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Manufacturing Franchise In India

Guest post by: Amit Nahar

Article Overview: I am going to address the following points in this blog primarily. 1) How to Franchise a Manufacturing Business in India. 2) What are the challenges a manufacturer faces when they want to reach the consumer through franchising. 3) How International Manufacturers can appoint franchisees in various geographies navigating through a few challenges mentioned below. 4) Franchising your manufacturing facility in different geographies. 5) Appointing sales franchisees to sell your products if you want to sell your products either nationally or globally.

Manufacturing Franchise In India

Sept 24, 2010-Bangalore,India-I am back today from a detailed franchise consulting exercise that we did for a client over the last two days and would like to share my experiences for companies who are manufacturing and would like to franchise their businesses. I will bring in the different challenges this company faces while they are setting out to franchise and what are the probable solutions we recommend. I am also going to bring out other similar examples of companies with whom we have interacted over the years into this blog, to bring in a more complete understanding of manufacturing franchising in India. Firstly, the clients we are consulting are operating in the building and construction industry and manufacture certain components that are vital for any building. They have a licensing collaboration with the world no 1 company in that space, and are manufacturing and selling these products in India. Further more they are also independently selling this product to the builders/projects, independent home users and office spaces, directly, primarily in the region they are manufacturing. They now want to set up similar manufacturing factories across India and are keen to sell the products that each of these factories manufacture in the local region. They plan to have a pan-India brand that will have great customer recall and want to ensure that the markets across the country will be serviced through these franchisees. Also this will build a very cost & service effective network, as the client would be very close to the customer across the country.

Now let's analyze the market space they want to address and franchise in.

The market is primarily unorganized. There is only 1 national brand that is available in the space and that brand is predominantly over-booked. They have grown rapidly and off-course is at the moment having installation challenges. Meaning they have difficulties in the last point, service leg of the business. There are several other local manufacturers who have their own market share in their local zones. The product is manufactured and installed in 3 different stages and the No 1 brand does all of this in house. Then there are specific manufacturers who only do stage 1 and others who do stage 2 only, while there are stage 3 installers who work with everybody who needs the installation service. Hence all the 3 collaborate with each other in different stages and the market is serviced, with huge disparities in quality and service experiences. However, it is predominantly is a localized, unorganized industry, at the moment.

The market for the product is also not very mature and the competition is primarily from primitive use or conventional products that are being used for ages. The customer now needs to be educated on the advantages of using this new product and how that will eventually result in a greener building. This will also save costs for them in the long run. Hence there is lot of work that needs to be done to educate the market. The No 1 brand has done well in this space and has invested considerably in marketing the product and has in a sense ensured that customers get educated on the advantages of the said product and thereafter start looking at other options as well. While they have gone about creating a niche for themselves, it is projected that more than 90% of the actual market still needs to be reached out to or the customer base could be expanded considerably, with proper educative and publicity efforts.

There are no set standards of quality, hence these manufacturers use different kinds of substandard products, which eventually ensure that the cost of the product is less, but the life of the product or the replacement cycle is very small, hence opening up lot of variations for the industry. There is no bench marking and each customer buys according to their budgets and level of awareness.

International manufacturers of this product are unable to get into the mass market, because the raw material is produced in their countries and are exported into India, making it at least 3-4 times expensive than the domestic products available here.

The franchiser today is using only the least expensive raw material that the international manufacturer is using, whose 4th quality is far superior to the best that is available in India. Meaning there are 3 more qualities above the one's available worldwide, but is not used in India, as the market is not so mature or willing to pay for the same. Hence the franchiser is contemplating to using domestic raw material and creating a final product which is far better than what is available in India and since the basic raw material will be produced indigenously, they will be able to offer this product at the same price as a local manufacturer, while most local producers will not be able to match the technical superiority of the product, as they have the technical know how from world leaders. Hence with this differentiation, they now want to address the mass market, through the franchise model, while they are taking care of the premium segment through their existing arrangement with the international company.

The first question that arose then was, why would somebody take up the client's franchise?

The answer being that there was this complete ready made integrated set up which one could start with the help of the franchiser. One could start a plant and start selling to clients within 90 days of start of the project and could break even in 5 years from the date of start up. There was technical know how available and a ready market which was only going to expand in the coming times.

Secondly, do we get franchisees ready to manufacture and sell, with an investment in excess of US $ 400,000 (2 Cr INR.) with returns projected to come in within 5 Years and income in excess of 100,000 US $ Y.O.Y thereafter.

The answer being YES. With our experience in our other group company, franchise bazar, we have seen several entrepreneurs coming to us for specific queries of options available in the manufacturing franchise space and how they have land, capital and the eagerness to get started with a profitable venture.

The biggest question then was, should we make franchisees that will manufacture, educate, sell and install or should we split the functionalities into multiple franchise module, where different franchisees do different things?

Lets take the first example of having a end to end solution, where one franchisee does all of the above.

The immediate challenges to this being:

How would we get a franchisee with that band-width?

When we did, how would we train them?

How would the functionalities be divided?

What is the ROI that is promised and how does one deliver the ROI, despite the variations in performances at all levels?

What is the marketing, royalty and advertising contribution from the franchisee and what value add does the franchiser do?

Why would they continue being a franchisee, as the only two things that they are dependent on thereafter is the brand and the raw material, whilst they have absolute control of manufacture, educate and sell?

Now Lets take the second example of splitting the manufacturing and sales and integrating final installation with either of the above into different franchise models and having separate franchisees doing either of these. That again needed proper deliberation as the entire product experience would become nil, if the delivery is not done properly, due to negligence at either of the stage.

The typical challenges being:

If the manufacturer is not selling, how would he be guaranteed production sales?

If the sales are not ably supported by the manufacturer, delivery suffers?

Who does the pricing to the customer and how does one make it competitive?

What happens to geographical exclusivities and how are they demarcated?

How is the royalty calculated for each of the franchisees and how are checks put in place to ensure that the company gets its share?

How quality standards are set / monitored at all stages?

How does the company build its marketing campaign and ensure that the franchisees capitalize on the same?

How should the company be structured on the back-end and what teams must it put in place to over see the entire exercise on the back-end?

How are returns justified with multiple operators seeking their share of profitability? How does one maintain the right balance of profitability to all and right price to the customer?

With a lot of deliberations on the back end, we finally decided a strategy to move forward. I am not going to disclose what we did, right now, as we are very much in the preliminary stage and going further with our action plan, and will write down another manufacturing franchise blog at a later stage of how our experience has been with the approach we took and probably, how we built a very innovative, successful manufacturing franchise model in India.

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Article Tags: How To Manufacture In India, india manufacturing business, Manufacturing Challenges In India, Manufacturing Franchise, Manufacturing Franchise In India, Manufacturing Franchise Model, Manufacturing Franchising, Manufacturing Model In India



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