Late last month I moved back to Vietnam to work for Indochine Counsel full time. I flew from Vientiane to Ho Chi Minh City a few days before my first day of work (I’d intended to fly earlier but a broken arm in a motorbike accident made it difficult to pack in time). While I was there I noticed that development in the Asian viewpoint meant less about poverty relief and sound environmental planning than it did building towers and retail establishments that appeal to the small upper and middle class. For example, while there are many Thailand franchises that have opened in Vientiane, there are very few Western ones. Towards the end of my time there, though, Dairy Queen opened its doors in the middle of the downtown area. I was there the day it opened and there was a line around the corner. It was ice cream and hot dogs American style and I was all about that.
When I landed in Ho Chi Minh City I was inundated by franchises. Burger King, KFC, Pizza Hut, Dominoes, Coffee Bean and Tea Leaf, Carl’s Junior, Subway, Hard Rock Café, Starbucks, and soon to be McDonald’s all operate throughout the city. I spent my first two weeks gorging myself on Western food that I hadn’t the chance to eat for years. (All we need now is a Taco Bell and we’ll really be talking.)
Now, franchises are a special beast. Sometimes they can be granted by territory, and other times by retail outlet. Either way there are issues that need to be addressed before jumping on the bandwagon and opening your own Chipotle. There are in fact two areas that I want to address while I listen to Bobby Darin singing.
First, intellectual property. While Vietnamese law says it will protect internationally recognized marks that does not mean you can ignore your IP vulnerability. In fact, it sometimes means you have to be even more cognizant of the potential for violation than you might otherwise. What better way to make a buck than to take advantage of a well known international brand. (I remember a case that McDonald’s of the golden arches challenged a McDonald’s in Scotland for trademark violation. In the end the Scottish McDonald’s won as it was a family name and the restaurant had been in operation for a very, very long time.) For example, just the other day I saw a new café opening in District 1 here in Ho Chi Minh City. The name of the café was Café Bene, an obvious takeoff of Coffee Bean. It’s so close, in fact, that if I were an IP ambulance chaser I would approach Coffee Bean and show them a picture. In Laos, there used to be an actual KFC, well, a fake KFC. It got shut down and the rumors said that the real KFC had something to do with it. Needless to say, the bigger the brand the more likely the imitation. For a full discussion of issues you have to consider when dealing with IP, particularly in advance of opening a franchise in Vietnam, take a look at Dan Harris’s blog China Law Blog article about the IP Issue. It’s all about IP in China, but the lessons learned are still largely applicable to Vietnam. And should that not be enough, we just received a service request from a company trying to proactively prevent an IP thief from successfully registering the mark even though the company isn’t even sure it wants to expand into Vietnam. So think IP is lesson number one.
Second, the Economic Needs Test (ENT). When Vietnam acceded to the World Trade Organization, the WTO, it put limitations on the participation of foreign capital in certain sectors of the distribution chain. By 2012 all of those limitations were removed, except for the ENT. The ENT is a method by which the authorities can approve or disapprove of any retail outlets in addition to the first and original outlet. That means that if you open a Krispy Kreme in District 1, the authorities can apply this ENT to determine whether you can open another Krispy Kreme in District 1, or even in Ho Chi Minh City. According to the WTO services commitments, the ENT examines the number of existing service suppliers in a particular geographic area, the stability of the market and geographic scale. While this would be enough, one would think, to allow for a transparent and fair decision making process, in 2007, Vietnam’s government issued a circular that added a criteria which has been much ballyhooed by detractors as creating the opportunity for secrecy and corruption on the part of decision makers. The criteria is that each new retail outlet will be considered on a case by case basis and that, specifically, the sustainability of the investment project to the plans of the province or city will be considered. This means that, if you are a franchisee hopeful then you have another obstacle to overcome. Make sure you talk to someone in the know before you buy territorial franchise rights because they may not allow you to open up stores in as many places as you’d like, unless of course it’s a coffee shop, in which case you can open on every other corner.
So those are the two concerns which concern me, at least at the moment. Admittedly I’m still reviewing my Vietnamese law after four years absence, but I’m done gorging myself on franchise food. I’m even thinking of eating salads. (Oh, and sorry for the long paragraphs. I’ll think shorter next month.).│