By Choi Sung-jin
Government and business officials here rely much on advice from foreign consultants when they decide which industries and companies to keep afloat and which to let go under.
But some recent examples raise doubts about the wisdom of giving too much credence to these consulting firms.
For instance, McKinsey & Co., which recently advised Daewoo Shipbuilding and Marine Engineering (DSME) to withdraw from its offshore plant business, reportedly previously told the company to increase its proportion of floating oil-drilling structure production, industry sources said Tuesday.
In 2013, Daewoo Shipbuilding asked McKinsey to provide consulting services on its management. The multinational consulting firm estimated DSME's annual sales would grow to 28 trillion won ($25 billion) by 2023, with some 15 trillion won of it coming from offshore plants. It then predicted the offshore plants market would grow 7 percent a year on average.
McKinsey told Daewoo to enhance capacity for offshore plant construction to widen the gap with its Korean and Chinese competitors. To sum up, its conclusion was to concentrate on offshore plants while selecting a few strategic parts and focusing on them in building commercial vessels.
Daewoo accepted the advice and signed a contract in that year to enter into an industrial park on the outskirts of Seoul to train manpower designing offshore plants.
A year after the McKinsey report came, however, international oil prices began to fall, freezing demand for offshore plants and throwing Daewoo into trouble. Daewoo's orders for offshore plants totaled $10.5 billion in 2012, accounting for 74 percent of its order receipts, but fell to $8.1 billion in 2013 and $2.7 billion in 2014. Daewoo has received no new offshore plant orders since last year.
Design changes and schedule delays have added to Daewoo's losses -- the biggest reasons for the company's present trouble.
In another consulting report McKinsey made at the request of the Korea Offshore & Shipbuilding Association this year, the U.S.-based company reportedly told Daewoo Shipbuilding to withdraw from the offshore business after completing the existing contracts, concluding that DSME is least likely to survive among the nation's three large shipbuilders.
Industry watchers are expressing doubts about the credibility of McKinsey's consulting that represented a sharp about-face in three years, though. "It would be risky to push ahead with industrial restructuring based on the advice from the foreign consultant that failed to forecast the market situation in the near future," a local analyst said.
A similar controversy has hit the steel industry.
Boston Consulting Group recently advised Korean steelmakers to curtail production facilities for thick plate, predicting a supply glut because of declining orders from the shipbuilding industry. Domestic steelmakers cast this aside as an "assertion ignorant of industrial reality."
"Korea imported as much as 2.5 million tons of thick plates from China and other countries last year," an industry executive said. "If we cut down on their production under the pretext of restructuring, it will not help to strengthen the competitiveness of the domestic industry but will benefit only Chinese makers. Another reason we can hardly trust their advice is that it is the U.S. company's first consulting service for the steel sector."
Government and business officials here rely much on advice from foreign consultants when they decide which industries and companies to keep afloat and which to let go under.
But some recent examples raise doubts about the wisdom of giving too much credence to these consulting firms.
For instance, McKinsey & Co., which recently advised Daewoo Shipbuilding and Marine Engineering (DSME) to withdraw from its offshore plant business, reportedly previously told the company to increase its proportion of floating oil-drilling structure production, industry sources said Tuesday.
In 2013, Daewoo Shipbuilding asked McKinsey to provide consulting services on its management. The multinational consulting firm estimated DSME's annual sales would grow to 28 trillion won ($25 billion) by 2023, with some 15 trillion won of it coming from offshore plants. It then predicted the offshore plants market would grow 7 percent a year on average.
McKinsey told Daewoo to enhance capacity for offshore plant construction to widen the gap with its Korean and Chinese competitors. To sum up, its conclusion was to concentrate on offshore plants while selecting a few strategic parts and focusing on them in building commercial vessels.
Daewoo accepted the advice and signed a contract in that year to enter into an industrial park on the outskirts of Seoul to train manpower designing offshore plants.
A year after the McKinsey report came, however, international oil prices began to fall, freezing demand for offshore plants and throwing Daewoo into trouble. Daewoo's orders for offshore plants totaled $10.5 billion in 2012, accounting for 74 percent of its order receipts, but fell to $8.1 billion in 2013 and $2.7 billion in 2014. Daewoo has received no new offshore plant orders since last year.
Design changes and schedule delays have added to Daewoo's losses -- the biggest reasons for the company's present trouble.
In another consulting report McKinsey made at the request of the Korea Offshore & Shipbuilding Association this year, the U.S.-based company reportedly told Daewoo Shipbuilding to withdraw from the offshore business after completing the existing contracts, concluding that DSME is least likely to survive among the nation's three large shipbuilders.
Industry watchers are expressing doubts about the credibility of McKinsey's consulting that represented a sharp about-face in three years, though. "It would be risky to push ahead with industrial restructuring based on the advice from the foreign consultant that failed to forecast the market situation in the near future," a local analyst said.
A similar controversy has hit the steel industry.
Boston Consulting Group recently advised Korean steelmakers to curtail production facilities for thick plate, predicting a supply glut because of declining orders from the shipbuilding industry. Domestic steelmakers cast this aside as an "assertion ignorant of industrial reality."
"Korea imported as much as 2.5 million tons of thick plates from China and other countries last year," an industry executive said. "If we cut down on their production under the pretext of restructuring, it will not help to strengthen the competitiveness of the domestic industry but will benefit only Chinese makers. Another reason we can hardly trust their advice is that it is the U.S. company's first consulting service for the steel sector."
