A Guide To The Franchise Industry And Economy In China

A Quick Overview

In 2014 the anticipated growth is 7.5% and in 2015 the figure is at 7.3%, however considering the fact that China comes in at number 93 in the world on GDP per capita, consumption growth has a lot of room to grow. The long-term future looks very positive.

A Quick Franchise Overview

The past 30 years has seen significant economic growth in China, and whilst it must be noted that franchising only began in the 1980s, the development speed seen in this area is exceptionally fast. By the time we reached 2012, there were over 400,000 franchised stores in China, this included 5,000 systems which had an average of 83 stores. For CCFA members (China chain store and franchise association), the total yearly sales was almost US$300 billion in the year 2010, this figure represented around 13% of China’s total retail sales.

China is indeed an ideal and lucrative market for the years to come, the dense population, increase of 2nd and 3rd tier cities and wealth all playing their roles exceptionally. Interestingly we can talk about there being a slowdown in China, yet we perhaps forget to note that GDP growth is still in excess of 7%.

A growth of 13.1% was seen in China’s retail sales in the year 2013 (as noted by the National Bureau of Statistics of China), in fact the Euromonitor has stated that there is an anticipation for this growth to continue each year by 8.7% until reaching 2018. One significant result of this growth is that of an increase in the number of people who fit into the middle-class society and have income at their disposal.

With China becoming more open, it is little wonder that the desire for new experiences, as well as brands from abroad is growing. A franchise should be informed on a number of very current sectors. Since foreign brands are considered as fashion statements, they tend to be favored over domestic brands. For ambitious franchisors who are keen to grow their business out of their own domestic market, this current trend should be carefully noted.

Although 15 of out of the 20 top franchises in the world are already in the Chinese market, a modest 13% of American franchises have become part of the Chinese market. A foreign company always is accompanied with a different way of doing business, and even though such foreign companies take up a relatively small space in the retail market, their expertise in business boasts greater efficiency and higher profit margins than their domestic equivalents.

For companies that are interested in entering China, the current growth, accompanied by the franchise market show a promising future. Since both the demand and the market are massive in comparison to other countries, it would be reasonable for a franchisor to anticipate a regional or country premium agreement, considering the investment ratio will be reflected in the franchisee’s profits.

The Chinese Consumer Has Nowhere To Go But Up

The fact that in 2012, the middle class bracket reached a staggering 300 million, shows that this group is increasing rapidly, couple this with consumer who are becoming more mature, and it is clear to see that Chinese society are in need of new products. Simple, basic goods are not satisfying such an ambitious and sophisticated market, especially since there is a growing trend to use foreign goods to highlight wealth. For example, grabbing a morning coffee from Starbucks is the, ‘thing to be seen doing’. within the middle class.

So how can we sum it up? The Chinese market is saturated with young, modern and future-focused consumers. These ambitious consumers are waiting for international franchisors to step over and introduce new and exciting products to them.

In A Few Words

Indicators are abundant that point to China being an easy franchise opportunity in the years to come. Foreign brands that provide the consumer with convenience are being sought after by the wealthy and sophisticated Chinese consumer.

Granted one of the challenging tasks is that of finding a partner in China, however the number is certainly growing and will continue to do so. Since new business laws are promoting improved business practice, as well as an increase in imported brands, risks are on the decrease. In fact the country is boasting potential with its large consumer market, economic situation and current trends.

When it comes to expanding to an international level, China shows itself to be a challenging, yet primary, choice for all franchisors.

Finally, the Chinese consumer is ready and waiting for foreign franchises, the economy and current trends give ample proof of the fact.

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