CENTER FOR ENTREPRENEURSHIP AND SMALL BUSINESS MANAGEMENT

MAHARSHI DAYANAND SARASWATI

UNIVERSITY AJMER - 305009 RAJASTHAN, INDIA.

Certificate This is to certify that the Term paper

project entitled “Study of Franchising, (BSNL ITC)”, herewith submitted by Mr. Abhinav Nigam in partial fulfillment for the term paper, is an authentic record of the work carried out by him under my supervision and guidance at Center for Entrepreneurship and Small Business Management, Maharshi Dayanand Saraswati University, Ajmer. This work has not been submitted for any other Project report.

DR. ASHISH PAREEK (DY. DIRECTOR) MDS University, Ajmer.

Email: ashpareek@gmail.com

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Declaration

I hereby certify that term paper entitled “Study of FRANCHING”, herewith submitted in partial fulfillment for the Term paper is an authentic record of the work carried out by me. The matter embodied in this term paper has not been submitted for the award of any other report.

(Abhinav Nigam)

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ACKNOWLEDGEMENT

The successful completion of any project depends largely on the efforts taken by many people. The Center for Entrepreneurship and Small Business Management, Maharshi Dayanand Saraswati University, Ajmer has provided the needed support and help for this work.

I express my deep sense of gratitude to my project supervisor DR. ASHISH PAREEK Dy.Director C.E.S.B.M., MDS University, Ajmer for the inspiring guidance and constant encouragement provided to me during the course of project work.

Finally yet importantly, I am thankful to my friend Vaibhav Sharma for his support during the course of study and making this project successful.

(Abhinav Nigam)

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Definition

The term "franchising" is used to describe business systems which may or may not fall into the legal definition provided above. For example, a vending machine operator may receive a franchise for a particular kind of vending machine, including a trademark and a royalty, but no method of doing business. This is called product franchising or trade name franchising.

A franchise agreement will usually specify the given territory the franchisee retains exclusive control over (the area protection), as well as the extent to which the franchisee will be supported by the franchisor (e.g. training and marketing campaigns).

Franchising (from the French for honesty or freedom) is a method of doing business wherein a franchisor licenses trademarks and tried and proven methods of doing business to a franchisee in exchange for a recurring payment, and usually a percentage piece of gross sales or gross profits as well as the annual fees. Various tangibles and intangibles such as national or international advertising, training, and other support services are commonly made available by the franchisor, and may indeed be required by the franchisor, which generally requires audited books, and may subject the franchisee or the outlet to periodic and surprise spot checks. Failure of such tests typically involves non-renewal or cancellation of franchise rights.

A business operated under a franchise arrangement is often called a chain store, franchise outlet, or simply franchise.

Essentially franchising is a very specific method or way of distributing goods and services. It has been around in one form or another since man first began to engage in commercial enterprise. It has evolved from a simple grant of a right or privilege in the middle ages to the sophisticated business format franchise concept of today.

There are a number of different types of franchising. The type that developed early on was the product franchise wherein a manufacturer granted a franchisee the right to sell it's products, i.e. car dealerships and service stations. Another type of franchise that developed in the U.S. was the name and process franchise. This format allows the franchisee to use a special process, or recipe and to use the franchiser's name. Originally Kentucky Fried Chicken was structured this way as was One Hour Martinizing. Modern day franchising is primarily in the business format mode. This type franchising not only grants the right to use the name and sell the products or services of the franchiser but it also involves the transfer of the total way of doing business that has been developed by the franchiser. Specifically the franchiser transfers all its operating systems, technical expertise, marketing systems, training systems, management methods and essentially all relevant information, to the new franchisee. The franchiser also trains the new franchisee extensively up front and provides ongoing training and support throughout the life of the franchise agreement. Business format franchising is what franchising is all about today and is essentially why franchising is the most successful method of distributing goods and services in the economic history of the planet Earth.

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History of Franchising

Franchising dates back to at least the 1850s; Isaac Singer, who made improvements to an existing model of a sewing machine, wanted to increase the distribution of his sewing machines. His effort, though unsuccessful in the long run, was among the first franchising efforts in the U.S. A slightly later, yet much more successful, example of franchising was John S. Pemberton's franchising of Coca-Cola. Early American examples include the telegraph system, which was operated by various railroad companies but controlled by Western Union, and exclusive agreements between automobile manufacturers and operators of local dealerships.

Modern franchising came to prominence with the rise of franchise-based food service establishments. This trend started as early as 1919 with quick service restaurants such as A&W Root Beer. In 1935, Howard Deering Johnson teamed up with Reginald Sprague to establish the first modern restaurant franchise. The idea was to let independent operators use the same name, food, supplies, logo and even building design in exchange for a fee.

The growth in franchises picked up steam in the 1930s when such chains as Howard Johnson's started franchising motels. The 1950s saw a boom of franchise chains in conjunction with the development of America's Interstate Highway System. Fast food restaurants, diners and motel chains exploded. In regards to contemporary franchise chains, McDonalds is arguably the most successful worldwide with more restaurant units than any other franchise network.

Some of the Indian Franchises are:Aptech, NIIT & IIHT.Chawala’s, Barista & Sagar Ratna.John Player, Koutons & Charlie Outlaw.Airtel, Hutch & Idea.Blue Dart, ADL, Dartmail & Blaze Flash

The word Franchise comes from old French meaning privilege or freedom. In the middle ages a franchise was a privilege or a right. In those days, the local sovereign or lord would grant the right to hold markets or fairs, to operate the local ferry or to hunt on his land. This concept extended to the Kings granting a franchise for all manner of commercial activities such as building roads and the brewing of ale. In essence the king was giving someone the right to a monopoly for a certain type of commercial activity. Over time the regulations governing franchises became a part of European Common Law.

Over the centuries the franchising concept has evolved as the economies of the nations of the world have evolved. In the 1840's in Germany certain major ale brewers granted franchises to certain taverns, giving those taverns the exclusive right to sell their ale. This was the beginning of the concept of franchising as we know it today. In 1851, the Singer Sewing Machine Company began granting distribution franchises for their sewing machines. Singer had written franchise contracts which were the forerunners of modern franchise agreements. In the 1880's cities began to grant monopoly franchises to street car companies and utilities for water, sewerage, gas and later electricity.

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Around the turn of the century, the oil refinery companies and the automobile manufacturers began to grant the right to sell their products. At this stage in the evolution of franchising it was essentially just the granting of the right to distribute and sell manufacturers products.

Business format franchising, which is the dominant mode of franchising today came onto the economic scene after World War II with the return of the millions of US servicemen and women and the subsequent baby boom. The baby boom is still driving the economy and will continue to do so into the next century. There was an overwhelming need for all types of products and services, and franchising was the ideal business model for the rapid expansion of the hotel/motel and fast food industries. During the explosion of the 60's and 70's there were many abuses in franchising. There will always be the unscrupulous con men/women among us, ready to prey on the uninformed and gullible. There were a number of totally fraudulent franchise companies which literally took peoples money and ran, and there were a number of companies that were undercapitalized and poorly managed which went bankrupt, leaving a trail of failed franchisees who lost everything.

It became clear that the franchise industry had to change in order to remain a viable business concept. On the industry side, The International Franchise Association was created with the specific intent of uplifting the entire industry. The IFA holds training in all aspects of franchising which greatly enhances the professionalism of the industry. Members of the IFA are required to adhere to the IFA's Code of Ethics which sets a high standard. The IFA works closely with the US Congress and the Federal Trade Commission on improving how the industry relates to the franchisees.

On the government regulatory side, the Federal Trade Commission, in 1978, required that all franchisers submit to all potential franchisees a document called the Uniform Offering Circular or UFOC, before receiving money. The UFOC provides very detailed information on the franchise company, such as its history, information about the officers, litigation history, audited financial statements, the franchise agreement, which is the contract between the franchiser and franchisee and a current list of franchises with owners names and telephone numbers. The intent of the UFOC is that it provide enough information so that the prospective franchisee can make an informed decision. The FTC doesn't actually review the UFOCs unless there is a complaint and it decides to conduct an investigation.

Also there are a number of states called registration states which have their own requirements that must be met before a franchiser is allowed to sell franchises in their states. In some cases these requirements are more stringent than the FTC's. There are several franchisee associations which work to protect the interests of franchisees. Today, franchising is a highly regulated industry which offers a great opportunity to those individuals who truly want to realize their dream and go into business for themselves.

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Future of Franchising

The growth of franchising is inevitable, because of the inescapable logic of the underlying concept. Franchising clearly offers aspiring, new business owners the best possible chance of succeeding with the least risk. Within a decade or less, franchising will comprise over 50% of the retail economy, will employ millions of people, and will enable hundreds of thousands to realize the American dream of successful business ownership. 

As the U.S. and world economies grow with the ever increasing populations, and the move toward free market economies, new franchise concepts will come on the scene and the solid, well managed existing franchise companies will continue to grow.

There is a move toward better protection of franchisee rights and over time this will push more franchisors towards structuring their relationships with their franchisees in a totally win/win manner. Franchising is evolving; it's getting better conceptually and in reality. There are greater opportunities for wealth creation among both franchisees and franchisors today then ever before. 

The future of franchising is as bright as the sun and if you want to take the big step and go into business for yourself or if you have an existing business that you want to optimize, then you should look closely at franchising as the vehicle to take you to where you want to be in the 21st century. 

Profile of a Franchisor 

Not all businesses can be franchised but most business concepts can be. A profile for a franchise would be as follows: 

a) Unique- New or unique concept that has the potential to expand nationally and even internationally.

b) Profitability- the concept must be consistently profitable and the degree of profitability should be predictable.

c) Systematized- all the operating systems of the concept should be very polished and efficient. These systems and procedures should be in manual form.

d) Training- It should be relatively easy to train others in the use of the Systems and Procedures.

e) Excellent margins- The profit margins built into the concept should be great enough that every franchisee who adheres to the system can realize an attractive Return on Investment. This ROI should exceed 20% before taxes.

f) Affordable- If the franchise is very expensive there will be few who can afford it. The

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ideal franchise investment is under $100,000, because there are hundreds of thousands of Americans who can afford an investment of this size.

Why Buy a Franchise?

In a sense, franchising is a business model whose primary purpose is risk minimization. Every study ever done on the success rate of new (non-franchise) business startups concludes the same thing. Starting up a new business is very risky. Most studies show that over 90% fail within three years. The primary reason that the failure rate is so high is because the owners have to go through the learning curve of operating that specific type business. Unfortunately, the market place is not very tolerant of the inexperienced neophyte trying to learn how to operate a new business. If you can't compete in the market place, you get eaten by the sharks very quickly, you go bust, you lose money, your credit, your home, your reputation and sometimes even your family. Failing in business can be a horrible experience. Unfortunately this happens to thousands of poor souls every year in the U.S., and it is so unnecessary. Unless you have considerable experience in the specific type business that you are considering going into, it is very probable that you will fail.

Business format franchising is as close as you are going to come in todays market place to a guarantee of success. All the studies done have found that franchise new business startups rarely fail and when they do it is typically because the franchisee did not stick to the franchisers systems. In all human endeavor there is involved a learning process. This learning process requires going through a series of trial and error encounters wherein knowledge is gained by trying and failing, trying and failing again and again and eventually trying and succeeding. This process is generally called the learning curve. In the context of franchising, the franchiser has already gone through the learning curve and has learned the secrets of success for the specific business. In business format franchising all that has been learned by going through the curve is transferred to the franchisee. This is fundamentally why you buy a franchise, to minimize risk and give yourself the best possible chance to succeed.

Another reason why it is prudent to buy a franchise is that a franchise investment can be thoroughly researched before any significant expenditure are made. With a new business startup (non-franchise) you are always operating in the dark. No matter how much research you do it is very difficult to get a handle on so many aspects of the new business. With a franchise the franchiser is a wealth of information about the business from how to prepare a pro forma to the best personality traits for the business. But the most important information comes from the existing franchisees. With a good systematic approach you can get answers to nearly all the really key questions. Such as, Do you feel that you were

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properly trained, how long did it take before you reached break even, what is your annual return on investment, how do you feel about the day to day duties of the business and if you had it to do over, would you do it again? You can in a very real sense try the business on before you buy to make sure it is a good fit for you.

Another very important reason to buy a franchise is intertwined into it's basic nature. Franchising inherently leads to rapid growth, because the franchisees provide the expansion capital. There are few restraints to growth in franchising. As a franchise system expands into hundreds of units many positive things begin to happen. The name begins to become well known because people see it everywhere. Most people associate size with success. The bigger the franchise the better it must be. The large number of units enables the franchise to advertise heavily, which tends to increase sales. A synergy begins to be created in which success begets success. The franchise begins to squeeze out competition through it's sheer size. The franchise can buy products in large quantity at significant discounts which it passes on to the franchisees. The synergy just grows and grows.

A recent Gallup Poll of franchisees found that over 94% considered they successful and that over 75% would buy their franchise again if they had it to do over. The same poll also found that the average pre-tax gross income was $ 124,290. As Mr. Spock of the original STAR TREK would say regarding franchising, “The Logic is Inescapable". In summary the primary reason you should buy a franchise as opposed to starting up a non-franchise new business, is to minimize risk and enhance your chances of success.

How to Select a Franchise

This is a very big subject so we will try to be as laser like as possible and give you the essence of the information you need in order to properly select a franchise. 

First, you must ask yourself certain questions and be very objective. Why do you want to own a franchise? If it's to get rich or to get on easy street and not have to work, then franchising will probably not meet your expectations. If you are like many people who have the dream of owning your own business, being your own boss and having control of your life, then franchising may be for you. 

The truth about franchising is that it's very rare that franchisees get rich. It's also true that as a franchisee you generally work long hours, especially the first year. A franchise business is like nearly all businesses, it's hands on, you have to be there to make it happen. You have to literally keep your hands on it. Generally, a franchise is going to involve longer hours and more stress than would a job where you just put in your time and then go home and forget about it until the next day. However, franchising gives you the chance to do something really significant, and that's to be in business for yourself, be your own boss and control your own destiny. This is the chance to realize the dream. It's been said that the truly happy people among us are those who are living their dreams. 

After evaluating yourself, the next step is to begin the search. Look through the information. The critical thing at this point is that you must be realistic and look at opportunities that are in harmony with you, how you think and what your interests are.

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Imagine yourself operating the franchises that look interesting. Can you see yourself happy in that environment, day after day, possibly for years. 

The least you will receive is a letter and a brochure and from some of the more progressive companies you will get a video. Examine these materials carefully, they are generally very revealing. After you narrow your search down to one or two franchises it's time to visit a operating unit if you haven't already. Ask the franchise sales rep where the nearest unit is located and arrange to be met there by a owner or manager who can answer your questions. Spend as much time at the unit as you possibly can, be there at different times of the day, during peak hours and during slow times. Talk to the employees, customers and the owner or manager. If you do this thoroughly you should get a good read on the viability of the concept. 

If at this point you want to continue, the next step is to visit the home office. Here you will get a guided tour of the offices, meet key people, usually including the President, and generally you will visit a flagship unit, either company owned or a franchise unit. After the tour you will sit down with a franchise sales person and be given the sales presentation, which is of course designed to sell you. You will be given a Uniform Offering Circular (UFOC) to take with you. This is a compilation of a great deal of information on the company and the opportunity. The Federal Trade Commission requires that you be given a UFOC at the first personal meeting. It will have information on the history of the company, backgrounds on the officers, financial statements on the company, a copy of the franchise agreement, a list of current franchises, franchises that have closed and litigation history. This information is critical to evaluating a franchise opportunity. 

Analyzing the UFOC is tricky and professional help at this point can prove invaluable. You want to pay close attention to the history of the company, the backgrounds of the officers, the financial statements and the litigation history. The following are the steps you should take upon returning home. 

1. Analyze the UFOC (Professional help recommended) In the UFOC you want to see strong financial statements, highly experienced people in the key positions, a company that has been in business for 3 years or more, the longer the better, has a large number of units and has few closed or bought back. 

2. Closely examine the franchise agreement. This is the contract between you and the company. Franchise agreements are always biased in favor of the franchisor, that's just the way it is. This can be good and bad. The company can be unfair in it's dealings with you and the franchise agreement may allow this, on the other hand you should want a strong franchisor. For example, McDonalds is so successful because it is very tough on franchisees who do not maintain McDonalds high standards of product quality, good service and cleanliness. This strict compliance is only possible through a strong franchise agreement. 

3. Call as many franchisees as possible. Call at least 10. Find out how they are doing. The key question is "Would you buy this franchise again?" 

4. Visit personally as many operating units as possible. At least three. Often the owner or manager will be more forthcoming in person than over the phone. 

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5. If everything still looks good, then contact the sales rep and get as much definitive sales information as possible. Most franchisors will not make earnings claims but they will provide information with which you may extrapolate gross sales. 

6. If everything still looks good then go for it. 

The advantages of Franchising as a way to grow your Business

a) Capital is always scarce in growing a business. In franchising the capital needed to expand the business is provided by the Franchisee. It is the classic case of using OPM, or other people’s money.

b) Trained, motivated management is part and parcel of franchising. It is difficult to find and keep good experienced managers, who are so necessary to grow a business. With franchisees, you have people who are well trained in the franchise systems and who are also very motivated because their capital is at risk.

c) Efficient- Profitable, Franchise units tend to be better run, therefore more efficient and profitable than company owned units, for the simple reason that the Franchisees capital is at risk and they tend to be very motivated.

d) Rapid Expansion- Today's marketplace changes very quickly, often if you don't move quickly on expanding a concept, someone else will. The window of opportunity will close, and you just miss it. There is no other way to grow as rapidly as franchising allows.

e) Achieve optimum size- maximum profits are realized by getting very large. Because there are few impediments to growth through franchising, it offers the opportunity to have 1000's of units through out the world, and no other business expansion model can offer that.

f) Great buying power- The large number of units allowed by franchising enables the company to buy for the entire system and at great savings to the individual franchisees. This greatly enhances profit margins and gives the franchisees a very strong advantage over all competitors.

g) Securing locations- As a franchising system grows it begins to take on an image in the marketplace of size and success. Landlords like to have well known, successful Franchises in their shopping centers. It's simply much easier to secure great locations as a franchisor than it would be for a non-franchise business.

h) Market Dominance- Because franchises tend to grow rapidly, they tend to locate many units in a given market and essentially squeeze out the competition. A franchise can do extensive advertising in a given market because the cost is spread among many units. This combination of having many high profile locations with large advertising budgets is

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a competitive advantage that can't be overcome.

i) Development of advertising materials- Most franchisors require that the franchisees pay an ad royalty to the company. These monies are pooled to make top quality advertising materials for the franchisees. Again it's the advantage of spreading cost over a large number of franchisees, so that everyone benefits.

j) Maximum income- Franchises make money in a number of ways such as the following:

) - Franchise fee  ) - Franchise royalties  ) - Equipment sales  ) - Supplies, materials sales  ) - Sales of Services  ) - Property Rental  ) - Rebates from vendors of equipment and supplies. 

All these income streams from large numbers of franchisees equal big money.

k) Get super rich- Franchise companies are high profile, grows quickly, and have the potential to get very large. These qualities make Franchise Companies very good candidates for being bought by a large conglomerate and for going public. Either of these two possibilities can yield millions of dollars to the owners of the franchise company.

General Advantages

Franchising offers franchisees the advantage of starting up a new business quickly based on a proven trademark and formula of doing business, as opposed to having to build a new business and brand from scratch (often in the face of aggressive competition from franchise operators).

A well run franchise would offer a turnkey business: from site selection to lease negotiation, training, mentoring and ongoing support as well as statutory requirements and troubleshooting.

After their brand and formula are carefully designed and properly executed, franchisors are able to expand rapidly across countries and continents, and can earn profits commensurate with their contribution to those societies.

Additionally, the franchisor may choose to leverage the franchise to build a distribution network.

Franchisers often offer franchisees significant training, which is not available for free to individuals starting up their own business.

For some consumers, having franchises offer a consistent product or service makes life easier. They know what to expect when entering a franchised establishment.

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Disadvantages

a) Sales- All franchise companies are franchise sales driven in the beginning; this means you must have an effective franchise marketing program with very good sales people. Many variables can affect the franchise sales effort such as interest rates, banks willingness to make loans for your franchise, the condition of the national economy, competition, etc. In franchising, if you are not growing, you are dying. You have to have the franchise fee income to stay in business until you have enough franchise royalty income to reach your monthly break-even.

b) Loss of Control- Of course, when you own it then you control it, but in franchising, the franchisee controls his unit and to varying degrees runs it his way. It's here that the operating system comes into play. If you have a polished system which guarantees success if adhered to, then the control issue becomes less important. If the franchisee sticks to your systems, then it's very much as if you are operating the unit yourself. It's here also that the value of a tightly written franchise agreement comes into play. It's best to have a franchise agreement which allows the franchisee little latitude to vary from your system.

c) Managing Growth- This is a nice problem to have but it can be fatal. Franchising, by its very nature is a very fast way to expand a business, because there are few limits which inhibit growth. It's absolutely necessary to be slightly overstaffed at all times, in order that you always have the staff to serve your franchisees. This is the real key to successful franchising. Tremendous effort and resources should be focused on doing all that is possible to help the franchisees be successful.

d) Litigation- The biggest negatives in franchising are the conflicts between the franchisee and franchisor which are almost inevitable and worse still the litigations. As long as your franchisees are making money, everything is fine, but if they lose money, then conflict will arise and if you don't handle the situation well you could end up in court being accused of everything from not providing adequate training to misrepresentation and fraud. If it ends up in court, you will probably lose because our legal system creates a very uneven playing field for the franchisor in legal proceedings. It's the big business against the little guy. You don't want to end up in court. The way to avoid conflict and litigation is to do everything possible to support your franchises and make them successful. They simply must make money, each and every one.

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International Legal aspects

In the United States, franchising falls under the jurisdiction of a number of state and federal laws. Franchisors are required by the Federal Trade Commission to have a Uniform Franchise Offering Circular "UFOC" to disclose potential franchisees about their purchase. This disclosure must take place 10 business days prior to solicitation (franchisor agrees to offer the prospective franchisee a license). Each state may require the UFOC to contain specific requirements. This means that many franchisors have a unique UFOC for each state or sometimes are able to include all state specific requirements into one document.

There is no federal registry of franchising or any federal filing requirements for information, rather, states are the primary collectors of data on franchising companies, and enforce laws and regulations regarding their spread.

In Russia, under ch. 54 of the Civil Code (passed 1996), franchise agreements are invalid unless written and registered, and franchisors cannot set standards or limits on the prices of the franchisee’s goods. Enforcement of laws and resolution of contractual disputes is a problem: Dunkin' Donuts chose to terminate its contract with Russian franchisees that were selling vodka and meat patties contrary to their contracts, rather than pursue legal remedies.

Because litigation is expensive, the majority of franchisors have inserted mandatory arbitration clauses into their agreements with their franchisees. Since 1980, the U.S. Supreme Court has dealt with cases involving direct franchisor/franchisee conflicts at least four times, and three of those cases involved a franchisee who was resisting the franchisor's motion to compel arbitration. Two of the latter cases involved large, well-known restaurant chains (Burger King and Subway); the third involved Southland Corporation, the parent of 7-Eleven.

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Franchising in India

Franchising is in its early stages in India, and has become increasingly popular as a means of doing business in the past few years, both in terms of international franchises and domestic ones. As a result, the Franchising Association of India was set up in Mumbai, in 2000 which has links with other such associations around the world.  The Franchising Association is still considering whether it should have a Code of Conduct or whether they should press for specific legislation in relation to franchising. The difficulty with a Code of Conduct is that not all franchisors and franchisees are members of the Association and it is difficult to enforce.

Regarding the background, international soft drink and hotel franchises arrived in India as early as in the 1960s, but in 1977 the Government of the day had expelled foreign brands from India. The foreign brands started returning gradually from the mid ‘80s. In the 1990’s as the market opened, foreign franchises started coming in gradually, and faced many hiccups along the way especially KFC, Schweppes etc. Since then there has been progressive entry of international franchises, some have been successful and others not so fortunate. The well-known franchises relating to soft drinks, ice-cream parlours or restaurants include Pepsi, Coke, Baskin Robbins, Movenpick, Subway, McDonalds, TGIF, Geoffry’s, Taco Bell, Pizza Hut, Pizza Piazza, Dominos Pizza,  O’Brian’s Sandwich Bar, Ruby Tuesdays and Barrista. Retail franchises include Marks & Spencer, West Side, Evita Peroni, Pepe Jeans and Adams. Courier companies like Air Action and DHL are there along with computer and software related franchises. The Government has liberalised the rules and regulations in relation to the retail industry and a boom in this sector is on its way.

Franchising has also become a popular method of doing business within India with the franchisor granting numerous unit franchises in a wide range of areas. This has been the case in respect of IT education and franchises such as APTECH, NIIT, and STG. Then there are local food chains like Chawla’s, Nirulas, Nilgiris, Coffee Day, Café Nescafe, and Sagar Ratna. Health clubs like VLCC have come up along with hair and beauty parlours who often sell their products like Shanaz Hussein, Biotique and Habibs. There are numerous cargo and courier companies like Blue Dart, ADL, Dartmail, Blaze Flash, First Flight, Professional Couriers and DTDC. Clothing retail outlets especially for designer clothing include Bentley, L.F Couture, Ritu Beri and Deewan Sons. Other retail chains include Shopper’s Stop, Lifestyle and Ebony. There are Indian travel agencies which now want to franchise abroad like Uniglobe or expand locally like Travel Port. Now the major area for local franchises seems to be healthcare with Apollo Hospitals and various diagnostic centres. Shanaz Hussein beauty saloons and products is already an international franchise, and slowly other Indian franchisors are likely to look to expand internationally with the easing of restrictions by the Government especially since 2000.

It took some time for international franchises to become acceptable because of certain attitudes of Indian businesses towards foreign franchises whereby they could not understand why the Indian party had to make all the investments in India and on top of that had to make hefty payments in foreign exchange to the Master franchisor. Indians feel the foreign franchisor or business should also invest, participate and have some interest in the development and success of the entire business. If the brand name is very

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well known world wide and the product is marketable in India, then the attitude can significantly change, as it is obvious that the local business would profit just by riding on the back of a well known brand. If the brand is well known in another country but not in India or to Indians travelling abroad, then it is difficult to convince an Indian businessperson to pay lump sum payments or royalties as its worth is not the same in India. That again can be overcome if the product or service provided by the franchise is in short supply in the country and important to its development. Market research and pilot projects can assist in assessing the prospects of any international franchise in India.

The lower the price a product or service can be sold at, the more customers they are likely to have. Some products may be designed to appeal to the masses and other high price items can be marketed just for a select clientele like those in big business, professions, the film industry or celebrities. Expensive cosmetics and beauty therapy from abroad is for the latter. The needs of the affluent has been met already with many expensive products in the market, however there is still scope in the retail sector for cheaper goods in terms of clothing or cosmetics.  In the soft drink and fast food sector, Coke, Pepsi, McDonald and Pizza Hut have already captured the mass market.

In many instances the products sold by the franchise outlets may have to be significantly tailored to local taste, which may go against the franchising concept or principle that outlets should be identical, and a customer should find identical quality of goods. If one goes to a McDonalds or TGIF or Pizza Hut in India, the food tastes different and the menus are geared to local taste and culture. For instance, people like spicy food, and beef and pork have to be absent in the menu to avoid offending religious sentiments. In relation to Restaurants and pubs, even if families would like to go together, the licensing laws in many states prohibit entry of persons less than 21 years to go to an eating place or restaurant where liquor is sold. Regarding retail franchises involving clothing, the children’s wear and men’s wear is similar to any other western country except that the material has to suit the tropical climate and relatively milder winters. The women’s fashion however, is significantly different with the majority wearing salwar kameez or saris. Western clothes like suits, trousers, skirt and tops for women are becoming popular among teenagers and women in cosmopolitan areas of large cities. A foreign franchisor needs to be aware of local culture and custom, and when deciding on franchise fees or other payments they have to consider realities about the buying power and people’s habits about spending and not make assessment on the basis of population numbers. Research should be done on the viability of any product or service in any given state in India.

`Indian franchise market is second largest in the world'

INDIA is now the world's second largest franchise market and is growing at the rate of 25-30 per cent. And sectors such as food, lifestyle, retail, business services, healthcare, communication, education, entertainment and travel are set to witness a boom in franchising.

These were the highlights of the conference on Franchising in India, held recently, to discuss opportunities and challenges facing the domestic franchise industry. The seminar

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was organised by Franchise India Holdings Ltd, publisher of The Franchising World magazine.

The summit bought together industry experts such as Mr Kenneth Ho, Managing Director, Action International Asia, Singapore; Mr John B. Foreman, Managing Director of the New Zealand-based, Foreman & Company — a consultant on retail and real estate; Mr George Miranda, partner, Miranda & Samuel, Malaysia, expert on laws pertinent for franchisors; and Mr Tony White, Managing Director, of the Australia-based White Connections — consultant in areas of franchising, retail, real estate, property investment, environmental technology and financial services. Indian industry was represented by Mr P.N. Dhoot, President, Videocon; Mr Pramod Khera, Chief Executive Officer & Managing Director, Aptech Ltd; Mr Vikram Bakshi, Managing Director, McDonalds India; Mr Durgesh Shankar, Managing Director, CCIC; Mr Ratan Jalan, CEO Apollo Health and Lifestyle Ltd; and Mr Ashwini Aggarwal, Country Manager, Hewlett Packard.

Estimated at Rs 10,000 crore, the industry has about 1,500 homegrown franchisors. According to Mr White, India is now the world's second largest franchising market place after North America. "In this scenario, it becomes imperative that we establish the best franchise systems and practices for the industry," Mr White added. The absence of regulatory framework in the country, advantages and disadvantages of India as a market, and opportunities and challenges in retail and franchising and future trends were among the subjects that came up for discussion.

Said Mr Gaurav Marya, President, Franchising Holdings India Ltd, "Franchising being a relatively nascent concept in India, there has been a lack of information, knowledge, legislation and sharing of best practices across the practitioners of franchising. This event is an attempt and to promote franchising and recognise and award excellent work done in this field."

The seminar awarded Apollo Health and Lifestyle Ltd as Franchisor of the year; Mr Pramod Khera as `Man in Franchising'; Ms Shahnaz Hussain as `Woman in ; and McDonald's India as the `retail brand of the year'

Source: - Hindu BusinessLine…..

Indian Laws

There is no specific legislation or rules applicable to franchising. There is considerable discussion going on the aspect of whether disclosure laws should be introduced. It is advisable that parties disclose and exchange information on each other and due diligence is carried out before entering into a formal agreement. There are remedies however, under the Indian Contracts Act and Specific Relief Act for breach of contract or misrepresentation.

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It is also advisable that the franchise is structured in such a manner that it fits around the rules and regulations and also best protects the interests of the parties. There are several Governmental permissions that would be required before an international master franchise can be granted in India. There are also restrictions on the number of shares a foreign company or person can hold in an Indian company if the joint venture option is taken, and there are restrictions on payment of royalties if it is a technical collaboration agreement between the foreign master franchisor and Indian master franchisee. Payments for Master franchisors are best spread out between lump sum fees, royalties, consultant’s fees, and design and engineering fees.

One needs to check the areas where incentives are given by the Government in terms of allowing more foreign shareholding, tax breaks and royalties. It is often in the area in which franchises exist, like in the hotel and tourism industry.

It is important that the trade marks and copyright in relation to the product or service provided by the franchise is registered by the master franchisor in India if it intends to expand into that territory. The new Trade Marks Act 1999, which came into force in 2003, protects both trade marks and service marks. The master franchisee can be registered as permitted/licensed user. This would protect the franchise from infringement by third parties and make it easier to obtain injunctions if necessary.

Various remedies are available under common law and criminal law against violation of intellectual property.

In relation to opening outlets in various parts of India, it is necessary to check the state and local laws relevant to the town or city.

The new Competition Act 2002 is aimed at promoting free trade and ending protectionism. The main areas that are dealt with by the Act are the prohibition of anti-competitive agreements; prohibition of abuse of dominant position and regulation of combinations. This prohibits franchisors and franchisees from entering into agreements, such as those involving tied sales, price fixing and other monopolistic trade practices. This Act interprets agreements in a very wide sense including all kinds of arrangements and understanding whether formal or informal, written or oral which has the desired effect, whether or not such arrangement, understanding or action is intended to be enforceable by legal proceedings.

For Indian master franchisors seeking to expand to other countries, significant positive changes have been made since the Foreign Exchange Regulation Act 1973  was replaced by Foreign Exchange Management Act 2000 and rules made under it. Still permissions have to be sought under the latter before doing business abroad and there are limits or caps regarding the foreign exchange available. It is much easier for Indian companies who are earners of foreign exchange and those that have foreign branches or subsidiaries.

LEGAL ASPECTS OF FRANCHISING IN INDIA

Introduction

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Franchising as a business concept in catching up very rapidly in India,. Though this being so, presently, there is no franchise specific legislation in India. However, there are various laws, which affect the relationship between the franchisor and franchisee, such as the Contract Act, Competition Laws, Intellectual Property Laws, etc. Besides these, there are other laws which need to be considered by a foreign franchisor before expanding into India, such as Foreign Exchange Regulations, Taxation, Labor Regulations, Property Laws, etc. An in-depth understanding and legal assistance in respect of these laws is necessary before foraying into the franchise market.

(i) Contract Act

Formation of Contract: The contractual relationship between the franchisor and the franchisee would be governed by the Indian Contract Act, 1872. The franchise agreement must ensure the existence of the basic ingredients of a valid contract such as lawful consideration for the agreement, lawful object and purpose of the agreement and capacity of the parties to enter into an agreement.

Principal-Agent Relationship: This is of considerable importance, since under the Contract Act, there are various implications for such relationships such as liability for acts done by the franchisee. Hence, from the franchisor’s perspective, a principal-to-principal relationship must be clearly brought out.

(ii) Intellectual Property Rights:

Franchise relationship essentially deals with use of Intellectual Property Rights of the franchisor by the franchisee for the franchise business. Hence, understanding of Intellectual Property Rights legislations becomes very important.

Trade Mark Protection: There are three courses of action that can be initiated against trade mark infringement, viz. (a) an injunction under statute (b) an infringement or a passing off action, depending on whether the trade mark is registered or not and (c) criminal action for an offence of falsifying a trade mark. Appropriate provisions need to be incorporated in the Franchise agreement dealing with the rights and obligations of the parties in case of infringement of trade marks, restriction on use of the trade marks during and post termination of the franchise agreement.

Know-how and Confidential Information: The franchisor’s know-how and confidential information would be a valuable trade secret. Therefore, it is advisable to incorporate sufficient safeguards in the franchise agreement against unnecessary disclosure of such information.

Copyright Protection: The Manuals containing the entire technique of running the franchise business and advertising material are of great value to a franchisor and unlawful reproduction and piracy of this literary work can be protected under the Copyright Act, 1957. According to

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Section 17 of the Copyright Act, the author of a work shall be the first owner of the copyright therein. Therefore, the franchisor as the owner of the copyright has the exclusive right to own and licence the work, institute proceedings for infringement by claiming injunction, damages and accounts of profits made by the defendant as a result of the violation of the copyright

(iii) Monopolies & Restrictive Practices Law And Competition Law:

The Monopolies and Restrictive Trade Practices Act, 1969 prohibits imposition of restrictions in respect of sources of supply and pricing of products. It must be ensured, that the terms of the franchise agreement, are not construed as monopolistic or restrictive, or else the MRTP Commission could grant an injunction preventing such trade practices and may also award compensation to the complainant for any losses or damages suffered. Care needs to be taken while drafting the franchise agreement to ensure that the franchise agreement is not hit by the provisions of the MRTP Act and at the same time sufficiently protects the interests of the parties..

Competition Law: The focus is now shifting from curbing monopolies to promoting healthy competition in India. Accordingly, the Competition Act, 2002 has been passed to replace the MRTP Act. Some of its provisions have not yet come into force, as a Government notification to that effect is awaited. Hence, presently the applicability of the provisions of the MRTP Act continues.

(iv) Consumer Protection and Product Liability:

The Consumer Protection Act, 1986 provides for rights and remedies to consumers for defect in products and deficiency in services making the manufacturers and service providers liable for the same. The term ‘manufacturer’ as defined and understood in the Consumer Protection Act would include a manufacturer, assembler and a person who puts his own mark on any goods manufactured by another manufacturer. This would also be the case for the services rendered by the franchisee under service marks of the franchisor. To avoid complications in future, the responsibility in respect of liability with regard to defective products and deficient services and indemnification from any claims on that account should be expressly set out in the franchise agreement.

(v) Foreign Exchange Regulations:

Normally, a franchise arrangement would involve payments such as franchise fee, royalty for use of trade marks and system, training expenses, advertisement contributions, etc. If such payments are to be made to a foreign franchisor the provisions of Foreign Exchange Management (Current Account Transactions) Rules, 2000 would be relevant whereunder, prior approval of the Reserve Bank of India (“RBI”) would be required for making remittances outside India for purchase of trademark/franchise in India. However, remittances for use of trademark/franchise in India would not require such approval.

(vi) Labour Laws:

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Issues with regard to employees employed by the franchisee would be subject to various labour legislations such as Employees’ Provident Funds and Miscellaneous Provisions Act, 1952, Payment of Bonus Act, 1965, Payment of Gratuity Act, 1972 etc. There are also various legislations at the State level, which prescribe hours of work in shops and establishments.

(vii) Taxation:

Various direct and indirect tax laws such as income tax, sales tax, excise customs etc. would be relevant in the context of franchise relationship as they are in any other business concept

(viii) Real Estate:

Location of the franchised outlet is the key factor for success of the business. Hence proper care needs to be taken while selecting the site. The user of the land and building under the Town Planning law needs to be checked. The municipal laws applicable to a particular area also regulate construction of buildings. Acquisition of property, whether on ownership or lease, would require consideration of various legal implications, which affect the title and continuity of user of the property during the franchise period.

(ix) Industry Specific & State/Local Regulations:

Depending on the nature of the industry/sector to which the franchise belongs, various sector specific legislations need to be considered e.g. in the case of a food and hospitality, licenses under the Shops and Establishments Act, Eating House licence from the Municipal Corporation, Health licence from the Health Department of the Municipal Corporation would be required.

Conclusion

Considering the peculiar nature of the business concept in franchising, appropriate legal advice and proper understanding of the relevant legislations is a must both for the franchisor and franchisee before entering into the relationship. A proper understanding between the parties suitably documented would form a strong foundation for success of the business relationship and expansion of the franchise network.

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Company Profile:

Bharat Sanchar Nigam Ltd. formed in October, 2000, is World's 7th largest Telecommunications Company providing comprehensive range of telecom services in India: Wireline, CDMA mobile, GSM Mobile, Internet, Broadband, Carrier service, MPLS-VPN, VSAT, VoIP services, IN Services etc. Within a span of five years it has become one of the largest public sector unit in India.

BSNL has installed Quality Telecom Network in the country and now focusing on improving it, expanding the network, introducing new telecom services with ICT applications in villages and wining customer's confidence. Today, it has about 47.3 million line basic telephone capacity, 4 million WLL capacity, 20.1 Million GSM Capacity, more than 37382 fixed exchanges, 18000 BTS, 287 Satellite Stations, 480196 Rkm of OFC Cable, 63730 Rkm of Microwave Network connecting 602 Districts, 7330 cities/towns and 5.5 Lakhs villages.

BSNL is the only service provider, making focused efforts and planned initiatives to bridge the Rural-Urban Digital Divide ICT sector. In fact there is no telecom operator in the country to beat its reach with its wide network giving services in every nook & corner of country and operates across India except Delhi & Mumbai. Whether it is inaccessible areas of Siachen glacier and North-eastern region of the country. BSNL serves its customers with its wide bouquet of telecom services.

BSNL is numero uno operator of India in all services in its license area. The company offers vide ranging & most transparent tariff schemes designed to suite every customer. BSNL cellular service, CellOne, has more than 17.8 million cellular customers, garnering 24 percent of all mobile users as its subscribers. That means that almost every fourth mobile user in the country has a BSNL connection. In basic services, BSNL is miles ahead of its rivals, with 35.1 million Basic Phone subscribers i.e. 85 per cent share of the subscriber base and 92 percent share in revenue terms.

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BSNL has more than 2.5 million WLL subscribers and 2.5 million Internet Customers who access Internet through various modes viz. Dial-up, Leased Line, DIAS, Account Less Internet(CLI). BSNL has been adjudged as the NUMBER ONE ISP in the country.

BSNL has set up a world class multi-gigabit, multi-protocol convergent IP infrastructure that provides convergent services like voice, data and video through the same Backbone and Broadband Access Network. At present there are 0.6 million DataOne broadband customers. The company has vast experience in Planning, Installation, network integration and Maintenance of Switching & Transmission Networks and also has a world class ISO 9000 certified Telecom Training Institute.

Scaling new heights of success, the present turnover of BSNL is more than Rs.351,820 million (US $ 8 billion) with net profit to the tune of Rs.99,390 million (US $ 2.26 billion) for last financial year. The infrastructure asset on telephone alone is worth about Rs.630,000 million (US $ 14.37 billion).

BSNL plans to expand its customer base from present 47 millions lines to 125 million lines by December 2007 and infrastructure investment plan to the tune of Rs. 733 crores (US$ 16.67 million) in the next three years.

The turnover, nationwide coverage, reach, comprehensive range of telecom services and the desire to excel has made BSNL the No. 1 Telecom Company of India.

VISION

To become the largest telecom Service Provider in Asia.

MISSION

To provide world class State-of-art technology telecom services to its customers on demand at competitive prices. To Provide world class telecom infrastructure in its area of operation and to contribute to the growth of the country's economy.

OBJECTIVES

a) To be a Lead Telecom Services Provider.

b) To provide quality and reliable fixed telecom service to our customer and there by increase customer's confidence.

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c) To provide mobile telephone service of high quality and become no. 1 GSM operator in its area of operation.

d) To provide point of interconnection to other service provider as per their requirement promptly.

Contribute towards:

a) National Plan Target of 500 million subscriber base for the country by December 2010.

b) Broadband customers base of 20 million in the country by 2010 as per Broadband Policy 2004.

c) Providing telephone connection in villages as per government policy. d) Implementation of Triple play as a regular commercial proposition.

1.0 ITC (Indian Telephone Card)

BSNL is providing basic service to approx 36 million subscribers, GSM MobileService to 19 million subscribers and WLL Service to about 3 million CDMAsubscribers. BSNL was the first Telco in India to start VCC card services throughIN Network that is branded as ITC (India Telephone Card) for domesticsubscribers. These cards are widely used by the Indian subscribers. BSNL usesAlcatel technology in it’s IN platform.

BSNL intends to appoint ITC Card franchisee for calling card on circle basis forprinting, selling and marketing BSNL’s ITC cards. The franchisees will beappointed as per the eligibility criteria of the EOI. After evaluation, Agreementwill be signed for a contract period of one year with successful bidders. Theelectronic PINs will be made available to said franchisee that will be responsiblefor printing, selling and marketing of these calling cards in their area of operation.The ITC franchisee will be responsible for selling calling cards to existingfranchisees of BSNL at the doorstep also.

This prepaid card enables you to make local, STD or ISD calls even from a STD/ISD barred telephone.  The calls are charged to the secret number specified in the card and not to the telephone connection being used.  Equipped with this card, you can enjoy the

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freedom of making calls anywhere, anytime, from any telephone.  India Telephone cards are available on sale at all the Customers Service Centers of BSNL and through its franchises appointed in different cities. ITC card purchased in one city can be used in any

other city where this service is available.  

This is an access code based service, all IT Cards calls are preceded by the code 1602xyz as shown in the IT Card.  This enables you to dial the IT Card number after dialing the access code.  On dialing, you are informed of the balance amount against your IT Card, after which you can dial the destination number.

Tariff (new technology IN platform ITC cards)

On all denomination of Cards Local, STD or ISD calls can be made.  There will not be any free calls. There will not be any registration charges for this ITC service. Any detailed bill, if asked by the card holder, having subscriber Account No. and

PIN, will be given on payment of Rs. 100/-

Tariif for new ITCards effective from 1st May 2006

S.No.

Denomination of IT Card

Sale Price of ITC* (including revised ST&Edu Cess of 12.24%)

Talk value of ITC

No. of MCUs allowed

Activity period in months (usage period after 1st use)

Expiry period (Self life)

1. Rs. 50 Rs. 56 Rs. 50 50 1 months 18 months for ITCs of all deno-minations2. Rs. 100 Rs. 112 Rs. 100 100 3 months

3. Rs. 200 Rs. 224 Rs. 200 200 4 months

4. Rs. 500 Rs. 561 Rs. 500 500 5 months

5. Rs. 1000 Rs. 1122 Rs. 1100 1100 7 months

6. Rs. 2000 Rs. 2245 Rs. 2300 2300 9 months

7. Rs. 5000 Rs. 5612 Rs. 6000 6000 12 months

2.0 Intelligent Network

The Intelligent Network (IN) of BSNL comprises of the state of the art

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technology switch i.e. Service Control Point (SCP) installed at fivegeographically distributed locations across India. BSNL has local exchanges allover India, which work as Service Switching Point (SSP) for the calls originatedfrom these Local Exchanges (LE). Then call is carried through tiered TAX(Trunk Automatic Exchanges) which works as Service Transfer Point (STP) forIN call. The five IN-SCP locations are:

General Purpose IN (GPIN) platform

1. Kolkatta2. Bangalore3. Lucknow4. Ahemdabad

3.0 Eligibility Requirements

3.1 The Bidder should be a company registered & incorporated under the IndianCompanies Act, 1956.

3.2 The company shall have an experience of at least 2 years in telecom/FMCG/electrical goods/in the related area for marketing and selling similarservice/products.

3.3 The company shall have a minimum turnover of Rs 5 crore for last two years.Audited Balance sheets for the last 2 years shall be enclosed as supportingdocument. The Turnover mentioned in this clause shall not include businessesother than IT/ Networking/ Telecom/ Content delivery/FMCG/electrical goodsetc.

3.4 The Bidders are allowed to submit their application for any number of circles.

3.5 The ITC Card Franchisees should have expertise in printing, selling andmarketing of calling cards.

4.0 Financial Requirement

4.1 PBG of Rs. 25 lakh to be submitted before signing of the agreement. All thebidders meeting the eligibility criterion & agreeable to the terms and conditions ofthe EOI shall be appointed as ITC Card Franchisee.

4.2 The PINs will be available to ITC Franchisee by making the upfront payment forthe same after deducting the commission.

4.3 BSNL reserves the right to seek/verify financial information from franchisees’bankers/credit provider and pursue any other source as to carry out verification.

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4.4 ITC Card Franchisee shall deposit the aforesaid PBG of the said amount as BSNLmay recommend from time to time. BSNL reserves the right to forfeit/adjust thesaid PBG in full or part or any sum due from the franchisee to BSNL at any time.Franchisee shall continue to be liable for balance if any. BSNL reserves the rightto increase the amount of PBG at any time in its own discretion with respect toany/some/all franchisee.

5.0 Review

5.1 Quarterly review will be done of the ITC Card Franchisee for their performance.

6.0 Commission and Incentive

6.1 The existing commission structure of ITC Cards is indicated below. Thefranchisee should purchase ITC card worth minimum Rs. 5 lakhs in a lot (month).The franchisee shall be given additional 3% commission towards printing, selling& marketing of ITC cards. The ITC Franchisee will extend a minimum existingdiscount for franchisee as fixed by BSNL from time to time to existing franchisee.Presently existing minimum discount for franchisee is 9%.

Purchase amount of ITC, excluding Service Tax

Commission offeredRs. 1,00,001 to 5,00,000 9%> Rs. 5 00 000 10.5%10.2 The ITC Card Franchisee should achieve the targets in the respective circles asper the type of Circle given below ;Type of Circle Target/Rs. CroreA 5B 4C 3

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7.0 Billing and Payment

7.1 The franchisee will provide the bank guarantee of Rs. 25 lakh before signing theagreement.

7.2 The franchisee will have to make the upfront payment for purchasing the PINs inelectronic form which will be subsequently printed by franchisee and sold to theend customer/existing franchisee.

7.3 The franchisee will be passed on the minimum commission upfront (9%) at thetime of purchase of PINs. The balance commission will be paid to the franchiseeafter achieving the targets. The targets will be reviewed after 6 months .

8.0 Office Support

All office support related to stationery items, sales, bills, vouchers shall be theresponsibility of the franchisee. However, the layout/design of the stationery andcalling card will be provided by Marketing Cell of BSNL. BSNL may decide toprovide computer connectivity to franchisee for on-line activity such as billpayment/settlement/ PINs etc. at its sole discretion.

BSNL shall have free access to the franchisee premises and to inspect all records,receipt vouchers, sale book or any other document related to ITC card activity.

9.0 Responsibilities of Franchisee

9.1 The Franchisee shall work out strategies for advertising, marketing and promotingthe Calling Cards/ITC to the users. Promotions shall be carried out under BSNL’sbrand name.

9.2 The Franchisee shall solely be involved in distribution of the cards. Apart fromthe places/ distribution points of Franchisee’s choice the cards shall be madeavailable to the users at various outlets, prominent commercial places, airports,Railway stations through retailers.

9.3 Franchisee shall be able to meet the targets defined by BSNL failing whichminimum commission shall be paid.

9.4 Franchisee shall generate demand for providing services permitted by BSNL to

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franchisee. BSNL franchisee will target both individual and corporate customers.

9.5 After sales services: Franchisee shall receive, attend & rectify the complaints. Allforms of complaints on phone and walk-in-complaints will be handled directly byFranchisee. Franchisee shall redress all possible complaints on the spot andforward the remaining to call center for further disposal.

9.6 The payment of commission to existing franchisee shall be the responsibility ofITC franchisee, for which BSNL will not have any responsibility. The existingfranchisee should be extended the commission at the time of purchase of ITC cardby ITC franchisee.

Commission on bulk purchase of ITCs

The commission on purchase of ITCs to BSNLs marketing agents including Cellone/ Excel franchisees shall be as under wef 01.08.2004

Minimum purchase of ITCs at a time shall be atleast Rs 5000/- An annual incentive of 1% on the total sale of cards by the agent can be given if

the sale is more than Rs 50 lakhs per annum. Amount of commission may be paid upfront at the time of purchase of ITC.

Purchase amount of ITC (excluding service tax)

Commission Offered

Amount of Commission on upper limit

Effective rate of Commission

Upto Rs 50,000/- 5% Rs 2500 5%

Rs. 50,001/- to Rs 1,00,000/-

7% Rs 6000 6%

Rs. 1,00,001 to Rs 5,00,000/-

10% Rs 46,000 9.2%

More than Rs. 5,00,001/-

12%  Rs 1,06,000 (For 10 lakhs)

10.6%

 

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SWOT Analysis of BSNL ITC

STRENGTH

BSNL performed very well in the first fiscal by netting a turnover of Rs 23,000 crore and registering a growth of around 13 percent. The performance is excellent considering the fact that tariff re-balancing for long distance was done twice in the same fiscal. Long-distance calls were reduced by 13 percent and tariff was further revised. Under this revision, a rate for a distance of 200 km within the same circle was brought down substantially.

All India presence, solid infrastructure, huge customer base, ITC is a unique facility which can benefit customers. Due to all India presence of BSNL calls can be forwarded without much problem of call drop.

WEAKNESS

Very low level of promotion of ITC card. People are not aware of ITC Card. Overstaffing, poor customer care.

OPPORTUNITY

ITC style of service is a new to Indian market. This unique service if promoted properly can benefit BSNL. Limited mobility, Internet, and voice over Internet services

THREAT

Reliance and other private basic operators poses a threat as they can imitate ITC and with better promotion and plans may beat BSNL.

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Summary

ITC, being BSNL’s service has immense potential. With proper promotion and plans it can succeed in market. Better customer care, better plans is the key to success. Otherwise other private players may take advantage..

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Appendix A:

Frequently Asked Question

WHAT IS FRANCHISING?

Franchising is a method of distributing products or services. At least two levels of people are involved in the franchise system: (1) the franchisor, who lends his trademark or trade name and a business system; and (2) the franchisee, who pays a royalty and often an initial fee for the right to do business under the franchisor's name and system. Technically, the contract binding the two parties is the "franchise," but that term is often used to mean the actual business that the franchisee operates.

HOW DOES A FRANCHISED CHAIN START?

Imagine a store owned by an individual with a particular concept. If the business is successful, the owner may develop a second or third store and hire employees for the day-to-day operations. At that point, if the entrepreneur still wants to expand but prefers not to operate additional stores himself or herself, he or she may decide to "franchise" the store name and business system to an independent business person a franchisee. In return, the entrepreneur may ask for an initial fee and/or a continuing royalty payment based on a percentage of that franchisee's sales. The business is now franchised.

WHEN I VISIT A STORE IN MY AREA, FOR EXAMPLE, A WELL-KNOWN FAST FOOD RESTAURANT, HOW CAN I TELL WHETHER THAT RESTAURANT IS OPERATED BY THE FRANCHISOR OR A FRANCHISEE?

It's difficult to tell just by visiting the restaurant. However, if it is a franchise, there should be some signage in the restaurant which indicates that the restaurant is independently owned and operated. Many companies have stores that are operated by franchisees but also have stores that are company owned and operated. So it's entirely possible that of two stores with the same name, one may be operated by a franchisee and the other operated by the company. In either case, the products, services, and quality should be the same.

WHAT IS "BUSINESS FORMAT" FRANCHISING?

In business format franchising, the franchisor prescribes for the franchisee a complete plan, or format, for managing and operating the establishment. The plan provides step-by-

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step procedures for major aspects of the business and, anticipating most management problems, provides a complete matrix for management decisions confronted by the franchisees. The major advantage of buying a business format franchise is that the system, the means for distributing goods and or services, has been developed, tested, and associated with the trademark. As a result, rapid expansion of a successful retail concept can occur more quickly than through company-owned expansion.

WHAT ARE THE MAJOR GROWTH INDUSTRIES IN "BUSINESS FORMAT" FRANCHISING?

As the economy becomes more service and technologically oriented, as more women enter the work force, and as a larger percentage of the population grows older, growth areas in franchising are responding to these changes. The industry categories in franchising that are expected to continue to experience rapid growth for the start of the new century are service-related fields such as home repair and remodeling, carpet cleaning, household furnishings, and various other maintenance and cleaning services; all business support services including accounting, mail processing, advertising services, package wrapping and shipping, personnel and temporary help services, and printing and copying services; automotive repairs and services such as quick-lube and tune-up; and other areas such as environmental services, hair salons, health aids and services, computers, clothing, children's services, educational products and services, and telecommunications services.

While it is important to consider industry growth before investing in a franchise, it is more important to analyze an individual franchise company's track record, keeping in mind that quick growth does not always spell success. A franchise organization that grows too quickly might not have a service team in place to support all of the units properly. Overall, long range trends indicate a steady, solid growth in business format franchising. Some will fall by the wayside, as is natural with any business, but others may well be the "household name" franchise success stories of tomorrow.

SPECIFICALLY, WHAT KINDS OF BUSINESSES LEND THEMSELVES TO FRANCHISING?

Virtually every business form you can imagine. Typically, you would think of fast food and restaurants first when thinking of franchising, but franchising covers the spectrum from almost A to Z B from advertising/direct mail to construction, to dating services, to home inspection, to security systems, to video sales and rentals. Printing and copying services, maid services, computer services, cleaners, lawn care services, real estate, hotels and motels, and travel agencies are excellent examples of successfully applying franchising to established industries.

ARE THE "LOOK-ALIKE" CHARACTERISTICS OF FRANCHISES A DISADVANTAGE? DON'T CONSUMERS WANT VARIETY?

The increasingly mobile Indian consumer has come to depend on and appreciate the consistent quality of franchised products and services. Today, no matter where they go,

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people expect and want the same quality, which is why consumers so often stop at franchised establishments. The ability to easily recognize a franchised store, restaurant or hotel from the outside guarantees there will be no surprises or disappointments on the inside. Quite simply, the public knows what to expect and likes it that way.

WHAT SHOULD I CONSIDER BEFORE BUYING A FRANCHISE?

Among the points which FAI recommends for investigation are: a. The type of experience required in the franchised business; b. A complete understanding of the business; c. The hours and personal commitment necessary to run the business; d. Who the franchisor is, what its track record has been, and the business experience of its officers and directors; e. How other franchisees in the same system are doing; f. How much it's going to cost to get into the franchise; g. How much you're going to pay for the continuing right to operate the business; h. If there are any products or services you must buy from the franchisor and how and by whom they are supplied; i. The terms and conditions under which the franchise relationship can be terminated or renewed, and how many franchisees have left the system during the past few years; and j. The financial condition of the franchisor and its system.

IF I WANT TO BUY A FRANCHISE, WHAT SHOULD I DO TO GET STARTED?

The first thing to do is to identify companies offering franchises. You should contact the companies directly, and "shop wisely." Shopping wisely requires that you determine how much you can afford to invest and where to obtain financing. You need to examine what the franchise relationship entails. For instance, you need to inquire into the training and support provided, assistance in finding and developing a location, and the sources of inventory and supplies. You should research the company's growth and prospects for future growth. You should also seek advice from professionals and businesspeople you respect. By shopping wisely, you can make an informed decision on whether to purchase the franchise.

WHAT KIND OF INVESTMENT IS NECESSARY TO BUY A FRANCHISE? Investment requirements differ tremendously. It all depends on the industry and the type of business.

WOULD I MAKE A SUCCESSFUL FRANCHISEE?

A successful franchisee should be suited to the industry of which he or she is a part, suited to the particular franchise company, and suited to the franchise system generally. Important questions to ask yourself include: Am I suited to the industry physically and by experience, education, learning capacity, temperament and financial ability? What type of work is most appealing to me; for example, do I enjoy working with food, mechanical things, people, real estate, books and recordings, sporting goods, etc.? Am I prepared to work hard and take financial risks? Do my advisors, family, and friends think I am adaptable and trainable? How do I react to controls? Am I a "loner", resenting authority

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and restraints, or can I accept guidance and direction happily? If I prefer to act as a passive investor in the franchise, will the company accept this? How do I personally feel about the company's image and products and services? The right answers to these types of questions help determine your potential success as a franchisee.HOW DO YOU EXPLAIN THE SUCCESS RATE FOR FRANCHISED BUSINESSES?

"Success" is a subjective term. A study on franchise owner's and attitudes towards their franchise experience revealed that more than nine of ten franchise owners stated that they considered their franchise to be somewhat or very successful. Two of three respondents said that they would not have been successful if they tried to open the same business on their own. The franchising system is designed to provide a formula for operating a successful business. Unavoidable business mistakes have been worked out of the system through experience and the franchisor is available to assist when new challenges arise. Industry Experts say most businesses fail from lack of management skills. With a franchised business, your franchisor should be eager to help you overcome problems. Your hard work and the franchisor's expertise spell a strong partnership.

HOW CAN I BE SURE I WON'T LOSE MONEY?

No one can be 100 percent sure. Although the majority of franchisees are satisfied, successful business people, some do suffer financial losses. That's why you must be particularly wary of any company which "guarantees" profit or certain success. If you hear a claim about a company that sounds too good to be true, it probably is. Investigation of all earnings claims made by a franchisor is especially important. But, regardless of earnings claims, you must recognize that your success can come only through hard work. Success or failure ultimately depends on you.

WHAT ARE SOME OF THE DRAWBACKS OF OWNING A FRANCHISE?

In exchange for the security, training, and marketing power of the franchise trademark, you must be able and willing to give up some of your independence. If you are a person who likes to make most decisions on your own or to chart the course of your business alone, a franchise may not be right for you. As a franchise owner, you must comply with the various controls and procedures established by the franchisor. Then, too, all successful businesses require a lot of dedication and plain, hard work. You must be prepared to make that commitment.

ARE THERE ANY CURRENT TRENDS IN FRANCHISING?

Among the most important trends in franchising today are the internationalization of franchising, the emergence of women in franchising, and the increased use of technology. All of these have profound and positive effects on franchising and make it an even more dynamic method of doing business today.

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BIBLIOGRAPHY

BOOKS AND MAGAZINES

PhilipKotler - Marketing Management.

WEBSITES

www.bsnl.co.in www.Wikipedia.com www.franchiseassociationindia.com www.infofranchise.com www.hindubusinessline.com www.franchiseindia.com

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