Franchise Business in India

About Franchise Business

A franchise business may be defined as one where the owner or franchiser markets the rights to the business model and logo to a third party who is referred to as a franchisee. Franchises are nowadays a fairly common way of starting a business so much so that presently there are several franchisees operating within a limited area in most countries of the world.

How the Franchise Business works?

In a franchise business, all the involved parties need to protect several interests. The franchiser is supposed to obtain the trademark protection, keep the business knowledge safe, and control the entire business concept. The franchisee, on the other hand, is supposed to execute the duties that have made earned fame and acclaim for the franchiser.

Rules and Regulations
A lot of regularization is required in this business:

• The service location should have the signs, trademarks, and logos of the franchiser – they need to be highlighted in a location from where they can be seen clearly.
• The service methods and processes that have been successful for the franchiser need to be followed by the franchisee as well.
• The uniform of the franchisee should be of a certain color and design.

The franchisee needs to buy supplies and equipment from the franchiser or at least from a source suggested by them to ensure that the business is successful. The franchisee needs to formulate the license carefully – it also needs to come up with a business or marketing plan in conjunction with the franchisor.

Pr-requisites of a Franchise

One of the major per-requisites for a successful franchise is absolute clarity regarding fees, especially for the franchisee. Following are certain factors that need to be taken care of prior to receipt of license:

• No hidden fees
• Start up expenses
• Working capital

Location- The franchisees should also make sure that they are not operating in an area where already other similar entities are operating. They should also attempt to operate as independent entities as much as possible.

Attorneys- They should also have specialized attorneys when the negotiations are underway and there should be third parties to make sure that there is no case of trademark violation by any of the concerned parties.

Training and Development- Significant portion of the training expenses are normally covered by the early fees provided to the franchisers. However, the amount may not be enough if the franchisees are supposed to operate difficult equipment and in these cases they are supposed to learn by themselves.

Ideally the training period should be of an optimum period but often the inexpensive franchises regard it as a costly option. There are several franchises that have established corporate universities to help franchisees learn the ropes.

Ideally franchise owners also provide the following benefits for the franchisees:

• Literature
• E- mail access
• Sales papers

Under normal circumstances, the franchise agreements do not provide any warranties or guarantees and the franchisees have to use legal help in cases of disputes.

In most cases, the franchise agreements outright favor the franchisers and they basically become acknowledgments of the fact that the franchisee is making the purchase knowing fully well that it can be a risky proposition and there are no guarantees of profits or success being shared between both the parties.

Most of the times, such contracts are non negotiable. Majority of the franchisers also make it necessary for the franchisee to sign contracts where it is stated that which laws will be followed in case of any disagreement between the two.

Franchise Business in India with a Low Investment

Following are some examples of low investment franchise opportunities available in India:

Franchiser	Investment required
Hello Kids Education Inc	INR 2 lakhs – INR 5 lakhs
Anshu’s Clothing Pvt Ltd	INR 5 lakhs – INR 10 lakhs
Gelato Vinto	INR 5 lakhs – INR 10 lakhs
Inspire Networks	INR 2 lakhs – INR 5 lakhs
Aisect Ltd	INR 2 lakhs – INR 5 lakhs
Refeel Cartridge Engineering	INR 5 lakhs – INR 10 lakhs
Edu-masters Training Institute	INR 50 thousand – INR 2 lakhs
Sykes & Ray Equities (i) Ltd	INR 2 lakhs – INR 5 lakhs
Floral Mall	INR 5 lakhs – INR 10 lakhs
Rising Stars Day Care & Activity	INR 5 lakhs – INR 10 lakhs

Franchise Business Model in India

Four major forms of franchise business models are being presently operated in India. They may be enumerated as below:

• Product franchise – In this type of agreements the franchise buyer decides how the product of a franchisor will be sold.

• Business franchise venture – In this form of franchise agreement the franchisee buys and then sells the franchisor’s products. They are also provided a client base to cater to.

• Manufacturing franchise – In this kind of franchise agreement, the franchisee decides how they will manufacture the licensed products of the franchisor and then sell them using the franchisor’s name and trademark.

• Business format franchise – In this variation of a franchise business model, the franchisee operates with a successful business model for the brand and product of the franchisor.

Scope of franchise business in India

India, at present, is proving to be one of the major industrial hubs with an ever improving economic image. It has also been able to withstand the presently unstable condition of the global economy and keep functioning to a level that is acceptable to all the concerned stakeholders.

There are opportunities for all types of investors especially for the small business entrepreneurs. People here have been adhering to the maxim “Be your own boss” to its truest sense. Of late, plenty of people have left their jobs and started their own businesses.

At present almost 95 percent of the industrial units operating in India can be categorized as belonging to the Micro, Small, and Medium Enterprises (MSME) sector. As per provisional data this sector sees an approximate average annual growth of 4.1 percent. The production value in these companies has also increased by almost 17.9 percent and employment has gone up to 312.52 lakh people.

However, the small business sector faces a lack of adequate resources even after contributing to approximately 35 percent of India’s income as opposed to the 15 percent provided by the corporate sector.

As far as the scope of this sector is concerned, improvement in marketing and sales capabilities is the major factor as they can play a determining role in how well the small business sector grows. At present majority of the franchising opportunities are available in automotive and food sector.

Franchising Association of India

The Franchising Association of India (FAI) is the industry association for the Indian franchise sector which is presently valued at 4 billion dollars and experiencing a yearly growth rate of 25 to 30 percent. It represents the franchisees, service providers, and franchisors operating in the sector.

Advantages and disadvantages of franchising business

The advantages of operating a franchise may be mentioned as below:

• Since the business is premised on a successful concept it is possible to evaluate the success of similar operations before making a commitment
• Convenience in obtaining business finance
• Ability to use established trademarks and brand names
• Sharing ideas and communication with other franchisees as well as their ideas
• Franchisor support in training, business establishment
• Good connections with suppliers
• Exclusive territorial rights

Main disadvantages of Franchise Business are as follows:

• Costs could be higher than expected
• Possibility of bad reputation because of poor performance of other franchises
• Restrictions on ways of business operation and these are included in the contract itself
• Difficulty in selling the franchise
• Possibilities of losing out on business
• Profits and sales have to be shared with the franchisor

Franchise Business Tips

Following are certain important factors that need to be kept in mind while buying a franchise:

• Opt for a franchise business that is preferable
• Search for franchisors who have a good brand value and a lot of integrity
• Perform thorough research on franchises of choice
• Grasp the financial matters
• Go by instincts
• Have a thorough understanding of the contract
• Try to settle for a business model that provides good profits

Franchise business laws in India

The following legal acts are necessary for franchisees in India:

Establishment of franchise through partnership

• Partnership Act 1932

For creating an LLP

• LLP Act 2008

Establishing a company in India

• Companies Act 1956

Rules and regulations for the foreign investors

• Foreign Exchange Management Act (FEMA) 1999

Labor and employment laws

• Apprentices Act 1961
• Minimum Wages Act 1948
• Child Labour Act 1986
• Maternity Benefit Act 1961
• Contract Labour (Regulation and Abolition) Act 1970
• Payment of Bonus Act 1965
• Employees Provident Funds and Miscellaneous Provisions Act 1952
• Workmen’s Compensation Act 1923
• Employers Liability Act 1938
• Payment of Gratuity Act 1972
• Employees State Insurance Act 1948
• Payment of Wages Act 1936
• Equal Remuneration Act 1976
• Relevant State Shops and Establishment Act
• Factories Act 1948
• Trade Unions Act 1926
• Industrial Disputes Act 1947

IP Laws

• Trademarks Act 1999
• Designs Act 2000
• Copyright Act 1957
• Patents Act 1970

Real estate laws

• Transfer of Property Act 1882
• Indian Stamp Act 1899
• Indian Easement Act 1882
• Rent control laws
• Registration Act 1908
• FEMA rules and regulations

Offer and sale of franchises

• Indian Contract Act 1872
• Specific Relief Act 1963
• Copyright Act 1957
• Consumer Protection Act 1986
• Trademark Act 1999
• Sale of Goods Act 1930
• Patent Act 1970
• Income Tax Act 1961
• Geographical Indication of Goods (Registration & Protection) Act 1999
• Prevention of Food Adulteration Act 1954
• Semiconductor Integrated Circuits Layout Design Act 2000
• Drug & Cosmetic Act 1940
• Monopolies and Restrictive Trade Practices Act 1969 (the MRTP Act)
• Pharmacy Act 1948
• Competition Act 2002

Last Updated on 10/15/2012