[ANALYSIS] Korea's crackdown on Kakao hitting Coupang, Baemin

A Baedal Minjok (Baemin) food delivery rider in Yeouido, southwestern Seoul, Wednesday. Yonhap

Gov't, ruling party await more 'job hiring' announcements

By Kim Yoo-chul

After Kakao's decision to revamp its web-like business structures due to the findings of the country's top anti-trust regulator, local platform operators are "considering correcting" some "bad habits" to stay afloat amid growing worries among investors.

At this stage it's unclear exactly what "bad habits" entails, or what are the potential action plans to be implemented by Baedal Minjok (Baemin), Yogiyo and Coupang ― the leading online platform operators in Korea.

But because the Korea Fair Trade Commission (KFTC) took a hawkish stance over Kakao's oligopolistic business practices and its expansion from ride-hailing to personal finance, these e-commerce companies are set to announce plans highlighting a continuing co-existence with small street merchants and shops by establishing appropriate funds and sharing know-how in response to calls from politicians "seeking" to protect the best interests of small businesses.

The National Assembly is set to conduct its annual audit of government and state-owned agencies next month. The ruling Democratic Party of Korea (DPK) asked Kakao Board Chairman Kim Beom-su, Coupang CEO Kang Han-seung, Yanolja President Bae Bo-chan, Nexon Founder Kim Jung-ju and Woowa Brothers CEO Kim Bong-jin to appear before the Assembly. Woowa Brothers is the operator of Baemin.

"The recent controversy regarding Kakao illustrates the government's plan to crack down on platform-based tech firms that face allegations of misusing their market power. Anti-trust regulators and politicians don't want to see a complete exit of big tech companies. What they want is to see how the rising big tech companies can provide specific plans for co-existence. How to provide funds for charitable causes, and how they can make that pledge will be the top issues at this year's Assembly inspection of big tech companies," a DPK lawmaker said Wednesday.

Despite the DPK's understanding of the necessity for such big tech companies in society, the lawmaker said the government and the ruling party want these firms to be regarded as "conglomerates" like Samsung, SK, LG and Hyundai.

These well-known Korean conglomerates have been instrumental in growing the national economy and continue to dominate it. However, they are notorious for questionable governance and deep ties with the political elite.

With regard to Coupang and Baemin, Baemin's B-Mart "quick commerce" business reported 140 billion won in operating profit last year following its 2019 inception. B-Mart operates 30 micro fulfillment centers in metropolitan areas. The centers take the central role in delivering daily necessities to households in the Seoul metropolitan areas. Yogiyo and Coupang Eats see B-Mart's model as a copycat strategy.

A visitor wearing a face mask to help curb the spread of COVID-19 walks across markings on the ground that facilitate social distancing outside an exhibition hall in Goyang, Gyeonggi Province, Tuesday. AP-Yonhap

Because Baemin and Coupang's sales portfolios overlap those of regular brick and mortar retailers, small markets and convenience stores, the rapid growth of the "quick commerce" market in Korea is already hurting the bottom line of these small businesses.

Compromise

During the upcoming Assembly session, top executives at these big tech companies will be grilled by lawmakers. Market watchers and political analysts say Coupang and Baemin will have no other option but to announce plans for co-prosperity with SMEs as any muted stance to questions will further disappoint investors.

After the KFTC's scrutiny of Kakao, the company has shed nearly $10 billion in capitalization as foreign and local major institutional investors sold off their shares. The ruling DPK is on track to discuss details to regulate any unfair trade practices by Kakao. Company founder Kim has decided to appear before next month's Assembly session.

Korea is also home to Coupang's crucial source of revenue. While it chose New York for its IPO, the company is being asked to study its "quick commerce" business model more before advancing into other markets in Asia and the Southeast Asian region. From Coupang's standpoint, its ordinary stock price (ORD) in New York, which briefly hovered around $60, has since fallen below $30. Wall Street investors worry over the profitability of Coupang, hoping the company will replicate its successful "quick commerce" delivery services in densely-populated Asian countries.

"This means Coupang needs to move away from regulatory issues in Korea. Yes, it's fair to say that there's a ceiling to how much revenue can come from South Korea alone. However, it needs to embrace its home territory for more time as it needs to fine tune its products and other strategies before international expansion," a senior fund manager from Europe-based investment bank in Seoul, said.

The situation is similar for Woowa Brothers as it also aims to fine tune its services in Korea before expanding internationally. Its founder is set to update his company's strategy to ensure co-growth with local SMEs, according to some sources.

South Korea is looking quite good in term of economic growth and the management of its vaccination campaign. However, the ruling DPK and President Moon Jae-in's core political supporters ― those in their 20s, 30s, and 40s ― have been dissatisfied over the government's job-related policies and widening income inequality.

Despite some positive economic indices, high youth unemployment is cited as the one factor that has masked economic conditions for a lot of Koreans. The government's budget office earlier said supporting low-income households hit hardest by COVID-19 was a priority of the country's fiscal policy.

The actual income of self-employed people, who nearly account for 35 percent of the country's labor force, has been slashed after continued pandemic-induced restrictions have battered small businesses.