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Franchising in China (Part 3 of 4)

Doing Business In China

Franchising in China (Part 3 of 4)

Written by Angela Ly for Gaebler Ventures

The third article in this series discusses some recommendations that prospective franchisors may want to keep in mind when venturing into the franchising industry in China.

China's unique business culture calls for the franchising system applied in China to be adapted to its business and social context.

Chinese business culture values control, the involvement of family members, pragmatism, and confidentiality. Additionally, guanxi (referring to personal connections and networks) is a well-known important factor in conducting business in China.

Product is Adapted to Local Market

The franchising strategy needs to address the critical factor that determines the viability of the business - the product. At the core of the business is the product or service being offered to consumers. As with all franchised products, standardization is a general rule, but as mentioned earlier, local adaptations will be beneficial to boosting sales.

The success of the business is not solely dependent on popularity of brand that it has experienced in its home country and other countries. On one extreme end of the spectrum, the business can do its best to cater to the local tastes and expectations of Chinese consumers. For example, KFC in China has many items that have been developed specially for the local market.

Product Emphasizes Differentiating Appeal

On the other extreme end, the business can also emphasize its very differentiating factor. As the younger generation is more open towards trying new things and having new experiences, products which are thought to be not attuned to the Chinese market may be well-received. This generation is also more likely to buy products that are Western in nature.

For example, China traditionally has a tea-drinking population. Coffee drinking habits are rare, especially among the older generation. However, the young corporate working crowd has developed a taste for Starbuck's fashionable gourmet coffee.

Tactical Promotion Efforts

An important marketing requirement that increases the product's popularity is the way it is promoted. It is difficult to compete with local providers on the basis of price. Hence, foreign franchisors need to justify the high costs of their products and services, perhaps by emphasizing the quality and the appeal of its offerings via marketing and promotional efforts.

Usually, foreign franchises target expatriates, tourists and business professionals. This group is familiar with international brands and is likely to patronize foreign franchises regularly. It is a case of 'knowing what you are going to get', such as in the case of McDonald's.

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.