The State of Franchising in the World

The entire chapter 1 provides an overview of franchising activities in general. The concept of franchising is presented with a number of different definitions, showing that this is an activity involving the franchisor and the franchisee, with the franchise of using the brand, business model, etc., and the franchisee must pay a fee to the franchisor. Learn about the characteristics of franchising, its role as well as its different forms depending on the basis of division to better understand the nature of franchising. Currently, there are a number of other business activities that have similarities with franchising but are essentially different business activities. At the same time, this chapter also mentions the benefits and limitations of franchising for the parties in particular and the socio-economy in general, thereby taking note when operating to promote the positive aspects and avoid the negative aspects that franchising brings.

CHAPTER II: CURRENT STATE OF FRANCHISING ACTIVITIES IN VIETNAM

I. The situation of franchising activities in the world

1. General comments on the current status of Franchising activities in the marketworld.

Franchising is considered to have originated in the United States in the mid-19th century. Revenue from franchising in the world in 2000 was about 1,000 billion USD with about 320,000 businesses from 75 different industries and is increasing at a rate of nearly 8%/year. Compared to Vietnam's GDP in the same year, this system is more than 28 times larger and has shown signs of surpassing in recent years. Annual revenue from franchising in the world is over 2,000 billion USD, more than double that of 2000 and creating more than 20 million jobs 3 . According to statistics from the World Franchise Council, the development potential in this field in many continents around the world continues to increase in the coming years. Currently, Asia is the continent with the fastest franchise development rate in the world, followed by Europe, America, Australia and Africa.

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Africa. The three leading countries in the world in franchising business today are China (with about 2,100 franchise systems), the US (with about 1,600 systems), and Japan (about 1,100 systems) 4 .

In the United States, 90% of franchises remain in business after 10 years, while 82% of independents close, and only 5% of franchises fail in their first two years, compared with 38% of independents . 5 According to 2001 statistics from the Association of Franchises

International franchise currently has 767,483 franchise contracts with a profit of 1,530 billion USD/year, creating jobs for 9,797,117 people, accounting for 40.9% of retail sales. There are more than 550,000 franchise stores and there is a store every 8 minutes.

3 Nguyen Khanh Trung (2008), Franchise – Choose or not? Page 71, Ho Chi Minh City National University Publishing House

4 Cited book, page 74.

5 Cited books, page 24

New franchises are born, 12 stores, one of which operates in the form of Franchise. Most of the famous franchisors are from the US such as: McDonald's, Holiday Inn, Mariott, KFC, 7-Eleven... Franchise business brings many benefits to the US economy, so it is very preferential. The proof is that since 1990, the US immigration law has added a new provision related to franchise. That is, any foreigner who buys a franchise in the US with an investment capital of 500,000 USD - 1,000,000 USD and hires at least 10 local workers will be granted a permanent visa in the US. In addition, the US Government has proactively promoted and supported brand owners to sell franchises abroad to bring foreign currency back to the economy, such as the Franchise exhibition held annually in Washington 6 ...

In Europe, there are more than 4,000 franchise systems in total; with 167,500 franchise stores, revenue reaching about 100 billion Euros, creating more than 1.5 million jobs. In the UK alone, franchising is one of the fastest growing activities in the economy with about 32,000 franchise businesses, annual revenue of 8.9 billion pounds (15.740 billion USD). The franchising sector also attracts a large workforce with about 317,000 workers and accounts for over 29% of the retail market share.

According to the International Franchise Association (IFA), franchising in Asia has generated more than 500 billion USD in revenue each year. In Australia, the total number of franchise stores is about 54,000, contributing 12% to GDP, creating hundreds of thousands of jobs for workers. In Japan, franchise has grown strongly since 1996, according to JFA statistics, by 2006 there were 1,194 franchise systems and 235,440 franchise stores, revenue from this system was about 150 billion USD, growing 7% annually. Since 1980, franchise entered China, before that many businesses did not know what the franchise model was, but now China is one of the "hottest" franchise markets in the world and is home to most famous brands. By 2004, the country had more than 2,100 systems.

6 Dr. Ly Qui Trung (2007), Franchise - The secret to success with the franchise business model, page 30, Tre Publishing House, Ho Chi Minh City.

franchise system (the largest in the world), with 120,000 franchise stores in 60 different fields. The growth chart of China's franchising activities has been vertical since the country joined the WTO. Since 2000, the average annual franchise system has increased by 38%, far exceeding the 10% annual growth rate of consumer goods, and franchised stores have increased by 55%. In particular, the NQTM system of Chinese enterprises competes on par with famous foreign franchise brands. In Thailand, the number of franchise contracts is increasing rapidly, of which 67% are in the small and medium enterprise sector, with initial capital for each contract of 20,000 - 65,000 USD. The Thai Ministry of Commerce announced a program to encourage and promote domestic brands to the international market through NQTM. Therefore, in 2004, the turnover reached 25 million Baht, in 2005 it increased by 10% and increased very rapidly in the following years. In Malaysia, seeing the benefits of franchising since 1992, the Government established a national program on franchising (Franchise Development Programme - FDP) with two goals: (i) Increase the number of businesses selling/buying franchising; (ii) Promote the development of specific domestic products/services through franchising 7 .

In recent years, the Asian Franchise market has become increasingly hot and attractive to foreign franchisors because:

- This market accounts for half of the world's sales, of which China alone accounts for nearly a quarter.

- The economies of Asian countries are recovering, income is increasing.

- Franchise brings a new lifestyle to Asian people. Franchise stores provide fast, quality, hygienic services, diverse menus. Franchise stores are clean, elegantly designed, and bright.

- In addition, many Asian countries have now discovered that Franchise is an important tool to promote their economic development, so they also "experience"

7 Nguyen Khanh Trung (2008), Franchise – Choose or not?, Ho Chi Minh City National University Publishing House

“red carpet” to attract foreign investors in general and franchisors in particular.

2. Some famous Franchise brands abroad

2.1. McDonald's fast food chain

McDonald's can be considered the world's largest American restaurant chain, which has expanded its franchise model since 1955 and has become a classic case in the history of NQTM of all time. In 2003, they served more than 16 billion customers, equivalent to a lunch and a dinner for everyone in the world 8 . By the end of 2004, McDonald's had a total of 30,220 restaurants in 120 different countries 9 . The story begins with a salesman selling multi-function drink dispensers in stores in the US, named Ray Kroc. When Ray set foot in a restaurant in California, he was surprised to see people lining up to buy a hamburger for 15 cents (much cheaper than the market price at that time). The remarkable thing is that the owners of the restaurant, the two brothers Dick McDonald's and Mac McDonald's, sold through the windows, and the employees worked very scientifically like an assembly line. Ray Kroc seized the opportunity and convinced his cousin Mac to sign a contract to authorize him as an exclusive agent under the name McDonald's System, then replicated this store model throughout the United States and other countries.

With Ray's management, the uniform standards of the entire franchise system were applied and monitored very strictly. The training of employees for franchise stores was conducted systematically and modernly, combining both theoretical and practical training. McDonald's also exclusively provided the entire Franchise system with a number of strategic items such as: multi-function blenders, French fries, cheese and fried buns. McDonald's System later became the famous McDonald's Corporation. According to the ranking of 200 Franchise systems

8 http://abviet.com/kien-thuc/54/mc-donalds-hoat-dong-to-chuc-va-nhuong-quyen-thuong-hie.htm

9 http://mfo.mquiz.net/News/?Function=NEF&tab=Ke-sach-lam-giau&File=4778

In The Franchise Times 2004 World's Top 100, McDonald's was ranked first in both total revenue and number of stores operating.

2.2. 7-Eleven convenience store chain

According to Franchise Times magazine, the 7-Eleven convenience group was ranked second in the 200 strongest franchise systems in the world in 2004, after McDonald's. In 2005, 7-Eleven had a total of 25,796 stores worldwide after 78 years of operation . 10 By the end of March 2007 , the 7-Eleven store system had reached 32,208 stores worldwide, surpassing the food sales system.

Fast McDonald's has only 31,062 stores, 7-Eleven was voted the most successful franchise brand in 2007 11 by Entrepreneur Magazine . The idea came from a group of employees working at the Southland Corporation in Texas, USA in 1927 when the group stocked some groceries and household items to sell to colleagues and locals to improve their income. A year later, they founded the 7-Eleven company (the company name indicates the service hours from 7 to 11 pm) and quickly replicated the model to many other states. The 7-Eleven system really exploded in 1964 when the company bought 127 franchise stores branded Speedy Marts in California and began applying the franchise sales model.

The franchise method that 7-Eleven applies is single-unit franchise. To invest in an average 7-Eleven store, the franchisee must pay an initial franchise fee of about 60,000 USD - 70,000 USD depending on the location. The monthly franchise fee is calculated quite flexibly and is based on the actual profit of the store. Today, 7-Eleven is present almost everywhere in the world. In Thailand alone, 7-Eleven has about 4,300 stores nationwide, of which Bangkok has more than 1,500 stores, making Thailand the fourth country in the system of countries with the largest number of 7-Eleven stores in the world, after the US, Japan and Taiwan.

2.3. Marriott Hotel Chain

10 Dr. Ly Qui Trung (2007), Franchise - The secret to success with the franchise business model, page 112, Tre Publishing House, Ho Chi Minh City

11 http://www.thuongmai.com/index.php?option=com _content&task=view&id=292&Itemid=9

Marriott is the world's largest hotel chain, founded in the 1950s and currently has more than 2,000 hotels under this brand. However, only more than 200 hotels are the real assets of the Marriott family, the rest are purchased from Franchises, in which the brand and hotel management formula are the two main products of the Franchise contract.

Although Marriott’s business model was very successful in the 1950s, it was not until the 1990s that Marriott began to push the franchising model. This delay cost Marriott many opportunities to replicate its business model and brand.

Marriott has made adjustments and changes in design standards, investment and operating methods to make it easier to sell franchises. According to the 2004 ranking of The Franchise Times magazine, the Marriott hotel chain and almost all brands associated with Marriott are ranked in the list of the top 200 brands with the highest sales in the world 12 .

2.4. Subway fast food corporation

The name Subway may be unfamiliar to Asians, but in America and Europe, everyone knows the fast-food chain Subway. Subway has won the award 15 times in the 28-year history of Entrepreneur magazine. And it seems that this sandwich giant will continue to cling to the crown for years to come.

With a bold but very methodical business strategy, Fred Deluca made a big career starting with a $1,000 loan in 1965 when he was only 17 years old. Subway sandwiches are also fast food but are not known as industrial food like other fast-food products. The franchising business model that Fred Deluca implemented with the Subway fast-food chain is considered a successful model and attracts many entrepreneurs around the world. Each owner of a Subway store is under contract.

12 Dr. Ly Qui Trung (2007), Franchise - The secret to success with the franchise business model, page 109, Tre Publishing House, Ho Chi Minh City

The franchise business will have to pay 10,000 USD to buy the license. In addition, the corporation also enjoys 8% of sales, a not small percentage. The corporation and owner Fred Deluca therefore also earn a lot of money from Subway fast food stores worldwide. Fred Deluca's sandwich store system grew rapidly. He was very successful in the US, Canada, UK, Australia and many other countries. In 1986, Subway had 1,000 stores in all states in the US, two years later, this number had nearly doubled, with 1,800 stores. In total, worldwide, the Subway fast food system has over 26,000 stores in over 80 countries. Every day, the entire system sells over 4.8 million hamburgers or sausages, cheese 13 .

II. Current status of Franchising activities in Vietnam 1. General comments

KFC, Lotteria, Jollibee, and Gloria Jean's Coffees...continuously open stores in beautiful locations in Ho Chi Minh City, Hanoi and several other provinces. Many predict the next presence of McDonald's and Starbucks, two leading American brands. According to an investment consultant, the famous American fast food brand McDonald's plans to open its first store by the end of this year in Hanoi 14 . However, domestic enterprises are still on the sidelines.

This attraction makes Pizza Hut – an American restaurant giant – unable to ignore. The first two Pizza Hut restaurants, each with an investment of about half a million USD, have appeared in Ho Chi Minh City. The plan of this “restaurant that is not only about pizza” is to have 20 restaurants in Vietnam by 2010, mainly in Ho Chi Minh City.

Not only fast food and restaurants, foreign companies have also started franchising in other areas. Gloria Jean's Coffees, an Australian coffee brand, second only to Starbucks (USA), has also opened a location in

13 http://www.lantabrand.com/cat1news2855.html

14 http://www.tuoitre.com.vn/Tianyon/PrintView.aspx?ArticleID=217712&ChannelID=11

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