A study of Korean shipbuilders' strategy for sustainable growth

Abstract

This paper aims to develop potential strategies for Korean shipbuilders for sustainable growth by understanding the characteristics of the shipbuilding industry and the current market situation. Before the financial meltdown in 2008, in the five preceding years, the healthy global economy and the rapid growth of the Chinese economy led to 35% compound annual growth rate (CAGR) in shipbuilding orders. Korean shipbuilders' sales and profits increased dramatically and they invested aggressively to meet the global demand. However, because of the financial crisis, the shipbuilding orders in 2009 decreased by 92% compared to 2007. Accordingly, the decrease in new orders will become a serious risk for Korean shipbuilders to manage because it will cause loss of economies of scale and cash deficit, at the same time. Historically, it is true that the profits of Korean shipbuilders generally mirrored the volume of global seaborne trade, which is ultimately driven by global GDP growth. However, even though the world growth rate, as predicted by OECD, turns positive in 2010, the drastic shrinkage in the shipbuilding demand may not easily recover because of oversupply of fleet volume. In this thesis, I will address current status of the shipbuilding market, project a market forecast, and analyze financial information of four major Korean shipbuilders. Considering the current market situation and financial status of Korean shipbuilders, I will suggest for Korean shipbuilders some potential business strategies as follows: focusing on offshore units, exploiting new market demand, and considering business diversification.