T

he Trade Ministry’s latest regulation on franchising will allow small and medium enterprises (SMEs) owners to share in the success of well-established restaurant operators, but not all of them can benefit from such a partnership.

Owners of SMEs said that the new regulation had offered quite promising business opportunities for businessmen with thick wallets to enter the lucrative restaurant business. But for small businesses, such a partnership scheme would seem too expensive, they said.

Hendy Setiono, owner of Baba Rafi Turkish Kebab, said that the regulation gave businesspeople the opportunity to operate well-established restaurant names through franchising agreements or equity participation.

“Why not? I believe the new regulation will help encourage others to start their own business,” Hendy told The Jakarta Post recently. But to benefit from such business partnerships, an investor should have a big budget because the business would require a lot of investment, he added.

The regulation, which was officially introduced on Feb. 15, limits a single master franchisee to a maximum of 250 outlets and obliges them to invite other parties if they want to open more outlets through franchising schemes or equity participation. Those who already own more than 250 outlets, should adjust to the regulation in five years.

Under the equity participation, business partners can own up to 40 percent of a restaurant outlet worth less than Rp 10 billion (US$1.03 million), or 30 percent if the outlet is worth more.

Trade Minister Gita Wirjawan said that the regulation was implemented to avert monopolies and was aimed at endorsing higher involvement from local business partners, particularly SMEs at the regional level

Albeit opening doors for local players to invest, the regulation has generated resonating opinions on whether the investment set in the regulation is affordable enough for SME owners.

 Muadzin F. Jihad, founder of Depok-based coffee-franchising Semerbak Coffee, said that the regulation might have paved a way for local entrepreneurs to partake in well-established restaurant or fast food outlets. But, he said that given the large amount of investment needed to set up such an outlet, the regulation would only benefit those who have a big budget.

“Considering that there are a variety of small and medium scale businesses, there might only be opportunity for those with a thick wallet,” Muadzin told the Post.

Muadzin said that having to take care of his own business, he had yet to make up his mind on whether or not he was interested in investing, but he said that he would prefer to invest through equity participation, which would give him more time to focus on developing his four-year-old enterprise.

He also added that he would rather invest in local franchising than in foreign-based key players in the restaurant franchise business such as Kentucky Fried Chicken (KFC), Pizza Hut and McDonald’s, which will all likely be affected by the regulation.

According to data estimation from the Indonesian Committee for Franchisees and Licenses (WALI), KFC currently has around 400 outlets nationwide, Pizza Hut has 197 and McDonald’s has 122. Domestic franchising restaurants with a large number of chains include California Fried Chicken (CFC) with 277 outlets and Quick Chicken with 210 outlets.

Almuas, an activist from the Komunitas Tangan Di Atas business community, is in line with Muadzin. “It’s a positive move, of course. It has given a chance for SMEs players at the regional level to seek benefits from bigger players, and we encourage those who are interested in participating,” said Almuas, who is chairing the community’s chapter in Bogor, West Java.

“But it’s better for entrepreneurs to invest in domestic-based businesses first rather than helping to build up bigger, foreign players. We too have prospective franchising businesses that need to be developed.”

Amir Karamoy, the chairman of WALI, has quite a different opinion. The benefits of smaller players have also become his association’s main concern, but instead of requesting lenience to involve more local businessmen, Amir demands more.

“The franchisors should ideally hold a 51 percent stake in their franchised business to allow them to operate independently,” Amir said.

 “The regulation sets small-and-medium players to support and ease the burden of the bigger business, and not vice versa. We want the government to either revoke or revise it.” (aml)