Franchise Talk

Restricting franchising is self-defeating

July 12th, 2007 | Author: Jack

The recent news of the government’s intent (not yet formulated as a regulation) to restrict foreign brands from entering India through the franchise model is shocking, as it violates the trade policy and trade covenants of India. Worse, it goes against the very argument of protecting the mass domestic trading community whose interests were sought to be protected through the FDI ban in third party retailing.

My inference from reading the government’s intent to prohibit retail through the franchising route is that it may no longer be possible for even a fully Indian company to import and retail branded goods under a territorial exclusivity agreement with a foreign manufacturer. Even a subsidiary of a foreign company would no longer be able to import and distribute its own parent company’s products in India, without investing 51 per cent or less in any exclusive retail outlet selling these products.

Franchising also refers to a licence arrangement for use of the brand legends and formats for products which are prepared, made, processed, finished or served at the outlet. Thus, a Baskin & Robbins is a franchise outlet — the franchisee prepares the end product at the outlet and uses specified and licensed materials, logos and formats approved by and belonging to the franchiser (brand). Similarly, McDonald’s, Barista and Starbucks would qualify for the franchise definition. Franchising can also mean pure licensing of IPR and have nothing to do with retailing per se. For instance, a children’s apparel or shoemaker using a Walt Disney character on its products under licence from the master franchisee in India would be a franchisee, but its retail is absolutely independent of the brand itself.

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