The India Franchise Business Synopsis: A Perspective To Franchising In India

Abstract:
Quoting from Nobel Laureate Professor Muhammad Yunus, it can be said that ‘every Individual is an entrepreneur’, but it is evident that the degree of one being an entrepreneur varies. This is because people thinks, interprets and practices ‘entrepreneurship’ differently and that is why it is rightly said that there are many ‘models’ for Entrepreneurship. Even in today’s modern business place, the idea of getting associated with entrepreneurial activity as a part time business (read finding side income source) is also catching. With these background, when people explored ‘options’ for entrepreneurship, franchising as a route towards entrepreneurship comes in a profound manner because this is considered as an entrepreneurial business option with lesser Investment and risk. Moreover, the events like phenomenal retail boom in India, entry of various international brands in Indian market, increasing number of people with substantial invest-able funds and importantly recognizing the idea of ‘own boss’ give further boost to the ‘Franchising route to Entrepreneurship’. Still, as study says Franchising’ in India as business contribution is still in a nascent stage, it is also true that franchising as an entrepreneurial practice still not much explored and practiced in India. This paper try to put some light on the same line and also put effort to understand associate issues with franchising system in India and how entrepreneurs can exploit Franchising as a viable business option.


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Introduction:

The understanding of entrepreneurship seems to be very interesting because different people think, interpret and practice entrepreneurship in different manners. So the issue ‘what is entrepreneurship or who is an entrepreneur’ has become less relevant, rather ‘what makes entrepreneurs entrepreneurial’ become very purposeful to the entrepreneurship researchers. This issue is addressed by D. Sarasvathy in one of his Harvard Business Review submission as, ‘Entrepreneurs are entrepreneurial, as differentiated from managerial or strategic, because they think effectively; they believe in a yet-to-be made future that can be substantially be shaped by human action’. Traditional start up’s, intrapreneurship or social entrepreneurship what ever may the route the driving mantra for an entrepreneur remain same. Today, encouraged by the same mantra – effective thinking and a yet-to-be made future, people find new routes to experience entrepreneurship. Changing mindset and positive entrepreneurial environment give birth of the new models of ‘entrepreneurial journey’, which are very much relevant and prevalent in the society.

In his article ‘The many models of entrepreneurship’, entrepreneurship thinker Mohan Babu manifested the same and came up with such relevant and prevalent models of entrepreneurship. According to him, the followings are the new ‘entrepreneurship models’ that has emerged in the society.

Consultant model: Mostly common among academicians, corporate executives, IT
Professionals – who have niche domain expertise and gain a ‘brand’ name while working. They find it convenient and lucrative to start consultations using the industry contacts and domain expertise, after retiring from their regular job.

Moonlighting model: This model is common among those who want to practice
Entrepreneurship ‘part-time’ without involving full-time. For example, doctors working for hospitals or clinics as a ‘visiting consultant’. Some professionals take the public speaking or column writing in the same fashion.

Brilliant Idea model: Professionals and other workings may have a “million dollar idea” that has altogether different perspective from the same every day idea. Many times, these people take their new/ innovative idea to the employer with a suggestion to implement it on the job. Sometimes, when the management does not take up the ideas, they adopt the entrepreneurial route if they have strong believed/ faith about it.

Existing business/Franchise model: Sometimes, individuals who do not want to continue in the corporate world decide to start their own venture in a domain they are comfortable. Such ventures may take the form of small businesses or franchises. In the franchise model, the aspiring entrepreneur approaches a corporation (franchisor) and takes on the responsibility of running his business using the brand and marketing support from the enterprise. Though Babu does not mention it, it is also seen that people with surplus capital like to invest to take a franchisee ownership along with an existing job or after retiring a full service life. Now this Franchise model as an entrepreneurial route is extremely interesting because of its certain characteristics like – flexibility of involvement (part time/ full time) as an entrepreneur, unrestricted domain choice irrespective of expertise and significant high success rate compared to start ups. As a result, ‘franchising route to entrepreneurship’ is considered as a highly attractive entrepreneurial proposition and proving its potentiality (if already not proved! at least In India) amongst the entrepreneurs. Hence from an entrepreneur point of view, it become extremely important to understand the franchising system, associate issues with it and to know how they can exploit Franchising as a viable business option.

Understanding Franchising:
Franchising happen when some enterprise develops a proven concept and then transfers the trademark and business know-how to an entrepreneur, termed franchisee. The franchisee usually gets the right for a specific time period and in a specific geographic area for a one time franchisee fee and loyalty. The enterprise, which develops the business concept, is termed as franchisor. The franchisor provides different systems and supports to the franchisee.

Hence in technical terms, franchising is neither an industry nor a business, rather franchising is a method of doing business within a given industry. It is a business partnership and like all business partnerships it involves two parties, the franchisor and the franchisee. The franchisor provides the know-how, training, system and the brand, whereas the franchisee forms the front end and is responsible for managing his business unit. Technically, the ‘Franchising contract’ binds the two parties is the system.

Figure 1: Franchising System and Support Services Model

A Win – Win Proposition:
The most interesting part of franchising system is its win – win propositions between the two parties – franchisors and franchisee. Both the parties engaged in the ‘deal’ can reap substantial benefit from the franchising system. It is said that, a franchisor gets three fold benefits from franchising. Firstly, franchising acts as a distribution model for the franchisor, which helps them to growth rapidly. Secondly, it reduces the set up risk as risk is shared by the franchisee members and thirdly, franchising ultimately.

Helps in brand building and acts as a consumer interface amongst the populace.
Franchising help franchisors to have –

o Greater access to capital
o Better utilization of operating cost
o Presence rapidly both in known and less unknown market places
On the other hand, franchisee also enjoys benefits from franchising. In most of the cases,
Entrepreneurs have limitations in terms of capital, business know-how and have to deal with certain degree of risk. But franchising helps an entrepreneur (franchisee owner) in various aspects like –

o Get an association with an already known trade mark or service mark.
o Lesser investment and degree of risk
o Shorter learning curve
o Economies of scale
o Business System and operation support
o Advertising and promotional support
o Recruitment and training (of the employee) support, etc.

Most common form of Franchising Systems:

Master Franchising System: In master franchising the franchiser grants rights for a particular area to the master franchise for a front-end master franchisee fee. The master franchiser takes the responsibility for appointing further individual franchisees within that area. McDonald's, TGIF, Pizza Hut etc. have adopted this system in India.

Area Development Franchising System: In an area development agreement, the franchiser grants development rights of a particular area to the franchisee in turn for a front-end development fee. The franchisee on his part is responsible for developing a certain number of units within a given period of time. Excel InfoTech EIIT has adopted this unique mode of franchising.
Exclusive Showrooms: In an exclusive showroom the company or the franchiser grants
Exclusive showroom rights to the franchisee with the condition that the franchisee shall stock only his brand of products. The franchisee profits by being given stocks at lesser price than other retail outlets. This system is widely followed by brands like Raymond's, Allen Solly, and ColorPlus.

Successful entrepreneurship through Franchising:
Though India is considered as a country of entrepreneurship, it hardly ever witnessed entrepreneurship at a mass level in any of the form. Franchising also is not an exception for that and the reasons are specific of its context. It was limited to the few people with better ‘information and capital’, and was never able to attract the mass level of the society. But with the course of time the scenario has changed and has accepted by mass level (specially middle, lower middle class) at a much greater extent. People, who are not from very high business background come forward, opt franchising and found it effective. Many people made their best possible future from out of that. The simple proposition of ‘franchising’ and its uniqueness of business proposition play the crucial role and made possible for a mass level of entrepreneurship, yet not complete but just the beginning, thanks to franchising!

On a macro level, the greatest benefit of a ‘franchise system’ is that a large numbers of entrepreneurs in the form of franchisee owners work together to achieve a common goal. The franchisee is a dedicated entrepreneur and not a salaried employee, thus he/she is more likely to show greater commitment dedication, interest and involvement. They are they are intelligent enough to understand as they are working with a tried tested and proven business concept; the chances of failure of the venture reduce significantly.

Reasons that boost the idea of ‘Franchising route to entrepreneurship’:
The following are the primary and major reasons that boost up the idea of ‘Franchising route to entrepreneurship’.

Lesser investment and risk factor:
In franchising the initial investment and risk associated with it is much compared to a start ups. In most of the cases, ordinary start-ups face problem of huge investment, evaluating an opportunity and lack experience about the business know how. Thus they carry a huge risk. While in case of franchising the initial investment is generally lesser, in fact, the investment can be ‘chosen’ by the entrepreneur as per his/ her financial resource is available. Not only that, risk factor also significantly come down as the entrepreneur (owner of the franchisee) get the tested business concept, marketing and sales support, staining and staffing support, other consulting support. These facts actually encourage the people to become an entrepreneur by taking a franchisee ownership.

Proven track record and less failure rate:
Study says, 90% of start-ups fail in the first year itself and those survive, 90% of them fail in the next two years. On the contrary, for a franchised business, the result is completely opposite. In franchised business over 90% ventures are successful. This high success rate usually attracts entrepreneurs, with no experience but with a surplus capital and a will to succeed, to move towards franchising.

‘Wide range of options’ in franchising business:
Franchising as an entrepreneurial option is extremely flexible in nature. Franchising, by its nature and the way it operates in the market offers a wide range of ‘alternatives’ to the Entrepreneur. The entrepreneur can decide his/ her business as per his expertise, interest and resources.

The idea of such ‘alternatives/ options’ comes from different aspects.

o Options for choosing a sector: e.g.: food, education, clothing etc.
o Options for selecting a ‘franchisor brand’ from the chosen sector
o Options for engagement in business: Full time – part time; main business – side business
o Options for ‘investment’: Ranging from thousands to Crores. \

Increase in personal / household invest-able capital:
In the new economy, Indian individuals and households have more surplus capital because of better job opportunity and multiple earning members. And interestingly, unlike earlier, people, become more open to invest their surplus capital for a better return. They look for means of investment and find investment in the form of a franchised business is a better and smarter way to utilize the surplus capital. Again, they realize that the investment in franchised business is somewhat more ‘controllable’ and return are convincing. These help individual/ households to take decision in favour of a franchised business.

Recognizing and believing the idea of ‘own boss’:
These days people became more future conscious and look for job flexibility and freedom. They are now recognizing and believing the idea of ‘own boss’ and became more open to be an entrepreneur. And in many cases, realizing their lack of entrepreneurial experience and resources they decide to have a franchisee ownership and cherish the experience of running own business. This idea is gaining popularity in a rapid way. Depending on cases, they prefer to carry the franchised business either from home or from an outside location. Even the retired individual, housewife community also found this business proposition very convenient and shown keen interest about it.

Again, there are few factors, which play indirect role in emergence of franchised business. These factors can be categorized as - recent retail boom in India, entry of various international brands in Indian market, rapid growth of Indian economy, huge and fast growing consuming class, entrepreneurship revolution etc.

Franchising take in India:
In India, the concept of franchising started around seventies but didn’t get much acceptance till nineties. Traditionally it was limited to few sectors like IT training, clothing and footwear sector etc. Today in India, the acceptability for franchising system is much stronger, which helps franchising in India to touch a new height. It has forayed into all industries from Food and Fuel to health and travel. The franchising trend in India includes – domination of service sector, growth in retail franchising, introduction of many master franchisees by international franchisors etc. Today franchising spread across the country, providing immense opportunity to the entrepreneurs.

Franchising: Facts and figures in India:
There are more than 1200 active franchising systems currently operating in the country which are spread across the different sectors.

More than 50000 franchisees (across the sectors) are involved in the system.

The annual turnover achieved by franchise business in India touches Rs. 12,000 –
13,500 Crores approximately.

The total investment (annually) made by the franchisees is over Rs. 7,000 Crores and
Rapidly growing at the rate of 25-29%.

More than 650,000 people are directly employed by franchised business.

Around 180 foreign franchisors are already existing and operational in India and many are more coming or planning to come shortly.

Variety of franchising formats (retail franchising– non retail franchising / pure
Franchising – management contract franchising – hybrid franchising) are practiced across the sectors.

But even after having these encouraging facts and figures it can be said that, Indian franchising still remains in the nascent stage if compared with the global scenario. The concept of franchising is widely accepted and practiced globally, specially in USA and Western Europe supported by well-structured law, infrastructure and strong business framework.

In US, $1 trillion is estimated as annual sales from franchised outlets where 50 % retail trade is done through franchised outlets only. US franchisors often use franchising mode as a strategy for global expansion.

Franchising across the sectors:
As proven a mode of faster growth option of the business, franchising is found in almost all major sectors. Though, depending on the nature and practice of the sector, some sectors had already started experiencing the franchising revolution while in some sectors it is yet to start. Involvement of various foreign players also plays a key role in this issue. The major sectors which consider ‘franchising’ as a strategic growth vehicle includes beauty salons and supplies, business services, clothing, education & training, food & beverage, retail, travel etc.

Franchising: Different modes:
In practice franchising is found in different modes. Across the sectors, franchise systems offer varying types of units or programs of single type or in combination of more than one. Though the majority of franchise systems come in the form of stand-alone or in-line store, several other mode are also available includes, kiosk, satellite, express etc.
Broadly the major categories are as follows:

o Standard - a stand-alone or in-line store location

o Cart/Kiosk - non-fixed units, generally in malls or other captive market locations

o Express - smaller units, typically with limited services

o Home Office - franchisees may work out their homes

o Institutional Location - based in hospitals, military bases, schools, etc.

o Satellite - unit operates as a satellite or branch office of the system

o Vehicle/Mobile - units that are based out of a vehicle

o Other - a variety of unit-types

Different modes of Franchised Business in India
Source: Annual report by Franchise Association of India

Number of outlets:
The distribution of no of franchisees having by different franchisors is also very interesting. In India, it shows that almost 7% franchisors have more than 500 franchisees (each), which is very convincing figure for a relatively nascent concept.

Analysis of Franchising System:
When franchising is recognized as a viable entrepreneurial option, it becomes extremely important for an entrepreneur to know the technical and operational know-how of it. Typically many issues are associated with any franchise business – ranging from legal contract, financial deals, support system and delivery, relation between the franchisor and franchisee and many others. In US franchise mechanism is quite structured but in India it is not very much structured. As a result, ineffective and inefficient franchise mechanism often causes undesirable consequences for both the parties.

Most of the time franchisees become the ‘sufferer’ because of unstructured franchising mechanism and lack of prior business experience. The major challenge that is faced by Franchisee is the high financial obligations in the form of initial franchise fees, different other permits and insurance, marketing – training – consulting fees, royalty etc. set by the franchisors. Sometime, even after paying all those ‘fees’, control of the conduct of the business remain reserved by the franchisors. Last but not the least, termination or renewal of a franchise contract is often become hazards for the franchisee as franchisors deliberately create many complicacies in the whole process.

Franchisors are also not in the ‘safer’ side all the time. They also face several challenges because of the unstructured franchising mechanism and lack of professional commitment from the franchisee. In most of time ‘challenges’ come in the form of irregularity of payment of advertising – expert consulting and even royalty by the committed time. Resignation of a successful franchisee or clash between two franchisees also results disruption of the franchising distribution in the distribution system laid by the franchisors. Sometime franchisees do involve in different malpractices like providing misleading or misusing information, which badly affect the franchisors in their decision-making.

CSF for a franchising system:
Like all the sectors, franchising sector also has ‘critical success factors’ of its own kind.

Sparkleminds a leading consulting firm in franchising in India conducted a research on the same line and identified such few critical success factors (CSR).

The result of the research is shown in the table below.
Ranking Critical Success Factor
1 A well-established business network
2 Constant new product development
3 Innovative products/ services
4 Quality of franchisees
5 Transparencies
6 Return on investment to franchisees
Table 1: Critical Success Factor for Franchise Business
Source: Annual survey of the Indian Franchise Sector, conducted by Sparkleminds Franchise Catalysts India

Again, in practice it is often found that there is andidea mismatch’ between the franchisor and franchisee causing dispute, conflict and ultimately termination of the contract. To find the ‘reasons behind it’ the same franchise consulting firm conducted one research and identified the most common causes of frictions between the franchisors and franchisee.

The result of the research is shown in the table below.
Ranking Causes of Friction
1 Transparency
2 Training and Support
3 Revenue Sharing
4 Product/ Service Deliveries
Table 2: Most common causes of friction between the franchisee and franchisor
Source: Annual survey of the Indian Franchise Sector, conducted by Sparkleminds Franchise Catalysts

Future of Franchising in India:

India is always considered as a hub for entrepreneurial pool and it is quite interesting to observe that the traditional business acumen among the entrepreneurs has made a shift towards understanding and adopting business in a more scientific manner. And when it comes to science and systems of business, franchised business as a sector is evolving and thriving. Indian business environment is gradually experiencing the changes and now the concept and essence of franchising is permeating into the Indian entrepreneurial mind.

In the past one-decade International franchise brands like Pizza Hut, Mc Donald's, Gold's Gym, Kodak, Subway, Holiday Inn and many others understood the potential of Indian market and enter in the Indian market. Thanks to these brands today international franchising in India is one of the most exciting areas in the franchise industry. Indian brands also do not stay much back from their international counterparts. They are also taking the franchising pathway to success and made significant growth in areas like retail, education, beauty etc. Many new age Indian entrepreneurs has realized the scope of growth in franchising and thus many entrepreneurs already adopted the franchising route to entrepreneurship and many are in different phases of adopting. For these entrepreneurs becoming a national or International franchise seems much easier, safer and profitable than struggling for brand identity while running a small enterprise of their own.
The vast geographical expanse, diverse culture, powerful and growing economy, huge and fast growing consuming class, shifting focus on services from agriculture and manufacturing and acceptance of western concepts by Indian masses, provide excellent franchised business opportunities in India. Again, introduction and penetration of new technologies has added new dimensions in franchising. All these market conditions combined with the low rate of franchise failure and significant return on investment has made a bright future for franchising. It is predicted that in the coming future franchising industry will attain very high growth records. The industry has not yet touched its zenith. Till now only major cities in India has witnessed the growth of Indian Franchising, however as the Indian economy is witnessing new dimensions, more than 30 tier I and 100 tier II cities (towns) of the Indian sub continent is expected to emerge as new markets for franchised business. Both the consumers and entrepreneurs of these small cities now feel the thriving pulse of franchising and are ready to welcome the new shift in the trade and business. Also as the major cities are now on the verge of saturation, best of the brands and corporate companies are finding these small cities as their next hot destination.

Still among all these golden aspects, there are few grey areas as per Indian franchising is concern. The major concern is lack of regularity framework for franchise business. Lack of clear and specific franchising law often results ‘confusion’ in case of any legal dispute between the franchisor and franchisee. Not only that, Indian franchising sector does not have any solid financing mechanism in practice. Even, the skewed real estate market often poses as a threat to the growth of franchising in India.

Conclusion:
The growth of franchising in India is inevitable, because of its unique style of business proposition and presence of several other factors acting as ‘positive’ role concurrently. Entrepreneurs realize this fact and look forward to gain the best from this business option. As a result, the acceptability of ‘franchising’ as a business option has increased. Now people show keen interest in ‘franchising matters’. For them, it is a much flexible business options in terms of - choice of sector, franchisors-, degree of engagement (full time / part time) and even in the amount of investment.

Franchising system has a great impact on the society also. It creates a synergy in the society and unveils a unique kind of win – win – win proposition. The Franchisor wins by having a presence, whereas the franchisee wins by owning a profitable business and the society wins at large by emergence of numerous entrepreneurs and having superior products and services.

Annexure:Franchise List/ Franchise Directory / Franchise Brands
(A) Few upcoming strong Franchisor brands in India:Top Franchises
Business Vertical
Brands (Franchisors)
Beauty Salons & Supplies
Body Spa,
Naturals,
Fitness One India Ltd.,
Shahnaz Husain Group
Business Services
Eureka Forbes Ltd
Clothing
Blackberry,
Peter England,
Raymonds,
Fashion,
Reid & Taylor,
Hakoba Lifestyle LTD,
Design Institute
JDTI
Education & Training
NIIT
APTECH
Veta
British Academy,
Cadd Center,
Career forum
IMS
Florist
Ferns N Petals,
Florista
Food & Beverages
Baskin Robbins,
Swirls
Café Coffee Day
Yo China,
Gift & Greetings
Archies
Presto
Health & Aids Services
Proline Fitness,
Golds Gym
Vaidya Sane Ayurveda Clinic,
Fortis Health World Ltd,
Guardian Pharmacy,
Retail
Asmi,
Refeel
Bally Fabs,
Cartridge World,
Castrol Bike Zone,
Crossword,
D’damas,
Featherlite,
Marshalls,
Nilgiris
School (Play / Nursery)
Eurokids
ABC Montessori,
Bachpan
Fasttrack kids
Kidzee
Travel
Travel Tours,
Prime Travels,
Travel Port,
Via,
Arzoo
Cox and Kings
Properties
Remax


Source:
Manas Garai