Intra-group Transactions
Korea’s major conglomerates gave nearly 90 percent of their advertisement contracts to their affiliates last year, despite the government’s efforts to get them to aid small businesses. According to a report unveiled by the ruling Saenuri Party lawmaker Sung Woan-jong, the top seven conglomerates of Samsung, Hyundai Motor, LG, Lotte, SK, Hanwha, and Doosan gave a combined 2.08 trillion won (US$1.94 billion) worth of contracts to their internal advertisement houses last year. The report is based on data provided by the Korea Broadcast Advertising Corp. and Korea Federation of Advertising Associations.
The amount accounted for 86 percent of their total annual spending on advertisements. In particular, Samsung awarded 733.2 billion won (US$686.9 million) worth of commercials to its own advertisement unit last year, which accounted for 98.8% of its total advertising spending.
Intra-group deals are criticized for sidelining smaller companies in bidding processes and also cited as a secret measure employed by owners of conglomerates to transfer their wealth to their family without paying due taxes, by awarding them business contracts with favorable terms.
As Park Geun-hye’s government has made efforts to crack down on intra-group transactions, the Fair Trade Commission (FTC) has been pushing to toughen regulations for establishing fairer competition rules.
Lawmaker Sung said, “It is necessary for the FTC to take up a more active role in rooting out such practices where large companies give favors to their affiliates via awarding contracts.”