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VIR-news
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Franchise operations face serious challenges
Update: 12-12-2006
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Rule obedience, intellectual property infringement and termination of site leasing contracts without notice are proving to be big challenges for franchisors and retail chain operators looking to tap into the expected franchising boom in Vietnam.
“I think there will be a boom in franchising business in the next two to three years,” said Ly Quy Trung, the owner of Pho 24, a franchising restaurant chain selling Vietnamese noodle soup.
Franchising, a method of doing business where the franchisor provides a licensed privilege to the franchisee to do business and offers assistance in organising, training and merchandising, is a novel concept in Vietnam.
While franchise systems are popular in other developed countries Vietnam remains an untapped market with just a few brands including KFC, Jollibee and Lotteria, said Trung
Previously deterred by government restrictions on royalty payments for technology transfer agreements, including franchise licence agreements, new laws and regulations have been promulgated, relaxing restrictions on franchising activities.
Baker & McKenzie lawyer Giles Cooper said the government’s Decree No.35 was modern and well-drafted, and balanced commercial freedom and protection of franchisees. The Commercial Law also provided basic framework for franchising he added.
There is also a variety of franchising structures with direct franchising from offshore to Vietnam or via a local entity, said Cooper.
Franchising allows the franchisor to quickly obtain distribution through affiliated dealers and Australian franchisors such as The Coffee Club, Healthy Habits and Hudsons coffee are looking for opportunities in Vietnam.
More international brands are preparing to enter the market as it opens under commitments to join the WTO. Pizza Hut is expected to open the first store in Ho Chi Minh City and Trung is preparing for new franchising coffee shops in Hanoi and the southern commercial hub.
“Franchising is considered a new exciting business in Vietnam. People are eager to buy franchising brands. It is like a franchisor market,” Trung told the luncheon organised by the Australian Trade Commission in Vietnam.
Another advantage is that Vietnam has a big population and people can open shops every where. Vietnamese people are very business minded, especially those in southern area who are eager to get involved in small business, and more banks are willing to lend money to open franchises.
“That’s just perfect for the franchise business,” said Trung.
Yet, Trung said making franchisees follow the rules was a big challenge as franchisees were not fully aware of their obligations.
“Some of them try to cut costs by reducing the amount of meat in a bowl of pho. One franchisee cut costs by turning off air conditioners. It is big headache for us,” said Trung.
He pointed out that copycats were an emerging problem as he discovered two shops in Ho Chi Minh City copying everything from Pho 24, from decoration and table mats to chinaware. A restaurant in Nha Trang even has copied the logo of Pho 24, forcing Trung to obtain legal help to stop the infringement.
Cooper said franchisors approaching Vietnam must consider intellectual property protection paramount, practical protection measures and compile workable commercial contracts.
Language was another problem as contracts had to be translated into Vietnamese. The accounting differences between Vietnam and international practices are another issue that franchisors had to take into account, he said.
Trung said landlords’ suddenly terminating shop leasing contracts without compensation was another problem he had encountered. When he proposed the compensation clause into the contract the landlord told him to go somewhere else.
“A good location is like an 18-year-old girl – beautiful, with a lot of people around. To get it you have to take the risk,” said Trung.
Trung said he felt more secure when Pho 24 moved into professionally managed buildings such as Broadway Office Park in Phu My Hung residential area.
No. 791/December 11-17, 2006
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By Kim Chi
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