Chaebol more reliant on clannish ties

Transactions among affiliates of the same conglomerate have spiked over the past year, with one in five large business groups now relying on deals with their sister firms for over 70 percent of sales, according to a report released by Chaebul.com yesterday.

This either highlights the failings of, or the continued need for, efforts by the Lee Myung-bak administration to achieve sustainable growth by balancing the development of large companies with that of SMEs, critics say.

The Web site, which closely monitors the progress of the country’s conglomerates, showed that 18 percent, or 211 out of 1,165 firms, affiliated with the country’s top 30 chaebol by market capitalization drew 70 percent of sales from deals conducted with their sister companies in 2011. This shows an increase from 190 who qualified just two years ago.

Samsung Group and Hyundai Motor Group were tied for first place in terms of having the largest number of companies (21) under their wing generating sales through intra-affiliate transactions last year. It was followed by GS Group (20), SK Group (16), CJ Group (15), LG Group (14) and Hanjin Group (13).

“The chaebol were peppered with criticism by the public for having granted unfair favors to their affiliates in business transactions, including bids for projects to boost their overall sales, but they’re still awarding lucrative contracts to their own subsidiaries,” said Jeong Seon-seop, who runs the tracking Web site.

“Most of the affiliates that generate over 70 percent of their sales through intra-affiliate transactions are unlisted firms, because they are lower on the radar and easier to escape detection than listed firms, which require meetings of their shareholders and outside board members.”

Conglomerates’ intragroup trading reached 162.3 trillion won ($146 billion) in 2011, up 26.7 percent from 128.1 trillion won a year earlier.

Of the 1,165 firms affiliated with the country’s top 30 family-owned conglomerates, 79 relied on their affiliates for 100 percent of their sales last year, up from 67 in 2011. Insiders blame the deepening economic slowdown stemming from the euro zone debt crisis for the growing trend.

By Kim Mi-ju [mijukim@joongang.co.kr]