Franchising in Hong Kong
With an area of only 1,096 sq km and a population of 7.17 million, Hong Kong is a small place with no natural resources and yet it has become the world’s 10th largest trading economy and the 11th 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 network and industrious workforce. As a free market open to all, there are no barriers to trade, no restrictions on investment and no foreign exchange controls. The following notable ‘achievements’ of Hong Kong might be of interest:
- The world’s freest economy
- The world’s most service-oriented economy
- The world’s 6th largest foreign exchange market, third largest in Asia
- The world’s 6th largest stock market, second largest in Asia
- The second largest source of foreign direct investment in Asia
- The most important entrepot for the Chinese Mainland
- The world’s busiest airport for international cargoes
- The world’s third busiest container port
Franchising has been growing slowly but steadily in Hong Kong. Dating back to the 70s, Kentucky Fried Chicken (“KFC”) outlets established its franchised operations in Hong Kong. At that time, not many people heard about franchising in Hong Kong. After some time, all the KFC 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 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/local management participation regulations. Disputes arising from a 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 about 55 franchise operators in 1992. The number grew to 95 in 1997, and peaked at 124 in 1999. At present, there are about 75 franchise operators in Hong Kong.
Of these franchise operators, 56% are local franchises. 42.7% of the franchises in Hong Kong are in catering business, 37.3% in services and 20% in retailing.
Every sector in Hong Kong is placing more focus on quality and innovation for both products and services. Enterprises must constantly improve their quality and efficacy in order to survive. There is no doubt that franchise operations need to meet the same challenge.
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