China's Developing Franchising Market

By Wenjie Sun and Richard Wageman, Lehman, Lee & Xu

In recent years, China has witnessed exponential growth in its franchise industry. The China Chainstore and Franchise Association reported that in 2000, there were only about 500 franchises available in China; by the end of 2005, that number had increased to 2,320 franchise businesses operating 168,000 units. Such rapid growth is also apparent in the sales of franchise products. At present, the sale of franchise products accounts for only 3% of the total retail sales in consumer goods, far lower than the 40% rate achieved by US products. However, in recent years, China has seen an annual increase of 40% or more in the sale of franchise products, far higher than the 10% annual increase experienced by overall sales in consumer goods.

Undoubtedly, rapid franchise market growth will continue, due in large part to the Beijing Olympics. More room for development and further opportunities in China's franchise industry are certainly foreseeable in the next two years. The size of the Olympic-related franchise market is estimated to expand by a total sales volume ranging from Rmb 25 billion to Rmb 28 billion.