INTRODUCTION Franchising is a great chance for entrepreneurs to startup a business and it is a method of marketing or distribution in which franchisee hold

the right that given by franchiser to use the brand and market a companys product. It is an agreement between franchiser and franchisee where franchiser will provide the product and business system while the franchisee invest money, manpower, time and effort to sustain the business. Some examples of popular fast food franchises include McDonalds, Subway, and Dominos Pizza. Other than fast food business, there are format of franchise such as health and beauty, auto, retail, business services, education, lodging, maintenance, restaurants. The franchisee will need to follow certain guidelines once the contract has been signed, and in most cases, the franchisee must pay up-front entry fee and royalty fees. Franchise has become a popular business way in todays marketplace because it would benefit both franchiser and franchisee. Franchise is considered as an efficient mechanism used to penetrate the market and it will be resulted in the expansion of business through the investment of franchisee (Franchise Development in Malaysia, n.d.). The advantage of buying a franchise is because of the existence of corporate image, brand image and brand awareness where consumers will purchase the product comfortably from the company they trust. Franchiser will usually provide an extensive training and support in terms of selection of appropriate location to start the business, counseling on business management and franchise outlets management. The top 10 global franchises in 2010 include Subway, McDonalds, 7-eleven, KFC, Pizza Hut, Burger King, Taco Bell, InterContinental, Snap-On Tools and Ramada. (Refer to appendix I) (Franchise Direct, n.d.). In Malaysia, the statistic showed by Franchise & Vendor Development Division revealed that 7 percent of Page | 1

franchisees already failed in operating their franchise business ((Nor Ratna Masrom, Md Nor Hayati Tahir & Ismaunur Hadi Ahmad Bakeron, n.d.). As we can see, a good selection in franchisees could lead to a success on franchise business.

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LITERATURE REVIEW The franchise entrepreneur is being viewed as the creator and builder for a unique business format who responsible for managing the system of business and the majority of franchisers activities are described as entrepreneurship (Abu Bakar Abdul Hamid, Nor Hamimah Mastor, Rozita Selamat, & Mohd Hassan Mohd. Osman, 2003). Franchiser explores an opportunity to run a new business and add on new ideas for value creation. According to Clarkin & Rosa, a franchise business is typically initiated by franchiser and directed to franchisees for implementation in their respective market (as cited in Asgharian, Dadfar & Brege, 2013), franchisee also viewed as an entrepreneur who focuses on opportunity, risk and innovation. Franchising has become popular nowadays because it is mutually beneficial for both franchiser and franchisee if it is well-managed. According to Dant and Nasr, franchising is being described as a business relationship between franchiser and franchisee because a franchiser must depend on the franchisee to take action on the franchisers behalf when comes to decision making during crucial situation (as cited in Abu Bakar Abdul Hamid, Nor Hamimah Mastor, Rozita Selamat, & Mohd Hassan Mohd. Osman, 2003). In the other word, franchiser has to depend on franchisees to run their business efficiently in a franchise system. According to Holmberg and Morgan, franchisee failures rates had increased from 8.86 percent in 1994 to 10.49 percent in 1997 in the United States (as cited in Mohd Harif, Mohd Amy Azhar, Chee, Hee Hoe & Mahad Noor, Norsyema Hani, 2011). In the journal entitled Franchisee Failures in Malaysia: Contribution of Financial and Non-financial Factors which identify the factors that contribute to the failures in Malaysia by conducted telephone interviews with five respondents who were franchisees before that failed in operating the franchise business.

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The findings of the study showed that all 5 respondents had problems with their attitude towards managing their business. There is one respondent admitted lack of commitment and too depend on staffs in operating the business. All agreed that they spend less time in office, neglect the operation manual, absent for training, and unable to maintain good service and also relationship either with franchisers, staffs or customers. The study revealed there are two types of factors that will contribute to the franchise failure, non-financial factors and financial factors. For the non-financial factors include rapid expansion of the franchise business, according to Kelly (2005), too rapid expansion of franchise business could turn a companys operations sloppy which led to a failure in business. The following factors by the greed of franchisee who wants to earn more profit, poor service and attitude provided to customers, conflict with franchisor, dissatisfaction on the location and external factor. Meanwhile, financial factor include under-capitalization of the franchisee, a franchisee should understand that a strong start-up capital is needed to invest when starting and developing the franchise business, this could be the factor a franchisee should take into consideration before making the decision. In the research done by Abu Bakar Adul Hamid, Nor Hamimah Mastor, Rozita Selamat, & Mohd Hassan Mohd. Osman (2003), it attempts to investigate the success factors encouraging franchise business. The study has selected 25 franchisees who operating different form of franchise business in Johor Bahru. They were interviewed through face-to-face and telephone to answer the questionnaires. The result showed there are seven major factors that contribute to a success in franchise business. 1. Strong establishment where franchisees have to obtained full support and training from franchiser in business management and franchise management. Page | 4

2. Ccustomer focus, franchisees should focus on its target customer and provide excellent services and products to win customer trust and remain their loyalty towards company. 3. Entrepreneurship skill, a franchisee should portray characteristic of an entrepreneur who is a risk-taker and innovative. 4. Franchisee should possess strong personnel, a franchisee should be independent and have a marketing background experiences and able to operate business without the help of manager. 5. Develop a good relationship between franchisee and franchiser as well as establish relationship with government, franchise association, financial institutions in order to achieve mission and goals of business. 6. Availability of strong resources which include sufficient financial capital and strong employee commitment. 7. Product or service visibility, product or services that are well-known or recognized by public could help in the success on franchise business. According to Kaplan and Michael Haenlein, social media is a form of internet-based applications which allow the creation and exchange of user-generated context (as cited in Nor Ratna Masrom, Md Nor Hayati Tahir & Ismaunur Hadi Ahmad Bakeron, n.d.), it is an online tool that encourages people to interact with companies, brands, and people by creating, publishing and sharing content. According to the research on proposes a model of social media marketing for developing effective marketing strategies for franchising system (Nor Ratna Masrom, Md Nor Hayati Tahir & Ismaunur Hadi Ahmad Bakeron, n.d.), it found that there is

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necessary for a franchisee to utilize internet to attract customers attention because consumers are usually accessing social media by using their laptops and smart phones. The research found that the highest percentage of companies with a profile on a social site is on social networking sites (79%) which most probably referring to Facebook. In order to attract more customers and get recognition from customer, the research found that companies nowadays preferred to use social networking sites as a platform for them to communicate with their customers. Besides that, some companies tend to use social networking sites as a marketing strategy to inform customer the better service or products and promotion.

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ANALYSIS In Malaysia, the highest number of franchise outlets were found is in the food industry (22%), while the clothing and apparels came second (11%), and retailing (7%). A survey done by the Malaysia Franchise Association (MFA) reported the growth of 815% in franchise outlets from 413 in 1993 to 3781 in 2003 (The Star, 2003). In franchising, franchisers need to select potential partners because the right partner is important for the success of the franchise business (Rahatullah, M. K. & Robert, R., 2009). A&W franchise was brought into Malaysia in 1963 and in year 2001, KUB acquired A&W Malaysia. KUB Malaysia Bhd will close 34 A&W outlets where 24 in Malaysia and 10 in Thailand because A&W in Malaysia and Thailand faced a losses of totaling RM44.5 million in the 2011 fiscal year (Free Malaysia Today, 2012). It was believed that poor management of the A&W franchise business lead to the failure of it, right people should be hired to contribute to a greater success of the business. Another failure franchise business is JOM Makan, it is an idea for an international chain of Malaysia restaurants. It was found that the business had failed because of its bad location, inexperience of management team, a menu that was too wide, unreasonable price and poor food quality (Free Malaysia Kini, n.d.). The management of the business also considered is a factor that caused failure in JOM Makan franchise business because it was found that the restaurant in Tokyo has changed managers for several times due to dishonesty of the manager (Free Malaysia Kini, n.d.). When look on the McDonalds franchise in Malaysia, it is considered as success franchise business because it is a well-known fast food restaurant in Malaysia that recognized by public. According to Schroder & McEachern (2005), the global target market fast-food industry Page | 7

account for 79 percent is at age 17-25. McDonalds mainly target on different groups which includes children, teenagers, and workers. The qualification McDonalds requested in seeking its potential franchisees as below: High personal integrity Posses entrepreneurial traits Have a strong desire to succeed Ability to motivate and train people Ability to manage finances Willingness to devote full time and efforts to the day-to-day Willingness to participate in a training programme.

McDonalds provide extensive training and support as well as provide the tools that help franchisees succeed in business, including support in various areas such as training, construction, purchasing and equipment (McDonalds, n.d.). As stated in McDonalds Malaysia website, McDonalds will provide the best training for all employees and those employees with potential to manage restaurants will be sent to Hamburger University to attend courses that will help prepare them further in business management. So that they able to commit in management and loyal to the company. This is how McDonalds led to a success franchise business in Malaysia because their management considers on many areas and will provide training for employees in order to create a good image for public. TGI Fridays, its one of the franchise business under Chaswood Resources. Chaswood Resources is the largest multi-concept restaurant operator in Malaysia where currently 12 restaurant brands under its umbrella. In addition, the director of Chaswood Resources, Reddy started the TGIF franchise in Malaysia with only four outlets. The franchise license for TGIF Page | 8

was bought in 2003 and it has since grown to 17 outlets, one in Singapore. Chaswood achieved RM79 million revenue up 18 percent from 2008 and Reddy is looking forward to expand to Indonesia and targeting to open two TGIF outlets (Malaysian Franchise Association, 2010). As stated before, the financial factor that caused a failure is under-capitalization, if franchisees would like to buy TGIF franchise, they must need to understand the detailed information such as the start-up cost of a single franchise of TGIF ranges from $3,000,000 up to $6,000,000. Starting up a TGIFs business requires a huge amount of capital but the advantage of this business is that the return would also be high. In order to start TGIF franchise, franchisees must make sure they have experience in managing in the food service industry since TGIF franchise required their franchisees to have an experience in Food Hospitality industry. There is also a royalty fee of 4% of the total sales monthly and this will go to the franchise company (TGI Fridays Franchise Information, n.d.) Last but not least, Chatime is a well known beverages franchise from Taiwan which could be an example where doing well in using social media to win publics heart. Almost every Chatime outlet has their own Facebook page to promote new flavor drink and promotion. Currently, Chatime has gained 97,070 fans in over two year in their official Facebook page. Chatime normally will have its Buy 1 Free 1 promotion during a period and it could be seen as a strategy that wants to maintain its existing customers and this will be published on Facebook page to inform customers. Chatime also offers loyalty which allows members to collect points and enjoy special privileges in store including birthday rewards, member-only promotions, Chatime event and launch invites and up-to-date information on Chatimes activities.

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CONCLUSION AND RECOMMENDATION In a conclusion, it is not easy to start up a franchise business. Franchising is a good idea for many companies to expand but must be prepared to face the risks and turn it into opportunities that could grow your business. A great franchisee will take calculated risks that will help to make their business grow (Franchise Gator, 2013). It is essential to face the risks and make crucial decisions to create a thriving business. Not only that, relationship between franchiser and franchisee also is a key to determine the success of the franchise business. Trust and loyalty must be building between both parties so that they could make a success on the business. As a recommendation, before looking at franchises to buy, there are few aspects that the franchisee has to look at, such as the overall brand recognition and reputation, this could give a great advantage in doing franchise business, Subway and McDonalds could be a good example on this, a popular brand can attract loyalty customers purchase the product. The next is to find the best franchises to buy deals with the territory restrictions of the franchise because sometimes the territory you have can make or break your business. The third thing that a franchisee has to look on is the structure of the royalty fees, most franchises fall in the 2% - 10% range of royalty fees and they are based on gross sales, not net profits. The last thing that a franchisee should look on is the initial cost of entry to open a franchise business, do not start the business if undercapitalization, it can caused the huge losses to be occurred. There are many factors that has possibilities to make a success or failure in franchise business, a franchiser or a franchisee must able to manage the cash flow and planning every aspect of the business from the development of the business until maintain the business. They should be able to analyze each situation and able to make clear decision during a crucial moment.

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REFERENCES Abu Bakar Abdul Hamid, Nor Hamimah Mastor, Rozita Selamat, & Mohd Hassan Mohd. Osman. (2003). An encouraging factors for entrepreneur in franchising: a Malaysia experience. Retrieved January 28, 2013, from http://www.cric.com.au/seaanz/resources/78HamidOthmanSelematMastor.pdf Asharian, E., Dadfar, H. & Brege, S. (2013). Franchisess activities as entrepreneurship. WEI International Academic Conference Proceedings. Retrieved January 29, 2013, from http://www.westeastinstitute.com/wp-content/uploads/2013/02/ANT13-249-EhsanAsgharian-Hossein-and-Staffan-Full-Paper.pdf Dhillon, R. (2012). Chatime offers loyalty card. Retrieved February 20, 2013, from http://marketing-interactive.com/news/32096 Franchise development in malaysia. (n.d.). Retrieved January 31, 2013, from http://www.franchisemdtcc.gov.my/c/document_library/get_file?uuid=0fc6897c-81c3424a-ac4f-d4cc5d9f30a5&groupId=13905 Francise Direct. (n.d.). The top 100 global franchises 2010. Retrieved January 31, 2013, from http://www.franchisedirect.com/top100globalfranchises/thetop100globalfranchises2010/15 8/873/ Franchise opportunity: application process. (n.d.). Retrieved February 14, 2013, from http://www.mcdonalds.com.my/abtus/franchise/application.asp Free Malaysia Today. (2012). KUB to close 34 a&w outlets in malaysia, thailand.Retrieved February 16, 2013, from

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http://www.freemalaysiatoday.com/category/business/2012/06/21/kub-to-close-34-awoutlets-in-msia-thailand/ Hussain, D. & Schromm, C. (n.d.). Multi-unit franchising: a case study analysis. Retrieved February 24, 2013, from http://emnet.univie.ac.at/uploads/media/Hussain_Schromm_01.pdf Jom makan restaurants a recipe for disaster. (2012). Retrieved February 18, 2013, from http://malaysiansmustknowthetruth.blogspot.com/2012/10/jom-makan-restaurants-recipefor.html Kelly K. (2005). For franchises, growing rapidly isnt always best. Retrieved February 1, 2013, from http://www.entrepreneur.com/article/81172 Mohd Amy Azhar Mohd Harif, Hoe Chee Hee & Norsyema Hani Mahad Noor. (n.d.). Franchisee failures in Malaysia: contribution of financial and non-financial factors. Retrieved January 28, 2013, from http://www.wbiconpro.com/465-AmyAzhar.pdf Nor Ratna Masrom, Md Nor Hayati Tahir & Ismainur Hadi Ahmad Bakeron. (n.d.). Model of social media marketing for franchise system. Retrieved February 22, 2013, from http://ictmt.utem.edu.my/index2.php?option=com_docman&task=doc_view&gid=21&Itemid=31 Tgif franchise information. (n.d.). Retrieved February, 8, 2013, from http://www.startupbizhub.com/tgi-fridays-franchise-information.htm Wei-Shen., W. (2013). Up close and personal with andrew reddy. The Star. Retrieved February 3, 2013, from http://biz.thestar.com.my/news/story.asp?file=/2013/2/2/business/12628449&sec=business

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APPENDIX

Appendix I

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