Anti-chaebol regulations backfire

2013-11-25 18:03

Anti-chaebol regulations backfire

Brioche Doree, Dufry allowed ‘unintedned’ way into Korean market
By Yi Whan-woo
A growing number of foreign companies are entering the Korean market by taking advantage of loopholes in regulations introduced to prevent sprawling expansion of large firms and to nurture small- and medium-sized enterprises (SMEs) The National Commission for Corporate Partnerships, a presidential committee, has restricted family-owned conglomerates and companies with more than 300 employees from expanding into several industries in which the government intends to foster SMEs.
These industries include bakeries, restaurants, coffee shop franchises, duty free shops, catering, stationeries, car rentals and IT services.In the absence of domestic heavyweights, foreign companies such as Brioche Doree, Outback Steakhouse, Starbucks, Dufry, Arko, Office Depot and Mascus are now entering these industries.
Such multinational giants are able to enter into these industries because their branches in Korea each have less than 300 employees and, technically, are considered SMEs.
Brioche Doree, a France-based multinational bakery chain, opened its first store in the financial district of Yeouido on Nov. 4. The chain operates some 500 outlets in 50 countries and plans to open 80 more within 10 years. Its worldwide annual sales reached 1.105 billion euros (1.57 trillion won) in 2011.
It opened its Korean outlet in partnership with Daewoo Engineering & Construction. The Korean unit has 212 employees and is in charge of Brioche Doree’s sales activities here.
“The joint business between a domestic SME and a multinational company resulted in what I call a ‘blind zone’ that allows foreign firms to escape from the government’s control,” Rep. Hong Ji-man of the ruling Saenuri Party said during a parliamentary audit on the government in October.
Durfy entered Korea in a similar way. The Switzerland-based travel retailer set up Dufry Thomas Julie Korea, a joint venture established by Dufry and Korea’s Thomas Julie & Co. in August with an initial capital of 10 million won ($9,400). Dufry has a 70 percent stake in the firm.
And the company was selected as a preferred bidder on Oc. 22 by the Busan Regional Aviation Office of the Korea Airports Corporation to run duty-free shops in the Gimhae International Airport in the port city of Busan.
The question over the eligibility of Dufry’s subsidiary here as a successful bidder has been raised since the bidding was only reserved for SMEs. On the other hand, Dufy runs over 1,350 shops at airports, cruise lines, seaports and other major tourist locations in 45 countries.
Office Depot, a U.S-based stationery manufacturer, closed a 7.8 billion won deal in November 2012 to supply its goods to the Public Procurement Service (PPS) for the next two years. Office Depot runs 1,600 outlets in 60 countries including Korea.
The PPS, under the Ministry of Strategy and Finance, excluded domestic conglomerates from its maintenance, repair and operations bid to make room for SMEs.
Rep. Lee Hahn-koo of the ruling Saenuri Party said during a parliamentary audit last month that this was an example of a flawed system.
“Office Depot supplied goods to the PPS in the past. The government was fully aware that the U.S. firm is a multinational giant,” he said. “Its supply rate to the PPS jumped from 5.3 percent in 2011 to 26.3 percent last year.”