Kakao Racing Ahead, But Could Be Hampered by Government and Ruling Party?

This Year’s National Audit Emerges as the Biggest Issue

Beom-su Kim, Chairman of the Kakao Board of Directors

[Asia Economy Reporter Bu Aeri] Kakao, which had been rapidly expanding across various sectors such as finance, shopping, and mobility, is now struggling under continuous attacks from the government and ruling party. Kakao has emerged as the hottest issue in the National Assembly’s upcoming audit scheduled for October. The Political Affairs Committee has summoned Kim Beom-su, Chairman of Kakao’s Board of Directors, as a witness for the audit.

Government and Ruling Party Target Kakao

According to the National Assembly and industry sources on the 20th, the Political Affairs Committee plans to question Chairman Kim about Kakao’s sprawling business expansion, the rise in user fees due to monopolistic market structures, failure to report affiliated companies, and mergers and acquisitions (M&A) of competing affiliates during this year’s audit.

The ruling Democratic Party of Korea is focusing early on restoring the value of 'fairness' ahead of next year’s presidential election. Kakao has become the first target. On the 7th, the Democratic Party held a forum titled “The Octopus-like Expansion of the Dinosaur Kakao: Measures to Eradicate Unfair Trade by Platform Giants,” hosted by the offices of lawmakers Song Gap-seok and Lee Dong-joo. The discussion topic was clearly aimed at Kakao. Party leader Song Young-gil and floor leader Yoon Ho-jung also pointed out Kakao’s market dominance in their congratulatory speeches, stating, “We will never stand idly by.”

The government is also pressuring platform companies on all fronts. The Fair Trade Commission early on announced the draft of the “Act on the Fairness of Online Platform Intermediated Transactions (On-Platform Act)” and began regulatory measures. The core of the On-Platform Act is to mandate the creation and delivery of contracts between platform operators and tenant businesses to prevent disputes. Since the contract must specify items such as “the order and criteria by which goods and services are displayed on the online platform,” domestic platform companies, for whom big data is a key competitive tool, fear having to disclose trade secrets.

The Financial Services Commission is also moving forward with regulations. It demanded corrections, claiming that product comparison and quotation services on financial platforms operated by Kakao, Naver, and others constitute illegal financial brokerage services. The Korea Communications Commission introduced the “Act on Protection of Online Platform Users.” On the 8th, Chairman Han Sang-hyuk said at the National Assembly that they are “considering regulatory methods” regarding Kakao Mobility’s taxi app, KakaoT.

As the government and ruling party increase regulatory pressure on Kakao, corporate concerns have deepened. There are worries that the seeds of growth could be cut off before achieving global competitiveness. Industry insiders lament that the government’s outdated approach of regulating growth as it occurs continues, creating an environment where domestic companies cannot grow into global enterprises. They say the traits of a “regulatory republic” are being reproduced.

An IT industry insider criticized, “If such regulations continue, platform companies without manufacturing plants will have no choice but to consider relocating overseas,” adding, “Government’s legalistic regulation plays a major role in IT companies turning their eyes to overseas listings once their businesses grow.”

Kakao Changes Growth Strategy

Kakao has shown a submissive stance in response to the government and ruling party’s offensive. It announced its intention to boldly improve its existing growth methods and prepare win-win measures. Kakao plans to establish a fund of 300 billion KRW over five years to expand support for small business owners. It will withdraw from some businesses that sparked controversy over infringing on neighborhood markets, such as flower, snack, and salad delivery brokerage services.

Executives from Kakao’s major affiliates agreed during meetings held over two days from the 13th to the 14th to decisively abandon the previous growth approach. Accordingly, Kakao and its affiliates are expected to actively start shedding the label of a domestic-only company, which had been their biggest weakness. Kakao has expanded its business tentacles domestically using KakaoTalk as a weapon in finance, mobility, and other sectors. Industry estimates suggest that Kakao’s global sales account for around 10%. Most of this is believed to come from Kakao Japan, which operates the webtoon platform Piccoma in Japan.

Kakao is expected to pursue a global strategy centered on content, gaming, and blockchain businesses going forward. Kakao stated, “We plan to actively strengthen our global business based on content and technology.” In particular, Kakao appears set to focus on growing its webtoon business centered on Kakao Entertainment. Kakao Entertainment is one of the affiliates showing the most outstanding global performance. Its recently launched global webtoon platform, Kakao Webtoon, ranked first in sales within three months. Kakao Webtoon plans to accelerate its expansion into Southeast Asia, North America, and Europe.

Last month, Kakao established a subsidiary called Crust in Singapore. This company will play a role in expanding Kakao’s blockchain business. Song Ji-ho, head of Kakao’s Community Growth Center and a close aide to Chairman Kim, was appointed CEO. The gaming business, which has great scalability, is also considered a business that can achieve results globally. Chairman Kim emphasized, “It is time for a fundamental change for growth that fulfills social responsibility by boldly abandoning the growth methods pursued over the past 10 years.”

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