The impact of China's regulatory regime on foreign franchisors' entry and expansion strategies

Abstract

Since the Open Door reforms adopted by China in 1978 ended 30 years of isolation, introduced massive economic and legal reforms, encouraged foreign investment and resurrected private enterprise, China has become the world's third largest and fastest growing economy. Under the influence of China's WTO accession commitments, China's markets are increasingly open for foreign investment. These developments, and China's 1.3 billion population and stable political environment, have led to China becoming an increasingly attractive market for foreign franchise systems. In China, as in other countries, the law has played a significant role in improving the environment for franchising. But in China, a country where franchising as a business concept was virtually unknown until the 1990s, the law has had a more fundamental role through creating the environment in which franchising was possible. Until the 1997 Interim Franchise Measures recognised franchising as a legitimate method of domestic business operation, franchising was not possible. Until WTO accession commitments led to market liberalisation reforms in 2004 the development of a franchise network by a foreign franchisor was of doubtful validity. Until the 2007 Franchise Regulation provided a unified regulatory regime for domestic and foreign franchisors under which contractual and proprietary rights arc recognised and protected the franchising option has been seriously curtailed. This thesis examines the impact of the law, and law reform primarily WTO induced, on the development of franchising in China from the perspective of the foreign franchisor. It concludes that foreign franchisors' entry and expansion strategies in China reflect not only cultural, commercial and other environmental considerations which influence any international franchising decision, but also a regulatory regime which has both created and constrained opportunities. The thesis traces the development of the regulatory regime for foreign franchisors and makes recommendations for its further refinement including legislative clarity as to the validity of cross border franchising into China through master franchising and area development agreements