Sustainable value creation through corporate entrepreneurship
A case study of Univan Ship Management Limited in Hong Kong
Alin Coman
Master of Science Thesis Stockholm, Sweden May 2014
Sustainable value creation through corporate entrepreneurship
A case study of Univan Ship Management Limited in Hong Kong
Alin Coman
Master of Science Thesis INDEK 2014:13 KTH Industrial Engineering and Management
Industrial Management
SE-‐100 44 STOCKHOLM
Master of Science Thesis INDEK 2014:13
Sustainable value creation through corporate entrepreneurship
A case study of Univan Ship Management Limited in Hong Kong
Alin Coman
Approved
2014-‐May-‐21
Examiner
Terrence Brown
Supervisor
Gregg Vanourek
Commissioner
Contact person
Abstract
Due to rapid and major economic change in recent years, the need for more flexible, dynamic and innovative companies is widely recognized. Firms must clearly understand and translate customers’ needs in order to foster value creation. Many scholars have focused their attention on the entrepreneurial behavior of owners or top managers and their actions that encourage innovation, venturing and strategic renewal. However, rigorous empirical research examining the factors that support corporate entrepreneurship and lead to sustainable value creation is scarce.
The purpose of this study is to identify the factors that support corporate entrepreneurship and lead to sustainable value creation in a ship management company, using a case study approach.
In this context, the following research question is addressed:
-‐ What factors support corporate entrepreneurship and lead to sustainable value creation in a ship management company?
This research uses an interpretive paradigm and utilizes three methods for collecting data, consisting of observational technique, surveys and semi-‐structured interviews.
Findings reveal the factors that support corporate entrepreneurship and lead to sustainable value creation in ship management. These are analyzed in relation to the literature and the ship management sector. The study concludes that corporate entrepreneurship, when conducted effectively, can be a significant contributor of sustainable value creation. However, this may or may not be applicable to other sectors.
Key-‐words: corporate entrepreneurship, factors, sustainable value creation, ship management
Table of Contents
Abstract ... 2
Acknowledgements ... 5
Abbreviations ... 6
Key terms ... 7
List of figures ... 8
List of tables ... 9
1.
Introduction ... 10
2.
Review of literature and theoretical framework ... 12
2.1.
Sustainable value creation ... 12
2.1.1.
Defining sustainable value creation ... 12
2.1.2.
Driving sustainable value creation through corporate entrepreneurship ... 12
2.1.3.
Challenging the notion of sustainable value creation ... 13
2.2.
Corporate entrepreneurship ... 13
2.2.1.
Various definitions ... 13
2.2.2.
Innovation and entrepreneurship ... 14
2.3.
Dimensions supporting corporate entrepreneurship ... 14
2.3.1.
Internal factors supporting corporate entrepreneurship ... 14
2.3.2.
External factors supporting corporate entrepreneurship ... 15
2.4.
Shipping and world trade ... 15
2.4.1.
Ship management ... 18
3.
Research process ... 20
3.1.
Methods ... 20
3.2.
Description and suitability ... 21
3.2.1.
Advantages of case studies ... 21
3.2.2.
Disadvantages of case studies ... 21
3.2.3.
Semi-‐structured interviews ... 21
3.2.4.
Survey ... 21
3.2.5.
Observational technique ... 22
3.3.
Reliability, validity, representativeness and execution ... 22
3.4.
Limitations ... 23
3.4.1.
Limitations of qualitative studies ... 23
3.4.2.
Limitations of case studies ... 23
3.4.3.
Limitations of surveys ... 23
3.4.4.
Limitations of other nature ... 23
4.
Case study ... 25
4.1.
Univan Ship Management Limited ... 25
5.
Findings ... 29
5.1.
Internal factors that support corporate entrepreneurship and lead to sustainable value creation ... 29
5.1.1.
Culture, leadership and employee dynamics ... 29
5.1.2.
Organizational structure ... 30
5.1.3.
Communication ... 32
5.1.4.
Acquiring and developing capabilities ... 32
5.1.5.
Rewards ... 32
5.1.6.
Risk-‐taking ... 33
5.1.
External factors that support corporate entrepreneurship and lead to sustainable value
5.1.1.
Trend of owners outsourcing ship management ... 33
5.1.2.
Sector outlook ... 34
5.1.3.
Competitive forces ... 35
5.1.4.
Maritime institutions, public policies, laws and regulations ... 36
5.2.
Roadmap and vision for value creation ... 37
6.
Conclusions and future research ... 39
References ... 41
Appendix 1 -‐ Survey questions and participants ... 45
Appendix 2 -‐ Interview questions ... 47
Appendix 3 -‐ Tables and figures ... 48
Appendix 4 -‐ Plan of work ... 50
Acknowledgements
This thesis would not have been possible without the contribution of a number of people.
First of all, I want to express my sincere gratitude to my supervisor from KTH, Gregg Vanourek. His expertise in my research area was irreplaceable and I thank him for all the time he spent with and for me. He provided me with a clear vision and gave me plenty of helpful and detailed advice. I also want to thank Cali Nuur and Terrence Brown for their thoughts and ideas.
Secondly, I want to thank the whole team of Univan for all the support, assistance and encouragement for my work there. There are three persons that I especially want to thank, starting with Pradeep Ranjan, COO, who was the first person I had contact with and took the time to introduce me to ship management. Then there is my supervisor, Alex Slee, Director of Strategy, who always had an open ear for me and provided me with a lot of useful information and guidance. Last but not least there is Richard Hext, the Chairman, who made this internship possible and advised me in various aspects.
Also there are several other people who strongly supported me and hence had a major impact on my research: Vikrant Gusain, Bjorn Hojgaard, Cammy Chan, Antony Cowie, Mark Speirs, Raja Ram Kogta, Peter Helm, Shrinath Hegde, Kohichi Onodera, Arun Deo
Mishra, Eric Cheung.
Abbreviations
BMI – Business Model Innovation CAGR -‐ Compound Annual Growth Rate CE – Corporate Entrepreneurship CEO – Chief Executive Officer CFO – Chief Financial Officer COO – Chief operating officer CS – Case study
CV – Corporate Venturing DWT – Deadweight Tonnage
EMT – Executive Management Team HR – Human Resources
IMO – International Maritime Organization IT – Information Technology
KPI – Key Performance Indicators
OECD -‐ Organization for Economic Co-‐operation and Development OP – Organizational Processes
PESTLE -‐ Political, Economical, Social, Technological, Legal & Environmental SVC – Sustainable Value Creation
Key terms
Compound annual growth rate – The year-‐over-‐year growth rate of an investment over a specified period of time (Investopedia)
Corporate entrepreneurship – the activities that an organization undertake to enhance its product and process innovations, risk-‐taking and proactive response to environmental forces (Castrogiovanni et al. 2011) with the final goal of value creation Corporate venturing – the set of organizational systems, processes and practices that focus on creating businesses in existing or new fields, markets or industries—using internal and external means. Internal means typically include innovation, new business incubation and corporate venture capital. External means usually include licensing, joint venturing, and acquisitions (Narayanan et al. 2009).
Deadweight tonnage – is a measure of how much weight a ship is carrying or can safely carry. It is the sum of the weights of cargo, fuel, fresh water, ballast water, provisions, passengers and crew.
Entrepreneurship – generating value through an innovative new enterprise, while assuming risk and reward
Innovation – the process of translating an idea or invention into a good or service that creates value or for which customers will pay
Organizational climate -‐ a set of properties of the work environment, perceived directly or indirectly by the employees, that is assumed to be a major force in influencing employee behavior (Ivancevich & Matteson 2002)
Shipping industry -‐ The industry concerned with transporting freight (goods transported in bulk) by water
Strategic renewal – the processes, contents and outcomes of “refreshment or replacement of attributes of an organization that have the potential to substantially affect its long-‐term prospects” (Agarwal & Helfat 2009)
Sustainable value creation -‐ A firm’s capability to understand and translate customers’ needs into superior solutions, fostering performance over a prolonged period of time for both sellers and buyers
Third party ship management – specialized firms offering a range of different ship management packages, from crew management and technical assistance, through to full
commercial management
List of figures
Figure 1 -‐ Top 10 countries of ownership by main vessel types (DWT as%, January 2012 estimates) ________ 17
Figure 2 -‐ Univan's footprint ______________________________________________________________________________________ 25
Figure 3 -‐ Fleet by vessel type _____________________________________________________________________________________ 26
Figure 4 -‐ Culture, leadership and employee dynamics relationship ___________________________________________ 29
Figure 5 -‐ Organizational structure ______________________________________________________________________________ 31
Figure 6 -‐ S.M.A.R.T. Goals ________________________________________________________________________________________ 33
Figure 7 -‐ Univan's strategic vision and roadmap1 ______________________________________________________________ 38
Figure 8 -‐ Market share of top 10 countries of ownership by type of vessel ____________________________________ 48
Figure 9 -‐ Top 10 Nationality of seafarers _______________________________________________________________________ 49
Figure 10 -‐ Fleet by crew nationality _____________________________________________________________________________ 49
List of tables
Table 1 -‐ Common internal factors supporting CE ______________________________________________________________ 15
Table 2 – Main types of ships and their function ________________________________________________________________ 16
Table 3 -‐ Strengths of in-‐depth interviews and surveys _________________________________________________________ 20
Table 4 – List of interview respondents __________________________________________________________________________ 23
Table 5 -‐ Univan's history _________________________________________________________________________________________ 25
Table 6 – Services provided by Univan ___________________________________________________________________________ 27
Table 7 – Principal ship management competitors ______________________________________________________________ 35
Table 8 -‐ The most common factors considered by researchers and the factors revealed by this paper ______ 39
Table 9 – Survey questions ________________________________________________________________________________________ 45
Table 10 – List of survey respondents ____________________________________________________________________________ 46
Table 11 – Interview questions sample __________________________________________________________________________ 47
Table 12 -‐ Top 10 countries with the largest owned fleets ______________________________________________________ 48
Table 13 -‐ Top 10 flags of registration with the largest registered DWT ______________________________________ 48
Table 14 -‐ Plan of work ___________________________________________________________________________________________ 50
1. Introduction
This chapter begins with a background introduction to establish the general territory and continues with the problem statement, research objectives and delimitations.
In recent decades, rapid and major economic change has been occurring. More precisely, the strong pace of technological development coincides with the advancement of globalization, resulting from greater market liberalization. This has substantially increased competition, risk and uncertainty (Knight 1997) and the fragmentation of markets, promoting a growing need for flexibility, competitive aggressiveness, innovativeness and adaptive capacity (Carlsson 1996; Carree et al. 2002).
The aforementioned characteristics are functions generally attributed to entrepreneurship, by means of which opportunities are discovered and innovation strategies are implemented gradually and continuously improving the organizational and technical procedures, as well as decision-‐making (Lee et al. 2011).
In this sense, entrepreneurship is attracting more and more attention as a useful instrument for value creation (Dabic et al. 2011). Corporate entrepreneurship (CE) has been proposed as one key instrument to promote flexibility and change in established organizations (Zahra et al. 1999). CE may be defined as:
The activities that an organization undertake to enhance its products and process innovations, risk-‐taking and proactive response to environmental forces (Castrogiovanni et al. 2011) with the final goal of value creation.
Many scholars have focused their attention on the entrepreneurial behavior of owners and/or top managers (Clargo & Tunstall 2011) and their actions that foster innovation, venturing and strategic renewal (Kuratko & Morris 2002). However, rigorous empirical research examining the factors that support CE and lead to sustainable value creation (SVC) is scarce.
The main problem is that today’s businesses, “especially the large ones, will simply not survive in this period of rapid change and innovation unless they acquire entrepreneurial competence” (Drucker 1985). Fostering CE appears to be a major issue for companies that face different challenges such as:
• Grasping growth opportunities and capturing new markets
• Addressing threats to profit margins by continually looking for profit-‐
maximizing innovations and by adopting organizational measures that are both flexible and responsive (Fayolle & Basso 2010)
• Nurturing competitiveness in a dynamic environment
• Implementing growth strategies by freeing up the creative energy within the business, but also acquiring and managing entrepreneurial capital and knowledge assets.
• Business model innovation (Chesbrough 2010)
• “Innovator’s dilemma” (Christensen 1997) -‐ when a venture’s successes and capabilities become obstacles in the face of changing markets and technologies.
The purpose of this study is to identify the factors that support corporate
entrepreneurship and lead to sustainable value creation in a ship management
company, using a case study approach.
To enable this analysis, the research first establishes the theoretical framework related to SVC and CE; second, it delivers an in-‐depth analysis of Univan, a global third party ship management company with headquarters in Hong Kong.
From a theoretical perspective, the study’s implications are beneficial to the corporate entrepreneurship literature linked to sustainable value creation in the ship management sector.
Due to the limited timeframe of the thesis project and the complexity of the problem studied, but also to improve the quality of work, the following delimitation is imposed:
• This research focuses on the value creation factor and is not addressing the implications of value delivery and value capture (Chesbrough 2010)
• This research focuses on value creation for the company and customers and will not discuss value creation related to other stakeholders (e.g., suppliers, communities).
• Other dimensions contributing to SVC, such as business model innovation, internal organizational processes, social influences, stakeholders’ relationships, and others, are not subject of this research.
• This research is not addressing the discussion about the portrayal of the psychological disposition that individuals bring to the process of corporate entrepreneurship.
• This research is not addressing the discussion about cognitive style, which measures the way intellectual activities are performed.
• This research focuses only on one company (Univan), thus the results and conclusions will not necessarily apply to other types of organizations (different in terms of size, stage of the business, location, sector, or industry).
2. Review of literature and theoretical framework
This chapter begins by describing the sustainable value creation concept and continues with a brief section about corporate entrepreneurship, providing various definitions and outlining the relationship between innovation and entrepreneurship. Further on, the dimensions supporting corporate entrepreneurship are presented. The last section illustrates various aspects of the shipping industry.
2.1. Sustainable value creation
2.1.1. Defining sustainable value creation
Creating and delivering value for companies and customers has been studied in the marketing, strategy, and business model literature for many years. Anderson et al.
(1998) suggested that companies must first understand what customers value (through market sensing and other market-‐oriented activities) to be able to create said value for their customers.
In a fundamental sense, creation of value has been said to be the purpose of a firm.
Value can be measured in different ways, such as by total shareholder returns, profitability, customer satisfaction, cash flows, stock prices, achievement of some strategic objectives and other metrics. Issues related to value creation are important and lively areas of business, finance, management, and innovation. In fact, value creation is now said to be at the intersection between the functional areas of finance and strategy (Choi & Click n.d.).
Kahan (2013) states that value creation is about identifying what drives the customers, and generating a curve of offerings around those drivers bringing together the buyer and the seller.
Drawing upon multiple sources, sustainability in value creation adds a time dimension to the process but also neglects the ecological and environmental aspects. The following definition of sustainable value creation has been proposed:
A firm’s capability to understand and translate customers’ needs into superior solutions, fostering performance over a prolonged period of time for both sellers and buyers
2.1.2. Driving sustainable value creation through corporate entrepreneurship
For years, popular press and academic literature have been praising CE as an effective means to fight inertia, stagnation and lack of innovation (Mair 2002). However, rigorous empirical research examining the link between CE and value creation is still scarce (Zahra & Covin 1995; Covin & Miles 1999).
Traditional concepts of CE typically refer to dispositions (Miller 1983), or orientations (Lumpkin & Dess 1996), largely overlooking the processes that are core part of CE and contribute to value creation.
Adopting and supporting corporate entrepreneurship processes for value creation has
been promoted by Gartner (1988), stressing that it involves an ample resource
commitment, consisting of both financial and human capital. It also requires time in order for the markets and clients to react. However, once an effective design is constructed, the chances of achieving sustainable value creation are high.
Apart from CE, Mair (2002) points out that there are several other dimensions contributing to SVC, such as business model innovation, internal organizational processes, social influences, stakeholders relationships, and others, which will not be addressed in this thesis.
2.1.3. Challenging the notion of sustainable value creation
Other researchers (McGrath 2013) challenge the notion of sustainable value creation, or its related concept of sustainable competitive advantage. It is rather transient and not sustainable, McGrath says, mostly due to the ‘creative economy,’ which is constantly introducing new sets of assumptions and challenges changing the working environment, where new opportunities arise. However, “it’s almost impossible for a company to call it correctly every time. What matters, though, when you have been taken by surprise or something negative occurs, is what you do next. The best firms look candidly at what happened, figure out how to do it better the next time, and move on.
It’s a bit like surfing a wave—you might fall off and find yourself embarrassedly paddling back to shore, but great surfers get back on that board; so too with great companies. They move from wave to wave of competitive advantages, trying not to stay with one too long because it will become exhausted, and always looking for the next one.”
2.2. Corporate entrepreneurship 2.2.1. Various definitions
Corporate entrepreneurship has long been recognized as a potentially viable means for promoting and sustaining corporate competitiveness (Covin & Miles 1999). According to Zahra & Covin (1995), CE is the sum of a company's innovation, renewal and venturing efforts. Morris and Kuratko (2002) indicate that CE represents a framework for the facilitation of ongoing change and innovation in established organizations. It provides a blueprint for coping effectively with the new competitive realities that companies encounter in today’s global marketplace.
Terms such as “intrapreneurs”, “those who take hands-‐on responsibility for creating innovation of any kind within an organization” (Pinchot 1985), and “corporate entrepreneurship,” which “…encompasses the birth of new businesses and the transformation (or rebirth) of organizations through a renewal of their key ideas”
(Burgelman 1983), have been used to define and describe intrapreneurship.
Moreover, corporate venturing (CV) (MacMillan 1986) and internal corporate entrepreneurship (Jones & Butler 1992) also played an important role in describing the phenomenon, but the consensus on the concept of intrapreneurship is that it involves creating value and developing opportunity through innovation via human and capital resources (Özdemirci 2011).
Other definitions of CE focus more on new products and new markets (Jennings &
Lumpkin 1989), where new product innovation is seen as an important activity in established businesses (Miller 1983; Zahra 1993; Shane & Venkataraman 2000).
2.2.2. Innovation and entrepreneurship
Innovation and entrepreneurship have been closely linked since the Austrian economist Schumpeter (1942) highlighted the force of the ‘creative destruction’ process that characterizes innovation. The idea contained in this seemingly paradoxical expression is that the emergence of new innovative activities often puts other existing companies and activities (which, comfortably established in their sector, have not managed to adapt their products, services or technologies) in a difficult position, or may even lead them to disappear (Fayolle & Basso 2010). According to Schumpeter (1934), entrepreneurs constitute the main engine of this ‘creative destruction’ process, by identifying opportunities that the actors in place cannot see, and by developing technologies and concepts that give birth to new economic activities.
Innovation usually requires a strong organizational commitment to engage in and support new ideas, novelty, experimentation, and creative processes that may result in new products, services or technological processes (Lumpkin & Dess 1996).
2.3. Dimensions supporting corporate entrepreneurship
Empirical data linking CE and ship management is scarce, however existing literature suggests there are three broad dimensions supporting corporate entrepreneurship in general: internal factors, external factors, and characteristics of employees related to corporate entrepreneurship (Srivastava & Agrawal 2010). Only the first two will be addressed in this paper.
2.3.1. Internal factors supporting corporate entrepreneurship
Researchers (Kuratko et al. 1990) developed a framework (the Intrapreneurial Assessment Instrument) consisting of several items hypothesized around six factors, which summarized the concept of entrepreneurship in organizations. These factors were: management support for corporate entrepreneurship, which relates to willingness of managers to facilitate entrepreneurial behavior and projects; rewards, considering aspects like goals, feedback, individuals’ responsibility, and results;
resource availability, where employees must perceive the availability of resources for innovative activities; organizational structure and boundaries; risk taking indicating that management must have a willingness to take a risk and have a tolerance for failure should it occur; and time availability. However, after a thorough investigation and multiple interviews with executive managers, the researchers concluded that the results of their study supported only five of the factors: management support, organizational structure, rewards, resource availability and risk-‐taking.
Other researchers (Joseph 2004) suggested even more factors (7 factors) for a successful entrepreneurial organization: risk awareness and opportunity focus, safe and free environment for employees to experiment collaboratively, accepting change and ambiguity, empowering employees, flexible network of systems connecting employees, reward and motivation to encourage innovation, providing opportunities for individual and team growth.
The most common factors supporting corporate entrepreneurship (Srivastava &
Agrawal 2010) considered by the majority of the researchers can be observed in Table 1 below.
Table 1 -‐ Common internal factors supporting CE
Factors Citations
Rewards and Motivation Fry, 1987; Block & Ornati 1987
Management Support Hisrich and Peters, 1986; Sykes and Block, 1989; MacMillan et al. 1986;
Resource Availability Von Hippel 1978; Hisrich et al. 2005; Katz and Gartner, 1988; Damanpour, 1991 Organizational Structure Hisrich and Peters, 1986; Schuler, 1986;
Bird, 1988; Sykes and Block, 1989;
Risk Taking MacMillan et al. 1986; Bird, 1988;
2.3.2. External factors supporting corporate entrepreneurship
CE is not only a result of the internal climate and support of entrepreneurship orientation (Sebora & Theerapatvong 2009). All organizations innovate in response to their environments (Damanpour 1988). Competitive forces influence how organizations view their markets and configure their product development and delivery technologies in response (Pfeffer & Salancik 1978; Lengnick-‐Hall 1988). Moreover, the regional macro structure of a certain market, consisting of local institutions, public policies and culture might have a great influence on the type, quality and quantity of entrepreneurship. “Over time, firms develop strategic patterns (i.e., streams of actions) and positions (i.e., specific competitive postures within an environment) that reflect the alignment and arrangement decisions they make” (Mintzberg 1987).
2.4. Shipping and world trade
The international shipping industry is responsible for the carriage of around 90% of world trade. Shipping is the lifeblood of the global economy. Without shipping, intercontinental trade, the bulk transport of raw materials, and the import/export of affordable food and manufactured goods would simply not be possible.
Ships are technically sophisticated, high value assets (larger high-‐tech vessels can cost over US $200 million to build), and the operation of merchant ships generates an estimated annual revenue of over half a trillion US Dollars in freight rates (the price at which a certain cargo is delivered from one point to another).
Seaborne trade continues to expand, bringing benefits for consumers across the world through competitive freight costs. Thanks to the growing efficiency of shipping as a mode of transport and increased economic liberalization, the prospects for the industry's further growth continue to be strong.
There are over 50,000 merchant ships trading internationally, transporting every kind of cargo. The world fleet is registered in over 150 nations, and manned by over a million seafarers of virtually every nationality.
Among the top 35 ship-‐owning economies, there are 17 in Asia, 14 in Europe and 4 in the Americas. Practically half of the world tonnage (49,7 %) is owned by shipping companies from just 4 countries – Greece, Japan, Germany and China (Asariotis &
Benamara 2012). Appendix 3 -‐ Table 12 depicts the major ship-‐owning countries and their market share. It is common in shipping that vessels operate under a different flag than the nationality of the owner, in order to reduce operating costs or avoid the regulations of the owner’s country.
The flag state has the authority and responsibility to enforce regulations over vessels registered under its flag, including those relating to inspection, certification and issuance of safety and pollution prevention documents. As a ship operates under the laws of its flag state, these laws are used if the ship is involved in an admiralty case (also referred to as maritime law -‐ a distinct body of law which governs maritime questions and offenses).
In Appendix 3 -‐ Table 13 the most preferred flags of registration by the owners can be seen, along with their market share and percentage of vessels owned by foreign owners for each flag of registration.
From a commercial and regulatory point of view, size and type of ships are two key criteria upon which maritime institutions classify the ships. For the scope of this research, I chose to include only the biggest and most used types of ships and briefly explain their function (see Table 2).
Table 2 – Main types of ships and their function
Type of ship Ship function Container
ships They carry most of the world's manufactured goods and products, usually through scheduled liner services.
Bulk carriers The workhorses of the fleet, these transport raw materials such as iron ore and coal. Identifiable by the hatches raised above deck level which cover the large cargo holds
Tankers They transport crude oil, chemicals and petroleum products. Tankers can appear similar to bulk carriers, but the deck is flush and covered by oil pipelines and vents
General
cargo ships They carry packaged items like chemicals, foods, furniture, machinery, motor and military vehicles, footwear, garments, etc.
The top 10 ship-‐owning countries heavily use these 4 types of ships, but as seen in Figure 1 each country emphasizes on different types of vessels, mostly because their interests vary, but also due to economic factors (country’s resources, geographical position and so on).
Container Dry Bulk Tankers General Cargo 0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
35.0%
40.0%
Greece Japan German
y China Korea United
States Norway Denmar
k Singapor e Hong
Kong Container 6.8% 8.8% 37.0% 6.3% 3.2% 1.5% 0.3% 8.8% 3.3% 2.2%
Dry Bulk 19.9% 22.7% 4.8% 14.0% 6.3% 3.1% 1.4% 1.1% 2.0% 4.5%
Tankers 20.8% 12.5% 4.6% 5.2% 2.8% 5.0% 3.4% 3.4% 3.9% 3.0%
General Cargo 2.4% 12.4% 13.3% 11.0% 2.3% 1.0% 12.0% 1.1% 1.4% 1.8%
Figure 1 -‐ Top 10 countries of ownership by main vessel types (DWT as%, January 2012 estimates)
Adding the numbers from Figure 1 for each type of vessels, we find that the total market share of the top 10 countries of ownership represent somewhere in between 58-‐78% of the global sea trade (see Appendix 3 -‐ Figure 8).
As shipping has become a global transport system capable of moving millions of tons of cargo and thousands of passengers safely, efficiently and in an environmentally friendly manner each day – not to mention that it does so at a fraction of the cost required by other modes of transport – seafarers play a vital role. They operate the world’s shipping fleet, thus making international trade and the global economy utterly depend on their services. Seafarers are, in effect, the lubricant without which the engine of world trade would not run (or nearly as well as it does).
The OECD countries (North America, Western Europe, Japan etc.) remain an important source for officers, but growing numbers of officers are now recruited from the Far East and Eastern Europe.
As with previous years the Philippines was found to dominate the global seafarer labor
market, with almost 28% of the sample holding Filipino nationality (Ellis & Sampson
2008). Russians, Indians, Ukrainians, and Chinese nationals all constituted a similar
proportion of the sample (between 6 and 7 %) followed by Turkey, Indonesia, Poland,
Shipping is the safest and most environmentally benign form of commercial transport according to International Maritime Organization (IMO). Perhaps uniquely amongst industries involving physical risk, commitment to safety has long been seen as a very important factor for sea shipping operations. Shipping was amidst the very first industries to adopt widely implemented international safety standards.
Because of its inherently international nature, the safety of shipping is regulated by various United Nations agencies, in particular IMO, which has developed a comprehensive framework of global maritime safety regulations.
There has been a substantial reduction in marine pollution over the last 15 years, especially with regard to the amount of oil spilled into the sea, despite a massive increase in world seaborne trade.
2.4.1. Ship management
Operating a ship—not to mention a fleet of ships—takes a great deal of resources, knowledge and expertise. There are cargoes to manage, regulations to meet, maintenance schedules to consider, crew to employ and a whole host of other jobs that collectively constitute ship operating.
Ship management, as an adjacent sector of the shipping industry, takes on some or all of those operational activities, leaving a ship owner free to pursue other business aims, for example expanding the business. Whether a ship owner decides to manage its ships internally, or outsources the tasks to a third party ship manager, the same operational needs must be covered.
The role of third party ship management
In recent decades, the ownership of the world’s merchant fleet has become more diversified. On the one hand, there are the independent ship owners who have their own vessel operating capability. And on the other hand there are investors, banks and leasing companies, which also own ships but lack the necessary expertise to operate them. In some cases cargo owners also choose to own or control a portfolio of tonnage themselves, partly as a strategy to hedge risk.
Such owners often enlist the assistance of third party ship managers who specialize in ship operation and usually offer a range of different management packages, from crew management and technical assistance, through to full commercial management. Many ship managers also offer other shipping services such as broking (specialist negotiators between ship-‐owners and charterers who use ships to transport cargo), ship agency (the provision of services to a vessel whilst in port), maritime information technology and other consultancy functions, which will be further discussed in this paper.
Using the third party ship manager’s economies of scale and resources can help owners
cut costs. An owner of perhaps just a few ships might not be cost-‐effective running with
a large in-‐house management team and might not have a high bargaining power either.
Thus, placing a small fleet with a sizeable ship management company will generate the advantages of being with a large fleet.
Third party ship managers also bring an expertise, which can help improve cash flow benefits and keep the fleet in employment through careful ship selection, good relationships with charterers and preventative maintenance. Today, around a quarter of the world’s internationally trading fleet is reliant on services provided by third party managers
Development of third party ship management
Before 1980 -‐ Third party ship management was an almost unknown concept. There were practically no agreed rules, standard contracts or case law around the concept of outsourced management.
1980s – The ship management sector begins to take shape and assume the form we know today
1990s – This period was vital for the advancement of third party ship management, due to increasingly commoditized ship owning, in particular increased participations of non-‐traditional ship-‐owners. Oil Pollution Act of 1990 (OPA90) and many other new requirements/conventions were introduced, ever increasing demands on the operators of the vessels. The fast growing global fleet, experienced a rise in wage levels in the West, thus a crisis on the supply of seafarers emerged. Bigger ship managers were better able to handle recruitment and training. At the end of this decade, economic fluctuations and crisis took place in almost all freight markets, leading to greater and greater focus on the expenditure side.
Today – Third party ship managers range from very small units with 10-‐25 employees operating 10-‐15 ships to very large companies employing over 1000 staff and managing 500-‐800 ships. The ship management market is highly fragmented with approximately 450 players in the world, of which only a handful have more then 200 ships under management. The main centers for ship management are in order of size: Hong Kong, Singapore, Cyprus and Hamburg. Many of the larger ship managers have established offices in several of these ship management capitals. Ship managers enjoy relatively long term, stable income throughout the ship’s life, acting as a necessary element of
stability.
3. Research process
In this section, the methodology used to conduct this research is presented. The chosen approaches will affect both the collection and interpretation of information. Accordingly, the methods are described and criticized.
3.1. Methods
In this thesis, the methodology used is a case study (CS). The CS approach is suitable for studying and increasing the understanding of complex, longitudinal phenomena, such as sustained value creation. Of course, generalizability of the results is not suggested in a statistical sense. Rather, the aim with this interpretive study is to achieve analytical conclusions based on a set of results and contribute to the existing literature. Collecting data through more than one method and/or methodology can result in a richer view of the studied phenomena.
In this case, the thesis is using three methods to collect data.
First, observational technique along with reviewing relevant documents was used for building up the background of the company, but also for understanding the business dynamics.
Second, a survey was used as a preliminary tool for determining the potential shortcomings and/or barriers of CE, but also uncover divergent views, if any, over the company’s main strategies, culture and procedures at the upper and middle management levels. This was based on a survey developed for practitioners to improve management of business models (Achtenhagen et al. 2013). It supports the self-‐
reflection of managers on how to achieve sustained value creation through shaping, adapting and renewing the business strategies. The survey attempts to reflect the inherent complexity of grasping and understanding relevant components of driving business innovation, development and change. “To what extent” questions were used (see Appendix 1 – Table 9).
Third, in-‐depth, semi-‐structured interviews were conducted to secure a better understanding of the studied phenomena. They were mostly based on the results of the survey and focused on the topics where divergent views arose. Additional CE-‐related questions were used. A sample of questions can be seen in Appendix 2 – Table 11.
Combining these three, an enriched view of the business was obtained.
According to Gable (1994) interviews and surveys could complement each other in their strengths/weaknesses:
Table 3 -‐ Strengths of in-‐depth interviews and surveys
