Local franchises find niche as foreign firms flounder

Local franchises find niche as foreign firms flounder

JAKARTA (JP): Local franchises are starting to thrive as many
foreign ones wilt in the heat of the economic crisis, an
executive of a franchise consulting firm said on Sunday.

Amir Karamoy, a senior consultant of AK & Partners, said the
number of foreign franchises was 105, down from 114 in 1997 and
119 in 1996.

"Indonesia has become the unpromising market for the foreign
franchises," he said.

Apart from the rupiah's nosedive in losing 65 percent of its
value since July 1997, Amir listed factors contributing to
sluggish business of diminished consumer purchasing power, scant
confidence in the financial system and government policies and
political instability.

Foreign franchisees averaged remarkable growth of 376 percent
a year since 1991, he said, but experienced a decline to minus 12
percent from 1996 to this year.

Before the turmoil, local franchisees of foreign products
spent about US$160 million annually on franchise royalties and
salaries for expatriates employed as consultants.

The amount has dropped by about 55 percent since the crisis,
he said.

Some franchisees have severed links with their foreign
franchisers and changed their trade brands.

Others are maintaining the franchise but using local
substitutes for materials, products and equipment, he said.

Foreign franchises' misfortune serves as a blessing for some
local firms, he said.

They have grown by 31 percent since 1996, compared to a yearly
average of 10 percent previously.

Their number reached 42 this year, up from 26 in 1997 and 32
in 1996.

Restaurants made up 18 of the number and retail accounted for
seven of the franchises.

The remaining franchises cover printing, photography and
furniture, training and consultancy, laundry and dry cleaning,
beauty and hair salons, health, fitness and entertainment, car
rental and real estate.

Amir said local franchises were prospering because raw
materials and equipment sourced locally were relatively
inexpensive compared to foreign franchisees' importing materials.

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

Citing research conducted in the United States, Amir said the
level of success in the franchise business was 93 percent
compared to 34 percent in nonfranchise sectors. (das)