Franchising helps small business<\/p>\n
By Amir Karamoy<\/p>\n
JAKARTA (JP): In the small business development plan act,
\nwhich is being discussed by the Indonesian legislative council,
\nfranchising is included in the list of partnership (kemitraan)
\nschemes. Through this scheme, it is expected that big companies
\nwill recruit and develop small businessmen as their franchisees.<\/p>\n
Franchising is believed to be a strategic method for
\ndeveloping small businesses. Under the franchising scheme, the
\nfranchisor offers management assistance as well as technical
\nexpertise and marketing resources to small business enterprises
\nwith limited capital to help them achieve success.<\/p>\n
Many or all of the following services are offered to
\nfranchisees: recognized trade name; advice on location choice;
\nstandardized accounting and operating procedures, store equipment
\nand inventory; research and development; and continuing
\nassistance in management, marketing, advertising, tax information
\nand store design.<\/p>\n
Franchisors are able to keep pace with shifting consumer
\nmarkets by utilizing market techniques to survey potential
\ncustomer demand. A typical arrangement calls for the franchisee
\nto pay fees and royalties up front or to agree to purchase
\nequipment and inventory from the franchisor. The relationship
\nbetween the franchisor and franchisee is set by the franchise
\ncontract.<\/p>\n
Franchising has charisma. It has fascination and an appeal to
\nthe entrepreneurial spirit which remains vibrant in our free
\nenterprise system. Franchising has been termed the last, best
\nhope for independent business in an era of growing vertical
\nintegration. It helps small business compete with the giants.<\/p>\n
The U.S. Small Business Administration stated: \"Franchisees
\nhave a good chance to survive and prosper in highly competitive
\nsociety, offering an opportunity to those individuals who have
\nonly a limited amount of capital and experience. It is a system
\nthat offers an economically feasible alternative to the
\nvertically integrated, centrally owned organizations and one also
\nthat can provide a vehicle for greater minority entry into
\nbusiness.<\/p>\n
\"Without franchising, thousands of small businessmen would
\nnever have had the opportunity of owning their own businesses\".<\/p>\n
A survey conducted by the U.S. Federal Trade Commission
\ndiscovered that the success rate in franchising is very high. The
\nstudy disclosed the degree of success in franchised business was
\n95 percent, compared to independent business which was only 10
\npercent to 35 percent.<\/p>\n
Robert E. Bond writes in The Source Book of Franchise
\nOpportunities (1988) that \"after the first year of business,
\nfranchised business success rate is 97 percent. After the fifth
\nand the 10th years: 92 percent and 90 percent. While independent
\nbusinesses gained 62 percent after its first year, but after its
\nfifth and 10th years remain 23 percent and 18 percent.\"<\/p>\n
Franchising is a strategy for expansion or asset redeployment.
\nIf your company has the proven systems of business but lacks
\neither the capital, the people, or the time to create a company-
\nowned growth system, wants to supplement an existing system, or
\nsimply needs to improve performance through tighter or more
\nmotivated management, franchising could be the answer.<\/p>\n
Today almost any product or service can be distributed through
\nfranchising. According to the Department of Trade, there are
\nabout 20 types of businesses which have bright prospects in being
\ndeveloped through franchising in Indonesia. Among them are
\nrestaurants, real estate brokerages, building maintenance and
\ncleaning services, computer businesses, travel agencies,
\nprinting, convenience stores and others.<\/p>\n
I believe that Indonesia has many original products which have
\nthe potential to be developed through franchising. They include
\ntraditional foods -- gado-gado, satay, pempek, Madura soup,
\noxtail soup); traditional products and cosmetics -- batik and
\njamu (herbal remedies). However, Indonesia is facing crucial
\nproblems in the development of national franchisors. Based on AK
\n& Partners findings, the growth of Indonesian franchisors are
\ndecreasing. In 1991 they were about 21 national franchisors,
\nwhile in 1995 there are only 17 left.<\/p>\n
In contrast, the growth of foreign franchise is amazing. In
\n1991 according to an International Labor Organization study,
\nthere were only six foreign franchises in Indonesia. In mid 1995
\nit amounts to 103 foreign franchises. Every month two foreign
\nfranchises start operation in Indonesia.<\/p>\n
The study discovered that most foreign franchise businesses
\nare in restaurants, fast-food, cafe and food related products (88
\npercent). American franchisors dominate the market (75 percent).<\/p>\n
The cause of domestic franchisors decline is due to the lack
\nof information and knowledge about franchising among Indonesian
\nbusinessmen. The Indonesian Franchise Association, which was
\nestablished in November 1991, has failed to disseminate
\ninformation about franchising advantages and to encourage
\nbusiness communities to \"go franchise\". The number of local
\nfranchisors have decreased ever since the association was
\nestablished in 1991.<\/p>\n
When including franchising in the act on small business
\ndevelopment, that the government should stimulate the growth of
\nnational franchises through the establishment of domestic
\nfranchisors.<\/p>\n
Some institutions and regulations have to be established and
\nissued in order to facilitate domestic corporations in
\nfranchising their businesses.<\/p>\n
There is a lesson we can learn from Singapore. Its Economic
\nDevelopment Board has invested S$5 million to set up the
\nFranchise Development Center which is managed by the National
\nProductivity Board. This center provides support to Singapore
\ncompanies setting up franchises within the country. Apart from
\nthat, the Singapore Trade Development Board runs the Franchise
\nDevelopment Scheme which helps companies cover part of the costs
\nof developing and marketing franchises overseas.<\/p>\n
Since last year, I have been proposing to the Ministry of
\nCooperatives and Small Enterprises to establish a franchise
\nintegrated development center. The activities of the center would
\nbe to provide technical assistance to national corporations to
\n\"go franchise\" domestically and overseas. This center should
\nreceive funding from state-owned companies or the conglomerates
\nwho recently met in Jimbaran, Bali.<\/p>\n
There is a government regulation which obliges state-owned
\ncompanies to set aside one percent to five percent of their
\nprofits for the small business development. The conglomerates
\nmentioned above also vowed to help small businessmen by sharing
\ntheir profits.<\/p>\n
I am convinced that the growth of the domestic franchise
\nindustry requires strong government support, greater awareness of
\nfranchising, perfect timing and pure economic survival. The
\ngovernment has to put its full weight behind franchising.<\/p>\n
The writer is chairman of AK & Partners franchise consulting
\nfirm.<\/p>",
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"sponsor": "Okusi Associates",
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