Slower growth in franchise expected next year

Anissa S. Febrina, The Jakarta Post, Jakarta

The franchise industry country will face slower growth next year as companies are expected to consolidate their businesses before franchising out their brands, an industry association says. "The industry will probably grow by between 5 percent and 7 percent next year in terms of the number of franchisers," Indonesian Franchise Association (AFI) chairman Anang Sukandar said on Tuesday.

The association expects the number of franchisers to grow by 15 percent up until the end of this year with a total turnover of Rp 30 trillion (US$3 billion).

"We are setting a more conservative target next year. Of the growing number of franchisers this year, only a few are actually capable of franchising. The rest are just looking for instant income," said Anang.

Currently, there are 237 foreign companies -- ranging from restaurants and supermarkets to educational institutes -- franchising their businesses in Indonesia. There are also 129 local franchisers, of which only 15 percent are solid enough to impose royalty schemes for their products.

Last year, there were 239 foreign companies and 49 local firms franchising 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.

Through this mechanism, the franchiser can expand its business without having to raise its own capital, while the franchisee can jump-start its own business without the need to establish a new brand.

"Unless companies have enough experience before selling their brands, they could end up causing losses to their franchisee," said Anang, explaining that a minimum of five years' experience was needed before deciding to franchise.

A brand must also gain public recognition before it is worth paying royalties for and it might not be possible to achieve that in just two or three years, he said.

Anang also said that the government would need to give more support to the franchise business, as was the case in Malaysia.

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

"If we had the proper support, we would be able to grow faster. But whatever the case, the companies need to have innovative, unique products to be able to go international," he said.

Separately, license holder and franchiser forum (WALI) founder Amir Karamoy said local companies had started to gain recognition through franchising out their products throughout the region.

Cosmetic producer Ristra and ethnic craftstore Rumah Batik are among the businesses seeking a wider market through franchising in Malaysia and Singapore.

Those interested in franchising can obtain further information at the "Franchise and Business Opportunity Exhibition" from Nov. 18 through Nov. 20 at the Jakarta Convention Center.

The event will showcase around 100 local and domestic companies operating in the restaurant, education, hotel to retail industries.