Module 4

Of course it would be pointless to have all of these criteria fulfilled if the
product or service cannot generate any revenue. Franchises are best suited
where there is a demonstrated market demand for a product or service. For
these reasons it is rare to find a franchise established as the vehicle for a
start-up enterprise.

The questions to be asked by the franchisee will be recognised by any
person who has considered or attempted running their own business. The
usual tombstone phrases of 'tenacity' and 'persistence' are often heard. This
material is not an appropriate place to address all the considerations that
are faced by small business at the outset of their journey. Some issues that
can be said to be peculiar to franchises include:

● The proximity of other franchisees to the territory in which the
franchisee proposes to operate. If other franchises are too close then
there is a significant risk of encroachment into the customer
catchment for the franchisee.

● Are the other franchisees that are seen to be successful truly
analogous to the opportunity offered by the franchisor? In many
instances geographical location and seasonal variations can play a
large part in the success of a franchise.

● Is there true quality in the subject matter of the franchise and does it
match the marketing offered by the franchisor?

● Will the franchisor enable a franchisee to discuss the franchise
system with existing or former franchisees including their

employees? This will often not only give the franchisee a wealth of
information about the high and low points of the franchise but also
test the mettle of the franchisor.

A significant growth for any business enterprise based in India will often
depend upon the ability to export the goods or services into other
countries. The same can be said for franchising. In essence similar themes
as discussed in this chapter apply to international franchising although the
territories are much bigger and therefore the difficulties and challenges can
be magnified.

More often than not international franchising is implemented by
establishing a master franchise for the particular foreign territory. The
franchisor needs to clearly establish how it wants the territory to be
developed for the business. This will have an impact on the master
franchisee's rights to grant sub-franchises. For example, it may determine
whether there should be a direct contractual relationship between the
franchisor and sub-franchisee, the degree of approval that is required from
the franchisor and the conduct of the franchise businesses.

Of course, it is important to establish appropriate IP protection in the
foreign markets in which the franchising will occur. This is particularly so
in light of the impact of the Internet where cyber-squatting (unauthorised
use of well-known trademarks as part of a domain name) has had some
impact. The franchisor when establishing its franchise systems would be
wise to look beyond the shores at an early stage in developing the
franchise system and seek to protect its marks in possible future markets.

Any business dealings in foreign markets will be significantly influenced
by the economic and political climate. An appropriate risk analysis should
be done which involves the consideration of these issues. Finally, the
franchisor and master franchisee need to clearly understand the impact of
local laws and in particular the taxation regime in which the franchise will
operate.