What is Franchise?

A method of marketing and distributing based on a two parties

relationship - the franchisor (the owner and granter of right) and the
franchisee (the recipient of right).

The right granted is for the purpose of running the business by using
the trade mark or trade name based on a specific system, at specified
location or area and within a specified period of time.

Malaysia Franchise Act 1998 - aims at creating a systematic registration

system to oversee a well-managed and healthy growth of franchise
business in the country

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i). Master Franchisee

A franchisor gives the right to the master franchisee for certain

territories, states or countries.

Where the right is given in a territory, the master franchisee has the
right to set up sub-franchising - area franchisees or unit franchisees.

Franchisor: imposes conditions for sub-franchising - how many outlets

to be opened within certain period of time, preparation of supporting
system for sub-franchise programmes, criteria of selecting sub-
franchisees and their partners, etc.

Master franchisee - has the choice not to practice sub-franchising and

expand the business on his own by opening outlets that are fully owned
by him in his specific territory.

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ii). Area Franchisee
Given the territorial right by the franchisor or by master franchisee.

Exclusive right is to fully operate its business on its own without

involving any sub-franchise.

Area franchisee is also expected to follow the outlet development

schedule as being outlined by the franchisor.

Otherwise, the right could be transferred to other party.

iii). Unit Franchisee

An individual entrepreneur, or a small company, holding the right given
by the franchisor to operate a specific franchise business in a specific
location or premise only.

Not allowed to practice sub-franchise.

Usually allowed to own more than one outlet depending on the

business performances.

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c). The Different Types of Franchising System

Three types of popular franchise system. They are

i). Trade Mark/ Trade name Franchise

Closely resembles licensing whereby the franchisor gives the

franchisee the right to manufacture products by using the brand name,
trade name, trade mark, logo, caricature and others owned by the
franchisor for each area.

The approach of this type of franchise does not require a complete

system, however the franchisee needs to be supervised in order to
ensure the quality and good name of the brand is preserved.

ii). Product Distribution Franchise

The franchisor gives the franchisee the right to sell and distribute
products produced by the franchisor.

Franchisor provides guides and training to the franchisees on how to

manage
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the product distribution.

Development of its operating system is not so comprehensive.

Popular among automotive industries such as Edaran Otomobil

Nasioanl Berhad (EON) and some chains of petrol stations such as
Petronas, Shell, Mobil, etc.

iii). Business Format Franchise

Most comprehensive and popular type of franchise system.

Franchisees are given the right to use the brand name, distribute the
franchisor’s manufactured goods, and the right to duplicate the whole
business system as practiced by the franchisor.

In business format franchise, the franchisor is responsible to prepare

the franchisee beginning with the concept development and selecting
the location, up to the operation manual, training, accounting system,
advertising and promotion, and continuous business development
assistance.

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d. Why Franchising?

i). Increase the effectiveness of its operation management

Enjoys the economies of scale from bulk purchasing and the execution
of more aggressive centralised advertising and promotions.

ii). Penetrate a Wider Market

Immediately and effectively without involving major capital (as most of
the investments are borne by the franchisee) penetrate local and
overseas market.

iii). Bigger Marketing network

Franchisor will be able to enjoy bigger product marketing networks and
services as well as make rapid increase in production possible.

iv). Manpower requirement reduced

Avoid having to recruit big manpower and pay huge salaries. Their
places are taken over by the franchisees.