Franchise and Business Opportunities

China's strong economy sets stage for franchising as viable business method

Shanghai in particular, is betting on the expansion of large-scale retail chain stores as part of its 10th Five Year Plan period. It plans to set up more than 2,000 outlets from 2001 to 2005, focusing on cooperation between local enterprises and multinational retailers to target retail sales of US$30 billion by 2005. In the meantime, Guangzhou, with retail volume over US$13 billion, is being eyed by retail giant Wal-Mart, now in its fourth year in China, as its primary expansion site.

Information technology will also boost the prospects of franchising in China. Franchising will help establish the intermediary link - the actual point of physical distribution from the virtual world. For instance, Sina.com, one of China's best known web portals is partnering with Yafei Auto Chain, China's largest chain of auto franchises, to launch online car leasing and marketing. Already operational are e-commerce platforms supported by franchises in catering services, garments, education, beauty products and services, car parts and components, and books.

With China's entry into the WTO, there is great optimism about the future of protecting and promoting franchise businesses in China. The Ministry of Internal Trade established the very first Chinese franchise law in 1997, the Regulation on Commercial Franchise Business, which included guidelines on such issues as trademarks, copyrights, and intellectual property protection.

Getting to be big spenders
Dr. Chen points to other factors fueling the franchise rush - solid signs that franchising will prosper in the Mainland. These include increasing buying power indicators - such as disposable income and the consumer confidence index - of Chinese consumers; profitability of established franchising companies such as McDonald's and KFC; and the wide-open, high-growth potential of the local market.

Local consumers are indeed blessed with rising disposable income and are eager to spend it. The three largest cities in China, Guangzhou, Beijing and Shanghai have a combined average annual per capita disposable income of US$1,450 and rising. People will continue to spend as indicated by a rising consumer confidence index - an indication that consumers are optimistic about their incomes and the economy in the future. Out of a 100 points, consumer contentment was measured at 97 points in March of this year, the highest level since 1999.

Women and children first
A survey conducted by Zero Point Survey and Analysis Co in Beijing, Guangzhou, and Shanghai indicates that young urban women between the ages of 18 and 35 are increasing spending on clothing and accessories, household goods, cosmetics and education. They are expected to spend even more on hairdressing, working out, health care products, tourism and entertainment. Franchisors focusing on these goods and services will find a ready market in these urban centers which have a combined population of over 34.5 million.

Children in particular are dictating the spending habits of the typical Chinese family. Research by China Mainland Marketing Research Co. conducted in China's five largest cities indicate that half the total family income is spent on goods for their children. Results show that monthly consumption by children under twelve in the respondent cities exceeded $US422 million. In Beijing alone the figure was US$169 million spent monthly. The survey also indicates that these kids have a preference for imported goods - toys, clothing, and plenty of food. With China's "little emperors'" craving for more western merchandise the opportunities for franchise businesses is decidedly vast as they will cater to a well funded and still growing clientele.

Besides leisure items China's parents are also spending on their children's schooling. Reports indicate that yearly spending on education is growing 20%. China's one-child policy has parents focusing their attention not only on the pampering but the development of a single child. Daycare, English instruction, and computer classes head the list of potential growth areas.

Fast food has also seen an especially favorable surge thanks to the young spenders of China. Of 18,000 teenage respondents who participated in Sinomonitor's TEENS2000 survey, 64.6 per cent said that they have had western fast food, 40.7 per cent at least once a month. Chinese consumers have certainly developed a taste for Western food. McDonald's started operations in China in 1990 and now has 280 company owned stores in 50 Chinese cities, including more than 60 stores in Beijing alone while competitor Tricon Global Restaurants has opened 340 KFC and 40 Pizza Hut outlets in 90 Chinese cities since 1987.

Home improvement
The housing sector has seen dramatic changes in consumption behavior as well. From mainly institutional buying, individuals are now the main buyers in the housing market. Resale markets have also emerged and home financing is on the rise - 80% of home buyers took out a mortgage in Shanghai. Thus the timely entry of real-estate giant Century 21, which announced plans to grant 30 franchises and launch 2,000 allied chain stores within three years.

Century 21's entry into the Chinese franchise market has been accelerated by its participation in the Franchise China Conference & Exhibition series. Realizing the potential of franchising in the mainland, Global Sources-CMP Media has been organizing the event, which recently concluded its 3rd show in November with stops in Beijing, Guangzhou and Shanghai. Century 21 joined Subway Sandwiches & Salads, Informatics, Roto-Rooter, Ramada International Hotels and Resorts, Tupperware and other internationally recognized companies among nearly 80 exhibitors at the 2000 Franchise China show to seek out and educate potential business partners, entrepreneurs and investors. A well-informed and well-funded audience - over 12,500 attendees, 80% of which were willing to invest at least $US12,000 in a franchise - gave international franchisors a taste of the potential for franchising in China.

For 2001 Franchise China once again targets the most promising cities for business on the mainland. The 4th annual Franchise China Conference & Exhibition is slated for Nov. 5-6 in Beijing, Nov. 8-9 in Guangzhou, and Nov. 12-13 in Shanghai.

About Global Sources
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