[Editorial] FTC Should Study the Changing Landscape of Global Industries

Fair Trade Commission (FTC) Chairman Kwon Oh-seung recently said, “The logic of petrochemical companies to further enhance companies via M&As to secure international competitiveness is risky indeed.” On this, not only companies but also the Ministry of Commerce, Industry and Energy representing the government were taken aback, saying, “They don’t know a thing about reality.”

Recently, Middle Eastern oil producing countries including Saudi Arabia and Iran started to internally produce oil products, taking advantage of original costs 60 percent lower than domestic ones, while China is rapidly expanding the volume of its related facilities as well. To survive in this fierce world, Korean oil companies have no choice but to implement restructuring.

When Dong Yang Chemical Co. sought to acquire CCC, an American manufacturer of raw materials for tires last year, the FTC dampened its effort. Although it was an M&A targeting the global market, its Korean market share of five percent was an issue. It demanded, “CCK, the Korean branch of the CCC, should not be acquired and should be sold off separately.” On E-mart’s acquisition of Wal-Mart Korea, it demanded E-mart “lower its market share by selling off four or five stores.”

Globalization has rapidly transformed the landscape of industries and competition. Oil companies export half of their production volume, selling half to China. At a time when competition takes place all over the world, companies will not be able to exert flexible global strategies if they have restraints on their domestic market share. Nevertheless, the FTC repeats, “As long as their domestic market share surpasses 50 percent, regulations will be imposed on corporate consolidation,” which is logic from 30 or 40 years ago when the concept of globalization was unheard of. The U.S. is famous for strict regulations on monopolies with a huge domestic market, but for over 20 years since 1984, no M&A regulations have been enacted.

The FTC’s behavior is worrisome because it might block possible M&A movement among financial companies in accordance with the Capital Market Integration Act. If the restructuring in the financial industry is delayed, world-class investment banks like Goldman Sachs will not come to Korea, and it will not even dream of being a financial hub in Northeast Asia. The FTC will have to stop thinking about restraining companies with M&A regulations and financing constraints as they do not go along with the global market trends, and let them do their business as freely as possible.

Corporate failures would be damaging. Even administrative and academic environments would go downhill if they cannot keep up with changing trends.