This is a best prospect industry sector for this country. Includes a market overview and trade data.
Last Published: 7/30/2019

Exporting franchises from the U.S. to China works in much the same way as franchising domestically; the Chinese franchisee pays a percentage of revenue to the American franchisor as a royalty fee for using the brand, while the franchisor provides support and expertise.

The regulations affecting franchisors and their operations may be found in the Regulations on the Administration of Commercial Franchises (Franchise Regulations), the 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).  These have all been issued by China’s Ministry of Commerce (MOFCOM) and, taken together, cover all regulatory aspects of franchising. 
One key aspect of China's regulations governing franchising is the two-plus-one requirement, which stipulates that franchisors own at least two directly operated outlets anywhere in the world before being allowed to operate a franchise model in China.  Additionally, a franchisor shall disclose to its franchisee relevant information in writing at least thirty days prior to the conclusion of a commercial franchise contract.

Foreign franchise brands are receiving greater interest from second and third-tier city market developers as markets in Beijing and Shanghai become more saturated.  It is noteworthy that many of the major locations abandoned by foreign multinationals over the past few years were in first-tier cities where their Chinese story began; this is a phenomenon largely attributed to growing real estate costs.  High rent is expected to continue to negatively impact more foreign franchises in Beijing and Shanghai.  However, there is room for growth in China’s west and inland regions which boast advantages such as lower labor costs, reasonably-priced real estate facilities, a rising middle class, and untapped consumer spending.

Additionally, there is an increasing trend of food and beverage companies entering the market as wholly- owned enterprises to manage their brand, demonstrate proof-of-concept, and create a strong foothold prior to expanding into the franchise model.  It is important for entities considering a franchise model to consider steps to protect their brand and image.  Prior to making substantive moves into the market, including negotiations with potential partners or franchisees, companies should consult with appropriate counsel regarding trademark registration and other concerns relating to intellectual property rights protection. For more information on how to better protect IPR overseas, please refer to this Stop Fakes website.  Also, companies should evaluate after sale service and other related considerations that may affect their brand image.
In addition, foreign franchisors often find that brand logos and associated images, as well as the products themselves, need to be tailored to the unique tastes of Chinese consumers in a way that still preserves the core product and brand.

One of the most difficult aspects of franchising in China is finding qualified franchisees.  This is largely since local investors are reluctant to invest in brands if they are unsure about their acceptance by Chinese consumers.  Given this concern, industry experts recommend that companies first open their own stores in China to show the market that the business concept works and to solidify its brand positioning before attempting a franchise model.  While such an approach generally results in higher costs and slower expansion in the short term, it allows direct control of the brand and products while learning about the local business culture and customer preferences,
 

Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.