Construction industry trailblazer

Hanmi Global brings transparency to corruption-ridden sector

By Kim Da-ye

Let’s say you find a good business model during an overseas trip and want to introduce it to a country that is a potentially lucrative market. Where do you start and how do you expand the business?

To a certain extent, construction management firm Hanmi Global can provide the answers to those questions.

Kim Jong-hoon, the former construction-site manager for one of Petronas Twin Towers in Kuala Lumpur, Malaysia, founded Hanmi Global nearly 17 years ago, when construction management (CM) was a completely foreign concept in Korea.

A CM firm plans and coordinates a construction project on behalf of the project’s owner from the beginning to completion. It performs the role of a consultant in the construction industry.

Hanmi Global has been the country’s largest CM specialist, and is expanding its global presence. Last September, the company won a project management deal worth $16.8 million (then 19 billion won) to build a thermoelectric power plant in Iraq. In June, it succeeded in the 11.2-billion-won bid to manage the Manila Bay Resorts project in the Philippines. The firm generated 130 billion won in revenue in 2011.

In Korea, many major buildings, including the Samsung Tower Palace in southern Seoul, the Seoul World Cup Stadium and Kangwon Land, were developed in partnership with Hanmi Global.

The firm supervised and inspected the construction of the Lotte World II Hotel, which was halted earlier this month after a crack was found in a column. Kim wouldn’t discuss his client’s project in detail, but commented that the crack “wasn’t as serious as the media portrayed.”

Every construction project in Korea must involve a supervising and inspecting body. Kim said that owners can get the full construction management services by adding a little more money to the inspection fees.

Despite its growing influence, CM remains relatively unfamiliar to the public. Kim said there are three parties in a construction project — the owner, the builder and the architect.

In developed countries, owners play the most important role in a construction project because they sign off on every decision. The success of a project is highly influenced by how they set the direction and make rational choices.

Because not every owner is an expert in construction, CM firms supervise projects on their behalf and consult with them on technical aspects so that they make right decisions.

Ideally, CM helps the project finish on time and within budget. “In large projects, about two to three percent of the total cost will be taken as fees for CM firms, which also provide supervising and inspection services. Exceeding the budget by 10 to 20 percent is easy, but saving 10 to 20 percent of the budget is extremely difficult. Construction management services prevent the budget from getting out of control,” Kim said.

Learning from foreigners

Kim sensed the necessity of CM services in Korea in 1995 when the Sampoong Department Store in southern Seoul collapsed, killing more than 500 people. Following that disaster, some builders brought foreign engineers to supervise and inspect their projects to prevent another Sampoong-like collapse.

Kim decided to set up an independent consultancy as he had become familiar with CM while working on several projects in the Middle East.

Because Korea did not have any experts or workforce that specialized in CM, Kim had to partner with a foreign firm, Parsons from the U.S., and hire foreigners. When he started the company, 55 out of 120 employees were foreigners.

Kim mapped out three stages of expansion. In the first phase, the firm would learn the necessary skills and foreigners would lead the process.

In the second stage, the Koreans would try to become independent while still relying on the foreign experts’ knowledge. In the final stage, Koreans would lead the company and foreigners would provide whatever skills the domestic workforce lacked.

Sticking to principles

As a supervising and inspecting authority for a project, a CM firm has to be transparent and strictly follow codes and ethics.

“The owner of the project should always be able to clearly see the progress of the project. When a construction project is fully led by a builder, it will be an opaque box. Once you have a CM firm to manage it, it turns into a glass box as the CM firm makes sure every process is absolutely transparent,” said Kim.

Reputation is a CM firm’s most important asset. As a new player in a new field in Korea, Hanmi Global has stuck to the principles of transparency and honesty.

In order to prove Hanmi Global’s commitment, Kim often brings up an example of not joining the cartel formed by large builders to win the Sangam Digital Media City landmark building project.

In 2008, the Seoul City government accepted bids from consortiums under the condition that a consortium should include a maximum of two large builders and the rest should be financial investors and experts from various fields of construction.

Kim recalls in his autobiography that many large builders formed a consortium against the condition and asked Hanmi Global to join the group. Winning the bid could have garnered Hanmi Global up to 80 billion won, which was almost equal to the firm’s annual revenue that point. Kim decided to stay with the smaller consortium in which Hanmi Global had originally been. His consortium did not win the deal.

Recently, the four rivers restoration pushed by the Lee Myung-bak administration has come under scrutiny as the official audit found flaws in the infrastructure that could also damage the water quality.

Hanmi Global was in charge of monitoring the installation of the IT system, but that doesn’t stop Kim from being critical of the project.

“The project will be eventually judged by the history. I was against the project from the beginning, and I wrote about my opinion in some newspaper columns,” Kim said.

“It’s a project that can last 100 years. It should have been executed step by step, but the government wanted to finish it at all at once (within the president’s term). That has also damaged the construction industry. The construction industry is now perceived as a public enemy."

Loc-balization

Hanmi Global can be viewed as a foreign company entering the Korean market in a joint venture with a local entity. Over time, the company turned this structure around and is now expanding aggressively into overseas markets including developed economies. The firm calls the process "loc-balization."

Expanding to overseas markets is Hanmi Global and other Korean builders’ only way to survive in the long run. The domestic real estate market, especially the housing sector, isn’t likely to grow much further. This has already hit many medium-sized builders hard, as well as impacting large ones such as Ssangyong Construction.

"The domestic market is worth some $120 billion while the global market is $7.5 trillion. At the end of the day, firms in the construction industry must look for success abroad,” Kim said.

The Middle East and Asia have so far been Hanmi’s main overseas markets. Until the civil war broke out in 2011, Libya was a profitable market for Hanmi Global. When the Libyan projects restart this year, Kim expects they will account for about 30 percent of Hanmi Global’s overseas revenue. The Libyan deals, he estimates, may eventually soar to 50 percent of the revenue.

Kim is also eyeing the Chinese market, which he estimates is worth $1.5 trillion won. Hanmi Global has operated there for 11 years and has been involved in 10 projects. Kim said that the firm is in discussion with local businesses about setting up a joint venture.

In 2013, Hanmi Global plans to invest about 100 billion won, partly drawing from its own capital and partly from banks. The latest project Hanmi Global is pursuing is a hotel being constructed in Myanmar. “Once our bid is successful, Myanmar will be the 39th country that we enter,” he said.

But entering regions where Korea has been traditionally strong does not satisfy Kim.

“One of our global management goals is to enter developed economies,” he said. “We are going to work with another company to enter the European market. We can say that we have entered the U.S. because we have acquired a company there. But we actually want to have our own presence there and we are working on it.”

Much of Kim’s confidence stems from Hanmi Global’s beginning as a joint Korea-U.Sventure and the employees’ ample experience in working with foreigners.

In 2010, Hanmi Global changed its name from Hanmi Parsons in order to reach the U.S.market. The firm could use the name under the agreement in the Korean market and elsewhere but not in the U.S., the homeground of Parsons.

Although the global market is the ultimate destination for builders, the domestic market isn’t completely dead, Kim said. He believes the firm should focus on infrastructure.

“The competitiveness of the U.S. has gone down because the infrastructure has aged. There have been frequent small-scale collapses and accidents in the infrastructure because the country does not invest much in building new infrastructures or in maintenance," Kim said.

The chairman also said that some work remains to be done in the housing sector. Old apartment complexes have to be rebuilt and as families get smaller, households demand new kinds of living spaces. .

“The country’s housing distribution rate is over 120 percent, but one-person households now account for 25 percent of the population,” Kim said, adding most houses were built for four to five people.”

A few years ago, Hanmi Global launched a CM service for constructing houses for single people. Some staff criticized the decision, saying it would be unprofitable. Kim said that it is gradually gaining popularity.

The chairman, who intends to go on business trips alone, said that he gets new ideas when he takes trips abroad.

“When you travel alone, you get many answers to your questions," Kim said, adding that he also reads a lot of books.

“When I am abroad, I am exposed to different environments and situations. You get some extraordinary ideas, many of which we then try out in Korea.”