Commercial franchising activities in Vietnam
1. Legal basis:
Law on commercial franchising is regulated scattered in Commercial Law, Competition Law, Intellectual Property Law. Some specific regulations, and legal documents on Commercial Franchising such as:
- Article 284 – 291 of the 2005 Commercial Law;
- Decree No. 35/2006/ND-CP dated 31/03/2006 detailing the Commercial Law regarding commercial franchising (Decree No. 35/2006/ND-CP);
- Circular No. 09/2006/TT-BTM dated 25/05/2006 guiding the commercial franchising registration (Circular No. 09/2006/TT-BTM).
2. Current situation of commercial franchising:
- According to statistics of the Ministry of Industry and Trade, until June 2020, 279 foreign brands have registered for commercial franchising in Vietnam. In which, the field receiving franchising the most is fast-food chains, restaurants (accounting for 41.31%); the second is other retail stores (accounting for about 15.49%); followed by fashion (accounting for 14.08%); finally is the field of education – training. In addition, franchising is also available for convenience stores and other services.
- Currently, franchising in Vietnam is mainly developed in the exclusive model of level 1, only a few franchises under the second-level model when level 1 partners continue to be franchised each branch, or each region gives a secondary partner the next as it does in developed markets.
The Ministry of Industry and Trade considered that in the future, franchise activities in Vietnam will develop in four trends:
- Brands choose partners to receive mass franchises to speed up the replication, instead of franchising each store, promoting the brand’s competitiveness compared to other brands in the market.
- Big brands develop their own stores for a certain time, then re-franchisees to their business partners (re-franchise).
- The fast-food franchise market will continue to grow, but consumers tend to dignify about food safety more and. Therefore, franchise brands will have a profound change in menus.
- The market for commercial franchising services such as education, healthcare, and transportation promises to continue to explode.
3. Legal inapplicability, and some common causes leading to disputes in commercial franchising:
a) Legal inapplicability:
- Law on commercial franchising allows the franchiser to refuse to assign commercial rights if “the receiver has not met the selection criteria of the direct franchiser”. This provision easily leads to a situation in which the franchiser may bring binding conditions out to sell together without the franchiser having a choice, violating the “anti-competitive agreement” under the Competition Law.
- A non-franchise term for a third party in a certain territory is often recorded in the franchise contract. On the one hand, this provision helps the recipient to minimize competition pressure, on the other hand, it violates the Competition Law on “agreement on distributing customer, consumption markets, sources of supply of goods and, provision of services”.
- The Commercial Law stipulates: “In case the franchiser transfers to the franchisee to use industrial property objects and the contents of the commercial right, that licensing part of the industrial property objects can be made as a separate part of the commercial franchising contract ”. However, the Intellectual Property Law requires that “the transfer of industrial property rights must be done in the form of contracts for the use of industrial property objects”.
- It can be seen that the current law on commercial franchising is overlapping and inconsistent. Appropriate regulations should be issued to establish a fair and wholesome competitive environment. In addition, the competent authority must have specific guidelines for different typical economic activities in general and commercial franchising activities in particular, to limit unfair competition practices, and manage commercial operations in this field that are more effective.
b) Common reasons for disputes in franchise activities:
Conflict and conflicts of interest between the parties are the main cause of the dispute. While the franchiser tends to control as much as possible over the franchisee’s activities, the franchisee wants to minimize the intervention of the franchiser, and develop the franchisee’s business according to their wishes.
Some specific situations causing conflicts can include:
- First, the franchiser imposes control that is contrary to the spirit of the franchising activity, affecting the independence of the franchisee.
- Second, the franchisee thinks that just signing a franchise contract can do business successfully. Therefore, franchisees tend to blame the franchisor for their unfavorable business.
- Third, one of the parties intentionally takes advantage of the franchise activity to profit by dishonest methods.
In order to limit the causes of a franchise dispute, the franchisor, as well as the franchisee need to understand the nature of this activity as well as have a commitment and trust between the parties to improve the reputation and quality of the system.
Before deciding to operate franchising, businesses need to build a brand system, products, models, transfer processes, training programs, … clearly and in detail. At the same time, in the course of operation, constantly improve the franchise to suit and promptly meet the needs of customers, ensuring a balance of interests between the franchisor and the franchisee for mutual benefits, long-term cooperation for common goals.
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