Deregulate First to Grow E-Commerce

E-commerce Sales Up 34.3% After the Spread of COVID-19... A Shift in the Paradigm of Online Consumption

Political regulation... even while claiming to grow the market, it has the side effect of blocking entry into new industries

It has been less than half a year since COVID-19 began to spread, but the epidemic is already transforming our consumer culture. As intense social distancing caused by the outbreak has continued for more than a month, the offline retail sector, including large discount stores, has been hit hard, while the online shopping industry has instead enjoyed a boom. People reluctant to go out because of social distancing are turning to online shopping, which they can use conveniently without leaving home.

According to the Ministry of Trade, Industry and Energy, after COVID-19 began spreading in earnest, sales at major large discount stores fell by more than 10%, while e-commerce firms posted sales growth of 34.3% compared to the same period the previous year. It is fair to say that the consumption paradigm is truly shifting from offline to online.

This shift in consumer culture toward online channels is not merely a temporary phenomenon caused by the epidemic. The e-commerce market had already been growing steeply for a long time, reaching 130 trillion won last year. In other words, the transition in consumer culture from offline to online was already underway, and COVID-19 sharply accelerated that trend. Accordingly, starting with Emart, which moved quickly to make the transition online, even traditional retailers are improving their existing offline businesses through online-offline integration and other measures, suggesting that the current change in consumer culture will become an “irreversible change.”

However, political regulation is running counter to changes in the market. Beginning with the Electrical Appliances and Consumer Products Safety Control Act proposed under the Park Geun-hye administration, the political sphere has continuously introduced regulatory bills targeting the e-commerce market. In the National Assembly, Representative Jaesoo Jeon of the Democratic Party of Korea proposed a partial amendment to the Electronic Commerce Act that would strengthen the responsibility of mail-order brokers such as Coupang and Gmarket for cases of consumer harm on open markets, and the government says it will launch a detailed investigation into unfair practices in the e-commerce market. Although these measures are said to be intended to reduce consumer harm arising from the rapid growth of the e-commerce market, a closer look suggests that such regulations are actually highly likely to have the side effect of blocking the entry of new businesses and placing excessive responsibility on existing operators. Just as the push for the Electrical Appliances and Consumer Products Safety Control Act under the Park Geun-hye administration proceeded without proper communication with small merchants, the very parties directly affected by the bill, this is characteristic of a “regulatory republic” that reaches first for the yardstick of regulation whenever a problem arises.

The e-commerce industry is attracting global attention as a future growth industry. In the United States, Amazon is seeking to dominate not only the U.S. market but global e-commerce through continuous innovation, while in China, many e-commerce firms are growing rapidly on the back of active support from the Chinese government. Under these circumstances, a policy stance focused solely on regulation rather than support for the e-commerce industry could end up allowing our e-commerce market to be overtaken by foreign companies. This is not simply a problem for our e-commerce firms; it means losing a future growth engine for our economy.

Despite the importance of the e-commerce industry, the government’s policy direction is disappointing. In May 2019, it said it would foster 15,000 e-commerce export companies, yet it has continued to impose regulations that only shrink the market. Korean e-commerce firms are already subject to irrational and heavy regulation by global standards, including regulation under the Large-Scale Distribution Business Act, which was designed for offline platforms. It is like climbing a tree to catch fish to say we will foster e-commerce export firms while strengthening regulation even further, when even regulatory easing would not be enough to ensure the industry’s stable development. Such an approach also runs directly against the current paradigm shift in consumption and defies common sense.

The government should treat the COVID-19 crisis as an opportunity to grow the e-commerce market. As noted above, the shift in consumer culture from offline to online is an unstoppable trend. Moreover, the epidemic is accelerating that transition, and the public is directly experiencing the convenience of online consumption. Under these circumstances, the government should not delay the shift through unnecessary regulation of the e-commerce industry. Rather, it should actively ease regulations and create conditions in which e-commerce firms can innovate, so that online consumer culture can become widely established in our society. That is the only way to protect not only our e-commerce market but also the future growth engine of our economy.

Jaemin Park, Intern Researcher, Center for Free Enterprise (CFE)

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Original title: 전자상거래 키우려면 규제부터 풀어라

Author: Jae-min Park

Date: 2020-05-01

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&pn=21&idx=22603