Saturday, September 5, 2009

A Conceptual Framework for Growth Strategy of a Port System: A Case Study of Aceh, Indonesia

By Muhammad Subhan
(Paper presented at the ICIS 2008)

INTRODUCTION

In the last few decades, the world has witnessed a rapid changing of global trade movement and remarkable growing of goods demands or the so-called globalizing market place (Robinson 2002) or globalization of port logistics (UNCTAD 2007, 2008). This reality is triggered by a towering growth of the world population, commodities, and the increasing economic prosperity as well as the new inventions in maritime and shipping technology.


Port and shipping industries have experienced great transformations to support the innovation and development in maritime industry sectors with necessity infrastructures and services. One of the major and important changes that have been brought to the port and shipping industries is the use of containerization in the way of how goods are transported (Notteboom 2004, Peng & Xueyue 2003, Fung 1994). Containerization has enabled the physical transfer of goods from one mode to another easily into one single system. Many developed and developing countries have relied very much upon the container system for their international trade especially through ocean liner. For instance, at least 85 per cent of China foreign trades (Peng & Xueyue 2003) and 89.6 per cent of global trades (UNCTAD 2008) were transported using the ocean transportation.

In responding to these trends, studies and researches on design, size, and capacity of the containerships have been carrying out continuously to produce larger and faster vessels. Design and making of ultra large and modern containerships is becoming a never-ending competition. At this time, mega containerships of 9,000-11,000 TEU are already in operation. For instance, Emma Maersk of A.P. Moller-Maersk Group is the biggest containership ever built so far with capacity of 11,000 TEU and the ship has 397 meters length, 56 meters breadth and 14 meters draft (Maersk 2008). Samsung Heavy Industries (SHI) in Korea has been successfully developed containerships double in terms of its capacity only in 7 or 8 years. SHI developed a containership of 6,200 TEU in 1999 and 9,600 TEU in 2003 and they are in progress of developing eight ships of 13,300 TEU since 2007 that will be in use by 2011 (Samsung Heavy Industries 2008).

Lloyd’s Register as quoted by Global Security Organization (2006) announced that a study on innovative design carried out by Germanischer Lloyd and Hyundai Heavy Industries has resulted a design of 13,000 TEU containerships with 382 meters length, 54.2 meters width and draft 13.5 meters. Global Security also expected that in the next 10 years (from 2006), containerships of 18,000 TEU, with 60 meters length and maximum draft 21 meters will be built. This is simply because a research conducted by their experts shows that this huge containership is possible to be developed.

As a consequence, according to Robinson (2002), the rapid transformation and development within the industries will significantly affect to structural and functional changes to ports and port authorities. In this such a situation, port authorities and port managements need to define the new core business of the port, to identify an appropriate strategic intent as described by Hamel and Prahalad (1994, 1988), to specify relevant core and threshold competencies and to position the port for growth.

However, according to Magala (2004), many ports (regional ports) are experiencing problems of ill-formulated and poorly implemented strategies set in place and of unclear mechanisms of port growth or in Hamel’s (2001) view, many firms, including ports, are facing the dilemma of that they don’t have enough variety and enough testing in their strategies or they just simply experience what Hamel and Valikangas (2003) labeled as strategy decay which is replicated, supplanted, exhausted, and eviscerated. Too overcome these problems, study is always in need to learn how ports grow, to identify sources and factors that contributing to port growth, to formulate relevant and unique strategies for growth and to understand perceived strategies for growth of port authority. This kind of study is essential for port development, growth, and survival and to achieve sustainable competitive advantage of the port; and this paper attempts to achieve small part of it for Aceh seaport system.


ACEH AND THE STRAITS OF MALACCA

The number and type of vessels pass through the Straits of Malacca is now increasing drastically. According to Zubir (2007), every year more than 50,000 cargo ships use the straits or more than 30 per cent of the vessels are containerships (The National Maritime Portal Malaysia 2008). Most of these containerships will be berthed at several ports in the straits to load and unload containers at the ports.

Vessel traffic congestion, growing ship sizes, highly growth of the market, and depth limitation facing by the Straits will contribute negatively to future development of ports (UNCTAD 2008) especially in the Straits of Malacca where in fact the statistics show that commodities demands through containerization are vastly increasing (Port Aid 2008). Therefore, well-defined strategies are needed for the growth of the ports in the region such as development of new or up-graded ports in the deepwater of the region that be functioned as transhipment or hub port will perhaps be a sound strategy to sustain competitive advantage.

As the consequence of containerships increase, the throughputs activities at several ports in the World and especially in the Straits of Malacca are also significantly increase from year to year (PSA 2007, 2008 and Port Aid 2008). The average increase of container throughputs for the world is sharply increased at 6.7 million TEU per year. If we look at the throughputs activities at the top 10 main container ports in South Asia where the Malacca Straits located, we will find that there was 6.7 million TEU increased or 13.17 per cent for year 2006 compared to year 2005. The throughputs also increased for 17.73 per cent in East Asia region, the closest neighbor to South Asia region (see table 1).

Aceh, sitting at the northern tip of the island of Sumatra and becoming a west-gate keeper of the Straits of Malacca, geographically offers important shipping lanes throughout the region and to ports’ hinterland of Indonesia. Strategically, with its rich resources and its position surrounded by the fastest growing regions of the world economy, China on the right side and India on the left side, and its location in one of the major markets of the world container shipping, Aceh ports naturally has opportunities and capabilities to grow (see figure 1).

Aceh with the population of 4,223.8 thousand in 2007 and with area of 56,500.51 square kilometers is the fourth biggest province in Sumatera Island whose area is about 446,686.68 square kilometers constitutes 24.01 per cent of total area of Indonesia to be the second largest island in Indonesia. Aceh’s average monthly income per capita as in 2007 is Rp.1,275,908 makes up the third highest average monthly income in Indonesia after Papua and Jakarta (BPS 2008).

Recently, the Government of Aceh has announced a plan to upgrade and redevelop several ports in Aceh with the assistance from the United Nations for Development Programs (UNDP) and other bodies (Aceh Government 2008). Aceh port system comprises of eight ports and five of them facing the Malacca Strait. Two of the five ports are deepwater functioning ports (UNDP 2005) i.e. Sabang Port which is located at the northern tips of the Malacca Straits from Sumatera Island side and Lhokseumawe Port in North Aceh. The position of Sabang as a centre for trading and port has been retaken into account since 1993 (Syaiful 2007) in relation to the establishment of Indonesia, Malaysia and Thailand Growth Triangle (IMT-GT). Sabang has been stated as The Integrated Economics Development Region (KAPET) through President Habibie decree No.171 dated 26 September 1998 and in 2000, President Wahid has stated the region as the Free Trade Zone (FTZ) and the Free Port Zone or FPZ (Syaiful 2007, Mawardi 2007). On the other hand, Lhokseumawe Port is benefited of being a commercial port close to the industrial and agricultural regions of Aceh.

Aceh, geographically, has locational advantage of being positioned at one of the world busiest shipping lane of the straits of Malacca (see figure 1). With this position, Aceh ports have a broad accessibility to shippers. In addition, Aceh seaport system is situated within IMT-GT regions and has a lot of unique resources that can be used to complement for the port growth. But in fact, despite having those values and resources, Aceh port system is still having problems to grow as major and dynamic ports in Indonesia and in the region that maintain and increase competitiveness. At one point, as pointed out by some abovementioned authors, many ports including Aceh ports are facing problem of ill-devised and poorly implemented strategies and of unclear mechanisms of port growth in all aspects. At another point, Aceh ports are surrounded by and in the shadow of world huge and busiest ports like Port of Singapore, Port Klang and Port of Tanjung Pelepas that always enhance their advantages and values that likely difficult for other ports in the region to compete.

(Discontinued)

Note: Please send me an e-mail for full paper at: subhanaceh@yahoo.com

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Monday, August 31, 2009

Resource-based Growth Strategies used by PTP Port

By Muhammad Subhan & Ahmad Bashawir

(My article that has been published in the Gajah Mada International Journal of Business, Indonesia)


I. Introduction


In last few decades, the world has witnessed a rapid growth of the global trade movement which triggers globalization of port logistics (UNCTAD 2007, 2008) or market place globalization (Robinson 2002) as a result of the towering growth of the world population, commodities, and the increasing economic prosperity as well as the new inventions in maritime and shipping technology. Port and shipping industries have experienced great transformations to support the innovation and development in maritime industry sectors with necessity infrastructures and services.

In shipping industries, studies and researches on design, size, and capacity of the containerships have been carrying out continuously to produce larger and faster vessels. According to Global Security Organization (2008) it was around 6,800 containerships in different sizes, recorded in 2000, operated to handle 5.8 million TEU and in the early 2004, 100 containerships of 8,000 TEU were already in operation. Samsung Heavy Industries (SHI) in Korea has been successfully developed containerships double in terms of its capacity only in 7 or 8 years. SHI developed a containership of 6,200 TEU in 1999, followed by the making of containership of 7,700 TEU in 2000, containership of 8,100 TEU in 2002, containership of 9,600 TEU in 2003 and is in progress of developing eight ships of 13,300 TEU since 2007 that will be in use by 2011 (Samsung Heavy Industries 2008). Recently, containership of 11,000 TEU named Emma Maersk is already operated by A.P. Moller-Maersk Group. It is the biggest containership ever built so far in term of its capacity and the ship has 397 meters length, 56 meters breadth and 14 meters draft (Maersk 2008).

The process of building containerships of 12,500 TEU is now carrying out according to Lloyd’s Register and expected to be accomplished by 2010. The study on innovative design carried out by Germanischer Lloyd and Hyundai Heavy Industries has resulted a design of 13,000 TEU containerships with 382 meters length, 54.2 meters width and draft 13.5 meters. It is expected that in the next 10 years, containerships of 18,000 TEU, with 60 meters length and maximum draft 21 meters will be built. This is simply because a research conducted by them shows that this huge containership is possible to be developed (Global Security Organization 2008).

As a result, according to Robinson (2002), the rapid transformation and development within the industries will significantly affect to structural and functional changes to ports and port authorities. In this such a situation, port authorities and port managements need to recognize and capture the new opportunities, define the new core business of the port, to identify an appropriate strategic intent as described by Hamel and Prahalad (1994, 1988), to specify relevant core and threshold competencies (Hamel and Prahalad 1994) and to position all of these as opportunities for growth of the port.

In this paper, we look at growth opportunities of the port from the resource-based theory. The case of Tanjung Pelepas port in Malaysia of recognizing opportunities for growth is explored and analyzed using the theory.


II. Resource-based Perspective

According to Mahoney and Pandian (1992) the resource-based approach is an emerging framework that incorporates concepts from mainstream strategy research concerning a firm’s unique competencies and heterogeneous capabilities, provides value-added theoretical propositions.

Resource-advantage theory views the firm as a combiner of heterogeneous and imperfectly mobile resources. Heterogeneous resources may include a firm’s knowledge base about markets and specific expertise. Imperfectly mobile resources are those that can be traded but are of more value within the firm. In the shipping industry companies may have an assortment of resources, which are in some ways unique and costly to copy, and also more difficult to trade in the market place. Competitiveness in many sectors of the maritime industry may be achieved through the efficient and effective organization of a firm’s economic resources (Panayides and Gray 1999).

In order to contribute to competitive advantage, resources that are unique must be aligned with core competences and integrated into the firm's capabilities or complex patterns of coordination between people and between people and resources to perform specific value added activities. Competences are necessary but not enough to allow a firm to create a differentiated market offering that grants an advantage over the competition are called threshold competences (Magala 2004).

Resource-based View of Port Growth Opportunities

The notion of competitive advantage is still critical and central to port growth strategies (Robinson 2002, and Magala 2004) and the essence of strategy formulation is dealing with competition (Porter 1980, 1998) and it is choosing to perform activities differently than rivals do (Porter 1996). According to Robinson (2002), port’s advantage is something created for shippers and their ancillary service providers.

The resource-based approach, according to Magala (2004), suggests that the strategies which a port can pursue should focus on the use of resources such as better logistics, good transport network and intermodal arrangements, available land for expansion, skilled labor, efficient cargo handling and storage facilities, effective configuration of supply chains, and managerial talent which are unique to the regional port and valuable to port customers. The purpose is to seek marketplace positions of competitive superiority and to contest for growth. Inland distribution and inland accessibility is also a cornerstone in port competitiveness (Notteboom and Rodrigue 2005). In addition, location of the port is a key factor. A seaport located on a shipping lane has distinct advantages in terms of being on a trade route thereby requiring, no detour to gain access to/from the port, thus reducing voyage time (Branch 1996).

An effective strategy to competing on resources, according to Magala (2004), should include the identification and classification of port resources, the identification of port capabilities (what the port can do more efficiently and effectively) than its rivals. Only after this review, port authorities select a strategy to exploit their resources relative to external opportunities and competition.

III. Defining Key Concepts

To stay away from potential misleading, three key concepts that are critical to the rest of this article are defined in this section. The concepts are port resources, port growth, and competitive advantage.

Port Resources

In general, resources can be defined as any tangible (such as personnel and major items of equipment, supplies, money, data, technology, location, and facilities) or intangible entities (time, skill and knowledge, reputation, loyalty, capability and competency) that are available to a firm for performing operations and accomplishing assignments. We can simply define resources of a port as any factors (assets) that a port can position as inputs in the port production or operation process.

As in normal business environment, port resources can also be seen as internal resources and external resources (see figure 1). The internal resources are resources exist within the port while the external ones are all resources outside the port which are not the property of the port but still can be utilized by the port directly or indirectly through certain conditions such as collaboration and alliances.

In port, resources play an important role in contributing to port growth as well as in achieving competitive advantage of a port (see figure 2). From the matrix, a port that struggle to achieve sustained growth and competitive advantage should employ unique tangible resources combined with core and precise intangible resources.

[Picture 1]

Port Growth

Growth, no matter how big or small, is the objective of any firm including port and is the sine qua non of port industry success, whereas sustainable growth and competitiveness are the strategic ambition of any port.


In economics, growth is always reflected to the increase in the production of goods and services, and sometimes incomes, over time through economic activity. Penrose (1956) stated that the factors that determine the size of the increments of expansion that any industrial firm can undertake within a given period of time are factors that determine the rate of growth of the firm. For port, growth should be defined as the increase in size, volume (quantity) or value, strength (quality) of productivities, services, and competitiveness vis-à-vis its competitors that a port can achieve within a particular time.

The common factors of ports’ problems that affect their growth and efficiency are the lack of resources available to them such as land availability for expansion, deep-water requirements for handling larger ships, capability to accommodate increased port traffic, environmental constraints and local opposition to port development (Notteboom and Rodrigue 2005). One of the factors, i.e. to have greater depth to accommodate modern containership drafts, have emerged the ports growing to be hub or transshipment in-function, placing them at technical advantage.




Port Growth Opportunities

Port growth opportunities can be seen as any potential or possibilities of action and change or favorable events or circumstances that may help a port to grow or increase competitive advantage. They may include such as the marketplace openings or an unexploited space by competitors where a port has potential to increase her market share (see figure 2). According to Hamel and Prahalad (1994), a firm (port) should focus on unserved customers whether the need is articulated or unarticulated in order to pull off these unexploited opportunities that may result to port growth.


Hoyle (1999) gives an example of Port of Mombasa in Kenya that has opportunities to grow due to the port has deep-water and located at a strategic international maritime transit that unique to other ports in the region. For overall, the port has competitive resources that contributing for future development of the port i.e. location, history, environment, and inland infrastructure availability. That is why Manda Bay is chosen as a suitable place for port development due to its strategic location and availability of land for expansion with relative low cost (Hoyle 1999). Singapore uses strategy by investing in Indian port to avoid the lack of land availability for expansion facing by them (Faizal 2003); this kind of alliances allows Port of Singapore to utilize other resources (Indian port) which is called external resources for enhancing their growth and sustaining their competitive advantage. Port of Ningbo will continuously get bigger market as a result of having natural advantage such as deep-water (Cullinane et al. (2005).

Port of Hong Kong and Singapore get opportunities for growth from the impact of increasing in production cost experienced by industries. The rise of the cost has forced manufacturers moving their operation to region with lower cost such as South China and Southeast Asia region. To capture this opportunity, inadequate facilities should be overcome by the ports in the region. Hong Kong and Singapore have benefited to this condition as many ports in South China and Southeast Asia, as their competitors, failed to provide satisfactorily facilities to handle the cargoes (Fung 2001).

IV. The Port of Tanjung Pelepas

The Port of Tanjung Pelepas (PTP) is located at the south western tip of the state of Johor in Malaysia facing the world major shipping route, the Straits of Malacca. With its vision to be the preferred port of choice in Southeast Asia, the port starts its operation in 1999 to complement other Malaysian ports that already established before it such as Port Klang, Penang Port, and Johor Port, just to mention major ones. However, the port officially launched by Dr. Mahathir Mohamad, Prime Minister of Malaysia, on 13 March 2000 with the mission to provide unrivalled port services globally.

In its first year of operation, the port handled 20,696 TEU. In 2006, the port handled 4,77 million TEU and increased to 5,5 million TEU in 2007. This throughput achievement has put the port to be ranked as top 20 of the world’s major container ports or the third busiest port in the region following Port Klang and Port of Singapore as the second and the first busiest ports in the region respectively.

4.1 Port’s Internal Resources

4.1.1 Nature, Location, and Accessibility

Lack of land availability for future development and growth is not a matter for the port since the port is located on a green field site that allows the port for future expansion. Having naturally sheltered deep water of 15-19 meters, no tide restrictions, turning basin of 600 meters, and 12.6 km of access channel for two-way traffic have given the port with unique natural advantages.

The port location that just 45 minutes from the crossroads of Singapore Strait and Malacca Strait, where East-West international trade lanes located, as of the world’s busiest shipping lanes (see figure 3) creates a significant locational advantage to the port that is ideal for both regional and global transshipment and distribution activities. This locational advantage is an inimitable factor to its competitors.
This strategic location combined with well-developed transport infrastructures such roadway, railway, seaport and airport give the port an excellent accessibility. The road and rail system is linked to broad highway networks that open inland accessibility for the whole peninsular, Singapore, and to other countries through Thailand. This excellent multimodal connectivity, inland and sea, offers unique feature for integrated logistics network of the port.


Figure 3: Port of Tanjung Pelepas position at the International Shipping Routes [Source: Supply Chain Leaders 2008]

4.1.2 Infrastructure

With recent infrastructure has put the port as the top 20 world container ports. As their vision to be the preferred port of choice in Southeast Asia, the port is expanding to Phase II of the port development. The expansion will include an additional 2.88 Km of linear wharf capable of accommodating an additional 8 new berths. The first 4 of the 8 berths have been completed. This brings PTP annual capacity to 8 million TEU (PTP 2008).

Current port’s berths (6 berths) have 15 meter draft alongside but all future berths (Phase II) are set in 17-19 meters of naturally deep waters with a wide approach channel and a turning basin 600 meters wide. These features allow the easy maneuvering of even the largest containerships approaching the port and fast berthing for the ships at the port.

Current major infrastructure of the port is as follows:
1. 10 berths forming 3.6 Km of linear wharf where 6 berths have 15 meters draft and 4 berths have 17-19 meters draft alongside
2. A turning basin 600 meters
3. 32 quay-side cranes and two mobile harbor cranes and 80 units Rubber-Tyred Gantry (RTG) cranes
4. Total area of 1.2 million square meters of container yard capacity that can accommodate 200,000 TEU
5. The port also offers over 1000 acres of commercial and industrial free zone land that are integrated with the port. Of this, approximately 400 acres has been designated as Free Commercial Zone (FCZ) reserved for distribution, logistics, and warehousing activities ideal for consolidation, International Procurement Centers, regional distribution centers, and distribution services. The remaining 600 acres of Free Industrial Zone (FIZ) is reserved for light, medium and heavy manufacturing industries.
6. The port also offers pilotage and towage services with tugboats fitted with fire fighting equipment and 40 ton bollard pull with 3200 horsepower engines.
7. The port also have fresh water supply at berths via pipelines.

4.1.3 Technology

In addition to outstanding location and accessibility and the world-class state-of-the art port infrastructure, the port is also equipped with advanced integrated information technology system. Some of the systems used in the port are:
1. Smartrail System. Rubber-tyred gantry yard cranes are retrofitted with SmartRail (advanced satellite-guided automatic steering and position determination system) virtually eliminating human error by using the Differential Global Positioning System (DGPS) for pinpoint positioning accuracy to avoid misplaced containers and reduce waiting time for loading discharge.
2. Container management System. The core system is utilized for yard & vessel planning and for facilitating precise container movement.
3. Gate Control and Monitoring System (GCAMS) that ensures smooth flow for all gate transactions and integrates Customs Gate Control Systems with the Port Container Management Systems to maximize efficiency.
4. Port radar System. The systems ensure safe and efficient management of all vessel traffic movement at PTP while enhancing effectiveness during emergency situations.
5. Vessel Clearance Systems (VCS) that allows paperless declarations to various governmental agencies and online approval processes.
6. Safety and Security. The Port’s Vessel Tracking System known as RADARS (Radar Information Processing and Display) provides vital information such as the status of every container in the port at any given time to the Marine Department for smooth traffic flow and added safety.

4.2 Port’s External Resources

The Straits of Malacca have been an important maritime route to many types of vessels since hundreds years ago. The number and type of vessels pass through the straits is now increasing drastically. According to Zubir (2007), at the moment, there are 220 vessels per day from both directions use the strait for their routes. From this number, more than 30 per cent of the vessels are containerships; this is according to a report by The National Maritime Portal Malaysia, Ports World (2000). Zubir (2007) also reported that every year more than 50,000 cargo ships use the straits. This figure is closely to a statistics released by The International Maritime Organization (IMO) that installed a vessel traffic system around Port Klang which found the number of vessels passed through the Straits of Malacca for 1999 only was 59,314 vessels (Ports World 2000). Most of these vessels, mainly containerships, will be berthed at several ports in the straits to load and unload containers at the ports, some will merely transit for certain purposes such as fill up fuel and water, and others will simply pass through the straits for their short cut navigation.

As the consequence of trade and containerships increase, the throughputs activities at several ports in the Straits of Malacca are also significantly increase from year to year (PSA 2007, 2008b and Port Aid 2008). The average increase of container throughputs for Port of Singapore is 2.06 million TEU per year, meanwhile the average increase of container throughputs for the world is sharply increase at 6.7 million TEU per year. For example, if we look at the throughputs activities in 2006 (table 1), the top 4 major container ports in the Malacca Straits, we will find that there was an increase of 10.40 per cent compared to year 2005.


Table 1: Throughputs volume of Port of Tanjung Pelepas and of its rivals
Port
Rank* Region, Country and
Port Name Throughputs Percent
2006 2005 Growth

Straits of Malacca
1 Singapore Singapore 24,792,400 23,190,000 6.91 10.40
2 Port Klang Malaysia 6,300,000 5,543,530 13.65
3
Tanjung Pelepas Malaysia 4,770,000 4,177,120 14.19
4 Penang Port Malaysia 849,730 795,289 6.85
Total 36,712,130 33,705,939
*based on 2006 Throughputs
Data Source: Port Aid (2008), PTP (2008), PSA (2007, 2008b), Penang Port Commission (2009)

The port of Tanjung Pelepas located with well-developed transportation infrastructures network such roadway, railway, seaport and airport. The road and rail system linked the port to a broad highway networks accessible for the whole peninsular, Singapore, and to other northern ASEAN countries through Thailand. It is also very close to other seaports forming a sound seaport system that can complement each other. Furthermore, the port also located very near to two major hub airports in the region, i.e. Senai Airport in Johor and Changi Airport in Singapore. The port’s location also near to the Iskandar Development Region (IDR), a project by the Malaysian Government to develop South Johor into a metropolis area and to be the most developed spot in Malaysia.



4.3 Port Capabilities

If we look at the port capabilities in handling the container throughputs (see figure 4), from 1999 to 2007 the port experienced a very sharp increase of the throughput volumes from only 20,696 TEU in 1999 to 5,5 million TEU in 2007. This achievement put the port as the third busiest port in the region.


With current infrastructures and the current plan for expansion, the port will be capable to handle 8 million TEU annually, to put containers into 29,785 TEU slots with the capacity of the storage 200,000 TEU. Beside that, the port is also capable to handle the biggest containership currently operated, Emma Maersk, of 11,000 TEU with 14 meters draft, and will be able to handle future containerships whose draft less than 19 meters. However, with a little dredging works, the port will be able to handle any size of future container vessels. The port is also capable to govern pilotage and towage services for any size of vessels at their turning basin of 600 meters wide.


V. Comparing Resources and Performance of the Port vis-à-vis Its Rivals

Achieving sustainable growth and competitive advantage is becoming major concerns of any port. However, many ports’ authorities fail to experience diversity in identifying and capturing opportunities and then transforming them into strategies for the port growth. Some ports focus on market share opportunities as their basis for growth, while other ports put very much attention only to their competitors’ achievement rather than their own capability. Most of the world major ports give deep and serious attention to their resources as a basis for growth and achieving competitive advantage.

To analyze the growth opportunities of the port, we compare the port’s resources with its major rival ports in the region. The comparison includes tangible and intangible resources of those ports such as container throughputs, capability of container handling, storage, facilities, and costs involved in operation, future expansion, and human resources, as well as future issues such as land and hinterland availability, and so forth.

If we look at current achievement of the ports in the region, no one would deny that the Port of Singapore, as the world busiest port, will remain as the greatest port for several years to come. The performance gap between the port of Singapore and its rivals is still too far. However, growth opportunity is not meant that other ports have to beat the leading port but rather how a port can bridge the gap. The following chart (figure 5) shows the position of Port of Tanjung Pelepas in terms of annual throughput activities relative to its rival ports based on data from 2002 to 2007.

A port’s achievement (container throughput) is greatly depending on the following aspects of a port: resources and capability, market, cooperation, opportunity, and competitive advantage. Despite those other aspects, this paper wants to highlights more on resources and capability (competency) of the port as one of the most influencing aspects for port growth.

Let us compare resources and capability of Port of Tanjung Pelepas (PTP) and its three rival ports in order to understand the opportunity for growth of the port. After that we can follow the analysis with the financial aspect that may incur from the resources and capability. Then we discuss some issues of future development of the port that also may affect growth opportunities of the port.

Table 2 shows selected important resources of the four ports and their annual container handling capability that may affect their performance (container throughput). In terms of number of container terminal, we know that the Port of Singapore has four container terminals namely Brani, Keppel, Tanjong Pagar, and Pasir Panjang Terminal; Port Klang has two terminals; Penang Port has also two terminals; whereas PTP has only one terminal.

Table 2: Resource and Capability comparison of PTP and its Rivals
No of
Berth Depth
(m) Quay Length
(m) Quay
Crane Storage Area
(Ha) Annual Handling
Capacity ('000 TEU)
PTP 10 16 3600 36 120 8000
Singapore 54 16 16000 190 600 35000
Klang 26 15 6200 61 690 12100
Penang 5 11 1230 11 42 1000
Data source: PSA (2009), PTP (2009), Northport (2007), Westport (2009), Penang Port Commission (2009b)

From resources and capability as shown in table 2, we take four aspects namely number of berth, number of quay crane, area, and annual handling capacity and then we also take total annual throughput to compare with those of PTP resources and capability to show how its rivals’ strength and competitive advantage. In table 3, PTP’s strength represents as 1 (one) for the all criteria.

[Table 3]

As aforementioned, resource and capability is not the only aspect affecting total throughput of a container port. However, this paper limits its analysis only to this aspect. As we can see in table 3 above, in terms of number of berth, Port of Singapore has almost four times more than that of PTP and Port Klang has almost two times more than that of PTP, while Penang Port has half times less than that of PTP. However, crane availability at the berth shows different thing. From the table we can see that Port of Singapore has more cranes at their berth compared to other ports. This figure might say that Port of Singapore can handle more containers than that of other ports. Area might be a sound strength if it is backed up with the efficiency of loading and unloading activities at the berth. From this table also we know that Port of Singapore has capacity 4.4 times bigger than that of PTP. An interesting point to note if we compare annual container throughputs and annual handling capacity of the ports, we will find that Port of Tanjung Pelepas (PTP) reached 69 per cent of its annual capacity while Singapore port reached 77 per cent, Port Klang 58 per cent and Penang Port 90 per cent.

In terms of Terminal Handling Charges (THC), shippers using Port of Tanjung Pelepas (PTP) and Port Klang pay MYR335 for 20-foot equivalent unit (TEU) container and MYR500 for 40-foot equivalent unit (FEU) container, while shippers using Penang Port pay MYR295 and MYR440 for TEU and FEU respectively. As a comparison (see Figure 6), shippers pay MYR414 per TEU and MYR614 per FEU for THC if they are sending their containers through Port of Singapore, while in Hong Kong, they will be charged MYR886 per TEU and MYR1,305 per FEU for the same service.

Taking this figure, we can say that in terms of cost leadership as a basis for competitive analysis (Porter 1998), Penang Port has the highest competitive advantage for this category followed by PTP and Port Klang. However, if we look at their comparison between annual container throughputs (Figure 5) and annual handling capacity (Table 2), Penang Port’s achievement is already at 90 per cent of its capacity while PTP, Port Klang and Port of Singapore are at 69 per cent, 58 per cent, and 77 per cent of their handling capacity respectively. It’s meant that competitive advantage will switch to PTP and Port Klang in terms of cost leadership. Of course, THC is not the only charge influent the cost leadership and cost leadership is not the only basis for assessing competitive advantage, but at least we have rough initial forecast of the competitive advantage of the ports.

If we compare ports’ revenue and profit (see Figure 7 and 8), we will see that PTP’s revenue and profit increases sharply compared to its Malaysian rival ports especially after 2004. Before this year, PTP spent much of their capital for investment to strengthen their resources and capability in handling containers. Roughly, comparison between revenue and profit before tax (PBT) explains operating expenses of the port. In terms of revenue and profit, the Port of Singapore remains unbeatable by its rivals with its resource superiority. To compete with the Port of Singapore’s resources and capability, PTP needs to expense a lot of capital for years to come. With its current history and performance, we believe that PTP is capable to at least reduce the gap between Port of Singapore and their port and will be the second largest container port in the peninsula.

From Figure 8, we can see that before year 2004, PTP spent much of their capital to investment. In 2003, PTP experienced a loss of MYR84 million as a result of investing expenses. Only four years after commencing operations in 1999, PTP has grown its profit and in 2008 PTP become the largest container terminal in Malaysia and the fastest growing port in South East Asia (MMC 2005).


VI. Growth Pathway of the Port

The Port of Tanjung Pelepas (PTP) has successfully positioned itself as one of major port in South and Southeast Asia together with Port of Singapore and Port Klang. This paper has shown that PTP as a ‘young’ port in the region successfully captured opportunities for growth based on their resources and capabilities. Among their unique resources are location, infrastructures, and their core-competency as well as their link to exceptional external resources.

(Discontinued)

Note: Please send me an e-mail for full paper at: subhanaceh@yahoo.com

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What are Factors Contributing to Public Willingness to Pay for an Improved Waste Management

By Muhammad Subhan & Ahmad Bashawir

(This article that has been published in the journal of economics, Univ. 11 Maret Indonesia)

INTRODUCTION


Among the most significant effect on the natural decline in many cities is about air and water pollution, loud noise, traffic crowding, smog, flash flooding, and waste pollution (Sham Sani 1990). Municipal waste problem is the main issues or a frequently discussed issue that may not end there. This is due waste will continuously exist as a result of the activity of human life. Waste generations have a closely relation with production and consumption activities. When the process of production and consumption activity is still running, the waste generation will continue to exist.

Individual produces waste in the event of his life whether either in many or small quantity. In the United States, as reported by Environmental Protection Agency (2007), the amount of waste produced by urban communities in the United States increased almost threefold in the last three decades, i.e. 254 million tons recorded in the year 2007 compared to 88 million tons in 1960. In the meantime, the industries manufacture thousands of new products each year that ultimately become urban waste creating more complex problems of handling and disposal.

The main problem is that whether the current waste management involved all parties such as the government, private sector, and also the community (household) as a single entity that can not be separated as mentioned in a study by Ridwan Lubis (1994) which states that community should be involved in waste management and get their support entirely. The community support can be seen from their awareness in the process keeping the environment clean. This is also in accordance with the study by Jamaluddin Jahi (1993) which concluded that environmental management may not be successful if the cooperation (with community and private sector) does not exist. Community preference is part of the supervision system in the environmental issue.
However, an integrated management should be implemented, taking into account household attitude as the major urban waste generator and the management must be able to recognize household attitudes and demand towards this issue. The final goal that wants to be achieved here is that the waste generation from the household side can be minimized to the most minimum level, if it is impossible to eliminate them entirely.

This study attempted to look at and identify the community (household) willingness to pay in the waste management problems and if the management initiate to enhance the services. Contingent valuation method (CV) is used in assessing WTP of the community.
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Strategies Used by Malaysian Companies when enter into an Alliance

By Ahmad Bashawir & Muhammad Subhan
(The article has been published in the journal of business management, Prasetya Mulya Business School, Jakarta - Indonesia)

Introduction

In the last two decades, the world market environment has changed dramatically. Breath taking advances in communication technology, increased world commerce, deregulation, privatization, and lowering of trade barriers have to a great extent integrated individual country markets into one global market. Rapid developments and diffusion of industrial technology have also resulted in a regular stream of new products coming into the market. At the same time, the enormous capital requirements for research and development and increased product sophistication have meant that companies can seldom undertake all operations alone. Irrespective of how large and resourceful a company is, it cannot have a competitive advantage in each and every step of producing and marketing a product for world markets. Consequently, strategic alliances are often the instrument international companies choose to maintain or advance their competitive positions.

The proliferation of strategic alliances has generated much discussion among practitioners and business academicians on the conceptual foundations of alliances (e.g., Doz and Kosonen 2008; Culpan 1993; Ohmae 2008; Sheth and Pravatiyar 1992; Varadarajan and Cunningham 1995), on their performance (e.g., Ainuddin et al. 2007; Chowdhury 1992; Geringer and Frayne 1992) and conditions for their success (e.g., Bleeke and Ernst 1993; Dussauge and Garrette 1999; Lorange and Roos 1991). While recognizing that there are many possible scenarios of strategic partnering, and that there is no single determinant nor simple measure of alliance success, general agreement exists that there are some essential conditions for the successful formation and performance of cooperative alliances. These include compatible objectives, complementarity of strength, mutual commitment, trust and equitable sharing of benefits. Underlying these essential conditions, however, is always the strategic orientation of the company, which determines why alliances are entered into, what resources are committed to them and how partners are selected.

This paper presents an exploratory overview of the strategic orientation and performance of strategic alliances entered into by Malaysian companies in the Asia Pacific including China, Hong Kong, Indonesia, Japan, the Philippines, Singapore, South Korea, Taiwan and Thailand. A strategic alliance is here broadly defined as any corporate linkage form or agreement ranging from but not including, an arm’s length vendor customer relationship to a corporate merger. It includes equity and non equity joint ventures, joint product development, technology swaps, collaborative research programs, licensing, contract manufacturing, information exchange agreements, sharing of complementary assets, and reciprocal distribution, promotion and servicing arrangements (Hamilton et al. 1996).

Research Background and Methodology

The Asia Pacific Region, like the rest of the world, is now in the throes of three major problems gripping the globe, that is, the global financial and economic crisis, the spectre of rising energy and food prices and the danger of imminent infectious pandemics. World leaders, individual countries and organizations such as the Asia-Pacific Economic Cooperation (APEC) are working round the clock to find solutions to the current world crises.

Regardless of those recent three major problems especially the global economic chaos, Asia Pacific has been the most vibrant economic region of the world in the last two decades. With Japan and China as the world’s second and third largest economies and with India rapidly emerging to claim its rightful place, few will deny that the time for Asia has come. Undoubtedly, Asia Pacific particularly Asia will be the powerhouse and economic dynamo of the world’s economy and this has opened up many new market opportunities including Malaysia. Malaysia, as a nation state in the Asian Pacific region is within that category of Asian countries whose GNP collectively amounts to a quarter of global GNP and may climb to half by the middle of the next century.

In 2007, Malaysia’s trade with twenty countries in Asia Pacific were valued at US$850,794.39 million, which was increased almost US$100 billion that of 2005 (MITI 2008). Presently, Asia Pacific accounts for 76.6% of Malaysia’s total trade of about US$1109, and USA, Singapore, Japan, China, South Korea and Taiwan are among Malaysia’s top ten export markets. In addition to merchandise trade, Malaysia’s business activities in Asia Pacific include extensive direct investment and exports of project management, engineering consulting and other industrial services. Most of this is in infrastructure and resource development such as telecommunications, transportation, energy, mining and environmental management (MIDA 2008; Matrade 2008).

In their business pursuits, many Malaysian companies are linking themselves with foreign companies in strategic alliances. This represents part of a global trend; but for several reasons strategic alliances are especially pivotal for Malaysian companies in Asia Pacific.

First, Malaysian companies are late comers in the international arena, and in Asia Pacific in particular. Because of the country’s history and geography, Malaysian companies have traditionally been oriented toward Western Europe and America in their foreign trade and investment; the great majority has had little experience in Asia Pacific. In contrast, the U.S.A., Japan and many Western European countries have had a long history of political ties with Asia Pacific countries. Their companies in Asia Pacific are generally more established and better connected than Malaysian companies. Second, few of Malaysia’s multinational companies are large by world standards. Among the 500 largest corporations (Fortune Global 500) of the world in 2008, only one was a Malaysian company that is Petronas (www.cnn.com, 29 November 2008). This number is much smaller than those of the U.S.A, Japan and most Western European countries which are, in many industry areas, Malaysia’s major competitors in Asia Pacific markets. As foreign marketers in Asia Pacific, Malaysian industrial companies are usually smaller in size and more limited in capability. Third, the Malaysian economy is traditionally resource based, and its industrial competitive advantages are in resource and skill intensive industries. In world markets, a small number of large multinational corporations based in the U.S.A., Japan or Western Europe dominate marketing and control distribution in these industries. In order to successfully compete, Malaysian companies must position themselves in niche markets within the industry, or get themselves into the industry network by linking either directly with these multinationals, or with local Asia Pacific companies that have industry network connections.

There are no official records of corporate linkage agreements between Malaysian and foreign companies. Based upon the records from Business Expectations Survey (BES) conducted for the period of June 2007 to September 2007 conducted by Department of Statistics Malaysia, as well as reports in the business press, slightly more than one thousand Malaysian companies and organizations had business interests in Asia Pacific up to mid of 2007 (MIDA, 2008). Of this number, 433 were industrial companies and the rest were government agencies, bank offices, consultants, legal firms, investment service representatives, business associations and cultural organizations. A survey was conducted on these 433 companies to study the operations of their strategic alliances in Asia Pacific, if any. The survey instrument employed was questionnaire sent to the executive in charge of each company’s Asia Pacific operations. It contained 16 questions covering company background, extent of use of cooperative alliances, alliance objectives, formation and management, experience to date, and the company’s perception and evaluation of the alliance relationship and its success. The questionnaire had been pre-tested in a smaller scale pilot survey. The questions were mostly derived from the wide body of literature on the formation and governance of international business alliances, but some were specifically designed for the targeted Malaysian companies. The companies’ perceptions and opinions on performance and success were measured using seven point Likert scales.

There are many discussions in the literature of the essential organizational and human factors for successful partnering. Those about organizational factors generally focus upon compatible objectives (Lorange and Roos 1991), complementarity of strength and contribution (Hamel and Prahalad 1996; Porter and Fuller 1986), a common set of values (Perlmutter 1997) interdependence, and equitable sharing of benefits. Those about human factors tend to emphasize the importance of commitment (Perlmutter 1997), coordination, harmony and trust (Parkhe 1991).

Despite the abundance of discussions, there has been no developed model for measuring alliance success, and there is little systematic knowledge about what makes alliances succeed (Bleake and Ernst 1991). Because cooperative alliances are seldom simple relationships with a single purpose, and the partners may have different orientations and motives, even what constitutes success is elusive. Measures of alliances success may be objective or subjective, but neither is totally satisfactory (Geringer 1991; Mohr and Spekman 1994). Objective measures include cash flows, sales, income and market share. These yardsticks are tangible and precise, but raise the question of how to determine what proportions of the changes in these measures can be attributed to the alliance. Furthermore, they cannot be applied when a company’s alliance objectives are qualitative in nature, such as acquiring technology or pre-empting competition, or when the alliance is undertaken for amorphous purposes in highly uncertain and risky settings (Anderson 1990). Subjective measures are based upon the respondent’s perceptions of how pleased or satisfied the company is with the alliance. These measures are imprecise; there can be substantial personal bias in both expectations and assessments.

Despite the obvious limitations, only subjective measures were used in the present questionnaire survey. Objective measures were not used because the pilot survey revealed that Malaysian companies generally did not have precise and measurable targets for their strategic alliances with Asia Pacific companies. Moreover, solicitation of information on cash flows, sales, incomes and market shares in the questionnaire would deter these companies from responding. They would either be unwilling or unable to provide the information, and this could lower the rate of response significantly. Hence, no attempt was made to request such information, or to use it for assessing the degree of alliance success. Instead, respondents were simply asked to subjectively rate the success of their alliances along a seven point scale based upon their own perceptions and expectations.

A total of 182 companies (42.0 % of population) responded to the survey. Ten undelivered questionnaires were returned by the post office because the companies had either moved and could not be traced. Of the responses, eighty four replied that they did not have strategic alliances in Asia Pacific even though they had business interests therein. Two companies admitted that they had strategic alliances, but refused to participate in the survey. Ninety six companies filled out the questionnaires, but three were incomplete and had to be discarded. The next two sections are based upon the response of the remaining 93 companies.

In examining the strategic orientation of the responding companies, mean values of items constituting different measures in the questionnaire were used. The items were not rank ordered in the questionnaire by the respondents; they simply assigned values on a seven point scale for each item presented to them. Regarding alliance performance and success, attribute variables included their experience in business alliances and their perceptions of difficulties encountered by the companies in alliance formation, objectives and motives, working relationships with alliance partners, and opinions on alliance benefits and governance. In the analysis, independent attribute variables were factor analysed and correlated with subjective success ratings using ordinary least square multiple regression methods to decompose the partial effects of each of the predictor variables and to eliminate redundancy. The normality of the frequency distribution of the dependent variable, the linearity of the relationship, and homoscedasticity of the residuals were also tested. The data reduction method used was principal axis factoring-varimax rotation. The cut off value used for factor loadings was >.50. The factor analysis was run separately among items used to measure each category. Eigen values greater than one was taken as the cut-off for factor recognition. Factor scores were computed using mean values of the items loading on to the factor.

Factor analysis revealed clear theoretically justifiable groupings of the indicators into a parsimonious structure. The results were checked with principal component analysis using the oblimin rotation methods. No significant difference was revealed in the factor loading patterns when different methods of factor analysis and rotation were used. Nor were any problems detected in the use of ordinary least square regression methods.

Strategic Orientation

The great majority of Malaysian companies’ with strategic alliances in the Asia Pacific are as expected, medium to high tech companies, and are small in terms of employment. Of the ninety three companies, forty two (45.2%) consider themselves as high tech companies, forty six (49.5%) as medium tech, and only five (5.4%) as low tech. Thirty three companies (35.5%) have a work force of less than fifty employees, nineteen (20.4%) have fifty to 100 employees, and the remaining forty one (44.1%) have more than 100 employees. A total of 661 strategic alliance agreements in one form or another have been entered into by these 93 companies with local companies in Asia Pacific. Their strategic orientation can be reflected by (i) the functional activities covered by the agreements, (ii) partners’ contributions and responsibilities, and (iii) their objectives and motives.

(i) Functional Activities: In the cooperative alliances between Malaysian and Asia Pacific companies, the sales and marketing function activities (distribution, sales promotion, market information exchange) covered by the agreements far outnumber the production and product development function activities (product servicing and maintenance, contract manufacturing, licensing with technology transfer, joint product development, collaborative research and development). There are 39 multi purpose joint ventures, and 14 other activities such as legal representation, consulting, engineering services, shipping arrangements and use of office facilities. Of the 863 functional activities specified, 618 or more than two-thirds (69.3%) are in sales and marketing functions and 245 (28.4%) are in production and product development functions (Table 1). This spread of functional activities covered by the agreements indicates that most Malaysian companies have a marketing orientation in their strategic alliances with Asia Pacific companies.


Table 1
Strategic Alliance Functional Activities
_______________________________________________________________________________
Functional Activity Number
_______________________________________________________________________________

Distribution 252
Sales Promotion 234
Market information exchange 132
Product servicing and maintenance 91
Contract manufacturing 52
Licensing with technology transfer 43
Multi purpose joint ventures 39
Joint product development 32
Collaborative research and development of technology 27
Others 14
Total 916
______________________________________________________________________________
Notes: 1. Number of strategic alliance agreements = 661
2. One alliance agreement may cover more than one functional activity
Others include legal representation, consulting, engineering services, shipping arrangements and use of office facilities.




(ii) Partners’ Contributions and Responsibilities: With regard to partners’ contributions and their responsibilities in the strategic alliances, Table 2 reveals that even though local distribution/promotion is the most frequently mentioned responsibility for both parties, Asia Pacific partner companies shoulder this responsibility much more frequently than the Malaysian partner companies. The second most common contribution/responsibility mentioned is employee training or Malaysian companies and local management for their Asia Pacific partners. On the whole, Malaysian companies shoulder two to three times more contributions/responsibilities related to production and product development, whereas their Asia Pacific partners’ contributions/responsibilities center more often on local management and marketing. This suggests that Malaysia-Asia Pacific strategic alliances often represent vertically integrated ‘X’ alliances in which the partners have different strengths, and not horizontally integrated ‘Y’ alliances intended to achieve economies of scale (Porter and Fuller 1986).

Also, it is noteworthy that among the 661 strategic alliance agreements, only forty three (6.5%) involve equity contribution by Malaysian companies and sixty seven (10.1%) by local companies. In other words, the great majority of Malaysia-Asia Pacific strategic alliances are contractual in nature. Since the 39 multi purpose joint venture alliances would most likely require equity contributions for their establishment, this means only four (43-39) of the remaining 622 (661-39) alliances have Malaysian equity injection. This may also reflect of the fact that the Malaysian industrial companies, being small in size, are unwilling or unable to commit capital investment in these cooperative alliances.



Table 2
Partners’ Contributions and Responsibilities
Malaysian Companies Partner Companies
In Asia Pacific
________________________________________________________________________

Local distribution/promotion 163 259
Employee training 135 60
Product/process research and development 95 44
Raw material and component part supplies 92 50
Local management 86 128
Production technology 72 24
Foreign distribution/promotion 58 29
Production equipment 47 33
Equity capital 43 67
Others 22 2
________________________________________________________________________________ Note: Total number of strategic alliances = 661


(iii) Objectives and Motives: In essence, strategic alliances allow partner companies to compensate for their competitive disadvantages and overcome their capability limitations. Individual alliance partners, however, may have different objectives and motives. These can be oriented toward resources (e.g., materials, components, capital, management skill), marketing (e.g., distribution networks, competitive uncertainty, government restrictions, cultural differences), or production (e.g., technology, synergy, flexibility, integration).

The Malaysian companies’ objectives and motives for entering into cooperative alliances in Asia Pacific are given in Table 3. In long term objectives, growth and increased profits are rated as significantly more important than income stability, risk reduction and survival which are more defensive in nature. This suggests that while entering into cooperative alliances may be pivotal for Malaysian industrial companies competing in Asia pacific markets, the companies are in Asia Pacific in the first place because of the region’s opportunities for growth and profits, and not because their viability is being threatened at home in Malaysia.

Among the motives, to gain access to foreign market is far ahead of all the others, and overcome trade barriers is also rated highly among the 17 motives listed. Again, this serves as evidence to a marketing orientation. Also, the globalization related motives (increase company’s credibility and image as a global company, facilitate the company’s initial international expansion, integrate/rationalize the company’s global operations) are all being rated as more important than those related to resource acquisition (make use of foreign labour, gain access to foreign capital, gain access/control to foreign material supplies, gain access to foreign management, gain access to foreign technology). However, it seems that even when some Malaysian companies have a globalization orientation, their cooperative alliances in Asia Pacific are not integrated with Malaysian operations to form an integral part of their international operations.


[Table 3] Objectives and Motives

(Discontinued)

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