With sluggish local conditions pushing major Korean builders to turn to overseas markets, the ever-growing competition is narrowing their focus: dominating the high-value-added sector.

And a prime target is intracity subway construction projects, which require an intensive level of technology and thus limit the entry of inexperienced rivals.

Samsung C&T, the construction and trading affiliate of the nation’s largest conglomerate Samsung Group, once again gained momentum in the market this year by consecutively winning large-scale subway orders in the Southeast Asian and Middle Eastern regions.

Last month, the company secured a 2.2 trillion won ($2 billion) deal to build a subway network in Saudi Arabia by 2018, in a consortium with three European partners.

With the order, Samsung C&T’s annual sales in overseas construction jumped to $10.8 billion, far exceeding its original target of $7 billion and setting a rare record in the staggering local construction market.

It was also the fourth overseas subway order to be won this year, following an $80 million order from India, a $700 million one from Qatar and a $225 million one from Singapore, according to officials.

“It was the company’s experience, technology level and the market credit that mattered the most, not so much the bidding price,” said an official of Samsung C&T.

Subway construction, as compared to buildings and basic infrastructure such as bridges and roads, require the most advanced building technology as well as safety measures, the official added.

“It is true that the Southeast Asian and Middle Eastern markets are highly challenged, especially with the rise of relatively cheap Chinese competitors,” the official said.

“This is why it is crucial to gain dominance in the specialized sectors such as subway construction.”

Ssangyong Engineering & Construction, the nation’s 16th-largest builder which has been struggling for years to find itself a new owner, also bet its luck on the lucrative subway construction business.

“Ssangyong has always placed focus on high-value-added items, such as mega-sized landmark buildings and complicated subway projects,” said a company official.

Ssangyong E&C is currently building a 700 billion won subway line in downtown Singapore, one of the most expensive infrastructure projects to be implemented in the Southeast Asian country.

“Not only does the subway line cross the crowded city but also is hindered by the underground canal, and this is why we were one of the very few bidders which passed the preliminary quality test,” the official explained.

“Considering our complicated business situation, we decided to take the challenge and concentrate on this difficult yet beneficial project for the sake of maximum efficiency.”

So far, the process has been successful and the company also won the grand prize at the Annual Safety Award Convention in July for achieving 10 million man-hours free of injury.

GS Engineering & Construction, which recorded more than a 500 billion won deficit in the first quarter, also marked its expansion overseas by winning a 250.9 billion won subway order in Singapore last month.

The performance of Korean builders in the overseas subway construction sector is considered a positive factor, especially as other sectors such as power plants and offshore facility projects have taken a downturn.

It also offers a chance for Korean companies to gain an edge over newly rising Chinese competitors, according to the International Contractors Association of Korea.

As a result, however, the race is expected to become a battle between Korean players, which may eventually lead to a price undercutting competition.

“In recent years, as several foreign builders announced bankruptcy and dropped out of bidding, the contract owner would often demand a higher level of loan surety, which poses a great burden on the bidders,” said an official of a local construction firm.

Under conventional circumstances, such excessive demands would have been turned down, but some bidders tend to accept them in a desperate aim to win the order despite the financial losses, he explained.

“The problem is that an unrestricted price competition may lead to downgrading the quality of the entire construction project and may even bring another so-called earnings shock to the industry,” he warned.

By Bae Hyun-jung (tellme@heraldcorp.com)