On the 13th, it has been reported that some small and medium-sized companies exporting display equipment to China are still experiencing difficulties due to back payment delays. In some cases, absurd requests were made requesting the postponement of payment deadlines without also changing the expected delivery date for equipment. Competition for lower order prices among Korean companies is also reported to be adding to the difficulties.
Domestic equipment exporters usually contract Chinese display companies on the condition that they receive 80% of the payment after delivery. The remaining 20% is to be paid after the equipment set-up and operation are completed normally. The problem is the timing of the remaining balance payment. The determination on the normal operation is made by Chinese display makers, which can delay the remaining balance payment forever.
An official of Company A said, "A long time passes after the delivery of the equipment, and even then, we receive payment in 10% increments. We get 10% after 1 year, then another 10% after another year. Considering the date of the contract, the money comes in after 3 years. Also, some even require a contract to reduce the equipment delivery payment to 70%."
The average operating profit margin of display makers is around 10%. If you sell one piece of equipment, 10% profit remains, excluding material and labor costs. An official of Company B said, "Because they ask for repairs at a cost or pay in 5% increments, some equipment companies give up about 10% of the money. The equipment maker is being swindled, while the Chinese company pockets the money. If 10% of the equipment price is not received, most equipment companies will just barely break even or lose money on the deal.
There was an unreasonable demand to postpone the date of equipment delivery payment. An official of C Company said, "After receiving the equipment order, the company delayed the delivery time by six months. We confirmed with them as such, after which they asked us to deliver the equipment based on the original schedule. However, they asked us whether they can pay on the 6-month delayed date. The matter was resolved in negotiations, but the request was absurd."
According to an official of the Korea Display Industry Association, "In some cases, the remaining balance is received without problems, while in others, companies do not. We are continuously monitoring the status. But because the matters occur based on contract conditions between companies, there is no clear countermeasure. We can only see whether there is any unfair trade in those transactions.”
The low-price order competition among domestic companies also adds difficulties to the display equipment industry. An official of D Company said, "The low-price order is a matter of order, it has no relevance to the balance payment. However, when the order is low priced, it causes the company not to produce good products as they cannot use proper parts, which can cause problems when receiving the remaining balance when the production line set-up and operation fail.”
Joo Byeong-Kwon, Director of Future Display Development Project Team, said, "Even now, companies should discuss guidelines and create standardized criteria so that they can cooperate and respond as a group. Individual actions cannot escape from the low-priced order competition that would hurt themselves. Low-priced orders will eventually deteriorate quality competitiveness, which will have a negative influence on the entire display industry."
Display equipment makers in the U.S. and Japan are said not to experience delayed payments like Korean equipment makers. An official from the Korean display industry said, "Overseas companies receive a prepayment amounting to 20~30% of the contract amount in proceeding with contracts. Chinese display companies ask Korean companies for any issues in production and related responsibilities rather than the U.S. and Japanese equipment manufacturers."
Another display industry official said, "Among domestic display equipment manufacturers, some receive advance payments from Chinese display companies. Enhancing technological competitiveness is the fundamental solution."