All about Franchising

Franchise activity in India has been growing 30 per cent year-on-year in the last five years, with the segment showing a healthy growth of 35 per cent in the last two years. While the franchise market is currently estimated at $25 billion in India, globally it has emerged as a $3.65 trillion market.

Though the segment currently contributes to about just 1 per cent to the nation’s GDP, it is going to contribute more in the coming years, points, Gaurav Marya, chairman of Franchise India. One of the pioneers in the segment, Franchise India has benefited over one lakh business investors through more than 100 shows held both in India and overseas. The company assisted over 800 companies in their franchise search. It encompasses a range of domestic and international portfolio of franchise and retail companies apart from offering Franchise and Retail consulting.    

Marya, started his first business at the age of 16 and over the years has started and sold about 15 other businesses ranging from mobile phones, career advisory, restaurants to entertainment business. At the age of 24, he discovered his real passion in life— Franchising. He interacted with over 25,000 budding entrepreneurs to help them select and meet the challenges of start-up businesses. Over 60 major American brands consulted him for their expansion plans in India. Marya consults companies on the appropriateness of franchising, both domestic and international, as a method to obtain their long-term expansion goals and in the design and development of their franchise systems. He spoke to Metro India in detail and shared his views on the developments, trends and future of the segment.

Marya explains today established product companies are looking at franchisee route to expand their presence to wider geographies. Urban spending is going up. There is a growing demand for financial services, banking and even ATMs. New categories will also emerge in the franchising space in the country. The industry will see a gradual shift from a product oriented activity to services. He adds, “About 75 per cent of the franchising currently is in products category with the remaining 25 per cent being services. This will get equal in the future.”   

He points the segment is getting even more interesting as 30 per cent of the franchise owners are first time owners and 50 per cent of the franchisees have not done any business previously. However the awareness on the opportunities and what to look for in a franchise opportunity is lesser in India compared to the US. In India, the segment needs to get standardised further. There is still a lot to happen in India in this space. With the emergence of entrepreneurial ecosystem, India too is expected to achieve big in the years to come.

When asked what aspects should a franchisor and franchisee look into while evaluating their compatibility to work with each other, he said, “There should be financial, marketing, operational and strategic fit. Though these can help both sides to work together better, it’s important that franchisors should take an active part in handholding and improving franchisee business. Both sides should be able to align their aspirations well.”

Marya said, “India offers a lot of franchise opportunities as more and more American and European brands eye their presence in the country.” Franchise India as an integrated franchise solution company operating since 1999, consulted several major brands such as HCL, MGF, Quality Walls, Tata, Gitanjali, HSBC, Levis, JK Tyres, Lakme, D’damas, Adidas, Euro Kidz, The Apollo Clinic, Chhabra 555, Kidzee, Motilal Oswal, Rosebys, Next and Welhome. “Franchising consultants cannot only bridge the gap between the franchisors and franchisees but can also help improving the awareness of the franchising opportunities and measures to be taken both sides to make such alliances or ventures successful,” Marya adds.

He says, franchise broker community which is growing constantly will become a major group that will influence the growth of franchising in India, particularly in the next 3-4 years.

On Marya’s Franchise India expansion plans, he said, “We would like to penetrate our activities to about 300 cities in India achieving 40-50 growth annually. While we aim to consolidate our presence in Asia, we see big potential in neighbouring countries such as Bangladesh, Sri Lanka and Nepal. We also see growing opportunities in matured markets such as Australia, the United Kingdom and North America. We anticipate one-fourth of our revenues coming from our overseas markets in two years. We will also look at acquisitions if we find any appropriate asset.”          

Source - Metro India 

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ROAD MAP FOR NRIs INVESTING IN INDIA

India being one of the most prospective markets for foreign investments, it brings in dynamic business ideas and vast investment through NRIs, PIOs and Foreign entities.

Over the past several years, the policy and procedures regulating and governing the inflow of foreign investments into India have been progressively liberalized and simplified. The initiatives taken in this regard have resulted in significant inflows of foreign investment in almost all areas of the economy, except a select few, that continue to remain reserved for strategic reasons.

An NRI refers to Non Resident Indian, meaning a person who has gone out of India or who stays outside India, in either case for or on taking up employment outside India, or for carrying on outside India a business or vacation, or for any other purpose, in such circumstances as would indicate his intention to stay outside India for an uncertain period. It basically refers to a person residing outside India who is a citizen of India or is a Person of Indian Origin (PIO).

There are various Investment options available to NRIs & PIOs for investing in India. They can go the Foreign Direct Investment (FDI) way, or register as a Foreign Institutional Investor (FII) under a portfolio, or register as Foreign Venture Capital Investor (FVCI) under the Venture Capital route or as a holder of American Global Depository Receipts (ADR) and Global Depository Receipts (GDR) under the ADR /GDR Scheme etc.

Let’s take you through some of the viable ways for NRIs to enter the Indian business scenario.

Finding the right partner:

One of the well-known ways of doing business in India by NRIs/PIOs is by forming a partnership company. Partnership is a low risk approach, which helps enjoy steady returns with guarantee in your principal.

If you don’t have a permanent address in India, it would be difficult for you to run a business all alone without a second supervision. Here lies the importance of forming partnerships. A partner must be selected based on track record, sense of integrity among other important aspects. It is better not to establish commercial relations with friends and relatives.

Open a Liaison Office:

If you are an NRI looking to start a business in India for long term steady returns to your investments, you can start a liaison office of a foreign company in India.

A liaison office in India can act only as a communicative channel for the parent company to supply information on the Indian market and customers, and cannot carry on any business activities in India. As a result, it cannot generate any revenue in India and all the expenses of running and maintenance of the Indian office are required to be met out of the foreign exchange remitted from abroad.

Start a franchise business:

Franchising is that mode of business where an individual or an organization, without starting a new business of their own, takes on the business model of an already existing brand, where the latter, the franchisor, licenses its brand, products and business model to the former, the franchisee, in lieu of a recurring payment.

Open a Project Office:

Setting up a Project Office of a foreign company on Indian soil is also a lucrative option.

A project office is the ideal model for companies to establish a business presence in India, if their objective is to have a presence for a limited period of time. It is essentially a branch office set up with the limited purpose for executing a specific project. Foreign companies engaged in turnkey construction or installation normally set up a project office for their operations in India.

Start a Branch Office:

NRIs who want to invest for earning long term steady returns on their investments can do so by setting up a foreign company in India. One needs to start setting up a branch office of a foreign company in India.

Wholly-owned subsidiaries and JVs:

Foreign companies may set up a joint venture in financial collaboration with an Indian business house/company in India. For this purpose, an Indian company with limited liability is formed. The company once incorporated is treated like other Indian companies and enjoys all the benefits of being an Indian company (including tax rate applicable to Indian companies).

Export-Import business:

An NRI looking to start a business in India can also look at the lucrative option of setting up an export-import business in the country.

  

Final Analysis:

In comparison to the branch office and liaison office, a wholly owned subsidiary company provides maximum flexibility for conducting business in India and it can also undertake manufacturing activities in the country.

The Indian operations of the company can be funded either through equity or debt (both foreign and local) or through internal accruals.

However, the exit procedure norms of companies are more cumbersome as compared to other forms of business such as branch, liaison and project offices.

For Expert / Professional Advice & Services Contact 

Franglobal  - International Market-Entry Specialist 

(FranGlobal help clients at every stage....from strategy to implementation...setting targets to actually achieving them.)