Abstract
This research deals with the mechanism for regional expansion and chain store control of a Chinese
shoe company. It focuses on the following three points: 1) the history and background of the expansion of the
chain store’s network via a franchise system, 2) management and support mechanisms that made it possible
for franchisees to achieve high sales quotas, and 3) the relationship between the chain headquarters and
franchisees and the changes in this relationship.
Our research method was to interview four executives at Company A’s headquarters and its regional
agency, and to interview 18 owners of Company A franchises. We investigated the process of how people
became owners, the contract conditions and arrangements between headquarters and owners at the time of
procurement of goods, the support which the owners received from headquarters, and the changes in this
support.
In its nationwide expansion, Company A signed franchise agreements with wholesalers and retailers,
and it set up specialty stores that only handled its products. This company eased the financial burden of
franchisees by relaxing payment terms, offering incentives based on sales, and supporting part of the startup
fund by delegating some decision-making to the regional agency in Wenzhou, the city where Company A
originated. In addition, it provided storeowners with training and knowhow on store operations.
Many people in China have a high sense of business entrepreneurship, and they manage companies
and stores. A distinct feature of Company A’s expansion has been its speed and effectiveness in mobilizing the
entrepreneurial talents of these persons. Over a period of about 15 years in which it introduced its franchise
system, the company rapidly expanded its network to 4,000 stores. On the other hand, looking at the
relationship between the headquarters and franchisees, headquarters had previously provided full support to
distributors. However, Company A’s headquarters has recently been strengthening its control over
franchisees, and support for franchisees has decreased. In other words, due to stalled sales, difficulties with
profit distribution has become evident.
