Pacific B usiness R eview I nternational

A Refereed Monthly International Journal of Management Indexed With THOMSON REUTERS(ESCI)
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RNI No.:RAJENG/2016/70346
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(Editor)

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A Refereed Monthly International Journal of Management

Black Ocean strategy: Empirical Research

Kittichok Nithisathian

Graduate School

Stamford University, Thailand

Contact No.- +66.96553.5659

Email: Kittichok.nithisathian@stamford.edu

ABSTRACT

Black Ocean strategy is another strategy that may exist long time before other strategy since it discuss about paying to organization first before paying foranother. Since the level of ethical has increased some Black Ocean strategy action may seem unethical. This paper has discussed the foundation of Black Ocean strategy and discuss some current business activities related to Black Ocean strategy.

This paper has found a business opportunity as the goal for the Black Ocean strategy. This paper also found four main elements of Black Ocean strategy which composed of “ability to find the opportunity, ability to manage attitude of public audience, ability to execute organization strategy, and ability to close the opportunity for other competitors”. Also, this paper has criticized the behavior of Black Ocean strategy and suggested the cautious business relationship as a way to avoid threaten by Black Ocean strategy.

Keyword: Black Ocean strategy, White Ocean strategy, Strategic Management

INTRODUCTION

The 2014 Asian Games in Incheon, South Korea has appeared to close on a low as extensive cheating allegations have been levied against the hosts. Fans of different athletes and teams from other Asian nations are questioning for the result in the case of India women boxer Sarita Devi, soccer game between Thailand and South Korea, and much more (Gloria, 2014). The Even South Korean newspaper also admitted that cheating is a part of South Korean culture (Kim, 2012).

In the risk - return spectrum the more return sought, the more risk that must be undertaken. In short, we may call“High Risk, High Return”. Literature has suggested several strategies to reduce the risk and increase the return. Strategic literature has suggested using vision to utilize resources and capabilities to win the competitors while Kim and Renee suggested “Blue Ocean Strategy” which focused on the new marketing frontier as another way to increase the return.

While literature still discuss about existing of Blue Ocean Strategy, just a few years after the blue ocean strategy has been published, Danai has explained in his book “White Ocean Strategy” that it is better to return to the society first before return to yourself. This is related to corporate social responsibility (CSR) and the recent work of Kotler “Marketing 3.0” that suggested that consumer are moving toward the human spirit rather than a product benefit or consumer advantages (Kotler, et al., 2010).

In contrast with White Ocean Strategy, the dishonest may consider satisfactory in South Korea and might sound deplorable in another country. Literature has found that deliberate cheat that come in the form of trust can facilitate company as well as take advantage from another agent when they lose their guard (Nithisathian & Walsh, 2013). The researcher believes that there is another kind of business activities that pay themselves first without concern the consequence of the other. The root and may be the first strategic business may apply in the history.This is another way of risk-return spectrum where corporate may find the room for “Low Risk, High Return”.

REVIEW-OF-LITERATURE

Corporate Social Responsibility

The goal of corporate social responsibility (CSR) is to encourage a positive impact through its activities on the environment, consumers, employees, communities, future generations, shareholders and other stakeholders. It concerns a corporate’s strategy, operations, and governance structure that creates environmental and social values by monitoring and ensuring compliance with the spirit of the law, ethical standards, and international norms.

In short, CSR means doing good, but it goes by many names, including social responsibility, corporate social responsibility, corporate citizenship, corporate philanthropy, corporate giving, corporate community involvement, community relations, community affairs, community development, corporate responsibility, global citizenship, and corporate societal marketing (Kotler & Lee, 2005).

CSR has been first discussed in 1950s by Howard Bowen, still numerous modern literature still discuss about CSR. Cheng (Cheng, et al., 2015) has summarize the positive impact of CSR as providing better access to valuable resources (Cochran & Wood, 1984; Waddock & Graves, 1997), attracting and retaining higher quality employees (Turban & Greening, 1997; Greening & Turban, 2000), allowing for better marketing of products and services (Moskowitz, 1972; Fombrun, 1996), and creating unforeseen opportunities (Frombrun, et al., 2000).The recent research showing that CSR resulted in higher stock return’s sensitivity to earnings surprises and higher trading volumes for firms with higher CSR activities (Bartov & Yan, 2015).

Literature has also argued about benefit of CSR. Visser has argued that CSR has failed as a business governance and ethics system (Visser, 2010). We could not deny that primary institution in today’s society, overshadowing the state in controlling the direction of individual lives and influencing social development. Sad but true, they have been frequently accused of being irresponsible or ignorant against the growing societal and environmental problems (Deetz, 1992).

According to Carroll most obvious corporate social responsibility for corporate is an economic responsibility where the corporation must be focused on profit (Carroll, 1996). Literature has also argued that corporations may not enjoy the CSR competitive advantages if they does not a proper CSR communication instrument (Vytautas & Vytautas, 2008). In fact, most companies perceive CSR as another public relations and marketing tools to build up corporate image, goodwill, insulating the firm from the negative impacts rather than being nice to society (Anticsr.com, 2015; Janssen, et al., 2015).

Also the awareness of CSR toward customers and employees is considered low. The current research shows that less than half of consumers know the meaning of the term CSR and only 11% say they have heard communication about CSR from any company in the past year. Also, only 22% of employees are aware that their companies have CSR practices. (Penn Schoen Berland , 2010)

What color is your Ocean?

Literature has mentioned several colors of Ocean Strategy. From Red Ocean Strategy, which represent all the industries that currently exist in the known market space where industry boundaries are defined and accepted and the rules of the game are to outperform rivals, achieve differentiation and competitive advantage – in order to survive (Pritchett, 2014). Through Blue Ocean Strategy were suggested the firm to compete in uncontested market space where competition irrelevant (Kim & Mouborgne, 2005).

Some literature argues that there is another ocean in between where they called Purple Ocean strategy. Just as Blue Ocean Strategy states that a Red Ocean Strategy (Competitive Strategy) does not guarantee success for the firm, a Purple Ocean Strategy also claims that Blue Ocean Strategy cannot guarantee the business success in the long run since the Blue Ocean strategy will finally turn Red (Gandellini & Venanzi, 2011; Cavagnetto & Gahir, 2013; Nithisathian & Walsh, 2013). In the real business world there might not be a real Blue Ocean but rather red and various shades of Purple Ocean (Barwise& Meehan, 2012) (Nithisathian & Walsh, 2013)

Danai has suggested that instead of looking through the competition, corporate better offer a new moral attitude, an attitude of responsibility not only to employees but towards humanity and the environment. It is about time for a change. It is the passion for corporate to balance the importance of people, planet, and profit. He proposed that underneath the Blue and Red Ocean lies the pure White Ocean for sustainable business development (Chanchaochai, 2009).

Figure 1 Ocean Strategy Frontier

In order to complete the Ocean redial researcher has reviewed the work of Li Zongwu (李宗吾) (1879-1943) the writer of Think Black theory (厚黑學) and found that the last Ocean strategy is Black Ocean which is the opposite vertical of White Ocean.

Thick Black theory

The theory is original written by Chinese scholar name Li Zong Wu (李宗吾:Li ZōngWú) in the year 1911. Chin Ning Chu the president of Asian Marketing Consultants, Inc., international lecturer, corporate trainer, consultant, and author of Thick Face Black Heart has explained that Thick Black theory describes the secret law of nature that governs successful behavior in every aspect of life (Chu, 1992). It is the nature’s truth and about developing the outlook on life to succeed. The core discussion of Thick Black theory is how to improve effectiveness of people (Zhao, 2011) rather than being cruel.

Thick Black theory is the wisdom that can be applied to any nationality, race, and occupation. It is how to protect yourself from dealing with society and in turn it is the instrument to battle with society.

Thick Black discusses how to gain power (Zhao, 2011). The power of Thick Black theory is in your inner strength and the natural state of your true self, where perfect joy, clarity, courage, and compassion, are an inseparable part of you (Chu, 1992).

Thick Black theory discusses how to identify what is your main objective of your true self, and how to achieve your main goal without obstruction by social moral and condition (Chu, 1992). It is not destiny, but a series of decision making (Zhao, 2011). The more practice of Thick Black theory will increase the skill, as well as improved the benefit gained by the Thick Black theory.

In the big picture, Thick Black theory discusses about the ability to conceal the actual sentiment in order to shape the attitude of the opponents to the way the executer wishes for, and the ability to make the right choice devoid of apprehension to other injury (Suwannakitti, 2007).

According to the name of Thick Black Theory (厚黑学:Hòuhēixué) there are two main elements to it, which is “Thick” (厚) or “Thick Face”, and “Black” (黑) or “Black Heart”. Li Zong Wu said, “When you conceal your will from others, that is “Thick” and when you impose your will on others that is “Black”. Booth Thick and Black is the human weapon to deal with the social and moral condition. Thick is a shield to protect and Black is the spear to battle (Li Z. W., 2009).

Thick or thick face, is a shield with the ability to protect oneself from the criticism and the negative opinions of others. It is the ability to put self-doubt aside, and refusing to accept the limitations that others have tried to impose, and the ability to carry on to achieve the target or goal (Chu, 1992).

Black or Black Heart is a spear with the ability to do battle with others and one regard to how the consequences will affect others. It is cruel but not necessarily evil (Chu, 1992). The Black Heart person is above short sighted compassion. He focuses his attention on his goals and ignores the cost.

Trust

Trust, n.: In American politics, a large corporation composed in greater part of thrifty working men, widows of small means, orphans in the care of guardians and the courts, with many similar malefactors and public enemies. Ambrose Bierce, The Devil’s Dictionary (Bierce, 1993)

Trust is one of the most frequently examined in today’s literature (Bunker, Alban, & Lewicki, 2004). It is considered to be the central feature of a business alliance (Mohr & Speakman, 1994). It is wisdom that can influence people to do things according to organization interests. It is the glue that holds everything together, creates healthy communities and successful businesses (Schwab & Malleret, 2003).

Stephen M. R. Covey, son of Stephen Covey, author of the “7 Habits” books mentioned that trust could help reduce costs and increase the speed of outcome (Stephen & Merrill, 2006). He concludes that trust can build or destroy every human relationship.

At international level, it can amplify economic growth (Knack & Keefer, 1997; La Porta, Lopez-de-Silanes, Shleifer, & Vishny, 1997; Zak & Knack, 2001), in micro level it is the key success factor of business alliance (Kanter, 1994). It can increase supply chain performance (Zaheer, McEvily, & Perrone, 1998; Sako, 2000; Dyer & Chu, 2003), reduce cost, increase the speed of outcome (Dyer & Chu, 2003; Stephen & Merrill, 2006) and has a positive on just in time and continuous improvement process of the firm (Sako, 2000).

In terms of inter organizational trust is collective hold trust orientation toward the partner firm (Serva, Fuller, & Mayer, 2005; Zaheer, McEvily, & Perrone, 1998). It is a very complex construct, with multiple levels, different bases, and determinants (Rousseau, Stikin, Burt, & Camerer, 1998).

Trust is also considered a key factor in effective supply chain management and, while it does not lend itself easily to measurement, the value of trust can be measured in terms of lower costs, added value and the encouragement of resource sharing (Landry, 1998).

Anderson and Narus(1990) suggest that once trust is established, organizations learn that joint efforts will lead to outcomes that exceed what the organization would achieve had they acted solely in its own best interests. Additionally, business alliances that exhibit trust will survive greater stress, display greater adaptability, and survive for longer periods of time.

Finally, Barney and Hansen (1994) supported that business alliances characterized by strong-form trustworthiness may have a competitive advantage over other business alliances due to the potential to decrease governance and agency costs.

Trust has been challenged by other academics such as literature suggested that easy to trust manner cause opportunistic risk and unable to protect strategic resources (Zand, 1972; Mayer, Davis, & Schoorman, 1995; Williams, 2001; Bӧnte, 2008). The higher the social class the less significant in easy to trust behavior(Piff, Kraus, Côté, Cheng, & Keltner, 2010).

In addition, deliberate cheats commonly use trust as a tool to deceive, while opportunistic partners take advantage when they become trusted (Nithisathian, et al., 2011).The trust trap created by deliberate cheat and opportunistic is very hazardous since it can create a false memory, which has a long term effect (Zhu, Chen, Loftus, Lin, & Dong, 2010).

RESEARCH METHODOLOGY

This paper uses the empirical study as a main tool which include literature survey and industrial survey and some current statistics. Nonetheless, there might have some limitations incurring from the industrial survey due to time and the number of respondents.

BLACK OCEAN STRATEGY CONCEPT

Black Ocean strategy discuss about the ability to pay the firm first before paying other which is totally opposite of White Ocean strategy. Its work directly with opportunity. The organization must know where the opportunity is and try to find the way to access to that opportunity as well as try to find the way to block other competitors to penetrate the same opportunity. Black Ocean strategy is dealing directly with trust where literatures both qualitative and quantitative research revealed a signof trust as the wisdom to influence people to do things according to organization interests.

In Black Ocean researcher reasoned that in the foundation, corporation must be able to “manage” audience attitude (create trust) as well as able to “execute” strategy without concern the impact to another party.

In the secondary phase corporate must try to focus on opportunity. Main activities for corporate are to find the way to access the business opportunity, as well as try to find the way to create a barrier for others to access into the same opportunity.

From the concept of Black Ocean we can draw the conceptual framework as follow:

Figure 2 Black Ocean Strategy Conceptual Framework

The organization that knows how important first and second phase can practice both phases of organization activities which intern will increase the effectiveness of its organization.

Black Ocean Strategy the case of multi-level marketing

A multilevel marketing company is a company employs a network of independent salespeople who sell multilevel marketing products directly to people in their community. The income that sales people earn is based on their personal sales, as well as the sales of people they recruit to work for the company (Hicken, 2013). Thus, the ability to motivate people to join multilevel a marketing company will result in higher income in the long run than selling the products themselves.

In order to success in multi-level marketing, it is heavily relying on sales people. Thus, multi-level marketing must take all opportunities to recruit more sales people as well as try to find a way to encourage salespeople to recruit more people.

Phase I:In order to success in multi-level marketing business sales people must use Black Ocean strategy started with the manage attitude of the prospect. Recruitment into these companies is largely based upon the offer of an “income opportunity”. Most multilevel marketing companies will promote the success stories of their high ranking salespeople which has extraordinary monthly income.

The other common benefit that multi-level marketing can use to manage peoples’ attitude include a small amount of risk, a huge demand of good quality product, residual income, the income potential, no employees to hire, no inventory, low operating costs, leverage, portability, and the last but not least the attainable freedom (Chirinos, 2006).

Once you can manage your prospect attitude, it is the time to execute by influencethe prospect to join multi-level companies and encourage them to buy premium package, and work longer hour.

Phase II: after sales people’s success with prospect. The next step is to find other ‘opportunity’ which is the time to approach prospect friends, families, and network. As well as ‘block’ prospect by asking them to purchase the premium package where they need to generate the equivalent amount of income before they can cash their money out from multi-level company. This process will take long time. However, once prospect can reach the level that return their investment they will have enough passive income which glue them to multi-level business where they cannot leave to other business.

Black Ocean Strategy the case of Samsung

The current statistic shows Samsung as worldwide smartphone leader for 5 consecutive years. (International Data Corporation, 2015) Black Ocean strategy is one tool behind Samsung success.

Figure 3: Worldwide Smartphone Vendor Market Share (Share in Unit Shipments) Source (International Data Corporation, 2015)

For the past 5 years the smartphone industry is dominated by two mega companies: Apple and Samsung. Some literature suggested that Samsung has a disturbing approach to business, which is that they steal, cheat and lie apparently because the penalties of being unethical are far less than the rewards (Elgan, 2013).

Samsung has been fined USD 340,000 by Taiwan’s Fair Trade Commission (FTC) for faking online comments (Souppouris, 2013). The investigation found a large number of hired writers and designated employees to post in Taiwanese forums. Also Samsung ordered to pay Apple USD 120 million for patent violation (Levine, 2014).

As mentioned earlier, these kind of activities is considered stealing, cheat and lie which are unethical and might have a bad effect toward organization reputation. According to Samsung, it has done in the house cost-benefit analysis about unethical business behavior, and concluded that it is worth doing (Elgan, 2013). Thus, it is the Black Ocean strategy makes Samsung able to execute this horrid behavior.

Also Samsung has a good manage attitude strategy to smooth their employees and customer’s attitude toward the firm strategy. Recently almost all mobile device makers have such boosting methods in place for better benchmarking results. Samsung also blamed to benchmark The Galaxy Note 3 with Apple. However, Samsung says it does not cheat on benchmarks Apple. “This was not an attempt to exaggerate particular benchmarking results. We remain committed to providing our customers with the best possible user experience (Smith, 2013).

No matter what people think about Samsung behavior, but it is true that Black Ocean strategy has helped Samsung become number one in the smartphone industry.

Argument and Discussion

Black Ocean Strategy is another effective tool for organizing. But it may not be the ethical tool for the public. It may seem to be cruel and create bad effect to other people.

As we have discussed earlier recruitment into these companies is largely based upon the offer of an “income opportunity”. Most multi level marketing companies will promote the success stories of their high ranking salespeople which has extraordinary monthly income. But in reality, the majority of industry salespeople makes modest monthly incomes.

For example, in 2011 about 25% of Herbalife’s salespeople achieved “leader status” which qualifying them for a median annual income of USD 637 while only 0.6% had a median income of USD 336,901 according to company filings. Also in 2011 just only12.7% of Nu Skin’s active salespeople in the State received a commission check. More than half of the USD 114.2 million Nu Skin’s commissions are distributed to only 113 salespeople which is considered less than 1% of Nu Skin’s sales people (Hicken, 2013). The research from 10 multi-level companies showed that 70% or more of the participants earned no income at all (FitzPatrick, 2004).

The current research stated that more than 99% of multi-level marketing sales people are unprofitable based on their position. The recruitment into these companies creates billions of dollars of losing to consumers each year (FitzPatrick, 2004). Thus, the more success in multi-level companies, is the more pain to the society.

In the case of Samsung it feels neglect to all critics press may have on its activities. Because Samsung has a sharp direction to be the number one smart phone provider. Some activities may consider unethical, but for South Korean cheating is considered one strategy. If cheating can make your firm win the game there is no point to shame for what you did.

In terms of consumer or business partner Black Ocean strategy is the tool that threatens your performance. Since you are misleading to follow other actions that might not benefit you. Samsung ordered to pay Apple USD 120 million for patent violation. It is better to have a cautious relationship with other (Nithisathian, et al., 2012).

Conclusion

Black Ocean strategy is another strategy that organization has been applied for long. It may be the first strategy that organization has been used. It’s talking about paying the organization first before paying another. It does not mean ruthless, but it is how making organization best use its resource to pay it.

Black Ocean strategy can be both ethical and unethical activities. It is about the ability to execute all the activities to make organization success as well as the ability to manage the attitude of publicity. For example attitude of the employee toward implementing the strategy, customers toward accepting the strategy, and public audience toward appreciating the strategy. The key activities of Black Ocean strategy are not end up at winning the opportunity, but also how to lock the opportunity and avoid other competitors to get into the organization’s frontier.

Since Black Ocean strategy can be both ethical and unethical. It has been suggested that firm must be caution to the activities of another firm. Since trust will lose their guard, which in turn affect the performance at the end.

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