Chaebol raise internal trading

Korean conglomerates are suspected of having favored their overseas subsidiaries as their internal transactions with them have soared in recent years, Chaebul.com said Monday. Korean law prohibits large firms from unfairly favoring their own units.

According to the Seoul-based consultancy, the top 10 chaebol groups’ internal trading volume jumped from 239.7 trillion won ($214 billion) in 2011 to 287.6 trillion won in 2015, up 20 percent in four years.

Their transactions with domestic subsidiaries, however, decreased from 139.2 trillion won to 123 trillion won, showing an 11.6 percent drop during the same period.

In particular, Samsung Group’s internal trade with its overseas subsidiaries rose from 108.1 trillion won in 2011 to 147.1 trillion won in 2015, while the figure dropped from 35.3 trillion won to 19.6 trillion won for its domestic units.

Hyundai Motor Group’s overseas internal trade saw huge growth from 36.3 trillion won to 47.3 trillion won, while its domestic subsidiaries’ internal trade decreased from 32.2 trillion won to 30.9 trillion won.

SK Group also showed an increase in overseas units’ internal transactions — from 30.9 trillion won to 32 trillion won — and a decrease in domestic units’ internal transactions — from 33.9 trillion won to 33.3 trillion won.

“The tendency is actually not abnormal for global firms specializing in exports,” Chaebul.com CEO Chung Sun-Sup said. “However, some companies seem to be dodging regulations.”

Although Chung did not disclose specific figures for each company, he mentioned Cheil Worldwide and Innocean Worldwide as doubtful domestic firms. The two are the advertising agencies of Samsung and Hyundai Motor Group, respectively.

He also said the Fair Trade Commission (FTC) should monitor those companies more closely.

FTC Chairman nominee Kim Sang-jo recently promised stricter regulations against unfair favors to chaebol subsidiaries. The so-called “chaebol sniper” is likely to regulate more firms and impose higher fines on them for unfair internal transactions.

However, critics fear Kim’s strict policy may reduce jobs in Korea. Some worry conglomerates will increase the amount of overseas internal transactions.

According to data, the number of domestic employees working for Samsung Electronics decreased from 101,970 in 2011 to 96,898 in 2015. The number of domestic LG Display workers also dropped from 34,803 to 32,603, and that of SK Innovation fell from 1,642 to 1,419.