THE INFLUENCE OF FRANCHISE FOR INDONESIAN ECONOMIC DEVELOPMENT
Presented by : 1. 2. 3. 4. 5. 6. 7. Aditya Yuli Sulistyawan Deasy Aryati Ilmiawanti Nur Endang Trimargawati Nuzulia KS Rr Diyah Ratnajati Suryadi Daru Cahyono
MAGISTER IN LAW PROGRAM DIPONEGORO UNIVERSITY SEMARANG 2007
CHAPTER I INTRODUCTION
A. Background At one time or another in our lives, we all want to own our own business. For many
of us, taking that giant leap towards total independence is very frightening. However, buying a franchise is a very lucrative option where you, as the franchisee, are provided with the established name of a company, including its well-known trademark and backing in form of advertising, uniforms, the location and equipment among others. A franchise enables one to acquire a tried and tested business with an established reputation and a known market. The franchisor will always remain interested in the franchisee's business operation because he/she has vested interests. This means that you will also get the support and know-how from someone who has done it all before. Fellow franchisees can also offer one another a lot of assistance and support, which gives one many advantages over going it alone. Financially, one is given a very good idea of what the capital outlay will be, as well as what one's monthly expenditure will amount to. A private business often has hidden expenses that are not always anticipated. Franchising is a sophisticated form of licensing in which the franchisor licenses its Intellectual Property e.g. its trademarks, trade dress, copyright, know-how, trade secrets, business concept, methodologies and if relevant designs and patents to the franchisee. It is one of the most effective means of exploiting Intellectual Property (IP). The effectively of franchise basically can make a good of economics developed. Economic Development is a rise in a real income per person, usually associated with new technology that increases productivity or resource, and it can signed by national income, GDP, GNP,and real GDP/GNP. It means that the most signed is come directly from person and it can be signed by the growth of personal income. B. Problems In this paper, we will explain what is the franchise, the relation to the IPR and license, and then how franchise influences an economic development of Indonesia.
CHAPTER II
1. The History of Intellectual Property and The relation to License From the beginning of time, mankind strove to know and exploit the riches offered by nature. During the times of the formation and expansion of sedentary societies, human ingenuity discovered techniques to multiply those natural riches, and thus, human communities scattered all over the world and were able to share physical resources which were always scarce to satisfy the needs of a growing population. In the course of history, organized communities obtained sufficient welfare so as to devote their efforts to reflection, investigation, education and the arts. Then there appeared the libraries, academies,
educational institutions and debate centers. At the same time, talent found its way in applying accumulated knowledge to solving practical needs and into the resources made available to mankind and incorporated the compass or the breast chest of useful procedures, such as fabric spinning or constructing buildings with huge arches, etc. Meanwhile, poets, philosophers, sculptors, and musicians expressed their ideas and feelings in works which contributed to enriching the cultural environment of human beings. But in times prior to that known in the Occident, as the Renaissance, the existence of intellectual creations did not lead to the birth of any legal system which either favored their originators or allowed nations to add to their national capital the economic value of these intangible goods. As there did not exist any legal protection, once an invention was disclosed it could be utilized by anyone in any part of the world where the said invention was known, and a work of art could be reproduced by anyone who had the necessary ability to do so. The only way of having exclusive rights in an intellectual creation was therefore to keep the invention secret or put in safekeeping the original work. Thus, the only benefited persons were a small number of powerful individuals capable of hiring inventors and authors, while the latter rarely obtained from their wealthy employers or patrons, a compensation proportional to the value of their creations. on the one hand, the birth of industries and the mass production requirements gave value to the invention of new industrial products and new methods to manufacture them. A legislative policy was
required to encourage the disclosing of inventions, so that innovative ideas should be incorporated into common accumulated knowledge and could be utilized to increase production.
On the other hand, the invention of the printing press afforded the opportunity to transform books, maps, pictures and illustrations into goods, while the proliferation of theater and opera companies caused living authors to redouble the production and spread new works. To avoid unfair competition against original creators, it was convenient to guarantee them an exclusivity right on their works which would allow them to negotiate with businessmen and obtain a compensation for their intellectual contribution. The basic institutions of intellectual property were born:1 the “patent right” that ensures society the complete knowledge of the protected invention, and grants the inventor the exclusive right to benefit from the result of his/her inventiveness for a certain period of time;2 the “copyright” that recognizes that creators of works have the exclusive power to authorize their reproduction or communication to the public by cultural and show business industries, increasing the incentives so that the spiritual food nourishing society be multiplied.3 Thus a form of property different from that recognized in physical goods deriving from the utilization of natural resources was organized, namely “intellectual property,” which by reason of originating from the creative potencies of human ingenuity, has been fairly described as the “most sacred kind of property.”4 In the course of time, and with the progressive appreciation of intangible goods, to the two founder systems of intellectual property many others were added: 5 the “trademark right” conferring on merchants the exclusive right to use distinctive signs to identify their goods or services, enabling consumers to distinguish them;
1. SECOND INTERNATIONAL FORUM ONCREATIVITY AND INVENTION – A BETTER FUTURE FOR HUMANITY IN THE 21ST CENTURY, WWW.HUKUMONLINE.COM, ACCESSED ON MONDAY, 3TH JULY 2007
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The first patent of the world was granted in 1421 by the Signoria de Firenze to Filippo Brunelleschi, who was given exclusive rights for three years to exploit the design of a barge for the fluvial transportation of big loads, invented by him. The modern copyright system (including its Latin Civil Law version) was born in 1710 when the British Queen passed the law known as “the Statute of Queen Anne,” granting authors a monopoly right in their works for a limited period of time. Report of the delegate “Le Chapelier to the French Constitutional Convention of 1791,” designating the right of authors in their works as “la plus sacrée, la plus inattaquable et la plus personnelle de toutes les propriétés.” idem
the “right to the protection of industrial secrets” which organizes the legal protection of the information with commercial value that its owner keeps confidential; the “right of performer artists” granting them the intellectual property in their performances, allowing them to be benefited when such performances are reproduced or distributed to the public; the “right to the protection of integrated circuits” which allows those who design them to hinder the copying thereof; the “right to the protection of databases” which authorizes their producers to object to the non-authorized extracting of their files; the “right to the protection of vegetable varieties” which recognizes intellectual property in new varieties of plants. Based on that, we all may know that exactly the invention needs to be obtained, because in the principal, there are a rights to be obtained in every human invention. In the economic side, every invention also has a rights to be obtained, it called economic rights. The economic rights gives the inventor an exclusive rights to monopolize their invention, such as what we are says a license. License is one of many ways to move or removed their rights to get an economical benefit, like royalty, goodwill, good way of marketing, and a good reputation. WIPO also gives a definition about license :6 The licensee is a legal agreement between two parties that sets out the priviliges exchanged between the parties and limitations (acceptable under law placed on them in the exercise of these principle)”. Gunawan Widjaja said that licensee is the sale of license permiting the use of patents, trademark, or the technology to another firm. From that definition we can make the conclusion that actually the licensee is a privilege rights which commercially or gives a economic advantages. 2. Franchising Franchising is a sophisticated form of licensing in which the franchisor licenses its Intellectual Property e.g. its trademarks, trade dress, copyright, know-how, trade secrets, business concept, methodologies and if relevant designs and patents to the franchisee. It is
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WIPO, licensing Guide for Development Countries, Genewa : WIPO Publication, 1977. Gunawan Widjaja, Lisensi, Seri Hukum Bisnis, PT Raja Grafindo Persada, 2001, hal 7
one of the most effective means of exploiting Intellectual Property (IP).
As in any
exploitation of IP, an infrastructure that enables successful protection and enforcement of IP is crucial. Franchising when properly structured and well run, provides benefits and satisfaction to both parties. It is however not an easy route to riches for franchisor or franchisee, nor is it a panacea for the ills of a „sick‟ business. The establishing of a franchise has to be undertaken with skill, patience and capital. The time scale for
establishing a franchise system and preparing it for marketing can be as long as three years, and it can take another three to five years before the franchisor begins to see net profits and cash flow. There are four main types of franchising :7 Product and trade mark (or trade name), in which the franchisee uses the franchisor‟s trade name or trademark and sells the franchisor‟s products. This type of franchising is prevalent amongst motor vehicle dealers, soft drink bottlers and fuel service stations. Business format franchising, in which the franchisee uses the franchisor‟s entire business concept, which obviously includes the name and trade marks, goodwill, know-how, trade secrets, trade dress and the like. This is common in fast food franchises e.g. Steers, Pizza-Hut etc. Manufacturing Franchises, these types of franchises provide an organization with the right to manufacture a product and sell it to public, using the franchisor‟s name and trademark. This type of franchise is found most often in the food and beverage industry. Most bottlers of soft drinks receive a franchise from a company and must use its ingridients to produce, bottle, and distribute the soft drinks Bussiness Opportunity Ventures, these ventures typically require that business owner purchase and distribute the products for one specific company. The company must provide customers or accounts to the business owner, and, in return, the business owner pays a fee or other consideration as compesation. Examples include vending machine routes and distributorships.
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P Lindawaty S. Sewu, Franchise Pola Bisnis Spektakuler Dalam Perspektif Hukum dan Ekonomi, (Bandung : CV Utomo), hal. 19-20
When a successful business wants to expand its operation without borrowing capital to develop, one possible option is to license its IP to franchisees. In addition to the actual product or service of the franchisor, franchise IP generally includes trademarks, logos and promotional material, business system, marketing system, various confidential know-how processes and shop fit- outs. Franchisees usually benefit from coordinated marketing efforts managed by the franchisor. In other words, franchising is really a method of systematically sharing the franchisor's IP to distribute goods or services. The franchisor owns the IP rights over the various elements of the franchise and the franchisee pays a fee or regular royalties to use the franchisor's IP. A major benefit of the franchise system is that you as the franchisee are able to trade under a well-known trademark. In fact, one or more trademarks will usually be at the core of most franchises. The franchisee typically is granted a trademark license, where the fee is a percentage of the gross turnover. Usually there is also a fee for a marketing budget to promote the trademark as part of the franchise business. As a condition for use and benefit from the franchisor's IP, there is a requirement imposed on the franchisee to act in accordance with a set of rules meant to preserve the value of the IP and to deliver the expected business results. This also has a potentially negative side, as the franchisor could set quite strict rules under which you trade and use the franchised IP, thereby stifling any of your own business creativity. Importantly, all your rights relative to the franchisor should be outlined in the disclosure documents presented to you by the franchisor. You can then assess whether the rules are ones you can live by. These rules should comply with the established national regulation for franchising (Franchising Code of Conduct). Advantages of a Franchise System For a Franchisee, the advantages may be substantial. The franchisee may acquire an entire business system including designs, decor, stocks, recipes, management and other procedures. The precise package will vary from one franchise operation to another, the more developed operations usually preferring franchisees with no previous experience so that they may be trained from scratch. The franchisee is incorporated into a large business system with all the benefits of the reputation, development and other business advantages the
franchisor enjoys. The franchisee outlet is an independent business unit and can therefore take advantage of the benefits of a small business such as better customer service, quicker response to customers, greater flexibility and better responses to change, ability to maximise local opportunities and increased morale. For a Franchisor, the advantages may be summarised as follows: The growth of the network is achieved using the financial and manpower resources of the franchisee. The franchisor is not concerned with the day-to-day operation of each outlet. The franchisor's organisation is compact and can earn profits without involvement of high capital risk. The network has the ability to grow rapidly. The franchisor has fewer staff and fewer staff problems. Each outlet is managed by the owner who will tend to be well motivated in order to succeed. It provides wider and secured outlets for products and services. It enables the franchisors to serve national customers using their network of outlets.
In general, the franchisor reaps the benefits of the energy and commitment of the individual franchisees, which assist in the building of the goodwill and reputation of the brand and entire franchise operation. This enhanced goodwill and reputation increases the likelihood of success of the franchise operation, making it more attractive to prospective franchisees. A number of franchisee outlets can develop and enhance the reputation of a franchise operation far more quickly than the franchisor could achieve on his/her own. In addition, the franchisor regularly receives feedback and input from all his/her franchisees, which can be utilised for the benefit of the other franchisees and the entire franchise operation.
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How Franchising could develop the economic of Indonesia Actually Indonesia has to build a strong and functional IP regime and is therefore
ideal for franchises to thrive. However, the franchising concept involves more than just protection of IP rights. There are other important issues that must be considered, in particular, an appropriate environment that nurtures the franchise industry and the relationship between franchisor, franchisee and third parties. Indonesia has a big potention to improve and develop the business by franchise. It caused the condition and market potention which is large. Based on researched which held by LPPM and trade department in 1993, we can know that there was 20 potention to be franchised. There was : Food and beverages Consultation services and business needs Maintenance and recovery services Houses broker Automobile Hotel and motel Construction services Publisher and fotocopy Houseware Car rental Tourism services Computer and electronic Maintenance of health Travel agent Non formal education Express delivery Saloon Laundry services Kids services Retail
The growth of all of that industry shows the increasing demands, mostly has a good prospect to be develop by. One way to develop that industry is a franchise‟s way. A franchise enables one to acquire a tried and tested business with an established reputation and a known market. The franchisor will always remain interested in the franchisee's business operation because he/she has vested interests. This means that you will also get the support and know-how from someone who has done it all before. Fellow franchisees can also offer one another a lot of assistance and support, which gives one many advantages over going it alone. Financially, one is given a very good idea of what the capital outlay will be, as well as what one's monthly expenditure will amount to. A private business often has hidden expenses that are not always anticipated. Based on the research of AK& Partners which whim by the trading &industry department on march 1996, there was a lot of franchises busnisses which record by.8 No Bussiness local 1 2 3 4 5 6 7 8 9 Food and beverages Ritel (non food&food) Hair & beauty saloon Laundry Training/consultate services Fitness & body care Product Printing/photo/furniture Real estate/ car rental Totals 15 (46,88 %) 3 (9,38%) 4 (12,50%) 2 (6,25%) 4 (12,50%) 3 (9,38 %) 1 (3,13 %) 32 (100 %) Franchisor foreign 70 (58,83 %) 22 (18,49%) 4 (3,37%) 5 (4,21%) 4 (3,37 %) 5 (4,21%) 6 (5,052 %) 3 (2,53 %) 119 (100 %)
Based on that record, we know that the sum of foreign or international franchise is bigger than a local. It may indicate that on 1996, local franchise is still growth. The Indonesian entrepreneur still find how to increase and develop their business. The data also said that in the reality, franchise has a enough role to develop the economic and it is going to bigger role after the moneter crisis in 1997. As we know, much of industry and business in Indonesia collapse in 1997 but in the other hand
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franchise still going strong especially local franchise and now there is a lot of local franchisee in Indonesia, for example : tela-tela, kebab baba rafi, laundry business, etc. Now we‟re gonna start to discuss how franchise ( not only local but also foreign or international) can gives a good influence of economic for Indonesia. To make it easier, we can use a diagram, but before we start to discuss it, better to know what is the definition of economic development and what indicator can be used. Economic Development is a rise in a real income per person, usually associated with new technology that increases productivity or resources.9 Or we can also say that economic development is a sustainable wealth creation process that works within the framework of community parameters to maximize the efficient and effective utilization of community resources for economic gain for the local population. More simply, the process of creating wealth for as many people as possible.10 The economic development can be indicatored by : growth, development, human development index, and other measures, such as a political policy, economic policy, trading, etc. but one of the most essential indicator is an economic growth and the economic growth is signed by :11 • Using measures of economic performance in terms of the value of income, expenditure and output • GDP – Gross Domestic Product – The value of output produced within a country during a time period • GNP – Gross National Product – The value of output produced within a country plus net property income from abroad • GDP/GNP per head/per capita – Takes account of the size of the population • Real GDP/GNP – Accounts for differences in price levels in different countries
From the definition and the indicator, we may know that there is a lot of sign of
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Highered.mcgrawhill.com, accesed on 1st July 2007. www.delawarecountrybrc.com, accessed on 1st July, 2007 11 www.bized.co.uk, accesed on 1st July, 2007
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economic development but the most essential sign or indicator is an economical growth. The economical growth also can be signed by the economic performances like national income, GDP, GNP,and real GDP/GNP. It means that the most signed is come directly from person and it can be signed by the growth of personal income.
Franchise : local and foreign/international
investation
Create a work field and also job oportunity
Technology transfer
Personal income
Government/national income
Economic growth : development
Franchise especially international gives an investation ( technology transfer), then both of foreign/ international and local franchise, in the principle can to create a work field or it also means provides a job opportunity. With job, people can get an income and then their income can be used to consume and saving. A lot of personal or society incomes means a lot of government income too, so the conclusion is government income and investation (technology transfer) can be sign that there be a economic development in the country because economic development can be signed by investation and national income.
CHAPTER III CONCLUSION
Franchising is a sophisticated form of licensing in which the franchisor licenses its Intellectual Property e.g. its trademarks, trade dress, copyright, know-how, trade secrets, business concept, methodologies and if relevant designs and patents to the franchisee. It is one of the most effective means of exploiting Intellectual Property (IP). Indonesia has a big potention to improve and develop the business by franchise. It caused the condition and market potention which is large. A franchise enables one to acquire a tried and tested business with an established reputation and a known market.
The franchisor will always remain interested in the franchisee's business operation because he/she has vested interests. This means that you will also get the support and know-how from someone who has done it all before. Fellow franchisees can also offer one another a lot of assistance and support, which gives one many advantages over going it alone. Financially, one is given a very good idea of what the capital outlay will be, as well as what one's monthly expenditure will amount to. A private business often has hidden expenses that are not always anticipated. Franchise can influence an economic development can proven by knowing the relation between franchise and its role in society. Franchise especially international gives an investation ( technology transfer), then both of foreign/ international and local franchise, in the principle can to create a work field or it also means provides a job opportunity. With job, people can get an income and then their income can be used to consume and saving. A lot of personal or society incomes means a lot of government income too, so the conclusion is government income and investation (technology transfer) can be sign that there be a economic development in the country because economic development can be signed by investation and national income.
REFERENCE
Books
Sewu, P Lindawaty S., Franchise Pola Bisnis Spektakuler Dalam Perspektif Hukum dan Ekonomi, (Bandung : CV Utomo), 2004
Widjaja, Gunawan, Lisensi Seri Hukum Bisnis, ( Jakarta : PT Raja Grafindo Persada), 2001
Websites www.hukumonline.com www.tempointeraktif.com www.kompas.com
www.delawarecountrybrc.com
www.bized.co.uk