COMPANY OVERVIEW & STRATEGY
Silver Ships, established in 1985, is a company born out of the innovative and
entrepreneurial spirit of founder Mike McCarty. For 25 years, Silver Ships has created
custom designed small to medium-size vessels, competing in the military and workboat
industry. To date, the company has seen great success: it has sold more than 1,500 boats,
retained a strong balance sheet, and seen substantial growth. Revenues increased from $5.7
million in 2006 to nearly $11 million in 2009. Their current strategy has done well, but as
the company looks to grow in the face of economic uncertainty, McCarty must reevaluate
Silver Ships strategy.
In evaluating Silver Ships strategy to date, it is clear that McCarty has been the driving
force of the companys success. McCarty started his career in Knoxville, Tennessee as a
commercial fisherman and eventually became the fish market by purchasing other
fishermans catch. He then started a commercial salt-water fishing enterprise in Mobile,
Alabama. His drive to improve his catch and in turn, his business, led him to design his
own purse seining fishing boat. The quality and construction of the boat caught the
attention of other fishermen and when purse seining was banned he was offered
opportunities to build custom boats. Demand was high and McCarty formally established
Silver Ships and eventually moved to its current location in Theodore, Alabama. To this
day, McCarty personally oversees the daily operations.
McCarty had a clear vision from the companys inception to design and manufacture the
most advanced, life-sustaining, and mission-capable 20-to-65 foot aluminum boats in the
world. This mission statement remains prominently displayed in the companys
headquarters today. Silver Ships produces two different kinds of aluminum boats, the AM
Series RHIBs and the SS Series. Silver Ships has a range of customers from federal
agencies and the U.S. military to commercial customers and oil companies. The AM Series
RHIBs, acquired from Ambar Marine, are fast boats featuring a collar system that makes
the boat virtually unsinkable. One of the most notable features of the AM series is its
modular design, allowing for sections of the boat to be replaced as needed. These boats are
highly adaptable and regularly customized to meet customer specifications. By acquiring
Ambar Marine, Silver Ships added a highly regarded brand name, increased its product
offerings, and gained ownership of advanced, top of the line technology.
Shipbuilders must be able to compete on cost first and foremost but due to the fact that
labor and supplies are at a set cost across the industry, companies must further develop a
strategy to set them apart from competitors. McCartys focused differentiation strategy
allowed him to concentrate on providing customized boats to a niche target market while
leveraging Silver Ships core competency. While the company had a multifaceted strategy,
Silver Ships core competency is an unwavering focus on quality and customer satisfaction.
McCartys vision and eye on quality extended through the entire manufacturing process. In
one of the final production stages, despite aluminum not requiring painting, the boats were
painted in 8,400-square-foot paint booth. Before going to the customer, each boat
underwent an extensive and rigorous inspection and sea trial. McCarty fully believes that
each boat he builds must be good enough for his own personal use. Without knowing
exactly what the competitors strategies are, this focus on the customer and quality could
definitely give Silver Ships a competitive advantage. For one, this can increase repeat
buyers as well as help develop long-term relationships with their customers. The
customizable modular feature allows Silver Ships to meet the unique needs of each
customer. This coupled with high quality guarantees Silver Ships produces a product that
exceeds the initial investment cost and can be transferred into lifetime investment.
Another critical part of McCartys strategy is employee development and satisfaction.
McCarty prides himself on never having to fire an employee in the companys entire 25
year history. He believes that each employee is a key member of the team and should be
treated with respect. His open door policy encourages employees to report any problems
immediately. In helping to guide his employees and filter his own vision down through the
entire company, McCarty developed seven core principles which focused on
uncompromising excellence and customized design, innovation and technology,
unbeatable customer satisfaction, employee development and respect. This creates a
positive culture that which fosters innovation and proactive thinking.
Silver Ships location and logistics provides an added strategic advantage. Being positioned
near the Alabama coast, Silver Ships is adjacent to many Gulf Coast municipalities and
several U.S. Navy, Air Force, and Coast Guard facilities, where there is a high demand for
boats. Because the cost to transport these vessels across land can be high, location is key to
being able to reach as many clients as possible, while avoiding the corrosive salt effects of
a gulf-front facility. When securing bids, being able to keep key logistics costs low allows
Silver Ships to offer competitive proposals. Silver Ships also standardized the custom
boatbuilding process by using specialized teams to build specific components and then
integrating these parts into the boat by master builders. These master builders also acted as
quality controllers and specialists throughout the production process. This idea of modular
design and production allows the company to be flexible and meet customer demands as
needed.
EXTERNAL INDUSTRY ANALYSIS
In order to better understand the macroeconomic context in which Silver Ships operates, it
is necessary to perform an industry analysis using Porters Five Forces. When looking at
the military and workboat industry, the threat of new entrants is low, which is mainly
caused by the high start-up costs and capital intensity in the aluminum military and
workboat industry. With these high costs of capital and operating costs, profit margins are
very low for new entrants. Additionally, the length of time needed to construct a ship adds
to the delayed nature of profits. In this industry there are many big players, including
SAFE Boats, Aluminum Chambered Boats, Willard Marine, Metal Shark Boats, and Silver
Ships. The market share these companies control would contribute to high barriers to entry
causing the threat of new entrants to remain low. These existing companies currently
benefit from economies of scale in production, distribution, and other areas of operation,
while also experiencing learning curve effects that would take a long time for new entrants
to take advantage of. The threat of substitutes in the military and workboat industry, like
the threat of new entrants, remains fairly low. Currently, no good substitutes are readily
available. Knowing that Silver Ship Ambar AM Series of boats were used for fire, rescue,
patrol, or research vessels while the SS Series of boats were mainly used for pilot, patrol,
survey, crew, or fire boats, this did not leave much room for substitutes, only rival boats. It
would also require higher switching costs to go from the military and workboat industry to
an alternative or substitute. In this industry, the major cost drivers include aluminum,
labor, and logistics, which account for most of the variance in production costs. With
aluminum being the second-most abundant metal in the Earths crust and a commodity,
there is no shortage of aluminum, which leaves suppliers in a weak position when
demanding a premium price or insisting on favorable terms. Additionally, it is difficult for
suppliers to offer a differentiated product when selling a commodity like aluminum, which
does not allow them to lower or raise the price they offer their customers without the
customers being able to switch easily. Competing suppliers could offer the same item for a
similar price and even with price fluctuations in the market for aluminum ship builders
could be managed by hedging, inventory management, and waste control. With all of this
being said, the bargaining power of suppliers is low. On the other hand, the bargaining
power of buyers is strong. Competition in the military and workboat industry is based on
price, the ability to meet bid specifications, performance and reliability, and the ability to
make timely deliveries. There is little differentiation and more standardized products in
this industry as a whole. When looking at Silver Ships specifically, they compete on
having quality products. There are many competitors that deliver quality products to rival
Silver Ships. While their products are high in quality, Silver Ships to need also focus on
completion time and pricing their boats competitively. The military and workboat industry
wavered during the recession because the demand from the government and military didnt
change, but commercial buyers demand for Silver Ships private sector workboat customers
dipped creating a difficult environment. Due to the long period of boat production time,
this potentially may have delayed the effects of the recession on this industry, which may
contribute to the strong bargaining power of buyers knowing that the demand for boats
would decrease. Because the buyer demand for boats grows slowly or potentially declines
with the delayed effects of the recession, the rivalry among competing sellers is strong.
The offerings of rivals in this industry are weakly differentiated and competition is largely
based on price, this allows the buyers to be less brand loyal. Companies are continuously
