[Insight & Opinion] The Extent of Losses from Consumer Boycotts Cannot Be Measured

Last month, an employee at a bakery factory affiliated with SPC Group died after getting caught in a mixer while working. It is hard to imagine such an incident occurring in South Korea in 2022. Given that SPC Group is a giant corporation with approximately 8 trillion won in sales last year, this situation is serious. SPC Group's initial response was also problematic. They claimed that there was no legal obligation to install safety devices at the time of the accident, and there is evidence that the factory instructed workers to continue working while covering the accident site with cloth.

SPC’s backward behavior is also evident in transactions between its affiliates. Through unfair support such as price inflation, Samlip illegally appropriated about 38.1 billion won in profits, eventually resulting in fines and a recent indictment for violating the Fair Trade Act. For similar reasons, in the past, the American telecommunications company AT&T, once called the company of the century in 1984, was forcibly broken up into multiple independent companies, and transactions between affiliates were completely banned. SPC Group should take this as a lesson, as a severe blow was dealt to the internal transactions of a once seemingly eternal mega-corporation, laying the foundation for fair trade in the future.

Judging from this incident, even large corporations seem to lack awareness not only of the illegality of unfair trade practices but also of the importance of advanced supply chain management, including workplace safety management. They are underestimating not only legal responsibilities and fines but also the potential losses caused by being shunned by consumers, who are the foundation of the corporate ecosystem. The fact that the safety device that could have prevented this fatal accident cost only about 300,000 won is evidence of this. The unfair and backward behavior of companies can lead to punitive consumer boycotts, and in such cases, the losses companies must bear increase exponentially, which should not be overlooked.

According to the author’s recent research, during the 2013 boycott following the Namyang Dairy Power abuse scandal, the company’s sales dropped by as much as 22%. What distinguishes this case from many other consumer boycotts is that the effect of the Namyang boycott lasted for a long time and had a permanent impact on the company’s profits. Ultimately, due to the loss of product competitiveness, Namyang had to abandon its premium pricing policy, which it had maintained until the boycott, and maintain prices lower than those of competing products. The development of online communities such as social networking services (SNS) has led to increasingly organized boycotts and active mutual feedback among consumers, which has increased the intensity and efficiency of boycotts. If a boycott of similar scale to Namyang’s occurs in the SPC incident, a significant sales decline can be expected. It is also worth noting that the younger generation, who tend to be more interested in social movements, is leading the boycott in this case.

In the past, the Namyang boycott was relatively more effective in convenience stores and other outlets mainly used by young people, and currently, SPC Samlip supplies more than two-thirds of the bakery products sold in the convenience store industry, which will place an even greater burden on the SPC brand.

Compared to the past Namyang incident, the current social controversy surrounding SPC Group is actually incomparable. Unfair transactions between affiliates cannot be overlooked either. Large institutional investors such as the National Pension Service should withdraw investments not only from companies involved in unfair internal transactions but also from those lagging in supply chain advancement, including inadequate safety management. Legal systems for this already exist. At least 11 domestic institutions, including the National Pension Service, have already joined the United Nations Principles for Responsible Investment.

Kim Gyu-il, Professor of Economics, Michigan State University

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