Sun Tzu on the Art of Franchise Battles in China

Sun Tzu wrote in his classic treatise on war that, "A conquering army cannot enter into alliances until it is acquainted with the designs of its neighbors." Until recently, the last 20 years in fact, China did not recognize franchising as an official form of business, as had many of its trading neighbors. Chinese governmental involvement and a strictly controlled state distribution system was an effective method for determining foreign investment.

Suddenly in 1997 everything changed when China passed its first franchise law. Entitled the "Regulation on Commercial Franchise Business," ("Measures") the law created the first comprehensive legal infrastructure fir franchising in China. Next, as a condition for China's accession to the World Trade Organization, it had to formally agree to implement rules of greater market access and national treatment measures for foreign investors, which it did in 2001.

A year later, China initiated the development of the National Franchise Association and the entrepreneurial hoards went rushing to the People's Republic. Initially, McDonalds and KFC led the invasion with A&W and Subway in quick pursuit.

Today, thanks to China's newly released "Commercial Franchise Information Disclosure Management Measures" ("Disclosure Guidelines") and its fast-paced economic growth of more than 9% in 2006, the country has more than 135 Pizza Huts and 112 Starbucks with the largest chains KEX photo, listing 10,275 franchises in 735 cities. Industry sources state that China has approximately 1,700 franchise companies inside Mainland China with over 85,000 franchisees registered to do business therein.

All that for an emerging entrepreneur sector with limited access to capital and no clear regulatory framework.

With the 2008 Olympics ahead, it is no wonder that franchisers are putting on their short list for global expansion opportunities.