It's high time to learn and win

It's high time to learn and win

Since the arrival of the very first player in this business
here in 1991, foreign-based franchises are still stealing the
hearts of local consumers.

Their number grows three or fourfold every year, while
homegrown franchises trail along at 10 percent per annum. In line
with the mounting hopes for a brand new Indonesia, experts
believe that more overseas players will try to market their goods
and services in this country, home to over 200 million people,
through franchising deals.

The Jakarta Post's reporter K. Basrie has more details.

JAKARTA (JP): For years, economists and franchising
consultants kept on saying that local franchises would "soon"
outshine their foreign rivals.

Noted marketing expert, Hermawan Kertajaya from Mark Plus
Indonesia, once said local franchisors would soon take over the
big role of their foreign competitors, who are struggling hard to
survive particularly due to the weakening of the rupiah which
boosted the cost of their imported materials and shrank the
buying power of customers.

"Moreover, the local partners of foreign-based franchisors
also have to pay expatriate staff in U.S. dollars," he said.

Amir Karamoy, a veteran franchising consultant, also projected
positive growth.

Following the severe economic crisis, many foreign-based
franchising business, mainly in food and retailing, closed their
outlets. The misfortune faced by the foreign franchises earlier
served as a blessing for some local firms.

But it's already almost a decade since the franchising
business was first introduced to the market here, and the country
can still only boast of a very few local players having gotten
involved.

Like many other analysts, Hermawan and Karamoy would not
apportion blame.

Perhaps, it's just the country's unfavorable political and
economic environments that make local franchisors and
entrepreneurs alike unwilling to expand, even though Indonesia's
population make it a market with great potential.

"Out of our country's population of 210 million, 15 or 17
percent belong to the middle-class. That means that there is a
potential market for franchisees of some 35 million consumers,
which is very big," Anang Sukandar, chairman of the Indonesian
Franchise Association, said during an interview on Friday.

Should the existing homegrown franchises or those who are keen
to offer their goods and services through such arrangements be to
slow to take action, the market here will be soon be conquered by
overseas competitors, he said.

"We have no choice. Our entrepreneurs will have to start now
and there are so many business that could be developed under
franchises."

According to Anang, a franchising consultant himself, the
homegrown franchises in Indonesia should focus seriously on their
domestic businesses.

"Forget about the overseas market. There's a potential market
at home and there are whole classes of goods and services that
could be offered for franchising," he pointed out.

Analysts said that the belated growth of local franchises is
primarily due to problems such as lack of entrepreneurship,
innovation, responsibility, promotion and marketing.

Amir said that local franchise operators lack the commitment
and the ability to develop their businesses properly. They just
take the fees from the holders of their licenses but do nothing
to assist them in developing their businesses.

"Many of the local franchisers are known to sell their
licenses to the franchisees and just leave them to take care of
the business themselves," he said.

They only pursue short-term profits in the form of the
franchise fee instead of the longer-term benefits that can accrue
from royalties.

"As a franchiser, a company must be a consultant and an
auditor as well," Amir said.

Anang said that many people refused to enter the business,
fearful of being cheated.

"We regularly hold free-of-charge workshops for local
companies discussing which goods and services have the potential
to be franchised. Sadly to say, the firms are only represented by
their staff," Anang said.

"Thus, there's no doubt that we could view many local
franchises here simply as instant franchises," he went on.

Currently, the franchisors registered with the Indonesian
Franchise Association consist of 230 foreign-based firms and 42
local firms, most of which are involved in restaurants, cafes,
bakeries, retailing, laundry and dry cleaning services, cleaning
services, education, courier services, printing, photography,
furniture, training and consultancy, beauty and hair salons,
health and fitness centers, entertainment, car rental and real
estate.

But others say that the number of local franchisors currently
amounts to some 80 companies.

Some of the leading names in the industry include Es Teler 77,
Alfa, California Fried Chicken, Indomart, Bizlink, Global
Teleshop, Soto Ambengan, Warung Nasi and Soto Bangkong.

Their foreign competitors include McDonalds, Country Style,
the Canadian donut and sandwich vendor, TGI Friday, Front Row
Sports Grill and Italiannis, V-Kool, John Robert Powers, KFC,
Wendy's, and Texas.

According to Anang, on the worldwide scale there are some 75
sectors where franchising arrangements are made.

"So, there so many goods and services that could be developed
for franchising in Indonesia," he said, citing a leading Padang
restaurant, for example, which has yet to offer a franchise.

Experts have also repeatedly asked the government to review
Regulation No. 16/1997 on franchises and Ministry of Trade and
Industry Decree No. 259/1997, which they say hampers the
development of local franchises through complicated bureaucratic
procedures.

Amir urged the government to provide a credit scheme with
subsidized interest rates to help develop the local franchise
industry.

But it would be, of course, unfair if were only to pray for a
boom in local franchises, given that we are now living in the
free trade era.

By comparison, in the land where franchises originated, the
domestic sales of franchises in the U.S. surpassed the $1
trillion mark last year, according to the International Franchise
Association, the world's oldest and largest organization
representing the sector.

Based on the responses of 386 U.S. franchisors who already
have overseas chains, a recent study by Arthur Andersen LLP noted
that if given the choice, 98 percent of those surveyed would make
the decision to establish an international franchise system
again. What's more, 95 percent said they're planning to expand
the number of their international units.

Further, U.S. franchisors are expanding their operations into
many countries previously excluded from consideration, both
developed and developing. These include countries in Asia, South
America and Central America.

Now, the important thing for local entrepreneurs is how to
pick a professional and reliable local or foreign-based
franchisor, or whether your goods and services are already
qualified to be franchised.

According to Anang, the answer to both questions is in the
hands of consultants.

"A major local company here which once wanted to franchise its
services hired a world-class consultant for which they paid
US$60,000. I'm not sure whether the company is already
franchising its services or not, but the fee for a local
consultant for the same project would cost only one third the
amount," he said.

But the price for similar consulting services for a middle-
sized firm could be around Rp 165 million.

Then, to open an outlet for a laundry and dry cleaning
franchisor, for example, one would need some Rp 50 million.

And deciding whether or not to go into business is a very
crucial step in the business start-up process for new and
potential small business owners.

Although the success rate for franchise-owned businesses is
significantly better than the success rate for many independent
businesses, there is no formula to guarantee success.

One of the biggest mistakes one can make is to be in a hurry
to get into business. That's why it's important to understand the
reasons for going into this business.

Remember, franchising is based on mutual trust between the
franchisor and franchisee.

The franchisor provides the business expertise (i.e.,
marketing plans, management guidance, financing assistance, site
location, training, etc.) that otherwise would not be available
to the franchisee.

The franchisee brings to the franchise operation the
entrepreneurial spirit and drive necessary to make the franchise
a success.

Robert L. Purvin, a senior member of the American Association
of Franchisees & Dealers (AAFD) said: "The AAFD has identified
eight criteria for selecting a franchise business. The most
important to me are choosing a franchise with a strong owners
(franchisee) association and 'negotiated' franchise agreement
(one with the input of a franchisee coalition); available data
that confirms the profit potential of the business; and
reasonable provisions to renew or terminate the agreement."

Remember, however, that hard work, dedication and sacrifice
are key elements in the success of any business venture,
including franchising.