Korea Times reported that in the early 1960s, Korea was targeting the establishment of the Integrated Plant for Iron and Steel Production strategy, not exactly a conceivable concept for an agrarian economy like Korea which at that time lacked capital, technology, manpower, and iron ore deposits. As a typical poverty stricken economy, Korea had yet to experience a simple transition from less to more skill and capital-intensive industries. Nevertheless, during the compressed industrialization process, Korea has evolved from less to more complex industries in a non linear fashion. For example, the history of Korea’s iron and steel development proves to be a truly exceptional success story. Within a matter of four decades, Korea’s iron and steel sector emerged to become one of the most successful and efficient in the world.
Visionary political and managerial leadership enabled the jump start of Korea’s seemingly infeasible foray into iron and steel production
The development of Korea’s steel industry boils down to the inception of POSCO in terms of how it was founded, what difficulties it has encountered from the beginning, and how it developed the necessary skilled manpower. When President Mr Park Chung hee took power in 1961, he conceived iron and steel making as the core strategy in his vision to transform agrarian Korea into an industrial nation. President Mr Park formulated the first five year development plan (1962-1967) to focus on iron and steel making. In hindsight, Korea was rather fortunate to have such a visionary political leader like Park Chung-hee coupled with entrepreneurs like Park Tae joon at the core of the industry’s development. The government created the Pohang Iron and Steel Company Limited in 1968, construction of which began in 1970 at Yeongil Bay in the southwestern city of Pohang on reclaimed wetlands.
Mr Park Tae joon was the pilot. He was the navigator. He did it his way to make something out of nothing. Park along with 39 warriors was the army. They, armed with a sense of duty not to squander even one penny from an economical Park Chung hee government directive, began their lonely battle toward creating a steelworks with their bare hands, sleeping curled up and eating rice mixed with sand in the Rommel House. The house was a makeshift shelter for workers built on a vast sandy land and the name derived from the brilliant German field commander Rommel in World War II.
Five years later in 1973, POSCO began production with an annual capacity of 1.03 million tonnes. After several expansions, the plant reached an annual capacity of 9.1 million tonnes of crude steel in 1983. In 1987 a second plant was constructed in Gwangyang. At present, POSCO factories are now capable of producing 33 million tonnes, to expand further to 40 million tonnes in the near future, thus propelling POSCO to rank the second largest producer in the world.
The history of the Korean steel industry dates back to 1941 when Japan established two steel mills in southern Korea as a way to support its war efforts in China and Manchuria. Until the late 1960s, the industry comprised of roughly 109 obsolete facilities predominantly rolling mills, several steel making mini-mills and a few iron making installations. Given the outdated and fragmented steel making capacities, the government founded POSCO as a wholly new integrated entity and built it from scratch.
Due to the inherent linkage structure, the steel sector has contributed significantly to Korea’s high growth and employment generation. As the Korean economy matured, despite a slightly declined output inducement coefficient in recent years, the steel sector’s value-added inducement ratio continues to rise.
In 2006, POSCO's output amounted to KRW 47 trillion, with value added equaling KRW 12.5 trillion, and generated 124,000 jobs. From 2007 to 2011, POSCO plans to invest a total of KRW 17 trillion at home and abroad to ensure Korea's robust economic growth. POSCO has already invested in Vietnam, Mexico and India, and will continue to expand its investment in line with Korea’s globalizing production network.
When the Korean government proposed the construction of an integrated iron and steel plant to the World Bank for possible project funding, the World Bank responded with a diagnosis saying that an integrated steel mill in Korea was a premature proposition without economic feasibility. Indeed, Korea faced several challenges in developing its steel industry. First, integrated iron and steel making is highly capital intensive, but Korea lacked domestic capital. Furthermore, costs were sensitive to scale, but Korea’s domestic market was small and the largest market in her vicinity, Japan, was already home to the world’s most efficient steel producers. Korea lacked iron ore resources and was located far from the sources of supply. Finally, Korea lacked steel making skills and manpower. As is typical of many mature industries, the steel making process is embodied in the process facilities. The processing technology is well diffused and can easily be imported at arm’s length from machinery suppliers especially from Japanese steel companies and from technical consultants, requiring complex engineering know-how.
The capacity expansion in the steel industry tended to involve increased capital and dynamic learning because of large indivisible additions embodying new technologies and a higher capital labor ratio. POSCO was continuously confronted with processing changes. Simultaneously, the company broadened its product line, inducing further changes in processes.
Later POSCO expanded to a continuous casting and cold strip mill. With continuous expansion and improved process technology, POSCO was able to produce high value added wire rods, plates, billets, electrical, cold rolled and galvanized steel sheets.
In spite of all these obstacles, POSCO has become one of the lowest cost steel makers in the world. The dynamics of comparative advantages suggested by Korea’s steel making history are those of overcoming obstacles to create advantages by rejecting the current endowment of resources as arbiter of how income is to be earned in the future.
Generally, creating a competitive advantage through learning rather than innovation is less risky because the learner has both a model and a teacher to guide it. In POSCO’s case, its model and teacher was the Nippon Steel Company of Japan. Although creating advantages through learning is tenuous in one respect, the learner faces more competition than an innovator. The innovator, however, protects its competitive position with a new product or low-cost process. The learner has nothing to protect it but lower wages, and these become increasingly insignificant as a competitive weapon the more skill and capital intensive the sector becomes.
Against such considerable odds, Korea at present has established the status of a global leader in the field of iron and steel making. POSCO has become one of the most efficient plants in the world, and has also become the first to introduce FINEX production technology, which is based on direct use of ore fines and non-coking coal to meet environmental standards ahead of global competitors to ensure a sustainable growth in the green steel industry. Since FINEX eliminates coking and sintering processes unlike the conventional blast furnace route, it is environmentally friendly and cost competitive thanks to the use of pure oxygen for coal gasification and the in situ CO2 removal system. As POSCO continues to succeed in its on going drive to produce green steel for all of its production processes, Korea is likely to enhance its status as a high tech manufacturing hub in Asia.
(Sourced from www.koreatimes.co.kr)
