Developing Franchises In Malaysia

By Jenny Imanina Lanong Abdullah KUALA LUMPUR, Feb 22 (Bernama) -- Franchise businesses in Malaysia are still new among entrepreneurs, although the industry has been promoted and supported by the government since the early 1990s. Globally, franchises are the business of choice among entrepreneurs, as the business model develops quickly. Among popular business franchises are McDonald’s and Kentucky Fried Chicken (KFC). Fast-food companies reap bountiful profits by successfully spreading their business networks to all corners of the world. Not many Malaysian franchises have made it overseas. However, some have managed to spread their wings outside, namely Langkawii Crystaal, Marrybrown Fried Chicken, Nelson's and Sugar Bun. To date, 587 franchises are registered in Malaysia, 69 per cent of them local franchises. The government pays special focus on the development of local franchises in the bid to help local entrepreneurs progress through the system. To establish a support infrastructure, the government has introduced various initiatives to plan, implement, develop and supervise, as well as to provide financial aid. The 1998 Franchise Act was also amended to ensure healthy and controlled development of the industry. BENEFITS OF A FRANCHISE A franchise is a right granted to an individual or group to market a company's goods or services using the brand name, model and business operation of the company within a certain location and time. In other words, a franchise is business sharing between a brand owner or service (franchisor) and an investor (franchisee). The franchisor provides the product or service and a business system while the franchisee prepares resources in terms of funding, human resource and continuous effort to ensure business viability. For franchisors, franchising is an alternative way to expand a business through third-party investment. Domestic Trade, Cooperative and Consumerism Minister Datuk Seri Ismail Sabri Yaakob said franchising is advantageous, as a company’s business and branding can be widened by a third party who invests in resources such as capital, time and energy. "A franchisee will manage a business better than an employee because they have direct interest in the business," he said. The business risks faced by a franchisee are less than with conventional businesses, as the public already knows the brand and its reputation. The operation system is also set and systematic, while the franchisor ensures this by continuous monitoring. NATIONAL FRANCHISE DEVELOPMENT MASTER PLAN (PIPFN) According to Ismail Sabri, the country’s franchise industry is at a remarkable stage, giving birth to many famous brand names that have managed to penetrate international markets. However, the local industry has yet to fully explore the franchise opportunities available. "Because of that, the government believes that a comprehensive plan is vital in providing a direction to concentrate all roles, effort and implementation in the development of the national franchise industry," he said. The effort to formulate a strategy and action plan to underline the programmes and initiatives involved has resulted in the creation of the National Franchise Development Master Plan (PIPFN) 2012-2016. Ismail Sabri said PIPFN was to ensure that all strata of society, big businessmen, petty traders or up-and-coming entrepreneurs, are given the chance to go into franchising. PIPFN is also aimed at expanding the focus from traditional sectors (food and beverage, clothing, beauty and health) to new sectors under the New Economic Model and the 10th Malaysia Plan -- such as education, green products and services, health-tourism, as well as syariah-compliant products and services in order to penetrate the Middle Eastern markets and Muslim countries, as well as other potential markets. PIPFN involves various target groups, such as Small and Medium Enterprises (SMEs), youth, women, the disabled, pensioners and many more. For example, community franchising and group micro-franchising have been created as a pilot project to introduce micro-franchising to low-income groups as well as rural communities. "PIPFN has outlined three phases to help develop the franchise industry by making Malaysia the franchise center of Southeast Asia, and by penetrating Middle Eastern countries in 2020," he said. Phase 1, from 2012 to 2014, involves building up franchise participants and the development of the franchise framework. Phase, from 2015 through 2016, involves efforts towards a stronger and more dynamic domestic industry, in line with the PIPFN vision. Phase 3, 2017 through 2020, concentrates on turning Malaysia into a franchise centre. GOVERNMENT PROGRAMMES To ensure the franchise industry remains competitive, the government has planned several development programmes to aid franchise entrepreneurs and businessmen. The Franchisor Development Programme is implemented through the Local Franchise Development Programme (PPFT) and the Franchise Business Aid Fund (DBPF). PPFT offers a platform to change conventional businesses to a systematic franchise that is ready to expand. Through the programme, local entrepreneurs with businesses that have franchise potential can convert their conventional business to a franchise. This can be done by appointing a qualified franchise consultant to guide participants through the process, such as work documentation and procedures, opening a prototype outlet and hiring a franchisee. The cost of the consultation is borne by the programme. The DBPF is an incentive to encourage local entrepreneurs to convert their businesses into franchises. Ismail Sabri said the fund allows qualified franchises to receive loans of up to 90 per cent, for a maximum amount of RM100,000. The government is also running several franchise promotions to help expand a franchise. Local promotions include the Community Franchise initiative to promote microfranchising, so that more people will get involved with franchise businesses under RM50,000. Overseas promotions include providing facilities for local franchises to join international expos in countries identified as target markets, such as Indonesia, China and Middle Eastern countries. The effort to bring local franchises overseas has yielded good results, with more Malaysian franchises opening overseas. For example, kopitiams are more popular in Indonesia. Brand names such as Old Town White Coffee and Bangi Kopitiam are more popular in Jakarta and Surabaya, with several existing outlets and many more coming up. AGENCIES SUPPORTING FRANCHISES The Domestic Trade, Cooperatives and Consumerism Ministry, through Akademi Perbadanan Nasional Berhad (PNS), also provide training for franchisors, franchisees, franchisee consultants and the public on franchise businesses. PNS is responsible for providing funding, support and consultancy services for franchise businesses. The Malaysian Franchise Association (MFA), a non-governmental organization, is also cooperating with the government to develop the local franchise industry. MFA members often act as mediator between the franchise industry and the government. More information on the franchise industry can be found on www.kpdnkk.gov.my or www.franchisemdtcc.gov.my. -- BERNAMA