Indonesia prepares for 2016 Franchise Frenzy

Yoshinoya and Family Mart stores in Jalan Bulungan, South Jakarta.Yoshinoya and Family Mart stores in Jalan Bulungan, South Jakarta. Photo courtesy Midori

By: Ardi Wirdana

Indonesia is projected to be home to the biggest franchise industry in the region in 2016, according to research consultancy firm Spire.

In anticipation of the industry boom, the government has been urged to provide serious support to the country’s local franchises to enable them to actively participate the in the open Asean market, both at home and especially abroad.

In an industry forecast presented in its June 2015 report titled Growth and Opportunity in Franchising Business Industry, Spire projected that Indonesia, being the biggest economy in the region, will be the market to watch for both F&B and retail franchise businesses.

Indonesia will be home to 417,433 F&B franchise outlets, comprising 246,405 restaurant outlets and 171,028 quick serves outlets. Industry revenue for food and beverage franchises in Indonesia will reach US$ 53.3 billion, which is almost a 10 per cent increase to revenue in 2013. Indonesia’s closest competitor, in terms of industry revenue, will be Vietnam with revenue of US$ 37.9 billion.

The wholesale and retail franchise industry, meanwhile, is predicted to witness a soar in retail sales, reaching US$ 488.81 billion, an incredible 40 per cent rise to the total sales in 2013.

Experts predict that the franchise industry boom will be mostly enjoyed by foreign franchises, which currently make up around 60 per cent of all franchise businesses currently operating Indonesia.

This would not be a problem, as long as the foreign franchises open regional headquarters in Indonesia, so the country can gain benefits from taxes and human resource development, according to Amir Karamoy, chairman of the national committee for franchising and licenses at the Indonesian Chamber of Commerce and Industry (Kadin).

However, given the unfriendly regulations and requirements concerning permits for foreign businesses in Indonesia, Amir believed that the chances of businesses officially establishing themselves in Indonesia is very slim. Amir predicted many franchises would come to Indonesia only after they first establish headquarters in countries like Thailand and Singapore which would allow them to take advantage of the free trade under theAsean Economic Community (AEC) framework.

“But we are doing our best to get them to come straight to Indonesia. We try to convince them that our market is huge growth of franchise business is also proven for a decade, with 12 per cent growth per year. We also have the rising middle class that spend US$ 2-20 per day,” Amir told Asean Today.

Go International

While franchise businesses from otherAsean countries are evidently starting to take full advantage of the opportunities opened up by the AEC, which took effect on the last day of 2015, Indonesian franchises are struggling to benefit from the economic integration due to a number of constraints.

Currently very few Indonesian franchises have managed to expand their businesses abroad. In fact, recently at the Indonesia Business and Franchise Expo, only four franchises have been recognised as being successful in their exploits overseas. Those franchise are AlfamartEs Teler 77Kebab Turki Baba Rafi and Bebek Ayam Pak Ndut.

Indonesian franchises have always found it difficult to “go international”. The biggest hurdle for them, Amir said, is the issue of quality.

Alfamart minimarket. Alfamart is one of Indonesia's leading franchises.

Alfamart minimarket. Alfamart is one of Indonesia’s leading franchises. Photo courtesy Bkusmono

“They need to pass ISO requirements and every country also has its own standard of quality. Our companies just can’t pass them,” he said.

He explained that in order for businesses to improve their quality they would need more money at their disposal, and would greatly benefit from financial assistance like low interest government loans.

Another matter the government should help local franchises with is legal assistance. Legal matters are often beyond the scope and understanding of franchise owners.

“These franchises will be faced with different laws and regulations in different countries. There will be legal documents using legal terminologies, in English too. And there will be some 150 pages of them,” he said.

Amir said that his committee is engaging in communication with the government to see whether or not the government can help in this regard by providing businesses with good lawyers who are inexpensive or who are partly paid by the government.

Look to Malaysia

Amir said that in terms of sending franchises abroad, Indonesia is lagging behind the likes of Thailand and Vietnam, whose franchise businesses have been aggressive in trying to penetrate foreign markets.

However, Amir singled out Malaysia as the country Indonesia needs to learn from and highlighted the benefits of having a special government agency to help and support local franchises.

Malaysia’s success in exporting franchise brands owes much to the role of Perbadanan Nasional Berhad (PNB) an agency owned by the Ministry of Finance Incorporated (MOF Inc.) with the mandate to lead the development of Malaysia’s franchise industry. The agency says in its website that makes it one of its main aims to develop local brands and market them abroad.

The agency also has programs that help small enterprises develop their business. The Business in Transformation program, for example, helps small businesses in Malaysia to become more systematic and competitive to gain more profit. It also trains the entrepreneurs to build a franchise from their businesses.

Indonesia currently does not have a special government agency that focuses on supporting local franchises. This, Amir said, may cost Indonesia franchise businesses dearly when their foreign counterparts start flocking in into the market.

Without some sort of structured government support, Indonesian franchises are expected to struggle in the AEC.

“The growth for local players will be stagnant, simply because they won’t be able to compete in the current climate,” he said.