FRANCHISE

Franchise in Malaysia

Franchise is a popular business model in Malaysia and all around the world. Franchising in Malaysia is particularly popular in the food and beverage industry, with well-known brands like McDonald’s, KFC, and Pizza Hut all having a strong presence in the country. However, franchising is also growing in other sectors, including education, retail, and healthcare.

So what exactly is franchise? To put it simply, franchise is an agreement between the franchisor (franchise giver) and the franchisee (franchise receiver) where the franchisor will grant the use of and share his intellectual property rights, business model, system, trade confidential information and certain trade secret with the franchisee. In return, the franchisee will pay fees such as royalty and franchise fee to the franchisor. By using this system, it allows a business to expand and grow quickly through the money and manpower of another person. Franchising is a way for entrepreneurs to start their own businesses with the support of a well-established brand and system, while franchisors can expand their brand without taking on the risk and cost of opening new locations themselves. A franchise business usually has good track records, which is why investors or franchisees are willing to invest in and participate in the franchise business.

One of the benefits of franchising in Malaysia is that it allows entrepreneurs to start their own business with the support of an established brand and system. Franchisees can benefit from the experience and expertise of the franchisor, as well as access to marketing, training, and ongoing support. Franchisors can benefit from the ability to expand their brand without taking on the risk and cost of opening new locations themselves.

Another benefit of franchising is that it can lead to faster growth and expansion. With a franchise model, a business can expand quickly by licensing its intellectual property and business system to others, who operate at different locations. This can be particularly beneficial for businesses that have a proven concept and are ready to expand.

Not to be confused with licensing / license agreement

Essentially, a franchise agreement and a licensing agreement share the same concept i.e. granting the use of intellectual property rights, business system, and trade secret in return for fees. One of the main differences is that franchise requires registration with the Registrar of Franchise while licensing does not. Hence, a franchise business model may not commence operation without completing the relevant registration procedures at the registrar. Failure to observe this is an offence under the Malaysian Franchise Act 1998.

Franchise is strictly governed under the Franchise Act whereas licensing agreement is generally governed under the Contracts Act with the principle of freedom of contract. On the other hand, franchise is not so “freedom” as it requires specific terms / clauses to be included in a franchise agreement.

Regulations for Franchising in Malaysia

In Malaysia, the franchise industry is regulated by the Malaysian Franchise Act 1998, which aims to protect franchisees and promote the growth of the franchise industry. The Act requires franchisors to provide a disclosure document to potential franchisees, which outlines important information about the franchisor, the business and system, and the essential terms of the franchise agreement. This is intended to ensure that potential franchisees have the information they need to make an informed decision about whether to invest in the franchise.

The Act also requires franchisors to register their franchise with the Registrar of Franchise, which is responsible for overseeing the franchise industry in Malaysia. Franchisors must provide detailed information about the franchise, including its history, financial statements, training and operation manual, and the terms of the franchise agreement.

Franchise Regulations

Challenges of Franchising in Malaysia

One of the challenges of franchising in Malaysia is that it can be difficult to find qualified franchisees who are able to operate a successful franchise location. Franchisees must be able to manage the day-to-day operations of the business, as well as adhere to the franchisor’s system and standards. Franchisees must also be patience, committed, and have passion towards the franchise business and the relevant business industry. It can sometimes be challenging for some entrepreneurs, particularly those who are new to the industry or who lack business experience.

Secondly, the cost of setting up a franchise system and giving franchisees the required training and assistance may be high. Hence, to ensure the success of the franchise, franchisors must be willing to make investments in their franchise system, marketing, and offer ongoing assistance to franchisees.

There are several things to take note of for entrepreneurs and business owners who are thinking of franchising their business in Malaysia such as Malaysia’s cultural and business climate, legal and regulatory constraints, and potential risks and advantages of franchising. To ensure that your franchise business is going smoothly, you may want to seek advice from qualified franchise consultants.

For prospective franchisees in Malaysia, it is important to do your due diligence and thoroughly research any franchisor you are considering working with. This should include a review of the franchisor’s disclosure documents, financial history, and track record of success. It is also important to consider factors like the location and demographic of the franchise, as well as the level of support and training provided by the franchisor.

Conclusion

In conclusion, franchising is a growing and dynamic industry in Malaysia, offering both franchisors and franchisees a range of opportunities and challenges. Whether you are a business owner looking to expand into new markets, or an entrepreneur looking to start your own business with the support of an established brand, franchising can be a powerful and effective way to achieve your goals.