Medical equipment-maker Medtronic is under investigation by Korea’s Fair Trade Commission for breaching contracts with local distributors, according to sources Sunday.
Medtronic Korea, the local branch of the global medical equipment firm, has abruptly canceled contracts, which were still valid with local distributors who have maintained partnerships for more than a decade with the medical device giant.
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The logo of Medtronic. |
Some distributors, mostly small companies with several employees, claimed financial damage amounted to nearly 1 billion won ($855,000) and they had to lay off employees and filed for bankruptcy as they had become cash-strapped.
“Medtronic Korea sent an email in 2015 in which they said they would terminate a contract, which was still effective at the time. They did not specify any reason, but wanted our cooperation with the decision,” a head of a local distributor for Medtronic, surnamed Kim, said.
Since 2000, Kim’s firm has supplied Medtronic’s products for more than 15 hospitals and medical institutions, including Kangbuk Samsung Hospital, National Medical Center, and Seoul National University Hospital, in Korea.
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Medtronic Korea’s email sent to a local sales distributor. |
Kim said he had helped pave the path for Medtronic to increase its presence here by sealing supply deals with the hospitals.
“Kim is just one of more than around 50 local sales partners for Medtronic here, which are on the brink of bankruptcy due to Medtronic’s unfair practices,” said a person who ran a sales firm for Medtronic.
It is estimated that there are more than 100 local sales partners for the global firm across the nation.
Contract documents showed that Medtronic could end the contract by letter or email whenever it wanted, as long as there were proper reasons. However, the terms of contract are unclear on what constituted inappropriate activities by a distributor, and how they would be verified.
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Medtronic Korea’s head office in Seoul. (Naver Map) |
The medical equipment firm did not give explanation in emails why it canceled contracts with its local partners.
“A sales agency disgruntled with Medtronic seems to try to make a fuss about nothing,” a Medtronic executive said.
The FTC said it was probing the case so that it could not unveil the details.
Another official at one of the distributors said Medtronic‘s repeated demand to cut profit margins below 20 percent, originally set at 25 percent at the initial contract, has made his company suffer mounting debt.
“Those agencies cannot refuse to accept an unfair deal -- made verbally most of the time -- with Medtronic,” a source said.
Beating Johnson & Johnson, Medtronic became the world’s largest medical device-maker in terms of revenue after it completed the acquisition of health care products firm Covidien in January last year.
Minneapolis-headquartered Medtronic has been working with Samsung Electronics to develop health care tools, such as insulin pumps and solutions to monitor chronic pain, which interact with smartphones.
By Kim Young-won (
wone0102@heraldcorp.com)
