Product architecture and product development: Case study of Korean shipbuilding firms

This study examines why shipbuilding firms use both standardized and customized design, and analyzes the impact of design architecture choices on competitiveness. Case study findings suggest that Hyundai Heavy Industry Corporation (HHIC) adopts package unit development strategy for cost competitiveness. HHIC´s product development processes utilize package unit design to its suppliers which then provide their product by units. In this way, HHIC has accomplished drastic reduction of production processes by half. On the other hand, instead of modular product architecture, Samsung Heavy Industry Corporation (SHIC) emphasizes dual strategic options which integrate both standardization and customization orientation. Low cost vessels use the standardized modules in its two Chinese subsidiaries by blocks which are transported to Gerje Island in Korea for final assembly and completion. Since standardized vessels in general have low added values, SHIC also adopts customization strategy for high premium value products. These two-firm case analyses suggest future product development strategy of shipbuilding industry. Like HHIC, firms may respond to individual customer requirements through internal modular standardization and thus minimize overall development and production costs. On the other hand, like SHIC, firms may pursue both standardization (i.e., economies of scale) and customization strategy (i.e., economies of scope). Both HHIC and SHIC´s strategy have both advantages and disadvantages. SHIC is sensible when the global shipbuilding market grows and order volume continues to increase. These two different types of strategies of leading Korean global firms have meaningful implications on other shipbuilding firms of other nations. As shipbuilding industry moves toward military-purpose of submarines and other large combat battleships beyond commercial ship and vessels, these case studies provide interesting insight from both theoretical and managerial standpoints.