The franchising model, which allows people with access to limited capital to enter an established business, is well suited to a developing economy like Vietnam. In recent years, the Vietnam franchising market has experienced a strong surge with average annual growth at 30 percent, with more than 600 new franchising shops being opened. Although the market is still small and competition is limited, it is expected to grow quickly. Several popular foreign franchisors have recently expanded their operations with some success and enterprising local businesses are now becoming more aware of the franchising model than ever before. Many are looking for opportunities to work with well known foreign brands to start a franchise business in Vietnam.
Franchising was legally recognized in Vietnam with the passing of the Commercial Law, which took effect on January 1, 2006 and includes eight articles dealing with franchising activities. The new law provides for a legal and regulatory climate conducive to the development of the sector. Since franchises provide opportunities in a various sectors, it is anticipated that there will be a strong surge of interest in U.S. franchises as well as a growing number of U.S. franchisors wanting to explore the market’s opportunities over the next several years.
The purpose of this report is to highlight the franchising sector’s potential, examine pertinent regulations, and provide guidance to help U.S. companies enter the Vietnamese market.
Franchising first took hold in Vietnam in the 1990’s with the appearance of famous foreign fast food and beverage chains like Kentucky Fried Chicken, Dilmah, Lotteria, and Jollibee. Franchising activities have become more widespread in Vietnam in recent years, with a number of well-known products and services offered by local and foreign entities being franchised in the local market. Prior to the adoption of the 2006 Commercial Law the Vietnamese Government viewed franchising with skepticism and did not recognize it as a legitimate vehicle for promoting commercial activity and investment. This perspective has been changing as Vietnam witnesses the development of strong franchise sectors among its neighbors and begins to recognize the role this sector can play in creating jobs, as well as attracting investment, improved management practices and new technology. The issuance of the new Commercial Law, together with the Office of Government Decree No. 35/2006/ND-CP, dated 31 March 2006 (Decree 35) specifically legitimized franchising services, and therefore marked an important change of the Government’s perspective towards the development of the franchise sector in Vietnam.
In the context of the spreading global financial crisis, franchises are considered a business model that is both effective and suitable to Vietnam’s current economic situation. Many local entrepreneurs are seeking business opportunities from overseas. Awareness of franchise businesses in the United States is strong, with many Vietnamese businesses interested in acquiring the rights to operate American franchises. There appears to be a strong potential market for franchises in many sectors, with particular interest in services, including education and training, as well as the fast food industry. Other potential fields are business services, fashion, cosmetics, beauty care and retail.
By Ha Anh