The franchise business model has become an increasingly popular method of entering the Indonesian market for both local and foreign investors. Foreign retail brands and service providers that have seen weak demand in their traditional home markets are keen to tap into Indonesia’s growing consumer power. Central to success is finding a local partner with experience in the business sector in question. Franchisors should also ensure that they secure the intellectual property rights of the business in advance of entering the market as cases of local franchisees plagiarising business models and products and then terminating the franchise agreement to form a new and independent business entity have been known to occur.
The regulations for engaging in a franchise business in Indonesia by foreign franchisors and franchisees are stipulated in the Government Regulation No. 42/2007 and Ministry of Trade Regulation No. 31/2008. The latter decree lays out the obligations of the franchisor to obtain a Franchise Registration Certificate (Surat Tanda Pendaftaran Waralaba/STPW) from the Ministry of Trade. This certificate is valid for up to five years and is then extendable for a further five years. The document types that must be submitted are described and the necessary internal forms and procedures that must be filled out when making an application are also detailed within the regulation.
Foreign franchise businesses must be able to illustrate a positive past performance in terms or profit for at least two years or an average profitability for the past five years. The franchise must therefore be operating at least one outlet in another market to be able to submit its financial records. The trademark or patent of the franchise business must also be registered in Indonesia with the Trademark Office prior to making an application for the Franchise Registration Certificate.
As part of the agreement, franchisors are required to foster the franchisee and the terms of this must be clearly stipulated in the franchise agreement. This includes education and training to the franchisee and their staff members, supervision of operations for a certain minimum time period, conducting market research as well as business and product development.
Documents required for obtaining a Franchise Registration Certificate as a foreign Franchisor:
Documents required for obtaining a Franchise Registration Certificate by a foreign Franchisee:
Submitted applications should be processed within three working days according to the official guidelines; should all the requirements be met. In the case that the application is rejected, applicants are then entitled to reapply. Franchise businesses operating without a Franchise Registration Certificate within Indonesia are liable for a maximum fine of 100 million RP.
Changes to Indonesia’s franchise regulations have been widely expected from the Ministry of Trade. One area of expected change would be a limit on the amount of total franchise units that a single franchisee or ‘master franchisee’ can have in an effort to break up perceived monopolies. This would require business units outside of the maximum amount to be franchised to other franchisees and most likely to Indonesian natives only. Such changes have not been implemented to date however they are anticipated over the course of 2012.
Global Business Guide Indonesia - 2012
Capital: Jakarta
Population: 259 million (2016)
Currency: Indonesian Rupiah
Nominal GDP: $936 billion USD (IMF, 2016)
GDP Per Capita: $3,620 USD at Current Prices (IMF, 2016)
GDP Growth: 5.0% (2016)
External Debt: 36.80% of GDP (BI, Q2 2016)
Ease of Doing Business: 91/190 (WB, 2017)
Corruption Index: 90/176 (TI, 2016)
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