Importance of a Quality Franchise Agreement

The Indian franchising industry has seen robust growth over the past decade. In spite of the economic recession, the annual growth rate of the franchising industry in India has remained positive and is currently pegged at 30%-35%. The success of the franchising story in India is a testament to the huge potential and promise that India holds for the franchising industry.

In India, franchising has gained considerable popularity in numerous sectors, such as, education and training, healthcare and wellness, information technology services, and in particular, the retail sector including, food and beverage, fashion and lifestyle, etc. However, franchising of products and services in India is still in its infancy thus presenting to interested foreign enterprises a vast untapped business opportunity.

A fast growing middle class population with a faster growing disposable income and propensity to spend is one of the paramount reasons for the mushrooming of the franchise industry in India. Additionally, the entrepreneurial character of India’s population and increased brand and quality awareness amongst urban consumers provides another impetus to franchising in India.

Apart from a huge consumer base, next only to that of China, exposure to international standards of goods and services and availability of skilled, technology savvy and relatively cheaper human resources, India has one of the fastest growing retail sectors. As per Business Monitor International’s India Retail Report for the third quarter of the financial year 2010, retail sales are expected to grow from $353 billion in 2010 to $543 billion in 2014. Clubbed together, these factors present a highly lucrative business opportunity for foreign enterprises wishing to franchise their business, brands, or their products.

Franchising is a relatively modern distribution channel that permits foreign brand owners to exercise a substantial degree of control over the manner and mode in which their products or services are offered and sold to consumers. It ensures efficient and rapid trans-border market penetration to the Franchiser, an opportunity to take its brand beyond boundaries with minimum capital investment and risks.

Simply put, a franchise is a business model premised on a license granted by one entity (the ‘Franchiser’) to another (the ‘franchisee’) permitting use/exploitation of the Franchiser’s intangible assets such as brand/trade name, business model and concept, image, marketing techniques and other intellectual property for the purpose of making sales or providing services in a defined geographic location in return for a sum of money.

India does not have a consolidated legislation regulating franchising, although private sector bodies have been lobbying for enactment of franchise specific legislation. Some key laws which impact franchising in India include the Indian Contract Act, 1872, the Competition Act, 2002, the Trademarks Act, 1999, the Copyright Act, 1957, the Patents Act, 1970, the Consumer Protection Act, 1986, the Foreign Exchange Management Act, 2000, labour and taxation laws.

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