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Harvard Business School 9-197-3922 November 1, 2008
In early 2007, piracy was a fragmented industry characterized by fierce competition amongst the many pirate "crews" operating along Africa's East coast. A series of successful projects and the elimination or acquisition of several firms in the spring and summer resulted in substantial consolidation in the industry and by early 2008 70% of the market was dominated by three firms.
Pillage, Inc. is the surviving entity resulting from the hostile takeover of the Black Band of Ali Nefani followed by the murder of Ali Nefani, his right-hand man and their families. Thus founded in 2007, it fell to Abdi Balan Aned, newly appointed CEO of Pillage, Inc., to consolidate his position with the volatile board of directors and articulate his strategic vision for growth.

The Black Band had followed a strategy of minimizing the capital intensiveness of their projects by taking on smaller vessels and concentrating on black market value for seized booty and occasionally, ransom for the crew. This permitted the Black Band to keep capital expenses low, as fewer go-fast boats and lighter armaments were required to catch a foreign prize vessel and subdue her crew without injury. In addition, smaller vessels rarely strayed far from the coast, keeping search and chase costs low as distances to the Black Band's home base were small.
After the takeover, Abdi steered Pillage, Inc. on a heading which focused on a more capital and labor intensive strategy targeting larger vessels farther off the coast. Larger vessels typically held more crew, the key to large ransom. Cargo was often insured on board larger vessels, and was more difficult to sell on the black market or threaten with destruction, but more well-to-do crew members more than made up the difference in expanded ransom revenue.
By developing relationships with weapons suppliers in Mogadishu, where prices and red tape had both substantially declined since the exile of Mohammed Siad Barre, Abdi was able to quickly deploy 3 crews to prowl the Gulf of Arden. Their cost effective and superior firepower, obtained through their exclusive use of the Mogadishu supply channel, also helped with the many hostile takeovers Pillage, Inc. undertook during Abdi's growth by acquisition phase.
The strategy paid off. After numerous successful projects aided by the weak-willed shipping owners with loose purse strings and limited enforcement, Pillage, Inc. had reinvested over $30 million in capital expenditures. In late 2008 Pillage, Inc. seized the largest vessel ever captured in the business. The Saudi Arabia-owned Sirius Star, worth over $100 million was seized in a surprise raid.
Pillage, Inc. may be a victim of its own success. The very public success with the Sirius Star is sure to attract more substantial enforcement. Their growing share will make them a target for other well-capitalized groups, and their emphasis on substantial capital expenditures and fleet purchases makes them less nimble than their rivals.
Back in his office, Abdi sat back in the captain's chair he had stolen from a Greek merchant vessel and looked through the soundproof glass at the languishing hostages from the Sirius Star. How would he approach the challenges to come?
Pirate Victims Finance More Attacks With Ransom Pay [Bloomberg]


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