Features of franchising and its popularity in India

What franchising is

Franchising is a contract under which the owner of a brand, a product or a way of doing business, called the franchiser, lets another person or firm, called the franchisee, use that brand or system for a fee, usually within a stated area. The right is granted through a written franchise agreement, and one franchiser may sign such agreements with many franchisees.

Features of franchising

1. Licence to use the name and know-how. The franchisee trades under the franchiser's trade mark and uses its business know-how under a licence.
2. A price for the right. The franchisee pays the franchiser a sum known as royalty for that know-how and trade mark, and undertakes in the agreement to pay it as specified.
3. Continuing help from the brand owner. The franchiser supplies technology and marketing support and may arrange training for the franchisee's staff, so that in effect it sets the business up for the franchisee; the arrangement obliges it to give support on a continuing basis.
4. Operation on the brand owner's terms. The franchisee must follow the franchiser's policies on how the business is run, and the franchiser may control the manner in which the outlet is carried on. A franchise manual, kept up to date as the business develops, sets out matters such as shop layout, pricing and staff training.
5. A limited term. The right lasts for the period fixed in the agreement and may be renewed; renewal on expiry needs the consent of both sides.
6. Restraints on both parties. During the term the franchisee agrees not to run a competing business, and the franchiser agrees not to sell a franchise to anyone else in the same region.
7. Two separate organisations. The company that owns the brand and the one that runs the visible outlet are distinct; the franchisee carries on the outlet as an independent business.

Why franchising is popular in India

Franchised outlets are now common in India in fields as different as computer education, fast food, footwear, clothing and coffee. A tutoring chain opening centres in Kota and Patna, or a tea-café brand spreading through Pune and Indore malls, through local owners, shows the pattern. The reasons lie in what each side gains:

• Quick growth for the brand owner. Because the franchisee puts up the money for the outlet, the franchiser can widen its distribution in a short time with little extra capital; it also learns from franchisees about local tastes and gains wider acceptance of its brand.
• A tested idea for the new entrepreneur. A first-time Indian businessperson gets a proven idea whose results can be checked at other outlets before committing, and a known brand that draws customers and improves the odds of success.
• Help with running the outlet. The franchisee can count on support for staff training, promotion and store layout, and the franchiser's quality control helps it satisfy buyers.
• A protected area. The franchisee enjoys exclusive rights in its territory.
• An easy route for foreign brands. A brand entering India this way makes almost no investment of its own here, and the local franchisee brings market knowledge and contacts.

The popularity has limits. The franchisee gives up full freedom, pays royalty regularly, and cannot sell the business without approval; the franchiser's name can suffer if an outlet lets standards slip.

Conclusion

Franchising joins a known brand with a local owner's capital and effort. Both sides gain, which explains why it has spread so widely across Indian towns and cities.