Strategies To Expand Local Franchise Brand To International Platform Presentation by : Dato’ Syed Kamarulzaman Dato’ Syed Zainol Khodki Shahabudin Managing Director PERBADANAN NASIONAL BERHAD 12 September 2014 www.pns.com.my

Content Introduction Definition & Purpose of International Franchising Statistics of Foreign Franchises in Malaysia Organizations Related to Franchise Services in Malaysia Benefits of International Expansion ASEAN Economic Community (AEC) Indonesia’s Economic Growth Potential Think Global, Act Local Strategies For International Expansion www.pns.com.my

International Franchising - definition Going for business abroad other than your origin country. One of the most exciting ways to expand the business via brands, business models, products, standard operation, etc. A strategic way to reduce dependence on domestic demand and grow new, future revenue and profit centres worldwide. www.pns.com.my

Statistics of foreign franchises in Malaysia There are about 30% foreign franchise brands in Malaysia recorded in August 2014. 523 (70% local franchisors) 55 (8% master franchisees to foreign brands) 165 (22% franchisees to foreign brands) www.pns.com.my * Source : MDTCC

SOME OF THE COMMON INTERNATIONAL FRANCHISE BRANDS 4/19/2017 SOME OF THE COMMON INTERNATIONAL FRANCHISE BRANDS Ms Read – Home grown franchisor selling women’s clothing Marry Brown – Home grown franchisor from Johor – First Malaysian Fast Food Franchise (Msian Book of Records) Outlet overseas - Indonesia, China, Sri Lanka, Tanzania, UAE, Bahrain, Kuwait, Qatar and Saudi Arabia. Soon in Syria, Iran and Azerbaijan Focus Point – Homegrown franchisor – Franchisor of the Year 2009 Malaysian Franchise Award Night 2009 Franchisor: Focus Point Management Sdn Bhd Nominated and winner in the category: "Franchise Of The Year 2009" Franchisor: Focus Point Management Sdn Bhd Nominated and winner in the category: "Best Outlet Growth" Franchisor: Focus Point Management Sdn Bhd Nominated and winner in the category: "Most Promising Franchisor Award" Franchisee: Formosa Optometrist Sdn Bhd (Tesco Extra Cheras) Nominated and winner in the category: "Most Promising Franchisee Award" Franchisor: Dato' Liaw Choon Liang Nominated Category: "Franchise Entrepreneur of the Year Award" Franchisor: Focus Point Management Sdn Bhd Nominated Category: "International Homegrown Franchisor Award" Franchisor: Focus Point Management Sdn Bhd Nominated Category: "Best Sales Growth Award" Franchisee: Noralina Teo Abdullah (Al Ameen Optic Sdn Bhd) Nominated Category: "Women Franchise Entrepreneur Award" Franchisee: U&I Optik Sdn Bhd Nominated Category: "Franchisee of the Year" A& W stands for Allen & Wright and the 1st store in Malaysia was opened at Jln TAR in 1963. A&W with KFC, Pizza Hut, Long John Silver, Taco Bell under Yum! Brands Inc (listed company in US). 5

Malaysia’s International Achievement In 2013, revenue of sales generated through franchise related international activities amounting to RM 177.71 million with over 1,400 outlets nationwide. Amongst Malaysian brand name such as Nelson, Marrybrown, Secret Recipe, Clara, EOG (England Optical Group), Hot & Roll, etc. Country Number of franchise brands Indonesia 22 China 14 Singapore 17 Philippines 10 India Vietnam Brunei Saudi Arabia 9 Australia 7 www.pns.com.my * Source : MITI

Organization Related to Franchise Services in Malaysia www.pns.com.my

Benefits of Expanding Your Brand Into International Market International Expansion Global expansion Accelerated growth Local knowledge & networks Increased brand value www.pns.com.my

THINK GLOBAL, ACT LOCAL! www.pns.com.my

Think Global, Act Local www.pns.com.my International Franchise Expansion (its complicated and challenging) Not just simply translating the operations manual of a business into another language and training a franchisee to operate a unit just like normal domestic franchisee. Local customization of products to cater for local needs (ie 7-Eleven @ Indonesia : a culture of love for socialising, such as outdoor gathering space, capitalize on social networking applications (FB, Twitter) Taking into consideration of local culture, legal-political, economic environments, financial regulations. www.pns.com.my

ASEAN Region - 10 countries - Population exceeding 615 million (year 2012) * - Huge market potential with Gross Domestic Product (GDP) exceeding USD 2.43 trillion (year 2012) * by year 2019, GDP forecasted to exceed USD 3.7 trillion * " Thinking Globally, Prospering Regionally " * Source : International Monetary Fund (2012) / Association of Southeast Asian Nations (www.asean.org) www.pns.com.my

ASEAN Economic Overview ASEAN averages 5% GDP growth from 2010-2013 ASEAN economy seventh (7th) largest economy in the world ASEAN – EU – China – India (year 2012) :   ASEAN (10) EU China India Area size 4.4 mill sq km 9.6 mill sq km 3.3 mill sq km Population 617 million 502 million 1.35 billion 1.2 billion GDP growth 5.7 % (0.2%) 7.8 % 4.9 % GDP per capita USD 3,748 USD 32,710 USD 6,095 USD 1,592 Total trade USD 2.4 trillion USD 11.8 trillion USD 3.88 trillion USD 795 billion www.pns.com.my * Source : MITI

Indonesia’s Economic Growth Potential Average GDP (2010 – 2013) is 6.15 % * Largest number of workforce (more than 250 million). exceed 270 million by 2025, 290 million by 2035. Huge youth population (median age is 28.2 years). Based on 2010 survey, 19% of population below 10 years of age & 37% below 20 years of age Large workforce access to employment opportunities. Indonesia is well positioned : huge domestic market, large group of young people. * Source : www.indonesia-investments.com www.pns.com.my

ASEAN Economic Community (economic integration by 2015) Focusing on four (4) key characteristics : Single market and production base Competitive economic region Equitable economic development Integration into global economy www.pns.com.my

Why AEC Makes Business Sense? ASEAN + Korean (670 million) ASEAN + JAPAN (745 million) ASEAN + INDIA (1.84 billion) ASEAN (population) (620 million) ASEAN + AUSTRALIA –NEW ZEALAND (645 million) ASEAN + CHINA (1.9 billion) www.pns.com.my * Source : MITI

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(No Strategy = STRAGEDY) 5 Strategies For International Expansion (No Strategy = STRAGEDY) Develop strong and sustainable international growth. Have solid resources and full commitment to support international expansion (operations). Understanding the legal environment. Appoint strong and capable partners. Develop realistic and achievable development targets. www.pns.com.my

1.Develop strong and sustainable international growth Organizational readiness : excellent franchise model and support system, ability to replicate these attributes in other countries. Evaluation of resources : well trained and experienced staff. Financial strength : funds ($$$) to support international expansion. Extensive Research : investigate potential markets, cultural practices and customs, legal environment, language. Example: McDonalds (Malaysia) introduces porridge menu for Malaysian market McDonalds (Saudi Arabia) closes its business during prayer times www.pns.com.my

2. Sufficient Resources and Commitment to Support International Operations Management commitment : equal attention and support irrespective local or foreign franchisees. Employees capabilities : staff capable to manage and support international franchisees. Comprehensive Information (knowledge centre / resources) : extensive information and knowledge platform @ 24/7 @ around the clock (global). Support infrastructure : invest in support infrastructure for international expansion. www.pns.com.my

3.Understanding the Legal Environment Clear understanding of laws, rules and regulations related to the business. E.g Registration of intellectual properties (IP), trademarks to protect brand from “opportunists”. Appointment of capable and experienced legal firm/advisor ; familiar and well-versed on the local legal environment (business registrations, competition / anti-trust rules). Appointment of qualified and reputable accounting firm/advisor ; familiar with taxation regulations. www.pns.com.my

4.Appointment of Strong and Capable Partners Identify capable business partners (wrong selection will cause brand image affected). Reliable local support team (familiar with local business environment). Rely on strong local partner, fully trained and involved in the business with detailed operating procedures. * consistency in delivering quality, service, cleanliness, value www.pns.com.my

5.Develop Realistic and Achievable Development Goals Ideal territory area size (progressive based growth targets) Have mutual agreement for number of outlets targets (between franchisor and master franchisee) Have specific market segmentation (targeting? positioning?) Have sufficient financial resources for growth and support Have the right size of skilled employees / team to operate Have the right pool of suppliers of products / materials www.pns.com.my

Think GLOBAL, Act LOCAL! sticking to it, executing it well. Main thing is = it all comes down to having : a solid plan, sticking to it, executing it well. www.pns.com.my

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