Korea's franchising industry has developed rapidly in the last few years, led by fast food restaurants. This growth has expanded to include family restaurants, discount stores, clothing, mailing services, cleaning services, as well as educational institutions. U.S. franchisers have met with mixed success in this market.

Franchising has expanded due to a "new generation" of affluent Korean consumers coupled with changes in Korea’s distribution sector that favor new product and marketing concepts. The market value of this industry has reached an estimated USD 64.2 billion, which includes all franchise and sub-franchise fees, and royalties. It also consists of product and service revenues, consulting fees, and related product sales, such as coffee equipment at coffee franchise outlets. Of the USD 64.2 billion market, 45 percent (USD 28.9 billion) is accounted for by food services, including fast food services and family restaurants. Other franchise services, such as education, real estate, cleaning services, mailing services, and others account for 30 percent of this sector, realizing about USD 19.2 billion in sales. Lastly, the retail sector, such as convenience stores and consumer goods, comprise the remaining 25 percent of this industry (USD 16.0 billion).

Franchising in Korea first developed primarily in the food service market before expanding into other areas. Although the restaurant franchise market is beginning to mature, the service franchise market has just begun to see new concepts, promising possible market opportunities. Korean franchisees are seeking, and prefer to do business with, U.S. franchisers that can offer established brand names to Korean consumers as well as American management skills provided by the U.S. headquarters. The service franchising market includes education, beauty salons, cleaning services, real estate, fitness centers, and other operations.

Over the past few years, Koreans have become increasingly conscious of foreign cosmetics, especially for imported beauty products and services. More Korean women are entering the labor force and are earning higher incomes. As a result they have begun to embrace western lifestyle concepts, particularly for beauty services and products. Korean men are also using cosmetics. This heightened demand is helping create opportunities for foreign cosmetics franchises.

Franchise activity related to children's educational services and services tied to sports and leisure activities have become very popular, especially with Korean parents' increased interest in providing better educational opportunities for their children. Korea places a high emphasis on education, and as a result, most students engage in after school study programs at private academies known as hakwon or at home with tutors. At the same time, interest in activities such as field trips to the countryside, camping excursions, creative thinking classes, and book clubs is increasing, as highlighted by the recent successes of foreign companies such as Gymboree, New Horizon, Montessori, and Mad Science in entering this market.

Although U.S. franchises are sought after in Korea, several challenges remain. Potential Korean franchisees are often reluctant to pay the relatively high franchising fees and royalties often required by U.S. headquarters. Other common franchising requirements, such as minimum facility size and the required number of stores within a certain period, are often very challenging for Korean franchisers to meet. U.S. franchises should therefore consider flexible franchising arrangements and conduct thorough research on the market and potential locations, as well as the potential master franchisee’s ability to manage its stores.

There are no specific legal requirements for U.S. franchises to operate in the Korean market. However, franchisees need to comply with the Sub-franchisee's Fair Trade Act, which closely parallels the rules that exist for sub-franchisees in the U.S.