franchising

March 25, 2016 0 comments

Franchising as a business model has been fairly popular worldwide. But in India, it became a trend only a decade ago when the economy opened up. International brands started coming in, forged partnerships, and set up franchises to quickly expand and address the burgeoning demand. Over the last few years, we have witnessed massive growth across many sectors—skilling, food and beverages, retail, electronics, decor, home furnishing, clothing, etc,—all thriving due to constantly increasing customer demand.

Established brands opt for the franchising route since it is a quick way of setting up a domestic network to tap into new markets. As for the new partners, it is simpler to join forces with such brands since building their own brand from scratch takes considerable time. Besides, setting standards and sustaining service quality for a new venture is always a challenge. Franchising allows new ventures to not only have a safety net but also gain access to a network of stakeholders, and learn how to do business with constant support and guidance. One soon learns the ropes of the trade—managing operations, understanding the typical models that work, dealing with stakeholders, and implementing marketing programs—instead of dealing with the challenges of setting up the entire value chain oneself. The franchise model usually appeals to corporate veterans who are looking to invest. However, today we are also seeing younger entrepreneurs turning to us for tie-ups instead of taking the startup route since this path also shaves off considerable capital investment.

India, an attractive franchise destination

Firstly, India is home to 1.1 billion people, of which a large section is aspirational and has high purchasing power. How can a brand cater to this group of customers? Through the franchising model, franchisees become touchpoints, allowing the firms to roll out their own marketing programs.

Secondly, with over 700 districts across the country—with a single state having almost 15,000 villages—reaching every customer becomes a Herculean task for a firm operating on its own. But a local partner coming in with sufficient investment, knowledge of the domestic taste, and sufficient credibility can turn round this challenge into a win-win situation for both parties.

Earlier, we would usually see traders and businessmen entering into a partnership. But in the recent past we have more experienced professionals opting for this business model. They have a higher risk appetite, and see perks such as flexibility of running the business on their own terms and not being tied down to the desk. They are bringing new ideas and perspectives from their own experiences. Their turning to franchising can be attributed to the easy availability of capital from banks, and this is further quickening the growth of the model.

Success in the franchising industry varies.  McDonald’s has been largely successful in penetrating the Indian market, and Subway is quickly setting up a strong footprint in India through the franchising route. In the automobile sector, Mahindra First Choice is thriving by providing a niche service of dealing with used cars. Ferns N Petals is a smart model in the retail and gifting space. Even in less glamorous businesses that entail backend work, such as logistics, we have successful companies like DTPC that has established operations in over 500 locations. Babyoye.com, which was originally a website, has now turned to the brick-and-mortar channel with a franchise model.

rise of education franchising

In 1985, Jetking, NIIT, and Aptech catered to the demands of the booming IT industry since skilled manpower was scarce. Vocational training was the need of the hour. Towards the end of 2005, coaching classes for various aptitude tests conducted by TIME, IMS, and Career Launcher became big businesses. Even financial businesses started setting up their own centers to provide vocational training (ICICI and HCL talent in 2007) to groom the talent they required. Preschools too have grown rapidly in number, with players such as EuroKids, The TreeHouse, and Kidzee scripting an impressive growth story. With the recent government initiatives aimed at pushing skill development, there has been strong emphasis on chalking out a  framework to turn India into a hub for skilled talent with even the corporates warming up to the agenda.

challenges

The challenges are highly subjective and wide ranging—the duration of the association, the affiliates involved, front-line service providers, lack of detailed laws and regulations, compliance issues, net tax charged continuing to be a gray area, in terms of the final fee which gets passed onto the end consumer, and finally standards of how a particular model needs to be rated.

Further, there can be challenges in terms of collaboration which may suffer due to brands having stringent or rigid policies. Then there is the problem of lack of proper regulation of the franchises by the brands—a brand that has 150-200 centers on ground may not have an orderly system in place to regulate them. And the franchises that do not perform lead to long disputes in consumer courts—affecting both the franchise and the brand. Hence, a brand should provide proper training and education to all the franchises so that they are capable of living up to the brand’s promise.

Dealing with impostors is another challenge that comes with this business model. False centers in unknown locations may crop up and may be hard to track until a disgruntled customer raises a red flag. Suing these fraudsters is also a long and expensive affair, but is required to do right by the consumers. For example, last year when H&M entered India, it was surprised to learn that a copycat brand was already selling similar merchandise using a similar logo. Brands need to constantly protect themselves from such impostors, even online, where they may take up domain names. This can be a significant challenge as more brands have a digital footprint today along with an omnichannel presence.

growth opportunities and key future trends

India continues to be touted as the most promising destination for investment by rating agencies. IT and IMS have continued to be robust job providers. India has also seen substantial investment in data centers being set up by some of the largest IT players. Infrastructure is being set up for newer services such as 4G. Recently, India surpassed the US, becoming the second-largest smartphone market and attracting companies to manufacture in the country. Hence, there are substantial growth opportunities for training IT talent in India. The demography is also favorable since a majority of the population will be below 25 years by 2020, and the situation is only going to get better as they enter the workforce. Franchising is also quite safe from the effect of tremors in the global markets. It is the local environment that needs to be conducive to thrive.

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