BUSM 3200 Strategic Management Report

Otto Marine Limited

BUSM 3200 Strategic Management Report

Choo Wei Loong Alan (s3446419) | Chua Wei Long Andy (s3397543) | Tay Pei Shan (s3451912) | Soh Pei Yi Marilyn (s3447515)

Content Page1. Introduction2. Macro-Environmental Analysis (Pestle)2.1. Political2.2. Economic2.3. Technology2.4. Legal3. Sector/competitive Analysis 3.1. Otto Marine & Michael Porters 5 forces3.1.1. Threat of New Entrants3.1.2. Threat of Substitutes3.1.3. Rivalry among Existing Competitors3.1.3.1. Hanjin3.1.3.2. DaeWoo Shipbuilding and Marine Engineering (DSME)3.1.4. Bargaining Power of Buyers3.1.5. Bargaining Power of Suppliers4. Resources and Competences5. Key Stakeholders5.1. Internal Stakeholders5.2. Connected Stakeholders5.3. External Stakeholders6. Identification and analysis of current strategy6.1. Defender Strategy6.1.1. Centralized Control of Strategic Decisions6.1.2. Formal Hierarchy6.1.3. Horizontal Differentiation6.2. SAFe Model6.3. Evaluation7. Strategic Map8. References9. Appendix1. IntroductionBackground and history of Otto MarineOtto Marine started to form joint venture in 1986 to operate shipyard in Batam and the venture paid off when they incorporate PT Batamec and expanded the shipyard (Otto Marine 2013). Therefore, throughout the timeline of Otto Marine, they formed joint venture and commenced strategic partnership with local maritime companies in order to enter a new market. In year 2009, they formed a joint venture with Go Marine Group Pty Ltd in order to enter the Australian market and thus expanding their business. And in year 2013, in order to enter Malaysia which has a protected maritime industry, they acquired a Malaysian Associate with shipping license. Otto Marine believes in forming strategic partnership for expansion into foreign market due to the success of their joint ventures.Overview of Otto Marine Limited Established since 1979, with its headquarter based in Singapore, Otto Marine Limited is an offshore marine company which primarily differentiates its subsidiaries into the fields of shipbuilding, ship repairing as well as ship chartering whilst having its company to operate across the regions of Asia Pacific, North America, Europe and the Middle East. Their target customers are mainly fleet operators who render logistic assistance towards offshore services and equipment companies within the oil and gas industry worldwide. (Infopub, 2008)Furthermore, Otto Marines shipyard which is located at Batam, Indonesia undertakes the task of constructing various ranges of offshore support vessels such as Anchor Handling Tug Supply (AHTS) vessels and Platform Supply Vessels (PSV) which adhered to specific regulations by Norwegian Maritime and Det Norske Veritas, met with the requirements to operate in the North Sea apart from those which are used to accommodate people. According to Bloomberg Business (2015), it indicates that since December 2013, Otto Marine Limited oversees and administers a fleet of 65 vessels, Otto Marine manage to retain ownership on 23 vessels, 35 vessels that are being chartered out and lastly the remaining 7 vessels are in the custody of strategic partners. Strengths According to Infopub (2008), strengths of Otto Marine include specialized focus on the building of offshore support vessels where its efforts are channeled to improve production quality and develop a competitive cost structure. Prior to this they own a shipyard in Batam where it is strategically located with large land area and easy access to offshore support, such as supply of workers and their expertise. Also, Otto Marine encompasses an experienced management with in-depth experience along with strong network communications with the companys designers, suppliers and customers.Strategies These are few strategies that Otto Marine has listed to continually drive and achieve their objectives of development and success. Referencing from Infopub (2008), Firstly they intend to focus on upgrading technical capabilities to increase competitiveness, and invest in advanced equipments to enhance process yet increase productivity and efficiency to deliver. Research and development (R&D) processes are also practiced to ensure their ships are relevant and efficient for the varying needs of markets that require unique considerations to the ships they require. It also serves as a competitive advantage to prevent obsolescence of its products, while driving new opportunities and creation of unique products. This will be further explain below. Major Markets The existing markets that Otto Marine cater to currently are Australia, Indonesia, Mexico and East Africa (Businesstimes, 2015). Prior to the different markets their varying weather conditions along with different depths of water in each region explains that the type and size of vessel is specific and will range accordingly (Infopub, 2008). This shows that it is necessary for Otto Marine to know and adapt to markets with varying needs to ensure their shipbuilding business thrives among its competitors. Supported by Michael See, Chief Financial Official of Otto Marine, we will continue to work on strengthening our chartering fleet through organic growth to enhance our operating and logistics capabilities. As a result, this is a driving force to form positive synergies and tap on growth opportunities from these markets (Ottomarine, 2012) 2. Macro-environmental analysis (PESTLE) Accordingly to InvestorWords (2015), macro environment are external elements that exist outside a company control. Such external elements are able to affect a company ability and performance in the market. Therefore, PESTLE analysis helps us to ask, frame and answer questions which identify the macro environmental trend or event and thus helping us to determine the impact on the industry (Warner, 2010).

Fig 2.1: Macro-environment factors affecting Otto Marine Limited2.1 PoliticalAccordingly to Ministry of Transport (2014), Singapore aim to develop into a premier global hub port and an international maritime centre, where it offers superior global connectivity, high service levels for maritime-related activities and a comprehensive suite of maritime ancillary services. This will be beneficial for Otto Marine as there will be a strong support for the maritime industry and thus attracting potential customers. However, in 2015, Indonesian president Joko Widodo declared intention to develop the maritime sector in Indonesia (Wee, 2015). The planned incentives would comprise of non fiscal and fiscal measures, which aim to diversify the development of the shipbuilding industry to other parts of Indonesia where more than 50% of Indonesia's yards are located in Batam where Otto Marine shipyard is.The removal of tariffs throughout Indonesia will therefore encourage investment in new shipyards which denote an increase in new shipbuilding companies like Otto Marine. The current situation identifies that financing problems are a burden in the Indonesian Maritime industry due to high interest loans, especially when a shipbuilding company is a long term and capital intensive investment. Low interest loans will thus allow Indonesian owned companies to have the resources to expand its business and gain competitive edge. Therefore, the introduction of tariffs removal and low interest loans, Indonesian owned maritime companies foresee new entrants, thus a stronger competition for Otto Marine in their Batam shipbuilding business unit. This may prompt Otto Marine to diversify their shipbuilding business into other geographical locations. 2.2 Economic

Fig 3.2: Graph showing oil price for the last 3 years (Nasdaq 2015)The uncertainty in the oil price leads to tightening budget for oil companies which are one of Otto Marine target market. This is because the falling oil price has made the competition tougher as international oil companies are reducing their capital expenditure and thus leads to delaying or cancelling orders for their offshore production facilities and drillships (Song, 2015). Thus, this tightening budget of oil companies leads to a lower demand for new ships which leads to a tighter competition for Otto Marine and its competitors. Therefore, due to oil price uncertainty in recent years as according to fig 3.2, Otto Marine will have lesser business dealings with oil companies and thus lower revenue from the oil industry market (Lee, 2015).2.3 TechnologyThe recent completion of Norshore Atlantic, an environmentally friendly and efficient multi-purpose drilling vessel in Otto Marine batam shipyard indicates a significant achievement for Otto Marine and for the offshore support vessel industry in the Asia Pacific region. Norshore Atlantic is equipped to perform subsea construction work, plugging and abandonment of old wells, well completion work, well intervention and riserless drilling operations(AOG, 2014). With the delivery of Norshore Atlantic, Otto Marine has demonstrated their shipyard capability of constructing highly sophisticated large vessels (Marine Technology News, 2014). This is especially critical in the maritime industry where technology is a key driver. In fact technology in the industry is rapidly evolving to take advantage of highly advanced technologies which aim to solve the issues such as environmental pollution and rising fuel costs (Kumar, 2014). In order to stay ahead in the maritime industry, Singapore actively promotes R&D collaboration between its educational institutions and private sector (Singapore Economic Development Board, 2014). Furthermore, Singapore has a strong focus in technology advancement as proven in The Global Information Technology Report (2014) by World Economic Forum, Singapore is ranked 2nd in this global report. The report provides a comprehensive assessment of how prepared a country is to apply the benefits of information and communications technologies in promoting economic growth and well-being. 2.4 Legal

Fig 3.3: Deadlines for each vessel type under the new cabotage law (Global Business Guide Indonesia 2014)As the Indonesian government is actively protecting and promoting its own domestic maritime industry activity, Indonesia in March 2014 passed a stricter cabotage law (Global Business Guide Indonesia 2014). In 2008 Shipping Law, Article 8, this means that any sea activities in the Indonesian water are to be convened only by Indonesian shipping and sea transport companies that are using Indonesian ships which are manned by Indonesian crews(HG.org Legal Resources 2014) . This means that Otto Marine as a foreign company would not be able to operate its vessels in the Indonesian water which is a disadvantage given the close proximity of Singapore and Indonesia. However, Otto Marine managed to resolve this issue by forming a joint venture with PT GO Marine which holds an Indonesian license certification.However, this cabotage law will lead to a industry boom of demand in the Indonesian domestic maritime industry which will require more ships to be deployed in the Indonesian water and hence increasing shipbuilding demands. According to Nonto (2015), the government, estimates that the Indonesian shipping industry is currently worth about $18 billion. However, Indonesian-built ships make up for only around 10 percent of the total, with the rest imported.Since the introduction of the cabotage law, the number of ships operated by 1,200 shipping companies in Indonesia increases to 13,244 in 2014, compared with only 5,000 ships in 2007. This shows a huge and growing demands for new ships in Indonesia which is a huge market for Otto Marine.Thus this is beneficial for Otto Marine shipbuilding business unit in the batam shipyard in constructing new builds which are to be deployed in Indonesian waters. 3. Sector/Competitive Analysis : Competitive analysis is a strategic technique to evaluate competitors, and the use of Michael Porters 5 forces of competitive position framework serves to obtain competitive advantage by responding to the forces (Azadi & Rahimzadeh, 2012). Porters 5 Forces assesses and evaluates competitive strength and position of the business and in this context, Otto Marine.

Figure 3.1: A diagram illustrating Michael Porters 5 forces of competitive position3.1 Otto Marine & Michael Porter 5 forces 3.1.1 Threat of New Entrants Profitable markets attract new entrants and where market is saturated, it will erode profitability of a business. This is supported by Kluberg & Perakis (2012) where he mentioned that competition influences profit. Unless there are barriers to entry for example government policies which will be used as an example below, then profitability will decline.Mentioned earlier in political analysis, the objectives of planned incentives by the indonesian government are to incentivise investors and thus drive a growth spurt in their shipbuilding industry. Indonesias location is in close proximity to ports like Singapore with high global connectivity. (Tan & Hilmola, 2012). As a result of this high frequency market, the highly attractive plan by the Indonesian government serves to also attract incoming investors to Indonesia due to its location strategy of being situated close to Singapore. It thus encourages shipbuilding companies to enter into the Indonesian market, which threatens the position of Otto Marine in the market. The shipbuilding industry may seem lucrative in a glance with high volume of trade; where 80% of all internationally traded goods via ships. However mentioned in political analysis, it states that shipbuilding is an industry with high capital intensity; fixed costs such as ports to build the ships and materials to build them are huge costs required to run a shipping line (Notteboom & Vernimmen, 2009). These costs could thus be a deterrent to entry for shipbuilding competitors. 3.1.2 Threat of SubstitutesWhere there are substitute products available in the market that customers can turn to, it raises the possibility of switching alternatives and it is responsive to price increases. This is supported by Karaokz, Eroglu & Sutcu (2011) where demand for a product is affected by both its own and substitute products selling price. As a result, it will reduce the power of suppliers and threatens the current position of a business. However in this segment there is no substitutions to shipbuilding and as a result, there is no threat of substitutes for Otto Marine.3.1.3 Rivalry among Existing Competitors3.1.3.1 Hanjin Hanjin is one of Koreas shipbuilding companies and also the worlds top 10 largest container carriers (Marineinsight, 2011). Supporting its success would be their total sale is USD 8.2 billion in 2014 (Hanjin, 2014). In 2003, Hanjin formed a CYKH alliance with 3 other carriers; Cosco Container, K Line and Yang Ming. The alliance was an agreement on vessel-sharing with its alliances and in which, also enabled Hanjin to leverage its growth (Leach, 2010) bringing it to new heights whilst sharing resources. Referencing from Muradoglu & Sivaprasad (2012), leverage is a strategy to build anchorage in the industry. The strategic alliance has thus enabled the partners to share resources and as a result, also reduced costs which aligns with their corporate strategy of cost reduction and improving sales for Hanjin (Bloomberg, 2011).This alliance could be a threat to Otto Marine that is a standalone company. The nature of an alliance is when at least two parties work together for mutual benefits while leveraging to achieve their organisational objective with shared roles. While Otto Marine does not have an alliance to overcome the strength of Hanjins partnership, their alliance would also mute Otto Marines position in the market thus decreasing its market potential.3.1.3.2 DaeWoo Shipbulding and Marine Engineering (DSME)DSME is one of South koreas largest and leading shipbuilding and offshore company.To support their success, DSME has earned a revenue of KRW 15 trillion in 2014. They also operate their own research and development (R&D) centre for product design and production technologies relating to shipbuilding. Their initiative and experience thereby contributed to the advancement in the technology of the Korean shipbuilding and offshore construction industry. DSME has made a breakthrough in 2013 having built the largest ship in the world called Triple E, for Maersk; a Danish conglomerate specializing in marine services. The basis for DSMEs innovation and shipbuilding for Triple E was driven by the its name that represents Economy of scale, Energy efficiency and Environment (CNN, 2013). Due to DSMEs R&D success, they were able to create a competitive ship that has set the bar for all shipbuilding companies. Technology is one of the major drivers of the shipbuilding industry to stay competitive and relevant to the changing environment as described in the macro-environmental analysis above (Greve, 2009). The display of breakthrough in innovation of the Triple E by DSME is a learning opportunity for Otto Marine to keep up with its R&D to continually sustain their positioning of periodically reviewing their fleet profile to remain sensitive to customers needs. Otto Marine has successfully displayed their R&D initiative with the recent completion of the Norshore Atlantic mentioned above in technological analysis.3.1.4 Bargaining Power of BuyersShips are expensive and are an investment to buyers because it is not everyday where a company would like to buy a ship to utilize. This would mean that the supply of ships are influenced by the demand of buyers in the market and demand of buyers are influenced by the factors from the macro-environment.Prior to legal analysis, the introduction of Cabotage law has shown a rapid increase of operating ships in indonesia from 5000 in 2007 to 13,244 in 2014 and that is almost 3 times of growth during a span of 7 years. This shows a demand for ships which means there needs to be an increase in supply to support this increasing demand. However, because the supply is less than demand, the bargaining power of buyers therefore decreases because there are too many buyers who require ships and are willing to pay for it. In this example, this situation will be an opportunity for Otto Marine to construct new builds and sell them. 3.1.5 Bargaining Power of SuppliersThis refers to the power of suppliers to drive up their prices. Suppliers power is driven by various factors such as uniqueness of product or service, size and strength of the supplier, their level of expertise and also the cost of switching suppliers. Relating to the shipbuilding industry, suppliers would include steel and part manufacturers. Firstly, these manufacturers do not have high influence because there is low switching costs between suppliers. Switching costs are developed when customers want to retain with their supplier due to the competitive advantage they offer (Brush, Dangol & OBrien, 2012). Unless a supplier has a unique service or product, there would be low supplier bargaining power. This would mean that Otto Marine would not be threatened by increased costs thus not affecting any major costs of shipbuilding.The size and strength of supplier company represents its reputation, goodwill and ability in its area of expertise to have power to drive prices of goods up. However that would not make them as competitive as other suppliers who offer cheaper alternatives of similar quality. In other words, suppliers would not have high bargaining power. Due to the availability of steel and part manufacturers globally, the concentration of supplier is low, thus with the saturation of the market, suppliers therefore command a lower bargaining power. As a result, Otto Marine would not be threatened if their current supplier decides to increase their price because they are able to turn to other suppliers due to low shipping costs and low commitment to supplier. 4. Resources and Competences Resource Based View & VRIN With reference to Barney (1997), resource based view (RBV) is a model which fixates on the use of resources whereas sustainable competitive advantage can only be achieved if resources exhibits the traits of being valuable, rare, inimitable and non-substitutable (VRIN). Adding on, value can be interpreted as when firms utilize their capabilities and take advantage of its resources (Amit & Schoemaker, 1993). According to Barney & Zajac (1994), they suggested that rareness can be derived when a firm owns a valuable resource that is exclusive to themselves only. Inimitability can be construed based on how easily the resources can be imitated by other competitors and lastly, non-substitutable refers to the resources must embodies some traits which makes it irreplaceable. In todays context, it is evident that firms are constantly vying against one another in order to secure their market positions whilst trying all means to attain sustainable competitive advantage. In order to realize this, firms have to depend on their core competencies which distinguish them from their counterparts (Hamel & Prahalad, 1994). Nevertheless, core competencies can be parsed as being equipped with proficient knowledge and technical capacities which distinguish the companies from its counterparts and to remain competitive in the field (Investopedia, 2015)One of Otto Marine Limiteds competencies is having proficiency and necessary resources to construct ship at its shipyard in Batam, for instance the use of Syncrolift with Rolls Royce equipment. With resources like specialized offshore support vessels which are meant for deep sea exploration and Syncrolift with Rolls Royce equipment that value adds the company by generating profit, competitors will find it hard to replicate. All these attributes to heightens its competitive advantage in this field. Due to the uncertainty of oil price which result a fall in supply mentioned in the economic analysis, Otto Marine can leech on the opportunity of building more of its Anchor Handling Tug Supply (AHTS) and Offshore support vessels as an avenue for transporting offshore drilling meant for oil and gas exploration and make a profit through it since there is a growing market demand. Apart from the macro and market factors which affect the shipbuilding industry (Mickeviciene, 2011), Bertram (2003), added that productivity is yet another factor which constitutes to the competitiveness of shipbuilding industry and technology, is one of the several variables which influenced productivity. Having acquired a pool of talented naval architects and engineers whom are equipped with technical capabilities (Infopub, 2010), Otto Marine can now build ship efficiently as they undertake the use of TRIBON software, a 3D naval architecture programme meant for designing commercial and naval vessels to be reviewed and tested before production.With this, it allows Otto Marine to build ships with precision and minimal errors elevating process efficiency and lowering production costs. This reflects Otto Marines plan of having a lean cost structure.Proficiency is required in this niche segment which requires high expertise and quality resources and they are regarded as valuable elements to Otto Marine as a shipbuilding company. Expertise is an area of human resource that requires specific knowledge and experience while, quality resources refers to the area where quality of goods are ensured towards the creation of sustainable and superior ships. These two areas makes both a resource and competency being unique and irreplaceable as they are qualities of Otto Marine towards being a successful organisation, in which others are not able to imitate in the exact way as Otto marine with the same resources.5. Key Stakeholders5.1 Internal stakeholders - The Management TeamYaw Chee Siew; Executive ChairmanWith managers specializing in certain areas of this maritime business, Mr Yaw believes that the main key stakeholders is most importantly the team of highly experienced and knowledgeable senior management who will play an important role in implementing the shift in their business strategy. The potential of a company is reflected and cultivated by the combined capability of its employees as well as its resources, and the team in Otto Marine is glad to have taken measures and pride in preparing themselves for the opportunities and challenges in the upcoming years.5.2 Connected stakeholdersShipyard Operations - IndonesiaOtto Marines shipyard in Batam, Indonesia, is a strong complement to the companys shipping operations. Customers are primarily deep sea and offshore operators and equipment companies who provide logistics support and offshore services to companies operating globally in the oil and gas industry.With one of the best infrastructure in Indonesia, Otto Marines shipyard in Batam has their own Syncrolift with Rolls Royce equipment to efficiently and effectively dry dock up to 16 offshore support vessels. The capability of the shipyard is further reinforced by the strong team of engineers and architects working with the company who will attend to needs of the vessels. With the highly-skilled team, it is expected to have a faster turnaround time offering an important advantage in supporting their fleet of vessels.With many foreign-owned vessels pulling out from the exploration and production activities, there is an expectation for new build demand for OSVs to support. The main priority for the shipyard however is to cater to the requirements of the internal charter fleet. Securing new build projects will be based on opportunities prior to shipyard capacity to cater to these new builds. As the main scope of Otto Marine is shipbuilding, it is of utmost importance to maintain the quality of the vessels, repair and service the fleet. Otto Marine also intends to ensure a lean cost structure in this area to serve as a competitive advantage to its overall shipbuilding business. Moreover, the flexibility in planning and scheduling routine checks on the vessels in advance can help anticipate and minimize deficiencies, thus maximizing the their returns. Joint Venture with Singapore-based Reflect Geophysical Pte Ltd (Reflect)In continuation of its expansion strategy, Otto Marine is the majority shareholder in the seismic operator, Reflect Geophysical.Reflect Geophysical Pte. Ltd. ("Reflect") is a company established in Singapore providing a range of proprietary and non-exclusive multi-client marine geophysical services, marine seismic acquisition services, including shallow marine and conventional streamer to the oil and gas exploration industry. Reflect also offers technical and operational support for other companies venturing into the Asia Pacific region. Reflect along with Otto Marine has a similar focus and drive towards bringing in new modern vessels into the geophysical industry and also established their recognition in this niche market. Despite the global reach to its clientele, Reflect still specializes in activities within the Asia Pacific Region. As there are few companies in the Asia Pacific region that are involved in this seismic industry, this joint venture with Reflect would deem an opportunity for Otto Marine to venture into shipbuilding for high value oil and gas services. The synergistic efforts of Reflect and Otto Marine thus diversifies the shipbuilding business of Otto Marine by purchasing or chartering of modern seismic-ready vessels on their individual interest.

Joint Venture with PT GO Marine International (PT GO Marine)Otto Marine has a joint venture in Indonesia with PT GO Marine International (PT GO Marine), owning 49% of its shares. They are one of the companys major stakeholders as they hold a SIUPAL license from Indonesias Ministry of Transport, which allow Otto Marine to operate its business in Indonesian waters, as mentioned in the legal analysis above. The joint venture facilitated the companys entry into the Indonesian OSV chartering market with the deployment of 2 AHTS Deep Sea 1 and GO Rigel in the last quarter of 2013.There is an increase in demand for offshore support services in Indonesia after the implementation of strict cabotage laws, restricting competition from foreign companies which in turn reduces the supply of shipbuilding services. Otto Marine Group plans to increase their mobility in Indonesia by overcoming and leveraging the Indonesian market with PT GO Marine.5.3 External stakeholders Auditing FirmsThe Company has appointed Horwath First Trust Risk Advisory Pte. Ltd. as its internal auditors to carry out the internal audit covering the review of key internal controls in selected areas to mitigate key businesses and financial risks affecting the operations, as advised by the AC and the Management. Internal auditors assist the AC and the Board by performing regular evaluations on the organisations internal controls, financial and accounting matters, compliance, business and risk management policies and procedures and ensuring that internal controls are adequate to meet Otto Marines requirements. This ensures fair judgement and accountability by exercising independent decision-making to safeguard the interests of the organisation towards the practice of good corporate governance.6. Identification and analysis of current strategyPrior to the information and analysis we have above, we have observed that Otto Marine uses the defender strategy under the Miles & Snows typology of business-level strategies. The defender strategy describes as the organisation protecting their market from new competitors. This focus drives the organisational efforts to devote primary attention to improving the efficiency of existing operations. As a result of this, such organisations seldom make vital adjustments in their operational methods, structure and technology. 6.1 Defender StrategyRelating to the defender strategy as defined from above, a defender organisation seeks its stability by focusing on their products and ensuring their penetration into a specific segment of their target market. Due to the nature of this narrow focus, such organisations emphasizes on their initiatives to secure these markets by catering to them with a focused set of products or services. Being a defender, they are conscientious about sustaining their current position and foothold in the industry as opposed to aggressively examining the changing environment and reacting to them. In other words, such organisations are determined in achieving their own goals and objectives rather than keeping up with the changes.To illustrate this, Otto Marines joint venture with Reflect drives towards bringing in new modern vessels into the geophysical industry and through their commitments, they have established recognition and foothold in this niche market of oil and supply services industry. Also, producing superior products and continual efforts to review their fleet of vessels assist in sustaining a current position and foothold in the shipbuilding industry. Having established their recognition in their niche market of the oil and gas supply services, Otto Marines drive towards bringing in new modern vessels into the geophysical industry is a form of planning to anticipate sales and secure a foothold in the industry, where efforts are ultimately channelled into improving production quality and developing a competitive cost structure.In sustaining current position and foothold in the industry, another of Otto Marines competitive advantage is pricing; where one of their strengths is aimed at specializing focus on shipbuilding where their efforts are channeled to improving proving production quality whilst developing a competitive cost structure as mentioned above. And this helps in creating a long-term foothold with the focus on these markets as mentioned by Michael See. To drive this strategy, there are various elements that the organisation needs to fulfill to support this strategy. Firstly it is having a centralized control of strategic decisions to ensure synergetic efforts of the board and management coincide to achieve a common organisational goal. Secondly, a formal hierarchy within the organisation is required to create a passage to transmit information from the top to the bottom of the management chain. Lastly, horizontal differentiation; when a company delegates specialized task to the employees, is needed to exercise this strategy. These three elements will be explained below showing how Otto Marine practices these elements.6.1.1 Centralized Control of Strategic Decisions Otto Marines centralized control shows their board that overseeing implementation of internal controls and warrants accountability by exercising independent decision-making to safeguard the interests of the organisation. This separation of power ensures an effective Board oversight along with balance of power and authority towards practicing good corporate governance to ultimately drive the organisational strategy to achieve its goals.6.1.2 Formal HierarchyOtto Marines formal hierarchy includes their Board and their management employees. This formal structure is a medium that carries the information and efforts needed to perform the strategy and it cascades down the hierarchy and explains how the organisational strategy is exercised and achieved. Otto Marines formal hierarchy of management therefore disseminate such information and makes certain that all employees in the company are working towards achieving the same goal as those from the Board.6.1.3 Horizontal Differentiation Aside from hierarchical structure mentioned above, horizontal differentiation identifies the expertise of its employees and this includes those who fall outside of the organisational headquarters who also contributes to the efforts of the overall organisational goal. To illustrate this, Otto Marines architects and engineers in Batam shipyards are knowledgeable and have the expertise in their own field of engineering. This contributes to Otto Marines achievement of success because the competence of these specialists contributes to the superior quality of the ships and this reflects one of the core competencies of Otto Marine.Through these practices of driving the defender strategy, Otto Marine grows through steady market penetration which was mentioned earlier where they have successful entered major markets such as Indonesia, Mexico, and Australia and this is evident of their growth in the shipbuilding industry. 6.2 SAFe ModelThe next part of the current strategy analysis would be to determine if the defender strategy is an appropriate strategy for Otto Marine. The SAFe model identifies 3 areas to define appropriateness and they are Suitability, Acceptability, Feasibility and lastly an evaluation to conclude if the strategy is appropriate for the organisation.SuitabilityOtto Marine is presented with various opportunities and threats from the macro environment in the political, economic, technology and legal aspects. Shipbuilding industry is often a protected industry in countries especially Indonesia where Otto Marine shipyard is located in. Due to the recent incentives to protect its own industry and stricter cabotage law, Otto Marine is subjected to threat from Indonesia domestic shipbuilding and maritime companies. Furthermore, with the uncertainty in oil price and changing technology, Otto Marine has no control over such threats. Hence, they need to be able to adapt to such changes to improve and gain competitive edge against their competitors and the defender strategy does not assist with this adaptation which does not make it suitable as a current strategy. Prior to the competitive analysis, threats of new entrants show that Otto Marine may be vulnerable to the change in the macro-environment. This is supported by the implementation of a stricter Cabotage Law that limits Indonesian sea activities to only Indonesian shipping and sea transportation. If not for Otto Marines joint venture with PT GO, this implementation could have impacted Otto Marines shipbuilding activities greatly. This shows that a defender strategy is not suitable because shipbuilding companies are in a pivotal position where they are susceptible to macro-environmental activities; potentially impacting substantially on the operations of shipbuilding activities. AcceptabilityOtto Marines current strategy of joint venturing shareholders has enabled the strengthening of its expertise in building high specification deep sea and offshore support vessels which reflects the defender strategy of focusing and developing on the existing operations, thus securing foothold in the industry. That has improved its efficiency and quality on production and also a competitive cost structure is constructed. With the high-end service quality and level of sophistication that it provides, Otto Marine- one of the few shipbuilding companies in the Asia Pacific Region, has gained recognition in the industry as a company that shines on its core business which is the construction of complex and sophisticated deep sea and offshore vessels.With the joint ventures with Reflect and PT GO Marine, it forms a business to business opportunity for the companies involved. From this, Otto Marine has gained competitive advantage and leverage from the lifting of cabotage laws, reaping more income streams, and thus earning growth opportunities. FeasibilityOtto Marine's competencies of undertaking advanced technology in constructing its vessels have facilitated the process of production as the TRITON software programme they used offer precision with minimal errors results which allows them to have an edge of credibility over its counterparts since they can deliver the end products ahead of time. This reflects the defender strategy because Otto Marines ability to elevate its production process shows its capacity to be competitive in its own operations thus fortifying its foothold in the market.6.3 EvaluationDefender strategy has been considerably effective towards the success of Otto Marine thus far. However with the analysis, there were areas where the position and competitiveness of Otto Marine could be threatened if it werent for certain large measures taken to overcome these areas of challenges. As a result of these potential areas of failure, we believe that the exercise of the defender strategy is questionable towards the sustainability and steady successes of the organisation.Word Count: 58467. Strategic Map

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