6 biz groups to expand competitive bidding in 4 sectors

Lotte Group, Hyundai Heavy Industries, GS Group, Hanjin Heavy Industries, Hanwha Group and Doosan Group will expand competitive bids in advertising, system integration, construction and logistics to improve on the practice of affiliates cutting deals with their own subsidiaries.

The six conglomerates held talks Thursday with Fair Trade Commission Chairman Kim Dong-soo on achieving self-motivated co-growth, and announced these and other measures to ensure co-development with smaller companies.

Attending the meeting were Lotte Vice Chairman Lee In-won; Hyundai Heavy President Choi Won-gil; GS Vice Chairman Seo Kyung-seok; Hanjin CEO Seo Yong-won; Hanwha Vice Chairman Shin Eun-cheol; and Doosan Vice Chairman Lee Jae-kyung. The six conglomerates agreed to expand competitive bids after Samsung Group, Hyundai Motor, SK Group and LG Group did the same in January, so all of Korea’s 10 largest business groups have joined the self-motivated declaration campaign to prevent deals cut with their own affiliates.

Commission chairman Kim said, “The value of internal trading in advertising, SI, logistics and construction within the 10 largest business groups amounts to nearly 18 trillion won (15.8 billion U.S. dollars),” adding, “If a considerable portion of this internal trading volume is open to competitive bidding, it will benefit not only smaller companies but also conglomerates themselves.”

The six conglomerates will introduce competitive bidding in phases in advertising, SI, construction and logistics from this year’s second half. They have given exclusive preferred contracts to affiliate advertising or SI companies when placing orders for ads and SI projects within their groups.

Under the new policy, they must open the bidding for such projects to external small and medium-size companies by introducing competitive bidding. They plan to use competitive bidding starting with orders placed by listed affiliates before gradually expanding them to orders placed by non-listed affiliates.

More conglomerates will also seek to form internal trade committees meant to increase transparency in internal trading. The six groups will expand such committees starting with their listed affiliates, and step up the committees` operation at affiliates that have such committees.

The trade watchdog also said Thursday that it enacted standards on the selection of trading partners that target Korea`s 47 biggest conglomerates. According to the standards, groups must limit transactions made through exclusive preferred contracts only to cases for urgent projects or those requiring confidentiality.

The standards also include a measure designed to galvanize the placement of direct orders to smaller companies to prevent a conglomerate affiliate from placing an order to another affiliate, which in turn subcontracts the deal to a smaller independent company to pocket “commission” fees.

The standards are non-binding recommendations. Since the new rule requires large business groups to make public disclosures when making large internal trade deals, however, the Fair Trade Commission plans to intensify probes into illegal internal trading into groups that violate the requirement.