American brands have always had a huge presence in the Indian market. This includes American franchises and 40% of all American businesses are franchises. In India, the franchising business is growing at 30% – 40% annually and is the second-largest franchise market in the world after the US.
In this article, we have found out why American brands are more successful in franchising, and how international brand franchises differ from Indian franchises. Stay tuned to know more!
What Is A Franchise? How Does It Work?
In a franchise system, someone else owns the brand. Meaning the franchisee or investor, pays an initial cost to the company to open a branch of their business in a specified area or location.
The franchisee is in charge of managing and running the business under the company’s license. And franchisees get to keep the bulk of the profits they earn through those sales after paying a small percentage to the parent company through royalties.
And the parent company provides any initial or ongoing support to the franchisee for the duration of their contract.
Licensing and Franchising In International Businesses
In international businesses, franchises and licenses are agreements where certain facets of the brand are exchanged for a fee. Franchise agreements are about the business’ entire brand and operations, whereas licensing agreements to apply to registered trademarks.
In a licensing agreement, a third party is allowed access to the brand’s trademarks. And to use those trademarks, the licensee pays the brand an agreed-upon fee. Compared to a franchisee, a licensee has more autonomy over their business.
So to summarize, franchises are mostly used for service-based businesses and licenses are more suited for product-based businesses.
Now that we’ve covered the basics let’s get into the whys and the how’s.
Why Are American Brands Successful Than Others?
Let’s take a look at some of the qualities international businesses and franchises have:
Communication
In the entrepreneurial world, Proper communication is the lifeline that saves your business.
US entrepreneurs can communicate in business situations with certainty, knowing they are getting their point across accurately.
Risk Culture
Risk-taking is deeply embedded in American culture. While playing it safe might sound like the easier option, you need to remember that change always brings discomfort. Companies with a high tolerance for uncertainty are better at dealing with consequences and making difficult decisions.
Strong In-House Presence
American brands have the advantage of starting from a strong base with a large GDP, and an addressable audience with similar buying patterns. This allows them to develop a strong in-house presence before expanding to an international market.
What Indian Franchises Overseas do?
Let’s take a look at how Indian franchises perform overseas in comparison.
Adaptability
When some Indian businesses with strong in-house audiences try to expand overseas, they often fail. Or they aren’t as successful. Why a lot of Indian brands fail to is, they try to adapt to the local market of the country or region they’re expanding to. Strictly sticking to one strategy or one way of doing things often doesn’t work if you’re looking to win over a diverse market.
Novelty
Most Indian franchises, when they expand to overseas locations, their products are mostly viewed as novelties. This goes back to the adaptability problem. Relying on authenticity might win over a niche audience, but if you’re looking to win over the masses. You need to cater to them.
Risk Averse
Indians have a pervasive culture of, “What will others think?” Which will eventually affect the way you run your business. This mentality can be detrimental to both your personal life and professional life. It prevents you from making hard decisions or taking risks even when they are necessary for your business to grow.
How Can We Solve These Issues?
Working With the Local Market
Might seem obvious but you’d be surprised at how a lot of brands don’t do enough market research when expanding to a new territory. Working with local franchisees and local business owners can be a huge advantage for your brand. They will be able to provide a lot of insight into the local audience’s spending habits, local trends, and local tastes and customs. Employing local counsel can also prevent you from stumbling into legal hiccups, which can severely impact your brand’s image.
Building Robust yet Flexible Businesses and Franchises
Most international franchises do well in the Indian market because they have models that are robust and flexible. Developed markets have better ways to support their infrastructure and they invest more money into branding and advertising to develop their image and brand name.
Indian businesses and franchises need to invest more into having the infrastructure to support all their real estate, banking, and supply-chain requirements.
Working with Master Franchisors
This can also tie into working with the local market. Sometimes, employing a master franchisor – a well-funded, local individual. Who works directly with the international parent company to set up and run sub-franchises within the region is a good approach. This strategy can have wide-reaching implications for your business and can overall improve your business growth.
In Conclusion
While international businesses and franchises may have more success in franchising within the Indian market. Let’s not forget that the Indian franchise market is still growing at a rapid pace each year. There is always room for improvement, and more in-house brands and companies are stepping up to the challenge.
If you’re interested in starting your franchise, visit sparkle★minds and sign up.
