| American Fast Food Franchise Strategies In China |
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This China business podcast was brought to you by The China Business Show and wsRadio.com. About Janet CarmoskyJanet is a career China business specialist who brings China executional competency and strategic counsel to foreign invested businesses, and similarly advises Chinese government organizations on effective international communications and growth strategies. After earning a degree in Chinese studies from the University of Pennsylvania in 1985, Janet moved to Xi’an, married a Chinese man and spent the next 18 years - as Janet Zhang - living and doing business in China. During this time, spent mainly in Xi’an, Hong Kong, and Shanghai, with sabbaticals in Washington D.C. and Silicon Valley, she developed her extensive knowledge of China’s commercial landscape and the patterns of the US-China economic relationship. Fluent in Mandarin and Cantonese, she spent the 1980’s in trading, sourcing and buying agency projects before moving into strategy consulting with Coopers & Lybrand in Shanghai. Moving for the next 15 years between operations - mainly in China’s retail sector - and consulting, Janet held senior management positions in private equity (VP of Richina Capital), systems integration (COO, Web Connection/Chinadotcom Shanghai) and public relations (Director, Burson-Marsteller Shanghai) before moving back to the United States in 2003 to help integrate PR Newswire’s China operations into their USA base. She has written for Economist publications, authored an award-winning case for IMD and the Chinese language Harvard Business Review, and written essays for travel publisher Odyssey Guides. She speaks often - particularly to organizations new to the US-China business - on how to understand and align with, rather than struggle against, the cultural and economic forces that typically frustrate executives on both sides of the divide. Below please find the transcript of this interview: Welcome back to the China Business Show, brought to you by Global Sources.com connecting global buyers and suppliers. Here is your host, Christine Lu.
CHRISTINE LU: In our last segment we got some first hand insights from the Chairman of the successful U.S. Restaurant chain Fatburger in regards to the China Strategy. Joining us for this segment is Janet Carmosky, President of China Prospects Inc. to give us her thoughts on American franchises in China based on her 20 + years experience in China. Janet welcome to the China Business Show.
JANET CARMOSKY: Always great to be here Christine.
CHRISTINE LU: Thanks for coming back on again, it’s been a while. Now, what can you tell us on American franchising in China.
JANET CARMOSKY: In food, and in certain segments of China, great, great consumers for American products. And I think the man from Fatburger was talking about how he had done consumer research and had discovered that that’s the case. China as a retail market for American brands has always been a proposition of great consumers, too bad about the regulatory environment, because until the provisions the VPO provisions were fully implemented at the end of 2001, foreign invested retail in China was illegal, and not only retail but distribution as well, and further import and export licenses were not given to foreign invested firms. So the supply chain that a Fatburger would need to bring in beef, the license they would need to distribute if they wanted to own a fleet of trucks carrying their ingredients to various stores, and certainly to operate retail, to sign leases with locations, to hire people and collect money –they wouldn’t have been able to do any of that legally until 2001. Now (in the regulatory environment) the conditions are in place, and they are free to go after the Chinese consumers who, frankly speaking, I would think would love a Fatburger.
CHRISTINE LU: Now, novice question then – how did KFC and McDonald’s do it?
JANET CARMOSKY: First of all the import situation was probably less of an issue for them because they went in and developed their domestic sources for their chicken and their meats and things. There were a huge number of joint ventures that started in China in the ‘80’s and ‘90’s just as the supply chains for KFC brands and for McDonalds. So Simplot for example, is the McDonald’s French fry supplier they had to go into China and set up huge scale potatoes farming and processing two years before McDonald’s came in.
CHRISTINE LU: Right, that’s interesting.
JANET CARMOSKY: And KFC pulled in a continental grain and Dajiang is a joint venture between continental grain and CP the biggest Thai agriculture group to produce chicken in a large, large scale which was primarily going to their biggest costumer at first, Kentucky Fried Chicken. So they had all of these joint ventures, at the back end to produce the food that they needed. The distribution and importing, they of course had to use Chinese companies as their vendors to make it all happen. In effect, when you see a foreign brand operating retail in China there is some sort of legal backend to that retail presence that is far more complicated then it would be in the United States. There is always a string of ownerships and Chinese partners, and flows of cash and responsibilities and legal rights that have to be structured. Less so since WTO provisions came in and made foreign investment retail legal, but you’ve got to navigate different partners. Aside from supply chain, real estate is going to be the issue.
CHRISTINE LU: Now with just under a minute left though – you spent time as the Marketing Chair for American Chamber of Commerce in Shanghai, so you are more then welcome to tell me, are people going to be able to take well to this burger, big portions, American Brand more expensive then McDonald’s.
JANET CARMOSKY: I was also a General Manager of a fashion retail business in China when it was completely illegal. (Laughing) So I know how that backend looks. But, hamburgers, diners, its American culture. Tony Roma’s has done really pretty good. California Pizza Kitchen has done well. Obviously pizza, KFC, McDonald’s they’re all doing great in China. I think a quality American product and what could be more symbolic of the American eating out experience then a burger?
CHRISTINE LU: Right. And one called the “King Burger” I always pictured, because I love turkey king burger with a hand-scooped milkshake.
JANET CARMOSKY: And one that the NBA eats!
CHRISTINE LU: Right, exactly.
JANET CARMOSKY: I mean, this is a consumer proposition that is really beautiful. So, Fatburgers challenges are really just going to be executional.
CHRISTINE LU: Janet, Thanks as always for sharing your insights with us.
JANET CARMOSKY: My pleasure – thanks for asking.
CHRISTINE LU: Thanks so much, we look forward to having you back on this show. For more information on Janet’s company, Chinaprospects.com. Thanks for listening, I’m Christine Lu.
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Janet Carmosky, President of China Prospects Inc, weighs in on the inroads American fast food franchises in China have made before and after WTO.
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