Franchising is a popular path through which foreign businesses seek for entry into Vietnam market. Foreign enterprises pursue primary franchise model, also known as exclusive franchise, where an international brand is developed into a chain, financed and run by a domestic company.
Today, there are nearly 300 franchised foreign brands in Vietnam. The successful control of Covid-19, well-normalized economic condition and positive GDP growth makes Vietnam a tempting destination for franchising. However, there are a number of things you should take into account for franchising, or your future business will be very likely to be affected.
Firstly, contractual rights and obligations should be shed light on. Factors such as conditions for cooperation and interests of parties should be frankly discussed on mutual respect basis.
Secondly, a foreign franchisor needs to conduct a thorough market research before franchising. As the market is varied from country to country, success in one region may not be the same to that in others. Even for Vietnam only, the North, the Central and the South Region markets have huge differences that require diligent research before franchising.
The third thing to take into account is the enterprise’s trade name. There should be a contract or appendix that stipulates the commitment to comply with standards on prices and quality of products and services. For service and restaurant brands, the service specifications should be also included so as to ensure the quality. These help to avoid the case where the franchisee changes or provides sub-quality products affecting the brand and enterprise’s reputation. In some cases, a bad experience provided by the franchisee may lead to the permanent loss of market share.
Fourthly, intellectual property issues should be under curb. If this delicate problem is not paid due care, the franchisor might lose their product and unthinkingly outfoxed by the franchisor. Franchising essentially entails transfer of technology and intellectual property rights. There are some cases where the franchisee uses the design or initiative of the franchisee and then set up a business establishment that directly competes. Therefore, before franchising, risks of intellectual property rights should be identified and tightly controlled.
Fifthly, legal issues should be discussed, particularly, the method of dispute settlement and whether the jurisdiction is Vietnam or else where should be taken into consideration. This should be based on both parties’ agreement and the provisions of laws of Vietnam. Foreign franchisors should thoroughly learn legal provisions on franchise-related issues, so as to reduce disadvantages and adverse conditions when a dispute incurs.
Franchising not only helps to expand the market and boost revenue, but, above all, also helps the franchisor build a strong commercial and financial network. For many enterprises, franchising is an extremely powerful and reliable channel for financial mobilization. However, extra care should be paid to the above issues to manage and avoid potential risks during the course of business.
Viettonkin is experienced in helping foreign enterprises to make way in Vietnam market fruitfully and economically. Our professionals, who are insightful of Vietnam market and legislation, keep themselves current and provide the most accurate advices to facilitate customer’ cross-border investments.
