Franchising Opportunities in India - Potentials and Pitfalls

chillibreeze writer — Debajyoti Ghosh

Franchising Opportunities in Indian Retail

Starting a business could be a daunting task and full of uncertainties. You have to conceptualize a business model, obtain license from authorities, find a target market, establish your credibility in the market and so on before you could eventually see your business running; and all these might not always translate into success. Now with the advent of franchising business, you can easily associate yourself with an existing brand and an established customer base with proven demand for the product or service. As a result, many aspiring entrepreneurs are opting for franchise business in India for the opportunities and success associated with this business.

The upsurge in the franchising business in India can be attributed to the geographical and cultural diversity, and a substantial customer base with disposable income. And with close to an 8% growth rate and a huge potential in the market, India is a preferred destination for many global business houses. You can use this to your advantage by carrying on a particular business of an established brand and expanding their business in the territory where you choose to operate as an independent entity.

Franchising business involves a franchisor and a franchisee. The owner of the business is the franchisor whereas the entity authorized to carry on the business under the brand name and the guidelines is called the franchisee. Franchising business is driven by the fact that the business model can be duplicated and the brand has the value to provide a platform for an individual aspiring to be an entrepreneur. These two enterprises are legally and financially independent and the franchisee is not liable to make any financial return to the franchisor.

Often big business houses do not have the knowhow of a particular territory and potential in that market which often becomes a hindrance for them to penetrate all promising market segments. Whereas there could be enterprises in those markets that have the necessary knowledge and resources to carry on the business in their respective territories, this is the foundation of franchising business. A franchisee is offered a product or service of a particular brand to operate in a market independently. Franchising business ensures a rapid growth for the brand with individual units from different territories can run the business and cover a huge geographical area which otherwise could be virtually impossible for the brand to accomplish.

However, every business has its pros and cons, and franchising business is not an exception. There are number of factors propelling the franchising industry to new highs making it the fastest growing industry, similarly there are factors which can be deterrents for the success of the business, and make it difficult for a franchisee to achieve its goals. Following are few advantages and disadvantages of franchising business:

ADVANTAGES:

Franchisees have the luxury to assess the prevailing business model and brand name based on the success of the brand and other existing franchisees.
Benefit from the marketing campaign of the franchisor.
Management training and continuous support provided to the franchisee throughout, which includes site selection and outlet design during the initial phases.
Franchisees enjoy exclusive rights in their respective regions. No other franchisee will be involved in a region where an existing franchisee is operating. The number of franchisees required to cover an area is decided on the size of the territory, customer base and other criteria.
Obtaining finance to run the business is simplified by the fact that financial institutions and banks give preferences to the entities associated with a reputed brand.
Distributors and suppliers already have an opinion for the brand and at times there already is an established distributors and suppliers base, which makes it easy for the franchisee.
The brand already has a demand in a market; franchisees strengthen the customer base by making the product or service available for all prospective customers.
Risk is substantially less due to the proven strategies of the franchisor and the control mechanism in place.

DISADVANTAGES:

Any negative publicity for the brand will impact the business for the franchisee.
Lack of credibility of the franchisor will have its implications on the franchisees irrespective of their diligence, integrity and dedication.
Any changes in the way the brand operates or a change of brand name itself will significantly affect the business of the franchisee.
The franchisor might close down the business.
Franchisees have to abide by the guidelines of the franchisors which can restrain them to bring innovation and this reduces the autonomy of the franchisee.
Initial investment could be little high as a result of the cost of buying the franchise.
Regular payment of royalty regardless of the success of the business. And this royalty or fee needs to be paid even before the business starts generating revenues.
In the event of a transfer of ownership, the franchisee has to pay a fee to the franchisor as part of the agreement.
Margin is not sizable due to numerous fixed and variable costs involved.
The renewal of the franchise term is not guaranteed.

Irrespective of the advantages and disadvantages in franchising business, it provides huge opportunities for individuals to fulfill their dreams with more and more foreign and domestic players entering the franchising industry. With India’s growing economy and low risk involved in the franchising business, it is the preferred choice for many individuals and will remain that way for years to come.

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Chillibreeze's disclaimer: This is a contributed article and was published on Chillibreeze in September, 2011. The views and opinions expressed in this article are those of the author(s) and do not reflect the views of Chillibreeze as a company. Chillibreeze has a strict anti-plagiarism policy. Please contact us to report any copyright issues related to this article. The relevance of the facts and figures cited (if any) could change after a period of time.

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