Marketing Strategy of Tsakos Group - Case Study Example

Marketing Strategy of Tsakos Group: A Critical Appraisal The Tsakos Shipping and Trading S.A. (Tsakos), established in Piraeus, Greece by Capt. Panagiotis N. Tsakos (Tsakos Group-a, 2010) in 1970 is driven by the ambitious vision “to be the leading company of choice for global seas transportation of goods and energy” (Tsakos Group-b, 2010). Its corporate mission statement says, “...to set the standards for safe, environmentally secured, global sea transportation of goods and energy, with modern, technically advanced ships, crewed and operated by motivated, professional, well trained seaborne and shore personnel, for a profit. We focus on, satisfying our clients’ demands, for the benefit of our employees and shareholders, thus fulfilling our corporate social sensitivities and commitments” (Tsakos Group-b, 2010). Owing to its scale and efficiency of operations that are controlled from Bermuda, Panama, Uruguay, England, Romania, Ukraine, Ghana, South Korea, Japan, Philippines and of course Greece (Tsakos Group-c, 2010), and through a commendable fleet of seventy eight ships (Tsakos Group-d, 2010) that consist of tankers, LNGs, dry cargo vessels and containers, the company currently enjoys a position among the top three Greek companies that are involved in ship management. Moreover, Tsakos is globally significant by being counted among the ten leading tanker companies. It has been observed that the political environment prevailing in Greece is largely stable, albeit “Greece has long been at odds with its close neighbour, Turkey, over territorial disputes in the Aegean and the divided island of Cyprus” (BBC, 2010). Despite the fact that in terms of per capita GDP Greece ranks globally 26th, the recent financial crisis has taken a toll on the nation’s economy and “Greece continues to face a large competitiveness gap which has been accompanied by a marked deterioration in the external current account balance” (Honjo & Chua, 2008, pp.2). The social tenets of Greece are quite strong and its people are mostly religious. High rates of literacy make the nation competent enough to make forays into the global arena in terms of trade and economy. It is a noteworthy fact that there has been a strong and almost inseparable association between Greece and the art and trade of shipping, since time immemorial. Owing to this fact, maritime trade has remained a key component of the Greek economy since ages. The significance of shipping to Greece can be appreciated from the words of Capt. Panagiotis N. Tsakos, who himself hails from a family associated with this business for generations, “...I can remember the older men urging us to become a ‘kalos kapetanios’ - a good captain... So for me to go to sea was not much a matter of choice but more a matter of destiny” (Tsakos Group-a, 2010). Coming to the element of technology, it has been observed that shipping is a highly technology-intensive industry and it also requires substantial investments in terms of research and development. It is evident that this industry has reached its peak in terms of growth; however, it is yet to attain maturity. Contrary to being highly lucrative, the shipping industry is risk laden and moreover it is constrained by certain legal parameters as well. Firstly, there is the antitrust law that has been brought into action in both the US as well as the EU. Secondly, this industry must also conform to a wide spectrum of obligations in terms of the quality of water and air, disposal of hazardous wastes, and the protection of marine species. These legal bindings have subjected the operations of shipping companies to enhanced prudence. Finally, in the backdrop of a globalised business environment wherein the issues pertaining to climate change have come to the forefront, legislations as well as regulations related to them have been flexing enough muscle to keep this industry under control. During the research it has been revealed that “in March 2007 the EU’s leaders endorsed an integrated approach to climate and energy policy that aims to combat climate change and increase the EU’s energy security while strengthening its competitiveness” (Europa, 2010), with the aim to transform Europe “into a highly energy-efficient, low carbon economy” (Europa, 2010). The “20-20-20 targets” (Europa, 2010) have been set with the aim to reduce the emission of greenhouse gases by twenty per cent, to source twenty percent of energy requirements from alternate sources, and to improve energy efficiency in order to reduce by twenty per cent the use of primary energy. Though Greece along with few other European nations have strongly objected to these regulations, it is noteworthy that “Tsakos invoked the spirit of the Hellenic Marine Environment Protection Association (Helmepa), launched in 1982, which it said made the shipping community the first sector of Greek business life to embrace the subject of the environment” (Lloyd’s List, 2009) and has involved itself with the polar research by contributing to the endeavours of the Greek scientists. A closer look at the industry has pointed at the fact that the shipping industry being highly capital-intensive, the barriers to entry are quite high. Moreover, the curve for proprietary learning is markedly steep. In connection to this phenomenon, it has been observed that “captives of shipping and logistics majors are evolving from being an ‘onshore centric’ in terms of decision making and accountability to a model where process related decisions are increasingly being taken where the process is being performed – the offshore back office” (Gaikwad, 2008). New entrants are required to acquire relevant certifications pertaining to safety as well as management practices, apart from having specialised assets in the form of tankers, cargo vessels, etc. that cannot be easily converted for alternate uses. Economies of scale are so high that start-up ventures that are generally small face towering barriers to entry. The most prominent buyers in the global shipping industry are well established oil giants that are mostly owned by governments. Few such organisations are Chevron Corporation (USA), Exxon Mobil Corporation (USA), Flota Petrolera Ecuatoriana (FLOPEC) (Ecuador), Neste Oil (Finland), Petrobras (Brazil), Total (France) and Vitol (Switzerland). The market conditions are such that none of these large organisations is in a dominant position, and hence the buyers’ bargaining power is low in this industry. Tsakos has two main suppliers, viz. the shipyards and ports. The shipyards can take advantage of their position in the supply chain and can demand higher prices as well as lengthier periods for building. Generally such trends are observable during periods of economic boom. Although the shipyards compete among themselves, under favourable market conditions they form syndicates and exhibit enhanced bargaining power. However, there are a few ports that face tough price-competition and it has been observed that “US containerised imports continued to fall in June according to the Port of Long Beach, the leading gateway for Asian imports to the US” (The Chartered Institute of Logistics and Transport, 2009). Moreover, it was also reported that “The port saw volumes contract by 28.7%” (The Chartered Institute of Logistics and Transport-a, 2009). It has also been reported that fierce competition coupled with the recession had affected ports in northern Europe to such an extent that the maritime traffic in Hamburg had fallen by twenty nine per cent in the third quarter of the 2009 fiscal (Fairplay, 2009). As per established theories of economics, overcrowding at ports may force customers to search for alternate measures such as other ports, different shipping methods and containerisation. Furthermore, Notteboom and Rodrigue (2008) have propounded that “port congestions, trade imbalances, environmental constraints, rising oil prices and complex security issues would add risk to the supply chain and thereby dampen the rate of growth for seaborne trade in containerised cargoes” (Yim, 2009, pp.29). This is of considerable significance, given that Tsakos specialises in containerisation. The shipping industry ranks second among the most vital industrial sectors of Greece and accounts for approximately five per cent of the national GDP. This sector employs four per cent of the nation’s workforce that comes close to 160000. It has been reported that Greece houses the world’s largest fleet, and hence the shipping giant Tsakos must reap optimal benefits of its position in the domestic industry. It should also strategically source funds from the central government. It may be noted that currently the government in Greece is in considerable deficit and hence it may help Tsakos as well as few of its rivals in order to augment the maritime industry which is in a way the backbone of the national economy. Owing to the nature and scales of operations, the shipping industry emphasises on obtaining the lowest possible cost of capital when it comes to owning a ship, and on obtaining reasonable financing supported by steady as well as an increasing cash flow as practised by trading as well as chartering companies. Tsakos should build its competence in chartering and hence enhance its focus on steadily growing cash flow. In order to achieve this, the company must better its relationship with its creditors as well as long-term customers. Vessel size in the spectrum of 6500-8000 TEU have been strongly indicated as the most competitive due to its flexibility in terms of access to ports (Yim, 2009, pp.53), and hence to the regional markets. However, Tsakos should aim at purchasing ships that conform to such size specifications once it plans to expand its existing fleet. As the business world is slowly becoming green under the current circumstances, it is most likely that green shipping will emerge in the near future. Tsakos must take proactive steps, and make attempts to maintain its industrial leadership through integrate the green initiatives in its marketing campaigns. Tsakos should spread awareness about its futuristic environment-friendly strategies in order to enhance its brand image – both in the domestic market as well as globally. During the periods of economic soundness, delivery time goes up because of the simple fact that the orders get accumulated, although during periods of recession the opposite happens. Owing to these facts, shipping companies must be adept at planning their logistical activities. The scale of operations at Tsakos being exceptionally high given that the company has spread out in diverse locations and owns a large number of ships, it must fine tune its timing as to when it should add new ships to its existing fleet. The company should enhance its investment in research and development in order to improve its forecasting capacity. The shipping giant must hire young, talented managers and delegate them with the responsibility of managing its assets. By doing so, Tsakos will also be able to sell ships proactively when the economy reaches its peak, and thus it will be able to reap maximum profits. It can be predicted that such measures will bolster the company’s competence in terms of understanding the demands of its clients in an efficient manner, and avoiding the demand curve which is characteristically volatile for the shipping industry. These outcomes will be realised through the commendably wide network that Tsakos has throughout the world. Moreover, the loyal customer-base of Tsakos will also prove to a priceless advantage. These strategies, if implemented successfully, will help Tsakos enhance its market share. It is noteworthy that risks pertaining to counter-parties constitute a potential threat that is of immense significance for Tsakos. Instead of entering into any contract that comes its way, the company should make meticulous attempts to create long lasting business associations with the most prominent users of time charter services, such as Chevron Corporation (USA), Exxon Mobil Corporation (USA), Flota Petrolera Ecuatoriana (FLOPEC) (Ecuador), Neste Oil (Finland), Petrobras (Brazil), Total (France) and Vitol (Switzerland), that had been mentioned earlier. The players in the shipping industry may be able to earn huge profits if they consolidate or form cartels, albeit the second alternative is considered a business malpractice. Consolidation may help the industry as well as the participating players enhance their performance and competences. Increase in size will also help them make the barriers to entry much higher. However, Tsakos must make note of the antitrust legislations in the USA as well as the EU and take such steps with enough circumspection in order to avoid the risks associated with them. References 1. BBC. May 5, 2010. Greece Country Profile. [Online]. Available at: http://news.bbc.co.uk/2/hi/europe/country_profiles/1009249.stm [Accessed on May 14, 2010]. 2. Europa. February 23, 2010. The EU Climate and Energy Package. Climate Change. [Online]. Available at: http://ec.europa.eu/environment/climat/climate_action.htm [Accessed on May 14, 2010]. 3. Fairplay. August 2009. Hamburg Box Traffic Drops 29%. IHS Global Limited. 4. Gaikwad, S. 2008. Trends in BPO in the Shipping & Logistics Domain. Infosys Technologies Limited. [Pdf]. Available at: http://www.infosys.com/offerings/bpo-services/documents/transportation-shipping-logistics-bpo.pdf [Accessed on May 14, 2010]. 5. Honjo, K. & Chua, D. March 27, 2008. Greece: Selected Issues. International Monetary Fund. [Pdf]. Available at: http://www.imf.org/external/pubs/ft/scr/2008/cr08147.pdf [Accessed on May 14, 2010]. 6. Lloyd’s List. December 21, 2009. New Climate Research. [Online]. Available at: http://lloydslist.com/ll/news/new-climate-research/1261062345596.htm;.065acf6a61c52eed94766d1ba7da5d95d4ecd58a [Accessed on May 14, 2010]. 7. The Chartered Institute of Logistics and Transport. July 3 – August 3, 2009. Ports Forwarding & Maritime Forum. Newsletter. [Pdf]. Available at: http://www.ciltuk.org.uk/pages/downloadfile?d=D5CD01EF-FA00-4FCA-9A43-46F03696C5B8&a=stream [Accessed on May 14, 2010]. 8. Tsakos Group-a. 2010. Our Founder. [Online]. Available at: http://www.tsakoshellas.com/profile/group/indexgroup.asp [Accessed on May 14, 2010]. 9. Tsakos Group-b. 2010. Home. [Online]. Available at: http://www.tsakoshellas.com/index.asp [Accessed on May 14, 2010]. 10. Tsakos Group-c. 2010. Office Locations. [Online]. Available at: http://www.tsakoshellas.com/profile/locations.asp [Accessed on May 14, 2010]. 11. Tsakos Group-d. 2010. The Fleet. [Online]. Available at: http://www.tsakoshellas.com/fleet/indexfleet.asp [Accessed on May 14, 2010]. 12. Yim, W. Y. 2009. Container Shipping Services and Their Impact on Container Port Competitiveness. University Press Antwerp. Bibliography 1. Brassington, F. & Petitt, S. (Eds). 2003. Principles of Marketing. 3rd ed. FT Prentice Hall. 2. Bridgewater, S. and Egan, C. 2001. International Marketing Relationships. Palgrave. 3. Johnson, G. & Scholes, K. 2002. Exploring Corporate Strategy. 7th ed. FT Prentice-Hall. 4. Haberberg, A. and Rieple, A. 2001. The Strategic Management of Organisations. Prentice-Hall. 5. Kotler, P. et al. 2005. Principles of Marketing. 4th ed. FT Prentice Hall. Read More