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Taking on franchise business

30th Sep 2006

With the entry of several multinationals, the Indian retail sector is swiftly embracing the concept of franchising as a way of doing business.

Clear reasons for adopting a franchising model:-

Area monopoly is the best route to establish scale without the risk of large investments in a new, unfamiliar country.

Many global players indicate an affinity with franchising, especially as a market entry route to test potential and build scale till further FDI is allowed

Real estate rentals in Indian cities are typically higher than global benchmarks

The vast spread of the Indian consuming class and localization of consumer preferences and buying behavior makes the franchisee route an easier way to learn market realities

To Indian businesses, franchising allows rapid expansion and brand building, creates efficient distribution, drives entrepreneurship and allows transfer of superior processes, technologies, IP, marketing and designs on the back of limited capital requirements.

As long as brands and processes are consistently deployed and executed, franchisors and franchisees stand to benefit all the way.

Even though, aggressive franchising can also result in a loss of control.

The franchisee is expected to follow guidelines on the use of systems, trademarks, assistance, training and marketing, while operating within a tightly monitored approval process.

Not only is a well-framed franchisee agreement critical but it is also vital to insert clauses such as buy-out options and franchisee assurance through a third party.

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