 Hyundai Heavy Industries is the world’s largest shipbuilding company. It has taken less than 30 years for Korea to become the first and the best in shipbuilding in volume and value. / Korea Times file |
By Hwang Sung-hyuk President of Hwang & Company
South Korea started its first five-year economic development plan in 1962. The plan was a success and expanded the economy.
The following five-year economic development program focused on building-up the heavy industry sector, as the main engine for fueling the economy as well as expanding exports. It was during this period that the government decided that the shipbuilding industry would be one of its next growth engines.
Founder and chairman of the Hyundai Group Chung Ju-yung had the wholehearted supported President Park Chung-hee's dream, an exquisite harmony between the policymaker and the determined entrepreneur. Furthermore, the market also anxiously awaited the emergence of a large-scale shipyard.
Despite the high spirit of the leaders, the country had to start working with its bare hands. The country then had only small, outdated shipbuilding facilities, too primitive to meet international requirements.
The shipyards badly needed capital to buy more suitable facilities and develop the technology to build state-of-art ships, to get orders to fill the shipyard.
At the beginning, Chairman Chung had to tackle all of three fundamental tasks by himself, namely borrowing money, importing the technology and securing the orders.
They were not independent factors but all interconnected. Before they would talk about loans, bankers had to be convinced that new building orders were in hand at the new yard. The ship buyer, on the other hand, liked to see that the yard was ready with sufficient equipment, before they placed orders. It was like the old question; which came first, the chicken or the egg.
It was the biggest venture in the history of Korea, betting the future of the country, with President Park driving the nation forward with his well-known "can-do" spirit.
The government supported the industry, including guarantees for borrowing money and the implementation of contracts, and so Chairman Chung threw himself into the project with all his might.
He went out to the world, carrying a small photograph of the beach where he planned to build the shipyard, and a 500-won banknote with the picture of a turtle ship. The warship was the creation of the Jeoseon Dynasty's legendary admiral Li Sun-sin. It was a traditional symbol of the nation's supremacy in shipbuilding technology.
Turtle ships won numerous victories against Japanese naval forces during the latter's attempts to conquer Korea from 1592 to 1598, inflicting heavy losses. His turtle ships boasted of at least five different types of cannons. Its fully covered deck was shielded to deflect cannon fire, and its iron spikes discouraged Japanese sailors from attempting to board the ship.
It was an extremely primitive but bold approach, but well accepted by the world. Chairman Chung demonstrated superhuman efforts and abilities in persuading his counterparts. However, he could do nothing without the all-out support from the government, whenever and wherever he faced obstacles.
Korea had no experience in modern shipbuilding, yet Chung built the world's largest shipyard in Ulsan. The first vessel was completed in three years rather than the expected five as Chung had the shipyard and ship built simultaneously.
Japan refused to support the Korean yard with updated technology, saying VLCCs (very large crude carrier) were too sophisticated for Korea to build in their new shipyard.
In fact, they did not want to see a competitor next door. The yard obtained technical support from the Scot Lithgow Shipyard in Scotland. A consortium of English banks agreed to finance the project for the procurement of shipbuilding equipment from five European countries, and a Greek owner bravely placed an order for the first two VLCCs almost at the same time in 1971.
There was a big signboard on the road to London from the Heathrow Airport. It showed American soldiers marching on both sides of the road in a farmland in Korea, and, in a cloud of dust coming from soldiers' tramping footsteps, a five or six year old boy with a muddy face was crying.Underneath the picture, a line read "Warm hands to war orphans." Sixty years have passed since the ceasefire agreement on Korean War was signed; the situation has changed a lot. Korea, seen as a symbol of devastation and starvation at the time of the war, has transformed itself from an aid recipient to an aid donor.
When Korean shipbuilders knocked on the doors of ship owners, they received cold treatment. It had been customary for them to be told that "Oh, you are going to build the ship, then, we would be better off building the ships ourselves rather than letting you do so.
"Before we give you the order, what should we tell our local builders who have much more experience than you." Against all this adversity, Korean builders achieved historical projects one by one. The ships were competitive in price, and the Koreans were flexible in negotiations, thawing cultural barriers in the different traditions.
The success stories of Japanese builders were a great encouragement to Koreans. Japanese yards brought the majority share of the market to the country from European shipbuilders and enjoyed a tremendous amount of profit.
Japan realized 100 percent welding for hull construction, for the first time in the world. Japanese shipbuilders were able to give its employees 1,200 percent bonus a year, double their salary. The Japanese became a role model for Korea - it was sure that if Japan could do it, it could do the same or even better.
The shipbuilding industry rides turbulent waves, up and down, and has seen many rainy days followed by short sunny periods.
Korean yards experienced the first and second oil shocks, a financial crunch in the 1980s and an economic crisis in 1990s. But whenever they passed through these, they became healthier and richer.
In the late 1980s, the Japanese started to say, "It is about time for us to take off our hat and bid farewell to the industry." Korean yards had overcome all the difficulties and climbed to the top of the industry. Hyundai Heavy Industry only ever recorded one loss since its founding, the summer of 1987 when a fierce labor dispute flared up.
That year the industry faced an intense labor dispute. Employees in the shipbuilding industry had become a home for the radical labor movement.
Both management and labor were not properly trained to talk and compromise with each other, and suffered a head-on collision.
During the labor strike, new orders went to Japan. However, Koreans overcame the unprecedented industrial action to become the leading shipbuilder in the world.
Korea advanced gradually to the dominating position. The financial crisis at the end of the 90's did not hurt the industry, as the weaker yards who were not self supporting were weeded out, giving healthy ones the chance to fly. After the wrenching financial crisis in 1998, Korea emerged, unshakeable and indomitable.
Korea has expanded the types of ships it makes from crude oil tankers to product carriers, super container ships, ROROS, LPG, and LNG carriers, semisubmersible offshore structures and FPSOs. It has taken less than 30 years for Korea to become the first and the best in shipbuilding in volume and value.
The success, first, came from the flawless cooperation between the government and business conglomerates. The government provided a comfortable platform with market-friendly regulations, payment guarantees and a financing arrangement.
Second, the industry has made timely investments in yards to lead the competitive global industry. The investments enabled them to continue the renovation of production facilities, the expansion of capacity to meet global demand, and the adoption of new technical developments.
Proper investments in basic technologies and the automated/computerized facilities raised the productivity of high-value ships, such as LNGs and FPSOs.
Third, capable young manpower flowed into the industry. Shipbuilding has been attractive to youngsters and continued to provide good jobs for them. About 600 students enter colleges to become naval architects and to study marine engineering every year.
At the same time, the industry has steadily gained a competitive edge through teamwork with the shipbuilding parts makers. The localization of steel, engine and other auxiliary parts has pushed the shipbuilding industry to reach foe new highs.
As soon as the industry reached the top with a 40 percent global market share, the challenge by the competitors started. Japan chases Korea with its traditional technologies and quality in shipbuilding, while China is aggressive in price competition. In order to overcome the challenges and keep its leadership in the industry, Korea has to remove a number of barriers.
As a first step, it has to keep encouraging more young engineers and technicians to come into the industry. It is the only way to develop new technologies for basic design and productivity.
Basic technologies of naval architects have stagnated for decades, and so drastic developments in basic design and production systems should be created, through the fresh brains of capable youngsters.
Second, Korea needs to develop and secure the basic technologies for high-value ships such as LNG carriers and FPSOs that will greatly enhance the profitability of the industry.
The revenue from these high-tech ships is high, but profitability is low because of a high dependence on imported original knowhow and equipment. The development of new technologies will greatly reduce royalties payments and dependence on foreign supplies.
Financial markets should be developed on a stable basis. Ship financing has expanded and become more sophisticated. Yet, Korea has a long way to go before its ship financing is to work like the KG system of Germany or KS in Scandinavian countries. Decisive government support is necessary through the provision of tax benefits and incentives to local investors as well as foreign shipping companies.
Recently, banking institutions are becoming involved in shipbuilding and shipping industries positively. They are placing orders with the yards which can arrange the lease-out of those ships at competitive prices to shipping companies.
The move will be of great benefit to shipbuilders in securing stable orders on a steady basis and reducing the financial burden. Shipbuilding financing is one of the most decisive factors in determining the competitiveness of shipbuilding companies.
While Japanese and Chinese firms can live on with domestic orders, Korean companies cannot survive without exporting. Local shipbuilders must go out to the world, continuously creating the tools to satisfy the updated requirements of the market and the taste of clients, in order to keep the industry above water. Korean leading yards recently started to make joint ventures with oil majors abroad so that they can secure orders even on rainy days. It seems the right direction for Korean yards to go in the future.
The industry has survived on infertile soil, which, ironically, has made local shipbuilders globally competitive. They have managed the given circumstances wisely to stay ahead of their foreign competitors. As long as they maintain the spirit to renovate technologies and show flexibility to accommodate the ever-changing tastes of the market, as they have been doing for the past 40 years, the prosperity of the shipbuilding industry in Korea will last many more decades to come.
 The writer had worked as the chief marketing executive of Hyundai Heavy Industries. He was an employee at the time of the opening of the company in 1971. He launched Hwang and Company in 1990 as the first ship broker in Korea.He has written the books, ``There is no Barrier not to be Overcome" in Korean, and "Let There Be a Yard" in English. The native of Masan graduated from the engineering college of Seoul National University in 1965. |
