Unintended Consequences
There is growing controversy over the fact that the Korean subsidiary of a global duty-free retailer won a bid for duty-free shop operation at Gimhae International Airport.
Initially, the government changed the Korean Customs Act to promote the growth of SMEs, so it excluded conglomerates from bidding. However, the government’s policy worked to a large foreign company’s advantage in the end, which generated criticism from the duty-free industry.
According to sources in the retail industry on October 22, the Busan Regional Aviation Office of the Korea Airports Corporation (KAC) selected Dufry Thomas Julie Korea as a preferred bidder to run duty-free shops in the 434 m2 DF2 section of the Gimhae International Airport in Busan. The winning bid is reported to be 20 billion won (US$18.9 million). But the problem is that the subsidiary of the world’s second largest duty-free shop chain Dufry is technically not qualified, since bidding was only reserved for small and mid-sized enterprises (SMEs) in Korea.
Dufry Thomas Julie Korea is an incorporated business set up by Dufry on August 9 this year with a starting capital of ten million won (US$9,470). The Dufry’s affiliate was able to participate in the bidding process by receiving a certificate from the Korean government confirming the company as an SME. Since Dufry was selected as the successful bidder through the establishment of its subsidiary as an eligible bidder, the government policy has been drawing a lot of criticism that it discriminates against Korean companies and favors foreign firms.
To address the problem of conglomerates’ domination in the duty-free industry, on October 22 the Korea Customs Service announced measures to support SME growth by increasing the number of duty-free shops operated by small and mid-sized companies from 7 to 15 by 2018. As a result, the number of duty-free shops run by SMEs is expected to more than double by that year.