3.2.1 Entrepreneurship is the Missing Link of Value Capture for Maritime Economics
General entrepreneurship research has recently been confronted by two principal challenges: 1) a call for the incorporation of more market- or industry- specific insights and subtleties (De Massis, Kotlar, Wright, & Kellermanns, 2017; Foss, Klein, & Bjørnskov, 2018); and 2) the problematic tendency of the opportunity construct employed in much entrepreneurship literature to focus excessively on a specific firm type—start-ups—and unique industries, such as software and life-science (Foss & Lyngsie, 2014; Foss & Klein, 2012; 2018). To engage both challenges, the author sought out a market that has seen very limited engagement by entrepreneurship research. The market of maritime production, and by extension the research field of maritime economics, was selected precisely because it is a field of economics and management that is almost completely void of theoretical entrepreneurship studies, while the industry that is its subject matter involves much entrepreneurship in practice. This section first outlines maritime economics and its potential benefit for entrepreneurship research and theory and then outlines the requirements of such a maritime entrepreneurship theory of value capture.
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Maritime economics understood as the modern subfield of economics and management dealing with activities related to seaborne transport and resource extraction has been well established since the early 1970s (Goss, 2002; Heaver, 2012). While maritime economics has embraced multidisciplinary in certain areas (Heaver, 1993; Talley, 2013; Woo, Bang, Martin, & Li, 2013), other important avenues of analysis, such as institutionalism (Button, 2005), are less developed, and the field, in general, is predominantly focused on neoclassical, or “as if”, as Nobel Laurette Milton Friedman famously describes it, economic methodology (McConville, 1999; Cullinane, 2011; Talley, 2011; 2013), with some key sources even claiming that the industry is perfectly suited to match this methodology (Stopford, 2013). For their many merits, such methods alone are ill-suited to explain entrepreneurship as a dynamic process of exercising judgment under conditions of uncertainty over time, particularly as the choices and actions resulting from the exercise of such judgment often have lasting and compounding effects, as illustrated in the example in the introduction.
Maritime economics never experienced the same rebirth of the entrepreneur that has been observed in much economics and management science, particularly since Shane and Venkataraman, (2000), and hence lacks theoretical founded entrepreneurship research traditions, and are therefore without an understanding of the exercise of judgment as it concerns the securing of the capture of value. It is further difficult to model dynamic market processes given many of the underlying assumptions that maritime economics has inherited from neoclassical economics, particularly if they are taken too literally. Hence, value capture is often explicitly or implicitly assumed either to be occurring automatically (in the case of full information or perfect competition) or simply to have occurred (in the case of objectively given prices). In other words, all value is assumed to be automatically captured and depleted, and there is no room for new entrants, whether they be
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firms or methods (Kaldor, 1972). Even if such models are viewed as an instant snapshot of a potentially more dynamic market—as may be the case in maritime economics (e.g., Stopford, 2013, particularly pages 161-167)28—assuming perfect
competition remains a method poorly suited to explaining value capture, as there is no residual value and hence no opportunity for entrepreneurial action (Mises, 1949) or strategy differentiation (Schumpeter, 1911; Knight, 1921; Mises, 1949; Bianchi and Henrekson, 2005). From such foundational challenges springs the relevance of introducing entrepreneurship as a field of research, one that traditionally involves the creation, definition, discovery, and exploitation of opportunities (Klein, 2008)29, into maritime economics. Entrepreneurship theory consequently offers insights into how both current and future firms change the technological possibilities and market conditions by means of the choices they exercise (Shane & Venkataraman, 2000; Sautet, 2002; Zahra, Sapienza, & Davidsson,2006; Foss and Klein, 2012). This process has been demonstrated to be relevant for maritime research too as the economic development of maritime industries is self-evident, but far from self-executing, and entrepreneurship is thus about both new firm formation and equally about the survival of existing firms in maritime markets (Ekberg, Lange, & Nybø, 2015).
28 There are three reasons why the “repeat” static equilibrium method cannot be claimed, as
Stopford does, to model dynamism. 1) Human behavior cannot be assumed to involve the same degree of certainty as natural sciences, as humans are motivated by the ideas they hold. 2) The actual passing of time (even in passing from one state to another) adds to uncertainty. Imagine an agent at t1 wanting to predict his response to a certain problem at t3: even with full knowledge
of the relevant cognitive theory and complete information, the agent still requires time, t2, to
process and decide on the problem, and that time may affect him and the world. 3) While some such models attempt to model learning, they likely miss an important understanding of how subjective learning and communication operate (Knight, 1921; Hayek, 1945; Popper, 1959; 1963; O’Driscoll and Rizzo, 1996; Zahra et al., 2006).
29 Ranging widely in particular research interests from macroeconomic growth to firm strategy
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Despite a long-established call for independent maritime entrepreneurship research (Svendsen, 1981), maritime economists may be tempted merely to incorporate general entrepreneurship theory and empirical findings directly into the maritime field, as indeed some few have done (Evangelista and Morvillo, 1998; Borch and Batalden, 2015). However, such an approach is not without drawbacks. Contemporary work on entrepreneurship often treats the entrepreneurial function in ‘a highly stylized and abstract fashion’ (Foss & Klein, 2012: 26). Furthermore, most empirical work and subsequent theory interaction have been conducted in the software or life-science industries, both of which differ fundamentally from maritime industries in the way their capital and payment outlays work, how they are regulated, and the nature of their customer base.30
Maritime economics should start developing an entrepreneurship research agenda that progresses beyond the fine work of business history biographies (see, for instance, Hornby, 1988; LaRocco, 2012; Jones, 2013; Jephson & Morgen, 2014) to the conceptual and modeling stages. This paper is a step in that direction: it utilizes insights from entrepreneurship theory to build and apply a theory of value capture in maritime markets. This endeavor is also fruitful for general entrepreneurship theory, as specific market and industry insights can challenge and improve the research validity of general entrepreneurship studies, which is indeed a growing research interest within entrepreneurship proper (see De Massis et al. 2017).
30 Software companies, for example, typically have marginal costs approaching zero and very
low upfront capital expenditure (capex). Maritime entrepreneurship is completely different, operations are very costly and while there have been enormous improvements, they are likely to remain so. The investment and payout structures are also different: building ships takes time, is exorbitantly expensive and, as a result, many ship owners and operators earn a large part of their profit not on operations but from the buying and selling of maritime assets.
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This paper models value capture in maritime markets and are consequently both a specific market theory of entrepreneurship and a step towards a general maritime economic theory of entrepreneurship. In doing this, the aim is to adhere to the following:
A good theory of entrepreneurship should explain the conditions under which entrepreneurship takes place, the manner in which entrepreneurship is manifested, and the interaction between entrepreneurial activity and firm, industry, and environmental characteristics’ (Foss & Klein, 2012: 2).
A theory of maritime value capture as an applied entrepreneurship theory must consequently also conform to a certain set of expectations. First, it must assist in conceptualizing how value capture can occur, generally and in the individual firm; so it should focus on actions for opportunity discovery and exploitation (Klein, 2008). As a step towards this end, it must explain what happens to value that is not captured by individual firms. It should ideally, but not necessarily, go beyond theorizing to empirical illustration and even testing (Hayek, 1968). Finally, and most importantly, it should take account of the specific demand structure of maritime markets. These conditions require two models to be worked out in this paper: one dealing specifically with relative value capture, and another that explains the result of the first model by focusing on the judgment exercised by firms. This paper does not claim to be a complete empirical testing of causal inference, yet it is an application of theory-driven data analysis to a specific sector for the purpose of initial analysis and illustration.
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