Invest KOREA

IN IT FOR THE LONG HAUL
Scania Korea sells trucks and engines that help ensure sustainable business

Think ‘heavy truck’ and you probably imagine huge vehicles spewing clouds of black smoke. But one commercial vehicle manufacturer is so determined to not do all that spewing that it is most interested in markets with strict environmental regulations. Markets like Korea.

“Korea has been a very, very successful machine manufacturer,” said Kaj Farm, Managing Director / CEO of Scania Korea Group. “And when the environmental regulations get tougher and tougher in the world, our engine will be more and more suitable. So that’s why we are for the Korean market.” How tough, when it comes to regulations? Euro 6 tough.

Starting this year, all trucks imported into or manufactured in Korea will have to meet level 6 European emission standards for, especially, emissions of nitrogen oxides and particulate matter. Euro 6, the regulations for which went into effect in Korea last year, is about 100 times more stringent than the country’s previous level of Euro 5.

For the Sweden-based Scania, which manufactures heavy trucks, buses and diesel engines, this means all the new trucks they’ll bring into Korea this year will look the same as last year’s, but have “a new heart,” said Farm.

“This is a very advanced market when it comes to protecting the environment,” he said. “Environmental questions have become very, very important in this business.”

Having exported its first truck to Korea in 1967 and later brought in vehicles through the now-defunct Korean car manufacturer Asia Motors, Scania officially became a foreign-invested company in Korea in 1995. While much of the auto technology prior to that time came to Korea from Japan, Asia Motors saw an opportunity to bring more advanced technology from Europe.

It all started with the tipper truck, or the dump truck. During the Korean construction boom of the early 1990s and 2000s, about 90 percent of Scania Korea’s sales were of tipper trucks.

Today the company sells three types of trucks ­ tipper, tractor and cargo ­ for a total of 700 to 900 trucks sold a year. The company started selling cargo trucks here in 2011, becoming the first European corporation to do so and thus beginning to offer customers a complete heavy truck line.

Tractor trucks are those that can be attached to and pull a vehicle, like a trailer. Cargo trucks not only transport cargo, but also serve as a platform on which the bodywork of trucks for any transport purpose can be built.

Scania Korea also has an engine business that is rapidly growing due to the adoption of new environmental regulations worldwide, as new regulations call for new, high-tech engines that meet them, and due to Korea’s strong manufacturing industry. Scania Korea sells its industrial and marine engines to customers including Doosan and Hyundai, which export machinery made with these engines.

“Very small amount of the engines that we sell to Doosan will end up in Korea,” said Farm, using the Korean conglomerate as an example. “And so 99 percent of the engines will be around the world. And in some cases, it will go back to Sweden, where the engine came from.”

Korea is Scania’s second-largest market among 100 for engine sales. Brazil is the largest.

“So we are number two, and that is unbelievable, I would say, for a small country like Korea,” said Farm. “The success in the engine business gives us very much hope for the truck business, now when we go to Euro 6 in Korea.”

Also a part of Scania’s Korea business is a financing entity called Scania Korea Finance, established in 2002. The idea is to provide customers with not only a truck, but financing for the truck. Customers enjoy the convenience of dealing with just one entity throughout the purchasing process while Scania enjoys lower risk.

Scania Korea Group, which includes the finance unit, employs about 200 people. Scania Korea has captive dealers ­ dealerships owned and operated by Scania ­ in major Korean cities including Seoul, Busan and Incheon, as well as an industrial complex down south in Sacheon that includes a central warehouse and assembly factory. The company plans to open a dealership this year on land it bought in Dongtan a couple years ago.

Also in the works is a plan to start bringing buses to Korea this year.

“In many ways, Korea can be also an example to the other Asian countries,” said Farm. “If you will be successful in Korea, then the other Asian countries will look at who is actually selling products in Korea. In many ways, this is one of the most advanced markets in Asia.”

The major advantages of doing business in Korea, according to Farm? Hard-working people. (“A problem I have is to try to push the people to have some vacation.”) And the fact that everything works.

“The infrastructure is good, the road network is excellent, the transportation system works, Internet works, the IT works, all the practical things are very, very simple and easy,” said Farm. “I think you will not find any country where things work so well. Day-to-day things.”

By Chang Young
Executive Consultant / Invest Korea
young.chang@kotra.or.kr