Table of Contents
- 1 Internal transactions such as Hanwha and Lotte increase… Celltrion, internal transaction proportion up to 65%
- 2 The higher the ownership of the family, the more internal transactions… “Continuous inspection required”
- 3 What are the long-term economic consequences for South Korea if the trend of declining internal transactions continues across major business groups?
Internal transactions such as Hanwha and Lotte increase… Celltrion, internal transaction proportion up to 65%
The higher the ownership of the family, the more internal transactions… “Continuous inspection required”
(CG)
[연합뉴스TV 제공]
(Sejong = Yonhap News) Reporter Park Jae-hyun = Last year, the internal transaction amount of the top 10 corporate groups with heads decreased for the first time in three years.
The proportion of internal transactions within a company tended to increase as the ownership percentage of the CEO’s family increased.
◇ Internal transactions of the top 10 groups decreased by 1.6 trillion won… Hyundai Motors[005380]proportion increased for 5 consecutive years
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According to the ‘Status of Internal Transactions in Business Groups Subject to Disclosure’ announced by the Fair Trade Commission on the 26th, the proportion of internal transactions among 88 business groups subject to disclosure last year of all domestic and foreign affiliates last year was 32.5%, and the amount was KRW 704.4 trillion. .
The proportion of internal transactions between domestic affiliates was 12.8% (KRW 277.9 trillion), and the proportion of internal transactions with overseas affiliates was 19.7% (KRW 426.5 trillion).
Top 10 groups with CEOs (Samsung, SK, Hyundai Motor Company, LG, Lotte, Hanwha, GS[078930]HD Hyundai[267250]Shinsegae[004170]CJ)’s internal transaction amount among domestic affiliates was KRW 194.8 trillion.
Compared to 2022 (196.4 trillion won), it decreased by 1.6 trillion won. This is the first decline in three years since 2020.
Their internal transaction proportion was 14.5%, which was 1.7 percentage points (p) higher than the internal transaction proportion of the entire business group subject to disclosure (12.8%). Compared to the previous year, it increased by 0.6%p.
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[연합뉴스 자료사진. 재판매 및 DB 금지]
By company, the groups in which the proportion of internal transactions increased were Hanwha (1.8%p), Lotte (1.7%p), and Samsung (1.3%p).
The group with the largest increase in internal transactions over the past five years was Hyundai Motor Company (2.0%p). Hyundai Motor Company is the only company among the top 10 companies to have increased its proportion of internal transactions for five consecutive years.
The Fair Trade Commission explains that this is due to the increase in sales of parts subsidiaries that go into export finished cars as the global finished car sales market is booming.
On the other hand, LG is the only company among the top 10 companies whose internal transaction proportion has decreased for five consecutive years, falling to 7.3% last year.
The group with the highest proportion of internal transactions among all domestic and foreign affiliates was Celltrion (65.0%). This is due to the vertically integrated structure of pharmaceutical production and distribution.
◇ The higher the ownership stake of the family, the higher the internal transactions… The first place in the newly designated group is Hive
The tendency for the proportion of internal transactions to be higher as the ownership of the family of the CEO increased.
Last year, the proportion of internal transactions in companies in which the CEO’s family owned more than 20% was 11.0%. The proportion of internal transactions increased to 14.6% for those with a stake of 30% or more, 17.1% for those with 50% or more, and 26.0% for 100%.
The proportion of internal transactions in companies where the second-generation CEO’s shareholding was 20% or more was 21.9%, 23.5% for 30% or more, 29.0% for 50% or more, and 24.0% for 100% or more.
Looking at the amount of internal transactions, the number of companies in which the ownership of the CEO’s family is more than 20% decreased (KRW 24.3 trillion → KRW 19.1 trillion), but the number of companies in which the second generation of the CEO’s family owns more than 20% of the shares increased (KRW 3.6 trillion → KRW 3.9 trillion). did it
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Seven newly designated business groups subject to disclosure this year (Hyundai Marine & Fire Insurance, Youngone, Daishin Securities)[003540]hive[352820]Sono International, Wonik[032940]Paradise)’s total internal transaction proportion of domestic and overseas affiliates was 6.0%, and the internal transaction amount was KRW 1.9 trillion.
Hive had the highest proportion of internal transactions at 33.9%. Hive also had the largest amount of internal transactions at 700 billion won.
The Fair Trade Commission said, “It is difficult to conclude that there is a high possibility of unfair internal transactions just because the proportion and amount of internal transactions between affiliates is large,” but added, “The positive correlation between the shareholding ratio of the ruling family and the proportion of internal transactions continues, so the need for monitoring is significant.” He explained.
◇ 15.4% of internal transactions among companies subject to regulations for providing unfair profits… 89.6% are negotiated contracts
Companies subject to regulations related to the provision of unfair profits by related parties (companies in which the CEO’s family owns more than 20% of the shares or subsidiaries in which the company owns more than 50% of the shares). The total internal transaction amount of domestic and foreign affiliates was KRW 49.3 trillion, accounting for 15.4%.
The proportion of internal transactions between domestic affiliates was 11.0% (KRW 35.2 trillion), and the proportion of internal transactions with foreign affiliates was 4.4% (KRW 14.1 trillion).
89.6% of transactions between domestic affiliates were carried out through private contracts. Unlisted companies (90.1%) had a higher proportion of private contracts than listed companies (89.1%).
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The number of paid-use groups (70) and transaction size (KRW 2.0354 trillion) that enter into trademark license agreements and pay fees increased from the previous year.
The paid use rate of trademark rights for the group with a head was 80.8%, and the paid use rate for the group without a head was 70.0%.
The Fair Trade Commission said, “It is assessed that transaction practices are becoming more transparent as the number of groups entering into contracts for paid use of trademark rights and the scale of transactions continue to increase,” and that “companies with a high percentage of ownership by the CEO’s family tend to have relatively high trademark royalties income. “Continuous inspection is necessary,” he analyzed.
![[그래픽] Trends in the proportion of internal transactions among the top 10 business groups](https://i0.wp.com/img0.yna.co.kr/etc/graphic/YH/2024/11/26/GYH2024112600110004400_P4.jpg?w=900&ssl=1)
[그래픽] Trends in the proportion of internal transactions in the 10 largest business groups
(Seoul = Yonhap News) Reporter Kim Min-ji = minfo@yna.co.kr
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2024/11/26 12:00 Sent
What are the long-term economic consequences for South Korea if the trend of declining internal transactions continues across major business groups?
## Open-Ended Questions for Discussion on Internal Transactions in Korean Business Groups:
This article highlights crucial issues concerning internal transactions within Korean business groups. Here are some open-ended questions structured thematically to encourage insightful discussions:
**I. Scale and Trend of Internal Transactions:**
1. The article notes a decline in total internal transactions across the top 10 business groups. What factors might have contributed to this decline, and what are the potential implications for these groups and the wider Korean economy?
2. While overall internal transactions decreased, certain groups witnessed increases. What could explain these discrepancies, and are there any specific industry trends at play?
3. How does the consistently high proportion of internal transactions within certain groups, like Hyundai Motor and Celltrion, impact their competitiveness and growth strategies?
**II. Ownership Structure and Internal Transactions:**
1. The article identifies a correlation between CEO family ownership and the proportion of internal transactions. Is this correlation ethical, and what measures could be implemented to ensure fairness in such transactions?
2. What are the potential benefits and drawbacks of high internal transaction rates within family-controlled businesses?
3. How can regulatory bodies strike a balance between promoting free market practices and preventing potential abuses within conglomerates with intertwined ownership structures?
**III. Transparency and Regulation:**
1. What are the implications of the trend towards greater use of paid trademark ‘license agreements’ within conglomerates? Does this signal increased transparency or simply a more sophisticated method of facilitating internal transactions?
2. The Fair Trade Commission acknowledges the ongoing need for monitoring internal transactions. What specific steps can regulators take to enhance oversight and prevent unfair practices?
3. Beyond legal regulations, what role can societal pressure and corporate governance practices play in fostering greater transparency and accountability within Korean business groups?
**IV. Impact on Stakeholders:**
1. How do internal transactions potentially affect the interests of minority shareholders, suppliers, and consumers?
2. What strategies can be employed to ensure that internal transactions within conglomerates benefit stakeholders beyond the controlling family?
3. Does the dominance of large conglomerates and their intricate internal transactions create barriers to entry for smaller businesses in Korea?
These open-ended questions aim to stimulate critical thinking and explore the complex dynamics of internal transactions within Korean businesses. They encourage a multifaceted analysis of the economic, social, and regulatory implications, fostering a nuanced understanding of this crucial aspect of the Korean economy.
