Franchise stores sprouting across China

"Funds don't constitute the main 'threshold' of franchise; whether or not you have possessed the entrepreneurial spirit, whether or not you have really recognized this business concept, are actually the decisive factors for success." Richard Rennick, president of International Franchise Association (IFA), gave this advice to the enthusiastic franchisees at the Franchising China 2005 on October 31, although he highly praised the astonishing growing speed of franchise mode in China. Such an advice is undoubtedly a very composed voice in the upsurge of franchise that is sweeping China.

More and more franchisers, like Richard, have begun to realize this problem. Since 2001 when it began its franchise business in China, Tayohya Home Furnishing Company has opened 300 stores by now, and 72 percent of which are franchise chains. However, between the second half of last year and this year, Tayohya has changed over twenty franchise chains in Harbin, Jinan, Kunming and Shijiazhuang to direct sales stores at the same time when it newly opened nearly a hundred franchise chains.

"Because the operating situation of these franchise chains don't conform to the business concept of Tayohya very much, we decide to change them to direct sales for a while before we make a final decision", Pan Shuzhen, general manager of Tayohya, told reporters that the most anxious problem to her was the poor performance of franchise chains, which may destroy their local markets and damage the enterprise's brand. "Therefore I’d rather slow down the speed of expansion, sometimes go forward and sometimes move back, ensuring all the stores are at the same high level". Pan emphasized that what's more important to her when fossicking for franchisees is the candidate's own ability. "The relation between franchiser and franchisee is not a simple dealing relation at all; instead, they are to form a living community", which, to Pan, is a kind of understanding generally ignored by franchise circle in China at present.

When domestic franchise enterprises began consciously to speed up their pace for adjustment, international franchise giants are accelerating their steps to enter China.

Statistics show that at present there are more than 1900 franchise systems and nearly 82 thousand franchise chains in China, providing jobs for about 2 million employees and covering more than 50 industries and formats. Franchise mode has begun to extend to more industries particularly since early of this year when China canceled restrictive prescriptions on foreign-funded franchise according to the promise it made on its entry into WTO and when Managing Measures on Business Franchise went into effect formally on February 1.

The lift of policy restrictions is one of the major reasons attracting over 100 famous "franchisers", including Dicos, Subway, TNT, etc., to attend the Franchising China 2005. There are up to 305 exhibit spaces in this exhibition, 10 percent higher than last year. Some international chain titans, which have entered China in early years to establish "direct sales stores", begin to exert their energy on franchise business.

Although Managing Measures on Business Franchise doesn't allow a natural person to be franchisee at present, a growing number of small-and-medium investors wish to join this march.

In the last exhibition, an on-the-spot investigation of visitors indicated that 90 percent of the visitors expressed their wish to invest in franchise business within a year. However, in this exhibition, the atmosphere of standing-by among investors grew stronger. "There are much more selections as well as more intensive competition now. Whether or not to participate and what kind of franchise to join in should be reviewed carefully." Mr. Du from Hebei province couldn't make up his mind after collecting a great range of information provided by various franchisers. The investigation shows that projects of around RMB100 thousand draw more eyes of the visitors in this exhibition.

Richard believes that over 90 percent of franchise enterprises have less than 100 franchisees in the world; the tremendous demand of Chinese investors for excellent small-and-medium-sized franchise enterprises will further promote the maturity and consummation of this business mode.