Franchising is the future

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BC (franchise story)Official records indicate a total of 659 franchise systems in Malaysia, an impressive 80 per cent growth from 366 in 2008.

By Zhen M

The government has ambitious targets for the franchise industry – that it contributes 9.4 per cent to gross domestic product by 2020 and that Malaysia emerges as a leading franchise hub in the region, with a firm footing in the Middle East markets to boot. To spur development in the industry, various programmes and schemes have been put in place. On Jan 10 last year, the National Franchise Development Blueprint (NFDB) 2012-2016 was launched to provide clear goals and strategic directions to propel the industry to “faster and sustainable growth”.

The franchise industry generated RM23.6 billion last year, about 2.7 per cent of GDP, up from 2.2 per cent in 2010. NFDB is aiming for a 4.3 per cent GDP contribution by 2016.

How far along are we in meeting the nation’s franchise aspirations? It’s on track, according to the Ministry of Domestic Trade, Cooperatives and Consumerism, which had pledged to double its efforts from now until 2020 to ensure that the targets are met.

As at April 1, there were 659 franchise systems in Malaysia (Figure 1), an impressive 80 per cent growth from 366 in 2008. A source at the Franchise Development Division of the ministry says the actual number of franchisees in Malaysia is unknown as it is not compulsory for franchisees to be registered with the Registrar of Franchise.

“Based on the reports from the franchisors, there are 5,885 franchisees but we believe the number may be higher,” he says.

figure3543463436Source: Franchise Development Division, MDTCC.

As one of NFDB’s main objectives is to develop an industry that advocates “Franchising for All”, that is, making franchising accessible and creating more opportunities for all, the ministry has been promoting micro-franchising. Last year, it launched the micro-franchise scheme with an allocation of RM8 million, of which RM6 million has been disbursed as at early April. The ministry is not averse to pumping in more funds to the scheme.

The source shares that, at present, there are 71 companies under the micro-franchising scheme, made up of 66 local franchisors and five master franchise holders of foreign brands. They account for 14 per cent and eight per cent of the total registered franchisors.

With the push for more micro-franchises, concerns about the quality of the franchises are inevitable.

One has to view this in a broader perspective, says the source. “The objective of the micro-financing scheme is to encourage all walks of life, from fresh graduates to the disabled, single parents, ex-servicemen, women and also those from the lower- and middle-income groups to become entrepreneurs. These target groups are relatively new to entrepreneurship.”

Former corporate high-flyer turned franchisor Butt Wai Choon points out that the quality of franchisors and franchisees is dependent on market forces and the Franchise Act provides the legal framework to support this relationship.

“For Malaysia to be successful as a franchise hub, the private sector, especially franchise associations, needs to step up to define the market framework and hold dialogues with the government. There needs to be a solid ecosystem.”

He says a franchise hub needs to be open to all franchises, all groups and all types of businesses. “Malaysians need to learn from global franchise brands entering the market before local brands could be successful. The Philippines is an interesting market to study. It has a vibrant franchise industry and a high level of franchising ecosystem – not mature in every way, but market access is more straightforward.”

Butt notes that while the Malaysian franchise industry seems to be growing, it is still dominated by food and beverage (F&B).

“And the franchisors are not pure franchisors,” he notes. “Franchisors selectively keep good territories for their own while giving secondary territories to franchisees. Also, I have seen master franchisees (of foreign brands) owning the franchise stores as corporate-owned stores. This defeats the model of franchising where stores are owned independently by the franchisees.”

Other than expanding the industry domestically, Malaysia also wants more local franchise companies to venture overseas.

To date, 47 local franchise companies have spread their wings abroad, with 1,424 outlets in 50 countries, mostly in Indonesia, China, Saudi Arabia, Turkey and the United Arab Emirates. Most of them are from the F&B sector. The top franchisors overseas include Nelson’s with 675 outlets, DailyFresh (481), Secret Recipe (25), England Optical (21) and Marrybrown (21).

 

Next week: The lure of franchising – why corporate high flyers, such as former Microsoft Malaysia Managing Director Butt Wai Choon, quit to start their own franchise.

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