Unrelated Diversification Strategies by Port Authorities: a Case Study based Comparison

It appears that there is a tendency in which some port authorities implement unrelated diversification strategies. This means that they have a number of divisions or subsidiaries which are to some extent outside their core activities. Yet, the study about this topic is relatively unexplored. Hence, this study aims to investigate the main question “Do unrelated diversification strategies contribute to the building of capabilities in port authorities organizations?” To answer this question, we performed desk research which included figuring out what unrelated diversification means from the strategic management literatures, how port governance gives impact to the unrelated strategies, and the link between the resources and capability of the port authority when it comes to such a strategy. Furthermore, we performed Entropy measurement which allows us to determine and measure the degree of unrelated diversification. This method was used in our archival research which was aimed to obtain an understanding about several characteristics of some ports in three different regions; Asia, Europe, and North America, with respect to unrelated diversification strategies. Based on this research, we constructed a case study with different level of unrelated strategies, namely high, medium and low represented by Dalian Port, Indonesia Port Corporation (IPC) and Port of Rotterdam (PoR) respectively. This study found that port authorities, which operate as port operators and have financial autonomy, are more likely to have unrelated businesses. Moreover, we summarise that the benefits of unrelated diversification in port industry encompass the dimension of income growth and resource and knowhow sharing, which are aimed to improve port capability in providing integrated as well as value-added port services. The contributions of unrelated business units vary among the three ports. In the case of Dalian Port, its unrelated businesses seem to perform significantly as they contribute considerable income and efficient resource synergies. In IPC, the port company might benefit from knowhow sharing but the income contribution from its unrelated businesses shows not significant as some of the subsidiaries experienced loss. While in PoR, the international division, which is intended to improve financial position of the port authority, appears to also not contribute clearly in terms of direct income.