No Way to Go
As Kakao Corp. has been designated as one of large corporations, its new businesses, including online to offline (O2O) and artificial intelligence (AI) development projects, and the investment in technical development will be dragged down by the government’s regulations on conglomerates.
This is because more than 40 regulations, such as the Act on the Promotion of Collaborative Cooperation between Large Enterprises and Small-Medium Enterprises (SMEs) and the Act on the Promotion of the Development of Intelligent Robots, are now applied to large corporation Kakao unlike former venture firm Kakao
The government is seeking to restructure Korea's traditional core industries, which are currently vulnerable due to the global economic slump such as shipbuilding and shipping industries. Also, the government’s regulations are dragging down new industries, which accelerate the Fourth Industrial Revolution including the Internet, O2O and AI.
Industry experts said that it will be impossible to seek solutions to overcome the Korean economic crisis under the environment in where startups, which join new industries, are forced to stop growing due to regulations when they become large corporations. So, they said that the government should reform its regulation policies on conglomerates, which have been focused on existing traditional industries, in a bid to revive the faltering economy and help new industries grow.
According to industry sources on April 26, a total of 78 regulations are applied to large corporations. Kakao, which was recently included as a large business group (conglomerate), is now affected by 41 out of 78 regulations. The company has been already subject to 20 regulation policies and is newly subject to 17 regulations.
Kakao, which concentrates on the expansion in the O2O market including Kakao Taxi, expressed concerns about whether its O2O business will be put on hold. The Act on the Promotion of Collaborative Cooperation between Large Enterprises and Small-Medium Enterprises is taking aim at O2O businesses due to its regulations, such as application of business alignment, recommendation and order for business alignment and business transfer from large corporations to SMEs.
Moreover, there are concerns that Kakao’s other investing businesses, like AI, can be affected by regulations and be put on hold. As Google has developed AI AlphaGo, which attracts attention, Kakao should start developing AI-related technologies as an internet company. However, it is now regulated by the Act on the Promotion of the Development of Intelligent Robots. Since the company has been excluded from subjects to support related services, such as robot components, complete product and systems, in the process of selecting intelligent robot developers, its development costs will skyrocket.
With domestic internet firms having actively made investment in the e-learning industry, K Cube Ventures, a subsidiary of Kakao, is investing e-learning startups through joint funds and independent investments. However, the company will not be able to participate in e-learning projects ordered by public institutions due to support for small and mid-size e-learning business operators according to the Act on the Development of E-learning Industry and the Promotion of the Utilization of E-learning.
It is said that Kakao will not be able to invest in startups’ shares because of the monopoly regulation and fair trade law and be regulated on its existing invested startup businesses. Thus, Kakao, which has grown with investment, will have difficulties to push ahead with business quickly in the future, according to market watchers.
Naver is about to be designated as another large corporation and be regulated after Kakao was added in the list. Therefore, internet companies, which are at crossroads for growth, are expected to be burdened.