Shipbuilding Industry

For the ship and boat building industry I’m going to analyze it globally so I can compare the most important companies that are from different countries. I should also say that there are two different groups of this kind of industry: one that is more focused to B2B or those that are going to be sold to transportation companies, and a second group that is basically B2C, for personal use in leisure time. This second group involves companies most known by people that has a boat or just like them.

B2B group| B2C group|Hyundai heavy industries competitors: * Aker Solutions * General Dynamics * Samsung Heavy Industries * Daewoo Shipbuilding & Marine Engineering (DSME) * STX Shipbuilding * Hanjin Heavy Industries * Emarhavil Heavy Industries * ABB * Caterpillar Inc| Most popular shipbuilding companies: * Bénéteau (Fance) * Jeanneau (France) * Quicksilver (Belgium) * Bavaria Yatchs (Germany) * Rio (Spain) * Rodman (Spain) * Sea Ray (USA) * Sunseeker (UK) * Astondoa (Spain) * Bayliner (USA) * Cranchi (Italy) * Faeton (Spain) * Sessa (Italy) * Glastron (USA) * Lema (Spain) * Zodiac (France)|

Porter’s 5 forces analysis:

* Threat of New Entrants

1. Do you have a unique process that has been protected?NO. There is not a patent on any of the processes that involve shipbuilding. Anyone with specific knowledge is able to build ships and boats if having the necessary materials and workforce.

2. Are customers loyal to your brand?NO. There are a lot of brands competing in this industry, so customers take the brand that offers them a ship with the features they are looking for. 3. Are there high start-up costs for your business?

YES. To start a business in the shipbuilding industry it is necessary massive capital investment to set up a fully equipped shipyard. 4. Are the assets needed to run your business unique?

NO. The assets needed could be converted to construct other kind of machinery. 5. Is there a process or procedure critical to your business? YES. It is necessary a workforce with specific knowledge, like naval engineers, to develop the shipbuilding process. 6. Will a new competitor have difficulty acquiring/obtaining needed inputs? YES. The most important input is the massive initial capital investment. Then there is also the contact with suppliers and government agencies. 7. Will a new competitor have any difficulty acquiring/obtaining customers? YES.

The market is in a grown phase, and even it can grow more, it would be very difficult for a new company to acquire customers because of the high number of existing shipbuilders with high reputation. 8. Would it be difficult for a new entrant to have enough resources to compete efficiently? YES. Because of the cost-efficient level of production in this industry, a new entrant would need a lot of time to be competitive compared to the existing ones.

The threat of new entrants is LOW. The entry barriers for this industry are very high due to the huge initial investment, the amount of already existing companies and the difficulty in the distribution channel.

* Rivalry Among Competitors

1. Is there a small number of competitors?NO. There are a lot of companies that have been for years in the industry, and their experience and benefits make them even more powerful. 2. Is there a clear leader in your market?NO. Even the Chinese companies are on the top; the other companies are still very competitive in the industry. 3. Is your market growing?YES. It is growing but not with new entrants. It is growing because the existing companies are working hard to improve the features in the ships, actualizing them to be more efficient and environment respectful. We can also find that in the last years some of them have increased their revenues. 4. Do you have low fixed costs?

NO. The shipbuilding companies need a constant expenditure in workforce and raw materials to develop their activity.

5. Can you store your product to sell at the best times?NO. It is better for this industry to manufacture on demand; it is very difficult to store ships because it requires a huge storage place that means high expenses. 6. Are your competitors pursuing a low growth strategy?

NO. Competitors are investing in new technologies to grow even faster. 7. Is your product unique?NO. Ships are very similar between companies. 8. Is it easy for competitors to abandon their product?NO. The exit costs for the shipbuilding industry are very high due to the entire expensive infrastructure available. 9. Is it difficult for customers to switch between your product and your competitors’? NO. It is very easy for customers to change from one brand to another if convenient. They take into account the price, the delivery and quality.

Rivalry among competitors is HIGH. We have to consider two different kinds of competition in this industry; the one between countries and the other one between companies in the same country. Anyway, rivalry is in both cases very high because losing one client to your competitor means losing a huge part of the revenues. It is also high because of not too many companies in the shipbuilding sector, which make the rivalry even more intense.

* Bargaining Power of suppliers

1. Are there a large number of potential input suppliers? YES. The input supplies needed are raw materials like metal and parts for the ships. There are a lot of factories supplying this kind of materials. 2. Are the products that you need to purchase for your business ordinary? NO. The products needed are specific metals or parts for the ships and boats. 3. Do your purchases from suppliers represent a large portion of their business? YES. Because of the dimensions of a ship, the materials acquired (like steel) can represent a huge portion for a metal supplier.

4. Would it be difficult for your suppliers to enter your business, sell directly to your customers, and become your direct competitor? YES. The suppliers only have the materials but not the knowledge nor the technology to become a direct competitor. 5. Can you easily switch to substitute products from other suppliers? YES. The switching cost of suppliers it’s very low. It just depends on finding another company that can supply raw materials (metals). 6. Are you well informed about your supplier’s product and market? YES. It is also possible to import the materials from other countries.

The bargaining power of suppliers is LOW. The shipbuilding industry has a high power over suppliers because it is not a specific or hard to find material.

* Bargaining Power of Buyers

1. Do you have enough customers such that losing one isn’t critical to your business? NO. There are few buyers in this kind of industry.2. Does your product represent a small expense for your customers? NO. Losing one customer means loosing a huge part of the revenues because they usually make a big expense on the company products. 3. Are customers uninformed about your product and market? NO. Customers are knowledgeable about ships and boats so they consider and compare a lot of aspects before buying. 4. Is your product unique?

NO. There are a lot of other companies making the same product. 5. Would it be difficult for buyers to integrate backward in the supply chain, purchase a competitor providing the products you provide, and compete directly with you? YES. They should do a huge investment to be able to achieve benefits and become a direct competitor. 6. Is it difficult for customers to switch from your product to your competitors’ products? NO. The switching costs of customers are very low, taking into account that they can buy from a lot of other companies, even being in other countries.

The bargaining power of buyers is HIGH. Each buyer represents huge revenue and they have a lot of other options from the competitors. Because of being an expensive product, they are very sensitive to price, quality and delivery.

* Threat of Substitutes

1. Does your product compare favorably to possible substitutes? YES. Supposing the airplane as a substitute, shipbuilding industry involves a lower cost compared to it. 2. Is it costly for your customers to switch to another product? YES. Switching to airplanes would mean an increase of the cost for the customers. 3. Are customers loyal to existing products?

YES. They keep using ships and boats because it satisfies their needs.

The threat of substitutes is LOW. If we are considering airplanes as a substitute, it is not a threat because it can’t develop the tasks that are being done with the ships (like the transportation on huge amount of material or big volume ones), or not even a substitute for those who use ships and boats for leisure time.

I can conclude saying that it is not an attractive industry to enter because of all the difficulties mentioned above, like the massive initial investment, the difficulty of localization and the government laws. Even though it is an industry that has a lot of benefits, a new entrant would need a lot of time to establish it self and achieve those positive earnings, partly due to all of the already existing companies in the sector. References