Thursday, May 17, 2012

Franchisee model of business

My friend Mohan became a dealer for Voltas air-conditioners way back in 1979. His was the fourth dealership awarded in Chennai and at that time the company thought that three was more than enough. He had to convince them a lot to get the dealership. His financial strength, business and technical acumen, willingness to
abide by the Tata ethics and culture; A whole lot of things were considered.

Today the picture is quite different. The company operates on a franchisee model and they only thing spoken
of is volume business. Sell, sell and sell. This the mantra today. Since the margins are very low my friend is
losing interest in the business.

Yet another friend of mine, Muthukumar, joined his father in the business of tyre selling. They were
selling MRF tyres and they were the first authorised shop selling only MRF tyres. They had their shop
in G.P. Road - the automobile spares hub of chennai city.

I have visited MRF tyres factory in the early 70's when they had only two large sheds in Tiruvottiyur.
By phenomenal growth the company achieved a turnover of 5,000 crores in 2007 and this went up
to 10,000 crores by 2011.

But there was a tremendous amount of pressure from the company to my friend asking them to
invest a huge lot of money and make theirs a very big show. The margins being very low, my friend
and his family opted out of the business.

Why? The companies want their franchisees to be adventurous.

Companies want their franchisees to sell more and more as they earn less and less.

I am reminded of something my father told me years back: A genius is one who knows more and
more of less and less - until he knows everything about nothing.

No comments from my side.

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