Franchise businesses grow by 15% this year, association says

Urip Hudiono, The Jakarta Post, Jakarta

Franchise businesses in the country have grown by 15 percent this year and are expected to further thrive, considering the fact that Indonesia's economy still mostly relies on domestic consumption, the Indonesian Franchise Association (AFI) said.

Data from the association shows that there are now 270 foreign companies -- from restaurants, supermarkets and dry cleaners to educational institutions -- which have franchised their businesses in Indonesia.

"There are also 120 local firms which have the potential for franchising, though perhaps only some 30 percent would be able to do so," AFI chairman Anang Sukandar said on Monday.

Last year, there were 239 foreign companies and 49 local firms that franchised their businesses here.

Franchising is a business concept in which a company -- the franchiser -- gives its know-how and license to another -- the franchisee -- to sell its products or services under a royalty scheme.

It is considered mutually beneficial as a franchiser can expand its business without having to raise its own capital, while a franchisee can jump-start its own business without the need to establish a brand name first in the consumers' mind.

Anang further said that franchise businesses could also play an important role in the government's efforts to boost the economy and create more jobs for the unemployed.

Citing data from the International Franchise Association, Anang said that some 1,000 franchise companies in the United States generate US$1.15 trillion in revenue each year, or 50 percent of the total annual revenue of the country's retail sector. They have also created 14 million new jobs.

Anang was unable to reveal how much revenue Indonesia's franchise businesses generate, but mentioned that it had created at least 60,000 jobs over the past year.

"The franchise businesses have some 3,400 outlets, each employing at between 20 to 25 people," he said.

Anang however said that the government would need to give more support to the franchise businesses, as has been done in Malaysia.

The Malaysian government, Anang explained, had set up a five- year program in 2001, allocating a total of 100 million Malaysian ringgit (US$27 million) in funds to help boost franchise businesses in the country.

"Loans of 100,000 ringgit are given to promising franchise businesses, which would only have to pay 85 percent of the loans back," he said.

Acknowledging the government's cash-strapped condition, Anang suggested that it at least assist potential franchise businesses with management training and in obtaining low-interest credits from banks.

"It could also help by exempting them from revenue and value- added taxes for five years, which is the normal time for a company to prepare to franchise its business," he said.

Elsewhere, Anang said the association would hold a three-day "Franchise and Business Opportunity Exhibition" on Nov. 24 at the Jakarta Convention Center.

The exhibition will showcase 100 companies -- local as well as from Singapore, Malaysia, Germany and the U.S. -- offering franchise opportunities with starting capitals of Rp 50 million ($5,555) and higher.

The exhibition will also present a "franchise clinic" where would-be franchisees can consult international franchise experts.

"We hope it will be a perfect event for franchisers and franchisees to meet and discuss appropriate business opportunities," Anang said.