The Chinese Franchising Market Presents Great Opportunities
Franchising is a very promising sector in China. American franchising companies have
been in China for almost two decades now, beginning with KFC's 1987 opening in
Beijing. Although the concept of franchising as a business was only introduced to China
seven or eight years ago, its pace of development has overtaken that of other business
models, and franchising has made important inroads into the world's largest consumer
market. Enterprises from more than 50 industries have applied for franchise operations,
including enterprises from the traditional sectors of catering, retailing, and individual and
business services. New franchises are developing in the fields of commercial services,
family services, automotive care, and education. Currently, China has 2100 franchise
and chain store companies, and the number is rising rapidly.
Challenges to U.S. franchise firms include a weak regulatory system and a lack of
qualified Chinese franchisee candidates. In addition, new legislation from the Ministry of
Commerce require new franchise firms to first own and operate two company-owned
stores for one year within China. The impact of such barriers to entry is still being
evaluated by the international franchising community.
The Chinese franchising market is dominated by traditional franchise operations like food
and beverage (F&B) and retail outlets. Nearly 40% of all franchisers in China are
engaged in such industries. U.S. franchisers have established a particularly strong
foothold in the (F&B) market. By the end of 2004, KFC had established about 1,200
outlets in China. McDonald's has established over 700 outlets nationally.
While it is still too early to say whether the F&B related franchise market has become
saturated in China, franchising opportunities abound in non-F&B industries. The best
prospects in this form of franchising include car rental and services, education, training,
real estate, dry cleaning, and executive search.
Major international franchise firms have established the following best practices for
doing business in China:
* Register the brand before entering the China market.
* Carefully seek local partners who can help navigate the local business
* Understand the cultural differences and adjust market access strategies
* Have an ability and willingness to localize your product if necessary, without
changing the core product.
* Minimize the price of the final product and the franchising fee to achieve rapid
expansion and mass acceptance.
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