This briefing comes from Korea View, a weekly newsletter published by the Korea Economic Institute. Korea View aims to cover developments that reveal trends on the Korean Peninsula but receive little attention in the United States. If you would like to sign up, please find the online form here.

What Happened

• Pointing to the fact that large foreign firms are allowed to sell used cars in Korea, domestic carmakers called for an end to restrictions on their participation in this market space.
• The Ministry of SME’s and Startups is reportedly looking into allowing conglomerates to reenter the used car market under specific conditions.
• 51.6% of the public is in favor of allowing conglomerates to participate in this market.

Implications: South Korean policymakers are forced to weigh between the ability of conglomerates to deliver better consumer services and the prerogative of protecting SMEs. The used car market of USD 23 billion could be quickly swallowed up by conglomerates who will likely use price competitiveness to drive out smaller competitors. Moreover, consumers have expressed frustration with the disparate pricing practices of various SME players in the market. As a result, there is widespread expectation that the entry of conglomerates into the market will not only lower prices but also increase standards. However, policymakers worry that this will help further concentrate corporate dominance over the Korean economy with potential long-term consequences on employment.

Context: Six conglomerates make up more than 70% of Korean exports. These vertically-integrated corporations also channel businesses to their subsidiaries, promoting their growth while pushing out smaller competitors. In 2011, the Fair-Trade Commission (FTC) reported that conglomerates composed nearly half of Korea’s manufacturing industry and generated 33.8% of total industry profit. In this environment, SMEs are limited in both domestic and international growth. This lopsided relationship has major consequences for employment as 80% of the labor force is in a SME. In response, the FTC has been regulating corporate expansion since 2013 – but in areas like the used car market, the poor price competitiveness and services by SMEs have led to a consumer backlash.

Korea View was edited by Yong Kwon with the help of Sophie Joo, Sonia Kim, and Chris Lee.

Picture from the flickr account of Stephan