Whether you are an international business owner or a local entrepreneur in India, the idea of expanding the business is always a pressing issue.
There are many things to consider and evaluate before starting working on the first step to realizing your next venture.
Franchising in India is more than just expanding your reach and presence. It is always connected to your capital, dedication, and willingness to face unpredictable market and economic changes.
This means knowing about franchising gives you an edge over your competitors in terms of feasibility studies and other pointers.
So, before talking about the most complicated aspects of franchising in India, take some time to understand first what franchising is.
Over the years, the definition of franchising has evolved, but one thing has remained the same: the context of owning a business utilizing getting the rights to operate it.
In other words, the franchisor gives you the right as an individual or a company to market the goods or services of the business in a particular location.
Yes, you read it right - just a specific location. Being a franchisee does not mean getting the right to start the business in your whole area or region unless otherwise stated.
Here are two essential terms you should know:
Franchisor - the person or organization who grants a franchise
Franchisee - the person or organization that purchases a franchise
In franchising, communication is always two-way. It is between two parties with one main goal: to capture and dominate the market.
If you wonder why businesses love to venture into this business model, it is because of the business’s success rate.
Based on studies and statistics, most entrepreneurs who franchise businesses have a higher tendency to become successful than those who run start-up companies.
This success is mainly attributed to the fact that franchised businesses have proven and tested business models. This means it is more secured than a new business whose entire model is still in the testing phase.
Relevance of Franchising in India
Just like any other country, India has great potential in franchising.
It is somehow considered the next hot spot for franchising globally, and this forecast has never been wrong. India has much to offer other than cultivating its brands. Through the years, it has also become the home of some successful international brands.
The Indian market has great potential as an untapped market. It presents attractive opportunities for franchisors and franchisees that are competitive and promising.
Today, franchising is considered very relevant in India, that some people leave their jobs to become full-time entrepreneurs. They believe that this is more feasible than maintaining full-time work.
Overall, the industry is booming, and some reports predicted that it would continue to perform well this 2021. So, now is still a great time to work on your dreams and gain both wealth and reputation if you are an aspiring franchisee.
What makes India the next franchising hub in Asia?
The franchise industry is so dynamic that it can turn any country into having a booming economy if appropriately executed.
But, there is still a big question among entrepreneurs: what makes the country a hot spot for franchising?
Indians have given mixed opinions and reasons, but the leading explanation points to only one thing: it has a favorable franchise environment.
What does this mean?
Everyone knows that India is diverse, both in its geographic history and culture. However, despite this, it still offers the most attractive and compelling franchise market.
Just think about it. Some businesses benefit from many for-profit outlets in different parts of the country. In contrast, franchisees in India benefit from the opportunity to generate good returns with little capital and low risk.
Franchising in India has a very bright future with the industry’s growth rate of 25-30%, a good enough percentage to be considered the second-fastest growing industry in the world.
Here are some other things that make India an excellent country to invest in.
- There are laws and order. People are disciplined, and although there are still some recorded cases, the everyday situations in most Indian cities are considered peaceful.
- India’s revised “New Industrial Policy 20.05” gives more incentives for investors.
- Labor unions and movements in India are not much of a pressing issue. Hence, there is an amicable relation between industrialists and the labor segment.
- Pro-active, alert, and responsive government and agency concerned with businesses.
- The workforce is not a problem. There are always available skilled individuals and professionals that can contribute to the industry.
- They have increased buying power for citizens.
Franchising Law in India
If you are looking for one universal and specific franchising law in India, then stop now.
There is none.
However, some governing regulations still act as the franchising law in the country and technically govern all transactions related to franchising.
In India, “franchise” is defined under the Finance Act as an agreement that grants the franchisee the symbolic right to sell, manufacture goods, or provide a particular business’s services.
That is it—nothing more, nothing less.
Since there is no specific legislation regulating India’s franchise arrangements, the process is always tedious for Indians and foreign nationals.
The Foreign Exchange Management Act (FEMA) and Reserve Bank of India (RBI) regulate payment for Franchise Agreements.
This is applicable if one party is a non-Indian (a foreigner), the amount due is in another denomination, and the procedure for remittance is outside India.
In this case, the RBI requires tax clearances and chartered accountant certificates from the foreign national at the time of remittance of the royalty payments by the franchisee to the franchisor outside India.
Moreover, they permit foreign franchisors to charge royalties up to two percent on the use of trademarks and names, given that there is no technology collaboration. Otherwise, higher royalty rates (at most eight percent) will apply.
Taxation is another issue in Indian franchising.
That is why most of the time, this aspect deserves due consideration. It is essential to know the local sales tax, property tax, and withholdings tax applicable in certain areas before charging any franchisees or franchisors.
In line with this, both have to understand the Income Tax Act. Through this, the franchisor receives royalties, service, or franchise fees subjected to tax, whether the franchisor is an Indian or a foreigner.
The provisions under the same act also apply to foreign nationals sent by international companies in the country for training or supervising the country’s business.
Therefore, their salaries may be subject to personal income tax, regardless of whether an arrangement is made to deduct the tax at source or they are taxed as self-employed professionals.
But, how is the tax calculated?
The amount of tax payable by the franchisor is not permanently fixed. The deduction was available in the tax laws of India. It can depend on the rent, repairs, and insurance regarding premises used for business, the depreciation, expenditure on research, and the capital on the acquisition of patent rights or copyrights.
Franchising Your Business in India
Are you a franchisor who is planning to franchise the business?
Here is a quick guide to help you.
Decide if your business is franchisable or not. This is tricky, so asking for professional help can you a lot.
Do thorough research. Make a plan and consider the challenges you may face as a new franchisor. These may include the speed of growth, territorial development, support services, staffing, and pricing structure.
Prepare the legal documents to make the business officially franchisable. It should include the Uniform Franchise Offering Circular or UFOC for perusal by potential franchisees’ rights and needs and federal government entities.
Attend industry meetings and talk to existing franchisors.
How to develop your business into a franchise?
There is only one answer after careful evaluation of your business: make a franchise business plan.
You do not need to confuse yourself with the difference between the usual business plan and the one for franchising.
All you need is to understand that a franchise business plan must have essential items covering both franchisors’ and franchisees’ rights and needs.
Here is how you do it.
Design your franchise business plan
For a perfect business plan, you need a cover sheet that contains the name and contact information of your business.
Moreover, include a statement of purpose that highlights the reason for the plan and its goals. Also, never forget the table of contents highlighting the other pointers on the project.
Add a business description.
You do not want potential franchisees to guess what your business is. Therefore, you must add a business description. It must be a complete business summary highlighting its success, possible cons, and other matters you want to share.
Introduce the management
Interested franchisees would like to know the brains behind any successful business. So, make it a point to introduce the key people that manage the business.
Marketing and outreach strategies
Next, you have to highlight the business’s approach towards marketing and other strategies to help the business grow and earn. It must include details on how you plan to obtain customers for the company. Do not forget to also list your competitive advantages compared to competitors.
So, what do you think about franchising in India?
Is this an opportunity you want to explore as someone who is not a native to the country? Or, is this something you want to do as an Indian entrepreneur?
The answer is subjective, and it matters that you know how to proceed in the long run. So, whatever decision you make, one thing is for sure: franchising in India is always an excellent opportunity for you this 2021.Back to Blog