All about franchising in Malaysia
Dec 31, 2015
An Islamic country, Malaysia’s government wants more entrepreneurship.
Forget wining and dining prospects in Malaysia, but expect some business leaders to be workaholics. And ‘yes’ means ‘no,’ if it’s followed by any qualifiers. Read on for more expansion advice.
Malaysia has been making headlines lately not because it’s one of Southeast Asia’s fastest-growing franchise markets, but sadly because of two tragic Malaysian Airlines flights—one shot down over eastern Ukraine by a missile believed to have been fired by pro-Russian rebels and an earlier flight that disappeared on its way to Beijing, a mystery that’s still unsolved.
While the airline works on its reputation and operations, the government is continuing the work it started in 2005 to help develop new franchises. According to the U.S. Commercial Service, the Malaysian government identified franchising as a catalyst for increasing the number of entrepreneurs in the country.
As part of its 9th Malaysian Economic Plan from 2005 to 2010, the government allocated US$5.7 million for franchise programs. The benefit of the programs, however, was limited to Bumi Putra, local Malay franchises, according to William Edwards of Edwards Global Services, a consultant who helps U.S. franchises find partners and set up operations in foreign locales.
“Supposedly it covered ethnic Malay licensees of foreign brands,” he says. “There are very few Malay companies that qualify to be international licensees.” Most professional companies are owned and operated by Chinese Malay and didn’t qualify for the government assistance.
Although the country is franchise friendly, it can be challenging for franchisors entering the Islamic country. For one thing, says Ned Lyerly, president of international for CKE, parent company of Hardee’s and Carl’s Jr., registering your franchise there can be onerous.
Franchises are governed by the Malaysian Franchise Act of 1998, and franchisors must be registered with the Registrar of Franchise.
In addition to providing regulators with franchise disclosure documents and contracts, franchisors need to submit operation manuals and other sensitive documents. “We’re not used to providing confidential IP (intellectual property) to non-franchisees,” he says of U.S. franchisors.
CKE has seven Carl’s Jr. restaurants open in Malaysia. Progress has been slower than desired because its partner there isn’t Malaysian, and “we’re in the process of locating a local partner,” he says.
The continued emergence of an affluent and informed middle class in Malaysia and across the ASEAN region, coupled with the progression of Malaysia and the other nearby countries toward regional economic integration by way of the ASEAN Economic Community (AEC) in 2015 is creating a substantial opportunity for the development and growth of the franchise industry across the ASEAN region, says Troy Franklin, World Franchise Associates chief operating officer for South East Asia. Who is helping take Carrollton, Texas-based Fastsigns into the region. “Fastsigns entry into Malaysia would provide a foothold for entry into the other ASEAN countries and access to a population of more than 625 million people,” he says. In addition, a location there would create awareness of the brand in East Asia and the Indian sub-continent.
For restaurants, one of the strengths of the market is that Malaysia has a “huge consumer base and a youthful population,” Lyerly says. An adjustment the burger chain made was to take out all pork products and ensure the restaurants conform to the local culture.
“For foodservice companies, being a halal-certified restaurant is a must,” he says. Halal refers not only to food, but “any object or action which is permissible to use or engage in accordance with Islamic law,” according to Wikipedia. As it applies to restaurants, meat must come from an approved halal supplier who slaughters the animals by a prescribed method.
In deference to the local palate, Carl’s expanded its menu to include more chicken options and adjusted the flavor profile to be spicier.
Sourcing is not a problem for its operation, he contends, because when CKE goes into a foreign market, it makes significant investments in the supply chain.
Another change for the chain was in their advertising. In the U.S., Carl’s Jr. is known for its racy ads featuring the likes of Paris Hilton and Sports Illustrated swimsuit model, Kate Upton. Malaysia, however, has some of the strictest censorship laws in the world. Carl’s ads there still have an edgy and irreverent feel to them, Lyerly says—”youthful people hanging out,” with the sex-appeal edited out.
“We like to tie in with celebrities in local markets,” he says. In nearby Indonesia, for instance, they’ve teamed up with a supermodel with her own televised food show.
While the chain will still target young, hungry men in Malaysia, Lyerly says the female demographic is very important in the QSR environment. “Women are economically and socially active (in Southeast Asia and the Middle East) and are often early adapters,” he points out.
Carls Jr., which was fortunate to be ahead of the curve of bringing premium burgers to this area of the world, enjoys the benefits of being first in. Connecting with and engaging customers via social media also has worked well there, he says: “It’s a tremendous platform for promoting the brand and connecting with consumers. It’s especially important when you don’t have the penetration for broadcast media.”
Sweets are on the radar here, which is why two U.S. brands, Dunkin’ Donuts and Krispy Kreme, compete with a local brand, Big Apple Donut, and an Indonesian import, J Co.
Here, too, chains make concessions to the local tastes. On Krispy Kreme Malaysia’s Facebook page, a post about new taste profiles for Malaysia Day in late August included cardamom sugar donuts and coconut with hibiscus jam. In September a lunch offer was a tuna or egg salad sandwich where the “bun” was a sliced glazed donut. The price was RM 7.90 (US$2.46) for the sandwich and a glazed donut to “balance out the savory.”