Hefty Penalty Slapped on Korean Market Tobacco Giant

Source from:  tr.itsmyiq.com Jun 18, 2008 06/19/2008

After surviving a hostile takeover bid by U.S. corporate raider Carl Icahn in 2006, KT&G CEO Kwak Young-kyoon enjoyed a surge of glory that earned him another three-year term in the top job last year. But the tobacco giant under his wing has been collecting unwanted attention recently, largely due to muscle-flexing tactics. The taking down of competitors' advertising material and pressuring small retailers to sell only KT&G products are among some of the petty strategies reportedly practiced by the overwhelming market leader. Details ¯ first only rumored ¯ are starting to surface, with fresh rulings slamming the former state-owned monopoly, which currently commands a 70 percent domestic market share. According to the nation's antitrust watchdog Monday, KT&G has been slapped with a fine of around 100 million won for unfairly inducing cigarette buyers. The case was opened by global tobacco maker British American Tobacco (BAT) Korea in May last year, in which it reported that KT&G offered incentives to small retailers that did not display BAT products. The Fair Trade Commission's (FTC) ruling is the first-ever unfair trade penalty handed to KT&G since its founding. However, industry sources say this may be the first of many to come. Woori Tobacco, the newest player in the local cigarette market, said Monday that it is preparing several lawsuits against KT&G's interference in blocking its market entrance. "We are in the process of gathering information to take legal action against KT&G,'' said Park Ji-gu, a spokesman of Woori Tobacco. He pointed to the bribing of retailers and trashing of Woori's promotion materials as some of its competitor's ``wrongdoings.'' A group of Woori sales agents already filed a suit against KT&G's chief executive in March for hampering their business activities, according to Park. However, prosecutors cleared Kwak from suspicion in April, while only fining the KT&G sales agent responsible for the incident. Park says the group is appealing the case. Separately, sources say the FTC is looking into another probe surrounding the No. 1 player's unfair monopoly methods of competition with Woori Tobacco. Regarding the latest incidents, KT&G distanced itself from them, claiming that they were practices carried out by its sales agents independently. ``We're not aware of our sales staffers' every move, but we make efforts to regulate activities that cross the line,'' said a company spokesman. Industry insiders, however, say this is hard to believe because such practices have been widespread for years. "KT&G has such a stronghold in the market that it is hard for retailers and even competitors to breakthrough its early-established presence,'' said an executive of a foreign tobacco company, who asked not to be named. Among nations that have opened its tobacco market, South Korea is the only country with its homegrown brand securing a solid 70 percent of the total market share. BAT, Philip Morris and other foreign groups take up the remaining 30 percent. Enditem