Franchise Development in Malaysia

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LAW 3512
COMMERCIAL LAW (FOR ENM)
Assignment Topic: The development of franchise and franchise law in Malaysia

Name: Nurfazlina bt Mohd Jaffar Sadique
Matric:1029088
Section: 2
Lecturer: Madam Ani Munirah
Introduction| 3|
Market Demand| 3|
Elements in Franchise| 6|
Elements in franchising agreement| 7|
System of Registration| 8|
Development Programme by Government| 10|
Franchisor Development Programme| 10|
Application Procedures| 12|
Franchisee Development Programme| 15|
Supporting Agencies| 16|
Term and Termination| 16|
References| 17|
Table Of Content

DEVELOPMENT OF FRANCHISE AND FRANCHISE LAW IN MALAYSIA
Introduction
Franchise is a method of marketing or distribution in which the franchisor (the person who owns or originator of the business) grants the franchisee the right to use the brand/mark, the trade secret, any confidential information, intellectual property, and the right to operate a business according to the franchise system as determined by the franchisor within a specified term, at an agreed location. In other words, franchise is a business venture between the franchisor (the product owner) and the franchisee (investor) in which the franchisor will provide the product and business system while the franchisee invests in capital by the means of funding, manpower and continuous effort. Market demand

Currently, Malaysia is one of fastest growing franchise markets in Southeast Asia. With the support from the Government of Malaysia, the private sector, and general receptivity from consumers, the market growth trend of 15% per annum for the past decade is expected to continue into the next decade. For time being, franchise businesses contribute to about 3.5% of the Gross Domestic Production (GDP). With its desire to be a regional franchise hub, as well as a developed nation by 2020, Malaysia needs to double its income level and national capital base from the current per capita income of US$14,000 (adjusted for purchasing power parity). Translated, the upside to demand growth for the franchise industry is very high. Major domestic franchise players that have successfully expanded overseas are mainly in the food and beverage sectors. Secret Recipe Cakes and Cafe, Marrybrown Fried Chicken, D’Tandoor, and Nelson are some of the Malaysian food and beverage related franchise companies that had expanded to Asia and Middle-East. The England Optical and Smart Reader Childcare Center are some of the other successful franchisors. Smart Reader has over 300 outlets and is one of the largest home grown education franchise concept. Edaran Otomobil Nasional (EON) is one of Malaysia’s largest automotive franchise dealers. As of July 2009, Malaysia has 381 home grown franchise brands. U.S. franchise market share in Malaysia is about 34%. Some of the U.S. brands available are: KFC, McDonalds’, Pizza Hut, Starbucks, Wendy’s, Tony Roma’s, Burger King, Carl’s Jr., Dominos, Krispy Kreme, Papa John’s, Popeye, Subway, Dunkin Donuts, etc. U.S. non-food brand in the market are: Borders, Levis, Foot Solutions, 7-Eleven, Merry Maids, Mail Boxes, etc. KFC is one of Malaysia’s largest foreign franchises and it has been so entrenched in the Malaysian economy that it has expanded its business into a complete integrated upstream to downstream supply chain. The Government of Malaysia (GOM) has identified franchising as catalyst for increasing the number of entrepreneurs in Malaysia and is strongly supporting this endeavor. Towards this end, it has allocated about US$5.7 million/ RM20 million (US$1=RM3.50) for franchise development programs to establish new franchises in the country during the 9th Malaysian Economic Plan (9MP) period of 2005-2010. This translates to about 1000 franchisees and 50 franchisors. As of November 2009, there are 46 such franchisors in the country. Franchise businesses contribute about 3.5% towards the Malaysian Gross Domestic Production (GDP). Although...
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