INTERVIEW: Yeo-Sung Lee
Executive Vice Chairman and CEO, Hyundai Rotem
By Wendell Minnick, Seoul Airshow 2009
Despite the worldwide economic downturn, South Korea's Hyundai Rotem keeps making money and expanding further into the international defense export market. Rotem is producing an impressive array of military equipment, including the K1AI and K2 Black Panther main battle tanks, wheeled armored personnel carriers and integrated logistics systems. It recently sealed a deal to assist Turkey in the development of a main battle tank and is in discussions with countries in Latin America, the Middle East and Southeast Asia for military vehicles and systems.
Since Yeo-Sung Lee became CEO in 2007, Hyundai Rotem has seen dramatic revenue increases and has expanded its investment in research and development. Lee's sales-first operational philosophy comes from a strong background in exports and overseas sales. He joined Hyundai Mobis as executive vice president for exports in 1996, and then became senior executive vice president of the overseas sales department in 2002 before joining Rotem in 2004 as senior executive vice president of Rotem Total Railway Systems. Since his appointment as Rotem's executive vice chairman and CEO, the company has increased revenue sales by 60 percent and profits by 86 percent, and received new orders worth $30 billion.
Q. HOW LONG HAS ROTEM BEEN IN THE DEFENSE BUSINESS?
A. We first started off with railcar manufacturing in 1964 and then went into the defense business in 1976. We have grown into a global leader that represents South Korea in this industry. We are also the leading defense system provider in South Korea.
We have developed the K2 main battle tank [MBT], which is a world-class main battle tank. We have succeeded in exporting the technology of the K2 MBT to support the Turkish MBT project. Our main products include K2 MBT, K1A1 MBT, K1 Armored Recovery Vehicle, K1 Apparatus Vehicle, wheeled armored vehicles, simulators and a new unmanned firefighting robot.
Q. WHAT STEPS HAS THE COMPANY TAKEN TO HELP WEATHER THE ECONOMIC CRISIS?
A. In the case of defense, the government will not stop spending, so our growth is going up. The defense industry is a national industry, which is supported by the government. The government seeks economic growth during these difficult economic times by designating long-term national projects. So times like these can actually be an opportunity for us to seek growth. We are expanding our production facilities abroad and investing more in research and development. We are also seeking to target the overseas market more aggressively.
Q. SO YOU EXPECT YOUR 2009 REVENUE TO EXCEED LAST YEAR'S?
A. In 2008, our revenue sales reached $2.2 billion, and despite the global economic downturn, we expect our revenue sales to increase 12 percent - [to] $2.7 billion - in 2009. Growth is about 21 percent over 2008.
Q. WHAT PERCENTAGE WILL BE DEFENSE SALES?
A. The percentage of defense revenue would be 20 percent at $500 million. We are quite a fast-growing company in terms of revenue and profit.
Q. WHAT PROSPECTS DO YOU SEE FOR EXPORTS?
A. Some predict that the demand for main battle tanks might decrease as wars become localized and the demand for air and naval weapons increase. However, we still think that the main battle tank market is a $3 billion market. There are still many countries seeking to purchase new main battle tanks. Many countries are showing interest in our latest K2 MBT.
Hyundai Rotem succeeded in exporting the K2 MBT technology to Turkey despite competition from other main battle tank builders such as Germany, France and the U.S., which clearly indicates that Hyundai Rotem's defense technology is the world's best. We expect that this will lead to more export opportunities. We have been talking to countries in Latin America, the Middle East and Southeast Asia. Also Hyundai Rotem is developing wheeled armored vehicles. As we face competition from European and American companies, as well as China, we are seeking various ways to export our technology to the overseas market.
Q. WHAT DO YOU EXPECT FROM YOUR DOMESTIC DEFENSE MARKET IN THE FUTURE?
A. As a private company, it is difficult for us to make a statement about the overall Korean defense market. However, it is estimated to be about $10 billion. It is not really growing and is basically flat. The government leads most projects as a national project, and private companies participate in the research and development and production.
In the Korean defense market, we predict a high demand in precision targeting, information technology and unmanned robotic technology. Hyundai Rotem is developing unmanned ground vehicles in advance to meet these requirements. We are also developing hybrid power systems as an environmentally friendly green growth project.
Q. HOW STRONG IS SOUTH KOREA'S DEFENSE INDUSTRY NOW?
A. The defense industry grows under the government's policy to strengthen defense. The South Korean defense market is relatively small. The government works with private companies to develop new defense technology and seeks ways to export the technology as well.
Also, technologies developed for military use, such as information technology and unmanned robot technology, is being applied to commercial products. South Korea has the capacity to produce state-of-the-art defense systems with high quality and advanced technology at low cost. With the development of information technology in Korea, it has become easier to develop useful systems for the defense industry.
However, we still have some areas in which we rely on foreign technologies to develop core devices. The South Korean defense industry is changing from heavy weapons to electronic and automated systems, from heavy to light, from land warfare to air and sea warfare. The defense industry needs to be more localized for components and parts. We import a lot of components and parts. As South Korea's defense industry grows, the parts and components industry should grow along with it.
Q. IN WHAT DEFENSE AREAS DOES ROTEM EXPECT GROWTH IN THE NEXT 10 YEARS?
A. In the defense division, we expect to expand our product lines from our current ground weapon systems to air and naval weapon systems. We will also apply defense technologies for nonmilitary projects. We plan to develop combat systems for the future environments, such as light robotic weapons, integrated sensor systems and special robots for military and civil purposes.
We aim to grow into a global company of the Hyundai Motor Group by creating a platform for sustainable growth. In defense, our revenue is expected to increase to $1.5 billion by 2015. We have a broad 10-year plan that by 2018 defense will be over $2 billion. The overall company revenue will be $4 billion by 2015, and [by] 2018, it will be $5 billion. We have a very healthy order backlog. I hope that within 10 years, Hyundai Rotem makes it to the list of top 20 defense companies in the world.
Q. HOW MUCH IS ROTEM SPENDING ON RESEARCH AND DEVELOPMENT?
A. Research and development investment of Hyundai Rotem has been increased remarkably. We are, on average, now spending 5 percent of our revenue on research and development. In 2007, we spent about $90 million, and in 2008, we spent $108 million, and are now spending $131 million in 2009. When sales revenue goes up, then research and development goes up.
Research and development manpower is increasing also. In 2006, we had 590 engineers in research and development, but in 2009, we have 674.
We will continuously focus on research and development activities by investing an average of 5 percent of our revenue into it and by increasing the number of engineers. Especially for the last couple of years, the total amount of money invested on research and development has jumped by approximately 45 percent. The main research field of the defense division is about military applications, such as the main battle tank, wheeled armored vehicle and quadruped walking robot. Related to main battle tanks, active protection systems are also being developed. Also, unmanned weapon systems are one of our main developments. Our firefighting robot has been successfully developed and tested recently, and we are developing multipurpose unmanned robots for both military and commercial use.
Q. HAS ROTEM CHANGED SINCE YOU BECAME CEO?
A. When I was first named CEO of Hyundai Rotem in 2007, we were facing many difficulties internally with the shortage of capability and also in the market environment. To survive the risks, we focused on targeting the overseas market and formed strategic divisions to solve problems. As a result of fast decision-making, communication within the company and teamwork, we have achieved a 60 percent increase in revenue sales, 86 percent increase in profits and new orders worth $50 billion. I'm very proud of the company's revenue increase under my leadership. I put the top priority on sales. If sales are good, then everything follows. This is my operational philosophy. ■
■ Revenue: $2.2 billion in 2008, $2.7 billion projected for 2009
■ Headquarters: Seoul
■ Employees: 3,993
■ Sectors: Defense Systems, whose products include main battle tanks, wheeled armored vehicles and robots; Railway Systems; and Plant & Machinery
Source: Defense News research