Franchising in Hong Kong

With an area of only 1,096 sq. km and a population of 6.8 million, Hong Kong is a small place with no natural resources and yet it has become the world's 10th largest trading entity (6th if EU regarded as one entity) and the 9th largest exporter of commercial services.

The success of Hong Kong as a leading trade, finance and business centre stems from a policy of free enterprise and trade, well-developed infrastructure, excellent telecommunications and industrious work-force. As a free market open to all, there are no barriers to trade, no restrictions on investment, no foreign exchange controls. The following 'achievements' of Hong Kong might be of interest:

New Convention Centre
Source : HKTDC

The world's freest economy
The world's most service-oriented economy
The world's 7th largest foreign exchange market
The world's 9th largest stock market
The world's 2nd highest per capita holding of foreign currency
The world's first major city to have fully digitised telephone network
The world's busiest airport in terms of international cargoes
The world's busiest container port

Franchising has been growing slowly but steadily in Hong Kong. In the 70s, Kentucky Fried Chicken outlets operated in Hong Kong. At that time, not many people have heard about franchising in Hong Kong. After some time, all the outlets were closed. KFC re-entered Hong Kong a few years later and is now operated by an area developer. In January 1975, McDonalds opened the first of its very successful restaurant chain in Hong Kong..

Recognising the benefit of franchising to the economy, the Hong Kong Franchise Association was established in 1992 as a committee within the Hong Kong General Chamber of Commerce to monitor and promote the development of franchising activities in Hong Kong. The HKFA has been organising study missions, seminars and training courses, publishing books and even CD-ROMs on the various aspects of franchising.

Fireworks
Source : Apple Daily

The legal climate is conducive to franchising in Hong Kong. There is no specific legislation governing franchising operations in Hong Kong. There are no exchange controls, anti-trust laws, or foreign equity participation or local management participation regulations. Disputes arising from the franchise agreement will be subject to the common law (and specifically the principles of contract law) and to the legislation relating to the registration, licensing and protection of intellectual property rights, such as Trade Marks Ordinance, Trade Descriptions Ordinance, Copyright Ordinance, Registered Designs Ordinance, and Patents Ordinance.

As franchise operations are not required to register with the HKSAR government nor any trade associations, there is no official record of the total number of operators in Hong Kong. Our records indicated that there were only about 55 franchise operators in 1992. The number grew to 75 in 1994/95, 81 in 1996, 95 in 1997, 111 in 1998 and 124 in 1999. The number is around 106 in July 2002 and slightly over 90 by end 2003. A list of franchise operators in Hong Kong can be found in our website at www.franchise.org.hk.

Of these franchise operators, 43.2% are local franchises, 20.3% are foreign franchises with sub-franchising while 36.5% are foreign franchises without sub-franchising who are either operated by the franchisors themselves or by a territory developer. 40.6% of the franchises in Hong Kong are in the catering sector, 37.8% in service industries and the rest(21.6%) in retailing business.

Every sector in Hong Kong is placing more focus on quality – for both products and services. Enterprises must constantly improve their quality and efficacy in order to survive. For labour-intensive jobs such as catering and retailing of which wages are generally low, improvement in productivity might not be an easy task. For many of these businesses, franchising may provide just the answer.

Potentials

Traditionally, franchising focused on clothing and catering industries. Now, many different businesses have emerged, such as children related, training courses and household maintenance, etc.
To improve competitiveness, simply improving productivity or price cutting might not be enough. Innovation in products or services would be important.
Different franchise packages might have to be devised to attract franchisees.

The China Factor

We believe China’s entry into WTO will posed opportunities for franchise operators. Chain stores and franchise businesses have become a main area of growth in China's retail and catering sectors, especially for supermarkets, convenience stores, restaurants, specialty shops, etc.

In compliance with WTO requirement, the Mainland government has announced measures for the supervision of commercial franchising in Mainland China effective 1 February 2005. The Measures cover the qualifications, rights and liabilities of franchisors and franchisees, contents of a franchise contract, disclosure of information, publicity, management, legal liability and requirements for foreign invested franchises, etc.

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