Hyundai Motor Group has become the first Korean conglomerate to announce concrete targets for reducing excessive inter-subsidiary transactions.
Hyundai’s measures came amid increased pressure from the political community to join President Park Geun-hye’s “economic democratization” policy.
The Korean auto giant, which owns Hyundai and Kia brands, said Wednesday that it will open new business opportunities worth about 600 billion won ($536 million) annually to outside smaller firms when it comes to advertising and logistics, areas where internal trading takes place most frequently.
Hyundai Glovis, a logistics unit of the group that is 30 percent owned by Hyundai Motor vice chairman Chung Eui-sun, has been in charge of shipping most Hyundai and Kia cars. Eighty percent of its total sales comes from transactions with its parent carmakers.
As part of the new initiative, however, the group plans to send out logistics orders worth 480 billion won, or 45 percent of the total that it makes in Korea, to other companies through a competitive bidding.
Advertisement production and promotional events that have been carried out by its advertising subsidiary Innocean Worldwide via private contracts also will be shared with outside firms, the group said. The amount would be worth 120 billion won or 65 percent of the annual orders.
Hyundai said that new review committees consisting of outside experts will be established at the group’s key affiliates to oversee the whole process of competitive biddings, adding it could consider similar decisions in other areas such as system integration and construction in phases.
According to the Fair Trade Commission, Hyundai Motor Group had the four largest affiliates whose stakes were held by owner family members and inter-subsidiary transactions surpassed more than 30 percent each.
Amid enhanced pressure for shared growth with smaller firms, industry watchers say, Hyundai may have been enforced to take preemptive action to reduce in-house transactions.
More recently, the state-run antitrust watchdog is considering a revised bill to toughen regulations against excessive internal trading of local conglomerates, including imposing a three-year jail term or a fine up to 200 million won on owner family members who are involved in unfair deals.
“Considering the government is showing its strong will to crack down on prevalent in-house deals, other conglomerates are likely to follow suit,” said an industry source.
By Lee Ji-yoon (
jylee@heraldcorp.com)
