[Editorial] Predatory practices

An audio file uploaded to YouTube last weekend has clearly shown where the government should direct its economic democratization campaign.

The short clip, lasting less than three minutes, recorded a phone conversation from three years ago between a young sales manager of Namyang Dairy Products, the largest company in the domestic dairy market, and an older local distributor of its products.

The conversation was about the company’s attempt to unload onto the distributor a larger amount of products than he was willing to take on. The shop owner begged the Namyang official to take his difficult situation into account and reduce the monthly shipment allotted to him.

The Namyang manager, however, turned a deaf ear to his plea and used abusive language with him. As the distributor refused to swallow what he saw as the company’s inordinate demands, the official spewed insults and threatened to ruin him.

The audio file went viral, triggering a public outcry against the Namyang official’s outrageous behavior and the company’s predatory business practices. Namyang issued a statement of apology and had the overbearing official resign. Yet it did not calm public anger.

Online users called for a boycott of Namyang products, while operators of the 7-Eleven, GS25 and CU convenience stores declared they would not sell its products anymore. The company produces milk, dairy, infant formula, baby food, instant coffee and other products.

Earlier last week, prosecutors searched Namyang’s central and branch offices and seized computer data and documents to investigate the allegations that the company manipulated its computer programs to force its products on distributors in excess of the amounts they had actually ordered.

The allegations were raised by a group of distributors who filed a lawsuit last month against the company’s chairman and 10 other executives on charges of tampering with computer data and blackmail.

According to them, Namyang receives orders from distributors through a computerized system. The problem is that when a distributor puts in an order for, say, 20 boxes of milk, its salespeople increase it to 60 boxes by rigging the computer program. As a result, the distributor is provided with a larger amount of milk than he can sell.

Distributors say the company has used this outrageous practice for years to unload its inventory. But they could not stop because there was no way for them to prove that the invoices the company presented to their banks to receive payments were fabricated.

Even when there is no money left in the bank account of a distributor, the company can still get paid by the bank because the distributor is required to maintain a credit line with it. Otherwise, his contract with the company is canceled.

Distributors also claim that Namyang officials extorted money from them frequently for various reasons. They also say they had to wine and dine Namyang salespeople regularly.

Namyang says all these allegations are untrue. As if to prove its innocence, the company has filed a countercharge against the plaintiffs. It will not be long before prosecutors find out which side is telling the truth.

But it is an open secret that powerful companies in a wide range of industries, from steelmaking to distribution, are still steeped in the practice of forcing unfair contracts on their weak business partners.

Predatory practices are known to be especially rampant in the dairy business, partly because the shelf life of dairy products is short and partly because there are too many distributors. The audio clip on YouTube has shown how serious the problem is.

Whatever the reason may be, the government should not let such unwholesome business practices continue. It should start its democratization campaign by correcting the unequal relationship between dominant dairy companies and their distributors.

Separate from the prosecutors’ ongoing investigation, the Fair Trade Commission should look into the case and mete out heavy penalties if Namyang is found to have abused its power.

One reason companies continue to employ unfair business practices is that the gains they earn from them more than offset the penalties imposed on them. The government needs to deal with the case sternly so that it can serve as a warning to other companies relying on undemocratic practices.