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ost Indonesian franchise companies fade away after only a few years of operation due to mismanagement and poor marketing skills, as well as a lack of government support, the Indonesian Franchise Association (AFI) executive said.

“There are 1,700 franchises venturing in the country, but only 8 percent of them can do good business,” the association’s chairman Anang Sukandar said on the sidelines of the International Franchise License and Business Concept Expo & Conference (IFRA) in Jakarta on Friday.

He said that the other 92 percent of the existing franchisors could not perform well because they did not have any originality to attract buyers.

From previous years, the number of Indonesian franchising companies has grown significantly, but those that have made successful businesses number only about 100 companies, at most, AFI member and a franchise broker Rachmat Agung Nugroho said.

“We can consider them successful if they could survive the business after five years. It means that franchisees are satisfied, their business performance. As I observed, rookie franchisors failed to obtain longer contracts and then they fade away,” he said.

Indonesia’s franchise revenues stood at Rp 120 trillion (US$12.84 billion) last year, up 21.6 percent from Rp 114 trillion in 2010, Indonesian Committee for Franchises and Licenses (WALI) data revealed.

Indonesia’s franchise businesses are estimated to collect Rp 144 trillion in revenues this year. About 70 percent of projected revenues will be contributed by foreign franchises, mostly from the United States, Japan, South Korea, Singapore and Malaysia.

Anang said that Indonesian enterprises did not receive sufficient education or financial support from the government.

The Trade Ministry has launched a coaching program for several franchisors this year. In previous years such business coaching was mostly provided by companies and associations, such as Bank Mandiri, Wismilak and Indonesian Young Entrepreneurs Association (Hipmi).

“Since there isn’t enough assistance, most franchisors use a ‘trial and error’ approach. Unfortunately, there is too much error,” said WALI chairman Amir Karamoy in a telephone interview on Friday.  

He said that some local franchising firms failed to survive because many Indonesian buyers still preferred foreign brands to local ones.

Local franchisors will face even tougher competition this year as around 100 foreign franchisors are ready to enter Indonesia, Amir said, adding that around 10 of them are from neighboring Malaysia.

Malaysia Franchise Association (MFA) chairman Abdul Malik Abdullah said that Indonesia was one of their major markets. There are currently 18 Malaysia franchisors in the country, headed by companies such as Daily Fresh and Nelson’s, restaurant Secret Recipe and handbag Bonia.

“We have agreed with the government to focus on Indonesia, the Middle East and China. I would say that with 18 brands, Indonesia is our biggest overseas market by far. I see that Daily Fresh and Nelson’s will be the most growing business here, because it requires a relatively small capital base,” said Abdullah, who joined 18 Malaysian companies at the exhibition.

Anang said that Indonesia, particularly the government, has much to learn from Malaysia.

Malaysia has less franchisors than Indonesia, with only 603 brands. Some 70 percent, however, are local enterprises. The franchise sector contributed around 2.5 percent of Malaysia’s gross domestic product (GDP) last year, worth around $7 billion. Half of the total revenues are contributed by local franchisors.

In Malaysia, the government not only provides marketing, management training, but also financial assistance to support the country’s financial companies. (yps)