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The Peninsula

Plight of Small Tech Firms

Published November 24, 2020
Author: Korea View
Category: South Korea

This briefing comes from Korea View, a weekly newsletter published by the Korea Economic Institute. Korea View aims to cover developments that reveal trends on the Korean Peninsula but receive little attention in the United States. If you would like to sign up, please find the online form here.

What Happened

  • Ridesharing apps are at odds with the traditional taxi companies who see the new innovative industry as a threat to their industry.
  • The Ministry of Land, Infrastructure and Transport’s (MOLIT) sought to ease tensions between the two industries by imposing a 5% tax on the profits of ridesharing apps and using the funds to support the taxi industry.
  • While the ridesharing apps that operate less than 100 licensed cars are exempt, smaller technology companies in the mobility industry fear that they will have difficulties scaling their operations.

Implications: With the government focused on achieving balance between employment and innovation, gains for small and medium enterprises (SME) may narrow vis-à-vis their larger competitors. The conflict between ridesharing apps and the taxi industry is indicative of this challenge. MOLIT’s effort to protect workers in a traditional sector while still promoting innovation has left the SMEs facing greater burdens that their larger competitors did not have to address when they grow their market share. This goes against the government’s broader policy aim of promoting the growth of SMEs that create a lion’s share of jobs in the economy. Here, consumers also expressed criticism against the regulation, as it does not address questions of service quality. These conflicting demands suggest that the government will need to mediate more contentious conflicts between stakeholders as new innovations transform traditional industries.

Context: This tension is not unique to the Korean market. More than 950 taxi drivers in New York City filed personal bankruptcy after the launch of new ridesharing services like Uber. In response, the NYC council passed a bill to eliminate debts levied to independent taxi drivers, but refrained from collecting more taxes from ridesharing apps to prevent the cost from being transferred to consumers. In Australia, the New South Wales state government charged a USD 1 passenger levy for mobility platform consumers so it can create a fund worth USD 250 million and use it for the taxi industry. Unlike Korea, exemptions to this tax were applied to remote areas where transportation services are more scarce.

Korea View was edited by Yong Kwon with the help of Sophie Joo and Chris Lee.

Photo from Jens-Olaf Walter’s photostream on flickr Creative Commons.

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