Franchising in Vietnam

Buying the rights to a major brand’s name comes with major paperwork and obstacles as our expert in the industry explains…

THERE CAN BE little doubt that Vietnam is the type of market where the franchising business model is growing and thriving. With a large consumer base, rapidly rising incomes, a very educated, young and growing professional population, and an entrepreneurial economy that is focused on wealth creation, it’s the perfect formula for success.

While franchising dates back to the mid 1800s and started in America, the influence and impact of franchising around the world continues to be immense, contributing USD1.2 trillion to the global economy. In the US alone, franchising has created over 9 million jobs and contributed USD500 billion to the economy. Although not the same in sheer numbers, other developed and developing countries have seen similar growth in the franchising market, including Australia, the UK, China, South Korea and Japan.

It’s easy to see when walking along the streets in Saigon that franchising has gained momentum in recent years, especially with Domino’s Pizza and Burger King sponsoring and adding their logos on the city’s Tet decorations this year. And while KFC, Lotteria and Jollibee have entered the country more than a decade ago, newer players into the game like Coffee Bean & Tea Leaf, Pizza Hut and Subway have ignited interest from abroad. And with Starbucks’ recent opening of its first flagship store in HCMC recently, this will only drive competition faster into Vietnam.

Risky Business

Though the opportunities are numerous, there are also many risks that a franchisor (a person or company that grants a franchise) must navigate effectively if they are to compete and succeed here. It starts with picking the right business partner, managing the supply chain, deciphering the legal requirements, and the all-important and all too real issue of the rising cost of retail space. Finding the right partner in Vietnam is often a lengthy process and can take up to five years if the brand you’re franchising has strict requirements. For example, Starbucks had eyed Vietnam for many years before its grand opening in February 2013.

As Matt Fujieki, Managing Partner of International Lifestyle JSC, Haagen-Dazs franchisee for Vietnam, says, “Like any global brand, the process of franchising may be lengthy and challenging, especially for a global brand’s first entry into a developing country like Vietnam. For an international brand like Haagen-Dazs, they must carefully strategize the entrance, their local partner, and development goals amongst other important aspects. For the local franchisee, a clear understanding of the market must be present and a correct business model must be put into an aligned game plan.”

Demand But No Supply

Another key focus area is the ability of the new partners to manage the necessary supply chain. To keep costs down, ideally franchisees should locally source their raw materials, equipment, furniture, and other necessary products and services. However, the reality is that many local suppliers and service providers in Vietnam lack the quality and scale that are required by international brands, thereby forcing the franchisees to buy overseas, raising supply cost. It’s a no-win situation that many franchisees face as local suppliers are unwilling to invest capital to meet international requirements if there is no guarantee of sale after they have made these investments. If you’re selling a Big Mac and you decide to use a plain bun because suppliers can’t produce the sesame seed bun, well, it’s no longer a Big Mac.

“As Haagen-Dazs is a super-premium global brand, with some of the highest international standards, supply chain and particulars such as sourcing are always a challenge in a developing market like Vietnam,” Fujieki confirms.

High real estate costs and location continue to be issues as well. Rental costs are higher than the average for the region and many locations do not drive the needed traffic to these businesses, including prime real estate in high-profile retail establishments like Vincom or The Crescent Mall. Expectations for leasing prices by local landlords can also be a problem as they are often much higher than what is appropriate for the franchises that seek those locations. To make matters worse, local landlords have also been known to break leasing contracts.

For any internationally recognized brand, failure in any market not only hurts them in terms of time and money but it may take them 5 to 10 years before they are able to re-enter that same market. This will also bring up questions from future potential franchisees about its viability, especially if they are located nearby in Southeast Asia.

While franchising is sure to feed hungry appetites here, traversing these critical issues is a must for the parties involved.

Sean T. Ngo is the Managing Director of Vietnam Franchises. The company has helped international brands enter Southeast Asia including KFC, Delifrance and Carl’s Jr.

Image by MINH HOANG LY

Share this story, choose your platform!

About the author:

Leave a Comment

Online Casino Loyalty Programs: Everything You Need To Know

Gamers often seek reliable and best online casinos where they can spend their money and win big. A good online casino offers more than just quality games to attract players from around the world. These casinos provide amazing loyalty programs and rewards that make you feel like a winner before you start playing.  But this

Read More »

How To Stop Revenue Leakage in Your Business

Almost every business faces a gargantuan challenge, termed “revenue leakage”, yet quite a few remain unaware. The lost revenue is the financial loss that a business incurs unknowingly and from any source imaginable. In this article, we will enlighten you about revenue leakage, its sources, and how to put a halt to this money drain.

Read More »

Navigating the virtual arena of sports betting and casino gameplay

The world of gaming and sports has always been one of excitement and fervor, but with the advent of the digital era, a new landscape has emerged. The merging of technology and the zeal for competitive sports has crafted a thrilling canvas for enthusiasts to engage with an array of games. In the middle of

Read More »

Security and Data Protection Priorities in AI for Email Writing

At the moment, the approach to business emails is evolving. In the digital landscape, projects such as AImReply AI for email writing stand out, as emailing is still one of the most important ways of communication. The integration of artificial intelligence, namely GPT technology, greatly simplifies the communication process via email. Still, it is important

Read More »

Tips For Surviving Financial Hardships

Navigating the treacherous waters of financial hardship can often feel like an insurmountable challenge. It's a storm that can strike unexpectedly, leaving even the most prudent sailors of life’s seas scrambling for solutions. In this journey, we’ll explore innovative strategies and unearth lesser-known lifelines to stay afloat during these trying times. The Unexpected Maelstrom: Financial

Read More »

Top 5 Tips for Improving Workplace Team Dynamics

Humans can be tricky, complex creatures. We are often equipped with strong opinions and even stronger personalities. That means that each of us will have our approach to our job and a unique working style. We have different ways of communicating and collaborating – some of us shine in these areas far more than others.

Read More »