Page 70 - DMGT551_RETAIL_BUSINESS_ENVIRONMENT

Unit 3: International Retailing: Internationalization and Globalization

Political Stability Notes

1. Sound political institutions
2. Mechanism for orderly transfer of power
3. Acceptance of the obligations of the previous government
4. Political relations

Benefits from Joint Ventures

The benefits that accrue to India from the successful joint ventures operating abroad are in the
form of dividends and other entitlements of Indian promoters such as technical know-how fee,
engineering services fee, management fee, consultancy fee and royalty. Besides this substantial
foreign exchange is earned on additional exports made to the joint ventures, which is over and
above exports towards equity contribution. Some of the operating joint ventures have also been
declaring bonus shares from time to time and pro-rata allotment to the Indian companies has
been exceeded significantly. Issuance of bonus shares has enhanced the equity capital of these
units and this enables them to remit higher amounts by way of dividends as profitability
increases.

Problems Faced by Indian Joint Ventures

Out of the many joint ventures approved by the government, about 40 per cent were abandoned,
may of them halfway after considerable time and money were spent on them. Some of the
reasons for failure of these projects were: inability to gauge the market prospects, failure to
locate the right partners; subsequent backing out of the local partners and non-approval of the
technology sought to be supplied by Indian partners. But the basic cause lies in the inability of
the Indian companies to adjust them to a new marketing environment-absence of any sheltered
market to which they are used in India. Many units found it difficult to survive in the face of
relentless price competition. Most of the problems could have been avoided if the entrepreneurs
had done their homework properly. Of course, there was an information gap and the Indian
entrepreneurs did not have adequate information about many countries.

3.7 Franchising

Franchising refers to the method of practicing and using another person’s philosophy of business.
The “franchisor” authorizes the proven methods and trademarks of his business to the “franchisee”
for a fee and a percentage of gross monthly sales. Various tangibles and intangibles such as
national or international advertising, training, and other support services are commonly made
available by the franchisor. Agreements typically last five to twenty years, with premature
cancellations or terminations of most contracts bearing serious consequences for franchisees.
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”.

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

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