franchisor original

Growth and Development of Franchising in India : A Study

1.1 SCOPE OF THE STUDY

To Study the Marketing, Operational, Human Resource and Financial

aspects of Franchisor-Franchisee agreement.

To Study the extent of implementation of Francisee-Franchisor

agreement.

Comparative analysis of two industries.

Critical Success factors necessary for the success of franchisee-

franchisor agreement.

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1.2 RESEARCH METHODOLOGY

NATURE OF STUDY: To accomplish my objectives, An Exploratory and

descriptive research was carried out.

SAMPLING PLAN:

The sample size comprises of 10 food outlets and 10 computer

centers in Delhi.

Sampling method: The selected organizations have been randomly

chosen.

Data collection: The data has been sought from both primary and

secondary data sources.

Primary data sources constitute of in-depth interviews with the

managers of the respective outlets selected and administering

questionnaire thereof. The nature of questionnaire is structured,

constituting of both open and closed-ended questions.

Secondary data sources comprises of published literary work on the

subject including journals, reports and world wide web.

TOOLS FOR DATA ANALYSIS

The primary data, which is collected using questionnaire, has been

analyzed using pie and bar charts.

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1.3 LIMITATIONS

Due time constraint only 20-sample size was taken.

Many managers at various outlets were hesitant in giving any

information regarding their outlet.

There could be some bias in answering of questionnaire by the

sample population due to unwillingness to cooperate, lack of time,

lack of knowledge.

The survey and study was limited to the city of Delhi only.

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2.1 FRANCHISING

Franchising is a method of marketing a proven business concept. The

Franchise model is traced to the practice of Roman Catholic Chruch, which

used to grant local clergy which is the right to collect church taxes known a

s 'titkes' in exchange for passing a portion of it to Rome in other words the

Catholic Church was franchising the right to run a Parish.

In the middle ages feudalism was dominant, peasants suffered slavery and

lands are owned by the noblemen. Additional rights were given to some

serfs subject to fees paid to the nobles. The fees were the "royal T,. they the

root of modern royalties. The serfs were granted the status of 'Freeman'

which in France were known as Francis which was modified to enfranchise-

an English term.

The basis of colonialism was same as that of feudalism. European monarchs

gave 'franchises' to commercial ventures. These franchises under the

protection of monarch established colonies n exchange for payment or

royalties.

Franchises started as a form of dealership. The Franchisor owned the

trademark for a product and for a fee produced and distributed the product

to the dealer.

In modern times Issac Singer adopted a hybrid business format inclusive of

both the franchise and service business. The sewing centers machines and

also provided the services specified by singer. There is a faster growth in

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service franchising, than the franchising involving products due to more

demand for business and personal services.

Definition

ACC to the International Franchise Association (IFA) of America

"A Franchise operation is a contractual relationship between the franchisor

and the franchisee. In this relationship the franchisor is obligated or he offers

to maintain an interest in the business of the franchisee in area as know-how

and training, in which the franchisee operates under a common trade name,

format or procedure owned by the franchisor and in which the franchisee has

or will make a substantial investment in his business his own resources"

Generation of Franchising

The first generation franchises are known as Tied House Systems. It started

with German Brewers who contracted with taverns to sell their brands

exclusively.

The second generation Business Franchises started when Singer sewing m/c

Company sold its product to its sales force in the 19 th century this is known

as product trademark.

The third generation of Franchising is known as the business format

franchise developed by A&W restaurants in the 20th century i.e. replication

of the entire business concept including trade name, product or service and

method of operation.

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In franchising, the Franchisor provides the managerial expertise and the

Franchisee the distributive part of the business. This generates income

through fees and royalty for the Franchisor and offers security and growth to

the Franchisee. In this, the services offered by the Franchisor are:

Use of the trade mark

Location analysis and councelling

Assistance in the purchase of the equipment

Store design and construction

Financial assistance

Training of management and employees

Visit by a field representative preopening and opening

National advertisement and promotion

Help in local ad

Merchandise assistance

Record keeping

Operating manuals

On the spot counselling

Constant feedback

Saving due to centrlaized purchasing

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Types

1. Territorial Franchising - The franchisee has authority over the territory.

2. Mobile Franchising - The Franchise sell products from a moving vehicle.

3. Distributorship Franchising-An exclusive coverage of a geographical

area for distributing the products and also acts so the supply house for

the franchisee.

4. Co-ownership Franchising - Both the Franchisor and the franchisee share

in the investment and form partnership.

5. Co-management Franchising - Here the Franchisor has majority of the

investment and shares the profits with the partner manager

proportionately

6. Leasing Franchising- The Franchisor can lease the land, building and

equipment to the Franchisee.

7. Licensing Franchising - The Franchisor has the license to use the

Franchisor is trademarks and business techniques

8. Manufacturing Franchising - The Franchisee has the license to

manufacture and distribute the Franchisors product.

9. Service Franchising- The Franchisor provides a pattern of professional

service which a franchisee supplies.

2.2 FRANCHISING IN INDIA

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Franchising in India has been in vogue in one form or the other since several

centuries. However, due to lack of communications franchising was

confined only to revenue collection system. During the Mughal period the

“Mansabdari system” introduced by Raja Todarmal for revenue collection

was quite akin to modern franchising. The same was followed by the British

who appointed zamindars as their agents for revenue collection (these were

known by different names in different provinces).

Zamindar collected land revenue from land tillers and credited the same to

government treasuries retaining a certain percentage for himself. Many of

the princely states appointed commercial organisation and bankers for

revenue collection who in turn appointed the local shopkeeper or the local

mahajan who collected the land revenue for their principals. These

zamindars and business organisations usually collected revenue in kind,

(produce of the land) sold it in the market and paid revenue to the

government in cash. As communication developed franchising made in-

roads into the commercial world. Money lending and stage-coach business

were the first to adopt franchising in a form a bit different than the modern

franchising system. Greater reliance was placed on mutual trust, faith and

agreements made by word of mouth rather than powerful written contracts

and other documents.

Current era:

The world is no more looking at India as the land of Taj Mahal or snake

charmers. There is a constantly growing middle class of about 200 million

who are in their daily lives exposed to brands ranging from Bata, Nike,

Reebok for their footwear requirements to Matiz, Santro and Maruti as their

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long desired cars.Franchising is a business model that aims to replicate a

successful business format across a number of locations through a network

of entrepreneurs. What it most efficiently does is to allow a successful

businessman to expand its business enterprise to different markets without

very high investments.

Rising incomes, changing lifestyles, a competitive marketplace and the

expectations of people are posing challenges for marketers who are

constantly looking for newer ways of merchandising goods and services.

The Indian economy presents a healthy picture and the country is, arguably,

the fastest growing significant economy in the world. The macro-economic

indicators are currently moving in the right direction.

A billion humans, GDP growing at 6-7% per annum, a recently liberalized

economy, 30 million television sets versus 20 million in the UK! The

marketer’s paradise! These are some of the indicators of how large the

potential of this country is.

Approximately 2 percent of Indians have a per capita income in excess of

USD 13,000, which translates into a segment of 20 million well-off

consumers. This is small in comparison to India's total population, but still

comprises a substantial market segment. Approximately 8 percent of Indians

have a per capita income of more than USD 3,500, or about 80 million

people; more than 100 million Indians have a per capita income in excess of

USD 2,800.

Franchising has been operating in India for several decades. One well-

known example of this is the Bata shoe Chain, started in the 1960's. New

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franchise business concepts as diverse as healthcare, pharmaceuticals,

specialized food services, garments and apparel, education, entertainment,

fitness and personal grooming clinics and courier services, to name a few.

As the service economy in India is growing, opportunities for franchising are

also increasing. The Indian franchise economy according to experts

currently accounts for 5 percent of the country's GDP. Franchising is poised

to spur economic growth because it encourages private enterprise with no

danger of flight of capital, and because it offers the potential to establish

products and services that meet global standards.

Unlike in the U.S. and many other countries in the west, India does not have

any specific law on franchising. Franchising is covered within the broad

definition of transfer of technology contained in domestic legislation’s. A

legal framework for new franchisers interested in setting up master

franchises in India however exists, in terms of brand protection and rules

regarding payment of franchise fees. However, there is also a growing need

to improve this regulatory framework.

Following the economic liberalization of 1991, several foreign companies

with strong brand names have established a presence in India through

franchising. In the hospitality and service industries, this has been the

preferred method for starting operations in India. International companies

that operate through franchises include Hertz, Avis and Budget for car

rental; Radisson, Best Western and Quality Inns for hotels; Kentucky Fried

Chicken, Domino's Pizza, Thank God it's Friday (TGIF), Ruby's Tuesday,

and Baskin Robbins for food. Pizza Hut has opened its several outlets and

McDonald's has been open for business since 1996. Similarly, Indian

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companies with strong brand recognition are also using the franchising route

to expand business volumes. MRF for automotive tires, NIIT for computer

training schools and Apollo Hospitals for healthcare are examples.

Several foreign management-training institutes are adopting the franchise

route to expand their operations in India. CMC is a government-owned

enterprise that has 120 computer education institutes in India. While

franchising has mushroomed in India, the concept has initially functional

mainly on an agent basis. It is still evolving and being refined and will take a

couple of years for franchising to become more organized in India.

Franchising in India is often perceived as a tool to cover the high cost of real

estate that a company that is interested in retailing would have to bear. As a

result, if business projections are not met, franchisees can and sometimes do

shift to other franchises.

With minor variations, in a typical franchise operation, company approaches

an owner of prime commercial space to provide the real estate, to invest in

interiors and inventories to run a franchise business, and to hire staff for the

operation. Franchisees prefer to recruit staff directly, but most franchisers

insist on training the staff themselves, particularly in educational and

computer training academies. Usually, the two parties work out an

arrangement by which the franchisee agrees to sell the company's products

on an exclusive basis. Typically, the company's investment is reduced by

about 15 percent if the same operation is run by a franchisee. Also, the

company has no worries about hiring and dealing with staff or worker

unions.

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U.S. firms use several criteria to evaluate prospective franchisees. The key

one is that the prospective franchisees must be financially sound. Other

considerations include space location and availability, a willingness to work

through initial teething problems together, high ethical standards, and

similarity of goals and values.

Financial arrangements can vary. Some companies offer franchisees a

percentage of commission on sales, while others provide a fixed percentage

of the retail price of the product as a profit. The costs of promotions and

advertising are usually shared between franchiser and franchisee, with some

companies assisting franchisees in specific promotional activities to help

increase product sales.

The franchise agreement is a comprehensive document that specifies

everything from the franchise location to the finer details of operating the

franchise. There are no standard franchise agreements because every

franchiser and every business is different. Many details in the agreement are

settled by bargaining, but the normal clauses that should be on the checklist

of every franchiser include use of brand name, protection of intellectual

property, conflict of interest, indemnity, business promotion, definition of

territory, period of validity, and termination. By the same token, the

franchisee will seek to ensure that the agreement maintains his intellectual

property rights; covers training, consultation and equipment and includes a

suitable indemnity clause.

Franchise fee payments in hard currency are allowed. A potential franchisee

must submit a proposal for a franchise operation to the government ministry

that regulates the particular industry sector. Among other details, the

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proposal must contain the amount of franchise fee that will be paid to the

franchiser. The proposal moves from the relevant ministry to the Ministry of

Industry and the Foreign Investment Promotion Board. Reserve Bank of

India approval of the franchise fee is automatic when the Ministry of

Industry clears the proposal. There are value or percentage limits on

approvals of franchise fees, with franchise involving advanced or high-

technology receiving the highest limits. Royalty payments ranging from 3 to

8 percent are allowed in hard currency, in addition to the franchise fee,

although the norm is closer to 5 percent. The royalty is calculated on total

turnover for the year for the franchise operation.

Franchising systems been adopted by companies in India to expand are:

1. Master Franchising System: In master franchising the franchiser grants

rights for a particular area to the master franchiser for a front-end master

franchisee fee. The master franchiser on his part is responsible for

appointing further individual franchisees within that area. McDonald's,

TGIF, Pizza Corner and Pizza Hut have adopted this system in India.

2. Area Development Franchising System: In an area development

agreement, the franchiser grants development rights of a particular area

to the franchisee in turn for a front-end development fee. The franchisee

on his part is responsible for developing a certain number of units within

a given period of time. Excel Infotech EIIT has adopted this unique

mode of franchising.

3. Exclusive Showrooms: In an exclusive showroom the company or the

franchiser grants exclusive showroom rights to the franchisee with the

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condition that the franchisee shall stock only his brand or products. The

franchisee profits by being given stocks at better profit margins than

other retail outlets. This system is widely followed by brands like

Raymond's, Allen Solly, and ColorPlus.

There are many more variants but what it in essence tells us is that there is a

lot of customization required in Indian context for franchising arrangements.

This customization not only takes place in systems but also in the main

products and services. That's the reason why one walks into the western

McDonalds and is able to order a McAloo-Tikki Burger. The future of the

franchising industry in India seems to be bright but will be difficult to

sustain without constant innovation.

Innovations in franchising

Co-branding: In franchising, the concept of co-branding simply involves

two or more "brands" sharing real estate. Each maintains identity, but there

is free flow of customers between them. Co-branding saves operating costs

and lures more customers to the site. However this is a phenomenon of

matured franchising markets and once most of the franchisers have explored

all new entries in India they will probably shift their focus to this system of

delivery.

Intranets and extranets: These can help a franchiser to be in constant

communication with their franchisees spread over large geographical areas

and ensure smooth delivery of products and free flow of information. This

would not only help in efficient delivery of products but also lead to ultimate

reduction in costs and increase in bottom-line..

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Franchising: Nascent, growing

Franchising is a nascent industry, is growing and is endowed with immense

potential. It offers highly standardized products and services. The production

and marketing systems are perfected over time. However, it leaves little

scope for innovation.

In the Indian context, there are five broad product categories in which

franchising has started to catch on rapidly. These are:

Food, Apparel, Health, Education and Leisure. Growing population and

growing incomes drives demand for each one of these.

Now arises the question: Why buy a franchise? Ans. is simple, a new (non-

franchise) business can fail, while franchising as a business model

minimizes risk. Investment in a franchising venture can be researched in

advance. It is time-tested and has a high success potential. Importantly, the

franchisee can learn from the franchisor's experience and benefit from the

brand equity already built.

There is a general perception that foreign franchisors are a threat to Indian

retailers. This fear is largely baseless. A franchisor and a franchisee are

partners in a joint venture. While an overseas franchisor brings with him

expertise in terms of time-tested product knowledge and marketing system,

the Indian franchisee should know his local market better than anyone else.

It is imperative that the franchisor and the franchisee both have a clear

understanding of each other's duties and obligations. A due diligence

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exercise by each of the parties is necessary. For the franchising arrangement

to succeed there has to be a ``meeting of the minds''.

India boasts of large cultural and culinary variations. In recent years, with

most cities becoming increasingly cosmopolitan, there is a perceptible

change in lifestyles including food habits and dress preferences. Economic

growth and inter-state migration of people actually help unify the country to

an extent. This is opening up new vistas for marketers.

India's first franchise association:

The country's first franchise association under the aegis of the Indo-

American Chamber of Commerce (IACC) was formed in Mumbai in 1999.

The Franchising Association of India (FAI) was established through the

efforts of the Indo American Chamber of Commerce The first organization

of its kind in India, it represents the interests of franchisers, franchisees,

vendors, consultants and other interested individuals and bodies. The FAI's

objectives include enabling the business environment for franchising; acting

as a resource center for current and prospective franchisers and franchisees,

media and the government; promoting the concept of franchising and its use

as a healthy business practice; establishing a discussion forum for

franchising matters; and promoting the interests of members by organizing

seminars, conferences and meetings. The FAI made several representations

to the government with regard to legislative and other measures affecting

franchising.

The FAI publicizes updated information on American franchisers that are

interested in expanding their business in India. It advises potential

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franchisers about the current legislative framework, and lobby with the

government for changes. It helps to identify high-quality potential Indian

franchisees

The initiative to form a forum with an exclusive focus on franchising was

coordinated by an 11-member special interest group (SPI) drawn from a

gamut of franchisers, franchisee and other related interest groups.

Mr CY Pal, chairman, Cadbury India, is the first chairman of this

association.The IACC soon got affiliated to two world-class franchisee

associations namely, the International Franchising Association USA and the

Germany-based World Franchising Council.

The IACC represented India's franchising interest at the forthcoming

International Franchise Expo at Washington during April 2001. A 20-

member delegation was sent for this purpose.

According toCadbury Schweppes managing director Ashok Jain, who is one

of the members of the SPI, statistics show that a new franchise opens every

20 minutes, around the globe. His contention, therefore, is that franchising is

a high growth business activity which has tremendous potential for

entrepreneurs.

Statistics, in fact, show that while 80 per cent of franchisees succeeded in

the first five years of being in business, more than 80 per cent of small

independent businesses failed during the same period in the US.

Franchising in India has increased significantly with the entry of many

multinational companies like McDonald's, Nike, Coca-Cola and Benetton

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and with some Indian companies like Titan, Bata, Aptech and Hindustan

Petroleum also using this option extensively. The IACC is planning to build

in a quantum leap inthis activity through the newly formed association.The

objective of the SPI will be to tap the vast potential of entrepreneurial

abilities available in India by promoting increasing numbers of Indo-US

partnerships in the area of franchising.

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2.3 LEGAL FRAMEWORK IN FRANCHISING

INTRODUCTION

Although in a nascent stage, franchising is gaining popularity in the retail

segment in India, more particularly in the areas of food products and drinks,

restaurant chains, consumer goods, and computer training centers.

Franchising is one way in which a company can take advantage of India’s

vast market with a degree of control that other traditional forms of

distribution cannot match.

Difference between franchising/ distributorship/ agency

The terms franchise, distribution and agency are often loosely used.

Distribution and agency are the more traditional forms of distributing goods

or services. However, they do not allow the principal to exert any real

control over the distributor or the agent. The key distinguishing feature of a

franchise is the higher degree of control that a franchisor exercises over a

franchisee. The franchisor has a say in all important issues such as

branding, methodology and mergers. Although corporate entities such as

subsidiaries or joint ventures allow as much if not more control than a

franchise, they entail a much higher financial risk.

LEGAL FRAMEWORK

There is no legislation in India specifically related to franchising. As the

relationship between a franchisor and a franchisee flows from a contract, in

the absence of specific governing legislation, the law of contracts as

embodied in the Indian Contract Act, 1872, and other allied Acts is

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applicable to a franchise agreement. Other pertinent areas of the law which

are applicable to franchise agreements are:

Intellectual Property laws;

Competition laws;

Consumer Protection laws; and

Labour laws.

Intellectual Property laws

A franchisor is the proprietor of intellectual property rights, know-how, etc.

Thus, protection of intellectual property rights is of paramount importance to

any international or domestic franchisor.

Foreign nationals and/or companies can protect their trademarks in India

under the Trade and Merchandise Marks Act, 1958 (“TM Act”) by

registering them under the prescribed class. As yet, service marks cannot be

registered in India. (S. 8 of the TM Act) Registered owners can assign to

third parties the right to use the mark and are not mandated to use the marks

personally. (S. 36 of the TM Act) The assignment agreement must be

registered at the office of the Trade Marks Registry. By registering a user

agreement, the owner prevents the user from getting a right to be the

registered proprietor of the mark through use.

Franchisors can protect their manuals containing the entire technique of

establishing and running the business, videos relating to the use of the

product, etc. under the Copyright Act, 1957. Civil remedies for

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infringement of copyright include injunction, damages and accounts of

profits made by the defendant by violating the copyright. (S. 55 of the

Copyright Act) In addition, criminal remedies such as imprisonment for a

period between six (6) months and three (3) years is also available.

Competition laws

Every franchise agreement incorporates highly restrictive terms which

would bring it within the purview of the Monopolies and Restrictive Trade

Practices Act, 1969 (“MRTP Act”) and lay it open to scrutiny by the

Director General of Investigation & Registration or the MRTP Commission.

Restrictive trade practice, as defined, means “a trade practice which has or

may have the effect of preventing, distorting or restricting competition.” (S.

2(o) of the MRTP Act) Thus, the first inquiry under the MRTP Act is into

the restrictive nature of the trade practice as it relates to the effect on

competition. Also, since the main purpose of the MRTP Act is to protect the

public, an inquiry into the effect on public interest is always made.

Per se restrictive trade practices under s. 33(1) MRTP

Various categories of agreements enumerated under s. 33(1) MRTP,

including agreements which restrict persons from whom certain goods can

be purchased, have been recognized to be per se restrictive. The

consequence of falling within one of these enumerated clauses is that

agreements between parties relating to such per se restrictive trade practices

must be registered with the Director General (pursuant to s. 35 of the MRTP

Act). However, such agreements are not per se void or illegal. The

Commission still needs to make an inquiry (pursuant to s. 37 of the MRTP

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Act) as to whether the agreements are prejudicial to public interest. Until

the time that the Commission declares the agreements as prejudicial to

public interest, the parties may continue to conduct trade and business under

such agreements.

Consequence of registration:

The decision to register or not register an agreement lies with the parties to

the agreement. However, if an inquiry is made by the Commission who

feels that an agreement should have been registered but was not, the burden

of proof lies with the parties to prove that the agreement does not fall within

one of the enumerated clauses of s. 33(1) of the MRTP Act.

Again, simply by registering an agreement with the Director General does

not result in conceding that the agreement is one relating to restrictive trade

practices. Rather, the Commission is still required to inquire (pursuant to s.

37 of the MRTP Act) if the agreement is prejudicial to public interest. After

an inquiry, if the Commission finds that the agreement is prejudicial to the

public’s interest, only then does the agreement become void.

Consequence of non-registration:

If a party to an agreement, which is liable for registration under s. 35 read

with s. 33(1) of the MRTP Act, does not register, each member of that party

is penalized for the default (pursuant to s. 48(1) MRTP).

One example of a restrictive covenant commonly incorporated in a franchise

agreement is a covenant not to compete. The franchisee is prevented from

undertaking a business similar to the franchise business during the term of

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the franchise and for a certain number of years after termination. In fact, the

franchisee may even be required not to solicit customers of the franchise

business after termination of the franchise agreement.

In a recent development, the Director General of Investigation and

Registration has filed an application under the MRTP Act against an Indian

company and its foreign joint venture partner on the grounds that the non-

compete clause in the agreement amounts to a per se restrictive trade

practice. (Source: The Economic Times, Mumbai, 27 September 1999)

In this regard, reference should be made to the Indian Supreme Court’s

decision in M/s. Gujarat Bottling Co. Ltd. v. Coca Cola Company, AIR 1995

S.C. 2372, where the court observed that, “[t] here is a growing trend to

regulate distribution of goods and services through franchise agreements and

providing for grant of franchise by the franchisor on certain terms and

conditions to the franchisee. Such agreements often incorporate a condition

that the franchisee shall not deal with competing goods. Such a condition

restricting the right of franchisee to deal with competing goods is for

facilitating the distribution of goods of the franchisor and it cannot be

regarded as in restraint of trade.” [sic.] [Emphasis added]

However, the foregoing judgment does not analyse franchising agreements

vis-à-vis s. 33(1) of the MRTP Act. Therefore, it is unclear whether it will

carry any weightage in the matter pending adjudication before the MRTP

Commission.

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Consumer Protection laws

The Consumer Protection Act, 1986, substantially impacts the development

of franchising in India. It comes into play with regard to tort and other

actions arising from sale of defective goods. The issue is if a defective

product sold by a franchisee causes injury to a consumer or causes damage

to the consumer’s property, then does the consumer have recourse to the

franchisor and the franchisee or both! The answer to this depends upon

factors such as the degree of control exercised by the franchisor, the distance

between the franchisor and the franchisee geographically, and the equipment

and know-how supplied to the franchisee by the franchisor in relation to the

product.

Labour laws

No franchising contract can derogate from the myriad Indian labour laws.

Labour laws governing the day-to-day conditions of employment and

termination of employment when an outlet is shut down or the business is

sold are particularly relevant in the franchising context.

CONCLUSION

Considering the growing importance of franchising, the Indian Government

should consider enacting a specific statute to curtail the application of the

MRTP Act to franchising agreements.

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2.4 OPPORTUNITIES

1. Global Markets in franchising

The global markets for franchising can be seen from some of the facts listed:

Total franchise sales could reach $1 Trillion by the year 2000.

One out of every 12-business establishment is a franchised business.

A new franchise business opens every 8 minutes of every business day.

There are more than 558,000 franchised establishments in the U.S.A.

There were approximately 2,900 franchisers operating almost 138,000

establishments in 1992.

In Japan as of 1994, there were 714 franchisers operating 139,788

establishments with sales of $103 billion.

In Australia as of 1994, there were 555 franchisers operating 30,500

establishments, employing 279,000 full-time and part-time workers and

generating $29 billion in sales.

India is a very young market with respect to the franchising function. In

comparison, the US market is supposed to be the most mature, this is shown

from the facts given above too. The very fact that around 17% of USA's

GDP comes from franchising operations shows the amount of franchising

going on in the USA.

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2. Franchising Industry in India

In India, the franchise economy is yet to take off. Currently accounting for

just over 4% of the country’s gross domestic product, Franchising is a sector

that is waiting to happen.

Traditionally, local franchising in India was limited to the clothing and

footwear brands. However, the last few years have seen the penetration of

Franchising into industries like computer education, healthcare and more

recently entertainment and cyber kiosks. In fact, it is the IT Education

industry which has been responsible for making the concept of franchising

acceptable to people across the length and breadth of India. No wonder then

that over 55% of India’s 800 odd franchisors happen to be in the IT

Education industry.

With the current boom in retailing and entertainment sectors, franchising is

being examined by an increasing number of operators as a growth option.

There are a number of both home grown and foreign players currently

eyeing the sector.

The scale of the franchise sector in the country can be estimated from the

fact that just the New Franchise Development industry in India accounts for

a turnover of over Rs.500 crores annually.

India's vast entrepreneurial talent now recognizes franchising as a definite

means to establish global standards for products and services. The growth of

franchising is imminent with the growing service economy in India.

Franchising earlier identified with food franchisees only is now diversifying

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in various businesses. Though the absence of specific law on franchising is a

deterrent in its rapid growth, but it will be obviated considerably with the

formation of laws specific to franchising. A recently formed Franchising

Association of India (FAI), is functioning to encourage franchising and

resolve legal and financial issues of the franchiser and the franchisees.

Franchising in India is in a nascent stage but a boom, which is waiting to

happen. With India's growing service economy, opportunities for

franchising are going to be plentiful. It is estimated that franchising will

grow at an annual growth of 30 percent. Lately, the concept is catching on

in businesses as diverse as education, healthcare, fitness clinics, food

services, personal grooming, cyber kiosks, entertainment, and others.

Number of foreign franchisers in India is in the area of education, apart from

luxury hotels and fast-food sectors.

The sectors, which are opening up for doing business through franchising,

are:

Healthcare Centers: India's healthcare sector is currently USD 16.4 billion

growing annually at the rate of 13 percent. India's huge population and

increasing per capita spend on the healthcare, and the subsequent opening up

of the healthcare insurance will also be responsible to a considerable extent

for the growth in this sector. Franchisees are coming up for Pathology

Laboratory, outpatient Department, and check up centers. India is being

believed to become a regional hub, the healthcare centers offers big business

opportunities for American companies.

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Foods: Food segment has always been the favorite franchisees in India and

it is expected that roughly USD 2.5 million flew into this sector in

2000alone, through franchising. The potential is immense in the specialized

food segment. Coffee Cafes are also becoming very popular. Some of the

popular food brands having their presence in India are McDonalds, TGI

Friday, Pizza Hut, and the latest to enter the market is subway. Demand in

this sector is for popular American food franchiser, which offer variety of

food items.

Entertainment Centers: The entertainment sector in India is worth USD

2.9 billion and is growing annually at the rate of almost 200 percent. There

is a sudden rush to set up multiplexes, bowling alleys, and game parlors,

among others. American companies with expertise in setting up

entertainment centers will find India having a huge market potential.

Computer Education: There is increasing demand for training centers

offering courses in specialized areas. The estimated market size for

computer training is US$ 143 million with an annual growth of 30 percent.

With the growth of Internet and Intranet services, the trend will increase

towards globalization of services. The companies are planning tie-ups with

international companies in cutting-edge technologies. Computer courses and

learning centers for the kids are in great demand too.

Fitness Clinics: With Indians becoming health savvy, there are large

numbers of businessmen interested in taking franchisees for fitness parlors

and personal grooming.

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Starting with food related businesses, franchising has now spread to retail

operations, automotive industry, and education and recently in health related

services. Franchise operations in all these industries are benefiting from the

combined buying power, operational speed & efficiency and brand strength

that the franchise business model is able to generate.

Over the last fifty years, Franchising as a business model has proved to be

extremely successful across the world. So much so that it is estimated that in

developed economies like the US, over 40% of all retail sales come through

franchised businesses. Similar trends are being seen in Europe and

increasingly in the Asia Pacific economies. In fact, the last few years have

seen the fastest franchising growth-taking place in the Asian and South

American markets.

Increasingly, management experts are recognizing that franchising offers

significant advantages over other conventional business models. These

include reduced management structures, maximum capitalization of

intellectual & proprietary products and lattice organizations. These

advantages help franchise operations achieve economies of scale without

having to create the huge management structures they would have otherwise

required.

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2.5 FRANCHISE RELATIONS

A Lot of time, energy and money is invested in buying a franchise, Now

arises many questions: How to work within the system? How to take

advantage of all your franchisor has to offer? How deal with your

counterparts, other franchisees?

In order to answer these questions, care must be taken for following points:

Communication

In any franchise organization, it’s important to maintain open

communications lines. A franchise is like a marriage. As you are now

married to your franchisor, communication is the key.

Communication in a franchise relationship occurs in numerous ways.

Communication must be friendly, helpful, upbeat and honest. Too many

times a franchisor/franchisee relationship will become adversarial, hostile

and aggressive. If this happens, communications lines tend to go down and

everyone suffers. In such situations franchisee has the power to keep

communications on a positive note.

There are many things that can be done to help franchisor communicate with

franchisee, some of these are:

Try not to be a chronic complainer. If franchisee has a legitimate complaint,

perhaps he should offer some praise first. Something that is being done

right. Then mention the little something that’s caused a stress at business. If

franchisee think he has a solution – offer it or offer to sit down and

LBSIM, NEW DELHI 30


brainstorm a little with a regional director or company representative. Be

friendly. In order to prove his point franchisee must show the franchisor or

their representative how efficient he is, how clean his place is and how the

standards are followed to a tee. Treat it like a military inspection. Then

explain the problem. Tell them your suggestions and ask what must be done

to find a solution to this?

Remember: The art of diplomacy is letting someone else get your way.

Regional Directors:

Chances are that regional director has encountered same problem in one of

the other franchised outlets or perhaps many other outlets. Hence, he can tell

a franchisee what other franchisees did to improve that problem and which

solutions worked best and which ones didn’t work at all. Also, which

solutions the company approved and which ones were not and why. Staying

on good terms with your regional director can be very valuable.

For example; Let’s say franchisor wants to test a new product in a certain

region and they ask the regional director in that region which outlet would

be the easiest to use for the test market. Then in such cases the franchise

outlet that has good relations with the director is the most likely to be

chosen. Generally Franchisors take test markets of new products very

seriously. They usually:

Spend lots of money in local marketing

Set up well designed store signage Re-do menus, brochures etc.

LBSIM, NEW DELHI 31


This will help the particular franchisee to attract new business to his store

and pay for new signage. Even if the test market fails and the new product

or service is never implemented system wide, the chosen franchisee still win

because he now has a larger customer base and more local awareness of his

business. By the way, over 50% of new products fail and it’s certainly nice

to have someone else pay for it. It might put a small non-franchised

company out of business if they had a new product failure.

Assist Your Franchisor:

Due to the expansion rates of franchisors, sometimes they will have to call

on franchisee for help. To move fast in the market place a franchisee needs

a strong team and franchisors know this and no one is more dedicated than

individual small business owners. That’s exactly what franchisees are.

Sometimes there is not enough time to gear up to meet the demand of a

growing system. Franchisors must call on franchisees to help in:

Training

Product Development

Sales of New Units

Streamlining Systems

Marketing of Services Etc.

Usually the franchisors are willing to pay for this help. If the franchisor out

sources some of it’s services to franchisees, it’s really outsourcing in house.

LBSIM, NEW DELHI 32


There are many reasons behind this strategy:

It costs less than if the franchisor does it

It improves franchisees profit since the franchisees are paid for their help

Secrets are not lost to industry wide consultants

franchisee has a vested interest to make sure the system succeeds, therefore

he will do a better job

It builds a "teamwork" atmosphere in the system

Of course, if a particular franchisee is a chronic complainer and a problem

franchisee, none of these extra perks of belonging to a system will be

available him.

So a franchisee must maintain a positive relationship with franchisor and

promote a win/win situation.

Be Nice To Office Staff, Vendors And Consultants

A franchisor has a office staff, vendors and consultants, all of whom are

there to assist a franchisee in business. Each of these groups should be

treated differently, but all should be treated with respect. They must be

treated exactly in the same way, as a franchisee wants his customers to treat

him. Office staff at franchisor headquarters is usually very efficient and very

sharp individuals. They have to be to keep up with the busy schedules and

fast moving pace of a franchisor. As a matter of fact, a lazy or inefficient

employee would never survive in the hectic day-to-day operations of a

franchisor.Every one is calling, e-mailing, faxing, in a hurry to get things

LBSIM, NEW DELHI 33


done. They realize that a franchisee is equally busy in outlet and don’t have

time to be left on hold. If franchisee is very sincere, polite, upbeat and

thankful when he calls, he quite possibly could be the only person who was

nice all day. They will remember that. If franchisee is abrupt, rude, arrogant,

etc.His request may be placed at the bottom of the pile, which at a

franchisor’s headquarters may be a long way down.

Vendors of the franchisor can make a lot of money by working with

franchisors. It’s like having a captured market with guaranteed volumes and

sales. Unfortunately, sometimes vendors bid so low to get the account and

the opportunity to have that captured market that they make very little on

each individual franchisee. A franchisee must realize that their money is in

the volume. If vendors help them with too much personal service, then they

will lose money on them and the best to hope for is that they’ll make it up

with orders from other franchisees. Now this doesn’t mean that franchisee

shouldn’t demand to get what he pays for. It means to demand in a nice way.

Explaining his situation in detail by invite them to store, showing them the

problem. This may be the insight they’ve needed not only to serve a

franchisee better but also his entire system. They may even think of ways to

build their units more efficiently, more practical and less costly. Vendors of

franchisors, once they’ve landed the big account, want to keep it. After all

they’ve probably:Re-Tooled,Hired More Staff, Borrowed Money,

Restructured Their Operations, in order to take on the franchisor’s business

Consultants of the franchisor usually work on billable hours. You should

help them with their search for knowledge. Remember, whatever they

recommend to the franchisor might be implemented. So if a franchisee

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denies them reasonable access to his business or purposely hide things from

them, he might run up consulting costs and any recommendations may be

worthless. Worse yet, whatever is implemented by the franchisor from the

consultant’s recommendations will affect his outlet.

All franchisors are not the same. Some have a very corporate attitude and

some are very down to earth and almost folksy. No matter what type a

franchisee belongs to, communication is still the key. With a small

franchisor, he might be able to call the president or founder directly. A

franchisor with fewer than thirty units needs a franchisee's input at the top

level. He or she will still be working out administrative and organizational

bugs in the system. The success of a franchisee is a very serious issue with

such franchisors. They can’t afford very many franchisee failures this early

in the game. Problems and suggestions of franchisee take precedence over

all other aspects of their business, because if he fails, it will affect future

sales. It is important for the Founder to know how the franchised model

performs in different locations, demographics and local economic

environments. If they can solve these problems at a unit level now, it will

insure the success of the future units one hundred fold.

In medium sized franchises, the franchisee might not have the opportunity to

be on a first name basis with the Founder or President. However, he will

certainly get the chance to meet them, but he most likely will be dealing

with a master franchise and a regional director who will most likely mirror

the attitude of the Founder or President. Here a franchisee is advised to

know his master franchise operator and regional director on a first name

basis, because they will be concerned about his outlet only because a

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regional director may receive incentives for his performance and a master

franchise actually receives part of his royalty payments. Therefore, the more

money he generates, the more money they make.

A large franchisor will have layers of corporate management and possibly a

combination of master franchises, international franchises and lots of

regional directors assigned to different areas or run out of regional master

franchise areas. Some large franchisors may not have a Founder any more.

The original Founder may have sold most of their stake in the company and

no longer oversees any part of the actual franchisor’s operation. Many large

franchisors may be publicly traded companies that may also own other

franchise systems and may during a franchise term either buy more

franchisors out or sell their interests to another franchisor. Since this may

happen at any time, it’s even more important to know master franchise

operator or regional director and be on good terms with them. They will still

be there tomorrow no matter that buys, sells or trades stock ownership or

rights at corporate headquarters.

Franchisee Initiative

Now learning how to get along within the system, a franchisee must initiate

following things:

1. Help With Public Relations

Let’s say a franchisee is sponsoring a little league team that wins the county

championship or a contestant in a citywide beauty contest who becomes

Miss Any Town. Then he must tell his franchisor. They’ll want to put it in

LBSIM, NEW DELHI 36


their newsletter and send it to all the other franchisees. They will show it as

an example of good local public relations.

2. Improve Efficiency

In his day-to-day operations a franchisee may design a form on his computer

to guide himself to increase efficiency at his store. Fax it to the Vice

President of Operations with a note:

“Mr. X – This form helps us run more efficiently. Perhaps other franchisees

might like it. Do you want me to mail you a disk with the file on it? I used

Microsoft Excel 7.0”

3. Help With Your own Expansion

If a franchisee want to expand his area and add another store, he must do

some preliminary demographic work and a financing study, Then ask your

franchisor to review it. The chances of approval are more in such cases. He

must also include a schedule of estimated increased income from royalties

and purchases in his package to the franchisor.

4. Volunteer To Help With Teamwork

If franchisor has a franchisee advisory board, offer to join and help

franchisor/franchisee relations. But if a franchisee is in default of his

Franchise Agreement, then he must talk to his franchisor. He must develop a

time line that he can live with to come back into compliance. Franchisors

don’t want to terminate good franchisees. After learning about franchisor

relations, then comes rest of the team. A franchisee must think of the

franchisor as his coach and the other franchisees as his team mates.

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Remember: TEAM is an acronym.

T =Together

E =Everyone

A =Accomplishes

M =More

In order for a franchisee to boost his relations with other franchises, he must

talk highly Of Other Franchisees

5. Clubs And Organizations

It is important for a franchisee to join at least one service club. It helps his

business to become part of the town. If his neighboring franchisees belong

to certain groups,then he must belong to a group which they do not. For

instance, if one belongs to the Rotary, another to Kiwanis and a third to the

Optimist Club, you should join the Elks, Lions or be on the board of

directors for the hospice, YMCA, Boy Scouts or city run committees. Most

service clubs work on big projects with their local affiliates committees and

if a franchisee and his neighboring franchisee are in the same club, then they

will be duplicating services. After all, if a fellow franchisee needs help with

a service project, they will call fellow club member anyway. So, for a

franchisee there is no need to spend time in meetings when he can be out

and about meeting new people, making friends and establishing new

business contacts. Also if he meets someone from another area, he’ll be

happy to take that information to his neighboring franchisee. They will do

LBSIM, NEW DELHI 38


the same for him and this is what brings your referral network with fellow

franchisee’s full circle.

6. Chamber Of Commerce Meetings

It is important to attend Chamber of Commerce meetings. Since most of the

people at these meetings will already know the franchisee as a local

businessperson, they will typically engage him in conversation and this will

prevent him from meeting new people. It really helps to have more than one

franchisee of a system at a Chamber of Commerce meeting or mixer.

7. Co-Op Marketing

If a franchisee want to place an ad in a countrywide newspaper, then he must

find out whether he has other franchisees in the area that may be interested.

Thus, he can put each phone number and location at the bottom of the ad and

divide the costs and If he’s been on good terms with his vendors, they may

share in the costs and further if he’s been on the ‘good list’ with his

franchisor, his advertising request will surely be approved. It’s all about

communication, team work and attitude.

8. Call And Say Hi

It is important for a franchisee to call up and just say hi to his fellow

franchisees. It will remind them that he is always near by. He can get

something positive out of the phone call such as:

A good lead

A streamlining technique

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A way to handle a new employee

Someone who will listen

A time efficient way to attract new customers

A mistake, which was made

He can also talk about the worst customer of the week or the most ridiculous

complaint of the year. How can tell them a story about ‘the customer from

hell’ and they will surely have a story to match.

9. Monthly Meetings

A franchisee must round up the nearest four to five franchisees and have a

monthly meeting. Regional director must be invited at such meetings.Even a

company representative from the franchisor can be invited. The higher up

the better.The company representative will take a franchisees concerns to the

top

10. Vacation Management

When a fellow franchisee goes on vacation, they may or may not have a

manager that is capable of handling every aspect of their business. In such

cases fellow franchisee must help to run the business for the time that person

is away. If this is done then they can help them when they are away. The

regional director must be alerted in such cases.That way, between manager,

regional director and the arrangement with neighboring franchisee, a

franchisees business will be safe while you’re on vacation.

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11. Joint Accounts

There may be times when a franchisee is overloaded with business. An

order that he can’t fill, merchandise he doesn’t have a contact or account that

is too large for him at that time. Rather than losing customers,he must call a

neighboring franchisee and spread the wealth. His fellow franchisee will be

thankful for the extra business.

12. Referrals

If a customer wants service outside a franchisee’s exclusive territory or is

too far away to shop in his store, then he must be referred to other

franchisee. This will strengthen company’s good will and name recognition.

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MARKET / SELL ALL THE PRODUCT AND SERVICES

All the franchisee except the Nirulas at saket responded that it does not market/sell

all the products.The reason being that as the nirulas outlets at priya and saket are

very close hence franchisor wants to maintain some disparity.

DECISION REGARDING PRODUCT AND SERVICE

Except Nirulas all other said that both the franchisor & franchisee together decide

about the product and service to be marketed by the franchisee.

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ARE YOU ALLOWED ANY VARIATION IN PRODUCT/SERVICE

Generally we see that no variation is allowed in product or service to be sold by the

franchisee.

DOES THE FRANCHISOR PROVIDE YOU WITH THE

SPECIFICATIONS FOR THE DESIGN AND MODELING OF OUTLET

Four personnel at the outlets of Nirulas,alkouser,chawlas said that the design and

modelling of outlet is not an important criteria.

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DOES THE FRANCHISER CONTRIBUTE TOWARDS

ADVERTISEMENT OF PRODUCTS AND SERVICES FOR YOUR

FRANCHISEE OUTLET

In this context only chawlas said that the franchisor is not providing anything

towards the advertisement otherwise franchisor provides for the advertisement.

WHO RECRUITS THE EMPLOYEES OF THE FRANCHISEE

What we can refer from this graph is that franchisor has a great say in the final

decision regarding the recruitment of the employees.

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WHO TRAINS OF THE EMPLOYEES OF THE FRANCHISEE

It can be clearly perceived from the graph that franchisor has to take care of the

training of the employees of the franchisee.

HOW DO YOU PAY TO THE FRANCHISOR

In case of fast food outlets the payment is done as a percentage of sales whereas in

case of restaurants the payment is done on royalty bases.

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DOES THE FRANCHISOR CONTRIBUTES TOWARDS THE

MAINTAINANCE OF:

Contribution towards the maintenance depends upon the policies of the franchisors,

THE PAYMENT FOR PROVIDING PRODUCT AND SERVICE IS

COLLECTED ON WHOSE NAME

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DOES THE FRANCHISOR DECIDE THE SIZE AND TYPE OF

EQUIPMENT THAT IS BOUGHT BY THE FRANCHISEE

It is clear from the graph that in most of the cases franchisor has say in the decision

regarding the type of equipment to brought by the franchisee.

DOES THE FRANCHISOR VISIT YOUR FOR CHECKING

All the franchisors keep a regular check on their franchisee outlets,so that their

prescribed specifications are kept.

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HOW DOES THE FRANCHISOR COMMUNICATE ANY INNOVATION

OR CHANGES IN PRODUCT AND SERVICES TO YOU

Generally for any change the franchisor sends its personnel so that can teach the

franchisees staff about how to implement the change.

PLEASE SPECIFY THE SATISFACITON LEVEL FOR THE

FOLLOWING

In case of no. of products that are allowed to be marketed,design of the

outlet,contribution of franchisor for advertising & no. of audits of products &

services the satisfaction level was very good,whereas in case of cost provided

towards the maintenance & product & service standard response was very poor.

LBSIM, NEW DELHI 48


PLEASE SPECIFY THE SATISFACTION LEVEL FOR

The satisfaction level towards recruitment and training policies was very good but

regarding compensation & motivation of employees was very poor.

DO YOU THINK THE FRANCHISEE AGREMENT AND IMPLEMENTATION IS

SIMILAR FOR ALL OTHER FRANCHISEE OF SAME FRANCHISOR

Generally all the franchisee said that they are satisfied by the level of similarity of

franchisee agreement between various franchisees of the same franchisor.

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MARKET / CELL ALL THE PRODUCT AND SALES SERVICES

In this case three of the outlets,two of cmc &one of niit said that do not market/sell

all the products of the franchisee.

DECISION REGARDING PRODUCT AND SERVICE

Here we find out that franchisor has a great say in decision regarding the product

or service to be offered to the franchisee.

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ARE YOU ALLOWED ANY VARIATION IN PRODUCT/SERVICE

In most of the cases variation in product or service is allowed depending upon the

area in which the outlet is located or quality of staff available in an area.

DOES THE FRANCHISOR PROVIDE YOU WITH THE

SPECIFICATIONS FOR THE DESIGN AND MODELING OF OUTLET

In computer outlet case the design of outlet is not of that much

importance,although the specifications are given sstill they are of not that of

importance.

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DOES THE FRANCHISER CONTRIBUTE TOWARDS ADVERTISING OF

THE PRODUCT AND SERVICES FOR YOUR FRANCHISEE OUTLET

Here again franchisor contributes a lot towards the advertisement of each of its

outlets.

WHO RECRUITS THE EMPLOYEES OF THE FRANCHISEE

In most of the cases franchisee himself recruits its employees.

LBSIM, NEW DELHI 52


WHO TRAINS OF THE EMPLOYEES OF THE FRANCHISEE

Here the franchisor just gives specifications regarding the course to be taught and

in very special cases provides training.

HOW DO YOU PAY TO THE FRANCHISOR

In computer industry a constant royalty fees is given irrespective of profit of a

particular franchisee.

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DOES THE FRANCHISOR CONTRIBUTES TOWARDS THE

MAINTAINANCE

No contribution is done by the franchisor towards the maintenance of the

equipment or building etc.

THE PAYMENT FOR PROVIDING PRODUCT AND SERVICE IS

COLLECTED ON WHOSE NAME

LBSIM, NEW DELHI 54


DOES THE FRANCHISOR DECIDE THE SIZE AND TYPE OF

EQUIPMENT THAT IS BOUGHT BY THE FRANCHISEE

Franchisor has generally good say in decision regarding the equipment to be

bought by the franchisee.

DOES THE FRANCHISOR VISIT YOUR FOR CHECKING

Regular visits are done by the franchisor to see that whether the specifications laid

down by it have been implemented properly or not.

LBSIM, NEW DELHI 55


HOW DOES THE FRANCHISOR COMMUNICATE ANY INNOVATION

OR CHANGES IN PRODUCT AND SERVICES TO YOU

Generally written communication is sent by the franchisor to the franchisee

regarding the change and in case of complicases that a personnel is sent to impart

training.

PLEASE SPECIFY THE SATISFACITON LEVEL FOR THE FOLLOWING

In computer industry the satisfaction level is not very good the reason being that

here a single franchisor has to handle a lot of franchisees so he is not been able to

devote a lot of time to any single outlet hence grievance always exists.

LBSIM, NEW DELHI 56


PLEASE SPECIFY THE SATISFACTION LEVEL FOR

Satisfaction level regarding any of the above policy again is not very good.

DO YOU THINK THE FRANCHISEE AGREMENT AND IMPLEMENTATION IS

SIMILAR FOR ALL OTHER FRANCHISEE OF SAME FRANCHISOR

Here few franchisee think biasness is being done by the franchisor

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3.2 COMPARATIVE ANALYSIS

Intangibility: No industry offers 100% intangible services and to industry

offers 100% tangible goods.

The computer education industry offers education to its customers through

the medium of teaching. The tangibles used while delivering this service

are:-

Books and other reading material

The students can be taught projectors and computers

The students would be working on computers, using floppies and

CDs.

Though there are certain tangible products involved in this industry, but the

customers pay for the education they get from these centers. Thus the

industry is offering an intangible product. The competition among the

various companies in this industry would be on the basis of type of computer

software courses begin offered by the company.

The Fast Food Industry offers the following tangible products

The food and the drinks

The gifts given to the children whenever they visit the restaurants.

The intangibles offered by the industry are:

The fast service

This industry offers more of a tangible product than an intangible product.

This is because, customers pay for the food they order and eat. The

competition among the various companies within this industry can be on the

basis of both the tangible-food and the intangible the fast services.

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Perishability: The computer Education Industry offers products, which are

more perishable than the products being offered by the fast food industry.

The computer education industry offers courses of certain duration starting

at a particular time. There are classes taken by the teachers for delivering

this course through lectures and 'practice on computers' to the students. Once

a person misses a class, he cannot store it to take it another time, it is

perishable.

Inseparability: Production and the consumption of the products in the

service industry have to be at the same time.

The characteristic is more in the Computer Education Industry than the Fast

Food Industry.

In the Computer Education Industry, the teacher delivers the lectures and the

students in the class are listening to the lectures, thus production and

consumption of the products is occurring at the same time.

In the Fast Food Industry, the products (food items) are being delivered but

the customers' consumer it after some time, thus there is some gap in the

production and the consumption of the products.

Variability: Consistency in service is difficult and very important for

companies to sustain in this world of competition.

There is more variability in delivering of the computer courses to the

students in the Computer Education Industry than in delivering food items at

fast service in the Fast Food Industry.

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3.3 CRITICAL SUCCESS FACTORS

After analyzing the Marketing, Human Resources, Finance and Operational

aspects of the Franchisor-Franchisee agreement of two industries

The Computer Education Industry.

The Food Industry the following Critical Factors for a successful franchisor-

Franchisee relationship can be listed down:-

All the Franchised centres need to market the same number of

products in a particular city to avoid competition between the various

Franchised outlets of the same company.

Show a consistency in the service scape of the various Franchised

outlets of the same company.

Promotion in two ways- for a specific outlet as well as for all the

outlets together

Recruitment of the employees is an important factors thus both the

Franchisor and the franchisee should have a 'say' in this matter.

Training of the employees should be carried by the Franchisor so that

the personnel can deliver the right product in the right manner

according to the specifications of the Franchisee.

The Franchisor provides stringent quality standards for the products

to the franchisees. The Franchisor also conducts frequent audits to

check if the franchised outlets are providing the products in the right

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manner. This is very important to be successful in this world of

competition.

The Franchisor needs to take frequent feedback from the customers of

the franchised outlets.

The franchisor should conduct frequent meetings with the franchisees

to discuss their problems. These meetings should be there to

communicate any new product or changes in products.

The Franchisor and the Franchisee should from time to time check

each other's satisfaction level regarding their business by having

frequent interactions.

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CONCLUSION

Both the industries have different aspects of the franchisor-franchisee

agreement.

In food industry the training of the employees is very important

where as in computer industry the layout of course is very important

In foreign food outlets especially in McDonalds there exists a joint

venture between McDonalds India ltd. and a local Indian

company.So,the McDonalds is providing its local outlets with outlets

wear and tear help, but this is not same with other players.hence the

franchisee has to bear the wear and tear costs of the machinery and

building.

In computer industry no such wear and tear cost is given.

The franchisor has to keep a regular vigil in order to see that its rules

and regulations are being followed properly or not.

Deviation from specifications is only done under very serious

circumstances.

Changes are to be implemented in a proper manner.

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BIBLIOGRPAHY & REFERENCES

Bradach Jeffrey .L. (1998), Franchise Organisation,HBR Press.

Khera Pramod (2001), Franchising, Tata McGRaw Hill Publications

Abell Mark, Sen Lisa (1998) Franchising in India, Eastern Law House

Academy of Management Journal, 1999, Vol. 42 No. 2 Pg. 196-207.

Business World, 20th Feb. 2000, Pg. 20-29

Documents from company

www.google.com

www.franchising.com

www.franchise.com

Journals from LBSIM Library: A&M Business Today, Business World,

etc.

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EXECUTIVE SUMMARY

Franchising these days is becoming a buzzword. Now it is becoming easier

for many companies to open their as much branches they could at a very

lessor cost. The main reason behind the success of McDonalds, Pizzahut is

franchising only.

This project mainly deals with two main industries in which Franchising is

becoming very popular these day i.e. the Food Industry and the Computer

Education Industry. In my project I took 10 outlets of each food as well as

computer industry for my analysis.

The 10 outlets of food industry which were two of McDonalds, one of

chawla chicken, one of Alkouser ,one of Mughal mahal and one of pizza

hut, one of domino's,two of nirulas where as in computer I took three

branchises of N11T, two of Aptech, two of CMC and two of ssi ltd.

A questionnaire was administered tot he managers at all these outlets and the

marketing, human resources, operational and financial aspects were known.

Some questions were specially formulated to know about the satisfaction

level of the Franchisor and the franchisee regarding the terms of the

agreement and its implementation.

Based upon above answer, the data was analyzed for both the Industries and

the comparative analysis was done and finally critical success factors for

both industries were noted down.

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Now any body also wants to venture into franchising can easily do so by

going through the analysis of the questionnaire plus the theoretical concepts

given at the beginning are also very helpful in this context.

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Certificate

The project study entitled “Growth and Development of Franchising in

India: A Study” submitted by Navpreet Singh Sidhu in partial fulfillment

for the requirement of the two year full time post graduate programme in

management 2000-2002 is a piece of original work carried out by him under

my guidance and supervision. The work has not been submitted elsewhere

for award of any degree or diploma.

NAVPREET.S.SIDHU PROF R.K.DHINGRA45/2000 Lal Bahadur Shastri

Institute of Management,New Delhi.

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Acknowledgement

I would like to acknowledge the guidance and encouragement offered by

Prof R.K.Dhingra, dissertation guide and coordinator. It would not have

been possible for me to undertake a project of this nature without his able

guidance, cooperation and support. The learning and encouragement

provided by various staff members, who have taught me during the program

has been inspiring and provided me with various insights in the successful

completion of this project. I would like to thank the team member’s of

various franchisee outlets visited by me, thereby have contributed

immensely to the successful completion of this project.

I take this opportunity to thank my family, and friends for their constant

guidance and encouragement; their moral support was invaluable.

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Table of Contents

Certificate ii

Acknowledgement iii

Executive summary iv

1. INTRODUCTION

1.1 Scope of the study

1

1.2 Research methodology

2

1.3 Limitations

3

2. INTRODUCTION

2.1 History of Franchising 4

2.2 Franchising in India 8

2.3Legal Framework 19

2.4 Opportunities 25

2.5 Franchisor-Franchisee Relations 30

3. ANALYSIS

3.1 Questionnaire analysis 42

3.2 Comparative analysis 58

3.3 C.S.F of both industries 60

4. CONCLUSION 62

5. BIBLIOGRAPHY AND REFERENCES 63

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6. APPENDICES

A1Questionnaire

GROWTH ANDGROWTH AND DEVELOPMENT OFDEVELOPMENT OF

FRANCHISING IN INDIA: FRANCHISING IN INDIA: A STUDYA STUDY

Submitted by:

NAVPREET. S. SIDHURoll No. 45/2000

(In Partial fulfillment for the requirement of the two year Full Time Post Graduate Programme in Management, 2000-2002)

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LAL BAHADUR SHASTRI INSTITUTE OF MANAGEMENTShastri Sadan

Sector III, R.K. PuramNew Delhi - 110022

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INTRODUCTION

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FRANCHISING

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BIBLIOGRAPHY &

REFENRECES

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ANNEXURE

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ANALYSIS

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CONCLUSIONS

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Analysis of computer industry

V

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ANALYSIS OF FOOD

INDUSTRY

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