Competition as a Part of Contemporary Business Environment - Coursework Example

 PORT BUSINESS STRATEGY Name: Course: Date: Introduction The contemporary business environment is characterized by globalization and intense competition. Subsequently, business alliances are gaining more strategic importance than in the past as confirmed by researchers and practitioners. Whereas many organizations in different industries have adopted alliances as a business strategy, some are yet to embrace it. This reluctance mainly comes from the perception that such alliances with competitors would amount to loss of control and give potential competitors easy entry to the market. The current business trend warrants consideration of formation of alliances between competitors as part of business strategies in view of the increasing market forces that a single firm might not withstand in isolation. Firms need to cooperate in order to maximize their gains, but they also need to compete as the latter is the norm in any business. This paper examines the concept of co-opetition, which refers to simultaneous cooperation and competition between firms. The concept will be looked at in general as a business strategy in competing firms. Subsequently, the concept will be considered from the perspective of the nature of competition in the port industry Co-opetition In the process of deciding how to carry out a business, the current increasingly complex business environment makes it logical not to limit a firm's analysis to the competitive environment. In addition, dependence on competitive environment only attracts purely antagonistic relations between players in a particular market. In fact, there might be cooperative relationships within a competitive market without necessarily causing non-competitive or unfair monopolistic practices.Indeed, competition and cooperation can exist simultaneously between two players (Hernandez et al., 2008). For example in the motor industry, Toyota and General Motors manufacture an almost identical cars (Toyota Corolla/Chevrolet) which they cooperated to design, but they sell the vehicles separately and in ways that seek to outdo each other. In other words, cooperative strategies or rather alliances can be formed to create or expand an existing market, and once they are formed, the firms in the alliance can still use competitive strategies to gain an upper hand. This based on the principle that business is not always a zero-sum game where win-lose is the only possibility. There could be some scenarios in which a win-win situation is achieved through collaboration and others in which lose-lose happen without it. In fact, devoid of cooperation usually leads to a lose- lose situation since not only do the competing organizations end up losing potential market opportunities , but the market becomes insufficiently served because customers miss out essential products or services. In today's highly segmented markets, with firm network effects, cooperation and competition (Co-opetition) may be the only sustainable way to run business in order to avoid undesirable situations inherent to these nature of markets (Hernandez et al., 2008). Co-opetition is derived from communication a tactics of negotiating win- win situations. When organizations negotiate on the basis of their legitimate interests rather than their rigid positions, in many cases, they can establish ways to lead to win-win situations. However, when considering co-opetitions, organizations should assess the existence of potential win-win scenarios. If a firm is negotiating from a weak position, then it may be in the interest of the firm to cooperate. If the firm is negotiating from a very strong position, it may be in the interest of the firm to compete. However, these strategies should be pursued when possibilities of win-win situations are negligible (Cygler, 2010). In the business world, many transactions result into dilemma. For example, in the face of intense competition, firm X has to decide whether to lower the price. If it takes the selfish approach of lowering the price, it might garner a larger market share. However, the competitor could adopt the same strategy, and a price war would ensue, leaving both sides worse off. However, if the two companies agree not to start a price war, X may still split the market with the competitor but at increased profit levels. The two firms could benefit through co-opetition, not solely competition (Cygler, 2010). According to Brandenburger and Nalebuff (1996), business as a game has several players. There is a competitor, customer and complementor. A player becomes a competitor to a company if clients value the company's products less when they have the player's product than when they have the company's product alone. A player also becomes a competitor if it less attractive for supplier(s) to supply resources to the company when it is also supplying the player, that when it is supplying the company alone. A player is a complementor if consumers value the company's product higher when they also have the player's product than when they have the company's product alone. A player is also a complementor it is more attractive for supplier(s) to supply the company with resources when it is also supplying the player than when it is supplying the company alone. Most companies are used to treating their association with competitors as win –lose situation. However, such an approach is short-term.Indeed a win –lose approach eventually turns to a lose –lose situation. In this regard, organizations should seek the long-term win-win strategy with their competitors. In fact, a player may be a complementor in one way or the other. Instead of just competing against competitors, the firm should also look for new cooperative solutions through cooperating with the competitors (Song 2009). Such cooperation can strengthen both players against external forces of competition even as it may weaken one player against the other. Mutually beneficial objectives can be reinforced when players combine their efforts (Cygler, 2010). Disadvantages of Co-opetition Co-opetition has two phases. In some cases, it can give firms larger market shares and improve their overall competitiveness. In other cases, co-opetition can lead to legal disputes. Every country has its legislations that govern competition in regard to activities of organizations such price control, price discrimination, driving out competitors and developing monopolies. Co-opetition can possibly be perceived as collusion between firms in violation of the law thus imposing legal liability on the firms (Hernandez et al., 2008). Another disadvantage of co-opetition that can deter organizations from adopting the strategy is the possibility of strengthening the competitor at the expense of the other organization. Organizations in co-opetition can find themselves in predicaments worse than before co-opetition. In some situations, they might actually realize that co-opetition has created stronger competitors or given way to new market entrants. Although co-opetition is on the rise, the strategy may have long term effects that may compromise an organization's ability to compete in future. An illustration of these possible setbacks are Some Western and Asian companies who create temporary alliances just to have the weaker Asian company become more successful than the Western company, for example, Rover and Honda(Hernandez et al., 2008). Nature of Port Competition in the Context of Logistics Providers Globalization is a common trend in many industries today. The port industry has undergone a lot of changes over the last decade. Port management and operations are increasingly being taken over by global ports operating companies. Most port operators who previously operated only their local businesses are now extending their scope to the regional or global level. Today, port operators can be viewed as multinational Corporations. They invest many parts of the world in order to develop their global businesses. They compete against many players in the various global markets. In this era of global economy, a global distribution channel with an efficient multimodal system is critical. The role of ports has changed from the traditional one of moving goods between sea and other modes of transports to that of a linkage in the logistics chain. The ports play a substantial role in this chain, but they no longer monopolize it as was the case in the past. Presently, the business patterns of shipment lines which are the major customers to ports include: Restructuring-consolidation and streamlining through mergers, acquisitions and strategic coalitions. Differentiation-providing differentiated services through door to door transport solutions as part of the overall logistics services and Looking for wider operational coverage and economies of scale, for instance, by setting up larger vessels and transshipment strategies (Song, 2003). This changing trend of shipment lines necessitates a particular method of cooperation among different ports in order to offer services that are appropriate to the demands of the shipping line's strategies. The ports need to cooperate in order to optimize their gains, but they also have to compete, as it is the norm in any other business. The two needs culminate to co-opetition that entails both cooperation and competition. Forces Driving Competition and Cooperation in the Port Industry Globalization and Shipment Alliances The business environment is always changing. This change has warranted cooperation and competition pattern in the port industry. As a result of the increasing globalization trend, all countries compete in one global market, which has skyrocketed competition in the international business. Consequently, inter-dependence among countries and among global private sectors is common. Containerization has been instrumental in the transportation industry since its inception in 1960.The development of containerized trade and the globalization of manufacturing sector have established demand for services offered by container liners firms (Song, 2003). In order to satisfy the market needs, a particular form of rationalization in the forms of alliances, mergers and takeovers among big shipping companies has become common for concentration of these shipping companies leading role in the transportation business in order to increase their market shares and reduce operation costs. These companies now provide global networks, where an alliance or one mega-carrier can transport cargo around the global market without restrictions (Song, 2003). In addition, globalization of containers has given international shipping companies more bargaining power. They now have more options in calling at the ports. Several shipping companies can collectively negotiate with ports operators for favourable charges and terms and conditions. In the event of a port losing one of it's the alliances of the international shipping companies; it may result into significant fall in sales, as it happened to the port of Singapore, where Maersk /Sealand switched from Singapore to the neighbouring Malaysian port. To handle these market forces, port operators have been forced to provide their services on a global basis by collaborating with other ports in different parts of the world (Whang and Chiang, 2010). Large Size of Vessels and Inter-modality Large vessels and inter-modality have also intensified competition between various ports. The large container ships are usually used in order to achieve large-scale economies. Due to the limitation of depth of container ports, few ports have capacity to serve the titanic vessels directly hence they have to rely on other firms with better ports. Furthermore, inland intermodal forms of transport enable containers to be transported for longer distances through continents to create connection with a port. Therefore, a form of cooperation is required between the ports and firms that provide inland intermodal transport (Song, 2003). Intensity of Port Competition Intensity of competition is a major factor necessitating firms to look for strategies of cooperation. Organizations that encounter high levels of competition have great desire to cooperate in order to reduce the pressure of competition. Ports experience intense local and international competition. The severity of the competition triggers port operators to look for new tactics to gain from the competitors. Further, alliances and mergers among large shipment companies are ascribed to conversion of a number of feeder ports into regional ports and in some cases conversion of regional ports into feeder ports. Consequently, ports compete against other ports both locally and regionally. Participants in the container port market understand this unavoidable trend of the industry competition.They react by enforcing the win-win strategy of establishing strategic coalitions with their competitors The market players involved in port operations may also be a driving force for co-opetition. The key market players involved in port operations may include shipping corporations, terminal operators port authorities and inland transport operators. The shipping organizations and terminal operators in specific have opted to create joint ventures as a strategic device in establishing co-opetitive strategies. In this respect, two ports through the joint ownership of the same organization will also cooperate with each other (Whang and Chiang, 2010). Objectives of Port Co-opetition With reference to the mentioned forces behind competition and cooperation, ports create partnerships in order to achieve the following objectives: They aim at rationalizing their operations to maximize gains and minimize costs. By pooling resources, they can achieve high advantages research and development, marketing, accounting systems among other areas. They can also share risk.Sharing investments, in particular capital equipment and terminals construction, substantially reduces potential risk to a port. In addition, co-opetition facilitates expansion strategies of the port operators, by making it easy to penetrate new geographical markets through establishment of links with ports in other countries (Song, 2003). Likely competition can be co-opted through formation of strategic alliances with competitors. Such alliances can strengthen the members against external forces thereby increasing their competitiveness. Further, through collaboration, ports can utilize their spare capacity, increase their capacity and improve capacity utilization. Port co-opetition also gives the alliance members stronger bargaining power against governments mandated trades, mega carriers, shipping alliances and investment barriers. The eventual objective of co-petition for private port operators is to increase sales and subsequent profits. Public port organizations or port authorities aim at achieving economies of scale that can contribute to economy welfare (Song, 2003). The concept of co-opetition between in the port industry is in derived from idea that whereas in the past cooperation among organizations was a subject limited by anti-trust, it is increasingly becoming a topic of discussion where firms more than ever before are focusing on cooperating to compete. This argument corresponds to the current trend where the liner shipping industry is moving towards strategic coalitions between large international companies. United Nations Conference on Trade and Development (UNCTAD) encourages cooperative principles between ports in order to acclimate themselves to a mobile traffic distribution pattern across different port outlets. In addition, ports adjacent container ports should form strategic alliances as a counter-strategic option against their counterparts in the shipping lines to survive in the rapidly increasing competition in logistics industry (Song, 2003). Port Industry Co-opetition in Practice Most ports across the world have adopted co-opetition as a competitive strategy in order to manage the competitive forces and gain the other benefits inherent to co-opetition. The ports of Tacoma and Seattle in the United States have since in the past competed with other each other for shipments in the overlapped hinterland. However, they concerted their efforts to create infrastructure, transportation, and promotion of regional environmental issues. The port commissioners for Tacoma and Seattle indicated that co-opetition was important in the face of surging rivalry from Canada's western ports (Whang and Chiang, 2010). The Vancouver Fraser Port Authority in Canada was formed following merger of three mainland port authorities (North Fraser Port Authority, Vancouver Port Authority and Fraser River Port Authority). This co-opetition in the form of a merger was intended to strengthen the overall competitiveness of the three ports authorities in an environment of rising competition from ports in the neighbouring countries, and acquire a larger market share in the Asia-Pacific trade. The merger formed the second biggest port in the North America (Portmetrovancouver.com, 2014). The Chinese Ports of Zhoushan and Ningbo is another case of co-opetition in the ports industry. The two ports had been managed by different authorities, which had resulted in segregation of planning and substantially undermined their competitiveness. To deal with this mutual threat, the two ports started to cooperate. Since the Port of Zhoushan can complement the weakness of the waterfront development in the port of Nigbo, and Nigbo is better suited to complement Zhoushan's weakness of hinterland and development of port, the two ports eventually merged into Nigbo-Zhoushan Port and started to operate formally in in 2006.The merger is the busiest port in the world in respect to cargo throughput (Li and Oh, 2010). Co-opetition as a Global Business Strategy Cooperation between multinational corporations is an essential mechanism for competing in the international markets. This is shown by the rising number of international collaborative treaties being made. Since the port industry is increasingly becoming globalized, global business strategies are gaining more importance Multinational corporations have two options when they consider accessing international markets. The first of option is non-co-operative means, for instance by forming fully owned subsidiaries while the second is cooperative means, for example by entering into international strategic alliances with other corporations. With regards to the port industry, , cooperative option is a more desirable option of a global business strategy since it can strengthen a port's power and enable it meet its strategic objectives(Song, 2003). Overall, a combination between co-orperation and competition as a business strategy for global market players involves not only the cumulative policies and resources of ports but also the mutual thread of logic that connects them together in an intelligible and consistent whole, for the quest of market opportunities in a manner that creates competitive advantage (Whang and Chiang, 2010). The nature of the port industry warrants cooperation between ports authorities more than other any other industry. For instance the limitation of depth of a port inevitably requires the port to cooperate with its competitors. Ports have to cooperate with other local and regional ports in order to streamline the logistics chain and shield themselves from rising competitive forces such as the shipping liners increasing bargaining power derived from business alliances. Although co-operation between competitors has risks such as monopolistic practices and legal liability, the nature of port business renders co-opetition less risky. Conclusion The contemporary business environment is characterized by globalization and intense competition. Subsequently there is need for firms to cooperate with other firms even as they compete. Co-opetition encompasses both cooperation and competition. It is an increasingly common business strategy in the port industry as ports seek to enhance their competitiveness. However, seeking and maintaining a proper balance between co-operation and competition is an important factor for maximization of benefits to port operators. Since various firm-specific or port specific factors influence the right balance between cooperation and competition, firms should apply a case by case method to determine the appropriate strategic option for a specific port operator. Bibliography Brandenburger, A. and Nalebuff, B. (1996). Co-opetition. New York: Doubleday. Cygler, J. (2010). Co-Opetition in Network Relations between Businesses. Organization and Management, 2010(1 (139). Hernandez, H., Murtha, R., Peng, M. and Xiong, Y. (2008). Changing the Game. [online] Www-inst.eecs.berkeley.edu. Available at: http://www-inst.eecs.berkeley.edu/~eecsba1/sp98/reports/eecsba1g/project3/report.html [Accessed 14 Nov. 2014]. Li, J. and Oh, Y. (2010). A Research on Competition and Cooperation between Shanghai Port and Ningbo-Zhoushan Port. The Asian Journal of Shipping and Logistics, 26(1), pp.67-91. Portmetrovancouver.com, (2014). Port Metro Vancouver. [online] Available at: http://www.portmetrovancouver.com/about/corporate.aspx [Accessed 14 Nov. 2014]. Song, D. (2003). Port co-opetition in concept and practice. Maritime Policy & Management, 30(1), pp.29-44. Whang, C. and Chiang, C. (2010). Cooperation and Competitiveness of Intra-Regional Container Ports. Journal of the Eastern Asia Society for Transportation Studies, 8(1). Read More