The owners of businesses operated under franchises say they are grateful for the recent publication of the much anticipated new Franchise Regulation, but say that it is not enough to support optimal growth in the industry.
Although it was signed by the President on July 23, the Trade Ministry only published the Franchising Regulation on its website Monday. The new regulation is more comprehensive in scope as compared with the previous 1997 franchising regulation.
The new regulation defines a franchiser as a company with a type of business that possesses particular characteristics that are not easy to duplicate, and requires it to have a minimum of five years of continuous profit growth and possess written standard operating procedures.
With the aim of providing legal certainty, transparency and the ability to assess a company's bona fides, the new regulation provides -- unlike the previous regulation -- that prior to entering into any agreement, the would-be franchiser must report its business prospects and the candidate franchisee to the government and submit a further report after a deal has been sealed.
Save in cases of standardized international quality requirements that cannot be satisfied locally, both the franchiser and franchisee must also prioritize local content.
Aside from regulating the rights of franchisers and franchisees, the regulation also highlights the role of central and local government, which include providing assistance and training; recommendations on market utility; recommendations for the holding of local and foreign exhibitions; franchise awards; and financial support.
"The regulation is more comprehensive than the previous one. I think the current government has shown some real concern for the industry," Indonesian Franchise Association director Thomas Lie told The Jakarta Post on Monday.
However, he said, mere regulations were not enough to overcome the challenges facing the industry, especially when compared to competitors in neighboring countries.
"In Malaysia, players in the franchising market are given various kinds of incentive. For instance, those who want to buy a franchise can apply for soft loans to securing the rights and start up operations."
"Meanwhile, we don't see many banks stepping up and offering products specifically tailored to this industry, especially in the small and medium-sized category."
"Clearly the government must be prepared to come up with financial support programs," Thomas concluded.
Among the local banks that do provide specially tailored loans to the franchising industry is Bank Rakyat Indonesia (BRI), which from the beginning of January until the end of August extended Rp 8.6 trillion (about US$934.8 million) in loans to the industry. The bank expects this figure to grow to Rp 10 trillion by the end of this year.