Shipbuilding and repair industry

Although the SRI is composed of several different sub-sectors, with a distinction between the construction of merchant and naval ships, the repairing and conversion of ships and the different suppliers of marine equipment and engineering services, a sophisticated analysis of all these sub-sectors is beyond the scope of e-Business W@tch. For the survey 150 companies in the SRI have been interviewed. Out of this sample 143 observations are useable and for the EU-10 countries the sample comprised 98 enterprises. Due to this small sample size the survey results should be cautiously interpreted.

Adoption of ICT and e-business in 2006 – survey results

In general, the survey results show that ICT and e-business activities are adopted by companies in the SRI and their deployment has become increasingly important for the industry. Key findings regarding ICT and e-business activities in the SRI are summarised below:

• Internet connectivity covers all enterprises and the majority of companies have broadband access.
• A relatively high fraction of companies said that they employ ICT practitioners and use open source software.
• The share of companies that reported using secure server technologies or a firewall is above the all-sectors average of the ten sectors studied this year. Security is an important issue in the SRI.
• About half of the companies reported that e-business is a significant part of the way the company operates. However, about one third of the companies said that interoperability is critical for e-business within the sector and for producing products and services.
• The use of Enterprise Resource Planning (ERP), Document Management System (DMS), Supply Chain Management (SCM) or Customer Relationship Management (CRM) applications is still not widespread within the SRI, but partly in line with the extent of their use in other industries.
• The share of companies in the SRI which said that they have launched new products or new processes in 2005 is lower than the average across all sectors studied this year.
• According to the surveyed companies in the SRI, their main driving forces for the uptake of e-business are “gaining competitive advantage” and “customers expectations”.

Current e-business trends and implications

Due to increasing international competition, structural changes in the SRI have resulted in co-operation in engineering and production along the value chain between shipyards, subcontractors, system suppliers and suppliers for standard products. According to the survey results, companies in the SRI co-operate and collaborate online within their value system, notably with regard to the sharing of documents and in design processes.

ICT are now generally recognised as a key factor contributing to productivity. Cost reductions stemming from improved communication and data exchange, as well as lower transaction costs are the main reasons why companies implement e-business applications. However, the adoption of new IT and e-business tools in the SRI seems to be rather slow due to structural characteristics and complex production processes involving many different actors. As vessels are highly customised products that allow little if any standardisation, ICT is mostly used in engineering and product development.

The SRI is a rather traditional industry that also comprises small and medium-sized enterprises (SME) for which the possibilities of e-business currently do not seem to play a strategic role. Moreover, evidence presented in this report indicates that the cost-benefit structure of advanced e-business solutions seems to benefit to a much greater extent large companies in this industry.

The use of B2B Internet trading platforms

According to the survey results, online sales are not a common practice in the SRI, neither on the supplier nor on the customer side. However, about half of the surveyed companies reported placing orders online. A small fraction of these companies said that they use ICT solutions for e-sourcing. Most existing e-portals for the SRI are not e-marketplaces with a lively trade, but more of a catalogue to browse for suppliers and to make requests for quotes.

Large shipyards are the leaders in e-procurement. They mostly focus on aggregating orders in order to achieve more bargaining power. Suppliers, on the other hand, tend to remain sceptical towards electronic practices. Most of them fear the loss of bargaining power and thus prefer to conduct business in traditional paper-based ways or via e-mail.

e-Business and SMEs

Due to structural changes in the SRI, small and medium-sized supplier companies for maritime equipment or engineering services generate today more than seventy percent of a ship’s value. Therefore, the question of what impact e-business technologies have on the sector’s SMEs is quite relevant. On average, SMEs are slower in adopting ICT and e-business, because they are not able to realise economies of scale and lack expertise as well as a qualified labour force.

F urthermore, in the SRI suppliers, customers and shipyards use not compatible ICT systems which result in a relatively high rate of use of propriety standards and other standards compared to the all-sectors average for all ten sectors studied this year. Consequently, especially small and medium-sized suppliers face difficulties when they need to decide what kind of system they should implement. However, current internet solutions allow such interoperability problems to be solved.

Business impacts

In the e-Business Survey 2006, about two-thirds of the sector’s companies reported that e-business constitutes "a part of the way they operate". In the SRI, adoption of ICT leads to structural changes in internal work processes and increased business process efficiency. The survey results also indicate a positive impact on the organisational structure of the sector’s companies. However, the perceived overall influence of ICT on productivity and revenue growth appears to be lower than in other industries studied by e-Business W@tch in 2006. On the other side, companies in the SRI assess that ICT have an impact on competition in this sector, and, in fact, gaining competitive advantage was identified as the main driving force for their investments in ICT and e-business.

The picture is quite different for small companies in the SRI, where security issues, interoperability problems and implementation costs were identified as the major barriers for e-business initiatives. For example, small enterprises often have to make substantial up-front investments in employee training to develop the skills that are necessary to benefit from e-business. As a result, evidence presented in this report indicates that small companies in the SRI benefit less than their larger counterparts from ICT and e-business.

Policy implications

The main driving force for developing, implementing and using ICT as well as e-business in the SRI is increasing international competition, especially from Asian countries. While ICT and e-business adoption is only one possible strategy to improve the competitiveness of enterprises, some policy implications have become apparent in this respect.

• Networking: The complex production processes in the SRI require inter-firm interaction and collaboration among several actors along the value chain. Compared to other manufacturing industries studied this year, online co-operation and collaboration within the value system of the SRI is lower. Moreover, the stated supply chain integration using SCM systems in the SRI is lower than in other manufacturing industries. According to the survey, the reported level of both product and process innovations in the SRI was lower than the respective all-sectors averages. Since significant benefits can be achieved by introducing innovative ways of organising inter-firm interactions, modifying business processes and integrating companies along the value chain, networking could be encouraged by inter- and intra-industry dialogues, organised by industry federations, technology platforms and the development of maritime clusters. The networking process could be supported by research programmes giving incentives for innovation networks in the SRI.
• Interoperability is a key issue for inter-firm co-operation and connectivity. About one third of the companies in the SRI said that interoperability was critical for e-business within the sector and for producing products and services. Although the process of standardisation lies in the hands of the SRI and ICT industry, policy makers could encourage companies to develop and adopt standardised tools. Supporting the development of uniform standards can avoid market failure resulting from co-ordination problems.
  An important survey result in this context is that more small companies in the SRI said that they see interoperability critical than medium-sized and large companies. Therefore, the interests of SMEs in general and from the SRI in particular, have to be taken into account in the standardisation process and public policy should support their specific needs.
• Security and knowledge protection: The e-Business Survey 2006 reveals that companies in the SRI deploy secure server technologies, digital signature and firewalls to a larger extent than companies in other industries. Furthermore, according to the survey results, security concerns and legal complications were reported by firms from the SRI as the main barriers to practice e-business.
  Moreover, knowledge protection was frequently cited in the SRI as another important barrier to practice e-business. Producing one-of-a-kind products, all actors in this industry are facing a permanent risk of violation of their intellectual property rights (IPRs) and, thus, fear product and knowledge piracy. Policy could, therefore, intervene in order to raise awareness and understanding of the risks related to e-business in general. In addition, public-private co-operation is necessary to develop legislation, standardisation and certification procedures reducing the fear of knowledge piracy in this industry.
• Balance of power: The question of power between customers (e.g. large shipyards) and small and medium-sized suppliers in e-procurement and supply chain management is an issue in the SRI. On the one hand, online procurement is associated with productivity gains due to price transparency; on the other, price transparency leads to negative effects for companies that sell their products online. Supplier companies fear new commercial risks resulting from incomplete information about e-market rules, business partners and possible unfair practices. Business associations should inform their members about the possibilities and risks of B2B internet-trading platforms. Competition authorities should monitor the competition on e-markets and intercede if necessary.

Reference to earlier sector studies

The sector was covered as part of the "Transport equipment manufacturing" in sector studies of 2004.

Download the study report

• ICT and e-Business in the Shipbuilding and Repair Industry - ICT adoption and e-business activity in 2006 (Dec. 2006), pdf (1.5 MB)