IBM Korea under probe for software bid rigging

Lee Hui-sung IBM Korea head

Anti-trust regulators here are investigating the Korean unit of global technology firm, IBM, over suspicions of bid rigging, an industry source said Monday.

IBM Korea colluded with resellers to manipulate bid prices to steer a lucrative contract to one of its partners in a Seoul Metropolitan Rapid Transit Corp. (SMRTC) project, the source told The Korea Times on condition of anonymity.

Investigators of the Fair Trade Commission (FTC) are looking into IBM Korea and three of its resale agents, Cordial, Maun Information and Saerom Information Systems, according to the source.

The watchdog declined to confirm the investigation, citing an internal rule about keeping ongoing cases under wraps. IBM Korea representatives also declined to comment.

The SMRTC, one of the two subway operators in Seoul, took bids in April this year for a project to install the IBM-developed office software, Lotus Notes, at its headquarters and other business units.

Cordial lobbied officials of IBM to gain advantages in winning the competition, according to the source. A mid-level IBM sales manager, who the source identified only as Ahn, orchestrated the illegal scheme by having two of the company’s resellers submit higher bids than Cordial.

FTC officials recently conducted an investigation at IBM Korea headquarters in Seoul and found e-mail records revealing the under-the-table maneuvering.

It’s unclear what Cordial’s bidding price was, but a subway company official familiar with the case estimated it at 190 million won ($168,500) or lower. The official said the program’s installation will proceed regardless of the FTC’s probe.

After the probe began last month, IBM headquarters in the United States ordered its Korean unit to stop doing business with the three resale agents, but it resumed from Aug. 1, the source said.

Experts said such bid-rigging is quite widespread in the county’s software industry, particularly in services offered by a handful of companies.

“With Lotus Notes installed by a small number of agents, they may have overlooked the collusion to win other profitable contracts in rotation,” a software expert said, asking not to be identified.

This case surfaced as IBM Korea was struggling with another FTC probe.

The regulator has investigated the firm since early last month for allegedly dumping its software products on a sales agent, KSTEC. In addition, IBM has banned KSTEC from selling stockpiled products of another software firm the former took over.

The agent claims it has sustained losses worth 6.1 billion won ($5.33 million) since 2002 due to the forced sales, but the software giant has given no compensation.

IBM Korea has been criticized for abusing its power and distorting competition. The firm continued controversial practices even after the government switched its fair-trade campaign into a higher gear last year.

Industry observers say this explains why IBM doesn’t appear in the latest rankings of the world’s most ethical companies by the New York-based think tank Ethisphere Institute, despite the firm’s supremacy in the software business and handsome employee salaries. <The Korea Times/Park Si-soo>

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