This research aims to analyze the characteristics, potential, major projects and policies of Latin America’s plant construction industry and to suggest plans for broadening Korean participation. Especially, specific aspects of investment activities by foreign firms, such as financing methods, are studied in detail to render practical assistance for Korean enterprises.
This report consists of six (6) chapters. Following the introduction, chapter two conducts an in-depth analysis of five (5) sectors: plant construction industry power, petrochemical, refinery, water supply and sewage, and offshore structures. In addition, characteristics of plant construction industries in major seven (7) countries - Argentina, Brazil, Chile, Colombia, Mexico, Peru and Venezuela - are included. The final chapter is a forecast of the development of Latin America’s plant construction industry based on data from international organizations and consulting firms. The results there state that the Latin American market will grow by 13.1% annually in the coming 5 years (2010-2014). Particularly, Argentina will be the fastest growing market followed by Colombia, Mexico and Peru. According to the empirical test, the average annual growth rate of major Latin American countries between 2008 and 2020 will be as follows: 7.1% in Peru, 6.3% in Chile, 4.5% in Mexico and Brazil and 3.5% in Argentina.
Chapter three outlines the background for the government’s ambitious agendas for the development of the plant construction industry and the main projects in each Latin American country. The rapid expansion of the Latin American market in this sector is derived from △stable economic growth △improved fiscal soundness and expanded government finance △increased need for infrastructure development △promotion of higher-value-added industrialization with natural resources. The major Latin American countries have planned and implemented government-led infrastructure development such as National Infrastructure Development Plan (PNI) in Mexico, the 1st and the 2nd Growth Acceleration Plan (PAC-1, PAC-2) in Brazil, Territorial Strategic Plan (PET) in Argentina, territorial development plan in Colombia and etc.
Chapter four examines the cases of how corporations from developed countries invested in Latin America’s plant construction market and draws implications for Korean firms, first by describing recent trends and characteristics of investment activity by global companies. The strategies of leading investors; including corporations from Italy, Spain and Japan, are analyzed in detail. Financing methods employed by major global and Korean firms receive special attention and are closely examined, eliciting implications for Korea.
Chapter five concerns the trend in investment activities of Korean firms and challenges in the world plant construction market, including Latin America. The difficulties of investment are presented, based on the survey of Korean firms that already invested or intend to invest in Latin America. They point out that the main obstacle involve language, which hinders the easy access to information and the paperwork, in addition to the demand for the greater use of local contents, and difficulty in financing due to the high country risks in Latin America.
Lastly, chapter six proposes ways to expand Korea’s participation in Latin America’s plant construction market at the firm level and the measures as to how the Korean government can support such activities. Some of the ways that can be employed by firms include △strategic alliance with local or global companies △a ‘Hub & Spoke’ strategy which selects a base country followed by diversification of investment into nearby countries, utilizing the cultural and linguistic proximity of Latin America △expansion of the network in Latin America by establishing the chamber of commerce and cooperation with related institutions △localization △entering the Latin American market by constructing the Korean firm’s local manufacturing plant followed by diversification, such as the acquisition of shares of local firms, M&A and targeting PPP projects and etc. In connection, various financing methods are suggested: utilizing Korean development banks, Economic Development Cooperation Fund (EDCF) of the Korea Export and Import Bank, multilateral development banks such as the Inter American Development Bank (IDB) and a local development bank such as the Brazilian Development Bank (BNDES). At the government level, the following plans are proposed: △support for financing from Inter American Development Bank (IDB) △expand financing by the Economic Development Cooperation Fund (EDCF) and the Global Infrastructure Fund △establishment of labor database which systemically manages the work force for the plant construction industry in Latin America △signing FTAs with giant economies such as Brazil and Mexico which discriminates non-FTA signing country △building institutional infrastructure such as the Investment Protection Agreement and the Double Tax Avoidance Agreement △raising awareness of Korea and improving its image among locals through such activities as spreading of Korean Culture, holding the Korea Digital Festival, etc △linking Corporate Social Responsibility (CSR), Official Development Assistance (ODA) and Knowledge Sharing Program (KSP) together, and △establishment of the Brazil Business Center to find investment opportunity in plant construction market in Brazil and to provide necessary support.