Analysing The Environment Of South Asia Gateway Terminals Business Essay

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South Asia Gateway Terminals (Pvt) Ltd., better known in the shipping and ports world as SAGT is a Strategic Business Unit (SBU) of a Sri Lanka's leading conglomerate called John Keells Holdings PLC. The group as a whole has been independent for more than 130 years, forcefully committed to private ownership and private dividends, and relying on foresight, expertise and integrity for success and growth.

SAGT is owned by a pool of local and foreign leaders in shipping, commerce and finance. John Keells Holdings being the main shareholder the pool consists of four others.

John Keells Holdings

A.P.Moller Group

Evergreen International SA

Peony Investments SA

Sri Lanka Ports Authority

SAGT was initiated in September 1999 by way of signing an agreement between the above mentioned establishments. After that it took over the operations of the historic Queen Elizabeth Quay (QCT) in the Port of Colombo on the 5th of September 1999 on a 30 year Build-Own-Transfer (BOT) agreement. This is one of the largest foreign investments in Sri Lanka was completed in 2003 after having three phases of the project.  Each of the phases involved the redevelopment of a berth at the QCT and included reclamation, steel piling, reinforced concrete decking, new pavements, reefer stacking areas, electrical infrastructure and the introduction of the most modern container handling systems.

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At present SAGT handles the most number of cargo vessels which enters the Colombo Port. Selected shipping lines have made agreements with SAGT to maintain a certain level of tariffs for a certain period and the contracts are renewable. Main customers of the Company includes,

Maersk Line

Malaysia International Shipping Corporation

Mitsui O.S.K. Lines

Orient Overseas Container Line

Mediterranean Shipping Company

Hapag-Lloyd

Nippon Yusen Kaisha (NYK Line)

Also there are some feeder lines as well apart from the main customers stated above.

Bengal Tiger Line

Sea Consortium

Far Shipping Line

Orient Express Line

At the moment SAGT has the most advanced terminal handling equipment and tracking technology in the world. This includes the following,

16m access channel

15m Alongside depth

940m berth length

3 container berths

5,544 Ground slots inclusive of 540 reefer point

7 Super Post Panamax Quay Cranes (including first and only "twin lift" quay crane in the Port of Colombo)

3 Post Panamax Quay Cranes

31 Rubber Tyred Gantry Cranes (28 with 1 over 5&6 plus and 3 with 1 over 6&6 plus 1 stacking)

70  Terminal Tractors & 68 Trailers

2 Reach Stackers

2 Empty Handlers

1 40ton Fork Lift

At the moment SAGT is producing the highest ever container throughput in the Port of Colombo.

What is a Strategy?

Strategy is a full blown action plan capable of moving the company in the intended direction, growing its business, strengthening its ability to compete, and improving its financial performance.

The best indications of a company's strategy are its actions in the market place and the statements of the senior managers about the company's current business approaches, future plans, and efforts to strengthen its competitiveness and performance. Every company must be willing and ready to modify its strategy in response to changing market conditions, advancing technology, and the fresh moves of the competitors, shifting buyer needs and preferences, emerging market opportunities, new ideas and mounting ideas that the strategy is not working well.

A company's strategy is partly proactive and partly reactive. A proactive decision has to be made to improve the company's financial performance and secure a competitive edge. Reaction strategy is needed to unanticipated developments and fresh market conditions.

2.0 SAGT's Strategic Vision Statement

To be the best marine container terminal in the South Asia region and to be rated among the best container terminals in the world.

In a company's vision statement there should be some certain characteristics involved. Such as,

Does it include a direction for the company to head

Is the statement flexible enough to cater to the ever changing business environment

Is the vision short enough to communicate to each other and remember it

Is the vision focused enough to provide guidance to the senior personal of the company

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Therefore the way I see it the vision statement of SAGT has a clear direction to be the best in Asia and then in the world. And it's flexible enough to cater to the business environment. Then the vision statement is short enough to communicate. Also it is guiding the decision makers of the company to precisely achieve what they want. Therefore in my view this company has a vision statement where the company can perform really well in the future.

3.0 SAGT's Mission Statement

To build and operate a world-class facility at the Port of Colombo providing superior container terminal services to customers in a safe and consistent manner, ensuring highest level of productivity, efficiency and value for money. To set new standards and implement best practices for the benefit of the Port & Shipping industry, thereby meeting expectations of our shareholders and providing exemplary workplace environment to our employees.

A mission statement should be descriptive of how to identify the company's products or services and specify the buyer needs it seeks to satisfy; the customer groups or markets it is endeavouring to serve and its approach to pleasing customers. In my opinion above mission statement clearly focuses on what the company does and also it tells us the story of how SAGT is going to serve the customers. SAGT has identified the customer needs that are why they are talking about a superior container terminal and trying to develop a world class facility. Therefore what I see is that SAGT has covered all the primary parts a mission statement should include.

4.0 Internal Environment Analysis

4.1 SWOT Analysis

SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture. It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favourable and unfavourable to achieve that objective.

Figure 01

Strengths

A strong infrastructure facility than Sri Lanka Ports Authority (SLPA), main competitor

A strong brand name within the Ports and Shipping industry.

A strong customer base which have been retained from the initiation of the company.

High cost advantages than the main competitor

Well trained work force which can perform their work with maximum efficiency

Strong financial backup from the main group

Weaknesses

Unionized work force resulting in work stoppages

Due to the high use of the machinery machine breakdown time is high

Port is in a high security zone therefore outside parties cannot access easily

Opportunities

Vessel services can be won from the main competitor due to the efficiency in the work

Can try to widen the existing customer base by offering rebates

Reduction in trade barriers will increase the revenue for the company

Threats

Increase in competition with two new ports in Sri Lanka

Customers bargaining power for the tariffs are growing

New regulatory systems may come up

4.2 Value Chain

Figure 2

A company's value chain identifies the primary activities that create customer value and the related activities. A company's value chain consists of two broad categories of activities.

Primary activities - that are foremost in creating value for customers

Support activities - that facilitate and enhance the performance of the primary activities.

In this company inbound logistics can be taken as the containers handled from the vessel to the yard and the operations can be taken as handling the containers within the yard by gantry cranes, loading the container to a terminal tractor, locating the exact position where the container should be kept. Out bound logistics can be as dispatching the container to another vessel or dispatching it in to the country. In sales and marketing it includes offering new tariffs to customers and trying to retain the customers as well. In the services section it includes such as handling disputes against the invoices by customers. Therefore in my opinion company can improve on the primary activities through reduction in container handling time so that cranes will be able to handle more containers for a certain period. Therefore by doing that extra revenue will be generated and those revenue can used to offer rebates for existing customers as well as to attract new customers or can be transferred to the shareholders.

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Secondary activities for this company are very important since those are the basic requirements to increase the profit margin. Infrastructure facilities are the most important. Human resource management is very crucial since to operate the cranes special skills are required and therefore continuous training for the staff is needed. Also the workforce is more than 500 employees so therefore it is not a small task to manage all. Technology developments are important since everyday new technology is found so in order to maintain a world class facility technology should be upgraded. Procurement can be defined for this company as purchasing parts for machinery which breaks down. Therefore what I see is that SAGT has the correct secondary activities of a value chain which can be put forward to assist the primary activities and thereby increase the margin.

5.0 External Environment Analysis

5.1 Porter's Five Forces

Figure 03

Porter's five forces is a framework for the industry analysis and business strategy development developed by Michael E. Porter of Harvard Business School in 1979. It draws upon Industrial Organization (IO) economics to derive five forces that determine the competitive intensity and therefore attractiveness of a market.

Rivalry among existing Competitors

Since there is only a main competitor for now which can accommodate more vessels than SAGT at a time there is a competition between them. Therefore to overcome this SAGT should provide better services to customers so that they are attracted to the company and to increase the efficiency of the workers so that more vessels can berth at SAGT. Therefore the competition I would say is average.

Bargaining Power of Suppliers

In the shipping industry suppliers to assist the business are only a few specialized companies. Therefore the competition amongst them is very high. SAGT has a small say in what they want. Therefore what I say is to use a tender process to choose a supplier so that the company can identify its capabilities to hire a supplier and to maybe negotiate and come down on the suppliers price towards what the company is expecting to pay for that particular supplier. Therefore again I see an average competition.

Bargaining Power of Customers

Currently in the Port of Colombo there are only two establishments, SAGT and SLPA. So therefore any party who wants imports or an export done has to go through these companies somehow or the other. Therefore what I see is that the bargaining powers of customers are very low. And also for SAGT to retain the customers without moving to SLPA they have to give lower tariff rate and more rebates than the competitor.

Threat of New Entrants

Now a day building a port is very much hard work. But due to the recent boom in the economy there are ports coming up elsewhere in the country as well. Therefore in the short term the threats of new entrants are very low, where as in the long term threat of new entrants are very high. Therefore what SAGT should do is that they try to expand on the revenue side in the short term as much as they can and then enjoy those benefits in the long run to retain the customer base so that they can continue their business successfully.

Threat of Substitutes

There is only one substitute for SAGT. Therefore outside parties cannot bargain much over who to go for. Therefore in the short run threat is very low and in the long run as I mentioned above it is high. What SAGT should do is that they should promote the brand name as much as they can and be flexible to the customers.

5.2 PEST Analysis

E

Economical Factors

P

Political Factors

T

Technological Factors

S

Social Factors

Figure 04

Political Factors

Political factors for this kind of a business are high. Since SAGT is inside the government owned area, and also it's a BOT company which need to get transferred back to the state.

Economical Factors

Imports and exports play a big role in the economy. When the economic crisis was happening statistics in the company website show that there were low throughput rates during that time. Therefore economy plays a vital role in this business.

Social Factors

Personal improvements like to be more efficient in the work environment is a major factor to the growth of the company. Therefore the company should regularly participate employees in self development work shops.

Technological Factors

Technology plays a huge role in this kind of a business. Company should be on top of the latest technology to gain a competitive advantage over the international as well as the local competitors.

6.0 Objectives

Objectives are an organization's performance targets, the results and outcomes management wants to achieve. They function as yardsticks foe measuring how well the organization is doing.

Strategic Objectives

Target for at least to gain five new customers for a particular financial year.

Instead of using general tariffs try to use a customized tariff system to each customer.

To reduce the machine breakdown time by half by bringing in new machines.

Financial Objectives

To achieve an x amount of throughput for a financial year.

To increase the dividends payment to the shareholders by a y amount.

To increase the capital investments by x amount to bring in new machines.

7.0 Competitive Strategies

Competitive strategy concerns the specifics of management's game plan for competing successfully and securing a competitive advantage over rivals.

Broad Differentiation Strategy

Overall Low Cost Provider StrategyA broad cross section of buyers

Best Cost Provider Strategy

Focused Differentiation Strategy

Focused

Low Strategy A narrow buyer segment

Lower Cost Differentiation

SAGT is more into a focused differentiation strategy, where they target a specific customer base for a long period of time. Whereas the main competitor is dealing across a large section of customers. Therefore my suggestion would be to move away from the niche market to a more differentiated market.

8.0 Conclusion

Finally I would like to point out that the current strategies are well within the reach of the company and if they go on performing as they do now they will most certainly reach the targets. But in the long run company should try to focus on retaining the market share as new competition is building up. We can clearly see that the current strategies are well defined and well carried out.