Set up third franchise in European city (4)
I believe the answer is:
riga
'european city' is the definition.
(capital of Latvia)
'set up third franchise' is the wordplay.
'set up' becomes 'rig' (synonyms).
'third franchise' becomes 'a' (grd letter of 'franchise').
'rig'+'a'='RIGA'
'in' is the link.
(Other definitions for riga that I've seen before include "port in Latvia" , "Fix a rig up here for the Latvians" , "Baltic port" , "Capital city of Latvia" , "trading centre in Latvia" .)