NEW YORK/BEIJING: Global brands seeking to succeed in the Chinese market might do better to simply cash in on their name rather than get involved on the ground themselves, according to a legal expert who points to the decisions of Yum Brands and McDonald’s as examples of what may be a growing trend.
"The trend is that opening retail business on the ground in China as a foreigner is difficult and expensive," Dan Harris, lawyer at Harris Bricken and author of the China Law Blog, told CNBC.
"We have for years tried to push a lot of our clients not to do that, but instead do what McDonald's and Yum Brands are doing,” he said. And that is to “monetise your name and your knowledge without actually being the one who does all the work to make it work in China. China is a tough, tough market," he added.
McDonald’s is currently in the process of finalising a deal which will see the sale of a 20-year franchise in 2,400 stores in China and Hong Kong; it will, however, take a minority stake of up to 25%, the Financial Times reported, in order to retain some control over a business that has been hit by food safety scandals.
Earlier this year Yum Brands span off its China operations, which include the KFC, Pizza Hut and Taco Bell brands, into a separate business, Yum China, which has ambitions to triple its number of restaurants to more than 20,000.
Coca-Cola has also sold off its bottling companies, subject to regulatory approval, in order to focus on its concentrate-making business.
"If you're waiting for the booming Chinese consumer ... it's just not on the way,” said Derek Scissors, chief economist at China Beige Book International, which regularly surveys Chinese businesses. “The upside is just not what some consumer firms were hoping for."
That’s not the view of Starbucks, however, which only last week announced its intention of doubling its store count in China, while indicating that the country could overtake the US as its biggest market.
"The trend is that opening retail business on the ground in China as a foreigner is difficult and expensive," Dan Harris, lawyer at Harris Bricken and author of the China Law Blog, told CNBC.
"We have for years tried to push a lot of our clients not to do that, but instead do what McDonald's and Yum Brands are doing,” he said. And that is to “monetise your name and your knowledge without actually being the one who does all the work to make it work in China. China is a tough, tough market," he added.
McDonald’s is currently in the process of finalising a deal which will see the sale of a 20-year franchise in 2,400 stores in China and Hong Kong; it will, however, take a minority stake of up to 25%, the Financial Times reported, in order to retain some control over a business that has been hit by food safety scandals.
Earlier this year Yum Brands span off its China operations, which include the KFC, Pizza Hut and Taco Bell brands, into a separate business, Yum China, which has ambitions to triple its number of restaurants to more than 20,000.
Coca-Cola has also sold off its bottling companies, subject to regulatory approval, in order to focus on its concentrate-making business.
"If you're waiting for the booming Chinese consumer ... it's just not on the way,” said Derek Scissors, chief economist at China Beige Book International, which regularly surveys Chinese businesses. “The upside is just not what some consumer firms were hoping for."
That’s not the view of Starbucks, however, which only last week announced its intention of doubling its store count in China, while indicating that the country could overtake the US as its biggest market.
Data sourced from CNBC, Financial Times, Wall Street Journal; additional content by Warc staff
