Korea saw opportunities in building abroad
By Alan Timblick
The Arab Oil exporting countries in 1973 decided to retaliate against U.S. support for Israel during the Yom Kippur War. In October that year, an increase of 70 percent in the price of crude oil per barrel was announced. We may find it hard to remember just how cheap oil had been by today’s standards ― the price increase took the level up to an exorbitant $5.11! But in fact prices had been around $3 per barrel before that for almost a century and no one was prepared for such a huge relative increase.
The oil shock hit the Korean economy as hard as any. The country had only just begun to build an industrial base and was virtually dependent on imports for the bulk of its energy supplies. But every cloud has some kind of silver lining. The petro-dollars being earned by the oil exporting countries, particularly in the Middle East, resulted in accumulated spending power. Much was invested into solid and safe earning assets in the advanced world, but the oil sheiks also saw that it was now possible to reinvest in their own countries by building infrastructure which would balance their economies and allow them eventually to reduce their dependence on oil as a single source of earnings.
Korean businesses saw this as an opportunity.
The 1960’s Korean construction companies had been venturing abroad to build projects which required significant labor input. Korean workers were cheap, skilled and disciplined. But the technical knowledge needed to take on the role of prime contractor in major construction projects was as yet lacking. Generally the Korean company would be engaged as a sub-contractor.
Nevertheless, Korea had a distinct advantage. The Middle East situation had led to a concerted official embargo on trade relations between the Muslim Arab world and the U.S., together with many European countries, and for as long as this embargo lasted, those nations who were not included in the boycott were able to step in to seize business. Korea was seen as one of those countries.
In 1976 the Saudi Arabian government was looking for bidders to construct a huge port complex at Jubail, where a new industrial town was being planned and built. Korean construction firms had already been busy with building projects of more modest size. But for this major and conceptually bold scheme, the Hyundai Group under founder-chairman Jung Ju-yung decided to bid for a prime role. Negotiations lasted a while and the competition was mostly from North America, with the trade embargo now lifted. Bids were submitted and Hyundai’s price was disclosed at $931 million. Dismay followed when the U.S. competitor’s price was declared at a little below this figure. But then it became apparent that the American firm was bidding for only part of the project. Hyundai was going for the whole scheme for this price! The tender turned out to be less than half that of the competing bids. So Hyundai got the deal. But that figure also represented about half of the total Korean budget for that year so although it pales into insignificance compared to the value of today’s contracts, it was an enormous sum for the country at the time.
Within a short time Korean contractors were everywhere in the Middle East. The value of overseas contracts earned in 1981 was almost $14 billion. The pattern of sending strong young men prepared to live without their families for at least a whole year at a time, living in compounds while their bank accounts back home accumulated their earnings, became well entrenched. Well over half of the Korean construction industry was located abroad.
In those years it was the Koreans who were the migrant workers abroad. But unlike the temporary migrants working in Korea today, they lived in an environment which was totally isolated from the culture of the country they were working in. Food, sleeping arrangements, language and written communication as well as recreation were all Korean. Housed in encampments which were mobile and could be moved from project to project, the workers might spend as long as two years in between flights back home to see their families.
Experience, in terms of successful completion well within the scheduled time period, made it possible for the Korean constructors to bid for successive projects. One of the reasons they were price-competitive, besides the cheapness of labor, was disclosed at the time by an executive of a major company. It was normal practice for the cost of the heavy equipment used in each project to be fully funded and included in the tender. But the same equipment was already in the country, ready and fit to be used again for the next deal and so from an accounting viewpoint was available at zero cost.
After a brief decline, contracts began to surge again from 1989 when a $5billion contract to build the first phase of Libya’s Great Man Made River project in the desert was awarded to Dong Ah Construction. This very ambitious project, designed to carry water from underground wells in the Sahara Desert to Libya’s population centers in the North of the country, provided a long-term flow of foreign exchange income to Korea.
As oil prices continued to surge and Korea’s imported energy needs accelerated along with the pace of economic growth, the foreign exchange earned by the overseas construction business helped significantly in making it possible to balance the energy trade account.
By the 1990s Korean construction expertise was fully recognized as first class, with the technological competence to engage in building landmark edifices like one of the twin Petronas Towers in Kuala Lumpur, at the time the tallest building in the world with a height of 451.9 meters. The contractor, part of the Samsung Group, would use this experience to gain competence in building other super-tall structures both in Korea and other parts of the world.
An even greater world first was the completion of the Burj Khalifa in Dubai which opened in January 2010 at a height of 828 meters. For the time being it is still the tallest building in the world. Once again it was Samsung who was in charge of the construction.
With a more sophisticated organization, the industry is still a major contributor to the Korean economy. The total value of contracts earned in overseas construction for the period beginning in 1966 through to 2009 reached a staggering figure of $300 billion. In 2008 the industry earned over $ 47 billion in a single year.
The business has also diversified both in terms of geographical distribution and types of building projects. From Cambodia to Kazakhstan, Korean companies are busy putting up new structures. The industry has exported its skills in constructing residential buildings as well as towers and industrial complexes. In Astana, capital city of Kazakhstan, a complete new town along Korean lines with apartments, 33-story high and warmed by the ondol under-floor heating systems has been built.
The advanced technology required to build a nuclear power station is probably close to the pinnacle of the construction industry. There are just six countries in the world which possess the know-how to compete effectively in this multi-billion dollar business, and Korea is one of them, having secured a $20 billion contract for the first of four nuclear power plants to be erected in the United Arab Emirates. This is likely to be followed by a similar deal in Turkey which is still under negotiation.
The future is expected to continue to be bright for Korea companies engaged in overseas construction. Their methods are well-proven and the industry has become more efficient and less labor intensive over the years. In future the supervisory staff will probably continue to be Korean but the bulk of the work force will be supplied by labor from low income countries. While the domestic construction industry still suffers from over capacity and a dramatic slowdown in new apartments is starting in Korea due to the depressed real estate market, companies engaged in this business are even more likely to look overseas for opportunities in order to stay afloat.
Building Work in 40-degrees Heat
The daily routine for Kim Kang-su (not his real name) was pretty dull. His work uniform was as minimalist as was decently allowable and his body ran with sweat the whole of his working day. His employer’s safety code required him to wear a hard hat but whenever the supervisor was not looking it would be removed and replaced with a white cloth which he would periodically soak in water to try to keep his body temperature down.
Work in the heat of the desert was a nine-hour day, but breaks were allowed every couple of hours during which he and his colleagues could rest in the shade of a tented awning, smoke a couple of cigarettes and try to catch a whiff of breeze coming off the sea.
Kim was one of 3,000 Korean workers employed on a huge construction site in Saudi Arabia in the 1970’s. He had performed his military service and so was well used to the discipline of putting up with orders and with hardship. The camaraderie with his fellow workers was good and made up a little for the loss of contact with his family back home.
Resting hours after work and a cold shower were filled with well earned sleep and before lying down in the communal dormitory he would watch a video tape or two of movies from back home – mostly old ones but a few of the new releases.
Like most of his fellows, he was married and had left his wife back home to take care of the children and their education. He had virtually nothing to spend money on while working on the project and so his salary, paid directly into his wife’s bank account at home, would accumulate into a chunk of savings which the family could use to put down a sizeable security deposit on a three-bed-roomed apartment.
Life was tough, but it would all be worth it when he flew back home in two years’ time and saw the faces of his children waiting for him at the airport.
Burj Khalifa ― on top of the world
At 800-meters high, or about half a mile, the tower which stands by the sea in Dubai, United Arab Emirates, is at the moment by far the tallest man-made habitable structure in the world. Built over a period of six years beginning in January 2004, the constructor was Samsung Engineering and Construction, who had already gained experience in building very tall residential towers in Seoul.
The task of erecting a building of such a height which could withstand the pressures or weather and remain upright called for the most advanced techniques of the construction industry and altogether an international consortium of 30 contractors was put together to take care of every aspect and detail of the final masterpiece.
To begin with, setting a solid foundation was essential and the excavation and pile-driving reached a depth of fifty meters below ground level. Nearly 200 reinforced piles were driven into the Arabian bedrock. The number of floors which can be occupied tally 160 and these are serviced by no less than 57 elevators.
The highest level which can be visited by non-residents is the observation platform at the 124th floor, from which views can extend for some 60 kilometers. But that distance is nothing compared to the total length of steel bars which went into the tower. If laid end to end those bars would run one quarter of the way around the globe.
Not for those who suffer from vertigo, looking out from the tower is akin to the view from an airplane window. And in a high wind the sway of the tip of the building can be as much as one and a half meters. But they do say that it is all perfectly safe!
Who is Alan Timblick?
Alan Timblick has worked in South Korea for decades. Before coming to Korea he studied modern history at Oxford University and business management at Kansas University.
While working for Barclays Bank in the United Kingdom, he came to Korea in 1989 to establish Korean operations. Since then, he assumed the CEO post of the bank’s Seoul branch until 1995.
He also worked at AMROP International and Korn/Ferry International before taking the helm of MasterCard Korea between 2000 and 2001.