Tue, Dec 23, 2003 - Page 10 News List

Chain stores warned against a rush to China

TOO HASTY Economists say Taiwanese chain store operators might be too optimistic about striking it rich in China, despite their success in the local market


Taiwanese chain stores are hurriedly franchising their brands across the Taiwan Strait in an effort to get a foothold in that market, but their hasty expansion might not be viable, according to a report issued yesterday.

The report, prepared by the Chung-hua Institution for Economic Research (CIER, 中經院), said the number of chain stores in China has increased 89 percent to more than 70,000 last year from the previous year, citing statistics from the China Chain Store & Franchise Association (中國連鎖經營協會). The report didn't disclose the number of chain store closures over the same period.

As China is going to open its retailing market to foreign investors in 2005, an increasing number of Taiwanese chain stores, including President Chain Store Co (統一超商), Ten Ren Tea Co (天仁茶業) and Mentor Hair Stylist (曼都髮型美容), have been banking on China's massive retailing market by expanding their businesses there.

The chain-store sector in China generated revenues of 24.4 billion Chinese yuan last year, an astonishing 129 percent jump from a year earlier, the report said.

However, few Taiwanese chains have become household names to Chinese consumers, despite the language and cultural advantage they have over foreign competitors.

"Many Taiwanese companies only see a huge market potential in China, but ignore the fact that purchasing power is still comparatively low there," said Shirley Huang (黃淑麗), a director at Taiwan Chain Store & Franchise Association (連鎖加盟協會).

As expansion of the storefront is considered essential to chain-store business, many companies merely seek to increase their number of outlets.

"But the success of Taiwanese companies in their home market won't necessarily help them to strike it rich in China," Huang said.

Difficulties in management and supply because of the vastness of the territory is the first hurdle, and this also raises companies' costs considerably, Huang said.

Second, many retailers there soon find that the low purchasing power can hardly support the rapidly growing franchising business, she said.

"We spent a lot of resources and time on personnel training to keep the service quality like it is in Taiwan," said Linda Chen (陳碧玉), an assistant manager at Les Enphants Group (麗嬰房), a retailer of children's garments that entered the Chinese market nine years ago.

After realizing the difficulty, Les Enphants decided to focus on the wholesale sector, with over 400 vendors and department stores selling its products, rather than risking licensing their brand names or patents to local retailers like other Taiwanese companies, Chen said.

Howard Chou (周莊雲), an associate manager at Sinyi Real Estate Inc (信義房屋), which set up its first Chinese branch in Shanghai in 1993, however, said having local companies running their brands is not a bad idea.

"Strong management and comprehension of the laws there [in China] are the keys," Chou said.

Sinyi runs 21 stores in China and granted permission to use its patents to 32 Chinese real-estate companies. As a whole, Sinyi saw an average 50 percent increase in annual sales after 2000, Chou said.

With an eye on the potential of the market, Sinyi plans to franchise another 46 outlets in China by the end of next year.

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