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Franchising in Malaysia

In: Business and Management

Submitted By beckytanbengkee
Words 2332
Pages 10
Part 2 A. Introduction
Franchise is a method of marketing and distributing based on a two parties relationship; that is the franchisor (the owner and granter of right) and the franchisee (recipient of right) relationship. The right granted is for the purpose of running the business by using the trademark or trade name based on a specific system, at specified location or area within a specified period of time (Malaysian Franchise Association).
Types of Franchise There are two main types of franchising; which are product distribution franchise and business format franchise (Beshel. B,2010). The product distribution franchises just simply sell the franchisor’s products and are supplier-dealer relationships. Under this type of franchising, the franchisor licenses its trademark and logo to the franchisees but the entire system for running their business is not provided by franchisor. There are some popular industries which lying under products distribution franchises; they are drink distributors, automobile dealers and gas stations. Pepsi, Shell, Toyota are some examples in this category. Product distribution franchise issues tend to be found in the vertical restraint literature. They typically focus on issues of exclusive dealing, inventory controls and the problem of double marginalization. Double marginalization (Kevin. J.W. 2007) refers to the problem of both a wholesaler and retailer using a price markup formula. The wholesaler sells his good to a retailer at the wholesaler’s profit maximizing price while the retailer treats the wholesale price as marginal cost and marks it up a second time. To address this type of problem the wholesaler can choose from a variety of remedies such as retail price maintenance (RPM), minimum quantity order, or two-part tariff. However, most of the franchises available in today’s business are business format franchises....

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