Competition Strategy Option:Developing From a Large Shipbuilding Nation to a Strong One

By Li Cheng

Statistics show that in the first half year of 2011,South Korea reclaimed the world’s top spot once again by securing far more orders than China. The road ahead is still rough for China to develop from a “large”shipbuilding nation to a “strong” one. With acceleration of global economy integration,the comparative advantage of China’s shipbuilding industry has been gradually weakening. Against the backdrop,how should China’s shipbuilding industry deal with the challenges ahead? How could China acquire lasting competitiveness? We believe that in order to gain competitive edge,it will be crucial for China’s shipbuilding industry to conduct constant research and development in the core technology for construction of high value-added and environmental friendly vessels,break through technical bottleneck of new rules,and get involved in monopolistic competition in the world’s first camp.

Economy of scale is relatively distinct in the shipbuilding industry,and has become obvious in the highly integrated international shipping market featuring monopolistic competition. The biggest inspiration from the success of South Korea’s three major shipbuilders is that the government gives full support to them with extraordinary means,which help them grow into super large enterprises with super capacity at an astonishing speed,and thus obtained excess profits. It is worth noting that the capacity of China’s local ship construction enterprises has exceeded 1/3 of the total output of the country,but many are small enterprises equipped with backward technology,which in some degree has influenced the international competitiveness of China’s shipbuilding industry.

At present,the world’s shipbuilding industry has been monopolized mainly by China and South Korea. South Korea’s shipbuilding enterprises have advantages in building high value-added vessels,while Chinese shipyards have low cost advantage. Due to the continuing appreciation of RMB against USD plus the ascending domestic pay level and general in fl ation,China’s shipbuilding industry is facing severe ordeal. Some low value-added ship exporters have been forced out of market. The latest statistics released by China Association of the National Shipbuilding Industry shows that up to 21% of China’s shipbuilding enterprises suffered loss in the first quarter,which explains the impact of fast appreciation of RMB upon China’s shipbuilding industry.

Actually,for China’s small enterprises as well as those unduly dependent on low value-added vessels,the appreciation of RMB at a faster speed will make their survival more and more difficult. Fast appreciation of RMB will compel China’s shipbuilding industry to participate more in high-end product competitions. High value-added and high-tech ship construction is both the commanding height and the competition focus of today’s world shipbuilding industry. However,the current situation is grave,since South Korea’s shipbuilding industry has taken most of the orders at the commanding height,while Chinese shipyards are still disadvantaged in the competition of grasping core technology and high-tech products. The development potential of China’s shipbuilding industry depends on whether China could upgrade technology,which also concerns whether Chinese economy can successfully transit into next stage of sustainable and balanced development. In fact,technological innovation and rigid system reform are the most critical issues.