Govt to issue new franchise regulation

JAKARTA (JP): The government will soon issue a new regulation on franchises that will include a local content requirement for foreign franchises, Minister of Cooperatives and Small Enterprises Subiakto Tjakrawerdaya said here yesterday.

"We'll issue the franchise regulation later this year. We and the Ministry of Industry and Trade are working on it," he told The Jakarta Post after a hearing with the House of Representatives Commission VII for finance, trade, cooperatives and logistics.

He said that the planned regulation should help develop and protect domestic franchisees that have yet to fully benefit from the franchise business.

He said that until now about 90 percent of the profits earned through foreign franchises go to foreign countries.

"This is particularly caused by the fact that the franchisees have to import raw materials such as meat and potatoes to maintain the quality of their products."

He added that the franchise business is a good model to copy to promote partnerships between big and small companies, one of the aims of a program recently launched by President Soeharto.

According to Subiakto, the franchise business is integrated in terms of production and marketing managements, allowing them to be readily adoptable by interested franchisees.

"The franchise business is a readily-copied package. What is needed now is to improve the quality of our human resources to benefit," he said.

AK & Partners, a franchise consulting firm, reported recently that foreign franchise businesses in Indonesia have grown by an average of 445.8 percent per year during the last four years, while the number of local franchisers only grew by 5.9 percent.

The consulting firm pointed out that the number of foreign franchises operating in the country, excluding hotel chains, increased from six in 1991 to 113 last year. The number of domestic franchisers only rose from 21 to 26 in the same period.

Food and beverage franchisers ranked first, with 46.15 percent local franchisers and 55.75 percent foreign franchisers, followed by non-food retail, training and consulting, laundry, fitness and body care and other products.

The firm reported that the United States is the largest exporter of franchises to Indonesia with 76.11 percent of the franchises already set up in the country, followed by Japan, Australia, Britain, Singapore, the Philippines, France and Italy.

With the number of foreign franchises expected to grow by 31.8 percent per year, the consulting firm said that the outflow of foreign exchange will also continue to increase.

Increase

In answer to the commission's questions, Subiakto said that the government is now taking inventory of the latest partnerships between being forged between state-owned companies and small firms.

The government requires state-owned companies to allocate between one and 3 percent of their profits to help develop small businesses. They are also required to set up partnerships with smaller firms.

"Until now only four state-owned companies have submitted to the government their assessments of those cooperatives and small businesses that they might choose as partners," he said.

During the period of 1990-1995, he said Rp 741.7 billion (US$321.09 million) had been collected, of which 79 percent has already been channeled from state-owned companies to smaller businesses.

He cited a number of problems hindering the development of business partnerships, including the poor quality of human resources in small businesses, a lack of information about the program among small firms and the difficulties of the state companies in selecting their partners.

Meanwhile, the Ministry of Cooperatives and Small Enterprises' Director of Urban Cooperatives Development, Mamiet Maryono, said at yesterday's hearing that Bank Indonesia, the central bank, will raise interest rates on credits for members of primary cooperatives from 14 percent to 16 percent per annum.

Bank Indonesia and other state-owned banks until now provide credits of no more than Rp 50 million for investments and working capital for each primary cooperative.

According to Mamiet, Bank Indonesia is also likely to ask the banks to raise their cooperatives credit portfolio from 25 percent to 40 percent. "But it will be hard to realize," he said. (13)