Intellectual Property Rights have an essential role in the Franchise business in Indonesia. The question “Does your Franchise already register your Trademark?” becomes very relevant to test its legitimacy as an initial question to the Franchisor.
Running a Franchise business in Indonesia, from an investor’s point of view or as a Franchisee, at first glance, looks promising because we are promised an “auto-pilot” business with a quick return on investment!
Without a million-dollar investment, you will have continuous cash flow in returns with the help of the big name of the Franchise that we take. Franchise offers are increasing, including at various Franchise exhibitions. We can easily find lucrative business proposals from new companies with well-known artists behind them.
However, we need to pay attention to whether the business offered by the companies we aim for is worthy of being called a Franchise.
Are there any legal consequences for fake Franchise businesses?
Definition of Franchise in Indonesia
According to Article 1 of the Government Regulation of the Republic of Indonesia Number 42 of 2007 concerning Franchising and Regulation of the Minister of Trade of the Republic of Indonesia Number 71 of 2019 concerning the Implementation of Franchising, what is meant by Franchising is a Special Right owned by an individual or business entity towards a business system with business characteristics, to market goods and/or services that HAVE PROVEN SUCCESS and can be utilized and/or used by other parties based on the Franchise Agreement.
7 Criteria that Franchisees Must Fulfill
Article 3 Government Regulation No. 42 of 2007 concerning Franchising and Article 10 of the Minister of Trade Regulation No. 71 of 2019 concerning the Implementation of Franchises provides clear criteria regarding things that must be fulfilled by businesses that use the Franchise concept, as follows:
1. Has Distinctive Business Characteristics
Businesses with distinctive characteristics have advantages or differences that are not easily imitated compared to similar companies, making consumers always look for those characteristics. For example, the Franchisor’s unique characteristics are management systems, sales and service methods, or arrangement or distribution methods.
2. Proven to Provide Benefits
This evidence refers to the experience of the Franchisor, who has been running for approximately 5 (five) years. It already has business tips for overcoming problems in its business so that it can continue to survive, grow, and be profitable.
3. Has Service Standards for the Goods and/or Services Offered which are Made in Writing
This rule requires a Franchise to have a certain Standard Operational Procedure (SOP) so that the Franchisee can carry out business within a clear and the same framework. Therefore, it is only a Franchise if it is equipped with SOP.
4. Easy to Teach and Apply
The pleasant thing about the Franchise business is that Franchisees who do not have experience or knowledge of similar businesses can carry it out well through the Franchisor’s continuous operational and management guidance.
5. Provide Continuous Support
Apart from point number four, the Franchisor must be very helpful because it must continuously provide operational guidance, training, and promotions to the Franchisee.
6. Registered Intellectual Property Rights
Make sure that the Franchise you are seeking has registered Intellectual Property Rights (IPR) related to the business, such as Trademarks, Copyrights, Patents, or Trade Secrets, with proof of certificate ownership or is in the process of registering with the authorized agency in this case, the Directorate General of Intellectual Property (DGIP), Ministry of Law and Human Rights of the Republic of Indonesia.
7. Has an STPW (Franchise Registration Certificate)
Article 10 Regulation of the Minister of Trade of the Republic of Indonesia No. 71 of 2019 requires Franchisors and Franchisees to have STPW. To obtain this STPW, the Franchisor must have a Franchise Offer Prospectus, because without it a Franchise Agreement cannot be made between the Franchisor and the Franchisee.
It should also be noted that the STPW is declared invalid if in the future the registration of IPR (eg. Trademark) by the Franchisor is not approved or the validity period of the IPR expires.
Therefore, given the importance of Intellectual Property in a Franchise business, the question “Does your Franchise already register your Trademark?” must be asked from the start.
Furthermore, some essential things that you should also pay attention to when sorting out fake Franchises are:
- True Franchises Don’t Promise Auto-Pilot
At the recent international Franchise exhibitions, Chairman of the Indonesian Franchise Association (AFI) Anang Sukandar warned, “We should not be lulled into instant ways. In business, you can’t have auto-pilot business. Auto-pilot only exists in the world of aviation, not in business.”
So don’t ever think that a Franchise business is like investing in gold, which can continue to rise without following the business process. If your Franchisor is offered that way, perhaps you are being used as prey, and the Franchisor can be irresponsible when you lose money in the future, for example, by giving reasons that your location is not in a profitable area.
- Indonesian Franchise Supports Domestic Production
Take your time to be tempted by Franchises that sell imported raw materials as their main attraction. Article 9 of the Government Regulation concerning Franchising states that the Franchisor and the Franchisee prioritize using domestically produced goods and/or services as long as they meet the quality standards of goods and/or services stipulated in writing by the Franchisor.
By better understanding the ins and outs, you can be more selective in choosing a Franchise business. The business offer that looks very tempting could be just a partnership offer that does not follow the Republic of Indonesia Government Regulations on Franchising.
So that you know, the use of the term Franchise that does not meet the above criteria may be subject to administrative sanctions in the form of recommendations for revocation of business permits and/or operational/commercial permits to issuing officials according to the provisions of statutory regulations. In other words, the significant investment you paid could result in losses not because of a lack of buyers but because you should have detected the mandatory Franchise requirements.
Should you require further information and assistance regarding Franchising in Indonesia or abroad, please contact us via [email protected].
- Government Regulation No. 42 of 2007 concerning Franchising
- Minister of Trade Regulation No. 71 of 2019 concerning The Implementation of Franchise