By Hwan Kang
South Korea is a country full of franchises. If you are familiar with Korean delivery food, you know that there are hundreds of franchise stores that deliver fried chicken with beer wherever you are, even when you are outside having a picnic by the Han River. There are so many franchise convenience stores such as 7-11 or CU that there is one store for about every 1,400 people in Korea. According to the Korea Fair Trade Commission (KFTC), there were 218,997 franchise branches operating under 4,844 brand names in 2015, a number which rapidly grew to 5,273 in 2016. However, due to recent events, the word “franchise” now symbolizes something more sinister than convenient.
The problem first surfaced when the heads of several major franchise brands were caught up in scandals. In the case of Mr. Pizza, one of the beloved pizza brands in Korea, the former chairman was accused of embezzling company money for personal use, such as commissioning an expensive portrait of himself. This revelation upset people even more because the business was also accused of sabotaging its former franchisee by opening a shop near his store and providing the same menu at lower prices. This vengeance eventually drove the former member to commit suicide.
In addition, BBQ, a major chicken brand in Korea, went under KFTC’s investigation for allegations that the brand has demanded high prices for the ingredients the franchisees use. Apparently, the subcontractors were all the CEO’s relatives, raising accusations of nepotism. These are only two examples among many reports of misconduct among Korea’s major franchises, including sexual harassment and verbal abuse.
Although these scandals seem to be more concerned with the business owners themselves, Korean customers are willing to share their anger with the companies more broadly. One of the reasons is that franchisees are often perceived as socially weaker people, or the “eul(을)”, who are oppressed by the stronger franchises, the “gap(갑)”. Koreans have become more wary of people who act as a “gap” to “eul” because of the country’s growing disparity in economic status, and these incidents have fueled that resentment.
This perception gets stronger if you consider the fact that the franchise branch is often an enticing option for early retirees with little money. Since it has become hard for the Korean baby boomers to stay in their jobs, the average retirement age has gotten younger, down to 52.6. This is about ten years younger than the average retirement age in America. These relatively young retirees have to live thirty more years, so some decide to invest their severances in opening a shop to compensate for their low pension income. This explains why there are so many people running their own businesses — amounting to about 21 percent (5.5 million) of the employed in Korea. This has become a phenomenon that Koreans consider both depressing and a good subject for satire. It is not unusual to see this trend used in a meme like ‘chicken shop owner who can also fix computers’. These early retirees rely on franchise brands to minimize the risk of running the shop on their own, considering that the brands help provide education and quality control. Therefore, when the Korean public found out franchise brands are not what they seem to be, they took it personally.
That is why the Moon administration is keen to solve the innate problem underlying these franchises. The president has proclaimed that he will solve the economic disparity issue and put an end to the act of “gap”. The KFTC, under Chairperson Kim Sang-Jo, has stated that it will take measures to look into unfair policies among franchise brands. The main points include transparency in accounting, improving the rights for the franchisees and increased vigilance on the misconduct of the franchises. The KFTC has created a joint committee with the Korea Franchise Association to put these measures into effect. Seoul, in cooperation with KFTC, has also decided to receive complaints in response to the growing concern, and will provide legal assistance when needed. Franchises such as BBQ will disclose their margins to follow the KFTC’s regulations and possibly earn back the trust of its consumers.
Despite these efforts, there are still obstacles for the struggling franchisees ahead. One of the obstacles is the lack of trust between the joint committee and the franchisees. Both sides have yet to fully cooperate in putting the measures into effect, with the Franchisees Association expressing skepticism about the joint efforts. Another obstacle is the rising minimum wage, which the Moon administration is quite firm on implementing. The government decided to increase the rate by 16 percent, and many of the self-employed people, including the franchisees, are concerned it might lead to higher costs in their businesses. The Moon administration will have to carefully balance these competing interests as they work to improve the situation for struggling franchisees.
Hwan Kang is currently an Intern at the Korea Economic Institute of America as part of the Asan Academy Fellowship Program. He is also a student of Seoul National University in South Korea. The views expressed here are the author’s alone.
Photo from Meryl Ko’s photostream on flickr Creative Commons.