‘GROWTH STRATEGIES FOR LOCAL INDUSTRIAL SEAPORTS’

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‘GROWTH STRATEGIES

FOR

LOCAL INDUSTRIAL SEAPORTS’

University of Groningen

Faculty of Economics & Business

Master Thesis

Business Administration: Operations & Supply Chains

November, 2012

Date submitted: 19.11.2012

Boris O. Becker

Student number: s1734857 beckboris@gmail.com Tel: 0644687410

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MSc thesis – B.Becker 3

Abstract

This thesis researches the applicability of contemporary port growth strategies for Local Industrial Seaports (LISPs). Compared to large scale ports, LISPs have a different resource and capability setting. A qualitative case study was made in order to get insights in how, internal and external factors, influence the economic growth of LISPs. The study broadens the scope of seaport literature towards smaller scale – local ports, and can aid management in strategic growth decision making. It is proposed that a differentiation strategic approach is a major way of achieving port growth in the present global economy – by highlighting a ports core capabilities and resources and influenced by the external environment. The study indicates that further empirical research into LISPs is needed, in order to test the validity of the strategy applicability propositions made.

Keywords:

Seaport growth, Local Industrial Seaports and growth strategies, Factors for growth. Supervisor: Prof. Dr. I.F.A. Vis

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List of tables

Table 1: Important characteristics of the three different port products 10

Table 2: Traditional and new current roles of port authorities 17

Table 3: The role of decisive factors in determining port approaches and frameworks of analysis 21 Table 4: Contemporary Growth Strategies from literature and in ports applied 22

Table 5: Possible Port Service Diversifications 28

Table 6: Summary of strategies and their pre-requisites needed 31

Table 7: Determinants for seaports as a place of business for industries and service provision 33

Table 8: Seaport Objectives and Stakeholders 35

Table 9: Factors influencing strategy choice: Growth Strategy- Factor matrix 43 Table 10: Selected Characteristics of the Ports of Eemshaven and Delfzijl in 1992 and 2010 49

Table 11: Summarizing Strategies Applied in Case Study and from Theory 64

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List of figures

Figure 1: Research Model 13

Figure 2: Research methodology 15

Figure 3: Overview Research Chapters 16

Figure 4: The relationship between resources, capabilities and competitive advantage 32

Figure 5: Regional European port networks 39

Figure 6: Map Eems Delta 47

Figure 7: Total Port Throughput in 2006 48

Figure 8: Cargo and Grounds Issued 1992-2010 Groningen Seaports 51

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Acknowledgements

I am sincerely and heartily grateful to my supervisor, Prof. Dr. Iris F. A. Vis, for the support and guidance she showed me throughout my thesis writing. I am sure it would have not been possible without her advice, patience and believe in a successful outcome. At times I found myself hold up, the motivation that I received from Prof. Dr. Iris F. A. Vis, from my sister Christine Becker, and several friends made me continue.

In the first stages of the thesis, I received feedback, input and ideas that gave me direction and showed up interesting and feasible research topics. I would like to express my sincere gratitude to my supervisor, but also to Simon K. Thunnissen, MA., and Dr. Hector J. Carlo for their support and participation in the feedback sessions. The good hints and immense knowledge provided by those individuals gave me a good start and helped me go more specific into certain literature.

I also would like to express thanks to Mrs. Zwerver and Mrs. Van den Dungen, for the practical insights from Groningen Seaports, and for their very informative and last minute availability to answer my questionnaires. I appreciate very much the fact that the idea for the thesis was based on the actual developments at Groningen Seaports and an accompanying research project directed by Prof. Dr. Iris F. A. Vis. This close involvement also enabled a broader perspective and gave a more tangible appeal to the thesis outcome.

Writing a thesis, in my opinion, is not only about the difficulty of gathering knowledge and combining sources with empirical results, but it is also an individual’s dedication, motivation, stamina and personal feeling; I encountered how hard it is to combine all those, to focus on what counts, to forget all external pressure and to accomplish an aim. I am thankful to who made me come so far to receive this opportunity and I am glad I eventually had the power and will to seize the opportunity, for the most part because there was support and faith.

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1. Introduction

If one does not know to which port one is sailing, no wind is favorable.

Lucius Annaeus Senecai;

1.1 What are local industrial Sea-Ports?

“Seaports are complex and dynamic entities, often dissimilar from each other, where various activities are carried out by and for the account of different actors and organizations. Such a multifaceted situation has led to a variety of operational, organizational and strategic management approaches to port systems” (Bichou & Gray, 2005). Nowadays seaports have very diverse activities, therefore, the notion of a ‘local industrial seaports’ needs to be clarified for further understanding. In literature, there is no existing definition of a ‘local industrial seaport’ [hereafter referred to: LISP]; However, a general definition for LISPs can be generated by combining different scientific sources. Dvorak, (2008) defines ‘Industrial ports as providing the shipment of cargos of low or medium value, directly from/to a ship and are usually part of a particular industrial transport system’. In this definition, commodities as oil or coal are included. One example of an industrial seaport is the ‘King Fahad Industrial Port Jubail’ in Saudi Arabia which handles only bulk cargo as it imports and exports products required or produced by local industries, such as Petrochemicals, Refined Petroleum Products, Chemical Fertilizers and Sulphur1. Unlike the previous example, seaports usually have a range of cargo/service types, e.g. ferry or passenger services and commodity transport; therefore a pure categorization is not valid with most seaports, but is useful to show a tendency what characteristics, but also what cargo or service type the port mainly handles, in order to achieve proper focus. LISPs therefore have the ‘manufacturing product’ as their core business (see Table 1).

Secondly, the attribute ‘local’ is derived from Stopfords’ classification of seaports as the second of four levels of port development, and indicates that investments in specific equipment (e.g. dry-bulk terminal, berths able to serve deep-draught ships) have been made, certain traffic levels are reached and warehouses and dry bulk storage terminals are in place. This research focusses on such ‘local’ seaports that have lower supply chain cargo throughput than third or fourth development level, which would imply a shift to more specialized terminals for containerized cargo (Stopford, 2009), e.g. Port of Ghent, or to

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larger scale operations e.g. as Port Jubail or the Port of Rotterdam. The objective of this paper is to research growth strategies for LISP’s that specifically have small-medium scale commodity and industrial ‘value added’ operations ( e.g. small-medium scale manufacturing processes located at the port) instead of acting as a throughput port (cargo-transfer – logistics product) in first place. The following Table shows the basic characteristics of the different type of port products as defined by De Langen, Nijdam, & Horst (2007), which will be helpful for further analysis.

Table 1: Important characteristics of the three different port products; Source: (De Langen, Nijdam, & Horst, 2007)

1.2 Importance of LISPs

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remain to have a growing impact on regional employment, national economy and economic development of the hinterland. Governments and local authorities in many European countries put effort in the development of ports, in order to achieve economic growth. In the Netherlands for example, with the main-port of Rotterdam, research already pointed out the importance of development of ‘local ports’ besides main-ports, for economic growth. (Boeckhout & Haverkate, 1995). Therewith it can be concluded that LISPs are similarly to main-ports drivers of the regional economy and governments urge port authorities to achieve further growth.

Shortcomings however are the lack of scientific research into the LISPs theme, since mainly research is conducted on large scale cargo ports that are specialized in container transport (Bichou&Gray, 2004; Pallis, Vitsounis & De Langen, 2011). Also the comprehensive literature review on Seaport Research of Woo et al. (2012) does not reveal any stream in port literature that conducts research in LISPs. Lacking a clear understanding of how to approach sustainable growth for LISPs, it is inevitable to research growth strategies in commodity based local ports from a scientific and managerial perspective (Pallis, Vitsounis & De Langen, 2011; UNCTAD, 2004).

Besides Ducruet et al. (2009), Magala, (2008) and Bryan, Munday & Pickernell (2006), which elaborate on ports in a local and regional context and opportunity capture for growth, little research has been conducted on the matter of strategic growth in the targeted local industrial seaports. Thus far only Debrie, Gouvernal & Slack (2007) analyzed that local ports have to cope with different governance and financial structures than large cargo-throughput ports. The development of suitable growth strategies to the type of port is also important in the overall changing business environment for ports, e.g. changing logistics and working practices, environmental issues, increasing market pressure and changing roles of port authorities (Worldbank PRTK 2005; Palmer, 1999). Furthermore, Notteboom & Winkelmans (2001) mention that a more sustainable port competition model is needed, where ports would focus on durable and less imitable competences, in order to develop further growth. Therefore it can be concluded that knowledge of strategies for growth in LISPs is necessary and overdue.

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application in local ISPs. In the following, the different types of ports are pointed out, and the relevance of research for local ISPs in the context is explained.

1.3 Types and Relevance of Seaports

Broadly speaking, the types of commercial seaports established in literature are cruise ports and cargo ports. Cruise ports are beyond the scope of this thesis. The European economy overview report by ITTMA (2009) identifies five different markets in EU cargo ports: the (1) container market (130 ports, of which are 40 in international container segment), and roughly 300 ports handling (2)RoRo market, (3) conventional general cargo, (4) the liquid bulk market and (5) the dry bulk market. The vast majority of European cargoes today are transported in containers, especially in the Le Havre – Hamburg range (further: HLH). Containerized trade has a market share within HLH of 48.4% or 40.3 million TEU, compared to 26.8% or 269 million tons for dry bulk, 24.6% or 391 million tons for liquid bulk, 19.5% or 62 million tons for conventional general cargo and 18.3% or 82 million tons for RoRo. The earlier presented classification of industrial seaports would thus include roughly 51% of HLH-range trade volume if ports were specialized to their cargo type. ITTMA (2009) concludes that the European Port system is a heterogeneous set of ports, differing mainly in size and hinterland served, shaping port competition in the region. In the face of political changes and privatization, Woo et al. (2012) pleads for port authorities to operate market oriented, in which strategic analysis and long term goals, but also stakeholder views would be needed for future port growth. Concluding this introduction with a vivid overview map of European Seaports (Appendix 1), the problem definition and further methodology will be pointed out in the next paragraphs.

1.4 Problem definition and goal

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aimed as final output. This thesis proceeds by analyzing (1) viable growth strategies from literature and practice, (2) stating the most prevalent internal and external factors influencing growth of LISPs and then (3) conducting a case study and determining strategies applied in practice and their outcomes. The underlying research provides a foundation for the further scientific research into strategies and their potential for LISPs. Management can make use and integrate the research findings in their strategy making decisions.

1.5 Main Research Question

The investigation into what strategies LISPs can apply in order to develop further growth is the primary objective, whereas the influencing factors for an application of such strategies is secondary. Therefore the research question can be stated as follows:

What could be suitable growth strategies for local industrial seaports (LISPs)?

The following sub questions will help to answer the main research question:

1. What growth strategies for ports exist in port literature?

2. What internal and external factors influence growth strategies? 3. How do strategies and factors relate to each other?

4. How to validate strategies applicability to LISPs?

1.6 Research Model

To the best knowledge, no model of the factors influencing growth strategy choice in a Local Industrial Seaport setting has been proposed by scientific research. A research model helps to understand an abstract subject and their factors relations to each other. Therewith, the concept of growth strategy choice is made more comprehensive and tangible. Furthermore, the model can guide the research by providing a visual representation of the theoretical constructs and variables of interest (Stanford NCIP). In the following, the research model is shown.

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The model indicates and proposes that the growth strategy choice is depending on the set of internal and external factors. Furthermore, the emphasis lies on the choice of strategies, which means that there are a set of certain strategies out of which ports, or LISPs specifically, have to choose from. Thereby, to achieve Local Industrial Seaport growth is the overriding long term objective. In order to achieve a proper focus, external factors are limited to the ones stated for industrial seaports in literature, and will consequently be interpreted for LISPs. Strategy choice is limited to the prevalent strategies used in contemporary ports around the world, with a specific focus on European mainland ports. Factors, as shown in the research model, influence the strategy choice, but also influence the growth of the seaport directly. Therefore, the difficulty lies in finding a fit of suitable strategies with the important factors, in order to achieve the most advantageous growth output.

1.6.1 Research Approach

The purpose of this thesis is to analyze what could be suitable growth strategies for LISPs. By answering the sub-questions 1-3 with a qualitative literature review, the research aims to take most important contextual factors into account; thereby a reliable and accountable outcome should be achieved. As Cooper&Schindler (2006) describe, qualitative research is of interpretative nature because it seeks to develop understanding through detailed description of the subject in order to build theory. Sub questions 1-4 lead to an answer of the main research question in a structured and coherent way. The explorative nature, suitable for studying social, cultural and political aspects of organizations (Myers, 2009), of this study departs from the fact that little research has been conducted on LISPs strategies. The emphasis of this research is on market-based growth strategies, which means that strategies are deliberately formed in a way that port users and companies are targeted and strategy creation answers or proactively creates demand from the marketplace.

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propositions made and the practical input from the case study can be analyzed and compared. Yin (2009, p.20) states that broad generalizations based on case study evidence can be drawn, defining it an empirical inquiry that: “investigates a contemporary phenomenon within its real-life context; when the boundaries between phenomenon and context are not clearly evident; and in which multiple sources of evidence are used”. Yet, the intention in this thesis is to investigate and make propositions based on the case study, which eventually can be made generalizable in a follow up study.

The case study integrates two interviews and a document and archive records study, compared with the future growth vision of the case study port chosen. In addition, Cooper and Schindler (2006) describe that a case study can provide a source of new hypotheses and constructs simultaneously. Therefore, a case study is an appropriate tool to 1.) in practice explore the strategies that have been used by the LISP Authority to trigger growth for their specific seaports and (2.) to compare and assess the validity of the above developed propositions of the strategy-factor matrix. In the following paragraph, the reader will be provided with a more detailed overview of chapters.

Literature review

`

Proposing Growth StrategIes and factors

for LISP’s

Exploratory Case Study GSP

(practical) Validation of strategies

LISP’s Growth Strategy Matrix Problem Definition

Conclusion & Limitations

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1.7 Thesis outline

Shortly explaining the research process, the second part (Chapter 2) of this thesis will proceed with the literature review, containing an introduction into ports current roles and the intent of growth strategies. Secondly, strategies found in literature and practice will be discussed, for suitability / applicability for LISPs. Chapter 3 will be about the internal and external factors that influence the strategy choice and suitability. In Chapter 4, the relationship among strategies and factors will be studied. Based on the previous chapter’s findings, strategies applicability to the LISPs context and influencing factors will be shown. In Chapter 5, a case study analysis of Groningen Seaports Port Authority will be conducted. The case study ports (Delfzijl, Eemshaven) will be used to aim at validation that certain objectives and factors influence strategy choice and therewith, what and why strategies have been applied or rejected. Taking the previous chapters into consideration, Chapter 6 concludes with a discussion and conclusion. The following shows an overview about the main research chapters and sub-questions.

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MSc thesis – B.Becker 17 Table 2: Traditional and new current roles of port authorities; Source: Buck Consultants 2008; modified

2. Literature Review

Outcome in this chapter is to understand, what and why strategies are applied at seaports and studied in port literature. The steps followed in this chapter aim to answer Research Question 1: What growth strategies for ports exist in port literature? Section 2.1 shows the current roles of seaports in the marketplace, whereby this thesis mainly focusses on European mainland ports. In section 2.2, a definition of growth strategies in seaports will be studied, followed by section 2.3 containing port growth strategies from theory and literature referring to applicability in the context of LISPs; Section 2.4 will provide a matrix of growth strategies suitable in ports, with preliminary adoptions to LISPs. Section 2.5-2.11 will explain the individual strategies and their relationship. Therewith, the literature review builds the theoretical foundation which guides the data collection and analysis of the case study in Chapter 5 (Yin, 2009).

2.1 Seaports Current Roles

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The publication by the European parliament (Table 2) points out the ‘current roles of European ports’ in the marketplace. It becomes clearly understandable that present roles of port authorities’ aim towards a coordinative task for pushing integration of transport modes, inland connectivity and network approaches. Furthermore, the development of an overall strategy on transport within the port and in relation to the hinterland is central to the contemporary role of port authorities. This implies, that suitable strategies and internal/external factor formulation are needed, also for LISPs.

Furthermore, Port Authorities are facing more powerful clients and intensified competition among the ports, whereby the shipping industry experiences either horizontal or vertical growth, or as more commonly termed in Supply Chain Management literature, vertical and horizontal ‘integration’. Similarly, network redesign is taking place, by ports forming alliances and co-operations throughout the supply chain (UNCTAD, 2004; Notteboom & Rodrigue, 2005). Considering this development of seaports towards consolidation and cooperation, port authorities have to achieve a competitive advantage, in order not to lose market share to competing ports which may be able to achieve a better integration in the supply chain by participating with market parties as e.g. shipping companies that assume higher leverage over the port choice. Therefore, the change in current roles of port authorities in Table 2 can be understood from a market perspective.

2.2 Growth & Strategy definition

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Similarly, there are different perspectives of strategy existing in literature, and research by Mintzberg and Lampel (1999) concluded that managers and strategists limit their views to the specific strategic tool they use. However, in practice, strategists have to be able to determine which strategies are most appropriate to the specific situation (Coyne & Subramaniam, 1996).

Strategy aims at improving the competitive position in a company, and critical determinants have been studied extensively for large scale ports in academic literature; however, Haezendonck, (2001) pleas for further investigation as port authorities and operators are faced with a rapidly changing environment and scope of tasks, as seen in the previous paragraph. Haezendonck (2001) further iterates that a low cost strategy is not suitable in advanced industrialized nations; instead, seaports ‘must attempt to develop higher order sources of competitive advantages’ for ports. Furthermore, the conventional determinants of competitiveness such as labor costs, exchange rates, interest rates are beyond scope of this thesis. Port attributes, resources and competences are important for making strategy choice decisions. Therefore, as Haezendonck (2001) describes it, ‘port growth is influenced by the ability of a firm to identify, and use the key resources and competences’. Similarly, Khalifa, (2008) states that continuity and either uniqueness or superiority are necessary conditions for sustainable success and growth, whereby key resources and competences are essential. In addition, Magala (2008) provides an overview of scientific sources why port growth is necessary if ports are to prosper, foremost referring to Taylor & Consenza (1997), which however is beyond the scope and will not further be elaborated in this thesis.

In order for pursuing a structured approach to LISP growth strategies, strategies must strike the right balance between discipline, focus and commitment to core strengths on the one hand, and flexibility, creativity and openness to new ideas on the other, because growth of the organization is determined by the strategies applied in the marketplace (PORTER, 1996). The creation of strategy choice in business is depending on an organization’s objectives and vision; however, mostly, as Brews2 (2003, p. 35) describes, “the essence of strategy is misunderstood and considerable time and effort is devoted to developing ideas that at best are motherhood and apple pie statements supported by high-level outcome goals”. To avoid such loose statements, this thesis solely quests strategies for their applicability in LISPs and shows how internal and external factors affect those, keeping in mind that ports are not only acting as private enterprises but are tightly connected to public institutions, and under such

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1circumstances may have different and objectives and restrictions than a private company (e.g. a private shipping line) would have.

2.2.1 Conclusion of Growth & Strategy definitions

To conclude, seaports are facing a complex and changing business environment, and the successful application of suitable market-based strategies is a main task for seaports in order to enable and pursue feasible growth. Thereby, growth is defined from a market based perspective, with micro-economic success of the port organization being essential. Secondly, growth relies on well based strategy choice which entails identifying and putting strategies into context, to select appropriate strategies for LISPs that deliver growth and a positive return on investment, based on the ports objectives (see in paragraph 3.2.1).

2.3 Growth Strategies from Literature and Practice

In a port setting, seaports can be understood as multi-business organizations, engaged in service creation, infrastructure management and other duties, directed by the Port Authority. Khalifa (2008) highlights, that the fundamental market of a company, its core business, is the starting point of sustained and profitable growth. In a multi business organization, there is the need to define the right core. Once the core has been clearly defined, the authors speak out that the most logical growth opportunity comes from reinvesting in the core business. Considering a port, the core business may be defined by the port product, in the case of LISPs, a commodity-industrial based core business (See Table 1) whereas the World Bank (WBPRTK) broadens port activities to a range of value-added services (both value added logistics and value added facilities) and without clearly stating a boundary line (Bichou & Gray, 2004).

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scope of a port authority beyond the traditional landlord model3, towards proactive development of port-related value-added logistics activities, information systems and intermodality, which implies a more vertical expansion strategy (Pallis, Vitsounis, De Langen, 2011).

Such vertical expansion strategies would imply either diversification or differentiation efforts, which find wide application in large scale Ports, e.g. Antwerp, but for LISPs with limited resources and port actors, this may be difficult to achieve. In addition, strategies that approach ports can be very diverse and defined from different perspectives, such as from an economical point of view, by pushing e.g. physical capacity expansion, which would trigger diverse other growth strategies and opportunities. A list of different perspectives and their decisive factors (Bichou& Gray, 2005) enables the viewer a quick overview of possible approaches to port management in Table 3; however, as already mentioned, a limitation on strategies will be applied for further analysis.

The role of decisive factors in determining port approaches and frameworks of analysis:

Examples of approaches to ports Decisive factors

a)Macro-economic approaches Economic catalyst; Job generator; Trade facilitator;

b)Institutional/organizational models Private/public; Landlord/tool/service

c)Geographic and spatial approaches Port-city; Waterfront estate; Sea/shore interface; Logistics centre; Clusters; Free zones and trading hubs;

d)Hybrid approaches UNCTAD generations (1st-4th)

World Bank port authority model

e)Alternative new approaches Combinative strategies (cargo-sea-land, supply-demand led) Logistics/production systems (teleport, trade port)

Business units (production, marketing pricing)

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See Page 13 for Landlord Model explanation

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2.4 Strategy applicability to LISPs

Table 4 shows six market-based, operational growth strategies that could be identified in port growth research. A selection of authors, exemplary ports and the strategies main outcome is provided for a sound overview. An analysis of the strategies follows, which is the basis for the considerations of the strategy growth choices and the factors relation to strategies in the further research.

Strategy Author Ports e.g. Outcome

Logistics Chain (cooptition, cooperation, inland integration)

Zondag, 2010, Notteboom & Rodrigue 2005, Robinson 2002, UNCTAD, 2004; Brooks et al. 2009

Rotterdam Hamburg

Increase market share, competitive strength by cooperation results in reduced costs of transport throughput to hinterland/other ports

Central

Distribution and Logistics’ Center

Van der Lugt & De Langen , 2005

Rotterdam Hamburg

Create traffic by attracting trade/logistics companies through location and supply chain advantages, providing logistics hub facilities and services

Physical Capacity expansion (modernization)

Van der Lugt & De Langen , 2005; Bremen port authority

Rotterdam Bremen

Expand/renew capacity of facilities that shipping lines and customers utilize; staying competitive by economies of scope & scale.

Value added growth (industrial development) Randall (1988) , UNESCAP 2002, Robinson 2002, Song, D.W.,2008; Antwerp Port Authority Antwerp Bremen

non- core/maritime economic development; PA acts as real estate agency and facilitates local industry development, Industry utilizes port functions and services

Diversification Ducruet 2010 , Meyler et al. 2011, LANGEN, 1998;

Antwerp Port of Bremen

Ports engage in more diversified operations/services and create lower volatility to certain segments development in the market.

Differentiation (specialization, niche market)

Ducruet 2010, Hazendonck, 2001, Capello & Nijkamp (2009), Boeckhout& Haverkate, 1995;

Antwerp Development of special know-how, innovativeness in port area, facilitated by PA. Specialization and niche market are special cases of differentiation strategy.

TABLE 4: Contemporary Growth Strategies from literature and in ports applied (for sources of port examples see Appendix A)

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Taking Table 4 into consideration, the following paragraphs will link the strategies to LISPs with insights that could be derived by literature review. In the process, factors will have to be mentioned that may support or impede applicability of the strategies in LISPs, nonetheless, the external and internal factors that affect upon strategy suitability in detail for LISPs will be mentioned in a later section. Table 4 therefore answers Research Question 1, What growth strategies for ports exist in port literature?, however, holding on to the previous limitation set to operational-market based strategies.

2.5 Logistics Chain

Tongzon & Sawant (2007) state that most port operators of large ports have designed their strategies based on the ‘stated preference’ of shipping lines, thereby especially focussing on offering a wide range of port services at competitive charges and good quality. The port of Amsterdam e.g. places itself as a smart cargo hub, which offers additional intelligent service solutions for shipping companies (Port Vision Amsterdam 2008-2030). Mostly, only the large size container ports can place themselves as a logistics chain solution to customer’s service demands. LISPs encounter problems adopting this strategy since shipping lines are relatively focussed on few ports that serve all their ‘service’ demands, which among else include container throughput provision and sufficient capacity for large container ships. LISPs -as being small-size commodity ports- lack of integration in the transport chain which therefore leads to a lack of shipping line activities (ITTMA, 2009). The logistics chain approach as a growth strategy is therefore more prevalent in large scale ports that have shipping lines and other supply chain actors present, and as stated, fulfill the capacity and superstructure characteristics demanded, or at least have demand created from the hinterland, in order to attract shipping lines.

Similarly, Van Der Horst & De Langen (2008) state that `logistics chain cooperation can only work if it is well coordinated and that a successful growth by using the logistics chain approach is often hampered’ which depends on different circumstances that can also be seen on LISPs characteristics:

1. The lack of resources or willingness to invest on the part of at least one firm in the transport chain

2. The lack of a dominant firm lacking a source of supply chain power. 3. Risk-averse behavior and a short-term focus of firms in hinterland chains

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LISPs are smaller by definition and thus have constrained resources, limited companies settled and the doubts about a successful and financially positive investment create risk-averse behavior4. Furthermore, it is a question of demand and volume traded, which then can be seen back in a negative cost/benefit calculation by the local port authority and commercial actors. Therefore, this strategic approach might only be beneficial for LISPs if the four constraints above are bypassed and a high level of demand-led cargoes is present.

2.6 Central Distribution and Logistics Center

This strategy, based on creating throughput by attracting companies through location and supply chain activities (therefore also strongly related to 2.5), is a convincing method to achieve growth in larger scale ports. With many international shipping and logistics market players undertaking vertical and horizontal integration strategies, ports are one node where such companies built up hubs and warehouses for their cargo. Strategies of vertical integration include ocean carriers and other multimodal providers (e.g. rail operators) engaging in terminal leasing and ownership. Shippers are also sometimes perceived as port owners, such as through dedicated oil or car terminals located at ports (UNCTAD, 2004). By positioning a port as a distribution or logistics center, companies that are in need of integrating their supply chain to achieve a higher efficiency with multi-modal transport possibilities may be attracted to seaports as alternative locations for the relocation of distribution centers. Notteboom and Rodriguez (2005) already describe that as hinterland locations become more competitive, seaport locations may be a good alternative for companies that use sea operations in their supply chain. Especially distribution centers related to traditional processing industry output could benefit from the large industrial clusters that are present in seaports, which in case of large scale seaports is self-speaking. For LISPs, which are mainly concentrated in a different category of trade (manufacturing product), with different cargo and less volume shipped, a less wide window of possibilities for distribution activities exists. Notteboom and Rodriguez (2005), further state that in the new logistics market environment, the following logistics activities typically are suitable in ports:

- Logistics activities that reduce transported volume considerably,

- Logistics activities involving big volumes of bulk cargoes, suitable for inland navigation and rail.

- Logistics activities direly related to companies that have a site in the port area

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- Logistics activities related to cargo that needs flexible storage to create a buffer - Logistics activities with a high dependency on short sea shipping.

Suitability of this approach in LISPs is, similarly to strategy in 2.5 depending on a set of factors, which are market demand and infrastructure suitability for such supply chain activities. Regarding LISPs, the focal point is ship traffic that serves a clearly more industrial production-commodity perspective, but also, is limited to the activities at very close port proximity because of less advantageous hinterland connections.

2.7 Physical capacity expansion

Physical capacity expansion (in the port area, the infra- and superstructures) is a costly strategy that creates inefficiencies of e.g. overcapacity, if demand is weak. ITTMA (2009) states that infrastructure is a strong enabler of port related market dynamics, which would lead to efficient and sustainable transport provision. Seaports that operate inefficient (low capacity utilization) or that have tight capacity are in a critical position. Before the economic downturn, the strategy followed by many ports was to push physical capacity expansion together with other private parties (e.g. terminal operators).

Meanwhile the world economic downturn holds on, many market players as shipping lines or freight forwarders are reassessing capacity issues by scaling down and cooperation to achieve full capacity utilization, which results for most seaports in a decreased number of ships handled (ITTMA, 2009) and less capacity utilization than before. However, even with a current crisis, congestion in main-port areas, high rents, shortage of well qualified sites and lack of parking/storage opportunities are still present and have led to the departure of companies to less congested ports or areas.

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According to Suykens & V.d. Voorde, no private party can ever be sure of getting a sufficiently high return over such a long period of time. Distinctions are made between general infrastructure and the commercial infrastructure of a specific terminal, which may be financed from private investors (Suykens & V.d. Voorde, 1998). Looking for suitability of physical capacity expansion strategy to LISPs, careful decision have to be taken because of the unknown demand development and larger investments in infrastructure that cannot be provided solely by the Port Authority. Therefore, possibilities for capacity expansions in LISPs are limited, depending on further external factors as e.g. financial strength, or participation of local authorities or private parties or, of which the latter is closer described in the next strategy.

2.8 Value added growth

This strategy mainly follows the idea that through settlement of non-core related businesses, business opportunity creation and reinforcement, growth can be achieved through companies and port services that add value to the port and its hinterland. Thereby, the port itself benefits and experiences an increase of business-links with economic benefits, such as employment possibilities. Industrial development, new service companies and an expansion of services offered by the port are able to add value, and thus increase the demand of the ports original core, facilitating trade from sea-land. Haezendonck (2001) suggested for ports that value added catalyzes employment and a growth in gross product in a geographic region.

A value added growth strategy would therewith make use of the demand-led industrial strategy or as Waters (1974) stated it, through the development of its own cargo from industrial expansion in its uncompetitive hinterland. Therefore, this conception is suitable to LISPs, which have less influence and market dominance to the other strategic concepts (dominant hinterland and competitive hinterland)5. Further elaborating, Bryan, Munday & Pickernell (2005) state that the port and its facilities, as well as the local economic activity and the workforce are important to be developed to provide a longer term economic and operational security to firms that settle and add value in production processes locally.

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John & Pouder (2006) state that economically weak regions could attempt to develop an industry cluster through attracting a large employer, particularly one that is likely to bind a large number of suppliers and service providers to the surrounding area. This would be an approach for ‘catalyzing the formation of an industry’, however, as the authors state, there is a danger of vulnerability to economic cycles of the industry, so diversification would be needed, to ensure a sustainable growth. The creation of a diversified- cluster development approach, also proposed by other authors (Haezendonck, 2001) could thus add value in the long term. Haezendonck defines a port cluster as ‘an aggregation of competing but complementary firms located in the same geographical area engaged in port related activities’. Therefore, could also be adapted to LISP’s and would help disseminate more throughput and value added growth to LISPs by creation of synergy sharing and complementing process among companies. Obviously there are preconditions to such an approach, e.g. that a large company shows interest in settling at the port or its hinterland, which is able to attract more economic activity. Therefore, LISPs need to have the right set of internal-external factors present, or a mix of continuity, uniqueness and or superiority (page 15) in order to excel towards growth by value added.

2.9 Diversification

The strategy of diversification finds wide application in many industries (Meyler, 2011). Diversification and specialization can be seen as the two ends of a continuum. Similarly, they both entail a resource sharing perspective, whereas diversification triggers new product groups and services, and specialization broadens and deepens the existing ones towards niche businesses. Specialization will be explored in the following section, because it is regarded as a subclass of differentiation.

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diversification. Similarly, the integration of land logistics interface also triggers diversification of port services and activities (UNCTAD, 2004), but this land logistics aspect has already been mentioned in the logistics chain and central distribution center strategies above. Ports following the diversification strategy thus try to achieve a broad settlement of different functions and trade categories to make their port more suitable to new sorts of companies. Further, they try to offer an all-in-one service to customers, increasing customer’s dependence on port facilities

Cheon & Song (2010) stated that for container ports, the volume of containers handled would be a precondition that the ports can develop other types of production activities and services. Concluding on this evidence the meaning of LISPs in pursuing a diversification strategy, following thoughts can be raised: LISPs are by definition limited to few trade categories, excluding, strictly defined, the most prevalent in contemporary literature, the container segment. Pursuing to diversify into container handling segment will be difficult to achieve under current market circumstances and high market entry conditions. LISPs can and should aim to diversify within their product segments (Related diversification; Hoskissen, Hitt & Ireland, 2008) towards broader service provision, distribution channels and technology use, because as previously mentioned, among else, a strong core discipline is needed to maintain attractiveness by customers, and to attract private investors. Similarly, De Langen (1998) and Ducruet (2000) argue that diversification is needed for small-medium sized ports in order to be less independent on fluctuating commodity prices. The need to diversify for such ports would arise from infrastructure that insufficiently connects to the hinterland, however, some infrastructure and hinterland connectivity is important to possess. For illustration, exemplary diversification in terms of Port Services is listed in Table 5 below.

Terminal Services Vessel Tie-up Services - Container Handling and Transfers - Traditional Break-bulk and Neo- Break-bulk Cargo Handling - Dry and Liquid Bulk Cargo Handling- Container Stuffing and Stripping - Bagging and Packaging - Cargo Storage

Repair Services - Dredging and Maintaining Channels and Basins Lift Equipment Repair - Dry Dock Ship Repairs - Container and Chassis Repairs

Management Services -Information Management Services, Real Estate Services

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2.10 Differentiation

Boeckhout&Haverkate (1995) proposed that for smaller ports such as LISPs, growth can be achieved by differentiating their operations So far in this thesis different strategies were introduced, but the differentiation strategy is under the aspect of free market competition (-in contrast to past state run monopolies-) a very important one to achieve competitiveness (Pantouvakis, 2010). Nowadays, competition between ports is fierce in continental Europe, and smaller scale ports do not attract large scale distribution or supply chain customer as pointed out earlier (ITTMA, 2009). Differentiation – as an operational and market strategy- therefore is important, to show the specific ports value offered to potential customers. There are different ways how to differentiate port operations, Ducruet (2010) states that at some point of port growth, commodity specialization would be necessary.

Specialization to e.g. niche markets is a very effective differentiation strategy that is widely applied in business management. Ports that are specialized, e.g. on one commodity or service only, and that would be acting in a less competitive market, would be considered to be in a market niche. Firms in a specific market niche would have a greater chance of growing, and could later on make the transition to other markets (Haezendonck, Verbeke & Coeck 2006; Pallis & De Langen, 2010).

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2.11 Interrelations of strategy approaches

Taking the above strategy literature study into critical account, it has to be mentioned that there exists a certain reciprocity and tradeoff relationship amongst the strategies. As seen in Table 4, the exemplary ports have made use of multiple strategies at the same time. Therefore, two preliminary conclusions can be drawn: 1) that strategies are interrelated and support each other randomly, that means, if one strategy is followed, the other becomes more likely to be sustainable as well or 2) that strategies may be in a hierarchical relationship, whereby one strategy acts as the main long term strategy, and others act more short term based, or with a lower importance of output created. Within this study the analysis of relationships between strategies is not an objective, however, being conscious about such interrelations can be used as a means to an end in order to take into account for later findings in the case study, and how strategies that were part of such multiple strategy approaches have performed towards the objective of strategic growth, if they were existing. Therefore, the qualitative explorative approach, as mentioned in chapter 1, enables capacities for such emerging insights.

2.12 Conclusion strategy review

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Pro’s Pre-requisites: Sections

1) Logistics Chain (co-operation, inland integration)

 Increases throughput and economies of scale,

 Acts as a catalyzer for business settlement related to SC

 Increases competitiveness and economies of scale

 Good integration in transport chain

 large financial resource availability;

 dominant firm with SC power

 positive cost-benefit analysis

affluent private investors with good network availability

 2.5 ,

2) Central Distribution and Logistics’ Center

 Not only throughput but also location actively used for value added logistics functions;

 triggers variability of activities beyond logistics related, which adds value.

 strong hinterland demand and accessibility

 Land availability

 high dependency on short sea shipping

 port as a facilitator – covering broad range of services

 private investors

relatively strong competitive position needed

 2.6,

3) Physical Capacity expansion (+ modernization)

 builds capacity for future use

 creates foundation for economies of scale of port

 competition advantage to other ports

 very high financial resource availability

 long term investment strategy

 high risk acceptance

 capacity shortages or growing demand forecasted

Institutional support / Private-Public Partnerships

 2.7,

4) Value added growth (industrial development based)

 Industrial (also non-core) settlement as catalyzer for cluster developments and complementing processes

 Ports can act as intermediates

 Industrial actors depending on port function

 Synergy creation and growing demand for port

 Industrial facilitation by port authority

 Supply of suitable employment in port proximity

Land and suitable infrastructure availability

 2.8,

5) Diversification

 can increase efficiency through scope

 can trigger cooperation with other market players

 less trade volatility through diversified trade categories

 can catalyze settlement of value added activities

 core competences of port clearly set

 adaptability of skills and strengths

 high financial resources

 infrastructure and hinterland connectivity of medium importance

Stronger competitive position / medium upfront investment or private investors

 2.9,

6) Differentiation (e.g. specialization)

 Quick gains on established services or products

 low risk involvement

 builds on internal strength

 increases competitivenesss

 creates investment into chosen sectors which facilitates expertise

 expert know-how and related services

 Opportunity capture flexibility

 Innovation and value creation for customer to be achieved

 Basic port as core product needs to be sustained and developed with focus

private investments in competitive niche portfolios

 2.10,

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3. Internal and external factors of LISPs

This part of the thesis identifies and analyzes LISPs internal and external factors. Therefore, it aims to answer Research sub-question 2. Grant’s (2002) framework of the relationship between resources, capabilities and competitive advantage assumes that by choosing the right strategy, a competitive advantage and thus growth will be created in the long term. As Grant (2002) approaches from resources and capabilities (internal factors) of a company and integrates the concept of ‘industry key success factors’ (which will be stated as the group of external factors) a suitable strategy can be chosen.

Resources (Tangible, Intangible, Human)

Organizational Capabilities

Strategy Industry Key Success _{Factors (external)} Competitive Advantage

Figure 4: The relationship between resources, capabilities and competitive advantage Source: Grant (2002: 139); modified by author

Considering the limited literature on the LISPs port type, literature from general sources nonetheless will be used in order to come about specific implications for LISPs internal (resources and capabilities) and external factors (key success and other external influences) and their behavior on strategy decisions. Therefore, also issues that were also mentioned in the previous section on strategies will be studied more in detail.

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MSc thesis – B.Becker 33 Table 7: Determinants for seaports as a place of business for industries and service provision; Source: (MV&W, 2007)

3.1 Factors of Industrial Seaports

Industrial Seaports that by definition have their core product in ‘manufacturing’, are facing as main determinants to be selected as ‘port of choice’ by companies location quality and location cost ( (MV&W): Dutch Ministry of Infrastructure and the Environment, 2007). However, LISPs are smaller in size (compare ports in Appendix 2); therefore location quality and cost may not be the only factors of importance that are different. In order to achieve a good overview about LISPs

internal and external factors, MV&W (2007) published a list of determinants for seaports as a place of business for industries and service provision (see Table 7). This is a good indication on what factors are relevant for growth in industrial ports, and therefore partly

answers research question 2,

whereby the distinction between

internal and external factors and a market perspective remain to be studied in the following section 3.2 by pairing with the implications of Figure 4 from the previous page.

Reviewing Table 7, it can be understood that there are many determinants for seaports as a place of business, and factors range from fiscal climate to environmental constraints.

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3.2 Categorizing Factors

In the previous parts and literature review, ports have been found to be acting in a complex environment, with many constraints and changing market place. Therefore, the analysis of the internal and external factors of seaports, more specifically the LISP type, is relevant and necessary in order to develop knowledge of what growth strategies are suitable, and what conditions do especially act upon the growth development and strategy choice of LISPs. In the following subsection, the factors have been divided into internal and external.

Firstly, internal factors that describe the resources and capabilities, but also the corporate governance structure of the firm will be studied. Those being ‘internal factors’, the port has power to affect and to change. In contrary, the ‘external factors’ are constituted and determined outside the ports influence, and the port has to react, or foresee those by making appropriate decisions. One decision to make is the strategic alignment towards those external factors (Aldrich, 1979)6. Following division is taking as a starting point for the following sections: Internal: 3.2.1) Corporate structure, 3.2.2) Organizational resources, 3.2.3) Organizational capabilities; External factors: 3.2.4) Institutional factors, 3.2.5) Market/industry factors, 3.2.6) Community factors.

3.2.1 Corporate Structure

The Role of the Port Authority can determine the likeliness of applying certain strategies. There is a major difference of governance concepts in ports. In order for gaining insights into factors, organizational differences (Bichou&Gray, 2005; Truillo&Nombela, need to be pointed out: issues of ownership (public versus private) and institutional status (landlord/tool versus service). Bichou&Gray, 2005 claim that port-planning and investment decisions are made by the aggregation of different players ranging from the national governments over decentralized governments to private sector operators. Which implies that growth strategies have to be approached from a wider scope7(Bichou&Gray, 2005). De Borger et al.(2008) and Baird (2000) studied that ports that set commercial prices but whose capacity is publicly financed have a higher investment availability, because the public investor has broader objectives that just port profits and net revenue (OECD, 2009- 143). Therefore, LISPs that

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‘Strategy, is confined under the hierachy of market forces, geography and technology, and does not have the power to change or selectively transform the external environments’ (Aldrich, 1979; stated in Cheon, 2007)

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are governmentally financed have to trade off commercial achievements with public objectives (OECD, 2009- 143) in order to achieve government backup, especially in financial matters (Baird, 2000). In the LISPs context: Since they are not of primary interest for the national government, commitments on higher government levels are limited, therefore, stronger promoting skills might be needed for achieving top level commitment for specific development plans, mostly of physical capacity expansion and value added concern. At the same time, Olsen (1988)8 states that autonomous structures can better ‘engage in long term strategic planning while they face fewer local short term pressures to be revenue generators for supervisory jurisdictions’. That means that on the one hand, a LISP that is financed by government has higher investment availability, on the other hand, is likely to have more short term pressure and difficulties to strategically plan in the long term. Secondly, many stakeholder concerns are influential for seaports in general, since they interact on various fronts with a larger community. For the readers’ comprehension, an overview of objectives and respective stakeholders is shown in Table 8 below.

No. Objectives Player

1 Maximize Throughput Port Authority/Operator

2 Maximize Net Profit Port Authority/Operator

3 Operate at least cost Port Authority/Operator

4 Maximize Value Addition Port Authority

5 Reach Financial Autonomy Port Authority/Government

6 Efficient management of assets Government/Port Authority

7 Minimize required Capital investment Central Government/Port Authority

8 Maximize Employment Level Central Government/Trade Unions

9 Secure National Independence as regards maritime transport

Central Government

10 Promote Regional Economic Development Local Government 11 Minimize Vessel’s time in Port Shipping Company 12 Minimize Total Cost of Maritime Transport Shipper

13 Maximize quality of service to Shipper Shipper

14 Minimize Port user Cost Users

15 Transparency of Charges Users

16 Minimize Welfare Loss Economist

17 Maximize Return on Capital Investment Financial Company of Port 18 Ensure full Environment Protection Pressure Groups

Table 8: Seaport Objectives and Stakeholders; Source: Gaur (2005)

What can be noted is that there are many stakeholder concerns the port has to review in its growth strategy, because they might be of influence to development plans that the company may pursue, also depending on the ownership status of the port. Therefore, the corporate structure influences in many ways the behavior and development of a port, and especially

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LISPs may be affected because of their relative small leverage to stakeholders compared to larger ports.

3.2.2 Organizational Resources

Grant, (1991) stated that resources and capabilities of the firm are the main competences for formulating strategy. Hitt et al. (2008) describe that if a firm has excess resources, they should pursue a strategy that makes use of such. Therefore, a strategy should be applied, that suits the resource availability and the core competences of the firm. Hitt et al. (2008) state those factors may push a firm into diversification; however, managers would hopefully diversify to such activity that would add value to the firm, instead of diversifying to a non-value adding activity. Therefore, location and infrastructure resources are a prime determinant for LISPs, and strategy choice is determined by such. Since basic superstructure is available in LISPs, companies that demand different superstructure will have to provide such on their own. Space and real estate management are said to be important, because investments of companies do not only concern the direct port area, but also the ports proximity (Annual Report Port of Hamburg, 2010; Haezendonck, 2001). Furthermore, intangible (such as ‘reputation’) and human resources are likewise essential to foster, in order to positively influence growth. Therefore, LISPs are ought to acknowledge and utilize their resources, in order to adapt a successful strategy choice. Capabilities are essential for a port to appropriately use its resources, and those will be studied in the next section.

3.2.3 Organizational capabilities

Azevedo & Ferreira (2008) state in their research on ports that the creation of new capabilities is constantly happening, as do competitors constantly create new capabilities. Since capabilities are an internal factor, it is important that management is taking care of capability development and monitors competitor’s capabilities. Therefore, coordination of the internal capabilities which create competences of the port is important. The authors’ further state that from literature of resource-based view9, sustained capabilities are those that are not with ease reproduced by the competitors and that such are forming the companies strategic direction.

Furthermore, Amit and Schoemaker (1993) state that capabilities are developed either in functional areas or in a combination of physical, human or technological resources that the

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firm controls. At an organizational level, there needs to be sufficient human resources devoted in functional areas, cooperating together in a structured manner. Furthermore, management needs to acknowledge the importance of properly assessing the organizations resources and capabilities, when making strategic decisions that may contain financial, legal and other risks involved, in order not to waste the resources deployed. These internal factors mentioned in the prior paragraphs are important for a ports success in the competitive environment, with being advanced and utilitzed correctly through a well defined capabiilty development. In addition, factors that are determined by the environment, such as institutional, social and the market industry structure itself, are equally determining a ports alignment towards successful growth strategies. Therefore, the following parapgraps will contain an analysis of the external factors of LISPs.

3.2.4 Institutional factors

The shipping and port industry is affected not only by national regulations and laws, but also by European and supranational legal and institutional regulations. Hall & Jacobs (2010) state that ports are highly regulated spaces. Haezendonck (2001) similarly states that the institutional environment is important for port strategic decisions. That mainly relies on two facators: ports are located in an ecologically sensitive territory, on the sea, and that space has to be shared with other users. Therefore, communities and different government levels have a saying in port development. Port growth has to be balanced with other objectives, like natural protection (Hall & Jacobs, 2010).

Secondly, since the majority of ports have been corporatized and act as independent legal entitiy from the shareholders (government and municipalities) such regulatory and legal issues are outside a ports authorities jurisdiction. Therefore, Hall & Jacobs further state that there needs to be an institutional proximity between the Port Actors (port authority) and the legal and regulatory systems, in order to effectively respect and enforce labour, environmental and planning laws.

‘GROWTH STRATEGIES FOR LOCAL INDUSTRIAL SEAPORTS’