Doing Business In China

Franchising in China (Part 4 of 4)

Written by Angela Ly for Gaebler Ventures

The final article in this series continues with recommendations that prospective franchisors may want to keep in mind when venturing into the franchising industry in China.

Seize the Opportunity

Franchises that do not enter the market soon enough will lose the opportunity to other competitors.

Franchising In China Four

Once several competitors have established themselves, it is increasingly more difficult to penetrate the market. However, the large size of the Chinese market does allow for other players, especially niche market players, to gain entry and profitability.

Collaborate with Local Business People

Collaborations between foreign and local business people can help a brand to take root in China. Foreign franchisors can consider entering China via joint ventures with local Chinese who have a degree of experience running businesses. The latter can also offer invaluable advice in helping the former understand the local business climate. Local business people also have connections that are ideal for long-term success in China. Local partners should also be chosen carefully. They must have sufficient business experience, familiarity with the local business environment, and have the necessary industry and government connections.

Develop Close Working Relationships

As guanxi needs to be steadily attained over a long period of working together, breeding mutual trust, keeping a close distance with one's network is needed. Franchisors can learn the Chinese way of developing relations from the locals themselves, as well as pick up tips on negotiation styles that work in China.

Legal Matters

Franchises should make efforts to protect its brand name and trademark. Brand names should be registered in accordance with the local procedures, and it should be done so early. If not, there would potentially be issues of contention should ownership issues surface in the future. The negative publicity of such issues could hurt the business. Franchisors should also get acquainted with the current laws that apply to franchising, and seek professional advice when in doubt.

Due Diligence

Before venturing into an unfamiliar city, franchisors should perform due diligence to understand the local market - its tastes and expectations. What works for one city in China may not be successful in another, without some tweaking of the business model. Once again, flexibility in implementing business models for franchises is the key to capturing local market share.

Be Updated with Industry Trends

Franchisors should keep abreast with developments in market trends and industry news. Regular information updates to franchisees would be useful to them for preparing responses to changing market conditions. Similarly, franchisors would benefit from having franchisees monitor regional opportunities and challenges, such that franchisors can make good decisions on both short- and long-term business strategies. Thus, mutual communication is beneficial to both parties for the success of their franchises in meeting the expectations of the market.

Angela is currently an MBA student at Nanyang Technological University in Singapore. Ms. Ly is looking to specialise in Finance, and has an interest in exploring topics in entrepreneurship and strategies for small businesses.

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