Indonesia Competition Commission’s Role in Regulating Franchises and Partnership in Indonesia

Are you a business owner frustrated by unfair contract terms and expensive lengthy legal disputes? As new brands enter Indonesia and its franchise and/or business partnership sector grows, many businesses are increasingly vulnerable to agreements that favor one party over the other and dispute resolution mechanisms that are not entirely efficient. This article explores the role of the Indonesia Competition Commission (ICC) in protecting your business and ensuring fair competition in the Indonesia marketplace.

The Challenge

The health of the Indonesian retail sector has attracted a large influx of new brands from around the world. Too often, Indonesian businesses focus on the prospects of commercial success without considering the challenges of the restrictions that may be implemented by the brands. These challenges arise from many causes, including unequal bargaining power and lack of understanding of the terms of the franchise arrangement. Some examples are:

• Unfair Contracts: Many agreements favor larger franchisors or dominant partners, leaving smaller businesses and franchisees at a disadvantage.
• Anti-Competitive Practices: Practices such as price fixing, exclusive territorial agreements, and abuse of dominant positions are illegal and can harm competitiveness in the market.
• Misguided Dispute Resolution: Disputes can be resolved by the general courts or the specialized ICC. Using the wrong venue can lead to prolonged, expensive legal battles and a mismatch of expertise in resolving competition-related issues.

The Fix

The ICC serves as the cornerstone of fair competition in Indonesia and has the authority to monitor and oversee franchise agreements and partnerships by performing several key functions:

• Monitoring Compliance: The ICC ensures that all franchise and partnership agreements adhere to the nation's competition laws and do not unfairly disadvantage franchisees, particularly Micro, Small and Medium enterprises (MSMEs) by giving too much control to the franchisor over the franchisee’s business operations.
• Investigating Unfair Practices: The ICC actively investigates allegations of price fixing and exclusive territorial agreements to protect smaller businesses and franchisees from exploitative practices.
• Resolving Disputes: The ICC is an alternative dispute resolution route by acting as an independent arbitration body. It mediates conflicts between franchisors and franchisees or between other business entities, ensuring that disputes are resolved fairly and swiftly by experts in competition law.

The Solution: K&K Advocates

One common pitfall for many business owners is taking a reactive approach to doing business. Many believe If there are no problems, then there is no need to consult with attorneys. At K&K Advocates, we are often consulted later than the ideal time. While most problems are fixable, we advise our clients that a proactive approach is usually the best approach and financially more advantage. Our experience on both sides of many franchise deals has provided our clients with significant advantages commercially and legally. 

Imagine a franchisee facing unfair territorial restrictions due to a contract that resulted from unfair bargaining power. Without an appropriate dispute resolution clause, this issue could end up in a general commercial court, resulting in prolonged and costly litigation and a potential misinterpretation of the anticompetitive effects of the restrictions. By working with K&K Advocates, you can tap into our deep experience to facilitate smooth negotiation and an agreement that is balanced and world class. One key inclusion is a specific clause that channels all competition-related disputes to the ICC. This tailored solution not only saves time and money but also ensures that your dispute is managed by the proper authority with the requisite expertise.

Conclusion: A Clear Path to Sustainable Profitable Growth

By understanding and adhering to ICC guidelines, Indonesian businesses can effectively tackle the issues of unfair contracts and inefficient dispute resolutions that are all too common in the market. The ICC’s specialized role ensures that competition-related disputes are resolved fairly and efficiently. Moreover, by incorporating a tailored legal clause—as advised by K&K Advocates—that directs disputes to the ICC instead of general courts, business owners can avoid misdirected legal consultations and safeguard their interests.

Embracing these practices not only protects your business from legal pitfalls but also builds trust among parties to the agreement and investors. In a competitive market like Indonesia, aligning your business with fair competition standards is a strategic move toward sustainable profitable growth. (EIP)

Should you have any further queries on this topic, please contact us at [email protected]