Developing a Franchise Business in Vietnam - The case of Pho 24

VIETNAM NATIONAL UNIVERSITY, HANOI
SCHOOL OF BUSINESS




Bui Thi Thanh Tam



DEVELOPING A FRANCHISE BUSINESS IN VIETNAM
THE CASE OF PHO 24




MASTER OF BUSINESS ADMINISTRATION THESIS








Hanoi – 2010
VIETNAM NATIONAL UNIVERSITY, HANOI
SCHOOL OF BUSINESS

Bui Thi Thanh Tam



DEVELOPING A FRANCHISE BUSINESS IN VIETNAM
THE CASE OF PHO 24



Major: Business Administration
Code: 60 34 05


MASTER OF BUSINESS ADMINISTRATION THESIS


Supervisor:
Dr. Hoang Anh Tuan
MBA, Ha Nguyen




Hanoi – 2010

TABLE OF CONTENTS
ACKNOWLEDGMENTS ………………………………… ……………… ………i
ABSTRACT ……………………………….………………….……………… …… ii
TÓM TẮT …………………………………… ………………………….…….…… iv
TABLE OF CONTENTS ……………….……………………………………… …….vi

LIST OF ABBREVIATIONS ………… …….………………………………… ……ix
LIST OF FIGURES AND TABLES …………… …….…………… ……………… ix
INTRODUCTION ……………………………………………………………… …… 1
1. The thesis title ………………………………………………………………… … 1
2. The thesis necessity ……………………………………………………………… 1
3. Objectives …………………………………………………………………………. 2
4. Methodology……………………………………………………………….………. 2
5. Data sources ……………………………………………………………………… 2
6. Significance ………………………………………………… ………………… 3
7. Expected results ……………………… ………………………………………… 3
8. Limitations ………………………………………………………………………… 3
9. The thesis structure ………………………… ………………………… 3
10. Suggestion for future research …………………………………………………… 4
CHAPTER 1: LITERATURE REVIEW…………………………… ……………… 5
1.1. Overview of Franchise………… ………………………………………………. .5
1.1.1. The concept and definition …………………………………………… 5
1.1.2. History and Evolution of Franchise…………………………………….6
1.1.3. Basic factors for developing a Franchise system ………………………8
1.1.4. The Process of Franchising ……………………………………………12
1.1.5. Control franchising system…………………………………………….15
1.2. Classification of Franchise models……………….……………………….…… 16
1.2.1. Full business format franchise ……………….…………………… 17
1.2.2. Non- business format franchise …………… ………………………. .17
vi

1.3. Method for developing Franchise system ………………………………………. 18
1.3.1 Master franchise ………………………………………….….… …… 18
1.3.2. Single – Unit franchise ……………………….…………… ………. 20
1.3.3. Area development franchise…… …………….……….…… ……… 22
1.3.4. Joint venture ……….……………………………….………… ……. .23

1.4. Signification for Franchise Business……….…………………………….………. 25
CHAPTER 2: AN OVERVIEW OF THE FRANCHISING BUSINESS IN VIETNAM
…….… ………………………………………………………………………… … 27
2.1. Legal Framework Franchise in Vietnamese …………………….…………….… 27
2.2. The Business in Vietnam ……………………………………….…… ……… 28
2.3. Factors that influence of franchise activities …………… ……………………. .34
2.4. Tendency and challenge of developing in form of Franchising at Vietnam
business …………………………………………………………………………38
2.4.1. Tendency of developing in form of Franchising at Vietnam
business ………………………………………….…………………… 38
2.4.2. Risk and Challenge of developing in form of Franchising at Vietnam
business …………………………………….…………… …………… 41
CHAPTER 3: THE CASE OF PHO 24 …… ………….……… … 46
3.1. Company profile ……………………………………….…………….………… 46
3.2. Basic factors for developing a Franchise system ………………… ……………51
3.2.1 Brand name ………………………………………….………………… .52
3.2.2 Marketing effort ……………………………………….… …………… 54
3.2.3 Management people ………………………………… …………….… 55
3.2.4 Location………………………….………………….…….…… …… .56
3.2.5 An operation manual of Business and Instruction material business action
…………………………………… ………………………………… 57
3.3. Achievements and challenge of Pho 24 …………………….…………………….60
3.3.1. Achievements of Pho 24……………………… …………………… 60
3.3.2. Challenges of Pho 24…………………………… ………………… 61
3.3.3. Action plan of Pho 24………………………… …………………… 62
3.3.4 Advice for Pho 24……………………………… … ……………… 64
vii

3.4 Solutions for Developing a Franchise Business in Vietnam and Recommendation to
the Government ………………………………………….……………………….……65

CONCLUSION ……………………………………….……………………………… 70
REFERENCES ……………………………………………….……………… ……. .71
APPENDICES ……………………………………………………………… …… 73
Appendix A: Franchise Statistics – Why does people buy franchise …………… 73
Appendix B: Ranking of motivational incentives to enter franchising …………… 75
Appendix C: Co-Founder and CEO’s Pho 24……… ……………………….………. 76
Appendix D: Development process ………… ……………………………… ……. 78
Appendix E: Pho 24’s Restaurants ……………………………………….…… ……. 80


viii

LIST OF ABBREVIATIONS
WTO World Trade Organization
UFO Unit Franchise Organization

LIST OF FIGURES AND TABLES

Figure 1.1
Figure 1.2
Figure 1.3
Figure 1.4
Figure 3.1
Table 3.1
Table 3.2
Master Franchise …………………… …………………17
Single – Unit Franchise 19
Area Development Franchise ……………….……… … 20
Joint Venture ………………….………… ….……….…21
Development Processes ………………….……. ….…….47

Choosing factors affect Pho 24…………………… … 49
Factors for Pho 24………………………………………. 56

ix

INTRODUCTION
1. The thesis title
DEVELOPING A FRANCHISE BUSINESS IN VIETNAM
THE CASE OF PHO 24
2. The thesis necessity
Franchise, one of the methods to develop businesses, is very popular but still new in
Vietnam. The global integration creates new opportunities and challenges to the
Vietnamese. Foreign companies will have more opportunities to penetrate
Vietnamese market and Vietnamese enterprises also have opportunities for
development abroad as well. Therefore, popular model business in the world will
have opportunities to develop in Vietnam, and also business development in form of
franchise is not an exception case.
Franchising is considered to have many advantages for both sides in run
franchising. After joining WTO, Vietnam has become a potential market for
franchise. In fact, Franchising business in Vietnam has developed rapidly in recent
years and information about franchise is more and more popular. Moreover, the
knowledge of franchise still limited to the Goverment, business and consumer
sector. A research on how franchise business work effectively is therefore useful for
companies, as a consideration to expand their operation.
This thesis is to build appropriate franchise business For Pho 24 Restaurant’s
development. The research has also added value to the method franchise that useful
for business development, by giving recommendations and proposing an action
plan, which can be applied in franchising business in Vietnam.
For this reason I choose thesis topic: “Developing a Franchise Business in
Vietnam - The case of Pho 24”

1
3. Objectives
The objective of the thesis is given the theoretical basis of the franchise, analyze the
reality franchise in Vietnam recent year; Using the tools and knowledge gathered to
analyze evaluate, the case of Pho 24. In addition to propose a solution and action
plan to help enterprises successfully applied the strategy of choice, thesis offers
some recommendations to the State in planning and management to sustainable
development the reality franchise in Vietnam.
4. Methodology
This thesis applies the case study to franchisor Pho 24 Restaurant. The research has
been prepared mainly through desk research, not analyze financial norm, only
reviews of available literature and data through fourth basic steps:
First step is to review theories of franchise. The study focuses on the literature
view of existing approaches to franchise definition and some basic factors that
effect to franchise business.
Second step is based on the research of franchisor in Vietnam and finds out specific
factors that influent the business success.
Third the case study of Pho 24 is analyzed, show the advantage and disadvantage in
franchise business development. This analysis allows giving some basic solution
and recommendation for business development in form of franchise in Vietnam.
5. Data sources
The theoretical review and collection of secondary data has been performed by
research of books, reports, newspapers. The primary data was collected through
internet and interviews with Pho 24’s managers in many newspapers in recent
years.

2
6. Significance
By reviewing the theory of Franchise and understanding the impacts of business
environment, the thesis benefits Pho 24 Restaurants Franchise. This theoretical
approach can be applied or choosing good points in cases of other companies using
franchise method to develop business.
7. Expected results
The result of this thesis is to give basic solutions for franchisor’s Pho 24 Business
and for further business development in form of franchisor in Vietnam Business.
The methodology is expected to be effectively applied in the case study of other
companies in franchising
8. Limitations
The study is limited in the sense that just a small business with the wide field in
market and this thesis only research on desk study, not analyzed about financial
norm of company so the applying this on other business will be limited.
9. The thesis structure
The thesis is started with the introduction part, following by three chapters and the
conclusion part.
Chapter 1: Literature Review – This chapter provides a fundamental review of
franchising
Chapter 2: An Overview of Franchising Business in Vietnam – This part analyses
the reality for Business development in form of franchise in Vietnam.
Chapter 3: The Case of Pho 24 – The chapter presents the case of Pho 24
Restaurant and analyzes its environment to give some advises to develop Pho
24. The chapter also suggests sollution and recommendations to the Government on
developing a franchise business in Vietnam.


3
10. Suggestion for future research

The rapid change of basic factors, competitive tends, like technological advances,
law, and customer’s lifestyle, creates both opportunities and challenges to the
franchise field and Pho 24 Company. Therefore, it could be interesting if further
research with larger sample size could be undertaken to confirm fully the finding of
this study.












4
CHAPTER 1
LITERATURE REVIEW
1.1 Overview of Franchise
1.1.1 The concept and definition.
The word "franchise" is derived from the Anglo-French word meaning “liberty.” In
Middle French, it is “franchir”– to free. In Old French, it is “franc,” signifying free.
The French term “francis” means granting rights or power to a peasant or serf. The
English term “enfranchise” is defined as empowering those who have no rights. The
term “Royal Tithes” is the predecessor of royalties, and originated as the practice of
certain English men (referred to as “freemen”) receiving a percentage of the land
fees paid by serfs to nobility
1

. Throughout history, franchising has promoted
economic liberation, synergy, and opportunity, and has been true to its etymological
roots – “freeing” commerce from many of the traditional chains that had bound it.
Naisbitt’s
2
famous comments in Megatrends is no exaggeration – “Franchising is
the single most successful marketing concept ever.”
Franchising is one of the only means available to access venture investment capital
without the need to give up control of the operation of the chain in the process.
After the brand and formula are carefully designed and properly executed,
franchisors are able to sell franchises and expand rapidly across countries and
continents using the capital and resources of their franchisees, and can earn profits
commensurate with their contribution to those societies while greatly reducing the
risk and expense that would be inherent in conventional chain operations.
So the franchisor
3
owns the overall rights and trademarks of the company and
allows its franchisees to use these rights and trademarks to do business. The

1
Robert L.Purvin, Jr., The Franchise Fraud (1994), at p.40(Hereinafter “Purvin”)
2
John Naisbitt (b. January 15, 1929 in Salt Lake City, Utah) is an American author and public speaker in
the area of
futures studies. His first book Megatrends was published in 1982
3


5
franchisor usually charges the franchisee an upfront franchise fee for the rights to

do business under the franchise name. In addition, the franchisor usually collects an
ongoing franchise royalty fee from the franchisee. Franchisee is the person or the
entity which has acquired the rights of conducting the business from the franchisor
or licensor.
This part provides a brief timeline of developments franchising, the basic factors for
building a franchise system, classification of franchise models and finally,
signification for franchisor businesses.
The Vietnam Commercial law No 36/2005/QH11 passed in June, 16 2005 said:
“Franchising is a commercial action; in there franchisor allows and requests
franchisee trade goods, support services according to some conditions:
9 Trading goods and support services was made available by franchisor
that was fixed and it is stick on trade mark, brand name, logo, slogan
and business key, advertising of franchisor.
9 Franchisor has power to control and help franchisee in running
business.”
4

So natural of franchise is one business transfer business model in order to distribute
goods, services for partners but they still keep basic norms of model and satisfy
right of both side.
When they joint in franchise, they have agreement together and make transfer
contract with simple terms about responsibility and authority of each side.
1.1.2 History and Evolution of Franchise
Franchising dates back to the 1850s;
Isaac Singer, who made improvement to an
existing model of a
sewing machine, wanted to increase the distribution of his
sewing machines. His effort, though unsuccessful in the long run, was among the
first franchising efforts in the United States. A later example of franchising was

4
Vietnam Commercial law No 36/2005/QH11,. pp 72

6
John S. Pemberton's successful franchising of Coca-Cola. Early American examples
include the
telegraph system, which was operated by various railroad companies but
controlled by
Western Union, and exclusive agreements between
automobile manufacturers and operators of local dealerships.
5
Modern franchising came to prominence with the rise of franchise-based food
service establishments. This trend started before 1933 with quick service restaurants
such as
A&W Root Beer. In 1935, Howard Deering Johnson teamed up with
Reginald Sprague to establish the first modern restaurant franchise. The idea was to
let independent operators use the same name, food, supplies, logo and even building
design in exchange for a fee.
The growth in franchises picked up steam in the 1930s when such chains as Howard
Johnson's
started franchising motels. The 1950s saw a boom of franchise chains in
conjunction with the development of the U.S.
interstate highway system. Fast food
restaurants, diners and motel chains exploded. In regard to contemporary franchise
chains,
McDonald's is unarguably the most successful worldwide with more
restaurant units than any other franchise network.
According to Franchising in the Economy, 1991-1993, a study done by the
University Of Louisville, franchising helped to lead America out of its economic
downturn at the time. Franchising is a unique business model that has encouraged

the growth of franchised chain formula units because the franchisors collect
royalties on the gross sales of these units and not on the profits. Conversely, when
good jobs are lost in economy, franchising will be chosen because potential
franchisees are looking to buy jobs and to earn profits from the purchase of
franchise authority. The manager of the United States
Small Business
Administration
's Franchise Registry concludes that franchising there is continuing
to grow and that franchising is growing in the national economy.
Franchising is a business model used in more than 70 industries and that generates
more than $1 trillion in U.S. sales annually

5
i/en/Franchising

7
1.1.3 Basic factors for developing a Franchise system
Franchise system almost belongs to big and famous company like McDonald, KFC,
Starbuck coffee . . . In order to do a franchise business, a company will need to
register its intangible properties such as trademarks, logos, etc. . . .protection Based
on this, businesses can develop fame, and prestige with consumer, and make
attractive of customer for their brand name.
In addition Moreover, in order to make franchise system, we not only base on the
fame of business and attractive of products but also the other things as:
9 An operation manual of Business and Instruction material business action.
9 Training program for franchisee
9 Preparing human resource for development business
9 Standardize norm of system and give norm to choose business premises or
franchisee
1.1.3.1 Developing operation manual of Business and Instruction material

business action.
One importance specific trait of business in form of franchise is that franchisor has
to comprehensive standard product, operation style, arrangement way, standard
serve in all systems . . . so, franchisor has to build operation manual for them.
Business’s operation manual is a document that is written down by the most
importance things of businesses like: business philosophy, detail instructions to
manage each part, each line, and each work of store. This operation manual also
helps franchisee run business comprehensively with overall system. Franchisee
must obey exactly all assigns in business operation manual. The content of
operation manual can change follow business developing but usually franchisor will
have power to change and add it. Franchisee can request to change and add the
operation manual and it will be changed if franchisor accepted.

8
Major contents of action operation manual need to mention include:
¾ Information relates authority and duty of franchisee.
¾ Assign about information advertising
¾ Assign about staff clothing
¾ Work process for each department and each staff.
¾ Sale, marketing and problem solving processes
¾ Recruit staff
¾ V v v . . .
Drafting a operation manual need to be detail, full information and easy to
understand. It will guide for daily activities of the store. It also becomes criterion to
evaluate and control all actions of a partner who wants to buy franchise. This
operation manual can be made in form of video clip and picture in order to help
franchisee easy to refer and mimic.
Although operation manual is not perfect ensure for synchronism of system, but it is
an importance factor help franchisor running system is perfect.
1.1.3.2 Training program for franchisees

In the fact that franchise system ask business has to transfer the right of exploiting
business for partner not only to collect money franchise but also expect to try
partner best. Contrary to the franchisor, franchisee is not only collect money
immediately but also adventure investment activity business like other investments.
Signing franchise contract between two sides will be profitable and make business
activity of system more and more developed. So franchisor must design a system
work clearly, concrete, unity in order to make advantage factors for franchise
system that was sold.
Training for partner who buys franchisee has indispensable need. Law systems of
other countries, also request that franchisor must have duty in training, supporting

9
for franchisee. Each business has contents, style and different trainings program.
This maybe opens Training School, or send staffs come to origin stores or delegate
experts training directly at business. The purpose of trainings program is that store
manager and staffs have knowledge to run store well.
This trainings program has been divided two basic ways:
¾ Trainings before opening store: This action has been accompanied
with transfer document and run with owner of business and all staffs
before franchisee received franchise.
¾ Support trainings when store run: it has been run when any store was
mistake, and also maybe enhance skill for staffs of franchisee. It is
concurrent happened when have new business problem that franchisor
want to add.
The trainings fee is collected in initial franchise fee when partner buy franchise,
moreover it can be changed or depend on the concrete conditions of contract.
1.1.3.3 Preparing human resource for developing business
Until now we have seen the role of human resource in general business and running
business in form of franchise is not exception. We can say that business can not
develop operation business if does not have good human resource. Similarity, in

franchising that require about staffs must interest specially and develop following
ask of action plan.
Business has to evaluate human resource in order to serve development
requirement. After that business see weakness, how to short of in order have
recruitment plan meet real demand of business. Moreover franchise is new field in
many countries and different from other activity business so business must have
detail plan for recruitment as well as trainings staffs with full franchise knowledge,
to satisfy development strategy of business.

10
Once franchisor must have trainers for franchisee and support them usually to help
partner successful and enhance position of business. So the number of staffs will be
increased and the most importance things is that staffs have enough professional
skill to ensure for transferring and control identical system. If not the franchise
transfer will not successful and have bad effect to brand name of franchisor or
franchisee.
1.1.3.4. Standardize norm of system and give norm to choose business premises
or franchisee.
The nature of franchise is supply model, secret business . . . for partners in order to
successful quickly. So standardization norms of system are very necessary to
building handbook and trainings program make the unity of system. Franchisor has
let some norm of system as:
9 Standardize services, products: include qualitative, quantitative and
build formula, technology process.
9 Standardize premises condition: make some norm about location,
area, decorative.
9 Standardize document: some text, instruction, regulations . . . in order
to make transfer-document, trainings . . .
9 Build norms to choose partner: include norm that define right strategic
partner to meet corporations

9 Standardize about check activity, supervisor, evaluate, report . . .
Standardize all norms will good for choosing space, and partners, transfer-trainings
of system. This work more detailed more ensure for successful of franchisee and
building fame for all franchise system.
Choosing business point is an importance factor in helping business activities
effectively. If franchisor was not evaluated right point, franchisee was failing not
only influence themselves but also influence fame of system. So to do this well,

11
franchisor should consult for franchisee about how to choose good business point.
Some business has the advantage about finance, they usually corporate real estate
company in order to let franchisee rent business point.
Similarly, let the standard for franchisee was very importance also. Franchisor has
to define which entrepreneur’s samples have enough able to success when transfer-
franchise. Some entrepreneur’s norm or franchisee can include field:
9 Good finance to satisfy business conditions.
9 Prestige level in business
9 Business experience: no need to have experience but franchisee should has
experience that is very advantage in enterprise.
9 Corporate goodwill
9 Business premises or able to find business premises.
1.1.4 The Process of Franchising
The first step in franchising a business is to make the decision to franchise. That
involves two key questions:
9 Is this business franchisable?
9 Is franchising the right strategy?
These questions can only be answered after evaluating your business and
determining how franchising fits with your specific goals and objectives.
If the decision to franchise is made, a franchisor should develop a business plan
outlining the company's growth and strategy for the next five years. A franchisor

needs certain new capabilities and will need to be sure that these capabilities are
seamless integrated into existing organizational functionality.
To ensure successful franchisees and maintain quality control, the franchisor will
need to develop a state-of-the-art operations manual for its franchisees. This manual
will serve as a sales tool demonstrating franchisor competence to new prospects, as

12
a training guide for new franchisees, as a reference guide for established
franchisees, as a "liability limiter" for the franchisor, and as a legally binding
quality control device for the entire chain.
The franchisor should also develop training programs for use in conjunction with
the operations manual. Computer-based tools and programs are highly effective, as
are training videotapes, and can be used for the franchisee, for the franchisee's
employees, and for corporate employees.
To be legally entitled to sell franchises, the franchisor will need to develop a
franchise agreement and a Uniform Franchise Offering Circular, and will need to
file with appropriate state authorities on a national basis. The franchisor will also
need to maintain ongoing compliance (keeping registrations in force while actively
selling) and will need to be able to document compliance with state and federal law
on an ongoing basis. These legal requirements are relatively easily met through the
use of an attorney with substantial franchise experience.
6

Obviously, the new company will also need to sell franchises. This will require a
specific marketing plan designed to get the franchisor's message to the targeted
franchise prospect.
Once the prospect has been identified, the franchisor will also require marketing
tools to assist it in the sale of franchises. And of course, the franchisor will need to
understand the nuances of the sales process and the legal constraints of franchise
sales.

The tools necessary for franchising can be developed in approximately three months
from the completion of the implementation plan, although state registrations may
delay a company's ability to sell in certain states for another three to four months.
Altogether, a new franchisor can anticipate that the franchise program should take
between six months and a year to fully implement. The cost of a well-designed

6
Pacific Franchise Developing Corp (2009), , Knowledge about franchise

13
program varies substantially, depending on the strategy chosen and the desired
speed of expansion.
So when developing a franchise program for a business entering the franchise
industry, there are several essential steps that need to be taken in order to effectively
model the franchise concept, protect the franchisor and have a solid, duplicatable
franchise model.
Franchise Business Plan - The first phase of franchising a business is to develop a
sound plan for the expansion program. Prior to the drafting of any documents, the
plan for the program should be completed and approved by all those involved in the
franchise system. This plan should include a good profile for the target buyer of the
franchise system, a well-defined franchise fee, royalty and advertising fund model
and a financial model that makes sense for both the franchisor and the franchisee.
The Franchise business plan should document and define a model that also builds a
territory plan for the franchise model along with training programs for franchisees,
a support model for the franchise system and a good cash flow model for the new
organization. The plan should encompass the entire proposed franchise model and
cover every element of the new business.
Franchise Legal Documentation - In order to offer frnachises in the United States
and within most state borders, a Uniform Franchise Disclosure Document needs to
be documented based on the standards set forth by the Federal Trade Commission.

This document is complex and unique, it should be documented by a professional
with specific experience in franchising. The State Registration process requires
individual franchise application packages along with other required steps that States
will want a new franchise system to go through prior to their being permitted to
offer a franchise within the State borders. Franchise legal documentation should be
put together in a way that is conducive to doing business as a franchise company,
but also provides the franchisor with thorough protection and documented
compliance.

14
Franchise Operations Manual - As part of the franchise development process, a
franchise system should have a fully documented and defined operations system
that allows the franchisee to learn the business model and understand the required
standards as set forth by the franchisor. The Operations Manual should be effective
as a sales tool for the franchise model, a legal liability limiter for the franchisor and
a training tool for the franchisee. There should also be manuals that are more
guided for training purposes and cover specifics within the franchise business
model.
Franchise Marketing Program - The final stages of the franchise development
program should incorporate the marketing element of the franchise process. The
franchise marketing plan should incorporate the channels with which the franchise
will be marketed and sold, the media outlets and lead generation sources that will be
used and the unique value proposition for the franchise concept. Franchise
collateral material such as brochures, pamphlets, fliers should correctly sell the
business as an opportunity for potential franchisees.
Good franchise programs take work, focus and a commitment to structure. It is
strongly recommended that a company considering this transition into franchising
consult with professionals in the field of franchise development.
1.1.5 Control franchising system
Franchise Management allows franchises to improve quality, efficiency, accuracy,

and communication through management of information and relationships
pertaining to: stores, owners, agreements, training/certification, evaluations, and
defaults.
Training is key to ensuring adherence to the franchise model. Franchisees are said
to have a greater incentive than direct employees to operate their business
successfully because they have a direct stake in the start up of the franchised
business and the tangible assets that wear the brand name.

15
With proper training, the need of franchisors to closely scrutinize the day to day
operations of franchisees (compared to directly-owned outlets) is significantly
reduced.
However, key to the success of any franchise model is the assurance that all
franchisees are following the ‘business model' and standards are met to the same
consistency across the franchise network. Franchisors often offer franchisees
training. Training is not always free for franchisees, it is
sometimes supported
through the traditional franchise fee that the franchisor collects and tailored to the
business that is being started.
When training fees and travel expenses, etc. are required beyond the initial
franchise fee, these fees are deductible as part of the start-up expenses of the
business. It is also common for the franchisor to charge for ongoing training
requirements and documentation to ensure that standards are maintained.
A franchise-focused learning management system (LMS) is the logical solution to
help franchisees with both initial and ongoing training.
Beside of that there have many way to control franchising systems like:
9 Performing audits of Franchisee to ensure compliance with quality standards
and adherence to the Franchisor Business Model.
9 Franchisor should use Full business franchise model, it easy to make
franchisee follow same stardard, make sucessful chain business.

9 Ensure best practice and knowledge sharing across Franchise Network.
9 Placing manuals and other important documents in electronic format with-
out making them downloadable or printable to protect Franchisor Intellectual
Rights. .
9 Ability for Franchisee Managers to pay for training on behalf of their
employees.

16
9 Enterprise wide reporting for Franchisor and Master Franchisees to report on
training certifications
1.2 Classification of Franchise models
7

Franchising definitions were understood like business developing method but it has
wide scope with many different ways. Base on investment limit and control,
franchising is divided by two basic types:
¾ Full business format
¾ Non-business format
1.2.1 Full business format franchise
That mean the franchisor will transfer their entire Business model for franchisee.
This will be known as “Copy” all standard business models for franchisee. With this
model, identical of system will be very high. Franchisor will transfer four basic
fields:
9 Strategic system, business model, process in order to run management
policy, manages training, design . . .
9 Business key, technology
9 Brand name system
9 Product, service
Franchisee has to pay all initial fee expenses, expenses monthly depend on business
condition that was agreement in contract. This model allows firm run franchise has

initial suitable expenses, control limit is higher and able to wide open size is good.
This format franchise was best close structure and perfect in formats franchise, that
was show the corporation of partners and contract time from 5 years to 20 – 30

7
Lý Quý Trung (2006), Buy Franchise, new opportunities for Vietnam business, Publishers young, Ho Chi
Minh city

17
years like fast food line as: KFC, Subway, McDonald’s, Starbucks or Pho 24 in
Vietnam
1.2.2 Non- business format franchise
Franchisor only transfers a few elements in order to ensure success of business type
that was owner by franchisor. Usually have some cases:
¾ Product and service distribution franchise like: Pierre Cardin Shirt for
An Phuoc, Foci, Trung Nguyen coffee
¾ Formula for produce and marketing franchise or Marketing franchise
like: Coca Cola;
¾ Brand franchise or trademark license like: Crysler, franchise using
trade make Hallmark (main product is card) to produce like bed,
mattress, pillow. .
¾ Franchise not tide with kind using banner grouping or voluntary
chains, that usually meet in professional service company, consultant
company like: Ernst & Young, Grant Thornton . . .
With limit is not enough, franchisor will decrease some expenses and reduce human
resource demand to develop system, able to fast develop business network
themselves. But to control identity of system is decline. Income of franchisor is
based on selling product and service mainly, and franchisee reduces a lot of
expenses for buying franchise but reduce also successful support in business.
This model is used for businesses which want to take all advantages of time to wide

open size and market that still fewer competitors
1.3 Method for developing Franchise system
8

There are four major for developing franchise system below:

8
Lý Quý Trung (2006), Buy Franchise, new opportunities for Vietnam business, Publishers young, Ho Chi
Minh city

18
¾ Master Franchise
¾ Single – Unit Franchise
¾ Area Development Franchise
¾ Joint Venture Franchise
1.3.1 Master franchise
This is an investment business model that has been developed and continues to
expand because the permission has been granted. The business is free to establish in
one specific location or it can be freely expand around the world
In this method franchisor buy development authority store chain of them to
franchisee in fixed territory and this partner can buy again for other partners in area.
In this method, franchisee has all power to develop system to all over the market
and franchisor will receive a fixed fees according both agreements and the way to
develop in where, when, how? . . . It depends on the partner buy franchise.
Usually franchise fees depend on the ability to negotiate of both sides franchise but
it can be limited from $ 50.000 to $ 1 million. Franchisor persuaded franchisee that
set up the high fee that means them loosen chance to open new store or sell for third
person when they sell franchise. Other hand, franchisor must have a suitable
compensate.
For example, one group corporation between banks and investment fund has signed

a contract to buy master franchise of Europcar brand name in order to provide a
monopoly service for car rental in Australia and Asia Pacific Ocean. This
corporation bought all franchise stores of Europcar at nine national included:
Indonesia, Malaysia, New Zealand, Pakistan, Sri Lanca and Singapore; and found
new legal person: Europcar Asia Pacific. This agreement makes Europcar Asia
Pacific monopoly business Europcar brand in 20 national where this brand not yet
appears. Outside Europcar Asia Pacific also have right sell for anyone in local
where they monopoly.

19