Wrong way to protect SMEs

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Wrong way to protect SMEs

The National Commission for Corporate Partnership has classified bakeries and restaurants as businesses reserved for small- and medium-sized enterprises. When a particular sector is designated as reserved for SMEs, companies exceeding a certain size cannot enter the field or expand their presence. For instance, a franchised bakery chain is prohibited from opening a new store within 500 meters (547 yards) of a mom-and-pop bakery.

In addition, a number of restaurants run by large companies or restaurant franchises cannot open new stores under different brand names or expand their business via mergers or acquisitions. Even though the corporate partnership commission, a semi-official organization, says the decision is only a recommendation, it is a de facto regulation that bans large firms from entering the field.

The commission argues that the measure is aimed at protecting struggling mom-and-pop businesses and achieving prosperity for both big and small companies.

We think differently. The government’s move will most likely fall short of protecting small enterprises, which is its supposed intention, and simply serve as an excuse to intervene and regulate. Above all, the government’s judgment - that a regulation for franchise bakeries and restaurants will help resuscitate struggling mom-and-pop businesses - seems to be naive from the outset.

The government surely must understand that owners of franchised bakeries and restaurants are also part of the mom-and-pop business community. The argument that the fall of small businesses in our neighborhoods resulted from franchises saturating the market is also misleading because small stores’ failures primarily stemmed from a lack of competitiveness and an inability to meet the changing demands of consumers. Conglomerate-bashing is not the way to revive the low competitiveness of small businesses.

The government’s measure will backfire as it will only deter SMEs from growing bigger and stronger. They will realize all too well that if they grow, they’ll be regulated too. The government’s initiative is the same as a demand that bakeries and restaurants remain small forever instead of trying to grow into bigger, more ambitious and more profitable businesses.

A previous measure with a similar purpose during the Roh Moo-hyun administration was later scrapped because it proved ineffective. Nothing has changed since then. We urge the commission to review its decision, which will most likely bring about adverse effects instead of good.
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