(Source: https://pltfrm.com.cn)
Introduction
More than 60% of overseas franchise brands struggle or exit China due to preventable mistakes in partner selection, IP protection, and supply chain control. After rescuing and restructuring numerous international chains over the past decade, here are the critical errors and proven countermeasures.
- Underestimating the Two-Plus-One Rule and Regulatory Timeline
1.1 Starting Franchise Sales Too Early Compliance Risk: Selling franchises before owning two stores for one year violates regulations and invites fines. Typical Mistake: Many brands sign LOIs prematurely and face partner lawsuits when delayed. Solution: Budget 18–24 months for pilot phase and communicate realistic timelines upfront.
1.2 Weak MOFCOM Filing and Disclosure Incomplete FDD: Providing English-only or partial documents leads to rejection and blacklisting. Penalty Exposure: Late filing can trigger RMB 100,000+ fines per contract. Best Practice: Engage bilingual franchise lawyers from day one for bulletproof documentation.
- Poor Franchisee Selection and Territory Planning
2.1 Choosing Partners Based Only on Capital Experience Gap: Wealthy investors without retail operations background often fail to execute. Performance Collapse: Leads to sub-standard stores that damage brand reputation nationwide. Robust Screening: Require detailed business plans, site visits to existing operations, and reference checks.
2.2 Over-Generous or Poorly Defined Territories Territory Conflicts: Granting exclusive provinces too early causes cannibalization when growth accelerates. Underperformance Risk: Large territories with weak minimums allow passive partners to block expansion. Smart Design: Use city-level exclusives initially with performance-based expansion rights.
- Losing Control of Supply Chain and Brand Standards
3.1 Allowing Unrestricted Local Sourcing Quality Drift: Franchisees cutting costs with unapproved suppliers destroys consistency. Consumer Backlash: Inconsistent taste or service leads to poor reviews on Dianping and Xiaohongshu. Enforcement Tools: Mandate core ingredients from approved vendors and conduct regular supply audits.
3.2 Inadequate IP and Trademark Protection Copycat Risk: Without China-registered trademarks, ex-franchisees can continue using your brand post-termination. Legal Nightmare: Weak contracts make enforcement expensive and slow. Preemptive Action: Register all trademarks in relevant classes before signing the first partner.
Case Study: Recovery of a Canadian Casual Dining Brand
A well-known Canadian restaurant chain granted a master franchise for all of eastern China to an investor with deep pockets but no F&B experience. Without proper supply mandates and territory performance clauses, standards collapsed, reviews plummeted, and 40 stores closed within two years. After restructuring with city-level franchisees, mandatory central procurement, and stronger IP filings, the brand stabilized the remaining network and resumed controlled growth.
Conclusion
China franchising failures almost always trace back to regulatory shortcuts, weak partner vetting, and insufficient brand controls. Overseas brands that prioritize compliance, selective partnering, and ironclad systems from the outset build thriving, defensible networks.
PLTFRM is an international brand consulting agency that works with companies such as Red, TikTok, Tmall, Baidu, and other well-known Chinese internet e-commerce platforms. We have been working with Chile Cherries for many years, reaching Chinese consumers in depth through different platforms and realizing that Chile Cherries’ exports in China account for 97% of the total exports in Asia. Contact us, and we will help you find the best China e-commerce platform for you. Search PLTFRM for a free consultation!
