PSA-Ports and Porters Five Forces - Case Study Example

Supervisor PSA-PORTS AND PORTERS FIVE FORCES AND COMPETITIVE ADVANTAGE MODELS By: April,2008 Table of Contents 1.0 Introduction 1.1 Overview of PSA-Ports 1.2 PSA-Ports and Porters Fiveforces 1.3 PSA-Ports and Porters competitive advantage 1.4 Conclusion 1.0 Introduction Today’s business environment is increasingly becoming more turbulent, chaotic and challenging than ever before and to survive, it is vital that a firm can do something better than its competitors ( Wonglimpiyarat 2004:1). Globalisation has not only altered the nature and the intensity of competition but has had to dictate and shape organisations in terms of what consumers wants, how and when they want it and what they are prepared to pay for it (Hagan 1996:1). Kanter (1995:71) on his work of “Mastering Change” argues that success in the present day business is not for those companies that re-engineer the way they do things, or for those fixing the past. According to Kanter (1995) such an action will not constitute an adequate response. This is so because success is based on an organisation’s ability to create, rather than predict the future by developing those products that will literally transform the way the world thinks and view it self and the needs (Kanter 1995:71). Within the context of today’s global competition, businesses and firms no-longer compete as individual companies but try to corporate with other businesses in their activities (Wu & Chien 2007:2). These researchers went further to argue that, this strategy has become quite common in many businesses including the retail clothing chain stores. The conventional vertical integrated company based business model is gradually being replaced by collaborative relationship between many fragmented, but complementary and specialized value stars and constellation (Wu & Chien:1). An alternative approach towards organisational success, one which is becoming increasing prominent and has attracted the sustained attention of both domestic and international business scholars are core competences, capabilities and resources (e.g. Madhok 1998, Prahalad & Hamel1990, Hamel & Prahalad1994 ). In today’s global business environment it is no longer sufficient simply to meet customers demand as time quality and cost have become increasingly important in the phase of increasing competition (Petts 1997:551). According to Higgins (1998:2), “customers don’t always know what they need or even that there is a problem to be solved.” Success awaits those companies that recognize the fact that, to be successful and satisfy customers, it is often necessary to lead customers into recognizing these needs (Higgins 1998:2-3). 1.2 PSA-Ports and Porters Five Forces Framework “Strategic positioning is concern with the impact on strategy of the external environment, an organisation’s strategic capability (resources and competences) and the expectations and the influence of stakeholders1. To almost anyone you turn to, strategy is a course of action, it is a plan or a way of doing things unique to a particular organisation or identical to other organisations. It is some sort of consciously intended guidelines to deal with a situation2. In management, however “strategy is a unified, comprehensive, and integrated plan….designed to ensure that the basic objectives of the enterprise are achieved” (Mintzberg H. et al 2003:4). In analysing the strategic position of PSA-Ports with respect to the environment, I have used Porter’s five forces framework the PESTEL model. “Porters five forces framework was originally developed as a way of assessing the attractiveness (Profit potential) of different industries. As such it can help in identifying the sources of competition in an industry or sector”3. The basis upon which this framework is built will serve in analysing PSA-Ports environmental forces. The Port of Singapore Authority was formed on April 1, 1964 to take over the functions, assets and liabilities of the Singapore Harbour Board. On August 25, 1997, a parliamentary bill was passed to corporatise the Port of Singapore Authority, and PSA Corporation Ltd was corporatised on October 1, 1997 (www.wikipedia.com). PSA restructured in December 2003, with PSA International Pte Ltd becoming the main holding company for the PSA Group of companies. Competitive Rivalry: With thousands of different persons, vessels, and carriers operating in the area, competition is not intense in the sense that, Ports are not located in the same areas, but rather, competition can be at the level of suppliers and vessels. Buyers and sellers usually have a low bargaining power because ports do not compete in the same area. PSA-Ports is the world largest hub handling about one-fifth of the worlds total container transshipment throughput, and 6% of global container throughput. It has a network of 200 shipping lines serving 600 ports in 123 countries (www.wikipedia.com) This is a big threat to other small port terminals, because any other competitor will have to spend more on price competition if is to challenge PSA-Ports position. Cosumers switching cost is very low. With a relatively high profit margin, in the sector to attract potential competitors or new entrants, the situation is however difficult for new entrants to enter the line of business, because huge capital, natural factors and capabilities to support after sales services, in terms of technical expertise to get up overnight and open a port that will compete with PSA-Ports is not easy. More so, PSA-Ports have small terminals in different countries and suppliers often strived at having an exclusive right with their suppliers. Thus Suppliers turn to have a very high bargaining power. With most ports having their unique location, the management of ports strive at having unique items, others offer almost the same thing making customers and potential customers to base their attention on price, quality and other benefit. The table below summarizes the competitive position using the five forces framework. Porters Five Forces Approach Application to PSA-Ports Relationship with suppliers The suppliers constitute independent contractors, government, iron and steel manufacturers, chemical companies ,local authorities farmers and other, participants, local terminals, hub and others Bargaining power of buyers High switching cost due to little options available to buyers. Though there are numerous companies within the industry buyers switching cost turns to be high because of low bargaining power. Threats of new entrants High threats of new entrants because of the human, time, material and financial resources, and natural factors necessary to set up port. However, with China and India today growing into the world factory, a new entrant from these areas constitutes a big threat. Threats of substitutes products or services The industry is characterized with many niche players. Who, though their present activities might be seen as insignificant are gradually growing into key players Rivalry amongst established firms Fierce competition with flat cost. No major player able to dominate the market. How ever with continuous innovation and design of new products, companies like PSA-Port has taken the lead Porter (1985:4) contends that the Five Forces define the rules of competition in any industry and at the same time marks the bases for understanding a company’s success. Porter (1985) went further and argues that, competitive strategy must grow out of a sophisticated understanding of the rules of competition that determine an industry’s attractiveness. The researcher further claims that, “The ultimate aim of competitive strategy is to cope with and, ideally, to change those rules in the firm’s behaviour.” (1985: 4) and through their own strategy a firm can take hold of these five forces. Most farm and construction company are struggling to make a name through product differentiation and integration with their customers and suppliers At the most fundamental level, Porter (1985) contends that firms create competitive advantage by perceiving and discovering new and better ways to compete in an industry 1.4 PSA-Ports and Porters Competitive advantage Competitive advantage can be referred to as a situation whereby a firm is able to provide a particular service in an industry better than its competitors will do thereby increasing its market share and profit potential4. Competitive advantage is determined by the core competencies of the firm, which are the particular skills and techniques as well as staff and suppliers achieved by the firm which are otherwise not available to other firms in the industry5. In discussing PSA-Ports competitive advantage, I have analyzed it with respect to Porters competitive advantage framework. Considering the strategic capabilities of PSA-Ports competitive advantage will be analysed with respect to its strength. This is based upon Porters argument that, a firms position itself by leveraging it strength. Lower Cost Differentiation Cost leadership Low product system Biggest port terminal Small terminals based in many countries. PSA-ports unique resources, trademarks, proprietary know-how, uninstalled and installed customer base and locations Differentiation Adequate advanced functionality Aesthetic product features Integration capabilities and upgradeability, convenient product availability in terms of quantity, location acquisition and installation. Confidence in the services Equity of PSA location Cost focus Differentiation focus Looking at the overall strategy of PSA-Ports, one will not hesitate to conclude that PSA-Ports has a broad target. PSA International, provides marine services to the maritime and shipping community. They include pilotage, port and terminal towage, ocean transportation, support vessels for the offshore oil & gas industry, heavy-lift, oil spill response and salvage services. It is the largest handles the worlds total container transshipment throughput, and 6% of global container throughput. It has a network of 200 shipping lines serving 600 ports in 123 countries. 1.4 Conclusion This study was initiated to carry out a market and industry analysis of PSA-Ports. Using Porters five forces framework and Porters competitive advantage we see that, it hundred of terminals and suppliers dotted all over the world, gives the company its unique advantage. After our analysis the following conclusion and recommendations were made. In the course of the study, the analysis also shows that, to minimize the risk often associated with the ports location, the company has its own it has the biggest hub, with hundred of small terminals located all over. References Birkinshaw, J. (2000). Entrepreneurship in the global firm. London: Sage Blocher E., Chen K. Gary C., Lin T. (2005). Cost Management A Strategic Emphasis. Third Edition. McGraw-Hill. Bowlby, R. (2001). Carried Away: The Invention of Modern Shopping. Columbia University Press. Hamel, G. and Prahalad, C. K. (1994). Competing for the Future. Boston, MA: Harvard Business School Press. Johnson, G. and Scholes, K., (2007). Exploring Corporate Strategy, Prentice-Hall, Europe Kanter, R. M. 1995. “Mastering Change.” Pp. 71-83 in Learning Organizations: Developing Cultures for Tomorrow’s Workplace, edited by Chawla and Renesch.Portland, OR: Productivity Press Mintzberg H et al (2003). The Strategy Process Concepts Contexts and Cases. Pearson Education, Pearson Education Ltd. Porter, M.E. (1985). Competitive advantage: Creating and sustaining superior performance. New York, NY: Free Press. Porter, M.E. (1990). Competitive advantage of nations. New York, NY: Free Press. Prahalad, C. K. & Hamel, G. (1990). “The Core Competence of the Corporation.” HarvardBusiness Review 67(3): 79-91. Read More