Changes in Vietnam’s Franchising Law
Vietnam’s Ministry of Industry and Trade issued Decree No.08/2018/ND-CP (Decree 08) with immediate effect on 15 January 2018, amending several decrees related to business conditions in various areas including franchising, to reduce administrative procedures. With respect to franchising, the Decree 08 amended Article 5, reducing the number of conditions on foreign franchisors to only one, namely, the business to be franchised must be operating for at least one year prior to franchising.
Lack of clarity
As per the commercial franchising law, a foreign franchisor has to register its franchising activities with the Ministry of Industry and Trade. In Chapter II of the law, Article 5 relates to the requirements for the franchisor, Article 17 relates to the registration of franchising activity, while Article 17a focus on the franchising exempted from registration.
Under Decree 08, only Article 5 has been amended, while Article 17 related to registration of franchising activity for foreign franchisor is not. As Article 17 is not amended, foreign franchisors should continue to register for its franchising activities, unless the government issues further guidelines clarifying the situation.
Food chains such as KFC, Lotteria, and Jollibee were one of the first businesses to set up franchises in Vietnam. In the last decade, franchising activities have witnessed a steady growth, driven by a growing middle class and rising incomes. The fast food and retail franchises account for the majority of the franchise businesses in the country.
In 2016, franchise deals rose 15 to 20 percent compared to 2015, driven by a growing demand in the food and beverage (F&B) industry along with lifestyle-oriented products and services. As of 2017, 172 brands have registered as foreign franchises, with the F&B sector alone accounting for over 50 percent. Along with the F&B sector, convenience stores have also seen an increase in franchising activities, mainly due to increased urbanization.
Along with the foreign brands, local Vietnamese brands such as Trung Nguyen Coffee, Kinh Do Bakery, and Highland’s Coffee have also started to franchise their brands. As per the International Franchise Association, Vietnam’s franchise market ranks 9th amongst the top 12 most valuable markets for international expansion.
Going forward, the franchising sector is expected to grow by over 20 percent annually with sectors such as food and beverage, education, health and nutrition, business services, hospitality, fashion, cosmetics, entertainment, and convenience stores with the most franchise potential.
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