VietNamNet Bridge - Franchising has become popular in many business fields in South East Asian countries, but not in Vietnam.

Graduating from a pharmacy school five years ago, with a practice certificate and capital of VND300 million, Nguyen Ngoc Hien wanted to set up a drugstore of her own. 

However, she wavered between running a small drugstore with her own capital and building a large modern store which requires huge investment capital of nearly VND1 billion.

If she ran a small drugstore, she would have to compete fiercely with counterparts. In HCMC, there are at least 4-5 small drug stores operating in every residential quarter. The expansion of modern professional drug distribution chains has adversely affected the operation of small stores.

Franchising has become popular in many business fields in South East Asian countries, but not in Vietnam.

As the Ministry of Health is tightening control over drugstores by setting up stricter requirements, small drugstores have to either make heavier investments to upgrade their stores, or join existing drug distribution chains.

In mid-2016, the 60th store of Phano drug distribution chain was inaugurated in HCMC. This was the first pharmacy shop operating under the mode of franchise.

Vietnam’s drug market is not smaller than the Philippines, but Vietnam lags behind the Country in number of modern drugstores. The Philippines now has five drugstore chains which have been expanding rapidly through franchises. 

According to IMS Health, the Vietnamese drug market would have value increasing from $3.3 billion in 2013 to $10 billion by 2020. However, the attractive growth won’t be reserved for businesses with small capital like Ngoc Hien.

It is also difficult to conduct franchising in the tourism sector, though the market has been developing well. There was only one noteworthy franchise deal in the last few years – the one between Lufthansa City Center (LCC) and Global Holiday Tour (GHT) in HCMC.

Luu Dinh Thinh, managing director of GHT, said he decided to join LCC’s global network because he realized that the competition among businesses is getting tough.

Joining LCC not only helps GHT get more clients from Europe but also allows it to take full advantage of the LCC’s network in 87 countries. 

Thinh commented that once the competition becomes more fierce and the market needs professional travel firms meeting international standards, franchising in the tourism sector will be more popular.

However, he thinks the franchise will not be ‘prevalent’ because of the high franchise fee and Vietnamese businesses’ hesitancy to reform.

GHT, for example, had to pay $10,000 in fees for the first year to join LCC.

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Chi Mai