Hyundai Motor Group set a good example for others to follow when it decided last week to reduce inter-subsidiary logistics and advertising deals worth 600 billion won a year in order to offer new business opportunities to outside firms, especially small and medium enterprises.
The auto giant’s move is welcome, but it needs to go further by doing the same in other business fields.
The plan will reduce the revenue of Hyundai Glovis, a company that ships Hyundai and Kia cars around the world, by 480 billion won a year, and that of Innocean Worldwide, its in-house advertiser, by 120 billion won.
The group’s move came amid moves by the government and political parties to crack down on the deeply entrenched practice of chaebol families enriching themselves through related-party transactions among group affiliates.
Earlier this month, the Board of Audit and Inspection criticized the National Tax Service for its failure to collect gift taxes from chaebol children who amassed a huge fortune through an arrangement of exclusive deals between group units and the companies under their control.
Hyundai Glovis was cited by the BAI as an example of the companies used for such illicit father-to-son wealth transfer schemes.
Hyundai Motor chairman Chung Mong-koo established Hyundai Glovis in 2001 and had his son, Chung Eui-son, invest 2 billion won for a 30 percent stake. Then the group’s units made favorable deals with Hyundai Glovis, helping the logistics unit grow rapidly.
The junior Chung earned some 2 trillion won as a result of the steep rise in the stock prices of Hyndai Glovis.
The group’s action also came ahead of the planned implementation of the revised gift tax law from July. Under the new law, gift taxes will be levied on chaebol family members when inter-affiliate deals account for more than 30 percent of the sales revenue of the companies in which they have stakes of 3 percent or more.
In the case of Hyundai Glovis, 80 percent of its revenue comes from transactions with sister companies.
Whatever lies behind Hyundai Motor’s decision, it deserves emulation by other business groups as it would expand business opportunities for SMEs. Samsung, LG, SK and other top groups need to follow suit.
According to the Fair Trade Commission, the size of inter-subsidiary transactions that the nation’s top 47 business groups carry out in the four business areas ― advertising, logistics, system integration and construction ― amounts to 27 trillion won a year. If these groups cut their related-party transactions by half, it would provide business opportunities worth 13 trillion won a year to SMEs.
