Episode 72: Entering the Construction Business
Early 1976, 『Kyungwoon Daily』.
「With the spirit of the Iwhan Group, the future lies overseas.」
「Mirae Construction challenges the bid for the Bahrain Arab Shipyard, signaling a new era of construction in the Middle East…」
In the latter half of 1975, the hot issue in Korea was expansion into the Middle East.
At the Blue House, in the Cabinet meeting room, today’s agenda was about providing payment guarantees based on credit for overseas construction without material collateral and recognizing a 50% corporate tax reduction on construction export income. Additionally, the establishment of the Overseas Construction Association, a specialized bidding institution funded by 25 leading companies, was on the discussion table.
In fact, there was overwhelming opposition to this proposal. At that time, apart from a few companies that participated in the Vietnam War, there were almost no companies in Korea with experience in large-scale overseas construction projects.
Reflecting the common concerns of government ministers, Finance Minister Shim In-geol was the first to speak up.
“If Middle Eastern construction companies take on projects but fail in terms of quality or timeline, the damage would be immense, potentially causing the entire Middle Eastern expansion to fail.”
“Yes, I agree with that. I think it would be more appropriate to limit the companies that enter overseas markets, similar to Taiwan.”
The opinions of the finance ministry officials were generally negative.
However, Senior Secretary Won pushed his opinion strongly.
“Korea is not the only country eyeing the Middle Eastern market. The Middle East is also a market that advanced countries like Japan and the United States are coveting. Limiting the companies would be meaningless. Companies won’t refrain from going if there’s money to be made. Currently, even within domestic companies, construction company bankruptcies due to dumping bids are occurring frequently. What if they bid cheaply and end up with shoddy construction? That could affect not just individual construction companies but also the nation’s credibility. Moreover, do you think the current foreign exchange crisis can be resolved by just a few companies entering the market? Most of our construction companies are small, with low credit ratings and no negotiating power, so the government must lead the way to overcome the current crisis.”
“Senior Secretary Won, so what are you suggesting now?”
“To secure large projects in the Middle East, we need credit guarantees. Our companies are generally small and have low credit ratings, making it difficult to get bid guarantees from banks. Therefore, the government should provide guarantees and create a mutual guarantee company to protect construction companies.”
“Is the government a charity? Payment guarantees are something the private sector should handle. Isn’t it enough that we provided the spoon, do we have to feed them too? This is against fairness.”
“Exactly. What if they fail after entering the market recklessly? How much would that loss be? This is a waste of taxpayers’ money.”
“Then suggest another alternative. The Ministry of Construction has been encouraging the overseas construction market, but what are the results? There are no achievements, just empty noise.”
“There’s the Iwhan Group and Mirae Construction, aren’t there?”
“The fact that the Iwhan Group entered foreign markets without government help is almost a miracle. They relied on connections with the Saudi prince, and Mirae is the top domestic construction contractor. Are there any other achievements? It’s impossible to secure projects worth more than 10 million dollars without government help. To break the barrier, the government must act actively.”
“So you’re suggesting we use the people’s money to clean up after construction companies? Why don’t you just stuff wads of cash into the Middle Easterners’ back pockets? Maybe even invite their royalty to create connections? Your intentions are highly suspect.”
Despite the Finance Minister’s sarcasm, Senior Secretary Won remained calm.
“If necessary, we must do so. For the sake of earning foreign currency, what’s a little backdoor dealing? Business, after all, isn’t governed by fair rules like sports. And, Minister, you should know that area well too, shouldn’t you?”
“Hey, Senior Secretary Won!!”
“How can you say such things?”
Despite the concentrated fire from the Economic Planning Board and Finance Ministry officials, Won Jong-pyo stood firm.
As the debate heated up, the president, who had been watching the meeting, calmed the room.
“Alright, that’s enough. Let’s go with what Senior Secretary Won says.”
“But, Your Excellency! This is absurd. To put everything on the line for something uncertain is too risky.”
“I understand your concerns. But our country is on the verge of bankruptcy. This is not the time to argue right or wrong. We must revive the economy to save the nation.”
“But, Your Excellency, this is too radical.”
“Life is about continuous choices. The same goes for the nation. The only way for Korea to survive is to enter the Middle East. Think of it as the last chance and proceed. I won’t hear any more objections. Senior Secretary Won!”
“Yes!”
“I’ll support your proposal, so proceed with conviction. Discuss the rest with Chairman Kim Joong-hoon of the Trade Association.”
“Thank you, Your Excellency!”
The export-driven president decided to support the initiative. The Overseas Construction Promotion Act was announced, and the Korea Overseas Construction Corporation (KOCC) was established.
‘Indeed, Senior Secretary Won has exceptional drive.’
Watching the newspaper, Lee Chang-jin felt it was time for the next step.
“It’s time for us to establish a construction company as well.”
“A construction company? Isn’t it too soon? There are no results yet, just a lot of noise.”
Manager Seo Yohan asked in a concerned tone. With numerous ongoing ventures, he was reluctant to embark on a new business that wasn’t manufacturing.
“No, since the government is leading, there will definitely be results. The Middle East will open up soon. We need to build up achievements in advance if we want to participate in overseas construction.”
The reason Lee Chang-jin hadn’t invested in construction until now was that the foundation wasn’t solid yet. The construction industry is highly sensitive to economic conditions and regulatory changes.
The 1970s and 1980s were indeed the era of construction. Construction stocks were considered the best blue-chip stocks in the stock market, and with the rapid increase in construction investment exceeding an average annual rate of 10.8%, and the full-scale overseas expansion of construction companies, companies like Ohsung Construction, Mirae Construction, Taeyang Industries, and Seoah Architecture grew into huge conglomerates with multiple affiliates.
Excluding construction, it was impossible to discuss conglomerates.
For developing countries undergoing rapid growth, there were few better opportunities than construction.
Lee Chang-jin recalled the scale of construction in the Middle East from a newspaper he had read in his past life.
In 1974, the first year of expansion into the Middle East, the contract amount was $260 million, but the following year it tripled to $750 million, and by 1980 it increased more than tenfold to $8.2 billion. From 1975-1980, 85.3% of Korea’s foreign currency income came from construction in the Middle East.
In 1981 and 1982, the total overseas construction contract amounts were $13.7 billion and $13.3 billion respectively, making Korea the second largest in the world after the United States. In 1975, Korea’s GDP was estimated at $21.7 billion.
The economic benefits from the Vietnam War were only $1 billion, but the Middle East was at the $40 billion level.
Then, Lee Chang-sik, who usually didn’t speak much, made a rare sensible comment.
“But to establish a construction company, don’t you need a construction license?”
“Yes, you’re right. To set up a construction company, we need to obtain a license first.”
In 1974, regulations on construction licenses were enforced, making it relatively difficult to obtain a license.
It was a measure to regulate the numerous substandard construction companies.
Establishing a construction company requires capable personnel with experience and the ability to handle various unexpected situations. Lee Chang-jin thought of the right person.
“Ah, Miss Yeo. Have you been able to contact Director Seo Joo-myung recently?”
Yeo Jin-joo immediately responded.
“I’ve been in touch with Mirae Construction, and it seems he retired recently. He’s now farming in the countryside.”
“Director Seo is farming?”
Lee Chang-jin was surprised.
Director Seo farming didn’t match his image at all.
“So where is he now?”
“He is confirmed to be in Goyang County, Gyeonggi Province.”
“Have you tried contacting him?”
“Yes, but there’s been no response… It seems he might be having some issues.”
“Hmm… I did hint at him to come if he ever retired…”
Hearing this, Koo Chang-dong quickly offered.
“Should I go meet Director Seo?”
“No, Manager Koo. I think I need to go personally.”
If he’s secluded in the countryside, leaving his home and family behind, there must be a serious issue.
“Then I’ll be on a business trip. If anything urgent comes up, please hold off and contact me first.”
“Yes, understood.”
Cock-a-doodle-doo~~!
In the eerie space, only the rooster’s crowing was loud.
The area around Goyang, where Director Seo was said to be staying alone, was a remote area with barely any proper roads.
Before the new city was established in Ilsan, climbing up the mountain slope revealed a shabby mud house in the middle of nowhere. As they arrived in front of a half-collapsed barn, the startled chickens pecking at feed scattered everywhere, clucking noisily.
‘Is this really a place where people live?’
Around the mud house, dry crops grew thick. The rusty water pipes were so neglected that red rust water oozed out. A dead tree, felled by a typhoon, swayed eerily in the middle of the half-collapsed barn.
While looking around the desolate house, a presence was felt behind.
“Who’s there? Is it you, Mingi?”
Even in broad daylight, Director Seo, holding a bottle, was heavily intoxicated.
With his disheveled hair and unkempt beard, it was clear how he had been living.
Lee Chang-jin smiled bitterly.
“I’m Lee Chang-jin from Daese Industries. Do you recognize me? You seem a bit drunk.”
“Hmm. Lee Chang-jin? Ah… that rude CEO…”
Director Seo, with his nose red from drinking, looked greatly disappointed and turned his back.
“What business do you have with a washed-up has-been… Did you bring anything with you?”
“Haha, would I have come empty-handed? I brought some snacks… May I come in?”
In the plastic bag Lee Chang-jin brought were jerky and squid. Director Seo, glancing at the bag, reluctantly spoke.
“You should have brought more liquor… Fine, come in.”
Entering the greenhouse revealed a room with plastic on the floor. In the cramped greenhouse, clothes were scattered everywhere, and the room smelled musty.
Seemingly embarrassed, Director Seo scratched his disheveled hair.
“Well, it’s a bit of a mess. I don’t have much to offer, but how about some green tea? It’s the only thing I have.”
After rummaging through the house for a while, Director Seo brought back the bottle of liquor.
“Don’t drink it straight, have some snacks with it.”
“No, I’m drinking to die faster.”
After a while, Director Seo suddenly pushed a glass of liquor toward Lee Chang-jin.
“Would you like a drink?”
“No, thank you. My stomach is upset, and I need to drive.”
“Alright then.”
Watching Director Seo drink alone, Lee Chang-jin glanced around.
It was a cold room where no one would know if he died in solitude.
After watching him drink for a while, Lee Chang-jin spoke.
“What about your home and family? Why are you here?”
“I have nowhere to go. I’m half-separated from my wife…”
Lee Chang-jin asked again.
“With your skills, it wouldn’t be hard to find another job. Wouldn’t it be better to find a small place rather than living in seclusion here?”
Director Seo laughed as if it was out of the question.
“I’d like to work too, but what can I do? There’s nowhere to hire me.”
“What do you mean by that?”
“I wasn’t just retired; I was fired. It turned out I had been caught taking bribes. When I was called to the HR department, they told me to quietly leave the company or face jail. So I was kicked out without even a severance pay.”
The construction industry is surprisingly small. If a bad rumor spreads from above, it becomes difficult to get a job elsewhere. In Director Seo’s case, he was blacklisted for taking bribes, making it hard to find a job elsewhere.
Having guessed half the truth, Lee Chang-jin nodded.
“I had a big fight with my wife after being fired without severance pay. Then, all of a sudden, she handed me divorce papers. Damn it. All I have is a junk car in my name, and now my life is utterly screwed…”
Director Seo drank like water, seemingly burning inside. Lee Chang-jin nodded.
“Well, that’s fortunate.”
Director Seo’s face twisted at Lee Chang-jin’s words.
“What? Are you fanning the flames?”
“No, you misunderstood me. I meant it’s good that you’re still free. I’m thinking of setting up a construction company, and if you have nowhere to go, why not come to our company and share your field experience?”
“Didn’t you hear me? I was fired for taking bribes.”
“What does that have to do with your skills? A competent but corrupt person is much better than an incompetent but clean person. At least the former earns his keep.”
“Ha, now anyone thinks they can do construction. If you don’t want to ruin yourself, construction isn’t as easy as you think. You haven’t even built a doghouse, and you’re spouting nonsense.”
Lee Chang-jin replied with a smile.
“That’s why I want to bring you in. When it comes to hands-on experience, it’s Director Seo. Besides, I also have construction-related certifications. I’m not starting without any knowledge.”
Director Seo laughed derisively.
“Don’t lie. If that’s true, I’ll change my name.”
“Do you think I’m joking?”
As if he had been waiting for this, Lee Chang-jin took out his certifications.
He had brought them just in case.
Seeing the certifications, Director Seo looked as if he had sobered up from the shock.
- To be continued in Episode 73 -
