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Franchising in Asia: Hong Kong's Leading Role

Most Asian countries have only begun to enthusiastically embrace franchising in recent years, as their rising middle-income class becomes more affluent and gravitates towards international brands. International franchising, however, is a complex affair. Industry practitioners are positive about Hong Kong serving as a two-way springboard for Western franchisors to gain access to the Asian markets, and for Asian brands to venture into the global marketplace.

Asia to take off


According to Actrium Solutions, the global market value of franchising was estimated at US$3.79 trillion in 2014. Currently, the global franchising market is dominated by the US, which accounts for 63% of the total, while Asia as a whole represents only 16% of the global market value.

 

Chart: Franchising revenue by region in 2014
Chart: Franchising revenue by region in 2014

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In the US, and to a lesser extent, parts of Western Europe, retail franchising has reached domestic market saturation. Most Asian countries, however, only began to enthusiastically embrace franchising in recent years. International franchising, facilitated by the increasing ease of global communications and technological development, is expected to become a key trend in Asia, as its rising middle-income class becomes more affluent while gravitating towards international brands. Indeed, having realised the benefits to economic growth and employment, many governments in Asia have stepped up efforts to encourage franchising. On the other hand, Asian companies are increasingly appreciating the beauty of the franchising model, which combines the management and brand strengths of an established corporate entity with the vigour and dedication of entrepreneurs, as a viable vehicle to expand their business.

All eyes on China

According to an HKTDC survey of 70 international franchisors and 80 Hong Kong and mainland franchisees, 87% of the international franchisors questioned have their eyes on the vast China market. With a population approaching 1.4 billion and government endeavours to boost domestic consumption to sustain its expansion and rebalance its growth model, China’s potential as a franchise market is hard to ignore.

 

Chart: Targeted markets for the next three years (franshisors)
Chart: Targeted markets for the next three years (franshisors)

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Challenges of franchising in Asia

Though most major countries in Asia have made significant progress in welcoming foreign companies, expansion into Asia does not come without its challenges. International franchisors that want a piece of Asia’s potentially multi-billion-dollar franchising market have a laundry list of concerns. According to the survey, the top challenges encountered by international franchisors in Asia are, in descending order, “hard to find qualified franchisees” (74%); franchisee management (72%); licence application procedure (54%); foreign exchange control (46%); localisation of brand and products (43%) and IP/patent registration and protection (43%).

 

Chart: Challenges of international franchising (franchisors)
Chart: Challenges of international franchising (franchisors)

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Hong Kong as a franchising hub

The survey found that industry practitioners are positive about Hong Kong serving as a two-way springboard for Western franchisors to gain access to the Asian markets, and for Asian brands to venture into the global marketplace. Respondents are of the views that Hong Kong can be a springboard for, in descending order, China, Taiwan, North America, Europe and ASEAN.

Chart: Hong Kong can be a springboard for franchise businesses entering into the following markets
Chart: Hong Kong can be a springboard for franchise businesses entering into the following markets

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Content provided by Picture: Wenda Ma
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