Builders make up for lost profits

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Builders make up for lost profits

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Park Ji-hoon, an employee at Shinan Construction, known for its apartment brand Ensvil, is busy learning cosmetics terminology.

He wrestles with “wrinkle care,” “mascara,” “BB cream,” “concealer” and other female phraseology. Until he started studying, his cosmetics lexicon was limited to “lotion.”

Park said his employer recently entered the cosmetics market in search of a new source of revenue in a sagging real estate sector.

“Most of cosmetic terms are foreign,” he said. “Cosmetics come in so many products and the terminology is even more complicated than words used in the construction sector.”

Construction companies like Shinan hit by the market downturn are branching out into cosmetics, bottled water and shopping malls.

Market observers said the idea of diversifying a business portfolio isn’t new for builders. But a big difference is builders that traditionally sought to diversify within the boundaries of housing and construction are jumping into unrelated fields.

“Midsize builders are actively carving out a whole new field of business because they cannot enter overseas market, unlike big builders that have rich financial resources and expertise,” said Kim Dong-soo of the Korea Housing Association.

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Shinan Construction, for example, rolled out cosmetic brand Areumyeon in February. Currently, basic skin care products are available and the company plans to launch makeup and body wash products.

The products are sold at hotels and golf resorts run by the builder, and Shinan aims to open an Internet shopping mall and brick-and-mortar shops. “We will target Japanese and Chinese tourists, who have a high interest in Korean cosmetics,” said Na Ki-sam, an employee at Areumyeon. “It’s killing two birds with one stone, as we can save money by displaying products at hotels and golf resorts.”

Halla Engineering and Construction, known for its Vivaldi apartment brand, has gotten into bottled water.

Inspired by the notion that tapping subterranean water requires excavation technology, Halla began developing the business in Pyeongchang, Gangwon, in 2011.

Now the company can produce 667,000 1.5-liter (50.7-ounce) bottles of water a day.

Hanshin Engineering and Construction established a food company in 2010 and has been expanding into producing and processing agricultural products.

Kyeryong Construction entered the retail fashion business after acquiring a shopping mall in Daejeon in 2010.

Hoban Construction gets lease and sales transaction fees by managing a shopping mall, which opened in April in Pangyo, Gyeonggi.

Although these side businesses make up a small part of builders’ revenues, they are as welcome as rain in a drought.

“We cannot simply sack employees because of the decrease in the number of construction sites,” said an employee at a midsize builder. “Any business that helps us make payroll is a cash cow.”

Meanwhile, big builders have also turned to industrial complex development projects. Previously, they had little interest in such businesses as they yield comparatively low profits compared to housing projects and involve jointly working with regional governments.

GS Engineering and Construction is in charge of Yedang Industrial Complex Development in Yesan County, South Chungcheong.

Posco Engineering and Construction is in charge of Oksan Industrial Complex Development in Cheongwon County, North Chungcheong.

“For builders, pioneering new business is a matter of survival,” said Lee Bok-nam, a research fellow at the Construction Economy Research Institute. “The trend of breaking down boundaries will continue.”

By Choi Hyun-joo [mijukim@joongang.co.kr]
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