By Sean T. Ngo

CEO and Co-Founder

VF Franchise Consulting

Franchising is no longer new in Vietnam. All one needs to do is look around. A Starbucks here, a Lotteria over there, and KFC, and Domino’s seem to be everywhere. Local franchises such as Toco Toco, InXpress, Highlands Coffee, Trung Nguyen, and Gong Cha also abound. 

In fact, according to the Ministry of Industry and Trade, there were nearly 280 foreign brands registered in Vietnam at the beginning of 2022, and likely a handful of others were in the queue. Vietnam’s franchising market is catching up to its neighbors, where the number of foreign brands can double or even quintuple the number of brands here. 

While the amount of franchises entering the market continues to climb, it’s not without its dangers. Many brands have come and gone (e.g. Subway, Gloria Jean’s Coffee, and NYDC). Some international big-box retailers such as Metro, Big C, and E-Mart exchanged hands, with the original owners departing Vietnam. However, a few of these same brands have chosen to re-enter the market with different partners. Perhaps the second time’s the charm!

The factors leading to the failure of international brands in the domestic market include but are not limited to higher rental rates, lack of adequate modern retail locations, inefficient supply chain, pricing pressure, and ineffective or insufficient marketing, management, and operational expertise. 

While some experts point to inflated pricing as the main problem, it’s not always the case. Look no further than record sales of Louis Vuitton bags, Rolexes, Rolls Royces, H&M apparel, and Apple and Samsung products, and one can see that branded products can compete well. 

Brands need clear differentiation. 

The renowned Harvard professor, Michael Porter, introduced his Generic Strategies over three decades ago that outlined how companies can compete effectively in most markets. One strategy is based on cost leadership, and the other is based on differentiation. Any market can be segmented into numerous sub-segments. Businesses can choose to compete in any of these based on cost leadership or differentiation, and occasionally, they can straddle both areas precariously.

Choosing a cost leadership focus is a difficult strategy as it relies on your business being the cost leader; and, in any given market, there can only be one business on top. A few good examples of this cost leadership strategy are Walmart and Little Caesars Pizza. Both are considered value chains around the globe. There’s never a need to wait for products to be discounted because their whole concept is “everyday low prices.” This strategy helps wean consumers from waiting for sales and allows them to buy products and services when the need arises. This is the reason that services akin to Groupon are not well-liked by retailers and F&B establishments worldwide because they condition consumers to wait for sales.

On the other hand, there are unlimited ways for companies to differentiate themselves from their competitors so that they aren’t always being driven to cut costs at any cost. In fact, it may be important to keep prices higher to help strengthen the brand’s perceived value and positioning in the marketplace.

Highly differentiated and branded products and services generally command high pricing and, more importantly, higher margins. How can Starbucks charge $5 for a drink despite many local Vietnamese coffee shops offering similar products for a fraction of the price? The answer is that they’re not selling the product by itself, but rather the Starbucks experience. Other examples of highly differentiated brands include Habit Burger and Grill, Jaggers, Bricks4Kidz, Logiscool, International Canadian Academy, and countless others. 

Being successful in Vietnam requires a clear focus on your strategy along with managing the challenges of other critical success factors. The best business practice in today’s market is simply to differentiate and multiply.

Author: Sean T. Ngo is the CEO and Co-Founder of one of Asia’s leading franchise consultancy, VF Franchise Consulting. He is Vietnamese American and has been happily based in Vietnam for over 17 years. You can reach him at sean@vffranchiseconsulting.com or info@vffranchiseconsulting.com

 

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