As the global pandemic crisis batters businesses all over the globe, Asia’s fourth largest economy also takes a hard hit. And amidst the struggle and closing down of shops, the business of going out of business booms.
With the surge in the number of COVID-19 cases, South Korea aims to curb a second wave of pandemic by imposing stricter social distancing guidelines leaving businesses modelled on human contact like cafes and restaurants suffering in revenues and forcing them to liquidate assets in order to escape bankruptcy.
Most of the hard-hit industries are hospitality, retail, and restaurants which are largely owned and run by traditional Korean families. Although this downturn is not as surprising as this is an already weakened economy due to trade disputes experienced in the region. Nevertheless, the numbers are saddening. These family-run businesses have shot up the ratio of self-employed in the job market to as much as 25% but in recent years have declined. In a published data by the Korea Small Business Institute and Statistics, there are 5.48 million registered self-employed in August 2020 but this number was 127,000 less than the same period last year. The National Assembly has declared an 11.7 trillion Won ($9.7 billion) emergency budget to cushion the financial impact of COVID-19 for small businesses.
Amidst the closing down of businesses, one industry is seeing a surge in activity. The liquidation service is taking an upwards trend as they help businesses get out of business. You Youngsik, a 54 year old liquidation specialist with 10 years of experience in the industry, tells Reuters that he is receiving 4 to 5 times as much inquiries and taking twice of his regular workload to cater to his booming clientele. He noted that this is the busiest he has ever been though the business took off two years ago with the street level economic downturn.
“I can’t do them all but I still take about twice the work I used to, which is why I need to head out at 4 or 5 in the morning,” said You in the city of Suwon, south of Seoul in a phone call with Reuters en route to another business service of dropping the tables and chairs he just hauled. Most of these assets are stored in a recycled kitchenware shop in Dajoobang, Hwanghakdong, Seoul.
Cho Gye-Su, manager of the warehouse in Dajoobang, said, “Our 600-pyeong (21,350 square feet, 1,984 square metre) storage warehouse has been completely full for about two months.”
But there are also downsides. “Second-hand goods have been piling up and we have nowhere to sell them to, so the coronavirus has been really bad for us,” said Cho, as he pointed to all the cleaned and displayed items and appliances. Consumer capability has also been heavily affected by the pandemic as many have been laid off from jobs and open businesses are trying to thrive.
The reason behind the decline of businesses is not solely influenced by the pandemic although this has been pulling the final curtain for most. South Korea is now implementing Level 2.5 social distancing measures which shut down operations of 12 high risk types of businesses including nightclubs and karaokes. Cafes, bakeries, bars, and restaurants are on a reduced business hours limiting to take-out and deliveries or on-site dining until 9pm only.
These measures designed to protect citizens and communities from contracting the disease are hurting the pockets of businesses. Coupled with the rise of e-commerce as an industry and the wage changes implemented by the South Korean government under Moon Jae In’s presidency had dried off resources of small business costing layoffs. In three years, President Moon Jae In has raised the legal minimum wage to 8720 won or 7.20 won per hour capped at 52 hours weekly. Though it’s good news for minimum wage earners, employers took some blows.
Looking at the big picture, the root cause of the decline can be attributed to the vulnerability of the industry and the saturation of these small businesses. New retirees are expanding their retirement plans by opening chicken diners and small eateries while unemployed youth are turning to start-up with coffee shops which are very popular in South Korea. This has led to a saturation of the hospitality sector and the thinning of profits due to severe competition. Aside from that, a high percentage of these self-employed in the Korean labour market are on heavy loans .
According to the Bank of Korea, loans were at 22.7% in 2017 and jumped to 670.6 trillion won in September last year. These heavy debts have put many self-employed vulnerable to any economic downturn. In recent time, self-employed without employees have risen and consequently have turned self employed with employees to downsize.
These are very trying times for businesses and as Seoul-based lawyer Lee Seungyeon said, “Regardless of what kind of business they’re doing, they’re all struggling.”