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Franchising >> China

China Country Market
Insights and Opportunities

Franchising Sector


Overview: Franchising can be a promising business model in China for many industry sectors. Some studies suggest China is already one of the larger franchise markets in the world.
Enterprises from more than 80 industries have applied for franchise operations, including enterprises from the traditional sectors of catering, retailing, and individual and business services. Currently, China has 2100 franchise and chain store companies, and the number is rising rapidly.

But, the cold truth is that finding franchisees is extremely challenging. One approach that has proven successful is first opening a corporate owned store. The corporate store establishes the brand and proves to the market that the concept works. Another approach to consider is to search for mainland China franchisees in Hong Kong, Taiwan or Singapore. Finally, China’s less penetrated second tier markets – such as Xian and Chongqing – offer potential in the longer term since disposable incomes there, although lower, are rising.

Opportunities: There are growing opportunities for mid-market and high-end brands. However, there are several challenges such as the difficulty of finding franchisees, lack of control over store quality, need for localization of product, etc. Companies need to be prepared to invest time, commitment, and resources to develop and manage their China operations.

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 established a particularly strong foothold in the (F&B) market. There are some franchising opportunities 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.

Finally, China’s less penetrated second tier markets – such as Xian and Chongqing –offer potential in the longer term since disposable incomes there, although lower, are rising. But, at present, it is much more difficult to find good potential partners in second tier cities.
 
There are growing opportunities for mid-market and high-end brands. However, there are several key challenges such as the difficulty of finding franchisees, lack of control over store quality, need for localization of product, etc. Companies need to be prepared to invest a significant amount of time, commitment, and resources to develop and manage their China operations.

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 established a particularly strong foothold in the (F&B) market.

There are some franchising opportunities 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 in China before entering the China market; Find 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; and Manage government relations by establishing and maintaining solid working relationships with relevant Chinese government agencies.




  2012 3rd International Conference on Environmental Science and Development (ICESD 2012)