Something you need to know before starting a Franchise in China
Chinese chain industry has witnessed significant development in the late century even if it started relatively late in the 1990s. After China has joined WTO in 2001, more and multinationals opened their franchises in China and consistently expanded their business because of Chinese’s growing needs. After years of development, these early birds have made great benefits with huge commercial scale. However, Chinese chain industry has still strong momentum of growth as China won’t stop its economic progress.
Opportunities & challenges of foreign franchises
As the Chinese giving the goes: Precise knowledge of the threats and opportunities lead to success. Opportunities and challenges always appear together, a statement that should be deepen understood before starting a franchise in China.
Chinese’s chain industry has large developing potential as the Chinese middle class is rapidly burgeoning in China. A recent Daxue Consulting research shows that 76% of Chinese families will reach the middle-class level in 2022. The annual disposable income of these Chinese families will range from 60 thousand RMB to 229 thousand RMB and 35% of them, are from the 80’s generation who are seeking after high quality of life with a strong ability to accept new and modern things. These middle-class families will become the backbone of Chinese consumer’s market, indeed, it will
stimulate domestic demand of the country. They can afford to buy more basic necessities and are willing to purchase foreign branded product at a higher price to show their wealth. Moreover, second- and third-tier cities are incredible market opportunities as competitors are not as many as in big cities. In addition, plenty of middle-class families choose to settle down in smaller cities in order to avoid the crowd and the high cost of living. Local governments also warmly welcome foreign investors to boom regional economic, some US companies have already authorized local companies to own franchises in order to enlarge their market.
New franchisors will definitely face several challenges when starting their business in China because of weak intellectual property protection. Fake goods are full of various markets including food, commodity, electronic products and so on. Though the Chinese government has already taken action and promulgate laws to tackle the problem, products which sell well will soon be copied because of its big benefits. Adaptation of products is also a question need to be considered before entering the Chinese market. Since China has a vast territory and people from different regions have different tastes and flavors, it will be hard for franchisors that don’t make changes according to local features.
A Great Growing Potential
Hypermarket chains develop most quickly among all the retailing in China. Hypermarket implements low price and high turnover efficiency as their price system, which attracts a lot of costumers. Large operating area and abundant variety of goods enable costumers to purchase all their daily life need. Foreign hypermarket chain like Walmart and Carrefour have succeeded in doing business in China since their first entrance in the late 90s. At the end of 2014, Carrefour has open 237 hypermarkets around China and plan to promote its new “EASY” convenient store in the neighborhood. Chinese consumers love to go to this kind of hypermarkets as their brands are a symbol of high quality.
Restaurants also have huge market demand as gourmet food is important in 1.3 billion Chinese’s life. Recent years, restaurants from the US, France, Italy, Greece and many other western countries gradually emerged in China. Since the boom of traveling abroad enables Chinese to taste different cuisine outside their home, they are craving more for international food when they come back home. Thus, many companies grab the opportunity to start their franchise business in China.
The Chinese government has changed regulations for several times but it finally published a more favorable regulation for foreign franchises in 2007. The regulation states that before a foreign franchisor grants a franchise in China, he must have owned and operated at least two franchises anywhere in the world. As for Chinese franchise, he must own and operate a store for at least a year before he can sub-franchise to others. The new regulation aims to improve new franchisee’s management ability and increase the probability of success for foreign franchises in China.
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