GS Engineering & Construction model for a soon-to-be-built apartment complex in Bongdam district in Gyeonggi Province. Courtesy of GS E&C
By Kim Hyun-bin
Local construction companies have lost ground in procuring overseas contracts as they have fallen behind competitors in both price competitiveness and their technological edge. Korean companies have been thinking about re-entering the global arena, but this will be much more difficult than before. In addition, the prolonged COVID-19 pandemic is certainly not working in their favor.
According to the International Contractors Association of Korea, overseas orders won by local construction companies have reached $10.17 billion so far this year. The figure has been going downhill since 2015 when it reached $46.1 billion before falling to $32.1 billion in 2018 and $22.3 billion in 2019. However, overseas orders recovered slightly in 2020 to $35.1 billion.
The companies lost their competitiveness starting 2015 when oil prices plummeted to below $30 a barrel and builders pulled out of the overseas market due to fears of deteriorating earnings, and focused instead on the local construction market.
The decision might have seemed like a good idea at the time, but it has come back to haunt them now with local builders incapable of keeping up with fast-changing global construction trends that have taken hold in their absence.
In the past, the only advantage Chinese builders had were cheap construction prices. But over the years, Chinese companies have reduced their technological gap with key global players and now take up 40 percent of overseas orders. Latecomers such as India and Turkey are also catching up quickly with Korean builders.
The drop in the exchange rate has also become an advantage for U.S. and European construction companies, allowing them to have both price competitiveness and a technological edge amid the intensifying competition.
The current predicament the local builders face should be a wakeup call to advance their technological skills within the industry and once again compete with other global players.
If the current situation continues, it will only be a matter of time before local construction companies find themselves lagging behind the competition in both price competitiveness and technology, having to fight over an already saturated domestic market.
The government should also back local companies anyway they can in the overseas procurement battle as local companies need all the help they can get.