An exterior view of Posco Center in Gangnam-gu, Seoul [Posco Holdings]
An exterior view of Posco Center in Gangnam-gu, Seoul [Posco Holdings]

Posco Group is partnering with the Korea Fair Trade Commission to strengthen a mutual-growth cooperation framework that extends beyond first-tier suppliers to cover second- and third-tier partners, with the aim of improving payment terms and broadening use of its shared-payment system to enhance cash flow and competitiveness across the supply chain.

Posco Group held the "Posco Group Mutual-Growth Partnership Signing Ceremony" at Posco Center in Gangnam-gu, Seoul, on Thursday. The event drew about 130 attendees, including Fair Trade Commission Chairman Ju Byeong-gi, Posco Holdings President Lee Ju-tae, Posco President Lee Hee-geun, POSCO International President Lee Gye-in, other heads of major group affiliates, and representatives of first- and second-tier suppliers.

The core of the agreement is to institutionalize support so that it flows beyond first-tier suppliers down to lower-tier partners. Under the pact, Posco Group committed to four key initiatives: improving payment terms, activating the mutual-growth payment system, offering preferential treatment to first-tier suppliers that participate in mutual-growth cooperation, and supporting suppliers in strengthening their competitiveness.

To ease the cash-management burden on suppliers, Posco Group will pay the full amount in cash within an average of 10 days. First- and second-tier suppliers will also be encouraged to pass payments down to their own lower-tier partners within a maximum of 30 days each.

The group will also increase use of its mutual-growth payment system — a regime under which first-, second- and third-tier suppliers are guaranteed cash payment on the settlement date and can convert receivables into cash before that date at low financing costs. For smaller suppliers that struggle to predict when they will collect on deliveries, the system offers greater stability in managing working capital.

Posco Group plans to grant incentives in supplier evaluations to first-tier partners that sign fair-trade agreements with their own second- and third-tier suppliers. The aim is to reward active participants in mutual-growth cooperation and encourage the practice to spread organically through the supply chain.

Support will expand beyond financing to cover technology development and overseas market entry. Particularly, the group decided to extend its "performance-sharing program" — under which gains from joint technology development with suppliers are shared — from first-tier suppliers to second-tier and lower partners.

Posco introduced the performance-sharing program in 2004, becoming the first domestic company to adopt such a system. It works by having a large company and its suppliers jointly develop technology, then sharing the resulting cost savings or sales growth. Posco Group plans to extend the program to second-tier and lower suppliers to strengthen technological competitiveness across the entire supply chain.

The agreement is expected to benefit more than 5,300 supplier firms in the Posco Group supply chain. Its significance lies in going beyond simply improving transaction terms with first-tier suppliers to building a structure in which lower-tier partners can also receive stable payment collection and technology support.

Posco Group has recently been carrying out a broad overhaul of its finances and operations, including restructuring non-core businesses and early repayment of foreign-currency bonds. The mutual-growth agreement is part of the same drive to improve supply chain stability alongside internal efficiency gains.

Posco Group plans to incorporate the terms of the agreement into its supplier fair-trade pact scheduled for early next year. The group said it intends to improve transaction practices with suppliers and work toward building a sustainable industrial ecosystem.

In his congratulatory remarks, Fair Trade Commission Chairman Ju said mutual-growth cooperation "will serve as a foundation for Posco Group's continued innovation and as an investment that can elevate the entire industrial ecosystem to the next level," adding that he hopes "a culture of mutual growth takes root as a new standard for our economy."

Posco Holdings President Lee Ju-tae said the group "has grown by treating cooperation with suppliers as a core value," and pledged to "continue to spread a transparent and fair transaction culture throughout the industrial ecosystem, strengthen trusted partnerships, and be a reliable partner."


kwater@heraldcorp.com