Updated on 02/15/2024
A. Macro-economic data
• General data [1]
Population 2021: 51,744,876 inhabitants
Area: 99,268 km2
Density 2022: 506 inhabitants/km2
GDP (nominal) 2022: $1,665 billion[2]
GDP/capita 2022: $32,422[3]
GDP (PPP) 2022: $2,598 billion[4]
GDP (PPP)/capita 2022: $50,330[5]
Growth rate 2021: 4.1%
GNI/capita (PPP) 2021: $47,770
HDI 2021: 0.925
Literacy rate: 99%
Life expectancy 2022: 84 years old
Policy [6]
South Korea is a semi-presidential republic. At the time of writing, Suk Yeol YOON, a member of the Conservative Party, has been President of the Republic since his election on March 9, 2022.
With 170 of the 300 seats in the National Assembly held by the Democratic Party, the country experienced its first period of cohabitation, where the President and the legislative majority come from two different political parties.
Suk Yeol YOON advocates a pro-market policy, lower taxes on capital income and a reduction in the regulatory burden.
He states a wish to strengthen the alliance between South Korea and the United States, and to revive relations with Japan.
Historically in conflict with North Korea, a reconciliation agreement was signed when the two Koreas joined the UN. However, tensions resumed between the two countries. A new agreement was signed between the two Koreas in 2018 to reduce tensions. Nevertheless, relations between the two countries have worsened again since then.
Economic development
A member of the WTO and the G20, South Korea is the world's tenth-largest economy and Asia's fourth largest.
South Korea suffered the Asian economic crisis of 1997, which was caused by the massive influx of foreign capital during the decade between 1980 and 1990. Subsequently, South Korea succeeded in moving into the high-income category. After the subprime crisis of 2009, Korea's growth rose to 6.4% in 2010, before stabilizing at around 3%. In 2021, the unemployment rate was 3.5%.
With exports accounting for 40% of South Korea's GDP, the country has stepped up the number of free-trade agreements.
The country's main source of growth is the electronics industry, notably with LG and Samsung. The Korean electronics industry has successfully diversified its production, moving from a specialist in consumer goods (screens and smartphones) to a specialist in high value-added intermediate goods (chips and memory cards). South Korea is currently the world leader in semiconductor manufacturing, which has been made possible by substantial spending on research and development[8] .
Resources [9]
Industry accounts for 35% of South Korea's GDP. In fact, the high-tech sector (electronics, automotive, shipbuilding, iron, and steel) has been instrumental in South Korea's development since the Asian crisis of 1997.
South Korea also has hydrocarbon resources (oil, gas, coal).
The tourism sector is an important part of the South Korean economy as well, representing a market worth $11.1 billion in 2020.
Foreign investment
South Korea's main partners are the United States, China, the European Union, Japan and the countries of the Association of Southeast Asian Nations (ASEAN).
Trade between the countries of the European Union and South Korea has intensified since 2011, when the EU-South Korea Free Trade Agreement came into force, abolishing almost all customs duties[12].
South Korea has also signed a free trade agreement with the USA, which came into force in 2012.
Imports of goods in 2021 had reached $573 bn and exports were at $650 bn[13].
South Korea is ranked 8th out of 185 countries in the World Bank's ranking of countries making it easier to do business[14].
Population[10]
The urban population accounts for 81% of the total. Only 20% of the country is inhabited, the rest is mountains and forests. This explains why South Korea has the second highest population density in the world, after Bangladesh.
Young people under 15 account for 12% of the population, those aged 15-65 for 72% and those over 65 for 16%.
The ten most populous cities in South Korea are Seoul (9,968,765), Busan (3,569,442), Incheon (3,018,687), Daegu (2,473,175), Daejeon (1,499,838), Gwangju (1,461,636), Ulsan (1,203,547), Suwon (1,197,144), Yongin (1,069,552) and Changwon (1,046,839).[11]
I. Economic data
[1] Unless otherwise stated, the general data comes from the Atlas, socio-économique des pays du monde, Larousse, édition 2024
[2] Source : Ministère de l'Economie, des Finances et de l'Industrie
[3] Source : Groupe de la Banque Mondiale
[4] Source : Groupe de la Banque Mondiale
[5] Source : Groupe de la Banque Mondiale
[6] The information below come from le Groupe de la Banque Mondiale
[7] Unless otherwise stated, the general data comes from the Atlas, socio-économique des pays du monde, Larousse, édition 2024
[8] Source : Ministère de l'Economie, des Finances et de l'Industrie
[9] Atlas, socio-économique des pays du monde, Larousse, édition 2024
[10] Sauf indication contraire, les informations ci-dessous proviennent de l’Atlas, socio-économique des pays du monde, Larousse, édition 2024
[11] Wikipédia se fondant sur City Population
[12] Source : Commission Européenne
[13] Atlas, socio-économique des pays du monde, Larousse, édition 2024
[14] Source : Franchise.Org
Historical background
Franchising was first introduced in Korea in the 1980s. Since the start of the 21st century, the franchise sector has been developing rapidly across South Korea[15] .
International
In 2019, the American publication, Forbes ranked South Korea 10th among the most attractive countries for franchising[27].
The United States is the foreign country with the strongest presence in South Korea in the franchise sector, notably via American fast-food chains. Indeed, the South Korean burger market grew from 2.1bn won in 2014 to 2.69bn won in 2020[28].
Institution
In South Korea, the Korea Franchise Association (KFA)[16] was set up in 1998 to promote the country's franchise sector. The Association has created a Code of Ethics for Franchising, which is binding on Association members.
Contract content
On average, franchise contracts are concluded for 10 years, with the possibility of renewal[23].
Economic impact
The franchise sector employs 942,000 people and represents sales of $66.5 billion[25]. In 2020, retail store franchises generated 64.7% of total franchise sector revenues[26].
Trade shows
The KFA is organizing the IFS (International Franchise Show), a trade fair for startups and the franchise industry, which takes place in Seoul (March 21, 23 and 24, 2024)[18].
The KFA also organizes the Franchise Startup Expo in Deagu and Busan.
Statistics
South Africa has around 800 franchise systems, spanning 14 sectors [23]. In 2018, there were 45,011 outlets in South Africa. 84% of franchisees rate their relationship with the franchisor as very good or good [24].
South Africa is now home to 68,000 franchisees [25]. 40% of them are based in the Gauteng province [26].
The biggest sector in the franchise business is fast food. South Africa has around 85,000 restaurants and over 850 franchises. The international food market is estimated to be worth $4.9 billion by 2026 [27].
In 2022, South Africa had 1,907 businesses and companies in a state of bankruptcy [28].
Statistics
In 2021, there were 11,218 registered concepts and trademarks owned by 7,342 franchisors and operated in 286,000 franchised businesses[19].
According to the Fair Trade Commission, the number of trademarks has risen by 58.1%, mainly due to the recent requirement to register the Franchise Disclosure Document.
For the first time in 2022, national sales in franchised stores exceeded 100,000 billion won (Korean currency)[20].
The number of franchised restaurants selling foreign dishes increased by 38% between 2020 and 2021.
According to the KFA, only 0.8% of franchised companies have been in business for more than 10 years[21].
The Gyeonggi region has the highest number of franchised stores (69,000), followed by Seoul (46,000) and South Gyeongsang (18,000)[22].
Special features
The country's culture sets the South Korean franchise sector apart from the international scene. Indeed, worldwide, fast food and hospitality franchises have the biggest impact on the franchise market. In South Korea, on the other hand, retail stores generate the most revenue[24].
[15] Source : KFA
[16] SBA Distribution Center in Seoul, 29 Gonghang-daero 61, Gangseo-gu, Seoul, Building A, Rooms 101 and 102, Tel: (02) 3471 8135 8, Email: master@ikfa.or.kr
[17] Source : KFA
[18] Source : IFS
[19] Source : Franchise.org
[20] Source : The Public
[21] Statistics from 2020 sur Global Franchise
[22] Source : YONHAP News Agency
[23] Source : ICLG
[24] Source : Global Franchise
[25] Source : CN
[26] Source : Global Franchise
[27] Source : Forbes
[28] Source : Tiger Times
B. Economic data specific to franchising
Applicable legislation
The Fair Transactions in Franchise Business Act[29] (or "Franchise Act" for short) regulates the conclusion, performance and termination of franchise agreements. The Korean Fair Trade Commission[30] (KFTC), which regulates the franchising sector, has its own mediation agency, which can take administrative measures against franchisors. Mediation in the event of a dispute remains optional.
The law requires the delivery of a pre-contractual information document.
Section 2 of the Fair Transaction in Franchise Business Act defines a franchise contract as a continuing business relationship in which the franchisor authorizes the franchisee to sell goods or services, in accordance with certain quality standards and a business method, using the franchisor's trademark, trade name and brand. The franchisor assists, trains and controls the franchisee in the management and operation of the business. In return for the use of commercial trademarks and the franchisor's assistance, the franchisee pays franchise fees to the franchisor.
The Fair Transaction in Franchise Business Act will not apply, however, if the total franchise fees paid over a six-month period from the date of initial payment do not exceed 1 million won (Korean currency), or if the franchisor's annual sales are less than 50 million won. On the other hand, if the franchisor has operated a directly managed outlet for at least 1 year prior to offering the franchise, the annual sales threshold is set at 200 million won[31].
However, even where franchisors fall below the aforementioned thresholds, they are still required to comply with the duty to register the franchise disclosure document with the Fair Trade Commission, deposit franchise fees and issue the disclosure document to potential franchisees[32].
Pre-contractual information
The disclosure statement must first be registered with the Fair Trade Commission. Subsequently, the franchisor must provide the prospective franchisee with the disclosure document at least fourteen days prior to the signing of the contract or payment of franchise fees (Section 7 of the Franchise Act).
The franchisor must update the disclosure document registered with the Fair Trade Commission within 120 days of the end of each fiscal year.
According to Chapter III of the Franchise Act, the disclosure document must contain information on:
-the franchisor's general situation;
-the proposed franchise (total number of franchise units and franchisees in operation);
-any breach of the law by the franchisor and its managers;
-the franchisor and franchisee’s duties;
-conditions and restrictions on the franchisee's commercial activity;
-the period required to start up the franchised business;
-franchisor support and training programs.
In the case of a sub-franchise, the sub-franchisor must also provide potential sub-franchisees with information in advance. On the other hand, the master franchisor does not have to disclose the disclosure document to the sub-franchisee if it is not directly contractually bound to the sub-franchisee.
Trademarks
The Trademark Act[35] governs trademark law in South Korea. Under Section 3 of the Trademark Act, anyone using or wishing to use a trademark in South Korea is entitled to register their trademark.
Concerning non-resident foreigners, Section 5-24 of the Trademark Act specifies that they may enjoy trademark rights provided that their country of origin also authorizes nationals of the Republic of Korea to enjoy trademark rights under the same conditions as their own nationals, or where enjoyment of trademark rights is authorized by virtue of a treaty.
To obtain trademark protection, the owner must apply for registration with the Korean Intellectual Property Office[36].
Registration of the trademark will protect the owner in the territory of South Korea against unauthorized use of an identical or similar trademark. The trademark owner may then seek injunctive relief against any person committing an infringement, and to claim damages.
Well-known but unregistered trademarks can be protected under Korea's Unfair Competition and Trade Secrets Act.
South Korea is a member of the Madrid System[37], which enables companies to obtain trademark protection in up to 130 countries by filing a single international application, in a single language, with the World Intellectual Property Organization (WIPO). Under Article 6 of the Madrid Agreement, trademark registration is valid for 20 years.
In South Korea, trademark applications can be handled both nationally and through WIPO. Examinations are conducted for all applications. Multi-class applications are accepted. Trademarks must be used within three years from the registration date to avoid cancellation. To develop a franchise in this country, it is advisable to cover "Business assistance relating to franchising" and "retail services" which are both accepted under class 35 by the trademark office, with retail services requiring specification of the items retailed. Recording a franchising agreement is not compulsory though advisable for legal advantages.
To go further
In South Korea, trademark applications can be handled both nationally and through WIPO. Examinations are conducted for all applications. Multi-class applications are accepted. Trademarks must be used within three years from the registration date to avoid cancellation. To develop a franchise in this country, it is advisable to cover "Business assistance relating to franchising" and "retail services" which are both accepted under class 35 by the trademark office, with retail services requiring specification of the items retailed. Recording a franchising agreement is not compulsory though advisable for legal advantages.
Contract perfomance
Section 4 of the Franchise Act specifies that the parties must act in good faith during the term of the contract.
In particular, the franchisor must draw up business plans for the success of the franchise, continue to develop sales techniques and provide training for franchisees and employees (Section 5).
Franchisees must maintain the integrity and reputation of the franchisor, keep inventories at an appropriate level, comply with the appropriate quality standards required by the franchisor for products or services, and notify the franchisor of any infringement of its trademarks (Section 6).
If the franchisee wishes to renew or extend the franchise agreement, it must notify the franchisor between 180 and 90 days before the expiry of the agreement, and the franchisor may not reject the request without good reason (Section 13 of the Franchise Act).
Jurisdiction and applicable law
South Korea ratified the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards on February 8, 1973[33].
II. Legal information
A. Legal information directly related to the franchising
[29] Act n°6704, dernièrement amendement le 4 janvier 2022
[30] Korea Fair Trade Commission, 95, Dasom 3-ro, Sejong-si, Republic of Korea, 30108, Tel: +82-44-200-4326, adresse électronique : kftc@korea.kr
[31] Source : Franchise.org
[32] Articles 6-2, 6-5, 7, 9, 10 et 15 du Franchise Act
[33] Source : UNTC
[34] Sauf disposition contraire, les informations ci-dessous proviennent de Franchise.org
[35] Act n°4210
[36] Government Complex Daejeon Building 4, 189, Cheongsa-ro, Seo-gu, Daejeon, 35208, Republic of Korea, tél : 82-42-481-8263, adresse électronique : kipoicd@korea.kr
[37] Arrangement de Madrid concernant l’enregistrement international des marques
[38] Act n°4198, dernier amendement le 29 mars 2016 par l’acte n°14127
[39] Act n°16930, 4 février 2020
[40] 209 Sejong-daero, Jongno-gu, Seoul 03171, Korea
[41] Article 3 de la loi sur la protection des informations personnelles
[42] Article 4 de la loi sur la protection des informations personnelles
[43] Act n°14080
[44] Act n°5559
[45] https://www.franchise.org/sites/default/files/2022-09/2023%20Franchise%20-%20South%20Korea.pdf
[46] Same
[47] Amended by Act No. 18113, April 20, 2021
Competition law
Competition law also applies to franchise agreements.
The Monopoly Regulation and Fair Trade Act[38] governs South Korean competition law. The purpose of the Act, according to Section 1, is to promote free and fair competition, encourage the creation of new businesses and protect consumers.
The KFTC is also responsible for monitoring compliance with this law. It therefore has the power to investigate anti-competitive practices and impose sanctions.
This law prohibits the practice of resale price fixing, the banning of tied selling and the imposition of minimum sales targets.
Personal data
Personal data law is governed by the Personal Information Protection Act[39]. This Act creates a government authority, the Personal Information Protection Commission[40], responsible for overseeing the application of the Personal Information Protection Act.
The law defines personal information as:
-Information that directly identifies a natural person by full name, resident registration number, photograph, (identifying information) or;
-Information that is not sufficient on its own to identify a particular natural person, but that can be easily combined with other information that directly identifies a natural person, (identifiable information), or;
-Identifying or identifiable information, as defined above, that is pseudonymized (a procedure that makes it possible not to identify a particular person, without any additional information).
South Korea's Data Protection Act specifies that the purpose for collecting and processing personal data must be clearly defined, and that as little personal data as possible must be collected and processed. The data controller must check that the personal information collected and processed is correct, complete and up to date; keep the personal information collected and processed secure; and make its privacy policy public[41].
The Personal Data Protection Act gives data subjects rights such as the right to be informed about the processing of their personal data, the right to consent to the processing, the right of access to personal information held by the data controller, the right to request the suspension of the processing of personal data and to request rectifications, or even the destruction of personal information held by the data controller[42].
For online service providers, the Network Act (act on promotion of information and communications network utilization and information protection[43]) also applies.
The Foreign Investment Promotion Act[44] governs foreign investment law in South Korea.
Foreign investments must be declared to the Ministry of Commerce, Industry and Energy[45].
In principle, foreign investments are not subject to restrictions, except when they interfere with national security or disrupt public order; when they harm the health and safety of nationals or are manifestly contrary to morality or decency; or when they breach Korean laws and regulations[46].
Section 3, paragraph 2 of the Foreign Investment Promotion Act specifies that, with certain exceptions, foreign investors are treated in the same way as nationals of the Republic of Korea.
Special provisions for foreign investments
Since a 2021 amendment to the Franchise Act[47], only franchisors with at least one year's experience in franchising, specifically in operating a minimum franchise establishment, can offer the franchise.
Special provisions for foreign investments
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Intellectual property: https://www.kipo.go.kr/en/MainApp?c=1000;
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Korea Franchise Association: http://www.ikfa.or.kr/;
-
Personal data: https://www.pipc.go.kr/eng/index.do;
-
Official national statistics: https://kostat.go.kr/anse/;
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Legislation: https://elaw.klri.re.kr/eng_service/main.do;
-
Korea Federal Trade Commission (KFTC): https://www.ftc.go.kr/eng/index.do.
Main websites
B. Peripheral legal data
[38] Act n°4198, dernier amendement le 29 mars 2016 par l’acte n°14127
[39] Act n°16930, 4 février 2020
[40] 209 Sejong-daero, Jongno-gu, Seoul 03171, Korea
[41] Article 3 de la loi sur la protection des informations personnelles
[42] Article 4 de la loi sur la protection des informations personnelles
[43] Act n°14080
[44] Act n°5559
[45] Source : Franchise.org
[46] Idem