If you can't beat them, join them, says Samsung Engineering

Samsung Engineering has a strategy to counter fierce competition from Chinese companies: make them partners.

A Chinese firm has won contracting rights to build an oil pipeline between Abu Dhabi and Fujairah in a sign of China's growing competition with Korea for major projects in the UAE. Amy Leang/The National
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SEOUL // South Korean contractors have become so successful at underbidding their peers that last year they won nearly a quarter of Saudi Arabia's contracts.

In the UAE they have secured deals including a nuclear plant and one involving the Burj Khalifa.

But now Korean engineering companies are sizing up a competitor that could undercut even them - the Chinese.

Jay Choi, a vice president covering the GCC for Samsung Engineering, has a strategy: make them partners.

"I do not think it's a good idea to fight with the Chinese," he said at the company's Seoul headquarters.

"We need to look for chances to collaborate with Chinese contractors, because once they enter into the market it will be very difficult for us to compete.

"Without collaboration with the Chinese, that will be our last chance to win the project."

China has already won major projects, such as China Petroleum Engineering & Construction's US$3.29 billion (Dh12.08bn) contract for a pipeline from Abu Dhabi to Fujairah.

Chinese companies could begin outbidding Korean firms on more projects in three to five years as they gain complex engineering expertise and shift their focus away from Beijing's historical oil partners in Africa, Mr Choi predicted.

Officials from South Korea's Samsung Engineering visit Chinese companies "from time to time" to talk about possible partnerships in the Middle East, he added. Samsung Engineering is the oil and infrastructure contractor of Samsung, the largest of the family-controlled conglomerates in South Korea.

Among Samsung's other business lines are phone making, shipbuilding and running the Everland theme park in South Korea.

The Korean conglomerates, called chaebol in the country, are credited with helping to catapult the nation from the third world to the Organisation for Economic Cooperation and Development.

Partnering the Chinese would be the latest move in Samsung Engineering's playbook.

Until the financial crisis that struck Asia in 1997, the company had concentrated on building petrochemicals plants in South Korea and nearby countries.

"Once the economic crisis hit the Asian region, there were no projects at all in the domestic market as well as South East Asia," said Mr Choi.

"At that time we tried to expand our market to other regions, so we sent a task force team - one team to Middle East, the other team to Latin America."

The Latin America team came back empty-handed, but the Middle East scouts had better luck. Samsung began homing in on projects, starting with a US$50 million butane plant for a subsidiary of Saudi Basic Industries (Sabic), a petrochemicals giant.

"Our strategy was quite simple," said Mr Choi.

"When we entered the Saudi market we started from a very small-sized project.

"So after successful delivery of the plant, Sabic start to know about Samsung Engineering … So after that project, we got a lot of projects from Sabic, as well as Saudi Aramco."

Since then the Korean contractor has racked up $8.8bn in contracts in the kingdom. In Abu Dhabi, it has been doing peripheral work on the Shah sour-gas field and has recently won a deal to build a plant to inject nitrogen into an ageing oilfield.

Between 2004 and 2009 Korean contractors including Hyundai Heavy Industries and GS E&C had won $35bn of projects in the UAE, including the $20.4bn contract for Abu Dhabi's nuclear reactors.

Last year the Gulf region accounted for 60 per cent of their foreign business. In many of the earlier bids they partnered a western or Japanese firm that could undertake the skilled engineering work, while the Korean contractor handled construction.

Mr Choi's vision of a partnership with the Chinese turns that on its head - with Samsung handling the engineering and a Chinese counterpart overseeing construction and procurement.

For now, his company is in the running with JGC, Hyundai Heavy Industries, Petrofac and Technip to build sections of a gas-oil plant and transport them to artificial islands 80km off the Emirates' coast. The work will support a drilling increase in the Upper Zakum field. Samsung has not done such modular building before.

"It sounds like Lego," said Mr Choi. "[But] it is a mega-size project."

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