How South Korean manufacturing companies can increase project success when investing in the US

Daniel Oh
According to the United Nations Industrial Development Organization, South Korea has the world’s third-largest manufacturing output, following Germany and China, and many South Korean firms are accelerating plans to increase manufacturing capacity in the US.

The recent change of global trade structure, triggered by the current trade conflict between the US and China, has encouraged South Korea’s manufacturing companies to move more of their production lines to the US and support the federal government’s plan to strengthen the US supply chain of critical components, e.g., EV batteries and semiconductors. By offering strong tax incentives and other benefits, the US has attracted many South Korean conglomerates, such as Samsung, LG, SK Innovation, Hyundai, Kia Motors and many other firms with a growing supply chain centered on the US.

Foreign companies investing in the US are likely to be exposed to various risks when delivering their capital projects. Support from a trusted US local project management (PM)/construction management (CM) partner with the necessary industry-specific expertise is essential for success.

Understanding regional construction markets

The construction market of a region where an investor will build its manufacturing facility largely relies on the condition of the supply chain, local labor availability, union/non-union setup, environment and safety requirements, backlog of construction work and local market disruption. Some investors may want to use specific materials and construction methodologies, such as procurement and contracting strategies, that they have commonly used in their country of origin but may not be practical in the US. Some investors may also feel more comfortable working with their own trusted contractors to install their equipment but they might also lack the necessary experience working in the US market. Many decisions made by investors without fully understanding the regional construction market may lead to increased costs for design and construction, as well as result in unexpected delays to the construction schedule. In the worst case, an investor may have litigation issues with the contractor for settlement on non-payment or disputed claims.

A trusted US local PM/CM partner can help South Korean investors understand the regional construction market conditions and advise on the best procurement and project delivery strategies to mitigate risks and eliminate any potential opportunity costs.

Understanding site conditions and available incentive programs

When planning a capital project, site selection is the first important decision for investors to make. Location and given conditions of the selected site will have a significant impact on the success of a project. Environmental regulations, probability of natural disaster, availability of infrastructure, underground soil condition and available financial incentives on the investment and job creation should be precisely analyzed and compared with other alternative sites in nearby states, which may present less risk and cost. Some states offer only a non-refundable income tax credit on the investment but in other states, the incentives are in large part cash or cash equivalents, which can help offset project costs.

Importance of project planning

Project planning includes all planning activities to be performed before the execution of construction work. Project scope definition, budget, schedule, safety and quality requirements, resource allocation and risk assessment are major parts of the planning. Some investors jump the gun without proper planning by overlooking the importance of this initial phase of the project and, unfortunately, end up losing time and money and, in some cases, their reputation as well. Resources like our monthly Construction Data Intelligence Report can be invaluable in helping investors understand the latest information on the differences in labor and material costs in the US when developing project plans and understanding the potential risks in the local market.

Planning activities are closely tied with the selected project delivery method. The procedure and project team structure should fit the requirements of the selected delivery method. Some examples of widely used delivery methods include conventional design-bid-build, multi-prime, CM agency, CM at risk, design-build, EPC and integrated project delivery. The delivery method should be carefully analyzed and selected by incorporating the investor’s decision-making habit/process, time and cash flow limitations, project size, tolerance for risk and investor’s in-house resource and capability, called “maturity” of organization. A best practice for this analysis is the Construction Industry Institutes (CII) Project Delivery Contracting Strategy (PDCS) assessment tool.

Awareness of cultural barriers

A common barrier many South Korean investors experience in developing their capital projects in the US is culture. Cultural barriers can be significant and can include not only difficulties in communicating but the differences in depth of knowledge and level of experience on certain aspects of construction management such as “commercial” versus “technical.” Historically, unlike US investors, South Korean investors have put more effort into the technical and quality aspects of construction rather than project delivery and contracting strategies. This is because most South Korean conglomerates, such as Samsung, LG, Hyundai and SK have their own construction arm within their organization and therefore have seemed easier to manage commercially. Additionally, South Korean construction companies don’t tend to see non-payment or legal disputes as a big risk, unlike US contractors.

A US local PM/CM partner with a worldwide business that has operations and resources in South Korea can help South Korean investors navigate these barriers and bridge the gap between the investor and local entities, contractors, design consultants and inspectors to help ensure the success of the investment.

We are a local PM/CM consultancy with operations both in South Korea and the US, ranked 7 in ENR’s 2020 Top Construction Management-for-Fee Firms (under parent company SNC-Lavalin). We bring our core areas of expertise in PM/CM, owner’s representative, project controls, construction data intelligence, value and risk management and estimating to a project. In recent years, we have successfully supported many confidential South Korean investors in delivering their state-of-the-art manufacturing facilities in the US.

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