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Franchise has appeared in Vietnam since 2006-2007. However, franchise in Vietnam has only been a popular activity since 2019-2021. At the time, more and more international brands entered the Vietnamese market through franchising.
Outer challenges affect franchise
The appearance of many famous brands has marked the formation of a franchise market in Vietnam. This poses great challenges for franchisees.
Market size:
Despite ranking second in Southeast Asia in terms of total population, after Indonesia, the urban / rural population ratio is currently at 30/70 and is expected to change at 45/55 in 2030. The total consumption value of the Vietnamese market lags far behind other countries in the region. The market size at this time is still very small, meaning that the market potential is still very large. Therefore, franchisees need to strengthen and build a solid franchise model, preparing for the development of the industry in the future.
Financial solution
One of the basic conditions to support the franchise industry’s growth is to provide financial support to both franchisors and franchisees. For franchisors, a financial solution can be easy due to the wide choice of investment options available. Enterprises need to prepare organizational background, personnel, model potential, system and brand. For franchisees in Vietnam, financial support is a big challenge because lending regulations and procedures in Vietnam are mainly collateral.
Infrastructure
The development of the economy in general and the retail industry in particular is always associated with the infrastructure development of that market. The current infrastructure in Vietnam is still in the initial stage of development. The retail and culinary businesses often find themselves afraid when they need space to open their stores. The premises in the commercial and shopping centers are limited in quantity and usually only concentrated in big cities.
Human resources
Human resources play an important role in franchising. Human resources in Vietnam with knowledge and experience in the franchise sector are limited, do not have much information as well as specialized training programs on franchising. This is one of the major challenges facing the franchise industry and the businesses participating in this activity.
Supply chain
Proactively managing activities in the supply chain to maximize customer value, building for businesses a sustainable competitive advantage. With a professional and efficient supply chain system, the whole system from supplier partners, franchisors, franchise partners and customers all benefit.
Legal framework
The franchise market in Vietnam is still in its infancy, with almost no real case of law applying this law to resolve disputes between franchisors and franchisors. The following legal provisions on franchising are basically in line with reality, balancing the issues and protecting the franchisee, but going deep into each regulation, there are still some shortcomings. In addition, Vietnam also does not have its own strong legal policies to support and encourage small and medium enterprises when doing franchising.
Government’s support
In Vietnam, franchise is the easiest and fastest model to help small and medium enterprises thrive in the domestic market, as a foundation to step out into the world. To do this, the Government needs to set up a small and medium enterprise advisory support committee, linked with financial support funds for franchisors and franchisees. In some countries such as Singapore, Malaysia, businesses are supported a lot from the Government, while Vietnamese businesses are still struggling with financial difficulties as well as experience and knowledge.
Inner challenges affect franchise
Business environment always has its own challenges in each market. The biggest challenges and difficulties for the business are from the business itself.
Way of thinking
When choosing a model to develop a franchise in Vietnam, a system requires transparency, commitment to investment and support. Businesses need to overcome these difficulties and start with personal thinking.
Specialized knowledge and experience
From a fledgling franchise market, Vietnam will take some time to experience and learn how to do it from foreign brands. Like, in order to prepare a foundation for domestic franchise brand development, Vietnamese businesses need to increase their knowledge and experience in the industry by purchasing a franchise license and operating a foreign franchise model in Vietnam to learn, then apply this model to your own business or employ industry consultants.
Investment resources
In franchising, the business reaches breakeven when the revenue from the franchise system is equal to the operating costs of the business. These operating costs are the costs required to maintain and develop the franchise system. During the early period of operation, the business must definitely invest resources, take losses and commit to investing in franchise platforms.
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ASL LAW is the top tier franchise law firm in Vietnam. If you need any legal advice on franchise in Vietnam, you could contact us.
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