CHINA MARKET & REGULATIONS
New changes bring confidence
by Dr Callum Floyd

China is the hot topic in international franchising today. Many global brands are entering, or have entered, China – all attempting to tap the country’s population of 1.3 billion, and growing middle class that could top 200 million by 2009.

While the long-term rewards for China expansion are appealing, operating can be extraordinarily difficult. In addition to the expected cultural challenges, imitation is rife and defending trademarks can be challenging. Starbucks has been addressing a rival Shanghai chain whose name in Chinese is almost identical to its own. And many other chains fear prospective franchisees will copy their systems and formats. Notably, Blockbuster Inc reportedly recently abandoned its Chinese plans due to high levels of video, DVD and CD piracy and bootlegging.

Despite these challenges, a number of chains like KFC and McDonald’s are forging ahead with expansion in China. KFC currently already has 1200 restaurants in China. 275 were opened last year, and the same number is expected this year. McDonald’s currently has 600 and is opening around 100 new restaurants per year. They aim for 1000 by 2008. Most KFC restaurants are currently either company owned or joint ventures, and McDonald’s mainly has joint ventures.

New regulations set to take effect on February 1, provide overseas franchisors with greater confidence for franchising in the market. However, there exist a number of areas where leading international lawyers have concerns about the new regulations coverage and definitions. Despite these concerns, both KFC and McDonald’s have indicated they intend to add franchising to their expansion strategy.

The new regulations impose a number of requirements on franchisors contemplating Chinese expansion, such as operating company-owned outlets in China before offering franchises, various disclosure obligations, and guidance on franchisor-franchisee relationship issues.

Successful international franchising always requires extensive planning and research. In a market as challenging as China this requirement is only intensified.

Franchize Consultants (NZ) Ltd has maintained contacts in China over a number of years.

If you would like more information on exporting and how to franchise your business off-shore, please contact Franchize Consultants (NZ) Ltd for a free brochure and additional exporting literature. Contact Win Robinson on 09 523 3858 or email (win@fcnzl.co.nz)

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