Franchising in India

In recent years, franchising has been flourishing in India. Today the environment in India seems to be quite favorable for the growth of franchising. In the first place, many manufacturers now desire quick growth; they also feel that if they do not grow fast, competitors might upstage them. They naturally turn to franchising, as it facilitates quick growth.

Secondly, in recent years, the country’s economy as a whole has been going through a growth phase. Manufacturers naturally want to catch up with the growth but they experience a practical difficulty in doing so. They are often of capital; time too works as a constraint. By sticking to traditional marketing channels, they cannot catch up with the new momentum. They find franchising a way out.

Thirdly, it is now the age of brands in India. The ascendancy of brands has provided the right setting for franchising. Franchising started taking roots in India in the 1980s along with the ascendancy of brands. In the 1990s, it became a growing trend with the massive entry of many MNC brands.

Manufacturers with good brands are now able to expand their reach. Also, many aspiring brands have been helped by franchising. Several such brands are now available to consumers at nearby locations, with quality and freshness assured.

Presently, even stores by themselves have become major brands and their owners are franchising their brands to others. Store brands like Spencer and Nilgiris have been franchised out to a substantial degree.

Shortage of showroom space in prime locations and the cost of acquiring such space have also driven many manufacturers towards franchising. Both rentals and investment requirements for showrooms have been going up steeply. At the same time, for many products, good location has become the No. 1 imperative in retailing. And, in a large country like India it will cost a fortune to set up a network of own showrooms.

Manufacturing franchise too gains ground in India

Not only as a channel arrangement, but as a manufacturing arrangement too, franchising has been catching up in the country. Cadbury’s Dollops is one example. Cadbury’s went in for manufacturing franchising and provided the franchisees the technical know-how/formulae as well as the special ingredients needed for the product. it collected a royalty of 7% from the franchisees for this service. Parle Agro is another example. It has extensively gone in for manufacturing franchising of its soft drink Frooti. This has led to decentralized and cost-effective production/operations. In contrast, rivals like Lipton (Treetop) and Voltas (Volfruit) were manufactured at company’s plant in a single location, and distributed all over the country. The arrangement increased freight costs and also affected the shelf life of the product. Parle Agro was able to score over the competitors through franchising. Whenever capacity was becoming a constraint, Parle Agro commissioned more manufacturing franchises, and overcame the limits to growth. It has even appointed some manufacturing in places like Boston, USA, Dhaka, Bangladesh, and Nepal has registered itself in 44 other countries.

Being a large country, the scope for manufacturing franchising is particularly high in India. In an age of rising costs of physical distribution, it makes sense to produce locally through franchising than producing at a company owned site centrally and transporting it to all consuming centers. The needed raw materials too can be purchased locally, leading to savings in transportation costs.

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