Fair Trade Commission (FTC) started investigations on current situation of internal transactions of IT businesses of major corporations.
Focus of its investigations is to reduce percentage of internal transactions within major corporations and to induce major corporations to open their businesses on their own. At the same time, FTC is also trying to resolve any suspicion of avoiding regulations on related party transaction due to reasons such as efficiency and security.
FTC is going to put out solutions sometime during the second half of this year after going through its investigations. Major IT businesses are concerned that these investigations can act as another ‘disadvantage’ for them while they are struggling with being restricted in participating in public bids.
According to South Korean Government, FTC recently sent out an order for research service to analyze causes of fixation of internal market between subsidiaries and major corporations and to prepare solutions to improve this issue.
FTC is also going to investigate IT businesses that deal with IT consulting and system management. It is likely that tens of IT service subsidiaries that are affiliated with major corporations such as Samsung SDS, SK C&C, and LG CNS will be subjected to FTC’s investigations.
“Closed market structure centered on major corporations is starting to set in.” said FTC through its request for proposal.
“Through related party transactions, major corporations are unfairly gaining upper hands over smaller businesses and this can limit opportunities for independent and small and medium businesses with potentials.” said FTC. “To eliminate unfair internal transactions and to provide fair opportunities to small and medium businesses, comprehensive analysis on current condition of IT service businesses is needed.”
FTC is going to examine methods of contract, information of contract, formation of internal market, and possibility of subcontract. It is going to look into whether transactions between related parties clearly leads to reduced cost and increased efficiency that are difficult to achieve through transactions with small and medium businesses. It is also going to look into whether dealing with unaffiliated IT service businesses leaks information that is useful for operations and causes damage that is difficult to recover from economically.
It is going to decide whether related party transaction is inevitable and look for possible solutions that will lead major corporations to open their work on their own, which is an issue that has been emphasized by Chairman Kim Sang-jo of FTC.
It also focuses on improving terms that allow major corporations to avoid regulations on related party transaction. Although FTC does not apply such regulations on transactions that require efficiency, security, and emergency, some say that IT service businesses are abusing this loophope.
“We are going to examine whether there are issues that can be improved within our system through investigations.” said a representative for FTC. “Solutions will be based on results from research services and internal reviews.”
Major IT service businesses are concerned about FTC’s investigations because they believe that these investigations can worsen South Korea’s management environment that is already weak.
“Due to nature of our job, there are many internal transactions.” said a representative for a major IT service business. “These investigations will only worsen our situation when we are already prohibited from participating in public bids ever since Software Industry Promotion Act was revised in 2013.”
Staff Reporter Yoo, Seonil | ysi@etnews.com