Ottogi Noodle Supplier Myeonsarang Elevated to Mid-sized Enterprise
Ministry of SMEs & Startups: "OEM for Mid-sized Enterprises Not Allowed... Transaction Halted"
Ottogi Files Lawsuit to Cancel Government's Corrective Order
Ottogi and OEM manufacturer Myeonsarang have filed a lawsuit against the government. Myeonsarang is a noodle-specialized company that has supplied Ottogi with products such as 'Old-fashioned Noodles' since 1993. It is operated by the brother-in-law of the late Ham Tae-ho, the founder and honorary chairman of Ottogi, and the brother-in-law of Ham Young-jun, the current chairman of Ottogi.
Under current law, large companies like Ottogi can only outsource OEM production of noodles to small and medium-sized enterprises (SMEs). However, the issue arose when Myeonsarang changed its status to a mid-sized company last year. The government ordered an immediate halt to the transactions, but Ottogi opposed, stating that abruptly ending a 30-year business relationship could cause significant damage.
According to industry sources on the 23rd, Ottogi filed a lawsuit on the 15th at the Seoul Administrative Court against Oh Young-joo, Minister of the Ministry of SMEs and Startups, seeking cancellation of corrective orders and suspension of execution. The Ministry ordered a complete halt to OEM transactions with Myeonsarang starting March 1, prompting Ottogi to take a strong stance, claiming 'infringement of business rights.'
In March of last year, Ottogi and Myeonsarang applied to the Committee for the Review of Livelihood-Type Suitable Industries for approval of business expansion. Myeonsarang had supplied noodles to Ottogi through OEM for about 30 years, but since Myeonsarang transitioned from an SME to a mid-sized company in April last year, new approval from the committee became necessary.
The noodle manufacturing industry has been designated as a livelihood-type suitable industry since 2021, prohibiting new entry and business expansion by large and mid-sized companies. However, companies can produce up to 110% of their existing performance on their own or up to 130% if they enter into OEM contracts with SMEs as part of mutual cooperation.
In November last year, the committee did not approve Ottogi's business expansion. Although Ottogi persuaded the committee by proposing to reduce production volume to 110% instead of 130% of existing performance, the Ministry ordered a complete halt to OEM transactions with Myeonsarang and instructed Ottogi to find alternative suppliers.
A Ministry of SMEs and Startups official explained, "According to the law related to livelihood-type suitable industries, Ottogi is allowed a certain amount of OEM with SMEs, but there is no allowance for OEM with large companies or mid-sized companies. Since Myeonsarang became a mid-sized company, OEM through that company has become difficult."
In response, Ottogi is strongly opposing the decision, calling it a desk-bound theory. An Ottogi representative questioned, "Do we have to restrict our OEM partners to SMEs only?" and added, "If transactions with a long-standing partner that has supplied high-quality food products stably for decades are abruptly cut off, we will inevitably suffer significant damage such as decreased sales and profits, reduced market share, and lowered credibility."
They further emphasized, "The designation of livelihood-type suitable industries is intended to regulate the volume of large companies, but cutting off transactions just because the partner became a mid-sized company goes against the purpose of the designation."
Meanwhile, some have raised suspicions that the special relationship between Ottogi and Myeonsarang may have influenced this review. Myeonsarang’s CEO, Jung Se-jang, is the brother-in-law of Ottogi’s Chairman Ham. Myeonsarang is a noodle-specialized company that started supplying noodles to Ottogi in 1993 and is related by kinship to Ottogi. Myeonsarang’s sales in 2022 were about 140 billion KRW. Although the proportion of transactions with Ottogi was as high as 60% in 2005, the dependency has gradually decreased to about 15% in 2022.
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