Korea’s No. 2 refiner scales up cash payments, low-interest loans and technical training for suppliers


GS Caltex, the country’s second-largest oil refiner, is stepping up efforts to support its small vendors and suppliers as it strives to create a level playing field in Asia’s fourth-largest economy.

Co-prosperity has been a keyword for corporate management over the past year as the government pushes for fair trade and sound competition between conglomerates and small- and mid-sized businesses.

The Seoul-based refiner said it has devised a guideline to establish a fair contract system and set up a special unit to support its partner firms for technology development, training and other services.

“We’ve been developing measures to help our suppliers with research, consulting and marketing, while providing them with office space free of charge and adopting policies for fair pricing and electronic procurement,” a GS official said.

Under the guideline, GS said it had adopted a policy to pay all bills worth 358.6 billion won ($313 million) to its subcontractors entirely in cash. It also cut the average payment period from 10 days to shorter than 5.2.

The company’s long-term contract system is aimed at reducing business uncertainties for the small firms so they can focus on long-term technical development rather than fretting about their expiring deals every year, GS said.

It also launched a “mutual growth” fund with local financial institutions to facilitate its partners’ financing by injecting 100 billion and guaranteeing low interest rates. As of July, 38 firms have taken out loans worth 27.4 billion, it said.

Last year, GS said it “willingly” raised prices of supplies for the SMEs as their business teeter in the face of volatile currency, inflation and surging costs of raw materials.

“The decision cost us 5 billion won extra last year alone, but we did that to shoulder our partners’ burden,” GS officials said.

As a result, the refiner said it earned an “excellent” mark in the Fair Trade Commission’s assessment of mutual growth on the country’s 56 largest corporations last year.

The assessment came on the heels of mounting criticism that industry giants strangle the growth of their subcontractors and cripple competition by forcing price cuts for supplies and granting lucrative orders to their own subsidiaries.

Early this year, the Commission of Shared Growth for Large and Small Companies launched a “mutual growth index” to rate the businesses on how well they distribute their wealth with suppliers.

The FTC also conducts investigations to see whether they are engaged in antitrust practices and other irregularities.

Executives of major conglomerates initially issued harsh condemnation of the so-called “profit-sharing” plan for being anti-market, but they have nonetheless largely complied with the policy.

The refiner’s ongoing efforts stem from its parent company GS Group’s commitment to the “sharing” culture, officials said.

Huh Chang-soo, chairman of the nation’s eighth-largest conglomerate, has been calling on all affiliates to pursue “sustainable competitiveness,” which he said can be obtained by fostering co-existence with their subcontractors and an innovative corporate culture.

“We should bolster our growth engine by achieving mutual growth with various stakeholders including our suppliers, partners and customers,” he told group executives last year.

Last year, the group orchestrated a 660 billion won worth of support for its partner firms in mutual growth funds, loans and direct financial support, officials said. It also allowed secondary and tertiary suppliers to benefit from such measures.

Huh himself is devoted to serving his social responsibilities as one of the biggest share donators in Korea.

In September 2010, Huh donated his 49,000 shares in GS Engineering & Construction Co. worth some 4 billion won to the J K Huh Foundation, a charity he established.

By Shin Hyon-hee (heeshin@heraldcorp.com)