Discusses opportunities for U.S. franchisers and legal requirements in the market.
According to the Korea Fair Trade Commission (FTC), the franchise industry was estimated at $100 billion with 1.4 million employees in 2016.  The number of franchises increased from 4,631 (2017) to 4,882 (2018).  Among 4,882 franchises, 3,617 were in food services.  The average lifespan of a franchise brand is 7.2 years, and only 0.8 percent of food franchises have survived for more than 10 years in Korea. While new franchise brands are introduced in Korea every year, over 1,000 brands disappeared in 2017.

Franchisors interested in this market should take into consideration the following:
 
  • Meet the rules under Korea’s Fair Transactions in Franchise Business Act
  • Register disclosure documents with Korea FTC (Korea Fair Trade Commission). Executing a franchise contract is not allowed unless the franchisor furnishes the registered disclosure documents and 14 days have passed from the date of the registration of disclosure documents.
Korean franchisees are reluctant to pay high franchising fees and royalties often required by U.S. companies. Minimum facility size and number of store openings required by some U.S. franchisors are also a challenge for the Korean franchisee. The expensive nature of the commercial real estate sector in Korea can potentially affect the feasibility of a project, which may otherwise offer great promise in other markets. Korean franchisees prefer to do business with U.S. franchisors with established brand names that are already popular among Koreans.
Generally, there are four types of franchise investors in Korea:
  • Major retailers who have access to capital and real estate;
  • Private equity funds who try to resell businesses in the future;
  • Individuals and SMEs with real experience with franchising brands; and
  • Individuals and SMEs who are newcomers.

Potential franchisors should also be aware of issues relating to the Korea Commission for Corporate Partnership (KCCP). One of KCCP’s important roles is the designation of the industries reserved for small and medium enterprises (SMEs). Once designated, big companies’ store expansions can be limited to certain geographic areas or nationwide expansion can be limited to certain of number of stores. In 2016, the KCCP designated several service providers, which included bakeries and restaurants (Korean, Japanese, Chinese, Western and other foreign food restaurants as well as Korean fast casual and takeout restaurants) and some manufacturing industries as reserved for SMEs. The restrictions applicable to the designated companies, within the relevant industries, will be valid for 3 years.

Prepared by our U.S. Embassies abroad. With its network of 108 offices across the United States and in more than 75 countries, the U.S. Commercial Service of the U.S. Department of Commerce utilizes its global presence and international marketing expertise to help U.S. companies sell their products and services worldwide. Locate the U.S. Commercial Service trade specialist in the U.S. nearest you by visiting http://export.gov/usoffices.