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highly anticipated regulation that will end the monopoly in the franchising industry is set to be introduced next week, as well as another regulation that aims to centralize franchising legal permits, a government official said.

The ministry’s domestic trade director general Gunaryo said in a press briefing on Friday, that the first regulation was aimed at encouraging healthy competition by requiring foreign franchisors to have more than one local
franchisee.

“Over and over again, foreign franchisors appoint only one franchisee and thus prohibit them from opening sub-franchises. It shows a monopoly, and thus deviates from the concept of a franchise itself,” he said.

Gunaryo added that with the new regulations, the Trade Ministry will issue a special symbol to identify a franchise business, in order to ensure that it will be bound by the franchising regulations.

In addition, he said, the upcoming regulation would also make clearer the definitions on the types of franchise businesses, in a bid to avoid perceived “ambiguous businesses”.

Gunaryo highlighted the operation of Japanese brands 7-Eleven and Lawson in Indonesia. He said PT Modern Putra Indonesia, a subsidiary of publicly listed PT Modern Internasional, the local franchise holder for 7-Eleven and publicly listed PT Midi Utama Indonesia, which operates Lawson convenience stores, had violated regulations because the outlets were registered as restaurants, but operating as convenience stores.

“We hope that they will comply with the new regulations one year after the regulations take effect,” said Gunaryo, adding that the companies have already been warned of the changes.

When asked about the government’s plan to issue the regulations, Modern Putra’s spokesperson Neneng Sri Mulyati said in a text-message that the company would follow the new rules “should there be any revisions”.

Next week would also see another revision to the regulations concerning franchising. With it, the government wants to centralize the registration and the issuance of franchising licenses for both local and foreign businesses to the Trade Ministry. Currently, licenses for local franchises are issued by regional administrations, while permits for foreign franchises are approved by the central government.

“With the new regulation, the Trade Ministry will have a database of local franchises and thus will be able to observe which of them have the potential to compete in the global market,” he said. Currently Indonesia, Southeast Asia’s largest economy, has a total of 183 foreign franchisors and about 1,700 local franchisors.

The Indonesian Committee for Franchises and Licenses (WALI) chairman Amir Karamoy told The Jakarta Post that the government should reconsider publishing the new regulations next week, adding that there were debates among the franchisers over the technicalities.

“The government should make more time to discuss the planned regulations with the businesses before issuing the regulations.

Otherwise, it is very likely that the local franchises will challenge the new regulations in the Constitutional Court via judicial review,” he said over the phone.

One of the debates among franchisers over the planned regulations, according to Amir, was the government’s plan to limit the number of company-owned outlets to around 100-150 outlets.

“The government should remember that new regulations will not be retroactive. How can you ask a company which already owns 1,000 outlets to reduce their number? That is ridiculous,” he said, adding that the new
regulations must cover “all types of businesses”. (asa)