a long running conflict with its franchisees regarding the need to revamp operations andrenovateoutlets(Gensler,2015;Giammona,2015;Wahba,2015).Similarly, in spite of the rapid growth of franchise industry in South Korea, declining systemperformance has become a major challenge in recent years (Lee, Kim, Seo, 2015). Accordingto Korean Business Daily Knowledge Vitamin, cited in Lee, et al. (2015) business lifeexpectancy 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 ofbusinessby franchisors is not a one-day event, and especially for a chain with high franchiseproportionor pure franchise, it is a process that presumably starts with a number of franchisees failingandopting out of the system. In the event of such closure or failure of the franchisors, thefranchisees pick up most of the pieces as unlike franchisors that have their risks spread acrossseveral franchise units, franchisees’ investment is typically undiversified.Further, it has been argued that poor performance of franchisors may be attributed directly toproblems in franchisees’ outlet and more specifically the declining number of franchisees thatstay with their franchisors. For example, the disturbing trend of high exit rates in franchisesystem has since been observed by Lafontaine & Shaw (1998). While it may be true that highexit does not necessarily mean failure or closure of business as some leaving franchiseessometimes have their outlets converted to company-owned or transferred to anotherfranchisee(Michael & Combs, 2008), but over time, Holmberg & Morgan (2003) caution that increasingfranchisees’ turnover could well mean high possibility of failures. A recent survey by theKorean 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.