ENTERING CHINESE MARKET

Entering Chinese Market

Entering Chinese Market

Introduction

China is on the course of becoming one of the greatest economies of the world it has been growing at a very rapid pace and continuously achieving double figure growth since last few years. For a developing country, it has achieved varying heights. China presents foreign franchisors with many options and opportunities. The combination of continued interest in foreign products and a growing desire among Chinese consumers for quality products, consistency in products/services and foreign brands have led many foreign franchisors to rush into the Chinese market, desperate to secure a place. Yet, even as opportunity beckons, considerable challenges remain to entering the Chinese market without adequate knowledge of its changing conditions. Recent amendments in the regulations of Chinese Franchise regulations may make things difficult for the companies, which must be assessed (Anderson, A.R. and Lee, E.Y, 2008, pp. 775-87).

Discussion

The regulations set for Franchising by Chinese government are as follows:

The franchise regulations provide that the regulations are applicable to all 'franchise activities' that take place 'within the territory of the People's Republic of China'. This provision clearly intends to cover not only domestic franchisors and franchisees, but also foreign franchisors intending to conduct business in China.

A franchisor:

1. Must be an enterprise or other economic organization incorporated by law

2. Must own operational resources such as registered trademarks and patents, the company logo, know-how and operational models, all of which rights the franchisor may authorize others to use

3. Must have the ability to provide franchisees with long-term business guidance, technical support and training services.

This means the franchisor must be a legal enterprise with an operation system, intellectual property and a common support structure.

No unit or individual other than enterprises referred to in the preceding paragraph (referring to the definition of franchisor) may conduct franchise activities as a franchisee in china.

This very general reference along with the other references to franchisee in the franchise regulations essentially states that a franchisee does not require any special qualifications or skills unless the franchisee wants to conduct franchise activities such as granting sub-franchises. In such a case, the franchisee must be established as a corporate entity (Beamish, P.W, 1993, pp. 29-48) (Faure, G.O. and Fang, T, 2008, pp. 194-207).

2+1 Rule

One of the most controversial and debated franchise issues in the franchise regulations is the so-called '2+1 rule' - the requirement that a franchisor cannot offer franchises until it can establish that it has owned and operated two franchise units for at least one year.

Although the franchise regulations do not state specifically whether the units must be located in China or whether these units may be located outside of China, most franchise experts are taking the position that a foreign franchisor can satisfy the legal requirement by operating two directly owned units located anywhere in the world. This position is supported by oral statements made by officials within the ministry of commerce franchise department and the China Chain store and Franchise Association (Fook, H.K.Y. and Woo, K, 1998, ...