Massive Fine Imposed on LG
LG Electronics has been caught by the Korea Fair Trade Commission (KFTC) after it agreed with subcontractors to pare down smartphone component prices and retroactively applied it to previous production volume.
The KFTC said on April 25 that it slapped a fine of 3.324 billion won (US$2.99 million) on LG Electronics for violating the subcontracting law. The watchdog body also issued a correction order to the company. Accordingly, LG Electronics has to pay a sum of 288.7 million won (US$259,000) cut by LG Electronics plus its delayed interest in addition to the penalty.
According to the KFTC, LG Electronics decided to cut delivery prices of 1,318 items from 24 subcontractors from July 2014 to March 2017. However, the company pruned the payment by 2.87 billion won (US$2.58 million) by applying cut unit prices even to items produced before the date of the agreement.
At the time, the MC Division of LG Electronics was suffering a deficit for 12 consecutive quarters, which meant that cost reduction was urgently needed and drove the company to the price cut, the KFTC explained.