Don’t abuse the license

The state customs authority’s awarding of duty-free shop licenses over the weekend raised some serious questions about the government’s strategy of reviewing and renewing duty-free licenses every five years. Lotte Group lost one of its two licenses, and SK Group has to bow out of the market, having lost its only one. The two available licenses instead went to Shinsegae and Doosan, both of which will open their first duty-free shops in the capital at the traditional wholesale shopping districts of Namdaemun and Dongdaemun, respectively.

The customs office customarily renewed the licenses every 10 years, which allowed Lotte and SK to dominate the duty-free industry in Seoul for the last 20 years. But the government revised the customs law in 2013 to review licenses every five years. The existing players stood the test for the first time because their license expires by the end of the year.

The government sent a strong message to the corporate sector that it can take away business licenses regardless of name and market presence if the companies fail to contribute to society with their profits. But license renewals every five years could undermine business continuity and stability. Duty-free stores must compete with foreign counterparts, not local rivals.

Merchandising and business know-how is essential. A company needs to invest a lot in the initial stages to build or renovate a venue and purchase products. It may not be able to invest aggressively to beat the competition if it could lose its business in five years. The employees would also fret about their jobs every few years About 2,200 staff at SK’s Walkerhill duty-free shop and Lotte’s outlet in Lotte World Tower in Jamsil, southeastern Seoul, could lose their job. The industry won’t be able to draw reliable workers due to job insecurity. Without a dedicated and competitive workforce, service quality could fall.

The review process also raised questions. To ensure confidentiality, the customs office refused to unveil the names of the 14 judges. It was opaque about the evaluation guidelines, too. The industry is already suspecting political influence and judgment. Since duty-free businesses require costly investment, it is mostly reserved for cash-rich conglomerates. Restraining favoritism towards large companies is necessary, but the business sector also needs a stable flow of long-term investment to make international tourists spend their money in local shops. The state authority must ensure a transparent and more efficient review system to ensure long-term competitiveness and evade criticism about using the license to tame large companies.

JoongAng Ilbo, Nov. 17, Page 34