INTRODUCTION

The wave of neo-liberal reforms spreading across the globe has not spared the port industry. This once geopolitically sensitive resource is now increasingly in the hands of a rapidly emerging breed of transnational corporations (TNCs). Indeed, institutional change of the 1990s in port sectors worldwide has been accompanied by the emergence of port operating TNCs: firms operating container terminals across various regions, countries or continents. It is difficult to conceive of an industry that has internationalised as rapidly as the container terminal industry. The World Bank (2004) reported 209 port projects involving private participation in developing countries (only) for the period 1990–2003. That is an average of 1.5 terminal projects opening every month to potential foreign/private investors.

The rate at which spatial and temporal dynamics of change have occurred in fact requires a whole new conceptual toolbox to approach this traditional industry (Olivier and Slack, 2006). Unlike many other industries that now enjoy advanced stages of internationalisation, worldwide deregulation of the port sector is still a relatively recent phenomenon. While port studies have to date tended to be of an inward-looking nature (Olivier and Slack, 2006), a comparison of how this industry is internationalising becomes imperative in light of new empirical developments. Are port service TNCs any different from other breeds of TNCs? When and how have they proceeded to expand their scope internationally? The paper seeks to confront empirical developments affecting the global container port industry against mainstream internationalisation theories. It emphasises two components of this process: (1) the temporal component of internationalisation and its spatial corollaries and (2) the Asian TNC as a powerful force spearheading the internationalisation drive. More specifically, we seek to explain how Asian TNCs, as 'latecomers', have come to dominate the global scene.

The paper primarily adopts a binary analytical lens by investigating institutional conditions of both domestic and foreign markets in which these new TNCs are evolving. It begins by making an empirical statement about the recent rise of port-related TNCs and the institutional context behind their ascent. It then follows with a synoptic review of the internationalisation literature with particular emphasis on theoretical weaknesses in temporal constructs relating to firms' overseas expansion. The remaining analysis confronts theoretical claims in TNC literature against evidence from the port industry by considering key firm-specific advantages in their quest for international expansion. It ultimately argues that constraints of an institutional nature facing TNC entry in foreign markets are the main obstacle forcing firms to 'leapfrog' some of the logical sequential phases of internationalisation often assumed by mainstream theory.

THE EMERGENCE OF THE TERMINAL-OPERATING TNC: THE INSTITUTIONAL CONTEXT

Institutional context: temporal aspects of reforms

Ports worldwide have undertaken comprehensive institutional reforms only relatively recently. In the span of 20 years, the institutional context has shifted dramatically (Figure 1). Liberalisation schemes under various guises have translated into a variety of entry opportunities for once local terminal operators wishing to expand their scope (Olivier, 2005). But the latest waves of port reforms do not present geographical uniformity. As Figure 2 shows, reform efforts have been fiercest among developing countries seeing their booming economies facing severe port capacity constraints and as such these countries have been most successful in attracting the lion's share of FDI. Large-scale privatisation schemes have largely afforded entry possibilities to TNCs by defining a window of opportunities that opened in the early 1990s and that now has begun to narrow down (Figure 2). In effect, private participation peaked in the mid-to-late 1990s. While institutional change is clearly a global trend, countries may still stand at varying phases of reform, however. Therefore, while in theory reforms are opening doors for private participation worldwide, in practice there may still be a wide gap between markets where TNCs wish to enter and where they actually can do so. But generally speaking, global reforms are consistent with empirical evidence on the timing of TNC entry in the port industry.

Figure 1.

Global changes in the institutional environment of container ports 1980, 2004.

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Figure 2.

Container terminal projects involving private participation, developing countries 1986–2004. Source: compiled from World Bank PPI database, 2003.

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Therefore, this suggests that the late emergence of TNCs in the port sector is largely underpinned by shifts in institutional contexts. As such, entry opportunities for port-related TNCs have remained institutionally defined to a much greater extent. This is consistent with findings recognising that service TNCs tend to be submitted to greater regulatory constraints than production TNCs have until now (O'Farrell et al, 1995; Aharoni and Nachum, 2000). As such, we argue that institutional change is key to understanding the internationalisation process and the rise of the port TNC.

Empirical evidence collected over the period 1960–2004 among leading private operators suggests two general waves of private entry (see Figure 3). A first wave of early entrants in international terminal operations emerged at the outset of containerisation and was spearheaded by leading ocean carriers (ie Sealand, Maersk, APL, P&O Containers), especially those operating the transpacific routes. This first wave of entry generally occurred under arrangements known as 'dedicated terminals' (Haralambides et al, 2002). Typically, carriers secured terminal facilities at home ports before investing overseas. A second and more intense wave begun in the early 1990s following massive entry opportunities allowed by synchronised port reforms worldwide. This wave also coincides with the rise of private international terminal operators (ITOs). In pure chronological terms, entry of ocean carriers in container terminal business largely predates that of ITOs. Although the earliest ITOs to invest overseas were not of East Asian origins (eg Eurokai into Lisbon in 1984, P&OP in Kelang in 1986), yet the latter have rapidly caught up to lead the global scene.

Figure 3.

TNCs' terminal entry timeline 1960–2004 by year of commencement of operations.
Notes: data from OOCL (5), NYK (2), EMC (1), MTL (1), HPH (2), COSCO (3), CMHI (2), Maersk (1), SeaLand (2), P&OP (6) missing. ^* until 1994 P&O port activities were managed by P&O Containers (1960s–1970s data about Australian and UK ports missing).
Source: compiled by authors from various sources.

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The rise of transnational operators

Two types of TNCs have emerged in the provision of container terminal services: the ITOs and the ocean carriers. Together these TNCs controlled 54% of global container port throughput in 2001 and their market share is expected to reach 63% by 2007 (Drewry, 2002). It is important to emphasise, however, that their stakes in terminal operations is qualitatively different in three ways. First, as Table 1 shows, they enter port operations from different strategic angles since their core activities are different. Ocean carriers' recent drive to become 'total logistics service' providers means they control a longer segment of the logistics chain compared to the ITOs and that terminal entry generally serves a vertical integration strategy. They have thus built their terminal portfolio to serve a broader, overarching logistical agenda aimed at providing door-to-door services. The operators on the other hand have expanded in a more horizontal fashion, through the reproduction of core services at various geographical locations where investments became possible or lucrative. Entry is typically in the form of concession and through competitive bidding. Firms as Hutchison Port Holdings (HPH), PSA Corp., APM Terminals, and P&O Ports have become leading names. Second, the two types of TNCs have different organisational features. Often, ocean carriers have terminal operating subsidiaries that operate select terminals serving their shipping networks. Although in recent years many carriers have separated their terminal operating arms to create self-standing companies, such companies usually retain some form of ownership and/or operational ties to their carriers. By contrast, ITOs tend to provide multi-user port services. Third, their involvement in port operations and finance dates back to different periods. Carriers' entry into terminal operations dates back to the late 1960s as a way to secure trade routes, notably the transpacific. Contrastingly, the emergence of ITOs is far more recent, essentially unfolding from the early 1990s. Although both types are considered here as service TNCs, these qualitative differences should be borne in mind throughout the analysis that follows.

Table 1 - The logistical extent of ocean carriers versus terminal operators.

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Beyond their qualitative differences, the emergence of port TNCs is characterised by the strength of East Asian companies. A striking feature of the contemporary industry is the prevalence of Asian TNCs from Hong Kong, Singapore, Taiwan and Japan, firms that have emerged to challenge the former leaders traditionally based in Europe and North America. Early entrants in container terminal operations were US, Japanese and European ocean carriers seeking to secure facilities on the trade routes they served. SeaLand, the firm that pioneered containerisation, became the first carrier to operate its own container facility in Port Elisabeth in 1962. Since then, the carrier went on to build one of the world's largest network of terminals when in 1999 it was acquired by Danish carrier Maersk to become the carrier with the largest terminal portfolio. Major Japanese carriers were also early entrants. In 1969, Japan's Mitsui O.S.K. Lines and K Line were awarded their first container facilities at the port of Osaka. Meanwhile, in Europe Danish carrier Maersk was awarded its first terminal in 1975 in Newark as a gateway to its transatlantic trade (see also Figure 3).

The Far East is today at the heart of this phenomenon as both prime origin and destination of port-directed private capital. It is currently host to the world's largest container ports and its future capital requirements are estimated to be three times as large as those of North America, and twice those of Western Europe (World Bank (2004)). The Far East has thus been a potent breeding ground for the emergence of TNCs in the port sector and Asian TNCs have come to prevail (Olivier and Slack, 2006). Table 2 presents a synopsis of the industry's leading TNCs and affirms the prevalence of Asian firms. A notable feature of these Asian TNCs is that all of them belong to recognised organisational forms proper to Asia: the Japanese keiretsu, the Korean chaebol, the ethnic Chinese conglomerate, and the state-owned corporation form. Thus, individual firms entering the port industry often belong to powerful conglomerates with broader maritime and logistics interests (Olivier, 2005). Their prominence in reshaping the global port industry provides a rich empirical platform from which to further our understanding of the Asian TNC.

Table 2 - Leading 20 TNCs in the container terminal industry, 2005.

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TEMPORAL CONSTRUCTS IN MAINSTREAM INTERNATIONALISATION THEORIES AND MARITIME STUDIES

Before entering into interpretations of the rapid ascension of TNCs in the container port industry, a brief overview of TNC literature with particular focus on temporal aspects of internationalisation is useful. The review is by no means complete and exhaustive but will nevertheless familiarise the reader with common temporal constructs in mainstream theory of the TNC.

Leading theories of internationalisation of the firm have generally assumed linear conceptions of time. The literature has long been dominated by 'stage' theories of internationalisation that postulate a logical sequential process of investment/expansion. The idea of a rationally motivated evolutionary sequence was particularly strong among early theories of the 1960s, such as that of Vernon's product-life cycle. Some years later, in their influential work, Johanson and Vahlne (1977) coined the term 'establishment chain'. Surprisingly, this sequential approach to firm growth has been little challenged for decades (Bell and Young, 1998). Table 3 illustrates how classical theories of the TNC assume highly linear constructs of time and space, naturalising ideal-typical evolutionary pathways of expansion.

Table 3 - Various evolutionary models of the internationalisation of firms.

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While credits for a full-fledge theory of the TNC are usually awarded to Stephen Hymer (1960), the seminal contribution behind evolutionary phase theories of international expansion was no doubt that of Raymond Vernon (1966). The product-life cycle implied that firms internationalise following a logical sequence based on structural transformations in (1) a given product's demand and (2) home versus foreign market conditions. Vernon's influential model and its linear temporal assumptions rose to become an enduring theoretical template (Dicken, 1998).

Such a strong tradition in conceptualising time as a logical and linear construct feeds on shared assumptions of time and space common to such models:

1. Since most of the early TNC theories of international expansion drew on US manufacturing firms, particular assumptions about US domestic market structures found their way in the models. Internationalisation systematically begins through one form or another of overseas export.
2. A second and related assumption is that domestic production precedes exporting. It is here that the 'embeddedness' argument takes its roots as through such a sequence TNCs are likely to carry signs of national imprint as they globalise.
3. Another common assertion based on Johanson and Vahlne's (1977) behavioural concept of 'psychic distance' is that firms are likely to engage in transnational activities closest to their domestic markets. The reason is that geographical proximity was assumed to imply cultural proximity. Managers are more likely to succeed in those markets they are linguistically, psychologically and culturally familiar with.

Surprisingly, linear time constructs of internationalisation have been left unchallenged for many years and have only been seriously contested based on emerging empirical evidence (Bell and Young, 1998). An early line of reconceptualisation came from the very theorists who proposed such linear constructs. For instance, Johanson and Mattson (1988) proposed a relative timeframe based on two axes: (1) firm capacity and (2) foreign market structure (Table 4). Such efforts, by attributing learning curves to both the firm and its target markets, have introduced more complex conceptualisations of time–space components of international expansion.

Table 4 - Johanson and Mattson's space-time frame.

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A more substantial theoretical turn has come from the recent convergence–divergence debate (Table 3). Leader/follower models of the late 1970s raised deeper questions of possible convergence among corporate practices, gravitating around a model of 'best practice'. The debate surrounding evolution of firms towards standard 'optimal' forms was originally framed within an institutional context by American sociologists in the late 1970s and early 1980s, but was revived more recently in geographical economics circles. For instance, Orrù et al (1997) discussed the notion of corporate 'isomorphism' in sociological context, to depict organisational traits shared by those TNCs of similar institutional backgrounds. Meanwhile, economists have preferred anchoring convergence themes in international trade theory and the effects of global trade deregulation (Markusen and Venables, 1998). It is suggested that TNCs over time adjust their strategies and governance structures based on institutional requirements that in the medium to long term would result in TNCs converging in organisational forms. It may be noted, the convergence hypothesis only reaffirms linear-sequential narratives of TNC activity.

A further stream of studies that contest the time–space rigidities of positivist theories of internationalisation are those drawing on the rise of TNCs from emerging economies. Such studies are particularly relevant given (1) the phenomenal rise of Asian TNCs and (2) their status as relative latecomers in several industries. Yeung (1999) and Dicken and Yeung (1999) argued that Asian TNCs internationalise following a logic of their own. Unlike their Western counterparts their scope has remained to date largely regional. Li (2003) argues that as latecomers, Asian TNCs have developed an unsurpassed capacity to 'leapfrog' traditional phases of internationalisation in order to remain competitive. It is further argued that since Asian TNCs (except Japan) have not followed the same time horizon as their Western counterparts in their penetration of foreign markets, this resulted in different patterns of spatial outreach. More importantly, the idea that firms may reach success at varying stages of the evolutionary/growth curve has much merit as an alternative to sequential-linear temporal logics. Warner et al (2004) have made a similar argument in a plea to acknowledge the 'late development' status of emerging PRC firms. They give examples of PRC firms adopting non-sequential pathways of internationalisation, notably in their geographical spread, managerial reforms and technology transfers. PRC firms have increasingly resorted to M&As as means of 'leapfrogging'. Given a lack of systematic empirical evidence stretching across a variety of industries, such approaches provide a compelling argument for embedding spatial strategy in a more explicit temporal argument.

Finally, another important factor to consider in timing of internationalisation refers to the nature of the firm's activity per se. The rapid rise of service TNCs has given rise to an enlargement of the debate on the spatiality of TNCs. Some scholars have gone to great length to argue that the expansion logic of service TNCs differs from those of manufacturing TNCs, upon which a great deal of classical theory is based (Dicken, 1998). For example, O'Farrell et al (1995) have made a strong case for differentiation between service and manufacturing TNCs with implications on expansion strategy: service TNCs must be more responsive to their host environment, service customisation requires greater local commitment, and service TNCs usually have a wider range of entry modes in foreign markets. The port-operating TNC may be conceived as of the service type.

In the ports industry literature, attempts to account for the spatio-temporal evolution of global terminal networks remain superficial. Peters (2001, p. 18) first identified three 'waves' of international private investment supported by examples:

1. The first operators to expand operations on a geographical basis: for example P&O Ports, HPH.
2. A second wave of operators to expand internationally: for example PSA Corp., Eurogate, CSXWT.
3. Major ocean carriers as terminal investors: for example Maersk.

A similar typology was described by Midoro et al (2005). By placing ocean carriers as a last wave, Peters' typology is somewhat confusing in its chronology. In fact, ocean carriers' entry into international container terminal operations (wave 3) considerably predated those of 'pure' terminal operators (waves 1 and 2). Indeed, while ocean carriers' very first carrier-operated terminal/berths (COT/Bs) date as far back as the 1960s, operators' first foray into overseas ventures only appeared in the mid-1980s (see Figure 3).

The leader/follower dichotomy has been a more common way to present the time component of internationalisation among maritime economists. Ferrari and Benacchio (2000) have proposed a similar yet simpler approach based on Stackelberg's model of oligopolistic equilibrium, which assumes a dichotomist leader/follower distinction in strategy. Hawkins and Gray (2001) also embrace the leader/follower dichotomy in discussing Asian ocean carriers' global strategies (of which terminal strategy is systematically neglected throughout, however). While these approaches may have been useful in the very early stages of internationalisation, their rather simple dichotomist formulations fall short of providing a satisfactory picture of spatio-temporal horizons of TNCs. They lack an explicitly dynamic character. For instance, they are of little use to explain why 'latecomers' (ie followers) may eventually rise to become global market leaders.

In sum, most interesting is how such stage theories of expansion set the scene for the problem of latecomers: if internationalisation proceeds through logical sequences, then how have latecomers managed to catch up with early entrants? Four key points have remained constant throughout the years in the internationalisation literature and may hold the answer: (1) locational aspects, particularly the role of home markets in relation to firms' internationalisation drive, (2) organisational aspects of expansion, (3) financial viability of business strategies and (4) the timing of overseas investment. Each of these four aspects shall be treated independently in the following sections, based on empirical evidence from the port industry.

FIRM-SPECIFIC ADVANTAGES AND THE TIMING OF INTERNATIONALISATION

Spatial aspects of internationalisation: the home market factor

Concerning the locational logic of overseas expansion, the port-entering TNC may be considered a service TNC on grounds that transport demand is essentially an integrated demand: transport services have become an inherent part of global production systems. For example, speaking of the company's latest investments into neighbouring Shenzhen ports, Hong Kong's HPH MD stated: 'in line with the forces of a free market, Hong Kong operators have followed the migration of manufacturers into China. We simply follow the market. The factories are now in southern China and shippers naturally want to move their goods the shortest distance possible. (...) The manufacturers have left Hong Kong and it is only natural that port operators follow them.' (Shippers Today, 2004, p. 20)

More specifically, the locational logic of TNCs will depend on the role terminals play within their general business strategy. Since carriers do not have terminal operations as core competence, their geographical entry is more subservient to their shipping networks. Indeed, while the above 'follow-the-market' spatial logic generally holds true, recent trends in the last decade in transhipment are blurring the picture. Ocean carriers have in recent years increased their interests over terminal operations in order to stabilise their stevedoring costs and to preserve schedule reliability (Midoro et al, 2005). While in the past, ports relied on a tight relation with their hinterlands as their traditional sources of cargo, growth in transhipment activity has tended to spatially dislocate port facilities from their cargo sources. New generation transhipment hubs have arisen as intermediary cargo transfer points of global outreach: privately invested ports of massive proportions have emerged in the oddest of locations. This is because transhipment platforms are increasingly the result of decisions of individual carriers' network architecture. From an ITO's standpoint, transhipment traffic represents a higher risk investment since the cargo is transient and can be relocated to competing ports as a result of decisions made by carriers.

The role of home markets has been decisive within both ITOs and ocean carriers' internationalisation drive, albeit in different respects. All Asian carriers¹ except OOCL (Hong Kong) and Hanjin (Korea) have invested in domestic terminals as their first and original terminal projects (Figure 3). Hanjin has invested in overseas projects before turning to domestic terminals due to belated reforms in South Korea's port sector. In fact, OOCL is the only Asian carrier to date with a 100% foreign terminal portfolio due to restrictive policies in Hong Kong, disallowing carrier-operated facilities. Developmental state maritime policies in East Asian countries have generally backed the emergence of young national carriers in support of their booming export trades. One of such policy was to allow national carriers to operate their own marine facilities at key domestic ports. Originally, such policies enabled carriers to secure market share on key trade routes and later to become a central instrument serving door-to-door logistics ambitions. The notion of home port here takes its meaning as a base from which carriers devised their service networks. Home ports also play a structural role as logistics poles around which complementary activities are organised, such as inland container depots (ICDs), warehousing, trucking, container flow management and other value-adding services.

However, the home market argument becomes more interesting in the case of ITOs. The drive for globalisation among the TNCs has arguably been strongest among the two city-states of Hong Kong and Singapore, both small and contained markets. The question of home markets has been recently discussed (albeit indirectly) in relation to Hayuth's (1981) famous port periphery challenge whereby local private operators have crossed borders and invested in nearby facilities (Airriess, 2001; Slack and Wang, 2003). It is no coincidence that the top two global leaders have their origins in small island-state markets. Leading operators have heavily invested in 'backyard' markets of the Pearl River Delta (Hong Kong) and Laem Chabang (Singapore).

Quantitatively, home ports still play a considerable role in firms' overall portfolio. Table 5 shows home operations accounted for an average of 36% of total portfolio in 2004 among ITOs. Striking are the differences between the two world leaders, HPH and PSA. In spite of its dominant market share at home, HPH's domestic share stands at 16%, evidence of a truly international portfolio. By contrast that of PSA stood at 62%. Qualitatively, such figures conceal oligarchic market structures at home. HPH enjoys a duopolistic position in Hong Kong, while PSA is a virtual monopoly in Singapore, a situation that somewhat distorts the figures. Indeed, domestic market saturation is a prime factor behind internationalisation in both city-states. Both Hong Kong and Singapore have operated at near-capacity levels for some time, especially in Hong Kong following delays in additional facilities since the early 1990s which have forced local operators to look to technology to boost capacity (Giron-Urquiola, 2004). Internationalisation is to be understood as a risk-reducing approach to limit over-reliance on domestic operations but also as a means to weather global economic instability. After all, ports and container shipping are highly sensitive to global trade. This is particularly true in the case of firms specialising in the highly transient transhipment business, as PSA's Vincent Lim (deputy president IBD) in the aftermath of the Asian financial crisis was quoted as saying: 'We now have a global portfolio of ports in different countries and regions. This diversity is very helpful, especially given the recession situation in the South East Asia region right now' (Woodbridge, 2002, p. 87).

Table 5 - Domestic throughput as share of total throughput of leading Asian ITOs, 2004.

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In strategic terms, leveraging on a strong home base, the leading operators have established sound performance records at home, which establishes credibility and further facilitates foreign penetration. Also, they have erected global marketing campaigns around long lists of prestigious performance awards received at home ports. International operators rely heavily on proven domestic track records to regulate their contacts/contracts with international customers and enhance their bargaining power. Home ports have also acted as a platform for R&D and technology implementation in the case of Asian ITOs. Leading ITOs have developed, tried and tested such IT-based tools as electronic data interface (EDI) and sophisticated yard management systems at their home port before exporting them to their foreign operations. Hutchison's LINE is an example of how TNCs first devise home-grown technologies before exporting them to foreign markets (Olivier, 2005).

On the other hand, increasing M&A activity and geographical complexity of TNCs makes a straightforward interpretation of the notions of geographical and psychic distances, as posited by early internationalisation theories, uneasy. While theoretically valid, the psychic distance factor is in reality far more complex to address. Today's TNCs spatial complexity means many cases fall into a 'grey area' when it comes to defining TNCs geographical and cultural identity.

A notorious example is Hong Kong's red chip firms: mainland-based conglomerates establishing self-standing listed firms on the Hong Kong stock exchange from where they manage their international operations. Several of their 'overseas' projects actually consist in reinvestments into the mainland! Another example relates to hybrid management structures, a case in point being world leader HPH. HPH's first overseas investment was UK's Felixstowe (1991–1992), followed by Zhuhai (1992–1993) and Shanghai (1992–1993). Since Hutchison is the result of a British hong acquired by indigenous Chinese interests in the 1970s, it has a hybrid management composition: while the group's ethnic Chinese chairman and his unmatched business acumen for penetrating China has been a strong firm-specific advantage, port activities are still managed by a pre-takeover British management. Evidence from the port industry suggests neither temporal nor spatial constructs of internationalisation processes follow a clear-cut pattern of linear outwards investment from the home base. In this case, both the UK and China may be considered familiar markets in terms of psychic distance.

Organisational aspects of internationalisation

While ocean carriers have been quickest to seize investment opportunities in container terminals, their entry precedes deeper organisational change. It was only in the early 1990s that carriers reorganised their structure to reflect deeper commitments to terminal operations and logistics. This reorganisation period coincided with the rise of ITOs, thereby entering into a new era of competition over terminal resources. Thus, carriers' structural changes should be interpreted as a competitive response to a general shift in the global marketplace. Mega-carriers began establishing 'port divisions' to oversee a growing number of terminal-operating subsidiaries. General entry into terminals and inland services soon gave way to self-standing logistics branches. APL was among the first carriers to establish a fully separate logistics entity in 1997. Other carriers such as P&O Containers (in 1994), COSCO (in 1994), China Shipping Container Lines (in 1998) and Maersk SeaLand (in 2001) have followed a different path by separating their terminal activities into discreet business units to sharpen business focus (Olivier, 2005).

But it is essentially those TNCs which have created structures optimising a chain consisting of identifying entry opportunities, researching their feasibility, devising tenders and negotiating entry that have most successfully outpaced their rivals, something at which leading ITOs excel. The case of Hutchison Whampoa Ltd.'s (HWL) Hutchison Port Holdings (HPH) illustrates this point. The company has displayed the most intensive rate of internationalisation among all the firms (Table 2 and Figure 3). Hutchison's commitment to internationalisation has been accompanied by substantial organisational changes (Table 6). In recent years, its commitment to IT becomes clear (Olivier, 2005).

Table 6 - The process of transformation: Hutchison Port Holdings.

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But more importantly, HPH's success lies in its capacity to maintain lean structures and rapid decision-making channels. The 'flat' management structure favoured by ethnic Chinese firms is famous for yielding time-sensitive response to market opportunities by such means as centralising decision power around its patriarch (and heir), rapid access to capital, and minimalist accounting (Redding, 1990; EAAU, 1995; Ahlstrom et al, 2004). Moreover, unlike other ethnic Chinese competitors, HPH has a simpler and more centralised shareholding and decision-making structure allowing swift entry decisions. This form of organisation has enabled HPH to seize opportunities, as its MD reports: 'Our chairman works extremely fast. All our acquisitions can be fast-tracked in a matter of minutes. We have very little bureaucracy at HPH. That is the advantage of having a single, strong shareholder. There are some groups which are pretty bureaucratic and so unable to react as quickly' (Ion, 2002, p. 13). Even rival firms have acknowledged HPH's organisational strength. In the beginning of HPH's international drive in the early 1990s, Mark Leese, then Modern Terminals' MD, was quoted as saying: 'What drives HIT is very different to the philosophy at MTL. To start with they have one corporate parent (Hutchison Whampoa) whereas we are a group of several stockholders. Our management tends to be more conservative' (Fossey, 1993, p. 93). Corporate governance is clearly at work in a firm's decision to go international.

Organisational architectures also carry financial implications, for instance in the way of conglomeration. In the first half of 2000, AsiaWeek² ranked HWL as the world's most profitable company, with more available cashflow for large-scale investments than firms like Microsoft or Intel. In addition to high levels of cashflow, rapid external capital sourcing is also guaranteed by the chairman's position in key financial institutions. Li also chairs HWL's parent (50%) Cheung Kong Holdings, sits as board member of Hong Kong's HSBC, and long owned a 15% stake in Canada's CIBC.³ Another reason why HWL can fast-track projects relates to the chairman's political contacts with Beijing (Hiscock, 1997; Kraar, 1999; Polin, 2000), an important firm-specific advantage given 40% of HPH's terminal portfolio is in China.

Overcoming latecomer status: financial strength of TNCs

Financial dispositions of firms became critical in their ability to seize overseas opportunities as they open, especially when openings are highly time-sensitive. Financial capabilities is a powerful explanatory factor in understanding (1) financial strength as a key resource necessary for building terminal networks and (2) how operators devise their networks versus carriers. Table 7 exposes financial performance of the TNCs: a sharp contrast exists between operators and carriers in profitability and overall financial sustainability.

Table 7 - Financial sustainability among leading Asian TNCs, 2000–2004.

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First, the magnitude of sunk costs in terminal projects is such that original capital investments easily reach hundreds of millions of dollars per single firm per year. Second, the financial requirements of R&D provides a competitive advantage to the largest and most financially sound firms in winning competitive bids for project entry. A single project bid alone may cost as much as US$ 300,000 (Drewry, 1998) with no guarantees of winning, which makes it very difficult for smaller or less financially able firms to compete in the entry process. Market leaders like HPH and PSA Corp. are concurrently considering as many as 20 individual projects at any given time (Woodbridge, 2002). Third, many carriers still perceive terminal activities as cost centres against profit centres in the case of operators. Excessive investments in newbuilds by carriers in the past have led to chronic over-capacity in the shipping industry. While most mega-carriers still manage terminals internally, lack of financial resources may be an important reason why more carriers are eager to separate logistics and port divisions from core activity. International operators' financial resources on the other hand are more easily redirected into horizontal expansion (ie assets and supporting functions as IT and R&D), given their greater business focus or lesser involvement into other vertical segments of the transport chain.

Fourth, M&As have been a common form of terminal entry, allowing firms to instantaneously leapfrog progressive entry. This point deserves attention as M&As have been prolific in the maritime industry in recent years and they have been led overwhelmingly by Asian firms (Table 8). Notable examples include Singapore's NOL taking over established US carrier APL and its terminal portfolio, NYK's acquisition of Ceres Terminals in 2002; and Dubai Ports World's acquisition of CSXWT in late 2004. Such acquisitions have allowed these firms to make tremendous leaps in the global operators league. When DPW acquired CSXWT's portfolio in late 2004, it jumped from 9th to 6th largest global operator. Much controversy has been stirred over M&A activities stemming from East Asian leaders' financial strength. In the early 2000s, Hong Kong's HPH acquired Europe's largest operator: Rotterdam-based ECT. The case became high profiled and was even taken to the European Commission. The same year, Singapore's PSA acquired established Belgian operator HNN. Interestingly, these ethnic Chinese firms have reverted to more 'hostile' (ie acquisition) forms of entry to consolidate their horizontal expansion in the highly competitive and mature European market.

Table 8 - Major M&As marking the container port industry, 1997–2004.

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Fifth and more closely relating to temporal aspects of investments, the institutionally defined window of investment opportunities has tended to favour those firms well poised financially, as highlighted by one of the carriers' terminal division manager interviewed: ...we may have lost our timing but we will do our best to make some partnership, or invest our independent capital to secure terminal facilities. This is our goal right now. Hutchison, PSA and other global terminal operators are gathering every terminal right now. They do not care – or I do not know whether they care or not – regardless of some demands of terminal volume, they are gathering more facilities worldwide [sic] [they are securing terminal space for the future]. Even Ensenada in Mexico. Ensenada is very.[laughs]...there is only sand (corporate interviews, 2004).

Reference is made here to HPH's acquisition in 2001 of Ensenada's Terminal de Usos Múltiples, a small border port serving Western Mexico. At the time, Ensenada was little more than a small resort outpost and the deal seemed a priori senseless to many analysts. It is only a few years later, early 2005, that HPH announced it would pour US$ 1.2 billion into the facility to build-up the terminal as an alternative to bottlenecked Los Angeles-Long Beach. The long term aim is to transform Ensenada into a North American West Coast Asia-Pacific gateway (Flynn, 2005). This makes a strong point in relation to timing of investments as fractions of a company's portfolio may be dormant: opportunity-seizing investments may conceal latent strategies.

On the other hand, limited investment opportunities conjugated with strong financial positions have also led to adverse effects of over-investment. Portfolio risk followed for firms having over-invested in the face of limited opportunity windows to secure overseas ventures. While the leading powerful firms were the quickest to seize the top opportunities, the resulting investment sprint did not benefit all as some firms have over-invested and built-up portfolios beyond their management competence. Philippines' International Container Terminal Services Inc.'s (ICTSI) is a case in point. The company began building its portfolio in the late 1980s at a frenetic pace only to become financially troubled in the late 1990s. The sale of its IBD to HPH in 2001 is the result of a portfolio having reached beyond the firm's managerial capacity combined with failure at key projects in South America.

Leapfrogging and logistical strategies

It has already been mentioned how leading ITOs have turned to M&As to 'leapfrog' an otherwise linear and sequential logic of international expansion. Ocean carriers have also undertaken investments suggesting some form of leapfrogging, albeit within the logic of logistics chains. The linear-sequential logic of internationalisation would suggest firms expand or diversify from their core specialty outwards. Ocean carriers' core operation is the provision of shipping services. In their pursuit of door-to-door logistics, ocean carriers have generally followed a landward motion from blue water operations to agencies, to terminals, to warehousing and trucking. This has been a landmark of intermodal developments on the USWC, for instance. However, while in theory this logical succession of investments has been observed and is consistent with sequential theories of internationalisation reviewed above, in practice many carriers face institutional barriers to the realisation of such idealised logistical sequences.

The case of China illustrates this point. China is a key market which several foreign operators have been long keen on penetrating but have been facing a number of obstacles to entry that have forced strategic adjustments. In fact, as reforms are still ongoing and selective, only a handful of foreign firms have entered China's container terminal business (Wang et al, 2004). In principle, foreign ocean carriers wishing to engage in intermodal or logistics activities in China are required to do so under the joint venture (JV) format with local firms by law. In practice, however, foreign carriers are yet to be allowed operational rights to marine terminals. Being denied marine terminal space, other TNCs have had to resort to other means to establish logistical connections in order to serve this market and connect with local shippers. This peculiar setting has resulted in the fact that firms like OOCL, Evergreen and Hanjin have managed to elaborate networks of ICDs, trucking and various other intermodal services while having no marine terminal base to work from, unlike their other foreign ventures.

Hanjin Shipping is a case in point. Table 9 presents the chronology of the company's terminal portfolio. First, a striking feature is that Hanjin heavily invested overseas before investing at home. It first invested in the US and had to wait some 12 years before its first domestic terminal. Owing to investment constraints at home, the company sidestepped its domestic market to seize overseas opportunities. In other words, the carrier lacked a true operational home base for over a decade. Second, Hanjin's investments in China illustrate institutional constraints to linear expansion. Despite absence of marine terminal operations in the PRC, Hanjin invested heavily in the mid-1990s in ICDs, thereby 'leapfrogging' marine terminal entry. Its current logistical presence makes it well poised for potential openings however. Hanjin's ICD presence in Northern China is particularly impressive and more broadly reflects Korean companies' commitment to the region.

Table 9 - Chronology of Hanjin Shipping's international terminal portfolio.

Full table

The case of Evergreen Marine Corp. (EMC) is similar but differs in that being a Taiwanese carrier it is additionally facing political obstructions to entry. The carrier currently operates 13 marine terminals worldwide, none of them in the PRC. However, the company operates a variety of logistical facilities in the mainland, which it invested from offshore holdings carrying a different corporate identity. Through its offshore holdings, it has managed to establish container repair and manufacturing plants and inland trucking services in Shanghai, Ningbo, Qingdao, and Shenzhen as well as an ICD in Shanghai in the mid-1990s. All of the above are under JV format with local state-owned enterprises. A breakthrough occurred in late 2004 when EMC's Italy-based subsidiary Lloyd-Triestino signed an MOU with Ningbo Port Authority to enter Phase IV of Ningbo Beilun port. Evergreen's China entry follows a similar process as that of Hanjin: a chaotic set of opportunity-seizing investments.

Current evidence suggests that while carriers are keen to extend their logistical capabilities across the chain, they are likely to invest in those segments of the chain that offer institutionally defined investment openings. The case of China illustrates how institutional constraints to foreign entry may incur strategic adjustments and rupture a linear-sequential logic of entry. Other carriers such as OOCL (Fossey, 2000) have replicated a similar chaotic entry path: they have invested in upstream activities without securing key marine terminal facilities.

DISCUSSION

The institutional approach posited in this paper suggests an alternative to overly rationalistic constructs of 'corporate strategy'. Empirical evidence presented here suggests international strategy rests as much on an explicit grand meta-strategy as on an implicit strategy of highly time-sensitive 'opportunity snatching'. The port industry as a service industry may a priori share features of other service industries in the way of internationalisation processes and outcomes. But a posteriori, the idiosyncratic nature of this industry makes for a unique scenario of internationalisation. Institutional context was isolated as the most critical variable explaining spatial and temporal variegations, both in terms of domestic and foreign contexts.

Simple longitudinal analysis methods revealed heuristic. The study reveals that a variety of business strategies exist among Asia's leading firms in terms of how and when they enter key markets (Table 10), beyond simple leader/follower patterns. To summarise, two waves of entrants have characterised the internationalisation process under two distinct regulatory regimes. First, a select group of leading carriers from triad countries entered terminal activities as early entrants to substantiate the container revolution and, later, intermodality. At that stage, ports remained mainly a public affair yet allowed for selective entry of leading players. A second stage saw worldwide privatisation schemes in the 1990s allowing geographical expansion of an entirely new breed of firms: the ITOs. The industry entered large-scale deregulation at a period when Asian ports and their local operators dominated the global league. Their domestic strength became a powerful springboard to cross borders.

Table 10 - Models of internationalisation among Asian TNCs in the container port industry.

Full table

The two phases are marked by distinct spatial and temporal regimes. In the first pre-1990 phase, private entry was progressive and served a specific trade route logic based on a strict geography of cargo sources. By contrast, in the post-1990 era private entry was tremendously accelerated to reach frenetic rhythms of expansion. The locational logic of expansion also shifted from traditional port hinterlands to intermediate or 'artificial' cargo transfer points through the widespread advent of transhipment. Mega-transhipment hubs are now found in every port range serving the globe. It is during the second phase when entry opportunities became so temporally condensed that empirical evidence allows one to challenge classical linear-sequential constructs of spatial expansion of firms. Entry was performed in those sectors where regulatory contexts allowed for rather than following a linear sequence along the transport chain.

Concerning the notions of geographical and psychic distances relative to the internationalisation process, a carrier–ITO distinction is also visible. The ocean carriers' early terminal investments were actually realised in far away locations since they were founded in a trade route rationale. For instance, Japanese carriers jumped directly into the USWC market to secure their transpacific interests before investing in neighbouring Asian partners. The same is observed among non-Asian early entering carriers (eg Maersk, SeaLand, APL, P&O Containers). For the Asian ITOs, the picture is somewhat different. Since leading ITOs are of ethnic Chinese origin, the China factor has favoured early entry into China. Both HPH and PSA's early overseas investments were explicitly directed at China in the early-to-mid 1990s. The spectacular ascent of Chinese ports combined to their knowledge of this emerging market has been largely responsible for their successful early overseas drive.

Four factors were identified to interpret the rapid ascension of Asian firms on the global scene. Domestic market factors were identified as critical in ITO strategies. Many have built up their portfolio on the original strength of home ports. Both HPH and PSA have also crossed boundaries to invest in neighbouring ports to extend their clout into 'backyard markets'. It was also shown how both leading ITOs and carriers in East Asia belong to larger forms of conglomerated organisations that, as a group, harbour broader logistics aspirations. Structural effects in financial capacity was also earmarked as a distinguishing feature between carriers and ITOs, which allowed the rapid propulsion of the latter by seizing prime lucrative opportunities. 'Leapfrogging' takes place under different forms and for different reasons among ITOs and ocean carriers: for ITOs it serves horizontal strategies by allowing them entry into closed markets while for carriers it serves primarily vertical strategies seeking maximum control of the logistics chain in promising markets. The leapfrogging phenomenon identified here carries important theoretical implications. With increasing financial powers, Asian TNCs have been at the forefront of M&A activity in recent years. It has been a favoured entry mode to penetrate mature markets. Many carriers have also sidestepped terminal operations to invest in other segments of the logistics chain in countries disallowing direct terminal operation rights.

The findings concerning timing and a lack of systematic patterns in the general logic of overseas investments carry important implications for supply chain management too. Indeed, while ocean carriers seek to gain increasing control over the entire logistics chain, barriers of an institutional nature constraining complete ownership means the logistics chain remains populated by an array of governance arrangements, from direct ownership to arms-length mechanisms via network forms of arrangements including: licensing, sub-contracting, JVs, strategic alliances, etc. (see also Hall and Olivier, 2005). The case of China clearly illustrates how JVs have long been the de facto entry mode while carriers have clearly preferred direct ownership over terminal facilities elsewhere. The degree of openness of foreign markets still largely dictates both opportunities and modalities of private entry, as supported in this paper. Institutional conditions determine what strategic choices may be possible in any given context.

CONCLUSION

The central question in this paper was: why have Asian latecomers come to dominate the container terminal industry? The position of Asian ports within league tables is confirmed by the ascent of Asian TNCs in the maritime industry. On the one hand, Asian carriers, besides Japanese frontrunners, started their expansion in port activities relatively later but have shown aggressive strategies in recent years to catch up with early entrants. On the other hand, the rise of ITOs is a phenomenon of the 1990s originally spearheaded by Western firms but rapidly dominated by Asian TNCs.

The role of domestic markets was intended to make such a link between Asia, as both origin and destination of port-related FDI. Asian TNCs have been very late to penetrate mature markets like Western Europe, yet in a sweeping manner the have attained controlling positions due primarily to their financial status. Many of such TNCs belong to 'cash rich' conglomerates whose logistical ambitions reach beyond terminal operations. This paper singled out the primacy of Asian TNCs and related management models.

It should be noted, however, that the term 'internationalisation' was preferred here to 'globalisation' throughout to reflect the dynamic state of the industry, which is yet to reach maturity. What the management literature generally refers to as 'truly global firms' are those firms having reached a level of unequalled organisational complexity, including high rates of localisation. While some port service TNCs have reached impressive geographical coverage, they are yet to achieve this level of sophistication. Corporate restructuring among the industry is as intense as ever, especially through M&As, and will continue to redefine the industry for some time to come. To be complete, research would require comparative analysis of corporate governance on a global scale in relation to internationalisation strategy. For instance, several European maritime firms remain family controlled: do they present similar characteristics as those found among their Asian counterparts? Also, while Asian TNCs dominate the global terminal business, European carriers have taken the lead in the delivery of total logistics packages. Why is it so and can their Asian rivals 'catch up'? Further research is warranted in those fields.

This paper sought to generate its originality by placing recent empirical evidence of the rise of TNCs in the port industry against existing theories of the TNC. TNC analysis of this sort remains new and admittedly explora-tory in maritime fields, yet it has proven to carry broader theoretical implications. The above clearly suggests how longitudinal analyses of TNC behaviour remain a desideratum and it is hoped this article may lead the way forward.

Notes

¹ NOL-APL represents a special case since US APL was taken over by Singaporean NOL. Yet, APL had a strong home base presence within its portfolio. Until 1997 NOL did not have any involvement in port activities.

² AsiaWeek special Issue Power 50, vol.26 no.9 March 2000.

³ He later sold his shares in 2005 for HK$ 7.8 billion for charity.

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Acknowledgements

This research was partially supported by the Social Sciences and Humanities Research Council of Canada, The Québec Fonds de recherche sur la nature et les technologies (NATEC) and the University of Hong Kong. Usual disclaimers apply. The views, and remaining errors, expressed in this article are the sole responsibility of the authors and do not necessarily reflect those of Transport Canada or any institutions with which they are associated.