Local franchises expanding quickly, but problems still remain

Andi Haswidi, The Jakarta Post, Jakarta

Nowadays, franchising is no longer synonymous with overseas brands.

In fact, there is an increasing number of local players using franchising to expand their businesses. Indeed, a number of indicators show that the expansion of local franchise businesses is exceeding that of their foreign counterparts in terms of growth and quantity.

A report from the Indonesian Franchising and Licensing Society (Wali) says that the growth in the number of foreign-brand franchise outlets amounted to around 8 percent up until the end of October, while that of local brands reached around 13 percent compared with the same period last year.

"Local franchising has been showing significant growth from year to year since 1998," Wali advisory board chairman Amir Karamoy told The Jakarta Post.

"At that time, foreign franchise businesses suffered terrible blows after the price of imported goods skyrocketed. That situation benefited local players to some extent," Amir said.

Speaking about current trends, Amir said the emergence of new malls in big cities such as Jakarta was the key factor behind the rapid growth in the local franchising business.

"The rapid emergence of malls has forced retailers to expand their businesses through franchising. This allows their business to grow faster with minimized risks for both parties, the owner of the franchise and the investor," he said.

Other signs of the boom in local franchising were evident at the fourth Franchise and License Expo, held in Jakarta from Friday through Sunday last week.

Around 120 companies, representing 150 brands, participated in the expo, of which about 60 percent were local businesses. Meanwhile, about 26,000 people visited the event over the course of the three days, said Erick H. Gerung, a project officer for the event.

Amir, who also attended the expo, said that several new trends had been emerging simultaneously. He said that many foreign investors, mostly from Australia, Singapore and Hong Kong, had been snapping up local licenses in unusual quantities.

"The trend is surprising. Many foreign investors appear interested in taking our local brands back to their countries," he said.

Among the types of license favored by foreign investors, Amir said, were those for Japanese fast-food restaurants, other Asian fast-food restaurants and laundry brands.

Among the local brands that had received interest from foreign investors were Goiza (Japanese fast-food), the Ayam Tulang Lunak restaurant and Aqualis laundry.

He said that another thing he had noticed was the trend of buying a number of franchises at the same time.

"One firm bought more than 5 licenses. That's a lot. They said that investing in the franchise business was an alternative to investing in bonds and stocks," Amir recalled.

Still, despite the promising trends, the franchising business currently faces problems in the form of local ordinances limiting access or imposing onerous local charges.

Amir argued that such impediments were the result of a lack of understanding about franchising on the part of local governments.

To overcome this, he suggested that the state minister for cooperatives and the trade ministry provide more training and organize more seminars, not only involving business players as had been the case in the past, but also local decision-makers so as to make them aware of the bigger picture.
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