By Kim Yoo-chul
Staff Reporter

Vulnerability to supply-chain fraud risks are on the rise as supply lines of South Korean companies become more extended and complex.

As a result, experts say, companies have become the target of an array of frauds ranging from simple theft, misrepresentation of inventory, gray market diversion, counterfeiting and even piracy.

Fraud thrives on complexity and companies are faced with fraud from the very beginning because of global growth and increased outsourcing, according to a recent Global Fraud Report released by Kroll, the New York-based risk consulting firm.

South Korean IT giants, which have already acknowledged the significance of such issues in managing their businesses on overseas markets, are planning to inject fresh capital to strengthen their supply-chain management systems.

With hefty investment, LG Electronics has recently finished the completion of its ``Global Supply-Chain Management System.’’

``The system is intended to face off increasing financial damages triggered by poor supply-chain management on overseas markets,’’ an LG official said Monday. LG, the world’s No. 3 flat-screen TV and No. 4 handset maker, reaps some 70 percent of its sales overseas.

``We could increase productivity by 10 percent as the system makes it possible to cut inventory levels and lead times, and to check the current status of product shipments in real-time,’’ the official said.

Samsung Electronics doesn’t have immediate plans to invest more in supply-chain management. However, the company is tightening it to cut costs.

``We are in an expansionary track in some emerging markets, meaning we don’t have a set cutoff in terms of pricing’’ a Samsung Electronics official said. In a first-quarter earnings briefing, the company’s Vice President Chu Woo-sik reported an impressive performance due to its advantage in supply-chain management.

Over 90 percent of Samsung Electronics’ sales are overseas.

Hynix Semiconductor, which has been accelerating efforts to expand the foundry (contract) business with Taiwan-based strategic partners to cut costs amid the bearish global chip market, also plans to complete its global supply system, embracing clients by early 2009.

Unlike the information technology sector, the pharmaceutical industry has struggled to tackle increasing supply-chain problems because of the sector’s ``increasingly complex patterns of production, distribution and sales.’’

Citing the U.S. Food and Drug Administration, Kroll said the volume of counterfeit drugs in the supply chain increased fivefold between 2001 and 2007, with fraudulent e-pharmacies raking in up to $6 billion per year..

``It is really difficult to have a strong supply-chain management system because drugs are easy to copy,’’ an official from Pfizer said, adding internal theft throughout the supply chain is a major risk as well.

yckim@koreatimes.co.kr