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Offshore projects and trust, DSME’s key to survival

Shipbuilder says business diversity helped overcome global shipbuilding slump

Feb. 5, 2013 - 20:24 By Korea Herald
OKPO, South Gyeongsang Province ― The Daewoo Shipbuilding and Marine Engineering’s Okpo shipyard here seemed alien to the persistent global economic stagnation.

The 4.3-square-kilometer yard, symbolized by its landmark goliath 900-ton crane and the world’s largest shipbuilding dock, is buzzing with ongoing construction, varying from carrier ships to ocean production and storage units.

“Despite the decrease in commercial ship orders, our docks are far from being inactive,” said Park Young-kwan, business management director at Okpo.
 
“On the contrary, we are currently working on expanding our offshore plant construction zone.”

Korea’s shipbuilders once seemed invincible but they, too, reeled under the heavy blow of the 2008 global financial crisis and its persistent aftermath.

Upon the slump of the world industry and the rapid rise of Chinese competitors, most companies, including the world’s largest player Hyundai Heavy Industries, failed to meet their target order line last year.

The sole player who put up a good defense and exceeded its target amount was DSME, which recorded a total order amount of $14.3 billion last year ― surpassing its $11 billion target by 30 percent.

Some $10.5 billion or 73.5 percent of the total order amount came from offshore products, making DSME the world’s first shipbuilder to break the $10 billion line.

Taking initiative in offshore biz

The secret to survival was a combination of the company’s technical superiority and its balance in product range, according to Lee Jae-ha, DSME’s executive vice president and chief marketing officer.

“Our orders vary from commercial carrier vessels to complex offshore production units, all of which are renowned for their advanced technology level,” Lee said.
Lee Jae-ha, executive vice president & chief marketing officer, marketing division

“This business diversity offered us alternatives, even amid the global shipbuilding slump.”

Despite the general recovery of the world economy this year, the commercial vessel market will continue to struggle, Lee said.

“It is, however, in times like this that we may display our full potential as a champion in offshore construction and marine engineering,” he also said.

For decades, DSME has differentiated itself from its rivals by placing prime focus on the ocean industry, Lee explained.

“Though we are still strong in commercial ships, our key strategic fields are offshore platforms, special vessels and military battleships,” he said.

In December, the company added excitement to its yearly sales by securing a $1.56 billion order on two 3,000-ton submarines from the nation’s Defense Acquisition Program Administration.

Sustainable partnership is crucial

Beyond its cutting-edge technology and balanced business portfolio, DSME would not have come this far if not for the trust from its partners, Lee said.

“The best service we may offer to our customers is quality, on-time delivery, and consistency,” he said.

“Major oil companies are largely conservative and strict, which means that it is almost impossible to recover a relationship once trust has been broken.”

DSME’s proven offshore construction performance has thus acted as a positive reference and often led to new orders, he explained.

“We won a $2.1 billion order from Total Angola in 2007, which was based on the assessment of our drilling and production platform construction for Cabinda Gulf Oil Company in 1995,” the marketing officer said.

In the case of a seawater treating plant for Arco Alaska back in 1983, DSME made an unexpectedly early delivery, which led to a continuous business relationship with the company, he added.

“In the past, major oil companies would look down on Korean companies and even kick us out of meeting venues,” he said.

But once the trust is established, he noted, it is there to last.

The company’s slogan of trust is also a keyword advocated by CEO Ko Jae-ho, who is known for his perseverance and challenging attitude.

Back in his days as sales manager, Ko attributed to forming ties between DSME and Angola, which later became one of the firm’s biggest customers.

From ocean player to heavy industries frontrunner

The company’s initial vision for the upcoming years is to further diversify its business fields, especially in the energy sector.

According to its road map, DSME is to enter the top tier in the energy plant industry by 2015, while maintaining its No. 1 hold on shipbuilding and offshore businesses.

By 2020, it plans to reach total sales of 40 trillion won, in part by enhancing the role of its energy business to 11.7 percent of total sales from the current 0.1 percent.

“Using its superior marine engineering technology as a basis, DSME will now move on and challenge new business fields such as onshore plant construction and renewable energy generation,” Lee said.

“First we want to be recognized as the world’s top player in offshore construction, and then as the world leader in integrated heavy industries.”

By Bae Hyun-jung (tellme@heraldcorp.com)