Slower growth in franchise expected next year

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.