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					                              Vietnam’s Market for
                              Franchising


                                                                  By U.S. Commercial Service ‐ Vietnam 
                                                                                           March 2010


      Overview


      The franchising model, which allows people with limited access to capital to enter an
      established business, is well-suited to a developing economy like Vietnam. Meanwhile,
      rising incomes and an emerging middle class are generating growth in consumer-driven
      sectors such as retail, entertainment, food and beverage, and lifestyle-oriented
      businesses. As a result, the Vietnam franchising market has surged in the past few years,
      growing at approximately 30 percent last year.
      Although far from saturated, the market is still relatively small and competition is heating
      up as more brands enter the market. However, growth prospects are bright as local
      investors become more familiar with franchising and are increasingly exposed to
      successful franchise concepts. In addition to interest among local companies and
      individuals, a number of foreign-invested retail and distribution groups have made
      investments in well-known foreign franchise brands with plans to expand throughout the
      country.
      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. 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 in
      the Government’s perspective towards the development of the franchise sector in Vietnam.
      One of the biggest challenges is identifying and conducting due diligence on partners to
      determine suitability and financial viability. Because franchising is relatively new to
      Vietnam, establishing good communication, setting clear expectations and achieving
      mutual understanding should not be taken for granted. Many local companies may not
      have a full understanding of brand value and/or legal regulations relating to franchising.



      Best Products/Services


      Franchising first took hold in Vietnam in the 1990’s with the appearance of famous foreign
      fast food 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 foreign and domestic franchise brands operating in the local market. Prior to the
      adoption of the 2006 Commercial Law the Vietnamese Government viewed franchising
      with skepticism and did not fully recognize it as a legitimate vehicle for promoting
      commercial activity and investment. This perspective has been changing as Vietnam

Let Us Help You Export                                                                      By Huong Nguyen
The U.S. Commercial Service – Your Global Business Partner
      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. For example, a number of local
      restaurant chains have successfully franchised their winning formulas throughout the
      country and in overseas markets as well.

      Consumer awareness of American food and beverage franchise brands is quite strong, but
      there is also strong potential in other sectors. Best prospects include: unique fast food
      concepts, health and nutrition, business services, education services, health care,
      childcare and children’s services, cleaning and sanitation, hospitality, beauty care,
      convenience stores.

      There are several factors that will contribute to the growth of foreign franchises in Vietnam
      and that will attract foreign franchisors to participate in this market, including:

          •    Per capita GDP and per capita incomes are on the rise, and incomes in the urban
               areas (such as Ho Chi Minh City, Hanoi, Danang and Can Tho) have seen
               significant growth

          •    An emerging middle-class – with disposable income – is driving demand for high-
               quality food and beverages, entertainment and lifestyle oriented products and
               services.

          •    High-end, well-known “premium” brands are in demand, although recent research
               by Nielson suggests a slight shift toward value and increasing price sensitivity
               among urban consumers. Vietnamese consumers often associate Western brands
               with quality and reliability.

          •    Consumer patterns vary throughout the country: between urban and rural areas,
               and especially between the regions of Hanoi and the north, Danang and the Central
               Coast, and Ho Chi Minh City and the Mekong Delta region in the south.



      Opportunities


      The market is open for foreign franchisors in various sectors. U.S. brands are well
      perceived by local consumers, who reasonably associate them with superior quality,
      excellent customer service, and generally, a Western lifestyle. Currently, U.S. franchise
      brands represented in Vietnam include KFC, Pizza Hut, Dale Carnegie, New Horizons,
      Hard Rock Café, Circle K, Coffee Bean and Tea Leaf, Century 21, and ShoeBox New
      York. According to KFC, the first U.S. franchisor to enter the market (in 1997), business in
      Vietnam has never been better than in recent years. KFC now operates 55 outlets
      nationwide. A number of western F&B outlets plan to announce market entry plans in
      2010.



Let Us Help You Export                                                                    By Huong Nguyen
The U.S. Commercial Service – Your Global Business Partner
      As the legal and regulatory environment improves, franchises may also take advantage of
      the recent explosion in retail space development in Ho Chi Minh City and Hanoi, which has
      significantly increased the number of high-traffic sites that would be suitable for retail
      franchise outlets. In addition, landlords are increasingly interested in attracting (and also
      directly investing in) franchises to improve their tenant mix. Local restaurant groups have
      also expressed interest foreign franchise systems to leverage their industry know-
      how/customer bases to expand into new market segments.

      To be successful in Vietnam, new-to-market franchisors should consider the following
      suggestions:

          •    U.S. franchisors should register their intellectual property rights and be prepared to
               take legal action against IP violators. Franchisors should exercise care in preparing
               franchising contracts to avoid problems down the line. Also register your URL’s and
               related websites in Vietnam.

          •    Understand cultural differences and adjust market access strategies accordingly.
               U.S. franchisors must consider adapting to local culture, habits, and tastes to
               guarantee success in the market.

          •    Optimize the price of the product and the franchising fee to achieve rapid
               expansion. Keep in mind that incomes are substantially lower than in the U.S. or
               even other countries in the region and Vietnamese consumers are very price-
               conscious. Local investors are only now becoming familiar with the franchising
               concept and may be reluctant to make too large an initial investment. Some
               franchisors opt to make direct investments in their first store in order to prove the
               concept and generate future franchise sales.

          •    U.S. franchisors may work with the U.S. Commercial Service in Vietnam to identify
               potential partners and to conduct basic due diligence. The U.S. Commercial Service
               frequently organizes Vietnamese delegations to visit the International Franchise
               Expo in the United States, and can facilitate matchmaking programs for U.S.
               companies in Vietnam.



      Resources


      For more information, please contact:

      Ms. Ha Anh, Commercial Specialist
      U.S. Commercial Service Hanoi - American Embassy
      E-mail: Ha.Anh@trade.gov

      Mr. Le Anh, Commercial Specialist
      U.S. Commercial Service, U.S. Consulate General - Hanoi
      E-mail: Le.Anh@trade.gov

Let Us Help You Export                                                                      By Huong Nguyen
The U.S. Commercial Service – Your Global Business Partner
Let Us Help You Export                                       By Huong Nguyen
The U.S. Commercial Service – Your Global Business Partner

				
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