Hyundai Heavy: Shipbuilder bows to market change

When your engineers can build the world’s biggest propeller, making wind turbines is a doddle. Hyundai Heavy Industries knows the real challenge will be selling them. At the sprawling Hyundai dockyard at Ulsan on the east coast of South Korea, a lone wind turbine beats steadily over the clatter of work, as welders and cutters clamber over towering hulls. It is a reminder that South Korea’s dirty manufacturing base has to create new business, and soon. South Korea’s dockyards, some of the world’s biggest, are examining solar and wind projects because of a drought of orders and the threat from China at the cheaper end of the market. But they are disadvantaged latecomers, taking on US and European companies with a long pedigree.
Hyundai’s top-line growth from shipbuilding is declining rapidly, so they should make up for it by generating revenues in other areas, says Yoon Pil-joong, an analyst at Samsung Securities. But it will be difficult to make marked short-term gains in the renewables business. The new business is expected to start contributing to earnings after 2012.
Still, analysts say that companies such as Samsung Heavy Industries, Hyundai, Daewoo Shipbuilding & Marine Engineering and STX have strong brand names and relations with international power utilities that will serve them well. South Korean companies also have a strong track-record in rapidly developing businesses - Hyundai went from building no ships to global leader in only 13 years. But analysts say that creating a successful business will mean striking deals abroad. At home, the country is still ambivalent on whether to adopt green technologies or not.
South Korea’s business lobby is recalcitrant in the face of President Lee Myung-bak’s green new deal. Even the minister responsible for industry has broken ranks and spoken against the government’s decision to set a national carbon emissions target on November 17.
Meanwhile, lobbies representing South Korea’s biggest companies are pressing the president’s green growth team to back down on carbon targets. Kim Sang-hyup, secretary-general of the presidential green growth committee says the country needs strict targets to make the private sector move into green businesses in a more aggressive way. Indeed, for companies such as Hyundai, which decided to switch into renewable power, the government is not going far enough. Kim Young-nam, a senior executive vice-president at Hyundai leading the shift into wind turbines, questions the government’s 6 percent target for renewable power by 2020.