The Mainland China market is of great potential to many enterprises. Retailers in particular would like to enter it. However, after many years of development, competition in the franchising sector has become intense in Mainland China’s 1st- and 2nd-tier cities, with comparatively high operational costs compared to other parts of the country. That has led the franchising sector to move to 3rd- and 4th-tier cities in recent years. Ms. Susan Su, Director of Franchise Committee Office of the Franchise & Entrepreneur Department, China Chain Store & Franchise Association, pointed out that lower costs is the major reason why franchisors started to expand in the 3rd- and 4th-tier cities. With the progress of China's urbanisation, the purchasing power in those cities has been substantially improving. That has drawn the franchisors to intensify their network in those target areas.
At Macao Franchise Expo 2014 (2014MFE), Ms. Susan Su stated franchising is a benefit to enterprises, not only in terms of outsourcing responsibility for staff recruitment, but also to build up a brand’s image by developing the brand’s franchisees. She said franchising requires cooperation with people from different fields, involving communications, property rights, financing and manpower. A franchisor therefore needs to find franchisees with the same skills and level of ambition.
Training is a necessity, to develop better communication between franchisors and franchisees, she added. As for investors, starting a business through franchising with the support from the franchisor can offer a better chance to achieve success than to initiate a business independently.
Ms. Susan Su also pointed out several matters that require attention when entering the Mainland China market. One of them is the protection of intellectual property rights. Franchisors need to protect their intellectual property rights to avoid hampering the enterprise's growth. Moreover, the franchisor should have a mature operations model and at the same time provide sufficient support to the franchisees enabling them to make their right choices, Ms. Susan Su added.
Mr. Wilson Lee, Chairman of the Licensing & Franchising Association of Hong Kong, said that the 1.3-billion population market of Mainland China certainly attracts enterprises to invest and explore. Some franchises even recorded revenue of double-digit growth in Mainland China in recent years.
That appeals to many Macao and Hong Kong enterprises and even international brands, he added. Being unfamiliar with the Mainland market, many international brands collaborate with Macao and Hong Kong enterprises or seek their advice to help penetrate into Mainland market.
Mr. Wilson Lee also brought up several other matters needing attention when enterprises are seeking to expand into Mainland China. Firstly, franchisors need to register their intellectual property rights, including trademarks, and to apply in China for any relevant patents.
Intellectual property rights are not currently fully protected there, he said. Therefore, franchisors need to ensure their legitimate rights and ideas are as well protected as possible, in order to reduce the chance of ideas – such as the formula for food and beverage products and other commercial secrets – from being stolen.
