For a country covering 33 provinces, 349 cities, 5,263 districts and with a population of more than 220 million, Indonesia is truly a haven for franchise business. Imagine your brand penetrating the huge target markets in the cities and even the districts there. The question is, why many Singaporean or Malaysian brands have not taken full advantage of this enormous market potential? Apart from various franchise brands from the United States and Europe, Singaporean and Malaysian brands have not gained a strong foothold on the Indonesian franchise scene – although both these neighbouring countries share almost similar cultures and life styles, which is certainly a great advantage for franchisors to penetrate the Indonesian market with much ease.
Based on existing business trends, 2010 is a perfect year for foreign franchisors/licensors, especially from Malaysia and Singapore to enter and start working on the Indonesian market. Some substantial points below reflect the reasons behind the opportunity.
- Economic Optimism of the Business Community
The recent global economic downturn affected Indonesia to some extent. The business community held on to their new investment and expansion plans during 2008-2009. They chose to sit back, kept an eye on the business atmosphere and decided to carefully identify new opportunities when the recession ended.
Business people and investors have become optimistic and have begun to see year 2010 as the start of a better economic growth for Indonesia, in tandem with an improvement in the country’s political stability and signs of global economic recovery. They have been taking up new investment opportunities, including foreign franchise and license businesses which are expected to do well and become prosperous in the Indonesian market, based on the huge response received by the exhibitors at the Franchise Expo held in Jakarta in November 2009.
- Increasing Regional Economic Development
Regional autonomy, implemented on a large-scale in Indonesia, has been developing new economic resources throughout the archipelago. Supported by strong buying power, new markets for franchise brands have been growing outside Jakarta, the capital city.
Local governments are increasing their efforts to attract local as well as foreign investors to invest in new businesses in their regions. New shopping malls and commercial centres are being rapidly constructed to cater to the needs of new businesses that require bigger space. This new development trend not only increases regional revenue but also helps local residents to fulfill their needs without having to travel all the way to Jakarta.
Improved economic levels in rural areas will create more wealthy societies there, thus more opportunities for franchise and license businesses to flourish. Several expo organisers have already shown keen interest to hold the Franchise Expo this year in regions outside Jakarta such as Java, Sumatera, Sulawesi and Kalimantan.
- Government and Banking Support for Entrepreneurs
In recent years, entrepreneurship development has been increasing in Indonesia. The rapid growth of small and medium enterprises is expected to bring down unemployment rate significantly and further stabilise the national economy. These improved conditions give rise to the franchise concept as an effective accelerator to absorb new businesses in the Indonesian economy.
The government, through its Ministry of Trade, boosts the growth of franchise businesses in Indonesia by streamlining regulations and endorsing franchise business events, including the annual Franchise Expo. Equally in tandem, banks too support this endeavour by offering lower interest rates for franchise business loans. In addition, many banks have shown their endorsement of franchise businesses by sponsoring franchise exhibitions and by introducing special credit schemes aimed at attracting more franchise business ventures.
- Investors are more selective in choosing franchise brands
Wide spread information about franchise and license business brought by consultants, experts and the franchise business media in Indonesia have brought more awareness among prospective franchisees to choose their franchise brands and business models more carefully. With more information about why franchise businesses fail as a result of bad planning and inconsistent execution, investors and would-be franchisees have become more selective in choosing their franchise brands. They prefer proven brands with years of experience and expect to establish their franchise business with a comprehensive agreement, a well documented and systematic SOP and full support from the franchisor, so that the franchisees could achieve the desired results and success in their ventures.
The above factors clearly spell out the huge market and potential for franchise and license business opportunities available in Indonesia for the Malaysian and Singaporean franchisors and licensors to offer their established brands and systems.
How to penetrate the Indonesian Market
1. Choose the right product and the right marketing strategy
Mix and match your products and marketing strategy, keeping in mind the local conditions and business environment. The points described below are the basic references that will assist you to decide the product type and what kind of marketing strategy you should consider:
- Emotional issues such as prestige and lifestyle dominate Indonesian consumer mindset. Rational issues like features and budget come second. Consequently, emotionally beneficial products would be a great advantage.
- Customise your products to suit local culture. For example, McDonald’s offers “Paket Nasi” (rice and chicken) to meet local preference. Indonesians are more familiar with rice compared to hamburger, and furthermore, most of them eat rice as the main dish. To reach big markets in Indonesia, McDonald’s modifies its product variants.
- Give enough space to your franchisees to customise the business, yet, basic consistent rules are still certainly needed.
- Use the power of word-of-mouth marketing. It is one of the most effective strategies to reach Indonesian market. If your brands are already known by Indonesian tourists in Malaysia or Singapore, the word-of-mouth process will speed up effectively.
2. Learn the culture of Indonesian business practitioners
You have to be well acquainted with the characters of your future franchisees and licensees in order to develop a success formula. Bear in mind that there are various ethnicities in Indonesia. Each of them possesses specific culture and background which affect their characters.
Generally, Indonesian business practitioners value casual approach as well as formal. Being flexible in switching in between is needed in acquiring your future franchisees. Inviting them for dinner or knowing their families can be useful. Also try this type of approach to solve misunderstandings. For most Indonesians, informal approach is considered beneficial for both parties and believed as the most effective way to find a win-win solution. A strong informal approach develops trust easier and helps in building a long term business relationship.
3. Know the Law
Business dispute with franchisees and licensees must be the last thing to wish for franchisors. Avoid any possibilities that might lead to disputes by learning the law in detail, especially laws related to franchise business.
To understand the local law, you are encouraged to take advantage of using Indonesian law consultants. This is not only useful to understand the technicality in legal issues, but it will also help you to identify the culture and characters of your local partners in dealing with the law. This way, you will be able to plan and choose the appropriate steps.
4. Find a Local Partner
Even though you have learned enough about Indonesian business culture and the law, linking up to a local partner as master franchisee, licensee or a shareholder to market your franchise brand, is still a good option to pick. Future franchisees will perceive it as a long term commitment of your business. By gaining this image and trust, it will be easier for you to capture new franchisees.
Having a local partner as your Indonesian representative will lead to a simpler business penetration. You will not have to spend too many resources to deal with local issues, such as administrative or cultural matters.
Have a flourishing franchise business in Indonesia!
Pietra Sarosa is the Managing Director of SAROSA Consulting Group. He has more than 5 years of experience in Franchising and Small Business Consulting. He has also written books on Franchising & Entreprenenurship.
Pietra can be reached at +62-21-5157741 or at email@example.com. For more information, visit www.sarosaconsulting.com