Silver Ships Case Study
Recommendations for Silver Ships to gain a competitive advantage in the Military and Workboat Industry 1. Focus on the Gulf of Mexico a. As stated in Exhibit 4, Silver Ships has had quite a few buyers focused around the Gulf of Mexico. b. Alabama is in the middle of the US shoreline for the Gulf of Mexico. c. Silver Ships can use the International Workboat Show stated in Exhibit 3 to draw more customers from all around the Gulf. i. They have already have had previous orders from Panama, Jamaica, and Costa Rico. Mexico and the Dominican Republic are potential new buyers. ii. As off shore drilling comes back after the BP/Deepwater Horizon oil spill, Silver Ships can focus on more oil and gas companies.
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iii. The Gulf will always be a big part of the US fishing industry the New Orleans boat show is an excellent opportunity to sell to fishing companies.
2. Aggressively pursue military contracts d. As stated in Exhibit 4, military contracts bring stability to boat builders because they are typically long term. e. Silver Ships should use similar foreign partnerships such as the one with GDELS to obtain a US Army contract (see Exhibit 2) in order in increase diversity and knowledge of military style boats. f. The US Navy and Coast Guard are looking for new boats specifically to fight terrorism in the littoral zone waters. iv. Develop bullet proof boats and/ unsinkable boats 1. As seen in Exhibit 3, rival boat builder SAFE Boats has developed small-arms proof hulls and ACB has developed a boat that does not sink after one impact. 2. Silver Ships needs their own niche directed towards military needs.
3. Build up money stock pile for tax increases on small businesses g. As stated in Exhibit 1, an external threat to Silver Ships is the likelihood of increased taxes on small businesses. h. Owner Mike McCarty needs to save income to be prepared for the first couple of years of the tax increase. i. As seen in the suppler category of Exhibit 2, there is not much room for adjustment when it comes to cost. The increase taxes could hit hard and it may take Mr. McCarty a while to be able to offset the new taxes.
4. Build new facility in Virginia j. This recommendation has a high risk and high reward factor. It should only be followed after adjustments for new taxes on small businesses. k. A Virginia facility would help Silver Ships to have a division of the company focused on military contracts. The Alabama facility can then focus on oil and gas companies and workboats. l. A new boat building facility in Virginia would give Silver Ship the following abilities: v. Silver Ships can use the Multi-Agency Craft Conference stated in Exhibit 3 to receive more military contacts. vi. Virginia is closer to Washington and military headquarters such as the US Coast Guard, US Navy, and Department of Homeland Security. 3. Both the MACC and US military headquarters position to the new facility will help Silver Ships to highlight its dedication to their requests and help to start a relationship which can produce more long term contracts. m. Recommendation four is separate from the second one but can greatly enhance the second’s goals. Specifically the differentiation tailored towards the US Navy’s desire for boats to fight terrorism in the littoral zone. n. As stated in Exhibit 4, Silver Ship has had the same amount of common stock for a few years now. The company can sell more stock to raise capital needed for a new facility.
Appendix
Exhibit 1
Current State of Silver Ships * Size * Increased revenue from $5.7 million in 2006 to nearly $11 million in 2009 * Growth * Immediate growth opportunities in bidding on contracts to produce vessels needed by the US Navy and US Coast Guard to thwart terrorist near shore and ports. * Opportunity to pursue a US Army bridge erection boat contract * External Threats * State of the US economy and changing aluminum prices. * Likelihood of new taxes on small businesses.
Exhibit 2
Five Forces Model
Weak
Weak
Weak
Weak
Strong
Strong
Strong
Strong
A. Buyers on Industry = Strong * Boat builders bid on contracts to produce specified vessels. Bidding causes strong competition and puts pressure on boat builders to keep prices low and quality high. * The range of custom boats needed causes a wide range of differentiation between boat builders and forces competitors constantly to come up new designs and advancing technologies.
B. Suppliers on Industry = Strong * Variance in production costs comes from aluminum, labor and logistic. Boat builders want to keep these low increase bidding chances for contracts. * Aluminum prices vary greatly (from $0.65 per pound in 2003 to $0.80 per pound in 2008). This can be managed to a degree through hedging, inventory management, and waste control. * Pay scale for maritime construction workers are set by Austal USA and Northrop Grumman Shipbuilding. Military ship construction continued through the economic downturn and thus kept shipbuilding wages high. * Boat builders were at a competitive disadvantage when bidding on boats going to distant locations because of transport costs and road limitations.
C. Substitutes on Industry = Weak * Good substitutes are not readily available. * Buyers would rather buy in US for political and higher trust factor in product. * Foreign boat builders have high transportation costs. The only way they can get into the industry in the US is by teaming up with US companies. An example of this is Silver Ship’s partnership with European boat builder, General Dynamics European Land Systems (GDELS), to bid on bridge erection boats for the US Army who was looking for a new updated fleet.
D. New Entries on Industry = Weak * There is significant experience-based cost advantage in the industry. * Strong networking effects which makes it harder to enter the industry.
Buyers look for trusted names in the industry during the bidding process.
Exhibit 3
Driving Forces
The Military and Workboat Industry is based around differentiation of product while keeping cost low at the same time as high quality. These three drive the bidding process along with the ability to market their product. 1. Differentiation * Each boat builder offers something different: * Silver Ships acquired Ambar Marine for its ability to produce high-quality rigid-hull inflatable boats (RHIBs). * Aluminum Chamber Boats (ACB) differentiated itself by producing boats that do not sink even if the hull and a chamber are punctured. * SAFE Boats produces a RIB collar system that can withstand small-arms fire. * Metal Shark Boats boasted quick to market products such as their delivery of clean up boats during the BP/Deepwater Horizon oil spill. 2. Low cost * Aluminum, labor, and location are the main factors in keeping prices down for boat builders. * Aluminum prices vary greatly (from $0.65 per pound in 2003 to $0.80 per pound in 2008). This can be managed to a degree through hedging, inventory management, and waste
control. * Pay scale for maritime construction workers are set by Austal USA and Northrop Grumman Shipbuilding. Military ship construction continued through the economic downturn and thus kept shipbuilding wages high. * Boat builders were at a competitive disadvantage when bidding on boats going to distant locations because of transport costs and road limitations. 3. High quality * Sea water and salt air are some of the most corrosive natural forces on earth. Every boat builder strives to make their boat durable for their customer to keep them satisfied. This is also why aluminum is used in most of the boats. 4. Marketing * Word-of-mouth * Bidding on requests for proposals (RFPs) * Mostly military and government agencies * Boat shows * 200 annual with 2 major events * International Workboat Show in New Orleans Louisiana - Represented $2.3 billion in purchasing power. 65% of attendees purchased a workboat in last year of attending show. * Multi-Agency Craft Conference at the Little Creek Naval Amphibious Base in Norfolk, Virginia – attended by 179 vendors and 1,700 buyers in 2009. Good opportunity to meet government officials.
Exhibit 4
How attractive is the military and workboat industry? * The industry is only attractive if the company is already a competitor. * Startup costs are high. * There is already a good range of different products available. * It would take a large amount of capital or a new technology to effectively enter the industry. * The industry itself is very competitive. * Bidding over military contracts is intense because these bring long term contracts which can stabilize a boat builder. * There is not a whole lot of money to be made. * As seen in Exhibit 2 on page C-215, net income for Silver Ship industry was just under $700,000 dollars in 2009 after making nearly $11 million in revenue. However this is a healthy increase from the recession years in 2008 and 2007. * As seen in Exhibit 3 on page C-216, Silver Ships has had the same number of common stock (28,000 shares) for the past four years. * The industry has a lot of potential buyers * As seen in Exhibit 6 on page C-217, Silver Ships has had costumers from the following places: * US military * Law enforcement * Jamaica, Costa Rica, and Panama * Oil and Gas companies * Shipbuilding and Shipyard companies * State marine and marine companies
iii. The Gulf will always be a big part of the US fishing industry the New Orleans boat show is an excellent opportunity to sell to fishing companies.
2. Aggressively pursue military contracts d. As stated in Exhibit 4, military contracts bring stability to boat builders because they are typically long term. e. Silver Ships should use similar foreign partnerships such as the one with GDELS to obtain a US Army contract (see Exhibit 2) in order in increase diversity and knowledge of military style boats. f. The US Navy and Coast Guard are looking for new boats specifically to fight terrorism in the littoral zone waters. iv. Develop bullet proof boats and/ unsinkable boats 1. As seen in Exhibit 3, rival boat builder SAFE Boats has developed small-arms proof hulls and ACB has developed a boat that does not sink after one impact. 2. Silver Ships needs their own niche directed towards military needs.
3. Build up money stock pile for tax increases on small businesses g. As stated in Exhibit 1, an external threat to Silver Ships is the likelihood of increased taxes on small businesses. h. Owner Mike McCarty needs to save income to be prepared for the first couple of years of the tax increase. i. As seen in the suppler category of Exhibit 2, there is not much room for adjustment when it comes to cost. The increase taxes could hit hard and it may take Mr. McCarty a while to be able to offset the new taxes.
4. Build new facility in Virginia j. This recommendation has a high risk and high reward factor. It should only be followed after adjustments for new taxes on small businesses. k. A Virginia facility would help Silver Ships to have a division of the company focused on military contracts. The Alabama facility can then focus on oil and gas companies and workboats. l. A new boat building facility in Virginia would give Silver Ship the following abilities: v. Silver Ships can use the Multi-Agency Craft Conference stated in Exhibit 3 to receive more military contacts. vi. Virginia is closer to Washington and military headquarters such as the US Coast Guard, US Navy, and Department of Homeland Security. 3. Both the MACC and US military headquarters position to the new facility will help Silver Ships to highlight its dedication to their requests and help to start a relationship which can produce more long term contracts. m. Recommendation four is separate from the second one but can greatly enhance the second’s goals. Specifically the differentiation tailored towards the US Navy’s desire for boats to fight terrorism in the littoral zone. n. As stated in Exhibit 4, Silver Ship has had the same amount of common stock for a few years now. The company can sell more stock to raise capital needed for a new facility.
Appendix
Exhibit 1
Current State of Silver Ships * Size * Increased revenue from $5.7 million in 2006 to nearly $11 million in 2009 * Growth * Immediate growth opportunities in bidding on contracts to produce vessels needed by the US Navy and US Coast Guard to thwart terrorist near shore and ports. * Opportunity to pursue a US Army bridge erection boat contract * External Threats * State of the US economy and changing aluminum prices. * Likelihood of new taxes on small businesses.
Exhibit 2
Five Forces Model
Weak
Weak
Weak
Weak
Strong
Strong
Strong
Strong
A. Buyers on Industry = Strong * Boat builders bid on contracts to produce specified vessels. Bidding causes strong competition and puts pressure on boat builders to keep prices low and quality high. * The range of custom boats needed causes a wide range of differentiation between boat builders and forces competitors constantly to come up new designs and advancing technologies.
B. Suppliers on Industry = Strong * Variance in production costs comes from aluminum, labor and logistic. Boat builders want to keep these low increase bidding chances for contracts. * Aluminum prices vary greatly (from $0.65 per pound in 2003 to $0.80 per pound in 2008). This can be managed to a degree through hedging, inventory management, and waste control. * Pay scale for maritime construction workers are set by Austal USA and Northrop Grumman Shipbuilding. Military ship construction continued through the economic downturn and thus kept shipbuilding wages high. * Boat builders were at a competitive disadvantage when bidding on boats going to distant locations because of transport costs and road limitations.
C. Substitutes on Industry = Weak * Good substitutes are not readily available. * Buyers would rather buy in US for political and higher trust factor in product. * Foreign boat builders have high transportation costs. The only way they can get into the industry in the US is by teaming up with US companies. An example of this is Silver Ship’s partnership with European boat builder, General Dynamics European Land Systems (GDELS), to bid on bridge erection boats for the US Army who was looking for a new updated fleet.
D. New Entries on Industry = Weak * There is significant experience-based cost advantage in the industry. * Strong networking effects which makes it harder to enter the industry.
Buyers look for trusted names in the industry during the bidding process.
Exhibit 3
Driving Forces
The Military and Workboat Industry is based around differentiation of product while keeping cost low at the same time as high quality. These three drive the bidding process along with the ability to market their product. 1. Differentiation * Each boat builder offers something different: * Silver Ships acquired Ambar Marine for its ability to produce high-quality rigid-hull inflatable boats (RHIBs). * Aluminum Chamber Boats (ACB) differentiated itself by producing boats that do not sink even if the hull and a chamber are punctured. * SAFE Boats produces a RIB collar system that can withstand small-arms fire. * Metal Shark Boats boasted quick to market products such as their delivery of clean up boats during the BP/Deepwater Horizon oil spill. 2. Low cost * Aluminum, labor, and location are the main factors in keeping prices down for boat builders. * Aluminum prices vary greatly (from $0.65 per pound in 2003 to $0.80 per pound in 2008). This can be managed to a degree through hedging, inventory management, and waste
control. * Pay scale for maritime construction workers are set by Austal USA and Northrop Grumman Shipbuilding. Military ship construction continued through the economic downturn and thus kept shipbuilding wages high. * Boat builders were at a competitive disadvantage when bidding on boats going to distant locations because of transport costs and road limitations. 3. High quality * Sea water and salt air are some of the most corrosive natural forces on earth. Every boat builder strives to make their boat durable for their customer to keep them satisfied. This is also why aluminum is used in most of the boats. 4. Marketing * Word-of-mouth * Bidding on requests for proposals (RFPs) * Mostly military and government agencies * Boat shows * 200 annual with 2 major events * International Workboat Show in New Orleans Louisiana - Represented $2.3 billion in purchasing power. 65% of attendees purchased a workboat in last year of attending show. * Multi-Agency Craft Conference at the Little Creek Naval Amphibious Base in Norfolk, Virginia – attended by 179 vendors and 1,700 buyers in 2009. Good opportunity to meet government officials.
Exhibit 4
How attractive is the military and workboat industry? * The industry is only attractive if the company is already a competitor. * Startup costs are high. * There is already a good range of different products available. * It would take a large amount of capital or a new technology to effectively enter the industry. * The industry itself is very competitive. * Bidding over military contracts is intense because these bring long term contracts which can stabilize a boat builder. * There is not a whole lot of money to be made. * As seen in Exhibit 2 on page C-215, net income for Silver Ship industry was just under $700,000 dollars in 2009 after making nearly $11 million in revenue. However this is a healthy increase from the recession years in 2008 and 2007. * As seen in Exhibit 3 on page C-216, Silver Ships has had the same number of common stock (28,000 shares) for the past four years. * The industry has a lot of potential buyers * As seen in Exhibit 6 on page C-217, Silver Ships has had costumers from the following places: * US military * Law enforcement * Jamaica, Costa Rica, and Panama * Oil and Gas companies * Shipbuilding and Shipyard companies * State marine and marine companies