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FRANCHISING & LICENSINGIN INDIA

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Different Routes for entering the Indian market:

Wholly-owned subsidiary company; or

Joint venture company; or

Branch Office; or

Franchise Business model.

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GENERAL OVERVIEW OF FRANCHISINGIN INDIA

Contributing Factors for Franchising Wave in India:

- Huge consumer base of over a billion people;

- Booming economy with flourishing urban & middle class consumers;

- Brand awareness and quality consciousness;

- Abundance of human resources;

- Entrepreneurial skills.

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Fact Assessment:

- Impressive growth of around 30-35% over the last 4-5 years;

- An estimated annual turnover of US$ 4 billion;

- there are close to over 70,000 franchisee in the Indian market;

- Contributes approximately 9% of the GDP of the country;

- It is the second fastest growing industry in India; and

- It has been successful in approximately 35 different sectors.

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What is Franchising:

FRANCHISE

Business Model

Name, Get-up, Image

& Business Identity

Confidential Know-How

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- The Franchisor licenses the right to use his business format for a limited period of time.

- Franchisee does not gain any interest in the ownership of the format or the associated marks.

Quality Control

Services

Brand Establishment

Franchise Business Model

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- No difference between the outlets of the Franchisor and the Franchisee, as regards: decor of the outlets; selection of goods or services; and staff uniforms.

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ADVANTAGES OF FRANCHISE TO FRANCHISOR

Gains Franchisee’s knowledge of the territory;

Access to local sales channel and marketing expertise;

Reduces investment;

Minimum government approvals;

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Freedom from recruitment of local workforce; and

Accelerated network growth and profitability.

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ADVANTAGES OF FRANCHISE TO FRANCHISEE

Opportunity for the young entrepreneurs to associate with a known and credible brand;

Opportunity to develop the business on assured business model and become successful; and

Gains from the Franchisor the entire business concept with network of

technical, managerial and training support.

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MODELS OF FRANCHISING

There are three distinct models of franchising:

1. Product Distribution Franchising involving a co-operation for the distribution of goods, mostly in retail business;

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2. Trade Name Franchising where the Franchisee uses the trademark/business name of the Franchisor in order to sell its own product or services;

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3. Business Format Franchising a combination of the other two types of franchising using the Franchisor’s trademark/business name in order to distribute the Franchisor’s goods or services.

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LEGAL FRAMEWORK

No consolidated franchise specific legislation. Important laws which affect the franchise arrangement in India are:

The Indian Contract Act, 1872;

The Competition Act, 2002;

The Trade Marks Act, 1999;

The Copyright Act, 1957;

The Consumer Protection Act, 1986;

Labour and Taxation Laws; and

The Foreign Exchange Management Act, 1999.

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SIGNIFICANT CONTRACTUAL AND LEGAL ISSUES

Enforcement of obligations and non-compete covenant;

Payment Terms & Taxes;

Duration, Renewal & Termination of the Franchise Agreements;

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Post Termination Issues;

Governing Laws and Implementation of Laws;

Agency Issues; and

Consumer Protection & Anti-Competition.

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LICENSING & USE OF INTELLECTUAL PROPERTY

RIGHTS

Important aspects of a Licensing Arrangement :

Registration;

Use/license and Scope of the License;

Misuse/unauthorized use of the Trade Mark; and

Protection.

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ENTRIES OF BRANDS THROUGH FRANCHISE

BUSINESS MODELS ASSISTED BY LEXCOUNSEL

Nike is one of the leading sportswear and equipment supplier based in the United States.

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Salvatore Ferragamo, is one of the world’s leading fashion brands in luxury goods. The group is active in the creation, production and distribution of shoes, leather goods, apparels, silk products, fashion accessories like eyewear and watches and fragrances for men and women.

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Fratelli Rossetti is one of the leading Italian companies in luxury footwear field.

Levi’s, is a worldwide known brand of apparels. Recently, it has also launched its footwear range in India.

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Tommy Hilfiger, is one of the leading multinational designer brand.

Lotto Sport Italia, is an Italian sports apparel manufacturer.

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Dockers, is a leading brand of business casual clothing for men and women.

H2O+, is one of the leading brands of skin care products.

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Paul Smith, is a clothing brand owned by leading English designer Sir Paul Smith.

Florsheim, is one of the world’s leading shoe brand.

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SEEMA JHINGAN & DIMPY MOHANTY

PARTNERS

LEXCOUNSEL, LAW OFFICES

C-10, GULMOHAR PARK

NEW DELHI 110 049INDIA

TEL: +91-11-41662861FAX: +91-11-41662862E-mail: lexcounsel@lexcounsel.in