How do Korean builders stand out?

Price competitiveness, high-quality jobs boost domestic construction firms

By Bahk Eun-ji

Ian Cowan, a managing director of the Seoul office at construction consultancy Dal-Sterling, was always wondering what made many major Korean builders so competitive and win tons of projects abroad despite the economic downturn.

The veteran consultant, who has worked together with a set of domestic contractors, picked the rare combination of price competitiveness and quality jobs as the key success factor.

``Korean companies are winning many projects internationally mainly because they provide competitive prices,’’ he said in a recent interview with Business Focus.

``Downturn in the construction industry in Korea makes people look for projects overseas more aggressively, and in order to win those international projects, companies have to be very competitive.’’

In terms of affordability, Chinese construction firms might be able to nudge past their Korean rivals but the former cannot match the latter yet when it comes to another critical criterion of quality.

``There are three components of costs: labor, the actua; construction and materials. The quality and cost of materials provided by construction companies are similar all around the world to a certain extent. Besides, when it comes to labor cost, Chinese companies are able to provide much lower price,’’ he said.

``Even if the Chinese suggest much lower prices, contractors prefer Koreans because they are concerned about quality of the results. Koreans hire many experienced engineers and human resources from different Asian countries such as the Philippines, Pakistan and Bangladesh and place them in proper positions. That is one of the ways how Korean companies provide good quality of resources at reasonable costs.’’

Indeed, Korean builders have won a series of mega-sized construction projects across the world over the past few years, including the $18.6 billion deal under which four nuclear reactors will be built in the United Arab Emirates by 2020.

They combined to win yearly orders in the neighborhood $5 billion in the early 2000s but the figure topped $10 billion in 2005 to surge to a record-high $71.6 billion in 2010 when the UAE energy deal was signed.

The amount was $59.1 billion last year and the International Contractors Association of Korea (ICAK) expects that the country would return to the $70 billion mark this year.

``Thus far, Korean construction firms garnered orders amounting to $34.4 billion. As they tend to win big-sized contracts in the latter half of the year, we think that they will be able to surpass $70 billion in 2012,’’ ICAK spokesman Kwon Oh-hoon said.

Korea takes center stage

Their performances are comparable to their competitors in other countries, which are struggling to find their feet amid the global economic downturn and the resultant contraction in the construction orders.

Understandably, any entities related to the construction industry flocks to Seoul and Dal-Sterling was one of them. It opened the Korean branch in 2010 with Cowan taking the stewardship as he knows both construction and Korea _ he got aboard Daewoo Engineering and Construction in 1990 to work for the Korean builder during the next one and a half decades.

Dal-Sterling Group is a construction consulting company, which focuses on improving the profitability of its clients based on services and advices on dispute avoidance and dispute resolution. The services cover a full range of commercial issues such as oil and gas, commercial, industrial and power generation projects.

The U.K.-based company was established 40 years ago and now has many experts in Europe, the United States, the Middle East and various Asian countries working with different cultures and managing styles.

“There is always potential for dispute in any contractual relationship and the potential is very high, as there is pressure to deliver complex projects on time and within budget,” Cowan said.

So the goal is to make sure constructors get properly rewarded for the work they do, he said.

Tasks of Dal-Sterling

Dal-Sterling has been working on many projects for Korean construction companies abroad such as Vietnam, Cambodia, Mongolia, Oman, and Abu Dhabi.

“The reason why they need our services is to increase the revenue in an appropriate way,” Cowan says.

Basically, profit is income minus cost. Contractors are always focused on costs and how to look at income and how to make money is so much complicated.

“If a company wants to engage in construction overseas, they need to hire local persons who clearly understand the key issues the company is facing and who are familiar with the construction business of the country,’’ he said.

“That costs a lot of money, and besides, any contractual relationship requires several steps that have potential of dispute, so a few people cannot take care of everything.”

The main objective is to avoid disputes in the first place by focusing on reasoned negotiated settlement. If the settlement cannot be achieved amicably, it becomes a lengthy process of arbitration.

He took a typical example of what they do and how they can help Korean contractors.

“We were called in to assist a contractor who was at risk of losing a substantial amount of money on one of his projects. From the onset, the contractor experienced delays in gaining access to the site. Other delays occurred during the course of the construction period and various changes to the scope of works resulted in further delays, disruptions and additional costs.” Cowan also says that there is also the risk of liquidated damages being charged for late completion of the project.

“The contractor had tried to prepare a number of claims himself, some of which had already been presented to the owners of the project without success.”

So, Dal-Sterling was asked to review the claims, and advise on the issues and entitlements at stake. An assessment of the viability of the claims was made, including potential claims not yet formulated, and extensions of time to which the contractor could establish entitlement.

“Now the contractor recognizes the need for our services at and we are assigning contract managers to be based on site from an early stage in a contract,” he says.

In order to manage the different cultures effectively they need capable consultants and they have developed a very careful process for engaging staff where prospective candidates must pass through specialized tests and interviews before they can be employed.

In this way the company can select the most eligible individuals with the qualifications and skills to fit in with the wide variety of different cultures in which it operates.

“I would also add that it is important to have a pleasing personality and the ability to work within a team environment,” Cowan said.