Franchising in Vietnam, Part 2: Legal Aspects, Challenges, and Opportunities

This is part 2 of an article by international franchise expert Bill Edwards. Interested in franchising in Vietnam, one of Asia's hottest growth markets? See part 1 for more.

Legal aspects of franchising in Vietnam

Decree No. 8/2018/ND-CP issued on January 15, 2018, provides the legal basis for franchising operations, outlining key definitions and requirements of franchise agreements, as well as regulations for the administration of franchises (U.S. Commercial Service, Vietnam Country Commercial Guide, 2018).

Before a business system may be franchised in Vietnam: 1) the system must have been operating for at least 1 year (and a Vietnamese master franchisee must have operated the business for at least 1 year before subfranchising); 2) the goods and/or services to be offered must not be on a government-issued list of prohibited goods and services, absent a special business license; and 3) the franchisor must register the franchise with the Ministry of Industry and Trade and file, among other things, a copy of its disclosure document. Vietnam also has a pre-sale disclosure requirement.

At least 15 working days before the execution of the franchise agreement, the franchisor must provide the prospective master/franchisee its disclosure document and the form of franchise agreement. Both the franchise agreement and the disclosure document must be in Vietnamese. Once the franchise is registered, the franchisor must report certain changes to the franchisor's operations to the Ministry within 30 days after the change; file an annual report with the Ministry by January 15; and update franchisees with respect to changes that may have an impact on their franchised business activities (Tao Xu and Philip Zeidman, DLA Piper).

Opportunities and challenges

Market research company Nielsen says Vietnam's young population, higher disposable incomes, rapid urbanization, and better living standards are the economy's main growth drivers. It noted that approximately 60 percent of Vietnamese are under 35. This group is not only familiar with foreign brands, they now have more income to satisfy their aspirational needs and wants -- and are just as likely to purchase high-value products such as Samsung and Apple smartphones as they are to enjoy outside meals together with friends and family at foreign food franchise brands.

Challenges to doing business In Vietnam remain. Finding licensee candidates with established infrastructure, experience running a business, and capital is a problem. Good high-quality food supply chain resources are limited. Tariffs can be a challenge for inbound products needed for international brands. Retail space has become extremely expensive in Ho Chi Minh City and Hanoi. There is sometimes a challenge getting new licensees to follow the established brand processes and systems needed to produce an acceptable unit bottom line.

 William Edwards is CEO of Edwards Global Services (EGS). From initial global market research and country prioritization to developing new international markets and providing operational support around the world, EGS offers a complete international operations and development solution for franchisors based on experience, knowledge, a team on the ground in more than 40 countries, and trademarked processes based on decades of problem-solving. Contact him at bedwards@edwardsglobal.com or +1-949-224-3896. He was assisted in this article by Sean T. Ngo, CEO and co-founder of VF Franchise Consulting in Ho Minh City.