FOOD IS NEVER far from thought in China, perhaps a legacy of famine years. In an increasingly fast moving world, food falls into two categories. There is the slow formal business or family meal with friends and colleagues. An example of this was a lunch I recently enjoyed at Beijing’s upmarket Da Dong Roast Duck Restaurant in Nanxincang with friends and embassy colleagues.

 

Lunch could also be a quick affair — a bowl of knife-cut Shaanxi noodles with some country-style tofu gan grabbed on the fly at a small café. The Xiao Bu hotpot restaurant and HanNaShan Korean BBQ usually have a long waiting line. These are domestic restaurant chains. The younger crowd, meanwhile, prefers McDonald’s and KFC.

 

The fast-food segment is growing to meet the demands of an increasingly fast-paced society. In the evening, many more people are choosing to eat outside the home. Domestic chains such as Xiao Bu are opening new stores at breakneck speed.

 

The foreign brands, McDonald’s and KFC, are also expanding successfully. Even XingBaKe — Starbucks — is having success switching a nation of tea drinkers to coffee. This is an opportunity for investors who want to ride the China boom via Western companies with business in China.

 

However, the path to success for foreign companies working in China is not smooth. I was talking with a business registrar in Xi’an and she noted that around 70% of foreign companies fail within the first two years of business registration.

 

KFC was the first quick-service restaurant chain to enter China in 1987. The Yum! China Division has grown to be one of the most important divisions of Yum!’s global network. KFC is the largest and fastest-growing restaurant chain in mainland China, with nearly 3,500 restaurants in more than 700 cities. It has a 40% market share compared with 16% for McDonald’s, according to Euromonitor.

 

Yum! succeeds because of localisation. It hired Chinese managers and built strong partnerships with local companies. It also adjusted the menu offerings. I dropped by a KFC outlet on Banjing Road in Haidian recently and was confronted by a choice of beef, seafood, rice dishes and noodles in addition to the usual fried chicken.

 

Localisation and the ability to work with Chinese managers is the key to success for foreign businesses in China. As my Shaanxi friend implied, 70% of foreign companies do not pass this test. Buying the China story for a foreign company must include due diligence research. It’s more than just about a good product or a great idea. It must include the ability to work in the Chinese environment. Get the research correct and companies such as Yum! offer a profitable slice of the China growth story.