Liberalisation proved to be a blessing for international franchisors, as India became one of the most sought after destinations for them. Ever since, each year saw a fleet of international brands entering Indian shores which consequently gave way to brand consciousness among consumers and fierce competition among the national and international players. While international franchisors left no sector unexplored in India, Indian franchisors too geared up to make their presence felt, both nationally and internationally.
Get set and go
“Rome was not built in a day.” This saying holds true with businesses too as most businesses are built brick by brick, absorbing the sweat and blood of the entrepreneur who does not leave any stone unturned to make it a success. In similar fashion, brand building is a process that is the result of meticulous planning, hard work and rigorous marketing. Once the brand has goodwill in the region it starts serving in, the entrepreneur starts dreaming a little bigger and tries his hand at neighbouring states from where the next step is to spread the brand nationally. Owning a firm position in the country of origin, the brand gets ready to go international. However, this is not as easy as said.
When an entrepreneur begins locally, he knows the market he is catering to, the taste of the people, their pockets, but he is not thorough with the processes involved. He learns everything through hit and trial, stumbles (at times) but learns from his mistakes, which in turn helps him in brand building. Developing a brand is a process and once the steps involved prove credible, the format can be easily replicated.
Reasons to go abroad
After proving itself in the domestic market, a brand gets ready for its international takeoff as it comes as the obvious next step. Once the brand has been successful in establishing its presence in the international arena, it becomes relatively easier for the brand to explore more market opportunities provided by various countries. It provides scope for further expansion, which in turn facilitates monetary gains for the company. “It also helps us to keep pace with the global fashion and trends enabling us to produce international style of clothing for Indian kids as well,” opines Sanjeev Narula, MD, Lilliput Kidswear. Mehul Choksi, Chairman, Gitanjali Group too upholds a similar view when he says, “An international presence brings the brand closer to its consumers. By expanding nationally and internationally, we have made all our products available to our consumers worldwide. It not only increases the sales by making the brand widely accessible, but the consumers also think of the company as more reliable and trustworthy.” Sameer Akhil Kachru, Director Marketing Services, RHW Hotel Management Services brings out another interesting fact when he says, “Overall perception of the company changes when the brand crosses international borders. You become a worldwide player which expands your vision too.”
A thorough market study is required before entering foreign shores to determine the entry route one should take, cost of real estate, pricing of the product, availability of workers and raw material, target customers and their religious beliefs, festivals, etc. Research also facilitates the understanding of the competition and strategies adopted by one`s competitors, aiding in the development of entry strategies accordingly. Overall acceptability of the product offering for the locals and feasibility of the expected Average per Cover (APC) are a few other factors that need to be considered.
The same market can be good for one product and not so profitable for another. “Most Indian players start off with targeting Gulf nations as UAE is 60 per cent India. It is the other way around for us. The Gulf actually is a tough market for us, as Indians there don`t buy our product, primarily because our price range is higher,” says Dilip Kapur, Founder & President, Hidesign. On the other hand, Balwinder Singh Ahluwalia, President, Koutons India Pvt. Ltd feels, “Indian consumers over there would be our target customers in the beginning as they already know our product and its quality.”
Indian franchisors` approach
Indian franchisors like Moti Mahal, Bikanerwala, The Great Kebab Factory, VIP, Bombay Dyeing, Gitanjali, Club City, Hidesign, Lilliput, Ritu kumar, Habibs, Monte Carlo, Encore Hotels VLCC, Amul, Spykar, etc. are present internationally. Brands like Talwalkars (the Indian fitness brand has plans of expanding abroad to tap the Indian customers in Singapore, Middle East, London, Scarvey), Koutons, CCD, etc. too plan to set foot abroad. Indian franchisors take different routes to enter foreign shores.
The Great Kebab Factory (TGKF), the restaurant format of RHW Hotel Management Services entered the Gulf nations (Dubai, Bahrain and Muscat) through a master franchise agreement with Jawad Business Group (JBG), a leading business group in West Asia. Franchising is the only way RHW expands nationally or internationally. TGKF is planning to open franchise outlets in many South East Asian countries as well as the European countries. Encore Hotels took the franchise route for its foreign ventures (a la carte) in Australia and Vietnam whereas the one in Dubai (Rajdhani) is a 50:50 JV with a local jeweller whereas the other two Rajdhani formats which are going to open very soon in the US would be franchised. Kamlesh Barot, Director, Encore Hotels opines, “Franchising is the best way to go international as you can hardly have remote monitoring over the operations in a foreign country. A franchisee has more hands-on knowledge of the local scenario and therefore, is a better option to run your show in a foreign market.” Franchising gives sense of ownership to the franchisee that can run the business better in his own country, which is foreign for the company, while the company can concentrate more on the quality and standardisation of its product.
Hidesign operates internationally in two ways. One is the distribution model wherein the distributor may either sell the products through various high-end retailers or open franchised stores. The stores in California, Malaysia and Oman are franchised stores. The other way is where the company is involved financially. The company holds 60 and 40 per cent stake respectively in the Hidesign stores at Hong Kong Airport and South African stores respectively. Lilliput takes mixed routes of JVs and Franchising in different countries. Lilliput stepped in Bahrain by entering into a JV with a Gulf based company in 2007. In China, Lilliput has two stores in Shanghai through a JV. In Egypt, Lilliput has opened seven stores in Cairo and Alexandria, in prime market centers of the country by entering into a franchisee deal with the famous Omar Effendi.
Companies like Hidesign and Lilliput first exported their products in the international market to create a flavour for their brands in the international market and then opened their exclusive outlets.
Koutons having1400 outlets in India primarily following the franchise route, is all set to enter the international market, beginning with the UAE. The company has not decided on its entry route, but is open to taking the franchise route if it is able to find the right entrepreneurs to collaborate with, in foreign lands.
Every brand needs customisation in accordance to requirements, physical conditions and preferences of consumers of a particular area. Koutons intends to customise its brand in terms of colour, sizes, style and pricing. Lilliput customises 40 per cent of the merchandise according to local tastes and sensibilities. The Great Kebab Factory takes into account the tastes and flavours preferred in various regions that it expands in. The kebabs in Chennai turn spicier than in the North, whereas in the Gulf, the spice levels remain much lower as the people in these countries would not be able to digest that. Though the designs of Hidesign products are pretty much the same everywhere in the world, certain kind of customisation is required to suit the preferences of a particular country. “South East nations fancy finished and fine leather whereas an American would go for very natural leather product. On the other hand, our customers in the Middle East would want aggrandised, shiny bags with all the razzmatazz and glamour,” says Kapur. However, Rajdhani offerings remain same all over the world except for the lowering of the spice levels in outlets abroad, though the menu is constantly revised to add more variety to it. One needs to customise the services besides the product. While citing an incident Kachru says, “While our cover set in India includes a dish plate, a quarter plate, a glass and bowls, in the Gulf, bowls are put right at the time when the food is served as they consider it disrespectful to set an empty bowl before someone.”
Pricing and profits
Generally, there is a variation in the prices of the products due to custom duties and the additional cost of establishment the company has to bear in a foreign market. Price range of Koutons will be slightly higher in UAE than what it is in India, whereas the cost of a Hidesign bag becomes double the price it has in India due to the distributor involved who adds 80 per cent to the original cost. Besides that, shipping and export duties also augment the cost. “We witnessed that the international market had a huge opportunity for Indian brands to establish their foothold as they provide better profit margins when compared with the Indian scenario. For instance, a Lilliput product that is sold for $14 in India is sold at $21 in Gulf and $23 in China- thus varies the profit margins,” avers Narula. However, what can actually help in reaping profits in the international market is the quality of the product and the right strategy as it is the only way to make a mark amid so many other international players besides the local brands.
While talking of difficulties one comes across in carrying business Ahluwalia says, “Wages of labour are higher there. Moreover unlike India, you cannot find labour by advertising in a daily rather you need to contact agencies to find workers.” Since you do not know the market, finding the right location comes as another major problem. “In Dubai the location turned out to be a major blunder. Our first store is running successfully but the second didn`t work just because of the location,” states Kapur. However, some unforeseen problems may crop up to block your international pursuit. “We wanted to take our staff to Sydney but the visas were rejected due to the 9/11 disaster that happened during the process,” says Barot. To identify the right partner for a JV or franchise- a conglomerate with a strong foothold owning retail infrastructure in the country, is another major task.
One comes across routine formalities like registering the company, issuing of visas and opening a bank account to start in a foreign country. There are a certain country specific laws too that need following. A foreigner cannot own 100 per cent share in a business in the UAE. One has to have a local partner who holds 50 per cent of the business. “In Gulf nations, regulations are such intentionally, so as to create a source of income without having much to do for the locals who are just 20-30 per cent of the total population,” says Kapur. However, rules are more defined in entering the US or the UK markets.
“As far as the Middle East is concerned, we do get help from the local government which has established a total window service where one gets all the information required to set up office, whereas Indian government provides export benefits such as reduction in taxes,” says Ahluwalia. Trade commissions of different companies too help in fixing meetings between the local parties and the company interested in entering their respective countries. However, most companies establish themselves without much aid of either government. Increase in air traffic due to trade as well as globalisation in general has lead to better links among international corporates, amounting to better prospects of trade among the international entities.
Many Indian franchisors have already entered foreign shores taking several routes while franchising remained the most preferred one. International market undoubtedly, provides bright prospects to Indian brands not only because of the sizeable number of Indians residing abroad, but also due to greater acceptability of Indian brands internationally. The need is to do a thorough market study to locate the right market and the right partner for launching your product in the international market. However, major stress on the quality of your product is the key to create a market for it globally.