The Indian franchising trade has seen sturdy development over the previous decade. Regardless of the financial recession, the annual development price of the franchising trade in India has remained optimistic and is presently pegged at 30%-35%. The success of the franchising story in India is a testomony to the massive potential and promise that India holds for the franchising trade.
In India, franchising has gained appreciable reputation in quite a few sectors, akin to, training and coaching, healthcare and wellness, data expertise companies, and particularly, the retail sector together with, meals and beverage, style and way of life, and many others. Nonetheless, franchising of services in India continues to be in its infancy thus presenting to international enterprises an unlimited untapped enterprise alternative.
A quick rising center class inhabitants with a sooner rising disposable earnings and propensity to spend is without doubt one of the paramount causes for the mushrooming of the franchise trade in India. Moreover, the entrepreneurial character of India’s inhabitants and elevated model and high quality consciousness amongst city shoppers offers one other impetus to franchising in India.
Other than an enormous shopper base, subsequent solely to that of China, publicity to worldwide requirements of products and companies and availability of expert, expertise savvy and comparatively cheaper human sources, India has one of many quickest rising retail sectors. As per Enterprise Monitor Worldwide’s India Retail Report for the third quarter of the monetary 12 months 2010, retail gross sales are anticipated to develop from $353 billion in 2010 to $543 billion in 2014. Clubbed collectively, these components current a extremely profitable enterprise alternative for international enterprises wishing to franchise their enterprise, manufacturers, or their merchandise.
Franchising is a comparatively fashionable distribution channel that allows international model house owners to train a considerable diploma of management over the way and mode during which their services or products are supplied and offered to shoppers. It ensures environment friendly and fast trans-border market penetration to the Franchiser, a possibility to take its model past boundaries with minimal capital funding and dangers.
Merely put, a franchise is a enterprise mannequin premised on a license granted by one entity (the ‘Franchiser’) to a different (the ‘franchisee’) allowing use/exploitation of the Franchiser’s intangible belongings akin to model/commerce identify, enterprise mannequin and idea, picture, advertising strategies and different mental property for the aim of constructing gross sales or offering companies in an outlined geographic location in return for a sum of cash.
India doesn’t have a consolidated laws regulating franchising, though non-public sector our bodies have been lobbying for enactment of franchise particular laws. Some key legal guidelines which influence franchising in India embrace the Indian Contract Act, 1872, the Competitors Act, 2002, the Logos Act, 1999, the Copyright Act, 1957, the Patents Act, 1970, the Client Safety Act, 1986, the Overseas Alternate Administration Act, 2000, labour and taxation legal guidelines.
Significance of a High quality Franchise Settlement
‘High quality’ in any settlement, no matter its material, is, inter alia, seminal for mitigation or avoidance of disputes between contracting events. ‘High quality’ of an settlement could also be assessed on quite a few parameters together with: readability in objective, holistic/loophole free character; unambiguous provisions/phrases/circumstances with no scope for contradiction; method of presentation; and most essential enforceability.
A ‘franchise settlement’ is a contract between the Franchiser and the franchisee which defines their relationship and inter se rights and obligations.
‘High quality’ assumes much more significance in a franchise association as a result of inherent business and operational complexities current in such preparations. A high quality franchise settlement should effectuate the underlying symbiotic relationship between the Franchiser and the franchisee.
A high quality franchise settlement should guarantee clear, unambiguous and water tight protection of all vital points, akin to, roles and obligations of the events, confidentiality and mental property safety; cost phrases and taxes; period, renewal and termination; company points; publish termination points; detrimental covenants; governing regulation and jurisdiction (particularly in worldwide franchise preparations).
franchising settlement ought to as well as be certain that high quality management mechanisms don’t flout India’s competitors legal guidelines. As an example, in sure conditions a provision obliging a franchisee to supply merchandise completely from the Franchiser or every other specified entity could also be considered anti-competitive and in contravention of the provisions of the Competitors Act, 2002.
Naturally, the significance of a high quality franchise settlement for a Franchiser and a franchisee differs significantly as mentioned beneath.
The Franchiser’s Perspective:
The significance of a high quality franchise settlement for a Franchiser can’t be burdened sufficient. Of paramount significance for the Franchiser is safety of its model, picture, repute, know-how, enterprise idea and different mental property rights in addition to limiting publicity to potential dangers and liabilities ensuing from the franchisee’s conduct.
It will be significant that the franchise settlement is fastidiously drafted to make sure readability on duties and companies of the franchisee together with within the areas of funding and infrastructure, adherence to particular working pointers to keep up uniformity, reporting necessities, high quality upkeep; annual market penetration targets; monetary returns akin to royalty and payment cost, and many others.
A high quality franchise settlement ought to present sufficient fetters and safety in opposition to misuse of the Franchiser’s mental property rights by the franchisee. Additional, it should present sufficient high quality management mechanisms to the Franchiser, together with management over managerial discretion of the franchisee, to allow it to regulate its enterprise idea and defend its model and repute. Consequently, the franchise settlement should unambiguously and comprehensively deal with very important points, akin to, the temporal and territorial scope of the license, the rights and property licensed, nature of the license, restriction on use of licensed rights and property, high quality management measures, together with periodic audits to make sure that the enterprise idea is adhered to, sourcing of merchandise, coaching, kind of merchandise to be offered beneath the franchise, and many others. The enterprise idea being licensed and mode and method of operation should be clearly stipulated to allow the franchisee to evolve to it. Nonetheless, the draw back of extreme management over a franchisee and franchised merchandise is that the Franchiser could develop into inclined to legal responsibility for acts of the franchisee in claims by third events. A high quality franchise settlement ought to be certain that the connection is on principal to principal foundation and the Franchiser just isn’t chargeable for the franchisee’s acts and omissions.
One other essential difficulty for the Franchiser is safety from competitors by its franchisee. It is not uncommon follow to incorporate non-compete covenants throughout and publish termination in most franchise agreements. Nonetheless, a high quality franchise settlement, like every other settlement, should have a fastidiously crafted non-compete clause to make sure that it’s enforceable beneath regulation and never a redundant time period. Unreasonable publish termination non-compete clauses that are in opposition to public coverage and in restraint of commerce could be enforceable.
A high quality franchise settlement ought to be certain that the franchisee conforms to the enterprise idea. It should have stringent provisions to cope with conditions of breach and non-adherence to the enterprise format and misuse of brand name by the franchisee. Additionally, the franchise settlement should defend the income circulate from the franchisee to the Franchiser.
Points associated to governing regulation and jurisdiction, publish termination obligations to make sure safety in opposition to breach of confidentiality and mental property, stock dealing with are equally vital and must be adequately addressed in a franchise settlement to make sure efficient management and systematic enterprise growth.
The Franchisee’s Perspective:
‘High quality’ is as critical a problem for the franchisee as it’s for the Franchiser. Because the preliminary funding within the enterprise is that of the franchisee, a high quality franchise settlement is important for a franchisee to capitalize on its funding.
For a franchisee, a high quality franchise settlement should have clearly outlined cost phrases with no hidden charges or prices and a clearly outlined space of operation. It should defend the franchisee from infringement of third occasion’s mental property rights due to make use of of Franchisers mental property by the franchisee. Additional, the franchise settlement should allow the franchisee to optimally leverage the model and different mental property rights licensed by the Franchiser and guarantee continuity of provide (wherever relevant). Due to this fact, a clearly and correctly outlined enterprise idea and format is as essential for the franchisee as it’s for the Franchiser. It helps the franchisee keep away from implementation points and guarantee profitability of the enterprise. A high quality franchise settlement ought to allow the franchisee to extract most help for implementation of the enterprise idea from the Franchiser by the use of coaching, up-gradation of ideas and evolving applied sciences, and many others. The connection between the Franchiser and the franchisee must be that of impartial events and the settlement should be fastidiously drafted to keep away from an inference of company.
Thus, a high quality franchise settlement is the very fulcrum upon which the success of a franchise rests which by itself underscores the significance of ‘high quality’ in franchise agreements.