Yes, it will accelerate growth of the franchising business

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: Since the opening of the Indian economy in June 1991 and liberalisation of the foreign direct investment (FDI) policy, many multinational companies (MNCs) have entered India through the franchising route. International brands like McDonald’s, Pizza Hut, Subway, Adidas and Benetton are now available. Some other well-known Italian brands like Gucci and Armani are finalising plans to enter India. This sudden proliferation of multinational brands in the last decade can be attributed to the advantages of franchising.

The concept of franchising is not new to India. Bata was one of the pioneers of franchising here. It developed a model franchising agreement decades ago which is still relevant in many respects. It is because of franchising that Bata shops look similar and familiar, be they in Delhi, Jabalpur, Chennai or other parts of the country.

As the Indian marketplace is familiar with the concept of franchising, foreign companies did not face difficulties in finding franchisors. This business relationship, in the absence of a specific law on franchising, is governed by a set of disjointed laws, the main being the Indian Contract Act, 1872.

Many countries, especially, the US, Australia, South Korea and China have specific laws and regulations for franchising. In the US, for example, the Federal Trade Commission’s Trade Regulation Rule on Franchising deals with three types of continuing commercial relationships—package franchises, product franchises and business opportunities. In addition, there is a Uniform Franchise Offering Circular (UFCO) which specifies disclosure norms. The Franchising Code in Australia regulates the relationship between the franchisor and franchisee.

In South Korea, the franchise business is under the purview of the Fairness in Franchise Transactions Act. In China, Measures on the Administration of Commercial Franchising deal with the franchising business. However, several countries, like Japan, Germany and the UK, have no specific laws for franchising. In many countries, business chambers and associations define franchising and lay down the code of conduct for parties to the franchise contract.

India can take a cue from the US and South Korea to enact its own franchising law. It may do so to accelerate the growth of the franchising business in the country. The main reasons for enacting a specific law to deal with the franchising business may be listed as follows: