China - Franchising Industry SectorChina - Franchising Industry Sector
Franchising shows promise in China. Statistics from China Chainstore & Franchise Association (CCFA) show that the country’s top 100 franchises generated a total sales of RMB428 billion with the total number of stores across these 100 franchises is 124,086. 90% of these franchises believed that their sales will continue to grow in 2015. China has over 4,500 franchises and chain store companies creating more than 5 million jobs nationwide.
Challenges to U.S. franchise firms include a relatively weak regulatory system, increasing costs of labor and real estate and a lack of qualified Chinese franchisee candidates. The most recent legislation released by the Ministry of Commerce stipulates that franchise firms can start franchising in China as long as they own and operate two company-owned stores for one year in any part of the world. In addition, franchise firms must file with the local commercial authority for record within 15 days after the execution of the initial franchise contract.
Sub-Sector Best Prospects
The Chinese franchising market is dominated by traditional franchise operations like food and beverage (F&B) and retail outlets. According to CCFA, nearly 40 percent of all franchisers in China are engaged in such industries. U.S. franchisers established a particularly strong foothold in the F&B market.
Franchising opportunities abound in non-F&B industries. The best prospects in this form of franchising include sectors such as car rental and services, education and youth learning, and health and fitness.
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.
Manage government relations by establishing and maintaining solid working relationships with relevant Chinese Government agencies.
Foreign franchise brands are receiving greater interest from second and third-tier market developers as markets in Beijing and Shanghai become more saturated. It's noteworthy that some major locations that were abandoned by foreign multinationals over the past few years were almost all in first-tier cities where their Chinese story began. High rent is expected to hit more foreign franchises in Beijing and Shanghai. However, there is room for growth in China’s west and inland regions that boast advantages such as lower labor costs, reasonably-priced real estate facilities and untapped consumer spending.
Additionally, we are seeing an increase in F&B companies entering the market as wholly owned enterprises to manage their brand, demonstrate proof-of-concept and create a strong foothold prior to expanding into the franchise model.
Per Capita Disposable incomes at China’s 1st and 2nd tier cities (figures in $)
International Franchise Association www.franchise.org
China Chain Store and Franchise Association Website: http://www.ccfa.org.cn
Ministry of Commerce (MOFCOM) Website: http://www.mofcom.gov.cn
Shanghai International Franchise Show
Shanghai International Exhibition Center, China http://sh.ccfa.org.cn/
US Commercial Service Offices in China:
U.S. Embassy in Beijing
Mr. Shen Yan, Commercial Specialist
(86 10) 8531-3554
U.S. Consulate in Shanghai
Ms. Janet Li, Commercial Specialist
(86 21) 6279-8775
U.S. Consulate in Guangzhou
Roya Xie, Commercial Specialist
(86-20) 020 3814 5807
U.S. Consulate in Chengdu
Ms. Fan Li, Commercial Specialist
(86 28) 8558-3992
U.S. Consulate in Shenyang
Liu Yang, Commercial Specialist
(86 24) 2322-1198
China Franchising Trade Development and Promotion