(JP/Wendra Ajistyatama)

Local business players have voiced their objections to a planned regulation on retail stores and restaurant franchises, saying that the rule would severely affect their future business growth.

The new rule, currently being finalized by the Trade Ministry, will limit the number of company-owned units operated by franchisors to 100 outlets to encourage the development of franchise ownership and expand business opportunities in the country.

The regulation aims to prevent a monopoly of a single master franchisee or the franchisor itself and encourage third-party ownership. The licenses of foreign franchise brands in Indonesia are mostly controlled by a single master franchisee. Meanwhile, domestic franchisors often own and operate their own outlets more than they sell licenses to multiple franchisees.

The Trade Ministry’s director general for domestic trade, Gunaryo, said such a monopoly would give way to unfair competition.

Business players worry that the new rule would be retroactive, thus forcing many franchisees to breach existing contracts.

Indonesian Committee for Franchises and Licenses (WALI) chairman Amir Karamoy said on Wednesday that the new rule should not be retroactive, given the fact that a number of franchisees were currently bound by contracts with foreign franchisors that last up to 20 years.

“The rule should stipulate that the franchisees comply only after the [current] contracts end. They should fulfill the contracts, especially with foreign franchisors, otherwise this can give a sign of business uncertainty in Indonesia,” he told The Jakarta Post in a phone interview.

Several local franchisees that partnered with foreign franchisors are publicly listed firms, and reducing their own outlets would in turn, impact their shares, Amir added.

The new regulation on retail stores and restaurant franchises supports another regulation on franchises passed last week that aims to create a favorable business climate for franchise businesses in Indonesia.

It stipulates that, among other things, franchisors and franchisees obtain licenses that expire within five years, source at least 80 percent of goods and services in their operations locally and submit reports of operations to the government.

Amir said that the government had to provide incentives for franchisors so that they would be willing to transfer their business to franchisees, particularly to areas outside the capital city Jakarta.

Franchisors often decide to build their own units in the regions because it was difficult to find business partners there, Amir said. Many local governments, however, are reluctant to give permits to franchisors because they wanted local businesspeople to have stakes. This compounded problem created difficulties for franchisors in expanding their businesses in the regions, Amir went on.

Nevertheless, franchise businesses have expanded quickly in Indonesia, home to 240 million, where the middle class drive robust consumption of goods and services.

Master franchisees like PT Fast Food Indonesia (FFI), which holds the franchise of international fast food chain Kentucky Fried Chicken (KFC), was eyeing millions of dollars in food and beverages sales nationwide this year, the company said last year.

Speaking separately, Indonesian Retailers Association (Aprindo) deputy secretary-general Satria Hamid said the new rule might create a problem for local franchisees who bought franchises from foreign partners.

“Some foreign franchisors require in their agreement that their franchises cannot be sold to other parties,” he said.

Satria questioned the feasibility of the rule’s implementation in areas outside Greater Jakarta, as it would not be easy for franchisors to find local partners.

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