Chaebol show progress on business practices

The value of contracts reached through competitive bidding rather than job sharing and subsidized deals among affiliates has increased among the country’s largest conglomerates, anti-trust watchdog the Fair Trade Commission (FTC) said yesterday.

The FTC said competitive bidding and orders with small standalone enterprises have increased among the 10 largest business groups, which include Samsung, Hyundai, SK, LG, Lotte, Hyundai Heavy Industries, GS, Hanjin, Hanwha and Doosan.

The conglomerates pledged to voluntarily expand competitive bidding and direct orders from small and medium enterprises through so-called autonomous declaration last year, after they were condemned by the FTC for cross-investment, subsidized deals and funneling business to affiliates.

According to the implementation results of the declaration, voluntary efforts have been undertaken to reduce intra-group trading, such as increasing monitoring committees. Direct orders with SMEs have also increased, the FTC reported.

Nevertheless, it was also found that in some major business sectors such as advertising and system integration that unfair work sharing remains prevalent.

When the FTC compared the 12 months ending June 2012 to the following period ending in June 2013, the value of competitive bidding at the conglomerates increased from 12.2 trillion won to 12.6 trillion won ($11.59 billion to $11.97 billion).

In the same period, the share of competitive bidding contracts went from 30.6 percent to 37.8 percent. The share of direct orders with SMEs also expanded from 43.2 percent to 51.6 percent.

In particular, the state anti-trust watchdog found that the contract amount of non-affiliates increased significantly in the competitive bidding. Even in advertising and systems integration, the share of contracts with non-affiliates increased 48 percent and 54 percent, respectively.

During the period, direct orders from SMEs increased 8.6 percentage points, the FTC added.

However, as competitive bidding accounts for 17.4 percent of all contracts in the advertisement sector and 15.2 percent of all contracts in the SI sector, conglomerates still place most of the work to affiliates.

By conglomerate, Hanjin Group had the highest competitive bidding rate at 89.8 percent, followed by Doosan (78.7 percent), GS (58.6 percent), Samsung (40.6 percent), Hanwha (35.4 percent), SK (30.1 percent) and LG (25.1 percent).

Work placement through competitive bidding accounted for only 13.3 percent at Lotte and 18.6 percent at Hyundai Motor.

The number of internal trade commissions, whose task is to review the adequacy of these large contracts with affiliates, increased from 42 to 52 this year.

Samsung Group installed commissions at its eight major affiliates, including Samsung Electronics, and Hyundai Motor Group set up commissions at its six major affiliates, including Kia Motors.

BY KIM JUNG-YOON [kjy@joongang.co.kr]