Foreign chains – threat or opportunity?

THERE has been increasing concern about foreign food and beverage (F&B) brands, particularly Chinese ones, potentially causing uneven competition in the local market.

Economists and industry observers are divided, with some calling for action while others see these brands as beneficial for consumers, job creation, and keeping local companies “on their toes”.

The Malaysian government is considering stricter rules for foreign-linked F&B companies after complaints that brands like China’s Mixue and Chagee threaten local businesses.

Some like Mixue compete on pricing, as their products are often much cheaper than most local drinks and desserts.

The Domestic and Cost of Living Ministry (KPDN) is reported to be reviewing guidelines to address loopholes that previously allowed the rapid expansion of foreign brands.

This includes examining capital requirement thresholds and outlet size, as currently outlets smaller than 1,000 sq m are not subject to impact assessments.

Socio-Economic Research Centre executive director Lee Heng Guie notes that foreign chains’ aggressive expansion of new outlets has threatened the sustainability of local small and medium enterprises (SMEs), even as it has created employment, provided local training, and added variety to F&B offerings for domestic consumers.

“Mixue, for example, entered the Malaysian market in 2024 and has since expanded to around 500 outlets,” Lee tells StarBiz 7.

“Foreign chain operators have deep capital, centralised supply chains, branding quality and highly-optimised pricing models, enabling them to offer competitive prices that local SMEs cannot match.”

He highlights that local SMEs face rising operational and regulatory costs, such as higher minimum wages, rental, e-invoicing, and raw material prices, making price competition with deep-pocketed foreign chains “difficult”.

“There is also evidence that aggressive expansion and rental bidding by foreign businesses in F&B are driving up rental rates for prime locations,” he adds.

That said, Lee points out that Malaysia has set a strategic goal to establish itself as a regional franchise hub in South-East Asia by 2030 under the National Franchise Development Master Plan 2021 to 2025.

This is projected to contribute approximately RM46bil to Malaysia’s gross domestic product by 2025.

As of December 2022, there were more than 1,000 registered franchisor companies, comprising 713 local and 428 foreign franchisor companies, according to Lee.

He acknowledges that the retail landscape is rapidly evolving with the rise of eCommerce, digital payments and artificial intelligence.

“While KPDN regulates foreign franchises, the Entrepreneur and Cooperatives Development Ministry is working closely with the private sector to help SMEs and franchises embrace digital transformation, from data analytics to omnichannel strategies, ensuring Malaysian franchises remain competitive.”

Independent economist Geoffrey Williams believes that Malaysia is generally better off with foreign and foreign-linked franchisees making their presence felt.

Anti-foreigner

He points out that overseas franchises have been in Malaysia for decades.

These include fast food chains from the United States, high-end boutiques from Europe and even university franchises from the United Kingdom and Australia.

“The current influx of franchises which seems to be from China should not be a concern.

“If they are popular, then they will benefit the Malaysian owners until customers lose interest and move on to some other franchises.”

He says Chinese companies have in fact been buying Malaysian entities while keeping the Malaysian brand intact, and private universities are one such example.

“In terms of the overall economy, franchises are just marketing and business models but they are helpful for entrepreneurs to start up with an established brand.

“Restrictions on such activity is very misguided and unfortunately gives a bad impression suggesting Malaysia is anti-foreigner.”

Centre for Market Education chief executive officer Carmelo Ferlito notes that while concerns over foreign brands have valid elements, they should be framed from a free-market perspective.

“Competition can be unfair when rules aren’t enforced properly, and loopholes in Malaysia’s guidelines might let foreign chains bypass them by opening small outlets and using pricing power to undercut local businesses,” he says.

This signals regulatory enforcement issues, not inherently a flaw in free trade itself, he points out.

He believes that market dominance and predatory pricing can harm competition over time.

“If a single type of foreign chain grows rapidly without constraint, it could potentially reduce competition in the long run – exactly the opposite of what competitive markets require.

“But this concern must be addressed through competition law enforcement, not trade barriers per se.”

Ferlito says foreign franchises can be economically beneficial as long as the rules of the game are clear and enforced equally.

“Free trade isn’t just about openness – it must be paired with fair competition policy which means no regulatory capture and no implicit subsidies from Chinese government, for example.

“When the regulatory environment is predictable and enforceable, foreign investment contributes to growth, jobs, innovation, and consumer welfare.”

An advocate of a free market, he adds that the presence of foreign franchises can signal that Malaysia is open to global investment.

“This helps build investor confidence and attract more capital inflows. Over time, it can enhance Malaysia’s positioning in global supply and value chains – but fairness matters.

“If certain firms enjoy hidden subsidies or advantages, that isn’t free trade – it’s distorted trade. And this is valid both from the Malaysian and Chinese standpoints.

“From a true free-market stance, I would oppose such distortions because protection of property rights, equal enforcement of laws, and neutrality of competition rules are essential.”

By and large, all experts agree that an environment of fair competition is needed for all businesses – local and foreign – to thrive.