South Korean government sees tech companies as the new chaebol
A SOME MONTHS A few years ago, Kim Beom-su looked like the face of responsible capitalism in South Korea. In March, the billionaire founder of Kakao, which runs the country’s most popular messaging app and many other digital services, pledged to donate half his fortune to charity, the second Korean tycoon to make the pledge. . Now he’s making the headlines for less healthful reasons. Antitrust officials have reportedly set their sights on his private holding company for allegedly failing to report properly to its shareholders and affiliates.
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The apparent movement against the founder of Kakao is the latest salute in an ongoing battle. Like their American and Chinese counterparts, South Korean tech giants have come under intense scrutiny. Officials fear that as companies like Naver, which started out as a search engine, and Kakao have spread to everything from rideshare to personal finance, they have resumed bad habits of chaebol. These sprawling conglomerates have helped make South Korea rich and continue to dominate its economy. But they are known for their obscure governance structures, oligopolistic business practices, and close ties to the political elite.
In recent weeks, politicians have stepped up the rhetoric. “Kakao has gone from a symbol of growth and innovation to a symbol of ancient greed,” Song Young-gil, leader of the ruling Minjoo party, told the National Assembly this month. “We will find a way to stop its rapid expansion and help it coexist with small business owners,” he warned.
On the same day, regulators ruled that some financial services offered by Kakao and Naver violated consumer protection laws because the platforms were not registered as intermediaries. Both companies will now have to comply with brokerage regulations. Frightened investors ditched Kakao and Naver shares, reducing their combined market value by a tenth, or $ 11 billion, by one.
Korean trustbusters, for their part, are investigating allegations that the Kakao taxi service promotes its own more expensive taxis. They want e-commerce platforms to make appropriate contracts with third-party sellers and specify the commissions they receive. In August, Coupang, the country’s largest e-commerce company, was fined 3.3 billion won ($ 2.8 million) for pushing its suppliers to lower their prices. South Korea’s largely unregulated crypto exchanges will need to register as legal trading platforms.
Techlash isn’t just limited to home tech darlings. On September 14, regulators fined Google $ 177 million for not allowing versions of its Android operating system to be installed on locally manufactured smartphones. And last month, South Korea became the first country to force Apple and Google to accept alternative payment systems in their app stores.
App developers like Epic Games, which lost to Apple in America on September 10, hailed the move. The maker of “Fortnite” invoked South Korean law in an attempt to restore its app to Apple’s App Store, from where it was started for breaking rules prohibiting such payments through the app. Apple refused.
Lim Jung-wook, a venture capitalist, applauds the government’s instinct to protect consumers and small suppliers. But he believes tougher rules won’t do much to limit the power of tech companies in the long run. “The services of these companies are too convenient for them not to continue to grow.
However, in the face of falling stock prices, Korean companies have started to react. On September 14, Kakao announced a new 300 billion won fund to help small suppliers and vowed to cut new services such as flower delivery that compete with family businesses. Mr Kim vowed that the company would “throw away” its old growth model and replace it with one that promotes “social responsibility.”
Coupang chose a more combative approach. He insists that his platform has made it easier for small businesses to get their products to consumers. And he’s appealing the antitrust fine, saying the sanction serves to protect chaebol such as LG, who filed the complaint. ■
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This article appeared in the Business section of the print edition under the headline “The Other Techlash”