No matter where you are expanding your business from, India or another country, the franchise agreement plays a crucial role in the franchising journey. The phrase franchise agreement is the same, however standard and master franchise agreements differ. Therefore, choose the right franchise model wisely with the help of a standard or master franchise agreement in India.
For more clarity, this blog will help you understand the differences in the documents. Also, key considerations business owners you can consider while choosing the appropriate franchise agreement while franchising their business.
Exploring the Differences Between Master Franchise Agreements and Standard Franchise Agreements in the Indian Market
Franchising is a common way for businessmen to grow their businesses by tapping into other people’s resources. There has been a meteoric rise in the franchising industry in India. This is especially in the retail, health and wellness, education, and food and beverage industries.
To make an informed decision about franchising in India, business owners must be familiar with the distinctions between master franchise agreements and conventional franchise agreements.
Decisions that support the company’s expansion plan can be better informed with this information.
So now is the important decision. What is the difference between the standard franchise agreement vs the master franchise agreement in India – which should you choose?
What is a Standard Franchise Agreement in India?
A franchise agreement specifies the parameters within which a franchisee is authorised to run a franchise and is thus a legally enforceable document. Everything from the franchise system to the costs, territory rights, training, and support as well as the duties of the franchisor and franchisee are usually covered in these documents.
Moreover, thanks to the franchise agreement, each party to the franchising partnership will have a clear understanding of their obligations and duties.
Now let us see what is a master franchise agreement India.
In contrast, a master franchise agreement is a subset of franchise agreements in which the franchisor authorises the franchisee to run and oversee sub-franchises in a certain geographic area.
Master franchisees recruit, train, and assist sub-franchisees. Fast growth is possible with this technique, especially in global or huge markets.
Key Differentiating Factors – Standard Franchise Agreement Vs Master Franchise Agreement India
The best way to choose the appropriate franchise model while franchising your business in India is firstly by understanding the terms of the franchise agreement.
The major differentiators include:
1. Goals & Guidelines:
- In the case of a standard franchise agreement – The rights to operate one or more franchise units within a defined geographic area are often granted to franchisees by franchisors in standard franchise agreements. Support, training, and adherence to brand standards are all areas in which the franchisor keeps close tabs on each franchisee.
- The master franchising agreement allows the franchisee to sub-franchise in a certain territory.. When it comes to sub-franchisee recruitment, training, and support, among other duties, the master franchisee steps in where the franchisor usually would. Instead of directly supervising each sub-franchisee, the franchisor takes a more roundabout approach by concentrating on the master franchisee.
2. Territory Rights:
- A basic franchise agreement limits the franchisee’s company to a specified area.. This territory’s rights from the franchisor might be either non-exclusive or exclusive, depending on the terms of the agreement.
- For a master franchise agreement India – An extensive territory, perhaps even an entire nation or region, is granted to the master franchisee in the master franchise agreement. Moreover, this is the sole entity authorised to generate franchisees inside this exclusive zone.
3. Costs and Investments:
- For the standard franchise agreement, the franchisee is normally required to pay a franchise fee upfront and continuing royalties as a percentage of sales in a standard franchise agreement. In most cases, the initial outlay is less than that of a master franchise.
- In the case of the master franchise agreement, an extremely high starting cost and ongoing expenses are associated with a master franchise agreement. A master franchisee may pay a hefty sum upfront to secure the right to use a certain area, and they may also be eligible to split royalties with the franchisor.
4. Comprehensive training and ongoing support:
- As part of the standard franchise agreement, the franchisor offers the franchisee full training and assistance. This provides access to unique systems and procedures, as well as one-time training, ongoing support, and aid with marketing.
- The franchisor first trains and supports the master franchisee, but the master franchisee must train and support sub-franchisees. Master franchisees must provide franchisor-standard training and support.
5. Roles & Responsibilities:
- In a standard franchise agreement, managing and operating the franchise unit(s) in accordance with the franchisor’s rules is the franchisee’s principal responsibility. In their assigned region, they prioritise meeting the needs of local customers and adapting to market conditions.
- Moreover, in a master franchise agreement in India, the master franchisee is responsible for two things. On top of overseeing their franchise operations, they are also responsible for finding, hiring, and supporting sub-franchisees. For this, you’ll need a different set of abilities and a different way of thinking about expanding your market.
6. The Growth and Development Process:
- Because the franchisor must be involved with and approve of each new franchise unit, standard franchise agreements usually provide for slower and more restricted growth. Growth is conditional on the franchisor’s ability to support additional franchisees with their resources.
- Expanding quickly and extensively is possible with the master franchise concept. An incentive for the master franchisee to rapidly grow their business inside their region is the ability to attract sub-franchisees. Faster brand recognition and entry into new markets are possible outcomes of this.
What Business Owners Should Keep in Mind While Choosing The Appropriate Franchise Agreement
Business owners in India should think about a lot of things before choosing between a master franchise agreement and a standard franchise agreement.
- Evaluate the Current and Future Situation of the Market: Businesses looking to grow in vast and varied areas like India might benefit from a master franchise agreement. It speeds up market penetration and makes use of local knowledge.
- Quality Control and Monitoring: A regular franchise agreement could be better if it’s really necessary to keep close tabs on every single franchise location. This methodology guarantees that franchise operations are overseen directly and are consistent.
- The Capability to Invest: Business owners need to assess their available funds. An extensive infrastructure for overseeing sub-franchisees and a sizable upfront expenditure are prerequisites for entering into a master franchise agreement.
- Ability to Manage: Exceptional strategic and managerial skills are part of the master franchise concept. Before entrusting sub-franchising to a master franchisee, business owners should verify that somebody has the expertise to manage the process.
- Marketing Your Product: Take into account the brand’s positioning and long-term objectives while selecting the franchising plan. To maintain high-quality standards, a luxury brand may choose a standard franchise agreement. On the other hand, a master franchise agreement can help a mass-market brand expand quickly.
Working with India’s Legal & Regulatory Framework
Every franchise agreement needs aligning with Indian laws. Franchisors and franchisees alike would do well to familiarise themselves with India’s franchising laws and regulations. Important legal factors to consider are:
- The FDD [wherever applicable]: Even if there isn’t any franchise law in India, franchisors need nevertheless give thorough FDDs. Important details regarding the franchise, such as its history, financial performance, and legal responsibilities, are part of these documents.
- IP Rights: Trade secrets and trademarks are examples of intellectual property protection. In order to safeguard their intellectual property, franchisors should register it in India.
- Competition Act Law: Any franchisor worth their salt knows that anti-competitive practices are in regulation by the Competition Act of 2002. It is important to properly draft exclusivity terms and territorial restrictions in order to comply with this regulation.
- Indian Contract Act: It was the Indian Contract Act of 1872 that established the rules for franchise agreements there. To keep disagreements to a minimum, it is critical that contracts be easy to understand, legally binding, and in accordance with Indian law.
- Consumer Protection Law: In India, franchisors have a responsibility to follow consumer protection regulations. Also, it make sure that franchisees respect consumer rights and provide the specified quality and services.
So, we hope that the differences between the Standard Franchise Agreement and Master Franchise Agreement India are clear for you to make a perfect choice. You can also seek the guidance of franchising experts at Sparkleminds for more assistance.
To Sum Up,
Business owners considering expanding their operations to India must make a crucial decision between a master franchise agreement and a regular franchise agreement. The objectives, resources, and market circumstances of the company will determine which model is most suited to meet its needs.
Owners may maximise development and success in the dynamic Indian market. This is by developing a franchising plan that takes into account the specific needs of their business and understands these distinctions.
Franchising can be a powerful tool for company owners to achieve their long-term goals, but only if they take the time to do thorough legislative and market research and engage in strategic planning.
