KoreaToday Heyday Isn’t Over for Local Builders
Korean Construction Firms Still Driven by Cash-Rich Middle Eastern Countries
By Jane Han
Staff Reporter
Local builders seem to headline two different types of news these days. Either they're struggling from the slumping construction industry here, or enjoying record orders from overseas.
Although companies hope to be in the latter position, experts say building mega-scale refiners, petrochemical plants, high rises and infrastructure from scratch thousands of miles away is not for everyone.
``As good as overseas business sounds, it carries a huge amount of risks,'' says Lee Jae-young, the director of housing planning and land development of the Ministry of Land, Transport and Maritime Affairs. ``This is why large firms that could bear such risks are largely the ones involved.''
Lack of manpower is also another barrier, said Choi Yoon-ho of the Korea Construction Association (CAK), explaining that even when small- and medium-sized firms learn about a possible project order, they can't easily jump in due to insufficient reliable human resources abroad.
``There is still much time and effort needed to drive up small builders, but our heavyweights have been doing exceptionally well yet again this year,'' he said.
According to market data, so far this year, $35.2 billion worth of overseas orders were received up to mid-August. This is already close to the $39.8 billion worth of combined contracts from 76 countries last year.
Doosan Heavy Industries and Hyundai Engineering & Construction led the boom, revved up by surging demand for refineries and power plants in the oil-rich Middle East, which accounts for nearly 60 percent of overseas sales.
Oil prices, until falling recently, have hovered near record levels to reach $142.99 at one point in June. This year's average crude price is expected to be $116 per barrel, according to Energy Information Administration, up from $68 in 2006.
Although the spike led to economic stagnation and other financial difficulties in many parts of the world, local builders were secretly happy as the oil demand drove up orders for offshore plants like drill ships, oil rigs and floating facilities.
Analysts say that the cross-border construction industry will remain bullish until 2010, as high crude prices will continue to support more contracts for big industrial projects.
Economic consulting group, Global Insight, forecasts that Middle East and Northern Africa will see economic growth of about 5.7 percent in 2009, significantly higher than other regions worldwide, which will help secure more business for local contractors.
More Than Plants
Among the top builders, Ssangyong Engineering & Construction (E&C) is one of the most well known for monumental, luxurious structures.
Having received 128 orders from 19 countries worth $6.4 billion around the world since its inauguration in 1977, the company has left its name standing strong from developing countries in Southeast Asia and the Middle East to advanced nations like the U.S. and Japan.
The Raffles City Complex in Singapore, which consists of the 73-story Swissotel, is one of Ssangyong's most recognized completions. The hotel was recorded in the Guinness Book of Records in 1986 for being the tallest in the world.
The builder was a pioneer to advance to Dubai at the end of the 1990s, a time when few Koreans were familiar with the Gulf city.
Its first project was to build a 55-story Emirates Tower Dubai Hotel with 400 bedrooms.
The company currently has 11 projects underway in Singapore, Indonesia, India, Pakistan and Saudi Arabia. The project was finished successfully, which opened more opportunities for Ssangyong.
From then on, it went from building hotels, hospitals, office buildings and leisure facilities. Among them, hotels continue to be Ssangyong's main areas of expertise.
Last fall, Ssangyong won a $686 million deal to build the mega-scale 2,600-room Marina Bay Sands Hotel in Singapore's Marina Bay. The company beat out Japan's Shimizu Corp., France's Dragages, Hong Kong's Gammon and other international heavyweights in the run-up to winning the project.
At the time, company chairman Kim Suk-koon, said ``Ssangyong E&C is the nation's only construction company winning steady orders to build value added hotels, while a growing number of local contractors are making efforts to reap rewards in the plant business.''
Currently, the builder has 11 projects underway in Singapore, Indonesia, Pakistan and Saudi Arabia. Of them include a mega-highway project in Indonesia and an oceanfront condominium deal in Singapore.
Ssangyong says it plans to further diversify its portfolio, expanding into more high-end construction, civil engineering and infrastructure projects.
Fast & High
Currently erecting the world's tallest building, the Burj Dubai tower in the U.A.E., is none other than South Korean Samsung Engineering & Construction, which also has experience building two other of the world's top high-rises, including Petronas Twin Towers and the Taipei 101.
The super-tall skyscraper, which has so far reached 688 meters, is on the way to topping off at an anticipated 900 meters.
Kim Kyung-jun, Samsung's onsite manager of the project, told the press last year, ``Our goal is to add one floor every three days with our sophisticated technology.''
Aside from building high-rises, Samsung E&C continues to speed up its business in the industrial construction sector.
Recently in August, the company was awarded a $314 million order from Bahrain's national oil company to build a lube base oil plant, which will be the largest of its kind in the Middle East.
Also in August, it won an order to build a $418 million liquefied natural gas (LNG) terminal in Mexico. It clinched a $1.06 billion deal in the home market as well to build a domestic petrochemical plant for the country's third-biggest oil refiner S-Oil.
Pressing Forward
Experts say that such mega projects are awarded to Korean firms because domestic builders are among few in the world capable of carrying out Engineering Procurement Construction (EPC), a turnkey method involving all aspects of building from design, construction to project financing.
``Plus, Koreans have been in the lucrative Middle Eastern countries long enough to know what works and what doesn't,'' said Kim Tae-yep, head of the overseas construction division at International Contractor Association of Korea. Korean builders have been in the deserts since the 1970s.
Although domestic firms have been active abroad, analysts say that they need to further increase their businesses outside of Korea.
Major foreign construction companies reap 70 percent of their annual revenue from overseas projects, according to Engineering News-Record (ENR), but South Korean builders still see less than 30 percent from cross-border sales.
The Construction & Economy Research Institute of Korea said local contractors should start expanding their businesses beyond the Middle Eastern countries.
It said global construction giants are diversifying their portfolios, away from industrial plants, but pointed out that domestic firms' sales are still heavily dominated by oil-related projects.
