world maritime clusters.han2006

The Journal of Maritime Business, No.81, pp. 89-114 Dec 2006

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Comparative Analysis on Worlds Major Maritime Clusters

Chul-Hwan Han*

* Professor, Department of International Logistics, Division of International Relations,

Dongseo University, Busan, Korea

Contents

I. Introduction

II. Literature Review

III. Review of World Maritime Cluster

IV. Discussions and Conclusion

I. Introduction

Recently, the concept of cluster is a buzzword. This is not only domestic respect but

also in global one. The trends of industrial location on global scale cause are increasing

industrial clustering. These trends can be characterized by: move manufacturing to low

cost/huge market locations, R&D center to high knowledge locations, and transnational

corporate headquarters to business or financial centers of the world. In domestic

perspective, most of countries are introducing cluster approach to strengthen their

industries competitiveness and regional development. Thus cluster concept has become

the focal point of many new industrial and regional development policy initiatives

around the globe.

This phenomenon is not exception in world maritime industry. Several developed

maritime countries, especially in European region, have already introduced the cluster

concept in their maritime industry to overcome high cost environment as well as

competitive pressure from overseas. In Norway, Holland and the UK within the past 10

years, the governments have realized and responded to the need for major initiatives

resulting in specific, clearly articulated policies to support their national, maritime

aspirations and assist the promotion of their maritime centers. Without these policies,

the decline of their countries as maritime nations would have continued, adversely

affecting the international appeal and quality of their maritime centers.

The main purpose of this paper is to examine the world major maritime clusters to


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understand their purpose, economic significance in national economy and characteristics

by focusing on Dutch Maritime Network, Norwegian Maritime Cluster, London

Maritime Service Cluster, and Hong Kong Maritime Cluster and suggest some

implication for Port of Gwangyang to establish Maritime Cluster.

The article is organized as follow: the next section as a literature review gives a basic

concept of cluster and the emergence backgrounds of maritime cluster approach. After

that the previous studies on maritime cluster are also surveyed. Review of world major

maritime clusters is conducted in section 3. In section 4, conclusions and some

discussion issues are mentioned.

II. Literature Review

1. Concept of Cluster

Clusters can be characterized as networks of strongly interdependent firms (including

specialized suppliers), knowledge-producing agents (universities, research institutes,

engineering companies), bridging institutions (brokers, consultants) and customers,

linked to each other in a value-adding production chain. There is no definitive

description of what constitutes a cluster. However, one of the leading academic

authorities in this area, Michael Porter (1990), describes the concept as representing a

new way of thinking about national, state, and city economies with the cluster as a

framework for thinking about how places acquire and maintain advantages or assets that

affect the competitive performance of the firms located there.

Porter (1990) also describes a cluster as a geographically proximate group of

interconnected companies and associated institutions in a particular field, linked by

commonalities and complementarities. Porter states that the geographic scale can range

from the urban scale to even a group of countries, and can take varying forms dependent

on depth and sophistication. Whilst Porter does not fix the boundaries of clusters, he

does argue that their fulcrum is geographical proximity. It is clear that clusters are

dependent upon informal contacts which are based upon trust and reciprocity. Equally

the transfer of ideas and a common labor pool enhances competition and reinforces the

competitive advantage of the cluster as a whole.

The presence of industrial clusters is increasingly seen as a key attribute of a region or

countrys competitive position. Where businesses cluster together, a critical mass can be

created, stimulating growth, collaboration, competition and opportunities for investment.

The idea that cluster-based policies can be beneficial to economic development has

arisen from practical observation of inter-firm networking and institutional support in


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Proximity to

-suppliers

-customers

-competitors

relationships

-Reduced transaction

costs and specialization

-Utilization of

complementarities

-Utilization of local rivalry

-Learning

-Skilled labor

-Leader firm

-Coordinating institutions

Innovation and

international

competitiveness

Business

-profitability

-Growth in size

-internationali

-zation

Public policy

regions such as Silicon Valley and Hollywood (USA), and the industrial districts of

Central and North Italy. A large body of international literature (see for example Porter,

1999 and Rosenfeld, 1997) now highlights the importance of clusters as an engine for

economic value, added over and above simple collections of firms.

The benefits of cluster development arise from the positive externalities which

companies gain from the presence and operations of a cluster. These externalities

include, for example, access to specialized human resources and suppliers, knowledge

spillover, pressure for higher performance in head-to-head competition, and learning

from the close interaction with specialized customers and suppliers(Ketels, 2003). The

discussion on cluster effect and relationships is summarized in the following model

(Figure 1).

Figure 1 Cluster and its Effect

Source: Wijnolst, Jenssen, and Sodal(2003)

Originally Porter (1984) focused on national industrial cluster, i.e. firms and industries

linked through vertical(buyer/supplier) or horizontal(customers, technology, etc)

relationships, and with the main players located on a single nation or state. In 1990,

however, Porter emphasized that geographic concentration of rivals, customers and

suppliers in a region will promote innovation and competitiveness in a cluster even

more. On the other hand, Porter (1998) employ a wider meaning in that he also includes

institutions as part of regional clusters. Thus the term regional cluster has emerged and

most of developed countries use regional clusters as the best environment for

stimulating innovation and competitiveness of firms in knowledge-based economy.


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2. Emergence of Maritime Cluster Approach

The main reasons of emergence of maritime cluster are as follows; First, in industrial

perspective, today European maritime industry seems to face the challenge from new

maritime powers, namely Asian countries. The prominence of European maritime

industry has been hurt especially in shipbuilding, shipping and port sectors.

Shipbuilding output has decreased and very survival of European shipbuilding industry

today is at stake. As shown in Figure 2, the market share of European shipbuilding

industrys orderbook has dwindled from 24% in 1980 to 10% in 2004 during the past 25

years.

Figure 2 World Shipbuilding Orderbook1 (GT)

1980

Korea

9%

Japan

52%

CESA

24%

Other

15%

2004

Korea

32%

Japan

39%

China

14%

CESA

10%

Other

5%

Source: Lloyds World Shipbuilding Statistics.

This is the same situation in shipbuilding completion. The share of European

shipbuilding completion in world shipbuilding industry has decreased from 23% in

1980 to 11% in 2004. The fall of European shipbuilding industry may bring down the

foundation of European maritime industry including marine equipment supply sector.

1 AWES, Association of European Shipbuliders and Shiprepairers, and CESA(Committee of EU Shipbuilders Associations) decided on May 2004 to operate as one joint organization under the name of Community of European

Shipyards Association-CESA.


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Figure 3 World Shipbuilding Completions (GT)

1980

Korea

4%

Japan

46%CESA

23%

Other

27%

2004

Korea

37%

Japan

37%

China

12%

CESA

11%

Other

3%

Source: Lloyds World Shipbuilding Statistics.

In shipping sector, when we see the distribution of world tonnage by group of countries

of registration, the share of developed market economy countries, consists of EU, Japan,

USA, Canada and Australia, New Zealand, has decreased steadily during the past 25

years due to the flagging out of ship in open registry countries which offered low cost

and flexibility. However, the tonnage of developed market economy countries grew

slightly in recent years. This could reflect the steps taken in some EU countries to apply

tonnage taxes instead of standard tax rules to vessels registered in the country, as well as

the guidelines for state aid approved by the European Union in October 2003.

Table 1 Distribution of world tonnage by group of countries of registration

Flag of registration Tonnage and Percentage shares in million of dwt

1980 1990 2003 2004 2005

World total 682.8(100.0) 658.4(100.0) 844.2(100.0) 857.0(100.0) 895.8(100.0)

DMEC 350.1(51.3) 219.0(33.3) 217.1(25.7) 230.4(26.9) 241.7(27.0)

Open Registry 212.6(31.3) 224.6(34.1) 398.5(47.2) 399.5(46.6) 404.0(45.1)

CEE(incl. FSU) 37.8(5.5) 44.3(6.7) 15.9(1.9) 15.7(1.8) 14.5(1.6)

Socialist countries in Asia 10.9(1.6) 22.1(3.4) 28.3(3.4) 29.9(3.5) 33.4(3.7)

Developing Countries 68.4(10.0) 139.7(21.2) 171.3(20.3) 181.4(21.2) 202.3(22.6)

Other 3.0(0.4) 8.7(1.3) 13.1(1.6) 0.0(0.0) 0.0(0.0)

Source: UNCTAD, Review of Maritime Transport, 2005.

Although European port industry is a solid performer than other maritime sectors, the


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central axis of global port industry has already shifted to Asian region. For example,

world top 5 ports (Singapore, Hong Kong, Shanghai, Busan, Kaoshiung) are all located

in Asian region and their market share in global port industry is growing constantly.

Figure 4 World Container Port Throughput by Region

1990

East

As ia

38%

America

s

25%

Europe/

Med

27%

Others

10%

2004

East

As ia

47%

Americas

19%

Europe/M

ed

23%

Others

11%

Source: OSC, World Containerport Outlook to 2015, 2003.

The knock-on effect of a decline in one sector onto other sectors, and consequent loss of

value creation, is the main reasons for the introduction of European maritime cluster

policy. This has implications for business strategy and public policy. For the business

strategy, competition based on cost-leadership will be more and more difficult and the

necessity of an innovative differentiation strategy is growing. On the public policy level,

considering the importance of maritime industry in each country, a number of European

countries have adopted a cluster approach to organize parts of their maritime policy.

Second, in policy perspective, European policy makers in particular have turned to

cluster policy because of a shift in priorities from macro to microeconomic issues.

Monetary and fiscal policies are increasingly well understood, and many European

countries have made impressive progress in these areas. But their macroeconomic

progress turned out to be only necessary, not sufficient to higher prosperity. Very

targeted microeconomic efforts-often in a new partnership with the private sector,

universities, and other institutions-are required to translate into the macroeconomic

achievements into real productive improvements in companies. Cluster turned out to be

a very useful way to organize these efforts and launch effective action initiatives (Ketels,

2004).


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3. Previous Literatures on Maritime Clusters

With regard to the literature specifically dealing with maritime clusters there are three of

particular significance. First, Jakobsen et al (2002) examine the relative competitiveness

of five European maritime nations - Germany, The Netherlands, the UK, Denmark and

Norway whose 103 maritime industries between them account for annual value creation

of around $30bn. They examine relative national strengths in terms of country

attractiveness (price and quality of resources, satisfaction with domestic location, and

foreign attractiveness) and company competitiveness (internalization, R&D and

innovation, and competence and human resource strategy) using the parameters of

cluster dynamics (innovation pressure, knowledge diffusion, and complementarity), and

public policy. They consider each national cluster as a whole, even though each has

significant differences in the weights of the constituent sectors of each cluster. However,

while identifying some of the linkages between these, they frame their conclusions in

national terms rather than, say, sector terms and so cloud the larger picture of the

interrelatedness of the activities of these clusters. This analysis on the basis of regions

follows the initial Norwegian cluster analysis that focused on geographical rather than

functional clusters as the prime means of differentiation of activities. It is nonetheless an

important contribution to the analysis of the European maritime industries.

Second, Wijnolst et al (2003) develop a theoretical framework for maritime clusters

based on previous research for the Norwegian and Dutch clusters and an assessment of

their performance under cluster lead organizations. They provide a description of the

European Cluster Study (ECS) undertaken for the European Commission (2001)2, in

particular comparing its theoretical framework to that of the original Dutch study, which

divided the cluster into eleven functional sectors whereas the ECS used sixteen sectors.3

They evaluated that the ECS is a useful in using the most established clusters as

examples, as they were based on different approaches, the Dutch cluster using industry

sectors, the Norwegian cluster using regional centers. Wijnolst et al (2003) provide

useful research on maritime cluster indicators, identifying the relationship between

cluster strength and the type and number of constituent sectors, ranking the important 2 The purpose of European Cluster Study was to present basic economic data for a wide range of maritime industries in all 15 countries of European Union and Norway. The data presented in the report were primarily based on existing

aggregated sources. Thus no data were available for a number of sectors in member countries. 3 EC distinguished between 16 sectors for maritime cluster; shipping, shipbuilding, repair & conversion, naval shipbuilding, scrapping, offshore supply, inland shipping, dredging & maritime works, cable & submarine telecom,

ports & related services, fishing & aquaculture, recreational vessel, classification societies, R&D and education,

support services and equipment manufacturing. Dutch cluster study (1999) distinguished maritime cluster 11 sectors;

shipping, shipbuilding, marine equipment, offshore, inland shipping, dredging & marine works, ports & related

services, navy, maritime service, yachting, and fishing.


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economic indicators for cluster performance, and assessing critical mass and the role of

public policy to prevent distortions in competition. They also define seven enablers for

the development of an effective maritime cluster strategy and the action and support

required to maintain and develop the cluster.4 This study thus provides both an analysis

framework and concrete recommendations for a maritime cluster-based policy.

Third, De Langen (2003) analyses three seaport clusters. While his study has a narrower

field of study, it does have the advantage of going into greater depth in its analysis of

maritime cluster dynamics and their drivers. In addition to identifying further factors

which support the effective working of the clusters studied, it also quantifies them to

give relative weighs to their importance. It is considered that this work can be equally

applied to broader maritime clusters.

These three studies address maritime industries at country, cluster and sector levels

respectively, and each provides a more detailed analysis as their subject matter narrows.

Taken together they provide a comprehensive analysis of the current knowledge of

maritime clusters.

Individual maritime cluster studies have been conducted for the Dutch, Norwegian,

Swedish, German and Italian maritime industries. The latest country study is The

Finnish Maritime Cluster (Viitanen et al, 2003) which in addition to analyzing the

Finnish cluster also reviews all other European studies to date, paying particular

attention to the shortcomings of the Swedish studies. While it provides a comprehensive

description and quantification of the Finnish maritime industry and its financial and

employment contribution to that country, it falls short in making any recommendations

as to how cluster dynamics can be enhanced. Its major contribution is, therefore, as a

critique of other work done on national clusters.

III. Review of World Maritime Cluster

1. The Dutch Maritime Cluster

In the middle of 1990s, Dutch maritime industry, like other European countries, suffered

from flagging out of national vessel to open registry countries, reduction of Dutch crews.

And this led to a steep reduction in newbuilding orders for Dutch shipyards. Under the

4 Seven maritime cluster enablers are as follows; i) define cluster, establish its significance and promote visibility, ii)

define an industrial policy, iii) strengthen demand pull sectors, iv) monitor and maintain a level playing field, v)

promote exports and internationalization, vi) strengthen innovation, R&D and leader firms, vii) strengthen education

and labor market.


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crisis of entire Dutch maritime industry, Dutch shipowners association convinced the

government to look into the fundamental problems of the industry and to device a

daring new shipping policy. For this purpose, several studies was conducted and led to a

change in policy focus from supporting the flag to creating a level playing field for

Dutch shipowners. The latter objective was realized through a number of policy

measures, such as the introduction of tonnage tax, the cancellation of detailed manning

regulations and a financial contribution to the shipowner as a compensation for a part of

the social charges. According to the success of policy introduction more than expected,

the government to initiate a second recommendation of the shipping study to reinforce

the network around shipping and to create more value added from the entire maritime

cluster. The private sector took initiative to found the Dutch Maritime Network in June

1997 with an independent board of maritime industry leaders and financial support from

the trade organizations and Dutch government. The objective of Dutch Maritime

Network is to promote and strengthen the Dutch Maritime Cluster. It is a generally

privately funded body that provides research information and a forum for discussion to

the Dutch maritime industry. Its activities focus on for themes: communication and

promotion, manpower and education, export, and innovation. The Dutch Maritime

Network also represents the industry to the Dutch Government on matters such as

competition policy in order to ensure that the Dutch maritime industries are not at a

competitive disadvantage either domestically or internationally. The Dutch Maritime

Network is considered to be the most successful of the initiatives supporting maritime

clusters, and its methodology and industry basis have been extensively used in other

maritime cluster analyses. The Dutch maritime cluster included 11 sectors and 11,850

companies (see Figure 5). It is probably one of the most complete maritime clusters in

the world.

Figure 5 Dutch Maritime Cluster


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The total value added in 2002 of the Dutch maritime cluster was EUR 12.6 billion and

its share of Dutch GNP amounted 2.9 %. And its turnover amounted to EUR 21.4 billion,

among them export reached to EUR 12.6 billion, The export of Dutch maritime cluster

accounted for 5.4% of total export in Netherlands. And the number of employment in

the Dutch maritime cluster reached about 190,000 persons.

Table 2 Economic Indicators of Dutch Maritime Cluster (EUR billion, current price)

1997 2002

Turnover

Of which Export

17.8

9.9

21.4

12.6

Production Value 15.3 18.5

Total Added Value

Direct

Indirect

10.9

8.0

2.9

12.6

9.5

3.1

Total Employment

Direct

Indirect

-

190,000

135,000

55,000

Source: Wijnolst. N, Jenssen. J, and Sodal. S., (2003)

The largest maritime sectors in terms of production are the port sector (20%), the

shipping sector (15%) and the offshore sector (14%). Together they account for about

half of the total output of the maritime cluster. Judging by the value added, the port

sector overtakes all other sectors with a result that is 30% of the value added generated

by all the sectors included in the maritime cluster. Part of the total value added flows

back to the government as taxes and social security payments. The backflow is worth

about EUR 3.9 billion. The largest employers are the port sector (19%), the shipping

sector (14%), the offshore sector (13%) and the inland navigation sector (10%).

However, the impact of the maritime sector extends further than the production, value

added and employment within the cluster itself. Complex relationships of the maritime

cluster with other clusters make it very important for the Dutch economy. The indirect

impacts of the cluster extend to other areas of society as well.

In addition to important economic relationships, other relationships also exist between

maritime cluster sectors. These are an object of political interest. Examples of such

relationships are strong technological interdependencies, the movement of labor from

one cluster sector to another and the physical flow of traffic between inland water routes


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and ports. Information collected from companies concerning cost structure, estimates on

the value of production, value added, and employment together with the results of the

cost analysis make it possible to predict the impact of different policy choices on the

maritime cluster. One of the main suggestions of the Dutch maritime cluster study is

that the cluster policy is more effective and productive than the current general policy of

the government. In policy perspective, Dutch Maritime Network suggested some policy

recommendations which would lead to a lasting and dynamic growth of the maritime

cluster. Not through direct interference with the market forces, but by creating the

conditions with which the private sector could function best. Also it reinforces its

innovative capacities and its capacity to create sustainable value added and employment

for the Dutch economy. The policy framework for the future of Dutch maritime cluster

was based on a paradigm in which entrepreneurial spirit and responsibility were the

central pillars. This spirit can be reinforced by having highly qualified human capital,

and innovation driven R&D and innovation diffusion network and sufficient capital.

The recommendations were focused on 10 topics; innovation, export, home market,

infrastructure and spatial planning, modal shift, level playing field, capital market,

network and image building, labor market and education, partnership between

government and private sector. Based on various literatures, SWOT analysis on Dutch

maritime cluster is shown in Table 3.

Table 3 SWOT Analysis on Dutch Maritime Cluster

Strengths

Favorable location in Europe

Most complete maritime cluster structure

Various education and training system

Advanced shipping policy scheme

Weaknesses

Lack of large maritime service sectors

Lack of large financial sector

Relatively small tonnage controlled within the

cluster

Opportunities

Growing world shipping market

Increase in short sea shipping

Threats

Competition from oversea cluster

Shift of maritime gravity to North

2. The Norwegian Maritime Cluster

During the years after the 1973 oil crisis the Norwegian shipping industry has gone

through a period of major transition. Like other European maritime countries,

aggressive competition from low-cost countries has put a lot of pressure on the

Norwegian fleet. Norwegian ships flagged out and crews were replaced by cheaper

foreign seamen. Under these circumstances, Norwegian government introduced two


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distinguished maritime policy; Norwegian International Ship Register (1987) and

tonnage tax reform (1996). However, increasing competition in global shipping industry

has forced advanced maritime countries to emphasize innovation even more.

Benito et al (2003) classified Norwegian maritime cluster into seven main categories;

shipping, ship brokers, ship consultants, ship building and repairs, ship equipment, other

shipping services, and others in ship industry.5 Almost 4,053 companies are included in

Norwegian maritime cluster and shipping companies formed 62% of the total number of

companies. And about 80,000 persons are employed in the maritime cluster.

Furthermore, Norwegian maritime cluster has several world class actors: (1) shipping

company like Oslo-based Bergesen d.y. ASA and Leif Hegh & Co ASA, (2)

classification society like Det Norske Veritas (DNV), with more than 5500 employees in

100 countries, classifying 15% of world fleet (and 80% of the Norwegian fleet), (3) ship

finance institutions such as Det Norske Bank and Nordea, (4) marine insurance

companies such as Gard and Skuld (P&I Club), Vesta and Storebrand (hull insurance).

Figure 6 Norwegian Maritime Cluster

Source: The Norwegian maritime cluster-synergy breeds excellence (www.nortrade.com)

The Maritime Forum of Norway, founded in 1990 is the only network organization and

its three main tasks are as follows; to positively influence the conditions of Norways

industrial policies, to strengthen cooperation between the different sectors within the

maritime industry, to forward, the best interests of Norways maritime industry on an

international basis. The Maritime Forum has several hundred members, comprising both

5 Benito et al (2003) divided the Norwegian maritime industry into two main parts. On the one hand, shipping which basically consists of service suppliers, and on the other hand, the ship industry that includes the suppliers of goods.


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employers and employees of maritime organizations. While Dutch Maritime Network

has divided the network based on sectors of industry, the Maritime Forum has

established relatively independent departments within the most important regional

maritime clusters in Norway. Although Norwegian researchers often states that

Norwegian maritime cluster is complete (Reve & Jakobsen, 2001, Benito et al, 2003),

several maritime sectors are small. Compared to the Netherlands, sectors such as

dredging and inland shipping are minor sectors. And yachting, ports and navy are not

included in most analyses of the maritime sector in Norway.

Norwegian maritime industry is dominated by shipping sector. Around 50 percent of

value creation in maritime industry is within shipping companies. The rest of the cluster

is almost equally split between services, equipment and ship building (Jakobsen et al

2003). Another important characteristic of Norwegian maritime cluster is that it is not

based on one region of the country. It consists of seven regional clusters along the whole

coastline, but the largest actors are all located on the West Coast and along the South

Coast up to the capital city Oslo. The three main geographic locations are: (1) the

county of M re and Romsdal in the north-west part of the country, where shipyards and

equipment dominate, (2) the western city of Bergen, which is important for both

shipping and ship industry, and (3) the city of Oslo, which is mainly shipping oriented.

This implies that Norwegian maritime cluster has regional specialization.

Reve et al (2001) have shown that the Norwegian maritime industries have a high status

in international competition that is based on solid know-how in the domestic market and

on the strength of the companies that actively seek profit. Technical know-how gives the

Norwegian shipping companies the advantage of being able to use and develop the

Norwegian vessel classification system. However, one of the most important success

factors is the cooperation and synergy that Norwegian shipping companies have with

one another across the cluster. This efficient co-operation between Norwegian shipping

companies and the rest of the maritime sector helps to create innovations and

commercial competitiveness. As the Norwegian shipping companies mostly compete on

the international market, it is important for them to be able to offer services to the

shipping companies at a competitive price. This would not be possible without

cooperation between shipyards and research institutes that have in turn developed and

offered new solutions for the market. And cooperation helps in developing high level

technical know-how, which benefits all the parties involved. Furthermore cooperation

between shipping companies and experts of marketing, finance, insurance and law is

another prerequisite to success. This is the basis for the Norwegian maritime cluster.

Concerning the economic performance of Norwegian maritime cluster, the total value


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creation of Norwegian maritime cluster is estimated at EUR 4 billion in 2001 and its

share of the GDP is estimated at almost 3% (Jakobsen et al, 2003). In policy perspective,

the Norwegian government has not intervened heavily in the development of the

maritime cluster. The overall policy seems to be that the governmental policies should

be sector neutral. Norwegian maritime clusters strengths, weaknesses, opportunities

and threats are shown in Table 4.

Table 4 SWOT Analysis on Norwegian Maritime Cluster

Strengths

High cooperation and synergy within the cluster

Solid know-how in maritime industry

World class maritime services(shipping finance,

insurance, and stock exchange)

Specialization in oil transportation

Weaknesses

Relatively small cluster size against competitors

Divergence on clusters in 7 region

Remoteness from main European market

Less investment in education compared to other

European maritime nations

Opportunities

Development of Information and communication

technology

Development of multimodal transport

Threats

Competition from European maritime cluster

Challenge form low cost countries

3. London Maritime Service Cluster

Like other European developed maritime countries, UK confronted with same situation

during the 1980-1990s. In an increasingly competitive environment, Maritime London

was set up in 2000 to address this very problem as an industry led initiative. Maritime

Londons key objectives are: (1) to maintain and enhance Londons position as the

worlds premier maritime center, (2) to promote the maritime service sector, and (3) to

attract new maritime related business to London and the UK. These include shipbrokers,

shipowners, lawyers, insurers, bankers and class societies (IFSL, 2003).

Recently, Corporation of London, the body which provides local government service for

the City of London, published a new report, The Future of Londons Maritime Service

Cluster: A Call for Action (2004), to maintain the competitiveness of the London

maritime service industry. According to the report, maritime service cluster consists of

five sectors: shipping, intermediate services, maritime governance and regulation,

support services, and industry associations (see Figure 7).


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Figure 7 Londons Maritime Service Cluster

Source: Corporation of London, The Future of Londons Maritime Service Cluster, Aug 2004.

The importance of maritime service cluster in London and the UK can be explained by

the IFSL report Maritime Services (2003). According to the report, net overseas

earnings of maritime services in London and the UK rose by 16% to 1,092m between

1999 and 2002, and maritime services form a key segment within Londons status as an

international financial centre. The major contributors in 2002 were the Baltic Exchange

(322m), legal services (190m), insurance brokers (170m), banks (150m), and

Lloyds Register of Shipping (100m), with P & I Clubs and publishing also making an

important contribution. Adding 1.1bn overseas earnings from UK shipping, the

combined net overseas earnings of maritime services and UK shipping totalled 2.2bn

in 2002. IFSL estimates that 14,200 people are employed in maritime services. Of this

total, 4,200 work in ship-broking; 3,150 in insurance-related business; 2,500 in legal

services; 1,850 in ship classification; and around 500 each in banking, accounting,

publishing and international organizations.

Corporation of London (2004) undertook a cluster mapping exercise to identify the size

of the maritime service cluster in London by bottom up approach. It identified some

1,382 companies have a registered office in London, and another 375 have a trading

office in London, thus over 1,750 companies or organizations is located in London.

Corporation of London (2004) also conducted interviews to find out the main

advantages and disadvantages of London maritime service cluster. The main advantages

are close to market leading customers, availability of market information, strong skilled


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labor supply, close to firms supplying specialist services, near to professional bodies (eg

International Maritime Organization), knowledge transfer in the wider cluster mix, and

proximity to an exchange or market place. On the other side, the disadvantages of

London are cost pressure (high wage and housing cost), poor transport infrastructure,

unfavorable UK tax system, and insufficiency of government support. Based on various

literatures, SWOT analysis on Dutch maritime cluster is shown in Table 5.

Table 5 SWOT Analysis on London Maritime Service Cluster

Strengths

Brand power

World-class maritime-related service

Highly skills and expertise

Presence of International Institutions

English law, Courts and Admiralty Solicitor

Weaknesses

Lack of collective work among cluster members

Lack of public and private relationship

Insufficiency of government support

Limited tonnage controlled within the cluster

High labor and housing cost

Opportunities

Synergy with London financial service cluster

Development of e-commerce

Engagement with maritime cities in UK

Threats

Competition from oversea cluster

Inferior transport infrastructure

Shift of global maritime balance to Asia

Difficulty in recruitment for young people

4. Hong Kongs Maritime Cluster

Hong Kong is regarded by many in the maritime industries both in and, more so, outside

Hong Kong as the premier maritime centre in the Asia-Pacific area. Yet, oversea

competitors such as Singapore and Shanghai are trying to catch up Hong Kongs

position aggressively. Thus there is much to be done both to preserve Hong Kongs

present status and to develop it further. And Hong Kong government is regarded by

members of the cluster as having limited awareness of either its international status as a

maritime centre or of the significant benefit Hong Kong derives from this situation. This

view is based for the most part on the perception that the government lacks awareness

of the importance of the cluster to Hong Kong economy. Consequently, the government

does not see the need to accord high profile policy status to the cluster leading to and

caused by the lack of a comprehensive set of consistently applied policy initiatives. The

situation is compounded both by the significant attention given variously to the port and

logistics and by the extensive, varied nature of the industries comprising the cluster.

Members of the cluster feel that their industries are viewed by the Government as a poor


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relation of less importance than the port, evidenced by there being only a Shipping

Committee of the Hong Kong Port and Maritime Board and that not formed until 1998.

Although the port plays an important but single role in the logistics chain while the

maritime industries, as a cluster, form one of the main bridges between the port and the

logistics chain. Yet Hong Kongs reputation as an international maritime centre has

developed principally from the activities of the cluster rather than the port. The port is

significantly dependent on activities within the cluster for its success yet much of the

cluster could continue to function effectively if there were no port. Thus Hong Kong

maritime industries feel it is time for the Government to give their activities recognition

and attention at least equal to that enjoyed by the port and the logistics industries. In

2003 the Government established the Hong Kong Maritime Industry Council (MIC) to

develop the maritime industry and conducted maritime cluster study to take appropriate

measures to ensure Hong Kong continues to develop as the preeminent International

Maritime Center in Asia. According to the study (2003), Hong Kong Maritime Cluster

covering both as traditional and intellectual maritime activities and all supporting

services including, but not limited to, services such as communications, supply of

professional manpower, maritime training facilities, the taxation and legal framework

(see Figure 8).

Figure 8 Hong Kong Maritime Cluster

Source: Hong Kong Port and Maritime Board, Study to Strengthen Hong Kong Role as an International

Maritime Center, 2003.


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The cluster comprises the following 11 sectors: Ship ownership, operation and

management, ship agents, classification societies and surveyors, marine equipment and

supplies including shipyards and ship repairs, marine insurance, ship finance, ship

brokers, maritime law and arbitration, technical and miscellaneous services (including

R&D), and ship register. Among them, the most important sector in terms of revenue

generation and economic value in Hong Kong are ship ownership and ship management.

They are the core which sustain and develop the other industries in the cluster. But

Hong Kong maritime cluster does not include dredging equipment, yachts and fishing

unlike Dutch maritime network.

As an economic benefit of the international maritime centre of Hong Kong, business

receipts and other income of maritime cluster total HK$ 103 billion in 2000. The value

added was estimated HK$ 31 billion and its share in Hong Kongs GDP was 2.44%. The

contribution to export of service in Balance of Payment (BOP) account reached HK$ 70

billion, and 21.8% share in Hong Kongs export of service in BOP in 2000. The number

of employee engaged in maritime cluster reached 54,928 persons, 1.7% share in total

employment.

Unlike European maritime cluster, Hong Kong maritime cluster has no one overall body

representing all members. Instead, each element of the cluster has its own body and

organizational arrangements. One body in the private sector, the Hong Kong Ship

Owners Association (HKSOA), is the largest and perhaps the most influential of the

industry representative bodies in Hong Kong. It would be relatively straightforward for

the HKSOA to become the overall private sector representative body but its members do

not wish to take on this role as they fear that in doing so they would lose their original

purpose. The absence of this overall body makes it more difficult for the private sector

to: develop and articulate a comprehensive strategy for the cluster to preserve and

develop Hong Kongs standing; make the Government aware of the support the

industries need it to provide for them; raise public awareness of both Hong Kongs

reputation and the contribution to GDP made by the cluster; attract the appropriate

ability of people into the industries to ensure their further development; ensure its

members adopt and contribute to the development of international best practice in their

structures, management and operations. Thus Hong Kong maritime community ask to

create a compact, high level body (the Maritime Industries Board) dedicated solely to

the maritime industries and composed of private sector and government representatives.

Because existing Hong Kong Port and Maritime Board has principally focus on the port

and logistics. Hong Kong maritime clusters strengths, weaknesses, opportunities and

threats are shown in Table 6.


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Table 6 SWOT Analysis on Hong Kong Maritime Cluster

Strengths

Premier shipping industry

World-class transportation and communication

infrastructure

Excellent business environment

Strategic location in Southern China

Weaknesses

Lack of clear strategy for maritime cluster

Absence of effective institutional structure to lead

and safeguard the cluster

Growing shortage of competent manpower

Diminishing cost competitiveness

Opportunities

Positive outlook for the maritime cluster

worldwide

Focus of international shipping shift to Asia

Rapid growth of China economy

Threats

Competition from oversea Singapore, especially

in arbitration center

Competition from Mainland China (Shanghai and

Shenzhen)

IV. Conclusion

Industrial competitiveness is more and more a function of attractive industrial locations.

Nation and regions compete aggressively to attract international companies and

industries. Firms benefit from being located in cluster where competition is keen and

opportunity of innovation are plentiful.

The industrial clustering is particularly pronounced in the maritime industry where

markets are global and resources are mobile. The common characteristics of European

maritime cluster approach are as follows: private sector takes initiative to develop the

maritime cluster, macro approach for the prosperity of whole sectors in maritime cluster,

and cluster mapping by various quantitative studies such as input-out analysis and

survey method.

Table 7 Summary of World Major Maritime Clusters

Data Netherlands Norway UK Hong Kong

Maritime operating revenue

(year 2000, US$ bn)

15.4 - 38 -

Value of Maritime Value Added

(year 2001, US$ bn)

4 4.8 10.3 4.04

Maritime Value Added as % of GDP 1 2.9 0.7 2.44

Total employment 66,000 70,000 18,6000 54,928

% of total value creation in maritime industry

The findings of this study suggest that the success of maritime cluster depends on


20

following aspects: first of all, as a prerequisite, study for getting basic statistics of

maritime cluster in each country should be conducted. Policies can best be developed

when the cluster and the Government know the size, nature and contribution of the

cluster to the country. The lack of availability of discrete and comprehensive statistics

for the maritime cluster hinders the development of reliable profiles of each industry

comprising the cluster and their individual as well as collective needs. Second, strong

and developed maritime ancillary services sectors strengthen the maritime value chain

and potential to service the maritime community in more cost efficient manner. For this

aim, it is important to build up local expertise and knowledge base by strengthening

education and R&D capacity. Identification the area of specialization for global and

regional leadership is also important task. Because each maritime cluster has its unique

characteristics, based on its own set of strengths, which is difficult to replicate by

overseas competitors. Third, enhancement of operating environment to attract foreign

advanced maritime companies is needed. To reduce business cost and enhancing

efficiency coordination between diverse government agencies, streamlining bureaucracy

and regulatory requirement, and more flexible regulations including tax schemes are

required. Fourth, strengthening intra-cluster linkages is essential for successful cluster.

Because strengthening ties between various private associations can be helpful for the

network and partnership between cluster numbers and this enhance the knowledge

spillover within the cluster. Fifth, international competition and cooperation is another

critical factor for successful cluster. It is important to monitor competitors and identify

potential partners for collaboration internationally in order to focus management

attention on achieving global competitive benchmark, sharpen alertness to actions of

competitors, and prioritize strategic partnership with selected target partners to

maximize synergies based on factor such as historical ties, strategic complementarities.

Last but not least, especially in developing countries, the role of public sector as a

cluster facilitator and regulator is indispensable to start-up the cluster and ensure fair

level playing field within the cluster. Thus, following policy initiatives are

recommended: proactive public sector involvement, close collaboration between the

public and the private sectors, and recognition of the importance of involving the entire

maritime community, rather than compartmentalization along traditional individual

industry lines.


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Documents

norwegian maritime cluster

maritime centers

maritime aspirations

maritime nations

cluster concept

hong kong maritime cluster

world maritime industry

journal of maritime