Analyze Franchise Advantages and Disadvantages in India
- Raising of Capital: The capital is always limited at the initial stage of the business. While franchising, the capital required for expansion in the business is made available franchisee. This is the classic example of using OPM and other people’s money. So, raising of capital is regarded as one of the advantages of franchising.
There are many Startups which explore varied means of raising capital at the initial stages, even sailing precious stakes of their company at a very low price. Involving a VC or Angel investor Vs Franchising is a classic debate where franchising method wins, because the owners won’t want to be the part of equity at the beginning. Of course the challenge lies in generating adequate capital to start franchising and supporting the initial franchises.
- Dedicated Personnel: Trained and motivated management is indispensable to franchising. It always remains challenge to hold good and experienced employees or managers to run and grow a business. With franchise, you have employees who are well-trained in franchise systems and some of them are motivated because of the risk of investing capital. Hence, if the entrepreneurs put their own effort in the competition, then they will have advantages of franchising in India.
- Efficiency: The profit-making franchise units tend to run, grow and make profit more compared to company-owned units, because the franchisees capital is at risk and they are more motivated to achieve the target.
However, if the franchisors don’t put in place the right training programs and systems for efficient franchise, it can go the other way that involves damaging the brand and the reputation.
- Rapid Expansion: Now days there is rapid changes to marketplaces, if you don’t able to expand a concept quickly, someone else will. The window of opportunity will be lost and will miss the bus. The franchising allows quickest route of growing your business. The biggest advantage of franchising your business in India that is geographically highly diverse and speed of expansion. It has been found that communities, friends, social circles and others tend to follow a franchise if they find a franchise nearby.
- Achieving the Optimum size: The profit-margin is very high, because there are fewer bottlenecks in the franchising route and gives the opportunity to open up 1000s of units that is hardly seen in any other model of business. However, the risk involved in franchising also brings other challenges of having the optimum size. So, you have to start tight from the beginning to gain maximum benefits.
- Better Purchasing power: A large number of units having adopted franchising enable the company to purchase the entire system and making great savings to the individual franchisees. Therefore, it raises profit-margin and gives a strong advantage to the franchisees in comparison to their competitors.
- Securing of Location: As a franchise system grows, it starts to have an image in terms of its size and success. Of course the landlords always like to have well-known and successful franchises in their shopping centers. It’s relatively easier to secure great locations as a franchisor than a non-franchise business.
- Dominance of Market: As the franchises grow rapidly, they locate many units in a given market and invariably reduce the competition. The franchise can do extensive advertising in a given market on account of the cost is distributed over many units. The combination of having many well-known locations with large advertising budgets is a competitive advantage that is hard to overcome.
- Development of Ad Materials: Most franchisors expect the franchisees to pay an ad royalty to the company, so that they can be used for the development of top quality advertising materials for the franchisee. Next, it’s an advantage to spread the cost over a large number of franchisees for the benefit of all.
Maximization of Income
Franchise earns money through following ways:
- Franchise Royalties
- Franchise fee
- Sale of Equipment
- Supplies, Materials Sale
- Sale of Services
- Property Rental
- Discounts from vendors equipment and supplies
Disadvantages of Franchising
- Theft of Intellectual Property, Infringement of Trademark and Copy Cat Business modes with slight change in names.
- Lesser disclosure profits even if many businesses operate on clash
- Franchises often do things according to their own way of thinking
- Franchises create cartels or unions that pose challenge to franchisor
- Cultural diversity and State or Region wise variation force the franchisors not to have a country specific footprint properly.
- Taxation issues looms large even after the implementation of GST as the customers are not willing to pay tax and non-franchise competitors offering the same facility.
- As there are no specific laws and regulations governing franchising in India, unscrupulous operators go on appointing franchises and cheating investors and entrepreneurs without creating definite support systems for franchise.
Therefore, the risks of franchising your business can be eradicated by having a proper franchise program on implementation. We are able to mitigate the above-said disadvantages for 100s of our clients that we have served. You can reap the advantages of franchising your business once you get to the depth of how to franchise your business correctly and have the desired resources in hand to sustain the growth of your franchise business in India.