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Franchising In India : Franchise Your Business Glocally

Written by: Amit Nahar

Article Overview: Franchising Glocally: is the essence of integrating what would work in a diverse subcontinent like India.As a developing economy we are facing unprecedented growth and exposure to technology and modern facilities like never before.Hence its important we understand this inclusively and adopt and execute franchise strategies to grow our existing businesses, either the ones that have been handed over to us through generations, or the ones that we ourselves have founded and are presently running or is there a new product or idea which the new indian consumer can accept.Lets understand all of this is detailed and derive a conclusive franchise strategy, create franchise modules, franchise agreements and manuals that would help you get franchise success and then lets go about getting the right franchisees that match your goals.

Franchising In India : Franchise Your Business Glocally

Franchising Glocally: Franchising Your Business Correctly From An India Perspective:

It was 7am on a December morning in Kolkata and I was taking the famous yellow ambassador cab (Infact a brand new one, the plastic covers were still on the seats) and was surprised that even today they buy these for close to 5.5 Lakhs and was telling myself how these 'cabpreneurs,' utilized franchising in a very crude manner for their growth. When some of the worlds best companies are trying to woo the markets with their latest offerings, we have here an entire community that will swear by the toughness of the car, its low maintenance cost and its return on investment prowess and how well it works in Kolkata. The driver Shanker who was speaking to me came from his hometown 2 decades ago and today owned 14 of these taxis. This latest one was just delivered yesterday and we delved further into how he has grown from being a driver of one of these to owning all of them, while I was being taken to the airport, 30 minutes away.

Shanker the franchisor gives his taxi to a suitable franchisee that runs it for the day and on an average makes Rs 1200. Rs 400 is spent on fuel, Rs 400 is paid as royalty to the franchisor and the balance Rs 400 is the franchisees profit. Anything above or below Rs1200 daily is to the franchisee's account.

Out of the royalty the franchisor gets he maintains the car (average Rs 2000/ Month) and pays his monthly instalment. (Average Rs 7000/Month) and at the end of the instalment tenure he has a asset .The entire amount that he makes on the daily running then is his profit, a part of it is re-invested in the initial down payment which is close to Rs 1.5 Lakhs. Today as his scales of economies have increased he has an arrangement with a car garage that keeps the cost of servicing the entire fleet very economical (doesn't use the authorised service centres of the company). They utilize spares which are available in the automobile market which are not the originals recommended by the company, but are branded (not the spurious fake ones) and of tested quality. Infact he was talking of a particular brake shoe that lasted longer than the originals supplied by the company and yet cost him a third lesser than the originals. Guess all that came from experience of running this business for 2 decades. He also went about explaining how he chooses his franchisees and doesn't just handover the franchisee who is willing to pay him the 400 Rs at the end of the day. He has to be recommended, have driving experience within the city for at least 3-4 yrs and he personally drives around with him for the first few days to analyse if he is a safe driver. All the taxis compulsorily go to the garage once a month for a routine checks up to ensure everything is all right, and if something is to be repaired, then it is done. Also if the garage gives a monthly report of the car, and if that's bad, the franchisee is marked for it and warned. If the same thing happens again, the agreement is terminated.

So lets analyse the above a little closely:



Everything Franchisable: Are You Using Franchising?

Franchising is everywhere and touching us in everything we consume, from mobile phones to the clothes we wear, from the insurance policy we buy to the restaurant we go, to the school your kids start studying in up to the franchise teams that we now watch playing cricket and hockey. So if you are selling a product or service look at franchising and see how you could use the franchise tools to enhance your business. Shanker does not understand he is franchising, but if he were to look at it from my eyes and works on a larger canvas, he could have 100's of such taxi's that he owns and probably start a journey like what Hertz did. Else he will end up adding a few more taxi's during his lifetime instead of growing geometrically. Having said that I believe there are 1000's of such shanker's across the length and breadth of this country who have some very successful business models in place, but do not know how to go about expanding their businesses or for that matter understand the scope and growth they could achieve if they franchise. I am sure it will evolve as we go along.

Is Your Business Successful and has scope for growth and will make money for all?

Shanker ensures that the franchisee takes home at least 400 Rs every day and Incase he does more, he spends 1/3 of it towards the fuel cost and the balance is all for the franchisee. (That's the 'propeller' for the franchisee to cross the 1200 mark everyday and the market dynamics generally assists them in getting there) In bad days shanker accepts lower royalties, which is adjusted against the better days when the driver can pay them. However the 400-bench mark is set and the flexibility of lower payments at certain times ensures that the daily livelihood of the driver is not affected. At the same time he ensures that he is paid the minimum amount, for him to sustain the entire operation profitably. Everybody is happy and profitable. Hence it is very important to have a profitable operations and franchising will survive only if all of them win. It will not work if the franchisor takes more or the franchise takes more nor will the customer pay more. It is very important to work out the royalties and payments that the franchisor accepts. There has to be a very rational approach to the franchise fee, deposits, investments and all other things that go into the programme. A slight tilt to anybody's advantage would harm the entire network very badly and everybody would loose. Hence the franchisor is always advised to keep the royalties or payments they seek on a regular basis from the franchisee at proper levels wherein the franchisee also makes money and they are not squeezed out completely. They will also need to understand the market dynamics and be liberal at places and yet have set benchmarks to follow that would ensure the success of the entire programme.

India Centric Franchise Strategy: Do you have a proper franchise programme in place that tackles all issues perfectly?

There is no single India. There are very rich. There are IT/Pharma employees who aspire to global standards and have high expectation. Then there is the aspiring middle class. The self-employed India. The agriculture dependent subsistent farmers. The urban poor. The rural poor. They all have different approaches to consumption. They construct their consumption basket in distinctly different ways .So it is very important to create your 'own India' that you would want to serve as a franchisor. I am not sure if shanker would be able to make the same profits that he does now, had he used the authorized service stations or for that matter used company spares. He says on an average they have to get the door rattling checked every few months, and that is done at half the cost with his garage arrangement than what is done in the company showroom. The same would apply for the numerous tinkering and body repair jobs that they have to be done regularly because of driving around Kolkata. Hence every franchisor has to understand the dynamics of his market and work accordingly on the backend to ensure that their costs of operations are right and then pass on the benefits to the franchisee and the consumer. Indian consumers are very value-conscious. They may be poor, but they are not backward. You need to have a proper India centric Strategy and not something that you cut and paste from numerous other sources. We come across a lot of franchisors trying to ape other international franchisor or learn from models across the globe or for that matter their own industry players. (For e.g.: every fast food franchisor wants to duplicate a Mc Donald's/Subway and tell us that they have everything in place as they have copied and studied these models thoroughly). Infact we come across prospective franchisors that go about booth to booth in a franchise expo collecting kits and then cutting and pasting them into their franchising. We must understand that consumer India has been the source of belied expectations and frustrating resistance to conventional global offerings leave alone the smaller organizations aping these. Never before has any market been so rebellious about what it will embrace and what it will not. Nokia Succeeds. Coke and Pepsi struggle. Honda wins. Mercedes struggles. LG & Samsung walk away with the market. GE appliances doesn't. Levis lags behind expectations. Nike limps along. Diageo did not make a big splash, MTV localizes, Kellogg's still struggles. Heinz ketchup doesn't catch on. Beware! Consumer India offers as much pain as gain and there will be no walkover for global big brands or for any player that don't think through their strategy from ground upwards. Hence it is very important to have a 360 degree approach to the subject, look internally at what you are offering and its relativity to the market and the entire community that you will address including your suppliers, franchisees, employees and customers, and put a proper scaleable franchise programme in place that will ensure that you grow your business effectively in times to come and it's a win for all. As C.K. Prahalad puts it brilliantly in one of his articles in Harvard Business Review ‘while it is true that MNC's will change emerging markets forever, the reverse is also true. Many corporations are beginning to see the opportunity that big emerging markets represent, will demand a new way of thinking...........requiring more than developing cultural sensitivities.'



The Right Franchisee: Do you have the correct franchise recruitment processes and have in place the correct lead generation programme, entire profile selection and interviewing method defined and know your ideal franchisee?

Choosing the right franchisee is as vital as having the correct franchise programme in place. Most of the franchisees that come to us ask us this standard question as to what is the 'return on investment' and most franchisors tell them that there is no parallel to the ROI they offer. If shanker gave his taxi to a rash driver and even if he did that mistake and did not correct it at the earliest, he would be the biggest loser. Most franchisors do not understand that it is better to say no to a 'rash driver' and keep the taxi idle for a while, than to have somebody who is going to spoil the car. In my belief the franchisor is the biggest looser and the amount of time, capital and other resources they would spend on the wrong franchisee would ultimately define the success or failure of their business. The initial 400 Rs per day profitability got would have to be put back with additional money into the same taxi for repairs and other damages and it would be a loosing preposition at the end of the day. The franchisee would at the most loose investments in that one unit and will move on.... but the franchisor would be hurt most. Hence have proper check mechanisms in place to ensure you have the 'right drivers,' or else replace them with the right ones, the moment you realize they are not right.... have that inbuilt in your strategy. Have a proper interview and an application process in place and don't just take the person because they have the bucks or for that matter have 1-2 things that you would need. Have a proper checklist of things you want in a franchisee before you start franchising and say a clear 'NO' to the ones who don't fall within your complete specifications. It is better to manage the difficulties in recruiting the franchisees or for that matter increasing the cost of recruitment rather than having the wrong ones come in, only because you have spent money for an ad release or for participation in an expo.

Hence it is important that you have a fundamentally strong business to be able to tap the Indian market. It is undeniably an important future growth market of the world for most global companies. It is large (it has the fourth largest gross domestic product or GDP in the world in Purchasing Power Parity or PPP terms with over a billion people), it is young (it has 450 million people below the age of 21) and it is just beginning its consumption journey. I also believe very strongly that emerging markets are not like developed markets the way they were in their infancy. They will eventually walk down a different path of their own, as they get more prosperous and you will have to address this market accordingly and grasp your share of consumer's wallet.

I would also like to bring out the relevance of ‘Qualitative Indian Franchising' from a micro and a macro perspective, of enabling success for everybody who uses it effectively, not only for a MNC but also even for the next door business owner. Creating opportunities for the millions of entrepreneurs we are known to churn out as a country and for taking a place on the world stage as a developed nation.

Please keep coming back for more on franchising in India.

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Article Tags: economy, franchise agreement, franchise agreements, franchise business new business, franchise documentation, franchise documents, franchise manuals, franchise strategies, franchise success, franchisees, franchising in india, generations, subcontinent, unprecedented growth



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