Entrepreneurial Networks in Highly Globalized Industries

Entrepreneurial Networks in Highly Globalized Industries:

The Case of the Greek Shipping Industry

Abraham Stefanidis1, Panos Mourdoukoutas2

1 Athens University of Economics and Business, Department of Business Administration, 76 Patision Street, 10434, Athens, Greece,

2 Athens University of Economics and Business, Department of Business Administration, 76 Patision Street, 10434, Athens, Greece,

Abstract. This paper unveils one of the secrets of success of the Greek shipping industry: informal networking of families of entrepreneurs with long strong ties imbued in mutual trust and immersed in “love for the sea” tradition that allow Greek shipping firms to address the peculiarities and specificity of a highly globalized industry. Two things make our study interesting. First, the Greek-owned fleet is the world’s largest. Second, there is no previous empirical work to examine the organizational context of the Greek shipping companies. This paper reveals for the first time the formation, the structure and the attributes of a Greek entrepreneurial network operating in the highly globalized Greek shipping industry.

Keywords: entrepreneurial networks, Greece, shipping industry.

1 Introduction

Greek shipping has been considered among the most successful industries in the world accounting for about 3,112 ships, 20 percent of the world fleet (UNCTAD, 2004). One of the factors behind this success is the formation of unique entrepreneurial networks among families with long ties, clustered in Athens and Pireaeus, having good knowledge of the industry and a “love for the sea” tradition. Two of the world's most renowned ship tycoons Onassis and Niarchos were married to Livanos sisters, Eugenia and Tina, daughters of another renowned tycoon. Two other renowned ship tycoons Vardinoyannis and Daskaladonakis come from the same village of the island of Crete.

Close family ties, clustering, and good knowledge of the industry allows Greek shipping companies to develop efficiencies and synergies hard to replicate by the competition. Long family ties, for instance, create mutual trust and understanding that minimizes opportunistic behavior and agency costs. Clustering creates both scale and networking advantages that give Greek shipping companies an advantage over their peers.

A more detail discussion of entrepreneurial networks in the Greek shipping industry, the remainder of this paper is in four sections. The first section discusses different forms of entrepreneurial networks and their advantages and limitations in competing in different world market environments. The second section discusses the role of informal networks in the Greek shipping industry. The third section takes a close look at the case of Transportes Maritimos,1 one of the major Greek shipping operators, while the fourth chapter summarizes the discussion.

2 Entrepreneurial Networks and Competitive Advantage

Entrepreneurial networks are voluntary arrangements, joint ventures, and strategic alliances that allow their members to develop and maintain contacts with other companies and individuals for the exchange and sharing of resources or information (Gulati, 1995). These arrangements create a number of competitive advantages: economies of scale (Kogut, 2000), and learning (Porter and Fuller, 1986); economies of scope; reduction of the transaction costs related basically to the delivery and contract costs (Williamson, 1991); reduction of entrepreneurial risks (Root, 1988), enhanced entrepreneurial capabilities (Mourdoukoutas, 1999; Shane & Venkataraman, 2000; Premaratne, 2001; Jarillo, 1988); and buffering against market turbulence (Li, 2001).

Entrepreneurial networks display a number of different attributes, purpose, co-ordination, communication, structure, density, and so on, which classify them in a number of categories, formal and informal; vertical and horizontal; long-term and short term; dense and loose (see Exhibit 1). These categories are not mutually exclusive, but complementary with each other. This means that entrepreneurial networks may display a number of different attributes at the same time: formality, openness, hierarchy, high density, and close-membership that determine their configuration, and efficiency and effectiveness to competing in different market environments.

Some network attributes, such as formality, openness, and size are easy to develop and replicate across different networks, and therefore create temporary competitive advantages. Other network attributes, such as close-member ties and relationships, and trust are difficult to develop and replicate across networks, and therefore, create long lasting competitive advantages. Mergers and acquisitions, for instance, which create large size formal networks of banking institutions, produce cost-efficiencies easily matched by similar networks formed by the competition. Strategic alliances and partnerships, which create large size informal networks, such as the Japanese Keiretsu groups and the Southeast Asia Overseas Chinese Groups, produce efficiencies and synergies (Kogut, 1988; Mourdoukoutas 1999) that are difficult to match by similar competitive networks.

Exhibit 1. Entrepreneurial network classification by attribute

In short, the efficiency and effectiveness of entrepreneurial networks as a source of sustainable competitive advantage depends on the configuration of different attributes that constrains their deployment across competing networks, which is the case in the Greek shipping industry.

3 Entrepreneurial Networks in the Greek Shipping Industry

The Greek shipping industry is by far the largest in the world, accounting for 3,112 ships in 2004 or about the 20 per cent of the carrying capacity of the global open-registry merchant fleet (UNCTAD, 2004), followed by Japan that accounts for 14.17 percent, and Norway, accounting for 6.67 percent (see Exhibit 2).

The Greek shipping industry is a highly globalized industry. Ship owners may live in one country, obtain financing in another, build their ships in a third, register it in a forth and carry merchandise from and to any destination around the world.

“….The industry is international. The ship-owner may reside in one country (such as UK), and obtain loans from an American bank to finance the purchase or the new-building of his/ her ship, while the technical management of the ship is organized elsewhere (for example, in Piraeus). What is more, the ship may be registered in Panama, the company which owns the ship may be incorporated in Bermuda, charters for it may be negotiated in London, and it may carry cargoes between ports in Australia and Japan…” (Pratten, 2002).

Exhibit 2. The 15 Most Important Maritime Countries as of 1 January 2004 (UNCTAD Secretariat, 2004)

The Greek shipping industry is under the constant threat of new entrants that intensify competition, undermining pricing power and eliminating market rents. This is especially the case in the cargo segment of the industry that includes tankers, dry bulks, container ships and specialist cars, where new entrepreneurs can enter the industry with a single second-hand vessel. Between 1988 and 2004, the Greek fleet has increased by about 40 per cent in terms of ships’ numbers and has almost doubled in terms of capacity (see exhibit 3).

To deal with intense competition that undermines industry profitability, Greek shipping companies have been pursuing a number of policies. First, the acquisition and building of new vessels that allow shipping companies to achieve scale efficiencies. As of 2004, the industry accounted for 20 major companies of a deadweight tonnage ranging from 1,803,709 to 6,316,980 (see exhibit 4). Second, clustering in the city of Athens and the nearby port of Piraeus, which allows Greek shipping companies to achieve resource efficiencies and to get better market information on industry developments (see Exhibit 5). Third, the development of a number of joint partnerships and strategic alliances that have turned Greek shipping companies into entrepreneurial networks. A good example of such networks is the Angelikousis family network, which includes Anangel, Alpha and Kristen companies. Another example is Martinos family network that includes EastMed, Thenamaris and Minerva shipping companies (exhibit 6).

Some of these networks stretch across a number of industries. Latsis family network, for instance, stretches over shipping (Consolidated Marines), petroleum refining, banking (EFG Eurobank) and real estate sectors. Vardinoyannis family network stretches over shipping (Avin, Varnima) and petroleum refining (Motor Oil) sectors, and sports (Panathinaikos football team). Hajioannou family network is in shipping (World & Stelmar) and air transportation industries (easyJet), and a series of services sectors (easyGroup). Costamare is in manufacturing, air transportation, telecommunications and real estate sectors; and Handris family network is in shipping, wire production and luxurious hotels sectors.

Exhibit 3. Controlled fleet Growth of major shipping nations as of Jan. 1st, 2000-2004 (dwt – yearly average growth rate) (adapted from: Institute of Shipping Economics & Logistics, 2004)

Greek shipping networks display a number of characteristics. First, a “hub” structure of vertical relationships that extend from shipyard contracts to brokers and other financial institutions agreements; and horizontal relationships developed between the company and other cargo firms. Tsakos entrepreneurial network, for instance, is a vertically integrated network that includes brokerage and a modern shipyard in Montevideo, Uruguay.

Second, a kinship-style hierarchical decision-making structure that places the shipping family patriarch and his reputation at the center of strategic decision making and day-to-day-operations. Greek ship-owners are actively involved in negotiations and decision-making with all the stakeholders of their companies: crew, bankers, clients, brokers, suppliers, trusties (Grammenos & Choi, 1999). In this sense, Greek shipping networks share many similarities with Overseas Entrepreneurial Chinese Groups (OECGs), they are considerably dependent upon personal and ethnical ties, have hub structure, and are hierarchically coordinated.

Third, close friendship, ethnic or kinship relationships with ship-owners. Onassis and Niarchos, for example, were married to Livanos sisters. And more recently, Vardinoyannis' son was married to the daughter of Stavros Livanos. Onassis comes from the coastal city of Asia Minor, Smyrna, Livanos family comes from Chios Island, while Vardinoyannis family comes from the island of Crete. Vardinoyannis and Daskaladonakis tycoons come from the same village of the island of Crete. These relationships create a high level of trust and a “community of common fate” culture that limit opportunistic behavior among network members.

Fourth, a centralized communication structure whereby information is gathered at the center of the network, where it is filtered by ship-owners-entrepreneurs, and diffused throughout the network.

Exhibit 4. The top 20 Greek shipping companies by total deadweight tons as of March 2004 (Marine Information Services, 2004)

Exhibit 5. The Greek shipping headquarters cluster in Athens and Piraeus.

Exhibit 6. The 10 major Greek shipping entrepreneurial networks by total deadweight tons as of March 2004 (Marine Information Services, 2004)

In short, the Greek shipping industry is a highly globalized industry, displaying a high degree of integration that intensifies competition undermining industry pricing and profitability. To deal with these problems, Greek shipping companies have applied a number of strategies, and most notably clustering and clan-like networking of close “cliques,” as is exemplified in the case of “Transportes Maritimos”.

4 Transportes Maritimos

“Transportes Maritimos” is a 30-year old Greek shipping company owned by a family with a long presence in the shipping industry. As of 2005, the company accounted for a fleet of 19 ships, tankers and carriers of an average deadweight capacity of the company surpasses the 1,5 million tons.

As is the case with other shipping companies, “Transportes Maritimos” is faced with compounding risks and uncertainties associated with a fluid business environment, characterized by intense competition and price swings that compound risks and uncertainties. As top management puts it: “Nowadays, the boundaries between business and its external environment are increasingly fluid…. The firm’s growth would not have come true, had it not been for its strong external relationships.”

To minimize such risks and uncertainties, “Transportes Maritimos” formed a number of alliances and partnerships that have placed it at the core of an entrepreneurial network of banks and financial institutions, oil firms and other customers, other shipping companies, shipbuilders and equipment suppliers, family friends and counseling companies, which allows the company to exchange information on new entrepreneurial opportunities; the acquisition of new vessels; and the signing of long-term contracts with major oil companies.

The “Transportes Maritimos” network displays a number of characteristics, similar to those of other shipping networks (see exhibit 7). First, a “hub” structure of vertical relationships that span from shipyard contracts to brokers and other financial institutions agreements; and horizontal co-operation runs between the company and other cargo firms owned either by friends or family of the ship-owner to accommodate excess demand for tonnage (see Exhibit 8). Second, a steady size of 30 firms. Third, long-term duration, network relations have lasted over many years. Fourth, kinship, the network is owned or managed by persons maintaining strong friendship, ethnic or kinship relationships with “Transportes Maritimos” ship-owner. Fifth, a high level of trust, that has turned “Transportes Maritimos” into a community of common fate. Sixth, a centralized communication structure, which gathers, “filters” and disseminates information throughout the network.

Exhibit 7. The structure of the “Transportes Maritimos’” network

Exhibit 8. “Transportes Maritimos” entrepreneurial network attributes.

In short, as is the case with other shipping companies, “Transportes Maritimos” is faced with a fluid business environment that compounds risks and uncertainties. To deal with these risks and uncertainties, “Transportes Maritimos” has forged a number of partnerships and alliances with banks, financial institutions, oil firms, shipbuilders, equipment suppliers and other shipping companies, that have turned it into a dense network.

5 Summary and Conclusions

The secret of success of the Greek shipping is “effective networking” among extended families of ship-owners, bankers, oil-firms, and ship-builders and equipment suppliers. Over centuries, Greek shipping owners have learnt well how to choose their partners, how to build up long-term relationships with them, and how to implement “win-win” strategies for the robust of synergies for every single member of their entrepreneurial networks separately and for all of them as a whole.

Notes

1. Greek shipping operators have been reluctant to participate in studies of their business strategy. “Transportes Maritimos” is a pseudonym that has been adapted by the authors of the paper to protect the anonymity of the shipping operator participating in the study.