Daewoo Shipbuilding and Marine Engineering Harvard Case Solution & Analysis

How serious is the situation facing Daewoo?

Daewoo Shipbuilding and Marine Engineering was facing a serious problem regarding the competition that had arose from the new entrants that were Chinese shipping companies. The competition was intense because of the reason that the Chinese companies were expanding their business operations in the shipping industry where Korean firms were the leaders. DSME was also facing the problem of globalization change and the forthcoming changes in the structure of the governance in the shipping industry.

The Chinese firms were creating problems for the DSME in terms of their manufacturing of low end ship with mass production. These low cost productions helped the Chinese companies produce more shipping units that ultimately reduce the Daewoo’smarket share as these products were available in the market at low prices than the prices offered by the DSME.

How successful has the shipyard been up to this point in time?

Industry:

Shipbuilding is an attractive industry for the developing nations to strengthen its other industries and this was realized by Japanese in the decade of 50’s and 60’s. During the 1970s, Korea entered into this industry to boost up other industries running in the country. After the 90’s, China entered into this industry and due to its large investment that was supported by the state, the industry was over its required capacity that deteriorated the prices. During this over-capacity period the industry suffered from the trade distortions,and low profit margins.On the other hand, during the same period starting from 2003 to 2005 the demand of new ships increases that retained the prices to its previous level.

Daewoo Shipbuilding:

For the past thirty years, Daewoo Shipbuilding and Marine Engineeringhave been improving their shipyard site. From the year 1995 to 1996, DSME has increased its capacity by 20 percentage each year and it was due to the fact that it was never clear that what would be the demand of the market. They introduce the Enterprise Resource Planning for the resource development and to manage its operations and this system was adopted in the year 2000. This was a part of the infrastructure improvement program where DSME didn’t invest in the physical capacity.

Furthermore, from the start of 2000, DSME invested in improving the structure of the shipyard in terms of physical capacity. They invested in the shipyard site and developed new Quay that helped DSME to manufacture LNG vessel around the quantity of 8 units in a year. During the year 2002, they improve the Finger Jetty Quay to manufacture the high end LNG.

During the three year period starting from 2003 to 2005, the company establishes and redeveloped its existing plant such as repairing docks that improved into Floating docks that were developed in the sea. Through these floating docks their productivity was increased as compared to the dry dock.

How attractive is the business future for the shipyard?

The industry has a potential to grow and it is due to the fact that before 1970s Europeans were leading the industry, butafter 1970s Japanese uphold the leading position in this industryand sustain this leading position until 90s when Korean were leading the market.During the fiscal year 2005, it was estimated that for the upcoming 10 years the demand for the new ships would be around 30 million compensated gross tonnageannually, but this demand was outperformed by the actual demand that was recorded in the year 2005 around 42 million compensated gross tonnage. This shows that the actual demand was increased by 10 to 15% that was higher than the previous ten years average demands.

Now the new emerging economies such as China, India and Brazil are looking forward to excel in this industry and gain a strategic position in the industry as they already seek out this opportunity to enter that would allow them to improve their economy.

DIAGNOSIS:

What is the most significant problem/challenge facing Daewoo?

The most significant problem that was faced by the Daewoo Shipbuilding and Marine Engineering is that the company was lacking in the dry dock area and to cover up this shortage of dry docksDSME company adopted the outsource strategy where the Chinese firms lacks in the followings:

Lack of sophisticated technology:

Chinese firms were lacking in the sophisticated technology that reduce the quality of ship manufacturing for the DSME.........................

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Explores the journey of aggressive training and the possibility of building operations in major Korean shipbuilders. While DSHM once used his excellent training opportunities in order to overthrow its Japanese competition, it is now faced with the potential for a similar attack with new Chinese competitors. Without outsource some of its operations in China, DSHM become uncompetitive. However, outsourcing the work, some of the skills required to be transmitted, potentially teaching future competition and providing them with a platform to attack markets DSHM in the nucleus. "Hide
by David M. Upton, Bowon Kim Source: Harvard Business School 28 pages. Publication Date: October 16, 2008. Prod. #: 609018-PDF-ENG

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