“The electrical appliances industry, of which exports reached US$13.8 billion last year, is turning itself from a domestic demand industry into an export-driven one. I hope the Korean government will provide wider support for the sector so that more and more companies can become leading global players,” said Jang Se-chang, chairman of the Korea Electrical Manufacturers Association (KEMA), during a recent interview with BusinessKorea.
KEMA is one of the largest electrical industry organizations in Korea. Its 215 member companies manufacture power transmission and substation equipment, such as transformers, switching devices and electric wires; power receiving and distribution systems such as power boards and automatic control panels; and industrial and power generation equipment, such as emergency power generators, motors, valves and heat exchangers.
The Ministry of Trade, Industry and Energy has been created to handle trade, taking over from the Ministry of Foreign Affairs. What are your predictions regarding functional transfers and what would you like to suggest to the new ministry?
The Korean government has signed free trade agreements with eight economic blocs, such as the European Union, and is having negotiations with seven more, including China. Such efforts for globalization and market opening are desirable in that the Korean economy is highly dependent on foreign markets.
The electrical appliances industry, which manufactures equipment and facilities for national power grids, was more like a traditional industry oriented toward domestic demand until recently, but it is now transforming itself into one of the country’s key export drivers. Under such circumstances, global leaders are penetrating the Asian, African and The Middle Eastern electric machinery markets more quickly by manufacturing top-quality products in China and also by means of anti-dumping lawsuits. Meanwhile, Chinese and Indian companies are trying to catch up with their Korean rivals by taking advantage of their competitive edge in terms of price. In short, Korean companies in the industry are finding themselves in an increasingly difficult position.
The only way to deal with such a challenge is to further their competitiveness through technological development, and this is why the government should focus more on support for technological R&D, standardization and product development. At the same time, it should pay more attention to the policy side so that the Korean companies can make inroads into emerging markets with greater ease and building on overseas pilot projects in the fields of facility expansion, repair and maintenance.
You have stressed the need for the establishment of trade policy reflecting the characteristics and current status of the electrical industry with regards to the Korea-China FTA and the Korea Electric Power Corporation’s opening of the government procurement agreement.
In the electrical appliances industry, the Korea-China FTA is posing a far greater challenge than those of the KORUS and Korea-EU free trade deals. In China, more than 60 manufacturing facilities owned by global market leaders are already in operation and they are manufacturing products 60% to 80% cheaper than those produced in Korea. The Korea-China FTA and the opening of the markets for such items not subject to tariff concession in the GPA, such as super-high voltage cables, transformers and gas insulated switchgears, could be a threat to the very survival of the industry.
The global electrical machinery industry is a supplier-driven one, 80% of which is currently being dominated by 10 or so global enterprises. It implies that a collapse of the domestic industrial base will result in a greater dependence upon foreign companies, which could lead to higher repair and maintenance costs, difficulty responding to unexpected incidents and a fall in the safety and reliability of power networks.
Therefore, the state-run power company will have to pay extra caution when opening procurement markets related to those items, based on the principle of reciprocity, while limiting the participation of countries that do not sign the GPA in the domestic procurement market so that Korean firms do not suffer from reverse discrimination.
The 18th Seoul International Electric Fair is scheduled for September this year. What is the concept of the exhibition and its programs?
Nowadays, creative economy has become the talk of the town as the policy philosophy of the Park Geun-hye government. Two of its keywords are creativity and industrial convergence, the two concepts that KEMA has been applying to the exhibition for years.
The fair dates all the way back to 1994 and has been held in tandem with the Korea Nuclear Power Industry Exhibition since 2011 for the promotion of the nuclear facility industry. The international exhibition covers not only power generation, transmission and distribution equipment but also a number of related sectors, such as railroad power supply, new and renewable energy, smart grid, power grid, and energy storage.
This year, it is estimated that at least 200 companies will join the show from both home and abroad, with over 12,000 industry experts and domestic and foreign buyers expected to attend the exhibition and conduct business meetings at the more than 400 booths.
What have been the organization’s key projects and accomplishments since your inauguration as chairman?
We recently reorganized our corporate structure to maximize our business efficiency, and our committees have been engaged in various activities designed to boost joint growth between major corporations and small businesses. In addition, we have established new sub-associations made up of emergency generator and switchgear manufacturers.
The organization has contributed to the Korea Electrotechnology Research Institute’s project regarding the testing of 4,000MVA electric power facilities and to the revitalization of the electrical industry in conjunction with the International Council on Large Electric Systems. At the same time, it has called upon the government and KEPCO to gradually open the government procurement market so that the industry can have more time to sharpen its competitive edge.
Last but not least, I would like to mention that KEMA played a critical role in raising the industry’s exports to over US$11.6 billion in 2011 by successfully hosting the Seoul International Electric Fair and launching aggressive market penetration activities around the world, including the ASEAN region. The industry’s exports grew 19% year-on-year in 2012 despite a drop in the country’s overall exports.
You are also the chairman of Powermax. Please tell our readers briefly about your company.
Formerly Icheon Electric, one of the first heavy electrical machinery manufacturers in Korea, Powermax produces transformers and power generators. Its main office and manufacturing plant are located in the Shihwa Industrial Complex in Gyeonggi Province and its Seoul office is in Nonhyun-dong. It is capable of designing and producing oil-immersed power and distribution transformers with a capacity of up to 69KV and 60MVA. Our main clients include major overseas power plant operators as well as KEPCO and POSCO.
We also supply commercial and emergency power generators ranging from 20kW to 2,500kW. Although most of these are diesel generators, we are seeking to expand our lineup to include gas-powered and combined heat and power generators. We operate in Southeast Asia and The Middle East and are also trying to enter Latin American and Central Asian markets.
We received the US$5 Million Export Tower Award in 2012, just two years after our first overseas shipment. We are confident that we will be able to win the US$10 Million Award this year.
KEMA chairman Jang Se-chang graduated from the Electrical Engineering Department of Seoul National University and the University of Illinois. He served as CEO and chairman of Icheon Electric, a director of the Korea-Japan Economic Association, and a director of the Korean Industry Standard Association. At present, he is vice chairman of the Korean Institute of Electrical Engineers, a KEPCO Business Innovation Committee member, and an associate professor at the School of Electrical Engineering at the University of Ulsan.