According to the International Franchise Association (IFA), Vietnam, with its 100 million population, expanding middle class, strong GDP growth, and open business environment, has become a booming franchise market in Southeast Asia.[i] Franchising began in the late 1990s with brands like Jollibee and KFC and has since thrived, exemplified by Mixue, a Chinese chain, opening 1,300 outlets national wide in just six years.[ii] By September 2023, over 310 foreign brands operated in Vietnam, mostly in food and beverage franchises.[iii]
This rapid growth highlights a huge potential of Vietnam’s franchise market, raising the key question: how can a foreign brand successfully franchise in Vietnam? In this article, we will delve further into answering this question.
Conditions for franchising in Vietnam
To carry out franchising activities in Vietnam, foreign brands must ensure they meet the required conditions, including:
(i) The business system intended for franchising must have been operational for at least one year.[iv]
(ii) The goods or services to be franchised must not fall within the list of restricted industries as specified by the Ministry of Planning and Investment, such as journalism or labor export services for overseas employment.[1]
Additionally, it is important to note that for certain conditional business sectors, beyond fulfilling franchising procedural requirements, foreign brands must also secure the necessary sub-licenses for the franchise outlets to operate legally in Vietnam.[v] For instance, in the F&B sector, restaurants require specific sub-licenses, including: a food safety and hygiene certificate, fire safety certificates, retail liquor license, etc.
Furthermore, foreign brands must ensure intellectual property registration for their assets (such as trademarks and industrial property) with the competent authority in Vietnam to secure legal protection while conducting business in the country.
Ways to do franchising in Vietnam
In Vietnam, there are two ways for a foreign brand to franchise:
(1) Direct franchising: The foreign brand can directly use its existing company abroad to franchise to its Vietnamese partners.[vi]
(2) Establishing an FDI Company:[vii] Alternatively, you can establish a foreign direct investment (FDI) company in Vietnam to handle franchising operations. This method facilitates easier management of the franchise system within Vietnam.
Regardless of the approach used to enter Vietnam’s market, the franchisor is required to register the franchising activity with the Ministry of Industry and Trade (MOIT) before signing any franchising agreement with your Vietnamese partner.[viii]
Regarding the register dossier, its elements must include:[ix]
- Registration Form (Form MĐ-1, as per Circular 09/2006/TT-BTM).
- Franchise Introduction Document (Annex III, Circular 09/2006/TT-BTM), detailing:
- Organizational structure and experience of the franchisor;
- Information on intellectual property (e.g., trademark, trading name);
- Financial obligations;
- Details about the franchise system.
- Identity documents of the foreign brand: These may include the company’s business license or the legal representative’s passport.
- Other documents as stipulated by Vietnamese law and required by competent authorities.
Once the application is successfully submitted, the MOIT will review and process the registration within 5 working days.[x] Foreign brands approved for franchising in Vietnam will receive a Notification of Approval from the MOIT, and the activity will be recorded in the Franchise Business Registry.[xi]
Franchising contract under Vietnam law
Franchising contracts in Vietnam allow significant flexibility for parties to negotiate terms and conditions. Although Decree 35/2006/ND-CP provides suggested terms, their inclusion is not mandatory.[xii]
Parties are free to negotiate various aspects of the franchise, such as the business model, trademarks, brand names, and other related elements. This flexibility facilitates the customization of agreements to suit the needs of both franchisors and franchisees.
In conclusion, by meeting operational requirements, navigating regulatory hurdles, and securing intellectual property rights, franchisors can tap into Vietnam market with immense growth potential. Vietnam’s legal framework and flexible franchising contracts empower brands to adapt their strategies while ensuring compliance. With careful planning and local insight, foreign franchises can thrive, cementing Vietnam as a prime destination for global expansion.
In D’Andrea & Partners Legal Counsel we have authored innovative publications exploring Vietnam, produced in order to provide foreign investors and businesses with more practical guidance on Vietnam market, as it requires a specific context of the economic and legal framework of the country, including tailor made consultancy for setting foreign franchise in the country.
The above content is provided for informational purposes only. The provision of this article does not create an attorney-client relationship between D’Andrea & Partners and the reader and does not constitute legal advice. Legal advice must be tailored to the specific circumstances of each case, and the contents of this article are not a substitute for legal counsel.
[1] Article 6, Investment Law (Law 61/2020/QH14, amended and supplemented by Law 72/2020/QH14, Law 03/2022/QH15, Law 05/2022/QH15, Law 08/2022QH15, Law 09/2022/QH15, Law 20/2023/QH15, Law 26/2023/QH15, Law 27/2023/QH15, Law 28/2023/QH15, Law 31/2024/QH15, Law 43/2024/QH15).
[i] International Trade Administration (ITA), “Vietnam – Country Commercial Guide”, accessed at: https://www.trade.gov/country-commercial-guides/vietnam-franchising-industry-sector
[ii] CafeF, “Mixue “rakes in profits” in the Vietnamese market with 1,000 stores selling ice cream for 10,000 VND and milk tea for 25,000 VND, surpassing Highlands Coffee in earnings and far outperforming Phuc Long and Starbucks”, accessed at: https://cafef.vn/mixue-hot-bac-tai-thi-truong-viet-voi-1000-cua-hang-ban-kem-10000-dong-tra-sua-25000-dong-lai-vuot-highlands-bo-xa-phuc-long-starbucks-188240807170954617.chn
[iii] International Trade Administration (ITA), “Vietnam – Country Commercial Guide”, accessed at: https://www.trade.gov/country-commercial-guides/vietnam-franchising-industry-sector
[iv] Article 5, Decree 35/2006/ND-CP ((amended and supplemented by Decree 120/2011/ND-CP).
[v] Articles 25.2, 76.2, Commercial Law (Law 36/2005/QH11, amended and supplemented by Law 05/2017/QH14, Law 44/2019/QH14).
[vi] Article 5, Decree 35/2006/ND-CP (amended and supplemented by Decree 120/2011/ND-CP)
[vii] Articles 21, 22, Investment Law (Law 61/2020/QH14, amended and supplemented by Law 72/2020/QH14, Law 03/2022/QH15, Law 05/2022/QH15, Law 08/2022QH15, Law 09/2022/QH15, Law 20/2023/QH15, Law 26/2023/QH15, Law 27/2023/QH15, Law 28/2023/QH15, Law 31/2024/QH15, Law 43/2024/QH15).
[viii] Article 17, Decree 35/2006/ND-CP (amended and supplemented by Decree 120/2011/ND-CP).
[ix] Section II.2, Circular 09/2006/TT-BTM (amended and supplemented by Circular 04/2016/TT-BCT, Circular 03/2024/TT-BCT).
[x] Section II.5, Circular 09/2006/TT-BTM (amended and supplemented by Circular 04/2016/TT-BCT, Circular 03/2024/TT-BCT).
[xi] Section II.5, Circular 09/2006/TT-BTM (amended and supplemented by Circular 04/2016/TT-BCT, Circular 03/2024/TT-BCT).
[xii] Article 11, Decree 35/2006/ND-CP (amended and supplemented by Decree 120/2011/ND-CP).