At a Glance

Malaysia has robust private domestic demand and data suggests that the Malaysian economy is on

a steady growth path. The World Bank predicts the Malaysian economy will grow by 5.4% in 2014

and by 4.6% in 2015.

Franchise Glance

The Malaysian economy showed good growth in 2012/2013 and is predicted to exceed 5.4% in

2014 with similiar growth forecast to continue through to 2016. Demand is high in Malaysia with

over 60% of Malaysia's GDP contributed by domestic consumption.

There are 689 franchise systems offering more than 6,000 franchising outlets and in 2013, 480

new franchisees entered the market. 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 franchisor

2) China - 14 franchisor

3) Singapore - 17 franchisor

4) Philippines - 10 franchisor

5) India - 10 franchisor

6) Vietnam - 10 franchisor

7) Brunei - 10 franchisor

8) Arab Saudi - 9 franchisor

9) UAE - 9 franchisor

10) Australia - 7 franchisor

| FRANCHISE Key Point | 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 sweetners 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.

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

http://www.pns.com.my/web/guest/home

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.

| FRANCHISE Key Point | 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.