[ Investment > Korea Success Story ]

hange. It is a constant, harsh fact of life in general and of business in particular. How individuals and corporations cope with change can determines not only their survival but also their chances of success by seizing on those opportunities that change brings.

  Companies that weather change to achieve success in completely different fields of business are rare, but when they do, their performance must be judged as indicative of the intrinsic value of their core values, technologies, and management philosophies.
  One company that is notable for having undergone pronounced changes in an extremely short space of time to prosper in a tough competitive environment is ABB Korea, the subject of KT&I¡¯s ¡°Investment Window¡± column for May/June 1997. At that time, ABB Korea, the domestic subsidiary of Swedish- Swiss company Asea Brown Boveri (ABB), a leader in power and automation technologies, was distinguishing itself as a major contributor to Korea¡¯s nuclear and thermal power program.
  ABB Korea led the projects to design and build the Ulchin and Youngwang nuclear reactors. The company also built the Poryong 2,000MW thermal power plant, supplying its GT24 advanced sequential turbines for a record $49 million.

  Meanwhile, in a separate initiative directed from head office in Zurich, ABB had won the contract to supply North Korea with light-water nuclear reactors under the 1994 Agreed Framework. (Change would also come to ABB in the North, too, leading it into a new partnership with its host country. See box).
  At the same time, ABB Korea in the South was operating three joint ventures, at Chonan, Suwon and Busan as well as a wholly owned subsidiary at Chungju that between them made a variety of equipment including turbochargers plus air handling, power process automation, transmission and distribution equipment.

   AVOIDING A SHUTDOWN Meanwhile, in addition to these other activities, ground was broken in 1997 at the 2-million square meter Chonan Industrial Complex to the south of Seoul where ABB Korea was planning to build a new facility dedicated to the production of switchgear and transformers with a capacity of 36kV and smaller. Two major events, one internal to the company and one external would later conspire to make the completed plant the mainstay of ABB¡¯s business in Korea.

  The first of these events was the financial crisis of late 1997 that impacted heavily upon the company. ¡°We merged the four separate manufacturing operations into one and moved activities to the Chonan factory when it was completed in 1998,¡± said Yunsok Han, vice president of ABB at the time of the first article and now company president. He explained that ABB bought out its three joint venture partners when they fell into difficulties and transferred all productive plant and personnel to Chonan for the sake of achieving badly needed synergies. ¡°The crisis was a time of difficulties and hardship,¡± said Mr. Han, ¡°but we survived.¡± Part of the immediate solution was a trimming of the company¡¯s 400-strong workforce although Mr. Han stresses the job losses were not as severe as at other companies who were similarly affected by the crisis.

  Keeping seasoned workers on the payroll was also part ABB¡¯s survival strategy. ¡°We needed the workforce to start our business at the new plant,¡± said Mr. Han.
  Just how vital the new plant with its experienced employees would become to the survival of ABB in South Korea would become evident two years later in the spring of 2000 when ABB made a corporate decision to divest itself totally of its nuclear and thermal power generating businesses, selling the former to British Nuclear Fuels Ltd. (BNFL) and the latter to Alstom of France. ¡°We were very lucky that we had the [Chonan plant] project started, otherwise everything might have been closed down,¡± said Mr. Han. He explained that when ABB was focused on power generation solutions, ¡°Most of our business was commission-based because we didn¡¯t produce anything. We were just marketing agents, and when times are tough, foreign companies close down their overseas agencies.¡± The Chonan plant, and indeed, all ABB¡¯s activities in South Korea now comprise two divisions: the Power Technology Division and the Automation Technology Division. Between them they produce a product mix that has not varied significantly over five years. It includes transformers (of capacities up to 2,500 kV), AC/DC drives, switchgear, and automated arc-welding robots.

   MORE COMMITTED TO KOREA Rather than having a single client in the form of national-grid operator KEPCO (Korea Electric Power Co.), as when power generation dominated ABB¡¯s business, the company now sells to a broad swathe of private sector industry. KEPCO is still a client, but the list also includes steel maker POSCO, cement, paper and automakers that are ready customers for ABB¡¯s process automation systems and solutions. Mr. Han doubts that ABB would ever have invested in building a factory in Korea if it had remained in the power-generation business. ¡°All the products we used at that time were manufactured from outside the country, in Switzerland or the United States,¡± he said. Furthermore, now that ABB does have a plant in Korea with some 350 employees it is directly responsible for, he believes the company is much more committed to Korea.

  ABB decided to go up against some tough competition in the transformer field when it invested 50 billion won ($58 million, approximately) in building a plant on a 60,000-square meter site in the Chonan complex. Entrenched players included Hyosung Industries Co., Ltd., LG Industrial Systems and Hyundai Heavy Industries. The obvious attraction lay in a sizable market and up to that point ABB Korea annually imported $50 million worth of power supply equipment. On what, though, was ABB going to base a competitive edge? ¡°Basically, it was the technology,¡± said Mr. Han. ¡°It was our belief that local technology was not competitive, and that the market here was very good and some day it must open up.¡± Under pressure of logical persuasion - ABB now employs about 100 sales engineers, one of the largest technical sales forces fielded by a foreign company in Korea - the market did open up and the company now enjoys a 21-percent share of the domestic transformer market worth 60 billion won ($50 million) in 2002. This feat is all the more remarkable when one considers that business was lackluster for the first two years, meaning ABB has captured more than one-fifth of a difficult market in effectively just three years.

   LOCALIZING FOR SUCCESS? Acknowledging that ABB¡¯s previous business line helped raise its profile in the domestic transformer/switchgear market, Mr. Han said: ¡°We believe that power generation is a symbol of state-of-the-art technology.¡±

  Explaining the origins of the plant, he said, ¡°The group intended to invest in Asia and Korea was one of the top candidates. Some companies,¡± he continued, ¡°had been looked at as possible acquisition targets but in the end ABB decided to go ahead and build at Chonan.¡±
  Indeed, there was much in the way of incentive. In a deal organized by the operator of the complex, the Korea Industrial Complex Corporation (KICOX), ABB built its factory on land it was able to lease free of charge.

  Location-wise, too, the Chonan site was a plus.
  ¡°The location could not have been better,¡± said Mr. Han. ¡°Previously, we had factories everywhere, but Chonan is located right in the middle of the peninsula.¡± It is not too far away, however, that some workers cannot commute from Seoul, and transportation links will be improved at the end of this year by the opening of a subway line, while the high-speed Seoul/Busan railway will stop at Chonan. Meanwhile, the complex is home to other successful high-tech producers, among them Mirae Semiconductor and ABB Korea¡¯s next-door neighbor, Samsung LCD.
  With less than one year in the corner office at ABB Korea, Mr. Han comments that his appointment (following a German national) reflects a growing trend among transnationals in Korea to localize management. While he could not comment on whether it is a factor in the company¡¯s success, he noted that it was a morale booster for the staff. ¡°They recognize it was a milestone and feel the top job in a foreign corporation might be open to them, too,¡± he said. Personally, he said he considered it an honor to be appointed the first local CEO of the company and said it demonstrated the trust that a foreign corporation placed in Korean management.

   A TOP EARNER, AS USUAL The four to five nights he currently spends every week in Chonan gives him the opportunity to socialize with the factory¡¯s workers in an informal manner and listen to their concerns. ¡°I always tell my managers to talk to their staff,¡± said Mr. Han. Labor relations, he adds, are excellent, a reminder that business success has as much to do with human relations as technologies and capitalization. And a business success, ABB Korea unmistakably is. In common with other local branches of transnational companies located in Korea, ABB Korea ranks close to the top as a profit generator within the ABB group.

  For the future, while effort will be placed on expanding its share of the domestic market, priority at ABB Korea will be given to boosting exports, which already claim 20 percent of company output. Pointing out that Chonan is able to manufacture more competitively than ABB in Europe, Mr. Han said that the company¡¯s export drive will focus on Asia at first, specifically Japan, China, Australia, Thailand and Malaysia. One of the first orders handled by the new plant was for four substations for a refinery expansion in Qatar.

  Faced with changes of enormous scale, ABB Korea demonstrated that it has the inner resources to adapt and virtually reinvent itself in the interests of survival and capitalizing on the new opportunities those changes would bring. With a motivated staff, world-beating technology and competitiveness, plus a company mindset focused beyond the confines of the country, ABB Korea now looks poised to repeat overseas the success it has enjoyed domestically.

by Charles Duerden(cad@kotra.or.kr)

A PIONEER IN PYONGYANG

  Asea Brown Boveri has a history of involvement with North Korea (the ¡°Democratic Peoples¡¯ Republic of Korea) going back almost a decade.
  The Swedish-Swiss specialist in power transmission and automation won the contract to build two 1,000MW nuclear light-water reactors at Sinpo in the North that were to be financed by the Korean Peninsula Energy Development Organization (KEDO) under the terms of the 1994 U.S./North Korean Agreed Framework. Construction of the reactors was much delayed by financial and political factors and eventually ABB¡¯s involvement with the project terminated when the ABB group sold its nuclear power generation business to British Nuclear Fuels in May 2000.
  In December of the same year, however, ABB CEO Goran Lindahl visited Pyongyang, the Northern capital to sign a ¡°wide-ranging long-term cooperation agreement .... aimed at improving the performance of the country¡¯s electricity transmission network and basic industries.¡±
  The agreement also covered improving the ¡°performance and efficiency in the manufacture of electrical products such as transformers circuit breakers and cables.¡± Moreover, it looked to developing alternative energy sources and the opening of an office in Pyongyang in 2001. In return, DPRK ministers said ABB would be provided with ¡°favorable frame conditions for their investment and technical cooperation.¡±
  Mr. Lindahl said it was ¡°ABB¡¯s strategy to move early and develop long-term local partnerships in emerging markets.¡± He went on to say ABB could combine its technology with local technical expertise to ¡°upgrade the country¡¯s basic industrial infrastructure as it moves into the larger economic community.¡±
  ABB subsequently opened an office in Pyongyang, June 28th 2001. It remains the sole office operated by a foreign company in the Northern capital.

  The relationship between ABB and the DPRK took another step forward May 19th this year when the Zurich-based company signed a memorandum of understanding (MOU) with Pyongyang to modernize the country¡¯s entire electric power network by implementing a ¡°high-tension power grid.¡± DPRK and ABB officials expressed the belief that the signing of the MOU would accelerate the construction of the grid.
  An ABB spokesperson told KT&I at the time of going of press that the company¡¯s operations in North were smallscale. ¡°We have some modest, regular business going and we are evaluating with our potential customers some larger projects including the power transmission project, that would include substations and cables,¡± he said. The spokesperson said ABB was committed to retaining a commercial presence in the DPRK and supporting multilateral and national efforts to improve economic conditions, in ABB¡¯s case by contributing to a better electricity grid.
  By such actions and sentiments ABB is elevating itself above the level of a mere economic actor to become a party in the reconstruction of North Korea, its return to the fold of nations, and the betterment of the lot of its citizens. Moreover, the corporate pioneer in Pyongyang will stand to reap benefits at such time as political tensions on the peninsula ease and the entire Asian northeast can pursue its full potential.