South Korean builders need to diversify their markets and types of construction work as overseas construction orders have halved year on year, according to proposals presented at an industry seminar. Suggested approaches included expanding into markets where orders have increased, such as North America and the Pacific, and securing new work by combining data centers with power and cooling facilities.
According to the International Contractors Association of Korea on November 5, these proposals were presented at a policy seminar marking its 50th anniversary, held at the Construction Hall in Gangnam, Seoul, on November 3.
Participants from the Ministry of Land, Infrastructure and Transport, the construction industry and financial institutions discussed the fifth basic plan for promoting overseas construction, overseas construction competitiveness in the AI era, and approaches to the Middle East market in 2027.
Competing for data center contracts with power and cooling facilities included
South Korean companies' overseas construction orders totaled $20.66 billion, approximately 28.924 trillion won, in January through September this year, down about 50% from the same period last year. A high comparison base following last year's Dukovany nuclear power plant contract in the Czech Republic coincided with a decline in Middle East orders. Middle East orders fell 46%, while North America and the Pacific rose 64.9% to $7.47 billion, approximately 10.458 trillion won. North America and the Pacific accounted for 36.2% of total overseas orders.
Some experts argue that attention should focus on which types of construction are increasing in which regions, rather than how far total orders have declined. AI data centers and their supporting infrastructure are frequently cited as potential sources of new work.
“There are clearly areas of AI infrastructure that fall within construction companies' scope,” said Son Tae-hong, a senior research fellow at the Construction and Economy Research Institute of Korea. “Operating a data center requires not only a building to house servers, but also power plants, transmission and distribution networks, cooling facilities to remove server heat, and water facilities.”
Global management strategy consultancy McKinsey & Company estimates that cumulative investment required for AI data centers through 2030 will reach $5.2 trillion, approximately 7,280 trillion won. Construction and real estate account for $800 billion, approximately 1,120 trillion won, while power, cooling and related infrastructure account for $1.3 trillion, approximately 1,820 trillion won. Together, the two categories represent about 40% of the total.
Last year, South Korean companies secured $480 million, approximately 672 billion won, in overseas data center orders and $730 million, approximately 1.022 trillion won, in energy storage system (ESS) orders. “Companies should use their engineering, procurement and construction (EPC) capabilities to win combined data center and power facility contracts, and cooperate with major technology companies or local sovereign wealth funds,” Son said.
Son also saw opportunities to apply AI to winning and executing construction contracts. Because overseas projects require companies to review tender documents and local regulations within short bidding periods, AI could initially be used to analyze bid documents, forecast costs and risks, and manage contractual claims. Standardizing construction cost, scheduling and dispute records scattered across individual sites could also help headquarters manage sites in multiple countries together.
“The initial investment in technology and equipment could widen the gap between companies,” Son said, proposing that large companies build their own platforms while midsize and smaller companies use subscription services. Son asked the government to help companies build domestic track records by incorporating AI and data capabilities into public procurement.
Middle East countries invest oil revenues in new industries as local employment and technology transfer become factors
As South Korean builders' Middle East orders decline, the investment priorities of oil-producing countries supporting local procurement are also changing. After discussing tensions between the United States and Iran, Sogang University professor Park Hyeon-do cited expanding US shale energy production and the period of low oil prices since 2014 as factors behind changes in Middle Eastern economies.
Oil-producing countries that have depended on crude oil revenues appear to be diversifying their industries because they see oil alone as insufficient to sustain their existing growth models. For example, the prevailing forecast is that the United Arab Emirates will be able to earn money from oil until around 2050.
“These countries intend to increase production while they can still profit from selling oil, and use that money to develop industries that will support them after oil,” Park said. “They are shifting from consumer countries that buy products and equipment from abroad to producer countries with manufacturing facilities within their own borders.”
“Even if the war ends, capital is flowing toward green energy,” Park added, forecasting that “Middle Eastern countries will continue economic cooperation with Asia while expanding investment into areas such as clean energy, hydrogen, AI and smart logistics.”
Expanding US shale energy production and the period of low oil prices since 2014 were cited as underlying factors. The explanation was that declining US dependence on Middle Eastern crude oil has also changed how the United States engages in regional security.
Expanding local production is another factor in winning contracts. Middle Eastern countries are increasingly seeking more jobs for their citizens and technology transfers when commissioning foreign companies to build facilities. “For South Korean companies, the extent of local workforce participation and arrangements for technology cooperation are becoming conditions to consider when preparing bids, alongside construction costs and schedules,” Park said.
Original Korean article: Newspim
English brief by Korea Wind Intelligence, koreawindintel.com
