This is a best prospect industry sector for this country. Includes a market overview and trade data.
The franchising industry in Hong Kong continues to develop. It is estimated that there are about 75 franchisees operating in Hong Kong, of which less than half are foreign-owned. There are three major sources of franchise brands: international franchise brands, local franchise brands, and mainland Chinese franchise brands. Many well-known global brands, such as Pizza Hut, 7-Eleven, Outback Steakhouse, Subway, Keeper Pro Shop, Park Avenue, etc., have long been established in Hong Kong, while homegrown products and services using the franchise model for operation are becoming more popular. Hence, Hong Kong businesses are familiar with the franchise system and have developed strong market sensitivity and extensive business connections throughout the region.
It is common for Hong Kong area developers to partner with U.S. franchisors to jointly develop franchises in China involving equity participation from the franchisors. There is also a growing trend for master franchisees and area developers in Asia to establish franchise operations in Hong Kong covering Macau and some parts of mainland China. These non-resident Hong Kong franchisees want to expand their territory beyond their home country to take advantage of economies of scale and to explore opportunities in mainland China.
American franchisors will find strong competition in Hong Kong due to the maturity of the market. They must gain an understanding of the needs of the market in order to tailor products and services to local cultures, consumer tastes, and packaging. They should remain in regular contact with local franchisees to build brand awareness and fine tune product offerings and services.
Opportunities exist in quick-service restaurants that offer healthy food and beverages, confectionery products that are unique and appealing as gifts, children’s sports academies, education, computer design/development programs, fitness centers, and healthcare.
Hong Kong’s economy has been affected by the anti-government protests that began to increase in June 2019. This has been compounded by the outbreak of the COVID-19 pandemic and trade tensions between the United States and China. In view of economic contractions, the Hong Kong Government has been rolling out support measures for local businesses, particularly in the retail, tourism, and transport sectors. Retail rents in the central district of Hong Kong - among the most expensive in the world - fell by 20 percent in the first quarter of 2020. U.S. franchisors interested in entering the market can take advantage of the softer retail rentals.
As the Hong Kong market is relatively small, the most common type of franchise agreement for U.S. franchisors is area development. A Hong Kong franchisee would prefer to operate all the franchised units in Hong Kong directly rather than through sub-franchising. Hong Kong franchisees are hungry for new business concepts and ideas, and they seek quality and well accepted products and services.
Current Market Assessment: Out of the total number of franchises operating in Hong Kong, 43 percent are in the catering business, while 37 percent are in services and 20 percent are in retailing. Hong Kong has an edge in serving the growing franchising business in Asia, including its role in showcasing world-class supporting services, the availability of industry talent, and extensive business connections throughout Asia. Foreign franchisors may consider starting their franchise businesses in Hong Kong as a base, polishing the operation and services to suit local needs, and then further expanding to mainland China and other parts of Asia to minimize risks. U.S. franchise firms are well-perceived, especially in operational procedures, marketing, and providing high quality products and superior customer services.
Market Challenges/Obstacles: With its open import market and excellent transportation and business infrastructure, Hong Kong serves as a regional distribution, logistics, and marketing hub for many U.S. franchisors to service existing Asia Pacific franchisees.
It is easy to set up a foreign-based franchise operation in Hong Kong since there is no specific legislation governing franchise operations. There are no foreign exchange controls, and no regulations on foreign equity participation or local management participation. Disputes arising from a franchise agreement are subject to common law (specifically to contract law) and to legislation relating to licensing, protection of intellectual property rights, and registration of trademarks/service marks. There are no restrictions on the repatriation of profits, and no local content requirement.
Finding a master franchisee is one of the biggest challenges in Hong Kong since it is a relatively small market, and it is difficult to achieve economies of scale. Potential franchisees will commonly request inclusion of territories outside of Hong Kong in their negotiation of the territory for development. In addition, Hong Kong is a mature market, especially in the food and beverage sector. Although there continue to be opportunities for American cuisines and American-style dining concepts, in recent years Hong Kong has seen an increase in consumer demand for Korean, Japanese, and other Asian restaurants.
Mall space is at a premium, and this situation has often been a deterrent for local companies to open new retail stores to operate franchises. However, rental rates have softened due to the recent social unrest and the pandemic. This may attract investors to acquire new franchises. Mall owners are also looking for new brands and retail concepts to replace the shop spaces that luxury fashion brands once occupied.
Franchising in Macau is regulated through provisions of the Macau Commercial Code (MCC) in which Article 680 provides the list of the information the franchisor has to deliver in writing to a prospective franchisee. As to the respective obligations of the parties, articles 686 of the MCC provides a general duty of good faith and fair dealing.
Dates: December 2-4, 2020
Venue: Hong Kong Convention and Exhibition Centre
Themes: Catering/Non-Catering (Retail, Education, Cleaning, Health & Beauty, Entertainment, Business Services)
U.S. Commercial Service, Hong Kong
Kitty Leung, Commercial Specialist