Experts point to Indonesia as a top market for SG brands seeking expansion

Local franchisors can “get a lot more for the same dollar” in Indonesia.

Singapore has been the springboard of brands seeking to expand in Asia, but for Singaporean enterprises who wish to branch out in other Asian markets, their first port of call will be Indonesia.

What makes Indonesia the perfect starting point for local enterprises is that many Indonesians are familiar with Singaporean brands, said CEO of Asiawide Franchise Consultants Albert Kong.

“A lot of Indonesians send their children here to study. They have apartments here. They open accounts here. They get familiar with Singaporean brands,” Kong told the Singapore Business Review on the sidelines of the Franchising and Licensing Asia (FLAsia) 2023 held on 17–19 September at Sands Expo and Convention Centre Level 1.

Kong was amongst the over 40 experts who shared their expertise with budding franchisors who attended the FLAsia 2023.

Astreem Consulting founder, Hsien Naidu, who also shared her expertise during the event, said what makes Indonesia a hotspot for Singaporean brands is its proximity, size, and openness to new concepts.
 
“Indonesia is the fourth largest country and there is a growing middle class. Because of the sheer size of the country, the potential for growing a franchise is also much bigger,” Naidu told the Singapore Business Review.
 
When expanding in Indonesia, Naidu said local brands must take into consideration socio-economic differences.”
 
“If you’re an F&B, you need to take care about whether or not the food product you serve is halal, though halal is not as strict in Indonesia as it is in Singapore and Malaysia,” said Naidu.
 
Naidu said local brands must also understand who their target market is when approaching new countries whether it’s Indonesia or other countries.

“Everybody looks up to Singapore for creativity, great brands and all that; but when we try to export our brands into the region, sometimes we run into problems because Singapore is relatively tight in terms of size. So a big brand might be [the size of] 20 to 30 outlets, but translate that into Indonesia, a big brand can be 2,000 units in size,” she said.

“The level of understanding of how you go to a market might change dramatically and who your target market might also be very different,” she added.

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Whilst Indonesia’s size presents challenges for Singaporean brands, it also gives multiple opportunities.

For one, brands will have access to a vast and more generous amount of space, people, manpower, as well as creativity.

“You can get a lot more for the same dollar and the profit margins are a lot higher,” Naidu said.

Citing Joe & Dough as an example, Naidu said the coffee and bake shop put ovens in their outlets in Indonesia instead of just selling bread that comes from the central kitchen.

“Like famous bakers in the past where you can walk past and you can smell the cookies, they did the same thing. Now Joe & Dough is known in Indonesia as the best croissant in the region,” Naidu said.

Whether in Indonesia or other parts of Asia or the world, Kong said brands must remember the P-E-S-T--L-E of franchising before expanding.

Kong explained that PESTLE  stands for “Political Economy,” “Social,” “Technological,” “Legal,” and “Environmental” factors that might impact an organisation’s performance, and position in the marketplace.

Selecting a franchisee

When selecting franchisee cross-borders, Kong said it’s important for franchisors to conduct a thorough investigation.

“Don’t just look at how rich, how well-connected the prospective franchisee is. For example, if someone is very rich and he comes to you who is a franchisor for children’s education but you didn’t ask whether this person has children or whether they love children or not, that can be a big factor,” said Kong.

Alignment is also something that Naidu emphasised, saying that franchisors and franchisees must be aligned in terms of growth prospects.

Commercial appetite, however, must not only be the factor for choosing franchisees, said Naidu.

“Franchise fees, royalties, of course [are] important, but ultimately, it is all the other things that you need to evaluate with the franchisee that is important, that is about the brand, about the technology, about the franchise management team, management team, their supply chain, as well as franchise unit excellence, those are all things that you need to already have in place before you start franchising,” Naidu said.

“From that perspective, you want to know that the franchisee passes all these other criteria before you check whether or not they have the financial bit and the royalties and all that if all these things are aligned, then actually the chances of success are much higher,” she added.

Success outside Singapore

After selecting the franchisees, Kong said franchisors must ensure that their contracts are airtight and that they provide a comprehensive  initial training  and follow-up support to their venture partners.

“Unfortunately, there will be brands that to save money, they give some initial training and then they leave the franchisee alone because it costs them too much money to fly there,” Kong said.

“To avoid bad relations, the franchisor has to manage expectations well. It'll be nightmarish for the franchisor to be constantly contacted by the franchisee for the latter’s day-to-day operations, like fire department inspections, or employees not turning up for work. This is a clear case of bad franchisee selection or not stating each party’s responsibilities clearly, or flippant promises made unconsciously or otherwise by maybe even the franchise broker,” Kong added.

Having a training system is also part of what makes a brand replicable, said Naidu.

“If the brand has not already systematised its manuals, its processes, how to be consistentin training, how to maintain compliance and… getting regular feedback from their franchisees is rather critical in terms of expansion. Because if they don’t have it, it’s very hard to replicate,” she added.

Brotzeit German Restaurant and Beer Bar, which already has four branches in Singapore and has successfully expanded in other parts of Asia, said they also put importance on training.

Gerhard Lanyi, Brotzeit’s senior consultant and regional manager, said they provide retraining if they see a need for it. “We have the option of bringing the key personnel back for more training. We send some of our most experienced operation team members over for retaining to upkeep high operation standards,” Lanyi said.

“We keep a very active close dialogue between us as business partners,” he added.

Brotzeit is amongst the over 100 local and international franchises from Australia, Hong Kong, Malaysia, the Philippines, Singapore, South Korea, Taiwan, US, and Vietnam that participated in the FLAsia 2023.

The event also gathered over 40 experts in the field of franchising and licensing to help entrepreneurs seeking to expand their ventures in and out of Asia.

GoPizza’s representative at the event also underscored the importance of training in determining the success of a franchise.

“We provide A-to-Z services to a franchisee that even has no zero F&B knowledge. We hold hands throughout the whole journey from the start and up, you know, setting up the companies to the day they are operating the business,” GoPizza Regional CEO and Head Kelvin Sia said.

Meanwhile, Naidu underscored the importance of having a management team when ensuring franchising success.

“It is important to appoint a team that will take care of the franchisee's growth and not simply treat it as a standalone business,” Naidu said. “A franchise business is also the franchisor’s business, they need to look after and coach the franchisees so that their growth reflects well on the franchise brand as a whole.”

READ MORE: Franchise interest for Singapore’s education enterprises rising