"'Mandatory Disclosure' Ignites Pressure on Large Corporations... 'Logistics' Highest Internal Transaction Ratio in Samsung, 'SI' in Lotte"

Fair Trade Commission submits data to Assemblyman O Gi-hyeong's office
Need for monitoring requires disclosure of logistics and SI internal transactions from May next year
Industry says "High risk of trade secret leakage when outsourced"... Difficult to reduce internal transaction ratio

[Sejong=Asia Economy Reporter Ju Sang-don] It has been revealed that the proportion of internal transactions within system integration (SI) affiliates in large business groups with total assets exceeding 5 trillion won reaches 70%. In Samsung's case, the internal transaction ratio of Samsung Electronics Logitek, a logistics management specialist, exceeds 90%, and for Lotte, the IT service company Lotte Data Communication accounts for more than 85% of internal transactions. From May next year, these companies will be required to disclose the status of internal transactions in logistics and SI companies, and if the ratio is high, the Fair Trade Commission may judge that there is a high likelihood of unfair support. It is expected that companies will resist, as they face the challenging task of reducing internal dependence within the next year.

According to the 'Status of Internal Transactions of Business Groups' submitted by the Fair Trade Commission to Assemblyman O Gi-hyeong of the Democratic Party on the 20th, as of 2019, the internal transaction ratio for logistics in the top 30 business groups was 30.1%, and for SI it was 60.2%. This is 17.9 percentage points and 48.0 percentage points higher, respectively, than the overall internal transaction ratio of 12.2% for 64 publicly disclosed companies announced by the Fair Trade Commission in November last year.

Narrowing down to the top 10 groups, the internal transaction ratio is even higher. Logistics relied on 34.4% of sales, and SI on 67.4% internal transactions. Among these large conglomerates, Samsung had the highest logistics internal transaction ratio. Samsung Electronics Logitek, a logistics service company, generated 972.7 billion won, or 92.2% of its 1.0551 trillion won sales in 2019, through internal group transactions. Hyundai Heavy Industries had a 69.6% internal transaction ratio for Hyundai Oil Terminal, which operates commercial tank terminals.

The internal transaction ratio for SI was higher than for logistics. In Lotte's case, Lotte Data Communication filled 660.2 billion won (85.5%) of its total sales of 772.3 billion won through internal transactions within the group via IT services and system management.

The internal transaction status of logistics and SI sectors in large corporations is expected to become a burden ahead of next year's disclosure. The Fair Trade Commission plans to require these large business groups to disclose the internal transaction ratios of logistics and SI from next year. Once the amendment to the relevant regulations, currently under administrative notice, is implemented, large business groups must disclose the status of logistics and SI internal transactions above a certain scale conducted in 2021 by May 31 next year.

The business community expresses concern that this could lead to a high likelihood of illegality. An industry insider said, "Since the Fair Trade Commission has named logistics and SI as the next targets following the opening of large corporations' meal services, it is perceived as pressure to reduce internal ratios."

Companies related to logistics and SI argue that the Fair Trade Commission should consider the difficulty of reducing internal transaction ratios. A logistics company official within a large business group expressed concern, saying, "When logistics is outsourced externally, there is a high risk of trade secret leakage as the sales of the company can be reverse-engineered based on the logistics volume."