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new regulation set to come into effect this month will require foreign franchising companies to have more than one local partner to avoid creating market monopolies and encourage more competition.

The Trade Ministry’s domestic trade director general, Gunaryo, said that most franchisees of foreign companies were currently controlled by a single “master franchisee”, resulting in a monopoly as other partners could not buy licenses to the business model.

“One of the main things [in the new regulation] is to require foreign franchisors not to restrict their master franchisee, and not to build their own outlets, as much as possible,” he said, adding that the rule would give a clearer definition of a franchise.

“We will give a special symbol or logo to identify a franchise business. If a business is a franchise, it will be bounded by the franchise regulation. If it’s another business, it must comply with other related rules,” he said.

The regulation will apply not only to foreign franchises but also local franchises. Currently, many local franchises, such as convenience stores, still operate by building their own outlets and do not solely sell their trademarks to other parties.

The regulation also centralizes the registration and issuing of franchise licenses for both local and foreign businesses by the Trade Ministry. Currently, licenses for local franchises are issued by local administrations, with permits for foreign franchises approved by the central government.

Indonesian Committee for Franchises and Licenses (WALI) chairman Amir Karamoy said that concerns had been rife around the expansion of foreign franchises as around 90 percent of foreign franchisors either partnered with a single master franchisee or did not grant franchises to third parties to build their own outlets as part of an expansion strategy.

“Our concern is that foreign franchisors break franchising’s basic rules by not giving their brand and proven business systems to their local partners, instead building their company-owned units,” he said, adding that this had resulted in monopolies or created unfair competition.

The WALI chairman hoped that the new rule on franchising would also better regulate local franchises as some of them, particularly retail chains, had not been clear in identifying themselves. Although they aimed to sell their licenses, they mostly relied on building their own retail outlets in their push to expand.

As of late last year, there were 1,114 local and foreign franchises in Indonesia. That number is estimated to rise by 15 percent this year – higher than 11 percent annual growth on average – due to the potential entrances of several foreign franchises from the US, Malaysia, South Korea, China, Japan and Australia, according to WALI’s data.

Anang Sukandar, the chairman of the Indonesian Franchise Association, welcomed the government’s move, saying that the new rules would also encourage greater participation by local businessmen in the industry.

However, he also warned that the rule should be complemented by other measures, such as obligatory identification of business types that are registered in embassies, and membership of the related franchise associations within the origin countries to ensure the proven quality of a franchise.

“As they will cooperate with local partners, the franchisors must be reliable,” he said.