There are endless possibilities for business ideas which could be implemented in a foreign country. Some might choose to create a new product or brand, while others might prefer to start a franchise business.
The idea of a franchise may be a safer option for those who intend to rely on a reputable brand name while enjoying the benefits of investing in the populous, vibrant nation of Indonesia. Indeed, Indonesia represents an ideal nation for the franchise business model: it has a young, digitally savvy population with a growing middle class. Thus, the country needs more foreign investors for further business growth.
As is the cases with all other types of business, franchise businesses in Indonesia still need to go through significant bureaucratic procedures and complex laws that regulate this type of investment. Investing time and finances into running a franchise business in Indonesia as a foreigner is not impossible. Those who choose to do so require proper preparation and knowledge of the various steps to be taken.
In Indonesia, both the franchiser and the franchisee can be either individuals or legal entities and either residents or non-residents (this varies depending on the entity registration and location). Franchisers can rely on sub-franchisers (resident or non-resident) to run their business in a pre-determined location. Neither franchisers nor franchisees need to undergo trials or belong to Indonesian business organizations to operate a business in Indonesia.
Franchises in Indonesia
Indonesia is a country full of businesses which are part of franchises, be they foreign of local franchises. The latest statistics show that there are more than 460 foreign franchises and 540 local franchises across the country today. These franchises span a great variety of sectors and cater to consumers of all types.
The first franchises in Indonesia were established in the 1970s; the number of franchises in the country initially grew at a slow but steady pace. By the early 1990s, Indonesia was home to 35 franchises which had a cumulative 308 outlets there. It was also in the early 1990s that franchise expansion in Indonesia would peak. At this time, many franchises from abroad and especially those from the United States established business operations in Indonesia. Local investors became very receptive towards and accepting of these foreign franchises because they foresaw the important role which they would play in shaping the business landscape of the country during future years.
Today, the franchise market in Indonesia is among the most competitive in the Asia-Pacific region. This means that there are many opportunities for prospective franchisors who plan to begin conducting business operations in Indonesia. Franchises which are well-known in both Indonesia and other countries are generally held in high regard by the average Indonesian customer. This is because their international renown and prestige grants them a certain reputational boost in the customers’ eyes.
Requirements to Set Up a Franchise Business in Indonesia
- Both franchisors and franchisees are to obtain a franchise registration certificate or Surat Tanda Pendaftaran Waralaba (STPW). The franchise company is to update the Indonesian authorities which issued the STPW on the progress of their franchise through the submission of a detailed report by March 31 every year.
- Franchisors and franchisees intending to run their business in Indonesia must ensure that at least 80% of the raw materials, services, and business equipment are locally sourced, i.e. from Indonesia; an assessment team appointed by government authorities made the recommendation that such must be the case.
- Franchisors must provide a clear business proposition after having registered Intellectual Property Rights and need to abide by the franchise license rules.
- Franchisors need to possess at least five years of business experience and be able to report on the goods and services used for their business activities.
- Franchisors need to be able to demonstrate the profitability of the business and provide continuous support to their franchisees.
Franchisors must complete the following tasks:
- Obtain the STPW franchise registration certificate, which takes approximately three months to be issued and is valid for five years with the possibility of extension
- Approach the Ministry of Trade and register for the Prospect of Offer, which must be in Indonesian and legalized by a public notary and Indonesian Embassy where the franchisor is located
- Provide franchising agreement
Franchisees must complete the following task:
- Register the franchising agreement with the Ministry of Trade; the franchising agreement must be in Indonesian and in accordance with Indonesian laws.
Another important step to register a franchise in Indonesia is to provide a disclosure document which shows the franchisor’s ID and business history, the franchisor’s businesses and their organizational structures, a list of all franchisees, and details of the rights and obligations of both franchisors and franchisees. Except for small entities, franchisors are to submit audited balance reports for the past two years. All disclosure documents coming from a foreign franchisor must be legalized by a recognized body.
In Indonesia, franchisees and franchisors alike must understand the requirements of franchising agreements. Every franchise in Indonesia is bound by the stipulations specified in such agreements. Although the exact details of each franchising agreement will vary, all of them have certain points in common. All franchising agreements in Indonesia mention the fees and royalties to be received by the franchisor. They will also stipulate the rights of the franchisee with regard to the use and manufacture of certain objects which may have been patented, copyrighted, or service-marked. These objects are to be used to identify the enterprise in question. Franchising agreements typically specify operational directions to be followed by the franchisee as well. Franchisors usually provide training, guidance, and assistance for franchisees; franchisees are subsequently to guarantee that they will adhere to all of the operational directions which have been mentioned in the franchising agreement.