Overcoming challenges to tap industry's potential

THE local franchise industry, although still in its infancy, is set to grow significantly in the near future as it is embraced by more local entrepreneurs. The concept makes it easier for someone to start a business while existing businesses can expand faster. What lies ahead for local franchisors and franchisees? HAMISAH HAMID speaks to Malaysian Franchise Association (MFA) chairman Datuk Mukhriz Mahathir on the challenges the industry faces and its future. This is the first of a two-part interview.

QUESTION: What is your outlook on the growth and challenges of the Malaysian Franchise Industry for 2008?

ANSWER: I believe franchising can contribute to the Malaysian economy and improving the lives of ordinary Malaysians. It's a subject that needs a lot of explaining and motivating on the ground. The fact of the matter is that the local franchise industry is just in its early years of development.

There are some challenges that we have identified as impediments to the growth of the industry.

Firstly, let's examine our home-grown "Truly Malaysian" franchises, as we like to call them. The truth is, such internationally recognised local brands are few and far between. We have, for example, Marrybrown, Smart Reader Worldwide, Secret Recipe, Daily Fresh, World of Feng Shui and Nelson's that come to my mind that have successfully pierced foreign markets in parts of the Middle East and wider Asia. Most of these brands are recognisable Malaysian franchises that are slowly making headway overseas.

Theirs is a story of entrepreneurship, hard work, perseverance and the fortitude to weather the harsh business environment. For the naysayer out there, let me offer you these fine examples of Malaysians that took the plunge and made it.

Having said this, the figures project an unsatisfactory picture by our standards and expectations at least of the development of the local franchise industry. I mean, let's compare our nation of about 26 million people or so against that of the island state of Singapore. Malaysia has a total of 318 franchise systems of which 211 franchises are home-grown brands.

Singapore, on the other hand, has a total of 380 brands for a population of about 3.7 million. Or even Australia, which has a population of 21 million people. The Aussies have 960 brands.

And so, I believe that we have to raise the bar and the possibilities of this industry.

In Malaysia, we have a huge consumer base where 62.9 per cent of the population are within the ages of 15-64 years. Any business person will tell you that this is a powerful consumer base. You've got teenagers, the young adults, yuppies, middle-aged professionals and cash-flush retirees all lumped into one big plate of a target market.

Also, our nation has come a long way in terms of economic development. Nowadays, families are eating out practically everyday at restaurants and shopping malls, sometimes more than once a day. Tell me where else in the world do people eat out that often. The tastes and expectations that come with higher purchasing power parity coupled with the discerning nature of Malaysian consumers beg the question, why aren't there more choices for Malaysians?

There are many overseas franchises that haven't yet made their way into Malaysian markets and vice-versa. We need to push our franchises into international markets.

The Malaysian satay is a popular dish in eateries throughout Australia, for example. Those of you who know would have seen frozen Malaysian satay commercials over there. But who are these companies or entrepreneurs who have franchised this Malaysian delicacy? Not all are Malaysians. Many foreign companies have benefited from creating a strong brand from what has its roots in Malaysia. If not for the inclusion of the word "Malaysian", many may not link the satay to Malaysia.

Thus, we aim to increase the number of successful franchises as encapsulated in the Ninth Malaysia Plan to as many as 50 new franchisors and 1,000 franchisees. This is not just the numbers game, for franchising is not something that you can quite create false statistics.

If a franchise is not sustainable as in any business, it will surely collapse. Therefore, ours is a long labour to this end, especially when the US economic slump results in a global economic slowdown which will surely hit Asia.

The second challenge for the industry in order to spur growth is to go back to basics. The MFA has, over the years, disseminated information on franchise know-how.

Many Malaysians think that franchising is a sure thing because it's a proven concept and hope to jump on the bandwagon. This is an erroneous assumption. While the franchise concept has its advantages, it also possesses its own peculiarities that may or may not be suitable for everyone.

The mechanisms of cooperation between franchisor and franchisee, for one, must be thoroughly understood before inking the collaboration. The success or failure of a franchise depends on a variant of factors not least of which is hard unrelenting work and perseverance.

In short, franchising is not a free lunch in any regard. Those of you who are interested can participate in our Essential Franchise Training Programme for Would-Be Franchisor.

Thirdly, the perennial problem of the lack of funding poses a difficult barrier to overcome. At the MFA, while we do not operate funds ourselves, we are able to facilitate genuine applications and refer them to relevant agencies such as the Perbadanan Nasional Bhd (PNS) and the Ministry of Entrepreneur and Cooperative Development (MECD).

For Bumiputera candidates, the MECD has allocated RM900 million to assist 3,997 entrepreneurs for this year. These loans are managed by the SME Bank and Mara. Non-Bumiputeras can also apply for loans at the SME Bank or the Credit Guarantee Corporation (CGC).

QUESTION: What are the initiatives taken by the MFA to overcome some of these challenges?

ANSWER: In a continuous effort to identify and nurture credible entrepreneurs, and when I say this I mean potential business people who possess a mix of skills, qualifications and appropriate mindset, get the potential franchisor to run a comprehensive research and development as well as brand development proposal and projection.

It is at this stage that the viability and SWOT (strengths, weaknesses, opportunities and threats) analysis is examined. If the overall proposal has merit and potential, the franchisors can obtain a Brand Promotion Grant, Market Development Grant and Services Export Fund made available by the Malaysia External Trade Development Corporation.

Selected entrepreneurs would also have the benefit of the ongoing training schemes jointly organised by the MECD, PNS and MFA such as Fundamentals of Franchise Business Course, Business Plan Preparation for Would-Be Franchisee, Essential Franchise Training Programme for Would-Be Franchisor, Franchise Development Course For Franchise Consultant, Franchise Act 1998 Seminar, Franchise Talk, Graduate Franchise Programme and Women Franchise Programme.