Example Of Essay On Coopetition Strategy Among Operators In The Port Industry

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Introduction 03
Chapter 1: Coopetition as a Concept . 04
Chapter 2: Factors in Successful Coopetition Strategy . 05
Chapter 3: The Case of China COSCO and the Maritime Supply Chain . 07
Chapter 4: A Conceptual Framework 09
Conclusion . 10

Reference List 11

Introduction
Coopetition is a concept that has been considered a positive development in free markets wherein competing businesses cooperate in specific aspects of their operations in a friendly and mutually supportive framework. While current literature seems to show a positive direction for this strategy, evidence is still inadequate for a conclusive argument. The variation of outcomes may relate to the expected diversity of businesses and their specific characteristics and needs that may not respond to the coopetitive interaction.
Moreover, within the coopetitive relationship, there always exists inevitable opportunities and risks that salient business information obtained from the competitor are misappropriated in the context of competition instead of confining such within the rules of coopetition (Dahl, 2014: 274). Each coopeting company has to continually deal with this dilemma with insight and responsibility to keep the interaction alive and free from the debilitating effect of distrust. Ritala (2012: 307) reported of failure cases with conclusive evidence on its benefits, particularly in market performance.
Most studies in Coopetition are industry-specific, such as information and communication technology, healthcare, transportation (e.g. airline), food, and automobile (Ritala, 2012: 307). This essay will therefore explore the performance of Coopetition in the port industry, which globalization has transformed from a node for cargo transfers into a link in the global logistics chain (Song, 2003: 29), particularly in the port logistics management. The move towards alliances among port operators is getting desperate as shipping companies have already established alliances (Song, 2003: 30), which often exert pressure against solitary local port operators whose business depends upon the graces of shipping companies. Coopetition among regional port operations can potentially strengthen each participating members.
Chapter 1
Coopetition as a Concept
Coopetition, or inter-competitor cooperation, refers to the concept of simultaneous cooperation and competition between at least two competing businesses. Literally, it is the cooperation of competitors serving the same market and oftentimes having the same products or services (Song, 2003: 30). The idea concerns value creation through the pooling and employing of available and valuable resources in participating firms towards specific goals (Ritala, 2012: 307). In effect, it is a non-equity contractual collaboration (Song, 2003: 31). The cooperative side usually involves such undertakings as research and development, purchasing, market development (Dahl, 2014: 272, 275). Meanwhile, the competitive side revolves around such activities as sales and after-sales (Dahl, 2014: 275).
The common motive is either social or economic, or both. Game theory proposed that companies, joining hands in coopetition, do so in order to harness each other’s capabilities in increasing their common target markets, either through expansion or creation of new ones, after which they divide between them (Ritala, 2012: 309). That constitutes the primary objective in coopetition arrangements among port operators (Song, 2003: 32), particularly when either port company is incapable of doing so by a single-handed effort. It also gives them stronger bargaining powers against governments and shipping lines. Coopetition does not increase knowledge spill-over risk and allows the sharing of risks (and related costs) involved.
Another motive is to protect current market share while sharing a commonly developed new market (Ritala, 2012: 309; Song, 2003: 31). Furthermore, under portfolio performance theory, coopetition may lead increased competitiveness exclusively among participating companies (Ritala, 2012: 312; Song, 2003: 31).
Chapter 2
Factors in Successful Coopetition Strategy
Much of the support in the continued engagement to this inter-competitor relationships rest largely with factors found at three levels in the coopetitive relationship, such as company-level factors, alliance-level factors, and market-level factors.
Company-Level Factors
Knowledge Intensiveness: Growing evidence emerged in the disparity of success in strategic coopetition between companies that were knowledge-intensive and those that were not (Ritala, 2012: 308). Sectors with little use of knowledge, such as manufacturing, had been noted for their failure to make coopetitive strategies work. Such dismal performance may be contrasted to the stellar outcomes in such sectors as research and development. For instance, the agility strategy used in strengthening inter-business environment links in the port logistics system is knowledge-based (Paixao and Marlow, 2003: 361).
Specifically Beneficial Outcomes: Each company joined in coopetitive arrangements with respective experiences or goals in mind (Dahl, 2014: 274). To the achievement of these, the continuing coopetitive relationship greatly depended. When current goals, for instance, were deemed unsatisfactory, the companies initially tried to make adjustments (reformulations) in their goals (Dahl, 2014: 275, 276). However, continued negative outcomes most likely result to disengagement.
Alliance-Level Factors
Mutuality of Value Creation: Coopeting companies have the benefits of using mutually created values (Dahl, 2014: 272). For the cooperative interaction to work, each organization needs to maintain an ongoing balancing of mutuality consistent and faithful to the rules of engagement. In fact, businesses, even those competing within the same market, thrive in coopetition when both are capable of joint learning from mutually created experiences while they continue to compete outside the relationship.
Shared and Agreed Norms of Interaction: Trust, between coopeting companies, accumulates when they shared norms of engagement (Dahl, 2014: 273). Such norms define the depth of shared experiences in the cooperative interactions, simultaneously building trust, in various forms, with every experience they share. Moreover, these norms need also to be stable, predictable, and subject to improvement when the need demands (Dahl, 2014: 278).
Market-Level Factors
Vulnerability of Non-Participating Competitors: One of the most common motives in entering a coopetitive alliance is enhanced competitiveness. Coopetition had been expected to increase the market performance of each participating company (Ritala, 2012: 312). Moreover, the strength of the joint approach on the market may prove overwhelming to vulnerable competitors. However, against non-participating competitors that dominate their respective markets where the coopeting companies operate, this alliance may end up in failure or with minimal dent on the dominant common competitor’s market share. The strategy works only under a less intense competitive environment (Ritala, 2012: 318).
Market Uncertainty: The coopetition strategy proved advantageous to participants in high or increased market uncertainty as it allows companies to allocate resources more efficiently, an increasing concern lately among multinationals with offshore businesses (Tate, 2014: 66), due to the synergistic effect created by the alliance (Ritala, 2012: 318). However, under a low market uncertainty environment, the strategy may be unable to deliver value expectations to each coopetitive ally.
Chapter 3
The Case of China COSCO and the Maritime Supply Chain
With the delivery of new container vessels on 31 December 2013, its total capacity increased to 786,252 TEUs with 173 container vessels and 319 dry bulk vessels with 28 million DWT (China COSCO, 2014: 13-14). As freight integrator, it has been ranked second only to the A.P. Moller Group (Notteboom and Merckx, 2006: 560, 566). It has established strategic alliances with K-Line, Hanjin, and Yang Ming, a coopetition referred to as the ‘CKYH Alliance’.
The alliances that China COSCO entered into vary in forms. It owns container terminals in four Asian regions (Bohai Rim, Yangtze River Delta, Southeast Coastal, and Pearl River Delta) and overseas, which experienced a total throughputs of 61.28 million TEUs (China COSCO, 2014: 14). For port operators, which became an integral part in the maritime supply chains (Mangan, Lalwani and Fynes, 2008: 35; Panayides, 2008: 562), China COSCO interacts with them both as a docking customer and a terminal client, and a lucrative one in the industry. Despite the trend towards very large vessels, which Company also participated and have threatened the port industry in certain regions, port operators continued a secure business operation with the China COSCO terminals as an enduring client. The symbiosis between the two industries (port and shipping) had apparently served mutuality of their respective business interests, which strengthen both.
This integration strategy also allowed China COSCO to offer or control inland logistics services and consequently better control on shipment, enabled it to obtain higher profit margins in the segment (Notteboom and Merckx, 2006: 566-567). Simultaneously, it lowered ship system costs; although, intermodal cost may increase in its share of the total costs. As carriers integrate their services into the supply chain, they must satisfy shipper requirements of frequency, punctuality, reliability, and geographical coverage. Furthermore, the complexity of the maritime supply chain reaches into the container terminal level. Nonetheless, Company terminals are well equipped to service its shipments.
In 2013, ongoing oversupply of freight capacity had stabilized freight rates (China COSCO, 2014: 28-29, 32). Coopetition also experiences frequent changes, which had a damping effect on cargo volume growth based on supply and demand. Mergers and acquisitions, as a form of alliance in the container shipping industry, as well as coopetition and joint venturing accelerated in 2014, resulting to increased optimization in the routes and capacity allocation. Resulting enhancement of resource utilization is expected to reduce operating costs and therefore business risks.
Chapter 4
A Conceptual Framework
The primary threats to the business survival of port operators came from three forces: (1) globalization, which resulted to shipping alliances and increased bargaining power (Notteboom and Merckx, 2006: 557; China COSCO, 2014: 28-29); (2) Increased vessel sizes and intermodality, which move a large volume of business from local ports to intermodal hubs (China COSCO, 2014: 28-29); and (3) intense port competition among smaller port companies and against larger and stronger multinational companies (Song, 2003: 30-31). Force 1 increases competitive pressures among local port operators as well as against GPOs, threatening profitability and, eventually, survival. Force 2 specifically threatens ports with lesser depth, which limit their customers to relatively smaller vessels (e.g. interisland ships) and result to the loss of the larger and more lucrative international carriers (like China COSCO). Force 3 pits the local operators against each other through price competition to win more demanding multinational carriers. Simultaneously it pushed the local companies against larger GPOs that operate in the area.
Coopetition between local and regional port operators has the effect of dissolving Force 3 and, by mutual agreement, protecting each operator in the alliance in their respective current market shares. The strategy also strengthens the coopetitive port operators against Force 1, as their capabilities, for instance, to standardize cargo handling fees across the region stabilizes and strengthens, making it highly resistant to shipping pressures. Simultaneously, the strategy allows them to compete against stronger GPOs.
Conclusion
It is now an accepted fact in the port services industry that individual firms, whether operators of ports, terminals, or logistic services, ceased to be the basis of market competition. Supply chains, as bi-directional logistics systems (Paixao and Marlow, 2003: 358) with the parallel financial supply chain included (Silvestro and Lustrato, 2014: 298), had taken over their relevance with the transport services (i.e., land and sea transporters) acting merely as chain links and transport infrastructure (i.e., ports of various sizes and specializations) as nodes (Mangan, Lalwani and Fynes, 2008: 35). Stakeholders in the port industry are in a situation of increasing pressure to bundle together their operations and compete against larger multinational port operators. Otherwise, their profitability may suffer eventually as the worldwide supply chains become more efficient, more complex, and enormous, eventually too huge for small operators.
Meanwhile, the nature of inter-competitor cooperation continues to evolve. As such, the current coopetition system remains unstable and unpredictable, which only the companies involved could better gauge or predict the prospects as far as their current engagements are concerned. So much about coopetition remains unknown, and needs to be known through inter-company experiences with it. Large operators, such the Dubai Ports World (DPW), preferred to simplify the transaction by opting for a merger instead, as what it did when it took over P&O Ports in 2006 (Mangan, Lalwani and Fynes, 2008: 34). That is the future trend that smaller port operators may have to prepare to face if not right away, but eventually.
Nevertheless, recent literature had showed growing proof that coopetition had been beneficial to the innovative programs of most firms (Ritala, 2012: 310). In fact, it helped companies generate innovative technologies. However, the port industry still had to experiment with coopetition to determine its contextual usefulness. It may be their chance to survive.
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