Analysis of the Interrelationship and Stagnant Strategy according to the Transition Process and Sales Analysis of the Domestic Construction, Design, and CM Industries

1.1. Background and Objective

Domestic construction industry has been developing since the Japanese colonial era and the Korean War with the aim of rebuilding national infrastructure and economy. Since the 1960s, the construction industry has contributed to the national economic development through economic development plans and infrastructure facilities. The domestic construction industry was established in the 1970s with industrialization and expansion of investment capital through large-scale economic and land development projects. The construction industry has continued growing into a key national industry. However, in 1998, the construction industry entered a depression period after facing financial crisis from various domestic and foreign economic situation and policy changes. Furthermore, it continued experiencing cycles of growth and stagnation until recently after overcoming the financial crisis. It faced another breakthrough, by recording highest order amount of approximately 134 trillion KRW in 2015 and approximately 146 trillion KRW in 2016. With the repeated cycles of growth and stagnation of construction industry, the design and construction management (CM) industries have equally changed, and the collaboration of these industries are becoming increasingly important[1].

The domestic construction industry undergoes depression period in approximately 10-year cycles. It has repeatedly carried out activation and stabilization policies with respect to sales according to domestic and international circumstances as well as the construction market status. In particular, it has grown by utilizing the government policies of the times and overcoming the depression periods with the assistance of the government’s market activation policy. Currently, when there is a possibility for a downward trend after the third growth period of the industry, the industry should prepare itself for a recession in the future while revitalizing international markets by utilizing the government's long-term and active policies, eco-friendly technology, and smart construction technology.

Herein we examine the change process and policy changes of the construction, design and CM industries, and the overall transition process and trends of each industry from the past to date. In addition, we examine the size and prospect of design and CM industries compared to the construction industry through sales analysis, and present the importance for specialization of eco-friendly and smart construction technologies to prepare for the next depression period.

1.2. Research Method and Scope

The research method of this study is as follows:

First, the change process and trends of construction, design, and CM industries are examined, according to the period division of the domestic construction industry.

Second, the growth and stagnation processes of the domestic construction, design, and CM industries are analyzed, along with the change process by identifying the policy changes.

Third, the sizes and prospects of the design and CM industries relative to the construction industry are presented through sales analysis by sector.

Fourth, the importance for specializing eco-friendly, smart technology in preparation for the next depression period is presented.

The scope of this study is as follows.

The period for change process and policy changes of the domestic construction, design, and CM industries is limited to the late 1970s to the present. The data used for sales analysis is from 2006 to 2016 for construction and CM industries, and from 2006 to 2014 for the design industry. Furthermore, for sales comparison by sector, the data used is from 2006 to 2014.

2.1 Period Division of Domestic Construction Industry

Since the 1970s, the domestic construction industry has grown rapidly, and has been undergoing changes through depression and regrowth. The industry can be divided based on construction order amount into the following construction periods: primary growth, primary depression, secondary growth, secondary depression, and tertiary growth periods[2].

In the late 1970s, the construction industry began to grow rapidly as it entered the Middle East construction market, which was the beginning of construction period. The domestic construction industry reached its peak in the late 1980s, and experienced the primary growth period. However, in 1998, the industry faced primary depression period owing to financial crisis. In the 2000s, the industry recovered orders owing to the global low interest rates, and enjoyed the secondary growth period. In 2008, the industry entered secondary depression period owing to the changed economic conditions resulting from a global financial crisis. Since 2014, the construction industry is expecting a tertiary growth period owing to an increase in international orders[3].

Table 1.

Period of construction industry

2.2. Changes in domestic construction, design, and CM industries

During the construction period, the construction industry played a key role in the national economic growth owing to the international construction boom with entry into the Middle East market as a launching pad. In this period, the construction industry emerged as a major industry and rapidly grew owing to the economic development plan, industrial facilities and SOC investment surge. The annual average growth rate in construction orders recorded 15.6%. The main form of business in the design industry was design trend offices of artists, who learned detailed design techniques through subcontracts from foreign construction companies; the turnkey method was introduced in the design industry. At the moment, the concept of CM was spread in South Korea from foreign construction markets. In the primary growth period, the domestic construction orders reached a peak with construction of two million apartment houses, expansion of SOC facilities, 1986 Asian Games, and 1988 Olympics. Therefore, the industry met with a golden age with an annual average order growth rate of 25.2%. In the design industry, large corporate offices were formed with the introduction of CAD (computer-aided design) and computerization. In the CM industry, after large accidents, such as the Seongsu Bridge collapse in 1994, the Daegu subway explosion and Sampoong department store collapse in 1995, the poor management of the construction industry became an issue. Consequently, CM was serviced to domestic large national projects, which provided an opportunity for the institutionalization of CM. In the primary depression period, which was caused by a financial crisis, many Korean construction companies faced financial difficulties and bankruptcies owing to involuntary and compulsory structural reforms, bankruptcy of financial institutions, and shortage of funds. The design industry changed from a labor-intensive market into active use of computer programs, and adopted division of labor through a partner system of design and engineering. In the CM industry, the contract method for large CM projects was established through the National Contract Act in 1999. During the secondary growth period in the 2000s when housing construction and real estate development were active, project financing (PF) projects led by construction companies increased. With the growth of the turnkey market, the design market became dependent on the turnkey market, and the technical proposal bidding system was introduced; design and supervision began to be separated in earnest. The CM industry maintained stable growth through the enhancement and commercialization of CM/PM capabilities, and entry into international markets[4, 5].

In the secondary depression period, owing to the global financial crisis, the housing market in the construction industry significantly shrunk and unsold houses increased substantially. The design industry faced turnkey market decline; the design market contracted, and large offices and famous artist studios was polarized. The CM industry actively advanced to the international markets; however, sales declined as the domestic construction market shrunk. Meanwhile, the construction responsibility, a type of construction project management system, was introduced. Since 2014, when the tertiary growth period began, the construction industry has continued to expand and specialize the soft domain, such as design, engineering, and CM. Moreover, the design and CM industries are expecting to improve service quality and create profits using building information modeling (BIM) and big data, and through advancement to the international markets [6]. BIM is currently being utilized by approximately 50% of large construction companies, and other companies are also preparing to introduce BIM. Large design offices and CM companies are deploying BIM experts, and are expecting to create profits from a long-term perspective by actively utilizing big data through BIM and data computerization in future foreign projects.

In addition, various cases of cost reduction and quality improvement through BIM, big data, and value engineering (VE), as well as improvement of construction efficiency and prevention of reconstruction through BIM modeling are being published in various fields. Although securing immediate profits is challenging because there are few actual application projects unlike the market activation policy of the government, the specialization of smart construction technology is indispensable to actively enter the international markets where BIM is actively being applied. The BIM applications are expected to gradually increase in South Korea just like in the international markets.

Table 2.

Process of changes in construction, design, and CM industries

Table 3.

Changes in Construction Industry, Design Industry, and CM Industry Policy

2.3. Policy changes of domestic construction, design, and CM industries

Since the 1970s, real estate prices surged owing to the inflow of oil money from the Middle East, various SOC construction projects through the hosting of the 1986 Asian Games and the 1988 Olympics, and the three-low boom, i.e. low interest rates, low oil prices, and low dollar. Thus, the main policies during this period were anti-speculation policy and stabilization policy. The CM sector became common in South Korea during this period. Regarding the policies in the primary growth period, which was the peak of the domestic construction industry, a policy to stabilize housing prices and a real-name financial system were introduced in line with the promotion of various SOC constructions and the continuous boom in the construction industry. During this period, there was poor management of the construction industry. Therefore, CM system was introduced in the Framework Act on the Construction Industry in 1996, and a basis for consignment of CM work was established by the Framework Act on the Construction Industry in September 1997. During the primary depression period, the housing demand and prices decreased significantly owing to the weak household economy that resulted from income reduction and high interest rates. To overcome the economic depression, low interest policy and housing economy revitalization measures were implemented [5]. Meanwhile, the Ministry of Construction and Transportation, and industry organizations and associations discussed CM policies, and the large CM project contract method was established through the National Contract Act in 1999. In the 2000s, during the secondary growth period, the low interest policy was maintained and the real estate demand increased with the 2002 World Cup. The real estate prices significantly increased owing to the real estate deregulation policy to recover the construction economy, and accordingly, demand and supply management policies were promoted through regulations. Since the 2000s, the CM industry developed further with the introduction of advanced CM techniques, preparation of detailed standards for CM service contract, introduction of CM capability evaluation and disclosure system, revision of detailed evaluation standards for construction industry managers’ project performance abilities, and revision of CM pricing standard. In the secondary depression period, investment and infrastructure construction were activated, construction accidents were reduced using big data, and the construction responsibility type construction project management system was introduced. Meanwhile, the concept of construction responsibility type construction project management was introduced through the Framework Act on the Construction Industry. Since 2014, infrastructure and investment revitalization measures, construction safety accident reduction measures using big data, and construction responsibility type construction project management systems have continued. Furthermore, the government is making efforts to develop: technology system improvement plan, 3D programs, design support development and standardization work, and new technologies. Green building revitalization measures are also being implemented.