South Korean shipbuilders are expected to engage in painful restructuring efforts starting this month as they struggle to cope with the present market downturn, industry watchers said Sunday.

The restructuring that will affect Hyundai Heavy Industries Co., Samsung Heavy Industries and Daewoo Shipbuilding & Marine Engineering Co., as well as many smaller sized companies, could result in the streamlining of operations, and the laying off of some 10,000 workers in the next two to three years.

The latest market crisis can also lead to less competitive yards going bankrupt in the face of dwindling orders.

As of last year, 18.2 percent of local shipyards were classified as "marginal" companies that could collapse. This is up significantly from 6.1 percent in 2009.

Reflecting this, the government has made clear that the market needs to sort itself out with weaker companies being allowed to fail.

In the heyday of shipbuilding, companies made trillions of won and hired large numbers of new people who got hefty paychecks. More recently, with the global economy on the wane and stiffer competition from yards in China, local companies have been losing trillions of won.

Even the world's big three shipyards -- Samsung Heavy, HHI and DSME -- are expected to post losses totaling 10 trillion won this year alone.

"Companies that cannot float on their own need to be ousted, which can help alleviate market uncertainties," said Financial Services Commission Chairman Yim Jong-yong. "Restructuring can eventually help the national economy."

Reflecting this stance, a source in the shipbuilding industry said the government seems determined to oust failing companies and force those that remain to engage in tough restructuring measures.

Highlighting such developments, DSME already agreed to implement changes that can lead to the layoff of upwards of 30 percent of its workforce in 2016. This can translate into 3,000 people being fired.

The company's union caved to pressure from its creditors, led by the state-run Korea Development Bank, last month. DSME, moreover, pledged to sell off all unnecessary assets and property holdings to generate funds.

Besides Daewoo, industry watchers said that HHI and Samsung Heavy that had all engaged in restructuring last year may have to follow through with additional cost cutting measures.

"The three large shipyards have similar earnings structures and compete for the same dwindling orders so their situations should be roughly the same," the source said.

He said there have already been moves by local shipyards to start accepting early retirement on a regular basis as a means to cut costs.

Others said that in the next couple of years, there will likely be a move to merge failing companies into bigger yards that can compete more effectively with overseas rivals.

The government, meanwhile, said that with conditions in the shipbuilding sector unlikely to improve anytime soon, efforts are under way to provide emergency support to certain areas, such as South Gyeongsang Province, that will be the most affected by closures so they can switch to new industries and businesses.

In addition, measures will be drawn to extend the employment support period provided by the state from the current one year to three, so people laid off from work can receive more training, which should make them more eligible for new positions. (Yonhap)