[비즈한국] Companies sometimes make decisions that are hard to explain based on money alone. Understanding the underlying laws and systems can provide insight into the deeper story. 'Useful Business Secrets' introduces clues that help explain business trends.
In my line of work as a lawyer, I experience both wins and losses. Losing is the fate of a lawyer, and one cannot practice law if they are afraid of it. Winning rates hold various meanings. A win rate that is too high suggests one only takes on cases that are guaranteed to win or lacks the will to accept challenging cases; a win rate that is too low suggests room for improvement in one's professional performance. In short, losing is a "common occurrence in war." If you look at it coldly, the client is the one losing, not the representative, right?
Even if you console yourself with thoughts like this, losing is an embarrassing and bitter experience. While it would be nice if the memories of losing faded away, sometimes they resurface and cause distress. But how would it feel if you lost a case you were handling, only for time to prove that your original argument was correct? While I might think "all things eventually turn to right" (sapigwijeong) as my stance is validated, I also feel the "sorrow of being too late" (mansijitan).
The reason I have expounded at length on the emotions surrounding losing is that I accidentally discovered an argument rejected in a 2021 court ruling being cited today, years later, in a sanctions order by the Korea Fair Trade Commission (KFTC). It is from the KFTC's August 13 press release regarding "Sanctions for Large-Scale Unfair Human Resource Support Acts." The content describes how Company A, an affiliate of a large conglomerate, quickly preempted local food ingredient distribution markets—where large companies had not yet entered—to seize the market, and then built barriers to entry to prevent other large competitors from entering.
The local food ingredient distribution business is one where it is difficult for large companies to make a profit. With small transaction units, frequent defaults or closures of accounts (mostly restaurants), difficulty in debt collection, and the labor-intensive requirement of delivering various items every day, the staffing structure or salary system of a large corporation rarely makes it profitable. Just think of the business of visiting local restaurants at dawn to deliver food ingredients to their doorsteps.
Such businesses tend to have intricately woven distribution networks formed through strong bonds between sales representatives and clients, making established networks difficult to change. Therefore, while it is hard to generate profit, one can barely maintain the business through diligent footwork.
General conglomerates are not interested in a food ingredient distribution market with this type of structure. However, Company A, which controlled top-tier firms in various food ingredient categories through its many affiliates, was a different story. Even if it couldn't make a profit in the distribution market, occupying the market first was advantageous. It allowed its affiliated food manufacturers to secure stable accounts and exclude other manufacturers from the distribution market, thereby bringing profit to the group.
However, the food ingredient distribution market is dominated by small and medium-sized merchants (about 85% or more), leading to issues of "infringing on neighborhood commercial districts" whenever a large company enters. To avoid friction with small merchants that would be expected if it entered the market directly or alone, Company A entered the local market by establishing joint ventures, outwardly advocating for "coexistence" with them.
Even now, many press reports remain that highlight Company A's advocacy for coexistence when establishing joint ventures with local small merchants. For example, one can easily find promotional articles with headlines such as "Coexistence and Cooperation Academy with Small and Medium-Sized Partners," "Double-Digit Growth Based on Coexistence," and "Coexistence-Concept Affiliate."
Given the physiology of companies that prioritize profits above all else and the perspective from which large company headquarters view local small merchants, did they really establish joint ventures for the purpose of coexistence? Of course not. The contents of the KFTC press release pointing this out are as follows:
· This method (establishing joint ventures) was merely an external justification to avoid issues regarding coexistence, and it is difficult to see any intent for long-term, sustainable coexistence with small and medium-sized merchants. The joint venture contracts were designed so that after the small merchants appointed by Company A established the joint venture, Company A would purchase shares to take control of it. As a result of viewing these merchants not as partners for coexistence but as obstacles and business risks, B Group—the parent company of A—even intervened to systematically and organizationally oust them.
· While Company A was organizationally ousting these merchants internally, the joint venture was able to settle smoothly into the market and acquire a dominant position based on this incident's human resource support. This support continued until the point where the joint venture suffered large-scale deficits, preventing or delaying its exit from the market, which allowed it to continue maintaining the business networks secured from the small merchants during the joint venture contract process.
· (Strategy omitted) The joint venture acquired a dominant position in a market dominated by small merchants, and its market exit was artificially prevented, resulting in large corporations encroaching upon the legitimate profits that small merchants would have originally earned.
The content of the press release is written in the dry tone typical of official documents, so it may not resonate emotionally. However, based on my experience with the attitude and remarks of Company A's employees while handling the case, the above content is a "softened" expression of a desperate and brutal reality. B Group perceived small merchants as obstacles, business risks, or even "cancer cells" and actively worked to oust them. In the process, they actively utilized misconduct such as credit delinquency, national tax arrears, and undocumented transactions, and did not hesitate to file criminal complaints.
That is not all. They cleverly set the calculation formula for the price of goodwill and equity acquisition so that if sales decreased, the small merchants would not receive compensation from Company A, but rather have to pay damages to Company A. They used this as leverage to easily seize control of goodwill and equity. The small merchants thought the employees dispatched by Company A to the joint venture were their partners, but in reality, these employees were watching them with sharp eyes, digging through everything to find any management mistakes.
Since Company A selected top-tier regional food ingredient firms to establish the joint ventures, the resulting ventures should have been high-performing. Interestingly, once they began business in earnest, handled only B Group's products, and utilized Company A's computer and logistics systems, the profits of all the joint ventures nationwide began to deteriorate.
This shows that Company A either promoted the profits of its food manufacturing affiliates at the expense of the joint ventures or that B Group's management style was failing. Nevertheless, Company A ignored this background and demanded damages from the joint venture partners, claiming that sales had declined.
In civil lawsuits where contract documentation is crucial, the management strategies or intentions to oust partners by Company A and B Group mentioned above did not have much impact on the judgment. However, in the KFTC process, which emphasizes market structure and current status, these factors were reflected, and sanctions were imposed on Company A. This is a characteristic of the Fair Trade Act, which protects fair order in the market, but there is a lingering sense of regret that the action came far too late.