Can new IBM boss fix moral hazard?
By Park Si-soo
Shirley Yu-Tsui
Shirley Yu-Tsui is walking into a mess at IBM Korea, which is facing a heady mix of negatives that include a declining business, nagging legal problems and a worsening relationship with government regulators.
The Chinese engineer-turned-executive, appointed last week as the company’s next leader, vows to open a new chapter here for Big Blue, which was one of the first foreign technology companies to seriously commit to Korea.
But she will soon find out that her job, at least initially, will be less about selling corporate software than cleaning the in-house hodgepodge left by the outgoing Lee Hui-sung.
Not that IBM Korea’s diminishing business presence here is anything to sneeze at. The company finds Korean rivals in information technology (IT), and even telecommunications thanks to the blossoming of server-based ``cloud’’ computing, beginning to duplicate its strengths in software and business solutions. Its businesses in corporate consulting and hardware seem irrevocably over-the-hill.
On all these fronts, there is no reason to think that 2013 will be better than what proved to be a dismal 2012. And there is the possibility that a series of legal disputes and accusations of bad competitive behavior could begin to affect the company’s business.
A serious blow to IBM Korea’s reputation was a dispute with KSTEC, its longtime business partner and sales agent that found takers for its software.
Lee Sung-do, owner of the middleman company, claimed that IBM Korea caused him more than 6.1 billion won (about $5.4 million) in losses since 2002 by forcing his firm to place orders for software before the contracts with end-users were inked. KSTEC has since taken IBM Korea to court.
``My company is on the brink of bankruptcy,” Lee said. “My company will die out without IBM Korea giving us the freedom to move our inventory autonomously or pay us an equal amount for losses in compensation.’’
IBM Korea is also in the doghouse of the country’s fair trade watchdog over allegations of price rigging.
According to the Fair Trade Commission (FTC), IBM Korea colluded with resellers to manipulate bid prices to steer a lucrative contract to one of its partners in a Seoul Metropolitan Rapid Transit Corp. (SMRTC) project.
The SMRTC, one of the two subway operators in Seoul, took bids in April last year for a project to install the IBM-developed office software, Lotus Notes, at its headquarters and other business units.
Cordial, one of IBM Korea’s resale partners, lobbied officials of IBM Korea to gain advantages in winning the competition, according to the source. A mid-level IBM sales manager orchestrated the illegal scheme by having two of the company’s resellers submit higher bids than Cordial. This is another case that has been taken before a judge and the verdict is expected sometime around March.
Burning bridges could be damaging to any business, but especially when you are depending entirely on corporate and government clients. It will be Yu-Tsui’s job to pick up the pieces and mend fences with the industry and bureaucrats: Her predecessor Lee has landed a comfy director’s role at IBM’s U.S. headquarters.
“More than half of 500 multinational companies have their presence in Korea and many of them are leading the domestic market,” lawmaker Cho Won-jin of the ruling Saenuri Party said in a parliamentary audit of the government in October. “The FTC should pay keen attention to their business practices here.”