The development of franchising in China

Abstract

Two decades ago the term franchising was not part of the Chinese language. Although in per capita and GDP terms the Chinese franchise sector is still at an early development stage, China is today the most franchised country in the world in terms of number of systems. Franchising as a method of business operation was introduced to China by the United States' fast food pioneers KFC and McDonald's in the late 1980s in an environment which was by then increasingly receptive to foreign investment and western concepts under Deng Xiaoping's economic reforms and open-door policies. A decade later, China's first rudimentary franchise law signaled the government's imprimatur on franchised distribution and led to its wide adoption by both public and private sector enterprises. Regulatory reforms pursuant to China's World Trade Organization accession in 2001 have liberated franchise sector entry for foreign franchisors and facilitated cross-border franchising. This paper outlines the history and the development of franchising in China, addresses the challenges and opportunities for both domestic and international franchise companies, and discusses the future development of the Chinese franchise sector.