Sea Control - Sea Control 536 - Development of the South Korean Shipbuilding Industry with Dongkeun Lee

Episode Date: July 14, 2024

Links1. "Influences behind the development of South Korea’s shipbuilding industry from the 1960s to the 2000s," by Dongkeun Lee, Marine Policy, September 2024. 

You're listening to Sea Control, hosted by the Center for International Maritime Security. Aloha, shipmates, and welcome back aboard Sea Control. My guest today is Dong-Gun Lee, and we're going to be discussing an article he's written for the September issue of Marine Policy, titled Influences and Development of South Korea's Shipbuilding Industry from the 1960s to the 2000s. Dong-Eun, welcome. Could you tell the audience a little bit more about yourself, please? Hello, and thank you very much for having me to this wonderful opportunity. So my name is Dong-Eun. I'm a PhD candidate here at the Australian National University, focusing on my research entitled Sea Power in the Indo-Pacific. And also, I served as the naval officer at the Republic of Korea Navy, which is South Korean Navy.

And of course, my main interests include some of the maritime security issues. So I think it's kind of a fitting time that I'm talking about this topic, because recently, I don't know whether you heard about this or not. Hana Ocean, South Korea, one of the main shipbuilders, decided to purchase the Philly shipyards of the United States. So this is kind of a fitting time. And anyway, thank you so much for having me once again. I'm delighted to share some of my findings. No, perfect timing and great transition to talk to listeners about timestamping the episode. You and I are recording this on Friday, the 21st of June. For me, the 22nd of June for you over there in Australia. But as you mentioned, the announcement of that sale has just become public here, the sale of the Philly shipyard to a South Korean concern. So if we're not talking more about it or more about the details, it's just because the initial announcement has happened. I don't know how many details we actually have at this point. The other thing that's kind of going on with South Korea that could turn into a maritime security thing is all the dialogue concerning President Putin's visit to North Korea.

Because I don't see an immediate maritime security angle there. You and I aren't going to be discussing that today. if that does turn into some sort of maritime security in the issue and we want to visit in the future, we could. But as of now, again, 21st June, 22nd June, nothing has happened in that field. So we don't intend to talk about that today. As a reminder to the listener, all opinions are our own and not reflective of any of the institutions with which we might be otherwise associated. So Dong-un, how dependent is South Korea on maritime trade? OK, well, this is a great starting question.

In terms of value, it's around 70%. However, in terms of volume, it could become around like 99.7%, so pretty much 100%. This is quite different or unusual, like the other countries located in the peninsula, just like Italy. Because these peninsula countries, even though they are surrounded three sides by water, they also rely substantially on the land-based trade as well. But the problem is, for South Korea, well, North Korea does not recognize South Korea as a country. And South Korea also does not recognize North Korea as a country. And because of that, Seoul cannot use any of the land trade routes. Basically, you can imagine something like North Koreans are blocking everything.

This makes South Korea, I often use this terminology as de facto island. because, to be honest, those kind of trade geopolitical environment is pretty much an island country. So you can imagine that as a fact of Ireland, nearly like 100% we are relying on the maritime trade. I was going to ask you why you decided to start your study in the 1960s, but did the shipbuilding industry exist in South Korea prior to that point? Yes, but it was very marginal and very small.

So initially, the South Korean shipbuilding industry started back in the 1930s. So that was during the Japanese colonial time. And it was quite an interesting thing that one of the key investors in that industry was actually Mitsubishi Heavy Industries, so a well-known Japanese shipbuilder, and also, of course, the Japanese government, because Korea was part of the Japanese colonial systems. and the industry was eventually transferred to the South Korean government after independence which happened in back in 1945 and quite interesting thing is most of the Japanese the industries that Japan left on the Korean peninsula were based on North Korean side

because Pyongyang was one of the large manufacturers of the Japanese colonial empire time But as North Korean side, it doesn't really have much of the access to the larger Pacific Ocean. Japan decided to make their shipbuilding industry in the South Korean side. So shipbuilding industry, one of the really few industry the Japanese Empire left in the Korean Peninsula. But the problem was, after the independence, the shipbuilding industry didn't really make any profit. because first of all there were not much not much of a demands because south korea was not really expert oriented economy when south korea was right after the korean war and the independence and also uh government was did not really see the premises on the shipbuilding so it was not

investing any money in that so basically before 1960s south korean shipyard mostly focused on like building small wooden ships, and also some of the repairing ships, because we didn't really have much demands on shipbuilding. So at what point did the South Korean government realize they needed to prioritize its shipbuilding industry, and why did it realize that? I think this question needs to be interpreted in two different ways. One is commercial shipbuilding part, and one is the military shipbuilding part, because, well, we often use the shipbuilding terminological shipbuilding but these are quite different but uh let me answer both of them but let me start with the commercial side because commercial side has become one of the key thing

that later on transferred onto the world shipbuilding capability in the case of south korea so the large decision was mainly made during the 1960s so early 1960s when president Park Chung-hee has become the president of South Korea. So in his first term, he introduced the economic plan called Five-Year Economic Plan, which aimed to quadruple South Korean experts within five years. It's a large number. But as I mentioned before, the problem is this is a de facto island country and increasing the number of the overvalue of the expert basically means that South Korea will try

to increase the number of the maritime expert. Obviously, the increase of the maritime experts is equal to the increase in shipbuilding. Eventually, President Park started to look for some opportunity and subsidizing some of the shipbuilding industry to have some of the economic development proposals. So you can see that rather than having other reasons at the initial time for commercial shipbuilding, economic development proposals was one of the very important things. now that has transferred to the some of the shipbuilding industry i mean the worship building industries around the late 1960s what happened during the late 1960s was actually some has there has been some of the shift of the balance of power between north and south korea after the separation of korea's main military provocations happened mainly initiated by north korea around

the land border between North and South Korea. And because of that, South Korean government invested quite a lot or heavily on its land border protection. But meanwhile, South Korean government did not really have much resources. So it's somewhat neglected in investment of its maritime border side. And North Koreans knew that, and North Koreans got to know that land-based infiltration and provocations did not make some of the benefits. And that's why North Korea actually decided to increase some of the maritime-based infiltration.

And because of that, now the South Korean government started to think that, okay, it looks like the balance of power with the land border sounds okay, but it seems like we need to do something regarding the maritime border. And South Korea started to think about something like, okay, we actually need to work on some of the shipbuilding, I mean the rural shipbuilding by our own. Well, South Korea actually could have chosen purchasing the United States warships, and that would have become quite the easier option. But South Korea at the time decided to work on the indigenization of the warship building capability as well. And this mainly happened because of the fear of abandonment by the United States.

This actually happened, if you are familiar with the history, the Nixon Doctrine, which urged the U.S. partners in the region to solve their security by themselves, was announced back in 1969. And that was kind of coinciding with the increase in North Korean maritime threat. And President, if you see some of the, if you read my article, I actually shared some of the speeches made by President Park. And he was kind of, he had anxiety towards the United States that they would not help us and necessary. And also during the time, the South Korea, the U.S. support to South Korea was kind of, before this time, it was kind of free and cheap aid. But that was transferred to the foreign military sales. So foreign military sales, for your information, this is the United States program that is selling weapons and education and official lines, not about the military aid. So South Korea basically could not purchase the U.S. things in the cheap prices anymore.

And because of that, South Korea, politically at least, were actually thinking about that. We need to build our indigenous shipbuilding capability. And their decision was like, well, we have already built many of the commercial warships, but why don't we try to make our warships, sorry, it was not commercial warships, commercial ships. And they thought, like, why don't we try to make our own ships and the naval purposes as well? And it was transferred into our naval shipbuilding capabilities as well. Okay, you had a ton in there. I do want to tell the listeners, by the time this publishes, we will have aired it.

It's sitting in our backlog right now, just waiting for a sort of a final edit. We do have a note on coalition Navy operations in the Korean War coming with Dr. Ian Bowers and Dr. Deborah Sanders to talk about some of that. You actually went into a bunch of it in the course of your article there and talked about sort of the perception that the land campaign was sort of kind of the only thing going on during the course of the Korean War. Obviously, the listeners will be familiar with Incheon, but there's a lot of other naval operations that were going on over the course of that campaign as well. So listeners will not have seen me do it, but I had to pull my headset off for one second there because I forgot to ask you before we started recording the pronunciation for this next word. So if I get this wrong, you go ahead and correct me. But what is a chaebol? Because you used that phrase several times.

How does that pertain to the shipbuilding industry in South Korea? Yeah. So Chevols are kind of you can imagine something like large South Korean enterprises that normally run as a family businesses. I was actually kind of thinking hard on after listening to this question on how to answer this one. But maybe it would be better to demonstrate what are what are the key differences with the Chevols industries and also some of the Western businesses. and i i thought uh maybe two parts two key parts one is the the family culture and the second one would be about the having a range of different businesses no but let me yeah let me answer from the first one which is about the family business culture as i said they normally run based on the family business and they have nepotistic culture so for example it's really common to see the like

children of one family are taking over the business of their parents or other part of family members. It's something like that. Quite a lot of the big companies that you might have seen, like Hyundai, Samsung, LG, basically the founder of these companies were their grandparents or their fathers back in the day, and they inherited this kind of business.

by doing so uh there is one there are some pros and cons and so one of the advantages should be it's kind of designed for long-term planning because uh they share a lot of visions from their parents and they learn uh they inherit a lot of the culture based on their family thing rather than making a short-term planning as like business people they are pretty good at making a long-term plan but obviously there are some of the disadvantages as well let's make these people uh there's certain small number of people are in charge of those businesses and these businesses are not just small they are really large and sometimes they have some of the political influences as well some may think that in a liberal democratic society these people have

too much power so that's one of the concern based on those kind of family thing and let's talk about the second part which is about having like a range of different enterprises or businesses normally these travel companies does not only do not only own one sector of the business for example uh let me give you like uh cases like uh hyundai the automobile company that might be quite famous in the united states as well they are actually one of the largest shipbuilder in south korea samsung phone company they also have the shipbuilders and hanwha is another weapon manufacturers and they have shipbuilders sometimes all these companies have like totally different businesses like we can't imagine the apple in the united states making the ship warship buildings

so this is a really different story i can imagine it oh can you it's like i'm i'm imagining it right now and thinking how great it would be but no please yeah so well that's the one of the one of the like i would say unique characteristics of the chevrolet companies and this also have some of the pros and cons so one of the advantages of doing these various different businesses would be they make their own ecosystem quite easily for example hyundai they have as i said they have automobile manufacturers shipbuilders but also steel manufacturers so basically steels manufactured by hyundai are being used for both shipbuilding and car building so this means that without the reliance to external companies hyundai actually has their own ecosystem of building

everything for their ships so this is quite remarkable when it comes to like those kind supply chain issues but of course this also have this advantage which is might be monopoly issue say monopoly issues a certain wealth and as i said before that i talked about the monopoly on power but now it also has a problem with monopoly and wealth as well this often kind of becomes a one of the criticism critical point criticisms made by the korean people that these travel companies have too much influences on both economy and also even the politics you mentioned the most frequent narrative around the rise of south korean shipbuilding involves government subsidies but you added the english language historiography by sharing what you found in the presidential

archives about the decisions to subsidize the industry so what did you find as you explored president park's archives i say two answers uh let me talk about from the first one the first answer would be choose the right company for subsidies so i mean like this sounds quite interesting wording for the right company but uh when president park initially made the decision of making subsidies he did not try to make or like uh make a subsidy to the renting company and also he didn't seek for making total to making a total new company but actually he decided to choose somewhat of existing one but his decision was quite interesting so of course he subsidized the other shipbuilders but the key company that he decided to make an investment was actually

Hyundai well you might well know about this but this company but at the time Hyundai was actually a constructing company it didn't have automobile businesses and also it didn't have a shipbuilding business but the reason that President Park chose Hyundai was actually that Hyundai was in charge of constructing the one of the largest highway, the expressway, back in South Korea called Gyeongbu Expressway.

That has been the largest construction scale ever back in 1960s. And that was the aim to connecting Seoul and Busan. So the two largest cities in South Korea. And President Park thought that

if this company has ability to manage this kind of large-scale project, he thought this skill can be transferred into the other businesses as well. So he personally met the CEO of Hyundai, Chung Ju-young, and he asked him, like, hey, I will subsidize you,

so please go on to the shipbuilding industry. CEO Chung declined this one at initial time, and he thought, oh, no, it doesn't make sense. I don't know this idea at all. And President Park said, come on. i know you are a person who can run the large business you haven't already experienced on making the kyungbu express line don't don't tell me that i made a wrong decision i know that you are the right person and you need to take this job and yeah chong take took this and he decided

to work on the shipbuilding so and anyhow anyhow it will he found out that that large scale of projection manager managerial skill was actually transferred in the shipbuilding managerial skill second part uh that i found was actually about the private privatization of the businesses it means something like rather than uh government continues subsidize on business or government owns the business in some point of time south korean government decided to fully privatize it and stop subsidizing and the timing is really important because this means if one company fully relies on the government subsidy and also continues ownership by the government, this basically means that without any government support, these businesses cannot sustain.

And we have seen a lot of these cases actually back in the 1990s and many of the Western shipbuilding companies after the collapse of the Soviet Union. Well, back in the Cold War, many of the Western shipbuilders maintained their business because of the demands of the demands of the government mainly uh caused by the maritime threat but from soviet union and uh during the 1990s the collapse of soviet union basically meant that well there there is no there will be no maritime threats anymore and equals to no demands for warship building and in fact during this time quite a lot of western countries including like canada and Australia lost their shipbuilding

capabilities, but that was South Korea and also Japan well-sustained their shipbuilding industry, and the reason was they could survive without the government subsidy. And this is one of my key findings of my article. What I found was

because both South Korea and Japan, well, I didn't include Japan in my case study, but Japan has really shared similar characteristics. But these countries not only build warships, but they build commercial ships together but if you imagine many of the western shipbuilders like bae system or general dynamics they don't work on the commercial shipbuildings which means that they solely rely on

the government demands and if there is no government demands their ecosystem or worship building cycle might be quite damaged but in case of south korea it builds hankers like you know the the Hanwha, Hyundai, or the Samsung shipbuilders, they also build tankers and also a lot of the commercial ships. So even without the government subsidies, they can actually sustain their economy. So this makes the ISA a healthy ecosystem that government tries to think about.

Actually, in conclusion, part of my article, I argue that this can be one of the models that maybe developing countries or other middle power countries who are interested in shipbuilding can try to pursue. So I try to argue that do not only pursue the warshipbuilding part, but they may also need to think about having commercial shipbuilding as well. But the problem is many of the Western middle power countries, the labor costs are really high,

and some can actually argue that this is unrealistic. But the thing is, we already have seen this case in advanced Western countries as well. For example, Italy. So Italy has a company, Ficantiere, this is an Italian warship building company, but they actually also work on the commercial shipbuilding, and they are specialized in cruise shipbuilding. And that's why for these middle-powered developed countries, they actually need to think about building some luxury and high-value ships, including cruise ships. And also, we are talking about green energy ships, like LNG ships, a lot these days. So these are another sector that these newly working on shipbuilding countries need to think about.

So final question, and you touched on some of these previously, specifically when you mentioned the Nixon Doctrine. But what external factors influence decisions about South Korean shipbuilding? So external factors will include both demands and maritime trade and military threats. So if you're familiar with some of the classical sea power theories like Mahan or Korbat, the fundamental thing may not be really different. So basically, maritime trade side increased the demand for commercial shipbuilding, and North Korean threat contributed to South Korea's warship buildings. A lot of capabilities for South Korea were actually based on a lot of threats coming from North Korea. For example, back in the 2000s, one of the largest projects for South Korean shipbuilding was actually on the Aegis system-equipped destroyers, which is now known as the Sejong the Great-class deep destroyers.

And the reason that South Korea focused on that was basically North Korea at the time was working on the developed ballistic missile capabilities, and North Korea was testing a lot of nuclear weapons. And as those DDGs, the guided missile destroyers, are specialized in the anti-air warfare, South Korea was thinking about we need to have those kind of missile defense and also air defense system. And that's why South Korea pursued those kind of anti-missile trackable destroyers. And during the 2010s, South Korean main focus was actually building sophisticated anti-submarine warfare or ASW-capable freegates. The main reason was back in 2010, the Republic of Korea ship Cheonan was sunk by North Korean submarine attack. And that was a big surprise to the Korean Navy. And we thought, OK, we need to actually have better ASW-capable freegates. And now we are working, now we have already finished design and building of these ships, known as Daegu-class.

So you can see that those external factors are actually contributing to some of the sophisticated capability development of South Korean Navy as well. That's all that we have time for today. I'd like to thank my guest, Dong-un Lee. Dong-un, where can we find you online and what are you working on next? no well well again thank you so much for having me to this wonderful opportunity and it was really great to talk about my article so my profile is available at the australian national university website so you may find my name there and you will be easily find me and also i'm pretty good at responding emails so my email address is donggeun.lee at anu.edu.au So it's basically my first name dot my surname at anu.edu.au.

And also I have my Twitter account or X account. It's at Donggun Lee, so my name and number 31. Currently, I'm focusing on finishing my PhD project, Sea Power in the Indo-Pacific. And I intend to publish this as a book after I finish my PhD. My PhD finishing line is coming in a year. So I hope to publish this as a book within like two years. So I recently finished the writing of my initial draft of the dissertation.

And this will be finalized within a year through some of the additional fieldwork in South Korea and Japan. Well, Seapower in the Pacific, as you may see from the title, this research discusses the function and role of seapower in the Indo-Pacific region. But my key findings will include a fresh perspective based on comparing primary sources in English, Korean, Japanese, and Chinese languages. So you may see a lot of the own Asian countries' perspective and how we are seeing sea power quite differently to other Western countries. So that's my coming project. I look forward to that. I look forward to the contribution to the English language discussion from those additional sources. I think that's going to be great, and hopefully we can bring it back and talk with you about it once it's out. But thank you again for joining us.

To the listeners, thanks for tuning in. We'll see you next time. Thank you. Oh, no.