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Overview of Malaysia Economy and Franchise Business for Asia Franchises and Franchisees

Overview of Malaysia Economy and Franchise Business for Asia Franchises and Franchisees

Franchise Glance

The Malaysian economy showed good growth in 2012/2013 and is predicted to exceed 5.4% in 2014 with similar growth forecast to continue through to 2016. Demand is high in Malaysia with over 60% of Malaysia’s GDP contributed by domestic consumption.

In 2013, 480 new franchisees entered the market and as of August 2014 there were over 700 registered franchises with more than 6,000 outlets. The industry has growth capacity as it presently accounts for only 5% of total retail sales. Around 25% of franchises are overseas controlled and domestic franchisors are global looking, being in 51 countries totalling 1,494 outlets.

International expansion by domestic franchisors:

1) Indonesia – 22 franchisors

2) China – 14 franchisors

3) Singapore – 17 franchisors

4) Philippines – 10 franchisors

5) India – 10 franchisors

6) Vietnam – 10 franchisors

7) Brunei – 10 franchisors

8) Arab Saudi – 9 franchisors

9) UAE – 9 franchisors

10) Australia – 7 franchisors

Malaysia has Asia’s and probably the world’s most franchise friendly government. Malaysia views franchising as an important economic driver and as such it offers various sweeteners to encourage the expansion of the industry.

The Malaysian government actually has their own franchise development department which created the National Franchise Development Master Plan (PIPFN) 2012-2016. The plan sets out challenging goals and strategies:

  • To contribute 4.3% of GDP by 2016.
  • To contribute 9.4% of GDP by 2020.
  • To have a 16% increase in the number of registered franchise companies by 2016.
  • To make Malaysia the franchising hub in South East Asia.

The plan is hitting its milestones with franchising contributing around 2.7% of GDP in 2012 and the industry generated approximately US$7.5 billion.

The Perbadanan Nasional Berhad (PNS) is an agency owned by the Ministry of Finance Incorporated (MOF Inc.) with the mandate to lead the development of Malaysia’s franchise industry. Several great finance schemes and tax incentives are available to help existing businesses grow through franchising and to attract new franchises into the country.

For example, the Franchise Micro-Financing Scheme allows prospective entrepreneurs with lower incomes the opportunity to start businesses with mitigated risk. The PNS allocated RM8 million (approximately US$2.5 million) to the program and as of early April 2013, RM6 million (approximately US$1.9 million) was delivered. The Ministry has stated that it is not averse to pumping more funds into the scheme.

Another scheme-The Franchise Development Assistance Fund-encourages local businessmen to expand their existing business into a franchised business. Businesses that have already been successfully developed as franchises are eligible for reimbursements of up to 90% for the overall franchise system development costs incurred, for a maximum amount of approximately US$31,118.

In addition, low interest loans of up to 80% are available to new franchises with no guarantor or collateral required and of particular interest to overseas companies looking to enter Malaysia is the availability of assistance for master franchisees.

To take advantage of these schemes and for further Malaysian franchise information please visit:

http://www.pns.com.my/franchise/franchise-program/

Malaysian consumer

Malaysia is geographically well positioned for franchisors targeting Asia. The central location and high domestic consumption has made it a strong initial target for franchisors looking to expand throughout Asia. As franchisors increasingly tap this market the Malaysian consumers are becoming used to, and can distinguish, global brands. The modernizing and sophistication of the consumers towards global brands is particularly prevalent among the young up and coming, more affluent Malaysians. By and large, the population is young with about 70% of Malaysians in the working age bracket of 15-64 and 28% aged 15 years and below.

An impressive 97% of the population are employed and the rise in Malaysian consumer’s disposable income has created a relatively new change in purchasing habits and this change is not expected to decline in the foreseeable future.

Consumer purchase drivers

Malaysian culture and their belief system is very strong and will affect purchases made by the consumer especially in non-durable goods (including food and clothing) sectors-so please be aware.

Similar to other Asian countries, they regard freshness and quality as an important factor when purchasing groceries and when eating out. The labeling of products to display these key points can be a good USP for your business and differentiate yourselves from domestic brands.

Low prices, though still influential, are no longer regarded as the most important purchase factor: only 69% of consumers in Indonesia consider it their most influential reason when choosing a store. However they are still not going to over spend, Malaysian consumers are the most prolific sale-seekers in Asia and a brand that offers a loyalty scheme and/or runs promotional campaigns has an advantage.

With the literal rise of supermarkets and malls comes the associated driver of convenience and for the franchisor, concession opportunities. Malls offer a wider range of foreign products/services for the consumer to try. The convenience of longer opening hours and being able to buy everything under one roof works well with the growing number of hours Malaysians are now working.

Although there is a trend for healthier eating, the traditional diet of the Malaysians is not so healthy. The Ministry of Health findings estimate that Malaysian adults consume the equivalent of 10 teaspoons of added hidden sugar, more than the amount recommended by the World Health Organization. The awareness of healthier living, despite being promoted by the government, is not completely developed yet and products that contain high levels of salt or sugar continue to be popular among Malaysian consumers.

This is good for franchisors as there is the best of both worlds. There is a healthy market-(excuse the pun) for higher calorie or salty products and there is a growing niche market for healthier products. To target the latter market make sure the whole marketing campaign goes 100% to specifically target the health benefits and quality ingredients used. Some brands are cleverly tying in health checks or product comparisons to extenuate the healthier properties of their products.

The bottom line

Malaysia is similar to Indonesia. There has been good growth over the past few years and this is forecast to continue. As a result of the improving economy, consumers are more optimistic and there is new consumer confidence in the market. Domestic consumer demand is high and the rising Malaysian middle-class has led to greater discretionary spending. It is still some steps behind more advanced countries in Asia but with such a franchise friendly government, the environment looks healthy.

To conclude: Good fundamentals and strong support from the government.

Franchise Meets reckons 7/10.

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