Do We Need Franchise Regulations?

On June 18, 2009, my franchise consultant firm (International Franchise Business Management – IFBM) together with the Indonesian Chamber of Commerce & Industry (ICCI) organised a Regional Informal Franchise Discussion. We had senior franchise representatives from Thailand, Singapore, Malaysia and Indonesia. The event was sponsored by YOMART Minimarket and brought together four franchise experts as panelists – Mr. Syed Kamarulzaman, Managing Director of Perbadanan Nasional Berhad (PNS) Malaysia; Mr. Albert Kong CFE, Founder/Senior Consultant of Asiawide Franchise Singapore; Prof. Peerapong Kitiveshpokawat from Sripatum University, Thailand; and Mr. Amir Karamoy, Chairman of Franchise & License Committee ICCI Indonesia. I was the moderator for the event.

As the discussion came along, a pertinent question was raised – “Do We Need a Franchise Regulations?” Mr. Albert Kong related the pros and cons of such a regulation and related an incident in New Zealand where a franchising malpractice was committed when a franchisor embezzled  franchisees’ money. The Franchise Association of New Zealand Inc. settled the matter without a franchise regulation, even though the affected parties called for a franchise regulation to be enacted. The final decision was, the Association decided not to produce and implement a Franchise Regulation. Considering that this is a rare case, but the point is, many successful franchisors believe that through education, knowledge and professional conduct, the franchising industry can be better developed without enforcing a strict franchising regulation.

As for Indonesia, home of over 200 million people, it is just too simplistic to expect proper franchise practice from both franchisor and franchisee without any strict regulations. For instance, duplication of franchise business is quite prevalent here with relaxed standard practices. Seeing successful franchise business will motivate others to start one of their own by applying some minor changes. Such misconducts will not only affect the franchise industry but also help to dampen the image of franchising, and would discourage genuine franchise business builders from involving in this industry. Nevertheless, if there are too many different conducts, standards, practices which could lead to business failures, no one will trust the franchise system anymore. This will be detrimental to the future of the franchise industry.

Ideally, a franchise association will cover the franchise ethics and criteria for business practices. Since the Indonesian Franchise Association is not organised by member representatives and no obligation for franchise business owners to be members of the Association, then government regulations is the best mode to establish a franchise criteria for standard implementation.

At this moment, Indonesia has franchise regulations which are coordinated by the Department of Trade. The purpose of the regulations is to register any franchise business that will be operated in Indonesia. Both franchisors and franchisees should register their businesses before they franchise the business to others. Criteria and procedures are also applied.

Do we need Franchise Regulations? For Indonesia, it will help to enhance standardisation and professionalism in the franchise industry.

Burang Riyadi is the Founder and senior partner of International Franchise Business Management (IFBM), a franchise consultant firm in Jakarta, Indonesia with 13 years of experience in franchise consultation practice. He is Vice Chairman of Franchise & License Permanent Committee of the Indonesian Chamber of Commerce & Industry.

Burang can be reached at +6221 5299 or at franchiseconsultant@ifbm.co.id