KFA reins in franchise owners

The Korea Franchise Association announced a plan to counter abuses of power by franchise companies on Friday. However, a lack of legal backing raises concerns over the actual impact it will have on the industry.

On the same day, the association held a press conference at the Korea Federation of SMEs headquarters in Yeongdeungpo District, western Seoul, and announced 11 tasks that its members have to complete by the end of next year.

The tasks aim to increase the bargaining power of franchisees and prevent unjust conduct arising from franchise companies abusing their power.

The most significant task on the list is the establishment of an internal organization formed of franchisee operators. This is to give franchisees more power to collectively offer opinions and protest unfair practices. Companies that have more than 100 branches have to introduce the organizations within the next year.

“One thing we’ve learnt from multiple meetings with franchise operators is that what they want most is [better] communication with headquarters,” said Chairman Park Ki-young of the Korea Franchise Association. “We thought making a franchisee association would be the easiest way to do this.”

According to the association, around 14 percent of franchises with more than 100 branches have such an internal organization. It hopes to pull this figure up to 90 percent within a year.

Other clauses include reducing the list of products and ingredients that franchisees are obliged to purchase from headquarters to only those that are essential to maintain quality across branches. The association will also request headquarters to explain why it is terminating a franchise contract to the branch operator.

However, concerns remain on the proposed plan’s efficacy due to its lack of legal backing. The association said will impose sanctions including expulsion, revealing misdeeds online and even reporting companies to the Fair Trade Commission if members refuse to follow the new rules. However, companies won’t face any legal penalty, making it ultimately the companies’ choice.

“The plan cannot be legally forced, but laws are not the only form of restriction,” said Chairman Park of the Korea Franchise Association.

“They are part of an irreversible market trend - if companies do not abide, customers may turn their backs on them.”

Korea’s franchise industry has come under scrutiny many times this year. Cases covered by the media included the personal misconduct of company heads and headquarters abusing their power over franchisee operators and making unjust demands.

The number of requests for dispute settlement received by the Fair Trade Commission in the franchise industry last year was 593.

Fair Trade Committee Kim Sang-jo openly criticized the food franchise market many times after he was appointed this year and released a set of policies to protect franchisees in July. That same month, the Korea Franchise Association promised to come up with a voluntary plan to eradicate unfair conduct in the industry.

At Friday’s press event, Kim commended the plan, calling it a “meaningful move,” but also pointed out that there are parts that have to be further elaborated, such as the lack of detailed standards on how to minimize a list of obligatory purchase items.

BY SONG KYOUNG-SON [song.kyoungson@joongang.co.kr]