Franchising Trade Mission
to
China, Hong Kong (SAR) and Taiwan
June 17-28, 2002
Mission Description
The Office of Service Industries, of the U.S. Department of Commerce's International Trade Administration, in cooperation with the International Franchise Association, will lead a business development trade mission to China, Hong Kong (Special Administrative Region), and Taiwan to promote the U.S. franchise industry and focus on finding master franchisees, business partners and investors in these markets. According to U.S. Department of Commerce's Commercial Service officials in the region, franchising offers "great prospects" for U.S. firms seeking business opportunities in these countries.
The Trade Mission (TM) visit is scheduled for June 2002 with a full program of activities in Beijing, June 17-18; Shanghai, June 20-21; Hong Kong (SAR), June 24-25; and Taipei, June 27-28, 2002.
Commerce Department staff from the Office of Service Industries will accompany U.S. corporate executives from the franchising industry interested in doing business in China, Hong Kong (SAR) and Taiwan.
Commercial Setting
According to the International Monetary Fund and the World Bank, economic growth in China, Hong Kong (SAR) and Taiwan increased significantly, far exceeding earlier expectations during the Asian financial crisis of 1997-98. Further, despite a recent economic slowdown in the U.S. and other Asian countries, China has the fastest growing economy in the world. Hong Kong (SAR) and Taiwan are also experiencing economic growth. Moreover, with China's recent accession to the World Trade Organization (WTO), international trade and commercial activities are expected to rise significantly. Based on these reasons, U.S. and other foreign firms are interested in taking advantage of business opportunities in China as well as Hong Kong (SAR) and Taiwan, and U.S. franchisors have a prime opportunity to expand their business venues into these markets.
China
China has one of the largest economies in the world. Despite a global economic slowdown, the Chinese economy (GDP) is estimated to grow 7.5% and 7.8% in 2001 and 2002, respectively. Also, China registered a current account balance of US$20 billion in 2000. Moreover, it has a foreign exchange reserve of US$178 billion. China's upcoming accession to the WTO is likely to fuel business opportunities further.
Pursuant to its commitments under the WTO, China will be emphasizing increased economic opportunities for the private sector through privatization, deregulation, and the removal of impediments to competition. Thus, the U.S. exporters could expand and participate in new and emerging business opportunities in China for many years to come.
Franchising Opportunities in China: Strong economic growth, along with economic reform, has resulted in a rapid growth in China's retail industry in the past two decades. As a newly industrialized country with a sizable middle income urban population, the Chinese market presents a big target of opportunity for many franchisors. Though franchising is still relatively new in China, many well-known international franchises are now operating in China. These franchises include McDonald's, KFC, Dairy Queen, 7-Eleven, Pizza Hut, Days Inn, and Sign-A-Rama. Some of these franchises, such as McDonald's and KFC, have been in China since the 1980s. With the growing acceptance of western franchises, many well-known traditional Chinese establishments have turned into franchises. Beijing Quanjude Roast Duck, Tianjin Goubuli Steamed Bun, Shanghai Ronghua Fried Chicken, and Lanzhou Jinding Beef Noodles are some of the notable examples.
Franchising offers advantages to foreign companies wanting to expand in China. It allows foreign companies to break into the China market with relatively little capital. However, franchising in China also presents foreign franchise operators with many potential problems. For example: (a) there is a shortage of local management talent; (b) Chinese laws on intellectual property rights are still weak; and (c) laws governing franchises are inadequate.
As a result, some of the well-known international franchise companies are not operating as franchises but rather as joint ventures and wholly foreign-owned outlets.
Hong Kong (SAR)
Hong Kong is another dynamic economy in Asia. Hong Kong's GDP is estimated to grow 3.1% in 2001 and 4.6% in 2002. Though Hong Kong is now a part of China, it has maintained its commercial dynamism. For example, Hong Kong registered a current account balance of US$9 billion in 2000, and it has a foreign exchange reserve of about US$115 billion. Because of a vibrant trading system, Hong Kong presents good business opportunities to foreign investors and exporters. U.S. goods and services are popular in the Hong Kong market, and they are likely to remain so.
Franchising Opportunities in Hong Kong:Hong Kong's high per-capita income and westernized lifestyle offer attractive business opportunities to interested U.S. franchisors. The number of franchise operations in Hong Kong increased from 52 in 1992 to 120 in 2000. The 120 franchise operations in Hong Kong (60% foreign) operate 2,000 outlets, and most of these franchises are from the United States. Master franchisees operate about half of these foreign franchises. Food-related franchisees occupy 40 percent of the market, while retailing and other services account for 18 percent and 42 percent, respectively. A growing number of local bakeries and herbal teashops have adopted franchising as a way to expand their businesses.
In Hong Kong, franchising offers an opportunity to participate in a proven business with the support of a well-known brand name. Brand names popular in the United States are also popular in Hong Kong. U.S. brands such as Hardee's, Haagen-Dazs, Jack-in-the-Box, KFC, McDonald's, and Futurekids are well established in Hong Kong. Third-country brands such as Benetton, Fujicolor, IKEA and Yoshinoya are also popular.
The franchise market in Hong Kong (SAR) has seen growth recently in cleaning and maintenance services, computer education and training. These sectors are still attractive to new franchisees due to the lower initial investment required, as they do not require large premises and large staffs.
Taiwan
Taiwan has a robust economy. The real GDP is expected to grow 4.6% in 2001 and 5.2% in 2002. Further, Taiwan registered a current account balance of about US$10 billion in 2000; it has consistently maintained a large foreign exchange reserve that currently stands at more than US$110 billion. U.S. goods and services are well regarded in the Taiwanese market.
Franchising Opportunities in Taiwan:There are currently about 100 foreign firms with over 3,000 retail outlets in Taiwan. Most of the top international brands - such as KFC, Pizza Hut, Blockbuster, Warner Brothers, T.G.I. Friday's, Jani King, Starbucks and Cosmed - have created successful markets in Taiwan through allocating master franchise rights, joint ventures, technical cooperation and direct investment.
The development of shopping malls in Taiwan is on the rise. Several of the 20-30 proposed shopping malls are developed presenting opportunities for retailers and franchisors.
U.S. retail and franchise management skills and know-how are widely recognized in Taiwan, and U.S. consumer goods and services are very popular in the Taiwan market. Also, Taiwan has long-standing close commercial ties with the United States. Many business people and budding entrepreneurs are educated in the United States and are familiar with U.S. retailing and services. Further, U.S. franchises can use Taiwan as a platform for expanding into China.
Mission Goals
The mission leader and the business delegation will meet with corporate leaders and government officials to further market access, market exposure, and market research efforts of U.S. franchise firms, while gaining valuable contacts for future business deals that will increase sales of U.S. products and services to each country. This trade mission will provide participants an opportunity to understand more clearly the franchise industry in each country and establish important government and private industry contacts. In keeping with the goals of the mission, private sector participation will be concentrated among officers of franchise firms seeking business opportunities in China, Hong Kong (SAR) and Taiwan.
Mission Scenario
The program for this Trade Mission will include the following:
Timetable
June 17-18: Beijing
June 20-21: Shanghai
June 24-25: Hong Kong
June 27-28: Taipei
Recruitment will begin immediately and should be concluded by no later than April15, 2002. Applications received after that date will be considered only if space and scheduling constraints permit.
Criteria for Participant Selection
· Relevance of a company's business line to mission goals.
· Timeliness of completed application and participation agreement signed by company (including participation fee).
· The participation fee for the franchise Trade Mission is expected to be $6,500 per company. This fee does not include Mission participants' airfare, hotel, meals or other personal expenses.
· Minimum of 10 (going to all four cities), maximum of 15, participating companies in the mission.
· Potential for business in each mission host country for the company.
· Provision of adequate information on company's products and/or services, and company's primary market objectives, to facilitate appropriate matching with potential business partners.
Companies that provide a product/service which is produced in the United States, or if not, marketed under the name of a U.S. firm and has at least 51 percent U.S. content of the finished product/ service, may participate in this mission. Any partisan political activities (including political contributions) of an applicant are entirely irrelevant to the selection process.
Recruitment will be conducted in an open public manner, including publication in the Federal Register, posting on the Internet, press releases to the general and trade media, direct mail and via telephone calls.
CONTACT: Raj Dwivedy, Ph.D.
Tel: (202) 482-4581; Fax: (202) 482-2669
Email: Raj_Dwivedy@ita.doc.gov
OR Email:Raj.Dwivedy@mail.doc.gov
Office of Service Industries (SIF/TD), International Trade Administration,
Room 1124
U.S. Department of Commerce, Washington, D.C. 20230