          
          
                           Franchising
          
          The franchising industry has become a multibillion dollar 
          business in Japan.  Originally developed in the fast food 
          area, it has expanded into a variety of new sectors.  In 
          1989, there were 626 domestic and foreign franchising 
          chains in Japan with aggregate total sales of 7 trillion 
          yen ($49 billion) at 131,267 outlets (franchised -- 
          115,750; directly operated -- 15,517).  The number of 
          franchising chains, 626, is about one-third of the 
          franchise chains in the United States.
          
          In general, the details of a master franchise agreement are 
          not disclosed.  However, certain similarities among 
          franchise agreements exist.  Most U.S.  franchisors usually 
          do not try to recruit actual shop operators in Japan 
          directly from the United States.  Instead, U.S. firms 
          concentrate their efforts on finding a master franchisee, 
          which is usually either a Japanese company or a joint 
          venture between the U.S. franchisor and a Japanese company, 
          or in some cases, a wholly owned subsidiary of the U.S. 
          company.  The master franchise holder is then responsible 
          for the actual recruitment of Japanese franchisees.  
          Usually, the master franchisee will pay the U.S.  company a 
          lump-sum payment which is payable over a certain period of 
          time, in addition to royalty payments which average around 
          5 percent of the sales.  Since the quality and nature of 
          services are quickly changing to suit market demand in 
          Japan, the life cycle of a new type of service organization 
          or fast food chain tends to be relatively short.  Typically 
          in Japan, once consumer interest or need is successfully 
          identified several companies with similar capabilities rush 
          into the market and generate fierce competition.  
          Therefore, U.S. franchising operators should consider 
          entering the Japanese market only after preparing a 
          feasibility study, developing a long-term investment plan, 
          and carefully evaluating the timing and life cycle of the 
          particular good or service.
          
          
