COMPETITION IN THE SHIPBUILDING INDUSTRY

Can the Korean shipbuilding giants sustain their

competitive advantage?

PRESENTED BYJianyang Ren, Mami Hirai, Min Chen, Min Ji Seok, Mohammed Hanane, Naima Samuel, Zhong Shanna, Olga Son, Peyanard Mahasuwan, Polawat Pupipat, Thotsapit Kamolvisit, & Uttam Mallick

FACILITATOR

Anh Nam Sung

1. Global Shipbuilding Industry Structure

2. Competitor’s Analysis

3. Shipbuilding Macro-environmental Analysis

4. Korean Shipbuilding SWOT Analysis

5. Korea’s Competitive Advan-tage

6. Summary

Introduction

Desired ShippingCapacity

World Economy GAP

Current ShippingCapacity

ShipbuildingOrder Rate

Shipbuilding

++

+

+-+

-

B

B

Ship Building Industry has a Close Relationship with Shipping Industry, which depends on World Economy

Shipbuilding Industry History

USA

UK

W. Europe

Japan

Korea

China

Source: KOSHIPA

~ mid 19C

Mid 19C ~ WW2

WW2 ~ 1950s

1950s ~ mid 1990s

Mid 1990s ~ present

From 2000s

First iron and steel hulls

Welded steel ships

block construction

Modular design

Open-type and Double hull VLCC

Korean Shipbuilding Industry History

1960s

Export ships – Hanjin Heavy Industries

1970s

Very Large Crude Carriers – HHI, SHI,

DSME

1980s

#2 in World ranking, shipyards

1990s

#1 in World ranking, new orders

2000s

#1 in World ranking, STX, SHI, DSME, HHI

High-value added ships

Source: KOSHIPA

20052006

2008

0%

20%

40%

60%

80%

100%

31% 38% 51%

20%30%

34%21%11%

6%22% 14%4%

6% 7% 6%

Korea China Europe Japan Others

Korea 1,240 GT

1. Hyundai Heavy Industries (HHI)2. Samsung Heavy Industries (SHI)3. Daewoo Shipbuilding & Marine Engineering (DSME)

China 840 GT

1. Dalian Shipbuilding Industries2. Shanghai Waigaoqiao Shipbuilding Industries

Japan 90 GT

1. Mitsubishi Heavy Industries2. Tsuneishi Corporation

www.clarksons.com

2,694 GT 3,060 GT 2,450 GT

World shipbuilding production by countries

INDUSTRY STRUCTURE

Industry Rivalry

Barriers to Entry

Bargaining Power of Buyer

Threat of Substitute

s

Bargaining Power of Supplier

• High barriers to entry• Huge capital investments

• Low bargaining power of suppliers• Price of raw materials• Vertical Integration (HHI, STX)

• High bargaining power of buyers•Demand vs Supply

• Very low threat of substitutes

• Intense rivalry

World shipbuilding production by Top10 shipyard

Sungdong Shipbuilding

Univesal Shipbuilding

Dalian Shipbuilding

Hyundai Mipo shipbuilding

Samsung Heavy Industries

0 5000000 10000000 15000000 20000000

244192226039603013563

30795913380429

46683994877129

8965768

10726338

17285660

Top10 shipyard CGT

Date by Dec 31th, 2007

INDUSTRY RIVALRY: CHINA

Competitive advantage in China Industry

• Low labor costs• Adequate supply of steel plate for ship, and lower prices• Supported by the Chinese government industry policy• Fast-growing demand from domestic market

Korea China Japan

0.00

5000.00

10000.00

15000.00

20000.00

25000.00

30000.00

35000.00

40000.00

Per Labor Cost USD/Per person per year

Challenges of China Shipbuilding Industry

•Structural design and technology•Insufficient capacity for producing high-value added ships•Exchange rate fluctuations and raw materials cost•Low productivity and quality of labor

Korea

China

Japan

0 20 40 60 80 100 120 140 160 180 200

Productivity dwt/Per person per year

MACRO-ENVIRONMENTAL ANALYSIS

POLITICAL/REGULATORY

• Government support• International Maritime Organization (IMO)

ECONOMIC

• Significant influence of exchange rate on profit• Growth influenced by economic growth

SOCIAL •Green technology requirement (anti-pollution rule by IMO)

TECHNOLOGY

• Technology innovation• Design• Process Improvement

INDUSTRY

Comparing Competitiveness of Technology

Item Compared Japan Korea China

Design Technique

Basic Design 100 95 80Detailed Design 100 105 60Production Design 100 105 60

Manufacturing Technique

Cut 100 95 70Jointing 100 90 70Fitting 100 90 60Hoisting 100 95 60

Management Technique

Cost Management 100 85 40Equipment Management 100 85 50

Production Management 100 90 40

HRM 100 85 60

http://www.istis.sh.cn/list/list.aspx?id=3426

Note: Japan-based index 100

SWOT ANALYSIS

WEAKNESS•High labor costs relative to competitors•Excess capacities

STRENGTHS• High technology• Reasonable price• On-time delivery• Economies of scale due to large scale production• Quality• Shorter cycle time• Brand power• Highly skilled HR

THREATS•High competition (China, Vietnam, India)•Rapid decrease in shipbuilding orders

OPPORTUNITY•M&A•Enter emerging technology markets

SWOT

Prod

uct D

iffer

entia

tion

Cost Leadership

VALUE CREATION FRONTIER CURVE

Carrier Builders Ocean Developers

COMPETITIVE ADVANTAGES

1.Technological Innovations

Offline welding robots (HHI)Multidirectional oil tanker (SHI)Eco-Friendly LNG-powered passenger boat (SHI)

•Decreased ship construction time and raised production efficiency

T-shaped dry-dock (HHI) Megablog (SHI)

COMPETITIVE ADVANTAGES

2. Efficiency

On-land Ship ConstructionSource : KOSHIPA

DAM Method

•Off-shoring to increase productivity

Source: KOSHIPA

•Human Resources development•Employment Structure & Shortage of Workforce

2008 2009 2010

Demand 14,214 14,370 15,130

Supply 12,167 12,172 12,179

Disparity -2,047 -2,198 -2,951

2. Efficiency

COMPETITIVE ADVANTAGES

Quality of Employees and New Product in Korean Industry are the main causes

to outperform competitors including China, while maintaining high efficiency

•Human Resources development

Revenue

SalesTalents in Industry

Quality of Product

New Product andNew Features

IT Infrastructure

Investment inR&D

+

++

+

+

++

+

R

R

• HHI – wind-facility plant, solar energy• SHI – green energy, wind-turbine• STX – offshore plants, and alternative energy• DSME – acquired DeWind Turbine

Alternative Energy

COMPETITIVE ADVANTAGES

3. Entry Into Emerging Markets

DYNAMICS (SUMMARY)

RevenueCost

Profit

Market Share

Price+ -

+

Investment inR&D

+

NewFunction/Product

Sales

+

+

Investment in ProcessImprovement

Design Technique/ProductFeature

Attractiveness ofProduct

+

+

+

+

+

-

New Entrants+

-

Total Market Size +

EconomicCondition

-

Investment inEmerging Technology

++

R

R

R

B

Time toMarket

Price Premium

-+

+ B

Economies ofScale/Learning Effect+

-

Referencewww.clarksons.com

www.researchandmarkets.com

nippon.zaidan.info

www.nacks.com.cn

www.istis.sh.cn

www.krs.co.kr/kor/file/Evolution%20of%20Korean%20Shipbuilding%20Industries-Technology%20Development%20and%20Innovation.PDF

www.koreaherald.co.kr/NEWKHSITE/data/html_dir/2009/11/26/200911260061.asp