On franchise upgrades, updates

It has been almost a year since the Ministry of Entrepreneur and Cooperative Development (MECD) was dissolved when Prime Minister Datuk Seri Najib Razak announced the Cabinet line-up in April 2009.

Following the dissolution, the agencies under MECD were absorbed by several ministries. For one, the franchise development division has been put under the Ministry of Domestic Trade, Cooperatives and Consumerism (MDTCC), an enlarged ministry that replaced former Domestic Trade and Consumer Affairs Ministry.

A franchise operation is said to have a much lower risk of failure than an independent business due to its proven or "tried-and-tested" business model.

The business is suitable for aspiring entrepreneurs because besides low capital requirement, franchisors - the owner of the business rights - will provide support to the franchisees in terms of training, setting up the business and a manual on running the operation.

Recognising the importance of the franchise sector, the government, under the Ninth Malaysia Plan (9MP, 2006-2010), has targeted to create 50 new homegrown franchisors and 1,000 franchisees.

Plans are also in the pipeline for a Franchise Blueprint that would guide the development of the local franchise industry until 2020, as well as a franchise dispute mechanism that helps resolve franchisor-franchisee disputes.

In 2000, there were 3,781 franchise outlets in Malaysia, generating 80,000 jobs with a turnover of RM10.7 billion. Imagine how the revenue and job creation would amplify if the franchise industry were to grow bigger and contribute more to economic activities?

However, in 2008, there were 318 franchise systems in 26 million-population Malaysia, compared with 380 franchise brands in Singapore that had 3.7 million people.

Five years ago, franchise contributed about 5 per cent to the total retail sales in the country. This is a far cry from the over 40 per cent contribution in the US.

While Malaysia may be a latecomer in the franchise business, there is nothing to prevent it from fast-tracking the sector's growth.

As such, franchise should be included in the soon-to-be-unveiled New Economic Model as the sector has a role in upgrading people's standard of living.

Many retrenched workers, fresh and unemployed graduates as well as women have become franchise entrepreneurs and they, in turn, provided jobs for the locals. Franchising has also increased Bumiputera participation in the retail sector.

Now that the 9MP is reaching its tail-end, has the franchisor-franchisee development target been fully achieved?

While the Franchise Blueprint is expected to be revealed in the second quarter of this year, there has been no word on the proposed dispute mechanism.

The dispute mechanism to mediate franchisors-franchisees disputes is badly needed to ensure harmonious environment for players to operate.

So far, statistics on the franchise sector such as its contribution to the retail industry are six years old, while the total outlets, number of workers employed and turnover show decade-old figures!

One question: how can the government formulate a development plan for the franchise sector if the data, except for franchise registration, is not updated?

It would also be useful to find out which franchises have been badly, moderately, slightly or not affected by the global economic crisis so that appropriate measures can be devised to assist those who are in need of help and push those who are expanding.

If the government already has the latest data, with all information available and statistics updated, then releasing it to the business and investment community will be helpful so that thorough risk and return analysis can be done.