franchising in China

franchising in China - Franchising Industry in China 1. An...

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Franchising Industry in China 1. An Overview of Franchise Development in China Franchising first emerged in China in the late 1980s. In 1987, KFC’s first Chinese outlet was opened in Beijing, the capital city of China. Franchising industry in China experienced a period of disordered development in the early days. In the poor legal environment, some franchisers conducted substandard business or even defrauded franchisees of money. In some cases, franchisees delayed payments to the franchisers or infringed on their intellectual property rights. In 1997, the Ministry of Internal Trade established the first Chinese franchise law, the Regulation on Commercial Franchise Business, which included guidelines on such issues as trademarks, copyrights, and intellectual property protection. A lack of specific provisions in the 1997 version governing foreign direct franchising allowed relatively few major international companies to have significant franchise businesses in China. Although many of these international brands such as 7-Eleven, McDonald’s, KFC and Pierre Cardin, normally do business through franchising, in China foreign franchising was still a grey area before the new rule was published. Because franchising typically does not involve investing in equities, the Chinese Government used to put less focus on such business. But the government came to find that franchises are a good business model for China to help solve its job problems and its scattered private capital. China’s capital markets are underdeveloped and franchising is one method that allows the assembly and concentration of capital from a wide capital base through investment in franchises. China has a great number of qualified potential Chinese franchisees with strong sources of funding. Franchising makes up for the commercial inexperience of the Chinese franchisers by linking their investments to completed training within a well-tested operating system. The new Regulation on Commercial Franchise, announced by the Ministry of Commerce on December 30 th 2004 and which took effect on February 1, will stimulate business in terms of its scale and standardization. The new regulation for franchises, to replace the 1997 measures concerning administration of commercial franchising, defines more clearly the way foreign brands operate franchise businesses in China. The new rule should help build a sound legal environment and invite additional foreign franchisers into doing the local business. The franchising model, which allows people with limited capital to enter an established business, is well suited to a developing economy. China’s infant
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franchising industry is set to enter a rapid but orderly development stage after the new Regulation of Commercial Franchise takes effect. 2. Main Figures Related to Franchising Industry in China
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This note was uploaded on 09/05/2011 for the course ECO 103 taught by Professor Mary during the Spring '11 term at FH Joanneum.

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franchising in China - Franchising Industry in China 1. An...

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