When venturing into the Indian market, foreign companies should meticulously consider the most suitable entity structure. Making the right choice in this regard can bolster the company’s presence in India and lead to financial prosperity.
Foreign companies have several options when operating in India. They can establish an Indian subsidiary, engage in joint ventures with Indian partners, enter licensing agreements, or even opt for a combination of these structures. India’s Foreign Direct Investment (FDI) policy permits foreign brands to hold equity interests in Indian enterprises, subject to specific requirements and permissions. Alternatively, franchisors can enter into contractual arrangements to grant franchise rights to local franchisees.
Franchising Opportunity Growth in India
Franchising in India is thriving, thanks to urbanization and the rise of malls as franchise hotspots across cities. Companies that adapt to regional tastes can tap into India’s growing consumer market.
India’s franchise industry is on the upswing and expected to exceed INR 70 billion (US$845.09 million) by 2025, contributing nearly four percent to the GDP and employing over 1.5 million people.
Despite the presence of global franchises like The Gap and Burger King, there’s still room for growth. The industry is projected to grow at a 30 percent CAGR through 2025, driven by factors like a burgeoning middle class with disposable income and favourable government policies. Some foreign franchises in India include The Gap, Inc., which partnered with Arvind Lifestyle Brand in May 2015, Everstone Capital’s master franchise agreement with Burger King in India, and Rebel Foods’ master franchisee rights for Wendy’s offline business in India.
Types of Franchising popular in India
In India, there are several franchise options to consider:
Direct Franchising: In this approach, a company establishes its network of franchises directly. It’s suitable for local companies with prior India experience but can pose challenges for foreign companies new to the Indian market.
Master Franchising: Here, a company grants exclusive rights to develop a foreign brand to a local entity. Often, the franchisor makes a significant investment. The master franchisee takes charge of expanding the brand either by creating a network of sub-franchises or by opening outlets owned by the master franchisee. Both approaches can be used concurrently.
Regional Franchising: Similar to master franchising, but it focuses on a specific regional area rather than the whole country. Given India’s diverse culture and complex state-specific laws, many franchisors opt for this approach.
Local Incorporation: This involves a foreign franchisor setting up a subsidiary company and granting it franchising rights in India. For instance, Subway, the American fast-food chain, established a subsidiary in India to manage their franchising network.
About Franchising in India
India boasts over 10,000 registered franchises, with 3,500 currently active, offering abundant opportunities for both investors and entrepreneurs.
For investors, it offers a relatively low-risk entry into a new market. Entrepreneurs, on the other hand, have a chance to establish their own business with the backing of a well-established brand.
The Indian government’s commitment to the franchise industry is evident through initiatives like the National Franchise Development Centre (NFDC) and the Franchise India Brand Show (FIBS). With a promising growth trajectory and supportive government policies, the franchise business in India is poised for even greater success.
Legal and Regulatory Framework
Trademark:
In India, safeguarding your brand involves trademark registration and enforcement. Indian courts have recognized and protected internationally renowned trademarks, even if not registered in India. Cases involving brands like Calvin Klein, H&M, Skechers USA, Crocs Inc, and McDonald’s have addressed trademark infringement.
Customs laws in India prohibit the import of infringing goods, aiding brand protection. Beyond trademarks, know-how can be protected through copyright, patents, or contractual provisions. In summary, a comprehensive strategy is essential for brand preservation in India.
Licensing Agreement
Licensing agreements in India involve two parties: the licensor and the licensee. The licensor grants the licensee rights to use intellectual property like trademarks, patents, and brand names. The goal is for the licensor to benefit from this arrangement financially.
In India’s retail sector, foreign brands often navigate restrictions by partnering with local companies through licensing agreements. These agreements allow Indian companies to pay fees to foreign brands for using their trademarks and help launch them in India. Examples include Gap Inc., Aeropostale Inc., and Ipanema.
Reliance Brands Limited has introduced numerous international brands to India, like Armani Exchange and Burberry. Aditya Birla Fashion and Retail Limited (ABFRL) holds a diverse portfolio, including Louis Philippe and Ted Baker. ABFRL also secured exclusive rights for Reebok products in India and the ASEAN market.
Notably, Chinese retail giant Shein is re-entering India through a licensing agreement with Reliance Retail Ventures Limited (RRVL). Shein will license its technology and trademarks to RRVL to create a new e-commerce platform tailored for Indian consumers. Ownership and control of the platform will rest with RRVL’s Indian subsidiary.
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