By Park Si-soo
The Fair Trade Commission (FTC) has slapped Samsung Electronics with a fine of 1.6 billion won ($1.37 million) for canceling contracts with subcontractors and delaying receipt of outsourced components, the regulator said Tuesday.
The FTC said the Seoul-based IT giant should be held liable for what it described as “prevailing violations in the fast-changing electronics industry.” It said 151 subcontractors of Samsung suffered significant losses between January 2008 and November 2010 due to the unlawful practices uncovered in some 28,000 contracts.
Nearly 30 percent of the contracts were broken by the mobile business unit at Samsung Electronics that manufactures the Android-based smartphone, Galaxy, according to the regulator. In some cases, Samsung canceled contracts even after the deadline for the delivery of ordered products, it said.
The FTC’s penalty is legally binding, meaning Samsung must take the case to court to get it overturned. The regulator said it will continue to get tough on such practices and widen its investigations to other electronics giants.
“We will crack down on these illegal practices, which frequently take place in the electronics industry,” Ji Cheol-ho, head of the FTC’s business cooperation bureau, told reporters. “We will also try to punish those in charge with the law.”
The official said contract cancelation and delays in receiving ordered components are “something inevitable” in the electronics industry since the firms placing orders need to flexibly respond to frequent changes in product designs, manufacturing and sales schedules. Despite this, he said it’s problematic that Samsung has ignored an outcry from its subcontractors over contract violations.
“We admit that such practices are unavoidable in the electronics business,” Ji said. “So we want the case to change Samsung in a way where it provides due compensation to affected subcontractors.”
Samsung denied all the charges leveled against it.
“We cannot acknowledge the FTC’s decision,” Kim Nam-yong, vice president of Samsung Electronics’ corporate communications team, told The Korea Times. “We have made great efforts to prevent any damage to our subcontractors.” Kim said the firm will decide whether or not to take the case to court after receiving an official ruling statement from the FTC.
“This is a result of the FTC’s lack of understanding about the IT industry,” Samsung said in a statement.
On top of this, the FTC has encouraged 42 leading electronics companies, including Samsung Electronics, Samsung SDI, and LG Electronics, to voluntarily resolve such problems in a campaign that kicked off earlier this month.
Twelve companies compensated affected subcontractors for losses in April and have pledged not to repeat delays in making payments. The FTC is calling on the remaining 30 to follow suit.