Discusses opportunities for U.S. franchisers and legal requirements in the market.
Last Published: 7/27/2017
India remains a “sizzling” market place for American franchisors.  Demand for U.S. brands remains strong in: food and beverage, hospitality, retail, education, garments and apparel, healthcare, fitness and personal grooming clinics.  India is also witnessing a consumption boom fueled by a huge demographic transformation.  This has led to a population of over 250 million middle-income Indians with high disposable incomes, changing lifestyles, mounting aspirations, appetite for Western goods, international exposure, options for quality retail space, and greater product choice and availability. The greater demand for goods in India is in turn generating a greater demand for U.S. franchises.

According to a recent KPMG and Franchise Association of India (FAI) report, the Indian franchise industry has a potential to grow to $51 billion in the next three to five years from the present 13.4 billion. The franchise industry is expected to contribute almost 4% of India’s GDP

The United States is a key player in India’s franchise boom. Indians with growing incomes are demanding products and services of better quality, which can be delivered by U.S. franchises. Simultaneously, India is witnessing huge growth in entrepreneurial energy and talent. These new entrepreneurs are very receptive towards American franchises.

Several foreign companies with strong brand names have established a presence in India through franchising. In the hospitality and food service industries, this has been the preferred method for starting operations in India. Some U.S. companies that operate through franchises include: Radisson, Best Western and Quality Inn for hotels; McDonalds, Kentucky Fried Chicken (KFC), Domino’s Pizza, TGI Friday’s, Subway, and Baskin Robbins for food. McDonalds, KFC, Subway and Domino’s Pizza have opened many outlets under the franchise model.

Challenges:
The legal environment in the United States is conducive to the healthy growth and evolution of franchising. While in India, there are no laws enacted solely for the purpose of regulating the growing business of franchising. When franchisors enter India they are governed by a number of different national and regional statutes and codes rather than a single comprehensive enactment. These can vary by region and should be considered before engaging in any franchising venture in India. Some of the key challenges that U.S. Franchisors should be aware of are:
 
 
Regional Approach to combat Indian diversity: 
Companies prefer to appoint master licensees on a zonal basis, as India is a large geographical landmass with a diverse mix of populations.

Local Culture and Tastes: 
Understanding local culture and tastes and innovative strategies like “Indianization” of products is vital to a franchise success.  For example, Indians are predominantly vegetarian. A classic example of successful “Indianization” is the fast food sector. Several American companies such as McDonald’s, Pizza Hut and Domino’s have developed special India menus to cater to the Indian palate.

Expensive Real Estate: 
In the large cities of India, retail space continues to be expensive and the quality is relatively poor. Antiquated rent control laws make finding a suitable and affordable location difficult.

Legal & Business Advise
A thorough understanding of the laws related to the business of franchising is crucial for the U.S. franchisor. In addition, hiring a good local tax consultant to provide guidance to avoid pitfalls is recommended.  It is also vital to conduct a thorough financial and legal due diligence and preferably a feasibility study on a prospective franchisee. 

Resistance on Fees & Cap on Royalty: 
U.S. franchisors should also be prepared to face stiff resistance from prospective Indian franchisees toward the franchise fees/royalty payments, which are considered high.

Lack of Legal Framework: 
It is also important to know that unlike in the United States and other western countries, India does not have any specific laws on franchising.  More often, Franchisor-Franchisee relationship is governed by the Indian Contract Act. Franchising is also covered within the broad definition of transfer of technology.  Thus, the legal framework for new franchisers interested in setting up master franchises in India exists in terms of brand protection and rules regarding payment of franchise fees. 

Despite potential challenges such as high real estate prices, legal ambiguities, and regional differences in India, numerous U.S franchisors have been extremely successful. Most of them have adapted their products/services to local market preferences and have pursued effective market entry and expansion strategies. 
 

Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.



India Trade Development and Promotion