Franchise industry grows slowly but steadily

Korean franchises generated nearly 7 percent of the country’s gross domestic product (GDP) in 2017, according to the Ministry of Trade, Industry and Energy.

In its triennial report on the industry, the Trade Ministry said Monday that revenue from the country’s franchises grew 2.7 percent in 2017 from the previous year to 119.7 trillion won ($104.7 billion). Korea’s nominal GDP was at 1,730 trillion won in that year.

In the report, which covers franchises such as convenience stores and restaurants, large companies dominated the industry despite being small in number. Companies with over 100 billion won in annual revenue were responsible for 70.4 of the industry’s total revenue, although they accounted for just 3.4 percent of the total number of franchise companies.

Franchisors recorded an average of 14.4 billion won in annual revenue. The figure for franchisees was at 280 million won.

While revenue growth has slowed compared to 2015, when it was 17.1 percent, employment is growing fast.

Franchises employed 4.5 percent of the country’s 27.8 million workforce, with 1.26 million workers in 2017, an 11-percent rise from the previous year. Employment in the industry rose by 1.8 percent in 2015.

The steady growth of franchises has the relevant companies looking abroad, with China being the number one destination, followed by the United States and Malaysia.

The growth has also created fierce competition.

Korea has 4,631 franchisors, over three times the number in Japan. Nearly 40 percent of these companies said that intense competition was the biggest concern.

The government expressed concern at the increasingly crowded market.

“In order to improve the franchise industry’s competitiveness, there is a need for a paradigm shift into qualitative growth beyond quantitative growth, expansion into overseas markets and the strengthening of cooperation,” between franchisees and franchisors, said a Trade Ministry official.

The report also found that 15.3 percent of franchisees establishments were treated unfairly by headquarters.

The Fair Trade Commission has recently worked towards improving unfair treatment of these contractors and introduced additional changes to standard franchise contracts for convenience stores in January.

Under the changes, convenience store owners are exempt from fees incurred for shutting stores before the end of their contract due to reasons beyond their control.

BY CHAE YUN-HWAN [chae.yunhwan@joongang.co.kr]