Kakao, Celltrion, Harim not enthusiastic about designation as large business groups

The Fair Trade Commission included this year six companies including Kakao, Celltrion and Harim as large business groups that are banned from cross-subsidiary shareholdings, which are designated on April 1 every year. Kakao, an Internet company, and Celltrion, a biotech company, are the first ever venture firms to be designated as large business groups. It is also notable that Harim, a chicken meat processing company in the agriculture and fisheries industry, has been promoted to a large business group with 5 trillion won (4.34 billion U.S. dollars) or more in total asset.

With the Korean economy and companies that struggling amid a low-growth trend, the growth of those semi conglomerates into conglomerates is surely achievement that deserves complimenting. It is hoped that more companies that grow to become global enterprises such as Facebook and Alibaba in China will emerge from Korea as well. However, insiders of Kakao, Celltrion and Harim do not necessarily welcome their firms’ inclusion in the list of conglomerates, since these firms are subjected to diverse regulations, including cross-subsidiary shareholdings, new circular shareholdings, preferential outsourcing contracts and loan guarantees among affiliates, immediately after inclusion. “If Harim Group is enlisted in the large business group list this year, it will be newly subject to 35 regulations under 20 laws and acts including the Antitrust Act, and we cannot necessarily welcome our growth as an enterprise,” Harim Chairman Kim Hong-guk said in a lecture last month.

"Peter Pan Syndrome" in which semi conglomerates spin off business or outright slow their growth pace to avoid designation as large conglomerates is also spreading. Samsung with 348 trillion won (302 billion dollars) in total asset is 70 times larger than Kakao with 5.1 trillion won (4.42 billion dollars), and the latter could find it unfair to be subject to the same regulations just because it has been included in the antitrust watch list.

The criteria for FTC’s designation of large business groups has not changed for eighth consecutive year since it was changed to firms with "5 trillion won (4.34 billion dollars) or more in total asset in 2009. “We share the view on the need to raise the criteria for designation of large business groups,” FTC Commissioner Chung Jae-chan recently said. “Since this is an issue that entails huge economic and social impact, we have to decide cautiously.” It may be necessary that the government adjust the standard for designation to, say about 10 trillion won (8.68 billion dollars), since the Korean economy has grown in size. Korea cannot afford to leave intact the distorted situation of the present, in which a small- and medium-sized firm tries not to grow to a semi conglomerate, and a semi conglomerate is reluctant to grow to become a large conglomerate.

권순활논설위원 shkwon@donga.com