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Introduction

Taking on a franchise is an option worth considering for anyone who wants to run a business but doesn't have a specific business idea or prefers the security provided by an established concept.

The right franchise can give you a head start. Instead of setting up a business from scratch, you use a proven business idea. Typically, you trade under the brand name of the business offering you the franchise, and they give you help and support.

Successful franchises have a much lower failure rate than completely new businesses. However, you will still need to work hard to make the franchise a success and you may have to sacrifice some of your own business ideas to fit in with the franchisor's terms.

This guide will help you decide whether franchising is for you. It shows how you can find the right franchise, and highlights the key issues you need to consider.

Franchising in general means granting of certain rights by one party (the franchisor) to another (the franchisee) in return for a sum of money. The franchisee then exercises those rights under the guidance of the franchisor. The above definition is a very general in its nature and encompasses many different forms of licensing arrangements. At least two levels of people are involved in a franchise system: (1) the franchisor, who lends his trademark or trade name and a business system; and (2) the franchisee, who pays a royalty and often an initial fee for the right to do business

under the franchisor's name and system. Technically, the contract binding the two parties is the franchise but that term is often used to mean the actual business that the franchisee operates. The International Franchise Association (IFA) defines franchising as a continuing relationship in which the franchisor provides licensed privilege to do business, plus assistance in organizing, training, merchandising and management in return for a consideration from the franchisee.

What is franchising?

The term 'franchising' can describe some very different business arrangements. It is important to understand exactly what you're being offered.

Business format franchise

This is the most common form of franchising. A true business format franchise occurs when the owner of a business (the franchisor) grants a licence to another person or business (the franchisee) to use their business idea - often in a specific geographical area.

The franchisee sells the franchisor's product or services, trades under the franchisor's trade mark or trade name and benefits from the franchisor's help and support.

In return, the franchisee usually pays an initial fee to the franchisor and then a percentage of the sales revenue.

The franchisee owns the outlet they run. But the franchisor keeps control over how products are marketed and sold and how their business idea is used.

Well-known businesses that offer franchises of this kind include Prontaprint, Dyno-Rod and McDonald's.

Other types of arrangement

Different types of sales relationships are also sometimes referred to as franchises. For example:

Distributorship and dealership - you sell the product but don't usually trade under the franchise name. You have more freedom over how you run the business.

Agency - you sell goods or services on behalf of the supplier. Licensee - you have a licence giving you the right to make and sell the licensor's product. There are usually no extra restrictions on how you run your business.

FRANCHISE AGREEMENT

FRANCHISOR
Owns trademark or trade name Provides support: (sometimes) financing advertising & marketing Receives fees training

FRANCHISEE
Uses trademark or trade name Expands business with franchisors support

Pays fees

Conceptual Framework
Who is a Franchisor? He is the owner of the franchised system. It owns the know-how of the concept and the brand name. It grants franchises to other parties. Who is the Franchisee? He is the one who has been granted the right by the franchisor to carry on the business using the franchisors know-how and the brand name. Now, depending on the rights granted, franchisees can be classified into: 1.Unit Franchisee. This is the simplest and most common form of franchising. This franchisee is granted the right to operate one unit or outlet of the franchised business. 2. Master Franchisee. He is generally granted the right to a substantial territory. It will then grant unit franchisesto unit franchisees throughout the territory. The Master Franchisee needs to havesuffici ent drive and resource to fully exploit the territory and control the unit franchisees territory. McDonalds, Pizza corner and Pizza Hut have adopted this system in India. 3. Regional Franchisee. In a geographically large area a franchisor or a Master Franchisee may decide that it is commercially appropriate to further divide the territory up with separate regions and grant a

Master Franchise for each separate region. These franchises are known as regional franchises or sometimes Area franchises. 4.Multiple Franchises. Some unit franchisees operate not just one unit, but several. These are referred to asmultiple franchises and usually have a large number of individual unit franchisearrangements one for each unit. 5. Developers. Large Corporations sometimes prefer to exploit their territory by opening outletsthemselves. These are known as developers. They have a single developer agreement, which allows them to open many units. These are pilot operations so that they become fully familiar with the business at an operational level and can localize it so as to improve its chances of success. Excel Info Tech has adopted this unique mode of franchising.

Historical Background of Franchising


Franchise operations, as we know them, are not very old. The boom in franchising did not take place until after World War II. Nevertheless, the essentials of modem franchising date back to the Middle Ages when the Catholic Church made franchise-like agreements with tax collectors, who retained a percentage of the money they collected and turned the rest over to the church. The practice ended around 1562 but spread to other endeavors. For example, in 17th century England franchisees were granted the right to sponsor markets and fairs or operate ferries. There was little growth in franchising, though, until the mid 19th century, when it appeared in the United States for the first time. The Singer Company implemented a franchising plan in the 1850s to distribute its sewing machines. The operation failed, though, because the company did not earn much money even though the machines sold well. The dealers, who had exclusive rights to their territories, absorbed most of the profits because of deep discounts. Some failed to push Singer products, so competitors were able to outsell the company. Under the existing contract, Singer could neither withdraw rights granted to franchisees nor send in its own salaried representatives. So, the company started repurchasing the rights it had sold. The experiment proved to be a failure. That may have been one of the first times a franchisor failed, but it was by no means the last. Fortunately, the Singer venture did not put an end to franchising. Other companies tried franchising in one form or another after the Singer experience. One of the first successful American franchising operations was started by an enterprising druggist named John S. Pemberton. In 1886, he invented a beverage comprising sugar, molasses, spices, and cocaine (which is no longer an ingredient). Pemberton licensed selected people to bottle and sell

the drink, which is now known as Coca-Cola. His was one of the earliestand most successfulfranchising operations in the United States. For example, several decades later, General Motors Corporation established a somewhat successful franchising operation in order to raise capital. Perhaps the father of modern franchising, though, is David Liggett. In 1902, Liggett invited a group of druggists to join a "drug cooperative." His idea was to market private label products. About 40 druggists pooled Rs.1,92,000 ($4,000) of their own money and adopted the name "Rexall." Sales soared, and "Rexall" became a franchisor. The chain's success set a pattern for other franchisors to follow. It was not until the 1960s and 1970s that people began to take a close look at the attractiveness of franchising. The concept intrigued people with entrepreneurial spirit. However, there were serious pitfalls for investors, which almost ended the practice before it became truly popular. Since there was no regulation of franchises to speak of, a number of hucksters involved themselves in the field. Many of them initiated get-rich-quick schemes which cost investors countless dollars. As a result, franchising became a bad word to some people. In 1970 alone, over 100 franchisors went out of business. Concurrently, thousands of franchisees lost their businesses and their money. Some franchisors formed The International Franchise Association (IFA) in 1960 to build and maintain a favorable economic and regulatory climate for franchising. It is the only association serving as the voice for franchising in the United States and is a major participant in the international franchise arena. IFA's mission is to enhance and to safeguard the business

environment for franchising worldwide. Today, more than 75industries operate within the

franchising format, and IFA's membership and network encompass some 1,000 franchisors, 350 suppliers, and over 7,000 franchisee members. Individual states began passing laws to regulate franchise activities. By 1979, The Federal

Trade Commission (FTC) initiated a franchise trade rule requiring disclosure of pertinent information to prospective franchise owners. Franchising became a respectable word again, and the practice flourished, aided by the efforts of early franchisors like Ray Kroc and Dave Thomas. Ray Kroc, the founder of the highly successful McDonald's hamburger chain and one of the paradigmatic franchisors, called franchising the "updated version of the American Dream." He established his franchising operation in 1955 , after obtaining exclusive franchise rights from Dick and Mac McDonald, who started the chain. Kroc went on to launch a massive franchising campaign and 15 years later the chain included 1,500outlets. Wendy's founder Dave Thomas believed that McDonald's hamburgers were skimpy and decided he could improve the basic hamburger. In 1968, Thomas received Rs.81.6 ($1.7)million as his share of the sale of four chicken stores by Hobby House Restaurants, for whom he was a manager. He invested most of it into a new chain of hamburger stands. By the end of 1972, he had nine outlets with annual sales of Rs.86.4 ($1.8) million. By June 1975, he opened the 100th Wendy's restaurant. Less than two years later, the number jumped to 1,000. In 1978 alone he opened 500 outlets. By 1999 there were well over 5,000 outlets worldwide. Thomas proved that there was plenty of room in the franchising world.

Types of Franchises
There are two types of franchises

PRODUCTION DISTRIBUTION

BUSINESS FORMAT

1.Product distribution franchises simply sell the franchisors products and are supplier-dealer relationships. In product distribution franchising, the franchisor licenses its trademark and logo to the franchisees but typically does not provide them with an entire system for running their business. Product franchising prevalent for the finished category of products, implies the rights to sell the product as it is received from the parent company. The only value-addition that happens at the franchise outlet is in terms of display, which facilitates easy accessibility of the product to the customer and the actual sales transaction. Hence, product franchising is only applicable for the sale of a product. The industries where you most often find this type of franchising are soft drink distributors, automobile dealers and gas stations. Some familiar product distribution franchises include: PEPSI FORD MORTORS COMPANY TATA car dealership Although product distribution franchising represents the largest percentage of total retail sales, most franchises available today are business format opportunities. 2.Business format franchises is a more comprehensive type of franchising where the name, sale and the method of doing of business are transferred to the franchise outlet. The transfer of

knowledge for conducting the business has to be accompanied by an effective follow-up mechanism by the parent organization. Example:McDonalds have perfected this technique over the years and today have a rigorous franchising system which ensures that any franchise outlet will deliver the product with the same stamp of customer service and quality that McDonalds is famous for. Business format franchises are the most common type of franchise. Some familiar business format franchises include: McDonalds Subway Pizza Hut

FRANCHISOR

FRANCHISEE

FRANCHISEE

BUSINESS FORMAT MODEL

The Benefits of Franchising in India


Franchising has been around in one form or another since man first began to engage in commercial enterprise. It has evolved from a simple grant of a right or privilege in the middle ages to the sophisticated business format franchise concept of today. This unique pattern of business can be defined as follows:

"A franchise is a business arrangement where the developer/owner (the franchiser) of a business concept grants others (the franchisees) the licensed right to own and operate a businesss based on the franchiser's business concept, using its trademark."

Franchising is a marketing system for creating an image in the minds of customers about the company's products or services. Franchising creates a distribution network of interdependent business relationships that allows a number of people to share brand identification, a successful method of doing business and a strong marketing and distribution system.

The primary benefit of franchising is risk minimization. The other benefits are: Franchise investment can be thoroughly researched before any significant expenditure is made; Franchising provides a uniform system of operation, so that consumers receive uniform quality efficiently and cost-effectively;

Franchisers sell a defined, proven business format or method of operation, offering a product or service that has sold successfully (an independent business is based on both an untried idea and operation); The franchiser also provides management assistance, including accounting procedures, personnel and facility management; The franchiser provides marketing support, one of the biggest benefits; and Franchising has found a solid economic niche that caters to specialized needs.

Benefits to franchiser

There are many benefits to the franchiser, as this type of business: solves the greatest obstacles to growth, that of obtaining capital and committed management talent to run new locations; creates additional income streams from franchise fees and royalties; rapidly builds a much larger identity that draws more customers to all locations; gives higher profit margins because of the larger quantities of merchandise purchased through the franchise system; and creates the ability to compete in the marketplace against large chains.

Benefits to franchisee

The system also has many benefits for the franchisee, as they: are able to open a business, but avoid costly start-up mistakes by drawing upon the experience of the franchiser; can offer the very latest inventory or services because of ongoing research and development; can attract new customers that are pre-sold on their identity because of prior good experience with the franchiser or other franchisees; and are part of a larger team with the same goals and objectives.

The Indian administration permits foreign franchisers to charge royalties of up to 1% for domestic sales and 2% on exports for use of the foreign franchiser's brand name or trademark, without transfer of technology. In effect, this means that by lending just their brand name or trademark to an Indian company, a foreign company can receive royalties. Where the franchiser receives royalties, service tax or franchise fees, tax has to be paid under various taxation statutes which makes foreign investors more comfortable to invest through franchise. A significant recent step includes recognition and protection extending to service marks in India. This enables the foreign franchiser to tender its mark to a franchisee in order to extend the services synonymous with him to the consumers in India.

As there is a limitation on retail trade fixed by the government in India, the better option available for a foreign investor is to opt for franchise. This will lessen their burden and will bring more profits and benefits to the franchisee, franchiser and the customer.

Advantages and disadvantages of franchising


Buying a franchise can be a quick way to set up your own business without starting from scratch. But there are also a number of drawbacks.

Advantages

Your business is based on a proven idea. You can check how successful other franchises are before committing yourself.

You can use a recognised brand name and trade marks. You benefit from any advertising or promotion by the owner of the franchise - the 'franchisor'.

The franchisor gives you support - usually including training, help setting up the business, a manual telling you how to run the business and ongoing advice.

You usually have exclusive rights in your territory. The franchisor won't sell any other franchises in the same territory.

Financing the business may be easier. Banks are sometimes more likely to lend money to buy a franchise with a good reputation.

You benefit from communicating and sharing ideas with and receiving support from other franchisees in the network

Relationships with suppliers have already been established.

Disadvantages

Costs may be higher than you expect. As well as the initial costs of buying the franchise, you pay continuing management service fees and you may have to agree to buy products from the franchisor.

The franchise agreement usually includes restrictions on how you run the business. You might not be able to make changes to suit your local market.

The franchisor might go out of business. Other franchisees could give the brand a bad reputation. You may find it difficult to sell your franchise - you can only sell it to someone approved by the franchisor.

All profits are shared with the franchisor

Successful Examples Of Franchising in different sectors:


The success stories of franchising are endless. McDonalds, Jumbo King, Kentucky Fried Chicken, Archies, Monginis, Cafe Coffee Day are only a few of the more famous examples where franchising has proved successful. Today even couriers, doctors, opticians, law firms, accountants and many other types of operations are profiting from the business expansion undertaken via the franchise method. Most popular franchising industries and there successful franchises are: Food bakery -MONGINIS Food-restaurants and fast food - McDonalds, KFC Motels and hotels ORCHID Retail store- WAL-MART Education NIIT, IMS Retail clothing PANTALOONS Retail- shoes BATA ,REEBOK Greeting cards ARCHIES, HALLMARK Furniture- DURIAN , PERGO Automotive repair- MRF Hair care products LOreal

Any product that can leverage a network of outlet to reach out to more customers in wide geographical regions is suitable for franchising. The franchising is clearly responsible for the success or failure of the product and for theviability of the franchise outlets. The franchisor has to understand the essence of franchising, and has to develop an appropriate business format for the franchising of the product. For this, it is necessary to understand the critical success factor i.e. elements of franchising.

The Elements of Franchising


The figure given below shows the environment in which franchising operates. The franchisor and the franchisee are bound together by the system, which ensures that the customer gets the product or service as promised to him by the brand name and its associated brand promise. In a franchising environment the franchisor defines the product specifications as per the needs and expectations of the customer. The system ensures that the right product with the right quality reaches the customer at the right place, right time and right price. The Franchising Environment The franchisor builds up the brand that carries the associated image and promiseregarding the

company and the product. Thus the three crucial elements of franchising are the brand, the product and the franchising system. For franchising to be successful ,the three elements need to be clearly understood and defined as they form the basis on which the structure or framework for franchising can be built. 1.Product Before the franchising of a product can be planned, it should have been successfully tested in the marketplace. A tasted product is different from a test-marketed product. Many companies make the mistake of getting their products test-marketed in controlled conditions using the services of marketing agencies and after obtaining positive results, start franchising the product aggressively. This can lead to disastrous results when the product is introduced in real-life situations.

Testing a product means that it has to be successfully sold in the market place, preferably through multiple outlets or units, and in different geographical markets. Successfulselling also implies a body of satisfied customers who have actually returned for a repeat purchase. Product management is one of the element of framework for franchising. The production and operations can be handled entirely at franchisors end or at the franchisees unit or partly at both depending upon the nature of the product. The actual sales transactions and after-sales services have to take place at the franchisee outlet. This is the common feature of all franchise operations. given below. 2. Branding The product offered in the market has to be backed by a proper marketing strategy with a strong brand image that the market associates with the features and benefits of the product or with the company offering it. But the brand can be built gradually through the combined promotion efforts of both the franchisor and franchisee. The franchisee, however, expects the franchisor to have strong brand at the outset, which will ensure the success of the product. If the brand image is weak, the franchisee will not pay much for buying the rights to use the brand name. Branding is essential for the success of franchising. The stronger the brand, the easier it is to get franchisees for it as also an appropriate value for the franchise. Managing brand involves creating positioning and spreading the brand. The figure given below outlines the entire process. Expansion through the openings of new outlets, which is the franchisors role, results in improving the brand reach.Feedback from the market offers the franchisor inputs to help modify communication about the product, thus fineThese aspects of product management are showndiagrammatically in the figure

tuning the brand and its image. The franchise system has to clear the issue of brand management in order to avoid future conflicts. Some franchisors assign a fixed amount for brand promotion in their budgets every year. Other franchisors, however, make it clear that all

promotion and sales activities are the responsibility of the franchisee at the later units level. But it is important to define these aspects clearly in the franchising offer document. 3. Franchising system The system, which forms the third element of franchising, is a combination of theaccounting system, the feedback and control system and the know-how transfer system. This is outlined in the figure given below. The collection of payments from the customer and payment of royalty by the franchisee, backed by a proper financial control mechanism, forms the backbone of the accounting and financial management system. The transfer of know-how, product, service, material and training from the franchisor to the franchisee is another aspect that requires attention. For the franchisor, a feedback system for quality control and customer complaints, can offer an important insight into the functioning of the product, the franchisee outlet and the entire franchising system.

The Franchising Framework


The three elements of the product, branding and the system integrate together to form the franchising framework. The franchising framework is depicted in the figure back. The franchisor invests in R&D, marketing (brand building) and is responsible for quality/operati ons control and expansion. The franchisee sells and delivers the product to the customer and provides after sales service. The franchisee invests in the outlet including manpower and equipment. The system ensures that there is a flow of royalty and feedback to the franchisor. It also ensures that the franchisee receives the product, know-how and training. The system incorporates control and mechanisms and feedback systems to allow the franchisor to monitor the later. The franchisor has to define all the parameters mentioned in the framework so that the three elements if franchising take shape. By defining these parameters, the franchisor is able to prepare an offer document that can form the basis of the understanding between the franchisor and the franchisee.

Parts of Franchising
The four Rs of Franchising: American corporate history is stuffed with instances of franchising outstanding success and also many failures. Learning from them, franchising can succeed if the franchisee has a right combination of the four Rs prescribed. These are: 1. Realism: The franchisee should be very realistic in assessment of his business strengths and weaknesses. Certain key areas where realism is a must while deciding to go into franchising includes questions like are you prepared for the financial insecurity, are you capable of developing a frame of mind when you can smile and be cordial even when the customer is totally wrong. More important is the need for realism in evaluating the products and services offered by the franchisor. 2. Resources: Many franchisees, during the early periods of their business when resources constraints are common, tend to sometimes overlook sending in the royalty cheques to the franchisor. Franchisors keep feeling and rightly so that their royalty is as much a key business expenditure of the franchisee as payment for purchases or payroll is and any delay in handling this area would lead to unfortunate consequences of a long term nature. Therefore, while planning resources on a periodic basis, consider the payments that are to be made to franchisor. Another area where most franchisees have problems is to manage their

resources while living within the franchising system. Thefranchising agreement, in most cases, c learly indicates systems, procedures andmethods of managing the resources. The franchisee will do well to either be mentally prepared to accept the resource management terms of the franchisor

or make it clear at the beginning that he needs the requisite flexibility to manage his own resources. 3. Research: Research on the franchisor is a must for the success. Various published sources also provide fairly detailed information on most of the franchises that are on offer but to what extent that will be adequate for the Indian conditions needs serious examination. Whatever be the methodology, the prospective franchisee will do well to buildcomprehensive inf ormation on the franchisor, the products or service of offer,competing and substitute products and services before he makes any move committing his financial resources on a long term basis. 4. Resolve: Resolve to be part of the franchising system. The problem starts when a person gets into franchising only because he has an entrepreneurial instinct but the instant he becomes a franchisee, the true entrepreneur in him starts resenting the shackles that are imposed by the franchising system. The options are cleareither stays within the system and fully learns the nuance of the business and prospers or tries ones fledging entrepreneurial talent and get into trouble. Finalization of agreements: Once a particular franchise opportunity is selected, a consultant can explain to you your rights and obligations under the franchise agreement. You should understand that your consultant has limited ability to negotiate the deal on your behalf, unlike other types of business transactions. Most franchise offerings,

particularly in established franchise systems, are offered virtually on a take it or leave it basis. This is due to a natural reluctance to negotiate, a desire for uniformity, the franchisors obligation to disclose the franchise terms (stating whether such terms are negotiable or nonnegotiable) to all prospective franchisees.

Incorporation: While a sole proprietorship is the simplest form of ownership, a sole proprietor has his or her personal assets at risk for any liability in connection with the operation of the franchised business. In a partnership the partners are jointly and individually liable for the liabilities of the partnership and for the actions of the other partners acting within the scope of the partnership. With a corporation, a shareholder generally will not be liable for the liabilities of the corporation except to the extent of the shareholders capital contribution. A

shareholders personal assets are protected.

General Issues On Franchising


Why Franchising? Franchising is upcoming because of the various reasons given below: The global franchising revolution: The global franchise economy accounts for 20 percent of the business around the world, employing 27 millions people. It has been a very

successful mode of expanding business without large investment and with the minimum risk possible. The emergence of global market: The world has become a smaller place due to the advances in technology. The high rate of technology advancement and business opportunities linked to it, has led to better economic conditions, with people seeking comfortable standards of living and leading to an increased demand for improved products and services. Transport and communication has improved a great deal and has led to an almost standardized market structure. Increased Media Exposure: The wide exposure and accessibility to Internet and TV channels has led to a revolution in the industry. A brand name that was once limited in influence to a town or a region, is now recognized nationwide as a result of the increased penetration of various media. Even international brands are there for the asking with just the click of the mouse while surfing the Internet. Increased Brand awareness and recognition: The shrinking of the world economy, exposure to various media, and a trend of aping the west has led to high levels of brand recall, awareness and recognition. The demand for branded goods and services has increased manifold.

Ever-increasing Customer demands: Due to the intense competition and brand wars in the market, todays market has transformed into buyers market. In order to succeed, the firms have to meet the customer ever-increasing demands. The customer wants the right product, at the right time, at the right place and at the right price. Availability: The customer demand for the product or services has to be met, thus a wide distribution is necessary. The most effective way to expansion is through franchising. This is not only cost-effective but also guarantees a number of outlets without the direct headache of running them. Brand Visibility: It has now become important for a brand name to be present everywhere if it has to survive, since brand recognition is what is required and what matters. Franchising is the best way to have larger visibility coupled with best possible service as it is combining the brand name, know-how, technology, etc. of the franchisor with the capabilities and hard work of the franchisee. In the present age, with people seeking immediate recognition, small businesses alternative to franchising which in turn helps the company to expand its reach. Think Global, Act Local (Glocal): Expansion is a must for a company and at the same time an outlet must be managed locally. In order to succeed, it's necessary to have global perspective and have a tried and tested way of doing business which is the Franchisors responsibility. Also it is necessary to tailor your product to local tastes for maximum profitability, the franchising is an ideal way to achieve this balance. Thus it can be said that Franchising is an ideal business model to expand the reach of the business and satisfy the needs of the customer.

Marketing of The Franchise Offering The franchisors job is to market the franchise proposal and attract the right potential franchisees. The marketing of the franchise can best be understood by starting from the basics Philip Kotler's four Ps of marketing, viz. the product, price, promotion and place, can be used as a st arting point to devise marketing plan for selling a franchise. The four Ps are discussed in detail below: 1. PRODUCT The product includes the actual product, the franchise package, the franchise unit and the brand associate with the product. The product and he franchise package should both be attractive to a potential franchisee, who should also be convinced that investing in the product will give him adequate returns. In businesses where the product is a service, the franchisor has to lay down the procedures and guidelines for the execution of the service in the form of manuals. These manuals, along with the equipment needed to render the service, in effect, become the product which the franchisees sees, as they represent the know-how and the product or service specifications that the franchisor is transferring to the franchisee. 2. PRICE The price of a franchise implies the franchise fees that franchisee is being charged the franchise fees is a one-time payment that a franchisee makes to the franchisor in the form of start-up fees. Additionally the franchisor charges royalty, collected in the form of ongoing fees, on the basis of the business that is generated by each franchise unit.

The following factors determine the franchise fees: Brand strength Numbers of successfully running units Return on investment for the franchise Competition in the market 3. PROMOTION The franchise proposition has to be promoted in order to generate potential franchisee inquiries. How, then, does a franchisor actually find potential franchisees for his product? As for any other product, potential inquiries can be generated by one or more of the following ways: Advertising Direct marketing or Word-of-mouth In each of the above, the first step is to define a typical or ideal franchisee. For example, for NIIT franchise, the franchisee who possesses the technical skills or experience in the relevant field, has a higher chance of succeeding in business than anon-technical person. The next step for the franchisor is to draw up the profile of an ideal franchisee ideally fitting the concerned business and industry. A strategy for advertising and/ or direct marketing which directly targets this qualified segment, can then be worked out.

4. PLACE The fourth P of marketing, place refers to the location of the franchise unit. A study of the demographics of the location and measure the estimation of the demand for the product can be done. Most importantly, the location should not be too close to an already existing franchise unit. A market feasibility study should be used to assess the practicability of a franchise unit at that location. Examples: Franchises like Monginis, Archies are located near station where as McDonald outlets are located in malls.

IMPORTANT FACTORS AFFECTING FRANCHISING IN INDIA


Small local market size: In India great importance is given to local needs as the needs vary due to the diverse natureof the country. Price Sensitivity: Indian customers are highly price sensitive and want the greatest value for money, thusFranchisors need to keep the cost factor in mind when franchising. Specialization: Indians prefer certain kinds of goods to be tailored to their requirements. And a perfect example for this would be McDonalds which had to Indianise its burgers to increase sales.They launch McAloo Tikki for Indian customers. Thus franchising must provide a provenformat but at the same time allow flexibility to the franchisee to alter the offering slightly toappeal to the customers. Management : Indians have certain traits like 1.Ability to provide excellent customer service. 2.Working to a given business format. 3.Ability to work hard and sell the concept they believe in. 4.Understanding the pulse of customers. 5 . Q u i c k r e s p o n s e s t o l o c a l n e e d s . This helps in managing the showrooms of the franchisees easier and a lot safer.

WHY FRANCHISING 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. Organized 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 disposable 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 a r e v a r i o u s l a w s w h i c h a f f e c t t h e r e l a t i o n s h i p b e t w e e n t h e franchisees, including intellectual property laws, taxation, labour

franchisors and

regulations, competition laws, property and exchange control. F r a n c h i s i n g a f f o r d s In d i a a n o p p o r t u n i t y t o b u i l d i t s c o m m e r c i a l i n f r a s t r u c t u r e a n d develop its domestically oriented businesses in an efficient and profitable manner. It also offers India the opportunity to import and develop foreign concepts in a way, which e n s u r e s t h a t t h e e q u i t y o f t h e b u s i n e s s r e m a i n s i n I n d i a , s o a v o i d i n g t h e p o l i t i c a l l y undesirable situation whereby successful domestic businesses are owned by foreign corporations.

The key attractions of franchising in India are as follows: Lower Capital Requirements: Franchising is an excellent way for both Indian and foreign corporations to expand their businesses and make their brand names known in India without having to risk l a r ge s u m s o f m o n e y b y w a y o f d i r e c t In v e s t m e n t . T h e f r a n c h i s e e s f i n a n c e t h e e x p a n s i o n o f t h e b u s i n e s s i n In d i a . In r e t u r n t h e y h a v e t h e o p p o r t u n i t y t o m a k e substantial income and capital profits. Geographical extent of the country: Franchising can enable a company to take advantage of the vast Indian market of over 1 0 0 0 m i l l i o n p e o p l e a n d g r o w i n g a t a r a t e o f 1 . 5 % p . a . T h e r e i s a n e v e r - gr o w i n g demand of goods and services such as fast food and beverages, clothing, electronic goods, computer hardware and software and professional services. The infrastructure is p o o r , h o w e v e r , a n d o p e r a t i n g a c o r p o r a t e l y o w n e d d i s t r i b u t i o n s ys t e m t h a t f u l l yexploits the geographical expanse of the country is extremely difficult and inefficient. Cultural Empathy: Franchising well suits the entrepreneurial side of Indian culture. Indian business people a r e fiercely proprietary and feel a need to have ownership and control over t h e i r business operations which they can pass on to future generations. However, at the s a m e t i m e t h e y a r e k e e n t o b e n e f i t f r o m t h e g o o d w i l l a n d t e c h n o l o g y t h a t c a n b e p r o v i d e d b y t h e f o r e i gn f r a n c h i s o r . F r a n c h i s i n g a l l o w s t h e m t o r e c o n c i l e t h e s e conflicting ambitions.

Harnessing local market knowledge: Indian master franchisees offer the foreign franchisors direct access to substantial market knowledge and a considered and sophisticated approach to its exploitation. Accompany needs a great deal of knowledge of the different regional markets in India. What holds good for Mumbai may not be relevant for Kerala.

Franchising provides assure and easy way of accessing the right level of relevant local market knowledge. Customization: Customization is very important when it comes to Indian custo m e r s . T h i s c u s t o m i z a t i o n n o t o n l y t a k e s p l a c e i n s ys t e m s b u t a l s o i n t h e m a i n p r o d u c t s a n d services. Thats the reason why one walks into the western McDonalds and is able to order a McAloo-Tikki Burger.

FUTURE OF FRANCHISNG IN INDIA


In a vast country like India with over 1 billion population and rapidly changing life stylesand growing awareness in the consuming class wanting continuous improvement in thequality of products and services the scope for growth of franchising is phenomenal. Going forward this growth is inevitable not only through Foreign Franchisors coming into the country but more so through the growth of large number of Indian Franchise Systems like Patch, NIIT, Barista, Raymond and a host of other emerging Franchise businesses in the area of health care, entertainment , beauty parlours, education, business services and the like. Considering that there is no dearth of entrepreneurial talent in the country and that there are scores of Indian Franchisors looking out for suitable Franchisees this sector is set to explode to a level of over 2500 Franchise system in the next 4/5 years with over 1,00,000Franchisees operating all over the country with its corresponding positive impact unemployment generation. Although in a nascent stage, franchising is gaining popularity in the retail segment in India, more particularly in the areas of food products and drinks, telecommunications, restaurant chains, consumer goods, apparel and computer training centres. Retailing is the next big franchising opportunity. The future of the franchising industry in India seems to be bright but will be difficult to sustain without constant innovation. The sectors in which Franchising is making rapid strides are Education, Specialty-retailing, Apparel retailing, Food and Beverages, Health care and Beauty.

RECOMMENDATIONS Steps to ensure a smooth franchising process: Standardize the business first: Franchising is not just about the growth but also of transferring know-how profitability to the franchisee. Companies must ensure that they have defined operating policies, processes and procedures to enable the transfer and replication of the operating knowhow easily. Its important to ensure standardization. What standardization does it minimize the chance of failure for the franchisee and eventually the company. Franchising is not fast-buck option: Franchising only makes sense if it is an extension of the business and not just a profit-sharing arrangement. Lack of involvement from side of franchisees and taking it just as side business for extra income is a restraint tithe success of the world. Money power isnt everything: F r a n c h i s i n g i s p a r t l y a r i s k b e c a u s e i t means that the franchisee becomes the custodian of the brand in his area of operation. If it is gi v e n t h a t t h e f r a n c h i s i n g b u s i n e s s i s , i n e s s e n c e , a j o i n t v e n t u r e , t h e n m a i n t a i n i n g t h e delicate balance between independence and control is important. Faulty understanding and implementation of the franchising concept: Both parties must have clear understanding of their roles, responsibilities and rights. To give clear idea of the ideal franchising concept it is imperative to understand the franchising f r a m e w o r k a n d o u t l i n e s t h e i n p u t s p u t i n b y b o t h t h e p a r t i e s i . e . t h e f r a n c h i s o r a n d t h e franchisee.

Connecting the franchisees with an IT packages: The franchisees can be connected to the central warehouse of the franchisor using some software packages. These packages will help in comparing performance, enter all transactions into the system, record all goods with the date, etc. Fo r mu l a t i n g l a w s t h a t r e g u l a t e f r a n c h i s i n g : T h e r e a r e n o s p e c i f i c laws/regulations in India for the franchising industry. General business laws and industry specific to the

regulations/laws governing foreign investment and collaborations apply

franchising industry. There is need for specific laws governing this industry. There are no laws governing the relationship between the franchisor and the franchisee. Liquidation of slow moving stock: T h e c o m p a n y s h o u l d r e p l a c e t h e merchandise that is non-moving for a period of 3 months after deducting some cost. This will ensure that there is no dead inventory at the stores whose cost the franchisee is bearing

EXAMPLES OF FRANCHISE

Accessorize Product Lines: Bags, Jeweler, Footwear, Accessories, intimates. Ambience: Lighting is more concentrated on those stores to make the products look more attractive and eye catching to customers. Different type of lights of atmosphere. For example, low levels of lighting are associated with romantic setting, well lit passage create a feeling of safety and so on. No. of Employees: 02 Segmentation: Today there are more than 300 Accessorize stores in the UK and a blossoming international operation of over 500 stores. Accessorize has its own in-house design team and 85% of the products are exclusive to its shops. This allows the company to quickly respond to the hottest trends, bringing inspirations from the international collections or the latest urban street craze to the shop floor in mere weeks. holds a unique position on the high street with its inspirational, globally sourced, wellpriced and good quality collection of fashion accessories.

Displayed in an original and impactful color-bay design, the constantly changing range includes every kind of accessory imaginable; bags, purses, jewellery, belts, hats, scarves, flip flops, gloves and hair accessories.

Range of Products Bags, Purses, Jewellery, Hats, Scarves, Shoes, Belts, Gloves, Hair Accessories Exhaustive range of accessories specifically aimed at women and kids. Customer base is basically upper class women who can shell lavishly on their accessories. Goods are imported from London with focus being on bags and jewellery.

Zara Product Lines: International fashion store. Area v/s Store: Small and convenient Ambience: User Friendly No. of Employees: 06 Segmentation: Spanish Retail Brand, Zara is one of the largest international fashion companies. It belongs to Inditex, one of the worlds largest distribution groups. Products are imported from all over the world and distributed by Zara. Products are trendy and European styled. Zara's ability to chase fashion trends around the world, move a design from a drawing book to shop floor in two weeks and launch new lines sometimes twice a week has helped it ensure steady flow of consumers who now embrace global trends like never before. Range of Products Mens Clothing Coats, Blazers Shirts, T-Shirt Jeans, Trousers Products are segmented into mens wear, womens wear, kids wear and accessories. Womens Clothing Kids Clothing Accessories

Customers catered belong to middle & upper class. Products reflect European style therefore trendy with strong emphasis on coats & blazers. XL is the biggest size that is offered.