Setting Plant Industry as a Future Growth Engine

The Korean government aims to join the ranks of the top five plant construction leaders of the world by 2015. In this vein, it needs a comprehensive strategies and supports from public sector as well as private sector. BusinessKorea interviewed with Nam Ki-man, Director General for Manufacturing Industries at the Ministry of Knowledge Economy to hear the government position and plan to further invigorate the plant industry.

Q: The total value of orders Korean plant engineering companies received overseas decreased slightly during the first half of this year. What are the reasons for this?

A: They won overseas orders worth US$33.5 billion in Q1 2010, while the figure dropped to US$30 billion during the same period in 2011. However, given that the former includes the UAE unclear power plant project, I believe their performance during the latter period is highly praiseworthy. The US$18.6 billion-worth project in the Middle East nation alone takes up approximately 30% of the figure for the entire year of 2010.

They are consistently improving their track records, in particular, in the power generation and marine plant segments. Furthermore, the mega-scale gas production project recently launched by Saudi Arabia was won entirely by Korean companies, which is quite exceptional.

Also rosy is their performance during the second half. Many are now anticipating that an Iraqi project worth some US$6 billion will go to one or more of these Korean players. Under such circumstances, their order acceptance for the year is likely to top last year’s figure with ease.

Q: Currently, deterioration in profitability derived from excessive competition is causing concern. What is the government doing about this?

A: The majority of large-scale plant projects take the form of competitive open bids. As such, competition is inevitable, whether it is among Korean companies themselves or with those of other countries. Korean plant engineers, in a bid to remain victorious, are striving to raise their competitiveness and profitability by means of technological development and cost reduction.

What is most urgent to avoid cutthroat competition is none other than their own consensus and efforts to do so. The government, for its part, will increase its assistance for market penetration. It will also continue to cooperate with the governments of untapped emerging markets so that those corporations can find their way more easily.

Q: It has been pointed out that more project financing-based businesses are necessary to export high value-added plants. What is your appraisal of Korean companies’ financing capabilities?

A: As is well known, the plant industry requires big budgets, and therefore, ordering nations and bodies usually ask for project financing, with the exception of some Middle East countries. The practice, undeniably, has been a dilemma for Korean plant engineers. Furthermore, despite the soaring volume and size of overseas projects, the credit lines of our export credit providers are significantly more limited than those of their Japanese counterparts.

In the meantime, existing engineering, procurement and construction (EPC) companies are participating directly in an increasing number of projects as developers. The government is also preparing backup measures to that end by, for example, helping local export credit providers exchange MOUs with their peers overseas. Enterprises and financial institutions themselves are working industriously to enhance their financing competence, too.

It is necessary to expand the credit limit of those local institutions for the sake of timely and sufficient financial supports, but in the long run, it is important to iron out methods for financing from foreign financial institutions.

Q: The Iraqi reconstruction project has been in the limelight recently with economic cooperation between Korea and Iraq strengthened. What do you think are its opportunities and risks?

A: At present, the Iraqi public is more interested than ever in the reestablishment of national and industrial infrastructure. Answering to this call, the Iraqi government has begun or is planning to begin large-scale reconstruction projects.

It is a huge opportunity for us. Capitalizing on economic partnerships and tight bilateral relations, Korean companies are now finding it easier to enter the market. The downside is that the country is not perfectly stable yet and some political risk factors still remain. Korean plant constructors should make their business plans thorough and select sure-fire projects first before knocking on the door of the market.

Q : It seems that they cannot but vie not only with global plant engineering leaders but with late starters from China. What should be Korean companies’ comparative advantage?

A: In fact, China is currently trying to win more overseas orders by utilizing large-sized loans on its foreign exchange reserves second to none globally, and is showing an advancement in technology and fast improvement in construction abilities, tentatively posing potential threat.

Korean plant corporations have accumulated abundant know-how, experience and expertise up until now. They are doing better and better in high value-added fields such as front-end engineering and design(FEED) and project management consultancy (PMC) and increasing their global market share by strictly observing deadlines, hiring local workers, etc.

Q: Some are mentioning that they are too lopsided towards the Middle East region, voicing the necessity for new market creation. What does the government have in store to help them diversify their customer base?

A: The plant construction market of the Middle East, the world’s largest, is a 100% opened one, where projects take advantage of huge oil money. Given such facts, it can be said that our companies’ outstanding performance there is evidence of their high level of competitiveness.

The government, of course, is as the same time engaged in market diversification. It has discussed industrial collaboration extensively with emerging nations in Africa, Latin America and so forth, while sending joint delegations to assist them. Additionally, the government’s backup activities for the same purpose include the exploration of smaller projects in the framework of relevant agencies and assistance in vendor registration.

Q: What is the government’s long-term strategy to turn Korea into a plant construction powerhouse?

A: Back in September 2009, the government set the plant industry as one of its future growth drivers and has prepared comprehensive support measures for its value-creating growth and development. One year and one month later, it came up with plans to sharpen the competitive edge of the closely-related equipment and materials sectors. All of these policy means are well underway now.

Korea is aiming to join the ranks of the top five plant construction leaders of the world by 2015. In this vein, it is augmenting its support for the R&D of key original technologies and strategic segments, overseas market expansion, and the supply of highly-educated, well-trained personnel.

In October of this year, it will establish further plans to better promote the plant industry, and in the following month it is going to bring forward a new scheme in order to further invigorate the marine plant industry.