The Problem with Korea's Retail Sector

What is wrong with South Korea's economy?

According to Daniel Melser, while Korea's externally focused manufacturing sector is first class, the domestically oriented service is "decidedly second rate."

He added that the failure to modernize in the service sector "has proved a drag on growth," adding that systemic problems have "bedeviled part of the services sector." (Korean Economy Needs New Playbook for Growth, in Insight Into Korea, Herald Media 2007).

As evidence, the Sydney-based economist cited the "sclerotic retail industry" which has remained largely untouched by the "mega mart revolution" which has swept through most of the world.

"Instead small and medium-sized enterprises continue to dominate the retailing (pictured) landscape. These establishments are individually small but tend to soak up a large chunk of employment. They run on wafer-thin profit margins and act as a drag on growth and productivity."

Changes have been stifled by high barriers to entry and exit, tight retail zoning rules, restrictions on competition, and labor laws which make it difficult to dismiss workers.

Hence, it is not hard to see why "service sector productivity has languished."

The situation is not helped by the exclusion of the services sectors from the Free Trade Agreement (FTA) with the United States, and the unwillingness of politicians in addressing the problem for fear of "suffering the electoral consequences."