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Franchising is big business and is a major area of potential growth for SMEs. According to the SME Annual Report 2006, there are currently 321 franchise systems in Malaysia with 197 home-grown franchise brands and 124 foreign franchises, accounting for 5% of total retail sales. In the Ninth Malaysia Plan, the Government has highlighted franchising as one of several strategies to promote a globally recognised Malaysian brand.
WHAT IS FRANCHISING?
Franchising is a system of doing business that enables an innovative method of distributing products and services. It is a business relationship where the owner of the business providing the products/services (the franchisor) assigns the right to market and distribute the franchisor’s products/services to an independent third party (the franchisee).
Becoming a franchisor is a viable option to promote business growth for SMIs. Under a franchising agreement, the franchisor allows the franchisee to sell his/her products and services in a designated geographical area. The franchisee is also authorised to use the franchisor’s trademark, service mark, trade name or advertising symbol, etc. The franchisor has the right to administer continuous control over the franchisee’s business operations during the franchise term.
A franchise agreement sets out the terms and conditions of conducting business between the two parties. Franchising in Malaysia is governed by the Franchise Act 1998 (Act 590), which provides for the registration of franchises, regulations and other related matters.REQUIREMENTS TO BE A FRANCHISOR
Your company must have:
- The products to be franchised are well-accepted by the public
- A complete and comprehensive disclosure document
- A complete and comprehensive operation and training manual
- A complete and continuous training programme
- A standardised accounting system
- Technical advisory services on equipment and outlet location identification
- Inspectorate services in producing quality and standardised product or service
- A good business and marketing plan and sufficient capital
Is Your Company Ready to be Franchised?
There are several factors to be considered before franchising your businesses. Firstly, your company must have established products or services that are well-accepted by consumers and that can be readily adapted to other locations in the country or even the world. Your products and services should also be protected by a valid trademark as a differentiating factor from other similar products in the market. This is also to prevent “copycats” from selling exactly the same products and cannibalise your profits.
Your company must have a good track record of profits, ideally derived from a number of outlets in various locations. This would indicate that your business is suitable to be operated as outlets.
A good operating, marketing and delivery system should be in place. This system should be documented in an operation and training manual and is easily teachable to your prospective franchisees. Your company’s accounting system must also be standardised, with a manual as well. In short, your company’s entire system of doing business must be documented and can be easily replicated at other outlets. You must have a clear direction on how to train franchisees to run their outlets the way your business is operated.
As a franchisor, you will also be responsible to provide marketing support to your franchisees. You must implement periodical promotions to market your products and services to boost your franchisees’ business and to keep them motivated.
If you already have the above items in place, your business may be ready to embark on its franchising programme. The next step is to register your franchise.Registration Requirements of Franchise Business
A franchisor is required to register his franchise business with the Registrar of Franchises, Ministry of Entrepreneur and Co-operative Development, before he can offer to sell the franchise to any other party. The Franchise Act 1998 requires the franchisor to submit to the Registrar a completed Application Form BAF 2 together with the following documents:
- the complete disclosure documents with all the necessary particulars filled in (Disclosure Document - BAF 1);
- a copy of the franchise agreement;
- operations manual;
- training manual;
- Certificate of Incorporation, Form 8 or 9 (whichever is applicable);
- Forms 24 and 49;
- Form of annual return of a company having a share capital (pursuant to Section 165 of the Companies Act 1965);
- a copy each of the latest 3 years’ auditor’s reports & audited accounts, including audited balance sheets and profit & loss accounts;
- franchisor’s and franchisee’s 3-year profit forecast;
- organisational chart with names of key personnel and their positions; and
- company’s business brochure.
The above requirements may differ for different applicants, based on the nature of their businesses. All documents submitted in support of the application must be certified as true copies. Application Form BAF 2 and Disclosure Document BAF 1 can be obtained from the Ministry of Entrepreneur and Co-operative Development at no cost. The costs involved in the registration are:
- Franchise Business Registration fee of RM1,000* (one time charge)
- Application processing fee of RM50*
- Application of document amendment of RM50* (each time)
* Subject to changes
For further information, contact:
Registrar of Franchises
c/o Franchise and Vendor Department
Ministry of Entrepreneur and Co-operative Development
Level 4, Tower Block, Lot 2G6, Precinct 2
Federal Government Administrative Centre
62100 Putrajaya, Malaysia
Tel: 603-8880 5596 / 5598 / 5607
Fax: 603-8880 5617
Advantages of Being a Franchisor
Firstly, franchising transfers the cost of expansion to franchisees and hence, the franchisor is able to expand the business faster as the capital to set up new outlets is provided by the franchisees. Hence, the franchisor need not wait for internal funds to open new outlets. As the franchisees have vested interests in their businesses, they are likely to be highly motivated. In addition, the legal, operational and capital risks are shared with franchisees. Fewer direct staff are required than conventional businesses as the franchisees hire their own staff. The franchisor has control over the business as the franchisees are legally required to adhere to the business system. The franchisor also enjoys better expansion potential with the opportunity of venturing beyond local shores via foreign franchisees.
Disadvantages of Being a Franchisor
The franchisor does not own the franchisees’ outlets and hence have less direct control over them. The franchisees need to be selected with great care to ensure that they are motivated and have both the capability and willingness to operate their businesses according to the franchisor’s system. The delicate business relationship between the franchisor and the franchisee has to be established and nurtured to ensure that the franchise offers a win-win situation for both parties and realises their full potential.
USEFUL CONTACTS
Ministry of Entrepreneur and Co-operative Development (MECD)
MECD and its agencies organise various franchise seminars and training programmes and also several schemes to assist franchisors such as the Franchise Development Assistance Scheme and the Franchise Financing Scheme. For more information, contact:
Ministry of Entrepreneur and Co-operative Development (MECD)
Lot 2G6, Precinct 2
Federal Government Administrative Centre
62100 Putrajaya, Malaysia
Tel: 603-8880 5000
Fax: 603-8880 5106
Website: www.mecd.gov.my
Email:
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Malaysian Franchise Association (MFA)
The Malaysian Franchise Association was formed in 1994 to support the implementation of the Government’s programme to promote entrepreneurship through franchising. MFA promotes the development of franchising in Malaysia and serves as a resource centre for both current and prospective franchisors and franchisees, as well as for media and the public.
MFA’s members comprise franchisors, would-be franchisors, master franchisees, would-be master franchisees, government agencies and authorities, banks, accounting firms, franchise consultants, attorneys, suppliers and vendor of franchises.
Malaysian Franchise Association (MFA)
No. 2, 5th Floor, Jalan Dewan Sultan Sulaiman 1
Off Jalan Tuanku Abdul Rahman
50100 Kuala Lumpur, Malaysia
Tel: 603-2697 1557
Fax: 603-2697 1559
Website: www.mfa.org.my
Email:
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