Strategic Coupling (Cornell Studies in Political Economy) by Yeung Henry Wai-chung

Author:Yeung, Henry Wai-chung [Yeung, Henry Wai-chung]
Language: eng
Format: epub
Publisher: Cornell University Press
Published: 2016-05-23T16:00:00+00:00

Technological solutions and continuous product innovations in offshore rig production, however, are not sufficient to guarantee the market success of rig producers. As noted by my SembCorp interviewee, “In the rig business, we own certain technology and licenses which competitors find it difficult to get into. In the area of design and licensing arrangement I think we have some protection. But then the protection only gives you certain number of years each. So we need to keep inventing ourselves to keep the leading edge.” Organizational innovations are just as critical for these rig builders to weather different business cycles in the volatile offshore oil and gas market. First, organizational processes, such as strong relationships with customers and suppliers and project execution skills, are critical intangible advantages enjoyed by strong market leaders like Keppel. As described by my Keppel interviewee, “I would say the intellectual property [IP] that we have—how to do the whole thing, the design, the solution, and to understand customer needs, execute—gives us a niche over our competitors. IP in the sense that it’s not tangible: people, system, and culture that we hope are more enduring. It’s not so easy to duplicate.” While scale economies can be useful in the shipbuilding industry, size alone cannot help shipbuilders overcome the highly volatile and customer-centric nature of the offshore rig business. The global gloom in the rig market between the mid-1980s and the late 1990s is instructive because Keppel and SembCorp consolidated their organizational capability and investing in more productive equipment while their competitors from South Korea made serious mistakes by diversifying and expanding into rig production. For example, Keppel merged its Keppel Shipyard with Hitachi Zosen in 1999 and incorporated the merged entity into Keppel O&M in 2002 to establish an integrated offshore and marine production powerhouse.

Second, Keppel and SembCorp continue to innovate in their organizational forms through the geographical expansion of their shipyards. Unlike the three leading South Korean shipbuilders that concentrate their production activity in gigantic domestic shipyards, both Singaporean rig builders understand fully the highly customer-centric nature of the rig business and therefore their global customers’ strong preference for the localization of rig production near oil and gas extraction sites. Globalization of shipyards represents the explicit organizational strategy of coupling with the demand of lead firms in these global production networks. Keppel’s strategy is to be “near market, near customer.” It started its global footprint of yards as early as 1975, when it established a shipyard in the Philippines. Its globalization efforts were intensified in the 1990s, and Keppel’s production capacity was established in Texas, Azerbaijan, Bulgaria, Norway, and the UAE. By the end of the 2000s, Keppel set up more yard facilities in Brazil, China, Indonesia, Kazakhstan, Qatar, the Netherlands, and Vietnam. Commenting on this localization strategy, my Keppel interviewee explains that “the reason to be there is because of the customers and the market. So it’s not because of the lower cost there—it’s very expensive there. We’re there because the customer is there; near the market has clear advantages.

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