So what do you expect from me in this issue? After reading the past five issues, you might have expected some solutions from me but I must say I do not have all the answers for I am only a human learning day after day and striving for perfection. I do know one thing, that things will never be perfect but it is the effort to strive for perfection that keeps us improving day after day. And this is how we move forward. And again, I prefer to put this discussion more in the Malaysian context – moving the Malaysian franchise industry forward.
Understanding of Franchise & Embracing the Spirit of Franchising
One thing which I highlighted quite obviously in the previous issue is the understanding of franchise itself. The improvement of the understanding is vital. The stakeholder in the industry should have a consolidated effort to educate the public on the true meaning of franchise. This is probably one subject all business administration students should be exposed to in their tertiary education. Not only that, the players in the franchise industry should internalise the spirit of franchising. Instilling the true spirit of franchising in every players of the industry is not an easy task but is very important to get the industry to move forward in the right direction and build a better image and reputation.
The public must not only be made known that taking up a franchise is becoming their own boss. Sometimes the question is, are they really their own boss after taking a franchise? Public must not only be sold on the benefits of going into a franchise be it as a franchisor or a franchisee. They should be educated and exposed on the negative sides of going into franchising as well. It is not a secret that no human is perfect and therefore, no system is perfect either. It is only after knowing the pros and cons that one can make a better evaluation and decision on whether to go into the franchise or not. It is always those that were oversold to go into something that creates the most trouble and problems when things do not turn up well. You cannot really blame them as they felt they have been cheated (or sometimes really been cheated!).
One sad thing I found out is that many people go into franchising to make fast bucks. This applies to both sides – franchisor and franchisee. Farsightedness should be in the mind-set of the franchise players. Whoever that comes into the franchise arena should look at it as a long-term venture. After all, the Malaysian Franchise Act 1998 requires all franchise term to be at least 5 years. Being farsighted is not only about the franchisor’s vision or target of having how many franchisees in certain years. It is also not only about when the franchisee can get their return of investment. It should include the possible challenges and problems that the franchisees will face operationally in the future and also possible franchisor-franchisee relationship challenges.
This brings us to the operation manuals and trainings provided by the franchisor. Sad to say, a lot of franchisors assume that by having a good franchise agreement, they are good enough to go into franchising. And with that assumption, they are looking for every possible way to protect their interest in the franchise relationship with the franchisees and every possible method to ensure that franchisees pay them the money. The emphasis is way too much on the ‘return’ element of the franchise. This is where they forget about the other two elements – ‘system’ and ‘identity’. It will be a useless franchise, if the operation manuals and trainings are done just for the sack of having them.
In fact, operation manuals and trainings are some of the most important things in ensuring the survivability of “green” franchisees and also the consistency in the brand’s delivery to its customers. Both of these are vital in long term survival and growth of the franchisor and its brand. This poses the question of how many times does the franchisor review its franchise agreement and how many times does the franchisor review its operation manual? Or probably a critical question of does the franchisor knows what is inside their operation manual? Franchise consultants play a very important role here in ensuring their clients (the franchisors) have this covered and are in order.
Developing Good Franchisors
A franchise does not start with a franchisee but rather it starts with a franchisor. So, it is important to start a franchise with a good franchisor. In the earlier writings, I mentioned about franchisor selection by the franchisee and franchisee selection by the franchisor. In the selection process, some criteria have to be evaluated. To do the industry a favour, franchise consultants and the approving authority should also consider prospective franchisor evaluation. Though I know that some consultants do evaluate the potential franchisors which are also their potential clients for the readiness to go into franchising, but I do believe that most of these evaluations are on the operational readiness of the potential franchisor. In developing a good franchisor, sometimes it is more than just operational readiness. It is also about mind-set readiness.
Mind-set readiness is especially important when dealing with small and medium enterprises (SMEs). Why do I say that? This is because in SMEs, there is a tendency that the individual owner makes all the decision and gives all the directions and order. We can liken this to an “authoritarian organisation”. So, it is important to evaluate the characteristic of the owner. Some business owners go into franchising with their “own world” claiming that they have the best system and brand and aim to make lots of money from franchise fee, royalty, products they supply and other facility and services they provide to the franchisees. Well, there is nothing wrong with that since business is about making money anyway. But, if this is the only purpose, then the likelihood of these franchisors causing the failure to their franchise system is very high. Why? Because they have forgotten that their franchisees need support apart from buying product and engaging services from them.
When a business owner goes into franchising, they should have the mind-set of expanding their business coverage. This will bring them to enjoy what other franchisees would enjoy as well – better visibility, better buying power etc. This, at the end of the day will also bring them more profit in return, both from the company-owned operation and also royalty from the franchisee. For that, franchisors need to invest in their system and promotion as well. And bear in mind, the investment is not only for the development of the franchise programme or the franchise consultant’s fee. Franchising should be look at from a win-win perspective and not one party milking the other party till the last drop of the blood.
Malaysia as Regional Franchise Hub
Malaysia’s aim of becoming the regional franchise hub is a noble move. In becoming the regional franchise hub, Malaysia has already had a Franchise Act in place, in which very few countries in the world have that. Moving forward, the government ought to create a more encouraging environment to attract foreign brands to come and establish their regional headquarter here. Some incentive such as tax exemption can be considered for these foreign brands to come in.
In the local front, the government will have to look into bringing the standard of local franchisor to a higher level. To set a reputation as a regional franchise hub, I truly believe that quality is the outmost important compared to quantity, in the local front. Good local franchisors should be given some assistance to bring their brands to a higher level and penetrate the global market.
Bringing the Malaysian franchise industry to the next level is not an overnight job. It needs a lot of efforts and sweat. The players in the industry have to have a common goal – to make the franchise industry a respected industry. And this will definitely benefit everyone.
I would like to take this opportunity to wish all readers Selamat Hari Raya and Happy Merdeka!
This article was first published in Business for Sale Magazine Issue No. 27 Jul/Sep 2012