As international integration has been one of Vietnam’s principal economic goals, the country’s demand for a highly educated labor force equipped with international-standard education has become higher and higher. As studying abroad may be financially burdensome, international-standard education offered by local entities has become a reasonable choice for many Vietnamese students. As a result, the sector has attracted more and more investors, both local and foreign.
Some popular options for global brands to enter the promising education market of Vietnam are discussed below.
1. Establishing a Foreign-Invested Educational Institution
Foreign-invested educational institutions (FIEI) include (i) short-term training institutions such as foreign language centers; (ii) kindergartens; (iii) compulsory educational institutions (primary, intermediate, or high schools or combined schools); (iv) universities; or (v) branches of foreign universities). To establish a FIEI in Vietnam, a foreign investor needs to either establish a wholly foreign-owned enterprise (WFOE) or form a joint venture company with a local partner.
The established company must have in its license a business line of providing educational services (e.g., primary education services or university education services) because Vietnam practices the doctrine of corporate ultra vires, meaning that all enterprises, including WFOEs and joint ventures, may only engage in activities (business lines) which are approved by the licensing authorities. Moreover, under Vietnamese laws, educational services are a conditional business line; thus, the established company must obtain required sublicenses for providing these services in Vietnam.
Typically, some or all of the following steps will need to be carried out for a FIEI to be established and start operating in Vietnam:
- Obtaining an Investment Registration Certificate (IRC). The IRC will recognize the contents relating to the investment project, such as the investor(s), project location, objectives and scale of the project, investment capital, investment incentives and restrictions, etc.
- Obtaining an Enterprise Registration Certificate (ERC). The ERC will provide for the corporate details such as the company name, registered office address, charter capital, owner’s details, and legal representative(s) of the company.
- Obtaining a decision on establishment of an educational institution.
- Obtaining an approval for providing educational operations.
The above licenses are granted subject to certain conditions regarding educational planning, investment capital, facilities, teachers, and the ratio of Vietnamese students.
Establishing a FIEI may be a good choice for foreign investors who want to do long-term business with stability. This method also gives investors the ability to manage and operate their businesses directly. However, the investor would likely face greater expenses in establishing, maintaining, and expanding its business in Vietnam as compared to the other methods discussed below. Moreover, establishing a company would require a greater outlay of time and resources for the foreign investor to sufficiently acquire or develop knowledge of the local market.
Acquiring equity in an existing education company is suitable for foreign investors who wish to access the Vietnam market without the need to go through the cumbersome and time-consuming process of obtaining all the licenses for establishing an FIEI as set out above. Instead, the existing education company may need to carry out procedures relating to equity investment registration, amendment of investment and corporate registration, and amendments of sublicenses regarding the establishment and operation of the educational institution.
However, Vietnamese laws currently remain silent on amendments of sublicenses regarding the establishment and operation of an educational institution due to equity acquisition by foreign investors. Thus, the required procedures may be carried out on a case-by-case basis upon obtaining guidance from the relevant authorities.
Franchising is one of the fastest ways for foreign brands to have their goods or services sold in the Vietnam market. As of mid-2021, more than 260 foreign franchisors had registered to carry out franchising activities in Vietnam, mainly in the business sectors of food and beverages (42%); fashion (21%); education (9%), and retail stores (8%).
Franchising in educational services has certain advantages compared to establishing a Vietnam subsidiary. The most obvious benefit of franchising is the ability to expand a business by using the manpower, capital, and local market knowledge of franchisees, while still maintaining the ability to control the quality of the educational services. A franchisor is also able to direct how it would like the local franchisees to develop the business, such as by setting up minimum targets for opening campuses.
A foreign franchisor entering Vietnam through a franchising arrangement with a Vietnamese partner does not need to have a legal presence in Vietnam. However, the franchised business system must have been operating for at least one year in any country in the world prior to franchising.
In Vietnam, a foreign franchisor needs to register its franchising activities with the Ministry of Industry and Trade (MOIT). In practice, for franchises in educational services, the MOIT expects foreign franchisors to prove their experience in the education sector, their education method that they offer prospective franchisees, as well as their legitimate ownership over trademarks and other IP rights related to the educational franchise systems.
4. Licensing Coupled with Provision of Management Services
A foreign education company may also get brand presence in Vietnam through contractual arrangements with a local partner, including a license agreement and a management agreement. The most advantageous factor of these arrangements is that no registration procedures are required.
With regard to the license agreement, a foreign licensor might grant to the licensee in Vietnam the rights to use its brands and trademarks in connection with the educational services. For protection of the licensor’s ownership of trademarks relating to educational services, the licensor should register for protection of such trademarks in Vietnam at the Intellectual Property Office of Vietnam or through the World Intellectual Property Office as soon as possible.
In addition to granting the rights to use its brands and trademarks, the foreign licensor may enter into a management agreement with the local licensee to provide its services of management of the school bearing its brands and trademarks. It is recommended that foreign investors should conduct sufficient due diligence on potential local partners to ensure that they have the requisite licenses, facilities, manpower, capital, and other requirements necessary to meet their responsibilities and ensure the reputation and quality of the school brands. Moreover, management agreements should clearly set out the rights and obligations of each party to ensure the operation of the school in compliance with the method of the manager, the provisions on the school body (e.g., school board, head of school) and dispute resolution mechanisms, among other matters.