Problems with current franchise market in Korea

While the franchise businesses in developed countries are becoming bigger and more industrialized, most franchises, especially the large companies, in Korea are trying to enter the global markets without being able to sort out the domestic problems. I intend to discuss some reasons for the current problems of the franchise market in Korea.

1. Disputes between franchisors and franchisees
   The problems with management efficient are at the center of many conflicts with franchises. They include the franchisor ignoring its duty to manage franchisees after the opening of a store, lack of cooperation system, inadequate supply chain management system, high cost and commission fee, compulsory logistics supply, excessive interior cost, abusing the power by franchisors, questionable transaction records, lack of communication, irrational chain expansion, and lack of managerial capacity of franchisor.

2. Excessive competition due to saturation of food service franchise market
   As the market for re-employment in Korea is currently weak, many unemployed people choose to open a restaurant since it is easily accessible with small capital. In Korea, the food service franchises account for 67% of all franchises and 41% of all franchise stores. The figures are about 30% higher than those in developed countries and show that there are too many food service franchises in Korea. Lack of diversity in business means unstable industrial growth and overheated competition among similar business models.

3. Shortage of data for franchise operation
   It is essential for prospective entrepreneurs to receive sufficient information from the franchisors to review the business thoroughly before they sign the franchise contract. However, they usually do not have the perception ability to review and analyze the data on the management system of the franchisor due to lack of educational institutions and consultants on franchise operation and management.

4. Shortage of business item
   Since the food service franchise market in Korea is saturated, the prospective entrepreneurs tend to focus only in food service instead of trying to find new business items. Most new franchise stores are just copycats of current “hot items” without any differentiation to realize short-term revenue goal. In the second half of 2017, many potential franchisees postponed their plan to open a franchise store because they could not find the prominent start-up items. As such, the franchise industry experienced the difficulties of opening new stores, and the economic slump made qualitative growth even more difficult. The differentiated franchise strategy is now more crucial than anything.

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