Posted on 23 Jun 2015
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Korea’s overseas construction projects passed $700 billion,
raising the possibility that Asia’s fourth-largest economy could soon rank
fifth worldwide in overseas construction.
Most recently, Samsung C&T inked a deal worth $694 million to build an
expressway in Australia, the Ministry of Land, Infrastructure and Transport
confirmed Tuesday.
With the contract, the accumulated amount of construction projects won by
Korean builders hit $700.2 billion, just a year and six months after it topped
$600 billion in December 2013.
Despite disadvantageous conditions in the construction industry abroad, like
falling global oil prices and political unrest in the Middle East, overseas
construction is considered a cash cow for Korea.
“Winning
overseas construction projects is crucial to job creation for young people,”
said Kim Gyeong-uk, a Land Ministry official, said.
“We will fully support increasing overseas projects as soon as possible so that
the total can surpass $1 trillion.”
One of the main reasons Korean builders have been so successful abroad is
because foreign investors recognize their diligence.
“The biggest reason Korean builders win those projects is because they’re
recognized as able to complete construction within the deadline,” said Kim.
The first overseas project won by Korean builders was an expressway project in
Thailand in 1965, inked by Hyundai Group founder Chung Ju-yung, worth $5.4
million.
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Although
Hyundai Engineering and Construction lost about $3 million on the project, it
became an opportunity for other Korean builders to bid for overseas jobs. In
1973, Samhwan Corporation, another Korean builder, won a contract to construct
an expressway in Saudi Arabia, worth $2.4 million.
In 1976, the Hyundai Engineering and Construction won an unprecedentedly large
project, to build an industrial port in Jubail, Saudi Arabia, worth $940
million - about 25 percent of Korea’s state budget at the time. In 1984, Dongah
Construction won the world’s largest irrigation project, dubbed the “Great
Manmade River,” in Libya, worth $10.5 billion. In 1993, Korea finally reached
$100 billion in total value of overseas projects.
As Korean builders became more confident, the scale of projects won by Koreans
has also increased. In 2005, Samsung C&T won its bid for the world’s
highest building, Burj Khalifa in United Arab Emirates, worth $360 million. In
2000s, overseas construction by Korean builders expanded $100 billion almost
every 18 months on average, and the total value surpassed $700 billion this
year, just less than a decade after it hit $200 billion in 2006.
This year, Korea is expected to surpass fifth-ranked Germany in overall
construction sales. In 2013, Germany recorded $46.6 billion, while Korea
brought in $42.4 billion.
Still, industry observers pointed out there’s much Korean builders must
overcome. They should first challenge other emerging markets, such as Asia or
Africa, not just focusing on projects in the Middle East, analysts say.
Diversifying their business is also necessary, analysts say, shifting the
current focus from construction-only contracts to design and financing.
“Based on their experience in the Middle East, they should expand their
business in Asia, where the average housing supply ratio [the number of houses
for each household] ranges around only 50 percent,” said Choe Min-su, a senior
researcher at the Construction and Economic Research Institute of Korea.
“Possibly, the China-led Asian Infrastructure Investment Bank could help them
get more opportunities.”
Kim Eun-mi, an international affairs professor at the Ewha Womans University,
agreed.
“Korea needs to participate actively in China’s plan to develop underprivileged
regions in Asia,” she said.
Still, Korean builders should be careful about competing among each other to
win projects in emerging markets, analysts say. Between 2013 and 2014, many
large-scale Korean builders lost more than 1 trillion won ($894 million) in
overseas projects due to the price competition among local companies.
“It is frequent for Korean builders to try to damage the reputations of their
Korean competitors in other countries, not only in the Middle East countries
but also in Singapore,” said an employee at a construction company.
Still, employees at Korean builders say it was too much for the state-run Fair
Trade Commission to impose billions of won in fines on several Korean
construction companies that colluded on the state-run four-river restoration
project.
The firms say they can pay the fines, but that the penalty prevented them from
bidding on construction jobs overseas.
“Although it is right to impose the fines on Korean builders for the collusion,
[the policy makers] need to reconsider the penalty that restricted the
builders’ participation in overseas project,” said Jeong Nae-sam, the vice
president of the Construction Association of Korea.
