Column: Indian School of Management In Practice -- "Indian and Western Franchise Model"

Sunday, July 24 2016, 10:32 AM
Is there an 'Indian' School of Management? Are there unique ideas, though-processes, skills that have the potential to impact the world? Management author and thinker Sandeep Singh believes so.

In this second installment of the column on MBAUniverse.com -- 'Indian School of Management - in Practice' by Sandeep Singh, the author traces the practice of Franchising to its Indian roots. 

Column:  

Indian and Western Franchise Model

"The Diamond Trade: History & Culture of the Key Players" writes: Diamonds made their first reluctant appearance in human history over 2400 years ago, and were written about in an ancient Sanskrit manuscript called the "The Lesson of Profit" Arthasastra (c. 320 BC) by Kautiliya, a minister to the Indian king, Chandragupta. The Sanskrit word for 'diamond' was vajra "thunderbolt." The Indians would go on to enjoy a singular reign over the diamond dominion known as Hindustan for another two thousand years, and although India's famous 'Diamonds of Golconda' were mined-out hundreds of years ago, the Indians would not be giving up their rightful heritage as diamantaires.

"Management Today" writes: An exhibition of Indian Jain art was held at Antwerp's Etnografisch Museum in 2000. What was curious about it was that almost every one of the 35 commercial sponsors was a diamond trading company. Why should diamond trading companies care about ancient Jain art? Because every one of those companies is owned by a Jain family.

Once small farmers in the villages of Gujarat, they now harvest diamonds. And what a bumper crop it is! Almost 80 percent of the world's polished diamonds pass through the hands of Indian merchants,

Devout Jains are extreme vegetarians: meat and fish are avoided but so too are many other foods. Such rules are exclusive and help to keep small communities intact. And that is useful if business is to proceed along ethnic lines and remain contained within dispersed ethnic networks.

It's a trade that's based on trust as any trade in small, high-value consignments must be, particularly if it's across international borders. Hence, it's a business for which families and small, cohesive ethnic groups are well suited.

How have the Jains managed to push out the Hasidic Jews from this lucrative sector? Access to cheap diamond cutting and polishing facilities in India has been essential. But so too has been their insularity - they are possibly even more tight-knit than the Hasidim, a perfect requirement for trading in such a secretive and high-value industry.

Ever the innovators, Indians have taken on a new role: banking on skilled hands and eyes and enterprise, they have become the most prolific diamond polishers in the world! The processing is contracted out to thousands of small family-owned Jain workshops. Labour costs are low and many gem-quality diamonds are cut and polished for as little as a dollar a piece. 

The big hidden strengths of India's diamond merchants are: their strong family ties. Whether in manufacturing, buying or selling, Indian diamond merchants have a strong family support system and many willing hands. "Indians had the flexibility and the ability, and because of their geographic situation and big families, they could put people all around the world. Their business grew much more as compared to the other communities," says Mehta of Rosy Blue.  

Mehta, further says "So it's all about people moving to where there are business opportunities and if it ties into the supply situation then it works very well. This is what Indians have been able to do due to their flexibility and large families. They've been able to adapt and so naturally their business has been increasing." Indians have also been moving (Lavina Melwani, Little India July 2003) 

FOR all its size and global reach, the Indian diamond industry is remarkably intimate.  "J.B. & Brothers was founded in 1983 by Mr. Jitendra Shah," The trail begins with founder Jitendra, who resides in Belgium with his elder son, Miten, and his nephew, Nirav. Jitendra's younger son, Premal, lives in Israel. Jitendra's brother, Shailesh, lives in Surat with his son, Shaishav, while Jitendra's two younger brothers, Vijay and Sanjay, live in Mumbai. The initials of the company name stand for Jitendra and patriarch Babulal. If there's anything to be gleaned from the Shahs' diaspora, it is that family and business operate as one. Even in instances where there are not enough siblings, cousins, grandsons or nephews to oversee the expansion, intermarriage supplies the rest. "We have four brothers in this business, my two sons, my brother's three sons and my other brother's sons—and sons-in-law in HongKong, Antwerp, Los Angeles," says Vasantlal R. Sanghavi, chairman of Sanghavi Exports International. "They take care of everything, and not for commission."  (Victoria Gomelsky, National Jeweler 2007) 

I was supposed to write about franchise in this column. Let us explore what is "Franchise" 

  • The root word "Franchise" comes from old French meaning privilege/ freedom. In Middle Ages a franchise was a privilege/ a right. 
  • 'Franchise' is a network of interdependent business relationships allowing a number of people 1) to share brand identification, 2) to develop a successful method of doing business, and 3) to establish a strong marketing and distribution system.   

Franchisees joining a franchise system enjoy the following benefits: 

  • Backing of a bigger organization
  • Brand name appeal
  • Proven track record
  • Shorter learning curve
  • Economies of scale 
  • Joint advertising and promotion
  • Transfer of management expertise
  • Training & support from the franchisor 

Franchising allows the franchisor to enjoy following benefits: 

  • Have greater access to capital
  • Expand rapidly
  • Save operating costs
  • Capitalise on the abilities of independent entrepreneurs 
  • Large Operation Yet Few HQ Employees 

To demonstrate that Franchise and Franchise not only use same brand name but also wear same dress, have similar furniture, same colour scheme, same process etc. There is a huge document which talks about do's and don'ts. Most important, there is a huge legal document and battery of lawyers which keeps the franchise and franchiser together.  

Isn't it surprising that there is no such legal documentation among Palanpuri Jains. Social bonding is stronger then any legal document.  They may not follow the dress code but they do have a common food habit. The bonding which comes from within, one's own culture is much stronger then any artificial bonding. Over and above this the family bonding provides all the other marketing, commercial and other benefits which franchiser and franchise provide to each other 

Palanpuri Jains are not an exception, in India in every nook and corner one can find franchise system of family bonding blossoming to its full potential. Local Kirana Shop to Raddiwalla, Brijwasi Sweets to Haldiram, Baidynath to Guruji Thandai and lakhs of others work on the same principle. 

Bonding of Five Sense are much stronger then the bonding of Five P's of marketing! 

This weekly column 'Indian School of Management - in Practice' is authored by management thinker Sandeep Singh. The column aims to explores the 'elements' of business as practiced by Indian entrepreneurs spread across industry in India and put them in points, grids, matrix, charts etc. so that they can be taught at management institutes and be of practical use in day to day working life of practicing managers.     

Sandeep Singh is the author of bestseller "Business of Freedom – an Initiative for School of Indian Management". He also runs Swadeshi School for Training in Indian Knowledge (SWASTIK). Readers can reach him at sandeepconsultant@gmail.com    

Next Week:  HR Practices