Refurbishing of roads and buildings are performed by machines, and are impossible by human effort only. In the development of the civilized world, construction machines have played an enormous role. They are essential to the construction of infrastructure facilities such as airports, ports, and highways.

Construction machines, however, were not introduced into Korea until the 1950s, when the bulk of public works were effected by manual labor. The situation began to change by the 1960s. Government policies began to focus on expanding the basis of the economy's bed-rock industries and the establishment of industrial facilities with the goal of pursuing the economic development plans of the time. To this end, a huge amount of labor and construction equipment was required. Major construction projects at that time included the formation of the industrial complex in Ulsan and the Kyongbu Expressway linking Seoul and Pusan.

Korea, though, had no capability in the production of construction equipment. Some companies manufactured a limited rage of components necessary for their repair and maintenance but most of them depended upon products imported from the United States and Japan. The production of construction machinery began in Korea in the 1970s. Through technology joint ventures with companies from developed nations, domestic businesses began the production of forklift trucks, excavators and other items. With the development in construction technology, the demand for related machinery also climbed sharply. The trend continued in 1980s. With the entry of more companies into the business together with concomitant technological development, the production of construction equipment soared. Some companies even began to develop their own models and put them on the market, although they had only previously been involved in the assembly of the final product.

Other companies began exporting related goods on an original equipment manufacturing (OEM) basis. Despite the growth in the volume of production, Korean companies failed to register an equivalent improvement in product quality. Their production technology matched those of developed nations but lagged far behind in terms of design technology. In addition, they resorted to importing major construction equipment components such as hydraulic gear, engines, axles, transmission systems and electrical control equipment due to the huge burden required for investment in these lines and the uncertain prospects for demand.

Exports Climb

The heavy construction equipment sector encountered sluggish demand in the 1980s, impacted by the then government's policies designed to realign the heavy and chemical industries. However, the industry began to grow rapidly after 1988, boosted by a series of liberalization measures. In particular, exports of heavy equipment posted an annual growth on average of 50 percent. Since companies started shipping under their own brands in the early 1990s, exports climbed to $1 billion by late 1995. In addition, exports markets were developed in the United States, the European Union and even Japan, the largest maker of construction machinery in the world. Although the ratio of construction equipment industry to total national industrial output has increased steadily, it still remains at a minor level. This compares with one-fiftieth and one-tenth, respectively, for the shipbuilding and semiconductors industries.

Korea's main export items from the early 1980s onward were firstly color television sets, followed by automobiles in mid-1980s, and semiconductors and petrochemical products in early 1990s. Construction equipment began to lead the nation's exports from the mid-1990s. According to data complied by the Department of Commerce of the United States, "the size the world's construction market is expected to reach $70 billion by 2001 from 1994's $50 billion, representing an annual rate of increase on average of five percent. This is equivalent to twice that of shipbuilding.'' Such prognostications point to the Korean construction equipment industry emerging as the locomotive of the nation's export drive in the near term.

The focus of national industrial growth has shifted from electronics and shipbuilding to construction equipment, and Korea has emerged as gigantic market in this respect, out-ranked only by the United States, European Union and Japan. Despite strong competition from developing nations in the light industrial sector, Korea has maintained a firm position in the construction equipment sector as a major player, no particular country in the less-developed world having emerged as a rival. This is due in part to the huge sums required for investment by the construction equipment industry.

There are two prime characteristics of the construction equipment industry. Firstly, the industry is highly susceptible to changes in the construction market. The fluctuation in Korean construction trends, in particular, have been comparatively severe, making it extremely difficult for companies in the business to plan future production. Currently, such businesses have been suffering hardship due to reversals in the global construction industry.

Every national construction equipment industry was primarily focused on the domestic market until the late 1970s. The world market registered a sharp upward trend from the 1970s thanks to a construction boom in the Middle East and the launching of large-scale public works projects in the developing nations. Due to the limited number of producing nations, construction equipment has emerged as a major trading item in international trade. The economic downturn which began in 1981 also adversely impacted the construction equipment market, a trend which lasted until the early 1990s.

The SOC Solution

Although the construction industry recovered tentatively in 1993, it again was plunged weakness, a situation which lasted until 1995. As a major trading nation, Korea is vulnerable to shifts in world markets. The decline in the demand for construction equipment in the international market has hit Korean manufacturers. Korea's construction equipment industry, although it suffered setbacks due to a weak construction market at home and abroad, has now begun to recover. Impetus has come from construction projects like the high-speed railroad linking Seoul and Pusan, the new international airport in now under construction at Yongjong-do near Inchon, and a series of provincial government-initiated projects designed to expand the country's social overhead capital. In addition, the world construction market is expected to rebound in the near future.

Dr. Peter Drucker in his book titled "managing Time of Great Change" cited social overhead capital-related industry as one of the most promising businesses of the future, along with the telecommunications and environmental industries. He points to transportation needs, in particular, as key to the social overhead capital development. Most SOC facilities in developed nations are superannuated, the majority having been in operation more than 30 years. A question mark hangs over their ability to fulfill their appointed functions in the near term. A national consensus has developed regarding the need for more comfortable and rapid forms of transportation given the level of economic growth and steadily rising standards of living. To this end, construction of more efficient and state-of-the-art SOC facilities is essential, as is the development of the construction equipment industry in terms of both quality and quantity.

The second point regarding the construction equipment industry concerns the complexity of its production system. Various and complicated technologies are required, ranging from engines to power transmissions to hydraulic equipment, and from electronic control systems to human-centered design.

The Korean construction equipment industry has yet to achieve a 100 percent domestic content level in its products. Domestically-developed technology reaches 84 to 85 percent in excavators, mainly due to the lack of sufficient technological base in an industry which has a relatively short history. In the case of key components, there has been weak domestic demand which could otherwise keep production lines busy. Under the circumstances, companies have been unable to re-invest and achieve price competitiveness through the economy of scale. Korea is the world's fourth largest market for excavators, but there has yet to be stable supply of related components. The nation's four largest manufacturers produce equipment that use components of differing standards, so compromising the establishment of adequate channels of supply. "Companies are making efforts to standardize of components, sharing the need in this respect. But as the matter affects the interests of individual firms, it is not easy problem to solve," said Mr. Oh Won-seup, senior manager of Hyundai Heavy Industries Co., Ltd. Companies have engaged in harsh competition to expand their market shares through the development of new products, making standardization of components ever more difficult. The problem is more serious in the case of major components. However, as one of the world's leading manufacturers of automobiles, Korea possesses the key technology for the production of state-of-the-art construction equipment. The prospects are still bright because of the correspondingly balanced development of support industries such as steel and general machinery. In addition, Korea has already emerged as the world's largest manufacturer of semiconductors, a fact which is expected to spur the rapid development of the electronic control systems industry.

Winning Accolades

Korea exports construction equipment to developed nations like the United States, Japan, Canada, Britain and Germany plus other countries in Asia, Latin America, and even to Africa. Export items cover virtually all kinds of major products including hydraulic excavators, loaders, bulldozers, lifters, dump trucks, mixer trucks, concrete pump cars, hydraulic cranes, motor graders, other special purpose vehicles and other finished goods. Attachment goods, (i.e., functional tools attached to specific items of construction equipment) include hydraulic breakers, crushers and shears. Exports under own-brand names takes up 93 percent of the total compared with seven percent made under the original equipment manufacturing agreements. The shipments under own-brands began to gain momentum from 1990, spurring exports and the development of the quality of domestic goods to international standards. Today, the technological level of Korean construction equipment manufacturers has reached world-class levels. For example, Soosan Heavy Industries Co. achieved a world first by developing the plasma rock fragmentation system. This is a process which breaks rock using electrical energy, thus decreasing noise levels and vibration by more than 85 percent. Daewoo Heavy Industries Co. developed an excavator to meet the noise restriction requirements of the European Union and Japan. The state-of-the-art excavator and loader developed by Samsung Heavy Industries Co. won the accolade of "Top-Quality Construction Equipment" from the American magazine, "Construction Equipment." Daemo Engineering, specializing in production of attachments, has developed and is now exporting noise-proof concrete crushers. Most Korean makers of finished construction equipment have acquired the ISO 9001 international certification of standard. However, in approaching export markets there are some obstacles which cannot be overcome solely through getting the related certificates. Loaders and excavators are big-ticket items in which international trade is not too brisk. In addition, their transportation is costly and takes a relatively long time. Accordingly, companies in this field have sought to manufacture in export markets. Thirty five Japanese firms have begun production overseas and American companies have sought joint venture ties with local enterprises to set up production under the OEM system.

Korean firms have also attempted to expand their shares of foreign markets by establishing production lines overseas. In addition, they have also cooperated technologically through joint-venture investments with manufacturers in host countries.

Outbound Investment

Among Korean manufacturers, Daewoo Heavy has pursued the overseas production option most aggressively. It now operates the Belgian-based Daewoo S.A. which has a production capacity of 3,000 excavators per year, while Daewoo Heavy Industries Yantai Co. Ltd. in China is capable of manufacturing 3,000 trailers and excavators per year. The company plans to set up an excavator plant in southeast Asia within the coming year. It is also planning to expand the annual production of skid loaders at its Daewoo Machinery Corp. plant in New Jersey to 8,000 units until the year 2000.

Hyundai Heavy Industries Co. operates Changzhou Hyundai Construction Machinery Co., Ltd, in China, which produces excavators targeted at the southeast Asian and European markets. Samsung Heavy Industries Co. produces excavators at its Samsung Heavy Industries U.K. Ltd. plant in Britain, while Halla Heavy Industries Co. operates Halla Euro and Beijing Halla Construction Machinery Co. in Britain and China, respectively. Soosan Heavy Industries Co. has been producing truck cranes and hydraulic breaker components at its Soosan Machinery & Equipment Xiamne Co. plant in China.

Domestic companies have rushed to set up plants in overseas markets not only because of transportation considerations. They have also established overseas production lines to avoid possible trade friction with foreign nations, especially the Europeans, which have threatened to bring Korean firms before the World Trade Organization on charges of dumping. Setting up plants in the European countries has been necessary for Korean companies in order to strengthen their market competitiveness and effectively cope with the move toward fortifying regional blocs against outsiders. This "globalization" of production is further necessary to meet national environmental standards which differ from country to country. Not all Korean companies have been successful in their advance into foreign markets.

Hyundai Heavy Industries Co., for example, halted production at its HCE Europe B.V plantin Belgium one year after beginning production on account of the lackluster construction market in Europe. The company's experience has since prompted other firms to maintain a cautious attitude toward setting up production lines overseas.

The Korean companies active in the European market are now locked in severe competition with world's leading makers of construction equipment on account of their weakening price competitiveness. The hike in prices of domestic machinery has prompted many firms to resort to leasing used foreign equipment.

Domestic firms have continued to develop key components in areas such as hydraulics, but there remain some gaps between domestic technology and that owned by the world's leading manufacturers. Experts cite the need for Korean firms to come up with initiatives to accommodate the trend toward automation.

The Korean market has steadily been opening to foreign firms, compelling domestic firms to match imports in terms of both price and quality. Should they fail in this regard, they may well fail to maintain their share of local markets, let alone those overseas. On the other hand, should they successfully press ahead with their on-going drive to improve their product competitiveness, it might not be too difficult for them to eventually achieve their stated goal of taking 10 percent of the world market.

by Yung-Tak Oh

Daewoo Heavy Industries Ltd. first entered the construction equipment business in 1977 and developed its own Solar series of excavators in 1987. Currently, the company manufactures various types of products including crawler excavators, wheel excavators, wheel loaders, bulldozers, truck cranes, concrete pump trucks, tower cranes and other construction-related equipment in Korea, Belgium and China.
The company set up Euro Daewoo Co. in Belgium in 1990 to produce for overseas markets, a first for domestic construction equipment manufacturers. Daewoo now operates seven overseas corporations primarily in developed nations such as Japan, the United Kingdom, Germany and Belgium with the aim of expanding its share of those markets.
The firm has introduced a series of business tactics designed to increase its share in the world markets They include efforts at product differentiation and a re-vamping of its marketing activities.
In a bid to strengthen competitiveness of its products, Daewoo plans to replace the current Solar-III model with the more operator- and environment-friendly Solar-V. The new model features both lower fuel consumption and lower noise emission.
In an attempt at niche marketing, the company plans to develop and market both a magnetic, and a telescopic-type, excavator. It also is poised to boost sales of under 3-ton class mini-excavators to meet the increasing demand for such products.
It is planning to focus on developing goods appropriate to each market. For example, the marketing of mini-excavators will be strengthened in the European market while the company will seek to expand its share of the wheel loader market in Latin America.
Daewoo is also planning to get the CE mark and environment-related certification for all its products in a bid to raise their competitiveness in overseas markets. It is now pressing ahead with plans to increase its local dealer network from the current 140 in 44 countries to 167 in 52 countries.
Daewoo Heavy Industries Ltd.
#6 Mansok-dong, Tong-gu, Inchon, Korea
Tel: 82-2-726-3120, 82-32-760-1114
Fax: 82-2-726-3149, 82-32-760-1216

Hyundai Heavy Industries Co.

Hyundai Heavy Industries Co. has been producing construction equipment since 1980. Although the company began manufacturing belatedly compared with other makers of end-use products, it is now busily engaged in producing 16 models of excavator, five loaders, 16 lift machines, two cranes and a skitter skier model. In particular, exports of the Robex series of excavators and the HL series of loaders have been booming since they were developed in 1989. "Hyundai Motor Co. has a world-wide distribution network through which it sells well-known products," said Mr. Oh Won-seup, responsible for the company's overseas marketing efforts. "Due to booming sales of Hyundai cars, we have the benefit of recognition from foreign consumers, and our rapid increase in export has been mainly due to our high-quality after-sales service. "In a move to step-up after-service, the company dispatches local experts to overseas markets for about 10 months at a time. They also provide on-the-job training for employees in local markets.
In addition, the company has conducted events aimed at building trust with existing clients while at the same time prospecting for new ones. To this end, the firm has invited some 100 to 150 clients from Europe and the United States to visit the firm's industrial sites plus those of parent Hyundai Motors. Since its inception in 1994, the program has provided the company with the opportunity to raise its image in foreign markets. The company plans to focus efforts on becoming one of 10 largest manufacturers of construction equipment in the world by the year 2000. Under the program, the company plans to expand production in its factories in Korea, China and Belgium.
Hyundai Heavy Industries Co., Ltd.
#1, Cheonha-dong, Dong-gu, Ulsan, Kyongsang-namdo, Korea
Tel: 82-2-746-7411, 82-522-32-1101
Fax: 82-2-746-7406/9, 82-522-32-4001

Since established in 1984, Soosan Heavy Industries Co., Ltd. has specialized in the manufacture of special-purpose vehicles and attachment equipment. In particular, the company drew special attention when it achieved a world-first by developing a plasma breaker. The equipment features, among other benefits, a noise reduction of more than 85 percent by relying on electricity as its motive power rather than dynamite. Its security features make the new machine suitable for work in urban areas.
The company also produces hydraulic attachments such as reduced-noise breakers, pulverizers, crushers, and polishers. In addition, the firm manufactures various kinds of special-purpose vehicles including cranes, aerial platforms, deck lifters, road sweepers, mobile crushing plants, high-vacuum suction cars, pump cars, crawler drills, and earth drills. Soosan plans to invest huge amounts into the development of new products in the coming year. In particular, it is preparing to develop hydraulic breakers for export.
Soosan Heavy Industries Co., Ltd.
#32-5, Chungdam-dong, Kangnam-gu, Seoul, Korea
Tel: 82-2-517-3985
Fax: 82-2-546-7570

Halla Heavy Industries Co., Ltd. began production of construction equipment in 1994. The firm is, in fact, a successor to Hyundai International Inc. which began manufacturing construction equipment in 1962. The company also initiated the domestic production of bulldozers and hydraulic excavators in 1972 but had to cease due to governmental policies designed to realign the heavy industries in the 1980s. From the start of its entry into the industry, Halla has accumulated a wide scope of technology and expertise through joint-ventures with firms from the developed world. The firm plans to develop a major product line of world-class quality. Currently, the company manufacturers nine types of excavator, four types of loader and 28 models of forklift truck.
In overseas markets, the company has focussed on promoting sales of its loaders and forklifts. As part of its goal to further globalize its production, the company now operates plants in the United Kingdom and China.
Halla Heavy Industries Co., Ltd.
891-44, Daechi-dong, Kangnam-gu, Seoul, Korea
Tel: 82-2-559-1171/5
Fax: 82-2-559-1199

Since it entered the heavy equipment business in 1983, Samsung Heavy Industries Co. Ltd. has led the technological development of the domestic construction machinery industry. It first developed its own model of excavator in 1989, followed by a bulldozer and a wheel loader in 1991.
Its current SE series of excavators has superseded the previous MX line. Samsung Heavy's products, equipped with state-of-the-art facilities, are designed for driver convenience and safety. The equipment's work efficiency is expected to improve significantly since the system enables an appropriate distribution of oil pressure to each part in accordance with the degree of difficulty of the work undertaken.
The firm's 10 models of excavator and loader were chosen as the finest quality equipment on the market for four consecutive years by the American "Construction Equipment" magazine. Samsung also acquired the ISO 14001 certification, establishing its credentials as an environmentally-conscious enterprise. The company plans to build research institutes in each of its major markets including the United States, Japan and the European Union. It plans to concentrate, respectively, the development of its oil pressure equipment in Japan, its power transmission equipment in the European Union, and its engines in the United States. With a view to expanding its exports, the company plans to increase the number of foreign marketing networks from the current 150 to 300 by 2000. In order to ensure all its manufacturing operations are adequately supplied with components and materials, the company is now planning to put in place a global supply system which will link all its branch offices, subsidiary companies, cooperative firms and dealerships around the world.
Samsung Heavy Industries Co. Ltd.
Address: Dongnam Tower, 890-25, Daechi-dong, Kangnam-gu, Seoul, Korea
Tel: 82-2-3458-7304/9
Fax: 82-2-3458-6342

Tong-myung Heavy Industries Co., Ltd. is Korea's largest manufacturer of hydraulic gear, an essential element in the production of construction equipment. It also produces material handling equipment, marine machinery and other machinery goods. Since founded in 1974, the company has continued to develop industry-related technology. The firm currently possess the technology to manufacture a wide variety of hydraulic equipment, including solenoid valves, check valves, remote control valves, and hydraulic motors such as travelling motors and swing motors for use in heavy equipment.
All of its products have been bought by the nation's four largest manufacturers of heavy equipment. The company was the first manufacturer of hydraulic equipment to receive the ISO 9001 certification, and plans to advance into foreign markets in the future.
Tong-myung Heavy Industries Co., Ltd.
456-3, Nae-dong, Changwon, Kyongsang-namdo, Korea
Tel: 82-551-69-5114
Fax: 82-551-69-5123

Dongyang Mechatronics Co. was established in 1978 with the sole aim of manufacturing hydraulic cylinders. However, it has since manufactured automobile motors and special purpose vehicles. The company exports hydraulic cylinders to Mercury Marine of the United States, the world's largest manufacturer of motor boats. The firm is capable of manufacturing annually 360,000 motors for construction equipment and 400,000 motors for motor boats in addition to other kinds of component.
The company, though, is planning to lower the ratio of component production from 60 percent of the total down to 30 percent in the near term. Meanwhile, it plans to increase the production of finished products such as specially-equipped vehicles. The company takes the largest share in Korean market for concrete pump cars and has recently introduced a 21-meter model. Dongmyung manufactures a variety of other products including a truck-mounted crane, a parking system, and a car-washing machine.
Dongmyung Mechatronics Co., Ltd.
48-6, Sungju-dong, Changwon, Kyongsang-namdo, Korea
Tel: 82-551-82-6606
Fax: 82-551-82-6781

Perhaps the most representative item amongst construction equipment, and certainly that with highest demand, is the excavator. The various attachments fitted to excavators are high-value items. Daemo Engineering Co., Ltd. founded in 1987, specializes in the production of attachments. Its products are sold both domestically and overseas. Major products include hydraulic breakers and concrete crushers, a field in which the company has developed top-level technology. In 1995, the company was the first among manufacturers of attachments to receive the CE mark. It now manufactures various kinds of crushers, pulverizers, shears, car peckers, augers, vibrators, compactors, and other related forms of equipment." We are not the largest maker of goods in this field, but we do produce a very broad range, said company president Lee Won-hae. Daemo Engineering Co., Ltd.
Ui-sung Bldg. 5F, 76-137, Kochuck-dong, Kuro-gu, Seoul, Korea.
Tel: 82-2-616-0115
Fax: 82-2-616-0116

Since its founding in 1955, Daechang Forging Co. has garnered a great deal of expertise in the field of forged products. In the initial stages of its foundation the company manufactured only cranks. It now produces engine and power transmission components for use in construction equipment and automobiles.
The firm manufactures solely for the domestic market but is planning to start exporting. To this end, Daechang is building new plants. Based on its accumulated technology, the company has been retrofitting its facilities for the production of new goods. Currently it operates 13 items of equipment such as hammers and presses, but plans to augment its plant with a 40-ton count blow hammer, a 6,300-ton auto press, a six-ton air-drop hammer, plus a 3,150-ton.
Daechang has introduced technology from Japan's Metal Art Co., and is exporting the Japanese firm's goods under an original equipment manufacturing (OEM) agreement. The company is now increasing the number of distributors with a view to expanding sales of its products around the world.
Daechang Forging Co., Ltd.
952-3, Kamjun-dong, Sansang-gu, Pusan, Korea
Tel: 82-51-327-1968
Fax: 82-51-324-4264

HS Parker Co. Ltd., founded in 1986, is a joint venture between Parker Hannifin Corp. of the United States and Hwasung Group of Korea. It is the only firm in Korea which produces spiral hose, an important component in construction and industrial equipment. Major products include hydraulic hoses and fittings, parflex hoses, polyflex hoses, quick couplings, industrial tube fittings, and instrumentation tube fittings. Recognized for its technology, the company has begun exporting its products. In particular, the firm started shipments of hose assemblies to Sumitomo Construction Co. of Japan. The company received the ISO 9001 certification in 1995.
The firm is also investing huge amounts to expand its shares in overseas markets. It is planning to manufacture new products including a 40-meter plus spiral hose, a large-size spiral hose, and a spiral hose for ultra high-pressure.
HS Parker Co., Ltd.
215, Yusan-dong, Yangsan, Kyongsang-namdo, Korea
Tel: 82-523-389-0100
Fax: 82-523-389-0115