China Owns Over Two Thousand Franchise Systems

By Su Min

Since been popularized in China in the middle of the 1990s, franchise business format had entered a high-speed development period from the year of 2000. Statistics from China Chain Store & Franchising Association (CCSFA) shows that, with more than 2,000 franchise systems and over 120,000 franchized outlets, China has emerged as the host of the world's largest number of franchise systems. Now1.8 million people are working in franchise, in which the new employment of 2004 alone is 600,000. China has become the fastest growing market with the largest market space in the world, attracting the greatest attentions from investors and foreign franchise operators.

At present, the business scope of China's franchise has been gradually expanded and ten industries become the hotspots. By statistics, franchise business in China has penetrated nearly 50 industries. Judging from the development situation of franchise and the franchise hotspots of investors, convenience store, automobile maintenance, home decoration, house medium, education & training, Beauty, catering business, laundry, attire, books and audio-visual products have become the investment focuses.

After several years' development, the growth rate of franchise industry's gross income was 41.5 percent in 2004 and single store's ability to make a profit had a slight improvement while the growth rate of outlets was 38 percent and the pace of relatively mature enterprises' expanding outlets slowed down. This reflects that most franchise companies attach great importance to rational development and strive for pursuing core competitiveness instead of the number of outlets. At present, franchise enterprises in relatively mature status pay more and more attention to defending the value of their brand names and optimizing internal management, such as strengthening the supervision of franchisees, delivery support and guidance on marketing techniques, etc.

There certainly exist several problems in China's franchising at present. The task for market rectification is fairly arduous in franchisers, franchisees and market environment.

For instance, as for franchisers, the main problem is that franchising management system is relatively weak. The great majority of companies have only a few years' development, and the comparatively perfect franchising management system of most franchise enterprises are still been built up. Both the marketing ideas and means are relatively out of time. The maintenance of brands is not enough and the competence is limited in carrying out contracts. The delivery rate of raw materials and accessories is hard to control, and sometimes the outlets refuse to pay the franchise fees and fees of brand utilization. Then as for the fanchisees, whose quality yet need to be improved. The franchisees' cognition of both the franchise and franchise management is inadequate, and contracts are often implemented at will. Meanwhile, the franchisees need to strengthen their risk awareness and legal awareness. The franchise market hasn't been fully rectified. Some illegal companies, under the pretences of franchise, invite new franchisees to join by using mediums and advertisings as well as unregulated franchise expos. Their head offices, except for an alluring concept and an exquisite business brochure, have built neither the mature mode of making profits nor the supporting system toward franchisees' operation. A great many of investors were often deceived because of their lack of business experiences and knowledge about franchise.

As introduced, in accordance with the WTO timetable, by the end of 2004, all previous restrictions on China's franchise business had been eliminated. Franchise had been conducted in forms of cross-border supply and business presence and they had been opened thoroughly. In mid-May, ''The seventh China Franchise Expo'', sponsored by China Chain Store & Franchising Association, will first-time attract the delegations from Germany, Italy, France and Korea, as well as over 30 well-known franchise brands. The participation of the globally famous brands such as Kentucky Fried Chicken, McDonald's, 3M and CENTURY21 will offer the potential franchisees a lot of opportunities to invest and carve out and a bright ''money future'' by live and successful cases.