What the Korean Economy Lost from Coupang’s Move to the U.S.

News that Coupang, South Korea’s first unicorn company, has decided to list on the New York Stock Exchange (NYSE) in the United States has been making headlines day after day. Founded in August 2010 as a social commerce company with capital of 3 billion won, Coupang has, in just 10 years, moved beyond Korea and thrown down the gauntlet in the U.S., the world’s largest market. Having rewritten the definition of “distribution” with its promise to deliver the cheapest products at bullet-like speed, Coupang may now be poised to make new history in the American financial market as well.

The reason Coupang chose to list in the United States rather than in Korea has become a subject of controversy. One factor often cited is the issue of dual-class voting rights. Dual-class voting rights refer to a system in which shares held by a company’s founder are granted more voting power than common shares. It is a mechanism designed to reduce the risk of hostile mergers and acquisitions and allow for stable corporate management.

Korea’s domestic stock market does not recognize dual-class voting rights. The reason is concern that the heads of large business groups could control management with only a small ownership stake or abuse the system in the course of inheritance. In the case of startups, however, every new round of investment reduces the founder’s equity stake. The business may grow in scale, but there are also cases in which founders lose control of management before the company even goes public. By contrast, if Coupang succeeds in listing in the U.S., Chairman Beom-seok Kim would be able to exercise 58% of the voting rights—29 times his 2% equity stake—making it much easier to defend managerial control.

Various regulations that hinder businesses are also being cited as a major reason Coupang chose the U.S. Unlike the United States, which guarantees freedom of business management, Korea tends to impose a high level of regulation on companies. Coupang has long faced regulatory action, including management improvement measures from the Financial Supervisory Service for failing to meet the 20% equity capital standard. It was also sanctioned when its “Rocket Money” marketing campaign, which paid rewards in Coupang Cash, was deemed an illegal quasi-deposit-taking activity. In addition, it may well have felt burdened by other anti-business laws that place pressure on companies, including the recently introduced three major regulatory bills, excessive labor regulations, and the Serious Accidents Punishment Act.

In the end, Coupang left in search of a market that understands the value of business and the value of innovation. Although listing requirements are stricter and costs are far from low compared to Korea, it chose the more difficult path because it needed a freer business environment. Any company with a good idea naturally seeks a market where it can operate freely, face fewer regulations, and attract capital investment more easily.

Local media outlets are projecting that Coupang’s corporate value could reach 55 trillion won. Given that E-Mart, Korea’s top retail company, is currently valued at about 5.2 trillion won, Coupang is clearly being accorded a high valuation in the U.S. market. It is gratifying to see a Korean unicorn company receiving such a high valuation in New York, where capital from around the world converges. At the same time, however, one cannot help but feel some regret.

If Coupang had listed on the domestic stock market, would it not have provided a good investment opportunity for Korean investors, created jobs for workers, and contributed to the national treasury through corporate tax revenue? One can only hope that by creating a business-friendly environment, the unicorn companies that follow in Coupang’s footsteps will give domestic investors the joy of participating in IPO subscriptions.

Eun-kyung Kwak, Head of Corporate Culture Division, Center for Free Enterprise (CFE)

---

Original title: 쿠팡의 미국행으로 한국경제가 잃은 것

Author: Eun-kyung Kwak

Date: 2021-03-02

Source: https://www.cfe.org/bbs/bbsDetail.php?cid=press&idx=23540