China and the Global Marketplace: Opportunities for U.S. Franchises

by Ed Teixeira

There are changes taking place in China. Some of these changes can represent an opportunity for U.S. franchisors. Learn what is driving these changes and what it will mean.

China has achieved phenomenal economic growth over the last twenty five years, entering the World Trade Organization in 2001. China exports were worth 175 Billion USD in July of 2011. Export growth has continued to be a major component supporting China's rapid economic growth. Exports of goods and services constitute 39.7% of its GDP. China major exports are: office machines & data processing equipment, telecommunications equipment, electrical machinery and apparel & clothing. China’s largest exports markets are European Union (EU), United States, Hong Kong, Japan, and South Korea.

According to Alan Beeve, Research Director of the IBM Institute for Business Value in China, Chinese companies are motivated to expand globally for a wide range of reasons, including tapping new global markers, securing natural resources, and acquiring advanced technologies and management skills. Yet, Chinese companies have not yet had much success in entering the U.S. marketplace. According to Dan Harris, Contributor to Forbes, some of the reasons for this lack of success include everything from Chinese companies’ failure to focus on the American consumer, to their failure to hire professionals (MBA’s, etc.) with local knowledge.

Look for China to Invest Directly in U.S. Companies

Whatever the reason, the time seems ripe for China to focus outward. Huang Guobo, the chief economist at China's currency regulator, the State Administration of Foreign Exchange, recently reported "the Chinese economy is facing serious challenges despite strong growth." Huang expressed concern that the "weakening global demand for Chinese exports will be a challenge...Next year, if the situation continues China's growth rate may fall below 9 percent." China is the second largest economy in the world behind the United States, expanding by 10.3 percent in 2010, and maintaining a long term annual growth rate of more than 9 percent, even during the 2008 and 2009 Great Recession, when the world economy was in serious financial crisis. China will probably surpass the United States this year as the largest consumer of computers in the world.

It appears that it is time for China’s economy to rely less on the export driven development model of Japan, Korea, and Brazil, and revalue its currency to reflect its true status as a global market player. China needs to thoroughly integrate its economy with the United States, Japan, South Korea, the EU, other BRIC countries, as well as the emerging markets in Latin America and Asia. Along with the United States, China can and should lead the world in innovation – the key indicator of long term economic success.

U.S. Franchise Firms Represent an Investment Opportunity for Chinese Companies

So, what is the solution?

China should strongly pursue direct foreign investment and branding its products abroad, instead of exporting the products that are thereafter rebranded under famous designer labels, or internationally recognized brand names. To accomplish this, China will need competent international franchise consulting and legal services, along with language, cultural, and marketing experts. This means that small to medium size U.S. franchise firms can obtain investment capital and qualified acquirers from China. In addition, Chinese business people continue to seek franchise licensing and JV opportunities for China.

FranchiseKnowhow Can Assist

FranchiseKnowHow has affiliated with China Franchise International, which has an operational base in China and an existing client base seeking franchise opportunities in China and the United States. For more information contact Ed Teixeira @ 631-246-5782

© 2011 FranchiseKnowHow, LLC

Ed Teixeira is the President of FranchiseKnowHow, LLC. He can be reached at franchiseknowhow@gmail.com