Franchising
China
Overview
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.
Best Products/Services
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 2006, KFC had established about 1,500 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.
Opportunities
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 environment.
· Understand the cultural differences and adjust market access strategies accordingly.
· 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.
Resources
Major Shows/Exhibitions
CCFA Franchise Expo, Shanghai
www.ccfa.org.cn/english/index.jsp
August 28-30, 2007
Resources
International Franchise Association
1501 K Street NW, Suite 350
Washington, D.C.
(202) 662-0767
China Chain Store and Franchise Association
Tel: (86-10) 5191-6856
Fax: (86-10) 5191-6863
Website: http://www.ccfa.org.cn
Ministry of Commerce (MOFCOM)
Tel: (86-10) 6519-7327/7301
Fax: (86-10) 6519-7322
Website: http://www.mofcom.gov.cn
China Council for the Promotion of International Trade (CCPIT)
Sub-Council of Light Industry
Tel: (86-10) 6839-6468
Fax: (86-10) 6839-6422
Email: ccpitsli@public3.bta.net.cn
Website: http://www.ccpit.org
CS Contacts
Beijing Office:
Tel: (86-10)8529-6655
Fax: (86-10)8529-6558/9
Frank Joseph
Shen Yan
Shanghai Office:
Tel: (86-21)6279-7930
Fax: (86-21)6279-7639
Tara Qu
Guangzhou Office:
Tel: (86-20)8667-4011
Fax: (86-20)8666-6409
Cathy Wang
Chengdu Office:
Tel: (86-28)8558-3992
Fax: (86-28)8558-3991