Samsung fined \1.6B fine for pulling orders

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Samsung fined \1.6B fine for pulling orders

The nation’s top conglomerate has once again found itself in the anti-trust agency’s crosshairs, with Samsung Electronics falling afoul of the unfair practices law for its repeated cancelation of parts orders to small contractors.

The Fair Trade Commission yesterday announced that it is imposing a 1.6 billion won ($1.4 million) fine on the company for withdrawing orders long after payments are due.

This is the first time that the antitrust watchdog has fined a company for “unfairly” canceling business orders.

It said that among 1.5 million parts orders placed by Samsung Electronics between January 2008 and November 2011, some 2 percent or 28,000 orders were reneged on unreasonably. These were worth in excess of 63 billion won.

This left suppliers with bursting inventories, interest payments owed and disruptions to their production schedules, it said.

“Things change fast in the IT industry and orders are frequently canceled. This is the nature of the beast,” said Jung Chang-wuk of the FTC’s business cooperation bureau. “But Samsung Electronics has been unfairly passing the burden onto its parts suppliers by making them carry inventory for discontinued items.”

It said the Samsung unit, which was calculated to have canceled orders 59 days after the payment date was due on average, “could be said to have abused its [privileged] status.”

“Other companies we reviewed were found to have canceled orders, but never after the payment date,” Jung said.

The FTC said even though small parts suppliers consented to the late cancellations, such agreements were deemed invalid because of their gross one-sidedness.

Samsung Electronics strongly refuted the claims, arguing that it acted out of necessity due to the lightning pace and unique characteristics of the ever-evolving IT industry, which it said were widely understood.

“We paid extra interest when there were delays in picking up the parts we ordered,” said Samsung Electronics in a release yesterday.

The company ranked in the top band of the shared growth index for the nation’s 56 large companies last year by the Commission on Shared Growth for Large and Small Companies. The index is based on the companies’ performance in this area from April to December 2011.

By Lee Sun-min [summerlee@joongang.co.kr]

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