The acceptance of franchising in business development

By and large, franchising can be accepted that it plays an of import function in fostering the development of modern concern. At the first clip, the franchising concern construct established in US, and in fact, there is no any other topographic point can be found to be developed strongly and profoundly in a figure of industry sub-sectors consisting of nutrient, non-food, fiscal and other service concerns ( Beilock, 1998 ) . The growing rate of franchising is truly impressive even beyond of US boundary line. Equally far as Europe is concerned, franchising made its first visual aspect every bit early as 1929 in France and has been on the addition of all time since.

Presents, franchising is good known finally and already increasing function in national economic systems, being besides assisted by divestment plans in the province and publically owned endeavors. Franchising has been adopted by national authoritiess in some state, as one of the schemes for faster economic development and is considered a major tool for supplying faster occupation creative activity and new incomes ( Clarke, 1997 ) . Assorted research surveies have identified that the failure rate of concerns utilizing franchising is by and large lower than those of the conventional startups. However, it has besides been proven that the development of franchising depends on the overall economic fortunes and that its growing can be significantly impacted by the public presentation of the economic system as a whole. It should be besides be pointed out that the failures in franchising are possible and that franchising is non “ a Panacea ” to bring around complaints ( Huszagh, 1992 ) .

Main Figures Related to Franchising Industry in China

With potentially the largest consumer market in the universe and an speed uping economic system, China is hailed as one of the most of import consumer markets of the twenty-first century. China ‘s GDP expanded by 9.3 % in 2004, the best among the universe ‘s biggest economic systems. Harmonizing to the appraisal of State Information Center, the Chinese retail sector will turn at a stable velocity of 8 to 10 per centum from 2005 to 2010 and the retail sum of societal ingestion will transcend RMB 20 trillion in 2020. This addition in ingestion is why many endeavors are eying China ‘s profitable franchise market. Large Numberss of foreign franchisers are either operating in China or giving serious consideration to making so ( JLJ Group, 2007 ) .

There is the figure1.1 show the per centum of Franchised Shops by Sector in China:

Beginning: Ministry of Commerce ( 2004 )

Presently China has 1,900 franchise systems, involved 82,000 mercantile establishments, yearly turning about 49 % . About 60 industries have applied for franchise operations, including traditional sectors of catering, retailing and single services, every bit good as some other new concern such as Fieldss of instruction, commercial services, household services and automotive attention. In footings of the figure of franchisers, the catering industry leads by 35 % , followed by retailing histories with 30 % , life service 10 % , and car gross revenues, attention and renting 3 % . About 45 of the top 100 eating house companies are using franchise concern theoretical accounts, and their concern normally net incomes more than those of independently operated companies ( Ministry of Commerce, 2007 ) .

Furthermore, China was the state that considered the most franchise systems all over universe ; the graduated table of their operations is reasonably little. Each system has an norm of 43 mercantile establishments, compared to more than 540 in US. There is a great trade of potency for farther growing, but now the franchising concern merely accounts for 3 per centum of China ‘s entire retail gross revenues, starkly behind the 30 per centum in the United States.

Food and Beverage sector in China

China ‘s nutrient service sector has been sing a CAGR of 12.9 % from US $ 45.3 billion in 2000 to US $ 73.3 in 2003. Demand nevertheless appears to be concentrated in selected parts ( JLJ Group, 2007 ) . The top 8 parts that contributed to the nutrient service turnover for the whole Chinese economic system include Guangdong, Shandong, Jiangsu, Zhejiang, Sichuan, Liaoning, Henan and Hubei. These parts, in peculiar the coastal such as Guangdong and Jiangsu, have a strong dining-out civilization. Broadly, the nutrient service sector can be segmented into full-service eating houses, fast nutrient mercantile establishments and others ( APEC, 2006 ) .

Restaurants are the largest section accounting for over 77 % of the entire market gross. Largely, this section could be sub-divided into:

High End Restaurants: Located in hotels ; both international hotel ironss ( e.g Hilton, Shangri-la, Hyatt, etc. ) and domestically-managed hotels ( typically 4 and 5 stars and is dominated by state-owned endeavors ) .

Family manner eating houses: These eating houses are turning quickly on the dorsum of the spread outing cohort of middleclass Chinese ( APEC, 2006 ) .

Fast-food eating houses account for approximately 22 % of the entire market for nutrient services and this section is dominated by foreign ironss such as KFC and McDonald ‘s. Chinese fast nutrient companies whilst smaller in sum are turning at rapid gait. The more outstanding 1s are Malan Lamian, Mian Dian Wang, Soya King, Laobian Dumplings. Others would include corporate catering, such as those in China-owned endeavors, offices, schools, infirmaries, which account for 1 % of overall market gross.

In footings of the entire figure of F & A ; B constitutions within the nutrient service sector, there were 3.6 million units throughout China by terminal 2003 involved in minutess amounting to 41.5 billion RMB in the same twelvemonth. It represents a leap in 5.5 % and 10.3 % severally as compared to the old twelvemonth, and a 25.1 % and 43.9 % addition from five old ages ago ( APEC, 2006 ) .

Base on eating house franchise system of this survey, Harmonizing to the latest Annual Report published by the KFC trade name proprietor – Yum! Brands – by the terminal of 2009 there were 3,400 KFC eating houses in China, allocated in over 650 metropoliss. This means that more than 20 % of the universe ‘s KFC locations are in China. The other key participant McDonald ‘s has more than 600 eating houses in about 100 metropoliss. In the past two old ages, China ‘s McDonald ‘s have grown at a rate of 100 eating houses per twelvemonth ( JLC Group, 2007 ) .

Figure 1.2: F & A ; B Chain Store Gross saless by Beginning

Beginning: National Bureau of Statistics ( 2007 )

The tabular array shows the different types franchising nutrient concatenation shop gross revenues in the twelvemonth 2002-2006. The green colour is the international franchising organisations, the violet colour indicates the Hong Kong and Taiwan organisations and the white one shows the domestic organisations. The figure of the figure can be specifying like have more international franchising organisation articulation to China ‘s eating house industry ( National agency of statistics, 2007 ) .

The figure 1.3 below shows the research country of this survey:

Figure1.3: Research country of the survey

Beginning: The research worker

The personal interested is the ground research worker wants to larn and cognize the franchising systems and carry throughing the partial demand of university of Wales MBA as the other ground as good. The intent of this survey is to analyse the jobs and happen out the solutions. The aim of this research will be:

To analyse the jobs why some of the eating house franchisee in China fail?

To measure the factors impacting the quality of the relationship between franchisees and franchisors.

To find the factors impact on franchisee ‘s public presentation and committedness.

To supply recommendations for eating house franchise system in China.

1.2 A Problem Statement Inclusive of Relevant Theory and Research

Assorted research surveies have identified that the failure rate of concerns utilizing franchising is by and large lower than those of the conventional concern. However it should be pointed out that the failures in franchising are possible and that franchising is non “ a Panacea ” to any state of affairs ( Huszagh, 1992 ) .

All these issues highlight the demand to understand the benefits every bit good as restriction in utilizing franchising as a tool to open concern in a peculiar environment. It is besides of import to understand the factors impacting franchising system and how its impact on franchisee ‘s public presentation satisfaction and committedness.

This research will look into China ‘s eating house franchise system based on the McDonalds and KFC state of affairs as illustrations to analyse the job. The chief theories in this research survey will be bureau theory and concern growing scheme, these relevant theories ( back uping theories ) are entrepreneurial entry scheme, communicating scheme, trust as relationship scheme, franchisor support, enterpriser ability and franchisee satisfaction, and the relevant issues and analysis in this research will be in franchisees unit.

Research Questions and Hypothesiss

Research Questions

What are the grounds some of the eating house franchises in China fail?

What are the critical factors impacting the quality of the relationship between franchisee and franchisor?

Why the degree of franchisor control can impact successful of franchising?

What are the factors impact on franchisee ‘s public presentation and committedness?


Q1H1: Inadequate research for entry into concern is the ground some of the eating house franchises in China fail.

Q1H2: Lack of market rivals ‘ placement analysis is major point some of the eating house franchises in China fail.

Q1H3: Lack of economic appraisal can impact some of the eating house franchises in China fail.

Q2H4: Clear communicating affects the quality of relationship between franchisee and franchisor.

Q2H5: Common trust influences quality of relationship between franchisee and franchisor.

Q2H6: Effective co-operation besides find franchisee and franchisor relationship.

Q2H7: Comply with committedness can be build quality relationship between franchisee and franchisor.

Q3H8: Franchisor control force the franchising keeps the criterion.

Q5H9: Franchisee ‘s satisfaction straight impacts franchisees ‘ public presentation and committedness.

Q5H10: Fairness of franchise or limitations can impact public presentation and committedness.

Q5H11: Higher franchisor support is other factor influence public presentation and committedness.

Literature Review points

The figure 1.4 below shows the relationship between chief theories and back uping theory in this research and all these theories will be reviewed in literature reappraisal portion.

Figure 1.4: Literature map. Beginning: The research worker design.

Key Literature Review

Franchising has been defined as a “ type of concern agreement in which one party ( the franchisor ) grants a licence to another person, partnership or company ( the franchisee ) which gives the right to merchandise under the trade grade and concern name of the franchiser ” ( Clarke, 1997 ) .

The concern format franchising has been described as a signifier of “ concern cloning ” ( Hoffman & A ; Prebles, 1993 ) . As Hoffman and Prebles ( 1993 ) advocator, “ concern format franchisers seek to hold franchisees retroflex in their local community an full concern construct, including merchandise or services, trade name and methods of operations ” . Franchisees are provided with inside informations of the franchiser ‘s trade secrets, every bit good as everything else necessary to set up a antecedently untrained individual in their ain lawfully separate concern, running it with go oning advice and support on a preset footing for a specific period of clip ( Rubin, 1978 ) .

Agency theory is concerned with exchanges affecting deputation of work by one party ( chief ) to anther ( agent ) ( Sharma, 1997 ) . A cardinal premise of bureau theory model is that the involvements of principals diverge from that of agents. As a consequence of this premise, agents might belie information refering their accomplishments and attempt.

Significance of Research Problem

The research job and findings is a manner to personal cognition and experience. It is besides utile to assist others to understand the system of franchising and how to pull off franchisee entrepreneurial public presentation every bit good as how to happen the new chance in the eating house industry.

1.6 Research Methodology and Design

Figure 1.5: Procedure of Research Methodology

Beginning: Saunders, Lewis & A ; Thirnhill ( 2003 )

This research design will follow the method of inside informations of survey and measuring. The procedure of research methodological analysis of this survey will accommodate from Saunders, Lewis and Thornhill ( 2003 ) presented research procedure ‘onion ‘ in the book “ Research Methods for Business Student ” , which are used three different beds in this research: research doctrine, research attack, qualitative and quantitative as designed will make In-depth or telephone Interview and questionnaire. Data aggregation method will unite secondary informations and primary informations utilizing SPSS package and qualitative analysis methods.

1.7 Beginnings and Methods of Data Collection

1.7.1 Beginning of informations

primary informations

The primary informations, which will be bring forthing by methods below, may be qualitative in nature ( in the signifier of words ) or quantitative ( which in the signifier of Numberss or where you can do counts of words used ) ( Trochim, 1999 ) . This research survey will establish on the quantitative and qualitative both informations methods.


At first, In-depth interview and telephone interview to roll up informations information from 2 Franchisors ( see appendix 3 ) .


After that, the questionnaire was defined so Self-Administered questionnaire for primary informations aggregation was delivered to respondents. At last, combine with feedback from respondents the validated theoretical account was formed. The questionnaire has entire 10 inquiries ( see appendix 4 ) and will be provide 150 pieces, and the location for the questionnaire will be in China.

Secondary informations

About research requires the aggregation of primary informations, and this is what pupils focus on. Unfortunately, many thesiss do non include secondary informations in their findings subdivision although it is absolutely acceptable to make so, supplying you have analyzed it ( Corbin & A ; Strauss, 1990 ) . It is a good thought to utilize informations collected by person else if it exists ; it may be on larger graduated table than you want to roll up and could lend to your findings well.

1.7.2 Data Collection Methods

This research survey involved interviewing and questionnaires ( See appendix 3 and 4 ) of the franchisor and franchisees from each of two franchise systems, System X and System Y. System X provides merchandise and services in nourishment industry which are the leaders from HaYao headquarter and the franchisees as have more than 4 old ages runing experience. System Y is in the eating house trappings industry who is employees in KFC and the individual is the one metropolis of the director of KFC.

1.7.3 Sampling scheme

It is incumbent on the research worker to clearly specify the mark population. There are no rigorous regulations to follow, and the research worker should trust on judgement and logic. The population is defined in maintaining with the survey aims. Sometimes, the full population will be sufficiently little, and the research worker can include the full population in the survey ( Chow & A ; Frazer, 2003 ) . This type of research was named a nose count survey because information is gathered on of the population member.

Convenience Sampling: involves choosing on occasion those respondents that are easiest to obtain for the research ( Saunders et al. , 2007, p234 ) . The trying method that can be suited for this survey will be convenience trying method. 150 questionnaires as population usage trying to measure informations. After collect the full database from questionnaires, will utilize 108 questionnaires to analyse the critical factors of franchising concern system.

Restrictions of the Study

Location Restriction

All the informations aggregation and questionnaire will be cod in China ; nevertheless at the some clip I am in Singapore so the information aggregation will be hard.

Personal Emotions

Some of the interviewers are existent participants in the China, they may reply the inquiries with a personal emotions and it will be consequence by what the state of affairs the individual in, therefore the reply may non 100 % correct.

Scope Restriction

There are several of factors can be consequence the success franchising system such as authorities policy and the finance environment of over whole. The range of this survey will non make the research and besides non advert about the external factor.

1.9 Drumhead

This chapter presented a general overview of the whole thesis. It discussed on the jobs, motive, inquiries, methodological analysis, deductions and range associated with this research. The ultimate purpose of this research is to border eating houses franchising concern in China.