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The Malaysian economy showed good growth in 2012/2013 and is projected to exceed 5.4% in 2014 with similar growth forecast to continue until 2016. Demand is high in Malaysia accounting for more than 60% of Malaysian GDP provided by domestic consumption.
In 2013, 480 new franchisees entered the market and in August 2014 there were more than 700 registered franchises with more than 6,000 points of sale. The industry has room for growth as it currently represents only 5% of total retail sales. About 25% of franchises are controlled abroad and domestic franchisors have a global appearance, being located in 51 countries with a total of 1,494 outlets.
International expansion of national 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) Saudi Arabia – 9 franchisors
9) UAE – 9 franchisors
10) Australia – 7 franchisors
Malaysia has the most franchise friendly government in Asia and probably the world. Malaysia views franchising as a major economic driver and as such offers various sweeteners to encourage expansion of the industry.
The Malaysian government actually has its own franchise development department which created the National Franchise Development Master Plan (PIPFN) 2012-2016. The plan sets out challenging goals and strategies:
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Contribute 4.3% of GDP by 2016.
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Contribute 9.4% of GDP by 2020.
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Have a 16% increase in the number of franchised companies registered by 2016.
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To make Malaysia the franchise center of Southeast Asia.
The scheme is reaching its milestones with franchises contributing around 2.7% of GDP in 2012 and the industry generating approximately USD 7.5 billion.
Perbadanan Nasional Berhad (PNS) is an agency owned by the Ministry of Finance Incorporated (MOF Inc.) with a mandate to lead the development of the Malaysian franchise industry. Various great financing schemes and tax incentives are available to help existing businesses grow through franchising and to attract new franchisees to the country.
For example, the Franchise Microfinance Scheme allows lower-income prospective entrepreneurs the opportunity to start businesses with mitigated risk. The PNS allocated 8 million RM (approximately US$2.5 million) to the program, and in early April 2013, 6 million RM (approximately US$1.9 million) was awarded. The Ministry has stated that it is not averse to injecting more funds into the scheme.
Another scheme, the Franchise Development Assistance Fund, encourages local entrepreneurs to expand their existing businesses into a franchise business. Businesses that have already been successfully franchised are eligible for reimbursements of up to 90% of the overall franchise system development costs incurred, up to a maximum amount of approximately $31,118.
Additionally, low interest loans of up to 80% are available for new franchisees with no collateral or collateral required and of particular interest to foreign companies looking to enter Malaysia is the availability of assistance for master franchisees.
To take advantage of these schemes and learn more about Malaysia franchises, 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 have made it a strong starting target for franchisors looking to expand throughout Asia. As franchisors increasingly tap into this market, Malaysian consumers are getting used to and distinguishing between global brands. Consumer upgrading and sophistication towards global brands is particularly prevalent among the wealthiest and most promising young Malaysians. In general, the population is young with around 70% of Malaysians in the 15-64 working age group and 28% aged 15 and under.
An impressive 97% of the population is employed and the increase in the disposable income of Malaysian consumers has created a relatively new change in shopping habits and this change is not expected to abate in the foreseeable future.
Consumer Purchase Drivers
The Malaysian culture and belief system is very strong and will affect consumer purchases, especially in the non-durable goods sectors (including food and clothing), so be careful.
Like other Asian countries, they consider freshness and quality an important factor when buying groceries and eating out. Product labeling to showcase these key points can be a good USP for your business and set you apart from national brands.
Low prices, while still influential, are no longer considered the most important buying factor: only 69% of consumers in Indonesia consider it their most influential reason for choosing a store. However, they are not going to overspend, Malaysian consumers are the most prolific sales seekers in Asia and a brand that offers a loyalty program and/or runs promotional campaigns has an advantage.
With the literal rise of supermarkets and shopping malls comes the associated driver of convenience and, for the franchisor, franchise 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 shop for everything under one roof works well with the increasing number of hours Malaysians now work.
Although there is a trend for healthier eating, the traditional diet of the Malaysians is not so healthy. Findings from the Ministry of Health estimate that Malaysian adults consume the equivalent of 10 teaspoons of hidden added sugar, more than the amount recommended by the World Health Organization. Healthier living awareness, despite being promoted by the government, is still not fully developed and products containing 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 that the entire marketing campaign is 100% targeted to specifically focus on the health benefits and quality ingredients used. Some brands are cleverly linking health checks or product comparisons to tone down the healthier properties of their products.
The bottom line
Malaysia is similar to Indonesia. There has been good growth in recent years and this is expected to continue. As a result of the improving economy, consumers are more optimistic and there is a new consumer confidence in the market. Domestic consumer demand is high and Malaysia’s growing middle class has led to more discretionary spending. It is still a few steps behind the more advanced countries in Asia, but with such a franchise-friendly government, the environment looks healthy.
To conclude: Good fundamentals and strong government support.
Franchise Complies with the calculation 7/10.