Regulations on way to counter fraud risk

Proper laws would lift the standard of business contracts and protect franchisees and consumers from being cheated…Sometimes, fraud was unintentionally committed because both franchisees and franchise owners had insufficient knowledge of the business, he said.

The Bangkok Post
April 2, 2002

Regulations on way to counter fraud risk
Prior legal advice can help newcomers
Woranuj Maneerungsee

As the franchise business is booming, the Commerce Ministry is drafting a law to ensure that both franchisers and franchisees are treated fairly.

The need for regulation has become more urgent with the proliferation of franchised operations in Thailand over the past decade.

These range from international fast-food restaurants and coffee chains including McDonald's and
Starbucks to local noodle shop chains including Chai See Bamee Kiew (the fourth son's egg-noodle and wanton) and Hang Peng Porkball Noodle, as well as mini-marts and educational businesses.

Unofficial records reveal there are about 120 franchisers in Thailand, of which 34% are involved in the food business, followed by services (18%), education (17%), retailing (5%) and miscellaneous (26%), according to the Internal Trade department.

They oversee a total of 7,000 franchisees, of whom half operate convenience stores, 30% own food and beverage stores 20% manage other types of businesses.

Many Thais were keen to become franchisees, said Siripol Yodmuangcharoen, the department's director-general, but the country lacked adequate laws to regulate the sector.

That might leave room for franchisers and franchisees to treat each other unfairly.

“Thailand now is in the second phase of the franchise business where entrepreneurs turn themselves into franchisers. But I fear that some new franchisers might not have the right idea about how franchising operates and that could cause them to make mistakes,” Mr Siripol said.

Proper laws would lift the standard of business contracts and protect franchisees and consumers from being cheated.

This was because Thai franchise operators, unlike those in the United States, were currently not required to have operated their businesses profitably for three consecutive years before selling contracts to franchisees.

Sometimes, fraud was unintentionally committed because both franchisees and franchise owners had insufficient knowledge of the business, he said.

The department's special committee drafting the law consists of experts from state agencies, academic institutions and the private sector. It has met twice in recent months.

Yuthana Sivaraks, an expert on franchising and a legal associate at Baker and Mckenzie said the law should be based on key principles: watertight and clear contracts, as well as clear rules on trademarks and their use, trade secrets and trade competition.

However, he said the new law was not needed urgently because the country's existing laws could be applied to any dispute between franchisers and franchisees.

“I would not envisage a jail penalty under the franchise law. That's a criminal penalty and, if the department handles it that way, I think many franchisees will go to jail because they can break the law quite easily [with or without intent],” Mr Yuthana said.

He said he was handling three disputes involving foreign franchisers and several Thai franchisers were seeking his advice.

“Thai franchisers who are new to the business should consult lawyers. They should not apply the contract for one type of business to another type because businesses differ, for instance, a service business is totally different from a food business,” Mr Yuthana said.
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