Lockdown Economy South Korea

The economy of South Korea has been strongly affected by the COVID-19 pandemic [1][2][3]. There was a significant decline in sales in the primary agriculture, restaurant, small retail, and hotel industries [4], and especially for small businesses in the country [5]. However, the overall business closure rate in 2020 showed was the lowest in the past five years, while the closure due to falling profitability increased [4]. According to an analysis by the Bank of Korea from June 2021, the restaurant and hotel industry, which were hit hard by COVID-19, did not have a significant impact on the overall closure rate as owners hesitated to make decisions to close the business due to the difficulty in initial investment recovery [6].

Based on the interviews with small business owners in South Korea conducted by the Think Tank AlterContacts in the framework of the Lockdown Economy initiative, we can outline the main common challenges brought about by the pandemic. 

High Competition and Loss of Competitiveness

The pandemic brought many small restaurants to the verge of closing. The owner of a restaurant in Pohang [7] shared that throughout this crisis food service providers near his location have either closed or considered closing. The prevailing view suggests that overheated competition and loss of competitiveness are highly responsible for this problem [5].

The competition of the small Korean restaurants was inferred in several interviews conducted in the Lockdown Economy. One of the reasons for the loss of competitiveness is the lack of continuous research, development, and investment. In addition, they mentioned a lack of experience and dense competition in the limited market area.

Call to Action

The problem of oversupply in the Korean restaurant industry has been a controversial social problem since before the COVID-19 crisis [8]. One of the reasons for it is low barriers to entry [4][9]. A possible solution could be to implement a screening process based to test the qualifications of entrepreneurs. Additionally, it is necessary to reinforce management education for entrepreneurs in the restaurant industry and improve the viability of businesses by providing basic management training.

Ignoring National Regulations

Another challenge mentioned by the interviewed small businesses is relationships between employees and management. A restaurant owner in Pohang [7] shared how the implementation of national-level employee-protection policies allowed her to minimize conflicts while laying off employees when the business suffered severe losses. She expressed regret that these rules were not followed in the Korean restaurant culture causing many of them to close. That has also been confirmed by the data of the Ministry of Employment and Labor [10] and Korea Foodservice Industry Research Institute [8].

Call to Action

What is necessary is the effort of gradual improvement in the overall employment culture of the restaurant industry [11][12].

Human Resource Problem in Rural Areas

During the Lockdown Economy interviews in South Korea, the owners of three small agri-food businesses shared one common issue: recruitment of trained staff. They mentioned that finding qualified experts in product development and marketing presented a challenge in their locations.

The owner of the agriculture and food business Sunsuram [13] pointed out that the small pool of professionals in a rural area where he was located was a strong limitation in attracting trained staff. The owner of ChungMec [14] concluded that the lack of assets and professional manpower ultimately caused the decay of the business. To address this issue, one of the interviewed businesses tried to collaborate with external companies but finding suitable and affordable contractors presented a challenge as well.

Despite the governmental efforts to implement various policies addressing insufficient skilled labor in rural areas, the problem remains [15][16][17]. As mentioned by the interviewed owners, hiring trained professionals requires financial resources which most of the rural businesses lack [14]. 

Call to Action

One of the solutions could be to establish a governmentally funded service where marketing and other professionals could help small businesses based in rural areas at a symbolic price.

Business with a Purpose

The vast majority of businesses in South Korea are founded for the primary purpose of generating profits as shown in a survey by the Global Entrepreneurship Monitor in 2019 [5]. However, the Lockdown Economy interviews showed that above all business owners had a strong sense of purpose besides generating profits. 

During the pandemic, it was more visible that profit-only entrepreneurs were more likely to lose their drive [4]. The owner of the Glory Vineyard in Wanju, Jeollabuk-do, stated that being proud of what he does is important for his business to work [18]. The restaurant owner from Pohang [7] also mentioned that employees would only follow if they could see the owner's ambition. 

Call to Action

Although views on the main purpose of businesses vary, researchers express caution in setting revenue as the foremost business goal [19]. Many Korean business owners did not have business education which could be the main cause for the profit-only approach [5]. A possible solution could be to strengthen entrepreneurial education.

CONCLUSION

The Lockdown Economy interviews in South Korea showed that small businesses there shared a set of challenges. Loss of competitiveness, oversaturation, conflicts with employees, failure to comply with policies, absence of trained staff in rural areas, and excessive focus on profit-generation are the major problems that small business owners were facing due to the COVID-19 pandemic. It can be suggested that this crisis has shed light on the problems that Korean small businesses have yet to solve. Flexibility and preparedness in responding to it will be key to how the economy of South Korea with recover from the pandemic.

Written by Minjo Cheon, at that time (2021) an undergraduate student of Aeres University of Applied Sciences

Edited by Grace Ann Marciano

Editor-in-Chief - Julia Skupchenko

REFERENCES

1 - National Tax Service. (2019). 2019 National Tax Statistical Yearbook. National Tax Service

2 - National Tax Service. (2020). 2020 National Tax Statistical Yearbook. National Tax Service

3 - Statistics Korea. (2021). Economically Active Population Survey 2020. Retrieved October 14, 2021, from https://kosis.kr/statHtml/statHtml.do?orgId=101&tblId=DT_1DA7A64S&vw_cd=MT_ZTITLE&list_id=B17&seqNo=&lang_mode=ko&language=kor&obj_var_id=&itm_id=&conn_path=MT_ZTITLE 

4 - Tax Statistics Information Service. (2021). National tax statistics. Retrieved October 8, 2021, from https://tasis.nts.go.kr/websquare/websquare.html?w2xPath=/cm/index.xml 

5 - Kim, D., Lee, C., Lee, B., & Lee, C. (2020). Global Entrepreneurship Monitor (Gem) 2019 South Korea Report. Korea Entrepreneurship Foundation

6 - Oh, S., Hwang, S., Yoo, M., & Lee, J. (2021). Bok Issue note: Employment status and evaluation by characteristics of self-employed businesses after Covid-19. Bank of Korea

7 - Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy South Korea in a Restaurant with Misun Seok. Available at https://www.youtube.com/watch?v=6AFpR6e15jg&list=PLtxviGuiJz5Jd7kkOYpCZ7OtrIp3QtKVV&index=9 

8 - Korea Foodservice Industry Research Institute. (2018). It was found that it is not the owner's fault that the restaurant's four major insurance enrollment rates are low. People and Food, 74–78

9 - Secretariat of the National Assembly. (2018). Minutes of the Committee on SMEs and Startups of Trade, Industry and Energy. Secretariat of the National Assembly

10 - Ministry of Employment and Labor. (2020). Labor force survey for businesses. Retrieved October 14, 2021, from https://kosis.kr/statHtml/statHtml.do?orgId=118&tblId=DT_118N_LCE209&vw_cd=MT_ZTITLE&list_id=101_ATITLE_10_A001_B002&seqNo=&lang_mode=ko&language=kor&obj_var_id=&itm_id=&conn_path=MT_ZTITLE 

11 - Ministry of Government Legislation. (2007). Case of violation of the Labor Standards Act: 2006도 777. National Legal Information Center. Retrieved October 22, 2021, from https://www.law.go.kr/%ED%8C%90%EB%A1%80/(2006%EB%8F%84777) 

12 - Ministry of Government Legislation. (2021, August). Retirement Benefit System: Requirements for Payment of Retirement Benefits. Laws and regulations. Retrieved October 22, 2021, from https://easylaw.go.kr/CSP/CnpClsMain.laf?popMenu=ov&csmSeq=999&ccfNo=3&cciNo=1&cnpClsNo=1&search_put=4%EB%8C%80%EB%B3%B4%ED%97%98+%ED%87%B4%EC%A7%81%EA%B8%88 

13 - Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy South Korea in a Food Business with Chunjin Cheon. Available at https://www.youtube.com/watch?v=1PV-i-lxaqQ&list=PLtxviGuiJz5Jd7kkOYpCZ7OtrIp3QtKVV&index=7 

14 - Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy South Korea in an Agricultural Business with Jaeju Kim. Available at https://www.youtube.com/watch?v=3riWpEJ1HUY&list=PLtxviGuiJz5Jd7kkOYpCZ7OtrIp3QtKVV&index=5 

15 - Ministry of Government Legislation. (2013). Establish Korea Agricultural and Fisheries University. National Legal Information Center. Retrieved October 22, 2021, from https://www.law.go.kr/%EB%B2%95%EB%A0%B9/%ED%95%9C%EA%B5%AD%EB%86%8D%EC%88%98%EC%82%B0%EB%8C%80%ED%95%99%EC%84%A4%EC%B9%98%EB%B2%95/(11507) 

16 - Ministry of Agriculture, Food and Rural Affairs. (2021, March 8). Promotion of preemptive response to rural manpower during the farming season in 2021. Korean policy briefing. Retrieved October 15, 2021, from https://www.korea.kr/news/pressReleaseView.do?newsId=156439918 

17 - Ministry of Agriculture, Food and Rural Affairs. (n.d.). Rural area support policies. Rural support policies. Retrieved October 22, 2021, from https://www.mafra.go.kr/mafra/396/subview.do 

18 - Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy South Korea in an Agricultural Business with Haewon Kang. Available at https://www.youtube.com/watch?v=Cex2z1vdz2Q&list=PLtxviGuiJz5Jd7kkOYpCZ7OtrIp3QtKVV&index=3 

19 - Denning, S. (2010). The leader's Guide to Radical Management Reinventing the workplace for the 21st Century. Jossey-Bass

Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy South Korea in Agricultural Business with DongHyeon Lee. Available at https://www.youtube.com/watch?v=5U-PhcKB8W0&list=PLtxviGuiJz5Jd7kkOYpCZ7OtrIp3QtKVV 

Think Tank AlterContacts, Lockdown Economy initiative, Lockdown Economy South Korea in a Flower Store with Eunsul Yun. Available at https://www.youtube.com/watch?v=__RYMKE-rEw&list=PLtxviGuiJz5Jd7kkOYpCZ7OtrIp3QtKVV&index=4