In Vietnam, the specifics of offer and acceptance can determine whether you have a legally binding contract at all. The process of contract formation is governed by strict rules, and a simple oversight can mean that the parties never created the legal relations they intended. For any business operating here, understanding when an agreement becomes […]
Franchising is no longer a new business term in Vietnam. In fact, there are a lot of franchising models that are currently run in Vietnam such as KFC, McDonald, Dairy Queen, Circle K, 7-Eleven, and so on. The Vietnamese government has streamlined the franchise laws and regulations to boost franchise business growth. This article provides you with in-depth knowledge about franchising business in terms of regulations and procedures and typical franchising companies in Vietnam.
The regulation of setting up a franchising business in Vietnam
- Decree 35/2006/ND-CP (Decree 35), as amended by Decree No. 120/2011/ND-CP (Decree 35) and Decree 08/2018/ND-CP.
- Decree 120/2011/ND-CP (Decree 120).
- Decree 185/2013/ND-CP (Decree 185).
- Circular 09/2006/TT-BTM (Circular 09).
According to Article 17 of Decree 35/2006/ND-CP (Decree 35), before conducting commercial franchising activities, Vietnamese traders or foreign traders that intend to franchise must register commercial franchising with the Ministry of Industry and Trade. The Ministry of Industry and Trade shall have to register commercial franchising of traders in the commercial franchise register and notify in writing the traders of such registration.
According to Article 17a, the registration of commercial franchising is not required in the following cases: domestic commercial franchising and Vietnam-to-overseas commercial franchising. In such cases, the registration must be reported to the provincial-level Industry and Trade Departments.
Conditions to be met for franchisors and franchisees
For franchisers, the franchisor's business must be in operation for a significant period, for instance, the minimum of one-year operation. Plus, the franchiser must obtain written approval from the Ministry of Industry and Trade.
On the one hand, for franchisees, the franchisee must register their business in relevant sectors with regard to their franchise business in Vietnam. On the other hand, 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.
Furthermore, the goods or services that are the subject of a franchise agreement must not be on the Government’s list of banned goods and services. If they are on the list of goods and services subject to business restrictions, a special business license must be obtained before franchising is deployed.
Before a franchisor can offer its franchise in Vietnam, the franchisor must ensure that all of the trademarks associated with the franchising activities in Vietnam are either:
- Registered as trademarks with international trademark registrations, where Vietnam is named as a designated jurisdiction.
- Registered with Vietnam's National Office of Intellectual Property (NOIP).
Pre-disclosure requirements
According to Decree 35, the franchisor has an obligation to provide the franchisee with the information regarding the franchise system, namely a copy of a form of the franchise agreement and an introduction of the franchise business, at least 15 days before signing the agreement. The franchisor must also notify the franchisee of all substantial changes in the franchise system.
In case of a master franchise, in addition to providing the aforementioned information, the secondary franchisor must also submit a proposed franchisee with the following information in writing: (a) information about the franchisor which has granted the franchise; (b) contents of the master franchise contract; and (c) the manner in which secondary franchise contracts will be dealt with in the event of termination of the master franchise contract.
Penalty
Depending on the circumstances, a failure to register franchising activity can result in the following sanctions:
- Small fines ranging from VND5 million to VND10 million (approximately US$225 to US$475).
- The forced relinquishment of profits gained from the franchising activity that has not been registered (this sanction can be very problematic for the franchisor).
Steps to set up a franchising business in Vietnam
Required documents
The following documents are the required documents to register a franchise in Vietnam:
- Franchise registration application
- Power of Attorney
- Franchise agreement
- Audited Reports in the last year
- Brief Introduction of the franchisor
- Business certificate (or equivalent documents) of the franchiser
- A copy of the trademark certificate or copyright (if any)
- Papers proving the approval of the primary franchisor’s permission of franchise in case the trader registering to the franchise is the secondary franchisor
Process of setting up a franchising business in Vietnam
The process goes through two main steps: receipt of dossiers of registration of commercial franchising activities and registration of commercial franchising.
In regard to receipt of dossiers of registration of commercial franchising activities, the franchiser submits the required documents at the Ministry of Industry and Trade (MOIT).
- For incomplete and improper dossiers, within two working days after receiving the dossiers, MOIT shall send written notices, made according to a set form, to the franchiser, requesting the supplementation and completion of the dossiers. The time limit for handling dossiers shall count from the time the franchiser registering commercial franchising complete their dossiers.
- Franchisers registering commercial franchising may request to clearly explain reasons for dossier supplementation and completion. MOIT shall have to respond to such requests.
Regarding registration of commercial franchising in commercial franchising registration books, within 5 working days after receiving complete and valid dossiers, MOIT shall register franchisers' commercial franchising in commercial franchising registration books, made according to a set form, and send to franchisers written notices thereon, made according to a set form.
If refusing to register commercial franchising, within 5 working days after receiving complete and valid dossiers, MOIT shall issue written notices thereon, made according to a set form, clearly stating the reasons therefore.
Some typical franchising companies in Vietnam
As of June 2020, there have been 252 franchises activities including franchises from foreign franchisors to Vietnam and franchises from Vietnamese franchisors to oversea. These franchises operate in several sectors such as education, fashion, education, and so forth.
Food and beverage
Case study 1: The Golden Gate Restaurant Group, founded in 2005, currently operates over 21 concepts with nearly 400 restaurants nationwide. It serves 17 million customers each year, and it has planned for further development.
Case study 2: McDonald's entered Vietnam in 2014. As of 2019, it had 22 outlets across the country.
Fashion
Case study 1: Entering Vietnam in 2017, H&M - a world's leading fashion company- has had 9 stores in HCM City, Hanoi and Danang.
Case study 2: Uniqlo first entered Vietnam in late 2019. As of June 2020, it has had 4 stores in Hanoi and HCM City.
Education and training
Case study 1: In December 2017, Maple Bear Global Schools Ltd announced the expansion of Maple Bear Canadian schools into Vietnam. As of 2020, there are currently 3 schools in Hanoi and 3 in Ho Chi Minh.
Case study 2: Arkki is a School of Creative Education for children and youth where pupils learn general innovation skills through architecture. Founded in Finland in 1993, and after 25 years, Arkki has organized thousands of courses and workshops for more than 20,000 children in more than 20 countries. In 2018, Arkki came to ASEAN, starting from Vietnam, with an aim of building a systematic and progressive creative education platform for children and youth from 4 – 19 years old, and to connect children between ASEAN countries, and with Finland through international camps, projects and exchange programs.
Logistics
Case study 1: BEST Express entered Vietnam in 2019. After one year of development, BEST Express now has seven operation centers, more than 100 service points and has 3-20 such points in one province. In Hanoi, it has 20 service points and in HCM City 26.
Case study 2: Entering Vietnam in 2019, ZTO Express now has 12 service points.
Convenience store
Case study 1: The first 7-Eleven store in Viet Nam opened in 2017, making Viet Nam the 19th country to host the world’s largest convenience store chain. Seven System Viet Nam (SSV) is the Master Franchisee of the 7-Eleven convenience store system in Viet Nam, based in Ho Chi Minh City. As of January 2020, Vietnam has 45 stores in Ho Chi Minh City.
Case study 2: Circle K is the first international convenience store chain in Vietnam, with the 1st store opened on December 20, 2008. Circle K Vietnam currently has nearly 400 stores in Ha Noi, Ha Long, Ho Chi Minh City, Vung Tau, Can Tho.
READ FURTHER: How To Set Up A Manufacturing Business In Vietnam.
In conclusion, the article covers three main parts. The first part provides in-depth information about regulations about franchising in Vietnam. Steps of setting up a franchising business are introduced in the second part so that investors and business owners can understand clearly about the franchising process in Vietnam. The article concludes with typical franchising companies in Vietnam. Some popular franchising companies are taken as examples to help readers understand the trend of franchising business in Vietnam. If you would like to set up a franchising company in Vietnam and still have difficulties in approaching the market, Viettonkin always supports you to solve your problem.
