CHINA FRANCHISE NEWS
Vol. 4 , No. 7 - September 9, 2003
TOPICS THIS ISSUE:
- Sanyuan Foods To Raise US$45m From IPO
- Franchising Becomes Popular In China
- Battle Over Coffee Logos
- Majority Of Corruption Cases In China Linked To Licensing
- Asia's First Institute Of Franchising Set Up In China
Sanyuan Foods To Raise US$45m From IPO
Sanyuan Foods, holder of McDonald's franchises in Beijing and booming Guangdong province, announced that it would launch China's first initial public offering linked to an international fast-food name.
Beijing Sanyuan Foods, a unit of Hong Kong-listed Beijing Enterprises, would raise a net 374 million yuan (US$45.19 million) by issuing 150 million shares in Shanghai at 2.60 yuan per share on Friday, hoping to open new outlets across the country, it said in an IPO prospectus.
Though its core business is dairy products, its 50 per cent-owned Beijing McDonald's franchise and 25 per cent-owned Guangdong franchise has evolved into a key income source.
"McDonald's has become a crucial part of our business," Sanyuan said in an issue prospectus published on the Shanghai stock exchange Web site.
But "first-half net profit fell sharply due to severe acute respiratory syndrome and Beijing McDonald's sales."
"By 2004, Beijing McDonald's plans to set up 130 outlets in places such as Beijing, and Hebei and Shanxi provinces," the company said. "Guangdong McDonald's plans to open 90 stores by the same timeframe."
Source: China Daily
Franchising Becomes Popular In China
KFC in China has received numerous enquiries from entrepreneurs or would-be entrepreneurs around the country seeking to become a franchisee to operate the famous US fast-food chain business.
An official with "Yum Restaurants China which operates KFC in China stated "the business model of franchising is increasingly known to ordinary Chinese in recent years, it seems the time has come for franchising in China."
The country's growing affluence and status as the world's biggest consumer market have attracted many foreign established brands to open franchised stores in China.
About 30 US brands have franchised operations in China, according to the US Commercial Center in Shanghai, as the United States is the world's most developed country in the franchising business.
The brands include fast-food chains KFC, Kenny Rogers and Subway, beverage brand Starbucks, Athlete's Foot and America's Eyes.
Franchise sales in China accounted for a mere 2 percent of total retail sales last year, compared with more than 40 percent in developed countries, according to Global Sources, a trade publisher.
Last year, more than 1,000 franchisees were operating 100,000-plus outlets in China, according to the China Chain-store and Franchise Association. They generated US$85 billion in sales last year.
The association expects franchising will represent more than 30 percent of total retail sales by 2010.
China's lack of a legal framework for licensing and people's lack of knowledge of the business form may hamper the development of franchising in the country.
Source: China Daily
Battle Over Coffee Logos
A copyright battle is occurring in Shanghai that could eventually lead to a legal action.
Us-based Starbucks Coffee Inter-national is considering taking legal action against a local company, which registered a name that sounds similar to the ubiquitous coffee shop and also uses a green logo that is nearly identical to that owned by the world's most famous coffee chain.
The local shop registered Xingbake in January 2000 before Starbucks opened its first store in Shanghai on Huaihai Road on May 4, 2000.
While starbucks doesn't use the name Xingbake in its stores, many Chinese people refer to the chain by that name. Xing means star in Chinese, and bake sounds a little like bucks, making it a popular name for the chain across China.
The city is now home to 30 Starbucks outlets, while Xingbake has two stores, one on Hongqiao Road at the Xianxia Tennis Center and the other in the Laojiefu Building on Nanjing Road E.
Besides its questionable name, the Xingbake stores also sport a round green logo, which looks very similar to Starbucks' at first glance.
The company wouldn't comment on rumors that it put off legal action in hopes of buying the name Xingbake.
Xingbake claimed it never violated the trademark of Starbucks or copied the design of the logo.
It maintains that it invented 'Xingbake' as its own brand when it planned to start a cafe business in Shanghai and it is just a coincidence that its name is the same with Chinese version of Starbuck.
Xingbake also maintains that when the company registered "Xingbake," most Chinese people were not familiar with Starbucks.
Xingbake has ambitious plans to open 30 to 50 stores on Nanjing Road, Huaihai Road and Pudong, most of which will be franchised outlets.
Source: China Daily
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Majority Of Corruption Cases In China Linked To Licensing
The majority of corruption cases in China are connected with issuing licenses or franchising rights, prompting China's top legislature to pass a law on administrative licensing.
The Legislative Affairs Office of the State Council, considered a lack of necessary restrictions or transparent operation were key factors leading to corruption.
Such office is of the opinion that the law, laying a foundation for the standardized practice of granting franchises or permits to businesses and individuals, will hopefully prevent and eradicate corruption.
The law on administrative licensing, approved in the fourth session of the National People's Congress Standing Committee, will take effect as of July 1, 2004 and it is believed such law will play a vital role in the reform of China's administrative system.
Government departments would be banned by law from setting up procedures for administrative licenses without authorization.
The law also stipulates that government departments should reply to any franchise application within 20 days, in case any postponements are abused for seeking illicit profits.
In addition, the law allows applications to be submitted via correspondence or other indirect methods in a bid to reduce face-to-face contact between applicants and government officials, which should lessen the opportunities for improper fee collection.
State officials believe that if the law is enforced strictly, the corruption that plagues China's administrative licensing sector can be greatly cut down.
Source: People's Daily
Asia's First Institute Of Franchising Set Up In China
Beijing Normal University recently set up an institute on franchising at its Zhuhai branch campus in south China's Guangdong province.
The first institute of its kind in Asia, it will enroll 200 students this year.
Franchise business is not new in China as many multinational franchisers such as McDonald's, Carrefour and Kentucky Fried Chicken have long been present in the country.
However, with the rapid growth of franchise businesses, China faces a severe shortage of personnel and talents in this regard, and making matters worse, few colleges and universities nationwide offer courses on franchising.
The Zhuhai institute begins with a franchise management department, and will gradually set up departments on franchise law and investment management.
Source: People's Daily
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The China Franchise News is intended to be used for news purposes only. It should not be taken as comprehensive legal advice, and Lehman, Lee & Xu will not be held responsible for any such reliance on its contents.
