Major biz groups award about 90% of ads to affiliates

Major conglomerates in South Korea awarded nearly 90 percent of their advertisement contracts to their affiliates last year, despite the government's crackdown on such intra-group transactions, a report showed Tuesday. Seven large groups -- Samsung, Hyundai Motor, LG, Lotte, SK, Hanwha and Doosan -- gave a combined 2.08 trillion won (US$1.94 billion) worth of contracts to their respective advertisement arms last year, according to the report compiled by Rep. Sung Woan-jong of the ruling Saenuri Party. This accounted for 86 percent of their total annual spending on ads. The report is based on data provided by Korea Broadcast Advertising Corp. and Korea Federation of Advertising Associations. Samsung Group, in particular, awarded 733.2 billion won worth of commercials to its own advertisement unit last year, which made up 98.8 percent of its total spending on commercials. Hyundai Motor Group gave 299.1 billion won worth of ads to its affiliate, which was 79.1 percent of its total spending on advertisement. The figures came despite the government's stepped-up crackdown on such intra-group transactions. Intra-group deals are criticized for sidelining smaller companies in bidding processes and also cited as a secret measure employed by owners of conglomerates to transfer their wealth to their family without paying due taxes by awarding them business contracts with favorable terms. The Fair Trade Commission (FTC) has been pushing to toughen regulations on such intra-group transactions as part of efforts to establish fairer competition rules. "In the advertisement industry, there is a saying that the ranking of ad companies equals to the ranking of conglomerates," Rep. Sung said. "It is necessary for the FTC to take up a more active role in rooting out such practices where large companies give favors to their affiliates by awarding contracts."