[In-Depth Review] New Government's Distribution Regulation Improvement, Creating a Self-Sustaining Symbiotic Ecosystem Environment

Kim Ik-seong, Advisor of the Korea Distribution Science Association · Professor at Dongduk Women’s University

The new government must reform regulations within the distribution industry to align with the new industrial environment. The idea of regulating large distribution companies to protect small business owners is fundamentally flawed. From the outset, large distribution companies and small business owners are not competitors that should be in opposition. There is no country in the world that aims to save small business owners by regulating large distribution companies. Some advanced countries such as parts of Europe and Japan do restrict the entry of large distribution companies into urban areas to alleviate residents’ grievances related to traffic congestion, exhaust fumes, noise, and for religious reasons.

In Korea, large marts have been required to close twice a month and have restricted operating hours since the Distribution Industry Development Act came into effect in 2012, which has also prevented early morning deliveries. According to research reports from the Distribution Science Association, after Starfield Goyang opened in 2017, customers using the traditional market in Wondang increased by 7.5% compared to the previous year. Therefore, the notion that the entry of large distribution companies leads to the collapse of local alleyway commercial districts and traditional markets is not true. Moreover, with the shift of consumption to online channels due to the spread of COVID-19, even offline distribution giants as well as small business owners have experienced a decline in sales.

Large marts and small business owners share common challenges for survival. The domestic consumer market’s offline share has decreased from 70% in 2015 to about 50% in 2020. As the convenience of online consumption has increased due to the spread of COVID-19, consumers now purchase not only manufactured goods but also fresh food through online distribution channels. Consequently, rapid delivery systems have become the key competitive factor in distribution. The shift to faster and more convenient online consumption will continue. With the increase in single-person households, the consumer base is moving toward convenience stores. Additionally, the widespread use of mobile phones, diversity and speed of communication methods, expansion of expressways, and development of transportation means have also resulted in shifting local consumer bases to large urban companies. Ultimately, regulating large distribution companies has become an outdated and failed approach.

However, the traditional markets and alleyway commercial districts protected by distribution laws over the past decade have not revived through structural improvements. Furthermore, large distribution companies within regions provide jobs and food sources to local residents and industries. Even local small business owners can receive preferential treatment as tenants. Regulations should be lifted to implement distribution policies that fit the rapidly changing distribution environment. A symbiotic policy that develops Korea’s distribution industry while enabling the sustainable growth of small business owners is necessary.

Distribution serves as the final seller that supports manufacturers, processors, and producers of local agricultural and marine products. If large distribution companies are the arteries and veins, small business owners are the capillaries. When these functions coexist symbiotically, the national economy develops and consumer convenience increases. Especially once COVID-19 subsides, global large distribution companies are expected to advance into the Korean market. Even if mandatory closure twice a month is maintained for employee welfare, it is desirable to resolve restrictions on operating hours and product sales through autonomous adjustment.

The regulatory policies so far, which rely on protection and support, have resulted in creating weak small business owners. Self-motivated policies for small business owners are needed. These will induce creative business innovation and become the driving force for improving competitiveness independently. Unlike limited regulations, autonomy does not mean who has more but creates more synergy, forming the foundation of a sharing economy. The Moon Jae-in administration’s regulatory policy, which started with the philosophy of aiming for a warm economy and wiping away the tears of small business owners, was excellent in philosophy but failed. This is because it overlooked the fact that misjudging the ecological environment of regulations becomes an obstacle that hinders consumer convenience and industrial innovation.