Anuj Dutta A-10

Prince Kumar Singh A-35

Licensing, Franchising & SEZ

(World is now a global village)
History of Franchising & Licensing:
In the 1850’s, Isaac M. Singer was in the business of making sewing machines. He had a
brilliant product but lacked capital for mass production. He devised a business model in
which he sold licensing fees to people that wanted to sell the machines and teach others how
to use them. Thus, the oldest franchise in the US was born, and others soon followed.

In Indian context, franchising began in 1930s with the advent of Bata in India and that is the
reason Bata is still confused as Indian brand.

Franchising:
The right or license granted to an individual or group to market franchised goods or services
in a particular territory.
Franchisor- owns the trademark(s) and the operating system for the franchise
Franchisee- owns & operates the business using the business model licensed by the
franchisor.

Types of franchising:
JOB FRANCHISE
Typically, this is a home-based or low investment franchise that is taken by a person who
wants to start and run a small franchised business alone. Franchisee usually has to purchase
minimal equipment, limited stock and sometimes a vehicle.

 Coffee van
 cell phone accessories and repair
 real estate service

PRODUCT FRANCHISE
Product-driven franchises are based on suplier-dealer relationships, where franchisee
distributes the franchisor’s products. The franchisor licenses its trademark. Product franchises
deal mainly with large products, such as

 GoodYear Tires
 Ford
 Coca-Cola and Pepsi

BUSINESS FORMAT FRANCHISE

The business format franchisee gets the trademark, and the entire system to operate the
business and market the product and/or service. The franchisor offers a detailed plan and
procedures on almost every aspect of the business, provides initial and ongoing training and
support

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Ex- fast food, retail, restaurant, business services, fitness and other.
INVESTMENT FRANCHISE
Typically, these are large scale projects which require a large capital investment, such as
hotels and the larger restaurants.

Examples of Franchising:

Convenience Store: Reliance is in both franchisor and franchisee business of convenience

stores as it is currently acting as a franchisee of 7 eleven stores across India. 7 eleven is
world’s biggest franchisor in convenience store department. It currently holds 78,029 stores
across 18 countries. It came out after the failed Joint venture of Reliance and Futures group.
On the other hand, in case of Jio Mart, Reliance is acting as a franchisor where they are
giving franchisee to local kiranas at a very reasonable rate. The total investment in this case
will be only 25 lakh and reliance plans to open 56000 such stores around the country in 30
cities.

In sports sector we can see IPL as an example where they have given franchising rights to
different teams in India. cheapest IPL team, the Rajasthan Royal with a brand value of Rs.
250 Crores. Chennai Super Kings at Rs. 2700 Crores RPSG group has reportedly acquired the
Lucknow franchise with a bid of Rs 7,100 crore & CVC capital bid Rs 5166 crore for the
Ahmedabad franchise.
In hospitality sector we have taken the example of JW Marriot which is one of the biggest
hotel chains around the globe. It has 100+ hotels in 35 countries (7 in India) and their
franchising fee is 150 thousand $ and a total initial investment of 75-100 million $.

In QSR we have taken the example of Domino’s whose franchising rights in India is with
Jubilant Foods. They are one of the biggest franchisees of any QSR in India against their
immediate competitors Sapphire or Devyani in terms of outlets or revenue generated.
Dominos is huge in India and they have been double the size of McDonalds in India which is
world’s second biggest QSR chain in world in no of outlets, second only to subway and
biggest in terms of reach in no. of countries i.e., 120 countries. Jubilant foods also has the
rights of Dunkin Donuts which failed miserably in India because it was unable to match the
palates of Indians.

Another example of QSR is Burger Singh which is an Indian franchisor of Burger chains and
since their inception in 2016, they are currently present in 38+ cities with 80+ stores. They
offer different models of franchise at different costs which are mentioned below.
Food Court - Rs. 16 lakh
Drive thru - Rs. 56 Lakh
Dine-in - Rs. 33.6 Lakh

The other example of QSR is Westlife which is the master franchisor of McDonalds in west
& south region of India. They are currently present in 42 cities of 10 states and have 300+
outlets in these regions. The north and east region of India is currently controlled by Westlife
itself as MMG group. They are currently giving 4.5% royalty to Westlife and will be giving
8% in future by 2040.

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Another example of QSR is Devyani International Limited, it is the largest franchisee of Yum
Brands in India and is among the largest operators of quick service restaurants chain in
India and operates 655 stores across 155 cities in India, as of March 31, 2021.

56 percent premium. It opened at Rs 141 on the BSE , against issue price of Rs 90 per share,
subscription of 116.71 times.

Devyani Int. has A franchisee for brands such as KFC, Pizza Hut(Yum Brands), Costa Coffee
and TWG Tea. 

Another example of QSR is Sapphire Foods was incorporated in Mumbai under the name
samarjit advisors private limited , in 2014 changed its name to "Saphire foods India Private
limited. Its association with Yum started in 2015 and presently has the non-exclusive rights to
operate restaurants under three of Yum's leading brands
Total stores- 450 stores
Public listing Date- November 18, 2021
Issue price- Rs. 430 (% 3.37 discount)
Market cap- Rs. 8,117 Cr
Varun beverages is the example we have covered from beverages section which is second
biggest franchisee of PepsiCo outside India. As of 2019, it manufactures and distributes in 27
states and 7 union territories in India and in Nepal & Sri Lanka in Indian subcontinent as well
as in African countries like Morocco, Mozambique, Zambia & Zimbabwe. These are some
details of Varun Beverages:
Public listing Date- 08 Nov'2016
Issue price- Rs. 430 (% 3.37 discount)
Market cap- Rs. 641.85 billion INR
Distribution network - 1.75 million outlets.

Licensing

Licensing: It can be defined as something which obligates a firm to provide it's technology
( copyrights, patents, trademarks or names) in exchange of fees or some other specific
benefits.
Terms which are important
Licensor- Is the party that grants the license.
Licensee- The licensee is the party that receives a license.
Important Facts: The Global Brand Licensing Market is projected to grow from USD 274.9
billion in 2022 to USD 385.4 billion by 2027 at a CAGR value of 4.1% from 2022 to 2027.

Types of Licensing:

Patent Licensing- Patents cover science and innovation. Patent licensing agreements are the
documents through which a patent owner allows someone else to use their patent. 
Ex- New inventions

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Trademark Licensing
Trademarks are signifiers of commercial source, namely, brand names and logos or slogans.
Trademark licensing agreements allow trademark owners to let others use their IP.
Example- The McDonald’s® golden arches design, Domino's logo for "hot pizza pies."
Copyright Licensing
the exclusive, legally secured right to reproduce works of visual art, like paintings, movies, or
songs.

Example- Paintings, Songs, Cartoon characters

Trade Secret Licensing

Trade secrets are unique, in that they are not registered with the government.
Ex- Formulas for Coca-Cola, Recipe for KFC chicken
In healthcare sector we have taken the example of Apollo Hospitals which has recently
signed a brand licensing agreement with Imperial Hospitals of Chittagong, Bangladesh which
was opened by an investment of an 800 crores investment of Chattogram Eye hospital and
Training Board Trust and 200 crores investment of World Bank. Apollo is also looking
forward to change the name of Imperial Hospital to Apollo Imperial Hospital.

In Pharmaceutics sector we have taken the example of Pfizer as it has recently signed a
licensing agreement of manufacturing their oral pill for Covid with 19 Indian pharmaceutical
companies which includes Cadilla, Hetero and Cipla etc.

In Consumer Durables sector we took Reliance Retail which acquired the licence to
manufacture and market consumer durable products under BPL and Kelvinator brands in
2021. The move allows Reliance Retail to enter the electrical space. Reliance makes and sell
BPL’s product portfolio, including air-conditioners, refrigerators, washing machines, and
television sets in addition to light bulbs and fans

In Coffee chains we took the example of Starbucks. Starbucks was found in 1971 in USA,
Starbucks was the name of a character in the novel “Moby dick”. Starbucks is also known as
the “second wave coffee” to popularise coffee again. In 2012 Starbucks got into a 50-50 joint
venture with Tata global beverages
Total outlets: 254 in India (15000 globally),
Revenue worldwide: 28.52billion dollars
Revenue in India: Rs. 636 crores

In entertainment industry we have taken the example of Disney which is world’s biggest
licensor in the world and one of the most prominent licensors in the world. It has 150
licensors in India and the most prominent licensing revenue comes from action figures
licensed by Disney and around 60% of their revenue (2.5 billion$ of 4 billion $ as of 2019)
comes from licensing only. A recent example of India is that Funskool has got the rights to
manufacture and sell Chhota Bheem animation characters.

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In apparel segment we have taken the example of Calvin Klein which is world’s biggest
licensor in apparel segment. Apparel segment is very huge for licensing like Dhoni’s brand
Seven, Kohli’s brand Wrogn, Page Industries license owner of Jockey & Authentic Brand
Group which has recently given their license of manufacturing and distributing to Aditya
Birla Fashion and retails Limited. They are also going to open some exclusive stores in India
of outlet.
Some data of Apparel Licensing industry:
Total sales of Calvin Klein: 3.7 billion $
PVH Revenue: 9.2 billion $
Licensing revenue %: 89.1 million in Q1 2019
Revenue of Page industries: Rs.1341 crores
Profit of Page Industries: Rs. 207 crores

Difference between licensing and franchising:

Licensing
Limitation- A license agreement allows for
the use of registered trademarks
Franchising
Limitation- Franchise agreements, on the
other hand, allow for the use of trademarks,
additional intellectual property, products,
services, operating manual and much more.

Control- A licensor has very little control
over the business of a licensee.
Types of Business- businesses that grant or
purchase licenses are Manufacturing based.
Control- The franchisor can lay out
specific guidelines for how the franchisee
markets the business, uses brand
trademarks, where the business is located
and how the business is operated.
Types of Business- franchises are generally
service-based businesses.

Legal regulations- A licensing agreement Legal regulations- a franchise agreement is

is a simple loan of certain protected marks a much more stringent and complicated
or images. agreement. There are many moving parts
within a franchise agreement

Potentials of Franchising and licensing in india

Huge market : With 1.3-1.4 billion population with increasing per capita incomeand
increasing HNIs in tier 2 cities.
Average age of population is 29 against 37 of China and 48 of Japan which is a younger and
more potential workforce.

Low capital investment and lenient laws in the areas of SEZ for more easy investment of
FDIs.

 China-US trade war provides a better opportunity as a second choice to come to after
China. Recently even Apple has decided to move their manufacturing plants from
China to India.

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 China licensing industry is of around 84 billion$ and Global licensing industry is of

315.5 bn$
 against 1.36 billion $ in India which shows the infancy of licensing industry in India.

 India second biggest franchising industry after USA which shows the potential of
franchising in India.

 India does not have any language barrier against other licensing and franchising
industry in India.

SEZ: It can be defined as an export processing zone, or EPZ, which is an area set up to
enhance commercial and industrial exports by encouraging economic growth through
investment from foreign entities.
Currently 378 SEZs are notified, out of which 265 are operational.

The background of SEZ :

The History of SEZs in India suggests that the basic model of the present day Indian Special
Economic Zone was structured with the establishment of the first Export Processing Zone
(EPZ) at Kandla in the year 1965.
An SEZ Policy was announced for the very first time in 2000 in order to overcome the
obstacles businesses faced.

Special Economic Zones Act, 2005

“It is defined as an Act to provide for the establishment, development and management of the
Special Economic Zones for the promotion of exports and for matters connected therewith or
incidental thereto.”

Examples of IT Sector in SEZ-

IT park examples- DLF Info Park (Pune) Limited, EON Kharadi Infrastructure Pvt. Ltd,
Wipro Limited, Hinjewadi

Examples of government establishment-SEEPZ Special Economic Zone (Mumbai), Kandla

SEZ, Cochin SEZ, Madras SEZ, Vishakhapatnam SEZ, Falta SEZ, Noida EPZ (Export
Processing Zone)

The chief objectives of the SEZ Act are:

 To create additional economic activity.

 To boost the export of goods and services.
 To generate employment.
 To boost domestic and foreign investments.
 To develop infrastructure facilities.

Challenges:

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 Since SEZs offer a wide range of incentives and tax benefits, it is believed that many
existing domestic firms may just shift base to SEZs.
 There is a fear that the promotion of SEZs may be at the cost of fertile agricultural
land affecting food security, loss of revenue to the exchequer and cause uneven
growth with adverse effects.
 Apart from food security, water security is also affected because of the diversion of
water use for SEZs.
 SEZs also cause pollution, especially with the release of untreated effluents. There has
been a huge destruction of mangroves in Gujarat affecting fisheries and dairy sectors.
 SEZs have to be promoted but not at the cost of the agricultural sector of the country.
It should also not affect the environment adversely.

Thank you.

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