You are on page 1of 31

Franchisin

g in
India...

Franchising

Franchising is a term that defines the business


relationship between two organizations where a
franchisor, who is the owner of a brand name,
product, or system of a business, permits a
franchisee to use its brand, product, or business
process for a fee.

At a conceptual level franchising is a method of


marketing and distribution, and organizations use

Contd
Franchising

is a term that comes from the French

language and means `to be free from servitude'.


It

was developed as a business method in the

United States in 1850s.


Franchising

is a low-capital rapid growth market

share gaining option

Contd
The

goal of a franchisor is to provide a

consistent product and consumer experience


'indirectly' through a franchisee.
This

that

is achieved through operational processes


are

transferred

organization,
performance.

and

to

the

managing

franchisee
them

for

Contd
Organization

that does franchising is required to

develop systems, structures, and processes for interorganizational


accountability

collaboration
and

control

of

focused
performance

upon
of

an

'external' business.
Franchisees,

view themselves as independent business

people, and see their relationship with the franchisor as


one between business partners.By the very nature of
the franchising process

Franchising in India - History

It is a business method more suited to generic services


that evolve around a recognized brand, a basic
standardized process capable of delivering a consistent
product

or

service

through

wide

network

of

operational units.

The importance of franchising as a potential business


option can be assessed based upon research in 1997
that estimated that nearly 40% of all retail sales

Franchising in Retail
The

hospitality industry has traditionally used

the franchise route for international growth.


The

importance of the franchising process is

reflected

in

the

retail

and

hospitality

industries where nearly every retailer (in


malls) and every major hotel are franchisees
of international as well as major national
chains.

Franchise in retail sector...


The

organised retail players


predominantly operate under a
direct business model; however,
over the last couple of years,
players have started operating on
both franchisee and direct models.
Besides, the leading foreign retail
brands operate through the
franchisee model in India as 100%
FDI is not allowed in the segment.

These companies have formed


master franchises with Indian
companies to leverage their
foreign brands in India.
For instance, a number of global
brands such as McDonalds, Pizza
Hut, Ddamas are operating in
India under the franchise or joint
venture model with their Indian
business partners.

Under the franchise model, companies


(franchisor) can be present in the
market by incurring lower capital
expenditure
and
gaining
higher
flexibility.

Therefore,

this concept is rapidly


catching up in India, as the country
offers ample growth opportunities in
the organised retail segment.

Indian retail sector...

Franchising laws in India...


Franchising,

as with organized retail, will firmly


establish itself in India in a couple of years.
With the increase in disposable income, it is
estimated that over 65 million Indians can
afford luxurious products and services and over
410 million Indians buy consumer appliances.
With Goldman Sachs predicting that India will be
the third largest economy in 2025
and Standard & Poor upgrading Indias credit
standard, and an extremely stable government,
the franchising community has a lot to cheer.

Laws Governing Franchising in


India
In the absence of a franchise-specific
legislation in India, a franchise
arrangement would be governed by
various applicable:
(I) Contract Law:The contractual
relationship between a franchisor and
a franchisee would be governed by the
Indian Contract Act, 1872. In
accordance with the Indian Contract
Act, in order to be a valid and binding
contract, the

Franchise

Agreement must fulfill


the essentials of a valid contract,
such as: there must be some
lawful consideration for the
agreement, a lawful object and
purpose and the parties should
be capable of executing the
contract

Intellectual Property Law In


India,
the

primary laws governing


intellectual property rights are
the Trademarks Act, 1999,
the Copyright Act, 1957 and
the Designs Act, 2002.
These legislation deal with the licensing
of trade marks, copyright, systems,
etc., from a franchisor to a franchisee,
for the purpose of operating and
conducting the franchised business.

Further, under these statutes,


civil and criminal remedies are
available to a franchisor against
infringement of intellectual
property rights. For example, in
case of infringement of a trade
mark, civil remedies would be in
the nature of an injunction or
stay against the use of the trade
mark and damages can also be
claimed.

Real Estate Law In India


premises

for conduct of the franchised


business may be acquired either on
ownership basis, or by way of a leave and
license or lease arrangement or by way of
a business conducting arrangement.
The Transfer of Property Act, 1882 and
the various state-enacted legislation on
renting of immovable properties govern
these arrangements.

Taxation Law
Taxes

in India are levied by the central, state


and local government bodies.
Direct and indirect tax laws such as income
tax, sales tax, additional tax, service tax etc.
would be relevant in a franchise arrangement,
as they are in any other business concept.
Payment of taxes would depend on the
structure of the franchise arrangement and in
the case of an international franchisor, the
existence of treaties between the countries.

Remedial and Penal Law;


Alternative Dispute Resolution
In

case of any dispute or


difference between the parties in
respect of a franchise
arrangement, civil and criminal
remedies would be available to
the aggrieved party in India. The
aggrieved party may also initiate
any of the alternate dispute
resolution methods under the
Arbitration and Conciliation Act,
1996.

Other Applicable Law


Any

franchised business set up


for sale of products or providing
any services would have to
comply with the applicable labour
legislation in India.
A consumer buying a product or
availing of a service under a
franchise arrangement would be
protected under the Consumer
Protection Act, 1986.

Further, depending upon the


industry/sector to which the
franchised business belongs, the
establishment would be required
to obtain certain specific
approvals and registrations from
different local

For

example, a franchised outlet in the


food industry requires an eating house
licence from the Municipal Corporation
and a health licence from the Health
Department of the Municipal
Corporation.
In case of an international franchise
arrangement, the Foreign Exchange
Regulations and the Foreign Exchange
Management Act, 1999 would be
attracted.

Contd

Contd

Contd

Contd

Contd

Contd

Contd

Thank
You, All!

You might also like