FRANCHISING IN MALAYSIA CHAPTER 2 Development of Franchise

FRANCHISING IN MALAYSIA CHAPTER 2

Development of Franchise Business in Malaysia 2 • Started 60 years ago (Bata, Singer, petrol station & • • automobile distributor) 1963 – A&W, first outlet of business format franchise opened at Jalan Tuanku Abdul Rahman, Kuala Lumpur. 1970 s – 1980 s – KFC & Mc. Donald Previously, franchise business in Malaysia is not known before the 1990 s Franchising in Malaysia is well known after government launched its Franchise Development Program (1992) and Malaysian Franchise Association (1994). BFT 212 Franchising & Licensing

Malaysian Franchise Association 3 The MFA was formed in 1994 to support the implementation of the Government program to promote entrepreneurship through franchising. MFA will serve as a resource centre for both current and prospective franchisors and franchisees, as well as for media and the public. Patron for MFA YABhg Tun Dr. Mahathir Mohamad 4 th Prime Minister of Malaysia BFT 212 Franchising & Licensing

Vision • To be the prime mover representing the franchise 4 fraternity towards realizing Malaysia’s vision to be the Regional Hub for franchising Objectives 1. To unite the members in view of protecting their interest 2. To cultivate and protect the image of franchising and encourage ethical business practice 3. To support the government’s effort in encouraging Bumiputera’s direct and active involvement in franchising. BFT 212 Franchising & Licensing

The main functions of MFA are to: 5 Set and enforce standards of ethical business amongst members. 2. Act as a registry for information pertaining to franchise business operating or intending to operate within the country. 3. Coordinate and offer educational programs, seminars and exhibitions specially oriented to franchising matter. 1. BFT 212 Franchising & Licensing (2010 version)

6 4. Undertake promotional activities to promote franchising as a successful marketing business concept. 5. Provide input and liaise with government departments and/or agencies on matters concerning franchising and its application. 6. Serve as a forum for exchange of experiences and expertise amongst members. 7. Establish and maintain affiliations with counterpart organization globally. BFT 212 Franchising & Licensing (2010 version)

7 8. Develop and maintain affiliations with local industry trade organizations representing distributors, retailers and service industry generally. 9. Sponsor franchise trade and investment missions to other countries. 10. Host international franchise trade and investment missions and assist in familiarizing them with the potential in Malaysia. BFT 212 Franchising & Licensing

8 Location: Malaysian Franchise Association 1 st Floor Wisma Motor, 339 Jalan Tuanku Abdul Rahman, 50100 Kuala Lumpur, Malaysia. BFT 212 Franchising & Licensing

FRANCHISE ACT 1998 9 - This act applies throughout Malaysia for the sale of any franchise in Malaysia - This act comes into force on October 8, 1999. - The sale of a franchise is deemed to be in Malaysia if: a. an offer to sell or purchase a franchise: i. made in Malaysia and received in or outside Malaysia; or ii. outside Malaysia and received in Malaysia and b. franchised business is conducted or operated in Malaysia. BFT 212 Franchising & Licensing

FRANCHISE ACT 1998 10 1. ‘Franchise’ means a contract or agreement, either express or implied, whether oral or written between two or more persons by which: a. franchisor provides the franchisee the right to conduct business in accordance with the franchise system as determined by the franchisor during the period specified by the franchisor; BFT 212 Franchising & Licensing

FRANCHISE ACT 1998 11 b. franchisor provides the franchisee the right to use the mark, or trade secrets, or any confidential information or intellectual property owned by the franchisor or relating to the franchisor, and includes a situation where the franchisor, which is a registered user, or licensed by others to use, any intellectual property rights, confer any rights it owns to allow the franchisee to use such intellectual property; BFT 212 Franchising & Licensing

FRANCHISE ACT 1998 12 c. franchisor has the right to exercise continuing control over the franchise period for the conduct of the franchisee by the franchise system; d. franchisor has a responsibility to provide assistance to the franchisee to operate its business, including such assistance as the provision or supply of materials and services, training, marketing, and business or technical assistance; BFT 212 Franchising & Licensing

FRANCHISE ACT 1998 13 e. in return for the grant of rights, the franchisee is required to pay a fee or other form of consideration, and f. the franchisee operates the business separately from the franchisor and franchisee relationship with the franchisor shall not at any time treated as a partnership, a contract of service or agency. BFT 212 Franchising & Licensing

FRANCHISE ACT 1998 14 2. "Franchisor" means the person who gave the franchise to the franchisee and master franchisee, including with respect to its relationship with the sub-franchisee, unless stated otherwise in this Act. BFT 212 Franchising & Licensing

FRANCHISE ACT 1998 15 3. 'Franchisee' means the person to whom the franchise is provided and includes, unless specified otherwise in this Act: a. master franchisee with respect to its relationship with the franchisor and b. Sub-franchise holder with respect to its relationship with the master franchisee. BFT 212 Franchising & Licensing

FRANCHISE ACT 1998 16 4. "Master franchisee" means a person authorized by the franchisor to sub-franchise to others, at his own expense, a franchise owned by the franchisor. 5. "Franchise broker" means a person who carries on business as an agent or representative of any of the franchisor to sell a franchise to any person with a certain consideration, but not including any director, officer or employee of the franchisor or the franchisee. BFT 212 Franchising & Licensing

FRANCHISE ACT 1998 17 REGISTRATION FRANCHISE BROKER 1. Franchise brokers are divided into two categories, namely: i. Company ii. Singles BFT 212 Franchising & Licensing

FRANCHISE ACT 1998 18 COMPANY 1. Registered under the Companies Act 1965 2. Have key personnel with qualifications as specified for individual BFT 212 Franchising & Licensing SINGLES 1. Malaysian citizen 2. Have experience in franchise management or related field with a franchise management: a. degree - the experience of not less than 3 years b. diploma - the experience of not less than five years c. no academic qualifications experience of not less than 10 years

FRANCHISE ACT 1998 19 FEES i. Franchise registration application (registered once) – RM 1, 000. 00* ii. Payment of the registration – RM 50. 00* iii. Application to amend the document (each time the amendment) – RM 50. 00* * Subject to change from time to time BFT 212 Franchising & Licensing

FRANCHISE DEVELOPMENT PROGRAM 20 q is a marketing program based on the Malaysia Incorporated concept q To develop entrepreneurs of SME in the commercial, and industrial services. q The parent company/(franchisor) gives the comprehensive right marketing/distribution to SME or (franchisees) to run a business that is viable and competitive, based on an agreed contract for a period of time in an area that has been identified. BFT 212 Franchising & Licensing

FRANCHISE DEVELOPMENT PROGRAM 21 q The company is the franchisor that allows the franchisee holding franchise system and market the goods they produce in certain conditions. q. The franchisee is allowed to market the goods by using the franchisor franchisee system, including the name, logo and design of the franchisor. BFT 212 Franchising & Licensing

FRANCHISE DEVELOPMENT PROGRAM 22 TYPES OF FRANCHISE SYSTEM i. “Local Authorized Franchised Holder” § § franchisee will given a license to manufacture and market products by the franchisor, including the use of the full format franchisors such as the right to use intellectual property, marketing strategy, operations, advertising, accounting and training. Franchisors also can appoint a master franchisee authorized to appoint franchisees after fulfilling the prescribed conditions. BFT 212 Franchising & Licensing

FRANCHISE DEVELOPMENT PROGRAM 23 ii. “Product Manufacturing Licensing” § Franchisee is licensed to produce goods according to the formula, recipe or design prescribed by the franchisor and market its products using the franchisor marketing system. BFT 212 Franchising & Licensing

FRANCHISE DEVELOPMENT PROGRAM 24 iii. “Trademark/Brand Name License” § § Franchisee is licensed to sell franchisor’s goods and will be given the commission for the sale. Franchisee is responsible for ensuring that appropriate audit of the sale. BFT 212 Franchising & Licensing

FRANCHISE DEVELOPMENT PROGRAM 25 iv. “Dealership/Distributor Franchise” § § Franchisee is required to market their franchisor products only in the exclusive manner and procedures. Franchisees are given monopoly rights to market these products in a particular geographic area. BFT 212 Franchising & Licensing

FRANCHISE DEVELOPMENT PROGRAM 26 v. “Promoter” § § § Franchisee sells goods purchased from the franchisor. Franchisee use a name similar to the other franchisees. Franchisors provide capital, raw materials, marketing and management expertise to franchisee. BFT 212 Franchising & Licensing

FRANCHISE DEVELOPMENT PROGRAM (Benefits) 27 FRANCHISEE Lower business risks Opportunity to market goods or services (that acceptable in the market) Economic benefits of scale Efficient business management guidance Continued support services from franchisor, government agencies and financial institutions BFT 212 Franchising & Licensing FRANCHISOR Opportunity to expand its business without using their own capital Economic benefits of scale Risk sharing Reduce the problem of human resource management a wider business respond Can more focus on the work of Research & Development

More Information on Franchising 28 FRANCHISE REGISTRATION: ü ü Ministry of Domestic Trade, Cooperative and Consumerisme (MDTCC) Franchise Development Division, MDTCC FRANCHISE TRAINING & DEVELOPMENT: ü Malaysian Franchise Association (MFA) FRANCHISE FINANCIAL SUPPORT & INVESTMENT: ü ü Perbadanan Nasional Berhad (PNS) SME Bank Berhad BFT 212 Franchising & Licensing

29 References of the chapter: Norita Deraman et al. (2007). Keusahawanan. Kuala Lumpur: Mc. Graw-Hill Education. www. google. com. my www. mfa. org. my www. wikipedia. org BFT 212 Franchising & Licensing