Taiwan packs an outsized punch
Philip F. Zeidman
Author’s note: Because my colleague Tao Xu has been intensively engaged in franchise matters in Taiwan in recent days, I have asked him to utilize this space to give Franchise Times readers a glimpse into that interesting market. Here’s his view, direct from Taipei:
As the highway leading from the Taoyuan International Airport makes its way into Taipei, the subject of conversation with my cab driver naturally turns to the state of the local economy (a universal topic among cab drivers everywhere), and the recently held summit in Singapore between President Lian of the Republic of China and President Qi of the People’s Republic of China. “We want the mainlanders’ money,” he said, “ but we don’t want to be too dependent on them. This is as much about politics as about economics.”
The same could have been said when McDonald’s opened its first restaurant in east Taipei in 1984. After more than a decade of rapid economic growth, Taiwan was ready to open its doors and lift its restrictions on foreign investment in the restaurant sector.
In picking McDonald’s to be the first foreign brand approved to enter the Taiwan market, the ROC government was undoubtedly also sending a political message—foreign brands, especially U.S. brands, were welcome in Taiwan. Many consider 1984 to be “Year 1” in Taiwan’s QSR sector.
In the 31 years since then, franchising in Taiwan has recorded impressive achievements. Whether counting the number of franchise systems (more than 2,500) or the number of franchised units (more than 150,000), Taiwan ranks among the most franchised markets in the world.
This achievement is even more extraordinary considering that Taiwan’s geographic size is smaller than that of Malaysia, and its population can’t quite rival the number of residents in the city of Shanghai alone.
Taiwan’s outsize influence in franchising is also reflected in the dominance among franchise companies in mainland China of Taiwan-born managers. That’s also true of Hong Kong and, to a lesser extent, Southeast Asia. The best known example is perhaps Sam Su, the successful Yum Brands China executive: Born in Taiwan, he built KFC into the biggest foreign restaurant chain in China.
It’s also worth noting that, as is evident when you take a stroll on a Taipei street, far from being dominated by foreign brands, indigenous and traditional restaurant brands are thriving in Taiwan as well. The competition that was brought by McDonald’s and a slew of other foreign brands actually seemed to have spurred the development of local competitors. Of the top 10 quick-service restaurant brands in Taiwan in 2014, only McDonald’s (No. 2), KFC (No. 6) and Mr. Donut (No. 9) originated overseas.
Another sign that the franchising market in Taiwan is maturing can be seen in the step taken by the regulator, Taiwan’s Fair Trade Commission. When it amended its franchise regulation in 2015, which has been in place since 1999, no major changes were made. The regulation kept its focus on pre-sale disclosure obligations, instead of veering into relationship and other issues that have attracted the regulators elsewhere.
One notable example is that, in addressing the issue of financial performance representations, instead of mandating the disclosure of such information like what a few other jurisdictions have not in recent regulations, the Taiwanese regulators wisely adopted the position of making that disclosure optional, but mandating the disclosure of the underlying methodology and historical data if the franchisor does choose to make this disclosure.
Overall, by adopting these evolutionary improvements to the disclosure regime, the regulators in Taiwan affirmed that the regulatory framework works well in Taiwan, and they would be devoting their time and resources to enforcing the existing form of regulation.
Compared to the stratospheric growth of the franchising business model in mainland China, Taiwan’s growth in recent years has not been as impressive (and what could be?). It probably never will, given its small size. But it is a well-developed economy, full of entrepreneurs, with a stable and sensible regulatory regime.
Perhaps the time has come for those foreign brands that are not on the island yet to wake up and take a fresh look at this attractive market.
— Tao Xu
Philip Zeidman is a senior partner in the Washington, D.C., office of DLA Piper and an expert in international franchise law. Reach him at firstname.lastname@example.org. Tao Xu is a partner at DLA Piper in Reston, Virginia, devoting his practice to franchising and distribution matters, especially international franchising. Reach him at 703.773.4181; email@example.com.