Foreign brands still prefer the franchise model for business in India

September 29, 2016

Even after the government’s so called single-brand retail move in 2012 for the foreign investments; that allows the foreign brands to own their own stores in the country, the brands continue to opt for the local franchise and distributors’ route to do business.

Out of the total 28 apparel and accessories brands that have entered the Indian market ever since a 100% FDI (Foreign Direct Investment) was allowed in the country, 23 arrived through a distribution partner or a franchise.

Under a distribution agreement or franchise, a global retailer creates a partnership with a local company. The latter has to pay a fee to the original brandowner, and has to invest in the launching and marketing of the brand in India. In the last year, Desigual, Gap Inc, Aeropostale Inc, Rider and Ipanema entered the Indian market through their respective franchise agreements.

Irrespective of the quantum, foreign investment into the business, indicates that a company is planning a rather serious long-term commitment to that country, as it is accompanied by an investment in terms of time and effort. According to the 2016 Global Retail Development Index, by AT Kearney, a consulting firm, India is the second most attractive market (after China) for the global retailers to expand their business.

India still continues to be a complex market for the foreign investors. Understanding the dynamics at the local level is crucial as the country’s 29 states can opt in or out of FDI reforms at will. Apart from this, business in India can offer more challenges like Infrastructure bottlenecks, high attrition rates, archaic labour laws, complex regulations and limited high quality retail space.

Even the firms which’ve entered the country through the means of a franchise or a distribution partnership too have been affected by the challenges put forth by the country.

Many of them are working with their local partners to make sure that the product is right for the market, and is available at the right price. Products that are sold through franchisees may at times, turn out to be more costly due to the presence of multiple margins (the brand owners, and the distributor’s.

September 29, 2016

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