The following is a brief introduction of what is franchising in China by our Guangzhou franchising lawyer.
Franchising is a specific manner of business, in which companies attempt to expand their market share more rapidly and less expensively than by other means. There are three basic types of franchises:
- Distributorships which grant the right to sell the company's products.
- Trademark and brand name licensing allows the licensees to use the company's trademark or brand in operating their own business.
- Business franchises which allows the franchisee the right to use their trademarks, products, and business systems.
Business franchises usually have an initial fee or investment for the rights to sell its goods and services and/or use its business systems. After the initial investment, franchisees are typically required to pay a percentage of their gross profits to the franchisor during the length of the franchise agreement.
Purchasing the rights mentioned above, usually entitles the franchisee to also receive initial training and on-going support. The franchisee has responsibilities to the franchisor in order to retain the rights above. These obligations can include:
Ability to meet established quality requirements for products and services sold.
Adhere to restrictions on how and what you can sell while operating within the agreement.
Meet requirements for location and site appearance.
While this list is not exhaustive, it is important to note that franchisees have a great obligation to the franchising company to adhere to the specifications and requirements of the franchise agreement.
Often times the obligations of the franchisee are well worth it, as they often carry an advantage over their non-franchised competitors. These advantages can include: a well-recognized brand, product, or service; proven business systems training; and uniform business systems for ease of management with multi-units. These advantages are integral to the statistically higher success of franchised businesses over traditional start-ups.