Samsung Heavy Industries Responds to Disinvestment Incident: Fully Supporting Rongcheng Shipyard
2021-09-16 09:00
Regarding the recent attention-grabbing withdrawal of investment from Ningbo Samsung Heavy Industries, Samsung Heavy Industries officially responded that the withdrawal was due to low production efficiency at the shipyard, and that they will fully support Rongcheng Samsung Heavy Industries in the future.
On September 14, Samsung Heavy Industries issued a statement through Korean media, stating that due to aging equipment leading to low production efficiency, and as part of its strategy to improve the operational efficiency of its overseas business locations, it has decided to withdraw its investment from Ningbo Samsung Heavy Industries.
Samsung Heavy Industries stated that its Ningbo subsidiary, Ningbo Samsung Heavy Industries, established in 1995, has primarily provided ship sections to the Geoje shipyard for 26 years. According to the company's plan, it will withdraw its investment from Ningbo Samsung Heavy Industries, and all its land and other assets will be repurchased by the Chinese government. In order to complete the remaining projects before the end of the year, Samsung Heavy Industries will complete the handover procedures at the beginning of next year and is currently negotiating with relevant parties.
A Samsung Heavy Industries representative pointed out: "The sections manufactured by the company's two factories in China will be unified to the Rongcheng subsidiary, which has more reasonable equipment and higher production efficiency. We plan to focus on cultivating the Rongcheng subsidiary to further improve production efficiency."
It is understood that the construction of seven or eight ships' hull sections at Samsung Heavy Industries (Ningbo) has been suspended due to worker strikes and other reasons. Some equipment and the suspended hull sections will be transferred to Rongcheng Samsung Heavy Industries in Shandong for continued construction.
During the previous boom in the global shipbuilding industry, Samsung Heavy Industries invested mainly in the establishment of two enterprises in China to increase shipbuilding volume and ensure cost competitiveness, serving as important overseas processing bases. Among them, Ningbo Samsung Heavy Industries, established in December 1995 with an investment of US$250 million, was the first wholly-owned shipyard established by Samsung Heavy Industries in China. At its peak, it employed over 4,500 people, with an annual hull section production capacity of 200,000 tons.
Rongcheng Samsung Heavy Industries was established in 2006 with a total investment of US$340 million. In 2007, a research and development center was added to conduct research in automation, welding, painting, outfitting, and other related fields. In 2008, investment was increased for the floating drilling platform production project. Currently, it mainly engages in the manufacturing of sections for various high value-added vessels such as large container ships, liquefied gas carriers, drilling ships, and large tankers, as well as the manufacturing of land and marine structures such as offshore oil drilling platforms. It is capable of professionally producing large sections of over 2,000 tons, which are world-leading.
Rongcheng Samsung Heavy Industries is the largest enterprise in terms of scale and employment in the area. The enterprise and its 26 subcontracting units employ 4,400 people at full capacity, with an annual hull section production capacity of 300,000 tons. Like Ningbo Samsung Heavy Industries, the hull sections produced by Rongcheng Samsung Heavy Industries are also transported to Samsung Heavy Industries' shipyard in Geoje, South Korea, for assembly.
Korean media reported that Samsung Heavy Industries established hull section enterprises in China at that time mainly because the land in its Geoje shipyard was saturated, and the local labor costs in China were lower than in South Korea.
Although Ningbo Samsung Heavy Industries achieved complete ship construction in May 2013, Samsung Heavy Industries believed that its operational efficiency in building new ships had declined, and subsequently decided that the Geoje shipyard would continue to build complete ships, and Ningbo Samsung Heavy Industries returned to its original business of section construction. Since 2015, Ningbo Samsung Heavy Industries has not received any new ship orders. The last new ship in its backlog of orders was delivered in January 2020, after which it ceased complete ship construction.
However, some industry insiders told International Shipbuilding Network that Samsung Heavy Industries' attribution of the withdrawal of investment from Ningbo Samsung Heavy Industries to "low production efficiency, and that after the withdrawal, the focus will be on developing Rongcheng Samsung Heavy Industries to improve efficiency" is not sufficient. Ningbo Samsung Heavy Industries and Rongcheng Samsung Heavy Industries are both wholly-owned subsidiaries, and there should not be much difference in management and production efficiency. This statement may be more of a "stalling tactic," because the seriousness of the situation at Ningbo Samsung Heavy Industries may have exceeded their expectations, and it will obviously have a great impact on the Chinese employees of Rongcheng Samsung Heavy Industries. After all, Rongcheng Samsung Heavy Industries is still operating normally, and if they are not appeased, it will cause employee morale to decline. However, Samsung Heavy Industries' official statement has provided some reassurance, at least in the near term, that Rongcheng Samsung Heavy Industries will not be withdrawn or relocated.
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