THE BUSINESS OPPORTUNITY OF AGENCY, LICENSING AND FRANCHISING IN INDONESIA

A new phenomenon during the last couple of years that attracts special attention is the rapid development and growth of the franchising, agency and licensing businesses in Indonesia. A market with 220 million people is definitely a potential and attractive market with great opportunity to market various products and services. Many new businesses have been established and the market has opened up new horizon with regard to new or foreign products or brands, which have so far not been present and introduced in Indonesia. At the beginning, agency and licensing arrangements have made the introduction of new products or brands into this particular market possible, primarily during the period of the 70’s and 80’s, where generally premium products such as food and beverage, automotive, pharmaceutical and electronic goods were manufactured and distributed by a sole agent or distributor. Conducive business and market climate later on has shifted the manufacturing and distribution of products and services from the agency to licensing arrangements. When foreign companies were then allowed to operate directly in the Indonesian market, in many cases agency has become somewhat redundant. Particularly the automotive sector in Indonesia has undergone this process, where agencies have been taken over or cancelled to enable the foreign mother company to be established directly in this market. This development process is considered a necessity, since market development competence must be considered as an integral and recognized part of the entire organization. Franchising became popular in Indonesia especially during the period of the late 80’s and the beginning 90’s, heavily influenced by the modern Western way of life. Franchising, which is nothing else but a marketing strategy and a distribution concept for goods and services, is flourishing rapidly. Apparently, franchising business is understood and considered as a duplication of success; indeed, franchised goods and services are already proven in the country of origin and the brand has already a brand equity and competence. Therefore, the major attraction and consideration for having a franchising business is the opinion that the business has not to start from zero or scratch, which, in a way is true; one would not necessarily have to put extra efforts in establishing the market or developing a business system. With another words, the business would automatically run smoothly and be a success. This opinion is not completely wrong when considering that a franchising business provides a number of facilities and assistance, for which other businesses would otherwise have to spend some time, efforts and money to get these matters established primarily at the beginning stage of the business operation. The major task of a franchising business, however, remains how to work on the products or services correctly and intelligently market these to the consumers. Either agency, licensing or franchising, these business agreements remain a stake, financially and a reputation. Therefore, as if the case with other businesses, whoever is going to be involved in this kind of business agreements will have to work hard, have the necessary perseverance, have to plan business activities carefully and implement a focused and solid management system. The market penetration will only be a success, if basic criteria and requirements are fulfilled, e.g. identifying consumer needs, behavior and habit, the culture of the people, market development trend and the right choice of business location.
Indonesia, the fourth most populous country in the world, offers plenty of opportunity to market various products and services, be it through agency, licensing or franchising agreement. Many kinds of food and beverage products and service-based business activities would find potential customers in this market and currently Indonesia has become the heaven not only for foreign but also for domestic franchising companies. Young business people, professionals, housewives even retired people have entered into this new venture; a local magazine has conducted a research and identified that more than new 1000 franchisees have been established, whereby 54 foreign franchising companies have created 300 new franchisees. In total, according to the Indonesian Franchise Association, AFI, 280 franchising companies are registered in Indonesia in 2004, out of which 235 are foreign with more than 320.000 outlets so far in full operation. 52 local Indonesian companies have already developed their own franchising business. This very promising development points at a bright future for business establishments in Indonesia, be it arranged under agency, licensing or franchising cooperation.