South-Western - Management  
How China Eats A Sandwich
Topic Global Management, Entrepreneurship
Key Words Global franchising, China, entrepreneurship
InfoTrac Reference A129895316
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News Story

Jim Bryant is known in Beijing as the Franchise King but bringing Subway to mainland China proved to be more challenging than he could have ever anticipated. In the past ten years, Bryant has managed to open just 19 of the 38 stores that he had planned. China's gangbuster growth (1.3 billion people, an economy growing at 9% a year and a fast-food industry estimated at $15 billion a year) has lured many businesses to the country. However, China's unique brand of quasi-capitalism has precipitated the failure of several American businesses including A&W, Chili's Grill and Bar, Dunkin' Donuts, and Rainforest Cafe.

Subway, or Sai Bei Wei (Mandarin for "tastes better than others"), is the third largest U.S. fast-food chain in China behind McDonalds and KFC. Still, the setbacks in getting established in the country that Bryant has encountered seem almost scripted for a Hollywood production. When Bryant started, there was no Chinese word for "franchise." When he opened his first store, all businesses had to be joint ventures with a local partner. Bryant's local partnership did not go well. Construction costs on his first store rose to over seven times the initial agreement. And Bryant soon discovered his "partner" had swindled him out of $200,000. His second spot was almost as troubled as the first. With six months left on his lease, his landlord chained the door shut. Bryant waited half a day before cutting the chain, only to find himself being beaten and thrown out by the landlord and eight of his "associates." He learned later that the landlord had found someone who was willing to pay him two years' rent up front. The lesson he learned was to only deal with business entities, not individuals, who are not well regulated in the country.

When Bryant did get a restaurant open, he faced major cultural challenges in getting the Chinese to appreciate the sandwich concept. Initially, Chinese customers did not believe the tuna fish was really fish because they could not see the head or tail. They also didn't like to touch their food and would peel the wrap back on their sandwich and eat it like a banana. Subway did not tailor any of their menu offerings to feature more traditional Chinese side dishes like KFC has done. Bryant believes in time the concept will catch on. After a rocky start, tuna salad is now the company's best seller.

Bryant has made other progress as well. There is now a Chinese word for franchise, jia meng roughly translating to "person joins other group of people." China's first franchise laws have been adopted and other franchises like Century 21 and the Athlete's Foot are starting to grow there.

Questions
1.

What efforts towards "local adaptation" did Bryant make when he opened the first Subway franchises in China? What adaptations did he choose not to make? If you were opening an American franchise in China, how important do you think it would be to adapt your business to the local culture? What are some of the benefits and drawbacks to this approach?

2.

Imagine that you are contemplating opening a franchise of a pizza delivery-style restaurant in Eastern Europe. What are some of the unique challenges you might have to overcome to make your business successful?

Source "How China Eats A Sandwich," The Wall Street Journal, March 21, 2005, v151 i6 pF210[B].
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