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Subway Analysis

By chenyk1989 Nov 06, 2012 788 Words
Subway and The Challenges of Franchising in China

Subway's History
Subway's first appear was in 1965, Connecticut, United States[1]. This company was found by Fred DeLuca and Peter Buck in Bridgeport[2]. And it is famous by its foot long and 6 inch submarines sandwiches. Right now, Subway become the world largest submarines sandwich franchise operation mechanism. End of January 1st 2011, Subway have 33,749 branches which exceed McDonald's 32,737 branches became the world largest single brand fast-food franchise chain mechanism[3]. Subway's Development in China

Subway first march to China was in 1995. Right now there are over 1000 branches in China's major cities[4]. Subway first branch was opened in Beijing by Jim Bryant. At beginning, he lost money to a scheming partner and failed to develop other branches. All in all, it was not doing well at the beginning. However, during 10 years development, it became a successful fast food brand in China, and been well known. Subway in China

Subway decide to open in China need face to many difficulties. The biggest one is how to protect its own intellectual property. In China, there have not formed a perfect intellectual property system yet. For example, KFC and Pizza Hut were the companies take the lead in doing business in China. However, they all struggling in property protection[5]. Since branding is important and can create customer loyalty, every company do not want their trademark been embezzled. On the contrary, in China, KFC and Pizza Hut's trademark and products been copied without permission and these copycat does shared their market. If Subway want to protect itself from previous example, it need to engage with strong, reliable partners. Also have a strong contract to restrain both side. Even thought China have a weaker contract law compare with United States, it still may help a lot. Also Subway need to create a specific logo for itself, that logo need have strong characteristics, because that's the only way to protect its unique from other copycats. On the other hands, there do have some international treaties to protect company's intellectual property. If necessary Subway may need get help from certain international organization to protect itself. Subway's Business Model in China

Actually, Subway does run a satisfactory business model in China. According to statistics data proof, Subway from 1995 to 2011 opened over 140 branches in China. So many franchisees have become successful. Also, there have more spaces for Subway to improve itself. Due to China does not have strong bank to support small business in the early years, it limited some franchisees to start their own business. However, right now many Chinese bank start to open their business to small business owners. So there will have more and more opportunities for new franchisees. On the other hands, China is a developing country, many new opening malls become good locations for franchised restaurants. China Market's evaluation

China have the world largest population, so it also have a huge fast food market. In China, fast food market have about 15 billion per year, also it expanded 5% per year[6]. This is an unique opportunity for fast food company to develop themselves here. Also China turned more busier than before, people have less time for lunch, more and more people prefer to eat outside. And young Chinese do like eastern style food. Even though Subway ask 10,000 dollars for initial startup fees, compare with other franchised brands it is over standard. Challenges in China

Culture, is the largest challenge for foreign company. Not only for Subway, all foreign fast food company need to face this cultural gap. From macro perspective, Chinese banks does not provide enough help to start business, government have limitation for foreign company to purchase estate, repatriation of profit and high startup cost. From micro perspective, Chinese use to their traditional food, people need time to adapt a new type food. And due to China's week intellectual property protection, Subway loss some profit from copycat or pirated restaurants. So if Subway want to conquer these problem, it need to select a strong partner to start their business, and spend enough money to protect its intellectual property.

Reference:
[1] Anand, J. "Subway." Business Today 21.10 (2012): 117.
[2] Coomes, Steve. "Fred Deluca." Nation's Restaurant News 44.20 (2010): 54.
[3] JARGON, JULIE. "Subway Runs Past McDonald's Chain." Wall Street Journal - Eastern Edition 08 Mar. 2011: B4.
[4] Stribling, Dees. "Subway To Open 1,000 Stores In China Within 10 Years." shopping Centers Today 27.10 (2006): 22-24.
[5] Adler, Carlye. "Copied Coffee?." Fortune 148.6 (2003): 48.
[6] "Fast Food Industry Profile: China." Fast Food Industry Profile: China (2012): 1-36.

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