Post on 26-Jan-2020
FIRST MALAYSIAN FRANCHISE PROFILING SURVEY
By
Chee Hee Hoe1, Abdul Rahim bin Othman
2, Filzah binti Md Isa
3, Zolkafli bin Hussin
4,
Amy Azhar bin Mohamad Harif5, Hijattulah bin Abdul Jabbar
6, Siti Norezam binti
Othman7, Norkhazzaina binti Salahuddin
8
EXECUTIVE SUMMARY
The Franchise Profiling Survey on Franchisors and Franchisee in Malaysia 2010 was
conducted from 9th
February to 13th
April 2010. This survey was conducted on all franchisors
that are still in operation and registered with the Registrar of Franchise (ROF). Data on the
franchisees were captured through the franchisors that were surveyed. The main aim of this
survey is to collect data in order to have an in-depth understanding about the current status of
franchising in Malaysia, the current practices, performance, needs, expectations, key challenges
and any other issues related to franchising. The information gathered from this study will
provide the inputs and form the basis in the formulation of the Malaysian Franchise Blueprint
2010. With this blueprint, the Malaysian government would be able to design better policies,
strategic recommendations and development programs in order to re-energise and further
enhance the growth and development of the franchise business sector in Malaysia.
The data sought in this survey included the following, 1) detailed business and operational
data which include basic company information and profile, franchise network and high-level
franchise information; and 2) qualitative data relating to needs, expectations, issues and
challenges faced by franchisors and master franchisees, and the critical success factors to
facilitate the development of their franchise business and the franchise industry as a whole.
In conclusion, the researchers in this study were able to gain an insight into the current status
of franchising in Malaysia. The researchers were not only successful in collecting the important
quantitative data, but from the sidelines, they were also able to gather some pertinent and
equally important qualitative data in the form of sentiments and personal viewpoints about what
they thought is the state of affairs of the Malaysian franchising sector, the issues and challenges.
Thus, the results of this survey are important inputs to the policy makers of the Malaysian
franchising sector who are keen to design more proactive and effective policies, strategic
recommendations and development programmes in order to bring the franchising sector to a
higher level of growth and development.
Keywords: Franchising, profile of franchises, franchisor, performance
INTRODUCTION
Franchising in Malaysia first started in the 1930s with the introduction of the product
distribution franchises such the Singer Sewing Machines, petrol kiosk such as Shell and
1 Chee Hee Hoe, College of Business, Universiti Utara Malaysia (corresponding author)
Email: chhoe@uum.edu.my 2 College of Business, Universiti Utara Malaysia
3 College of Business, Universiti Utara Malaysia
4 College of Business, Universiti Utara Malaysia
5 College of Business, Universiti Utara Malaysia
6 College of Business, Universiti Utara Malaysia
7 College of Business, Universiti Utara Malaysia
8 College of Business, Universiti Utara Malaysia
FIRST MALAYSIAN FRANCHISE
PROFILING SURVEY
2
Esso and automobiles via the Wearne Brothers. A & W was the first fast food franchise
that came to Malaysia in the 1960s, KFC in 1973 and McDonalds in 1982. There was
not much attention given to franchise business sector and its growth and development
was relatively slow compared to the other countries which saw the potential and
business opportunities of this sector. The franchising sector was then given a boost
when in 1992, the then Prime Ministers of Malaysia, the Right Honourable Dr. Mahathir
Mohamad decided that franchise was to be given special encouragement to develop and
flourish in Malaysia. His argument was that franchising could be used as the vehicle for
entrepreneurial development for the Bumiputera community who were still relatively
lagging behind in terms of entrepreneurial development (Hoe, 2001). The Franchise
Development Unit was the set-up under the auspices of the Prime Minister Department.
In 1994, the Malaysia Franchise Association was established to further boost the
franchising sector. The Malaysia Franchise Act was gazetted in 1998 with the aim of
streamlining and coordinating the franchise business sector. However, despite the
various incentives, schemes and franchise development programmes put forward by the
Malaysian government, the franchising sector in Malaysia has still not grown to its full
potential. While the franchising sector in other countries has grown rapidly and
contributed much to the retail sector in terms of distribution of goods and services, this
has not been seen in the Malaysia scenario. To date, a franchise survey has never been
conducted before in Malaysia and as such, the facts and figures in terms of the number
of franchises, franchisors and franchisees are not known. Questions such as its total
value, the total number of employees employed by the franchise sector, the types of
business sectors, current issues and the problems faced by the franchisors and
franchisees and other aspects related to franchising could not be ascertain. Thus, it is
timely that some indicators and measurements of the franchise sector be made available.
This Malaysian Franchise Survey provides the platform to investigate among others,
who are the main players, the various franchise business sectors, the profile and
distributions of franchises in Malaysia and what are the current issues and problems
which are deemed important to the franchisors.
The Franchise Profiling Survey on Franchisors and Franchisee in Malaysia 2010 was
conducted from 9th
February to 13th
April 2010. This survey was conducted on all
franchisors that are still in operation and registered with the Registrar of Franchise
(ROF). Data on the franchisees were captured through the franchisors that were
surveyed. The main aim of this survey is to collect data in order to have an in-depth
understanding about the current status of franchising in Malaysia, the current practices,
performance, needs, expectations, key challenges and any other issues related to
franchising. The information gathered from this study will provide the inputs and form
the basis in the formulation of the Malaysian Franchise Blueprint 2010. With this
blueprint, the Malaysian government would be able to design better policies, strategic
recommendations and development programs in order to re-energise and further enhance
the growth and development of the franchise business sector in Malaysia.
1. RESEARCH METHODOLOGY
1.1 Research Design
For the purpose of collecting the primary data, the survey questionnaire is the instrument
used in this study. The design of the questionnaire was in the first instance, based on the
3
terms of reference of the research project. From the terms of reference, the parameters to be
measured in this study are then developed. The validation process of the questionnaire
involved a series of construction, consultation and verification with franchise scholars,
industry players as well as policy makers. Finally, the questionnaire is endorsed by the client
before it was administered to the respondents.
1.2 Population for the Study
The focus of this study is on the franchise business sector in Malaysia. The population frame
for this study is based on all the franchise businesses registered with the Registrar of
Franchise (ROF) and the Malaysian Franchise Association (MFA) Directory 2008. Based on
this population frame, primary data are collected from all franchisors and master franchisees.
Franchising is a business opportunity by which the owner (producer or distributor) of a
service or product grants exclusive rights to an individual for local distribution and/or sale of
a service or product, and in return receives a payment or royalty and conformance to quality
standards. Franchisor can be defined as the individual of business granting the business right
to a franchisee while franchises are the individuals of business granted the right by the
franchisor to operate in accordance with the chosen method to produce or sales the product or
service.
1.3 The Questionnaire
The survey was conducted by means of a mailed questionnaire. A total of 40 questions were
included. Not all of the questions in the questionnaire were relevant to every respondent and
some answers required additional information and hence, the amount of information required
varies between respondents. The Questionnaire was structured into 5 sections – Section A
(Introduction), Section B (Basic Information System), Section C (Franchisor Profile), Section
D (Franchise Network), and Section E (Issues, Needs, and Expectations).
The questionnaire was mailed to franchisors through electronic mail and postal service. In
order to obtain a higher rate of response and co-operation from the respondents, a covering
letter from the Ministry of Domestic Trade Cooperative and Consumerism together with the
explanation contain in section A that emphasized its importance to them and the
confidentially of the survey was included.
1.4 Response Rate
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A total of 68 usable responses were obtained, which represents an overall response rate of 37
percent of the net population frame of 184 franchisors. Detailed information of responses,
taking into consideration the gross population, out of frame, useable and unusable responses,
is presented in Table 1.
Table 1: Population Frame and Response Rate
Item Number of Franchisors Percentage
Gross Population Frame 388
(-) Dropped list a 88
Potential Population 300
(-) Inactive franchisors b 116
Net Population Frame 184 100
(-) Refused to participate 94 51
Available Responses 90 49
(-) Unusable responses c 22 12
Useable Responses d 68 37
Notes:
a The dropped list includes franchisors with invalid contact details (32), several franchisors with same trademark
(22), and franchisor with several trademarks (18). See Appendix 1 for details.
b Initial telephone calls, emails and/or postal correspondence were made to all 300 Franchisors. A total of 116
businesses were considered as inactive due to various reasons, mainly due to unanswered phone calls/emails, and incomplete/wrong mail addresses (97). See Appendix 2 for other details.
c These responses were discarded due to incomplete data. Follow-up calls were made, but failed or unable to
get full cooperation from the respondents.
d Inclusive of data obtained and/or rectified via follow-up calls for a number of missing values/incomplete data.
1.5 Data Collection Procedure
Data collecting involved the use of electronic mail, telephone interviews and face to face or
personal interviews. Figure 1 showed the process conducted in this survey. The process
started with acquiring the complete list of franchisors and master franchisees from the
population frame. The next step involved screening the list obtained from the ROF and MFA.
Introductory calls were then made on all the potential respondents. Upon getting the
respondents’ agreement to participate in the survey, questionnaires were then distributed
through e-mail and/or postal service. The next important step is the effort employed in
ensuring getting feedback from the respondents. Finally, after getting the feedback, data were
validated by comparing the data from the Companies Commission of Malaysia (CCM). The
detailed process is explained as below.
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Step 1
The list of potential respondents was taken from directories of the Register of Franchise
(ROF) and the Malaysian Franchise Association (MFA). Screening process was carried out
by comparing the two lists of directories. From this comparison, the research team was able
to determine the list of active and bona fide franchisor which will form the sample base for
the survey. The screening process is important because of the high occurrences of
information duplication for instance, repetitive franchisors’ list, one trademark with
numerous franchisors, and a franchisor owning numerous trademarks. In addition, incomplete
information included factors such as no contact number, no contact person and wrong address
given. The screening process took 8 days to complete.
Step 2
The next step is to get the survey started. To initiate the survey proper, introductory calls was
firstly made to all prospective respondents, in order to inform the respondents of the purpose
of this survey and the responses will be kept confidential. Another purpose of the
introductory call was to verify the franchisors’ status, whether they are still active or
otherwise and also whether the information provided by ROF and MFA is still valid or not. In
addition, information of the person in-charge, correspondence address, email address and
contact numbers were also obtained. However, information of certain respondents cannot be
obtained due to wrong telephone numbers and/or the telephone service has been terminated.
Step 3
The communication channel of questionnaires distribution was dependent on respondents’
preferences. Most of them preferred to be sent the questionnaire through e-mail due to length
of the questionnaire and the time given was very limited to fill-up the questionnaire. Apart
from that, a few respondents preferred to be sent the questionnaire through postal service due
to non-availability of internet services and/or broke down in their internet system.
Distribution of questionnaires was carried out for 16 days started from 23rd
February 2010
until 16th
March 2010. From 23rd
February until 2nd
March, the questionnaires were
distributed after the first introductory calls have been made. Follow-up actions included the
distribution of questions for the second time because of respondents claiming non receipt of
questionnaires and or changes in the persons responsible for answering the questionnaires.
These follow-up actions commenced from 3rd
March until 16th
March, 2010.
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Step 4
Collection of answered questionnaires from respondents began 1st March until 12
th March
2010, lasting a total of 31 days. The questionnaires obtained were then screened and
categorized into three categories which are complete, minor incomplete and major
incomplete. Minor incomplete questionnaires are defined as those with missing data below
25%, and major incomplete questionnaires are those with missing data more than 25%. The
purpose of this category is to ensure that the questionnaires are usable and to reduce the
missing data due to the length of the questionnaire being too long.
Actions were taken for the minor incomplete data by follow-up resending of the
questionnaire and in assisting the respondents to fill-up the missing data through telephone
calls and face-to-face interviews were carried out to fill-up the major incomplete sections of
the questionnaire.
Step 5
After receiving all the feedback, validation of the data was performed between the
information obtained from the respondents and the information from the list such as company
names and their trademarks.
The data of sales turnover and profit after tax obtained from the respondents were also
validated by comparing the data with the data obtained from CCM.
Figure 1: Steps in Conducting Profiling Survey
1.6 Limitations of Study
This survey was conducted through three phases. The data were collected through e-mails,
posted questionnaires and face-to-face interviews. However, not all the feedback could be
Acquisition of
population frame
Introductory call
Distribution questionnaires
Screening MFA
and Ministry List
Getting feedback
Getting Validation
Result: A completed profile of franchisor
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acquired completely from the respondents. This was due to difficulties encountered during
the various stages of pre-data collection, data collection and post-data collection.
Among some of the constraints faced by the researchers during the pre-collecting data was
whereby the franchisors’ list provided by ROF was incomplete, out of date and/or not
integrated with other sources such as the list provided by the MFA.
During the data collection stage itself, there were constraints that prevented the researchers
from getting the full support of the respondents. Firstly, the person in-charge that have been
communicated by the research assistants and as such have been appointed (or identified) as
the person responsible for answering the questionnaires was later found not to be the right or
suitable person to fill-up the questionnaires. Thus, they could not furnish the exact data
required of the questionnaires. In addition, there were instances whereby the person in-charge
that could not fill-up the questionnaires because they were new in the company. Furthermore,
there were cases where respondents that have been contacted earlier on for survey and
interview purposes, could not be contacted for the second time (or follow-up calls) because of
they did not answer their mobile telephones. This survey can be considered as an extensive
survey because from the onset it included all of the franchisors and master franchisees
registered in Malaysia who are located across the country. But the time period of 2 months
that was given to complete the study is in itself a limitation and is insufficient for a study of
this magnitude. Due to this limited time given to the respondents to answer the
questionnaires, many of the respondents refused to participate and did not want to give
feedback as required of them. In addition, many respondents claimed they were busy due to a
lot of activities for instance; companies were too busy and concerned with the rather
important activity of closing their annual accounts during the months of February and March.
Despite initially agreeing to answer the questionnaires, respondents after having reviewed the
questionnaires, refused to participate due to the questionnaire design that were deemed by
them to be rather confusing, too lengthy and/or redundant information required. Besides that,
they also refused to participate due to their business being at the liquidation stage. Perception
by respondents that this sort of survey should not be carried every year also contributed to
lack of participation by respondents.
At the post-data collection stage, response rate for the question related to the sales turnover of
outlets and profits after tax of outlets was very low. Therefore, the data had to be interpreted
8
cautiously. Discrepancies in the total number reported, for example the total number of
franchisees in Figure 2, Table 2, and Figure 3, were due to missing responses.
2. SURVEY RESULTS
The following survey results have been presented in the order that they appeared in the
questionnaires. Responses have not been manipulated in any way, apart from the correction
of obvious errors made by franchisors participating. In some cases respondents were
telephoned and emailed in order to clarify their responses where the data were out of range.
To assist comprehension, additional tables summarizing common responses have been
included.
Hence, the data presented have not been estimated to infer results for the sample of
franchisors. In this section, the data relate only to respondents of the survey.
2.1 Franchisee – Franchisor Network
2.1.1 Number of Franchisee
The numbers of franchisees from the year 2005 till 2009 is on the increasing trend. The
average growth for the whole sectors (Bumiputera, non-Bumiputera and foreign) is about
31.5 percent for the past five years. Meanwhile the average growth rate for Bumiputera sector
is about 22 percent, for non-Bumiputera sector is about 34 percent and for foreign franchisees
is about 34 percent. The growth rate for the latest year (2009) for non-Bumiputera is about 60
percent compared to Bumiputera 22 percent and foreign 39 percent. Thus, from this
development it shows that the number of non-Bumiputera franchisees is growing much
higher when compared to the Bumiputera franchisees. The growth rate for foreign
franchisees is also much higher when compared to the Bumiputera franchisees.
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Figure 2: Number of Franchisees
2.1.2 Profile of the Franchisee (Age)
In Table 2, the group of franchisees in the age group of under 36-40 scored the highest
number of franchisees in Malaysia which is 146. From these 146 franchisees, the number of
non-Bumiputera franchisees is much greater than the number of Bumiputera franchisees
which is 99 and 43 respectively; with the balance 4 franchisees are of foreign origins. Table 2
also showed that the least number of franchisees are those who are in age group of 66-70
which scored only one franchisee and also happens to be a Bumiputera franchisee. The
highest and the lowest number of franchisees scored for different age groups varied between
the Bumiputera, non-Bumiputera, and foreign categories of franchisees. For the Bumiputera
category, the highest number of franchisees is 43 who were in the 36-40 age groups while the
lowest is one franchisee in the 66-70 age groups. In the non-Bumiputera category, the
highest score of 99 franchisees was from the 36-70 age groups while the lowest number of
franchisees is 6 who were in the 20-25 age-group. As for the foreign franchisee category, the
highest number of franchisees is 7 from the 41-45 age groups, while the lowest number of
franchisees was 3, from the 26-30 age groups.
2005 2006 2007 2008 2009
Bumiputera Franchisees 82 119 138 188 230
Non-Bumiputera Franchisees 92 125 163 181 289
Foreign Franchisees 22 25 45 51 66
Total 196 269 346 420 585
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Table 2: Age of Franchisee
Age Bumiputera Franchisees
Non-Bumiputera Franchisees
Foreign Franchisees
Total
20-25 3 6 0 9
26-30 21 28 3 52
31-35 42 94 5 141
36-40 43 99 4 146
41-45 47 64 7 118
46-50 22 49 0 71
51-55 16 7 6 29
56-60 9 0 0 9
61-65 2 0 0 2
66-70 1 0 0 1
>70 0 0 0 0
Total 206 347 25 578
2.1.3 Profile of the Franchisee (Gender)
Figure 3 showed that the number of male Bumiputera franchisees is much higher than the
female Bumiputera franchisees.
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Figure 3: Gender of Franchisee
In terms of percentage, the male Bumiputera franchisees are approximately 62 percent
compared to only 38 percent female Bumiputera franchisees. As for the non-Bumiputera
franchisees the data is of the reverse order, with 71 percent being female franchisees
compared to 29 percent male non-Bumiputera franchisees. For foreign franchisees the
percentage for male and female is about the same.
2.1.4 Current Number of Outlets
In general there is an increasing trend in the number of outlets in the franchise sector. The
average growth of outlets for the past five years is about 58 percent. For the Bumiputera
category, the average growth franchise outlet is about 49 percent, whereas for the non-
Bumiputera category, the average growth franchise outlet is about 31 percent and company-
owned outlets is about 62 percent, foreign franchise outlets is about 139% and foreign
company-own outlet is about 20%. Thus based on Figure 4, it showed that there is a very
significant increase in the number of outlets in foreign franchise.
Bumiputera
Franchisees
Non-Bumiputera
FranchiseesForeign Franchisees Total
Male 181 95 14 290
Female 110 232 16 358
Total 291 327 30 648
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Figure 4: Number of Outlets
2.1.5 Projected Growth of Outlets
Figure 5 shows that by the year 2010, there will be 1,565 more outlets that is planned to be
set-up by franchisors. From this projected total, 667 will be the local franchise outlet, 345
will be the local company-owned outlets, 345 will be the foreign franchise outlets and 208
will be the foreign company-owned outlets. For the year 2011, a total of 1,785 outlets is
planned to be opened; comprising of 858 local franchise outlets, 446 local company-owned
outlets, 68 foreign franchise outlets and, 413 foreign company-owned outlets. For the year
2012, a total of 2,178 outlets is planned to be opened and they comprise of 1,026 local
franchise outlets, 440 local company-owned outlets, 95 foreign franchise outlets and, 617
foreign company-owned outlets. For the year 2013, total of 2,805 outlets is planned to be
opened and they comprise of 1,332 local outlets, 521 local company-owned outlets, 130
foreign franchise outlets and, 822 foreign company-owned outlets. For the year 2015, a total
of 4,976 outlets is planned to be opened and they comprise of 2,917 local outlets, 707 local
company-owned outlets, 322 foreign franchise outlets and, 1,030 foreign company-owned
2005 2006 2007 2008 2009
Bumiputera Franchise Outlets 78 110 144 210 376
Non-Bumiputera Franchise Outlets 92 148 537 557 761
Company-owned Outlets 176 193 237 281 400
Foreign Franchise Outlets 16 19 23 27 164
Foreign Company-owned Outlets 128 137 166 190 258
Total Outlets 490 607 1,107 1,265 1,959
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outlets. In summary, there is an increasing trend of total planned number of outlets for the
next five years.
Figure 5: Projected Growth of Outlets
2.1.6 Distribution of Local Outlets
Table 3 shows that central region scored the highest number of 855 outlets which covered the
states of Selangor, Kuala Lumpur, Negeri Sembilan, and Malacca. The Northern region
scored the second highest of 229 outlets which covered the states of Penang, Kedah, Perak,
and Perlis. While in the south all of the 212 outlets are only located in the state of Johore. The
lowest number of distribution among the regions in Peninsular Malaysia is in the East coast
2010 2011 2012 2013 2014
Local Franchise Outlets 667 858 1,026 1,332 2,917
Local Company-owned Outlets 345 446 440 521 707
Foreign Franchise Outlets 345 68 95 130 322
Foreign Company-owned Outlets 208 413 617 822 1,030
Total 1,565 1,785 2,178 2,805 4,976
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region which has only 62 outlets. As for the states of Sabah and Sarawak taken together, the
total number of outlets is only about 77 outlets.
Table 3: Distribution of Local Outlets
Rank State Bumiputera Franchise
Outlets
Non-Bumiputera Franchise
Outlets
Company-owned Outlets
Total Local Outlets
1 Selangor 97 312 122 531
2 Kuala Lumpur 68 99 74 241
3 Johor 44 100 68 212
4 Pulau Pinang 21 36 32 89
5 Kedah 19 29 18 66
6 Perak 15 35 16 66
7 Negeri Sembilan 12 19 12 43
8 Sabah 16 25 1 42
9 Melaka 7 21 12 40
10 Sarawak 6 26 3 35
11 Pahang 14 14 0 28
12 Terengganu 11 1 4 16
13 Kelantan 13 4 1 18
14 Perlis 3 4 1 8
15 Labuan 2 0 0 2
Total 384 725 364 1,437
2.1.7 Distribution of Foreign Outlets
Table 4 showed that there were only a total of 27 franchise outlets operating outside of
Malaysia. Twenty (20) of them are franchise outlets that are located in the Asia Pacific and
ASEAN regions. There were also 7 company-owned outlets that are located in the Middle
East and ASEAN regions.
Table 4: Distribution of Foreign Outlets
Region Franchise
Outlets Company-
owned Outlets Total Foreign
Outlets Country
North America - - -
South America - - -
Europe - - -
Middle East 1 1 2 Saudi Arabia, Syria
Africa - - -
Oceania - - -
Asia Pacific 10 - 10 Hong Kong, China, India
ASEAN 9 6 15 Singapore, Philippines, Thailand, Indonesia, Brunei
Total 20 7 27
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2.1.8 Number of Staff
In year 2005, there were 1118 people employed by the local franchise sector. There is an
increasing trend on the number of staff being hired between the years 2005 to 2009. As
shown in Figure 6, the total number of staff hired for year 2009 was 4592.
Figure 6: Number of Staff at Outlets
2.1.9 Financial Performance by Outlets
Franchisors were asked to provide two types of financial data of their outlets, i.e. sales
turnover and profit after tax (questions 10 and 11, Section D). A detailed breakdown of sales
2005 2006 2007 2008 2009
At Bumiputera Franchise Outlets (Local) 130 172 217 596 2,891
At Non-Bumiputera Franchise Outlets (Local) 158 179 325 342 445
At Company-owned Outlets (Local) 830 888 920 1,045 1,256
At Franchise Outlets (Foreign) 0 0 8 0 0
At Company-owned Outlets (Foreign) 0 0 0 0 0
Total 1,118 1,239 1,470 1,983 4,592
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and profit performances by specific categories of outlets, covering from year 2005 to 2009, is
shown in Table 5 and 6 respectively (see also Figure 7 and 8).
Table 5: Sales Turnover from Franchise Business - All Outlets, 2005 – 2009 (n = 45)*
Year
Local Foreign
Total (RM)
Bumiputera Franchise Outlets
(RM)
Non-Bumiputera Franchise
Outlets (RM)
Company-owned Outlets
(RM)
Franchise Outlets
(RM)
Company-owned Outlets
(RM)
2005 50,237,462 2,723,379 85,928,562 - - 138,889,404
2006 62,044,345 17,417,701 97,714,464 - 8,893,541 186,070,052
2007 76,472,001 30,532,963 115,291,000 250,560 11,597,351 234,143,874
2008 91,798,545 40,070,944 124,921,603 - 14,455,528 271,246,620
2009 113,125,365 54,518,076 143,295,695 - 13,861,874 324,801,009
*Note: Number of responses for each year varies slightly or less than 45 due to missing items.
Figure 7 Total sales turnover of all outlets, 2005-2009
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Table 6: Profit after Tax from Franchise Business - All Outlets, 2005 – 2009 (n = 44)*
Year
Local Foreign
Total Average
(RM)
Bumiputera Franchise
Outlets (RM)
Non-Bumiputera Franchise
Outlets (RM)
Company-owned Outlets
(RM)
Franchise Outlets
(RM)
Company-owned Outlets
(RM)
2005 328,246 704,214 2,237,279 - - 3,269,739
2006 901,976 547,722 3,081,439 - - 4,531,137
2007 949,476 1,123,690 1,055,278 156,492 8,000 3,292,936
2008 1,122,476 357,984 1,792,163 - 10,000 3,282,623
2009 1,257,476 835,968 1,314,356 - 15,000 3,422,800
*Note: Number of responses for each year varies slightly or less than 44 due to missing items.
Figure 8 Total profits after tax of all outlets, 2005-2009
Table 5 and 6 indicated the increasing trend of sales and profits performances, with one
notable exception in terms of profit performance for non-Bumiputera franchise outlets in
2008.
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Despite this increasing trend in sales profits and performance by athletes, the average sales
trend per outlet showed slightly decreasing trend, with an exception to 2006, as shown in
Table 7 (see also Figure 9). On the other hand, cyclical trend is observed in terms of average
profit per outlet, as shown in Table 8 (see also Figure 10).
Table 7: Average Sales Turnover per Outlet, 2005 – 2009 (n = 45)*
Year
Local Foreign
Total Average (RM)***
Bumiputera Franchise
Outlets (RM)
Non-Bumiputera Franchise
Outlets (RM)
Company-owned Outlets
(RM)
Franchise Outlets
(RM)
Company-owned Outlets
(RM)
2005 1,794,195
(28) 73,605
(37) 1,161,197
(74) - - 3,028,997
2006 1,590,881
(39) 341,524
(51) 1,149,582
(85) -
64,916 (137)
3,146,902
2007 859,236
(89) 328,311
(93) 952,818
(121) 125,280
(2) 69,864 (166)
2,335,509
2008 834,532
(110) 426,287
(94) 827,295
(151) -
76,082 (190)
2,164,196
2009 739,381
(153) 358,672
(152) 648,397
(221) -
53,728 (258)
1,800,178
Note: * Number of responses for each year varies slightly or less than 45 due to missing items. ** Average per outlet is computed by dividing sales turnover (see Table 5) by number of outlets. Number of
outlets for this purpose (given in parenthesis) is slightly varied from total number of outlets as presented earlier in Figure 4, due to differences in the response number.
***The amount is a summation of average turnover per-outlet for each category in the relevant year.
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Figure 9: Average Sales Turnover per Outlet, 2005 – 2009
Table 8: Average Profit after Tax per Outlet, 2005 – 2009 (n = 44)*
Year
Local Foreign
Total Average (RM)***
Bumiputera Franchise
Outlets (RM)
Non-Bumiputera Franchise
Outlets (RM)
Company-owned Outlets
(RM)
Franchise Outlets
(RM)
Company-owned Outlets
(RM)
2005 46,892
(7) 78,246
(9) 34,420
(65) - - 159,558
2006 50,110
(18) 34,233
(16) 39,506
(78) - - 123,848
2007 37,979
(25) 35,115
(32) 27,770
(38) 78,246
(2) 8,000
(1) 187,111
2008 24,402
(46) 18,841
(19) 24,550
(73) -
10,000 (1)
77,793
2009 22,455
(56) 26,124
(32) 25,276
(52) -
15,000 (1)
88,855
Note: * Number of responses for 2008 and 2009 is less than 44 due to the missing items. ** Average per outlet is computed by dividing average profit (see Table 8) by number of outlets. Number of
outlets for this purpose (given in parenthesis) is slightly varied from total number of outlets as presented earlier in Figure 4, due to differences in the response number.
***The amount is a summation of average profit after tax per-outlet for each category in the relevant year.
Figure 10: Average Profit after Tax per Outlet, 2005 – 2009
20
2.2 FRANCHISOR PROFILE
2.2.1 Franchise Sector
Table 9 showed the number of franchisors by sectors. The number of franchisors in the food
sector is 12 (17.65 percent), convenience shops and supermarkets is 2 (2.94 percent), health
and beauty care is 4 (5.88 percent), clothing and accessories is 8 (11.76 percent), retailing is 9
(13.24 percent), services and maintenance is 13 (19.12 percent), learning centre and nursery
is 13 (19.12 percent), IT, telecommunication and electrical is 4 (5.88 percent), landscaping
and furniture is 2 (2.94 percent) and others is 1 (1.47 percent). The highest number of
franchisors falls under two sectors; the services and maintenance sector, and also learning
centre and nursery.
Table 9: Franchise Sector
No Franchise Sector Count Percent
1 Food 12 17.65
2 Convenience Shop & Supermarket 2 2.94
3 Health & Beauty Care 4 5.88
4 Clothing & Accessories 8 11.76
5 Retailing 9 13.24
6 Services & Maintenance 13 19.12
7 Learning Centre & Nursery 13 19.12
8 IT, Telecommunication & Electrical 4 5.88
9 Landscaping & Furniture 2 2.94
10 Others 1 1.47
Total 68 100.00
21
Figure 11: Franchisor by Sector
2.2.2 Franchise Brand
Figure 12 showed that the number of homegrown/local franchise brands was higher
compared to foreign franchise brands. In terms of percentage and the number,
homegrown/local was higher (56 brands, 82.35 percent) than foreign franchise brand (12
brands, 17.65 percent).
Table 10: Franchise Brand
No Franchise Brand Count Percent
1 Home-grown / local 56 82.35
2 Foreign 12 17.65
Total 68 100.00
Figure 12: Franchisor by Brand Origin
2.2.3 Franchisor Business Structure
Table 11 showed the franchisor business structure, which was divided into four categories,
namely enterprise (sole proprietorship), partnership, private limited company (Sdn. Bhd.),
and public limited company (Bhd.). The percentage of private limited company (Sdn. Bhd.)
was about 94.12 percent, followed by partnership (2.94 percent), enterprise (sole
proprietorship) and public limited company (Bhd.) (both 1.47 percent) respectively.
22
Table 11: Business Structure
No Business Structure Count Percent
1 Enterprise (Sole proprietorship) 1 1.47
2 Partnership 2 2.94
3 Private limited company (Sdn. Bhd.) 64 94.12
4 Public limited company (Bhd.) 1 1.47
Total 68 100.00
Figure13: Business Structure
2.2.4 Franchisor Ownership
Table 12 depicted that 47 percent of franchise was owned by non-Bumiputera followed by
Bumiputera 34 percent. The chart also showed that partnership with foreign franchises was
slightly greater than partnership with local franchises, the difference being 4 percent. The
lowest percentage was 3 percent, representing foreign ownership.
23
Table 12: Franchisor Ownership
No Franchisor Ownership Count Percent
1 Bumiputera 23 33.82
2 Non-Bumiputera 32 47.06
3 Foreign 2 2.94
4 Partnership (Local) 4 5.88
5 Partnership (Foreign) 7 10.29
Total 68 100.00
Figure 14: Franchisor Ownership
2.2.5 The Length of Franchising Operation
Table 13 showed the length of franchising business in operation. The largest number of
franchisors (36) were in the category of 6 - 15 years of business operation, followed by 16 -
30 years category, less than or equal to 5 years category, and above 30 years category.
Meanwhile the remaining 7 franchises did not indicate their length of franchising business
operation.
24
Table 13: The Length of Franchising Operation
No Length of Franchising Operation Number of companies
Percent
1 Less than or equal to 5 years 7 10.29
2 6 - 15 years 36 52.94
3 16 - 30 years 16 23.53
4 Above 30 years 2 2.94
5 Not specified 7 10.29
Total 68 100.00
Figure 15: Length of Franchising Business
2.3 FINANCIAL INFORMATION
2.3.1 Source of Funding
Table 14 indicated that sources of funding both at start-up and current business operation
were almost similar. Specifically, equity funding was slightly higher during start-up stage (86
percent) compared to current operation stage (78 percent).
25
Table 14: Source of Funding
Type of Funding
Source of Funding % Share During
Start-up % Share During
Current Operation
Equity
Savings / investments 58.75 54.63
Family / friends 15.25 12.13
Investors / venture capital 11.75 11.25
Debt Bank borrowing 9.75 18.75
Government loan 2.00 3.25
Grants Grants 2.50 0.00
Total 100.00 100.00
2.3.2 Franchisors’ Authorized and Paid-up Capital
Data on both authorized and paid up capitals were obtained through the questionnaire
(Question 5, Section C). A considerable number of respondents failed to indicate responses
to this question completely. As an alternative approach, all capital information was obtained
via CCM database for the responding franchisors. It must be noted that the data was not
available for nine (9) companies only.
Table 15 showed that the highest number of franchising companies had authorized capital of
RM500,000, followed by RM1 million, RM100,000 and RM5 million. Taken together, these
four categories contributed around 83 percent of the observed companies. It is interesting to
note that one company had an authorized capital of RM200 million.
Table 15: Authorized Capital – Franchisors
Authorized Capital (RM) Number of companies
100,0000 12
200,000 2
500,000 15
1,000,000 12
4,000,000 1
5,000,000 10
10,000,000 3
21,500,000 1
25,000,000 2
200,000,000 1
Total 59
26
In terms of paid up capital, Figure 16 depicted that 42 percent of the responding companies
have a paid up capital of up to RM100,001, followed by 24 percent having paid up capital
between RM100,001 and RM500,000 and 15 percent in the RM500,001 to RM1 million
category.
Figure 16: Paid-up Capital of Franchisors
Source: Data obtained from the Companies Commission of Malaysia (CCM)
2.3.3 Financial Performance of Franchisors using CCM data
This section presented data obtained from the CCM database. It was fully acknowledged
earlier that this study had difficulties in obtaining sufficient financial data, which in turn
contributed towards a considerable number of missing values or non-responses in this regard.
It was also observed that the CCM data too had a considerable number of missing data,
undoubtedly due to non-submission of financial statement to CCM and also due to non-
completion of recent financial data set. For example financial statement for the year ended 31
December 2009 could be lodged to CCM by 30 June 2010.
The aim of this section is to provide an overall insight of the franchisors’ financial
performances, which is inclusive of revenue and expenses from non-franchising business and
other activities. As a result this section should be treated with caution.
27
In terms of revenue level, as shown in Table 16, the highest number of companies reported
revenue between RM1 million and RM5 million, followed by companies with revenue from
RM0.5 million to RM1 million. A similar trend is observed in each year from 2005 to 2009.
Table 16: Revenue Level - Franchisor Companies (2005 – 2009)
Revenue Level Number of Companies
2005 2006 2007 2008 2009
Up to RM 500,000 4 3 4 1 0
RM 500,001 - RM 1,000,000 7 9 3 4 1
RM 1,000,001 - RM 5,000,000 16 16 20 16 9
RM 5,000,001 - RM 10,000,000 4 2 3 6 1
RM 10,000,001 - RM 20,000,000 7 8 9 4 0
More than RM 20,000,000 5 5 5 7 1
Number of Companies 43 43 44 38 12
Source: Data obtained from the Companies Commission of Malaysia (CCM)
In terms of net profit, as shown in Table 17, with the exception of 2009, at least 80 percent of
the companies are in the first three levels of turnover; with at least 22 percent of all
companies were in a loss situation for each year respectively.
Table 17: Profit after Tax Level - Franchisor Companies (2005 – 2009)
Profit after Tax Level Number of Companies
2005 2006 2007 2008 2009
Loss 10 15 12 13 3
Up to RM 100,000 20 15 16 12 3
RM 100,001 - RM 500,000 12 11 12 11 5
RM 500,001 - RM 1,000,000 1 2 4 3 0
RM 1,000,001 - RM 5,000,000 2 3 4 2 0
More than RM 5,000,000 1 2 1 2 2
Number of Companies 46 48 49 43 13
Source: Data obtained from the Companies Commission of Malaysia (CCM)
2.3.4 Franchisee Selection Criteria
Table 18 indicated that most of franchisors considered attitude towards business as one of the
important criteria after financial strength. However, only few franchisors used psychometric
test to select franchisees.
Table 18: Franchisee Selection Criteria
Rank Franchisee Selection Criteria Total Score
28
1 Financial strengths 349
2 Attitude towards business (e.g. perceived innovative, commitment to business) 329
3 Business proposal (e.g. feasibility of location, conducted market survey, etc.) 328
4 Business experience and acumen 301
5 People skills (e.g. sales and customer service) 283
6 Management skills 282
7 Psychometric test 170
8 Others 54
2.3.5 Franchisor Support Services Provided to Franchisee
Table 19 indicated the types of franchisor support to franchisees. The results showed there
were still a large number of franchisors who provided various kinds of support services to
their franchisees. On the other hand, only a few types of support services that were not
provided by any franchisor which are pre-opening, opening and post opening training and
support, provision of employee training materials, on-going training and development
programmes, provision of operation manuals, continuous product research and development,
site evaluation assistance, purchasing, technical and equipment assistance. This was due to
the inability of the franchisors to provide such efforts in maintaining their franchisees’
performance.
Table 19: Franchisor support services provided to franchisee
Rank Franchisor support services provided Yes No N/A
1 Pre-opening, opening and post-opening training and support
56 1 6
2 Advertising and promotion 56 0 7
3 Provision of employee training materials 54 2 7
4 Regular communication with franchisees 54 0 9
5 Ongoing training and development programmes 52 2 9
6 Provision of operation manuals 52 1 10
7 Continuous product research and development 51 2 10
8 Site evaluation assistance 50 2 11
9 Purchasing assistance 49 4 10
10 Technical assistance 46 3 14
11 Equipment assistance 44 4 15
12 Others 3 0 63
29
2.4 DISPUTES, TERMINATION AND CLOSURE
2.4.1 Number of Disputes, Termination, and Closure
From Figure 17, it showed that there were a number of disputes, termination, closure of
franchise outlets and closure of company owned outlets occurred from year 2005 until 2009.
Figure 17: Number of Disputes, Termination, and Closure
2.4.2 Reasons for Dispute
Table 20 indicated the reasons for dispute between franchisor and franchisees. The most
frequent reason given for the dispute is location of the franchise outlet which franchisees
found to be unsuitable for their business survival due to low customer volume, higher rental
cost and also the distance from the headquarters.
30
Table 20: Reasons for Dispute
Rank Reasons for dispute Total Score
1 Unsuitable location (low customer traffic, high rental cost, etc.) 57
2 Territorial disputes 46
3 Mismatch of profitability expectations 45
4 Inadequate pre-start-up training and support 34
5 Inadequate advertising & promotion support 33
6 Inadequate on-going training and support 33
7 Changes in franchise fee and/or royalties 29
8 Inadequate and/or oversupplies 25
9 Others 9
2.4.3 Reasons for Termination and Closure
With reference to Table 21, the reasons for termination of franchisee business were attributed
to poor sales performance, lack of involvement of franchisee in his/her business, non-
payment of monies due and non-compliance of operations manual and standards. However,
the least chosen reasons for termination or closure of franchisees business was conviction of a
criminal offence, fraud or bankruptcy of a franchisee.
Table 21: Reasons for Termination and Closure
Rank Reasons for termination/closure Total Score
1 Poor sales performance 107
2 Lack of involvement of franchisee in his/her business 89
3 Non-payment of monies due 82
4 Non-compliance of operations manual and standards 81
5 Inadequate funding commitment from franchisee 70
6 Repeated failure to comply with or breach of the franchise agreement
67
7 Sales of unauthorized products 53
8 Non-reconciliation of disputes 36
9 Conviction of a criminal offence, fraud or bankruptcy of a franchisee 33
10 Others 30
2.5 ISSUES, NEEDS AND EXPECTATION
The issues, needs and expectations of franchisors were classified into two phases; during (1)
business start-up and (2) business operations and expansion. There were 11 similar issues,
31
needs and expectations that both stages were normally encountered with during their
operation in both stages. The attributes were identified as (1) clear and transparent policy
guideline; (2) availability and adequacy of funding from financial institutions; (3) availability
and adequacy of government financial assistance; (4) clarity in criteria for government
financial assistance; (5) access to tax stimulus/incentive and relief; (6) availability and
effectiveness of centralized training support and knowledge sharing; (7) availability and
effectiveness of the branding support and programmes; (8) legal framework for facilitating
business and investment; (9) availability and quality of consultants to cater business needs;
(10) availability and quality of legal advisors to cater business needs; and (11) availability of
entrepreneurs as prospective franchisees.
The specific attributes that were needed during the start-up stage are product/system
development support and simplified and efficient franchise registration and approval process.
On the other hand, access to pre-Initial Public Offer (IPO) investment and assistance; labour
market that can meet their business needs, and the availability and effectiveness of
international market promotion programmes were much needed in business operation and
expansion stage.
2.5.1 Issues, Needs, and Expectations During Start-up Stage
During business start-up stage, franchisors indicated that most of the attributes were very
important and essential to their venture success. These ten (10) attributes’ mean scores were
ranged from 4.07 to 4.59. Out of thirteen (13) main attributes, the first three attributes with
high scores in importance were clear and transparent policy and guidelines (4.59),
product/system development support (4.56), availability and adequacy of funding from
financial institutions (4.47); availability and adequacy of government financial assistance (i.e.
loans, grant, etc) (4.44); availability and effectiveness of the branding support and
programmes (4.40); clarity in criteria for government financial assistance (4.40); availability
of entrepreneurs as prospective franchisees (4.25); legal framework for facilitating business
and investment (4.23); availability and quality of legal advisors to cater business needs
(4.08); and availability and effectiveness of centralized training support and knowledge
sharing (4.07).
The other three attributes that were considered as just fairly important were ranged between
3.31 and 3.93. The attributes were known as simplified and efficient franchise registration
32
and approval process and access to tax stimulus/incentive and relief (both with mean of 3.93),
and finally the availability and quality of consultants to cater business needs (3.67).
Also during the business start-up, franchisors seemed to be satisfied on only two attributes
which were product/system development support (4.31) and centralized training support and
knowledge sharing (4.14). They were moderately satisfied on legal framework for facilitating
business and investment (3.92); legal framework for facilitating business and investment
(3.88); availability and quality of legal advisors to cater business needs (3.85); availability
and effectiveness of the branding support and programmes, and the availability and quality of
consultants to cater business needs (both with mean of 3.80); availability of qualified
entrepreneurs as prospective franchisees (3.75); simplified and efficient franchise registration
and approval process (3.53); access to tax stimulus/incentive and relief (3.31); and clarity in
criteria for government financial assistance (3.07).
Figure 18: Issues, Needs, and Expectations during Start-up Stage
However, there were two main issues that franchisors felt unsatisfied about. These are the
availability and adequacy of government financial assistance (i.e. loans, grant, etc) with a
33
mean of 2.81 and availability and adequacy of funding from financial institutions with a
mean 2.60.
The unsatisfactory level of new franchisors could have been influenced by a number of issues
related to funding support either from the government agencies or financial institutions.
These issues range from inadequate funding to start-up business, long funding processing
time, funding criteria bias by financial institutions, high interest period of payment, inability
to seek for government financial assistance, and delayed procedure for loan approval.
2.5.2 Needs and Expectation during Operation and Expansion Stage
In relation to the business operation and expansion stage, franchisors responded that there
were thirteen (13) attributes that were being considered as very important and essential to
their business operation and expansion strategy, and these attributes were ranked between the
mean of 4.00 to 4.65. These attributes are; (1) clarity in criteria for government financial
assistance (4.65); (2) access and adequacy of government financial assistance (4.65); (3)
availability and adequacy of funding from financial institutions (4.65); (4) availability and
effectiveness of centralized training support and knowledge sharing (4.44); (5) clear and
transparent policy guideline (4.44); (6) availability of entrepreneurs as prospective
franchisees (4.31); (7) access to pre-IPO investment (4.31); (8) access to tax
stimulus/incentive and relief (4.29); (9) availability and effectiveness of the branding support
and programmes (4.25); (10) availability and quality of legal advisors to cater business needs
(4.17); (11) availability and quality of consultants to cater business needs (4.07); labour
market that meets business needs (4.00); the legal framework for facilitating business and
investment (4.00); and the availability and effectiveness of international market promotion
programmes (3.87), respectively.
The franchisors’ satisfaction level on all the attributes that affected their current performance
seems to be slightly lower than their responses on the attributes importance which rank
between the mean of 3.12 to 3.88. The highest mean belongs to clear and transparent policy
guideline (3.88); followed by the availability and effectiveness of international market
promotion programmes (3.87), which happens to have similar mean in start-up stage; the
availability and quality of consultants to cater business needs (3.86); availability and
effectiveness of centralized training support and knowledge sharing (3.81); availability and
quality of legal advisors to cater business needs and the legal framework for facilitating
business and investment ( both with the mean of 3.77); labour market that meets business
34
needs (3.67); availability and effectiveness of the branding support and programmes (3.63);
availability and adequacy of funding from financial institutions (3.47); access to pre-IPO
investment (3.46); availability and effectiveness of international market promotion
programmes (3.40); availability and effectiveness of international market promotion
programmes (3.29); access to tax stimulus/incentive and relief (3.14); and access and
adequacy of government financial assistance (3.12).
Figure 19: Needs and Expectation during Operation and Expansion Stage
2.5.3 Qualitative Answers for Issues Encountered During Business Start-up and
Business Operation and Expansion
35
In relation to both start-up and during business operation stages, the current study also
included qualitative responses on issues that the franchisors had encountered with. In both
stages, the franchises responses were classified into three different responses namely positive
response, negative response or not applicable (N/A). Most franchisors did not state the type
of issues they have encountered, thus their responses are depicted as shown in the Table 22.
Table 22: Issues encountered during business start-up and business operations
expansion (interview results during data collection)
No Attributes Phase 1 (Business Start-up)
Phase 2 (Business Operations and Expansion)
Positive Negative N/A Total Positive Negative N/A Total
1 Clear and transparent policy and guidelines
- 10 58 68 6 3 59 68
2 Availability and adequacy of funding from financial institutions
- 8 60 68 - 9 59 68
3
Availability and adequacy of government financial assistance (loans, grants, etc.)
- 12 56 68 - 8 60 68
4 Clarity in criteria for government financial assistance
1 4 63 68 - 2 66 68
5 Access to tax stimulus/incentive and relief
2 7 59 68 1 9 58 68
6 Product/system development support
1 5 62 68 N/A N/A N/A N/A
7 Simplified and efficient franchise registration and approval process
- 6 62 68 N/A N/A N/A N/A
8 Availability and effectiveness of centralized training support and knowledge sharing
- 2 66 68 4 2 62 68
9 Availability and effectiveness of branding support and programmes
- 3 65 68 4 1 63 68
10 Availability and effectiveness of international market promotion programmes
N/A N/A N/A N/A - 5 63 68
11 Access to pre-IPO investment and assistance
N/A N/A N/A N/A - 2 66 68
12 The legal framework is facilitative of business and investment
- 3 65 68 8 1 59 68
13 Availability and quality of consultants to cater to our business needs
2 5 61 68 - 4 64 68
14 Availability and quality of legal advisors to cater to our business needs
1 3 64 68 3 1 64 68
15 Labour market can meet our business needs
N/A N/A N/A N/A 3 4 61 68
16 Availability of qualified entrepreneurs as prospective franchisees
- 3 65 68 4 7 57 68
17 Others - 1 67 68 1 3 64 68
Total 7 72 873 952 34 61 925 1020
36
Percentage 0.74% 7.56% 91.70% 3.33% 5.98% 90.69%
From Table 22, it was observed that most responses fall under the N/A category.
Comparatively, the negative response was very much higher than positive response at both
stages of business operation. Specifically, at the business start-up stage, the negative response
was 72 whilst positive response was only 7. For business operations and expansion, the
positive responses were 61 and the negative responses were 34, about slightly half the
frequency of response.
For the Business start-up stage (Phase 1), the availability and adequacy of government
financial assistance such as loans and grants, produced the highest number of negative
response seem to be the highest among all, which was 12. And for the business operations
and expansion (Phase 2), access to tax stimulus/incentive and relief are shown to be the
highest, which represented about 9 responses.
2.5.4 Types of Financial and Non-financial Assistance Needed by Franchisors
Below are the financial and non-financial assistance needed by the franchisors. There are 6
types of financial assistance and 5 types of non-financial assistance needed by the
franchisors. The detail of financial assistance is provided in Table 23.
Table 23: Financial and Non-Financial Assistance Needed by Franchisors
No Financial Assistance Non-Financial Assistance
1 Short term loan Expand business scheme for domestic and international
2 Loan/grant from government and agencies / Financial institution
Guide and further assistance from government
3 Diversity of franchise financial provider example: Ministry of Science, Technology and Innovation (MOST)I
MFA to liaise and help in promoting franchise business
4 Equity and property financing Improved Research and Development
5 Capital / financial assistance from government
Financial support during the start-up
6 Loan processing time be improved
2.5.5 Types of Assistance Needed by Franchisees
There are seven types of assistance needed by the franchisees, as shown in Table 24.
37
Table 24: Assistance Needed by Franchisees
No Types of Assistance Needed by Franchisees
1 On-site support
2 Approval processing time to be approved
3 Operation advisor
4 Simplified fund application procedures
5 Advice on Location selection
6 Government financial support to expedite approval of loan application
7 Training
2.5.6 Impact of Franchise Act 1998 on the Growth of Franchise Business
Regarding the impact of Franchise Act 1998, respondents have mixed views on this issue.
Some respondents stated that the Franchise Act impacted their business growth, whilst other
respondents had contradicting views. There are also a number of respondents who had no
opinion on this issue.
Listed below are some of the respondents’ views with regard to the impact of Franchise Act:
1. Problem arises when franchisors need to amend the disclosure document through
KPDNKK, since the process took a longer time as expected.
2. Franchise schemes supported by the Credit Guarantee Corporation
(CGC)/Maybank/Commerce International Merchant Bankers Berhad (CIMB) were not
working because the financial institutions were not interested. The scheme was not meant
for those who were from Sabah and the franchisors from Sabah were not entitled to apply
for the start-up scheme from PNS because they are considered as non-Bumiputera. So,
they only depended on commercials bank.
3. Annual registration is a burden. A 3-years registration could be better.
3. DISCUSSION
The above survey results have shown that the franchise business sector in Malaysia is at
juncture where much still needs to be done before its full potential and its contribution in
terms of being an important component of the retail sector in the supply of goods and services
to the Malaysian economy. This franchise survey has been able to provide some important
and pertinent information and statistics about franchising in Malaysia. These include a) data
about the number of franchises; b) the number of both local and foreign franchise; c) the
38
number of franchisees; d) the number of Bumiputera and non-Bumiputera franchisees; e)
current number of outlets; f) projected growth of outlets; g) number of staff employed in
franchise business sector; h) financial performance; i) franchisor profile; j) franchisor support
services; k) the number of disputes, termination and closure; l) reasons for the disputes; m)
reasons for the terminations and closure; n) issues, needs and expectations from the players of
the franchise business sector; o) types of financial and non-financial assistance required by
franchisors and p) the impact of the Franchise Act 1998 on the growth of franchise business.
4. CONCLUSION
In summary, the franchising business sector in Malaysia continues to grow in terms of
numbers and turnover. The actors in this sector include both the Bumiputera and non-
Bumiputera ethnic communities; although lately it was observed that female non-Bumiputera
franchisees are playing a significant role in this sector. Exposure into the foreign market is
rather limited. The results of this study also unveil an alarming finding that even though the
total revenue generated by the sector is growing, the productivity per outlet is decreasing
from year to year.
Based on sector classification given by MFA, the service and maintenance sector and
learning and nursery sector registered the highest number of players, followed by food and
retailing sectors. A majority of them marketed their products and services using homegrown
franchise brands. In terms of business ownership, most of the players were registered as a
private limited company. Most of the companies relied on equity to fund their start-up and
operational capital.
The players in the sector consisted of 47 percent non-Bumiputera and 34 percent Bumiputera
companies, as well as partnership with local and foreign companies. A majority of these
companies has been operating in this business sector between 5 and 15 years.
Franchisor - franchisee relationship is one of the key attributes of franchise sector. It involves
franchisee selection, franchisor support, and conflict management. Financial strength,
entrepreneurial and business proposal are the three popular criteria for selecting franchisee
while incongruence goal in term of site, territory and financial are the main course of conflict
in the franchisor - franchisee relationship. Franchisors seem to provide substantial business
activities to support the operation of franchisee in order to improve their relationship qualities
and to sustain their business performance.
39
5. RECOMMENDATION
Finally, further in-depth research should be undertaken to probe various specific issues,
problems and challenges before a more comprehensive understanding of the underlying
issues of franchising sector in Malaysia could be obtained. This in the longer term, would
proved to be beneficial towards formulating the right and effective policies in order to further
spur the Malaysian franchising sector to greater heights.
APPENDICES
Appendix 1 - Dropped List
Item Total
Different Trademark 18
No Phone Number 12
Not franchisor, Not master Franchisee, Not franchise business 4
Invalid Number 32
Repetitive (Several franchisors with same trademark) 22
Total 88
Appendix 2 - Failure Respondents
Item Total
Dormant 10
Liquidation 3
Not franchisor, Not master Franchisee, Not franchise business 6
Inaccessible 97
Total 116