Franchises were fundamentally contracts between two parties with mutual obligations. A merchant who chooses to join a franchise can break the contract if the parent company does not fulfill specified obligations. Franchises are often confused with chain stores (and, indeed, often used interchangeably), but the difference is that franchises offer local merchants a measure of autonomy compared to chain stores, which are owned by the parent company. The difference lies in the ownership and the assumption of risk.

In Japan, franchises and chain stores became popular after World War Two, when the Allied Occupation fostered an influx of American culture and ideas. But both business organizations actually began to take root during an earlier influx of American ideas of mass production and consumption, during the very same post-World War One years also marked by overproduction and a global recession from Western Europe to Latin America to Asia. Franchising as a business model became popular earlier, likely because it did not require as much capital and organizational infrastructure as chain stores. Hoshi Pharmaceuticals was one of the very first companies to form franchises along with Kao, Lion, Shiseidō, and Taishō. In Japan, the most prominent examples remain the "Shiseidō Chain Store" signs (written in English characters), which can be found adorning mom-and-pop owned Shōwa-era cosmetics and drugstores near local train stations. Indeed, their ubiquity, even in the present day, demonstrates the slippage and confusion between chain store and franchise: they were often thought of -- at least in Japan -- as one and the same.

What these companies all had in common was that they sold "non-essential," non-durable consumer goods like cosmetics and patent medicines that depended on the energy and skill of sales people. They saw franchises as a solution to an age-old problem: the loss of control over products once produced. Manufacturers had been at the mercy of individual merchants to sell their goods, but how did they know these merchants were doing all they could to increase sales? What if they were actually encouraging a rival's products over theirs? Franchises and chain stores helped manufacturers reduce costs, improve efficiency, and most important, provided some measure of control over the distribution process.