How Shinbo Balances Local Expertise with International Expansion

Interview - November 11, 2024

Jong-Kyu Park, President of Shinbo Co., Ltd., shares how his company is navigating industry challenges with a multi-faceted approach to growth and international expansion.

JONG-KYU PARK, PRESIDENT OF SHINBO CO., LTD.

▶In 2024, the Korean construction industry faced a peculiar situation, and this trend may persist into 2025. Several factors are contributing to this situation, including rising interest rates and increasing costs. As a result, many companies are being compelled to adopt a more global outlook. How critical is international expansion in today's market? What are the primary challenges your company encounters when venturing abroad?

Our company was founded in 1972, and over the past three decades, we've maintained an annual growth rate exceeding 20%. Since 1993, this has led to our company's size increasing by more than 300 times.

Our competitive advantage lies in the diversity of our business portfolio, which spans private, public, and overseas projects, as well as power infrastructure and infrastructure construction. When one sector slows down, the others help to compensate, ensuring consistent growth.

We are proactively responding to volatility, or the fluctuations in the market. For example, when the real estate market is shrinking because of high interest rates, we can focus on overseas projects such as the ones in Saudi Arabia, where oil prices have increased. If you look at the recent landscape, we are securing more orders from the semiconductor industry, including the Samsung and Hynix plants, as well as chemical projects, in Saudi Arabia. Such examples demonstrate that Saudi Arabia is building more petrochemical facilities to create higher added value. Since we specialize in electricity and telecommunication construction, we accompany the engineering, procurement, and construction (EPC) plans when they go overseas.

Our focus is mainly divided into four regions. The first is the East European market’s nuclear plants. The second is Southeast and Southwest Asia, to replace the Chinese market. The third is Saudi Arabia, which is currently an active market. The fourth is the US market, which is currently promoting reshoring.

▶We’ve seen a lot of governments pushing the China Plus One strategy, which is moving manufacturing sites from China to countries such as Vietnam. Even Prince Mohammed bin Salman has been pressing Saudi Arabia to onshore manufacturing. The US has come up with the Inflation Reduction Act (IRA) and Europe is doing the same. Of course, when going internationally, you have to compete against the Chinese and Japanese, not to mention the Europeans. What do you believe are the key competitive advantages of Korean consortiums over their international peers, and where do you see the biggest opportunities lie for Korean companies?

Out of the four regions that we are focusing on, the Eastern European market’s nuclear power plants present an opportunity because Korean companies are receiving a lot of orders from the Czech Republic, Poland, Bulgaria, and Romania. In terms of the construction period and price competitiveness, we are actually outpacing French or US competitors. Russia used to have the competitive edge in this market, but it is now being excluded from the European Union, so I think that further gives us a competitive advantage.

I think Saudi Arabia is also another promising market, but we run a lot of risk when we do business there because of the massive orders that they give simultaneously, including chemical, nuclear, photovoltaic (PV), and Neom City, all at the same time. There is a business lingo term called, “Saudization,” which refers to them mandating that a certain portion of the quota in terms of employees and products should be Saudi citizens or Saudi -made products, and I think that is making it nearly impossible to make up for the other parts that they cannot cover.

For the US market, we are accompanying Samsung Electronics, LG Energy Solutions, and Hyundai Motor Company when they move their manufacturing operations to the US to comply with the new IRA policy.

▶Digitalization is another trend which is affecting not only your sector but every sector of the economy. It is playing an increasingly important role in every major industry for companies which wish to remain competitive. In your sectors, what do you think are the major digitalization trends, and how is your company leveraging these trends to improve performance?

The construction field is actually the last to adopt digitalization. In terms of design or some parts of manufacturing, they’re adopting digital technologies. For example, as you mentioned, goods are now prefabricated and modeled before they are supplied to the construction site. Since we are not directly involved in manufactured goods, we are mostly deploying the digital technologies in our design or process management. In terms of the overall trend of digitalization in the construction industry, I think our company will keep in lockstep with that trend.

▶You mentioned your ability to offset the cyclical parts of the construction industry by catering to the needs of telecom and electricity sectors, both domestically and overseas. My understanding is that one of the big reasons behind that agility is that you streamlined decision making by appointing different CEOs to different divisions. Could you walk us through how you structured your company to cater to the needs of the markets in a nimbler way?

Our balanced business portfolio was not built overnight. Some businesses were founded in the 1980s and some started in the 1990s, and all have different time frames. We started penetrating the global market in the 2010s, so our staff with 20 to 30 years of expertise and experience in different fields will carry out these projects. Once these projects are successfully completed, they build confidence and trust from our clients. After decades of trust between customers, companies, and employees, we implemented a balanced CEO business division system that was devolved responsibilities and powers, enabling sustainable growth.

▶You mentioned talent, which is something that is complicated for any company. It’s difficult to acquire, to nurture, and to retain. It’s often even more complicated for medium-sized companies. Korea is experiencing an aging population as well, which isn’t helping. How do you foster talent within your company?

That is a very challenging question to answer because, as you mentioned, the aging population and the demographic changes are compounding this issue even further. Amongst the many electricity construction companies, we are top of the list in terms of revenue, and we are number one in terms of wages and welfare for the employees. Therefore, recruiting for headquarters or management positions is not so difficult, but the younger generations tend to avoid working on sites or in the field, so that makes it very challenging to recruit those workers.

It is regrettable that our younger generation does not really have the experience or expertise, so the experienced staff managers in the field have to transfer that to them. To solve this problem, we are currently hiring employees at the headquarters and rotating them to the headquarters and sites.

▶Your orders jumped from KRW 300 billion to over KRW 750 billion over the past year, and your revenue has had strong growth as well. Could you tell us how you plan to evolve as a business and what objectives you have set for yourself over the next three to five years?

For the last three decades, our CAGR was 20%. Throughout the years, we have expanded our business portfolio. Our major business partner was KEPCO in the 1980s and 1990s, but at the end of 1990s, we started to penetrate the telecommunication infrastructure and base station construction sectors, and all our businesses have been consistent until now. After that, our power infrastructure base was also involved with the satellite cities like Pangyo and Songdo that were being established in Korea.For the overseas market, we started working on the construction project for Qatar’s Hamad Hospital, the Marriott Hotel in Vietnam, and on projects in Uzbekistan and Kuwait as well. Since 2015 and 2016, we have won the confidence of SK Hynix and Samsung Electronics to become part of their construction projects for their plants. Our goal is to continue to grow and maintain higher returns.

Thankfully, we have become the best in class in five to six businesses that we have, but in terms of the public sector and high tech, we still have room for improvement. As for power infrastructure, we are not currently a major player for nuclear power plants, renewable energy plants, or transmission grids, so we are aiming to join the top tier in these three businesses.

We have been renewing our five-year plan since 2005, but because of the pandemic and the Ukraine war, we could not establish our five-year plan in 2020, so there were voids for the last five years. To address that, in 2025, we are planning to build a Vision 2030 five-year plan, with the major quantitative goals of 1 trillion KRW in revenue and 100 billion KRW in operating profit. Since our annual growth rate is already very fast, we now want to focus on higher quality and added value.

As you already know, the construction market is bound to shrink in the future because of the decreasing demographics in Korea. On the other hand, I believe that power infrastructure demand will continue to surge because it is backed by the Korean government, which recently came out with its 11th Basic Plan. With that, we believe that power consumption for the next fifteen years will increase by 30%. I’m sure that this will also become a ubiquitous phenomenon around the world, which will attract more investment in power infrastructure, so though we are not specialized in the manufacturing field, we are trying to pursue more M&A activity, including manufacturing, to focus more on power infrastructure so that it can become our new growth driver.

▶You mentioned the government, which is planning to spend USD 19 billion to boost the semiconductor industry and also plans to increase renewable energy, similar to what the US is doing. How important is it for you to build your core competence for the semiconductor and renewable energy sectors in Korea, and will you leverage that experience to diversify internationally?

As you mentioned, the Korean government has established a plan to create a semiconductor stimulus package worth KRW 26 trillion into the Samsung Electronics and SK Hynix industrial mega chip cluster in Yongin. There are only three companies that are doing the electricity construction for both companies and we are one of them, so building on our expertise and knowhow, we are aiming to be involved in this project. Only companies that have sufficient human resources and capital can conduct these projects.

For the US market, when Samsung Electronics, LG Energy Solutions, and SK Hynix are building their plants there, we want to go with them as partners. Samsung Electronics and LG Energy Solutions select their trusted partners, and once we are selected as such, we go for the new construction for the fab, the hookup, the maintenance, and ramping up the business until their plants are up and running. Once we become their established partners, we plan to be involved in their entire project.

▶A lot of the international projects that you are involved with are done as part of a consortium or are being delivered internationally for Korean clients. With your international work, are you also able to act as an individual company and leverage your track record to attract the likes of Intel or other international companies?

Actually, we have tried several times. It was not Intel or Qualcomm directly, but for some overseas plants. We actually worked with the Spanish company, Técnicas Reunidas (TR), in Poland, but it was very challenging. In the construction field, these companies use more global EPC companies rather than selecting medium-sized companies, so I think we'll have more opportunities in the future.

▶Can you share with us the project that you are most proud of, and which project was the most challenging?

I think the most challenging project, but also the one I am most proud of, was the Qatar Hamad Hospital because it was a USD 100 million project, which was the largest single electricity construction project by Korea.

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Parts of this interview were recorded in collaboration with Korean TV program, 중견만리 2024 episode 3