As the market environment improves, more overseas franchisers are expected to access China, tapping into fresh sectors and carrying out mergers and acquisitions (M&A).

The Ministry of Commerce issued the Commercial Franchise Operation Administration Regulation last February, which helped standardize the market, enhance transparency and protect the interests of both franchisers and franchisees.

Last year, a group of transnational franchisers, such as fast food company Burger King, hotel operator Super 8, restaurant chain Bojangles and Uniglobal Travel, tapped into the Chinese market.

"The entry of mature foreign franchising enterprises and tightening market competition has prompted domestic players to operate in line with 'fair play' principles, hence facilitating a general upgrade of China's franchise industry," said Pei Liang, secretary-general of China Chain & Franchise Association (CCFA) yesterday at the opening ceremony of the Eighth China Franchise Convention.

CCFA forecasted that foreigners, who have created a foothold in China, might speed up their expansions in a bid to keep one step ahead of competitors and newcomers.

Some of the world's biggest fast food chains, such as KFC (Kentucky Fried Chicken) and McDonalds, have in the past primarily focused on China's key cities, but they have now turned their eyes to the second and third-tier cities.

In addition to catering and hospitality, franchise operations in the sectors of auto after-sale service, body fitness, beauty and hair-dressing, express, communications and housing maintenance are expected to pop up in the coming years.

Meanwhile, "there are still a lot of virgin areas for franchisers to tap into in China, such as human resources consultancy, accounting and advertising," said Pei.

Analysts pointed out that M&A would be a key way for overseas franchising brands to enter the Chinese market or realize fast penetration, due to the cost-saving characteristics and high efficiency of the method.

"Multinational franchisers usually boast powerful financial ability and M&A provide a shortcut for them, giving them the co-existing purchasing and sales network of the domestic players and their local resources," said Zhu Mingxia, professor of the University of International Business and Economics.

According to Deng Renrong, assistant manager with the Marketing Development Department of Tianjin Dicos - a fried chicken chain, advantages of M&A are especially prominent in regional operations.

Deng said M&A might facilitate foreigners to create tailored-services to meet the needs of various local conditions.

CCFA's Pei, however, indicated that both franchisers and franchisees should be aware of certain problems that may hinder their healthy and sustainable development.

"Some overseas franchising brands require the franchisees to copy their operating models 100 per cent in an overseas market, or stick to original tastes without any flexibility, which might lead to a loss of customers," said Pei.

A survey conducted by CCFA, covering 78 overseas franchise enterprises revealed that nearly half of the overseas franchisers in China are from the United States, while others are from Singapore, Japan, South Korea, Hong Kong special region, and European nations, such as Germany, France and Italy.

Some 13 of the 2004 World Top 20 Franchise Brands own businesses in China, while 60 in the top 200 have outlets here.

Source: China Daily