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Enjoying Renaissance Abroad
Construction Industry
Enjoying Renaissance Abroad
  • By matthew
  • July 23, 2013, 05:01
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Last year, Korean construction companies won contracts totaling US$64.9 billion in overseas construction markets. This is the second-highest figure following that achieved in 2010, when they clinched US$18.6 billion-worth of orders for nuclear power plant construction in the United Arab Emirates alone. The total increased by more than US$25 billion when compared to 2007. 

This year, the total value is estimated to reach approximately US$75 billion. “The possibility of a rapid drop in oil prices is not high this year, unlike during the financial crisis in 2008, and thus Middle East countries are expected to continue placing new orders,” said the Ministry of Land, Infrastructure and Transport, adding, “At the same time, an increasing number of business opportunities are likely to be found in emerging markets such as Africa and Latin America.”

The overseas operations of Korean builders have a history spanning 40 years. Samwhan Corporation obtained an order to construct a 164km-long expressway between Kaiba and Al Ula in Saudi Arabia in 1973; becoming the first Korean construction firm to set foot in the Middle East market. 

In the following decade, the amount topped US$10 billion for the first time. The total value surged from 1975, thanks to oil money, to reach US$13.7 billion in 1981 and turn Korea into the world’s second-largest construction exporter following the United States. In 1983, Dongah Construction Industrial won the US$3.3 billion-worth Great Manmade River Project in Libya, the largest single construction project in the world at that time. 

Korea’s construction industry enjoyed a huge boom in the 1980s as the 1986 Asian Games and the 1988 Olympic Games led to the fast expansion of the domestic market. The total contract amount of private construction works in the country skyrocketed from 6.5 trillion won to 26.3 trillion won between 1985 and 1990, and went on to exceed 70 trillion won in 1996. 

A common sight in South Korea, and now moreso abroad.However, the focus on quantitative growth resulted in painful experiences, i.e. the Seongsu Grand Bridge and Sampung Department Store building collapses in 1994 and 1995,respectively. It was at this time that the Construction Business Act was introduced in order to toughen the penalties for those involved in shoddy construction. To compound the matter, the number of insolvent companies in the industry jumped from 291 to 522 between 1997 and 1998 due to the Asian Financial Crisis in 1998. The figure rose to 1,843, with over 420,000 construction workers losing their jobs in 1998 alone. 

Nevertheless, the industry fought to save itself, qith the government lending a helping hand in order to recover the total value of orders to over 100 trillion won. “At that time, local construction firms began to aim for innovation and improve their businessproductivity and profitability, striving to become more future-oriented,” said the Construction Association of Korea. 

At present, Korean builders are enjoying a renaissance around the world. Their combined order backlog, which had remained below the US$10 billion mark for most of the years from 1982 due to the recession in the Middle East market, has increased at a rapid pace since 2005.Overseas orders obtained these days are quite different both qualitatively and quantitatively from those of the 1980s.Customers are not limited to Middle East nations, while the types of construction works are much more advanced. The ratio of plant engineering has also surpassed 70% since the late 2000s, while the level of profitability has risen to be almost equal those of projects in the domestic market. 

There still remain some obstacles to deal with though, in spite of stellar accomplishments. Experts are pointing out that local construction companies need to further diversify their target markets, construction types and business partners.Their reliance upon the Middle East is still pretty high, although significant improvement has been made. As of 2012, the region accounted for 57% of the total value of orders received, with Asia accounting for 30%. 

By construction type, plant construction represents 61% of the value, with civil engineering and general construction segments increasing their shares. The total amount in the two segments increased from US$13.3 billion to US$22.9 billion between 2011 and last year, signaling the possibility of construction type diversification. However, the added value of overseas plant construction projects is considered to be less than expected due to a lack of original technologies. 

Still, there is room for improvement. 428 Korean construction firms won 559 overseas orders in 2010, 80% of which were obtained by the top 10 companies.“Urgent problems in the industry will be able to be properly dealt with by nurturing human resources on a large-scale and providing the latest market information in a timely and accurate manner to both industry leaders and their smaller counterparts,”explained the International Contractors Association of Korea.