Value context and insight. lkm@koreatimes.co.kr
Regulations stunt business growth in Korea
By Lee Kyung-min
Gov't urged to implement rules following international standards
By Lee Kyung-min
President Moon Jae-in has vowed to reduce red tape since his inauguration but regulations still remain a major stumbling block for Korean companies to pursue growth and innovation.
Both domestic and foreign businesses operating here are showing frustration as excessive regulations are preventing them from finding new opportunities in a rapidly-changing market environment, experts and industry officials said Thursday.
They said the business environment, notably deteriorating after the rapid hike in the minimum wage and reduced workweek, is set to take a turn for the worse due to the continued left-leaning, anti-business policies, which many claim are skewed toward “fairness” rather than “effectiveness.”
“Most of the small and medium-sized enterprises (SMEs) do not want to grow because they know that growth will make their businesses more difficult to manage due to regulations,” Yoo Jung-joo, corporate innovation team head at the Korea Economic Research Institute (KERI) said.
KERI is supervised by the Federation of Korean Industries (FKI), the biggest business lobby in Korea representing most of the large conglomerates here.
Under the current law, firms that have up to 500 billion won ($412 million) in assets are considered SMEs.
According to a recent KERI-commissioned study released Aug. 26, if SMEs' assets move upwards of the figure, the number of regulatory requirements they have to meet increases to at least 111 from 30.
If those with 5 trillion won asset see the amount double to over 10 trillion won, they have to face 47 more regulations.
Yun Chang-hyun, an economist at the University of Seoul said one of many valid cases in point include regulations straining local chemical companies that were hit by the recent Korea-Japan trade dispute.
They are required to perform a mandatory toxicity test for any materials they produce or import that are over 1 ton, regardless of what they are and whether they absolutely need it.
“Performing a test is much easier said than done, considering the cost and manpower associated with the time-consuming process. SMEs simply have no means to allocate resources, and requiring them to blindly meet regulatory standards will only hurt their business,” Yun said.
“They face regulatory hurdles that in no way help facilitate effective business operations including stable supplies or domestic manufacturing of key materials free from outside shocks,” he added.
The shared frustration only ends up undermining entrepreneurship, leaving Korean businesses far behind their global peers on the cut-throat international stage, KERI's Yoo said.
Plus, a much-distorted initiative “promoting fairness” has undermined corporate competitiveness over the past few years, notably following the rapid hike in the minimum wage and reduced workweek.
“Business' predicaments will worsen unless the government realizes that what really helps is having firms stay motivated not discouraged,” he said.
In a separate KERI study of 500 companies conducted between June 6 and 7 on regulatory reform under the current administration, those who had negative views on government reforms far outnumbered those with positive opinions.
Of the total, 22 percent said they were dissatisfied, while 11.7 percent said they were satisfied. Last year's figure showed 15.1 percent were satisfied and 16.4 percent dissatisfied.
Among respondents, 43.2 percent answered that the labor market was the most-urgently need sector for reform, followed by conglomerates (40.6 percent), environment and energy (25.4 percent), and finance (23.8 percent).
The shared frustration is felt among foreign businesses as well.
The European Chamber of Commerce in Korea (ECCK) said that ambiguous rules and regulations, along with Korea's slowing growth, are widely considered to be major challenges for European companies doing business here.
According to an ECCK-commissioned survey released in March 2019, 60 percent of respondents said ambiguous rules and regulations were significant hurdles to the business environment. The study was conducted in January 2019 on executives of European companies in Korea.
ECCK President Christoph Heider said that Korea should embrace a full adoption of international standards in rules and regulations to attract more investment from abroad.
“Korea is and remains an attractive market for European companies operating in or with Korea,” he told The Korea Times via email.
“In general, it can be said that in too many cases, there are rules and regulation in Korea which either diverge slightly or to a great extent from international standards. Also, the implementation of Korean rules and regulations following international standards will help reduce ambiguity in interpretation,” he added.