What is Franchising? A Legal & Strategic Guide for International Investors in Vietnam

When expanding into Southeast Asia, investors often begin by asking what is franchising in the context of Vietnam, a market where global models must adapt to local regulatory nuances. At TRAN & CO., we clarify not only the legal definition but the practical framework required to build a compliant and scalable franchise system. This guide distills Vietnam’s updated 2025 requirements, franchise structures, and key legal considerations to help investors enter the market confidently and strategically.

1. “What is Franchising?” – Global concept vs. Vietnam law

Before assessing market feasibility or designing an expansion plan, the first step is to understand the legal foundation: how Vietnamese law defines franchising and what franchise models are most suitable for international brands entering Vietnam.

1.1 The international standard

In jurisdictions like the UK, Australia, or the US, franchising is generally understood as a method of distributing goods or services based on a relationship where the Franchisor grants the Franchisee the right to use a brand, operate under a specific system, and in return, collects a fee.

1.2 The Vietnamese legal definition

When entering Vietnam, this concept is codified under Article 284 of the Commercial Law 2005. International investors must note a critical distinction: Vietnam law emphasizes “Control and Assistance”. To legally qualify as franchising in Vietnam, the relationship must include:

• Uniformity: The business is conducted according to the organizational methods determined by the Franchisor.
• Control: The franchisor has the right to control and assist the franchisee in the operation of the business.
• Legal Insight: If you grant the use of a trademark without controlling the business operations or providing ongoing support, it may be classified as a licensing agreement, not franchising. This distinction is vital for tax implications and liability structures.

2. How it works: Structural options for market entry

To fully answer “what is franchising” for your specific business case, we must look at the structure. Foreign brands particularly from Japan, Korea, and the US typically utilize one of the following models when entering Vietnam:

2.1 Master franchise

This is the most common vehicle for rapid expansion. The foreign Franchisor grants a local partner (the Master Franchisee) the exclusive right to the entire territory (e.g., all of Vietnam). Crucially, the Master Franchisee has the right to sub-franchise to third parties.

Strategic fit: Ideal for brands wanting to scale quickly while minimizing direct management overhead.

2.2 Area development

Similar to the Master Franchise, but without the right to sub-franchise. The partner commits to opening a specific number of units within a defined timeframe and territory.

Strategic fit: Suitable for brands that want to maintain stricter quality control and deal with fewer counterparties.

2.3 Single – Unit franchise

The Franchisor grants rights for a specific location only.

Strategic fit: Often used for luxury brands or initial market testing where location control is paramount.

3. Strategic benefits & Critical risks (A Comparative View)

While franchising offers rapid expansion with significantly lower capital investment, it also carries substantial risks if the parties lack standardized documentation or proper quality-control mechanisms. Below are the key advantages attracting global brands to franchising, and the most common risks observed in practice across Vietnam.

3.1 The benefits

Why do international firms choose franchising over direct investment?

• Capital efficiency (CAPEX): It allows you to expand using the partner’s capital (OPM – Other People’s Money).
• Local navigation: A local partner helps navigate bureaucratic hurdles, real estate challenges, and cultural nuances that a foreign CEO might miss.

3.2 The risks (The “legal shield” approach)

To expand safely in Vietnam’s fast-growing franchise market, investors must understand the hidden legal vulnerabilities that can undermine brand integrity and system performance. Before entering any partnership, assessing these risks through a “legal shield” approach is essential to protect your IP, enforce compliance, and maintain long-term control.

• IP leakage: The risk of a partner learning your trade secrets and then launching a copycat brand (“same business, different sign”) is a reality in emerging markets. Robust IP clauses are non-negotiable.
• System compliance: In Vietnam, enforcing “Standard Operating Procedures” (SOPs) can be challenging without a tightly drafted contract that includes clear penalties and termination rights.

4. Legal requirements in Vietnam: Bridging the gap

Unlike some Western jurisdictions where franchising is self-regulated, Vietnam maintains a strict regulatory framework for inbound franchising.

4.1 The “One-Year” rule

To be eligible to franchise in Vietnam, the foreign franchisor’s system must have been in operation for at least one year in its home country (or globally). This ensures the business model is proven.

4.2 Mandatory registration (Crucial for foreigners)

This is a common pitfall. While domestic franchising no longer requires registration with the Ministry of Industry and Trade (MOIT), franchising from overseas into Vietnam DOES require registration.

• Requirement: You must submit a dossier including the Franchise Disclosure Document (translated and notarized) and legal papers to the MOIT.
• Risk: Failure to register can render your Franchise Agreement void and subject to fines.

4.3 Disclosure obligations

The Franchisor must provide the prospective Franchisee with a Franchise Description (Disclosure Document) at least 15 business days before signing the agreement. This document mirrors the FDD used in the US but follows a specific Vietnamese statutory template.

5. Tran & Co. Advisory services

At Tran & Co. Attorneys, we support both international brands entering Vietnam and Vietnamese brands expanding globally. Our franchise practice is built on the principle that successful franchising requires legal clarity, strategic foresight, and operational alignment. We do not stop at compliance.

We design the legal foundation that enables sustainable market entry and long-term brand integrity. Our advisory scope mirrors the full lifecycle of your franchise journey:

• Market & legal feasibility
• Partner qualification & model selection
• Master franchise structuring & risk governance
• Bilingual franchise agreements & contract execution
• Franchise registration & regulatory compliance
• IP protection & brand integrity management
• Outbound franchise readiness for global expansion

6. Conclusion 

Whether you’re opening your first unit or planning a multi-territory master franchise, TRAN & CO. is the legal partner that guides you from strategy to execution with clarity and confidence. Connect with us today to expand in Vietnam on a foundation of legal certainty and strategic insight and let TRAN & CO. help you navigate what is franchising in this market, ensuring full compliance and long-term success with a clear understanding of what is franchising.

Contact information:

• Address: 34th Floor, Landmark 81, 720A Dien Bien Phu Street, Ho Chi Minh City, Vietnam.
• Hotline: +84 765 888 168
• Email: info@tranandcolaw.com
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