Indonesia plans new franchise rules to boost local businesses

Source:Xinhua Published: 2012-8-28 14:00:15

Indonesia's Trade Ministry has announced a regulation limiting the operations of global franchises in the country, aiming at protecting local businesses, local media reported on Tuesday.

The 2008 regulation on franchises will be replaced to provide local business owners more opportunities and promote locally made products, a ministry official said recently.

Within the new regulation, privately owned companies will be allowed to set up a maximum of 100 to 150 franchise outlets, so that more small-business owners will have the chance to participate in the fastest-growing industries.

"We are seeing ownership domination in the franchise system, which goes against the franchise concept itself," said Gunaryo, the director general of domestic trade at the Trade Ministry.

According to the ministry, in most instances the license-owner, or franchiser, selects only one party as the license-holder, or franchisee, and bars them from establishing subfranchises.

There are also signs that foreign companies with interests in the mini-market business are trying to expand in the country by exploiting the franchise system, despite the fact that foreign investors are barred from small-retailing businesses, the ministry said.

Gunaryo said the new regulation, which has been discussed since last year, was expected to encourage a more inclusive franchise system in Indonesia.

Under the regulation, franchise holders would also be obliged to set aside as much as 80 percent of their inventory for locally made products.

"We are going to promote Indonesian products through the franchise system," Gunaryo said.

The regulation is seen an attempt by the government to protect and increase the presence of traditional businesses.

There is also an attempt by the government to crack down on franchise businesses after several incidents in which companies were found to be operating businesses that differed from the licenses they had been granted.

The main beneficiaries of the new regulation, the ministry said, will be small and medium enterprises as the new franchise system will create more opportunities for entrepreneurs and innovators.

According to the Indonesian Franchise Association, there are at least 80,000 franchise outlets, including restaurants and retailers, across Indonesia.

Posted in: Asia-Pacific

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