Franchising

1. BLS Institute of Management
Feb 6, 2010

2. What is Franchising?
“A franchise operation is a contractual relationship between
the franchisor and franchisee in which the franchisor offers or
is obliged to maintain a continuing interest in the business of
the franchisee in such areas as know-how and training;
wherein the franchisee operates under a common trade
name, format and/or procedure owned or controlled by the
franchisor, and in which the franchisee has or will make a
substantial capital investment in his business from his own
resources.”
- Definition by International Franchise Association
NIIT Confidential – Perspective Plan 2011-13 2

3. Why Franchise?
• Legal and commercial arrangement
concerning the successful business of a
franchisor
• Use of franchisor’s trade name, format,
system and/or procedure under license
• Means to raise capital and expand
quickly
• Assistance to franchisee
– Marketing, management, advertising,
store design, standards specifications
• Payment by franchisee by way of
royalty, licensee fee or other means
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4. Fundamentals
 Why Franchising?
– Model for Multiplication, Synergising
– Profitability – For both
 Key attributes of a Franchisee
– Is an entrepreneur / Owns the Business
– Invests money, time & emotions into managing
operations
– Return on investment a key driver
– Trust
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5. Why buy a Franchise ?
• Group Advertising power
• Owning your business & making day to day decisions
guided by franchisor’s experience
• Benefit of identification of trademarks, proprietary
information, patents & designs
• Systematic training from experts
• Lower risk of failure and/or loss of investments
• Being a part of uniform operations throughout the
country
• Assistance in financial & accounting matters from the
franchisor, as well as ongoing support
• Enhancement of management abilities
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6. Types of franchise
1. Product distribution franchise
2. Business format franchise
3. Management franchise
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7. Types of franchise: Product distribution franchise
• A product distribution franchise model is very much like a supplier-
dealer relationship.
• Typically, the franchisee merely sells the franchisor’s products.
However, this type of franchise will also include some form of
integration of the business activities.
• Some Examples:
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8. Types of franchise: Product distribution franchise
Produces the syrup
concentrate
Sells the syrup
concentrate
Produces the final drink
FRANCHISEE
Retail Stores
Vending Machine
Restaurants & F&B Operators
Outlets
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9. Types of franchise: Business Format franchise
• In a business format franchise, the integration of the business is
more complete.
• The franchisee not only distributes the franchisor’s products and
services under the franchisor’s trade mark, but also implements the
franchisor’s format and procedure of conducting the business.
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10. Types of franchise: Business Format franchise
Outlet in France
Outlet in Australia
Outlet in India
NIIT Confidential – Perspective Plan 2011-13 10

11. Types of franchise: Management Franchise
• A form of service agreement.
• The franchisee provides the management expertise,
format and/or procedure for conducting the business.
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12. Key dimensions
 Financial
 Marketing
 License Agreements
 Territory Management
 Systems & Communications
 Engagement
 Conflict Resolution
 Principles of Continuity
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13. Financial
 Financial Model: Win-Win
– And not that of squeezing the franchisee profits
– Risk vs. reward balance
 Cost of Franchise:
– Uniform and consistent across franchisees
– Initial fee
– Royalty fee / Management fee
– Capital required
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14. Marketing
 Branding
– Centralised, Local Marketing
– Standard designs / messages
 Understanding Customer needs &
environmental trends
– Technology
– Customer needs, requirements
– Customer profile
– Competition (familiar, unfamiliar)
– Feedback from Franchisees
– Inputs from independent sources
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15. Marketing
 Advertising and Branding
 Trademark Usage
 Product / Price:
– Being competitive
– Meeting customer needs
– Introduction of new products and phasing out of
existing products
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16. Systems & Communications
 MIS: Franchisee & franchisor
 Systems & Processes:
 For managing the franchise outlet
 Support
 Physical Monitoring
 Communications
– Communicate actively
– Document communications, meetings,
decisions
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17. License Agreements
• Contains details of the relationship like:
– IPRs
– Fee to be paid: Initial and ongoing
– Duration of the Agreement
– What Franchisor is expected to do
– What Franchisee is expected to do
– What none is expected to do
– What is that we exist for
– What are the conditions under which we
would not continue with this relationship
Standardise Agreements
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18. Territory Management
 Territory/Area of operation
 Carve territories with a long term
perspective
 Do not create competition for
existing franchisees
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19. Engagement
 Training of Franchisee & their
Employees
 Ongoing support
 Franchisee Meets
 Recognition & Awards for
Franchisees & their Employees
 Do not treat Franchisee & their
Employees as subordinates:
– Strong tendency among front end
executives of the franchisor to do so.
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20. Conflict Resolution
 Three levels of conflicts:
– Operational – Resolve at field level
– Policy matters – Resolve at corporate level
– Major disputes – Address at appropriate level
 Transactional conflicts are likely to
arise.
– Resolve them proactively
– Don’t let them come in the way of long term
relationship
 Remedy non-conformances speedily
– Corrective actions matching with the degree of
non-compliance.
Avoid Litigation & Arbitrations
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21. Principles of Continuity:
1. Win-Win relationship
2. Business sense to each other
3. Alignment of Values &
Business Ethics
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22. NIIT's ten commandments of partnership
Rationale
 Customer success
 Shared vision of future
Rules of engagement
 Win-win or no deal
 Nurture openness, trust and mutual respect
 Co-invest, co-promote, co-benefit
 Entrepreneurial and people development
Outcomes
 Partner Success comes first
 Continual growth is imperative
Building a future
 Reinvent, rejuvenate, reinvigorate
 And keep falling in love again and again…..
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23. Customer Delight Council: Objective & Focus Areas
Objective:
To create sustainable competitiveness by pooling in
the rich experience of seasoned NIIT-ians
• Customer Delight
• Market Addressal
• Pain reduction

24. Think Tank
of Senior
franchisees
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25. Involvement in Strategic Issues
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26. Be in each other’s shoes
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27. Nurture openness,
mutual trust & respect
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28. Franchising is all about
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29. Leadership in the Century of the mind
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