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Global Insider: South Korea Naval Shipbuilding

Wednesday, Jan. 5, 2011

Daewoo Shipbuilding & Marine Engineering, a South Korean shipbuilder, recently submitted a $3.5-billion bid for a Brazilian warship contract. In an e-mail interview, Mingi Hyun, research fellow at the Korea Institute for Maritime Strategy (KIMS), discussed South Korea's naval shipbuilding sector. The opinions expressed here do not necessarily reflect those of KIMS.

WPR: What is the current state of the South Korean military shipbuilding sector?

Mingi Hyun: Korea possesses a capable naval shipbuilding sector, composed of four government-designated naval shipbuilders: Daewoo Shipbuilding & Marine Engineering (DSME), Hyundai Heavy Industries (HHI), Hanjin Heavy Industries & Construction (HHIC) and STX Offshore & Shipbuilding. These shipbuilders have constructed some of the world's most sophisticated naval vessels, such as the KDX-3 Aegis destroyers, Type 214 submarines, and state-of-the-art LPX amphibious vessels.

These capabilities should benefit the country's defense industry, as the shipbuilders possess great potential to become the industry's dominant export cash cow. This is largely due to the financial value of individual ships, which can range from $100 million to over $1 billion per ship, as well as the growing volume of the international naval market, which, according to AMI International, is valued at $690 billion over the next 20 years.

The Korean government has been looking to reform the country's defense industry in a more export-oriented fashion, in order to nurture it into one of the world's largest by 2020. Great responsibility rests on the shoulders of the naval shipbuilders.

WPR: What are its most significant international partnerships?

Hyun: Korean shipbuilders have worked extensively with a number of American and European system houses that supply missiles, radar systems and combat-management systems. While these relationships have been oriented to the domestic market, some of them have been shifting their focus toward the export market. A few years ago, HHI formed a partnership with Lockheed Martin to export HHI destroyer hulls equipped with a scaled-down Lockheed Martin Aegis weapon system, a ship type that may appeal to aspiring medium-power navies in Asia and South America. Other foreign system houses have privately expressed interest in looking into similar arrangements with Korean shipbuilders.

WPR: What are the opportunities and challenges facing the sector's global competitiveness?

Hyun: Korea's greatest competition is mostly in Europe, where naval shipbuilders have been mainstays in the international naval export market for decades. Korean shipbuilders are relative newcomers, far less acclimated to the market's intricacies and idiosyncrasies. European shipbuilders also possess arguably the world's most advanced naval-ship-design capabilities, which enable them to exercise a great degree of innovation, whether by enabling new operational concepts aboard ships by accommodating a variety of unmanned systems or by reducing energy consumption through innovative hull and screw designs.

That said, Korean shipbuilders have their own strengths. They have garnered a positive international image largely thanks to the Republic of Korea Navy, whose destroyers and submarines have sailed around the globe to successfully conduct operations and exercises with a multitude of foreign navies. Additionally, Korean shipbuilders have been reputed for constructing solid-quality naval vessels, for being highly cost-effective and not causing cost overruns, and for their strict adherence to construction schedules compared to many of their international competitors, which often struggle in one or more of these areas.

Though not yet established internationally, Korean naval shipbuilders have a sound foundation upon which to build up the necessary capabilities to challenge their European competition. It will not be an easy task, but the future of the Korean defense industry depends heavily on being able to do so.