Major retail brands such as Alfamart will be forced to diversify the
holding of franchises under a new regulation the government claims will support
small- and medium business-owners.
Under the ruling, issued on
Monday in Jakarta and taking effect immediately, privately owned companies are
only allowed to establish a maximum of 150 franchise outlets, giving them
little choice but to issue franchises to other entrepreneurs if they wish to
grow beyond the threshold.
The regulation, however, provides
several exceptions. “Companies that have yet to generate any profit after
opening up 150 outlets ... are allowed to open more branches,” one provision
said.
Furthermore, private companies can
also open more than 150 outlets should the franchise holders try but fail to
find local partners, the regulation said.
The regulation also states that
locally-made products should account for at least 80 percent of types and
volumes of goods being sold at franchise outlets.
Companies will be given five
years to comply with the new regulation, with companies that fail to comply
facing the potential loss of their business license.
The new regulation is likely to
hurt many retailers. One possible loser is Sumber Alfaria Trijaya, which
operates thousands of Alfamart minimarket outlets. Of 6,000 Alfamart outlets
across the country, only 2,000 are owned by non-affiliated investors under a
franchise agreement.
Hendrik Adrianto, head of
external communications at Carrefour Indonesia, said the supermarket chain
expects to have little trouble complying with the local production regulation.
“Locally-made products already account for 90 percent of our inventories,”
Hendrik said.
He said there are only 84 Carrefour
outlets across the country, meaning the new regulation left it room to grow.
According to the Indonesian
Franchise Association, there are at least 80,000 franchise outlets, including
restaurants and retailers, across Indonesia.
Last month, the Indonesia
Franchising and Licensing Society (WALI) warned of the dangers of the mooted
regulation. Amir Karamoy, chairman of the group’s advisory board, said
potential franchisors had become more cautious about setting up operations in
Indonesia due to the policy.
The local product requirement
comes just two weeks after President Susilo Bambang Yudhoyono told a conference
in Jakarta: “If we want to achieve robust global trade ... we must tackle
[non-tariff trade barriers].”
Tito Summa Siahaan
Business & Investment Opportunities
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