Oil Tankers Case

Industry Structure: Fragmented

Product Differentiation: Generic

Technological Change: Slow (Long Product Life Cycle)

Product/ Service Technology: High Switching Costs

Location: Global

Product Life cycle: Maturity stage.

The maturity stage is identifies in the mass distribution of crude oil, less product differentiation, overcapacity, lower labor skills in developed countries, & the increasing stability of manufacturing process.

General information related to Value Chain

• A firm is profitable if the value it commands exceeds the costs involved in creating the product. Creating value for buyers that exceeds the cost of doing so is the goal of any generic strategy.

• Value activities can be divided into two broad types; primary and support activities.

• Primary – activities involved in the physical creation of the product and its sale and transfer to the buyer as well as after sale assistance. In relation to this case the primary value activity would be the vessel. (Inbound logistics, Operations, Outbound logistics, Marketing & Sales, Service)

• Support – activities support the primary activities and each other by providing purchased inputs, technology, human resources and various firm-wide functions. (Human Resources Management, Technology development, Procurement)

Porter's 5 Forces Analysis

1. Threat of New Entrants.

Economies of Scale/ Government Policy

The threat of new entrants is high. New Entrants like Brazil, South Korea, Yugoslavia, and Poland were growing two to three times as fast as the rest of the industry due to low labor cost, centralized planning and new capacity. Also the government offered tax incentives for the development of shipbuilding such as tax allowance programs, depreciation tax deferment, rebates and credit assistance.

• On a per ton basis building a 200,000 DWT tanker would be cheaper than the cost of a 20,000 DWT tanker. Meaning entry for new competitors could be relatively cheaper and they could enter a larger part of the market.

• Larger tankers do not require larger crews

• The trend toward the use of larger tankers had resulted in a decrease in the average cost of tanker transportation; however, tankers over 500,000 DWT required larger engines, lower fuel economy, and create the risk of massive accidents which raised insurance cost.

• Industry demand had been closely related to economic growth

• Cost related to the operation