Sunday, January 4, 2015

Korea - The Country of the Future

On December 18th 2014, IKEA, the world's largest furniture retailer, opened its first Korean branch in Gwangmyeong, Gyeonggi Province. The store is 25,759 square-meters (approximately 277,267 square-feet) in size and it is accessible via train and three inter-city express highways.

It would appear that IKEA's business is booming. So much so that the THREE inter-city express highways that lead to IKEA are congested with cars – all of them customers who want to buy their next furniture item from IKEA.

Apparently, doing well in business is not always a good thing. A little over two weeks after IKEA opened its doors to the public, the Gwangmyeong Municipal City has demanded that IKEA come up with a “dramatic breakthrough” by January 7th 2015 to resolve the problem of the congested roads. The municipal government threatened that if IKEA fails to come up with a solution by that date, the government would withdraw the temporary approval that it gave to IKEA to operate in its city, thus forcing IKEA to shut its doors starting on January 15th 2015.

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The Gwangmyeong Municipal City is also pressing the central government to have IKEA registered as a large-scale discount mall, which is currently registered as a mall specializing in furniture. This registration change would force IKEA to shut its doors twice a month on weekends.

Never mind the fact that the Seoul High Court already ruled that that particular regulation was unlawful because “it was difficult to judge if the rules actually helped smaller retailers while limiting consumers' choice at the same time.”

What is the government proposing that IKEA does? Should IKEA stop being a furniture retailer for a few years and re-brand itself as a construction company that specializes in road expansion? Or should it be a railroad company that focuses on adding and updating Korea's railway system? Or should it be forced to expand its already huge parking lot, which can house up to 2,000 vehicles?

Or should IKEA be forced to raise its prices? That way, consumers will just stop going to IKEA. Oh, wait. IKEA was already investigated by the Fair Trade Commission for “charging South Korean customers more than it charges buyers in other countries” even before it opened!

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President Park Geun-hye can wax poetic about transforming Korea into a creative economy until her face turns blue. The reality that is Korea's economy says that the government's rhetoric is just that. Considering the latest attack on IKEA, the Seoul Metropolitan Government's persecution of Uber, Korea's ridiculous tariffs on agricultural imports, Korea's inability to overturn its anachronistic internet laws, Koreans' overall mercantile mindset, and many other illiberal and anti-globalization tendencies, it is hardly surprising that half of all foreign firms based in Korea plan on leaving Korea sooner rather than later.

Charles de Gaulle was purported to have once said, “Brazil is the country of the future... and always will be.” Though I am not sure if Charles de Gaulle really did say it, regardless of the authenticity of the source, I cannot think of a more curse-like compliment than that. After all, it is another way of saying that an entire country is forever destined never to fulfill its huge potential.

Unless there is a real structural economic reform and a genuine change in the Korean people's attitudes about free trade, and soon, there is a good chance that that epithet will not apply only to Brazil.

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  1. Great analysis... way to stifle business. I wonder if what the response would be if Samsung decided to open a furniture/home goods store that had the same "issues". Hmmm... Also reminds me of the uproar over Uber by the Korean taxi drivers.

  2. Excellent article on Korea's protectionist economic policies and corresponding mindset. And well done for calling Park Geun Hye out on her
    - evidently - vacuous words, i hope you don't end up in court for doing so. Incidentally, what are IKEA supposed to do, make the roads wider or build another highway.

  3. Sharp and succinct and precise.

  4. What Ikea is supposed to do is stop being a successful foreign firm stealing money and jobs from Koreans, you dirty, filthy, disgusting foreigners, taking advantage of the pure and innocent Koreans and their good nature.

    Shame on all non-Koreans!

  5. I don't think I realized just how nuts the whole Ikea situation was until I read your piece. Kudos, John.

  6. Ikea Korea should have built or funded construction of distant parking lots and trams similar to how airports do. How could the local planners and road enginneers have NOT anticipated such impact? Was this rshed through just so cash flow from a prized source could commence? Licals need the roads, too.

    I realize Korea is short on space, but that is FARMABLE space. Companies can build where crops cannot be grown. Problem is that many iconic brands want to be visible from the road and own their own parking lots. Trams and distant parking planned beforehand would likely have alleviated or obviated this problem. The parking might have been terraced or insde rock or in the open on shared, multipurpose land. I will consult a Naver or Google maps view...

  7. Hey, I like this write up. Will share today for sure!

  8. Fair Trade does have a place in society. Ask Microsoft and Google and Apple. Consistency is a different issue. Should not be confused about that.
    Causing massive traffic congestion is a problem. And up to Ikea to fix since they are causing it. Or the government could have a rigorous application procedure that would have cost quite a bit to Ikea. Or government can charge Ikea to get it fixed and Ikea would have more to pay. Its reasonable to be burdened to find a fix and should not be up to the local tax payers to pay for it while Ikea profits and obviously blundered in the planning.
    Whether the closing of 2 days a month helps or not is open to debate. But a compromise process is required. In many countries permits for such large stores to decimate local businesses are not even allowed. Perspective is lacking in this piece.
    While taxi system has its flaws offering a different flawed system does not make it obvious it should operate without regulations.
    One sided arguments are just that. Half of the story.