Best Practice in Franchising Key Areas

Franchisors need to lead the franchised business and not allow the franchisees to determine their own performance levels. Franchisees will be dependent on the franchisor for guidance and leadership. Best practices adopted by a franchisor will result in the total franchise business (the franchisor, franchisee and the business system) becoming more professional, responsible and successful.

The franchisor should create a positive franchise culture in his franchise network that works towards mutual benefits at the same time be market or customer oriented. The sum picture of the franchise culture should be based on the adoption of best practices in managing the franchise system.

As a start the local regulatory requirements that are put in place are a push towards enabling the franchisors to achieve upgraded business practices in the sector.

The Franchise Agreement

Certain provisions of the Franchise Act 1998 require mandatory clauses in the franchise agreement so that the level of practice by franchisors are up to a level that ‘protects’ the franchisees as well as securing certain interests for the franchisors.

The relevant provisions includes amongst others:

· name and description of the product and business under the franchise

· territorial rights

· franchise fees, royalties and other fees

· obligations of franchisor and franchisee

· rights of use of the various intellectual properties

· duration and terms renewal of the franchise

· termination/expiration of terms

The agreement need to comply with the minimum clause, failing which the franchise agreement will be deemed invalid. The act also does not allow the franchisor and franchisee to waive any of the provisions under the Act.

The above puts the franchisor in a situation that requires him to practice certain standards that will challenge him towards achieving higher standards of practice.

The Disclosure Document

The Disclosure Document (DD) “is a document that gives full view of the franchise business that has to be given to a franchisee prior to the franchisee entering into a contract of franchise with the franchisor”.

Some of the details included are the basic information of the franchisor e.g. name of franchisor; whether the franchisor is a master franchisee; date of incorporation; address; trademark; type of business; lists of franchisees; franchisor experience; details of personnel; financing arrangement; territorial rights; terms and restrictions; awards and recognitions and declaration by the franchisor.

Much of this information is based on the franchise agreement. Additional information is included so as to enable the franchisee to understand the franchise business being offered.

The DD is also another attempt to exceed the various practices by foreign franchisors in offering their franchises such as through the use of the Uniform Franchise Offering Circular or any other similar documents. It is another effort to ‘facilitate’ the franchisors operating in Malaysia to adopt practices that benefits the sector.

Additional to the above mandatory requirement to push the current practice to the next level, there are other practices that the franchisors can adopt so as to enable more effective business operations as well as produce good franchisees. The franchisors can adopt some of the following key practices in franchising.

Franchise Selection Process

The process starts with the pre-sale initiatives e.g. defining the profile of franchisees to ensure that the business is able to meet or exceed the expectations of the franchisor and the franchisees. Such profiling goes a long way in making the franchise a resounding success.

The next good practice is to inform the potential franchisee of the various expectations (financial or otherwise) as compared to the realities experienced by the existing franchisees.

Another good practice is for the franchisor to strongly recommend that the franchisees get expert advice before accepting and signing the bottom line of the franchise agreement.

The Franchise Marketing Materials

The franchisor is expected to provide accurate information in promoting their franchise systems. Sufficient material and information is provided to a potential franchisee to enable him to make a decision. These materials should be derived based on good ethics and not exploit the ignorance of the potential franchisees. This is another best practice that the franchisor can adopt.

Initial and Ongoing Training

As the new franchisee is accepted into the franchise network, the franchisor is required to provide initial training, and this has been required as a criterion for franchise registration as seen via the need to lodge the training manual as part of the registration package. This initial training must be able to prepare the franchisee to start operating the franchise business. A good initial training should not only include classroom but also adopt various techniques that provides hands-on experience. The focus is not in the training per se, but the knowledge that is transferred to the franchisee should be the measure.

Ongoing training is another area of good practice that the franchisor can adopt. There is never an end to learning to improve the performance of the business. This is where the consultative approach towards learning should be adopted by both the franchisor and franchisees. The franchisee should be assisted through training to learn and manage new challenges in running the franchise business and they should benefit this through refresher courses.

The Franchisees should also receive comprehensive and up to date operating manuals that prepare them for all aspects of the business including day-to-day operations, marketing, business development and administration.

Field Support and Network Communications

After having been trained, the franchisee will still need regular support from the franchisor. This can be implemented via field visits to support the franchisee in operating the franchise system. Such support visits are a great confidence booster and an advantage to the franchisor as it goes a long way in avoiding conflict. These good practices are still to be refined by the local franchise systems to the extent that both parties do not see each other on separate sides of the table but rather complementing each other to achieve success.

Some other support practices that the franchise should implement are:

• Continuous enhancement and protecting the integrity of the system.

• The franchisor implements a mechanism to provide opportunity to the franchisee to provide input and allow opportunities for resolution of concerns

• There should be a platform for system wide communications

• The procedures for the store opening should be able to provide administrative, financial and planning support

• The program for new product development and launches with the welfare of the franchisees taken into consideration.

• Reward and recognition programs – this will do wonders in relationship and motivating other franchisees in the system.

Franchisor Marketing Campaigns

Marketing campaigns formulated by the franchisor should not only be organized with the franchisor’s objectives in mind but also to create and provide campaigns that are effective in all geographical regions. This should be targeted to assist the franchisee in achieving profitability and increasing market share. The Act also requires that full accountability of the funds collected from the franchisee to be used to defray costs of the campaigns.

Sustaining and Improving the Franchise Concept

As all members of the franchise network is dependent on the sustainability of the franchise concept, the franchisor need to adopt the good practice of reviewing and improving the offerings of the franchise system which include:

• The marketing mix, that is core to business and

• The franchise system that is being offered to potential franchisees

This can be achieved through research and development, innovative marketing and promotions, understanding competitors and competitive environment, as well as the formulation of effective growth strategies at the franchisor and franchisee levels.

Franchisors should not see the adoption of best practices as a burden on them but as a continuous initiative to achieve continuous success.

Potential franchisees can measure the quality of a franchise system via the various good practices put in place by the franchisor.

The writer sees the implementation of best practices as an opportunity to create differentiation against competitors by that also brings positive results to the franchise business.

Marzuki AhmadMarzuki 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.

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Marzuki can be reached at

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