REGULATION ON FRANCHISE BUSINESS 

By : Dr. Iman Sjahputra, SH, Sp.N, LL.M  *

The booming of franchise business in Indonesia is like the mushrooms in the rainy season.  Varieties of modern stores are springing up in every corner of the city.  Their existence often are jammed altogether even though they are selling similar goods.  And as the consequences, traditional stalls are getting fewer and died.  The varieties of the modern stores are such as “7 Eleven”, “Alfamart”, “Indomart”, “Familymart”, “Lawson” and many others.  While the traditional stalls and markets are increasingly isolated and hard to find.  Even if there are, their positions are often only stuck in the vile alleys and its conditions seem lethargic as less of blood.

Franchise is a business pattern which is established based on the agreement between the business owner (franchisor) with its business partner (franchisee) whereas the franchisor and franchisee enter into a cooperation agreement to manage the modern stores as mentioned above.  Franchisee shall pay a fee to the franchisor as the owner of the Intellectual Property Rights of the store’s name, brand and store management system.  This business model is very practical whereas the franchisee candidates with enough capital only need to apply to the franchisor.  The franchisee will be equipped with the variety of stores management patterns and simply receive the profits because all matters related the stores management are in accordance with the standard operational specified the franchisor.

Because supported by a large capital and well skill, it is a certain thing that franchise stores is very rare to suffer losses.  This is in contrary with the traditional stalls and traders whereas they are generally trading only with a small capital and traditional management pattern.  Beside that, these modern stores are professionally managed and have been through a thorough feasibility study, and even to determine the store’s position it has to be very strategically chosen.  Not to mention, the condition of the stores that are convenient, competitive pricing and excellent customers’ service and satisfaction.  Their fixed and competitive price makes the buyers not to bargain anymore for the product’s price and the quality of the goods is assured.

It makes us wonder about the competition that is occur, whether the existence of jammed altogether stores will not pose unfair competition in the future?  

The thing that is certain is that these modern stores are supported by a strong capital, and it is very different from the stalls or stores in the middle of a traditional market.

Seeing how tight the competition is and the demise of traditional markets and stores makes the government to take precaution steps.  This move is also intended to limit the foreign expansion.  What steps have been taken by the government?  One of them is the promulgation of the franchise regulation i.e. Regulation of the Minister of Trade No. 68/M-Dag/PER/10/2012 regarding the Franchise for Modern Store.  In this regulation it is governed the limit of the company owned outlet maximally 150 outlets and if exceeding from such maximal limitation then it is mandatory to franchise its business.  There is also other requirement whereas the land for store or outlet is ranging around 400 m² for mini market, 1.200 m² for supermarkets and 2,000 m² for department store.

Also pertaining to restaurant, bar and café business.  This new regulation released by the Minister of Trade of the Republic of Indonesia i.e. Regulation No. 7/M-Dag/Per/2/2013 asserted that in case the franchisor or the franchisee who has owned 250 outlets wants to open new outlet then such additional outlet shall be franchised and/or cooperated with equity sharing pattern.  The equity percentage is 30 percent for the investment amount exceeding IDR 10 billion, and 40 percent in case the investment value is less than IDR 10 billion.  

If we read this regulation, indeed it is something needs to be supported because with this pattern many of the public can be participated in the business.  At the same time the business owner (franchisor) does not need to be afraid with the existence of such equity sharing because the business owner (franchisor) can be remain as the majority shareholder, and indeed still be able to control company’s policies safely.  

Now, the question is, whether or not the original Indonesian franchises have been growing?  Or the situation is remaining the same whereas only foreign franchises are developing in this country.

* The writer is an Advocate who  handles many Trademarks, Patents and Copyrights and lives in Jakarta.


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