Chaebol control causes ‘side effects’; Bridgestone, Michelin expand presence at cost of large firms

2013-08-20 17:14

Chaebol control causes ‘side effects’

Bridgestone, Michelin expand presence at cost of large firms
By Kim Tae-jong
The government’s shared growth policies are producing unintended side effects without achieving their original goals.
In September 2011, the government prohibited conglomerates from further expanding on a list of industries where small and medium-sized enterprises (SMEs) could thrive. Under the policy, big companies are limited by the number of products they are allowed to sell, and are not allowed to open new stores in any industry on the list.
The underlying idea of the policy was simple: limiting the expansion of conglomerates would give more room for SMEs and promote shared growth. However, for the past two years, foreign firms have been taking up the market share that conglomerates were not allowed to enter, making it much more difficult for local SMEs to survive.
One case is the market for recapped tires.Two years ago, Hankook Tire and Kumho Tire shared the recapped tire market along with some 40 smaller tire makers. However, since the government started to regulate the sales and expansion of the two big local tire makers, global tire manufacturers such as Bridgestone and Michelin have advanced into the local market.
“Foreign firms have been expanding their presence in the local recapped tire market,” an official from Hankook Tire said. “We gave up our market share by not selling more than what we are allowed in order to support SMEs, but foreign tire makers have benefited from the government’s restrictions.”
Foreign firms will increase their dominance in the local market through partnership with a few medium-sized tire companies, which will threaten the survival of many smaller local tire makers, he said.
Indeed, many conglomerates argue that the new policy is a discriminative measure against them, which unintentionally benefits foreign companies. In addition, market insiders claim that the government’s protective measures for SMEs are distorting the market without achieving its initial goal.
In fact, the government already made a similar mistake before with its regulation of the light-emitting diode (LED) industry.
Earlier, the government banned conglomerates from developing LED technology and products, restricting the industry to smaller local firms.
However, with significant LED know-how and technology, three major global firms — GE, Philips and Osram — advanced into the local market, driving many small local firms out. In 2010, the three firms accounted for 70 percent of the local market thanks to the regulations.
The Federation of Korean Industries (FKI), the nation’s largest business lobby group, said that the restrictions on conglomerates introduced to protect local SMEs have side effects including creating unexpected benefits to foreign firms.
Some big firms have been hit hard because their core businesses were included on the list of industries restricted to SMEs,” said an FKI official. “Such restrictions have also led to the dominance of a few SMEs and the lower job creation by conglomerates.”
He also said that customers can be negatively affected by the restrictions as conglomerates hesitate to invest in the development of better products and services. He suggested that the government should relax the restrictions on conglomerates to minimize the negative impact on the market and the economy.
“What’s more appropriate is to let conglomerates and SMEs find solutions for shared growth without regulating big firms by law,” said the FKI official. “The government should work first as a mediator instead of a regulator.”