Sri Lanka is an untapped market that matches perfectly with Indian franchisors' cross border aspirations. The key factors like geographical proximity, robust economy, liberal trade environment, transparent laws and higher growth prospects in the immediate
ONCE a business establishes nationally, companies aspire to take to the next level, grow globally. By doing so, they can diversify their business risk, enhance profitability and obtain the international status. Basking in the success of home market, many Indian companies are also employing borderless approach to expand their global footprint. One of the detrimental factors of international expansion include 'finding the right market'. The most logical choice for any business to expand internationally, is the immediate foreign location. Sri Lanka, one of India's neighboring countries, is the most liberalised economy in South Asia and has immense business potential. Hence, it is on the radar of several international companies that are looking to extend their worldwide footprint.
Why Sri Lanka?
India shares great synergies with Sri Lanka as both the countries have quite similar consumption patterns, culture and way of life. Thus, Indian companies can better understand the country's market and suitably gratify the local consumers. Besides, Indian companies can benefit from bilateral trade relations and double tax relief agreements between the two nations. It is the region's emerging commercial hub and a booming international tourism hotspot expecting to hit 8,00,000 arrivals by 2012. As sales are hugely tourist-driven, in spite of small size and population, the overall market potential is quite high. The Indian companies may enter the market via M&A, joint ventures, licensing, distribution and franchising. Today, franchising is the most preferred way of expanding business internationally and thus many Indian brands are seeking foray into Sri Lanka via franchise route.
Franchising scenario
The country's franchising industry is in very early stages but the local business community is realising the benefits of franchise businesses. In absence of sector specific regulations, the local franchising business is governed by commercial laws like Exchange Control Act, the Intellectual Property edicts and possibly the Unfair Contract Terms Act. Several global food and beverage franchise brands like McDonald's, KFC, Baskin Robins, Pizza Hut and Barista have presence in the country. The other sectors that hold promise include travel and leisure, education, beauty and fitness and apparels. In the past few years, a number of Indian players have entered the Lankan market while many are planning to launch franchised operations soon.
Players and expansion strategy: The Indian companies may expand into the Sri Lankan market by securing master franchising (MF) rights for international brands. Being based in India, they are culturally, logistically and economically more competent for handling sub-franchised operations and support, thereby maintain brand's standardisation and growth in the territory. Otherwise, the Indian brands may choose to launch their own franchise concepts in Sri Lanka.
Master Franchisees: The international brands like Domino's, UNIGLOBE Travel, Gold’s Gym and Cartridge World have forged MF alliances with Indian companies for multiple countries, including India, Nepal, Bangladesh and Sri Lanka. Jubilant FoodWorks Limited (JFL) operates Domino's Pizza brand with the exclusive rights for India, Nepal, Bangladesh and Sri Lanka. The market leader in the organised pizza market, JFL opened first Domino's Pizza store in Colombo in 2011 and plans to launch more such stores in future. Commenting on the entry into country's market, Ajay Kaul, CEO, JFW Ltd said, “Expansion to Sri Lanka is an integral part of our regional growth plans. It presents a good growth opportunity for our brand. With a deep understanding of the consumer in this region, solid operational expertise and best-in-class marketing, we are confident of achieving our goal to take Domino's Pizza to more people in the region.”
An international travel management company, UNIGLOBE Travel group forayed into the Sri Lankan market in 2010 by awarding its first franchise in Colombo. Its India partner, Ritika Modi of V K Modi group has Master Franchise rights for India, Bangladesh and Sri Lanka. She says, “Venturing into Sri Lanka was important because one of the recently escalating trends affecting the business of travel distribution is globalisation in the travel industry. This is making business networking increasingly important in our business.” The US- based QSR brand, Quiznos has signed a master franchise agreement with Apollo Elixirs Pvt. Ltd. for Southern India, Goa and Sri Lanka. The company targets to build the brand in home market and overseas later on.
India-based brands: The IT and computer-related education brands like CADD Centre has established franchise presence in Sri Lanka. CADD Centre, a 22-year-old leading CAD / CAE / PPM training institution in the worldhas been doing good retail business in the country. S.K. Selvan, MD, CADD Centre Training Services while sharing brand's franchising experience says, “Sri Lanka is a good education market. The local government supports ICT initiatives and the country is fast developing. Colombo is comparable to any South Indian city considering its market potential,” CADD Centre has two centres in Colombo and one in Jafna with two more in the pipeline.
Apart from this, the market is also witnessing interest from clothing and apparel brands. Raymond, a premium clothing brand, has some franchise presence in Sri Lanka and is exploring further prospects. The recent entrant, Madura Fashion & Lifestyle, which has strong franchise network in India has tied up with Hameedia, a Sri Lanka-based company through distribution arrangement. It will bring in major global menswear brands like Van Heusen, Peter England, Louis Philippe and Allen Solly in Sri Lanka. Besides, Hameedia also plans to set up a concept retail outlet under the brand name Planet Fashion owned by Madura Fashions. Moreover, Madura is also looking to have more such stores in the island country in the future.
Opportunities next
Entertainment and leisure company, Country Club has own and franchise locations in home market, India, and other foreign countries, including Sri Lanka. The brand currently has one club in Kandy and is looking for further expansion in the country. Y Siddharth Reddy, CEO, Country Club India Ltd. (CCIL) reveals, “We are looking for opportunities to expand in Sri Lanka via franchising as part of world wide strategy.”
Another Indian menswear brand ‘Manyavar’ from house of Vedant Fashions which has recently opened its international store in Dubai through franchise alliance, is seeking further overseas expansion. Mohit Tikmany, CEO, Vedant Fashions, shares, "Our international expansion plans are massive and we want to cover all the cities in UAE. Further, Manyavar with one outlet already opened in Bangladesh also plans to have additional stores in the country. It will be followed by more store openings in Sri Lanka, Nepal, USA, and the UK”.
Further, AFL Pvt. Ltd from India holds the master franchise rights for opening Cartridge World stores in India, Sri Lanka, Nepal, Bangladesh, Bhutan and Maldives. With over 100 franchise stores in India, Cartridge World continues to spread its market reach in varied geographies. The brand aiming to fulfill the demand for specialised cartridge refill stores seeks to appoint an area development franchisee in Sri Lanka. Sharing the expansion plans, Hemal Manek, Head-Network Development, Cartridge World, South-Asia says, “Cartridge World will be appointing an area development franchisee in the country, who will be responsible to operate around 12-15 stores over period of time. Area development franchises will be required to start with minimum one model store and can further expand either by company-owned stores or appointing unit franchisees. We expect to appoint around 12 to15 units under the area development franchisee in the next three to four years.” Hyderabad based NumbersOnly Hospitality Pvt. Ltd. has tied up with News Café, an F&B brand from South Africa which has marked franchise presence in Africa and Asia. As a master franchisee, NumbersOnly is looking to develop the brand in India, Nepal and Srilanka via own outlets as well as sub franchising.
Other home grown education companies from India having substantial presence domestically are also eyeing entry into Sri Lanka. Prominent brands like Shemrock and Shemford Group (SSG) of Schools, Kangaroo Kids Education Limited (KKEL) and Indian Institute of Hardware Technology (IIHT) consider it a key location for fulfilling their worldwide business aspirations. These aspirants are looking for entry points into the island's market via franchise growth model.
Impetus required
Sri Lanka is set to boost its competitiveness in its economic activities. Taking cue from the success of the business model around the world, the local investors may be encouraged to start franchise business. The increased participation from various stakeholders such as government, investors and local and international companies will fuel the development of franchising industry in Sri Lanka. This will not only help budding entrepreneurs but also create more employment opportunities.
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