Overview
1. Franchising in India
Home to over a billion people, including a flourishing class of urban consumers possessing considerable amounts of disposable income together with the continued growth of the economy have strengthened India’s claim to be a viable and beneficial destination for a foreign franchisor. Franchising is a marketing format, a very powerful way of retailing goods and services. It is a business partnerships it involves two parties, the franchisor and the franchisees. The franchisor provides the know-how, training, system and the brand whereas the franchisee forms the front end and is responsible for managing the business unit. In the USA, almost a third of the retail sales come from franchised outlets, with sales of trillion of dollars while in India, the industry is few million.
There are close to over 70,000 franchisees, with an annual turnover anywhere between US$ 4 billion from franchising. It is estimated that the total investments made by Franchisees is over US$ 2.8 billion and over 400,000 people are directly employed by franchised businesses.
An important aspect which determines the feasibility of any franchising business in a country relates to the class of consumers it caters to. India is a multi ethnic country with the second largest population in the world. Indian consumers have experienced the standard of services offered overseas and have sufficient exposure through media, which has further fuelled their expectations.
• There are approximately 1150 national and international business format franchise systems in India in 2007;
• Around 8 to 10 per cent Indian franchise systems have entered international markets.
• There are an estimated 70, 000 units operating in business format franchises.
• The growth rate in franchised units from 2005-06 to 2006-07 was 30 to 35 per cent for the last 4-5 years.
• Some 500000 persons are employed in business format franchise organisations
• Franchising contributed less than 4 per cent to India’s Gross Domestic Product (GDP) in 2007.
- Successfully doing business in more than 35 sectors
- Annual turnover is approximately us$ 4 billion
- Retail industry accounts 10% India’s GDP and 7% employment, $ 17 billion by 2010.
Almost every product or service has a market in India but sometimes, innovative strategies like “Indianisation” of its products and marketing techniques must be employed by a foreign franchisor to further access the sizable market of India. In a franchised business, over 90 per cent succeed. This success rate usually lures entrepreneurs with no experience but with a surplus capital and a will to succeed towards franchising. The franchisee is a dedicated entrepreneur and not a salaried employee, thus he is more likely to slow greater commitment dedication, interest and involvement. The franchisee benefits from a tried tested and proven business concept, which can dramatically reduce the chances of failure.?
Franchising potential in India:
Though the Franchising in India is at a very nascent stage, but this industry has clocked the growth rate of 25-30 per cent, the second fastest growing industry. Franchising, as a dynamic and ever changing industry will firmly establish itself in a couple of years. Organised retailing though only at 6 per cent of the retailing, will take off in a very big way. The Indian middle class is slowly expanding and now buys consumer appliances with more disposale income. India offers lot of potential for the franchising community. Apart from Indians being very entrepreneurial, franchising as a way of doing business has been well accepted.
However, there is no specific legislation regulating franchise arrangements in India, but there are various laws which affect the relationship between the franchisors and franchisees, including intellectual property laws, taxation, labour regulations, competition laws, property and exchange control.
