ECONOMIC RESEARCH CENTERDISCUSSION PAPER

No.165

Restructuring of the Croatian Shipbuilding Industry
byIvica VežaFebruary 2008

ECONOMIC RESEARCH CENTERGRADUATE SCHOOL OF ECONOMICSNAGOYA UNIVERSITY

Restructuring of the Croatian Shipbuilding Industry
Ivica Veža *Abstract

The restructuring and privatization of the Croatian shipbuilding industry are criticalelements of transitional reform and development policy of the entire country of Croatia. One
causative factor making these changes necessary is competition on the global level.
Additionally the process which, due to the importance of the shipbuilding industry in
Croatia’s economic structure definitively exerts an influence on the change of a principle ofincome-generating economy which prevailed in the socialism to the principle of profit, which
dominates in the market-based economy.
The paper provides an analysis of the European (LeaderSHIP 2015) and the Croatian
shipbuilding industry including shipbuilding potentials, the macroeconomic impact of the
shipbuilding industry and of its restructuring and privatization.
The case study presents the example of restructuring at the Brodosplit Shipyard Company,
located in Split, Croatia. By utilizing the case study methodology, the outsourcing-based
restructuring model of Brodosplit is developed, with the intention of identifying the core
activities of the shipyard, which should be kept within the enterprise and further optimized.
Following such identification the “standard”/strategically insignificant activities are to beoutsourced into a network of small and medium-sized businesses.
Finally the basic characteristics and organization of the shipbuilding cluster of the SplitDalmatian County are represented here.

*

Visiting Research Fellow in Economic Research Center, Graduate school of Economics, Nagoya University,
Japan, From August to December in 2007. Professor, Faculty of Electrical Engineering, MechanicalEngineering and Naval Architecture,University of Split, Repblic of Croatia. E-mail: iveza@fesb.hr.

1

1. Introduction

Market orientation, i.e. production and/or provision of services for the specificcustomer can be identified as one of the most significant factors in securing “market survival”.
Besides, the market turbulence requires continuous adaptation to the global trends, whichcorrespond to high quality, standard-compliant products and services; lower time to market
and time to customer; lower prices, based on the target costing model; more complex
products and production processes, etc. Therefore, it could be suggested that the time
becomes a significant issue related to competitive success – the “big fish do not eat the small
ones”, but rather the “agile eat the slow ones” (Figure 1). Following the idea that the “onlythe fact of change remains the same”, agility and flexibility requirements are increased by the

Critical success factors

changes of society, market, process, and product structure.

Change und dynamicoriented enterprises

Quality oriented
enterprises

Flexibility
orientedenterprises

Innovation
Time

Time

Flexibility

Flexibility

Flexibility

Quality

Quality

Quality

Quality

Price

Price

Price

Price

Finance oriented
enterprises

Price

Speed and timeoriented enterprises

Time
1970

1980

1990

2000 +

Figure 1 Increasing requirements for enterprises

Continuous success is accomplished by the enterprises which both optimize theirbusiness processes and identify/penetrate into new markets. Numerous enterprises arelooking into different manners of achieving these objectives, with many of them striving tomaintain and further optimize their core competencies, while outsourcing the strategically2insignificant competencies.
In shipbuilding, like in all other market sectors, success is based on knowledge.
Also the influence had these processes to shipbuilding industry world-wide (also in
Europe and as soon as Croatia).

2. European shipbuilding industry

Europe is the only part of the world with a dense network of shipyards, equipment
suppliers, research centers and other engineering services. LeaderSHIP 2015 addresses theEU’s long term strategy for economic, social and environmental renewal brought forward in2000 by the Lisbon Council.
The key elements, contained in the strategy, on which LeaderSHIP 2015 gives
recommendations, are:•

Increased R&D investment with a target of 3% of GDP;•

Improved access to finance for business; and•Lower regulatory burden and the attraction of young people to industrial jobs in an
enlarged Europe.

Key data of the European shipbuilding industry are summarized below:•

Annual turnover of EUR 34bn, more than 50% being exports;•

Network of over 9.000 companies that employ 350.000 people;•

Strong global market position in ship repair and complex vessels.

Summary of problems and recommendations includes:•

There is a persisting imbalance of supply and demand due to state supported strategic
investments in Asia that resulted in overcapacity and subsidies (shipbuilding being theonly industry without protection against unfair trading practices).

•

The recommendation is that an international shipbuilding agreement on the OECDlevel should be made, as well as the full enforcement of applicable WTO rules toshipbuilding.

•

The key to compete internationally is through research, development and innovation(RDI), not through low costs. Knowledge creation in shipbuilding, i.e. prototype
development, is not adequately supported.

3

•The proposed solution is that shipbuilding should enjoy the same conditions as otherindustries that engage in similar activities and the industry RDI should be
strengthened by integrating efforts to create Technology Platforms.

•

Shipyards are not well suited for organizing the financial parts of capital intensive
shipbuilding projects and a number of commercial banks are moving out of ship
financing, while non-EU competitors rely on state supported financing instruments.

•

The key is to establish an EU-wide guarantee fund for pre- and post-delivery
financing, and to have credit insurance companies offering hedge instruments to covercurrency risks.

•

Problems with safety of the environment by allowing substandard vessels entrance tothe EU waters. The system for investigating the quality of design and constructionneeds enhancing.

•

The recommendation is to make a quality assessment scheme for shipyards at aninternational level, to promote a more transparent technical survey of vessels and to
implement future EU legislation at world-wide level. An expert committee will beestablished to help the European Commission and the EMSA in this task.

•

European naval shipbuilders do not work together and thus cannot be globallycompetitive, which is further troubled by the absence of a truly common market for
defense equipment.

•

LeaderSHIP 2015 advises to establish common rules with the aim of creating a
European market for defense equipment and enabling interoperability of systems
leading to co-operation between yards.

•

The industry’s culture for the protection of intellectual property rights is insufficiently
established and there are many stages of the shipbuilding process where information
leakage can occur.

•

To solve the problem of the shipbuilding industry, its international patent rules need
to be strengthened and IPR protection exploited to the maximum.

•

The industry nature is changing at a fast pace and exchange of know how acrossEurope is limited.

•

The proposal is to exchange know how and staff at all levels and to establish regional
centers of excellence to teach new skills.

4•EU enlargement will create additional needs for industrial consolidation which should
be facilitated by the EU, providing incentives to remove less efficient capacity andfree resources for new investments.

3. Current situation in Croatian shipbuilding industry

3. 1 Shipbuilding potentials
In approach to this subject, it is necessary to specify the following initial assumptions(Sladovljev, 2002):• Ship is a final product of the shipyard, yet it contains all sorts of products
characterized by high degree of a final processing of the supporting industry andvarious handicraft trades.
• Ships as well as the other products of the shipyard present its capital objects thus
having their significant multiple impacts not only on the entire region's economy but
also on the economy of the Republic of Croatia as a whole.
• The Croatian shipbuilding industry, taken as an extremely export activity, may have asignificant effect on the country's positive commercial balance sheet. The efforts ofmaking the national naval architecture's business network stronger and the increase ofdomestic component in the ship's value structure consequently influence a growth ofindirect export realized through a ship as the final export product.
• The world practice recognizes the shipbuilding industry as an intense work industry.
• Through the Croatian shipbuilding industry is introduced with the international
standards of quality and business, therefore promotes its technological development aswell as its own human resources in a various scientific and professional levels.
It is worth to point out that all previous theses have contributed a lot to the importanceand significance of the shipbuilding industry, and therefore should be considered in thecontext of a cranky and demanding world's naval architecture market, including its great andcyclical changes of supply and demand.
The contemporary Croatian shipbuilding industry is represented by five (5) big
shipyards. Their basic references are shown in the Table 1 and ownership structure in the
Table 2.

5

Table 1 Basic references of the Croatian shipbuilding industry

Average numberof employees
Revenue (mill.
HRK)
Export (mill.
US$)

Uljanik

3. MajBrodosplit

Brodotrogir

Kraljevica

1.911

2.286

3.593

1.283

570

1.365

1.050

1.798

729

251

188,9

125,0

162,5

87,5

0

Table 2 The ownership structure in the Croatian shipbuilding industry (2005)
Uljanik

3. MajBrodosplit

Brodotrogir

Kraljevica

84,76

83,31

99,78

95,12

99,46

12,28

14,31

0,00001

4,37

0,00013

Others

2,96

2,37

0,22

0,52

0,54

Total

100

100

100

100

100

The State
Smallshareholders

In addition to the above, the following companies are actively operating: theBrodosplit-Brodogradilište specijalnih objekata (shipyard of special vessels), the V. Lenac(declared bankruptcy), the Tehnomont Pula, the Leda Korcula, the Greben Montmontaža
Vela Luka, the Lamjana Uglan, the RBŠ Šibenik, the Lošinj Mali Lošinj, the Punat Krk, theBetina Murter, and a number of smaller shipyards.
The Croatian shipbuilding industry participates with cca 2% in whole world industry
and holds fourth position (Figure 2). Figure 3 shows ships delivered of the Croatian
shipbuilding industry in period from 1994 to 2006 (2009) in million US$.

6

800
700
600

mil US$

500
400
300
200
100

19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09

0

completedconctracted
target/expectation
Figure 2 Ships delivered of the Croatian shipbuilding industry
1994-2006 (2009) in million US$

Present production range of the Croatian shipbuilding industries:•

merchant ships up to 170.000 dwt in one piece,•

bulk carriers,•

product carriers,•

chemical carriers,•

car truck carriers,•asphalt carriers,•

live stock carriers,•

cable layers,•

car passenger ferries,•

yachts,•reefers, etc.

7

Others, 5%
CRT(1.9%）+NOR(0.1%)+RUM(
1.0%), 3%

CHINA REPUBLIC,
13%

EU25(CESA
members), 12%
EU25(Non CESA
members), 0%
OTHER
EUROPEAN, 2%

SOUTH KOREA,
39%

JAPAN, 26%

Figure 3 World order books at 30.09.2004 (81.703.100 cGT)

Produced not only inside the shipyard:•

main & auxiliary diesel engines,•

marine equipment,•

ship repair & conversion,•

special & naval vessels.

3.2 Macroeconomic impact of shipbuilding industry
By its primary economic effects of shipbuilding industry has been known to be a lowprofit activity. However, due to its multiplier effects for national economy, in terms ofincome, employment and foreign currency balance this industry is extremely important. In
addition to this, taking into account relevant assessment criteria, this economic industry isentirely globalize.

8

Share of domestic substance in a single constructed ship depends on the exchange rate
and price ratios. In the last few years this share has remained at the level of 60 - 65%. It
ensues from this data that, with a potential annual production of $800 million the share ofdomestic producers of the ship’s components accounts of $400 - $440 million.
According to the latest evaluations multiplier factor of shipbuilding industry has been
set to the value of 2.83; so, with a potential annual production worth $800 million domestic
expenditure of $2.264 million could be realized. In addition to aforementioned the
shipbuilding industry contributes to the stability of the market. It also bears a significant
social component as it directly employs some 12.000 workers and 5.000 subcontractors while
180 companies in the European Union, producing the ships’ equipment employ
approximately 26.000 employees. The percentage of the production employees in the
shipbuilding industry in the Republic of Croatia accounts for 8% of the employed. Finally,
with such export rate the shipbuilding industry accounts for 10 - 15% of the total value of thecountry's deficit in commodities.
As regards shipbuilding industry the country’s financial balance will remain negative
for the next four years. However, within the frame of income-expenditure account, withsubsidies, recovery and loss coverage in expenditures and taxes, surtaxes and contributions inincome, this balance is balanced and stands at about the value of $300 million.

3.3 Restructuring and privatization
In economic practice restructuring and privatization are understood as uniqueprocedures meant for enhancing competitiveness of a single economic subject, branch, groupor overall national economy. Economic and social analysts differentiate among theseprocesses by their content and function, whereby restructuring is defined as permanent anduniversal process and privatization as the process of replacing state ownership with private
ownership. As general, global trend, the privatization gained momentum during 90-ties in thelast century, which coincides with the adoption of liberal practice as a dominant one. In theso-called transitional countries, privatization is comprised as a revolutionary act directed
towards ideological and systemic changes of the widest social and economic content. Froman organic point of view, and due to the aforementioned, restructuring has a priority overprivatization. However, according to the prevailing liberal standing it can not reach theobjective of strengthening competitiveness without a private motive or interest. Experiencehas shown great synergic effects of both procedures in the conditions of high market

9articulation of the system whereas the lack of this characteristic inevitably lead to failure, i.e.
the lack of this feature results in the lack of success. In line with this, many examples inpractice have shown good results in smaller organizational systems while in larger
organizational systems the results are generally modest. For this reason, the standing prevails
more and more that during the privatization of large systems the restructuring must precede
the process of privatization, i.e. for the inevitable role of the countries in such systems acertain degree of control should be assured, i.e. its permanent ownership status. The
described principle has been confirmed in a number of countries and undoubtedly represents
an acceptable possibility also in the case of the Croatian shipbuilding industry.

3.3.1 Restructuring
The term restructuring, taken as a concept in a narrower economic sense, represents
repositioning within the frame of new technological, organizational and economic concepts.
Moreover, the restructuring should be considered as a permanent, i.e. never ending process
which is measured and realized by phases. However, in the context of a criteria matrixorganized in this way, there are entire periods, even epochs, which have determined the longterm restructuring, processes, for example big technological, economic and geopoliticalchanges whose conceptual dimension determines in terms of objective, method andmaterially these processes.
More serious development in the field of restructuring were recorded in the recent
history, in 70-ties and 80-ties of the last century in global shipbuilding, i.e. at the very end of
the process of general industrialization which has lasted intensively from the half of XIX
Century. This phenomenon has been generated by the position of global competitiveness andwhich in turn, triggered the price of manpower, as in shipbuilding industry the production
was still relatively work intensive Namely, as technology has become more and more
universal and subtle, the price of manpower started to play a decisive role with regard thereallocation of capital. The price of manpower includes also the costs of the state and public
sector and social welfare.
Along with this process, specialized production has started to develop and here,
manpower price was losing its role in favor of the specifics of the production program andwithin the frame of it, to intellectual solutions and innovations. However, in the course of thedescribed process the solutions have not been placed alternatively but have been deduced by10criteria from a number of factors or organizational and financial nature and resulted in the
choice of orientation in the given time period.
The development of shipbuilding industry from the early 90-ties of the last century
has taken two directions in terms of the space, geography and technology. On one side, theproducers from Far East took almost the entire production of serial cargo ships based on thezaibatsu technologies and organizations, while the producers form Atlantic oriented theirproduction towards specialized products. The restructuring of the Croatian shipbuilding
industry has also started in 70-ties and 80-ties of the last century, just as in more developed
industrial countries. However, the process itself was facing special restrictions, the biggest
part of them being those related to socio-political environment and related organizationalreferences and geopolitical issues, while the market factors have had somewhat lessrestrictions.
Namely, in that period still within the Ex-Yugoslavian, the Croatian shipbuilding
industry was within the context of predominately bilateral relations with the markets of theso-called countries in development and clearing markets which guaranteed the good
positioning and competitiveness.
On the internal market the shipbuilding industry was systematically strongly
integrated in general economic matrix so it has worked as a large system of transferring thevalue whose final price was determined, due to export, by a foreign currency component andsystem of exchange rate ingredients. Huge system could not have been partially changed,
which as a consequence disqualified in advance all reforms and restructuring in the
shipbuilding industry. It is logical that such an environment has fatally slowed down the
restructuring processes just in the period when they started by a fast pace in global
shipbuilding. Another reason of limitations which was determined by Yugoslavian economic
matrix and its external economic orientation was the so- called political and economic systemof self-government which functioned as an expression of wider reproduction units, which inturn have meant total balance of horizontal –vertical ties in the area of economic, social andpolitical system. Such systematic feature have led to a hypertrophy of the contents of thecompanies which have integrated ale with the aforementioned economic and numerous noneconomic contents which still burden the Croatian shipbuilding industry. In short, theeconomic system characterized by self-sufficient contents and the inert system ofhypertrophied economic and social characteristics, together have contributed to the slowing
down of the processes of restructuring the Croatian shipbuilding industry during the 80-ties.

11

By declaring sovereignty and transitional changes the Yugoslavian system of foreign
relations and internal ties has collapsed. Soon after that Croatia was attacked and this has put
the shipbuilding industry in a dead-end situation. The period of occupation of large areas ofour country expelled the Croatian shipbuilding industry from the global market which was
only one more reason for lagging behind in the restructuring process. A gradual stabilizationof economic and political situation has started only after 2000.

3.3.2 Privatization
According to general understanding of the term privatization, the privatization
accelerates the process of restructuring, enhances business efficiency and strengthens
competitiveness. The effects of privatization within the frame of the restructuring process are
therefore synergic. Due to this in transitional countries the restructuring and privatization
processes are tightly linked and considered as almost equal. Until recently, the prevailing
opinion has been that the restructuring of shipbuilding industry is not possible to implement
without its previous privatization.
Of course, this opinion is entirely wrong, since, as it has been said, the privatization
brings exclusively a synergic effect, which has been proved by a number of successful
privatizations whose restructuring effects totally failed. In privatization the buyer and seller
appear with their motivations of maximizing the effects. However, unlike the concentrated
market effect when the market-based criterion is exclusive in the case of shipbuilding
industry and industry of big capital values and multiplicative effects, privatization confronts a
private buyer of narrow business interest on one side, and the state with wider economic,
social and geopolitical interests on the other. Due to this, the effects of market optimization
are here very complex. The buyer, the private investor is concentrated on the relation between
the price and expected gains, whereas the seller, the state, on resolving complex economic
and social problems. Problems which the state is facing are linking the issue of values andmultiplication in the area of employment, income and foreign currency effects; also, it
contains often numerous mortgages for the past as are debts, unsettled financial liabilities,
obsolete technological and organizational concepts which all together must be solved by theseller and the buyer in the process of privatization.
Lack of study and lack of will to elaborate all these issues and problems most often
results in the simplification in the process of evaluating effects, which in turn generates

12

misunderstanding, conflicts and finally contra productive solutions both for the buyer and forthe seller. In general, it can be concluded that the process of privatization must be subjected
to and evaluated from the positions of the process of restructuring. Therefore, therestructuring must be strategically broadly designed and not narrowly, exclusively tied tobusiness purpose of the moment or the State current problems, i.e. solved hastily.

4. Case study of restructuring: the Brodosplit Shipyard Company

The "Brodosplit" Shipyard Company was founded in 1922 by merging of few minor
shipyards in the area of City of Split. It was on the current location since 1932, although thetradition of ship building in that area is much older. Very significant development andbuilding of larger ships has been recorded in 19th century. The "Brodosplit" today is a joint
stock company that is owned by the Government of Croatia and has more than 3.500
employees.
The Brodosplit shipyard's business experience up until now can be shortly
characterized as following:•business with loss,•

low productivity,•

cost oversize out of contract's calculation, specially process costs,•

significant share of cooperation's working hours in comparison with a total capacity ofthe shipyard,•

low degree proportion of its own capacity in construction work,•high degree proportion of cooperation causes its fixing the costs and terms,•

losses of its own production's capacity in work hours in a regular working time,•delay in terms of delivery,•

great number of changes, even in a repeated construction works,•

high proportion of failures (documentation failures, failures in technology, materials,etc.),•

low degree of equipped sections before the embedding,•insufficient number of high quality workers in key professions,•functional organization structure with elements of project organization,•

absence of consistent model in cost management,•

great dubious inheritance from the past.

13

On the other side, small economy of the Split-Dalmatian County dominates not only
in number but also with its increasing participation in the basic economic parameters:•

it is organized in more than 99% of the total number of economic subjects,•

it employs more than 67% of the total employment of the County's economy with atendency of growth,•

it also realizes the highest level of total income, with more than 2/3 of the total
County's economy income,•it still presents the only part of the County's economy that makes business with net
profit (total profit is greater than total loss.
Taking all mentioned points into consideration it is to conclude that small andmedium-sized businesses are significant and relatively the most successful subjects in theeconomic development of the Split-Dalmatian County.
Nevertheless, it is obvious that there is a great potential and possibility for the increaseof proportion of domestic component (material inputs) in ship's architecture. At the sametime, this implicates that there is a possibility of significant increase in exploiting existing
capacities as well as in founding a new productive capacities in this segment of economy.
That is also a chance for development of small and medium entrepreneurship not only in theregion of Dalmatia but in Croatia as a whole and it will definitely contribute to thedevelopment of Croatian building industry small economy subsystem.
This paper presents a concept of restructuring and adjustment of the Brodosplit and a
total shipbuilding industry activity in the Split-Dalmatian County, with all requirements fromthe environment, stressing the importance of consolidation of broader ship building businesssystem and its impact on the development of the County's small economy.

4.1

Modular shipyard design

Due to a quite complex situation in the naval architecture's segment of world's market
and aiming to survive, shipyards make their efforts in using the potentials in order to apply
rationalization and to increase flexibility. Reducing the costs, adjusting it to the various needsof buyers and promptly reacting on a cranky environment demands, present the elements
worth to take into consideration and to focus on. Therefore, the Brodosplit is trying to
optimize its core competencies and to realize modular shipyard concept. Modular shipyard,
beside all, implicates maximum harmonized structure of buildings and facilities, as well as
logistic and organization, in order to achieve higher competitiveness and to approach the14

shipyards the "Best-in-Class". According to analysis the greatest possibility of saving offers
the level of organization and the one of product/production design.
However, besides the investing in modern technique (devices, cranes, procedures),and a change of the organization’s structure, it is necessary to ensure efficient use of all
employees’ potentials.
In order to ensure successful business activity in the future, the staff is expected tomeet the following demands: competencies to resolve problems, systematic thinking(teamwork), and intelligent work. Introducing teamwork in the working processes in a senseof buyer-supplier relationships as well as in the managerial structures defining the goals andtasks, teamwork should be therefore, implement in the entire shipyard.
To realize modular shipyard project it is necessary to determine core competencies(Prahalad & Hamel, 1990) in the Brodosplit, which will continue to take place inside theshipyard and to point out the steps for their improvement. On the other hand, alreadymentioned, so-called standard capabilities which are not so essential for the Brodosplit, haveto be put apart as small and medium-sized companies connected in the same network(outsourcing).
ARIS methodology (Sheer, 1999) has been used to present the Brodosplit's businessprocesses. It enables graphic presentation of business processes trough developed software on
four levels:•

organization (workplaces),•functions (performance of the activities),•

resources (basic means, documentation, material, and the like) and•production program.

4.2

Modular shipyard characteristics

Basic characteristics of modular shipyard are as follows:•

enables fixed costs minimization,•

performs basic business, projective and engineering functions, composition, testing
and receive-deliver tasks,•

all other tasks carries on cooperative shipyards through the system of participation incommon product,•chooses partners from near but also from the wider environment,•

establishes partnerships on a base of quality of components and services, price15

competitiveness, warranty on the terms of delivery, agreed ways and conditions of
payments with the participation in business risk,•bears entire responsibility towards ship owner and classification’s company on thebasis of an entire contract and ship’s quality, in a whole, as well as in specific areas,
and agreed the terms of delivery,•

coordinates work of its own and cooperative facilities,•

insures close relationships with all participants in process, by long-term agreements
and contracts,•

purchases materials and equipment upon optimum conditions,•insures partners in different phases of construction, with different productive profiles
and different forms of ownership,•supervises and controls results of partners work, and indirectly affects their working
process,•

puts up, if possible, process or team organization in functional organization’s structure.

4.3

Determination of core competencies inside the modular shipyard

Several meetings were held between the partners on project and responsible experts
from the Brodosplit, which led to the analyses about basic activities that can be taken inmodular shipyard and also other activities that can be done in small and medium-sizedcompanies. Rough plan of shipyard's organizational restructuring into a type of modular
shipyard is shown in Figure 4. It brings principal suggestion of the activities that may go
inside modular shipyard and also the activities inside small and medium-sized companies thatwould be connected with modular shipyard.
However, it is necessary to pay attention to the potential limitations in theimplementation of shipyard's new organization concept based on "core business", and also in
extracting the individual organization's units into the independent companies. The mentioned
limitations are potentially connected with different areas of business process organization:market, technology, human resources, finance, and the like. That is why, the only possible
approach in the process of the Brodosplit Group organizational restructuring, that can betaken by a specific, individual evaluation and elaboration of market's and other potentials foreach organization's units, predicted for extracting and independent business activity, but still
holding on the further significant participation in the entire naval architecture business system.
Extracting process of each of organization's units needs to be based on realistic

16

criteria which will grant, on one side, their durability as independent commercial company,
and on the other side, long-term and stable service-providing of this unit to the modular
shipyard Brodosplit. In that context, it is necessary to observe all segments of re-organization
and restructuring process, primary in terms of today's facilities, but also in terms ofconnections and relationships with, in the future, also re-organized and restructured modular
shipyard.

Locksmithequipment

Documentation
makingPipelineequipment

Informatics
BRODOSPLIT
Shipyard
Core business

Woodenequipment

MaintenanceAnticorrosive
paintIsolation jobs

Figure 4 Basic activities suggestion within the modular shipyard Brodosplit,
and small and medium-sized companies

It is obvious that the process of extraction, restructuring and adjustment of individualorganization's unit to the market's conditions, will demand several steps to be made: increaseof capacity's utilization degree, apropos productivity increase; reduction of failure's
proportion, adjustment of organization's structure and the increase of efficiency in businessactivity organization (especially preparation phase) in new conditions including thepossibility of rationalization according to the results of analyses and separating processes orparts of processes that "stays" inside the modular shipyard. On the basis of re-organization
and restructuring, it will be necessary to revaluate costs of performing tasks of eachindividual organization's unit, but also the costs of external support and today's common
services, keeping in mind the possibility of independent organization of some functions or the
possibility that some services of the modular shipyard to a single organization unit

17

compensate with cheaper services from external environment, and so the like.
In the second phase, organization's units separated in this way will be connected withthe companies inside and outside the Split-Dalmatian County (Figure 5).

External
resources
External
resources

External
resources
Locksmithequipment

Documentation
makingInformatics

Pipelineequipment

BRODOSPLIT
Shipyard
Core business
MaintenanceWoodenequipment
Anticorrosive
paintIsolation jobs

External
resources

External
resources

External
resources

Figure 5 The Brodosplit-Shipyard relation concept with external resources

5. Shipbuilding cluster of the Split-Dalmatian County

It is to conclude that shipbuilding industry presents the key and strategically the mostimportant industry of the Republic of Croatia, and already having its Croatian brand, it should
soon become a «locomotive» of development other branches of industry, especially of small
and medium-sized companies. In order to increase the shipbuilding competences theintegration of all productive, service providing and scientific activities closely related to the
shipbuilding industry the Split-Dalmatian County is required. Such integrated shipbuilding
system would have cluster characteristics, focusing on mainly on the increase of competence18

of the existing shipyards in the area as well as their supporting industries that would
participate in ship building. Organized like this, such shipbuilding cluster of the Dalmatianregion would further join the shipbuilding clusters of other regions (especially of the Kvarnerand Istria), and therefore increase the industry on the national level.
The concept of shipbuilding cluster is shown in Figure 6. The concept presents on one
side the associate relationship of schools and universities and on the other side the
shipbuilding industry of the Split-Dalmatian County. The main factors or rather activities thatcan be done through the presented network are shown as well. Further, the figure of the mainelements and activities of cluster shipbuilding is presented too.
a) Schools and universities would participate in fundamental and continuous
education of cluster shipbuilding staff. Educational plans and programs could be determined
and agreed according to the needs of various professions of cluster shipbuilding employees.
• technical high school,• bachelor’s degree studies,• master’s and PhD degree studies,• specialist studies.
b) Schools, universities, scientific-research institutions would cooperate in developing
new products and processes as well as in improvement of the existing ones.
As the structure of the developing function on the level of cluster shipbuilding of the
Republic of Croatia is quite relevant to the subject, the suggestion of such structure is given
below. So, the final structure of the developing function would be made according to thepreviously determined cluster shipbuilding on the level of the Republic of Croatia.
The structure of research-developing function would aim to develop the product itself
as well as production.
•

Product development would be based on the concept of developing centers
associated with the main developing headquarters at the Shipbuilding Institute ofZagreb and the Croatian Shipbuilding – Jadranbrod.
The task of this developing function would primarily include planning,

researching and development of new projects, types and categories of ships according
to the world trends, but also its would refer to its own researches and market needs,
applying new materials, technologies, methods and procedures on the basis of thecommon interest.

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C
L
U
S
T
E
R

Schools and universities
Education

EconomyResearch

Start-Ups

Schools

Start-up

University of Split(Bachelor's andMaster's degrees
diplomas)• Mechanicalengineering,• Electricalengineering,• NavalArchitecture.

A variety of
research
institutions

Enterprises

Shipyards in Splitdalmatian county
SMEplus a variety of
shipbuilding
relatedengineering
services providers

Figure 6 The cluster shipbuilding•

Development of technology, organization, methods and procedures, would rely on
the concept of connection of the regional developing services with faculties
dealing with technological and organizational researches, as well as with the oneof Industrial engineering in an individual shipyard.
The task of this service would include the monitoring, assessment of demands

and possibilities of new technological and organizational achievements in order toimprove production and productivity, technological procedures, organizational
improvements, introduction of new materials, machines and tools into production andthe study of work and time.
The Croatian Shipbuilding - Jadranbrod would present the headquarters; theShipbuilding Institute in Zagreb would stand for the main developing and researching
center whereas the individual modular shipyards would figure for the regional
researching centers (the Uljanik, the Brodosplit, the 3. maj). Faculties would take arole of a consulting and cooperating bodies with their studies of naval architecture: theUniversity of Zagreb - the Faculty of Mechanical Engineering and Naval Architecture,
the University of Split - the Faculty of Electrical Engineering, Mechanical20

Engineering and Naval Architecture, the University of Rijeka - the Faculty ofTechnical Sciences.
Researches would imply teamwork expected to be performed in two ways:•

Researching projects agreed with the Shipbuilding Institute and the Croatian
Shipbuilding - Jadranbrod.

•Own researches and development not only of new products but also present
technologies, following and applying world achievements in our shipyards.
Approaching in this way all preconditions for the encouragement of innovative

work would be realized. Organized in such way scientific and research work would
achieve its final goal that is, promotion and holding of its “domestic brain”, acquisition
and usage of new know-how, projection of a new, sophisticated classic ships as well as
vessels of the “new generation”c) Newly founded («Start-up») enterprises. According to the analyses of the National
Council for the Competitiveness in Croatia, the rate of newly founded enterprises is quite low
and the structure of an enterprise is such that it rather show low rate of potential growth aswell. Consequently not many working places are offered in this way. Therefore, stimulating
environment for entrepreneurship is suggested in order to increase the number of working
places that is the growth of TEA index 1 . The goal is to increase TEA index from its present
value 3,6 up to 10.
Structuring of cluster shipbuilding would lead to the preconditions for generating newentrepreneur ideas relating to a ship or shipbuilding business production process. The cluster
shipbuilding would buy products and get services for its high-tech activities from domestic
and regional providers. The further step of these high technology oriented „startup“enterprises would be realized through their integration and network.
It is to conclude that newly founded enterprises based on knowledge and innovation
would strongly support the development of the industry of the Split-Dalmatian County.
d) Enterprises. The cluster shipbuilding would consist of: «big shipyards» that is themodular shipyards, “small” or „sub-contracting“ shipyards and small and medium sizedenterprises of the County, service providing enterprises on the basis of their participating rolein production of common product or their partnership. Such teamwork and their own
products/services would evidently increase the proportion of domestic component of ship.
„Modular shipyards“, having their own resources and capacities to produce
1

TEA (Total Entrepreneurial Activity)

21

component parts (tracing, cutting and forming) they could, if necessarily, makecutting and forming activities, so that the produced components could be transported
to the small shipyards where the hull sections and equipment could be done,
according to the given standards. Upon finishing, equipping and dyeing, the elements
would be transported back to the modular shipyard in order to grow into a „ring“and/or assembly (prefab) slipway. Such fitting, equipped and dyed sections would bebuilt into basic structure on the slipway.
Shipyards as sub-contractors, having their basic resources and needed skills such
shipyards would, consider their participation in common product; deal with works
related to a specific ship and would be purposely specialized for it. Free productive
capacities could be sold on markets of shipbuilding or other markets.
Small and medium-sized enterprises in the Split-Dalmatian County. According to theanalyses presented in the article (Veza & others, 2004) small and medium-sizedenterprises of the Split-Dalmatian County have enough potential for taking their partin cluster shipbuilding. The data relating to their importance for the national economy
as well as their involvement into industry are presented in Chapter V of the Article
entitled „55 suggestions for the increasing of competitiveness of Croatian economy“,
significant growth of small and medium-sized enterprises (suggestions from 34 up to41).
Enterprises providing services. These types of enterprises could be also involved into
cluster shipbuilding, especially enterprises dealing with the projects, construction,
consulting, marketing, and financial services etc.
The advantages of such structure of cluster shipbuilding would be as follows:•More qualified division of work, implying easily performed redistribution of workforce in critical phases of shipbuilding – on the take and return base inside cluster.

•

Increasing of the responsibility in general, concerning the terms for „budget“ andquality, or the most important the responsibility of realization of project and agreed
productivity,•

Granted jobs for all employees, participants in making common product.

•

Bargains and unfair practices eliminated•Decrease of needless costs and their control•

Detailed and qualified monitoring of a complete process of ship production as well asof terms fulfilled from the same location,

22

•The existing staff, decreased in number and presently employed in different locations
would be connected through their profession and expert orientation.

•

Increase in flexibility of workers' deploying and disposing of means of production,•

The possibility of more qualified informatization and rational investment•

Increase of productivity or rather a decrease of effective hours/cGT,•

Involvement of greater number of producers, especially those from distant regions,
into common product,•

Increase of employment through opening new working places (start-up enterprises),•

Quality would fit to the real costs and prices,•

Realization of aimed investment and parameters of production, each in its field of
work,

•

The possibility of introducing developing function, which has been „ignored“ formore than ten years and challenge of dealing with more sophisticated products such as
merchant ships and passenger ferries of a new generation.

6. Conclusion

The processes, which we are dealing with in this paper, are accompanied by huge socialand economic changes as well as changes in mental structure, which can not be, as
experience has shown, jointly resolved by ideological and political determinism by polarizing
the roles of the state and the market. The solution is to link market and profit to the relevant
strategic determinants of the national economy and the society as a whole. Namely, the issueof the shipbuilding industry cannot be addressed and resolved in isolation, neither as abusiness system nor as the state-social value complex. It should be considered as an
economic, social, and political issue of the primary importance and, in line with this, thesolutions should be found within the framework of the widest and most inter-dependent
market, national, and social references.
Parallel to the previously elaborated organizational reengineering, it will be necessary
to raise the technological level by investing in new equipment. This is especially significant
because old equipment may impede the efficient, transition to the modular shipyard model.
Old equipment causes greater costs in technological and production processes as well. It isalso worth pointing out that the same effect will be achieved in 15 times greater investing inequipment compared with the changes in organization's structure.

23

After organizational and technological restructuring the final and measurable
objective would be to achieve an annual gross profit of $320 - $350 million. This could bedone progressively, in the following two phases:
Phase 1: achieve annual productivity of 7-8 ships (from today's 4-5 ships), whichmeans 110 days/ship on the slipway, or 40 Wh/cGT 2 , or annual gross income of $200
- $250 million.
Phase 2: achieve annual productivity of 10 ships, which means 75 days/ship on theslipway, or 30 Wh/cGT, or annual gross income of $320 - $350 million.
Shipyard restructured in this way would have much greater competitive capability. In
this way a concentration of individual production's processes/services would be achieved andwith a synergic effect this would include increased competitiveness of related companies andmore chances for their survival on today's cranky-increasing market.

References
Balič, J.; Veža, I.; Čuš, F.: “Advanced Production Systems” (Napredni proizvodni sistemi).
Faculty of Mechanical Engineering Maribor, Faculty of Electrical Engineering, MechanicalEngineering and Naval Architecture, Maribor, Split, 2007.

Elaborate of the Restructuring of the Croatian Shipbuilding Industry, HVB Global Shipping,
Zagreb, 2007

LEADERSHIP 2015 Defining the Future of the European Shipbuilding and Shiprepair
Industry - Competitiveness through Excellence
http://ec.europa.eu/enterprise/maritime/maritime_industrial/leadership_2015.htm

Prahalad, C.K. and Hamel, G., “The Core Competence of the Corporation”, Harvard Business
Review, No. 5-6, 1990, pp. 79-91.

Scheer, A.W.: “ARIS - Business Process Framework”. Springer Verlag, Berlin Heidelberg
New York, 1999.

2

Wh – working hour, «cGT» - compensating Gross Ton

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Sladoljev, Z. (Editor): “Croatia in 21th Milleniumm - Strategy of shipbuilding industry”(Hrvatska u 21. stoljeću - Strategija razvitka brodogradnje) in Croatian, Zagreb, 2002.

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Zagreb, 2004, www.konkurentnost.hr/nvk

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