Launching a Franchise in China can be daunting. However, with the proper preparation and research, it can be an extremely lucrative endeavor. This post will provide you with all the basic knowledge you need to have about franchising in China as well as how to make your franchise successful in China. So whether you are considering expanding your current business or starting a new one from scratch, read on for tips that will help make your launch a success!
Franchising in China, pre-requisites:
- Must have operated (and owned) at least two outlets anywhere in the world for a minimum of 1 year
- Must have a registered trademark in China
- The business model for franchise must be well established
- Read more about the most recent regulations on Launching a franchise in China here.
Benefits & Challenges of franchising
Franchising in China certainly offers many opportunities. The country is so huge that is that it itself has many markets and target audiences and best of all, its peoples consume more and more.
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China has been a gold mine for U.S. brands, especially well-known restaurant brands seeking to cash in on the growing prosperity and buying power of China’s growing middle class, and its desire to consume “Western” products. In recent years, major U.S. brands have been racing to expand their business in China, from automobiles to cheeseburgers, tacos, pizza, and fried chicken. However, despite the opportunities, operating a franchise overseas also comes with a unique set of obstacles.
The challenges faced by franchisees in China are many and varied. One of the most notable is a lack of intellectual property protection, with local knockoffs being rampant even if new laws from the government are regularly adopted to tackle this problem.
Then comes the issue of registering your franchise in China. Businesses would usually go a WFOE (wholly foreign-Owned Enterprise) but this model has been abolished in 2020 and replaced by Foreign-funded enterprise meaning companies now need to abide by Chinese corporate and business law regimes (no worries, the status changed, but the process remains similar and registering a company in China did not become more difficult – we can help you with that process, feel free to drop a request for more info).
Lastly, is your china market-entry strategy adapted to China? What is your approach to the market, do you understand business practices, and what is your plan to reach out to potential franchisees? how do you plan to promote your franchise in the country?
New Chinese consumers need a new approach
Franchisors see opportunities abound as profits from overseas operations have been growing faster. Besides great unit growth in China, it is offering favorable exchange rates.
More important, the country’s economic growth has helped a lot of people to become wealthier, who we called the growing middle class. The previous generation (people who were roughly born before 80th) used to work a lot to ensure a saving for their children. Nowadays, Chinese people are more willing to pay for 2 reasons. The first is that they have less financial pressure than their parents and the second is simply because they want to. The Chinese Millennial generation is different, having some common features.
- They are audacious: they believe that everything is possible if they make effort. They also want to change and become better.
- They are adventurous: they want to try even if they do not experiment as they are still young. That’s why a lot of young Chinese people want to go to big cities and develop their careers.
- They are open-minded: As they have to face a different environment, different people, and culture, they have to be in some ways more open. Globalization has brought many new things to China, to which they must adapt. Moreover, the growing number of Chinese people making international travel has contributed to changing Chinese consumers’ desires/tastes and the landscape of China’s market.
- They are big spenders: They know that to earn money, you have also to invest. The term “investment” can be applied not only in business but also in one’s own. To invest time and energy in beauty (appearance is quite important in China because it represents sometimes an added value), health and sport, learning a skill, … Whether it is for future benefits or just meet a hobby, these things which weren’t part of Chinese people’s interest become now much more important.
- They are very connected: Chinese people are nowadays some of the most connected in the world. Society is completely digitalized, letting them spend a lot of time online. New information, a new brand, and the product can be known very quickly over the Chinese network.
- They are sensitive: don’t touch on sensitive topics and when creating a marketing campaign targeted at your Chinese audience; localize. For instance, incorporating Chinese elements into your campaign is a yes (Starbucks for instance does it perfectly), but using stereotypical tropes is a big no-no.
Of course, we can’t say that everyone is the same, but these are what we can observe and distinguish as the main Chinese consumer behaviors.
As a result, today’s Chinese consumers are very demanding. They want information on the product and its features before they purchase anything from anyone. And don’t think having a “foreign brand” label (even if this represents an added value) will be enough to convince Chinese consumers.
These new active people, covering and leading the Chinese market, also transform the way to do business in China. That’s also why businesses in China grow or fell faster than in other places. New companies or brands can make profits very soon but the country is also developing at a rapid pace and brands have to be up-to-date, and follow trends in order to ensure their competitiveness.
Adapt a great product or Service
We just talk about consumers’ behaviors, we also have to include the different tastes, dietary restrictions, and the language barrier. Chinese may like “western products” but they also like green tea, dumplings, rice, and so many Chinese foods. Even McDonald’s adapts its menu in China with taro pie, Matcha latte, dough sticks Soy milk (Traditional Chinese breakfast), etc.
Without a great product or service, nothing else works for very long. To trigger the desired customer response—” This is great!”—set excellence as your minimum standard of quality both in what you deliver and in the way you deliver it.
What I mean is that, at the same time you bring some imported foods, it is important to analyze first the Chinese market and to meet its consumer’s preferences. For franchisors and franchisees, that means food brands For franchisors and franchisees, that means food brands, for example, must balance their traditional menu offerings. It’s also a way to show that you care about their need.
NB: Here we discuss food localization, but the same can be said for any type of product. Adapt to the local marketing calendar and local trends and so on. If you want to learn more about localization best practices in China, have a look at this post. We give tips and examples of good and bad localization efforts by international brands and franchises in China.
Promote your franchise in China
To succeed in China you need a strong brand. The Chinese are very wary about unknown brands and will never enter an unfamiliar store if they have heard nothing good about it beforehand A successful business requires more than just great products or services-it needs proper branding too. Let’s see what is the best avenue for branding in China.
Finding Chinese Franchisees
This part is all about being visible and creating hype around your brand (what is great about this, is that it will also serve with convincing consumers that your brand is worth sticking with). If you want to sell your franchise in China, we recommend you go for a lead generation strategy. This means, you don’t chase buyers, but you let them come to you.
How to generate leads in China?
- Baidu SEO + Chinese Website: Design a Website that will work well in China (think firewall), this means no google API, no google font, and so on, and a server in China (you’ll need an ICP license) or a country close to China. Not only your website needs to work well for China but also be optimized for Baidu meaning that it needs to be in Chinese (also better to design a website in Chinese if you are targetting Chinese buyers). When it comes to UX for your Chinese website, the most important thing is to have a contact form/ contact information highlighted (have it on the homepage). Your website does not need to be complicated. To get your initial traffic, paid advertising comes in handy however they are expensive. We would recommend you contain them to a few keywords notably your branded keywords.
- Forums & Q&A: they are popular in China and for a reason: corporate communication does not weigh much against peer reviews in the middle kingdoms. Forums such as Zhihu are particularly good to run undercover reputation campaigns that will come in handy when a potential client franchisee is running a background check on your company. Bonus: forums and Q&A rank quite well on Baidu which with some work allows you to control the narrative on your brand and bury any negative reviews you could have or artificially create a lot of results mentioning you. These many mentions will reassure a buyer
- Press Relation: The idea is similar to the forums and Q&A tactics. The difference lies in the visibility to a very targeted audience that you can get with a PR. PR is excellent to build your legitimacy in the field you are operating.
- Offline Events: Organize or join offline events to get your name out there where potential buyers can test/try your products. Pro tips: design a Wechat Brochure that visitors can access by simply scanning a printed QR code.
Brand & Promote your Franchise
Working on your Franchise branding is the second aspect of a successful market-entry strategy in China. It consists in creating an identity for your franchise and spreading the word to your target audience: the final consumers. I don’t think I need to remind you that the way final consumers will receive your products will have a massive impact on the success degree of your Franchise in China.
We suggest that you reuse all the tactics we talk about in the above part but with your end customers in mind. The keyword you wanna rank on Baidu to reach out to visitors for instance may be slightly different, you may also want to have a version of your website that is less “business” or more customer services centric. On top of these channels, the one that is obviously missing and we have not mentioned yet, is Social media (and KOL marketing).
Social media plays a major role in Chinese society. It is one of the most efficient ways to communicate and interact with Chinese consumers. There is too much to say on this topic for this post, so we invite you to have a look at our China social media marketing guide. In this guide, we introduce you to China’s top social media (basic date/ should you integrate it in your strategy or not and so on), as well as their best communication tools.
You need to find a local partner
For individuals, adapting to a new country often is fraught with difficulties, both expected and unexpected. There are different laws, and different ways to do business (officially and informality speaking). In China, “Guanxi” which means “contact” or “relation” is very important to find partners, contracts, and solutions. If you speak Chinese, that’s even more helpful.
GMA can help you develop your business in China. We have been developing many successful businesses in China because we know well the market, its trends, and how to effectively promote in China, using the latest digital tools.
Do you have an idea and want to discuss it further? Do not hesitate to contact our experts. It is always a pleasure to innovate and grow in this promising market. You can also leave a comment below or check our services for China.