• Journal of Distribution Research
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• v.17 no.5
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• pp.1-23
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• 2012

The conflict between major corporations and small and medium-sized businesses is being aggravated, the trickle down effect is not working properly, and, as the controversy surrounding the effectiveness of the business limiting system continues to swirl, the plan proposed to protect the business domain of small and medium-sized businesses, resolve polarization between these businesses and large corporations, and protect small family run stores is the suitable business type designation system for small and medium-sized businesses. The current status of carrying out this system of selecting suitable business types among small and medium-sized businesses involves receiving applications for 234 items among the suitable business types and items from small and medium-sized businesses in manufacturing, and then selecting the items of the consultative group by analyzing and investigating the actual conditions. Suitable business type designation in the service industry will involve designation with priority on business types that are experiencing social conflict. Three major classifications of the service industry, related to the livelihood of small and medium-sized businesses, will be first designated, and subsequently this will be expanded sequentially. However, there is the concern that when designated as a suitable business type or item, this will hinder the growth motive for small to medium-sized businesses, and designation all cause decrease in consumer welfare. Also it is highly likely that it will operate as a prior regulation, cause side-effects by limiting competition systematically, and also be in violation against the main regulations of the FTA system. Moreover, it is pointed out that the system does not sufficiently reflect reverse discrimination factor against large corporations. Because conflict between small to medium sized businesses and large corporations results from the expansion of corporations to the service industry, which is unrelated to their key industry, it is necessary to introduce an advanced contract method like a master franchise or local franchise system and to develop local small to medium sized businesses through a franchise system to protect these businesses and dealers. However, this method may have an effect that contributes to stronger competitiveness of small to medium sized franchise businesses by advancing their competitiveness and operational methods a step further, but also has many negative aspects. First, as revealed by the Ministry of Knowledge Economy, the franchise industry is contributing to the strengthening of competitiveness through the economy of scale by organizing existing individual proprietors and increasing the success rate of new businesses. It is also revealed to be a response measure by the government to stabilize the economy of ordinary people and is emphasized as a 'useful way' to revitalize the service industry and improve the competitiveness of individual proprietors, and has been involved in contributions to creating jobs and expanding the domestic market by providing various services to consumers. From this viewpoint, franchises fit the purpose of the suitable business type system and is not something that is against it. Second, designation as a suitable business type may decrease investment for overseas expansion, R&D, and food safety, as well negatively affect the expansion of overseas corporations that have entered the domestic market, due to the contraction and low morale of large domestic franchise corporations that have competitiveness internationally. Also because domestic franchise businesses are hard pressed to secure competitiveness with multinational overseas franchise corporations that are operating in Korea, the system may cause difficulty for domestic franchise businesses in securing international competitiveness and also may result in reverse discrimination against these overseas franchise corporations. Third, the designation of suitable business type and item can limit the opportunity of selection for consumers who have up to now used those products and can cause a negative effect that reduces consumer welfare. Also, because there is the possibility that the range of consumer selection may be reduced when a few small to medium size businesses monopolize the market, by causing reverse discrimination between these businesses, the role of determining the utility of products must be left ot the consumer not the government. Lastly, it is desirable that this is carried out with the supplementation of deficient parts in the future, because fair trade is already secured with the enforcement of the franchise trade law and the best trade standard of the Fair Trade Commission. Overlapping regulations by the suitable business type designation is an excessive restriction in the franchise industry. Now, it is necessary to establish in the domestic franchise industry an environment where a global franchise corporation, which spreads Korean culture around the world, is capable of growing, and the active support by the government is needed. Therefore, systems that do not consider the process or background of the growth of franchise businesses and harm these businesses for the sole reason of them being large corporations must be removed. The inhibition of growth to franchise enterprises may decrease the sales of franchise stores, in some cases even bankrupt them, as well as cause other problems. Therefore the suitable business type system should not hinder large corporations, and as both small dealers and small to medium size businesses both aim at improving competitiveness and combined growth, large corporations, small dealers and small to medium sized businesses, based on their mutual cooperation, should not include franchise corporations that continue business relations with them in this system.

• Journal of Global Scholars of Marketing Science
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• v.18 no.4
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• pp.61-118
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• 2008

The purpose of this research is to construct research framework for international franchising based on existing literature and to identify research components in the framework. Franchise can be defined as management styles that allow franchisee use various management assets of franchisor in order to make or sell product or service. It can be divided into product distribution franchise that is designed to sell products and business format franchise that is designed for running it as business whatever its form is. International franchising can be defined as a way of internationalization of franchisor to foreign country by providing its business format or package to franchisee of host country. International franchising is growing fast for last four decades but academic research on this is quite limited. Especially in Korea, research about international franchising is carried out on by case study format with single case or empirical study format with survey based on domestic franchise theory. Therefore, this paper tries to review existing literature on international franchising research, providing research framework, and then stimulating new research on this field. International franchising research components include motives and environmental factors for decision of expanding to international franchising, entrance modes and development plan for international franchising, contracts and management strategy of international franchising, and various performance measures from different perspectives. First, motives of international franchising are fee collection from franchisee. Also it provides easier way to expanding to foreign country. The other motives including increase total sales volume, occupying better strategic position, getting quality resources, and improving efficiency. Environmental factors that facilitating international franchising encompasses economic condition, trend, and legal or political factors in host and/or home countries. In addition, control power and risk management capability of franchisor plays critical role in successful franchising contract. Final decision to enter foreign country via franchising is determined by numerous factors like history, size, growth, competitiveness, management system, bonding capability, industry characteristics of franchisor. After deciding to enter into foreign country, franchisor needs to set entrance modes of international franchising. Within contractual mode, there are master franchising and area developing franchising, licensing, direct franchising, and joint venture. Theories about entrance mode selection contain concepts of efficiency, knowledge-based approach, competence-based approach, agent theory, and governance cost. The next step after entrance decision is operation strategy. Operation strategy starts with selecting a target city and a target country for franchising. In order to finding, screening targets, franchisor needs to collect information about candidates. Critical information includes brand patent, commercial laws, regulations, market conditions, country risk, and industry analysis. After selecting a target city in target country, franchisor needs to select franchisee, in other word, partner. The first important criteria for selecting partners are financial credibility and capability, possession of real estate. And cultural similarity and knowledge about franchisor and/or home country are also recognized as critical criteria. The most important element in operating strategy is legal document between franchisor and franchisee with home and host countries. Terms and conditions in legal documents give objective information about characteristics of franchising agreement for academic research. Legal documents have definitions of terminology, territory and exclusivity, agreement of term, initial fee, continuing fees, clearing currency, and rights about sub-franchising. Also, legal documents could have terms about softer elements like training program and operation manual. And harder elements like law competent court and terms of expiration. Next element in operating strategy is about product and service. Especially for business format franchising, product/service deliverable, benefit communicators, system identifiers (architectural features), and format facilitators are listed for product/service strategic elements. Another important decision on product/service is standardization vs. customization. The rationale behind standardization is cost reduction, efficiency, consistency, image congruence, brand awareness, and competitiveness on price. Also standardization enables large scale R&D and innovative change in management style. Another element in operating strategy is control management. The simple way to control franchise contract is relying on legal terms, contractual control system. There are other control systems, administrative control system and ethical control system. Contractual control system is a coercive source of power, but franchisor usually doesn't want to use legal power since it doesn't help to build up positive relationship. Instead, self-regulation is widely used. Administrative control system uses control mechanism from ordinary work relationship. Its main component is supporting activities to franchisee and communication method. For example, franchisor provides advertising, training, manual, and delivery, then franchisee follows franchisor's direction. Another component is building franchisor's brand power. The last research element is performance factor of international franchising. Performance elements can be divided into franchisor's performance and franchisee's performance. The conceptual performance measures of franchisor are simple but not easy to obtain objectively. They are profit, sale, cost, experience, and brand power. The performance measures of franchisee are mostly about benefits of host country. They contain small business development, promotion of employment, introduction of new business model, and level up technology status. There are indirect benefits, like increase of tax, refinement of corporate citizenship, regional economic clustering, and improvement of international balance. In addition to those, host country gets socio-cultural change other than economic effects. It includes demographic change, social trend, customer value change, social communication, and social globalization. Sometimes it is called as westernization or McDonaldization of society. In addition, the paper reviews on theories that have been frequently applied to international franchising research, such as agent theory, resource-based view, transaction cost theory, organizational learning theory, and international expansion theories. Resource based theory is used in strategic decision based on resources, like decision about entrance and cooperation depending on resources of franchisee and franchisor. Transaction cost theory can be applied in determination of mutual trust or satisfaction of franchising players. Agent theory tries to explain strategic decision for reducing problem caused by utilizing agent, for example research on control system in franchising agreements. Organizational Learning theory is relatively new in franchising research. It assumes organization tries to maximize performance and learning of organization. In addition, Internalization theory advocates strategic decision of direct investment for removing inefficiency of market transaction and is applied in research on terms of contract. And oligopolistic competition theory is used to explain various entry modes for international expansion. Competency theory support strategic decision of utilizing key competitive advantage. Furthermore, research methodologies including qualitative and quantitative methodologies are suggested for more rigorous international franchising research. Quantitative research needs more real data other than survey data which is usually respondent's judgment. In order to verify theory more rigorously, research based on real data is essential. However, real quantitative data is quite hard to get. The qualitative research other than single case study is also highly recommended. Since international franchising has limited number of applications, scientific research based on grounded theory and ethnography study can be used. Scientific case study is differentiated with single case study on its data collection method and analysis method. The key concept is triangulation in measurement, logical coding and comparison. Finally, it provides overall research direction for international franchising after summarizing research trend in Korea. International franchising research in Korea has two different types, one is for studying Korean franchisor going overseas and the other is for Korean franchisee of foreign franchisor. Among research on Korean franchisor, two common patterns are observed. First of all, they usually deal with success story of one franchisor. The other common pattern is that they focus on same industry and country. Therefore, international franchise research needs to extend their focus to broader subjects with scientific research methodology as well as development of new theory.

• Korean small business review
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• v.32 no.2
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• pp.209-223
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• 2010

Korea's business is composed of a few large-sized enterprises (which can be abbreviated as LSE) and a majority of small-sized enterprises (SSE). Although there has been a growing recognition of the need for the development of medium-sized enterprises (MSE) which can serve as a link between SSE and LSE, as yet there has not yet been a consensus on the definition, characteristics and the function of the MSE in Korea. Nowadays, the world is being globalized, and Japan and China are in competition to ne a great economic power. While East Asia is experiencing rapid changes, promoting MSE which can secure flexibility and efficiency through covering up the limitation of LSE and SSE is needed in order to respond the global market which is being specialized. The features of MSE in Japan can be listed as follows. First, the MSE in Japan is developing the company through getting into niche markets which are hard for major companies to enter rather than developing markets in order to compete against major companies directly. While MSEs are endeavoring to build the business firmly in the domestic market, they can possess special and competitive technical skills through trials and errors; so that they can get a chance develop their business through independent business system rather than putting their effort to compete against major companies. Second, from the MSEs with competitive edge in the market, there are many contributions to the national exportation. Those MSEs produce in domestic and maintain the quality of high price products which need cutting-edge technology, while they relocate the low and middle priced goods to the country where manufacturing costs are low, so that they can maintain the price competitiveness. Third, the industrial structure in Japan is formed from dual structure between major companies and small sized companies. In other words, in Japan's industrial structure which are composed of subcontract structure, this dual structure has taken a major role of small sized companies' growth and manufacturing businesses' international competitive power. Forth, MSE in Japan adopt a strategy of putting their value on qualitative scale growth rather than quantitative scale growth. In this paper, the case of Japanese MSE is analyzed. Along with its long history of Industrialization, Japan has a corporate environment where the SSEs can develop as a MSE and later a LSE through a full-support system. Among its SSEs, there are a number of world class corporations equipped with a large domestic market, win-win cooperation with the LSEs and an independent technology development. It can also be observed that these SSEs develop into MSEs with sustainable growth potentials. This study will focus on the condition under which the MSEs of Japan have been developed, and how they have survived the competition between SSEs and LSEs. Through this study, this paper attempts to offer solutions to Korea's polarization between the SSE and LSE, while providing the basis for SSEs revitalization. In general, if both extremities phenomenon deepen between LSE and SSE, there are possible fears of occurring disutility in national economy by the monopolization of LSE. For that reason, enterprise group, which can make SSE or MSE compete LSE in some area and ease the monopoly and oligopoly problem, is needed. This awareness has been shared for ages long. Nevertheless, there is no legal definition for MSE in Japan, and there is no definition about the enterprise size or unified view of MSE between scholars, but it is defined differently by each of academical person or research institution and study meeting. For that reason, this paper will organize the definition of MSE in Japan, and then will propose the characteristics of the background which has made MSE secure competitiveness and sustainable growth in global market. This study focus on that because through this process, the positive change to the awareness of MSE can be proposed in Korea and to seek the policy direction for building institutional framework which can make SSE become MES. Through this way, the fundamentals for SSE to become MSE can be managed and some appropriate suggestions which will be able to make MSE enter the global market in the future can also be proposed. Due to these facts, this study is very important and well timed task. In a sense of this way, this study will examine the definition and role of MSE in Japan. after this examination, this study will deal with the status, special feature, and promotion policy for MSE. Through this analysis of MSE in Japan, the foundation which be able to set the desirable role model for MSE in Korea can be proposed. Also, the political implication which is needed to push ahead to contribute to creating employment and economic growth through sustainable growth of MSEs in economic system of Korea can be offered through this study. It has been found that Japan's MSE functions as an indispensable link among various industrial structures by holding a significant position in employment rate, production and value added. Although the MSEs took up less than 1% of the entire number of businesses with 2700 manufacturing firms and 7000 non-manufacturing firms, its employment ratios are about 15%, while taking about 25% of the manufacturing industry's exports. In industries such as machinery and electronics which is considered Japan's major industry, the MSEs showed a higher than average ratio of manufacturing exports and employment rate. It can be analyzed that behind Japan's advantageous industries, close and deeply knit MSEs exist. Although there are no clearly stated policies geared towards the MSEs by the Japanese government, various political measures exist such as the R&D Project and the inducement of cooperation between enterprises which gives room for MSEs to participate in the SSE policies. In relation to these findings, the following practical measures can be considered in order to revitalize Korea's MSEs: First, there is a need for a legal definition of MSE and the incentives to provide legal support for its growth. Second, if a law to support the MSEs is established, it could provide a powerful inducement for the SSE to grow as a MSE, rather than stay as a SSE. Third, there is a need for a strategy of MSEs to establish a stable base in the domestic market and then advance to the global market with the accumulated trial and error and competitiveness. Fourth, the SSE themselves need the spirit of entrepreneurship in order to make the leap to a MSE. Because if nothing is to be changed about the system on the firms that grew, and the parts of the past custom was left to be managed alone, confusion and absence of management can take place. No matter how much tax favors the government will give and no matter how much incentive there could be through the policies, there are limits for industries to higher the ability to propagate. And because of that it is a period where industries need their own innovative skills to reform their firms.