Franchise players given clearer sense of direction

9 OGOS 2010 - BUSINESS TIMES

Players in the franchise industry had been grappling in the dark for direction since the Cabinet line-up announced in April last year.

They felt that the industry was being sidelined with the disbandment of the Ministry of Entrepreneur and Cooperative Development (MECD) and the move to place divisions like the Franchise Development Division under the ambit of the Ministry of Domestic Trade, Cooperatives and Consumerism (MDTCC).

Domestic Trade, Cooperatives and Consumerism Minister Datuk Seri Ismail Sabri Yaakob, meanwhile, seemed to talk mostly about consumer issues in public.

No one knew if people in the ministry were working on franchise initiatives planned under the MECD, such as amendments to the Franchise Act 1998, a franchise blueprint and a franchise dispute mechanism.

When queried at a press conference in March this year, Ismail Sabri had said that the ministry wanted to update several consumer-related laws first before looking into the franchise law.


Some 16 months after the Cabinet reshuffle, the minister appears to have kept his word. Now that amendments to consumer laws like the Hire Purchase Act and the Direct Sale Act have been passed by the Dewan Rakyat, more news on franchising is coming out of the ministry.

In an interview with Business Times, Ismail Sabri disclosed that the franchise blueprint - a roadmap to develop the local franchise industry until 2020 - had been completed and was waiting for a launch date.

If the Ninth Malaysia Plan target to have 50 new Bumiputera franchisors and 1,000 Bumiputera franchisees could have done with more details, the minister is now making it clear, with statistics to prove, that the government is on track to achieving that goal.

At the same time, ministry officials are preparing amendments to the 12-year old Franchise Act 1998, which is scheduled to be tabled in the October parliamentary session.

The amendments will, among other things, provide greater protection for franchisors and franchisees, incorporate a dispute mechanism and allow for greater supervision.

The amendments are also expected to help the ministry keep track of the statistics needed for industry development, including information on franchising contribution to the retail sector; number of franchisees, outlets and workers employed; and sales turnover.

While the above plans were initiated by the MECD, the MDTCC has also come out with its own initiatives, such as the Franchise Malaysia logo.

Besides being a brand for home-grown franchises in the international market, the logo will also help the public to distinguish between registered and unregistered franchises.The ministry, through agency Perbadanan Nasional Bhd (PNS), is also in the process of setting up a franchise academy to train local franchisors and franchisees.

While PNS is working with Universiti Utara Malaysia on the course modules, the ministry is considering the possibility of making it compulsory for would-be franchisees to undergo courses at the academy.

Depending on how one sees it, the academy can be a positive move in enhancing the skills of franchisors and franchisees and making them better informed.

However, one could also argue that making it compulsory would burden the would-be entrepreneurs, who would have already forked out a sizeable capital to start their business.

The ministry may also want to look further into the never-ending issue in the industry: franchisees' access to financing from commercial banks.

Risk-averse bankers, who do not fully understand the franchise business, tend to turn their backs on loan applications from franchisees without experience or track record.

In reality, the franchise business has a much lower failure rate compared to others.

It is the safest venture for those without business experience. This is because the franchisors, who own the business, provide support to the franchisees on setting up the business, training and a manual on running the operation.

With visible government initiatives, programmes and plans in place, the franchise industry will be able to look towards the future with more certainty.