SWOT Analysis of China and Korea Shipbuilding Industry

SWOT Analysis of China and Korea Shipbuilding Industry (draft)
Shipbuilding Industry profitability heavily relied on labor cost, steel cost and marine equipment. China and Korea, as the leading shipbuilding countries in the world, counts over 75% of world shipbuilding capacity. The development of these two countries will determine the future ship market.
1 Lobar cost
China has undisputed advantage on labor resource. The lobar cost is the lowest among the main shipbuilding countries. Furthermore, benefit from compulsory education in past 20 years and huge population, China has sufficient labor and this advantage will last for a long period. Korea has much higher labor cost than China. The direct labor cost is 8 times as China. Along with the quick economic development and increased shipbuilding capacity, shipbuilding industry faced the shortage of qualified labor. The labor cost advantage is no more a competitive advantage for Korea.
2 Steel cost
Steel plate cost counts about 15-20% of total shipbuilding cost and 70% of raw material of a ship. China shipbuilding steel price is about 850USD/ton (Price in May, 2011). China steel industry has sufficient capacity (30 million ton) to provide both domestic and overseas market. Shipbuilding steel plate price in Korea is about 1024 USD/ton(Price in May, 2011). The production capacity of two major steel manufacturers in Korea cannot fully meet the steel requirement from Korea shipbuilder. As a result, Korea need import steel plate from Japan and China.
3 Marine equipment
The quantity and variety of marine equipment from China domestic marine equipment manufacturers are limited due the technical issue. Currently China domestic marine equipment can meet less than 50% requirements. China shipbuilder need import rest marine equipment from Japan and Korea.
Korea has well developed marine equipment capability. Korea shipbuilder can facilitate 85% marine equipment with local product.
4 Productivity
China has much lower productivity compared with Korea. In China, average working hour per DWT is about 40 hours; in Korea, the number is only 15 hours. The utilization ratio of dock in China is about 40% in Korea. The disadvantage on productivity largely offsets the labor cost advantage of China.
5 Technology
In 2010, China surpassed Korea to be the largest shipbuilding country. Although China has achieved great improvements on the shipbuilding technology, it still lags 5-8 years compared with Korea, especially on LNG, FPSO, FSO, marine engineering and extra-large container vessel. The lag of detail design capability is the major constraint, when China developing high value-added ship.
6 The industry structure
China government considers shipbuilding industry as one of top industries, which need to be urgently developed. China has developed three shipbuilding bases, Bohai rim, Yangze River delta and Pearl River delta. The state-owned shipbuilders are still the major players. Two major groups, CSSC and CSIC, are comprised by many strong shipbuilders, like DSIC, Hudong Zhonghua, SWS, and etc. CSIC focuses North China, and CCSC mainly focuses South Part. Recently, private companies played more and more important role in the industry. The famous representatives are Jiangsu Rongsheng, Jiangsu New Century. To improve the competitive power in the world, China government encourages the consolidation and merges between the shipbuilders.
In Korea, the top 7 shipbuilders, also world top 10, dominated the whole market. The medium and small size shipbuilders are struggling and will be gradually driven out of the market.
SWOT analysis
Strength
China: Active government support; huge domestic demand; sufficient cheap qualified labor; Stable labor and capital relationship
Korea: Advanced technology; Good reputation on shipbuilding and marine equipment; economics of scale
Weakness
China: Low productivity and poor management; behindhand design capability; marine equipment lag shipbuilding development;
Korea: Small domestic demand; small domestic financing market; the over competition among the major domestics shipbuilder; lack of qualified labor
Opportunity
China: Benefit from R&D improvement; benefit from quick development of shipping industry; Korea: Benefit from increased demand on high value-added vessel
Threat
China: The uncertainty of ship market; cost pressure from exchange rate and increased salary; blind investment and excess capacity
Korea: The uncertainty of ship market; the competition in high-end sector from Japan。