| Investors find franchises an easier way to start a business |
| Last Updated(Beijing Time):2006-03-13 10:27 |
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Buying a franchise license has become a popular choice for those who wish to start a business but don't have a large amount of capital.
Franchises in Shanghai have reached 16,000 and are expanding 10 to 15 percent each year as a soaring number of investors apply to open outlets for companies who have a strong brand, said Hu Wenzhang, secretary general of Shanghai Chain Enterprise Association.
"Franchises are the general trend in chain store businesses as they require less money for fast expansion," Hu said. "They have operating strategies and sometimes even famous brands such as KFC. Retailers can raise money from investors, who see it as an inexpensive guarantee and a fast investment return."
Hualian Supermarket Co Ltd has shifted its focus from directly-operated stores to franchises to compete against hypermarkets such as Wal-Mart and Carrefour.
Guo Yuan, a spokesman at the franchise department of Hualian Supermarket Co Ltd, said: "We can charge franchise fees, management fees and delivery costs from our franchisees. That's much more than if we open an outlet by ourselves as we can only get a certain amount of money from suppliers when they want to sell products on our shelves." The retailer has 480 franchise supermarkets in Shanghai, almost double the number of directly-operated outlets. It costs 600,000 yuan (US$74,257) to 700,000 yuan to open a franchise outlet in downtown Shanghai and about 500,000 yuan in suburban areas.
So far, franchises cover more than 30 percent of China's chain businesses. That leaves another 40 percent for development, if China proceeds to the level of the United States, according to the city's chain enterprise association.
Still, franchises, like all businesses, face risks. Hu said without good research, a franchisee may pay all the money for nothing.
"For many small-sized companies, franchising works only as a short-term way of making money," said Hu.
"They don't care about marketing strategies and management operations - all they want is the franchise fee."
The State Council is expected to issue rules this year to regulate the franchise business, including qualifications of both franchisers and franchisees and a detailed code for operations.
Franchisees are paying more today as the cost of land and labor increases across the city.
Cheng Tianning, a fast-food franchise owner, said: "It's really hard to rent a 20-square-meter store on popular streets downtown for under 10,000 yuan. And it's getting even harder to find sales candidates who can accept a salary below 800 yuan."
Cheng was attending the 10th Shanghai International Chain & Franchise Business Opportunity Exhibition, which closed yesterday. |
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