I had put in a topic for my 100 mk project o franchising. Just needed a start and wanted to refer some project - current or old to get an idea.
Does anybody in da house go some project ?
Franchising Return to top
While a sizeable proportion of the Indian population still lives in the villages and has
limited purchasing power, India also has a large and growing middle class and a much
smaller wealthy segment of consumers. The Indian market has a segment of
approximately 150-200 million people with growing purchasing power, who seek
products and services for a better lifestyle. Approximately 2 percent of Indians have a
per capita income in excess of $13,000, which translates into a segment of 20 million
relatively well-off consumers. This is small in comparison to India's total population, but
still comprises a substantial market segment. Approximately 8 percent of Indians have a
per capita income of more than $3,500, or about 80 million people; more than 100 million
Indians have a per capita income in excess of $2,800.
Franchising in some form has been operating in India for several decades. One wellknown
example of this is the Bata shoe chain, started in the 1960's. However,
franchising in its modern concept has become popular in India only in recent years. The
industry is still very much in an evolutionary stage. New franchise business concepts
now span across diverse sectors as education, specialized food services, healthcare,
garments and apparel, entertainment, fitness and personal grooming clinics, stationery
and gift shops, and courier services to name a few.
As the service economy grows in India, opportunities for franchising will increase.
Given the current boom in the retailing and entertainment sectors in India, an increasing
number of players are seeing franchising as a growth option. According to industry
experts, the Indian franchise economy currently accounts for 5 percent of the country’s
GDP. According to a study conducted by the Federation of Indian Chambers of
Commerce and Investments (FICCI), there are approximately 600 active franchisers and
more than 40,000 franchisees in India currently across various sectors. The same study
estimates that total annual sales turnover achieved by franchised businesses in India is
in the range of $1.6-2.1 billion. Franchising is poised to spur economic growth because it
encourages private enterprise with no danger of flight of capital, and because it offers
the potential to establish products and services that meet global standards.
Unlike in the U.S. and some countries in the west, India does not have a specific law on
franchising as yet. Franchising is covered within the broad definition of transfer of
technology contained in domestic legislation. A legal framework for new franchisers
interested in setting up master franchises in India exists, in terms of brand protection and
rules regarding payment of franchise fees. However, there is a growing need to improve
this regulatory framework.
Following the economic liberalization of 1991, several foreign companies with strong
brand names established a presence in India through franchising. In the hospitality and
food service industries, this has been the preferred method for starting operations in
India. Some international companies that operate through franchises include: Hertz,
Avis and Budget for car rental; Radisson, Best Western and Quality Inns for hotels;
Kentucky Fried Chicken, Domino’s Pizza, TGI Friday, Ruby Tuesday, Subway, and
Baskin Robbins for food. Pizza Hut and Domino’s Pizza have opened many outlets and
McDonald's has been open for business since 1996. Similarly, Indian companies with
strong brand recognition are also using the franchising route to expand business
volumes. Archies for giftware, MRF for automotive tires, NIIT for computer training
schools and Apollo Hospitals for healthcare are examples.
Several foreign management-training institutes are adopting the franchise route to
expand their operations in India. CMC is a government-owned enterprise that has 120
computer education institutes in India. It requires potential franchisees to provide a
minimum space of 1,200 square feet and invest $32,000-34,000.
While franchising is growing in India, the concept has functioned mainly on an agent
basis. It is still evolving and being refined, but is expected to mature rapidly over the next
several years. Franchising in India is often perceived as a strategy to cover the high
cost of real estate that a company that is interested in retailing would have to bear. As a
result, if business projections are not met, franchisees can and sometimes do shift to
other franchise concepts.
With minor variations, in a typical franchise operation, a company approaches an owner
of prime commercial space to provide the real estate, to invest in interiors and
inventories to run a franchise business, and to hire staff for the operation. Franchisees
prefer to recruit staff directly, but most franchisers insist on training the staff themselves,
particularly in educational and computer training academies.
U.S. firms need to use several criteria to evaluate prospective franchisees. The key one
is that prospective franchisees must be financially sound. Other considerations include
space location and availability, a willingness to work through initial teething problems
together, high ethical standards, and similarity of goals and values.
Financial arrangements can vary. Some companies offer franchisees a percentage of
commission on sales, while others provide a fixed percentage of the retail price of the
product as a profit. The costs of promotions and advertising are usually shared between
franchiser and franchisee, with some companies assisting franchisees in specific
promotional activities to help increase product sales. Most franchisers provide their
franchisees with initial training in the business and some franchisers also help with site
Franchise fee payments in hard currency are allowed. A potential franchisee must
submit a proposal for a franchise operation to the government ministry that regulates the
particular industry sector. Among other details, the proposal must contain the amount of
franchise fee that will be paid to the franchiser. The proposal moves from the relevant
ministry to the Ministry of Industry and the Foreign Investment Promotion Board in the
Ministry of Finance. Reserve Bank of India approval of the franchise fee is automatic
when the Ministry of Industry clears the proposal. There are value or percentage limits
on approvals of franchise fees, with franchises involving advanced or high technology
receiving the highest limits. Royalty payments ranging from 3 to 8 percent are allowed in
hard currency, in addition to the franchise fee, although the norm is closer to 5 percent.
The royalty is calculated on total turnover for the year for the franchise operation.
The Franchising Association of India (FAI), established through the efforts of the Indo
American Chamber of Commerce in 1999, is the first organization of its kind in India. It
represents the interests of franchisers, franchisees, vendors, consultants and other
interested individuals and bodies. The FAI’s objectives include improving the business
environment for franchising; acting as a resource center for current and prospective
franchisers and franchisees, media and the government; promoting the concept of
franchising and its use as a healthy business practice; establishing a discussion forum
for franchising matters; and promoting the interests of members by organizing seminars,
conferences and meetings. The FAI is in the process of establishing appropriate
international linkages, and was admitted as a member of the World Franchising Council
in early 2000.
The FAI can publicize updated information on American franchisers that are interested in
expanding their business in India. It can advise potential franchisers about the current
legislative framework, and lobby with the government for changes. It can also help to
identify high-quality potential Indian franchisees.