Development of the Korean Shipbuilding Industry Chong-Sup KIM Seoul National University

Korean Shipbuilding Industry Korea's shipbuilding industry is a rare case which has grown rapidly into an export industry by improving international competitiveness in a short period of time. In the 1960s, Korea used to lag in the development of shipbuilding industry since it used to produce only costal, offshore fishing boats and vessels for domestic demand, and barges for export. In the 1970s and 1980s, it grew dramatically and became a leading country exporting large scale vessels in the global market.

Korean Shipbuilding Industry

Korean Shipbuilding Industry The shipbuilding industry of Korea was developed under close collaboration between the government and the private sector, especially large conglomerates. Government played an essential role in the development of the shipbuilding industry (as in most of the other countries which could develop a strong shipbuilding industry). 1967: Shipbuilding Promotion Law 1972-76: Third Five Year Development Plan (1973: Shipbuilding Development Plan) 1977-81: Fourth Five Year Development Plan (with plans to increase the domestic production of shipping components) Main policy instruments: (i) financial support (policy loans at preferential rates), (ii) complementary investments, (iii) trade incentives, and (iv) tax incentives

Korean Shipbuilding Industry Industrial Policy The HCI drive provided shipbuilding with (i) capital incentives, (ii) complementary investments, (iii) trade incentives, and (iv) tax holidays The capital incentives included preferential rates from state-owned banks with low nominal rates with the high inflation making the real interest rate negative for most of the 1970s. Complementary investments included large infrastructure programs for new facilities, such as POSCO.

Korean Shipbuilding Industry Technological Policy The Korean shipbuilding in the 1970s lacked the technological know-how to be competitive in international markets and therefore technological assistance from abroad was sought. Most of Korean shipbuilders chose to use licenses as a mean for acquiring technology. HHI got four types of technological assistance; (i) dockyard designs from the English company, A&P Appledore; (ii) ship designs and operating instructions from Scott Lithgow; (iii) expatriates, European shipbuilders, working for HHI the first three years of operations; and (iv) production know-how from Kawasaki Shipbuilding.

Korean Shipbuilding Industry Industrial Cluster Shipbuilding clusters in Korea were developed in Southeastern region of Korea, especially in Ulsan and Geoje.

Korean Shipbuilding Industry Industrial Cluster One of the world largest steel producers, POSCO, is based in Pohang, north of Ulsan. Producers of other parts for the shipbuilding and subcontractors of the shipbuilding companies are located in the cluster. Shipbuilding companies frequently sub-contract parts of the production process to sub-contractors, which, in many cases, are located very close to or even within the shipyard. Shipbuilding companies supported both suppliers of parts and sub-contractors by providing technical assistance and physical spaces for their production.

Korean Shipbuilding Industry Domestic production of parts and components From the mid-1980s, owing to government policies to promote the production of parts and components and coordinated efforts by the shipbuilding companies, there was a significant achievement in the domestic production of parts, materials, and machinery. The number of items in the shipbuilding supplier industry notified through Notification System of Domestic Production Items was 58 in 1986, 46 in 1987, and 34 in 1988. The average proportion of local content for the bulk carriers, tankers, and containers, which was 75~80% in 1988, increased to 84% for bulk carriers, 88% for tankers, and 89% for containers. For special ships, like LPG tankers, the local content increased from 60% in 1988 to 70% in 1989.