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The Project Aims

The purpose of the paper is to discuss and analyze the setting up and the management of a successful training and education franchise operations in China. Both the factors affecting the success of the training and education franchise model in China as well as the challenges will be discussed and analyzed as well. The paper will also compare the Informatics training center model with other successful model in other industry such as McDonald’s and KFC, which represent franchises that have adapted best to the China market. The objective of the paper is to eventually provide a paper that will serve as a guide to those in the training and education industry who are contemplating to enter the China market through the franchising approach.

Summary

According to information, China has become the second-largest franchising market in the world and the most promising destination for those overseas franchise systems aiming at the far eastern region. Moreover, it has been more than ten years of franchising in China and there have been more than 1,900 franchises successfully developed locally along with the entry of China to the World Trade Organization there are more foreign franchisors like for example McDonald’s and KFC will be allowed to do franchising in the marketplace of China with less restrictions in the future years of franchising business in China. Thus, KFC may be a commercially revered icon in China, but McDonald's has upped the ante in the intensifying competition by recently hiring Chinese basketball star Yao Ming as their official spokesperson in order to improve brand recall and steal a march on its competitors also signed a contract to sponsor the 2008 Summer Olympics in Beijing. ''Several companies with a high profile franchising operations internationally have entered the Chinese market with a standard foreign-investment model. This involves a limited-liability joint venture with a strong domestic company, followed by the opening of branches in many locations,'' says Fraser Mendel, known IPR expert and Beijing-based senior associate, corporate department, Morrison & Foerster. Franchising is ‘’a type of business, in which, by contract, the franchiser licenses the franchisee to use the trademark, trade name, business format and other business resources which the franchiser has a right to license; and the franchisee carries on business under the uniform business operation system in accordance with the agreement and pays franchise fees to the franchiser’’ (Regulation for Administration on Commercial) as a booming sector in the Chinese economy. The franchising model, which allows people with limited capital to enter an established business, is well suited to a developing economy. China’s franchising industry is set to enter a rapid but orderly development as franchising has emerged in China as the most notable was KFC’s first Chinese outlet in Beijing as the franchising industry has experienced a period of chaotic development. Today, there are about 200 franchise brands in China ranging from supermarkets and drug stores to fitness centers. Nearly 60 industries have applied for franchise operations, including the traditional sectors of catering, retailing and individual services, as well as newly developed fields of education, commercial services, family services and automotive care. In terms of the number of franchisers, the catering industry leads by 35 percent while retailing accounts for 30 percent and auto sales 3 percent. Though China has the most franchise systems in the world, the scale of franchise operations is still relatively small. China’s promising economic environment is leading to more companies adopting the franchising model. Increasing numbers of enterprises became qualified to market their franchise after improving brands, technology and management.

McDonald’s:

As the most successful franchiser in the world, 70 percent of McDonald’s outlets were opened all over the world through franchising. However, in China McDonald’s is operating through a joint venture. McDonald’s set up a joint venture with a local company in Beijing when it entered the Chinese capital during 1992. McDonald’s has about 600 outlets in China but not operating through direct franchising. In recent years McDonald’s started to adjust its strategy on franchising in China. In 2004, McDonald’s (China) opened its first franchise outlet in Tianjin and announced that batches of franchise restaurants are to be launched sooner. Thus, McDonald’s is planning to further expand its franchise business in the second-tier cities and in the countryside.

KFC:

KFC opened its first outlet in China in 1987 and now has over 1000 outlets in 200 cities all around China. At the beginning most KFC outlets were entirely owned by Yum Brands which is a registered company in Shanghai and established dozens of subsidiary companies in various large cities. Following this model, Yum Brands, formerly known as Yum Brands, has full rights to control the overall operations of the business. In 1993 KFC opened its first franchise outlet in Xi’an.

Project Outline

Informatics core business activities are in training and education services. Franchising is one of the company’s main strategies to enter and expand into foreign and unfamiliar territories. While the company has been relatively successful in its franchising activities elsewhere in the world, the territory of China offer much challenges as well as tremendous market potential. This paper will focus on Informatics China franchise model and experiences, from its initial entry into China and its use of the franchising strategy to grow the operations all over China. The paper will assess the pros and cons of franchising in China, and offers proven best practices for building a successful franchise system while covering strategic issues and challenges faced by Informatics as a foreign franchisor in China. The outline of the paper will include the designing of the franchise system, recruiting, selecting, managing and supporting of franchisees, establishing territories and pricing and managing the expansion. Drawing on studies of some successful franchise like Mc Donald and KFC , proven principles and techniques for the entire franchise system development process: defining products and services, planning support, establishing royalty rates and advertising programs, mapping territories, recruiting and managing franchisees will also be identified and discuss.

Evaluation of the training and education industry in China: Informatics competitive position and competencies

Education and Training that involves investment in the education industry will become very popular in the future. China’s fast growing economy creates a sound and budding environment for foreign language training. English First is a franchise education organization operating successfully in China. With the growing demands for foreign language training, teamwork training and business training, there will be great market potential for education and training. Training and Education Industry in China can be evaluated through the successful Informatics that they have adapted throughout the recent times most in dealing to franchises that will give a clear emphasis of the matter along with important information needed for the integration and realization of training and education of the country. As Informatics is considered as a global leader in quality lifelong learning services, today announced that its Informatics has been appointed as accredited training and testing center for the International Council of E-Commerce Consultants (EC-Council), a leading provider of e-Business certification programs in lieu of a prestige partnership, Informatics has begun offering the only authorized programs in the world leading to an Ethical Hacker Certification and Hacker Forensic Investigation Certification for IT professionals.

Informatics, which provides leading IT training and certification for computer professionals across fifty two countries through the network of training centers around the world and has already begun offering training and authorized testing mapped to EC-Council’s CEH exams in China through the better competitive position and competencies that enhances growth and value of Informatics franchises in China.

The advantage to the franchisee

The franchisee is the proprietor of its own business and owns the tangible assets of the franchise outlet. What makes the franchise different from any other business is that it gains from the franchisor the entire business concept with full training, assistance in every aspect of setting up and running the business, and access to necessary materials and supplies. In addition, it must make regular payments to the franchisor in the form of management services which is an agreed mark-up on supplies obtained from the franchisor.

The disadvantage to the franchisee

The franchisee is not an independent entrepreneur as the franchisee must follow the franchisor's instructions.

The advantage to the franchiser

The main advantage of franchising to the franchiser is that it allows the latter to increase its number of outlets with minimum capital outlay and so accelerate the network's growth and probably its profitability. Self-employed franchisees are highly motivated than salaried managers in order to produce better results for less expenditure of capital on behalf of the franchisor.

The disadvantage to the franchiser

The disadvantage of franchising to the franchiser is that it has to control and co-ordinate a network of semi-independent businessmen and ensures that they build and maintain a favorable image for the whole franchised operation. The policing and monitoring of standards by the franchiser is vital but can at times be difficult. The franchiser will sometimes have to resort to the use of both carrot and stick to get franchises to improve the current performance.

Key Franchising Policies

Ø Training and/or ongoing support provided by the franchisor

Ø Assigned territory

Ø Duration of the franchise agreement

Ø Franchise fee and total anticipated investment

Ø Trademark, patent and signage use

Ø Royalties and other fees you are expected to pay

Ø Advertising

Ø Operating protocol

Ø Renewal Rights and franchisee termination/cancellation policies

Ø Resale rights

Franchisee Support and Assistance

The franchise and product distribution group has a broad range of experience representing franchisers in matters throughout. The group's clients includes automotive supply companies, construction materials manufacturers, electronics manufacturers, fast food franchisers, industrial equipment manufacturers, petroleum companies, publishing and distribution companies and manufacturer trade associations.

Counseling
Members of the group advise customers with value to franchise and product distribution issues that arise in their client's on-going business operations. Important areas of counseling include the drafting of sales and distribution agreements, the creation of brand standards and dealer incentive programs and the drafting and development of sales representation agreements. The group assists clients in developing franchising policies in key areas such as corporate identification, minority dealer representation, product allocation, and pricing. It also provides advice on matters such as advertising, gray market trading, and trademark licensing and management. The group frequently works with clients in developing market representation strategies and in determining where to place dealers within a network.

Litigation
Members of the group litigate commercial disputes involving franchise and product distribution issues. The group has defended franchisers in a number of significant cases seeking to impose franchisor liability for franchisee conduct, including in a nationwide class action context as the group regularly represents clients in disputes arising out of all aspects of the franchiser-franchisee relationship. Members appear regularly before administrative agencies and they have argued significant franchise matters before state supreme courts. Members of the group have filed amicus briefs in important franchising cases and several of the group's cases have resulted in a substantial restructuring of a state's franchising law.

The Franchise Business Directors need have to provide complete business consulting support for franchise groups. Their primary focus is to analyze evaluation results, marketing data and training information and then work with franchisees to create tactics and business strategies to help improve an organization’s operations, local store marketing, people development, financial opportunities and training effectiveness and efficiencies. The Regional Marketing Directors provide support and assistance to franchisees in marketing plan development, assist with local store marketing efforts, evaluate and analyze marketing effectiveness and, in general, are a resource for franchisees for all marketing and advertising needs. They help align regional marketing efforts with our national plan. They also assist with media planning, purchasing and analysis.

The Operations Specialists evaluate the efficiency of restaurant operations. They conduct comprehensive restaurant evaluations. The results are then provided to the Franchise Business Director as one means of reviewing a franchisee’s business and selecting tactics to help restaurants perform more effectively. Furthermore, franchise Services is a partnership as the franchise support is imperative to the success of the company. The elected franchise representatives and corporate representatives meet quarterly to discuss operational issues, the business environment, company standards, growth strategies and that the franchise representatives will have to communicate these important issues to their fellow franchisees.

Franchisees are being provided with comprehensive support and training during the pre-launch period, support and training encompass editorial, sales, marketing and business management. The official launch of the new franchise will be centrally supported to ensure maximum awareness and visibility. Training: provision for continuous training to update franchisees on new products, customer service and market developments. Marketing: initiation of marketing, public relations and advertising campaigns, promotional materials and brochure. Business: advice and assistance for franchisees on management and technical issues. Editorial: assistance to enhance editorial quality. Sales: regular statistical feedback to ensure sales performance is optimized

Territorial Strategies

Ø Chinese Government will need to encourage the franchising sectors and businesses to

provide ways of a better territorial policies

Ø Restructuring of rural areas and the need for franchising reforms

Ø Evaluating the demand for franchising model and experience

Ø Establishing better franchising policies and measures in acquiring good location and market position

Ø Further analysis of different situations in terms of territorial reviews

Pricing Franchises

There are options which reflect the level at which the franchisee wishes to embrace the opportunity and allows the franchisee to acquire a franchise at the level of risk they feel most comfortable with:

Ø An initial fee of $ negotiable and based on domain name chosen with an ongoing return to Franchises of ten percent of the generated revenue

Ø An initial fee of $ negotiable and based on domain name chosen with an ongoing return to Franchises of thirty three percent of the generated revenue

Ø An initial fee of $ negotiable and based on domain name chosen with an ongoing return to Franchises of fifty percent of the generated revenue

The options could possibly be subject to negotiation and discussion from Franchises such as KFC and McDonald’s in order to ensure that potential franchisees have the full grasp of the opportunities that exist and the level of commitment and work that is involved.

Franchise Product Strategies

Operational excellence

The development of the ability to produce its products and services lower than its competitors

Customer intimacy

The enhancing of a close relationship with its customers regarding on an excellent knowledge of customers' business

Technological superiority

The business franchises offers products and services that is superior to the competitors

There are several strategies to apply in product franchising:

Ø Improvement of the products and services better at a lower price

Ø Deliver the products to the customers more faster

Ø Maintaining and increasing the level of franchise qualities

Ø Have a better follow-up and support services to go along with the product service

Ø Give guarantees and warranties of satisfaction

Ø Make the product easier to acquire and more readily available

Ø Make the prices and terms more attractive and convenient

Ø Include additional products and services at the same price

Moreover, the goal of every entrepreneur is to seek out profit-making opportunities as profit comes from adding value in some way, before the competitors do it. The number of ways you can add value to your product services and to your customer is limited by your imagination.

Expansion Strategies

It is entering new levels of success or areas of business that can position your company as a leader in its markets. It may require increases in debt, personnel, equipment, physical space, or marketing expense. It will require the development of new business goals and strategies, operational changes, and your organization's attention and commitment.

Strategies:

Ø Create and implement business plans and strategies

Ø Conduct market research

Ø Develop business projections

Ø Align business processes with strategies and goals

Ø Provide leadership development and organization training

Ø Implement operational performance measurement mechanisms

Ø Analyzed business plans and strategies to assess alignment with goals

Ø Developed plans for acquiring other companies

Ø Explored international opportunities

Ø Evaluated market potential for ensuing five years

Ø Developed quantitative and qualitative success measures

Ø Created management and employee training programs

Legal and Institutional Environment for Franchising

Informatics Franchise in China will have to support the development of legal and institutional environment for the franchising business markets throughout the country depending on the level of its process and development that the franchise market has achieved along with the appropriate legal and institutional approaches to the franchising environment. Thus, the legal and institutional environment is basically adequate to support franchising model and experience that helps decision makers to strengthen the franchise structures and frameworks. Informatics franchise normally starts by reviewing the existing legal/institutional environment outline. The legal review addresses not only laws that regulate Chinese government but also legislation that governs franchise capital markets as well as trust mechanisms. The institutional environment looks at both public and private business franchises in the promising market, the flows of resources, incentives to invest in the sector, the depth of the capital market that relates to a sequence of legal and institutional reforms and supporting actions with justification and alternatives as needed of the enabling environment as a whole to strengthen key financial entities that play a direct intermediation role in franchising market in working to establish franchise systems as a means of encouraging franchise development market.

Recruiting, Selecting and Managing Franchisees

The new franchiser has spent a huge amount of money on preparations, with nothing to show for in return. His banker and his investors are becoming impatient and the temptation is great to accept all-comers as franchisees just because they can support the investment with the franchise relationship often compared to a marriage, it is important that the parties share the same values and the passion for the business that have combined to make the franchiser successful in his core business. A franchise development plan that has been based on a realistic assessment of the network's capacity to support franchisees and a franchisee profile based on careful observation of the traits that make successful operators in this field should have been drawn up at an earlier stage. It is vital to the long-term success of the network that the franchiser ignores pressure applied by investors and others and adheres to the plan per se. Selecting and managing franchisees is no longer as easy as it used to be but is possible of having a sound franchise opportunities, an increasing number of well-established companies have recognized the power of franchising as the competition for qualified prospects has forced franchisers to become more professional in the way they recruit and support their franchisees. Thus, it is crucial that the franchisers ensure that inquiries are handled promptly and professionally and the follow up should be swift and realism must prevail and should be guided along the evaluation path with care while ensuring that the eventual decision is based on a full understanding of the underlying realities.

Recommendations and Improvements

Henceforth, a franchise needs to be competitive in the market. Competitive advantages of a franchise not only are an important source for attracting new franchisees but also are an important element for maintaining franchisees' loyalty in the franchise model and experience. The competitive advantages may come from brand name, efficient execution of the franchise model system as basis for improving the quality of franchise as the impression that franchisees have of their franchiser's services. Moreover, the competitiveness of the Informatics franchise model may affect franchisees' satisfaction and intention to remain in the franchise integration system. Thus, in establishing and maintaining a competitive advantage in today's world of constant changes requires franchisers to respond quickly to changes in the market environment. If they cannot provide competitive offers in the market, they definitely will face sever competition from other competitors. A franchiser should understand that although daily operation assistance cannot improve franchisees' overall dissertations satisfaction directly, it definitely can improve the trustworthy image of the franchise system. Many alternative models to enhance franchising potential opportunities and foster territorial competitiveness on the business social and institutional context as governance differ from country to country. Thus, the discussed recommendations will have to emphasize the improvements to be made in order to enable the collection, analysis and dissemination of comparable informatics franchising application in China respectively.