a long running conflict with its franchisees regarding the need to revamp

A long running conflict with its franchisees

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a long running conflict with its franchisees regarding the need to revamp operations and renovate outlets (Gensler, 2015; Giammona, 2015; Wahba, 2015). Similarly, in spite of the rapid growth of franchise industry in South Korea, declining system performance has become a major challenge in recent years (Lee, Kim, Seo, 2015). According to Korean Business Daily Knowledge Vitamin, cited in Lee, et al. (2015) business life expectancy for over 60% of franchisors in Korea is less than 5 years while roughly 16% of
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Korean franchisors close shop in less than 1 year of operation. Arguably, going out of business by franchisors is not a one-day event, and especially for a chain with high franchise proportion or pure franchise, it is a process that presumably starts with a number of franchisees failing and opting out of the system. In the event of such closure or failure of the franchisors, the franchisees pick up most of the pieces as unlike franchisors that have their risks spread across several franchise units, franchisees’ investment is typically undiversified. Further, it has been argued that poor performance of franchisors may be attributed directly to problems in franchisees’ outlet and more specifically the declining number of franchisees that stay with their franchisors. For example, the disturbing trend of high exit rates in franchise system has since been observed by Lafontaine & Shaw (1998). While it may be true that high exit does not necessarily mean failure or closure of business as some leaving franchisees sometimes have their outlets converted to company-owned or transferred to another franchisee (Michael & Combs, 2008), but over time, Holmberg & Morgan (2003) caution that increasing franchisees’ turnover could well mean high possibility of failures. A recent survey by the Korean Small Business Institute (2011) cited in Lee et al (2016) confirms that on average, franchisees in South Korea exit their franchise system after just about 3.9years.
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