Q: What often are the problems when western brands license to Chinese companies?
A: All the major problems arise from misunderstanding, misunderstanding about demography, geography, customer base, and consumption habit. More often than not my western clients want to only sell in first-tier cities to protect their brand positioning, and they expect to sell their products in 100 stores in downtown Shanghai. But rich Chinese are scattered all over China, in first-tier cities, provincial capitals, and coastal cities. China has many over-one-million people cities, and every one of them has some affluent people to sustain 1 to 10 stores, but no more. Besides that, Chinese provinces have very different climates, geographies and customs, and the northern Chinese are even different physically from southern Chinese. All these factors make clear understanding difficult. There needs much due diligence, patience and rapport to get the licensing process continuing.

Q: What is the best practice to do licensing in China?
A: You are well-positioned if you seek help from people who really understands the specific Chinese conditions and knows what is underneath the surface. That kind of experience needs many years personal immersion in the land and the culture.

The licensors and licensees face so many misconceptions about each other, and they often have much misjudgment in many respects. The two parties’ designing, manufacturing, marketing, sales, and distribution departments will often go against each other and no side will give in. It needs a great amount of explanation, interpretation and communications to make things go on. And it is worth the jet lag for western companies to frequently meet their Chinese licensees to get processes and ideas clear to each other.

Q: What are the major points companies shall pay attention to when writing down the licensing agreement?
A: Firstly, how long the agreement will go on. It’s often three years. You never know what the future holds for you, especially for China. It is a country accustomed to big changes. The landscape for today is widely different from that for three months on. So you’d better spend more energy on renewing clauses than have the life of the contract long.

Secondly, it is always the money. You have to be ingenious when creating the best combination of up-front fees and percentage fees.

Thirdly comes how to control. You need to do your homework well when you position your price range, to make sure where to sell your products, to check the product quality, or even to make certain that your brand name is not misspelled.

Fourthly, both parties shall pay attention to details. They shall make clear whether the license applies only to man’s wear or both man and woman’s wear, whether the license applies only to large size or the whole size spectrum, whether it applies to Shanghai only or to all the provinces. Any kind of ambiguity will beget quarrels, cheating or profit loss. They also shall clarify which party will deal with counterfeiting and how.

Lastly, the agreement should not be too long. For whether Chinese or Westerners, long and complicated legalese leads to drooped heads and long nights. It is normal practice for the agreement not more than 30 pages.

Q: Many Chinese licensees often have big volume of inventories, how to solve that problem?
A: If the product stock is very big, it hurts not only the licensee but also the licensor, because the licensee often will dump the stocks in remote or other parts of China, which will do harm to the brand recognition. I suggest three ways to deal with the over-stock. First, you can help your licensee do a better and more accurate market forecast, so as to predict the right volume. Second, the licensee can firstly produce in small number, then if they find the product sells, they can produce more or import the products from neighbouring Vietnam or other low-cost countries. Thirdly, if during the selling process the licensee finds any trace of overproduction, they shall discount the product as soon as possible to dispose them quickly, but they shall not cut the price too much.