Freewheeling, prosperous Korea is a remarkably tough place for Western companies


SEOUL, South Korea — Of course, China is renowned as a tough place to do business.

But world’s biggest brand names have a long history of investing major bucks in booming South Korea — only to whiff.

Chalk it up to consumer demands, a failure to understand the market, and a tangle of quirky laws that can be befuddling to navigate.

For example, South Korea blocked the arrival of the iPhone for two years for not meeting the government’s wireless standard — paving the way for Samsung to come out with its own variant, the Galaxy. Other global contenders simply failed at understanding local tastes. In 2012, Motorola, HTC and Yahoo! all closed their offices, unable to cope with what South Korean commentators called “cranky consumers” and a hyper-competitive market tilted towards local brands.

The trend is nothing new. Wal-Mart and French retailer Carrefour packed up in 2006, failing to cater to South Korea’s demanding consumers. Nestle and Google, in its early days, also struggled to make inroads.

And in 2011, Texas-based equity fund Lone Star furiously exited the country following a fierce and long-running battle with the government, claiming “unlawful interference” in its attempts to sell its majority shares in the Korea Exchange Bank and reap a profit. A national furor over foreign fire-sale buy-outs, critics said, had spurred authorities into action.

Uber and Ikea are the most recent to face attacks from a government that otherwise bills itself as presiding over an open and free-market.

Uber — the ride-booking app that’s inflicting global creative destruction on the way urbanites get around — has been banned or restricted in countries as diverse as France, Spain, China and India.

But here in a nation often billed the world’s “most wired,” the assault on Uber is reaching a new extreme. Despite President Park Geun-hye's “Creative Korea” campaign — a push to inject Silicon Valley flair into this conglomerate-laden economy — authorities last month personally indicted Uber CEO Travis Kalanick for violating local transport laws.

Kalanick lives in California, but if he visits South Korea, he could (at least in theory) be tried and sentenced to two years in prison.

The Seoul city government is also offering a $900 reward to citizens who report unregistered Uber drivers, a move that the company says is hypocritical. “This ordinance represents a departure from Seoul City's support of the sharing economy,” Uber Korea wrote in a statement to GlobalPost. “We urge Mayor Park [Won-soon] to reconsider this action that will diminish the city's reputation as a forward thinking city that embraces change to improve the lives of all his constituents.”

City spokeswoman Lauren Suk shot back in a statement, saying that “Uber is not a part of the sharing economy, but only a business which profits from taking commissions for soliciting illegal hire taxi services.”

Silicon Valley’s beloved app isn’t the only one to get smacked in recent weeks. In December, Ikea opened its first store in South Korea — the largest in the world — only to be met with a double brouhaha from mom-and-pop furniture sellers, and from customers disgruntled over what they said were unusually high prices on some of its products, at times double the price tags in the US and Japan.

Following a flurry of complaints, authorities in its Seoul suburb launched an inquiry into pricing practices, but came away with an unexpected finding: Traffic congestion was the real problem, and the big box furniture supplier needed to solve it or face a business suspension. In response, the company leveled a hefty parking fee.

It was an extreme measure that seemed unusual — especially considering that traffic was probably taken into account when local authorities first approved the mega-store.

Ikea Korea did not respond to a request for comment.

What gives? Experts say that the South Korean government maintains an interventionist attitude despite overseeing a generally well-greased capitalist democracy. Quick to protect people who feel economically threatened or who raise a fuss, it would be a stretch to call this Asia’s laissez-faire answer to North America and Europe.

“The government sees itself not so much as a referee ensuring fair play, but as the manager of the economy,” said Michael Breen, a long-time business consultant for foreign firms in South Korea, and author of The Koreans: Who They Are, What They Want, Where Their Future Lies.

He pointed out that taxi licensing rules are applied unevenly depending on the circumstances. Illegal shuttle cars, for instance, ferry visitors from hotels to the airport without anything close to the Uber uproar, he explained.

That can change quickly, he said, because the government is “very responsive when someone complains. Part of being the manager is taking care of emotions and jobs.”

Sadly, that often means the government sees its role as appeasing popular opinion more than enforcing its laws by the book. “The problem with the South Korean Uber rejection is that Seoul city said it would create a local replacement,” said Robert Kelly, a political science professor at the country’s Busan National University, who writes about trade issues.

Calling this a form of “mercantilism,” he said the city’s approach involves “blocking a disruptive, market-share taking product while simultaneously ripping it off.”

From the 1960s to 1980s, South Korea built its industry around sprawling conglomerates called chaebol, such as Hyundai and Samsung. State loans encouraged the groups to work fiercely towards a set of export goals, all while staying insulated from foreign competition at home.

In the last few years, the conglomerate-friendly approach has run into loggerheads with the arrival of more global competitors and a shift in local tastes. Following long-standing battles with the political left, Seoul signed a free trade agreement with the US in 2011 and with the European Union in 2009. The deals have coincided with a growing fascination with world cuisine, liquors and electronics in a nation previously not known for its diversity.

But critics complain that, for all the FTA fanfare, the agreements haven’t entirely relaxed the stranglehold of the chaebol, the top ten of which account for more than 80 percent of the $1.1 trillion economy.

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