- Overview of Vietnam’s Franchise Landscape
- Why Franchising is Blowing Up in Vietnam
- Who can Open a Franchise in Vietnam
- Franchise Registration in Vietnam Requirements and Procedure
- Goods and Services Prohibited to be Franchised in Vietnam
- Conditions to be Met by Franchisors and Franchisees
- The Franchise Journey in Vietnam: Your Options
- Legal Overview of Commercial Franchise Regulations
What does franchising really look like in Vietnam? Is it the right business model for you?
Many international brands looking to expand their operations are considering entering Vietnam via franchising. Famous brands like Zara, Holiday Inn, Carl’s Junior, Dunkin’ Donuts, Starbucks, and Anytime Fitness among others, have already opened up their franchises in Vietnam. This article provides detailed information for international brands as well as investors looking to buy a franchise license and bring more brands to Vietnam, via the franchise model.
Looking to invest in Vietnam? See our A-Z business setup services
Overview of Vietnam’s Franchise Landscape
In the 1990s, Vietnamese shoppers needed help to get their hands on merchandise from international brands. A plethora of big restaurants like KFC, McDonald’s, and Starbucks were not yet well-known. However, in 2022, these brands among many others are thriving in Vietnam.
Vietnam has emerged as a popular destination for franchise businesses. Thanks to its dynamic demographic of 90 million people, 65% of the under-35 age group, prefer foreign brands, according to a recent report by ASL Gate. Moreover, Vietnam has significant Free Trade Agreements signed with various countries to reduce trade tariffs which will facilitate the importation of required goods by the franchised brands.
Retail Market in Vietnam
Traditionally, the retail sector sells things directly to consumers in relatively small quantities, either via online platforms or offline in outlets. However, recently the retail landscape has been bolstered in Vietnam, thanks to the inflow of foreign investments. Some of the retail giants in Vietnam are Vingroup, Circle K, Guardian, and The Gioididong.
Most Vietnamese still shop for their products from outlets rather than online. However, e-commerce is on the rise too, owing to easy access to the internet.
In Deloitte and AT Kearny’s reports on sustainable retail potential, Vietnam stood at sixth place, however it is expected to take second place by 2025 in terms of fastest-growing e-commerce. This opens up the economy to opportunities for retail brands looking to sell franchise licenses in the country.
Why Franchising is Blowing Up in Vietnam
General Consumer Potential
Over the next decade, the number of consumers are expected to grow by 36 million. This will include customers who can spend greater than USD 11 a day based on purchasing power parity (PPP).
Within the income pyramid, there has been a sharp increase in the consumer class. By 2030, it is expected that the consumer class spending more than USD 30 per day will account for 20% of the Vietnamese population, according to a study by Mckinsey.
Who can Open a Franchise in Vietnam
In 2020, the franchise industry was one of the fastest growing. Vietnam International Retailtech & Franchise Show (VIETRF) is the biggest show about Retail and Franchise, produced by Coex Vietnam, Retail & Franchise Asia and Vinexad. Moreover, there are many other franchise-related online platforms such as FranchiseAsia.com.
According to Circular 09/2006/TT-BTM, franchises can be 100% foreign-owned. As of August 2019, the total number of both local and foreign franchise businesses in Vietnam stood at 213.
According to the franchising law in Vietnam, here are the eligibility criteria on who can open a franchise in Vietnam:
- Franchise business from a Vietnamese franchisor to a foreign franchisee
- Franchise business from a foreign franchisor to a Vietnamese franchisee
A franchise agreement must be signed and registered with relevant government offices. Both parties will be fined if such an agreement doesn’t exist and isn’t registered.
Franchise Case Study: Anytime Fitness Vietnam
Franchise Registration in Vietnam Requirements and Procedure
Required documents for franchise registration in Vietnam are listed below:
- Franchise agreement
- Application form of franchise registration
- Previous year’s audited reports
- Franchisor’s business certificate
- Franchisor’s introduction
- Copyright or trademark certificate
- Approval document regarding the primary franchisor’s permission (if any)
Goods and Services Prohibited to be Franchised in Vietnam
Under the franchise law, some goods and services are prohibited for franchise business such as weapons, toxic minerals, addictive drugs, dangerous toys that are harmful to children, wild animals, and plants, imported scraps that pollute the environment, organized gambling, marriage broker services, adoption broker services, and many others.
For goods and services subject to conditional franchising, investors or enterprises shall acquire a business license from the authority.
Conditions to be Met by Franchisors and Franchisees
- The franchisor’s business must have been previously in operation for a significant period, i.e. a minimum of 1 year
- The franchisor must obtain written approval from the Ministry of Industry and Trade
- The franchisee must register their business in relevant sectors with regard to their franchise business in Vietnam, including registering the business and acquiring relevant licenses.
- For a master franchisee in Vietnam to sub-franchise to another party in Vietnam when permitted by the franchisor, the master franchisee must also have been operating for at least 1 year before the sub-franchising can be conducted.
The Franchise Journey in Vietnam: Your Options
1. To franchise from abroad into Vietnam
(applied for those who DOES NOT have an entity in Vietnam)
The franchisor must REGISTER the franchise activities and GET APPROVAL from the Ministry of Industry and Trade (MOIT).
The Franchisor does not need an entity in Vietnam, instead, they choose to franchise to a local partner who will be responsible for setting up the franchise and the subcontracts.
Timeline: 15 working days (expected).
*Pre-existing condition: original business must have been in operations for 1 year in the country of origin
2. To set up an FDI company in Vietnam as a vehicle to conduct franchising
A 100% foreign-owned entity setup to run operations in Vietnam
Conditions applied to the franchisor/investor:
- The location of opening the restaurant shall need to be obtained an Approval Letter from the People’s Committee where it is located.
- After the FDI company is established, it must:
- Acquire sub-licenses & required conditions for eligible to trade restaurant business;
- Operational for at least 01 year before franchising to other franchisees.
3. To buy a local company in Vietnam
That has operated a restaurant in Vietnam for at least 1 year already.
Conditions/sub-licenses for an FDI company to operate their F&B business/ entity in VN:
Depending on the business structure of the restaurant, the following sub-licenses would be requested before operating the restaurant:
- Certificate of Food Safety Condition (COFSC)
- Fire Protection System Registration
- Environmental Protection Plan Registration
- Alcohol License (if any)
- Product Registration Certificate (If needed)
Legal Overview of Commercial Franchise Regulations
Laws regarding commercial franchising in Vietnam as specified in Law No.36/2005/QH11, summarized below. These points have been taken directly from government regulations.
Article 284.- Commercial Franchise
Commercial franchise means a commercial activity whereby franchisors permit and require franchisees to undertake by themselves to purchase or sell goods or provide services on the following conditions:
1. The purchase or sale of goods or provision of services shall be conducted in accordance with methods of business organization prescribed by franchisors and associated with the franchisors’ trademarks, trade names, business know-how, business slogans, business logos, and advertisements.
2. Franchisors shall be entitled to supervise and assist franchisees in conducting their business activities.
Article 285.- Commercial franchise contracts
Commercial franchise contracts must be made in writing or in other forms of equivalent legal validity.
Article 286.- Rights of franchisors
Unless otherwise agreed, franchisors shall have the following rights:
1. To receive franchise sums.
2. To organize advertising for the commercial franchise system and the commercial franchise network.
3. To conduct periodical or extraordinary inspections of the activities of franchisees in order to ensure the uniformity of the commercial franchise system and the stability of the quality of goods and services.
Article 287- Obligations of franchisors
Unless otherwise agreed, franchisors shall have the following obligations:
1. To supply documents guiding the commercial franchise system to franchisees;
2. To provide initial training and regular technical assistance to franchisees for managing the latter’s activities in accordance with the commercial franchise system;
3. To design and arrange places of sale of goods or provision of services at the expense of franchisees;
4. To guarantee the intellectual property rights over objects stated in franchise contracts;
5. To equally treat all franchisees in the commercial franchise system.
Article 288.- Rights of franchisees
Unless otherwise agreed, franchisees shall have the following rights:
1. To request franchisors to provide full technical assistance related to the commercial franchise system;
2. To request franchisors to equally treat all franchisees in the commercial franchise system.
Article 289.- Obligations of franchisees
Unless otherwise agreed, franchisees shall have the following obligations:
1. To pay franchise sums and other amounts under commercial franchise contracts;
2. To invest adequate material facilities, financial sources, and human resources to take over business rights and know-how transferred by franchisors;
3. To submit to the control, supervision, and instruction of franchisors; to comply with all requirements set forth by franchisors on designing and arrangement of places of sale of goods or provision of services;
4. To keep secret the franchised business know-how even after the expiration or termination of commercial franchise contracts;
5. To stop using trademarks, trade names, business slogans, logos, and other intellectual property rights (if any) or systems of franchisors upon the expiration or termination of commercial franchise contracts;
6. To manage their activities in accordance with the commercial franchise system;
7. Not to sub-franchise without permission of franchisors.
Article 290.- Sub-franchise to a third party
1. A franchisee shall be entitled to sub-franchise to a third party (referred to as sub-franchisee) if it is so consented by the franchisor.
2. Sub-franchisees shall have the rights and obligations of franchisees provided for in Articles 288 and 289 of this Law.
Article 291.- Registration of commercial franchises
1. Before granting commercial franchises, intended franchisors must register them with the Trade Ministry.
2. The Government shall specify the conditions for conducting business under commercial franchises and the order and procedures for registering commercial franchises.
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