Making mom-and-pops work

The Korean Commission for Corporate Partnership is accepting an extension on the list of 82 items recommended “suitable” or “desirable” for small and midsize enterprises. The three-year program that ends this year was launched in 2011 as a part of government efforts to ease economic polarization.

Although in an “advisory” format, the program is a de facto regulation to block large companies from entering and expanding in the fields where mom-and-pop stores and self-employed businesses can excel. The hindrance to a certain field and business area is infringement on the personal property right and freedom of choice in career. It breaches various interests of subcontractors of large companies, franchise outlets, enterprise scope, and employees.

The argument that it can benefit small and midsize enterprises, small-business owners and self-employed businesses is also weak. If small and midsize companies rely on government protection, they won’t endeavor hard to compete with large counterparts. The damage will go to consumers if they do not improve products and services.

Multinational food company Nestle introduced instant coffee in the 1930s and invented capsule coffee to make drop coffee accessible at home in the 1990s. Coffee farmers benefited from its success and the company continued to create new brand and revenue source, building a win-win habitat for both the major producer and its suppliers. It funded research activities and training in farm fields to raise the quality and productivity of coffee to help increase income for farmers. If coffee-making had been “exclusive” for small and midsize enterprises, the Nestle and farmers’ success story would never have happened.

It should be up to the market and not the state to decide what business is best for what company. If large companies cannot win due to scale and certain market nature, smaller counterparts would be better at it. The suitability of a business should be determined through fair competition in a market where large and smaller companies can co-exist. Over-stretch by large companies in certain fields could be contained through antitrust regulations. But a ban on certain business areas will only undermine industrial competitiveness, which would end up hurting small and midsize companies. The government must instead assist in building on a symbiotic market mechanism for large and small businesses to demonstrate their strengths and find roles each can be best at.

Yon Kang-heum, Professor at Yonsei University School of Business