Self-Employed Face Bitter Winter
By Kim Tong-hyung
Staff Reporter
For the past couple of years Lee Sung-yeon, a 42-year-old owner of a coffee shop in Hyehwa-dong, Seoul, was concerned when coffee kiosks multiplied.
Nowadays, she is finding that a lack of competition worries her even more.
``I think two takeout stands went out of business just this winter. Those two beside the sports bar, fried chicken restaurant and sushi restaurant across the street, have been closed,'' said Lee, who says her monthly sales have dipped below the 2 million won mark recently, the first time that has happened.
``My real estate agent told me that those KFC and Dunkin Donuts restaurants in Daehangno are close to giving up business and their stores are back on the rent market. Things are not any easier for smaller shops like us,'' she said.
The current economic downturn, which looks more likely every day to turn into a full-blown recession, has businesses reeling from consumers buying less. And the collapse in demand is even more crushing to self-employed people like Lee, who have their money and livelihoods on the line.
The grim realities of the self-employed are well reflected in statistics recently released by the National Tax Service, which reports that the number of closed, one-person companies rose for the third-straight year in 2007, with nearly half of them failing to get past year two.
Although the NTS doesn't have the data for 2008 yet, it seems certain that the numbers will be even uglier. According to a survey of 440 self-employed people in Seoul and other big cities, about 60 percent of them saw their revenue drop in the past six months.
The shops that reported slipping earnings saw their revenue drop by an average of 22 percent, with restaurateurs, lodging operators and supermarket owners finding sales cut by around 25 percent.
The struggles of small businesses and entrepreneurs are alarming in a country that already has the highest self-employment rate among Organization for Economic Cooperation and Development (OECD) states at over 33 percent, according to government figures.
Economists point out that the high self-employment rate is an indicator of the vulnerabilities of the country's economy and workforce, where workers, ousted from their old workplaces, struggle to find new jobs.
``Since the financial crisis of the late 1990s, many workers who were cut from their workplaces ended up establishing personally operated businesses, like restaurants, which contributed to making the country's self-employment rate among the highest in the world,'' said Song Tae-jeong, a researcher at the LG Economic Institute.
``The self-employed are the ones most vulnerable to recessions brought by declines in consumer spending, which is what is happening now,'' he said.
It seems that the vicious circle that has flushed-out workers establishing their own shops out of desperation ― only to dig themselves into bigger holes ― is gaining more members.
Marketing officials at online commerce sites say that more and more people are putting themselves on the streets to sell fish buns, sandwiches and pancakes.
According to Auction (www.auction.co.kr), Korea's largest online shopping mall, the sales of products related to street vending were nine times higher in December than a year earlier.
The items included portable food stalls, food wagons and molds and pans for making ``bungeo bbang,'' or fish-shaped waffles with red-bean paste, and ``hoddeok,'' or Korean-style sugar pancakes.
More than 848,000 self-employed people saw their businesses fail in 2007, the NTS said, rising from around 757,700 in 2006 and about 758,900 in 2005. Service sector businesses and food-and-beverage outlets accounted for nearly 360,000 of the failures in 2007.
More than half of the self-employed people explained that ``struggling business'' was the cause for their failures. Nearly 44 percent of them failed to last two years in business, and about 14 percent didn't make it past the first year.