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Oct, 03 2011

FRANCHISE CONNECTION @ INDIA

What's in a location? A million dollar question perhaps, but ask this to a franchisor and then you will know that the entire future of his business depends on a location, especially while crossing borders for expansion.

TO widen their horizon, international franchisors are on a look out for new foreign locations. While breaking into new world markets, they not only contest with fellow new entrants, but also with the already established franchisors in their aimed territories.

Besides, international expansion entails extensive research, careful planning, considerable financial expenditure, staking brand equity and several other challenges. The best marketing strategy takes care of four P's- Product, Price, Promotion and Place. Therefore, the companies must select their territories carefully for maximum franchise growth and profitability. Among emerging global economies, India holds much promise for international franchisors. Read more to find why international franchise brands prefer India to be a hot destination!

Decision-making moment

International franchisors consider several key variables before landing on Indian shores. The entry of foreign brands in Indian market depends on the nature of their business. Further, they scan the market in terms of size, political and economic stability, pro business public policy, available infrastructure, potential sales etc; and this impacts the company's overall profitability and success.

Further, for establishing franchise network within India, franchisors may segment the market on the basis of product demand, target consumer profile in terms of demography, disposable income and spending behaviour, accessible locations for sellers and customers alike, real estate costs and rentals, expected returns etc. As Janaka Wimalananda, MD & CEO, Loon Tao, says: “For most businesses, location is utmost important thing. First thing any franchisor looks at is the market size. We look at the current and expected growth of the economy, including inflation, consumer income levels and spending patterns. Another important thing to consider is the room for expansion in the preferred country in terms of cities, towns etc.” This premium fine-dining restaurant brand from Sri Lanka has recently forayed into India via franchise route.

Talking about the what to consider while entering into Indian market, James Vilsanna, President, Smoothie Factory says: “Considering the diverse Indian culture, we made a strategic decision to divide and develop the brand within the country by region and in some cases hubs. Criteria of site selection are also critical for the success of our stores.” This US beverage brand plans to open its outlets pan-India via master franchising.

Further, Mritunjay Kumar, New Zealand Natural, Business Head, India says: “Economic projections for the next 10 years was one of several factors in deciding a country. Our brand operates through master license agreement in different countries, including India. Therefore, the master franchisee responsible for the launch as well as expansion makes sure that clustering of stores is operationally viable due to logistics constraints.”

This New Zealand-based ice-cream brand started in India in 2010. Also, the presence and performance of other players in the market where the brand intends to launch through the franchise business model affects its market selection process.

Indian franchise market at a glance

Franchisors view Indian franchise market and local investors seeking franchise partnerships quite positively. The organised market has grown from strength to strength in the recent years and franchising has leapfrogged the business growth in India. Kumar comments: “Indian market has evolved post the economic liberalisation of 1991. Now, investors have varied options to choose from. From our experience, Indian investor keenly calculates the returns and break-even during their first interaction with the brand. The mature Indian investor ensures the future planning of the brand, along with the acceptability of the product in Indian context, before investing.”

“Surprisingly, a lot of young educated people, especially MBA graduates want to start their own business. It's exciting, as we can see them growing with the brand in the next five to10 years,” adds Vilsanna.

Law of the land

Foray of franchise brands require being in line with the laws of the land. Franchisors need to follow customary regulatory framework in India as well. Besides general legal considerations, different business may involve particular legalities to be taken care of. Legalities may include numerous licenses- shoppers license, tax registration, labour license etc; import permits, issues related to import duties, custom formalities, various approvals from government agencies, quality controls, income taxation and other levies, profit repatriation etc. Wimalananda says: “The Indian government must focus on various businesses viz a viz industries and break the complexities in approval process. Perhaps introduction of 'onestop-shop' kind of a government agency for each industry will help the economy in a big way. This will certainly generate the much-needed cash circulation for a stable economy.”

Dealing with ground realities

Franchise companies may go through certain trials while breaking into foreign locations. Indian market is no different. The thumb rule of marketing strategy says that no two markets are same. What works in one market may not effectively translate into a successful business opportunity for another.

Foreign brands need to understand the pulse of local factor, consumer lifestyles and habits to connect with their target audience. They also need to understand the business workings here. On the operational front, the limiting factors may include paucity of skilled labour force, quality infrastructure, high real estate rentals, efficient supply chain mechanism, competition from other brands in the same business, right product or service pricing policy etc.

Rich rewards

Expansion into India and spreading within the country with right market selection strategy can help a great deal in diversifying risks and enhancing profitability. Wimalanada opines: “The rewards will be of high volumes and greater stability. When there is a diverse market with a sound economy, chances of risks are low.” Kumar observes: “Metros are brand polluted and have little margin for error in terms of location/pricing/ marketing communications etc, but have a bigger maturity phase in the life cycle of a store. Tier-II and other cities still aspire for a brand and the brand gets an easy word-of-mouth publicity/easy and huge crowd pull initially, but at the same time have a small maturity phase.” Talking about how optimum market ensures profitability is further discussed by Vilsanna: “The reward of expanding to different regions concurrently is brand exposure. It facilitates accelerated growth through sub-franchising by leveraging marketing, delivery infrastructure, labour etc for long-term benefits and savings.”

Beware!

Some caveats or cautions regarding choosing the best locations with in Indian market must be observed. Vilsanna says: “I can say this from my experience that site selection and location demographics are different in emerging markets as compared to developed markets. Consumption patterns are also different. A customised business model, development strategy and due diligence in selecting the right partner is critical.” Kumar says: “My advice is to go to an aspiring market. Tier-II cities have proved more promising than metros in our case.”

To sum up

Selecting the right market is crucial for the success of a brand. Franchisors should carefully scan and select the best market for launching their concepts and growing them further. Undoubtedly, for international franchisors, India offers an explicit advantage over other global markets when it comes to expansion. The market scope of country's thriving economy is still untapped and thus lucrative avenue for many international players. Therefore, franchisors, mulling to operate in India can leverage its enormous potential and be a part of the growth story.

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