A long running conflict with its franchisees

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

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.