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Samsung’s two units compete for overseas construction
Publication Date : 07-08-2013
South Korea's top conglomerate Samsung Group, in addition to its already-flourishing electronics business, has made visible achievements in the overseas construction and engineering sectors so far this year.
Behind such success, however, was an unseen yet intense power grab between two rivalling subsidiaries ― Samsung Construction & Trading and Samsung Engineering.
Samsung C&T has recently risen as a hot topic in the local construction industry since achieving US$10.8 billion in overseas construction sales this year up to the end of July, already exceeding its yearly sales target of $10.5 billion.
The amount is also more than double that of the nation’s No. 1 builder Hyundai Engineering & Construction, which has so far attained $4.7 billion.
One of the most decisive factors for the company’s unprecedented performance was a $1.9 billion order to build a subway system in Riyadh, Saudi Arabia.
This, added to other massive orders such as the $5.6 billion Roy Hill project to build a comprehensive iron processing system in Australia, boosted Samsung C&T’s sales level far above expectations.
“Civil engineering projects were the driving force of the world’s industrial development in the past but began to lose momentum around 2000,” said an official of the International Contractors’ Association of Korea.
Owing to the rising competition and the low-price booking, conventional construction gave way to the construction of oil refinery systems and offshore plants, he said.
“Over recent years, however, civil engineering has once again surfaced as a lucrative and competitive field of business, especially when it comes to technology-reliant facilities such as subways, bridges and tunnels,” the official said.
Samsung C&T, which had always been strong in high-rise buildings and underground construction, has made the best use of its specialties and benefited from such market changes, he added.
The revival of Samsung C&T in the overseas infrastructure market is favourable for the conglomerate, which is seeking to diversify its business portfolio beyond the electronics sector.
It may, however, be a point of concern for Samsung Engineering, the subsidiary in charge of oil and gas refinery system construction.
The company showed rapid growth from 2009 until last year, but has recently faltered in the market due to a challenge from Chinese competitors.
As a result, it recorded a sales deficit of 88.7 billion won ($79.6 million) in the second quarter of this year, officials said last month.
Samsung Engineering has also recently faced a management crisis, following a water tank explosion and the subsequent replacement of its chief.
While the engineering subsidiary continued to struggle, in contrast to Samsung C&T, some observers once again suggested that the conglomerate may consolidate its construction and engineering sectors.
This speculation was further boosted by the fact that the latter recently acquired 0.6 per cent of the former’s stocks.
“The merger story has been going on for more than 15 years, as the two companies’ business fields partly overlap in sectors such as thermoelectric power plants,” said an official of Samsung Engineering.
“The two, however, hold specialties in their respective fields, and their merger would be extremely ineffective for the Samsung Group overall.”
Also, Samsung C&T would need much more than the current 0.6 per cent share in order to take over Samsung Engineering, he added.