The enigma of franchising in China

Abstract

Purpose

Although China is among the most populated and fastest growing markets in the world, the reason why China’s franchising scale and scope is so limited remains an enigma. The purpose of this paper is to shed light on franchising in China and offer strategies for practitioners to more effectively operate under a franchise model in the Chinese market.

Design/methodology/approach

This paper reviews both literature and practical sources providing some primary data from interviews conducted with franchise industry practitioners in China.

Findings

The findings of this paper are that foreign entrants to China must carefully consider if they should enter the Chinese market through franchising or if the market may be too difficult to navigate. Franchisors, whose brand is unknown in China or have operations that are too Western-centric, should probably seek international markets closer to home. Those with a high value proposition in the local market and the capabilities to adapt effectively to China’s peculiarities may, however, find a promising and profitable niche to operate in.

Originality/value

This paper focuses on the under examined realities of franchising in the Chinese market. Based on the previous experiences of franchisors in China, the paper raises seven practical strategies that practitioners can use to more successfully enter the Chinese market through franchising. Although China is among the most populated and fastest growing markets in the world, the reason why China’s franchising scale and scope is so limited remains an enigma. According to the International Franchise Association and International Trade Administration reports, China is among the top-ranking countries in terms of trade opportunities, with the top 100 franchisor sales estimated at ¥428bn (about US$66bn). China is the largest franchise market in the world, with over 4,500 franchise systems and some 400,000 franchised outlets in over 70 industries. However, considering China’s US$13.6tn (2018) economy, this is still far lower than its full potential. In addition, the scope of franchising is limited and is mostly centered in food and beverage and retail outlets, which consists of approximately 40 per cent of all franchisors.

Citation

Alon, I. and Kruesi, M.A. (2020), "The enigma of franchising in China", Journal of Business Strategy, Vol. 41 No. 5, pp. 15-25. https://doi.org/10.1108/JBS-06-2019-0108