Where to open your China franchise.
Location, Location
Similiar to our article on choosing a region in Japan, for China it may be
wise to view Tier 2 and 3 cities as the best option to open the first store.
The reasons for this assumption are as follows:
City and consumer growth potential.
A workable infrastructure.
Lower real estate costs.
Available human resources at a lower wage.
Lower competition.
Increased customer lifetime value.
These are all important factors but the primary opportunity to create a
well-respected brand and tie in consumers from an early stage means
these cities have superior market potential.
Being such an large country you would expect diversity across regions.
These diverse regional markets make franchise development a more
meticulous task. It is rare to offer a whole country agreement to one
regional SME company as their expertise are honed to their area.
A better way
The better strategy is to find experienced partners within each region
or a large domestic player-your golden goose! This does require more
time to control multiple licenses but do not lose the fact that the size
of each regional market can bring in more profit than the total of your
domestic market, so it is well worth the extra effort to guarantee your
products are correct for each step of your China expansion.
Basically, be open-minded and flexible, do not be afraid to rotate or
change products rapidly in the early stages if they are not doing well.
When choosing location bear in mind:
China has been proactive in removing tariff and non-tariff barriers
through regional free trade agreements. The Government’s inward
investment incentives and Shanghai’s Free-Trade Zone.