[2021 National Audit] Lee Hae-jin and Kim Beom-su "We Will Coexist with Small Business Owners... Reverse Discrimination Must Be Resolved" (Comprehensive)

Lee Hae-jin, Naver's Global Investment Officer, appeared as a witness at the National Assembly's audit on the Korea Communications Commission held by the Science, Technology, Information and Broadcasting Committee on the 21st, responding to questions from lawmakers. Photo by Yoon Dong-joo doso7@

[Asia Economy reporters Kang Nahum, Boo Aeri, Cha Minyoung] Lee Hae-jin, Naver's Global Investment Officer (GIO), and Kim Beom-su, Chairman of Kakao's Board of Directors, appeared side by side at the National Assembly's audit on the 21st. They promised to coexist with small business owners and stated their commitment to actively pursue global investments to discover future growth engines. They also expressed some concerns about domestic platform regulations.

Lee GIO appeared as a witness at the National Assembly's Science, Technology, Information and Broadcasting Communications Committee comprehensive audit and expressed Naver's intention to expand global investments, saying, "Naver's social mission is to enter new markets, not existing ones."

This was in response to the criticism from Park Sung-joong, a member of the People Power Party, who questioned whether platform companies were focusing more on entering local markets rather than creating future growth engines.

Lee GIO explained, "Naver is investing in businesses based on the metaverse and 5G robots. It is the company with the highest investment relative to sales." He added, "In the U.S., we acquired the number one web novel company, and we have also participated in acquiring an AI research institute in Europe and an e-commerce company in Spain." He further said, "Our employees are working hard and producing results, and we will do our best to meet expectations by working even harder in the future."

Chairman Kim also responded to the same criticism, saying, "Kakao has only been profitable for 2 to 3 years, so there was a lack of active investment. However, for the past 2 to 3 years, we have been investing more aggressively than any other company in new growth engines such as AI and blockchain, and now we are expanding the scope of our investments."

He added, "We have reached the stage of securing bases that can expand further while achieving results in Japan, the U.S., and Southeast Asia. Probably from around this time next year, good news will come from the global market."

Both leaders also expressed their intention to work for coexistence with small business owners. Lee GIO said, "We have cooperated with small business owners in various forms for a long time, but there are still many areas that need improvement. We will deeply consider whether there are ways to cooperate more actively."

Chairman Kim said, "We have had several in-depth discussions with the heads of subsidiaries within Kakao about coexistence with small business owners. We are focusing on preparing concrete alternatives and encouraging each subsidiary to announce coexistence plans."

Regarding the controversy over commission fee increases on each platform, both leaders acknowledged the problem and promised to share profits. Lee GIO said, "The commission Naver receives is for e-commerce, and as far as I know, we have not increased commissions just because sales have grown. We will carefully examine whether there are issues with commissions for small business owners newly entering the market and whether there is a way to lower them."

Kim Beom-su, Chairman of Kakao, appeared as a witness at the National Assembly's Science, Technology, Information and Broadcasting and Communications Committee's audit of the Korea Communications Commission held at the National Assembly on the 21st, responding to questions from lawmakers. Photo by Yoon Dong-ju doso7@

Chairman Kim also stated, "Personally, I believe that platform profits should not be monopolized by the platform itself. We will work to adjust and improve any shortcomings."

Regarding the controversy over 'free riding' on networks by Google, which operates YouTube, and Netflix, an online video service (OTT), both voiced the need to resolve reverse discrimination.

Currently, major overseas content providers (CPs) such as Google and Netflix are criticized for ignoring the traffic burden caused by domestic network usage. Meanwhile, Naver and Kakao pay telecommunications companies about 70 to 100 billion KRW annually for network usage fees, raising concerns about reverse discrimination against domestic companies.

Lee GIO said, "We are concerned about the reverse discrimination issue. If we pay network costs, then overseas companies that use much more traffic should also pay appropriate fees for fair competition."

Chairman Kim said, "It is difficult to comment because it is hard to know the relationship and contract forms between global service providers and telecom companies, but I ask the National Assembly to work toward establishing a fair internet environment."

They expressed regret over the intensity of regulations targeting domestic platform operators. In response to a question from Yoon Young-chan of the Democratic Party about how they view the strength of platform regulations in Korea, Lee GIO said, "There is a great fear that competition with overseas companies will be hindered and that we will lose the market."

He explained, "Users choose brands regardless of borders, so competition with overseas companies is ongoing. Rather than Kakao and Naver monopolizing the domestic market, overseas companies like YouTube, Instagram, Netflix, and TikTok are entering and encroaching on the market, and we are losing market share."

Lee GIO added, "From a coexistence perspective, we must humbly accept and consider regulations. Although our market capitalization has grown, we are generating less profit than telecom companies, so we need to continue research and development (R&D), acquire startups, and make new investments."

When asked how domestic platform operators should compete globally, Lee GIO said, "I think it is a very difficult battle. We invest 25% of our sales in R&D, but the scale of costs is incomparable to large companies, so we have many concerns. We must quickly expand webtoon and metaverse services overseas."

Lee Hae-jin, Naver's Chief Global Investment Officer, appeared as a witness at the National Assembly's audit on the Korea Communications Commission held by the Science, Technology, Information and Broadcasting Committee on the 21st, responding to questions from lawmakers. Photo by Yoon Dong-joo doso7@

Lee GIO expressed support for regulations on overseas big tech companies such as the 'Google Fair Trade Act' but also voiced concerns that such regulations might extend to domestic platforms. He said, "During COVID-19, Naver and Kakao were able to contribute because we had domestic services. I worry that regulations targeting U.S. companies might turn into regulations on domestic companies, causing reverse discrimination."

Regarding calls to withdraw from the news business, both took a cautious stance, saying "a careful approach is needed." When Kim Young-sik of the People Power Party pointed out that both companies are mutual investment restriction groups and that current newspaper and broadcasting laws strictly limit large corporations' ownership of media shares, suggesting that discontinuing the service might be appropriate, Lee GIO responded, "News is a field served by global companies as well. I think it is an issue that requires deep consideration and review based on comprehensive factors such as user benefits."

Chairman Kim said, "Portals focus more on distribution than traditional media companies. We are continuously working to improve news services considering various social impacts."

However, both promised to strive to maintain fairness in news algorithms. Chairman Kim said, "Globally, there is considerable reflection on refining algorithms and addressing social influence to ensure fairness and equality. We will strive to be a socially responsible company." Lee GIO added, "We will work with academic societies and Seoul National University to verify objectivity ourselves."