Executive summary As China’s market opening, Chinese fast-food industry is concerned increasingly by foreign businesses. Subway is one of the earlier merchants use franchising way to enter into the Chinese market. Although the Chinese market is huge and full of potential, it also needs to face many threats. Intellectual property issues pose a big threat to the franchising of Subway. China’s IPR legal system is not complete. So that Subway should cooperate with the Government, and then have more self-enhance protection of intellectual property.
Subway franchising has its own advantage and disadvantage, but I still think it is most suitable business way for Subway in China. Its advantage is better to save money and save time, and it is helpful to conduct business quickly. Meanwhile, the cultural challenge also is a problem for Subway to operate in China. But I believe that through the way of franchising, Subway will be able to cross many obstacles in China, increase market share and become one of Chinese fast-food industry giants. Content Introduction2 Findings3 Conclusion5 Recommendations6 Reference7 Bibliography7
Introduction Subway is an American restaurant franchise that primarily sells submarine sandwiches, salads, and personal pizzas. Up till now, Subway is one of the fastest growing franchises in the world with approximately 33,556 restaurants in 92 countries/territories and $10 billion an annual revenues. Subway expands its outlets worldwide since the first international restaurant was opened in Bahrain. In China, Subway has only 150 stores that accounting for only a small fraction of their total sales, it far falls behind the fast food giant as McDonald’s and KFC.
But according to Subway president- Fred DeLuca said in a recent visit to Shanghai, “After a decade to enter into China, Subway will accelerate the pace of market development in China, the recent target is 5 years will increase the number of stores in China in 500. ” And he even to said, “The potential of the Chinese market is tremendous, Subway hope that it can succeed in the highly competitive fast food market by the advantages of fresh materials, follow the people’ s inclinations and health first, and we want to launch a strong challenge to the McDonald and KFC. (Reuters, 2010) Thus, this report describes Subway and the challenges of franchising in China. It divides into 3 parts. One is one is subway intellectual property problem; the other one is the advantages and disadvantages of franchising in china, and the last one is subway faces cultural challenges in china. Findings • The threats to Subway’s intellectual property in China Intellectual property is a term referring to a number of distinct types of creations of the mind for which property rights are recognized—and the corresponding fields of law. Wiki, 2010) As far as I am concerned, China is a potential place to develop the franchising of fast- food industry because of its huge population, high profit and good economic prospects. But at the same time, it also has a lot of threats to the developing of Subway in China. Among of them, I think the intellectual property is the main threat to Subway. China is a developing country, many places still need unceasingly to improve and progress. Compare with the western countries, its legal system is imperfect and is full of loopholes and ambiguities.
A lot of critical elements are not covered lead to some criminals have chances to access the loopholes in law to violate the intellectual property of business. Meanwhile in China, most of the people are fuzzy to the concept of the intellectual property, they generally do not understand the meaning of it, especially for the business man. It cause to they are easy to make misunderstanding about intellectual property that making illegal things. The local imitators can quickly dilute or damage a trademark a focal firm has built up through much expense and effort.
For the franchising business, the brand is playing an important role, but customers become confused by the copy things. For instance, we can find a fast- food chain call “MFC” in Guangzhou. Besides of one letter different from the KFC, both fitting of the stores and trademarks all are very similar to the KFC, the old man in the logo is almost the point where real ones do. What is worse, it is incredible that its types of products are also likely to KFC. Such as the fried chicken, hamburger and egg whip. BBS Tiexue, 2009) Although the intellectual property strategy planning is attached great importance by the government, such rampant piracy behavior like the “MFC” is still not getting blocked by the ambiguous legal environment. As we know, Subway’s products are easy to make. It is not difficult to imagine that while Subway has the high visibility as KFC, what would Subway be subjected to infringement. Till now, Violations are still emerging. We can clear to see that the problem of intellectual property is indeed the big challenge for the Subway. The advantage and disadvantage of Subway franchising in China and franchising is the best for the Subway to enter in China Subway is mainly use franchising to deal the business. Of course that it is successful to make use of this way to enter the Chinese market. Franchising is a specialized form of licensing in which the franchisor not only sells an independent franchisee the use of the intangible property (usually a trademark) essential to franchisee’ s business but also operationally assists the business on a continuing basis, such as through sales promotion and training. International Business Environments and Operations 11th Edition, 2009) In China, franchising continue to show the stable development momentum Since Subway uses this way to enter into Chinese market, franchising really has its own advantage for the business. At first, when a brand chooses to enter a new market, most of the merchants would choose to open a single or minority shop to begin the business. However, it is difficult to bend into the market and give the customer a deep impression. But franchising solves the problem of it.
When Subway recruits a batch of franchisees, it can help them begin the business in the meantime, so that it quickly forms the economies of scale and expansion. It is not only save the time, but also have a big impact on the market. Now, more and more people know the Subway and have a high identification though promotion. Secondly, franchising helps Subway achieve standardization. It requires central purchasing that it is effective to control the unity of products’ quality and price and save the cost of decision. What is more, it offers a standard training for the stuffs.
At ordinary times, we all can see every Subway sell the same sandwiches, have same ads and same requirement of stuffs. In addition, franchising is help the Subway enter into Chinese market with minimal entry costs. Because the local franchisees will help assume many cost and responsibility for the Subway. Like the cost of decoration and the advertising. At last, franchising allows the focal firm to avoid trade barriers associated with exporting and FDI, common barriers in China. It can form a win- win proposition to Subway and its franchisors But every coin have two sides.
Franchising also has its own disadvantages for the Subway. The first disadvantage is the independent desire of franchisees. Usually, the franchisees deal the business for a period of time, they will successful to make some achievements. When they master the skills of business operations, the franchisees will ask to leave the network, no longer pay the relevant fees to the franchisor that in order to gain more profit. The next is the risk to damage the brand reputation. The franchising stores are not managed directly by the head office.
So it is difficult to uniform the quality and some franchisees’ bad behavior will cause the bad effect. Lastly, as franchisors, it is easy to out of control; it can not require franchisees to obey the rule of franchising. These all are the disadvantage for the franchising. As far as I am concerned, although the franchising is a double-edged sword, I still think franchising is the best way to entry into the Chinese market for Subway. If Subway uses FDI to enter in China, the best is having an absolute control right, and it have a good link with the headquarters.
It is great to manage the business. But it will spend more time to do the research, positioning and make the decisions. Furthermore, it also needs a lot of money set up the foundational facilities. Compared with the other way to invest in foreign countries, franchising is better to safe the times and money. And it is very suitable for fast- food industries that inject market as fast as it can. • The cultural challenges of Subway to face Nowadays, though China is an open market, the cultural challenge still is an inevitable problem for the society. After all, there’s a cultural gap etween Chinese and western culture. It is also an essential factor to the business environment. On the one hand, Chinese people and Western people will have different ways of solving the problems for business. For example, the head office of Subway generally require to be standardize, they need unity, business first, efficient and legalistic. On the contrary, Chinese franchisees’ work styles are moderate, they think society thrust first. They may need a long time to adapt to such a rigorous rigid approach to work that the cultural conflict is easy to be produced.
On the other hand, Subway is fast- food chain that the food culture of Chinese can not be ignored. Subway is selling the fresh sandwiches mainly. For the western people, they think the raw food is very healthy. Raw food makes them to avoid the problem of nutrient deficiency, prevent the body for a variety of toxins and improve immunity. What is more, the sandwiches are low calories and high nutrition, but not various tastes. It is more in line with the healthy concept of the West. But in Chinese people’s opinion, we more value the taste of food that we need different foods to satisfy our sense of taste.
Moreover, we prefer cooked food. To summarize briefly, these all are the cultural challenges of Subway to face. The master franchisee should take some measures to meet the challenges. Conclusion All in all, Subway use the way of franchising to enter into China market and this process require facing a lot different threats. However, we believe Subway can make use of its own advantage to overcome the difficulties and capitalize the chances that it achieves the purpose of increasing market share, occupying an important position in fast-food industry and becoming more and more popular in China.
Recommendations Subway franchising faces threats of intellectual property rights in China. It is an important problem for the franchising. Subway should take urgent measures to solve it. At first, cooperate with government and remind the government improves the intellectual property legal system, repair legal loopholes, and strengthen law enforcement. As foreign franchisees in China, Subway should do the best from themselves, deepen the understanding of intellectual property rights and promote vigorously.
Set out the details about the intellectual property on the contract which should be signed by franchisees, it helps to constraint franchisees to prevent intellectual property losing. At last, strengthen the supervision of the franchisee products and service quality in franchising developing process. Meanwhile, Subway is facing the cultural challenges in China. No one can deny that it also a big problem to the Subway. There are some suggestions for the Subway. On the one side, Subway should be more humanized that it can find a most suitable ways of cooperation with franchisees.
So it keeps people from different cultures struggle for the same goal- do the best for Subway. Otherwise, Subway and its franchisees should do more research for the taste of Chinese. And develop some kinds of sandwiches which are suitable for Chinese taste. We hope to the people from different culture all love Subway! Reference Reuter (2010) “Subway plan to surpass McDonald’s in 10 years” Retrieved on 25th, November, 2010 http://cn. reuters. com/article/cnMktNews/idCNnCN090927920100308 Wiki (2010) View on 28th, November, 2010 http://en. wikipedia. org/wiki/Intellectual_property
BBS Tiexue (2010) “May be is the most best imitation to the KFC- MFC” View on 28th, November, 2010 http://bbs. tiexue. net/post2_3431241_1. html John D. Daniels (2009) International Business Environments and Operations 11th Edition, China Machine Press, 2009 p. 430 Retrieved on 25th, November, 2010 Bibliography Docin (2010) “The advantage of raw food” Retrieved on 25th, November, 2010 http://www. docin. com/p-9532299. html Baidu (2010) View on 28th, November, 2010 http://tieba. baidu. eph/f? kz=149089249 Stephen P. Robbins (2010) Organizational Behavior 12 Edition, 2010 Retrieved on 25th, November, 2010