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)