Shipping innovations: the different paths of Greece and Norway

SHIPPING INNOVATION: THE DIFFERENT PATHS OF GREECE AND NORWAY

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Accepted manuscript of:

Tenold, S. and Theotokas, I. (2013), “Shipping Innovation: The different paths of Greece and

Norway”, International Journal of Decision Science, Risk and Management, vol. 5, no.2, 142-160.

http://inderscience.metapress.com/content/m8j1072073807854/

SHIPPING INNOVATION:

THE DIFFERENT PATHS OF GREECE AND NORWAY

Stig Tenold,

Department of Economics,

Norwegian School of Economics and

Business Administration

Helleveien 30

N-5045 Bergen, Norway

E-mail: [email protected]

Ioannis Theotokas

Department of Shipping, Trade and

Transport

University of the Aegean

2a Korai Str.

82100 Chios, Greece

E-mail : gtheotokas@aegean,gr

Abstract

The article compares innovative practices in two leading shipping nations, Greece and

Norway. We also propose a framework for the understanding of innovation in shipping.

Innovation in Greek and Norwegian shipping is analyzed through developments at three

levels. The macro level is the international context. The national context creates the meso

level, defining resources available to the firms and the conditions for their operation. The

micro level refers to the internal environment of the firms, the source of their strengths

and weaknesses.

For Greece, a strategy of market penetration and low cost leadership led to innovations

exploiting their intangible assets. For Norway, the restrictive conditions prevailing at the

meso level, promoted product innovation; the introduction of new ship types with

advanced technological characteristics. In time, however, the two paths of innovation

converged, following changes in the institutional framework.

Keywords: innovation, shipping, Greece, Norway, resources, entrepreneurship, dry bulk

market, tanker market, specialization

1. INTRODUCTION

Greece and Norway have played central roles in international shipping for a long time,

and this article discusses the role of innovation in maintaining these positions. The two

countries are the main cross-traders of the world, with the Norwegians characterised as

first-movers and Greeks as followers (Thanopoulou, 2007). We nuance the innovator-

http://inderscience.metapress.com/content/m8j1072073807854/


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imitator view by analysing innovation not only as a matter of investments in new ship

types, i.e. on a technological basis, but also as a matter of organising resources and

activities in ways that are new to the sector, i.e. on a managerial basis.

Research on the shipping industry is usually written either from a market point of

view – where the nationalities of the participants are irrelevant – or from a national point

of view, where national idiosyncrasies explain success or failure. There have been few

attempts at merging these two perspectives, by comparing micro level strategies, the

factors that influence these strategies and the effects on the international market.

Specifically, no one has compared the manner in which Greek and Norwegian

shipowners have been able to maintain their hegemony in shipping in the postwar

period.

We focus on innovation as an explanation of this accomplishment. Innovation has

only partially been central in studies of competitiveness and performance in shipping

(Harlaftis et al, 2009; Jenssen, 2003; Jenssen and Randøy, 2002; Jenssen and Randøy,

2006; Lorange, 2009; Tenold, 2009; Thanopoulou, 2007; Thanopoulou et al., 2010;

Theotokas, 2007; Wijnolst, 1995; Wijnolst and Wergeland, 2009). Most of these studies

draw their empirical results from the nations examined here.

Our main argument is that innovations in Greece and Norway originally had two

very distinct facets, but have converged across time. Greek shipowners developed

organisational innovations, in particular in the field of ship operations (Harlaftis et al.,

2009; Thanopoulou et al. 2010). Norwegian owners emphasised technological advances

(Tenold, 2010; 2012). We explain these diverging paths through a strategic analysis

approach, focussing on three levels; international (macro level), national (meso level) and

business (micro level).

Section 2 gives a short introduction to the postwar development of Greek and

Norwegian shipping. Section 3 presents the theoretical framework for the analysis of

innovation. Section 4 focuses on a) the international level, as the source of opportunities

and threats; b) the national level, which both determines the ability to respond to the

macro level and shapes the resources available at the micro level; and c) the micro level,

where resources are combined to develop capabilities. Crucially, the micro level is the

area in which innovation is taking place. Section 5 presents empirical results, and

discusses the nature of innovations appearing in the two countries.

2. BACKGROUND

Throughout the 20th century, the participation of Greek and Norwegian owners in

shipping has been substantially above what one would expect given the two countries’

share of the world’s production, population or trade. How is it possible to explain the

countries’ crucial roles in a market that has an international and highly competitive

nature, and has also been going through substantial changes?

Our argument is that innovation has played an instrumental role in enabling

Greek and Norwegian shipowners to maintain their positions. However, the manners in

which they have adapted to and shaped the shipping industry have been fundamentally


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different. This can be explained by a combination of the national environments and the

strategies of the shipping companies in the two countries. Specifically, we claim that

innovations in the two countries have evolved differently.

The broad picture looks like this: Greek owners focussed on organisational

innovations that enabled them to improve competitiveness in their traditional market

segments. Norwegian owners introduced technological innovations that enabled them to

develop new market niches. However, across time, changes – primarily at the national

levels – have affected the ability to introduce such strategies, leading towards

convergence in the innovative strategies in the early 21st century. As a result of national

policy changes, the organisational innovations, pioneered by Greeks decades earlier,

could be used by Norwegian owners after 1987. Around the same time, the increased

maturity of specialised markets meant that the technological innovations, previously

introduced by Norwegians, could be implemented by Greek owners.

The shipping industries in Greece and Norway are associated with substantial

heterogeneity. Thus, the analyses in this article are of course not valid for all shipping

companies. However, we can identify two “general patterns” – strategies that were

relatively common. The basis for such patterns is that shipowners in a specific country

are faced by a certain set of opportunities, threats, rules and regulations. Although

responses to these may vary, certain strategies become more likely, others less likely.

2.1. Greek shipping

Contrary to the fleets of other traditional maritime countries, the Greek fleet consisted

mainly of ships flying foreign flags during the first postwar decades. This reflected the

fact that the capital for the acquisition of ships was made by foreign financial institutions

that favoured the use of foreign registry (Harlaftis, 1993). Figure 1 shows the

development of Greek-owned fleet from 1960 to 2009. Two features should be pointed

out: the first is the almost continuous increase of the fleet during the period, while the

second is the prevalence of the foreign flags. The only period in which the Greek flag

surpassed foreign flags was from the mid 1970s to the mid 1980s. From the mid 1990s

onwards, almost two thirds of the Greek-owned fleet have flown foreign flags.

Consequently, in this analysis Greek shipping includes all ships controlled by Greek

interests.


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Figure1. The Greek and Greek-owned fleet (million grt) and share of world fleet (1960-

2009)

Source: Based on data from Naftika Chronika (various issues), Theotokas (1997), and

Lloyd’s Register-Fairplay as provided by Greek Shipping Co-operation Committee

(various years).

During the 1950s and 1960s most Greek-owned shipping companies were established in

London and New York (Harlaftis, 1993). From the 1970s onwards, Piraeus was

increasingly used as a basis for their business operation (Harlaftis, 1993; Theotokas,

1997). Greek owners have since the early 1970s controlled the world’s largest fleet in

terms of transport capacity. Traditionally, Greek shipowners have been active in the main

bulk markets, operating primarily bulk carriers and tankers (Harlaftis, 1993; Thanopoulou

1994; Theotokas, 1997; 2007). From the late 1990s Greek companies have expanded to

specialised markets. However, their share of technologically modern and complex ship

types remains low compared with their competitors (Thanopoulou, 2007).


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2.2. Norwegian shipping

Until the end of the 1970s, practically all ships owned by Norwegians had Norwegian

flags and crews and were financed by Norwegian equity. Today, the links between

Norway and the shipping sector have become more blurred. This is primarily a result of

institutional changes, in particular the 1987 introduction of the Norwegian International

Ship Register (NIS). The register enabled the combination of Norwegian capital and

competence with low-cost foreign labour. Moreover, following a gradual liberalisation of

the flag regime, a considerable part of the Norwegian fleet is now registered elsewhere –

this share was negligible until the early 1980s.

Figure 2 shows the size of the Norwegian-flagged fleet and the Norwegian-

flagged share of the world fleet, in the period 1960-2007.

Figure 2. The Norwegian fleet (million grt) and share of the world fleet, 1960-2007

Source: Based on data from Lloyd’s Register, as adapted by the Institute of Shipipng

Economics and Logistics, Bremen. Includes all ships larger than 300 grt.

Figure 2 does not take into account one important development, viz. the increased use

of foreign flags. Unfortunately, long-term data are not available. However, Figure 3

shows recent changes in the Norwegian-controlled share of the world fleet, divided by

Norwegian and foreign flags respectively.


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Figure 3. The Norwegian-controlled fleet as share of the world (based on dwt), 1997-

2009

Source: Based on dwt-data from UNCTAD, Review of Maritime Transport, various issues

The charts above present “a ton as a ton”, and do not take into account the increased

sophistication of the Norwegian vessels. This clouds one of the structural changes that

we investigate in this paper, viz. the introduction of new and technologically

sophisticated ship types. Given that new ship types were typically much more expensive

per tonnage unit, what appears to be disinvestment in aggregate data may only reflect

structural transformation.

There were two main trends in the Norwegian investment pattern. The first was

the increasing average ship sizes, as economies of scale were utilised in the tanker and

dry bulk sectors. The second was the substantial investments in specialised ship types,

innovative concepts that revolutionised several shipping segments. The Norwegian

investments in specialised ships were substantially larger than in other countries, and

Norwegian owners had a pioneering position in many of the new segments.

3. INNOVATION IN SHIPPING

Our comparative analysis of innovation adopts a Schumpeterian approach, which sees

innovation as new combination of resources. This covers five categories (Schumpeter,

1934):

product innovation: production of new commodities or services;

process innovation: improvements in production of existing products;

organisational innovation: establishment of new management organisations;

market innovation: opening of new markets, and;


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input innovation: discovery of new sources of raw materials.

With regard to the types of innovation, one should take into account the differences

between the manufacturing and services sectors (Gallouj and Savona, 2009). Recent

research acknowledges that the characteristics and peculiarities of services do not allow

mechanistic adoption of analytical tools and methodologies developed for analysis of

manufacturing innovations. However, other studies contend that services are similar to

manufacturing in several characteristics, implying that innovations in the two sectors can

be analysed using the same tools and methodologies. A third stream of research

supports an integrating view and adopts the Schumpeterian framework of innovation. It

postulates that manufacturing-based studies focus mainly on product and process

innovation, while services-based studies are interested primarily in organisational, market

and input innovation. Thus, the integrative view proposes an approach that incorporates

the five dimensions of the Schumpeterian framework (Windrum and Garcia-Goni, 2008).

Although shipping is seen as a service sector, several characteristics are similar to

manufacturing. Despite shipping’s strong technological basis, it is not considered a high

technology sector, but a mature sector of low technological opportunity (Thanopoulou

et al., 2010). Shipping companies produce a service (the transport of cargo) mainly on a

business to business basis. The service depends on physical capital (ships). Ships are not

built by shipping companies, although the latter may invent or contribute to the design

and specifications. Technological innovation is a matter of coordinated action of many

different actors. Consequently, the technological progress of the main means of

production, which determines the ability to introduce services based on new ship types,

is not a matter of internally developed innovation but rather of exchange and

collaborations with external actors. Innovations related to processes or to organisational

settings, however, are mostly a matter of shipping companies’ intangible assets and

therefore mainly produced internally (Thanopoulou et al., 2010)

Product innovation refers to new or improved goods and services (Fagerberg,

2005). Product innovations can be based on companies’ tangible and intangible assets or

on the acquisition of the necessary goods or technologies. In shipping, such innovations

are usually related to the introduction of new ship types (which may lead to another type

of innovation, viz. market innovation). Liquefied Natural Gas (LNG) ships fall into this

category: new ship types allowed the offering of new services. The agents behind the

change may be the shipping entrepreneurs, but the improvement is not possible without

the contribution of other partners, i.e. research institutes, ship designers, shipbuilders,

etc.

Process innovation refers to improvements in the manner in which services are

produced (Fagerberg, 2005). Process innovations appear in the shipping sector in various

ways. The introduction of a new ship type, following product innovation, creates a

process innovation when a new service is produced.

Organisational innovations involve new ways of organising internal production or

external relationships with other producers along the supply chain. This can take the

form of new management structures, of new internal routines and work practices, new

supply chain relationships, alliances and outsourcing (Windrum and Garcia-Goni, 2008).

The Schumpeterian approach includes arrangements across firms, such as reorganisation


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of entire industries, in organisational innovation (Fagerberg, 2005). Thus, the term has a

wide meaning and includes not only the shipping company, but also other actors in the

supply chain.

Market innovation refers to the opening of new markets and is closely related to

the product innovation. In shipping, market and product innovation go hand in hand.

New ship types create the conditions for the opening of new markets and allow the shift

of certain volumes of cargoes to the new types. As market innovation is rarely introduced

without product innovation, we focus more on the latter.

Finally, input innovation refers to the discovery of new raw materials or other

inputs that are used for production of shipping. Such innovations are closely related to

organisational process innovation, as they demand changes and adaptation in the

companies’ organisation. Consider for example the employment of seafarers from low-

cost countries, which could not produce the expected results without adjustments at the

organisational level, i.e. the development of human resource management systems.

Factors promoting the various types of innovation vary and can be related either

to the firm’s internal characteristics or to the relationships it has with other actors in the

supply chain (endogenous or exogenous).With regard to the former, one should focus on

resources and capabilities of the firms, i.e. use the assumptions of the Resource Based

View of the firm which accepts that ‘some firms appear to possess a dynamic capability

that gives them a comparative advantage in developing new processes or products’

(Lockett and Thompson, 2001). In addition to resources and capabilities, internal

characteristics can affect innovation processes. For example, the firm size determines the

innovatory advantage. Large firms are associated mainly with material advantages

(financial and technological resources). Small firms are associated with behavioural

advantages such as entrepreneurial dynamism, internal flexibility, responsiveness to

changing circumstances (Rothwell, 1989).

With regard to factors related to the firms’ context, several approaches to

innovation are possible. We focus on the network perspective and the industrial

organisation perspective. The network perspective purports that the network position

that firms occupy may define their ability to be creative and innovative (Zaheer and Bell,

2005). In cases where a firm does not hold all the relevant expertise internally,

participation in networks may give access to “missing knowledge” necessary to develop

new products or processes (Newell and Swan 2000). The industrial organisation

perspective emphasises that the national environment and cluster dynamics promote

innovation. National environment matters for success, as the institutional and

microeconomic environment determines the productivity of investments in innovation

(Porter and Stern, 2002). Clusters drive the direction and pace of innovation and play a

vital role in a company’s ongoing ability to innovate (Porter, 1998). Presence within a

cluster is advantageous, as firms perceive the need and the opportunity for innovation

and can act rapidly to turn new ideas into reality (Porter, 2000).

In the Schumpeterian approach innovations may also be categorised according to

how radical they are. Within shipping, radical innovations relate to product

(technological) innovations, such as the introduction of new ship types and the

concurrent creation of new markets. Incremental innovations relate to organisational,


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process and input innovation, such as financial innovation or the use of a new source for

maritime seafaring labour.

4. FACTORS THAT INFLUENCE THE TYPE OF INNOVATION

In order to analyse the factors that influence the type of innovation, we identify three

specific levels; the international (macro) level; the national (meso) level; and the business

(micro) level. However, the premise for the analysis is that these levels are closely

interrelated. Developments at one level may not be understood without also considering

how these affect – and are affected by – the other levels. While the feedback loops

among the various levels are important, we treat each level more or less in isolation, only

sketching some of the broader relationships.

4.1. Macro level – the international context

Shipping has gone through enormous changes over the last fifty years, primarily

characterised by three interrelated developments; a) strong demand growth; b) the

internationalisation of shipping supply, and; c) the introduction of specialised ship types.

Demand developments growth is only partly exogenous. Technological improvement

and the internationalisation of shipping supply have improved efficiency. This has limited

the growth of, or even reduced, transport costs, which in itself has a stimulating effect on

shipping demand (Kaukiainen, 2008; 2009). The impetus for the second and third

developments has predominantly come from the shipping companies.

The macro level – the international context – determines the threats and

opportunities faced by shipping nations and companies. However, opportunities and

threats typically do not affect all shipping companies in an identical manner.

At the macro level, the two most important supply-side developments have been

the internationalisation of shipping supply and the influx of specialised ship types that

have replaced the general cargo carriers. The driver behind both of these developments

has been the desire to reduce costs. Neither of the processes are purely postwar

phenomena, but the speed of the changes has been particularly rapid over the last fifty

years.

The internationalisation of shipping supply occurred at the intersection of the

macro and meso levels. Shipping is – by its very nature – an international industry. The

postwar development saw transport services produced through the combination of

factors of production from an increasing number of countries – with the mix usually

determined by relative prices. Some countries maintained measures to hinder this, but

the forces of internationalisation have been strong enough to make the blend of factors

of production from several countries the norm today.

While internationalisation did not spell “the end of national shipping policies”, it

is evident that the national foundation was substantially stronger in the early postwar

years than it is today (Sletmo, 2001). The global pursuit of low-cost factors of production

was instigated by shipowners, gradually accepted by national authorities and usually

welcomed by charterers, who benefited through lower transport costs.


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The introduction of new ship types was also motivated by the desire to lower

costs. Improvements in shipbuilding technology enabled the building of larger ships

utilising economies of scale. This transformed the tanker and dry bulk markets. At the

same time, purpose-built specialised ships targeted specific market segments. Some

created new markets, such as in the case of gas tankers, while others encroached on

markets traditionally served by general cargo carriers, for instance the transport of cars.

The new technologies were instigated by the shipowners, but usually developed in

collaboration with shipbuilders, naval architects, ship equipment producers and

important charterers (Lorange, 2009).

Two of the three defining trends at the macro level – internationalisation and

technological advances – may thus be explained by the innovative approaches of

shipowners.

4.2. Meso level – the national context

Given that this paper focuses on two specific countries, it is evident that we think the

national context has important bearings for the question of innovations. Indeed, if the

national dimension were unimportant, it would be difficult to explain the strong position

that Greek and Norwegian owners have held for more than a century. The national level

has an important linking role; it determines the ability to respond to the macro level and

also shapes the resources available at the micro level. The domestic environment

influences the shipping companies through a number of mechanisms. Factor cost

developments, wage levels and capital costs, are one important domestically determined

element. Moreover, maritime regulations, specific shipping policies and economic

policies in general have played important roles determining the choices available to

owners.

While shipping companies have to respond to the national context in the short

term, they may try to influence it in the longer term. This is seen most clearly in

connection with political regulations; like other businesses, owners will try to induce the

national authorities to implement a framework that gives a competitive advantage in the

international market. The short-term strategy is making the most of the available

resources, given the national context. One long-term strategy is to address potential

changes in the institutional framework. An alternative long-term strategy is to "vote with

the feet", for instance by relocating to other countries, where the conditions for shipping

are considered more favourable.

The gradual erosion of the meso-level has been one of the defining trends in

international shipping over the last fifty years. As early as in the 1960s, the wearing down

of the national dimension had started in connection with the registration of ships in so-

called Flag of Convenience-countries. However, at the time, this practice was primarily

confined to Greek and American shipowners.

Two factors can explain why this development spread to other countries. First,

restrictions on flag, manning and ownership in other OECD-countries were reduced as a

response to the shipping crisis. Second, technological developments, for instance the

reduced cost of communication, reduced the risk of such a strategy. As a result, the


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erosion of the national dimension spread to new countries, with shipowners sourcing

inputs wherever they were cheapest.

4.3. Micro level – the shipping companies

The macro and meso levels, i.e. the external environment of the firm, create the

opportunities and the threats. The ability to exploit and face these, however, depends on

the firm’s strengths and weaknesses. The resources and capabilities of the firm determine

its strategic competitiveness (Barney, 1991). Resources, classified as tangible and

intangible, are the basis for the development of capabilities. Our analysis focuses on

those resources and capabilities that we consider to be the most important for

innovation; a) entrepreneurship; b) knowledge; c) networking, and; d) business culture.

Entrepreneurship is related to the ability of a person to make judgmental

decisions, and is a unique source of the firm (Casson, 1990). Apart from giving the firm

awareness of opportunities, it also enables the acquisition and proper organisation and

utilisation of necessary resources (Alvarez and Buseniz, 2001). In that sense,

entrepreneurship is an intangible resource of the firm, and such resources affect the

success of the firm more significantly than those that are tangible (Galbreath, 2005).

Knowledge is one of the core resources and capabilities of the firms (Helfat and

Lieberman, 2002). The creation of sustainable competitive advantage depends on the

human resources and the knowledge they posses (intellectual abilities of employees,

their knowledge and their capacity to learn), as well the way in which companies manage

and support them. The way the firm manages the knowledge i.e. its ability to create,

transfer and integrate the knowledge, defines its ability to develop core competencies

(Wright, Dunford and Snell, 2001).

Networks are sets of “high-trust relationships” (Casson, 1997) that link together

members of a group. They can be considered informal systems of information set up in

order to decrease uncertainty and transaction cost. Thus, the motivation for becoming a

member is to gain access to information and related resources (Gulati et al., 2000).

Networks facilitate the creation, transfer and integration of knowledge that its members

posses, thus contributing to everyone’s performance. Even loose networks affect

members in the choice of practices and decision making, creating patterns that promise

success. In shipping, and particularly in the bulk segment, networks are important

mechanisms of integration at national and regional levels (Harlaftis and Theotokas,

2004).

Business culture is related to the philosophy of the entrepreneur and the

successful “patterns of shared basic assumptions” (Schein, 2010) that he and the

employees of the firm have learned, while solving problems related to internal

integration and external adaptation. Both entrepreneurial philosophy and business

culture are affected by the core values adopted in a national context. To the extent that

the dominant cultures of companies from a specific country are based on the same core

values, it can be expected that the patterns for making decisions at both strategic and

operational levels will have much in common.

Competitiveness is the result of resources and capabilities. The macro and meso

levels determine the resources, as well as the context in which these may be exploited.


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The micro level is company-specific. It. deals with the company’s internal resources and

capabilities and the strategies implemented to create competitive advantage. Innovation,

in this context, primarily reflects the micro level; shipping companies are the innovators.

However, the degree to which they are innovative and the specific form of the innovation

are determined by conditions at the macro level and the framework given by the national

level. This can be illustrated by the differing paths of innovation in Greek and Norwegian

shipping.

5. ANALYSIS

5.1. Innovation in Greek and Norwegian shipping

Greek owners created a sustainable competitive advantage in the bulk markets, which

allowed them to remain at the top of the maritime hierarchy from the early 1970s

through the strategy of low-cost leadership (Porter, 1980). Important resources are the

entrepreneurship, the human capital, the knowledge and the business culture of the

Greek companies (Theotokas, 2007).

These resources may also be used to explain the innovation performance of

Greek shipping companies (Harlaftis et al., 2009; Thanopoulou et al., 2010; Theotokas

and Harlaftis, 2009). They have provided the basis for the implementation of the cost

leadership strategy. This, in turn, mainly favoured the development of incremental

innovations. The main components of this strategy was the introduction of new

processes, the use of new resources and the use of intangible resources to organise

business activities, i.e. what we in section 3 defined as process, input and organisational

innovation. Greek shipping entrepreneurs were the agents for these innovations. This led

to the appearance of what has been characterised the Greek shipping paradox

(Thanopoulou et al. 2010), that is, the innovations within management.

This does not imply that all Greek companies followed the same path, or that they

were totally absent from the field of product innovation. With regard to process, input

and organisational innovations, a domestic pattern of innovators-imitators applies. Such

innovations were very quickly adopted by the vast majority of Greek shipping companies

as a result of networks effects. With regard to the latter, there were cases of innovations

related to products, i.e. the introduction of new ship type, like the Ore/Bulk/Oil carrier

(Thanopoulou et al, 2010) or the mini bulk carrier (Theotokas, 2007), all related to the

main freight markets of bulk shipping.

In the period up until the 1987 introduction of the Norwegian International Ship

Register (NIS), innovation in the Norwegian shipping industry primarily took the form of

product innovation – investments in new ship types. Several vessel types were developed

by the Norwegian shipowners, usually in close association with ship equipment

producers, shipbuilders and important customers.

Stopford (2009) presents a list of six postwar ship types, designed for the

transport of specific commodities. Two of the pioneering ships were Norwegian, and

Norwegian owners entered all segments less than five years after the new designs had


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been introduced. By the late 1970s, Norwegian companies had large market shares

within gas carriers, chemical tankers, vehicle carriers and several other new segments.

During the shipping crisis the Norwegian competitiveness within commodity

shipping segment was eroded, and specialised ships accounted for an increasingly large

proportion of the fleet. Table 1 gives an overview of the structural shift in the Norwegian

fleet from 1960, via 1977, to 1987. General cargo carriers represents the "oldest"

technology. The category "Bulk" includes tankers, bulk carriers and combination carriers,

and can be seen as "new" technology in 1960, but subsequently maturing. The

specialised ships represent the most innovative technology in all three periods.

Table 1. The Norwegian fleet by ship types, per cent, 1960, 1977 and 1987

1960 1977 1987

Type Number 1000 grt Number 1000 grt Number 1000 grt

Bulk 61.9 73.4 64.4 88.0 44.6 66.3

General cargo 37.5 25.9 17.1 3.9 5.8 2.2

Specialised ships 0.6 0.7 18.5 8.1 49.6 31.5

Source: Tenold (2010).

By 1987 the specialised ships made up more than thirty per cent of the Norwegian

tonnage and almost half the number of ships. This partly reflected the success of the

specialisation strategy; more than two thirds of the non-specialised companies

disappeared between 1977 and 1987, compared with less than a quarter the companies

that had invested in product innovation, i.e. specialised tonnage (Tenold, 2010).

With the 1987 introduction of the NIS, the Norwegian cost disadvantages in

commodity shipping markets were reduced. At the same time, several specialised

markets reached maturity, reducing the scope for further product innovation.

Consequently, the character of Norwegian innovation changed. There were some

innovative new vessel types, primarily in the offshore sector, but product innovation of

the kind seen in the 1960s and 1970s was no longer feasible. On the other hand, the

possibility to combine domestic knowledge, capital and competence with low cost

foreign labour paved the way for new organisational and operational innovations, similar

to those previously introduced by the Greeks.

5.2. Factors that influence the type of innovation in Greek shipping.

Being cross-traders, the Greek shipping companies strived to remain competitive in the

international markets and to exploit opportunities offered at the macro level. Their

efforts were based on their resources and capabilities (micro-level) as well as on the

favourable conditions offered at the meso level.

The rapid growth of demand for dry and liquid bulk transports, which increased

more than 20 times during the second half of the 20th century, created opportunities for

expansion. Greek companies had timely placed themselves in the respective markets. The

position they occupied was the result of competitive advantages in cost effective

operation of ships (Lagoudis and Theotokas, 2007; Theotokas, 2007;). In this context, they

implemented a strategy of market penetration. They gradually increased their fleets of


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tankers and bulk carriers, becoming market leaders. Having focussed on this, they did

not search for expansion opportunities in other markets. This explains why, at least up

until the early 1990s, their presence in most specialised markets was very low.

The competitiveness of Greek shipping companies was related mainly to their

intangible resources. Although some established shipowners possessed tangible

resources that allowed them to base the fleet development on newbuildings, for most

newcomers the only viable choice was to invest their limited capital in second-hand ships

and to try to operate these effectively by combining their intangible resources

(Theotokas, 2007). This pattern was favoured by conditions at the macro level. Up until

the early 1990s company size did not affect the ability to compete, while the quality of

the service offered was considered a source of differentiation rather than a prerequisite

to compete. From the early 1990s onwards, when conditions in the freight markets

changed due to new regulations, the Greek investment patterns changed. Once again

they became timely movers in modernising their fleets, and today operate a fleet whose

average age is lower than that of the world fleet.

Explanations of the investment patterns of Greek companies, the limited

application of product innovation and the relatively extended application of process,

organisational and input innovation can be found at the meso level. Using Porter’s (1980)

framework of national competitive advantage, it could be claimed that what Greece

offered was a limited share in world seaborne trade, a limited home demand for

shipping, no significant supporting industries and limited capital for investments. On the

other hand it offered plenty of what is characterised as basic and advanced resources, i.e.

seafarers and know-how about shipping operations (Theotokas, 2007).

Product innovation in shipping is a matter of coordinated efforts of many actors,

all of whom constitute parts of what is called the maritime cluster. While Norway has a

well-defined maritime cluster, in Greece the picture is rather blurry (Wijnolst et. al 2003).

After the 1970s we may see the Piraeus shipping milieu as a factor that has promoted

maritime entrepreneurship, but the main substance of this milieu was the knowledge

that was found there. This knowledge was market specific, thus defining the prospects of

the newcomers in the industry. Lack of sophisticated demand, supporting industries and

capital meant that Greek shipping companies were missing the ingredients for product

innovation. Instead, the entrepreneurship and the knowledge basis led to choices that

gave process, input and organisational innovation.

The meso level created conditions that favoured implementation of the low-cost

leadership strategy. From the late 1960s Greek companies could operate their fleets from

Piraeus, without facing limitations in the choice of flags or resources. Thus, the

institutional framework created conditions for flexible and adaptive operation. Shipping

companies were able to use new inputs that companies from other traditional maritime

countries did not have access to. Prominent examples are labour from low-cost countries

or foreign flags. More importantly, shipping companies had the flexibility necessary to

organise their resources in a way that could support their main competitive strategies.

Harlaftis et al. (2009) and Thanopoulou et al. (2010) refer to the novel

organisational structures of the companies, the emphasis on manning strategies, the

attention to career schemes and life-long employment, the chartering strategies, the


15

exploitation of the institutional setting and the formal or informal cooperation among

the companies. All these practices could be considered organisational innovations.

Moreover, process innovation practices – new financial methods and investment

strategies – and input innovation, such as the recourse to the employment of foreign

seafarers, were important.

With regard to financing, one should take into account the context in which

Greek shipping companies operated. For most Greek owners, lack of capital was the main

obstacle. To overcome this they used loans provided by shipyards during the early post-

war period (Harlaftis, 1993) or the mutually beneficiary agreements between established

shipowners as sellers and newcomers as buyers (Theotokas, 1998). This also includes

current strategies for the exploitation of opportunities offered by international capital

and stock markets (Syriopoulos, 2007, Thanopoulou and Theotokas, 2007). With regard

to investment strategies, the anti-cyclical investment strategies (Thanopoulou, 1996) are

important. These create conditions for profitable operation of inexpensively acquired

ships as well as for substantial capital gains due to subsequent sales at higher prices.

During the last decade, this strategy was extended to include not only active ships, but

also contracts for ships.

With regard to input innovation, an example is the employment of foreign

seafarers by Greek companies and the advantages they obtained from this practice. The

employment of foreign seafarers started when the rapid fleet growth could not be

supported by the supply of Greek seafarers. Thus, during this early phase of

implementation, employment of foreign seafarers was not a means to increasing

competitiveness but rather a precondition for continuing expansion. When the

conditions in the freight markets changed, the recourse became more aggressive,

contributing to the reduction of the companies’ manning cost (Harlaftis and Theotokas.,

2009, Progoulaki and Theotokas, 2010).

5.3. Factors that influence the type of innovation in Norwegian shipping.

The nature and development of Norwegian innovation is easily explicable by the three

levels presented in Section 4. At the macro level, international demand is crucial. The

strong growth of world trade had profound effects. The development of the Norwegian

fleet is partly explicable by adaptation to this demand growth. First, a focus on tankers

and bulk carriers – commodity shipping – in the 1960s, when demand for such transport

reached two-digit annual growth. Second, a costly exit from these segments from the

middle of the 1970s onwards as transport demand growth was replaced by stagnation or

decline. The introduction of specialised ship types, which commenced at a low rate in the

1960s, then became the main strategy.

Several of the new specialised ship types were related to increased trade in for

instance energy (gas carriers), raw materials and intermediate goods to manufacturing

(forest product carriers and chemical tankers) or manufacturing goods (vehicle carriers).

Without trade growth, charterers would not have been able to generate the volumes

needed to justify the use of specialised tonnage. Importantly, these markets continued to

grow after the general commodity trade growth started to wane in the 1970s. The ship


16

type that was subject to the fiercest competition from the specialised tonnage was the

general cargo carriers – the old “Jacks of all trades”.

The Norwegian leadership in product innovation can be explained by a

combination of the meso and micro levels, and must be seen in relation to restrictions on

cross-border flows of capital and labour. In the 1960s and 1970s Norwegian seamen

were relatively expensive in an international perspective, whereas equity was relatively

cheap within Norway – these were the fundamental meso level conditions. Based on the

theory of comparative advantage, the best adaptation for shipowners would be to invest

in vessels that used the cheap factor (capital) intensively – i.e. vessels that were relatively

expensive. This is one reason that the majority of Norwegian shipping companies

invested large vessels that utilised economies of scale or capital-intensive ships, which

were relatively expensive due to novel design, purpose-built technological solutions, etc.

The development and introduction of new ship types are both risky and costly.

Within shipping, new technologies are thus unlikely to be introduced by countries with a

comparative advantage in labour-intensive service provision. Moreover, shipowners need

good market knowledge and close ties to potential suppliers and charterers to succeed

with the introduction of new technologies. Norwegian shipowners fit both of these

criteria.

A number of forces can explain the innovative capacity of Norwegian shipowners..

First, Norway had a strong shipbuilding tradition, and some of the innovative vessels, for

instance the first pure car carrier, were built for Norwegian owners by Norwegian yards,

to specifications designed by Norwegian naval architects. Second, there was an evident

network effect – in several of the new segments owners cooperated to gain the critical

mass necessary to offer a good service and gain a competitive edge. Specifically, many

smaller companies emerged as joint investors in specialised ships. Finally, Norwegian

owners had a reputation for willingness to take risk by entering new areas.

The transfer from one set of strategies to another was characterised by "creative

destruction". At the micro level, the majority of the companies that had followed the

"old" strategy, focussing on commodity shipping in bulk vessels, failed. Although they

did not manage the transition to a new paradigm, for Norwegian shipping as a whole,

the end result was positive. The reason for this was a new set of entrepreneurs. As

Norman (2012) points out, part of the longevity of Norwegian shipping can be explained

"by a steady influx of new, risk-prone investors to replace those who had gambled and

lost."

With the lifting of the strict manning requirements in the 1980s, Norwegian

owners were competing on a more equal footing with their international rivals.

Moreover, the liberalisation of international capital markets, specifically the reduced

barriers to foreign investments, changed the playing field. After the introduction of the

NIS in 1987, which allowed the use of low-cost foreign labour, the "relative prices" of

labour and capital in Norway no longer dictated the Norwegian investment pattern.

Given that the maturity of the specialised markets had reduced the scope for

radical innovations, Norwegian owners were forced to concentrate on the operational

side of the business. The country's competitiveness was no longer strongly linked to


17

innovative capabilities, but had to rely on the skills, contacts and market knowledge of

Norwegian shipping companies.

6. CONCLUSIONS

The comparative analysis has tried to identify the main paths followed by two leading

shipping nations, Greece and Norway. We also propose a framework for the

understanding of innovation in shipping, which can provide the basis for future research

in the field. Adopting a Schumpeterian approach that sees innovation as new

combination of resources, we emphasise an integrative view that tries to understand the

ways that product, process, organisational, input and market innovation appear in

shipping.

The international context is the macro level, the source of opportunities and

threats. The national context creates the meso level, which defines the resources

available to the firms and the conditions for their operation. The micro level refers to the

internal environment of the firms, the source of their strengths and weaknesses.

The comparative analysis revealed the main characteristics of innovation and the

forms it has taken. For Greece, a strategy of market penetration and low cost leadership

led to innovations exploiting their intangible assets. This was exacerbated by conditions

prevailing at the meso level. The absence of a strong maritime cluster meant that

product innovation was rarely the case. At the same time, conditions at the meso level

allowed shipping companies to be flexible in their efforts to implement the low cost

leadership strategy: it gave them the flexibility to implement practices that contributed

to the development of process, input and organisational innovations. Above all, the

resources and capabilities of the companies favoured these practices.

For Norway, the international context, combined with the restrictive conditions

prevailing at the meso level, promoted product innovation; the introduction of new ship

types with advanced technological characteristics. The cost of Norwegian resources,

especially labour, meant that within the pre-1987 regulatory regime, competition based

on cost was not a viable choice for Norwegian companies. However, the relatively cheap

equity and the existence of a strong maritime cluster related to ship design and

shipbuilding, favoured investments in the development of new ship types.

Initially, we asked how Greece and Norway have been able to maintain their

crucial roles in a, international, highly competitive and rapidly changing market. Our

analysis suggests that various forms of innovation have played an important role. The

role of the different types of innovation changed across time and space, however. To put

it bluntly, the Greeks remained on top by becoming "more Norwegian", while the

Norwegians maintained their position by becoming "more Greek".

Acknowledgements:

The authors would like to thank two anonymous referees, as well as participants at the

conference The Global Shipping Industry in the 21st Century: Dynamics and Transformative

Capacity in Åland, April 2010 and International Association of Maritime Economists, in


18

Lisbon, July 2010, for comments. Financial assistance from the Nortraship-project, funded

by the Norwegian Research Council, is gratefully acknowledged.

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Shipping innovations: the different paths of Greece and Norway

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