In-House Seminar @ Snider Entrepreneurial Research Center, The Wharton School

What : In-House Seminar @ Snider Entrepreneurial Research Center
When : 900am (February 15, 2015)
Where : Snider Entrepreneurial Research Center, The Wharton School

Assalamu'alaikum dan selamat pagi,

Pada 15 Februari 2016, saya selamat membentangkan kertas kerja pertama dalam In-House Seminar @ Snider Entrepreneurial Research Center. Ehmmm, dekat 4 bulan (tolak satu bulan baru sampai dan 'settle down', tinggal tiga bulan) juga dok fokus pada tajuk ini, lepas ini boleh lupakan kertas kerja ini, Alhamdulillah. Sekarang tinggal kerja-kerja terakhir penyuntingan sebelum dihantar ke mana-mana jurnal berwasit. 

Prof. MacMillan merupakan Pengarah Snider. Beliau orang lama, cara mengulas dan memberi komen tidak sama dengan orang baru, penuh kiasan dan analogi.

Rakan Sarjana Pelawat dan rakan di Snider yang turut hadir

Saya tidak boleh menukilkan perbincangan, dapatan dan cadangan hasil penyelidikan saya ini secara menyeluruh di sini kerana nanti timbul isu hakcipta pula apabila artikel saya akan diterbitkan di jurnal kelak. Saya tidak membincangkan implikasi kajian dari segi francaisor/bakal francaisor, francaisi/bakal francaisi kerana kajian ini melihat dari sudut konteks/perspektif apa yang pihak kerajaan boleh lakukan. Dari itu, saya ringkaskan di sini cadangan-cadangan yang saya kemukakan di dalam kajian tersebut.

Brief Discussion and Suggestion

Research on Franchising Failure and Survival in Malaysia

• It is a right time for government to investigate franchising failure and survival in Malaysia context. We need to know how many franchise systems are still active, inactive, bankrupt or exit.
• The government may need to re-categorized master franchisee and franchisee to foreign franchisor in order to know exactly how many foreign brands available in Malaysian market (this indicator is not captured within current registration)
• Franchisee category can be categorized into transfer, cancellations (terminated), non-renewals, re-acquisition, or other as suggested by Holmberg and Morgan (2003) to see what really happened in the industry.
• It is suggested to FDD/PNS to create a new scheme to enable successful home-grown franchise system to be listed in Bursa Malaysia (Malaysia Stock Exchange). After more than 20 years, a home-grown franchising company listed in Bursa Malaysia can be a good achievement by the industry. 

Age Before Franchising

• It is suggested for government to increase the minimum age of operation before the company is given a franchise license from three years to five to seven years. This will enable would-be franchisor to have a strong foundation in business, establish internal process and mechanism, have a good brand name, have a proven business concept and ready to face competition.
• In terms of financial assistance and non-financial assistance, three schemes are available for would-be franchisor (Pre-Franchise Scheme, Local Franchise Product Development Fund and BIT Pre-Franchisor). PNS may need to change the minimum operation criteria in those three schemes from one or two years to five to seven years.

Age After franchising (Franchise System Age)

• It is suggested to PNS to include the minimum system age of five years as one of the requirements for Franchisor Financing Scheme (FFS) and Franchise Development Assistance Fund (FDAF)  as the younger systems face high risk of failure.
• New scheme need to be established to solely focus on development of new franchisor. 

System size

• It is suggested to incorporate new initiatives to enlarge newer franchisor/master franchisee in Malaysia. Besides FFS and FDAP, more initiatives can be done to strengthening current franchisor/master franchisee such as specific training and development activities, market study grant, and Research and Development Grant. In terms of fiscal policy, Federal government can offer tax exemption for franchisor/master franchisee for the first three/five years (credible franchisor/master franchisee). 

Franchisee Fee

• In brief, franchise fees (such as franchise fee, advertising fee, training fee, services fee, payment for lease and any other fees) seem to have positive impact on franchisor but negative impact on franchisee. 
• It is suggested for ROF to examine new franchisor/master franchisee application process in regards to franchise fees carefully to ensure that the new system bring profits to both franchisor and franchisee. 

Contract Length

• In Section 5, Franchise Act 1998, it is clear that the minimum contract is five years.
• Since  five years franchise contract length weakening franchisee, it is suggested to prolong the contract length to seven or eight years  (the best practices in U.S are eight years). Then, the Section 5, Franchise Act 1998 need to be amended. 

Territorial Right

• In relation to Malaysia, under Section 18(2)(b) Franchise Act 1998, franchisor must grant the territorial right to franchisee. Therefore, no issue of territorial right is considered important for Malaysia. Nevertheless, government must scrutinize the clauses of territorial right employed by franchisor in order to prevent encroachment problems within franchise system. 

Franchisee Management

• Besides current incentives, it is suggested for PNS or/and MFA to organize a specific training program/sharing best practices/seminar on franchisee recruitment, franchisee training, and franchisee monitoring.    

Support System

• In Franchise Act 1998, there are sections that require the obligation of franchisor (Section 18(2)(d)), particular assistance provided by franchisor (Section 18(2)(k)), act in an honest and lawful manner (Section 29(1)), and obligation of franchisor such as supply of materials, services, training, marketing and technical assistance (Section 30(3)). 
• From regulatory purposes, it seems that franchisors will provide everything to their franchisees. Some suggestions for government are to have a better screening on would-be franchisor, offered a series of courses on developing comprehensive Training and Development Program within franchise system and some grant (Technology Grant/Automation Grant) to improve support system. 

First mover advantage

• Since first mover advantage is related with blue ocean business, it is suggested for government to focus on non-food and non-retailing businesses in developing homegrown franchise system. Further, government can bring a unique/rare international franchise system into Malaysia. Such fiscal policy such as tax exemption can be applied to new master franchisee. 

Brand Name

• Policy associated with brand name should be aligned with franchisee management, system support and franchisor-franchisee relationship.  

Franchisor-Franchisee Relationship

• In terms of policy, new policy and incentives to enhance franchisor-franchisee relationship should be aligned with territorial rights issue, franchisee management, system support and brand name. As discovered in previous studies, important components to maintain franchisee motivation are franchisee self-satisfaction, goal attainment, trust, continuous communication, information exchange and sustainable competitive advantage. 

Multiple Unit Policy

• Several studies displayed that multiple unit policy enhance survival rates for franchisee (Bates 1998) and increase survival for larger franchisors (Shane 2001). One of the reason is multi-unit franchisees can grow more easily because the re-use of existing franchisees (Bradach 1995). In current environment in Malaysia, franchisee has the opportunity to add more outlets when applying to Franchisee Financing Scheme offered by PNS.  To recruit good franchisee, franchisor must strengthen their recruitment policy and practices besides have a good track record on franchising. In terms of policy, government must encourage/allow current franchisor/master franchisee to give some discounts of franchise fee when competent franchisee applied for another outlet.  Further, some tax incentives can be offered to encourage franchisee to add another outlet. 

 Industry Effect

• Since BIT Program initiated by PNS has focused on retailing sector, it is suggested to integrate non-retailing business in BIT Program.  It is a right time for government to focus on non-retailing and non-food business for would-be/new franchisor/master franchisee. 

Other Factors

• First, minimum outlet before franchising should be increased to five, rather than one at the current standard. Second, FDD may develop more methods/measurements on how to assess the proposed business concept is piloted successfully within pre-franchising period. It is not the quantity of new franchisor is important for the industry but the quality of new franchisor.