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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: [email protected] 2 College of Business, Universiti Utara Malaysia

3 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

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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

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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)


Outlets (RM)


(RM)

Franchise Outlets

(RM)


(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)


Outlets (RM)


(RM)

Franchise Outlets

(RM)


(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)***


Outlets (RM)


Outlets (RM)


(RM)

Franchise Outlets

(RM)


(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)***


Outlets (RM)


Outlets (RM)


(RM)

Franchise Outlets

(RM)


(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


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


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

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