[Jo Changwon Contingency Plan] Will Masga Become the 'Pandora's Box' of K-Shipbuilding?

In the late 2000s, there were two major events when the Korean shipbuilding industry expanded overseas. STX Group established a giant shipyard in Dalian, China, and Hanjin Heavy Industries built one in Subic, Philippines. The strategy was to construct mammoth docks overseas due to the small size of shipyard sites in Korea. The goal was ambitious: to sweep global orders based on low-wage labor and large-scale facilities abroad.

The results were disastrous. The STX Dalian shipyard completed an offshore plant complex with massive investments, but the 2008 financial crisis and shipping recession halted orders. The lack of skilled local labor, quality issues, and mismatched support conditions from Chinese authorities also hindered progress. The Hanjin Subic shipyard faced similar challenges with order droughts from the financial crisis, quality problems, labor disputes, and supply chain issues. Ultimately, overseas direct investment became a monster that devoured the parent company, marking a significant failure in Korean shipbuilding's overseas direct investment.

Now, the Korean shipbuilding industry is venturing into overseas direct investment again through the 'Masga (MASGA)' project in cooperation with the United States. Will the Masga project become a momentum for the development of the Korean shipbuilding industry? To put it bluntly, a tough road lies ahead. First, there's investment uncertainty. The overseas investments by STX and Hanjin in the 2000s were greenfield projects, building new facilities from scratch. In the case of Masga, it involves acquiring and further investing in the U.S. Philly shipyard, a brownfield approach. At first glance, the brownfield approach seems less risky, but that's not necessarily the case. If the shipbuilding facility structure is outdated, remodeling alone has limits in enhancing construction capabilities. Ultimately, the U.S. shipyard investment will proceed as a mix of brownfield and greenfield approaches, implying more costs.

There is no memorandum acknowledging the U.S. recognizes Korea as the sole partner in shipbuilding cooperation. The optimism that massive investments will secure long-term business rights akin to a monopoly is naive. The U.S. maintains close cooperative relationships with various countries to uphold its maritime hegemony. It has strategic security cooperation links with Japan, a key partner in the Indo-Pacific strategy, India, a QUAD ally, and European NATO member countries.

Coincidentally, these countries also have a special affinity for shipbuilding. India is focusing on nurturing the world's largest shipyard under government leadership. Japan already possesses top-notch technology in high-value-added ships and offshore plants. Europe is aiming to rebuild its shipbuilding industry with a focus on eco-friendly technology. There is no reason for the U.S. to choose Korea as its only shipbuilding partner.

The localization risk inherent in overseas direct investment cannot be ignored. In the cases of STX and Hanjin, overseas expansion was a voluntary investment seeking a survival path. However, the Masga project is merely an unavoidable choice that emerged during the Korea-U.S. tariff negotiations. Given that it is an overseas direct investment intertwined with diplomatic and security issues, the management strategy options for companies will be very limited. It's a disadvantageous game from the start, akin to playing without key pieces.

Nonetheless, the Korean shipbuilding industry cannot afford to ignore the Masga project due to competing countries. Not only China but also India, Japan, and Europe, countries nurturing their shipbuilding industries, share two characteristics. First, they have a large domestic market for purchasing ships. Second, they pour massive financial support into growing their shipbuilding industries. While Korean shipbuilding boasts world-class technology and talent, it lacks both a domestic market and comprehensive government support.

The Korean shipbuilding industry has no choice. Instead, it should leverage the Masga project as momentum to become a top-tier shipbuilding powerhouse. The only way is to overturn the existing shipbuilding paradigm. To do this, it must focus on advanced future shipbuilding technologies such as eco-friendly, digital, and autonomous driving. From a business model perspective, it should transition from the concept of shipbuilding construction to a 'marine business value chain' encompassing shipbuilding, shipping, ports, and logistics. The fate of K-shipbuilding's resurgence is in our hands.


jjack3@fnnews.com