[Asia Economy Sejong=Reporter Dongwoo Lee] Kyungdongwon, which supplied external boiler pumps cheaply to its affiliate Kyungdong Navien, was hit with tens of billions of won in fines by the Fair Trade Commission.
On the 18th, according to the Fair Trade Commission, Kyungdongwon, a company belonging to the Kyungdong corporate group that violated the Fair Trade Act by unfairly supporting its affiliate, was given a corrective order and fined 2.435 billion won. Kyungdong Navien, which received the support, was also fined 1.245 billion won, making the total fines imposed on the two companies 3.68 billion won.
The FTC investigation revealed that Kyungdongwon supplied external circulation pumps to Kyungdong Navien at prices lower than the cost of sales for over 10 years from January 2009 to March 2019. The external circulation pump is a device that must be installed for the operation of oil boilers and is sold together with the oil boiler.
Kyungdongwon’s pump supply price was about 30% cheaper than the normal price, resulting in increasing losses the more they produced. Due to this support act, Kyungdongwon bore an operating loss of about 5.1 billion won, and Kyungdong Navien is estimated to have gained a minimum profit of 5.1 billion won.
Kyungdong Navien’s market share of external circulation pumps expanded from 8.8% in 2009 to 11.9% in 2018, and its oil boiler market share also grew from 47.8% to 57.4% during the same period.
The supply price of external circulation pumps was decided by the planning team belonging to Kyungdong Navien, which is a common department of the Kyungdong corporate group.
Kyungdongwon is an unlisted manufacturing and sales company with 94.43% of its shares held by Son Yeon-ho, chairman and CEO of Kyungdong Navien, his relatives, and special related parties (as of the end of 2020). Son, the same person, is also the largest shareholder holding 54.5% of the shares of the listed company Kyungdong Navien.
Within the corporate group, the need to normalize the supply price of external circulation pumps was raised in 2017 but was not reflected until March 2019 when the supply price was finally normalized.
Kyungdong Navien’s external circulation pump division turned to operating losses in 2019 and 2020 after the support act ended.
The FTC pointed out, "As a result of this support act, the internal market between affiliates was solidified, blocking business opportunities for competing companies and market entry for new businesses, and competition was hindered as Kyungdong Navien’s market share of external circulation pumps and oil boilers expanded."
It added, "We plan to strictly respond to acts that hinder competition and distort sound trade order in industries closely related to the daily lives of the public in the future."
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