India: Franchising Prospect In India

Last Updated: 4 July 2003
Article by Prithvy Raj Sikka

Horizon

In 1950s this concept was first time adopted in U.S.A. and U.K. and later in 1980s it grew throughout European and American countries. In 1980s the franchisee concept was adopted by large corporations throughout the world. The companies who have developed their brands and have established in lot of countries. Such large companies have started their commercial operations ranging from small entrepreneurs to multinational corporations. Franchising is a concept to develop their business to earn huge profits without involving the franchisers to manufacture and distribute their products in distinct areas. Like Coca-cola, Pepsi, McDonald, Rebook, Nike, Bata, B.P., Woodland etc. have appointed the franchisees under agreement to manufacture and distribute their products in the distinct areas. In this way the franchisees have established the production/manufacturing facilities on behalf of the franchiser under their formulation and guidelines

Benefits for Franchising

Low investment in change scenario of liberalisation and opening doors by Govt. of India to allow large multinationals to expand their businesses by way of appointing franchisees to establish their brand names without using direct investment in manufacturing activities. The franchisers are earning substantial income & profit by way of franchising.

Geography of Indian Market

The India has over 1000 millions population ranging from poor to reach persons. The economy of the India is becoming more stronger and per capita income is growing day to day and there is vast market with a range from traditional forms of distribution to logistics form of distribution. In these circumstances any company is unable to cover up such distribution. The demand for services as well as clothing, electronics goods, hardware, food & beverage as well as professional services is growing. In India there is poor infrastructure and to exploit the geographical expansion of business in this country is difficult and insufficient. To tap this market it require by the franchisers to start distribution systems by equity interest which can efficiently and substantially improve the distribution system by way of appointing franchisee.

Indian Apathy

In India there are business peoples who are from different religion and they are more interested to have ownership and control over their business operations as proprietorship but they are interested to acquire latest technology and their goodwill in the Indian market. To expand the business by the foreign multinationals in India, it is good opportunity to appoint franchisees on equity basis and it will be easier to handle the local employees and distribution systems in distinct area through franchisees.

To control the local Market

There are lot of Indian franchisees who use to offer the direct assess to the substantial market knowledge to the foreign franchisers. The lot of malls and markets for branded products is coming up mainly in metros and their nearby cities which have good prospects and low cost lands available for infrastructure. Even the foreign / multinationals can establish their offices in India to control their franchisees and to expand their businesses The McDonald, Pizza-hut, KFC, Pepsi, Coca-cola have successfully established their businesses in India by way of implementing the franchising concepts.

RBI Guidelines

For opening the franchisees there is requirement for permission from RBI depends on the type of business or industry involve and the applications along with agreement to be submitted to the secretariat for Industrial and approvals in the Ministry of Industry to the Govt. of India or to the foreign investment promotion board and the franchiser can also make an application for repatriation of capital investment in India, royalties and services fees, profits and dividends.

Conclusion

However, the foreign investors who are interested to open their franchisee business in India required the permission from RBI as well as approval from the Govt. of India as per Indian laws as the franchising business in India has substantial scope to earn huge profits.

This article is not legal advice but it is based on the opinion provided by the author in accordance with Indian Laws.

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