Keeping it in the country

The growth of Korea into the world?s leading shipbuilding nation has not troubled Europe?s critical equipment manufacturers. Korea?s shipyards have largely bought their steel and other non-critical components locally while relying on the tried and trusted, largely European, base of suppliers for critical components. The Korean yards having derived much of their competitiveness through their efficiency as assemblers rather than through buying cheap equipment. So the opportunity has been there for importers.

However, the Korean Ministry of Commerce, Industry and Energy is seeking an increase in the nation?s share of the global shipbuilding market from 32% last year to 40% by 2010. Of this 40%, it wants to raise the share of high-value ships (LNG carriers, FPSOs, high-speed ships etc.) to 35%, from a 13% share last year.

A large portion of the cost of high value ships is made up of critical components. That is the imported parts made by European and other overseas manufacturers. Hulls represent just a small portion.

The Ministry is therefore seeking to encourage the local development of at least two shipbuilding components per year in order to reduce the dependence on imports. The government plans to inject W210 billion ($173 million) into the shipbuilding sector over the next 10 years to boost its competitiveness in building high-value ships. This is to help develop technology and foster local expertise.

The more optimistic overseas equipment manufacturers may argue that their sales growth into Korea may fall short of the growth in orders for high value ships, but there will still be growth there.

Others though fear a repetition of the Japanese model where there is little opportunity for overseas manufacturers to get their equipment onto Japanese-built ships in the face of local competition and protectionist government policy.

John Southerden, director of the British Marine Equipment Association (BMEA), recognises the potential threat that Korea?s action poses to the organisation?s members.

However he believes there is little incentive for Korean manufacturers to invest in the development of a lot of shipbuilding parts. He explains that competition among importers means Korean shipbuilders can buy these parts at the bottom end of their price range meaning the seller is only achieving small margins. His major worry is copying, where the absence of development costs gives potential incentives.

Southerden also has concerns that BMEA members may suffer from the European Union?s dispute with Korea over shipbuilding pricing. He is anxious for good relations to be maintained with both parties. “The winning thing is to have long-term customer relations and the cert[ificate]s in place,” he says.

Examples do exist of the development of local products which win favour at the expense of imports. In the propulsion field there is Hyundai Heavy Industries? Himsen engine. This has been launched for auxiliary applications and will shortly be available for main propulsion, according to sources within the company.

You can be sure that sales will accelerate once the engine gets some significant running hours behind it. And you can be equally sure that Hyundai?s development plans don?t stop at the 210mm and 250mm bore Himsen engines currently available.

It is not just the closure of the Korean market that overseas manufacturers have to fear. The Ministry of Commerce, Industry and Energy also wants to see exports of shipbuilding materials increase more than five-fold, from the current $370 million to $2 billion. Success in achieving this could represent a further significant loss of business for overseas equipment companies.

In a recent speech Minister Shin Kook-hwan emphasised the importance of a win-win strategy to strengthen alliances between Korea and China. In shipbuilding this could involve China, which is picking up much of the low-value ship construction Korean yards are losing interest in, building a ship and filling it with imported Korean equipment.

Examples of China working with Korea to create a win-win situation already exist. Take the Himsen case. China?s Shanghai Shipyard is providing the engine with one of its first references by installing four auxiliary models on a Nordeutsche Vermögen (NVA) containership, provisionally named Northern Devotion. The Chinese yard wins, the Korean equipment manufacturer wins.

The message is simple. Overseas equipment manufacturers need to be wary. Opportunity will still exist in Korea, China and elsewhere. But if the Korean Government gets its way, the market is set to get a whole lot tougher.