The Development of Franchising in Vietnam

Vietnam's accession to the World Trade Organzation in January 2007 represents the culmination of its transition to a market economy that commenced two decades earlier with the introduction of the Doi Moi economic reform package in December 1986. Franchising is nevertheless a relatively new strategy in Vietnam-its development hampered until recently by a regulatory framework which did not recognise franchising as a discrete business relationship. Franchising first appeared in Vietnam in the mid-1990s. However by 2006 only 23 franchise systems had established operations in Vietnam and the majority of their system outlets were owned and operated by the franchisors rather than by franchisees. The introduction of Vietnam's Franchise Law in 2005 was the turning-point in the development of franchising in Vietnam. It has been the Government's response to the demand for a clear legal framework for franchising which has led to the strong development of this sector. Although there are currently few business format franchise systems on the traditional western model currently operating in Vietnam, there is an increasing presence of established international franchise systems and increasing numbers of local systems albeit at an early "product distribution" evolutionary stage. Moreover, the commercial environment for franchising is increasingly favourable-Vietnam is the fastest growing Asian economy after China and India and is experiencing strong GDP growth and annual retail growth. There is a steady rise in disposable income, an emerging new consumer class and increasing brand consciousness. This paper addresses the development of franchising, and the challenges and opportunities for franchisors in Vietnam.