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Mar, 01 2007

DO GLOBAL FRANCHISORS HAVE AN EDGE OVER INDIAN FRANCHISORS?

THE past five years have witnessed the entry of global franchisors into the Indian sub-continent. Home-grown franchisors, who, till now, were satisfied with their own comfort zone due to lack of competition, are now face-to-face with global franchisors wh

THE past five years have witnessed the entry of global franchisors into the Indian sub-continent. Home-grown franchisors, who, till now, were satisfied with their own comfort zone due to lack of competition, are now face-to-face with global franchisors who are giving them the required challenge.

Companies like Cartridge World and Wal-Mart who have recently walked-in, have operations in more than 10 countries. This sudden spurt has led to a remarkable shift in the image of franchising in the country. Earlier, players like NIIT and Aptech who were pioneers in the field took it well to establish their brands across India. Still, with not many serious players to count on, the market remained fragmented and was termed as 'seller's market', where local franchisors were making their way with the kind of local processes and systems they had.

In comparison to multi-national franchisors the models of local players are very unprofessional. Global franchisors have the competency due to which they offer better systems.

Owing to such factors franchising in India has acquired an image where the franchisors could make easy money without offering the required support and services to the franchisees. This The Challenged to the growth of fly-by-night operators who used it to make quick money. No laws or policies in place further led to the misuse of the term franchising which was in turn used to make fast and easy money. Less information and knowledge on the part of the franchisees made the situation even worse.

Responding to the situation where franchisees fail to break-even, Amit Sabharwal, Country Business Head, Office 1 Superstore (India) says, "Most franchisors fail at relationship management, training, process flow manuals, better prices, IT, customer service support, operations management at the backend and front end which is the key to managing franchisee. Franchisors tend to overlook the basics and end up adding new franchisees which is why they fail to break even."

Similarly, R Parthasarathy, Executive Director, Cadd Centre, says, "A number of franchisors failed during the early years of its inception because they managed the transaction and not the relationship. However, this has changing now."

Today, big franchisors have entered the Indian market offering more opportunities to the investors. These global players, with their well-developed and well-articulated strategies in place best-suited for our market, have given the required momentum for the growth of the franchising industry in India.

Buyer's market in India

Franchising made its mark in India only a few years ago and is still in its nascent stage. According to Naveen Rakhecha, CEO, Cartridge World India, "The market is still maturing and we have a long way to go." He goes on to say, "Before I explain my business to the people, I have to explain what franchising is and how it is different from being a dealer." Lack of proper knowledge and information can also be attributed as the factors responsible for the ignorance of those wanting to become a franchisee.

In India the number of investors who plan to take up a franchise is not high, therefore, to fill the gap in this situation, franchisors have to take in whoever comes in with the required investment. The Indian situation is thus, a 'buyer's market'. Rakhecha says, "Most of the franchising models, I feel, are seeking real estate property owners rather than real business partners." This attitude worsens the situation.

Sabharwal adds, "Indian franchisees need to understand the pull factor of the brand they are bringing in and the commitment and level of support provided by the franchisor on marketing, training and supply chain fronts. They also need to be aware of the exit routes in case of unsuccessful ventures or in the eventuality of buy-outs by brand owners once FDI regulations ease."

Global brands popular

The popularity chart of franchisees is dominated by franchisors like McDonald's, Subway and Pizza Hut. Though there is no dearth of home-grown brands in the food and beverages sector, none of them is anywhere close to the kind of popularity the home-grown brands gain in countries like Australia that could force a foreign player to take notice.

Today, franchising in India has become an exciting opportunity with global players gearing up to set foot in the country. For global players, there are a few clear reasons for adopting a franchising model as the preferred option on their Indian market entry dashboards like, it allows a route to establish scales without the risk of large investments, vast spread of Indian consuming class and is the only option till the creation of single brand FDI being further allowed.

Experts believe that global franchisors have an edge as they have the resources and established markets to test their franchise systems before entering India. For that matter popularity of brands amongst consumers tends to make way for the global brands in their wish-list.

Better thinking on the part of Indian franchisors can make them the right candidates to cash in on the Indian market.

To be part of the whole

Popularity of a brand still rules the roost. Today, people have understood the concept of a global village and how they are a part of it. Rackhecha explains, "People are realizing that they are no more a particular store on a particular street. To produce global services they have to be a part of a global chain where the company is able to support you in terms of continuous learning, in terms of quality, supplies and so on."

In today's time, keeping pace with the international franchise marketplace is very necessary. The strong waves brought by international franchisors might be too strong, but only the fittest would survive in such situations. International franchisors have already made their mark on their home ground and when they enter new markets they are already confident with their set models and structures that are in place.

Developing further

The US invented franchising. It is home to the vast majority of the world's brand name franchisors. It is the heart of capitalism and entrepreneurism. In many countries, US concepts carry a certain cachet simply because they are from the US. Part of this is the US mystique, and part is the competitive environment in which these businesses are grown. The retail and service environments in most countries are simply not as competitive as they are in the US. And in the Darwinian world of business, that type of environment produces the strongest survivors.

The fact is that the US is the shopping mall of the world when it comes to franchise opportunities. About 45 per cent of the sales in the US come from franchised business; India is still to reach that stage where franchised business is as widespread as the local grocer. Franchising today accounts for a mere 3 per cent of India's total retail market, and is poised to grow to the levels operating in developed markets (franchising commands 50 per cent portion of the entire retail market in developed economies).

The global franchising market is in excess of $ 1 trillion. In India, it's a fledging form of enterprise, worth about Rs 10,000 crore, and growing at 25 to 30 per cent annually. The franchising revolution in India was kicked off by IT education centres Aptech and NIIT, quickly followed by F & B players, like McDonald's, Pizza Corner and Domino's. Although F & B continues to grow rapidly, it has been joined by a score of other businesses like grocery, furniture, pharmaceuticals, education that have chosen to take the franchise route for further growth.

There are not many franchisors who are competing in India to attract good franchisees because there are limited number of franchisees. Coming of more franchisors will definitely help increase more competition in the franchising scene in India.

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