franchising operation in china

中国连锁经营协会China Chain Store & Franchise Association

Franchising Operation in Franchising Operation in ChinaChina

By Guo Geping, Chairperson of CCFA

October 20, 2006. Milan, Italy

中国连锁经营协会 China Chain Store & Franchise Association

Environment of Franchising in China

Introduction of CCFA

Status of Franchising in China

Category

Trends of Franchising in China

Tips for Foreign Franchise Brands into China


Established since 1997;

The only official representative of China’s retailing industry & franchise field.

Membership of Over 1100 , including domestic & FIEs retailers, franchisors, suppliers; Franchisors cover 50% (up to now).






Category




GDP growth: by 9.5% between 2003 to 2005;

by 10.9% for the first half of this year;

Retailing sales growth: by 13.3% in 2005.

Economic Figures



Laws & Regulations

a. Franchisor shall have at least two directly-run stores within China that have been operated for at least one year ， or directly run stores set up by its subsidiaries or companies in which it has a controlling share ；

b. Foreign-invested enterprises shall not engage in the types of business prohibited under the Foreign Investment Industrial Guidance Catalogue in the form of franchising.

c. Foreign-invested enterprises engaging in commercial activities in the form of franchising shall apply to the original examination and approval authority for addition of “engagement in commercial activities in the form of franchising” to the scope of business .

d. Information Disclosure

Measures for the Administration of Commercial Franchise Operations released by the Ministry of Commerce, China, in Dec 2004



Laws & Regulations

a. Contract Law ；b. Corporation Law;

c. Labour Law;

d. Anti Unfair Competition Law;

……

Character: The government departments have been expedited the franchise legislation and built the harmonious and healthy market order.

Relevant Laws:



Policy

Aiming to: Promote the Development of

Retailing/Restaurant/Services Industry

Sales Goals (by 2010)a. Restaurants: USD 250 billion ；b. Hotel & Lodging: USD 62.5 billion;

c. Beauty & Haring: USD 75 billion






Category




0

1000

2000

3000

Number ofFranchi si ng Systems

410 600 1200 1900 2100 23202000 2001 2002 2003 2004 2005

Franchise systems in China increasing rapidly and steadily


Source: Year Surveys By CCFA


Contributions

Jobs 3,360,000Investment （ Billion US$ ） 10.5

Sales （ Billion US$ ） 52.5

Economic Contributions From Franchising in China, 2005


Source: 2005 Year Survey By CCFA


Sectors Sub-Sectors Existence in China

1.Food Retail General: Super & Hyper markets/CVs

Y

Specialized Food Stores Y

2.Restaurants/Fast Foods/Cafes/Bars/Pubs Y

3.Hotel/Motels Y

Franchise Sectors (suggested by EFF)



4.Clothings/Personal Equipment Y

5.Home/Garden Furnishings/Fittings/Maintenance

Textiles & Furniture Y

Fittings & Equipment N

Maintenance/Repairs/Cleaning Y

Sanitation & Pets Control N

DIY Stores Y

Second hand furnishings & equipment

N



6.Other Property Services (Domestic & Professional) Y

7.Transport & Vehicle Products & Services

Servicing & Sale of accessories Y

Car and Truck rentals/Driver hire Y

other Y



8.Office/Business Supplies & Services

Fittings/Equipment/Security/Maintenance/Cleaning Y

Parcel/Courier Y

Offices Supplies/Printing/Copying Y

Computer/ITC/Phone & Mobile Sales & Services Y

Advertising/Publicity/Graphic Design Y

Human Resource Services: Employment/Executive Search/Management

N

Finance/Tax/Insurance/Audit/Accountancy/Paralegal N

9.Training & Education Y

10.Personal Care/Beauty/Fitness/Medical/Pharmaceutical

Beauty Products & Services Y

Fitness Y

Medics & Pharmaceuticals Y

Care Services: elderly, children N



11.Travel/Sports/Leisure (Not sportswear)

Travel Agencies Y

Sports Clubs Y

Recreation Centers & Equipment Y

Matrimonial/Dating Agencies N

12.Pets/animals Y

13.Other Specialized Retail Stores Y

14.Other Y




24%25%

28%57%

62%

0% 10% 20% 30% 40% 50% 60% 70%

Legi sl at i on &Pol i cy

Product & Servi ce

Franchi sees'Behavi or

Standardi zat i on

St rategy

Franchisors’ Top 5 Focuses 2006

Source: Blue Book of 2006 Franchising in China



89%90%

95%96%

100%

80% 85% 90% 95% 100% 105%

Trai ni ng & Di recti ngManual

Operati on SupportPromoti on & Ad

ROI

Franchisees’ Top 5 Focuses 2006




< 100 Thousand23.1%

100-250 Thousand29.9%

250-500 Thousand18.5%

500-1000 Thousand15.6%

1000-2000 Thousand8.4%

> 2000 Thousand4.5%

Investment Capability of Potential Franchisees 2005






Category




78%78%78%78%

88%100%

0% 20% 40% 60% 80% 100% 120%

Fast FoodAf ter Auto Market Servi ce Express & Package Del i very

Economi c HotelPhysi cal Trai ni ng Gym

Home Appl i ances


Experts Consensus: Top 6 Potential Sectors

Source: Repot on Trends of Franchising in China, 2005 by CCFA


Industry/Sector Ratio

Chinese Fast Food 23.00%

Western Fast Food 13.00%

Gift Specialty 12.00%

Physical Training Gym 11.00%

Home Appliances 10.00%

Leisure Beverage 10.00%

After Auto Market Service 9.00%

Training & Education 9.00%

Others 3.00%

Prospective Franchisees’ Hottest Choices


Source: 2005 Prospective Franchisee’ Survey by CCFA





Category





Localization due to Different Cultures

Difference of Franchising Operation in Different Countries

Design of Business Model

Focus on Products & Services Safety


14 of Top 20 USA Franchising Brandings in China

10

3 2 1 1 1 1 1

7

3 2 1 1 0 0 002468

10

TOP2014 i n Chi na

TOP20 10 3 2 1 1 1 1 114 i n Chi na 7 3 2 1 1 0 0 0

F&B餐饮 Hotel 酒店 Real CVS便利店 Envi romen Travel 旅 R&V音像 Ect

Tips for Foreign Franchise Brands

into China

Source: Repot on Status of Foreign Franchise Brands Development in China, 2005 by CCFA



into China

37%

33%

13%9% 8% Government

Rel at i onshi pI ndust ryBackgroundCurrentPerf ormanceManagementSki l l sCapi talAbi l i t y

Franchisee’ Most Valued Capabilities By Foreign Franchisers




into China

5%

76%

11% 7%Fi xed Fee

Propoti on ofSal es

Propoti on ofProfi t

Propoti on ofDi stri buti onSal es




Localization due to Difference Cultures

Difference of Franchising Operation in Different Countries

Design of Business Model

Focus on Consumable Safety and Health


What can CCFA assist you?

To provide the legal information and current states analysis on franchising; To organize twice franchise exhibitions in each year ; To organize the training course for the potential master franchisees; To make the matchmaking between the foreign franchisors who are eager to access China market and the potential investors who are interested in purchase the franchising right for region or nation in China mainland.


Main Activities :

Policy & Regulation recommendation, Lobby and Coordination;

Series training programs, retail & franchise;

Survey & Data services;

Seminars, Conventions & Exhibitions etc.

What can CCFA assist you?


China Franchise ExpoChina Franchise Expo 2006 2006


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