The South Korean government sees tech firms as the new chaebol
A SOME MONTHS ago Kim Beom-su seems to face responsible capitalism in South Korea. In March the billionaire founder of Kakao, which runs the nation’s most successful messaging app and a slew of other digital services, vowed to donate half of his wealth for charities, Korea’s second -largest mail order make that commitment. Now he’s making headlines for some less than satisfactory reasons. Antitrust officials have reportedly looked into his private holding company for allegedly not reporting properly to shareholders and its affiliates.
The apparent move against Kakao’s founder is the latest salvo in an ongoing battle. Like their counterparts in America and China, South Korea’s technology giants have been scrutinized. Concerned officials like firms like Naver, which started life as a search engine, and Kakao has expanded into anything from train rides to personal finance, they’ve got the bad habits of chaebol. These scattered conglomerates have been instrumental in South Korea’s wealth and continue to dominate its economy. But they are notorious for serious management structure, oligopolistic business practices and close ties with the political elite.
Over the past few weeks politicians have combined rhetoric. “Kakao has become a symbol of growth and change into a symbol of old greed,” Song Young-gil, a leader of the ruling Minjoo party, told the National Assembly this month. “We can find a way to stop its rapid expansion and help it get together 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. The two companies will be asked to comply with brokerage regulations. Spooked investors dumped shares of Kakao and Naver, which shaved a tenth, or $ 11bn, from their combined stockmarket value.
Korean trustbusters, for their part, are investigating allegations that the taxi-hailing service favors its own pricier cabs. They want e-commerce platforms to draw up valid contracts with third-party sellers, and specify what commissions they earn. In August Coupang, the largest e-commerce firm, was fined 3.3bn won ($ 2.8m) for hitting suppliers to lower prices. South Korea’s more unregulated crypto-exchange will need to register as legal trading platforms.
Techlash is not limited to domestic tech darlings. On September 14th regulators fined Google $ 177m for not allowing versions of its Android operating system to be installed on local smartphones. And last month South Korea became the first country to oblige Apple and Google to accept alternative payment systems in their app stores.
App developers like Epic Games, which suffered a courtroom defeat against Apple in America on Sept. 10, have accepted the move. The maker of “Fortnite” has asked South Korean law to try to return its app to Apple’s app store, where it was booted for violating policies prohibiting such in-app payments. Apple refused.
Lim Jung-wook, a venture capitalist, applauded the government’s instincts to protect consumers and small suppliers. But he considers stricter policies that will do little to curb the strength of tech companies in the long run. “The services of these companies are too convenient for them not to keep growing.”
However, faced with sinking stock prices, Korean firms began to respond. On September 14, Kakao announced a new 300bn-won fund to help small suppliers and promised to scrap new services such as flower delivery that compete with mom-and-pop businesses. Mr. Kim promised that the company would “throw away” the old growth model and replace it with one that promoted “social responsibility”.
The coupang chose a more combative approach. It asserted that its platform has made it easier for small firms to get their products to consumers. And it appeals against antitrust fines, saying the penalty serves to protect chaebol just like LG, who brought a complaint. ■
This article appeared in the Business section of the print edition under the headline “The other techlash”