Contractors still playing by their own rules: Survey

Despite the government’s efforts to root out unfair business practices by large conglomerates that hurt smaller suppliers, a study conducted by the country’s watchdog showed that such habits are still rampant.

The Fair Trade Commission found that six out of every 10 subcontractors had been treated unfairly in 2011 by the companies that supplied their main contracts. The study also revealed that one in every six companies placed orders verbally without any written contracts - creating room for further abuse of the system.

The survey was conducted on 60,000 manufacturing firms, including 3,000 large players that provide main contracts and 57,000 subcontractors. It was carried out from June to October of last year both online and by mail, with the results released yesterday.

Some 44.9 percent of companies placing orders admitted they may have violated the country’s subcontractor law, while 60.8 percent of subcontractors also put their hands up. The rates were 4.5 percentage points and 3.3 percentage points lower, respectively, than in a similar study one year earlier, implying that companies have begun cleaning up their collective act. However, the study also showed that second and third subcontractors were vulnerable to abuse by large companies last year. The FTC said the most common practice was giving verbal orders instead of signing legally binding documents, with 17.5 percent of contract givers following the illegal practice.“From now on, chief executives of companies that continue down this road will be ordered to attend FTC-run training courses,” said Shin Bong-sam at the watchdog. “In some cases, criminal penalties will be handed out.” He said many companies also refused to defer interest rates for subcontractors when they were entitled to this privilege, while others forced suppliers to purchase their brands.

Meanwhile, around one in five large companies admitted to demanding cheaper prices of raw materials or finished products from their suppliers, another example of the widespread abuse of power among Korea’s business circle. The FTC said it will further investigate vulnerable industries such as automobiles and cell phones.

The results come after President Lee Myung-bak emphasized last year the need for a more balanced society.

By Lee Eun-joo [angie@joongang.co.kr]