Franchising: A promising field in need of regulations, policies

08:45 | 28/10/2019 Society

(VEN) - Vietnam has become an attractive franchise market for reputable brands at home and abroad, but it still lacks suitable mechanisms and policies to promote franchising.

franchising a promising field in need of regulations policies

Initial vibrancy

From 2007 to the end of 2018, Vietnam granted franchise licenses to 213 foreign businesses in various fields such as food, fashion and convenience stores. These include reputable brands such as McDonald’s, Baskin Robbins (USA), Pizza Hut, Burger King (Singapore), Lotteria, BBQ Chicken (Republic of Korea), Swensen’s (Malaysia), Karren Millen, Coast London (UK), Bvlgari, Moschino, Rossi (Italy).

Domestic companies have also joined the franchise market to enhance their brand value. Trung Nguyen coffee has been a pioneer, followed by Pho 24, Kinh Do Bakery, Ninomaxx, Foci, T&T and the Vu Giang Company Limited.

Of these, Pho 24, Duc Trieu, a private company trading in leather footwear and handbags under T&T brand, and the Vu Giang Company Limited, which trades in Bobby Brewers coffee, have been licensed to franchise abroad.

Major areas of franchising involving foreign brands in Vietnam include fast food and restaurants, accounting for 41.31 percent of all franchises in the domestic market. Furniture, cosmetics and other consumer goods account for 15.49 percent, franchises in the field of fashion account for 14.08 percent of the total; those in education and training account for 11.47 percent.

In 2018, 17 foreign companies received licenses to operate as franchises in Vietnam, including JYSK A/S (Denmark) - a specialist in household utensils and decorations; Puma SE (Germany) - shoes and sportswear; and Factory Japan Group (Japan) - massage.

According to the Vietnam Institute of Industrial and Trade Policy and Strategy - the unit responsible for implementing the project to develop franchise businesses in Vietnam, franchises have developed rapidly and contributed to diversifying business forms in Vietnam.

The number of foreign brands franchised in Vietnam has increased in the past three years while domestic companies have also franchised their brands overseas. Currently, about 200 franchise brands are available nationwide, concentrated in the food, fashion and retail markets.

Management policies

Most foreign franchises in Vietnam are primary franchises, which give domestic companies a monopoly over foreign brands they acquire. Few global brands in Vietnam operate as secondary franchises, which allow primary partners to further franchise to secondary partners as in developed countries.

Existing regulations do not require franchising activities of domestic companies to be registered with state management authorities, making it hard to control their activities. Domestic franchisors are also mostly small and medium-sized enterprises with poor management capacity. Therefore, they often encounter difficulties in controlling the operations of their franchise.

To be eligible for franchising, apart from strong brands, businesses need to have adequate management and system control capability. In fact, Vietnamese businesses are still weak in management skills and pay little attention to brand protection. Most of their overseas franchises are not successful. This problem is attributed to a lack of state policies to support franchise development. Legal documents related to franchising overlap, causing difficulties for management and dispute resolution. Most laws and regulations in this field deal with franchisors but not franchisees who are directly involved in disputes and intellectual property rights.

Most domestic franchisors have yet to pay adequate attention to strengthening and protecting their brands. Vietnam still lacks reputable domestic brands to attract foreign franchisees. Domestic companies are still weak in financial capacity as well as technical and human resources. These limitations hinder their performance as either franchisors or franchisees. Overseas franchises of Vietnamese companies still lack a standard model.

Lan Ngoc