise Fundamental – Franchise Opportunities

The Market and Potential

In spite of the rapid growth of franchising in the recent years, it constitutes as of now about 2% of the total retail sale of about US$405 billion while in developed markets, such as the United States, franchising accounts for more than 50% of total retail sales.

The presence of a large Indian population all over the world, including in the United States, and increasing international travel is contributing to the easy recognition of foreign brands and the Indian media is doing a great job in fueling demand for foreign and local brands. This is indicative of the enormous potential that lies ahead for the growth of franchising in India.

Another important factor that is promoting the growth of franchising is the huge entrepreneurial energy and skills that are available in the country and this is generated and supported by the demographics wherein more than 50% of the population is less than 25 years in age and more demanding of improvement in the quality of their lives. With changing lifestyles, growing income levels, demanding customers and the advent of modern retailing the franchise market is growing rapidly.

Current Status

While franchising as a business model has been known in India for decades there is clearly an unprecedented interest in adopting this model in recent times as is evident from the growth rate of 30% to 40% per year as witnessed in the last four to five years.

In addition, there are many homegrown companies going into franchising in a large number of areas of the economy that include computer education, restaurants, healthcare logistics, beauty parlours and apparel. There are already more than 600 franchising systems operating in the country with a large number of foreign and particularly American brands that include McDonald’s, Pizza Hut, UPS, Medicine Shoppe, Kodak, Gold’s Gym and KFC.

Advantages of Franchising in India

India, with its huge market and growing demand in all sectors of the economy, is an extremely attractive proposition for the entry of foreign brands through the franchising route. The key attractions for this are:

Huge Market

The size and geography of India are ideally-suited for business through the franchising model, particularly in the services’ sector of the economy. This helps to build the spirit of a partnership through easy communication.

Cultural Empathy

Franchising is an eminently-suited business model for the entrepreneurial psyche of an average Indian businessman who loves to have ownership and control of operations and, being family-oriented, finds it an attractive proposition to pass on the business to future generations.

Combining with people with local market knowledge can be an enormous help in dealing with meeting the market needs of the diverse country that India is. These challenges include:

Understanding the Market

The first and fundamental need in any business is to understand the market for its product or service offering and one of the common mistakes in this context is to expect too much too soon. Lower Capital Requirements

Franchising provides a favourable model both for the U.S.

It is only through this study that will help to determine the choice between going in for a single master franchisee for the whole country or a master franchisee for each of the four major regions or even the need for a joint- venture model if required.

Laws and Language

With English as the commonly-spoken language, the ongoing relationship between the franchisor and the franchise becomes much easier to manage.

The choice of a partner will clearly depend upon the type and profile of the business.

FAI is currently in the process of organizing a mega event in the form of an exhibition, conference and an awards program March 2 to 4 in New Delhi.

The current law of Contracts and the Trade Marks Act provides sufficient protection for a foreign franchisor in the event of emergence of any legal issues.

Franchising Association of India

The Franchising Association of India was set up about five years ago as a membership association of franchisors, franchisees and other related interests.

Some Challenges

Doing business in a foreign land always has challenges and India is no exception.

Franchise/License Fee

While there is no embargo on remittance of profits out of the country, the current government regulations allow a liberal one-time payment of a franchise fee by the franchisee of up to US$2 million under a technical collaboration arrangement and an ongoing franchise fee payment of up to 5%of the revenue. The major activities include:

• Education Provides a variety of media and forums, such as seminars, workshops, conferences, a magazine and newsletter.

• Marketing Creates opportunities to showcase and help market franchising systems through events such as exhibitions.

• Networking Brings in and promotes sactices through international and local networking within the franchising community.

• Support Services Connects interested parties with the specialist to provide advice and help.

• Advocacy By being the voice of the franchising sector in India, such as lobbying with the government on related issues as required. This is a recognized association and by virtue of being a member of the World, Franchising Council is closely linked with other WFC-member associations in countries around the world including the International Franchise Association.

The basic objective of FAI is to promote the concept of franchising and the related best practices.

Choice of Partner

This is one of the crucial requirements in the franchising business and a good deal of thought and care is needed in identifying a proper franchisee who wants to enter the business for the right reasons and has the required capital support available.

Some businesses have chosen to go in for two joint venture arrangements (one for north and east and the other for west and south) and the partners, in turn, have appointed a large number of franchises around the country and their network is expanding rapidly. The regulations, however, allow consideration of requests for payment of more than a 5% franchise fee by the Reserve Bank of India on a case-by-case basis. This will provide an excellent opportunity for prospective franchisors to participate since the event is expected to draw thousands of potential franchisees and other visitors. A detailed and thorough study of the market for a specific product or a service is definitely advisable. Help in this context is possible from the Franchising Association of India or some competent consultants available in this domain.

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