Franchising In Malaysia

A Lesson Learnt – Need To Place Issues Into Perspective

Bernama, the news agency in Malaysia reported on the 8th of September last year that 30 franchisees were facing problems related to financing and were facing the possibility of being declared bankrupts as a result of not being able to service and repay loans between RM100,000 to RM400,000. It had been reported that they became victims of the franchisors involved.

These franchisees who had chosen several franchise systems as their business ventures also suggested that the government also terminate financing programmes for the franchisees.

Obviously this call is out of place as many other franchisees had benefited from such financing programmes.

At the same time, one should consider the findings of the “Franchising in the UK – The FDS Franchise Survey 2009” which reported that 91.8% of the franchise business had achieved success. This finding also indicated that franchised business had a better chance and potential for achieving success.

The real reasons behind the situation that the 30 franchisees were facing may not be able to be discussed fully here in this article, but one should consider the following in order to put matter into its proper perspective. In brief we need to understand the various bodies involved in franchising in Malaysia.

Ministry of Domestic Trade, Co-operatives and Consumerism (MDTCC) Franchise Development Division (FDD)

The Franchise Development Programme was started in 1992 and is part of the government’s efforts in achieving and creating a commercial and industrial community of Bumiputeras. Today, the FDD is tasked with the responsibility of formulating the policies in relation to this aspect of the socio-economic development of the country.

The Ministry had recently absorbed the functions of the FDD which was previously under the Ministry of Entrepreneur and Cooperative Development.

Whilst its mission is to assist in the creation of quality Bumiputera Commercial and Industrial Community, the roles and responsibilities of the FDD is still intact i.e. to:

1. Formulate macro policies; plan; implement; coordinate;  monitor franchise development programmes for the franchise sector.
2. Register franchise businesses in accordance to the Franchise Act 1998.
3. Enforce the provisions of the Franchise Act 1998.

Hence the Division is divided into four units namely the Development Unit; the Registration Unit; the Enforcement Unit and the Administration Unit.

The Registration and the Enforcement unit are administered in accordance with the provisions of the Franchise Act 1998 and the Registrar of Franchise is designated to implement and enforce the various provisions.

Perbadanan Nasional Berhad (PNS)

PNS is a development agency under the MDTCC assigned to take a leading role in the development of franchising in Malaysia. PNS in its current form has its mission to “develop world-class franchisepreneurs through superior delivery of integrated services and comprehensive products”. Its roles include investing in the development of the local and foreign franchise brands in Malaysia either directly purchasing the local rights or through master franchisees. PNS also lead and participate in the promotion of local franchises in domestic and international exhibitions. Other important roles include financing; training; franchise development; networking and research.

Of interest is the financing programme that includes schemes for the acquisition of equipment; renovation of business premises and injection of working capital. Another programme highly sought out is the developmental programme that identifies and develops suitable businesses with potential to be converted into franchise systems.

Some of the 30 franchisees mentioned earlier are part of the beneficiaries of the financing scheme offered by PNS. Many other franchisors and franchisees had benefited from this programme as well.

Malaysian Franchise Association (MFA)

MFA is organised to protect the interests of its members; cultivate and protect the image of franchising; encourage ethical practice; and support government efforts in the development of the franchising sector. The main categories of the members are the franchisors; franchisees and support institutions such as the consultants, banks, lawyers, etc.

It is in the context of protecting the image of franchising, MFA is the rightful body to ‘represent’ any voices of dissatisfaction coming from within the franchise sector. Therefore it was an inappropriate move for anybody to voice their dissatisfaction through other organisations. MFA would be able to take the necessary action against any member franchisors as a measure to resolve any conflict.

Conclusion
In summary, the problem faced by the 30 franchisees mentioned earlier may have been a typical challenge but may have been wrongly approached. If they had any problems in repaying their loans and PNS is presumably the financier, then full deliberations should have been jointly adopted to resolve the issue.

If the franchisors had been the bone of contention, then MFA should have been consulted as most probably the franchisors are members of MFA. Furthermore, if the issue is franchising, no other body is more qualified than MFA to handle the matter.

The Ministry in its effort to develop the franchise sector will take heed of any problems faced by the franchisees and try to resolve them in order to achieve its objectives. If the franchisors had contravened the Franchise Act 1998, then the Registrar of Franchise could have been referred to and proper enforcement of its authority be applied to the franchisors accordingly.

But then again, the problem could be with the franchisees themselves. They must not forget that the franchise business that they started is their own business (using the franchisor’s model and systems)… hence the need for them to be also accountable for what has happened.

Franchising in Malaysia has the necessary governance infrastructure to handle the management and the development including its accompanying problems… but everyone needs to understand the various stakeholders’ roles in order to ensure that businesses can run well.

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 marzuki@franchise-channel.com