Franchise Operations Face Serious Challenges

Vietnam Investment Review:

Rule obedience, intellectual property infringement and termination of site leasing contracts without notice are proving to be big challenges for franchisors and retail chain operators looking to tap into the expected franchising boom in Vietnam.

‘I think there will be a boom in franchising business in the next two to three years,’ said Ly Quy Trung, the owner of Pho 24, a franchising restaurant chain selling Vietnamese noodle soup.

Franchising, a method of doing business where the franchisor provides a licensed privilege to the franchisee to do business and offers assistance in organising, training and merchandising, is a novel concept in Vietnam.

While franchise systems are popular in other developed countries Vietnam remains an untapped market with just a few brands including KFC, Jollibee and Lotteria, said Trung.

Previously deterred by government restrictions on royalty payments for technology transfer agreements, including franchise licence agreements, new laws and regulations have been promulgated, relaxing restrictions on franchising activities.

Baker & McKenzie lawyer Giles Cooper said the government’s Decree No.35 was modern and well-drafted, and balanced commercial freedom and protection of franchisees. The Commercial Law also provided basic framework for franchising he added. There is also a variety of franchising structures with direct franchising from offshore to Vietnam or via a local entity.

Franchising allows the franchisor to quickly obtain distribution through affiliated dealers and Australian franchisors such as The Coffee Club, Healthy Habits and Hudsons Coffee are looking for opportunities in Vietnam.

More international brands are preparing to enter the market as it opens under commitments to join the WTO. More.