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FRANCHISING IN INDIA: OUTLOOK FOR 2009
Written by: Dhawal ShahArticle Overview: Downsized by the financial meltdown, Rohit Vaidya suddenly was forced to find a new job. Rohit, formerly vice president at a private equity firm for five years, lost his job in November 2008 after the financial slowdown led to liquidation of the company. Rohit whose family comprised of his spouse and three boys and his parents, needed a steady source of income to stay afloat.
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FRANCHISING IN INDIA: OUTLOOK FOR 2009
He exhausted about Rs. 30 Lakhs of his savings last month to launch an English Language Training School franchise that offers education programs for those that wish to master their command over English language and other services for call centres.
Rohit Vaidya, 52, said he took up this particular franchise because of its vast target group and the need for English learning is limitless. It was also less risky than other opportunities and offered useful quality services which are in need.
"I also was concerned I would not be able to find another job in the corporate world due to my age and experience for my previous pay scale," Rohit added.
Welcome to the franchising world in a slowing economy. Rohit joins other former executives from around the world that opted for franchising as an alternative to a job. Every Indian aspires to build a business someday and leave a legacy for their kids. Many of them opt for franchising as they would not get a job immediately and have enough saving to sail through the initial gestation period of taking up a franchise.
Taking up a franchise gets you, a recognized format, brand name and a system to generate sales. Instead of working on strengthening the products or services, you simply focus on increasing sales, as you work on the business and not in the business.
In a weak economy, there are going to be a lot of employees that will be laid off. Several firms in different industries are laying off employees. Some of them are considering taking up some franchise. Many of these people are taking their severance to start up franchises. As a franchisor, you should start targeting this category, since they have previously been employees, they are more likely to follow instructions and adhere to the franchise operations. Also, it means that they would need additional sales training, as well as some entrepreneurial thinking. Tie-ups with banks is an additional advantage, if a franchise opportunity has an existing relationship with a bank and their line of business is pre-approved, it acts as an additional benefit, which prospects would consider, before taking up a franchise. Financial assistance also adds further credibility to the franchise proposal.
Also, the Indian metros have been hard hit by the slowdown, whereas in smaller towns and cities, there has been a slight increase in the spending power due to the positive effect of inflation, leading to higher prices for agricultural goods. Also, real estate rentals in Sec. B & C towns are a lot lesser as a percentage of sales.
Franchise Sales Training always helps; some of the professional franchise education programs conducted by Franchising Association of India would equip franchisors and prospective entrepreneurs to make the right decisions.
But potential franchisees also should be cautious before jumping into business. Since, they will not be able to find a job very quickly as well as a wrong decision would be dangerous as most of the savings would get exhausted. The right due diligence will always help. The Franchising Association of India is a good starting point.
The legal agreement is a document, which needs to be carefully read several times. Clauses pertaining to territorial rights and restrictions, marketing costs – what is covered, what is not, etc.
Another major challenge will be the credit crunch and affordable franchise loans in 2009. Banks are reducing the amount of project finance from the once 90% to 60 – 70% of the project cost.
While recession means reduced manpower and real estate costs, it also means reduced sales. So to conclude, fellow franchisees should carefully consider taking up a franchise and fellow franchisors could alter their franchise sales approach for positive results.
Happy Franchising in 2009.
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Article Tags: brand name, business div, call centres, economy, education programs, english language training, franchise operations, franchises, franchisor, gestation period, increasing sales, job, lakhs, legacy, pay scale, quality services, rohit, severance, target group
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