What I Must Know Before I Franchise My Business In India

1. What I Must Know Before I Franchise My Business In India What I Must Know Before I Franchise My Business In India The dynamics & growth of franchising in India over the last decade has been phenomenal. If you have a business and are running it successfully in your own city or geography either in tier 1 cities like Mumbai, Delhi, Bangalore, Chennai, Chandigarh, Kolkata, Hyderabad, Pune, Jaipur, Ahmedabad, or Tier 2 cities like Nagpur, Coimbatore, Surat, Guwahati, Vizag, Ludhiana, Indore, Bhopal or Tier 3 cities like Mysore, Vijaywada, Jodhpur, Calicut, Rajkot, Jamshedpur or many other cities or are an international franchisor seeking to enter India, then here are a few important factors which you must be aware of, while you look at how to franchise your business in India. If you must. We have so many successful businesses run so beautifully by individual entrepreneurs or joint families or small and medium sized companies in their own cities, but have not taken the next steps to expansion as they were too busy managing their day-to-day activities. We receive numerous calls from the next gens who are seeking to grow these businesses or from the owners themselves as they have realized that they have peeked in their respective geographies and now need to re-look at their businesses and expand them in other locations. Additionally, since the markets are opening up and there is new development and consumerism, competition is threatening change or else businesses would collapse. Additionally, as pioneers in helping businesses grow through franchising, we are constantly identifying promising businesses that could expand and reach out to them offering our expertise and guidance to these entrepreneurs, who instantly latch upon us and get onto a journey, where they realise the immense potential of what franchising could do to their business. Hence if you have business that you have been thinking of expanding and never took the first steps towards doing so, all you need to do is reach out to a franchise expert and you could well be on your way. Firstly, is your business franchise able and if yes what are the first steps that you need to take. The first concerns, which most business owners have, are whether they can franchise their business in the Indian eco system. A shipping logistics company was speaking to us and was concerned whether he could actually franchise his business. Another popular restaurant owner was very concerned of passing over the menu that had been passed down by generations, to his franchisees. Then we had a artificial jewellery manufacturer claiming to have dealers and distributors across the country and looking at doing his own stores, but yet again, not sure if the consumers here would buy from a new format of stores which he had in mind. Another, baby store owner, running his business from the last 20 years was convinced he needed to grow now, but was not sure how to integrate the various suppliers, manage inventory at separate franchise locations and essentially what were the first steps he needed to take to franchise his business.

2. Well, the answers to these have been thoroughly researched, found and acted upon by others, maybe not in a direct form but indirectly addressing every concern, which any business might have had whilst getting on to the franchise platform. All you need to do is sit down with the experts or do your own study on the successful franchise models and how they have been operating and what would work in your business. With our experience, we have seen, franchising works beautifully in the Indian business Eco-System. INFACT ALL BUSINESSES COULD BE FRANCHISED, but they need to be modified to suit franchising and to create a system which would work in the over all advantage of the franchiser, franchisee, its suppliers, it employees and off course deliver a better product or service to the customer. In course of franchise development for business, that’s what we do. We hear from the customers about their business in totality, their challenges and what they foresee would be the difficulties in delivering the customer, through the franchisee. And more often than not, the solutions are there and need to be acted upon, indigenously befitting that business process. The best practices of some industries merge upon the others and the some processes followed by certain companies can become the way another company could work. At a lot of times, business owners, at the end of our initial questionnaire sessions tell us, that they already see their business falling in line with franchising, which they otherwise thought would not be possible. What are the key factors any business should consider while franchising in India? Real Estate: Well we have a mixed tenancy system in our country with high street and mall co-existing with the local wholesale downtowns in every city of the country. With Mumbai having the Kalbadevi, the linking roads and the Inorbit co-existing. Delhi has its own Karol Bagh & Chandni Chowk area, with CP and GK forming a part of High street Business, coexisting with the DLF’s. Likewise every city in India has its own wholesale market, where consumers throng to for a price bargain and then look at brands in malls and high streets. There is the Pagdi system, then there is the fixed MG format, there are rental franchisees and there are commission franchisees. Education and Service Businesses also operate from mixed residential commercial locations and often there is a thin line in taking up a residential house and running an education/training business from there. Likewise there are other geographical and local issues that need to be understood whilst considering franchise growth. Legal & Tax Systems:

3. With no single franchise specific legislation in place in the country, companies follow a combination of laws that are in force in the country. Additionally there are Sales Tax, Octroi, Service Tax, Income Tax and a host of other levies that form the core of doing any business in India. In addition there are initial registration, trademarks, IP and regular compliances which businesses need to adhere to whilst they are operating and a thorough knowledge of each of these, would enable a franchisor, chalk out the best possible plan of how to go about expanding his business. The HR compliances, which keep which employees on their lists, what are the benefits that need to be given to the franchisee employees etc? Whilst the above might look a little complicated to begin with, once you have consulted your financial & legal advisors, and get started with the business, you will see that there are pre-defined norms and at most times a lot of clarity is present in how you must go about conducting your business. Also while we develop the franchise system of a company, we are predominantly aware of most of the above situations, what is typically followed in each of the industries and hence guide wannabe franchisers accordingly. This is then in essence put into the franchise agreement with the potential franchisee, thereby defining the legality of the business and the franchisor franchisee relationship. Franchisee Profile: Now this is a very important factor, which a franchiser must be able to understand completely before he starts his franchising. Typically being a land of entrepreneurs, as a franchiser you need to be very clear on what you want your franchisee to do and what not and thereafter select and choose the right candidates for it. With our association with 100’s of franchise companies over the years, we have seen, that quite a number of small and medium sized business owners who look at franchising their business fail here miserably. They just take in the franchisee, irrespective of their backgrounds, skills and goals and end up investing in the entire franchise growth with partners who are not in sync with the companies’ objectives. It is very important to understand that unlike in the western or more developed economies where franchisees do their own research and there is a facilitating industry that guides and counsels franchisees on what could be best for them, here, entrepreneurs jump the ‘band-wagon.’ I am heartened of late, of franchisees, having clarity in approach of what they seek exactly, but that’s also a function of what the industry has to offer. Kishore Biyani in his book states categorically about how they initially franchised Pantaloons and how they ended up investing all the time in supporting the franchisees and building the franchise system and yet they were not getting the results they were seeking. Hence it is very important that the franchiser firstly understands clearly what he wants from the franchisee and then goes about choosing franchisees that could deliver this best.

4. I know its more easier written than done, but we are always in favour of investing additionally in building the right franchisee network rather than just building a franchise network and then rebuilding and tinkering with that thereafter forever. We have the typical businessman franchisee that is always seeking newer opportunities. These are typically second-generation entrepreneurs whose family is already set in the traditional business and since he/she is now ready to get into business, they are seeking additional options. We then have the professional, who is looking to get onto his own now. There are property owners looking at businesses, which give better returns to their properties, and they don’t care more if it’s a garment, shoes, or a salon. There is this investor who is just looking to invest in the franchise and would probably start the conversation with ROI and then end with year on year profitability. Hence you really need to clearly, understand in depth as to why the franchisee wants to take up your business and then grant him the franchisee only if you are convinced that he/she would deliver what you want, and the least that you could expect, is putting the required capital for the business. Phased Expansions: It is very important for you to understand the diversity of our country and the tastes and preferences every region has. India is not known as a subcontinent in its own, rather than just a country, because culture, religion, language (dialects), changes every 100-mile, and business aware of these succeed far better than the ones who don’t. Pizza Hut has their first vegetarian restaurant in the world in Gujarat, as it is predominantly a region of vegetarians who do not eat in non-veg restaurants. Additionally, it is important to understand your back end and the desired customers, while you are embarking upon expansion. The most common question is should we look at the metros or all the biggest cities first or should I look at cities in one region, concentrate on the closer locations and then build it from there. International companies often ask us whether they should have 4 master franchisees, region wise or do State wise masters or do a single master for the country. Well, the answer is rather a matter of great importance. How you go about with the first steps of expanding your business, what could be the costs of acquisitions based on the expansion plan you embark, what is the speed at which you would want your franchises to come in place, the budgetary allocations, time taken for consumers to start accepting your products/services, total back end support are amongst the few things that needs to be carefully evaluated before you firmly decide the expansion route you would take.

5. Other Options if you do not franchise: Quite a number of businesses reach out to us saying that we need dealers/distributors for ourselves. The Indian business system has a fairly deep distributor/dealer network functioning across the country in almost all industries and to be able to add better value add through franchising, becomes the most challenging task. A case in study here would be the Indian Pharmaceutical Industry vis-à-vis the Medicine Shoppe franchise. In its initial days the company had to face stiff resistance from the existing network of retailers opposing in certain locations through their unions to begin with and thereafter altering their marketing strategies to ensure that they also offer the consumer the same advantages or more through their combined effort. In this case, they work on such low margins, that it had rather become very difficult for the franchiser to be able to stand up to the competition. Infact we get a lot of Pharma manufacturers who want to appoint sales reps as franchisees and want to be franchisers. Successful franchise companies like Titan, Hindustan Lever use a combination of the franchise and dealer model to get the penetration they want in India and over the years worked very successfully in having a balanced franchise- dealer growth. They would have possibly not been so successful, had they only adopted either of the above business system. Hence it is very important to create a franchise system that co-exists with the existing market forces and complements it, rather than being one-dimensional. I

6. think this would be amongst the most peculiar feature that all international business will have to address while they are franchising in India, and the ones that would be able to integrate a franchise system that takes of appointing dealers/distributors (treated internally as a different set of franchisees), would be able to get better faster penetration in most cases. However you have to be cautious here and ensure that this would work only in certain cases, in others, you might end up creating competition within the system, and that would be very unhealthy. Parallel Economy: There is a strong parallel economy that works in India, which is what is referred to as the ‘Grey Market.’ Products and Services travel from manufacturers/importers to consumers via the entrenched distribution system, which avoids taxes and hence costs to end consumers become much lower than what would be got at company dealerships. A classic example of this would be the Sony World franchise. Sony products were available in the ‘grey market’ at prices lower than what the franchise offered, hence a majority of consumers bought from these. A majority of Branded Perfumes, Accessories, Garments, Shoes are available in these markets, hence at times pilfering the sales that the franchisee would have otherwise got to these elements. Also since consumers even today buy in cash, demand no bills, (as billed it would attract additional tax), trust their vendors from whom they are buying from years, makes it a case in point to address even these issues, whilst you are franchising your business. Recruiting Franchisees: Franchise Marketing, Advertising & Publicity. Well, once you have the franchise foundation, agreement and manuals in place. The next step is to start looking at recruiting franchisees. How could you reach out to prospective franchisees? We use a intelligent, time tested mix of technology, internet, (google, yahoo etc), Newspapers like Times of India, Hindustan Times, Malayalam Manorama, Hindu, Dainik Bhaskar or other city centric publications, Television and Cinema Mediums, Franchise exhibitions, Franchise Magazines, depending upon our own experience of what has worked for which clients in which industry and location. We also work with a huge network of franchise brokers who essentially are real estate agents or other highly connected individuals who give us the referrals of prospective franchise seekers, which is then checked and validated by our respective franchise representatives and then introduced to the franchiser. Contact us : Contact us : Address : 309, Swiss Complex,33, Race Course Road, Bangalore - 560001, India Email : franchise@sparkleminds.com Phone No : +919844441300