Innovation and Consumer Welfare Blocked by Entry Regulation Barriers... "Minimize Regulations"

Active Overseas Data-Based Platform Business... Domestic 'Post-Regulation' Dampens Enthusiasm

Jung Manki, Chairman of the Korea Industrial Federation Forum, is delivering a keynote speech on the topic of "Problems and Improvement Tasks of Entry Regulations" at the 10th Industrial Development Forum held on the 26th at the Automobile Hall in Seocho-gu, Seoul. Photo by Kang Jinhyung aymsdream@

[Asia Economy Reporters Jehoon Yoo, Gimin Lee] Excessive entry regulations, originally intended to complement market failures, have instead transformed into ‘regulatory monsters,’ acting as obstacles to industrial innovation and consumer welfare enhancement. Experts point out that since the Fourth Industrial Revolution, which requires industrial convergence and integration, is expanding across all sectors such as manufacturing, distribution, and mobility, entry regulations must be redesigned and minimized to allow companies to freely pursue new businesses.

‘Golden Goose’ Remains an Unattainable Dream Domestically

A typical example of entry regulations hindering industrial innovation is the data-based platform industry. For instance, in the mobility sector, since the launch of Uber, various car-sharing services such as Kakao Carpool and Tada have attempted to pioneer the market, but all have currently ceased related operations.

The reason domestic car-sharing services failed to pass the nascent stage was due to strong opposition from the taxi industry, which perceived these services as threats to their survival. As the voices of interest groups grew louder, the executive and legislative branches created ‘ex-post entry regulations.’

The crowning blow was the amendment to the Passenger Transport Act, commonly called the ‘Tada Ban Law.’ After intense debate, the amendment passed, forcing Tada to abandon its car-sharing business and survive through luxury taxi services. Kim Sung-jun, president of the Korea Regulation Society, pointed out, "This is not due to bureaucratic incompetence but because of capture by interest groups."

The problem is that this has blocked the foundation of data-based innovative industries, which could expand to tens of trillions of won in the future. Currently, countries worldwide are continuously launching new mobility services and attempting to pioneer new business areas using the accumulated driving data.

For example, Uber in the U.S. successfully entered the food delivery service (Uber Eats) using big data accumulated from shared vehicle operations, increasing its annual revenue nearly threefold from $5 billion in 2016 to $14.1 billion in 2019.

Particularly concerning is that this trend could set a precedent for upcoming big data, artificial intelligence (AI), and autonomous vehicle-based mobility services. Major countries’ mobility industries, such as the U.S. (GM, Google), China (Didi Chuxing, Baidu), and Japan (Toyota), are increasing their accumulated data through their domestic ride-sharing services. There is significant concern that this could lead to a technological gap in autonomous vehicle technology in the future.

Lee Jong-wook, president of the Korea Mobility Society, stated, "The regulatory framework must change to smoothly connect the core technologies of the mobility ecosystem and produce challenging early results. It is also necessary to create a ‘Mobility Ecosystem Regulatory Portal’ that consolidates related regulations to reduce legal risks for related companies."

This issue is not limited to mobility platforms. Online platforms such as OTT (Over The Top), medical advertising platforms, and online legal platforms face similar situations.

Both Large Marts and Traditional Markets Are Disheartened... Consumers Nowhere to Be Found

Entry regulations sometimes disregard the welfare of the protected small and medium-sized merchants and consumers. The distribution industry is a representative case. According to Article 12, Paragraph 2 of the current Distribution Industry Development Act, large marts’ operating hours are restricted to start from 10 a.m., and mandatory closures twice a month are enforced. The regulation on new store openings within the traditional industry preservation zone (within 1 km radius of traditional markets) for large and small stores has also been repeatedly extended.

In addition to these strong regulations, the recent rapid growth of online distribution channels due to COVID-19 has dealt a significant blow to large marts. The three major large marts have already closed 20 stores this year alone due to reduced profits.

The problem is that despite these strong regulations, the traditional markets, which are supposed to be protected, have not gained much benefit. According to a survey released by the Federation of Korean Industries in January, 36.8% and 15.4% of respondents chose supermarkets and online channels, respectively, as places to shop on mandatory closure days of large marts, while traditional markets accounted for only 8.3%, less than convenience stores (10.3%).

However, the political sphere seems poised to further strengthen entry regulations related to the distribution industry. From June last year to February this year, 16 amendment bills to the Distribution Industry Development Act were submitted to the National Assembly, 12 of which included provisions to regulate not only large marts but also complex shopping malls, department stores, and food material marts.

Experts point out that such entry regulations do not consider small and medium-sized merchants operating within complex shopping malls and large marts. According to the industry, the proportion of partner companies in stores of the three major distribution companies reaches 60-90%.

The impact on consumer welfare is also significant. According to the Federation of Korean Industries’ survey, 53.6% of respondents in the metropolitan area opposed operating restrictions on complex shopping malls, overwhelmingly outnumbering the 38.1% in favor. Given that the younger generation in their 20s and 30s increasingly view complex shopping malls not just as shopping spaces but as places for dining, culture, entertainment, and leisure, such entry regulations could regress consumer welfare.

Jung Yeonseung, president of the Korea Distribution Society, emphasized, "Distribution regulations require a three-dimensional perspective that considers participants in the distribution value chain from manufacturing to retail sales, encompassing manufacturers and consumers alike. Especially with the Fourth Industrial Revolution bringing massive changes to the future distribution industry, institutional support is needed to ensure all actors in the distribution ecosystem cooperate and coexist."

This content was produced with the assistance of AI translation services.