Concept Over the last two decades, the people’s republic of china has had the fastest growing market and GDP growth rate. China is hailed as one of the most important consumer market of 21st Century. Franchising is one of the booming sector in the Chinese economy.
Franchise in China• China has the largest franchise systems in the world.• China currently has more than 82000 franchisee outlets, and growing at the rate of 49%.• Nearly 60 industries have applied for franchise operations in china.• Industries includes catering, retailing, individual services and automotive care.• Nearly half of the top 100 restaurant companies are utilizing franchise business model.
Evolution Franchising first emerged in china in the late 1980’s. Franchising industry in china experienced a period of disordered development in early days. In 1997, the Ministry of Internal Trade established the first Chinese franchise law. In china foreign franchising was still a grey area before the new rule was published. The new regulation on commercial franchise announced by the Ministry of Commerce on December 30th, 2004.
Franchising Models in China Joint Venture:- Joint Ventures means joining up with foreign companies to produce or market the products or services. For example, Mc Donald’s. Wholly Foreign Owned Enterprises:- All capital is provided by the foreign investors who has full control over the operations of the enterprise. For example, Tricon Group, which owns KFC and Pizza Hut.
Cont…Master Franchising:- A master franchise is a person or entity who provides services to franchisees in a specified territory, typically a major market, geographical region or even one or more countries. Master franchising is a method that has been employed by most franchise systems. For example, Century 21 China Real Estate
Best Prospects of Franchising Sector Catering Industry:- Catering industry is remaining the most popular investing item because the operation is relatively simple and the market is vast. Education and Training:- Investing in education industry will become one of the hot spots from now on. China’s fast growning economy creates a sound developing space for foreign language training.
Cont… Real Estate Brokerage:- China’s economic reforms have ended decades in which homes and apartments were provided by the government. Network Technology:- Franchise in network technology sector is still a brand new model.
WHY CHINA? VENDORCOST ADVANTAGE DIVERSIFICATION GEO-POLIICAL HUMAN RESOURCEDIVERSIFICAION AVAILIBILITY
Yum Brands In ChinaYum was the parent company of several restaurantchains including KFC, Pizza Hut, and Taco Bell, whichimproves them and expand in more area in China.Sam Su is the Chairman and CEO of Yum! BrandsChina Division and Vice-Chairman of Yum!Yum was the largest restaurant company in the worldin terms of the number of units.
Strategies Of Yum Brands In China Quick Serve Non-Stop Expansion Traditional Cuisine Focus in New Generation Maintain Control over its Chinese Restaurant. Encourage the Growth of its Unit in Second – Tier Cities.
Pros & Cons Of Yum BrandsPROS• Emerging Market• Innovation• Deal-MakingCons• US Business• Costs• Competitors
Should Yum Brands modify its menu to meet Chinese taste ?YES Stiff Competition from McDonald and International & Local Players.Growing Concern Related to lack of healthy nutrition value of fast food and out break of bird flu epidemics
Pros of Franchising in China• Western brands are highly regarded.• Second- and third-tier cities are open to franchising.• It permits the franchiser a relatively lower cost of entry into China as the franchisees pay for the capital investments in setting up the franchising operation. The franchiser thus bears less business risks.• It allows the franchiser to control the standard, quality and image of the operation.
Pros of Franchising in China• It offers a fast way to expand in a vast market within a short period of time as the franchiser may cooperate with several franchisees at the same time.• Marketing and promotional programs can meet with better support by the franchises.• The franchiser may benefit from the franchisees local experience and connections.
Cons of Franchising in China• Because the infusion of Western culture (e.g. movies, Internet sites, etc.) into China is controlled, many famous American brands are unknown.• The language difference is another obstacle. For Western brand names to be effective they must be translated so as to be both culturally acceptable and easy to understand.
Cons of Franchising in China• Older Chinese, being more tradition-bound, are a less attractive target market.• Finding and evaluating licensee candidates is tough.• Inadequate legal framework.