[Square] Overseas Construction on the Test Bench

Taehong Son, Research Fellow at the Korea Research Institute for Construction Industry (Ph.D. in Engineering)

As of June 29, overseas construction orders in the first half of this year recorded $14.7 billion, 9% less than the same period last year. By region, Asia recorded $6.5 billion, similar to last year, while the Pacific/North America and Europe regions increased by $1.2 billion and $1.5 billion respectively, reaching $1.5 billion and $2.0 billion. On the other hand, the main market, the Middle East, fell short at $4.1 billion, about $3.6 billion less than the same period last year. By construction type, industrial facilities and civil engineering recorded $9.5 billion and $2.8 billion respectively, similar to last year, while architecture decreased by $2.0 billion to $1.2 billion. Although the results are not satisfactory, achieving performance similar to or even surpassing last year's results is not impossible?provided the upcoming tests are well managed.

At the center of the COVID-19 pandemic, which caused a global economic downturn more severe than the global financial crisis, were lockdowns and movement restrictions. Factories stopped, and people had to stay home, causing simultaneous contractions in demand and supply, leading to an unprecedented economic crisis. Although expectations for the end of the pandemic are growing due to expanded vaccination, the impact of COVID-19 remains significant and ongoing. In particular, its effect on overseas construction appears direct and just beginning.

To secure overseas construction projects, thorough preparation is required, including a detailed analysis of the market environment and the projects planned by clients. Additionally, ‘order-winning sales activities’ explaining a company's technical capabilities and price competitiveness to clients are essential. However, due to COVID-19 last year, restrictions on the movement of essential personnel between countries almost halted such sales activities. Therefore, this year is expected to be a true test for domestic construction companies operating in overseas markets and for our government.

Based on the global economic recovery, rising international oil prices, and normalization of delayed project plans, the overseas construction market is expected to be positively affected, but it will take considerable time for companies to feel this impact. This is why preparations must be made quickly before receiving a disappointing performance report below $30 billion this year. Entering companies must establish systems to prepare for simultaneous bids that may arise as overseas clients normalize their project plans. Furthermore, to ensure the uninterrupted utilization of essential personnel for overseas project orders, workforce management plans, including vaccination, must be established and executed.

The government's role is also important. Above all, the resumption of government-level construction diplomacy, which had been suspended, is necessary. Bilateral cooperation with major ordering countries should be strengthened, and order-winning diplomacy using local embassies and consulates should be expanded. Next, to enhance competitiveness in securing investment and development projects, policy financial support should be strengthened, and support methods through dedicated agencies need to be advanced. Additionally, tailored support strategies by product sectors such as transportation and logistics, urban development, and water resources, utilizing the capabilities of domestic construction companies and public institutions, are required.

The overseas construction market should not become less important depending on the domestic construction market's boom or bust. Since stepping into the overseas construction market in 1965, the accumulated orders of $880 billion are not just numbers. They are evidence of South Korea's built overseas construction competitiveness and the importance of the overseas construction market. Although this year may be challenging, let us not forget that it could be the starting point for a new leap forward, not the end. Achieving $1 trillion in accumulated orders is not far away.

Son Tae-hong, Research Fellow, Korea Construction Industry Research Institute (Ph.D. in Engineering)

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