[Outlook]Competition, not regulation

Bills for regulating mega-sized discount retailers are being proposed in the National Assembly, creating controversy in our society.
Regulations would determine opening hours, selling days and items. A regulation on opening new stores is included, so overall regulations are very severe.
The background for these bills is that as large-scale retailers spread, small- and medium-sized stores are facing a crisis. They feel that the government needs to intervene.
However, will these regulations achieve their goal? If the regulation on opening hours takes effect, the sales of small- and medium-sized stores that sell basic necessities will increase to some extent in the short term.
But as time goes by, such effects will subside. Consumers will be inconvenienced and consumption will shrink.
The regulation on opening new large-scale retailers will end up protecting neighborhood retailers already in business.
Also, retail companies will certainly create a new type of retail store that does not violate the law.
If this happens, it will be hard to achieve the desired effects. Instead, they can cause more losses than gains.
Korea’s first discount retailer was the E-Mart in Chang-dong, Seoul, which opened in 1993.
In 1996, the retail market in Korea was liberalized, and the number of discount stores has surged rapidly.
Now some 350 stores are in business across the country.
According to a survey by Gallup Korea, large-sized discount stores are consumers’ favorite choice. Among the respondents, 61 percent answered that they liked discount stores. The second on the list was traditional marketplaces (17.5 percent), followed by supermarkets (16.9 percent).
Discount stores have become consumers’ favorite retailers. Concerning opening new retailers in their neighborhood, 57.7 percent of local consumers answered they would like it, while 16.9 percent were opposed.
Opinions of each group of economic participants, particularly consumers, must be reflected when drawing up or debating regulations on discount stores.
There are complex reasons for small- and medium-sized retailers losing competitiveness.
According to a survey by the Small and Medium Business Administration, businessmen’s will to respond well to market opportunities is the most important factor in gaining competitiveness.
This means that businessmen’s will and efforts are more important than any other factors, including government support or policy.
When competing against discount stores, it is important that small and midsized stores differentiate themselves by having a different selection of products or offering specialized services.
Discount retailers are becoming popular and thus, they spread. New types of retailers emerge as well these days. So it is not right to blame discount retailers as the only reason for sluggish sales at small and midsized retailers.
Small and medium business retail businessmen must try hard to solve problems on their own, instead of blaming others.
Then, with the help of government’s policy and support, small and medium retailers, including merchandisers of traditional marketplaces, will become competitive.
Discount retailers also have limitations if they depend solely on their large scale for competition and growth.
According to Gallup Korea, consumers who frequent discount stores go there less often as time passes.
Excessive competition to open more discount stores among different retail companies might end up increasing costs and decreasing competitiveness.
Discount retailers must stop excessive competition and realize that cooperation among different companies will help them build a better image among consumers and enhance their competitiveness in the long run.
Thus, discount retailers must build cooperative relations with neighborhoods and suppliers.
Just as the regulation to prohibit department stores from running their shuttle buses turned out to produce few effects, regulations with certain goals often fail to achieve them.
There needs to be a thorough probe into whether a certain regulation will bring the desired goal before it is introduced. Public opinion about a regulation must be listened to beforehand.
Of course, the government policy for effective support is needed for small and medium retailers that are in trouble due to rapid changes in the market.
But the government must work to induce cooperation among different types of businesses, rather than introducing regulations in haste.
The government must adjust its policy and must not spare its support and efforts to help discount stores and small and medium stores complement each other, instead of competing against each other.

*The writer is a professor of economics at Chung-Ang University. Translation by the JoongAng Daily staff.

by Lee Jung-hee