Strategies for Asia-Pacific Shipping

Jeff Hawkins, Richard Gray

• Publisher: Taylor & Francis
• Year: 2019
• Print ISBN: 9781138738362
• eBook ISBN: 9781351732321
• Edition: 1
• Topic: Social Sciences
• Subtopic: Sociology
• Index: Social Sciences

This title was first published in 2000. This text focuses on one geographical and economical area - the Asia-Pacific region, on one type of decision makers - commercial shipowners, and on one type of business strategy - corporate level strategy, to show economic change and how organizations manage that change. This book discusses the challenges that shipowners face to take advantage of that growth. It also looks at the lack of information on strategic decision making that could assist the shipowners in taking advantage of the economic situation. The chapters cover the types of business strategies available and how to select the criteria for selecting one of those strategies.

1 Introduction

Background

Over the past several decades, the rapid globalisation of the market place has intensified competition within the already competitive shipping industry. This is particularly true in the Asia-Pacific region, which is predicted to dominate international trade in the twenty-first century. It is a certainty that with this dynamic growth in trade will come an increased demand for shipping services. Asia-Pacific shipowners intent on taking advantage of this growth and successfully competing in the market place will require a strategic approach to the way they manage their organisations. Research suggests that strategy is the single most important factor leading to a firm's success or failure. A shipowner's choice of strategies, therefore, will be critical to its long-term market success.

The strategic management literature offers a wide range of strategy selection models but serious doubts have been raised over the applicability of these models to shipowners in general and Asia-Pacific shipowners in particular. Much of what is known about strategy is drawn from manufacturing industries; very little comes from the service industries, and even less from the maritime industry. Shipping-based research on strategy selection is limited, and very little is known about shipowners' strategic decision making behaviour. Practical tools to guide and inform shipowners in their strategy selection are also seriously wanting.

Criticism of existing strategy selection models highlights the general lack of empirical support for such models. Most have not undergone any empirical testing to establish their utility and reliability in enhancing an organisation's strategic decision making. Furthermore, although most models assume a generic nature, claiming broad applicability across businesses and industries, there is very little empirical evidence to support this claim. Indeed, there is growing evidence to the contrary.

These limitations to our current knowledge of strategy selection require greater scrutiny and examination. If we are fully to understand the application and effectiveness of strategy in a service industry like shipping, particularly in the context of a rapidly growing economic region like the Asia-Pacific, then it is critical that we learn more about how shipowners in the region actually make strategic choices. What factors do they consider when making strategic choices? What process do they follow to select and evaluate strategies? How does this behaviour compare with current theory on strategy selection? These are questions that this book aims to answer. Based on the results, a strategy selection model applicable to Asia-Pacific shipping is developed.

The importance of strategy

The study of strategy lies within the domain of strategic management, which has emerged as an important new discipline within the general field of management. In the last two decades, there has been a steady build-up in our knowledge of the subject, both in terms of theory and empirical evidence. Literature reviews conducted during that period (Snow and Thomas, 1994; Lyles, 1990; Morris, 1986, 1987; Thomas, 1984) show a steadily maturing field where conceptual and methodological debates continue to enrich and advance current understanding of strategic management. After more than two decades of research, there is now a substantial body of evidence to show that organisations practising strategic management tend to outperform those that do not (Collis and Montgomery, 1997; David, 1997; Hussey, 1994; Miller and Cardinal, 1994). The groundwork was laid by a number of studies conducted in the 1960s and 1970s (e.g. Wood and La Forge, 1979; Karger and Malik, 1975; Herold, 1972; Schoeffler et al 1974; Ansoff et al 1971; Eastlack and McDonald, 1970; Thune and House, 1970).

Thune and House (1970) carried out a study in 1965 to examine the performance of a number of companies over a 7-15 year period (i.e. since the introduction of formal planning in each company). They found that those who planned outperformed those that did not on three counts: earnings per share, earnings on common equity, and earnings on total capital employed. They also found that planners outperformed themselves based on records prior to the introduction of planning. Herold (1972) extended the study and also found that companies that planned outperformed those that did not. Other studies have provided further supporting evidence. Eastlack and McDonald (1970) studied 211 companies, 105 of which were among the Fortune 500. They concluded that CEOs who used strategic management concepts headed companies with the fastest growth rates. The following year, Ansoff et al (1971) examined the strategic decisions made by 93 companies regarding acquisitions over a 19-year period (1946-65). They found that on many financial and sales measures, as well as ability to predict the outcomes of planning activities, companies that used a strategic management approach performed better than those that did not.

Further proof was provided by Schoeffler et al (1974) whose study became popularly known as the Profit Impact of Marketing Strategy (PIMS) study. This study involved 57 firms in 620 different lines of business and analysed the relationships of a wide range of strategic activity variables and profitability. Results showed that the appropriate use of strategic management resulted in increased profitability. Similar results were obtained by Karger and Malik (1975) who studied 273 companies in the chemical, drug, electronics and machinery industries. They found that on a number of financial measures, firms which used strategic management methods outperformed those that did not. Wood and La Forge (1979) got similar results: their study of 60 large US banks showed that banks using comprehensive long-range planning methods had significantly better financial performance than those that had no formal planning system.

From these promising beginnings, knowledge of strategic management continued to advance. Studies not only focused on monetary variables but on more intangible organisational factors. Based on a review of the literature, Greenley (1986) identified fourteen benefits of strategic management, which David (1993) has summarised as follows:

1. It allows for identification, prioritisation and exploitation of opportunities.
2. It provides an objective view of management problems.
3. It represents a framework for improved co-ordination and control activities.
4. It minimises the effects of adverse conditions and changes.
5. It allows major decisions better to support established objectives.
6. It allows more effective allocation of time and resources to identified opportunities.
7. It allows fewer resources and less time to be devoted to correcting erroneous or ad hoc decisions.
8. It creates a framework for internal communication among personnel.
9. It helps to integrate the behaviour of individuals into a total effort.
10. It provides a basis for the clarification of individual responsibilities.
11. It gives encouragement to forward thinking.
12. It provides a co-operative, integrated and enthusiastic approach to tackling problems and opportunities.
13. It encourages a favourable attitude towards change.
14. It gives a degree of discipline and uniformity to the management of a business (p. 19).

Yoo and Digman (1987) further add that because the strategic management process results in increased employee satisfaction and provides more timely information to key decision makers, decision making becomes faster, more reliable and less costly to the organisation.

Simply applying the strategic management concept is no guarantee for success, however. As a number of reviews and research studies point out, not all companies using strategic management have achieved significantly higher financial performance. However, they attribute this failure to errors in the application of the concept, rather than in the concept itself (Miller and Cardinal, 1994; Fredrickson, 1984; Fredrickson and Mitchell, 1984; Schellenberg, 1983; Kudla, 1980; Grinyer and Norburn, 1975).

Overall, there has been a significant increase in the popularity and usage of strategic management over the years (Porter, 1980). About a decade ago, it was estimated that 75 per cent of all companies in the United States were using strategic management techniques, compared to less than 25 per cent in 1979 (Allen, 1985). Today, application has become more global, with strategic management concepts continuing to be applied to a widening range of businesses and industries in various parts of the world, and new models developed or old ones refined as a result of ongoing research in the area.

Limitations of strategy selection models

Leading management thinkers agree that strategic management is particularly essential to those industries subject to higher levels of uncertainty and risk, and that if applied well, it can help such industries adapt to their environments more effectively (Ansoff, 1984; Simon, 1976; Drucker, 1974). As reviews of the literature show, research into the area largely substantiates this argument (Miller and Cardinal, 1994).

Shipping is one industry, which clearly falls under the high-risk, high-uncertainty category (Lorange and Norman, 1972; Hope and Boe, 1981). As Frankel (1989) points out, this is even truer today than in the past:

Shipping and ports are today affected by larger uncertainties and risks than ever before. These risks include not only market risks, but uncertainties in terms of financing, ship and port technological and operational restrictions, terms of business, competition, control, and many more. On the other hand, commitments of financial or other assets and resources to ports and shipping remain long term and are usually very large in relation to cash flow turnover. As a result, it is more important than ever to [select and] evaluate alternative strategies for the determination of tactics which maximise the chances of success (p. 123).

Unfortunately, Frankel's call for more effective ways of selecting and evaluating strategies remains largely unanswered in the shipping literature. Research in various industries shows that strategy is a major, if not the most major, determinant of a firm's success or failure (e.g. Rumelt, 1991; Kruger, 1989; Robinson and Pearce, 1988). However, there is very little evidence of the practical application of strategic management concepts to shipping, much less of conceptual models specifically designed to guide the industry in its choice of strategies (Hawkins, 1993).

This is not to say, however, that there is a dearth of strategy selection models. The general literature on management and business offers a wide range of models (see, for instance, Pearce and Robinson, 1997), but the applicability of many of these models is under serious question. An increasing number of researchers and practitioners have cast doubt on the generic nature of these models, questioning the validity of the assumption that they can be uniformly applied to all industries. Criticism has tended to focus on four problem areas: lack of research drawn from the service industries in general and commercial shipping in particular, lack of empirical support for strategy selection models, problems with methodological rigour, and lack of a global/international research focus.

Most strategy models are based on manufacturing industries, whereas research suggests that what applies to manufacturing does not necessarily apply to service industries (Schellenberg, 1983; Hambrick, 1983; Thomas, 1979). Schellenberg (1983) notes that

applying some supposedly all-purpose or universal [concepts] to the whole range of entirely different types of companies in entirely different industries is virtually destined to result in a list of business strategy failures; indeed, universal concepts of strategic management have to be tailored to each industry and organisation type. Blanket application can only result in less than optimal results (p. 4).

There is some empirical evidence that shipping sectors do use strategy selection models (Wong, 1991; Harvey, 1987), but it is not known whether such models have been used 'as is' or modified to fit individual needs, and whether usage has led to better performance.

Another major criticism is the lack of empirical data to validate models. Many models have been built from conceptual constructs which have little supporting empirical evidence to demonstrate whether they do work and how effectively. In their review of typologies of strategies in the early 1980s, Galbraith and Schendel (1983) noted that:

in general, ... classifications of strategy types have been conceptual constructs derived from appropriate dimensions taken from theory without much empirical support beyond perhaps some grounding in case studies and anecdotal accounts of competitive activity. Although important insights regarding strategic behaviour have been gained in this manner, the validity of any typology is enhanced if empirical support could be provided (p. 155).

Since then, other empirical studies have been conducted to validate typologies of strategies across different business settings (Herbert and Deresky, 1987) and industries (Schellenberg, 1983). However, empirical support from the maritime industry has yet to be provided.

A third area of criticism revolves around methodological problems. Citing Hambrick (1980), Herbert and Deresky (1987) attribute the lack of empirical support for strategy selection models to 'methodological difficulties in identifying and measuring business-level strategy, for which no generally accepted approach has been developed' (p. 136). The same is true with corporate-level strategies. Referring to portfolio models in particular, which are used to evaluate corporate-level strategies, Wind and Mahajan (1981) argue:

[Although the] importance of the measurement aspect of portfolio analysis is evident from a cursory examination of the diverse dimensions and definitions various approaches use ... surprisingly, most of the literature on portfolios has focused not on the fundamental issues of definition and measurement but on the selling of one approach over another and on the strategic implications of, for example, the 'dog' or 'cash cow' status of a certain product (p. 157).

More recent reviews of the literature (Snow and Thomas, 1994; Lyles, 1990) also point to the minimal attention paid to the development of valid and reliable measures of key strategy constructs. In addition, they also highlight a growing concern over the dominance of quantitative approaches to the study of strategy and the need for a better balance in the choice of research topics, methods and perspectives. While quantitative approaches may provide greater objectivity and reliability, they have not been able to explain many important, more complex organisational realities. Within the field, therefore, there are now calls for multi-method approaches, where quantitative and qualitative methods can be used in the same study to facilitate a fuller and richer examination of complex and dynamic strategic issues.

Another problem inhibiting strategic management research has been a lack of an international or global research emphasis. Such issues as international competition and global strategies, although considered critical in today's world, did not become a research focus until recent years. For example, Hamel and Pralahad (1985) wrote:

The threat of foreign competition preoccupies managers in [various] industries ... [but] corporate response to this threat is often misdirected and ill timed—in part because many executives don't fully understand what global competition is. [Unfortunately, they] haven't received much help from the latest analysis of this trend ... [The] current perspective on global competition and the globalisation of markets is incomplete and misleading. Analysts are long on exhortation—'go international'—but short on practical guidance (p. 139).

Five years later, after reviewing articles published from 1986-89 in leading management journals and interviewing established researchers in management in the US, Lyles (1990) concluded that although global competition was the 'top issue of the day', little research had been done on the area. She found that international competition and multinational strategies were the topics identified as being the most relevant to practising general managers. They were also the topics having the most impact on strategic management research in the 1990s and beyond. However, none of the recent major research studies, which were widely regarded as having the most impact on strategic management thought in the 1990s, applied to international or global strategies. Further, very few of the experts surveyed were actually involved in this research area.

During the 1990s, there was a growing effort to rectify this lack of a global or international research perspective, as evidenced by an increasing number of publications on the topic (see, for instance, Chry...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• Figures and Tables
• Acknowledgements
• 1 Introduction
• 2 Asia-Pacific shipping
• 3 Strategic management
• 4 The content of strategy
• 5 Strategy selection models
• 6 A strategy model for Asia-Pacific shipping
• 7 Corporate strategy of Asia-Pacific shipowners: survey and interviews
• 8 Corporate strategy selection by Asia-Pacific shipowners: simulation
• 9 A new shipping-based strategic choice model
• 10 Conclusions
• Bibliography
• Index