Development of the integrated risk management framework for small shipbuilders in China

• Main Author: Wang, MengQiong.
• Other Authors: Tiong Lee Kong, Robert
• Format: Theses and Dissertations
• Language: English
• Published: 2013
• Subjects: DRNTU::Business::Finance::Risk management; DRNTU::Engineering::Civil engineering::Construction management
• Online Access: http://hdl.handle.net/10356/51192
• Institution: Nanyang Technological University

International shipping market has been shrinking sharply in the last global financial crisis. According to forecast made by Clarkson and China Research 2010, the total amount of new orders in the shipbuilding industry would fall to new low in the middle of 2013, which could cause enormous market risk to shipbuilders worldwide. Despite the shrinking market, there are two threats to the Chinese shipbuilding industry – the overgrowth of building capacity and an extremely fragmented structure. The current shipbuilding capacity in China is unprecedented in history, which, with sharp decline of new orders, exaggerates the disequilibrium of the supply and demand in the shipbuilding industry in China. The shipbuilding industries in South Korea and Japan have group – oriented structures, which consist of 10 to 20 major shipbuilders. However in China, over 1300 small shipbuilders have emerged during the boom market until the year 2009, apart from the majority of state-owned or state-controlled shipbuilding groups. Both major threats are caused by irrational investment and the absence of restrictions on small shipyards that have been newly set up and expanded, during the prosperity of the shipbuilding industry. Therefore in 2009, policies were established by the Central Government by which introduce various limitations on small shipbuilding companies, which cause small shipbuilders to face even more challenging market and strategic risk (policy, industrial structure, etc.). Having to face enormous market and strategic risk, most of small shipbuilders failed to perform effective risk management programs. Bankruptcy has become a trend in small shipbuilders since 2010, causing enormous losses with abandoned docks, collapsing hulks and unemployed workforce. To prevent further loss, plans and efforts are needed to enhance risk management performance of small shipbuilders in the post-crisis era. It is necessary to define an integrated risk management framework in small shipbuilding companies, because it has been found to contribute to the effectiveness of risk management practice and especially management of entity-level risk, such as market risk. More importantly, an integrated framework of risk management is known for its role and contribution to strategic planning. The central focus of this research is on the development of the integrated risk management framework that caters for characteristics of small shipbuilders, in order to enhance their risk management performance and further contribute to their strategic planning. To the integrated risk management framework, case study and comparative study have been done on risk management practice in the top three shipbuilding industries and classic frameworks. A questionnaire survey on risk management practice was conducted among the Chinese shipbuilders, and its analytical results supported the following research findings. In this research, it has been found that there are significant differences of maturity levels and applicable techniques between risk management practice in small and major shipbuilders. Moreover, five key elements of the framework –strategic planning, risk knowledge and awareness, risk process, risk governance, and risk infrastructure – were established, as well as their fundamental concepts and components. Based on the differences from major shipbuilders, revisions were made to the key elements catering for features of risk management practice – technical, financial, and managerial capability – of small shipbuilders in China. Last but not least, it has been found that the revisions allowing the framework to be applicable to small shipbuilders are effective in enhancing their risk management performance.