Local commercial districts, the roots of Korea's economy, are shaking. On top of the "three highs" of high wages, high interest rates and high inflation, population decline and aging are pushing local microbusiness owners to the brink. "Local corporations" rooted in their communities are emerging as a solution. They are adding creativity and innovation to the region's unique resources and content to create new markets and customers. ChosunBiz examines new growth solutions for Korea's regional economy in an era of regional extinction through the growth cases of local corporations. [Editor's note]
Sungsimdang, a famous bakery in Daejeon, draws people all the way to Daejeon for a single loaf. Opened in 1956, Sungsimdang has grown by steadily rolling out hit items such as fried soboro and strawberry siru. In particular, by sticking to its principle of "operating stores only in Daejeon," it gave consumers a reason to visit the city. There is even a so-called "Sungsimdang-nomics" effect, in which visitors to Sungsimdang also look around nearby cafes, restaurants and traditional markets, spreading spending to surrounding commercial districts.
Like Sungsimdang, "local corporations" that do not leave their regions but instead use them as a stage for growth are emerging as a new solution for the regional economy. As people and consumption concentrate in the greater Seoul area, these corporations add new ideas to local resources to attract outside customers, creating spending and jobs. That is why they are drawing attention as a new growth model to break the vicious cycle of regional extinction.
◇ Solution to regional extinction: "local corporations"... driving a virtuous cycle in the regional economy
Local corporations are different from microbusiness owners or corporations that merely have business sites in the provinces. They turn unique resources such as local history and culture, nature, specialty products and spaces into business competitiveness, adding creative products, services and content to create differentiated value. The key is to create "things you can experience only in that region" to draw outside customers.
For local microbusiness owners, "survival," let alone "growth," has long been the management goal. Song Chi-young, head of the Korea Federation of Micro Enterprise (KFME), said, "In the first half of this year, business closures by the self-employed reached 624,000, a record high for a half-year," and added, "While fixed costs such as labor and materials and supplies keep rising, sales are not increasing and margins are shrinking, pushing microbusiness owners to the edge."
Microbusiness owners are the backbone of the domestic economy. About 7.9 million microbusiness enterprises nationwide account for 95% of all corporations in the country. They create jobs and consumption across regions and sustain commercial districts.
However, the gap between the greater Seoul area and the provinces is widening. About two-thirds of key commercial districts, which have large sales volumes and high foot traffic, are concentrated in the capital area. Average monthly sales per store in commercial districts are 58.71 million won in the capital area, compared with 28.83 million won outside it. Seoul stands at 103.73 million won, about 3.6 times that of the provinces.
A local microbusiness owner said, "With the minimum wage and materials and supplies costs continuing to rise and it being hard to find workers, many now rely on foreign labor," and added, "Labor costs are mounting, but sales are barely growing, so the more we run the shop, the less we keep."
This is the backdrop for the growing importance of local corporations that create their own customers in the region and increase inflows to local commercial districts.
Mojong-rin, a small-business expert known as the "alleyway economist" and a professor at Yonsei University Graduate School of International Studies, said, "When innovative local corporations act as regional anchors and draw customers, nearby commercial districts gain more to see, eat and enjoy, creating a virtuous cycle that brings in even more consumers," and added, "As the commercial district grows, new startups and investment follow, leading to job creation within the region."
◇ Rooted in the region... adding research and development and creativity
Sungsimdang chose to put down roots in Daejeon rather than expand nationwide. It is a management philosophy that has remained unchanged for three generations since the founder. While leveraging the scarcity of being a "brand you can meet only in Daejeon," it has steadily developed new products—following fried soboro and chive bread, strawberry siru—to build competitiveness.
Sungsimdang posted sales of 262.9 billion won last year, and currently has about 1,900 employees including contract workers. Its operating profit was 64.3 billion won, higher than CJ Foodville (50 billion won), which operates nationwide bakery franchises such as "Tous Les Jours."
"Momos Coffee" put down roots in Busan. By combining specialty coffee with Busan's local characteristics—its sea and spaces—it built a brand that can be experienced only in Busan. Started in 2007 by four founders including Busan native Lee Hyun-gi at a 4-pyeong takeout shop in Oncheonjang, Geumjeong-gu, Busan, Momos Coffee has grown into a corporation with 183 employees. Last year's sales reached 32 billion won.
"Surfyy Beach" led the transformation of Yangyang, Gangwon Province, from an ordinary beach into a surfing mecca. By drawing young people to Yangyang, it turned the beach into a new consumption space, and recently has even incorporated new trends such as running and yoga.
Experts emphasize that combining resources that already exist in the region with entrepreneurs' creativity is the innovation needed for the regional economy. They say local problems should not be seen only as "aging commercial districts," but as opportunities to experiment with new business ideas.
Lee Jeong-hee, head of the Small Business Policy Association (professor in the Department of Economics at Chung-Ang University), said, "We need to create new businesses by combining the experience of existing microbusiness owners who know the region well with the creativity of young entrepreneurs," and added, "It is necessary to actively seek ways not only for young entrepreneurs to directly enter regions, but also to connect the younger generation's fresh sensibilities and ideas with existing microbusiness owners to upgrade businesses in line with changing consumption trends."
◇ From local to glocal… selling regional resources to the global market
There are also cases of local corporations that started in the regions and expanded to the global market. "Girin Company" in Seosan, South Chungcheong Province, developed products that reinterpreted gamtae, once consumed locally, as premium ingredients, and is selling them to high-end restaurants at home and abroad, including Gordon Ramsay's restaurant in London. It is currently exporting products to 16 countries, including the United States, France, the United Kingdom, Australia and Singapore.
As the corporation grew, local producers grew with it. As Girin Company increased its purchases of raw gamtae from Seosan, the number of local households harvesting gamtae rose from fewer than 10 to about 100. The growth of a single local corporation led to an expanded income base for local producers and revitalization of the regional industry.
The government also sees local corporations as a key pillar of regional economic revitalization and is moving to foster them. The Ministry of SMEs and Startups is strengthening support tailored to growth stages from startup to business advancement and overseas expansion. Through "LIPS," in which a private investment firm invests first in microbusiness owners with growth potential and the government provides follow-on funding, it is also backing local corporations' fundraising and growth.
Kim Jeong-ju, director general for Small Business Policy at the Ministry of SMEs and Startups, said, "We are focusing on growing local corporations into 'anchor stores' in the region and building an alleyway commercial ecosystem in which various local corporations cluster around those anchor stores," and added, "We are actively supporting the growth of new local commercial districts."