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Franchising and brand licensing in China: what you are actually selling

A candidate writes to say they admire the brand and want to open in their city. What they are buying is not your name — and if it turns out to be only your name, the problem surfaces two years later, in a shop you have never seen.

France → China

The first serious franchise enquiry from China is flattering and arrives without warning. It is usually well written, it names the city and the kind of location, it says the right things about the brand, and it asks what the entry fee is. The temptation is to answer that question. The useful move is to answer a different one first: what, concretely, is this person unable to do without you, and is it a thing you can actually hand over?

What a franchisee is actually buying

A franchisee is buying a reduction in uncertainty. They are putting their own money into a lease, a fit-out and a payroll, and what they want in exchange is the confidence that the format works: that a shop of roughly this size, in roughly this kind of location, run in roughly this way, reaches a point where it pays for itself. The brand name is part of that, but mainly as a shortcut — it is why a landlord returns the call and why the first customers walk in. The thing that keeps the shop open is the method.

The manual and the training are the product

A franchise that exists as a contract and a logo file is a licence with a franchise fee attached. What distinguishes the two is a document nobody enjoys writing: the operating manual. Its test is brutal and simple — could someone who has never met you, in a city you have never visited, open and run the thing from the manual and the training alone? Everything that lives only in the head of the founder or in the habits of the original shop is, for a Chinese franchisee, not transferred.

  • The space. Not a mood board: a layout logic, the circulation, the fixtures and where they are sourced, the lighting, the signage rules, and what may be adapted to a given site without the result ceasing to be your brand.
  • The supply list. What must come from you or from a supplier you name, what may be bought locally, and what is forbidden. This is the list that decides whether the product in the shop is still your product, and it is the one franchisees quietly test first.
  • The sequence of service. The order in which things happen to a customer, written as steps a new employee can be taught in their first week. A brand's experience is a sequence; if it is not written as one, each shop invents its own.
  • What the franchisee has to count, and report. The handful of things they measure daily and send you monthly. Not to police them — so that a shop drifting away from the format is visible before the drift becomes the shop.
  • The things that may never change. A short, explicit list: the recipe or the specification, the name, the mark as it is drawn, the prohibition on adding products of their own. Short, because a long list is ignored, and explicit, because silence will be read as permission.

The trademark comes before the conversation

China registers trademarks on a first-to-file basis, which means the mark belongs to whoever filed it, not to whoever has been using it elsewhere for years. Discussing a franchise before your mark is registered there, in the classes the business actually operates in, is handing a motivated person the name and the business plan at the same time. It happens, and it happens most often with the enthusiastic candidate, because they are the one who understood the opportunity. Registration also matters for a duller reason: you cannot licence what you do not own, and a franchise agreement resting on an unregistered mark is a promise about something you may yet lose.

Controlling quality from a long way away

Nothing in a franchise contract controls anything by itself. What controls a shop is a small number of mechanisms that run whether or not anybody is paying attention: a supply of the components that carry the signature, so that a shop which stops buying them stops being able to deliver the product; a reporting habit established in the first month rather than the first crisis; visits, announced and unannounced, by someone who knows what the format looks like when it is right; and an audit right in the contract that does not need to be negotiated the day you want to use it. The visits are the part people cut, and they are the part that works, because a shop drifts in ways that photographs do not show.

The master franchise, and what it costs in control

Sooner or later someone proposes to take the whole country, open the first shops themselves and sub-franchise the rest. It is genuinely attractive: one contract, one counterpart, one language, a partner who carries the cost of building a network you could not build from abroad. What you are selling in that case is not a shop, it is the right to decide who wears your name in a market you then no longer see. Two consequences follow and both are structural. You lose the ability to choose the franchisees, because selecting them is the master's business and their incentive is to sign quickly. And you lose the direct relationship: when the arrangement ends — and these arrangements do end — a network of sub-franchisees who have never met you, with contracts that run to the master and not to you, is not a network you inherit.

  1. Register the mark in China, in the classes the business actually operates in, before any substantive discussion. Everything else in this list assumes you own the name.
  2. Write the manual, in Chinese, before you sign anyone. Writing it is also how you discover which parts of your own format you cannot yet explain — and those are exactly the parts a franchisee will get wrong.
  3. Check the disclosure and registration obligations that apply to franchising in China before you take a fee. The regime requires a franchisor to disclose certain information to candidates in advance and to register the arrangement with the authorities; the practical detail is worth confirming with a local adviser rather than inferred from a foreign template.
  4. Open the first location with the candidate rather than for them, and be physically present for it. The first shop is where the manual is corrected and where you find out whether this person executes or improvises.
  5. Grant territory in stages tied to opening something, not to paying something. A city earned by a shop that works is a different commitment from a province bought with a cheque.
  6. Write the ending while everyone is optimistic: what happens to the sign, the stock, the fit-out, the staff, the customer data and any sub-franchisees on the day the contract stops. A franchise agreement with no exit is a franchise agreement you cannot enforce.

The candidate who wants your name and not your method can be recognised early, and the signs are consistent. They negotiate the territory before the format; they ask for the logo files before the manual; they want to know how much may be sourced locally before they have tasted or handled what you make. They describe their existing business as the reason it will work, and they are reluctant to send anyone to be trained, because training is time their staff could spend selling. A good candidate does the opposite: they ask uncomfortable questions about the operating detail, they want to visit, and they argue about the parts of the manual they think will not survive in their city — which is the most useful conversation available to you.

Before you quote a fee, write the manual. Not because a candidate will read all of it, but because the exercise tells you whether you have a franchise or only a brand — and if it turns out to be only a brand, a licence with a tight specification and a supply obligation is the honest version of the deal, and a much safer one to sign.

Questions we get on this.

Is a brand licence simpler than a franchise?

It is lighter to sign and harder to control, which makes it simpler only in the first year. A licence grants the use of the name against a royalty; a franchise grants the name plus a method, with the obligations that go with teaching and policing it. If your format is not written down, a licence is the more honest instrument — but then the specification and the supply obligation have to carry all the weight, because nothing else will.

How do I stop a franchisee opening shops I did not approve?

By granting one location at a time, with each further site subject to your written approval, and by keeping the supply of the components that carry the signature in your hands. A contractual prohibition on its own is enforced after the fact, in a place where enforcing it is slow; a shop that cannot obtain what it needs to deliver the product does not open twice. The same mechanism is what keeps a licensee from quietly extending into categories you never granted.

A candidate wants exclusivity for the whole country. Is that ever reasonable?

Only against obligations with dates attached: a number of openings by a given point, the first one opened with you present, and territory that reverts if the openings do not happen. Exclusivity granted on a plan rather than on performance is the commonest way a market is frozen for years by a partner who turned out to have other priorities. Say yes to the ambition and attach it to milestones rather than to the signature.