No Breakthrough for the Crisis in the Lighting Industry

Raw Material Prices Rise but Lighting Bid Prices Fall "Disrupting Market Order"
"Active Search for Win-Win Solutions, Need to Expand Introduction of Comprehensive Evaluation Bidding System"

Kim Myung-sik, CEO of Built Lighting, is explaining the LED optical measuring device (integrating sphere) that measures luminous efficacy and other parameters.
[Photo by Kim Jong-hwa]

[Asia Economy Reporter Kim Jong-hwa] Kim Myung-sik, CEO of Built Lighting, which operates LED lighting manufacturing plants in Bucheon and Gimpo, Gyeonggi Province, recently reduced factory operating rates by more than 20%. Although raw material prices rose by over 30%, the annual bid price for LED lighting actually dropped by about 5-10%. Moreover, with a decrease in order volume, management has become even more difficult. CEO Kim said, "It seems we will record our first deficit in 25 years since the corporation was established," adding, "The reckless competition caused by the lowest-price bidding system is destroying market order."

Built Lighting is among the top 20% of companies in the lighting industry. It obtained certification as a standard workplace for the disabled in 2020 and is recognized for its solid technology and competitiveness in both public procurement and the private construction market.

However, the company’s endurance has nearly run out due to the rise in raw material prices caused by COVID-19, the global logistics crisis, the Russia-Ukraine war, and recently, the sharp increase in interest rates. Sales were 43.7 billion KRW in 2018, 39.8 billion KRW in 2019, and 26.5 billion KRW in 2020, plummeting to 20.2 billion KRW last year?half of what it was four years ago.

Built Lighting, which even has a standard workplace for the disabled, is relatively advantageous in bidding competitions compared to other companies. The struggles of Built Lighting reflect the reality of the lighting industry. Smaller companies than Built Lighting are having an even harder time.

Jo Tae-hyung, CEO of lighting company Iriko in Goyang, Gyeonggi Province, has been operating his company at a loss for the past five years. He imports parts from China to manufacture finished products and supplies lighting fixtures to construction sites, but profits have decreased due to the recent surge in raw material prices, forcing him to rely on loans. CEO Jo lamented, "All costs have risen, but lighting prices have dropped further," adding, "Lighting is the final stage of construction, and if we don’t cut lighting prices, large corporations won’t approve payments."

CEO Jo Tae-hyung of Iriko is explaining the brightness and color of the lighting.
[Photo by Kim Jong-hwa]

Annual sales of 5 billion KRW are needed for normal company operation, but last year they pushed to achieve 4.1 billion KRW, and this year they expect about 3.5 billion KRW, which is even lower. They need to take out additional loans, but that is not easy either. Their main bank demands an 8% interest rate. CEO Jo said, "This is the only work I know, so I’m trying to manage somehow, but it’s tough," adding, "I have considered liquidation, but thinking of my employees, I have to take loans and endure even with high interest rates."

The lighting industry’s biggest concern is the 'reverse trend in delivery prices.' The average bid price for lighting fixtures at large construction sites has been declining every year. CEO Kim revealed, "Products that were delivered at 100 KRW in 2020 were delivered at 95 KRW last year and 90 KRW this year," adding, "At these prices, even winning bids result in losses. We are seriously considering whether to participate in bids."

Regarding the cause of falling bid prices rather than rising, CEO Jo said, "It is due to the reality of relying on Chinese materials." To participate in lowest-price bidding competitions, companies have no choice but to use cheap Chinese materials and parts, and since Chinese materials occupy over 90% of the market, companies are forced into a self-destructive competition.

Moreover, costs from unreasonable certification systems are also a burden. Built Lighting spends about 1.7% of its annual sales on certification costs, and Iriko spends about 2%. CEO Jo raised his voice, saying, "Companies suffer from unnecessary and unreasonable certifications that blur the line between illegal and legal." He explained that safety certification should be based on whether the person using the lighting is safe or not. If the device operates directly at 220V (volts) with a risk of electric shock, safety certification is naturally required, but devices operating at 20-30V through a ballast do not need safety certification, according to CEO Jo.

CEO Jo said, "We are seeking a breakthrough for survival through overseas expansion." Iriko is betting on a contract with German lighting company P, which is currently underway. Although the contract size is about 200 million KRW and not large, they plan to use this contract as a foothold to actively enter the European market. CEO Jo said, "No matter what conditions are required, I will make the contract with that company," as there is no longer hope in the domestic market.

CEO Kim emphasized, "It is now time to actively seek ways to coexist," adding, "We need to move to a new stage through active improvements such as expanding the introduction of comprehensive evaluation bidding systems or pure itemized bidding systems, and improving various certification systems like high-efficiency certification."

This content was produced with the assistance of AI translation services.