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Oct, 01 2006

MODELLED FOR SUCCESS FRANCHISING IN INDIA

India today may not be a franchising major, but franchising is gaining ground every day. The franchising industry is worth about Rs 10,000crore, and growing at 25-30 per cent per annum

MODELLED FOR SUCCESS FRANCHISING IN INDIA

Let's face some facts about McDonald's:

  • It does not offer the best burger, there are better available
  • The service is no different from any other self-service restaurant
  • The ambience of the place is in close competition with those offered by, say, Burger King, Wendys, Wimpys, KFC and the like

So what is it that really makes McDonald's one of the most popular eateries in the world? What is it that attracts us to the American fast-food joint that is run by mere school kids?

Is it the food? Is it the service? Or is it the ambience?

Perhaps, it is a winning combination of a simple menu, a speedy preparation and delivery system based upon assembly line techniques, and more importantly, a system so well-defined that anybody, even teenagers, can run it to such perfection as to deliver a high-level of consistency that has become the trademark of each of its restaurants around the world.

It is franchising at its best!

These winning traits are very essential for a franchise to be successful. Franchising is an ingenious and proven way for entrepreneurship and business expansion in the developed world. The share of franchised business in the world GDP is in the range of 17 per cent.

Sadly, franchise business awareness in India is very low. The Indian franchise sector in comparison to a highly mature one in the US, can be said to be in a very nascent stage. However, currently, we are seeing an explosion of interest in this form of business.

India Goes Franchising

As mentioned, franchising is in its early stages in India. However, the spark has been lit and the industry is fast comprehending its potential. The Indian franchising growth story has spawned a growing breed of entrepreneurs and individual investors who are on the lookout for 'good' investment opportunities. Says Uday Mathur of Eurokids, "Taking up a franchise is an ideal way to enter into a new business area. In this approach, one is able to considerably shorten the learning curve and take the benefit of the proven business method of the franchisor."

Says Ratan Jalan, CEO, Apollo Health and Lifestyle, "Given the vast pool of potential entrepreneurs in India and emergence of large and responsible franchisors both Indian and international in different business segments, the franchise sector is poised to witness dramatic growth. Even the present growth trends are clear pointers for this phenomenon." This is amply clear when one sees successful stories in franchising in India that include NIIT, Aptech, Lal Path Labs, The Apollo Clinic, the Shahnaz Husain group and so on.

Factors Stoking the Franchising Fire

Rising disposable incomes

With increasing liberalization, there has emerged a large Indian consumer base with rising disposable incomes. The average purchasing power per individual in India has already gone up 10 times in the last decade. Explains Pattabhirama Rao, MD, Cookieman India, "The rise in the disposable income has created a huge demand in the retail sector. This demand in turn has provided the much-needed boost for brands to expand and therefore franchise rapidly. Franchising is really a boon for the Indian consumers as well as retailers."

Adds Rao, "The current trends in retail suggest that franchising is definitely poised to be the most favoured business model for retail in India."

Vast geographical spread

The vast geographical spread of India offers a humungous opportunity for franchising. The sector today can boast of increasing numbers of successful franchisees across various franchising categories.

The fact that India offers, to a large extent, an English-speaking population, and competitive pricing, makes it the most attractive destination for investment. We're seeing an inflow of foreign brands into India, most of which have opted for the franchise business model.

Indian economy

The Indian economy is projected to be achieving an 8 per cent annual GDP growth for the next 10 years, and franchising is expected to be the fastest growing sector. "Industries like retailing, food and consumer services are likely to be the forerunners in Indian franchising," informs Om Prakash Hassanandani, Shaadi Point. If one were to consider the potential of the service industry today, it is playing a major role today with over 55% contribution to the overall GDP of the nation and is actually outstripping the overall growth of GDP since almost a decade.

Other factors

There are other miscellaneous factors leading to franchising in India. As Arun Khaitan, CEO, Zee Interactive Learning Systems (ZILS), informs, "Improvement in technology, aggressive penetration of PCs and mobile phones, increasing flow of FDI, and globalization, are strong indicators that the future of both the franchising concept as well as products, in India, is bright."

Challenges for franchising in India

A serious concern for franchising in India is that it is not considered an industry yet. It also needs to have a regulatory body as soon as possible.

Also, as is the case in any industry, unfair practices by a few tend to create doubts in the minds of prospective investors. Informs Viraj Gandhi, MD, Medicine Shoppe, "In the past, there have been many companies that have used franchising as a means to make a quick buck." Some of these included fly-by-night companies who took the franchise fee from their franchisees and then fled.

In the absence of a regulatory mechanism for the franchising sector, we also see some companies offering franchises without actually having an adequate background for it. This means that a lot of people have got into franchising with an opportunistic rather than long-term view.

Thus, the franchisee, before getting into any franchise deal, should thoroughly check and confirm the particulars of his probable franchisor. Over the last few years, there has been an overall improvement in both awareness of prospective franchisees and the quality of franchising. As Pankajj Chaturvedi, CEO, Baskin Robbins, points out, "Given the speed of change and growth in this country, I am hopeful that we will see a far more structured develo-pment of this business model in the coming years."

Conclusion

Franchising has some big success stories in India. What is further required are dedicated efforts in educating the public, in general, and aspiring entrepreneurs, in particular, about the great potential of franchising. V. Ganesh Ram of Veta informs, "Thanks to industry-specific magazines and franchising consultants in the country, awareness and tie-ups are increasing; however a lot more needs to be done."

Budding franchisors and franchisees can only take forward this ingenious business model, which, if implemented fairly and to the benefit of both, will enable them to achieve great entrepreneurial heights.

 

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