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China sets stage for franchising
Updated: 2004-11-11 11:00

When the desire to expand a brand meets with the mind of an aspiring entrepreneur, the franchise becomes an optimal profit-making business model. This idea was widely recognized at a franchise forum at the ongoing Third China (Shenzhen) Consumer Goods Procurement Fair.

For the very first time, a franchise exhibition area has been set up at the fair to show that franchising is gaining more ground.

¡°Shenzhen is well-known for its entrepreneurial atmosphere. Lots of people have the aspiration to start up their own business,¡± said Yu Jian, head of the franchise committee under the Shenzhen Retail Business Association.

¡°However, they don¡¯t have much capital and resources, so it is a good choice to rely on already well-established brands in their early stage and then build their own business after accumulating adequate financial, managerial and channel resources.¡±

Yu sees franchises as a feasible way for small and medium investors to develop at an early phase, while franchisers also benefit from this business model.

¡°Brands need to expand to remain attractive in the minds of consumers. By including new members in our drugstore network, we not only expand our business but are also exposed to more creative ideas by cooperating with our franchisees,¡± said Qu Wenhao, manager of Shenzhen Accord Pharmaceutical Chain Company.

Qu said a franchiser should not just solely seek growth but should make sure they can offer sufficient infrastructure and all-round support to each of their franchisees so that the sincere cooperation allowed the two parties to develop.

Like Accord, many enterprises are eying China¡¯s profitable franchise market. There are a total of 1,900 franchisers operating on the Chinese mainland, compared with 2,000 in the United States.

There is a great deal of potential for further growth, but now the franchising business only accounts for 3 percent of China¡¯s total retail sales, starkly behind the 30 percent in the United States.

China¡¯s robust economic growth has been accompanied by the stronger purchasing power of many Chinese people. Average incomes exceeded US$1,000 last year, which many economists believe will lead to explosive consumption.

As Diao Junyuan, a senior franchising advisor from Hong Kong, pointed out, there are three core forces driving the demand for franchising in China ¡ª chain stores using franchising for expansion, business-to-consumer (B2C) e-commerce needing franchises to deal with physical distribution and China¡¯s entry to the WTO requiring it to allow foreign companies into the local market through franchising.

As promised in the WTO entry, China will open up its retail industry at the end of the year. There is great optimism about the future of protecting and promoting franchise businesses in China.

In 1997, the Ministry of Internal Trade established the first Chinese franchise law, the Regulation on Commercial Franchise Business, which included guidelines on such issues as trademarks, copyrights, and intellectual property protection.

As a comparatively new retail model, franchises are expected to cultivate more new brands and potential entrepreneurs in China.

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