Corporate Profile: Doosan Infracore

On April 29, Doosan Heavy Industries and Construction secured the controlling interest of Daewoo Heavy Industries and Machinery. Upon completion of the transaction, Daewoo Heavy Industries and Machinery was renamed Doosan Infracore. The product lines, however, will retain the Daewoo name.

Doosan started out 109 years ago as Korea’s first modern business entity. Today, it has more than 20 affiliates, 20,000 employees and sales in 2004 of approximately $11 billion. It is the world leader in building desalination plants and its construction division built more than 50,000 apartment units last year.

Doosan officials have made known their intentions to transform Doosan Infracore into one of the world’s five largest infra-support businesses by 2015. (The company defines infra support as key infrastructure building areas including component manufacturing, equipment manufacturing, construction and engineering, and related services.)

Speaking at a dealer dinner at ConExpo-Con/Agg this year, Yong-man Park, vice chairman of Doosan Infracore, said his vision for the organization is to bring new resources and finances to the company, to provide more opportunities for dealers and to invest in and improve the brand, particularly in the United States. “The trusted relationship built up between Daewoo and its dealerships will continue unchanged with Doosan,” Park said. “Our customers will continue to enjoy the highest value for their money with our competitive product lines.”

RECENT HISTORY
Every company has its culture and many Asian companies tend to reproduce the same internal culture. In the past 10 years or so prior to the Doosan acquisition, Daewoo showed itself to be a hybrid mixture of Asian consensus and American entrepreneurial spirit and open management.

In many ways the company’s story parallels the phenomenal growth and productivity of the South Korea economy. It was the first Korean company to produce diesel engines, forklifts and railroad rolling stock. It grew successfully for years, was roiled by the Asian financial crises of the late 1990s and yet landed on its feet thanks to the strength of smart investments in Europe and China.

Last fall we were invited to visit the company’s factories in Inchon, South Korea, and Yantai, China, and talk with some of the company’s top executives. Here’s what they had to say.

THE ROARING ’90s
The 1990s were boom years for the company, at least up until the last year of the decade. It established a presence in Europe, built a factory in China and opened an American headquarters in Suwanee, Georgia, near Atlanta. But when the Asian banking crisis churned up the entire region, Daewoo’s parent company, Daewoo Group, collapsed under a mountain of debt. In 1999 DHI split off from the parent company and in a restructuring was purchased by state-run Korea Asset Management and the Korea Development Bank.

Dennis Kang, executive managing director of the construction equipment division, credits this financial restructuring, and the emerging Chinese market, for helping keep the organization afloat when the parent company was sinking. “Before that we had a heavy debt and paid high financing costs,” he says. “The restructuring helped us improve the price situation.”

Despite the gloom hanging over the Asian financial community, sights were set with the launching of two new series of machines, the Mega-V wheel loaders and Solar V excavators, and a company-wide initiative called “Jump to the Top” that combined open-book management, executive accessibility and standards for production and sales that would fit right in with any forward-thinking American corporation. “We have implemented this program to give all our employees and distributors a cohesive goal to work towards each and every day,” Kang says.

A NEW IDEA FOR AN OLD COUNTRY
A major component of Daewoo’s success in the Chinese market was the introduction of installment plan selling. Daewoo was not the first excavator manufacturer to set up shop in China, and competitors held fast to their No. 1 and No. 2 marketshare positions.
In-country sales were so difficult that at one point, Kenneth Chae, executive director for Doosan Infracore China, said they began to wonder if it was all going to work out. That’s when the company decided to offer something unheard of in the Chinese heavy construction market – credit.

“There was concern that Chinese contractors may not be able to understand equipment financing or that they might not be able to make regular payments,” Chae says. “But we decided we had to do something.”

The gamble paid off. Chinese contractors embraced the idea and most made their payments on time. As a result, Daewoo vaulted from the No. 3 position to the Chinese market share leader almost overnight. In 1999 sales of excavators were pegged at 1,083 and have grown to 6,300 units in 2004.

The company also went into China sensitive to local cultural concerns. “Our Korean executives worked hard to learn the Chinese language and culture,” says Kang. “We also worked with the Chinese dealers, because customers are different in every country. Koreans like fast, powerful machines and that’s what we build. The Chinese wanted the same.”

The Chinese government took steps last year to cool down its overheating economy and Kang says he expects that will cut the number of excavators the company sells there to about 6,000. But plans are already underway to pick up the slack by boosting sales and marketing in the United States.

FOCUS ON EQUIPMENT – AND AMERICA
While DHI is the leader in the Korean market for excavators with 45.8 percent market share, the company says it ranks a respectable fourth in the world market with 11.2 percent share, but owns just 2 to 3 percent of the North American excavator business. It’s here that company officials see the most promise for expansion.

With the global recession of 2000, excavator sales in North America dropped 72 percent in 2001, as compared to 1999 sales. A small but steady rise in sales began in 2002. Last year, however, was a year of tremendous increase for the organization, with unit sales nearly equal to 1999 numbers. According to company officials, the forecast for 2005 is even better, with a projected increase of at least 50 percent over last year.

Hardly content to rest on that figure, the company has launched an aggressive plan for the U.S. market to find new dealers, reinvigorate the ones it already has and speed delivery of parts.

“Our first challenge is to acquire additional high quality dealers, particularly in the western U.S.” says Carl Yoon, executive vice president, heavy equipment division. “Second, we plan to reinforce our product support capabilities in order to satisfy the dealers through an even greater investment in parts as well as providing training and support that will make our distributor network the most knowledgeable and reliable in the industry.”

One part of the North American strategy was the opening of a half-million dollar, 10,000-square-foot training facility in Georgia for dealer sales, service and support personnel in April. The center accommodates up to 30 students at a time and trains them in sales and service issues for wheel loaders and excavators, with classes being held throughout the year. Courses pertaining to hydraulic, electrical and engine maintenance will also be held.

January 1998
Opens Daewoo Heavy Industries America in Suwanee, Georgia

1999
Parent company Daewoo group declares bankruptcy. Placed under state control.

1999
Enters into corporate sponsorship with Joe Gibbs Racing

2000
DHI splits from Daewoo Group

2000
Launch of the Mega-V wheel loaders

2001
DHI emerges out from under state protection plan ahead of schedule

2002
Launch of Solar V-series excavators

2004
Management announces new “Jump to the Top” innovation campaign

January 2005
Doosan Heavy Industries and Construction agrees to buy DHI for about $1.8 billion

April 2005
Doosan finalizes purchase DHI controlling shares and changes name of organization to Doosan Infracore.