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Published by Arvind Bhadouriya
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).
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).

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Categories:Types, Business/Law
Published by: Arvind Bhadouriya on Sep 29, 2010
Copyright:Attribution Non-commercial


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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


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 subfranchisees 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.


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.



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

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.



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.


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