Franchising in the region is going through an exciting period over the last and coming months. The region is seeing a series of franchising related events which presents opportunities window for franchisors intending to grow regionally.
During the period from the 22nd July to 24th July 2011, Malaysia via its Malaysian Franchise Association successfully organised the Franchise International Malaysia 2011 which was held at the Putra World Trade Centre, Kuala Lumpur. The Malaysian scene received an announcement by the Deputy Prime Minister that an allocation of RM8 million is made available for a soft-loan scheme aimed at encouraging the lower income group to engage small and micro franchises as franchisees. The Malaysian Franchise Association (MFA) in its earlier statement on 20th July projected that they aim to record about RM345 million in franchise agreements at the Franchise International Malaysia exhibition and word has it that they have achieved the numbers.
Singapore will be having its Singapore Franchising & Licensing Asia (FLAsia) 2011 during the September 8-10 2011 (Thursday to Saturday). This event is Singapore’s International Event for Entrepreneurship, Business Opportunities & Intellectual Property Rights in Asia.
An upcoming event in Indonesia the Franchise & License Expo Indonesia 2011 is slotted to take place during the 14th to the 16th of October 2011 at the Jakarta Convention Center, Senayan, Jakarta. The event is now in its 9th year. The above are only some of the immediate events organised in the region. The high level of promotional activities can only mean that there is demand for franchising and related businesses. The core strength of the franchise business is in its ability to replicate the business models beyond borders. However there are certain issues that the franchisors need to be wary of when crossing into international markets.
This discussion will not delve into issues related to market identification; evaluation and entry issues but will relate to the need to be prepared for international excursions.
Preparing for International Franchising
As international franchise organisations, wider issues need to be given the right perspectives especially from the host country point of view. As much as the franchising model separates the legal entity between franchisor, master franchisees, unit franchisees, one must not forget that any issues and problems that manifests within the franchise system have implications across these entities as they ‘belong’ to the same brand and system. A franchisor organisation cannot allow the brand and system be a victim of weak internal policies or recalcitrant franchisees and consequently have problems with its host country. The franchise organisation needs to have in place evident policies across its franchise network. This is to assist the organisation and network to have positive relationships with the various stakeholders in the host country. The franchisor organisation should have policies that relate to
- Its contribution to the host country’s socioeconomic well-being. This may be achieved through the development of its entrepreneurs (franchisees), the introduction of better products and services through franchising, creation of employment opportunities within the franchise network, generating demands, meaning, increased levels of economic activities, etc
- Its respect of human rights – via the ‘fair’ business practices, e.g. in appointing franchisees, treatment of employees by franchisees and master franchisees
- Its support for good corporate governance – via adopting and applying good corporate governance practices within its network
- Its values and self-regulatory practices and management system in maintaining good relationship within its network and between enterprises and societies in which they operate
- Its position as an organisation that is apolitical – by abstaining from any improper involvement in local political activities
The franchisor will need to put in place a control framework within its franchise network to ensure the continued and sustained participation through its network of master franchisee or unit franchisees in the host country. Other issues that the franchise organisation needs to consider may include:
- A certain level of relevant disclosure (fit for purpose) to ensure that the stakeholders (regulators, investors, employees, etc) of the host country are confident in dealing with the organisation and/or its franchise network.
This may include:
▪ Timely accurate reporting of information as required by the authorities
▪ Adherence to standards as prescribed especially in accounting and auditing
- Employment and Employee related issues such as child labour; forced labour; discrimination; right of representations; etc. All these shall be within the framework of applicable law, regulation and prevailing practices.
- Different host country may have different tolerance levels against bribery. However the franchisor is recommended not to be involved in any kinds of bribery directly, or indirectly. Any implication of bribery practices by parties associated with the franchise organisation will have franchise-systemwide effect affecting the good name of the business not only in the host country but also beyond.
- The franchise business in its efforts to promote itself, should adopt fair business, marketing and advertising practices when dealing with consumers. This may be addressed if the franchisor provides clear guidelines for its network to conduct itself. Any misconduct by the members of the franchise network may jeopardise the whole franchise system.
- The conducts of business by all members of the franchise network need also to work within the framework of applicable laws and regulations in terms of competitive activities.
A franchisor organisation cannot allow the brand and system be a victim of weak internal policies or recalcitrant franchisees and consequently have problems with its host country
The above is only a cursory review of what franchise organisation need to prepare for international franchising. It is about managing the franchise network of master franchisees, unit franchisees (represented via different legal entities) in different legal, business and market environments. The goal is to achieve congruence in vision, mission and achievements by all parties involved in the franchise network. Establishment of such point of congruence is in the responsibility of the franchisor whilst it is the responsability of the rest of the members of the network to comply and support. Hence a strong franchise network management and control framework is necessary to ensure that every master and unit franchisees sees and behaves in a manner that will not jeopardise the franchise brand and system. The writer feels strongly that the franchise sector and organisations require more detailed guidelines in the form of “Going International: Recommended Guidelines for Franchise Organisations”.
Marzuki Ahmad is the Managing Director and Principal Consultant of Franchise Channel (M) Sdn Bhd. He also sits on the Franchise Advisory Board, which is responsible in advising the Ministry of Domestic Trade, Co-operatives and Consumerism and the Registrar of Franchise on franchising matters. For more information, visit www.franchise-channel.com. Marzuki can be reached at email@example.com