Franchising in China began with the American fast food restaurant chain KFC in 1987 and became popular in the mid to late 1990s. 25 years later after KFC first entered the Chinese market, with over 200,000 franchised retail stores representing over 2,600 brands, China is now the largest franchise market in the world. Over recent years, franchising in China has continued to grow at a very fast rate of 35 to 40 percent. (JLJ Group) Today, in the booming Chinese economy, franchising offers a low cost rapid growth model that provides easy access to the ever-expanding consumer market and second-tier cities.
Historically, large foreign forms had reason to be wary about franchising in the Chinese market. Problems included lack of local management skills, fear of franchisees not adhering to the proper standards and jeopardizing the brand image, intellectual property violations, and more. However, the present situation in China for franchising has improved drastically due to changing economic conditions, new laws and regulations, and more. The changing nature of China’s economic model also favors a growth of franchises. As China transitions from its traditional role as a heavy industry and low-wage society to a service economy dominated by a highly-educated workforce, it will inevitably nurture an entrepreneurship culture that is extremely favorable to foreign firms looking to franchise in China. (Business Forum China)
Specifically, the catering industry has become the most popular investing item for franchising in China because the operation is relatively simple and the market is vast. The China Statistics Bureau reported that China’s fast food industry rose 20% annually over the past 20 years. (Franchise.org) Following the example of KFC, other well-known foreign brands such as McDonald’s, Subway, and T.G.I. Friday’s rapidly developed in China through franchising.
This research paper will begin by discussing the different ways to franchise in China....