Strategies for Construction Industry

Assist. Minister Park spells out the government plans to keep the industry as growth engine

Park Sang-kyu, assistant minister in charge of the headquarters of construction affairs at the Ministry of Construction and Transportation, said in an interview with NewsWorld on the occasion of the 60th Construction Day, the government will do all it can to help the construction industry to remain as a nucleus industry in the country. He said the industry needs further investment in the R&D activities to develop new construction technologies and to help the industry in this regard, the government has increased its fund to 327.7 billion won this year back up the industry's R&D activities and the fund will be increased to 400 billion won afterwards.
There is no doubt that the industry is a huge contributor to the national growth, taking up 15.4 percent of GDP last year and 7.9 percent of employment. But doesn't mean that there are no problems; the backward productive structure, and excessive competition and the regulations that prohibit simultaneous undertaking of both general and professional construction companies by a company are some of the problems facing the industry.
Following are excerpts from the interview:
Question: What was the amount of project orders from overseas last year and the prospect for this year?
Answer: Last year, the overseas construction projects won by Korean builders broke the level of $200 billion in the past 41 years and the record for orders amounted to $16.5 billion, the highest annual figure. Its been truly a great year creating a new momentum for a boom in overseas construction projects for Korean builders.
This year, the momentum is likely to continue due to high oil prices and the economic recovery in countries in southeast Asia and we expect overseas project orders won by Korean builders would rise to some $18 billion. Already, as of the end of May, the overseas project orders have reached $12.4 billion, up 91 percent from the same period a year earlier, shedding bright prospect for this year.
We expect no trouble in achieving the target projected for this year for overseas construction projects if construction companies would do their best, along with the government support.
The government has been hoping that the overseas construction project orders would be large enough to make up for the reductions in domestic construction projects. The government has been providing support to the construction companies working overseas to have more project orders come in their way through 'construction diplomacy'by high-level government officials, especially, high value-added projects like industrial plants. The government has also been extending support to the builders in the area of R&D activities to develop new construction technologies.
Q:What are government plans for spurring overseas construction project orders for Korean builders and support strategies?
A: Despite the good record for project orders for this year, there are some shady areas such as over-dependence on particular region for orders and large builders have easy time in winning orders. Of the $16.5 billion in overseas orders last year, $13.6 billion came from the Middle East and Asia, or 82.4 percent. Although most of overseas Korean construction firms are small(95 percent), their only got $1.3 billion in orders, or 7.9 percent of the total.
The government, aware of the problems, has been trying to diversify the construction market overseas, along with measures to support small builders to win more project orders overseas.
The government increased the market exploration fund from 1.3 billion to 2.6 billion this year to help construction firms to explore overseas markets else where from those presently they are in operation. The government recommended the Central Asia, Russia, Africa and others for their advancement to find construction projects. The government has expanded the number of foreign countries to exchange information on overseas construction, set up funds for overseas construction, the Construction Association of Korea signed MOUs with a number of countries and strengthened overseas construction diplomatic efforts through high-level official tours.
For small construction firms, the government plans to strengthen the Center for Support of SMEs to Secure Overseas Project Orders by proving training manpower for these firms including the know-how on international biddings so that these firms would have enough experts to manage their overseas operations in a vital manner.
The government has set up an exclusive information service network in the first half of the year. The government hopes that those small builders will be able to secure some $1.5 billion worth of overseas construction projects this year.
Q: What are strategies to upgrade the construction industry to an advanced level?
A: Despite the construction industry's huge contribution to the national economy, taking up 15.4 percent of GDP. and 7.9 percent of employment in the country as a nucleus industry, it has not been able to perform its role fully because of backward productive structure, and excessive competition. Among the problems that the industry is faced with are the lack of fair competition due to the regulation that a general builder cannot simultaneously be a professional builder and the lack of cooperation between main contractors and subcontractors for mutual benefits amid an excessive competition in the industry. The sluggish development of new construction technologies due the lack of R&D investment. The government plans to come up with various strategies to wipe out those problems and put the industry a notch up in the ladder of advancement.
First, the government plans to revise some regulations such as those regarding the disallowing general construction firms to simultaneously operate professional construction businesses. Second, the government will strengthen the system to protect subcontractors and expand the number of the construction industry survival council from 17 to 69 across the country this year to spur the creation of the culture for construction industry mutual survival cooperation. Third, the government will strengthen the terms for the registration of new construction firms to weed out paper companies and the companies on the verge of bankruptcy. Finally, the government will make a substantial increase in its R&D budgets to continue to push the development of construction technologies. This year's budget is set at 327.7 billion won from 262 billion won last year.
Q: What are policies to reform the construction industry's R&D reform and strengthen competitive power?
A: The outlay for R&D in the construction industry lagged behind those of other industries. In 2003, the R&D outlays by general construction companies amounted to 631.8 billion won, only 0.55 percent of total sales by those firms.
The government increased the R&D budget to do its best to reform the system. The 327.7 billion won earmarked for this year would be increased to 400 billion won every year after this year. The government will use the R&D budget for the 10 objectives set under the construction industry R&D roadmap, including the technologies to build a super-long bridges and U-Eco City, among others, also a move to spur the R&D activities between large and small construction firms.
In February, the construction company mutual cooperation evaluation system was revised to give incentives for large construction firms providing support to small firms in the biddings.
Q:What are plans to vitalize "mutual cooperation"in the construction industry?
A: The construction industry has been seen as a dead corner for the mutual survival due to unfair practices among small and medium construction firms and large firms, although it needs it in terms of diversity of their operations. In March last year, the government set up the Measure for the Construction Industry Survival Cooperation Plan as the basic direction for the construction industry's mutual cooperation policies.
This year, the government plans to revise the Construction Industry Basic Law taking advantage of the joint aspiration for cooperation survival formed in the industry and systemized it.
The government has increased the number of the construction industry mutual survival council local offices to 69 from 17.
At the same time, the subcontractor management plan documentation system would deal with larger construction projects in line with the government plan to strengthen it.
Q: What is your message on Construction Day?
A: This year marks the 60th anniversary of the construction industry since the activation of the industry in 1947. It has been a strong contributor to the national economy, taking up 15.4 percent of GDP and 7.9 percent of employment.
But it has been misunderstood by the people due to its secret management and shoddy work, among others. Now is the time for the industry to shed its old and mistaken practices and find ways to become a new growth engine through reform.
The industry has to invest more in its R&D activities, along with the suspension of the restriction on simultaneous operation of general and professional construction companies by an owner and globalization of the industry to enhance its international competitiveness. nw

Park Sang-kyu, assistant minister of the headquarters of construction affairs at the Ministry of Construction and Transportation.