According to a recent study produced by global management consulting company, A.T. Kearney, India is the world's most attractive retail destination after Russia, even ahead of China. The retail sector is currently valued at between US$350 billion, of which only 5% is classified as "organised retail". Further, there are a large number of shopping malls that have been, or are in the process of, being developed in and around major cities. These "pull factors", combined with the fact that foreign direct investment in certain sectors, such as retail, is restricted, means that franchising is increasingly being used as a market entry strategy for international franchisors and retailers.
There are now over 800 franchise systems in India including several Australian franchise systems. These include Gloria Jean's, Cookie Man, LJ Hooker, Just Cuts and Cartridge World. Some of the key industry sectors that have embraced the franchising concept include healthcare, food and beverages, education, entertainment, fitness clinics and courier services.
The concept of franchising is still evolving in India and there is no specific franchise law. Although there are no franchise disclosure or registration requirements, there are a number of laws that affect the franchisor-franchisee relationship. These include general contract, intellectual property, taxation, labour, competition and property laws, and rules regarding payment of franchise fees. There are also a few traps. For example agreements need to be carefully drafted to avoid ceilings on the royalty percentage, and the consent of the Reserve Bank needs to consent to the giving of any guarantees or financial security by an Indian company or individual.
If you are considering expanding your network into India or would like some further information on the legal requirements and practicalities of franchising in India, please contact us to request a copy of our "Franchising in India" publication.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
