Franchise - Rotary International District 3310

Everything You Always
Wanted to Know About
Franchising*
(*But were Afraid to Ask)
PDG Datuk Hj Md Latip Bin Sarrugi
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FRANCHISING:
The Advantages & Disadvantages
Franchising is the practice of using another firm’s
successful business model. For the franchisor, the
franchise is an alternative to building a ‘chain store’
to distribute goods that avoids the investments
and liability of a chain. The franchisor’s success
depends on the success of the franchisees. The
franchisee is said to have a greater incentive than a
direct employee because he or she has a direct
stake in the business.
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WHAT IS FRANCHISING?
Franchise Act 1998 – Act 590
Section 4 – “Franchise” means a contract or an agreement,
either express or implied, whether oral or written, between
two or more persons by which:
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Right to operate with the business system
Use of trade mark, trade secret, intellectual property, etc
Right to administer continuous control
Responsibility to provide assistance
Required to pay a fee
Operate the business separately
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FRANCHISE ARRANGEMENT
Franchise agreement legalizes the appointment
of franchisee:
- Master Franchisee / Regional Franchisee / National
-
Franchisee
Area Franchisee
Unit Franchisee
Multi-unit Franchisee
Conversion Franchisee
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TYPES OF FRANCHISE
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Trade name (product licensing)
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Product distributorship (dealership)
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Business-format franchising
◦ Products manufacturing/reproducing
◦ e.g. soft drinks through local bottlers and cartons promotional
products
◦ Exclusive right to sell a particular product (brand-name)
◦ e.g. sales of cars through dealers and petrol through service stations
◦ An A-Z business system with a comprehensive SOP, training,
support, etc.
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WHY FRANCHISE?
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WHY FRANCHISE?
“ Franchising is the single most successful
marketing concept ever.” ~ John Naisbit
“Franchising is the fastest, most effective,
and productive way to expand a business.”
~ Tun Dr Mahathir Mohamad
“ The recent wave of franchising growth is
expanding across customer wants and country
borders”
~ Dr Robert T Justis, LSU
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Franchising in Malaysia
* The USA has been the leader in
franchising since the 1930s: fast food
restaurants, food inns, motels, Subway,
McDonald’s, 7-Eleven, Hampton Inns, H
& R Block (tax preparation), Dunkin
Donuts, and Mini Market
* Malaysia started in the 1940s
* Singer, Bata, petrol stations, automobile
distributors, etc.
* Fast food, hotel chains, etc (1960s)
* Homegrown franchises (food,
automotive, etc.) in mid 80s
* Government involvement through the
Franchise
Development Program since 1992
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300
223
200
Franchising in Malaysia
113
100
0
Franchisor
Master Franchisee &
Franchisee to Foreign
Franchisor
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Franchising is one of the fastest growing sectors in Malaysia
Over the past four years, there has been a 15% increase in the
number of Registered Franchise Businesses under the RoF,
MDTCC
666 franchise systems registered in Malaysia (April 2013);
◦ 426 - Home-grown franchise brands
◦ 240 - Foreign franchises
Master franchisees
Franchisees to foreign franchisors
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Ministry of Domestic Trade, Co-operative
& Consumerism (MDTCC) Roles

Implements the policy of developing
entrepreneurs through the Franchise
Development Program
 To introduce the franchise system as a
strategy in developing entrepreneurs to
become resilient, industrial, and commercial
 This is in line with the National
Development Policy to increase the number
of entrepreneurs either as franchisors,
master franchisees, or franchisees
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Malaysian Franchise Association
(MFA)
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Formed in 1994
To support the implementation of the government’s
programs to promote entrepreneurship through
franchising
 MFA serves as a resource centre for both current
and prospective franchisors and franchisees
 Member of WFC and APFC
 Current members – 600: consisting of franchisors,
would-be franchisors, master franchisees, would-be
master franchisees, government agencies, authorities,
banks, accounting firms, franchise consultants,
attorneys, suppliers, and vendors of franchises.
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Franchising:
Advantages to Franchisor
- Increased growth rate
- Distribution of risk
- Market penetration
- Economies of scale
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Franchising:
Advantages to Franchisee
- - Access to a proven track record
- - Enjoy the economies of scale
- - Entering into a bigger “business family” at an
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affordable cost
- - Do not require experience
- - Support and training provided as a package
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Franchising:
Advantages to Consumers
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Access to a chosen product / service
various marketplace
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Access to a reliable brand
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The opportunity to enjoy the 5 Cs of high ethics
a Consistency
a Competitiveness
a Convenience
a Courtesy
a Cleanliness
in
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Franchising:
Disadvantages to Franchisor
 Exposure of trade secret
 Initial high development cost
 Continuous support to franchisee
 No tight control over franchisee’s
operations
 Requirement of a strong, efficient, and
experienced management/support team
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Franchising:
Disadvantages to Franchisee
 Costly to acquire a franchise
 No freedom in operating business
 Limitation to creativity
 Hard work is still required
 Continuous commitment required
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Top Franchise Business Categories
Food & Beverage
Others
Apparels & Accessories
Childcare & Pre-School Education
Service & Maintenance
Health Care
ICT
Retailing & Supermarket
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10
20
30
40
50
60
70
80
90
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100
Homegrown Brands Gone Global
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D’Tandoor
England Optical
Kyros Kebab
Marrybrown
Nelson’s
Royal Selangor Pewter
Smart Reader
Chicken King
Secret Recipe
Bonia
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THANK YOU
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