Big Tech Replaces Chaebol as Enemy No. 1 Before South Korea Vote
(Bloomberg) -- Five years ago, just ahead of the then-presidential election, it was the family-run conglomerates under attack. This year, months before what is expected to be a close presidential race, lawmakers are targeting big tech.
South Korea’s parliament is holding five weeks of hearings starting Friday during which it plans to grill heads of internet giants such as Kakao Corp. and Coupang Inc., just as it did five years ago when the “chaebol” were blamed for enriching themselves by abusing their position.
This time, online platform service providers are accused of picking up the same chaebol habits, widening the country’s socio-economic divide. Lawmakers are latching onto public sentiment that has started to soar against the pandemic-fueled rapid growth of the companies and their encroachment into the domain of small businesses such as hairdressing reservations, delivery services and taxi-hailing.
As a growing number of voters see it, the companies are violating the country’s decades-long social compact not to harm mom-and-pop shop owners. Small businesses have complained that they’re already suffering from minimum wage increases and stricter social-distancing measures that are driving away business.
Regulators are also stepping up scrutiny amid the souring public sentiment. Coupang -- which is South Korea’s answer to Amazon.com Inc. and hit $100 billion valuation on its trading debut -- was fined 3.3 billion won ($2.8 million) by antitrust regulators in August over allegations of “unfair trading practices.” The former poster child for a startup success was charged with pressuring small business owners and local suppliers to raise prices of products sold on rival platforms.
Coupang’s chief executive officer, Kang Han-seung, and Kakao’s billionaire founder, Brian Kim, are among heads of tech companies who have been called to testify at the parliament hearings. Coupang has said it would file a lawsuit challenging the antitrust fine.
Chae Yi-bai, a former South Korean lawmaker who was a member of national policy committee that deals with fair trade, said the Biden administration’s appointment of big tech critic Lina Khan as chair of the Fair Trade Commission gave South Korea more confidence to regulate its own industry.
“Tech companies have grown exponentially during the Covid pandemic but that incurred clashes of interests between those platform businesses and mom-and-pop stores,” Chae said. “There’s skepticism over tech companies’ rapid growth and monopolistic move that could exploit consumer data and hit SMEs industry. That sparked moves for tech regulations.”
|Oct. 1||Culture, Sports, Tourism||Naver Webtoon, Kakao Entertainment|
|Oct. 5||National Policy||Kakao, Coupang, Yanolja|
|Oct. 5||Science, ICT, Communication||Google Korea, Apple Korea, Facebook Korea, Neflix Korea Woowa Brothers, Karrot Market, Kakao Mobility, Coupang, Yanolja|
|Oct. 8||Land, Infrastructure, Transport||Kakao Mobility, Coupang|
Big business encroaching into small businesses has been a particularly sensitive subject in South Korea, where many still make their living by running their own businesses. Self-employment rate of the world’s 10th largest economy hovers at around 25% as of 2019, according to latest data available, about 10 percentage points higher than the average of member countries in the Organisation for Economic Co-operation and Development.
After failing to rein-in chaebol conglomerates and angering mom-and-pop businesses, the attack on big tech is seen as a way for President Moon Jae-in’s ruling party to regain votes for its progressive candidates. “Kakao was once a a symbol of growth and innovation. But it seems like it has turned into a symbol of greed,” Song Young-gil, leader of Moon’s Democratic Party, said last month.
The ruling party is also seeking passage of a bill that limits commission fees paid to online platform services. Separately, South Korea’s Fair Trade Commission is pushing to enact new regulations that it says would protect consumers and merchants that have not been fully protected under existing laws.
“Online platforms have greater influence in the market,” Song Kap-seok, a ruling party member, said in proposing the bill. “As a result, unfair transactional behaviors such as demanding excessive commission fees have occurred.”
With public and government pressures intensifying, tech firms have announced what appears to be a way to appease critics. Kakao said it was abandoning its decade-long growth model. The company said it was creating a 300 billion won fund to help small suppliers and scrapping plans to compete with small mom-and-pop businesses.
Along with Kim, the Kakao founder, heads of Kakao’s affiliates such as Kakao Mobility and Kakao Entertainment were also expected to attend the hearings where they are likely to be blamed for hurting taxi drivers and content creators.
Some firms are fighting back. Coupang said in a statement that it has innovated in a retail market that’s long been dominated by conglomerates by offering consumers cheaper products and faster delivery.
“Tensions are rising ahead of the presidential election,” said Jungwook Lim, managing partner at the Seoul-based venture capital firm TBT. “Some unicorn startups are concerned over tightening regulations against platform models, while investors are worried such environment could daunt exits such as merger and acquisitions by big tech companies.”
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