Por Gregory Sy e por Lee de Currie

Com abertura de China de seus mercado e sucessão recente no WTO, submeteu-se ao desenvolvimento rápido nas duas décadas passadas. Devido na parte a tal crescimento e em combinação com sua 1.3 bilhão populações maciça (330 milhões em seu middle-class sozinho em comparação a uma população total de América de 300 milhões), representa o mundo o maior contudo mercado de consumidor untapped do `'. Para muitos franchisors que procuram introduzir no mercado a confiabilidade associada com o recognition de tipo e as estruturas organizational sistemáticas ao setor oftentimes chaotic e fragmentado do consumidor (particularmente o alimento e as indústrias de serviço pessoais), China será ambos de oportunidade a maior contudo a maioria challenging no século XXI. 

Felizmente para ambos os consumidores e aqueles na indústria do franchising, 2007 causado arguably o liberalization o maior deste setor desde que da “as reformas abertura acima” de 1979. 

Esse ser dito, entretanto, franchisors extrangeiros tem, no passado, visto sua parte dos sucessos e falhas, muitas de quem têm o `furado lhe para fora' durante todo as mudanças do mercado de China a se transformar um nome da casa do consumidor, tal como McDonald's, KFC e Pizza Hut.    

I. Desenvolvimento do mercado do franchise em China

Em 1997, o Ministry de China do comércio interno promulgou Administração de procedimentos comerciais do Franchise (A execução experimental e em seguida “Franchise procedimentos”) representar o primeiro jogo dos regulamentos dirigiu especificamente em dirigir-se às edições que pertencem ao setor do franchise. Os procedimentos do Franchise introduziram dois tipos de franchises: direct franchising and sub-franchising. The Franchise Procedures provided for the basic structure of current franchising laws, which requires the disclosure of material information to prospective franchisees and includes the following: basic information about the franchisor; operational results of the franchisor; financial results of its franchise outlets; fees and payment obligations; and, terms and conditions for goods and services provided to franchisees. The Franchise Procedures also established the quasi-governmental China Chain Store and Franchise Association (“CCFA”). (Note that the Franchise Procedures were interpreted as not being applicable to cross-border franchise operations.)

In 2004, as part of China’s accession into the World Trade Organization (WTO) and  commitment to the principles therein, the Ministry of Commerce issued the Measures for the Administration of Franchise Operations (“Franchise Measures”) effective February 1st, 2005.  The Franchise Measures were promulgated shortly after the Measures on the Administration of Foreign Investment in the Commercial Sector, which liberalized foreign investment in the retail and wholesale distribution industry. Unlike the Franchise Procedures, the Franchise Measures not only permit foreign investment in the franchising sector but also contain an entire chapter drafted exclusively for this purpose. 

Much like the Franchise Procedures, the Franchise Measures focused largely on franchisor disclosure, but also included the “two-plus-one” requirement, which mandated franchisors to operate two company-owned stores in China prior to commencing franchising activities. Obviously, this has prevented many start-up franchisors from immediately commencing operations in China and was a disincentive for market entry. Moreover, the promulgation of the Franchise Measures and the requirement that all franchising operations be conducted only by PRC entities has effectively removed the alternative measures being used by foreign franchisors for many years, including licensing arrangements and international franchising agreements.  

There have, however, been recent modifications to the franchising framework with the promulgation of a number of new laws in 2007 which will be further discussed below.

II. Current Legal Framework and Franchising Structures in China

In May of 2007, MOFCOM replaced the Franchise Measures (2005) with the Regulations on the Administration of Commercial Franchises (“Franchise Regulations”). The Franchise Regulations, together with the MOFCOM-issued Administrative Measures for the Information Disclosure of Commercial Franchises (“Information Disclosure Measures”) and the Administrative Measures for Archival Filing of Commercial Franchises (“Archival Filing Measures”) currently govern franchising structures in China and set out the following requirements:

1. Definition and Applicability Scope of Commercial Franchises
Article 2 of the Franchise Regulations states that the regulations are applicable to all investors engaged in commercial franchise operations in China.

“Commercial Franchise” is defined in the Franchise Regulations as “business activities whereby a franchisor, through execution of agreements, allows a franchisee to use operational resources, such as a trademark, logo, patent, know-how and others which are owned by the franchisor [refers to legal (not natural) persons], and the franchisee conducts business under the unified business model in accordance with the provisions of the contract and pays franchise fees to the franchisor.

2. Qualifications and the Two-Plus-One Rule
Franchisors must own a well-developed business model, and be capable of providing continued operational management, technical support, business training and other services to the franchisee. 

Additionally, franchisors must own at least two company-owned stores for a period of at least one year. Noticeably missing is the phrase “in China”, which allows for new foreign entrants to immediately commence franchising activities in China.

Gregory M. Sy is a partner / foreign counsel with Grandall Legal Group. His practice includes general business advisory for SME’s in China, particularly in the areas of international corporate structuring and transactions. Representative clients include the Consulate of the United States of America in China (Shenyang), Embassy of Brazil, various publicly listed companies (NYSE, LSE, DAX, and BSE), along with numerous other SME’s operating in a wide range of industries. Mr. Sy obtained an LL.B. from the University of Victoria, and is admitted to the New York bar. Gregory publishes extensively on a variety of China legal issues for international and local publications, and has recently acted as chief editor for Martindale’s China Law Digest. You can contact Gregory at gregsy@grandall.com.cn or learn more about the firm at www.grandall-profile.com.

This is the first part of “How to negotiate a purchase contract with Chinese supplier properly?” Next week we will publish the second part.