[Reporter’s Notebook] From 'Unprofitable Competition' to 'Quality Competition' in the Shipbuilding Industry

"No further words are needed. We are preparing with our lives on the line."

This is the determination of an executive at Hanwha Ocean ahead of the first special ship (such as warships and submarines) bidding competition since its launch. Recently, Hanwha Ocean and HD Hyundai Heavy Industries faced off over the order of two next-generation frigates worth 800 billion KRW, with the bidding scheduled for the end of this month. At 'MADEX (International Maritime Defense Industry Exhibition) 2023' held on the 7th at BEXCO in Busan, both companies set up large booths to showcase their competitiveness in special ships. HD Hyundai Heavy Industries emphasized its proven construction capabilities through continuous orders in the surface ship sector, including frigates. Hanwha Ocean highlighted the synergy with defense companies under the Hanwha Group, such as Hanwha Aerospace and Hanwha Systems, since its incorporation into the group.

Although the business scale is relatively small compared to the trillion-won large ship contracts frequently won in the shipbuilding industry, both companies showed strong determination to secure the order. This is because it can serve as a 'reference (order record)' for overseas exports. Kim Dong-kwan, Vice Chairman of Hanwha Group, who made a surprise visit to the Hanwha Ocean exhibition hall that day to show support, also expressed his resolve to compete in the global market. He said, "As a representative defense company of Korea, we will practice principled management and strengthen our competitiveness in the global market." Han Young-seok, CEO of HD Hyundai Heavy Industries, said, "I believe there is no competitor in the surface ship sector," adding, "HD Hyundai Heavy Industries has the skills and technology to confidently win anywhere in the world."

The competition between the two shipbuilders is welcome. Over the past few years, the shipbuilding industry has engaged in 'self-destructive' low-price bidding to secure orders. The former Daewoo Shipbuilding & Marine Engineering led this cutthroat competition. Instead of focusing on profitability, the emphasis was on building a large number of ships to increase market share. This 'unprofitable' competition worsened the profitability of shipbuilders and reduced their capacity to secure future growth engines. However, this next-generation frigate bidding competition signals a shift in the shipbuilding industry's competitive structure from quantity to quality.

The two companies can demonstrate 'coopetition'?a combination of cooperation and competition. Even if one side wins the order competition, they will cooperate within the Korean shipbuilding supply chain. For example, even if Hanwha Ocean wins the order, the frigate engines will be supplied by HD Hyundai Heavy Industries. Likewise, HD Hyundai Heavy Industries can adopt combat system equipment from Hanwha Systems. By separating cooperation and competition, we look forward to a 'winning K-Shipbuilding' in the global market.

Jung Dong-hoon, Industrial IT Department Reporter