Table Of Contents

1. Introduction to Franchising in Viet Nam

Franchising began in Vietnam in the 1990s with the introduction of well-known fast food chains like KFC, Lotteria, and Jollibee. As of April 2020, the Vietnamese Ministry of Industry and Trade (MOIT) reports that there are more than 262 foreign brands registered as franchising businesses in Vietnam. This includes fast food, bakery, coffee, drinks, and restaurants, accounting for over 50 percent of total franchise contracts signed. Most franchisors come from the U.S., Australia, South Korea, Singapore, Thailand, Japan, Hong Kong, Canada, and the Philippines.

Increasingly, Vietnamese businesses have been exploring opportunities available through franchising. Popular brands include Wrap and Roll, Café Cong (Plus Coffee), AQ Silk, Ong Hung (Mr. Hung) Pho, ThaiExpress, and The Gioi Di Dong (The World Mobile). Nationwide, Highland Coffee, and Trung Nguyen Coffee are others that have gained traction in the last year. Mon Hue, Wrap and Roll, Kichi Kichi, Sumo BBQ, Vuvuzela, King BBQ Buffet, Pho 24, and Trung Nguyen Café are local brands that are expanding overseas.

 

2.1. Definition of Franchising

According to Article 284 of the Commercial Law 2005, franchising is defined as "a commercial activity whereby a franchisor authorizes and requires a franchise to conduct on its own behalf the purchase and sale of goods or provision of services in accordance with the following conditions:

1. The purchase and sale of goods or the provision of services must be conducted according to the method of business organization specified by the franchisor and be associated with the trademark, trade name, business know-how, business mission statement, business logo, and advertising of the franchisor;

2. The franchisor has the right to control and offer assistance to the franchisee in the conduct of the business

In addition to the above Commercial Rights specified in the Commercial Law 2005, the following rights are also deemed as Commercial Rights in franchising under Article 3.6 of Decree 35/2006/ND-CP: (i) Commercial rights that are granted by the franchisor to the primary franchisee; (ii) Rights that are sub-granted by the secondary franchisor to the secondary franchisee under the master franchising contract; and (iii) Commercial rights that are granted by the franchisor to the franchisee under the commercial right development contract.

2.2. Franchising Registration

Under Article 291 of the Commercial Law 2005, before franchising the business, the franchisor must register with the Ministry of Industry and Trade (MOIT). Accordingly, the franchising registration is stipulated in Decree No. 35/2006/ND-CP and Circular No. 09/2006/BTM, specifically as follows:

2.3. Conditions for the franchisor

The franchisor shall be entitled to franchise a business if the franchise business has been operating for at least 1 year.

Currently, only franchising from abroad in Vietnam is required to be registered with the Ministry of Industry and Trade. 

When it comes to franchising, both within the country or from Vietnam to other countries, businesses are only required to report to the Department of Industry and Trade. However, there are no specific regulations or guidance on what should be included in the periodic reports, nor any particular reporting methods or procedures. In practice, it seems that each province's Department of Industry and Trade will issue and apply its report templates. Therefore, franchising enterprises should get in touch with the Department of Industry and Trade to comply with the relevant laws and regulations.  

2.4. Updating changes/Periodical Report

The Franchisor must inform the MOIT within 30 days of modifying any registered information related to Part A of the Franchise Introduction (Disclosure Document), such as changes to the franchisor's information or trademarks of goods/services and intellectual property rights. Additionally, the Franchisor is required to periodically update the MOIT on the contents of Part B of the Franchise Introduction (Disclosure Document), which includes the franchisee's initial investment costs, sample franchise contract, and other pertinent information.

2.5. Penalties for breaches

According to Article 75.3 of Decree No. 98/2020/ND-CP, failing to register for franchising activities can be fined from VND 5,000,000 – 10,000,000 for franchisors being individuals and from VND 10,000,000 – 20,000,000 for franchisors being organizations.

 

3. The Practice of Franchising in Viet Nam

Vietnamese consumers tend to associate Western brands with quality, an affluent lifestyle, and reliability of products. They are more receptive to premium and well-known brands of products and services. Currently, most franchised businesses in Vietnam are primarily focused on fast food and retail, but there is a significant potential for a wide range of companies to enter the Vietnamese market. Across the nation, franchise opportunities are gradually becoming available in a growing range of brands and sectors.

The fast food industry is highly competitive, with numerous popular local and international brands vying for market share. Many U.S. franchise brands, such as McDonald's, KFC, Subway, Starbucks Coffee, Burger King, Carl's Jr., Pizza Hut, Hard Rock Café, Domino's Pizza, Popeye's Chicken, Texas Chicken, Dunkin' Donuts, Z Pizza, Baskin Robbins, and Coffee Bean and Tea Leaf, have emerged as major players in the market. These brands have gained significant consumer recognition for their food and beverage offerings.

The MOIT has estimated that the Food and beverage industry accounts for 15% of Vietnam's GDP and is expected to continue growing in the future. As per the Vietnam report, the revenue in the Food and Beverage segment is projected to increase by 4.98% annually from 2021 to 2025, resulting in a market volume of USD 678 million by 2025. Furthermore, the user penetration is expected to reach 17 million by 2025.

The franchise convenience store segment has become a popular concept in large cities, with various brands such as Circle K, Family Mart, and Seven-Eleven expanding quickly. Seven-Eleven opened its first store in Ho Chi Minh City in 2017 and has now expanded to 68 stores in Vietnam. Along with a growing interest in Western-style food and beverage, there is also a considerable demand for healthcare and lifestyle-oriented products and services. Education and training is also a growing franchise area, with brands like Mathnasium, Crestcom, Cleverlearn, Dale Carnegie (U.S.), and Kumo (Japan) operating in Vietnam.

Retail, education, entertainment, healthcare, beauty care, children’s services, and lifestyle-oriented businesses are other growing franchise segments.

On one hand, established international franchises bring the allure of brand recognition and standardized operations. They inject capital into the economy, create jobs, and offer Vietnamese consumers a taste of the world. However, navigating cultural nuances is crucial. Menus must adapt to local palates, adjusting spice levels and portion sizes to suit Vietnamese preferences. Franchises like KFC have mastered this art, offering "Phở gà" alongside their classic fried chicken, bridging the gap between global appeal and local relevance.

On the other hand, domestic franchises like Highlands Coffee, born from the streets of Hanoi, understand the Vietnamese soul better than any global giant. They speak the language of condensed milk and strong iced coffee, their cafes echoing with the chatter of friends and the clinking of ice. These homegrown brands offer a sense of community, a familiar comfort in a rapidly changing world. Their success inspires countless Vietnamese entrepreneurs to dream of building their own empires, brick by brick, using the franchising model as their ladder.

The dance between global and local isn't without its challenges. Intellectual property rights, though improving, remain a fragile tango, with counterfeit goods threatening brand integrity. Finding qualified franchisees, bridging cultural gaps, and ensuring consistent quality control across diverse locations can be a complex choreography. Yet, the potential rewards are undeniable. Vietnam's young, tech-savvy population is hungry for convenience and innovation, embracing mobile ordering, digital loyalty programs, and personalized marketing campaigns. The government, recognizing this potential, actively supports the sector, streamlining regulations and fostering an environment where both international and domestic brands can flourish.

 

4. Challenges and Opportunity

While Vietnam's franchising future glows with promise, a closer look reveals a landscape both exhilarating and treacherous. Intellectual property rights, though improving, remain vulnerable to piracy, threatening brand integrity and hindering fair competition. Adapting globally successful models to local palates and purchasing power proves another critical tightrope walk. Vietnamese consumers, while embracing international flavors, still crave a touch of their beloved phở or bánh mì. Striking the perfect balance between global brand identity and localized offerings can make or break a franchise's success. Cultural nuances also come into play. Franchises must navigate communication styles, hierarchical structures, and even differing views on punctuality to build strong, respectful relationships with Vietnamese franchisees. These relationships are the linchpins of successful expansion, requiring mutual trust, transparency, and consistent support from the franchisor.

Yet, amidst these challenges lie opportunities ripe for the picking. Vietnam's burgeoning tech-savvy generation, armed with smartphones and a thirst for convenience, welcomes the innovation that franchises bring. Mobile ordering, digital loyalty programs, and personalized marketing campaigns can tap into this evolving demographic. Additionally, domestic brands are blossoming, leveraging their deep understanding of Vietnamese consumer preferences and cultural sensitivities. These homegrown franchises, like Highlands Coffee and Pho Hung, are not only carving their niches but also inspiring aspiring Vietnamese entrepreneurs to embrace franchising as a path to success. Finally, the Vietnamese government, recognizing the sector's potential, is actively streamlining regulations and promoting franchising as a driver of economic growth. This active support paves the way for increased foreign investment and fosters a fertile environment for both international and domestic brands to thrive.

 

5. Conclusion

Vietnamese franchising is a dynamic ecosystem, a vibrant blend of global aspirations and local ingenuity. It's a story of adaptation and resilience, of navigating cultural nuances and seizing technological opportunities. With its unique history and culture, it makes for a competitive market for foreign companies to try and enjoy the dance. As this waltz continues, Vietnam is poised to become a regional leader in franchising, showcasing its unique blend of international flair and local charm to the world.

If you need further explanation on this subject, please don't hesitate to contact us through email at dung@luatminhkhue.vn or phone number: +84986 386 648. Lawyer To Thi Phuong Dzung.