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Issue Report

Collection of full-length papers and in-depth analysis of economic and management issues.

Franchises: A Way to Co-growth of Service Industries

Franchises: A Way to Co-growth of Service Industries

LEE Sung-Ho

May 6, 2008

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Originally released on March 17, 2008

Although the service sector's weight in the Korean economy has increased, it still lacks adequate capital, a skilled workforce, and, most painfully, productivity. For example, most Korean retail businesses are small and are far from enjoying high productivity and economies of scale that large retailers wield.

To overcome these barriers, small businesses are considering franchising as an easy way to match the advantages of larger peers. Franchise networks stand between vertically integrated business models and fully competitive markets in their structure. When small- and medium-sized businesses organize into a franchise network, they can arrange joint purchases and pool their financial and human resources, paving the way to enhanced productivity and economies of scale.

To make these advantages more widely available, the Korean government is seeking ways to encourage businesses to affiliate in franchise networks through legislation like the “Franchise Promotion Law,” which will take effect in June of 2008. The Ministry of Knowledge Economy is also pushing for establishment of a five-year franchise promotion plan, development of joint logistics facilities, expansion of specialized job training, and introduction of a “good franchise business” certification system.

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