8/18/2019 331989.Nagoya_paper_1 (1).doc

1/26

RESTRUCTURING OF THE CROATIAN SHIPYARD INDUSTRY

 by

Ivica Veža

University of Split,

Faculty of Electrical Engineering, Mechanical Engineering and Naval Architecture

roatia

Abstract

!estructuring and privati"ation of the roatian shipbuilding industry are i#perative of 

transitional refor# and develop#ent policy of the entire country$ %n one side, this is the

 process deter#ined by the co#petition on the global level and on the other, the process

&hich, due to the i#portance of shipbuilding industry in the econo#ic structure of the

country, definitively e'erts an influence on the change of a principle of inco#e(generating

econo#y &hich prevailed in the socialis# to the principle of profit, &hich do#inates in the

#ar)et(based econo#y$

*he article is sho& the analysis of European +ead&eS-I. /0123 and roatian

Shipbuilding industry +shipbuilding potentials, #acroecono#ic i#pact of shipbuilding

industry, restructuring and privati"ation3$

*he case study has been presented the e'a#ple of restructuring the 4rodosplit Shipyard

o#pany, located in Split, roatia$ 4y utili"ing the case study #ethodology, the outsourcing( based restructuring #odel of 4rodosplit is developed, &ith the intention of identifying core

activities of the shipyard, &hich should be )ept &ithin the enterprise and further opti#i"ed$

At the other hand, the 5standard67strategically insignificant activities are to be outsourced

into the net&or) of s#all and #ediu#(si"ed businesses$

*o end of these articles the basic characteristics and organi"ation of the shipbuilding

cluster of the Split(8al#atian ounty are represented$

8/18/2019 331989.Nagoya_paper_1 (1).doc

2/26

1. Introduction

Mar)et orientation, i$e$ production and7or provision of services for the specific

custo#er can be identified as one of the #ost significant factors in securing 5#ar)et

survival6$ 4esides, the #ar)et turbulence re9uires continuous adaptation to the global trends,

&hich correspond to high 9uality, standard(co#pliant products and services: lo&er ti#e to

#ar)et and ti#e to custo#er: lo&er prices, based on the target costing #odel: #ore co#ple'

 products and production processes, etc$ *herefore, it could be suggested that the ti#e

 beco#es a significant issue related to co#petitive success ; the 5big fish do not eat the s#all

ones6, but rather the 5agile eat the slo& ones6 +Figure 13$ Follo&ing the idea that the 5only

the fact of change re#ains the sa#e6, agility and fle'ibility re9uire#ents are increased by the

changes of society, #ar)et, process, and product structure$

Figur 1  Increasing requirements for enterprises

ontinuous success is acco#plished by the enterprises &hich both opti#i"e their 

 business processes and identify7penetrate into ne& #ar)ets$ Nu#erous enterprises are

loo)ing into different #anners of achieving these ob

8/18/2019 331989.Nagoya_paper_1 (1).doc

3/26

insignificant co#petencies$

In shipbuilding, li)e in all other #ar)et sectors, success is based on )no&ledge$

Also the influence had these processes to shipbuilding industry &orld(&ide +also in

Europe and as soon as roatia3$

!. Euro"an s#i"bui$ding industr%

Europe is the only part of the &orld &ith a dense net&or) of shipyards, e9uip#ent

suppliers, research centers and other engineering services$ eaderS-I. /012 addresses the

EUs long ter# strategy for econo#ic, social and environ#ental rene&al brought for&ard in

/000 by the isbon ouncil$

*he )ey ele#ents, contained in the strategy, on &hich eaderS-I. /012 gives

reco##endations, areB

• Increased !C8 invest#ent &ith a target of D of 8.:

• I#proved access to finance for business: and

• o&er regulatory burden and the attraction of young people to industrial

8/18/2019 331989.Nagoya_paper_1 (1).doc

4/26

• *he proposed solution is that shipbuilding should en

8/18/2019 331989.Nagoya_paper_1 (1).doc

5/26

• EU enlarge#ent &ill create additional needs for industrial consolidation &hich should

 be facilitated by the EU, providing incentives to re#ove less efficient capacity and

free resources for ne& invest#ents$

&. Currnt situation in Croatian s#i"bui$ding industr%

3. 1 Shipbuilding potentials

In approach to this sub

8/18/2019 331989.Nagoya_paper_1 (1).doc

6/26

Tab$ 1  Basic references of Croatian shipbuilding industry

UlD 1$/@D 2?0

!evenue +#ill$

-!G3

1$DK2 1$020 1$?>@ ?/> /21

E'port +#ill$ US

dollar3

1@@,> 1/2,0 1K/,2 @?,2 0

Tab$ ! The ownership structure in shipbuilding industry as of 2005

Ul,?@ >2,1/ >>,HK

S#all

shareholders

1/,/@ 1H,D1 0,00001 H,D? 0,0001D

%thers /,>K /,D? 0,// 0,2/ 0,2H

*otal 100 100 100 100 100

In addition to the above, the follo&ing co#panies are actively operatingB 4rodosplit(

4rodogradiliLte speci

8/18/2019 331989.Nagoya_paper_1 (1).doc

7/26

Figur ! Ships delivered of Croatian shipbuilding industry

!!"#200$ %200!& in mil' (S)

.resent production range of roatian shipbuilding industriesB

• #erchant ships up to 1?0$000 d&t in one piece,

•  bul) carriers,

•  product carriers,

• che#ical carriers,

• car truc) carriers,

• asphalt carriers,

• live stoc) carriers,

• cable layers,

• car passenger ferries,

• yachts,

• reefers, etc$

( (/

co#pleted

conctracted

target7e'pectation

?

8/18/2019 331989.Nagoya_paper_1 (1).doc

8/26

Figur & *orld order boo+s at ,0'0!'200" %-'.0,'00 c/T&

.roduced not only inside the shipyardB

• #ain C au'iliary diesel engines,

• #arine e9uip#ent,

• ship repair C conversion,

• special C naval vessels$

3.2 Macroeconomic impact of shipbuilding industry

4y its pri#ary econo#ic effects the shipbuilding industry has been )no&n to be a

lo&(profit activity$ -o&ever, due to its #ultiplier effects for national econo#y, in ter#s of 

inco#e, e#ploy#ent and foreign currency balance this industry is e'tre#ely i#portant$ In

addition to this, ta)ing into account relevant assess#ent criteria, this econo#ic industry is

entirely globali"e$

Share of do#estic substance in a single constructed ship depends on the e'change rate

and price ratios$ In the last fe& years this share has re#ained at the level of K0(K2$ It ensues

fro# this data that, &ith a potential annual production of @00 #illion US dollars the share of 

do#estic producers of the ships co#ponents accounts for bet&een H00(HH0 #illion US

dollars$

According to the latest evaluations #ultiplier factor of shipbuilding industry has been

set to the value of /$@D: so, &ith a potential annual production &orth @00 #illion US dollars

do#estic e'penditure of /$/KH #illion US dollars could be reali"ed$ In addition to

( (/@

8/18/2019 331989.Nagoya_paper_1 (1).doc

9/26

afore#entioned the shipbuilding industry contributes to the stability of the #ar)et$ It also

 bears a significant social co#ponent as it directly e#ploys so#e 1/$000 &or)ers and 2,000

subcontractors &hile 1@0 co#panies in the European Union, producing the ships e9uip#ent

e#ploy appro'i#ately /K,000 e#ployees$ *he percentage of the production e#ployees in the

shipbuilding industry in the !epublic of roatia accounts for @ of the e#ployed$ Finally,

&ith such e'port rate the shipbuilding industry accounts for 10(12 of the total value of the

countryJs deficit in co##odities$

As regards shipbuilding industry the countrys financial balance &ill re#ain negative

for the ne't four years$ -o&ever, &ithin the fra#e of inco#e(e'penditure account, &ith

subsidies, recovery and loss coverage in e'penditures and ta'es, surta'es and contributions in

inco#e, this balance is balanced and stands at about the value of D00 #illion US8$

3.3 Restructuring and privatization

In econo#ic practice restructuring and privati"ation are understood as uni9ue

 procedures #eant for enhancing co#petitiveness of a single econo#ic sub0(ties in the

last century, &hich coincides &ith the adoption of liberal practice as a do#inant one$ In the

so(called transitional countries, privati"ation is co#prised as a revolutionary act directed

to&ards ideological and syste#ic changes of the &idest social and econo#ic content$ Fro#

an organic point of vie&, and due to the afore#entioned, restructuring has a priority over 

 privati"ation$ -o&ever, according to the prevailing liberal standing it can not reach the

ob

8/18/2019 331989.Nagoya_paper_1 (1).doc

10/26

 principle has been confir#ed in a nu#ber of countries and undoubtedly represents an

acceptable possibility also in the case of the roatian shipbuilding industry$

,',' estructuring 

*he ter# restructuring, ta)en as a concept in a narro&er econo#ic sense, represents

repositioning &ithin the fra#e of ne& technological, organi"ational and econo#ic concepts$

Moreover, the restructuring should be considered as a per#anent, i$e$ never ending process

&hich is #easured and reali"ed by phases$ -o&ever, in the conte't of a criteria #atri'

organi"ed in this &ay, there are entire periods, even epochs, &hich have deter#ined the long(

ter# restructuring, processes, for e'a#ple big technological, econo#ic and geopolitical

changes &hose conceptual di#ension deter#ines in ter#s of ob

8/18/2019 331989.Nagoya_paper_1 (1).doc

11/26

countries$ -o&ever, the process itself &as facing special restrictions, the biggest part of the#

 being those related to socio(political environ#ent and related organi"ational references and

geopolitical issues, &hile the #ar)et factors have had so#e&hat less restrictions$

 Na#ely, in that period still &ithin the E'(Pugoslavian, the roatian shipbuilding

industry &as &ithin the conte't of predo#inately bilateral relations &ith the #ar)ets of the

so(called countries in develop#ent and clearing #ar)ets &hich guaranteed the good

 positioning and co#petitiveness$

%n the internal #ar)et the shipbuilding industry &as syste#atically strongly

integrated in general econo#ic #atri' so it has &or)ed as a large syste# of transferring the

value &hose final price &as deter#ined, due to e'port, by a foreign currency co#ponent and

syste# of e'change rate ingredients$ -uge syste# could not have been partially changed,

&hich as a conse9uence dis9ualified in advance all refor#s and restructuring in the

shipbuilding industry$ It is logical that such an environ#ent has fatally slo&ed do&n the

restructuring processes

8/18/2019 331989.Nagoya_paper_1 (1).doc

12/26

According to general understanding of the ter# privati"ation, the privati"ation

accelerates the process of restructuring, enhances business efficiency and strengthens

co#petitiveness$ *he effects of privati"ation &ithin the fra#e of the restructuring process are

therefore synergic$ 8ue to this in transitional countries the restructuring and privati"ation

 processes are tightly lin)ed and considered as al#ost e9ual$ Until recently, the prevailing

opinion has been that the restructuring of shipbuilding industry is not possible to i#ple#ent

&ithout its previous privati"ation$

%f course, this opinion is entirely &rong, since, as it has been said, the privati"ation

 brings e'clusively a synergic effect, &hich has been proved by a nu#ber of successful

 privati"ations &hose restructuring effects totally failed$ In privati"ation the buyer and seller 

appear &ith their #otivations of #a'i#i"ing the effects$ -o&ever, unli)e the concentrated

#ar)et effect &hen the #ar)et(based criterion is e'clusive in the case of shipbuilding

industry and industry of big capital values and #ultiplicative effects, privati"ation confronts a

 private buyer of narro& business interest on one side, and the state &ith &ider econo#ic,

social and geopolitical interests on the other$ 8ue to this, the effects of #ar)et opti#i"ation

are here very co#ple'$ *he buyer, the private investor is concentrated on the relation bet&een

the price and e'pected gains, &hereas the seller, the state, on resolving co#ple' econo#ic

and social proble#s$ .roble#s &hich the state is facing are lin)ing the issue of values and

#ultiplication in the area of e#ploy#ent, inco#e and foreign currency effects: also, it

contains often nu#erous #ortgages for the past as are debts, unsettled financial liabilities,

obsolete technological and organi"ational concepts &hich all together #ust be solved by the

seller and the buyer in the process of privati"ation$

ac) of study and lac) of &ill to elaborate all these issues and proble#s #ost often

results in the si#plification in the process of evaluating effects, &hich in turn generates

#isunderstanding, conflicts and finally contra productive solutions both for the buyer and for the seller$ In general, it can be concluded that the process of privati"ation #ust be sub

8/18/2019 331989.Nagoya_paper_1 (1).doc

13/26

Q4rodosplitQ Shipyard o#pany &as founded in 1>// by #erging of fe& #inor 

shipyards in the area of ity of Split$ It &as on the current location since 1>D/, although the

tradition of ship building in that area is #uch older$ Very significant develop#ent and

 building of larger ships has been recorded in 1>th century$ Q4rodosplitQ today is a

8/18/2019 331989.Nagoya_paper_1 (1).doc

14/26

ountyJs econo#y inco#e,

• it still presents the only part of ountyJs econo#y that #a)es business &ith net profit

+total profit is greater than total loss$

*a)ing all #entioned points into consideration it is to conclude that s#all and

#ediu#(si"ed businesses are significant and relatively the #ost successful sub

8/18/2019 331989.Nagoya_paper_1 (1).doc

15/26

#eet the follo&ing de#andsB co#petencies to resolve proble#s, syste#atic thin)ing

+tea#&or)3, and intelligent &or)$ Introducing tea#&or) in the &or)ing processes in a sense

of buyer(supplier relationships as &ell as in the #anagerial structures defining the goals and

tas)s, tea#&or) should be therefore, i#ple#ent in the entire shipyard$

*o reali"e #odular shipyard pro>03 in 4rodosplit, &hich &ill continue to ta)e place inside the

shipyard and to point out the steps for their i#prove#ent$ %n the other hand, already

#entioned, so(called standard capabilities &hich are not so essential for 4rodosplit, have to

 be put apart as s#all and #ediu#(si"ed co#panies connected in the sa#e net&or) 

+outsourcing3$

A!IS #ethodology +Sheer, 1>>>3 has been used to present 4rodosplitJs business

 processes$ It enables graphic presentation of business processes trough developed soft&are on

four levelsB

• organi"ation +&or)places3,

• functions +perfor#ance of the activities3,

• resources +basic #eans, docu#entation, #aterial, and the li)e3 and

•  production progra#$

4.2 Modular shipyard characteristics

4asic characteristics of #odular shipyard are as follo&sB

• enables fi'ed costs #ini#i"ation,

•  perfor#s basic business, pro

8/18/2019 331989.Nagoya_paper_1 (1).doc

16/26

• coordinates &or) of its o&n and cooperative facilities,

• insures close relationships &ith all participants in process, by long(ter# agree#ents

and contracts,•  purchases #aterials and e9uip#ent upon opti#u# conditions,

• insures partners in different phases of construction, &ith different productive profiles

and different for#s of o&nership,

• supervises and controls results of partners &or), and indirectly affects their &or)ing

 process,

•  puts up, if possible, process or tea# organi"ation in functional organi"ations

structure$

4.3 Determination of core competencies inside the modular shipyard 

Several #eetings &ere held bet&een the partners on pro

8/18/2019 331989.Nagoya_paper_1 (1).doc

17/26

4rodosplit$ In that conte't, it is necessary to observe all seg#ents of re(organi"ation and

restructuring process, pri#ary in ter#s of todayJs facilities, but also in ter#s of connections

and relationships &ith, in the future, also re(organi"ed and restructured #odular shipyard$

Figur '  Basic activities suggestion within the modular shipyard Brodosplit3

and small and medium#si1ed companies

It is obvious that the process of e'traction, restructuring and ad

8/18/2019 331989.Nagoya_paper_1 (1).doc

18/26

Figur -  Brodosplit#Shipyard relation concept with e4ternal resources

-. S#i"bui$ding c$ustr o( t# S"$itDa$+atian Count%

It is to conclude that shipbuilding industry presents the )ey and strategically the #ost

i#portant industry of the !epublic of roatia, and already having its roatian brand, it should

soon beco#e a Rloco#otive of develop#ent other branches of industry, especially of s#alland #ediu#(si"ed co#panies$ In order to increase the shipbuilding co#petences the

integration of all productive, service providing and scientific activities closely related to the

shipbuilding industry the Split(8al#atian ounty is re9uired$ Such integrated shipbuilding

syste# &ould have cluster  characteristics, focusing on #ainly on the increase of co#petence

of the e'isting shipyards in the area as &ell as their supporting industries that &ould

 participate in ship building$ %rgani"ed li)e this, such shipbuilding cluster of 8al#atian

region &ould further

8/18/2019 331989.Nagoya_paper_1 (1).doc

19/26

*he concept of shipbuilding cluster is sho&n in Figure K$ *he concept presents on one

side the associate relationship of schools and universities and on the other side the

shipbuilding industry of the Split(8al#atian ounty$ *he #ain factors or rather activities that

can be done through the presented net&or) are sho&n as &ell$ Further, the figure of the #ain

ele#ents and activities of cluster shipbuilding is presented too$

Schools and universities &ould participate in funda#ental and continuous education

of cluster shipbuilding staff$ Educational plans and progra#s could be deter#ined and agreed

according to the needs of various professions of cluster shipbuilding e#ployees$

• technical high school,

•  bachelors degree studies

• #asters and .h8 degree studies

• specialist studies,

Schools3 universities3 scientific#research institutions &ould cooperate in developing

ne& products and processes as &ell as in i#prove#ent of the e'isting ones$

As the structure of the developing function on the level of cluster shipbuilding of the

!epublic of roatia is 9uite relevant to the sub

8/18/2019 331989.Nagoya_paper_1 (1).doc

20/26

Figur 0 Cluster shipbuilding 

•  evelopment of technology3 organi1ation3 methods and procedures, &ould rely on the

concept of connection of the regional developing services &ith faculties dealing &ith

technological and organi"ational researches, as &ell as &ith the one of Industrial

engineering in an individual shipyard$

*he tas) of this service &ould include the #onitoring, assess#ent of de#ands and

 possibilities of ne& technological and organi"ational achieve#ents in order to i#prove

 production and productivity, technological procedures, organi"ational i#prove#ents,introduction of ne& #aterials, #achines and tools into production and the study of &or) and

ti#e$

roatian naval architecture &ould present the head9uarters: the Institute of Naval

Architecture &ould stand for the #ain developing and researching center &hereas the

individual #odular shipyards &ould figure for the regional researching centers$ +Ul

8/18/2019 331989.Nagoya_paper_1 (1).doc

21/26

Engineering and Naval Architecture, *he University of Split, *he Faculty of *echnical

Sciences of !i

8/18/2019 331989.Nagoya_paper_1 (1).doc

22/26

co#ponent parts +tracing, cutting and for#ing3 they could, if necessarily, #a)e cutting

and for#ing activities, so that the produced co#ponents could be transported to the

s#all shipyards &here the hull sections and e9uip#ent could be done, according to the

given standards$ Upon finishing, e9uipping and dyeing, the ele#ents &ould be

transported bac) to the #odular shipyard in order to gro& into a ring5and 7or 

asse#bly +prefab3 slip&ay$ Such fitting, e9uipped and dyed sections &ould be built

into basic structure on the slip&ay$

• Shipyards as sub#contractors, having their basic resources and needed s)ills such

shipyards &ould, consider their participation in co##on product: deal &ith &or)s

related to a specific ship and &ould be purposely speciali"ed for it$ Free productive

capacities could be sold on #ar)ets of shipbuilding or other #ar)ets$

• Small and medium#si1ed enterprises in Split#almatian County'  According to the

analyses presented in the article +Ve"a C others, /00H3 s#all and #ediu#(si"ed

enterprises of Split(dal#atian ounty have enough potential for ta)ing their part in

cluster shipbuilding$ *he data relating to their i#portance for the national econo#y as

&ell as their involve#ent into industry are presented in hapter V of the Article

entitled 22 suggestions for the increasing of co#petitiveness of roatian econo#y5,

significant gro&th of s#all and #ediu#(si"ed enterprises +suggestions fro# DH up to

H13$

•  9nterprises providing services' *hese types of enterprises could be also involved into

cluster shipbuilding, especially enterprises dealing &ith the pro

8/18/2019 331989.Nagoya_paper_1 (1).doc

23/26

of ter#s fulfilled fro# the sa#e location,

• *he e'isting staff, decreased in nu#ber and presently e#ployed in different locations

&ould be connected through their profession and e'pert orientation$

• Increase in fle'ibility of &or)ersJ deploying and disposing of #eans of production,

• *he possibility of #ore 9ualified infor#ati"ation and rational invest#ent

• Increase of productivity or rather a decrease of effective hours7c*,

• Involve#ent of greater nu#ber of producers, especially those fro# distant regions,

into co##on product,

• Increase of e#ploy#ent through opening ne& &or)ing places +start(up enterprises3,

• =uality &ould fit to the real costs and prices,

• !eali"ation of ai#ed invest#ent and para#eters of production, each in its field of 

&or),

• *he possibility of introducing developing function, &hich has been ignored5 for 

#ore than ten years and challenge of dealing &ith #ore sophisticated products such as

#erchant ships and passenger ferries of a ne& generation$

( (//D

8/18/2019 331989.Nagoya_paper_1 (1).doc

24/26

0. Conc$usion

.rocesses, &hich &e are dealing &ith in this paper, are acco#panied by huge social and

econo#ic changes as &ell as changes in #ental structure, &hich can not be, as e'perience has

sho&n,

8/18/2019 331989.Nagoya_paper_1 (1).doc

25/26

R(rncs

4aliW, $: Veža, I$: XuL, F$B 5Advanced .roduction Syste#s6 + Napredni proi"vodni siste#i3$

Faculty of Mechanical Engineering Maribor, Faculty of Electrical Engineering, Mechanical

Engineering and Naval Architecture, Maribor, Split, /00?$

Elaborate of the !estructuring of the roatian Shipbuilding Industry, -V4 lobal Shipping,

Tagreb, /00?

EA8E!S-I. /012 8efining the Future of the European Shipbuilding and Shiprepair 

Industry ( o#petitiveness through E'cellence

httpB77ec$europa$eu7enterprise7#ariti#e7#ariti#eYindustrial7leadershipY/012$ht#

.rahalad, $G$ and -a#el, $, 5*he ore o#petence of the orporation6, -arvard 4usiness

!evie&, No$ 2(K, 1>>0, pp$ ?>(>1$

Scheer, A$$B 5A!IS ( 4usiness .rocess Fra#e&or)6$ Springer Verlag, 4erlin -eidelberg

 Ne& Por), 1>>>$

Sladol

8/18/2019 331989.Nagoya_paper_1 (1).doc

26/26

Engineering, Mechanical Engineering and Naval Architecture, Split, /00H$

Veža, I$: 4iliZ, 4$: 4ela), V$B 5ore o#petence for a Shipyard o#pany6$ lobal 4usiness

[ Econo#ics Anthology$ Vol$ 1/ +/0023 Nr 1: s$ HK?(H?2

Veža, I$: 8ulWiZ, \$: .aviZ, I$ 5o#petency 4uilding 4ased Upon the Introduction of the

Modular Shipyard oncept6 .roceedings of Eighth Internation onference on Manufacturing

C Manage#ent, Sale#, S$ +editor3, 4o' -illB .MM International, /00H$ s$ /H1(/H?

http://bib.irb.hr/prikazi-rad?&rad=236608http://bib.irb.hr/prikazi-rad?&rad=212413http://bib.irb.hr/prikazi-rad?&rad=212413http://bib.irb.hr/prikazi-rad?&rad=236608http://bib.irb.hr/prikazi-rad?&rad=212413http://bib.irb.hr/prikazi-rad?&rad=212413