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The owners of businesses operated under franchises say they
are grateful for the recent publication of the much anticipated new
Franchise Regulation, but say that it is not enough to support optimal
growth in the industry.
Although it was signed by the President on July 23, the Trade Ministry
only published the Franchising Regulation on its website Monday. The
new regulation is more comprehensive in scope as compared with the
previous 1997 franchising regulation.
The new regulation defines a franchiser as a company with a type of
business that possesses particular characteristics that are not easy to
duplicate, and requires it to have a minimum of five years of
continuous profit growth and possess written standard operating
procedures.
With the aim of providing legal certainty, transparency and the ability
to assess a company's bona fides, the new regulation provides -- unlike
the previous regulation -- that prior to entering into any agreement,
the would-be franchiser must report its business prospects and the
candidate franchisee to the government and submit a further report
after a deal has been sealed.
Save in cases of standardized international quality requirements that
cannot be satisfied locally, both the franchiser and franchisee must
also prioritize local content.
Aside from regulating the rights of franchisers and franchisees, the
regulation also highlights the role of central and local government,
which include providing assistance and training; recommendations on
market utility; recommendations for the holding of local and foreign
exhibitions; franchise awards; and financial support.
"The regulation is more comprehensive than the previous one. I think
the current government has shown some real concern for the industry,"
Indonesian Franchise Association director Thomas Lie told The Jakarta
Post on Monday.
However, he said, mere regulations were not enough to overcome the
challenges facing the industry, especially when compared to competitors
in neighboring countries.
"In Malaysia, players in the franchising market are given various kinds
of incentive. For instance, those who want to buy a franchise can apply
for soft loans to securing the rights and start up operations."
"Meanwhile, we don't see many banks stepping up and offering products
specifically tailored to this industry, especially in the small and
medium-sized category."
"Clearly the government must be prepared to come up with financial
support programs," Thomas concluded.
Among the local banks that do provide specially tailored loans to the
franchising industry is Bank Rakyat Indonesia (BRI), which from the
beginning of January until the end of August extended Rp 8.6 trillion
(about US$934.8 million) in loans to the industry. The bank expects
this figure to grow to Rp 10 trillion by the end of this year.
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