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The Peninsula

Trade Competitiveness and Corporate Monopolies

Published December 14, 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

  • Korean Airlines plans to purchase a 63.9% stake in Asiana Airlines.
  • The merger will receive financial backing from the state-owned Korea Development Bank (KDB), which will invest in Korean Airlines’ parent company.
  • A combination of the two carriers would control more than 60% of the international passenger routes out of South Korea.

Implications: For an export-dependent economy like South Korea, the pursuit of trade efficiency can lead to the concentration of corporate power. Both Korean and Asiana Airlines have been struggling with the dramatic reduction of air travel during the COVID-19 pandemic. The merger promises to bolster the long-term prospects of Korean Airlines which will likely use the expanded fleet to become a more competitive passenger and freight carrier in Asia and elsewhere. However, this would come at the expense of conferring more influence over the domestic economy to a conglomerate, which the Moon administration has been struggling to roll back.

Context: Large South Korean firms control an increasingly larger share of individual sectors, which has ramifications for employment and corporate accountability. Merging during the 1998 Asian Financial Crisis, Hyundai and Kia together control more than 80% of Korea’s domestic automotive industry. Similar patterns have emerged in other sectors: Samsung sold its chemicals subsidiary to Hanwha Group in 2014, allowing the latter to have the dominant market share in this industry. This concentration has a positive effect on these companies’ ability to become more price-competitive abroad. However, conglomerates also exhibit a strong preference to source inputs within its corporate family, which makes it harder for job-producing small and medium enterprises to compete.

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

Picture from flickr user ƒliçkrwåy

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