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Construction companies look for high-technology projects to build

March 17, 1981



Seoul

For South Korean construction companies, the Middle East boom continues. But the competition is getting stiffer as Korea's cheap wage advantage disappear. Structural changes in the market are putting greater emphasis on high technology rather than the labor-intensive projects in which the Koreans have long excelled.

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Since they first began tendering for Middle East construction projects in 1974, the Koreans have built a good, reliable reputation for building roads, port and airport facilities, housing blocks, and government buidings.

Now they want to try to break into high- technology projects such as petrochemical plants, steel mills, and telecommunications. But it is precisely in these fields where, at present, they have little or no advantage against technologically advanced American, European, and Japanese competitors.

Could this, then, spell the end of the construction boom?

Not at all, says Young C. Park, research director at the Korea International Economic Institute, who has made a detailed study of Korea's overseas construction activities and their impact on the domestic economy.

"Undoubtedly the emphasis in the Middle East now is away from the basic infrastructure, where we have excelled, into high technology areas. But we are already taking steps to cope with this switch in strategy and I really don't think we are going to lose our strong position."

In 1975 Korean construction firms successfully tendered for building contracts worth $800 million. In 1978 the total reached $8 billion, and despite (or because of) domestic economic difficulties, this held firm at $8.3 billion last year.

The Koreans, in fact, have carved themselves out a handy 8 to 10 percent share of the regional construction market, second only to the United States (an estimated 17 percent). The Korean share, surprisingly, surpasses even the mighty Japanese, who last year saw their share of contracts halved from 15 to 7. 3 percent.

There are now 97 construction companies strictly licensed by the government to compete for overseas contracts. The Koreans are active in 34 countries, but the bulk of the work is in the Middle East, and primarily in Saudi Arabia.

The Saudis, however, have just about completed their basic infrastructure buildup and are leading the way in switching to more ambitious industrial projects to make better use of their vast oil wealth.

Even before this, though, the Koreans were beginning to consider their heavy dependence on one country not necessarily in their best interests -- even if it was a prime supplier of crude oil.

According to Young C. Park: "Over 75 percent of construction work undertaken by Korean firms was in Saudi Arabia in 1979. That was reduced to 64 percent last year, and Kuwait and Libya have now emerged as important areas for diversification."

A second stage will be to diversify further, into Africa, Southeast Asia, and Latin America, especially when domestic construction firms in the Middle East become capable of replacing the foreigners.

But that move will require the sort of financing that the Koreans admit they simply are not capable of at present. So, for now, it's better to concentrate on the oil producers where money is no problem.

In trying to carve out a profitable niche in high technology plant construction, however, the Koreans readily admit they can't go it alone.

"Our present technology is simply not competitive enough," concedes Mr. Park. "So what we are proposing is joing ventures, say with American, British, or French companies, in plant construction.