Future of Franchising in India

Franchising is an entrepreneurial alliance. Much like a commercial business partnership wherein the franchisor provides the brand name, manufacturing / service delivery process and access to the system and the franchisee provides the capital and forms the front end of the delivery system. Franchising is based on sound principles of excellent and consistent quality that is associated with a brand name.

Currently, In India not many innovative franchise concepts are available. In this subcontinent people prefer to save some cash rather than go for quality service. This is because people fear to take the risk of deviating from the conventional idea of the concept of business and adopt franchising as a method of business.

Franchising, today contributes roughly about 1% of the total retailing activity in India. This is no doubt a very grim picture for the franchising community. When carefully observed behind this gloomy image India has a very big opportunity. With the internationalization of franchising and emergence of new technology, it is a dynamic method of doing business. It is in keeping with the liberal philosophy according to which without freedom, the human spirit languishes and the economy stagnates. With the issue of global governance, there seems to be a growing trend of drinking water being supplied as a commodity with a profit motive. Though the issue of global governance and water is debatable as the same can be conceived as commodification of water, the possibility cannot be denied that the future may involve corporatization of water and provide opportunities of franchising! As Asian and world economies, grow with the ever increasing

Populations and the move toward free market economies, new franchise concepts will come on the scene and the solid, well-managed existing Franchise companies will continue to grow. The well-known practice of Latin America is of getting a government franchise for a particular business.

Economic development is the precursor to social development. The vital component of a progressive economy is the number of entrepreneurs. Franchising clearly offers aspiring,
New business owners the best possible chance of succeeding with the least risk. The major advantage is that the system, the means for distributing goods and or services, has been developed, tested, and associated with the trademark. Within two to three decades or less, franchising in India and most parts of the world shall comprise over 50% of the retail economy, and will employ millions of people and will enable hundreds of thousands to realize their dream of successful business ownership. Programs exist that are designed for low-income individuals aspiring to be entrepreneurs to provide franchise opportunities.

In around mid 2006, India’s GDP (on a Purchasing Power Parity basis) is going to cross the magical figure of USD 3300. After crossing this figure what can be expected is a sudden growth in demand of consumer durables, mobile phones, better utilities and everything that is needed for a better standard of living.

The hotel industry is at the forefront. Brands that dominate the Indian hospitality marketplace. Chain affiliation is the key word. A chain can be effective if its components adhere to brand standards. Customer satisfaction at one member hotel is directly proportional to customer preference for the brand. Networking and teamwork are the positive characteristics associated with success in this field.

Therefore, an environment conducive to franchising seems to be developing. There is a move toward better protection of franchisee rights and over time, this should push more franchisors towards structuring their Relationships with their franchisees in a totally win-win manner. It is a common perception that the current regulatory framework affords little opportunity to small business franchisees to obtain redressal in the event of conflict with the franchisor. The power equation is generally in the favour of the franchisor. The attorney of the franchisor who drafts the agreement could err by overemphasizing the rights of the franchisor and magnifying the obligations of the franchisee. Progressive attorneys now seem to have realized that there should be no room for ambiguity in the agreements. Vague agreements written in bad language underplaying rights of the franchisee can be rejected. This encourages a review of outdated agreements. The best franchisee support structures are provided by franchisors to protect them. The mutual goal is success for both parties. The franchisor contributes his brand, products, mode of operation, system, and marketing. The franchisor also sets the rules, guidelines, and product quality to be followed by all of its franchisees. The expertise of the franchisor and the hard work of the franchisee translate into a strong partnership.

The growth of franchising is inevitable, because of the inescapable logic of the underlying concept. Business owners realize the importance of finding ways of reaching out and creating a distinctive brand image with respect to customers. This synergy creates competitive strength. Franchising to reiterate is a WIN-WIN-WIN. The Franchisor wins by having a presence, whereas the franchisee wins by owning a profitable business and the society wins at large by having superior products and services.

Franchising in this century will be highly influenced by Technology and Internet. Technology improvements, notably in telecommunications, computers and the Internet, are having a major influence on franchised businesses. Technological developments including the Internet are having a significant impact on franchising. The Internet is still moderately new, yet it is rapidly shifting the business environment, changing the way we process information, network and carry out business activities. Several franchised businesses are in the pursuit to be on-line, and to consider an appropriate Internet Marketing and Advertising Strategy

They are looking to make the most of the opportunities this new technology provides (reduced costs, rapid expansion, increased sales), whilst simultaneously attempting to protect themselves from a new class of competitors (e.g., new, often global competitors) accompanying it.
The Internet is threatening the survival of retailers. Brick and mortar travel agents are almost extinct. Consumer centric E-commerce sites are mushrooming the virtual market. Many franchisors have already taken the initiative towards building their brand on-line by establishing and updating a web site. Most provide information to the market for end users of products/services, as well as the market for franchisees and investors. In addition, some franchisees are establishing their own sites

In this era of co-operative competition, Franchisors today are collaborating with competitors and complementary product/service providers to explore co-marketing and other strategic synergetic opportunities. The development of the Internet is also responsible for a new range of challenges to the franchise relationship. While the Internet provides a wonderful opportunity to build sales globally, there are a number of issues between franchisors and franchisees that need be resolved.

One key question is who can develop what? It appears most franchisors want to control Internet developments centrally, and do not want franchisees starting their own web sites. There are exceptions, however with others believing multiple sites help build brand awareness. However franchising is synonymous with uniformity and ensuring uniform websites would call for a different set of rules.

Another question involves who bears the expense for setting up the website? In addition, critical to this is yet another - how are profits distributed? These are particularly pertinent issues given the company's web site may compete for customers in the franchisees territory. Some franchisors want to keep profits for themselves, claiming that while the web site may take some sales, the increased awareness it provides to local franchisees far outweighs this. Franchisees argue however, that such web sites cannibalize sales and diminish the value of the franchise.
Technology and Internet has led to a whole new set of franchised businesses. An Internet company, World Sites assists small and medium businesses establish affordable websites and a wide range of other services. It would be difficult to imagine such unique concepts without the role of technology. Overseas, the number of Internet related businesses has been growing consistently, the same trend can be expected in India, in the coming years.

Franchising in Niche Markets
Niche markets are developing around a new set of consumers. These consumers are small in number and look at specific services. Eg. Senior Care services are popular globally, however they have not yet penetrated in India. These consumers are over 55 years of age, and affluent and they are now looking at enriching their lives by being involved in their hobbies, they would not want to be involved in trivial day-to-day activities.

As a consequence, more franchised businesses are developing marketing campaigns specifically for them. Some have gone further and added new products and services. In yet a further illustration of the importance of this segment, whole new franchise concepts are emerging. Further growth in these areas seems inevitable. Such franchise business flourishes here by catering to a few, but very profitable consumers.

Competition, Franchisors face competition in every segment, and it is going to intensify. Also indicative of the potential for increased competition are the plans of strong overseas franchise systems. Most international franchise companies are bullish on the potential of franchising in India and are willing to invest for a long-term basis. Many seek additional growth and believe their home markets to be nearing saturation. Further, many in fact need growth, in order to satisfy analysts following their stock.

Mergers and Acquisitions
M & A activity in mature markets like US and Canada is rampant. In India, M & A would happen when the markets develop and when growth seems difficult.

Large well-known systems have often purchased both individual and groups of offices, in areas they aren't represented to build market coverage more quickly, then franchised them later.

To conclude, the future trends involving franchised businesses are varied. The local franchising industry can expect a colorful future. On the one hand, franchisors and franchisees have some exciting possibilities to pursue, while on the other, there is a range of new threats to contend with. In my view, the future brings increased complexity to the role of franchise system management. This complexity will also lead to growth and further penetration of this amazing WIN-WIN PARTNERSHIP. Franchise strategists will have more options and to consider and at least some of these will require specialists skills to evaluate, progress and prosper in this rapidly changing evolving market.

Dhawal Shah, Dy. Executive Officer of Franchising Association of India. Dhawal Shah is described as a franchise enthusiast. He has always been intrigued by the power of franchising. Based in Mumbai, he constantly reads and writes on franchising and its enormous potential in India. He can be contacted at dhawal@mail.com