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PH 24 Franchising Model

Pho24 is Vietnam's largest franchise system, founded in 2003 by Dr Ly Qui Trung. It has over 60 stores in Vietnam and 10 overseas. Unlike Western franchising models, Pho24 uses a partnership model where the franchisor invests in each franchise and owns at least 30% to maintain control. This is necessary because most Pho24 franchisees are successful businessmen who own multiple businesses and do not actively manage the Pho24 stores. The partnership model allows the franchisor to guide operations while respecting Vietnam's culture which values equitable relationships over authority.

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216 views3 pages

PH 24 Franchising Model

Pho24 is Vietnam's largest franchise system, founded in 2003 by Dr Ly Qui Trung. It has over 60 stores in Vietnam and 10 overseas. Unlike Western franchising models, Pho24 uses a partnership model where the franchisor invests in each franchise and owns at least 30% to maintain control. This is necessary because most Pho24 franchisees are successful businessmen who own multiple businesses and do not actively manage the Pho24 stores. The partnership model allows the franchisor to guide operations while respecting Vietnam's culture which values equitable relationships over authority.

Uploaded by

minaevil
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Ph 24

The founder and the company


Pho24 is founded in 2003 by Dr Ly Qui Trung and his family. Pho 24 is a major of the Nam An Group, which overall comprises more than a dozen different brands, including Maxims and Terrace caf. The first Pho24 store opened in June 2003 and by 2009 there were 62 stores in Vietnam and 10 stores overseas in Korea, Cambodia, Philippines, Singapore, Australia and Indonesia. It is the largest franchise system in Vietnam. The brand concept is based on the Vietnamese Pho noodle which is a national dish in Vietnam. However, rather than a simple street food presentation as it common, the dish is packed in a modern day style. Pho24 is the first major domestic franchising system developed and grown in Vietnam.

The traditional franchising model


Basically, it is one that is common in developed nations such as the United States or Australia, typically views franchising as an efficient method of distribution of goods and services due to its reliance on the human capital contributed by franchisee owner manager. Moreover, it is the ability of the franchisee and the franchisor to specialize and contribute in different ways to the business relationship that provides a comparative advantage over alternative organizational structures. This capital acquisition explanation argued that organizations were forced to resort to franchising because it allowed them to expand quickly without having to source scarce external financial resources or to relinquish control as in a joint venture or stock market operation. Thus, overtime it was expected that franchisors would repurchase or take over the best franchised units in the system and eventually become fully company owned. Now we turn to the model adopted by Pho24 in Vietnam.

The Pho24 franchising model


Most of the Pho24 franchisees are established successful businessmen. The franchisees are owner investors, rather than owner operators. The franchise may be one of many business interests which they oversee and therefore only a portion of the franchisees time is devoted to the franchise. A store manager takes care of the day-to-day operations under the direction of the franchisee but with a minimum of contact. This level of involvement is very different to Australian multiple unit franchisees who tend to dedicate their time fully to the management of the unit holdings. The franchising relationship also differs. In western cultures the franchisor-franchisee relationship is personal and involved and has been compared to marriage or a parent-child relationship. Similarly, franchisees normally associate either formally or informally in order to network and share ideas.

However, the behavior of the franchisors and franchisees in Pho24 is less personal. The franchisees do not normally interact, unless they are attending a seminar or a formal meeting. The founder keeps in regular contact with the franchisees but with bounded parameters. For example, Mr. Trung sometimes calls the franchisees personally and says hello, which makes them feel important. However, when asked whether he knew anything about the families of the franchisees he indicated that it would be detrimental to the business relationship to develop personal relationships with franchisees: In Vietnam it is quite sensitive. If you go too much into the relationship then you cannot manage. You cant be good friends or they dont listen to you. Work relationship but not friends; if it becomes like friends then I cannot work. Like many other franchise systems, there is a mix of company owned and franchised outlets. The franchisor indicated that company owned stores were more profitable than franchisee operations because franchisees tended to control costs The negative thing about franchised stores is the quality of the food. I am concerned most of the complaints from the customers are with the franchised stores. This statement is somewhat contrary to the belief which predicts that franchisees will outperform managers due to greater personal incentives to perform. But the situation in Pho24 is different because the franchisees are not hands-on operators. The attempt to reduce costs results in lower quality products and service, ultimately leading to diminishing revenues and profits. The normal franchising model relies on franchisees as owner operators to overcome agency problems and to align franchisor-franchisee goals. However, in the Pho24 model, the franchisees are owner investors and are not involved in either hands-on operation or close supervision of the business. Such a model is at risk of suffering a loss of consistency and reduction of quality of product and service offerings. To minimize the risk, the franchisor invests in each franchise unit and becomes a part owner. Being in partnership with each franchisee allows the franchisor to maintain control. Mr. Trung thinks that he must have at least 30 percent of investment from Pho24 to any franchisee store in order to feel safer and feel like he has better control of the franchisee. This level of control is beneficial because of the unique nature of the franchisees. As they are successful businessmen, they are unlike novice first-time business owners who will accept the advices and guidance from the franchisor. By becoming a partner in their business, the franchisor is able to have more control and direction over the business activities, thus reducing the potential for conflict in the relation. This partnership model is unique to the franchise operations in Vietnam. In other countries where the company has expanded, such as Singapore, Korea, Indonesia and the Philippines, master franchising arrangements are used, with no capital investment by the franchisor.

Conclusions
In order to adapt to the cultural and legal environment the franchisor has modified the franchising model in order to achieve greater control within the system. Rather than exerting authority and highlighting the power differential between franchisor and franchisee, the Vietnamese culture requires a persuasive and more patient approach that stresses equity in the relationship. This is truly more of a partnership approach than demonstrated in the Western style of franchising.

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