(LUẬN văn THẠC sĩ) building the strategy for property business of industrial construction joint stock company (ICJC) duration 2018 – 2022

Fundamental concept of strategy and real-estate business strategic plan .... ANALYZE THE CONDITIONS FOR BUILDING A REAL ESTATE BUSINESS STRATEGY FOR INDUSTRIAL CONSTRUCTION JOINT STOCK C

ĐẠI HỌC QUỐC GIA HÀ NỘI KHOA QUẢN TRỊ VÀ KINH DOANH

ĐẠI HỌC QUỐC GIA HÀ NỘI KHOA QUẢN TRỊ VÀ KINH DOANH

LUẬN VĂN THẠC SĨ QUẢN TRỊ KINH DOANH

NGƯỜI HƯỚNG DẪN KHOA HỌC: PGS.TS HOÀNG ĐÌNH PHI

Hà Nội - 2018

The author confirms that the research outcome in the thesis is the result of author‟s independent work during study and research periodunder the instruction of Assoc Prof Dr Hoang Dinh Phi and it is not yet published in other‟s research and article

The other‟s research result and documentation (extraction, table, figure, formula, and other document) used in the thesis are cited properly and the permission (if required) is given

The author is responsible in front of the Thesis Assessment Committee, Hanoi School of Business and Management, and the laws for above-mentioned declaration

Student

Tran Quang Hien

ACKNOWLEDGEMENT

I would like to thank all my dedicatedlecturers and the members of the

School of Business & Management – Vietnam National University, Hanoi for

helping and providing me with particularly helpful scientific knowledge and practical business lessons Your insights and guidance areindeed a valuable source

of support for my current business and my life

I sincerely thank Assoc Prof Dr Hoang Dinh Phi – Head of Hanoi School

of Business & Management – Vietnam National University, Hanoi Assoc Prof DrHoang Dinh Phi has spent considerable time and effort assisting me to complete

my Thesis to meet academic standards You have been truly inspirational and haveignited my passion for researching and finishing this Thesis

I sincerely thank the Management Board and all the Staff of Industrial Construction Joint-Stock Company-ICJC for helping me during the process of

and providing me with an abundance of crucial information and references to fulfill

TABLE OF CONTENTS

TABLE OF CONTENTS 5

ABBREVIATION i

LIST OF TABLES ii

LIST OF FIGURES iii

INTRODUCTION 1

CHAPTER 1: FUNDAMENTAL THEORY OF BUSINESS STRATEGIC PLAN 7

1.1 Fundamental concept of strategy and real-estate business strategic plan 7

1.1.1 Concept of strategy 7

1.1.2 Concept of real-estate and real-estate business strategy 9

1.2 Role of strategy 11

1.3 Category of strategy 12

1.3.1 Strategy of management classification grade 12

1.3.2 Classification of strategies regarding functions 13

1.4 Strategy building process 16

1.4.1 Strategic management process and model 16

CHAPTER 2 ANALYZE THE CONDITIONS FOR BUILDING A REAL ESTATE BUSINESS STRATEGY FOR INDUSTRIAL CONSTRUCTION JOINT STOCK COMPANY – THE PERIOD 2018-2022 33

2.1 Overview of Industrial Construction Joint Stock Company-ICJC 33

2.2 Propose and analyze the real estate business strategy of Industrial Construction Joint Stock Company - the period: 2018 - 2022 39

2.2.1 Vision - Mission and development orientation for ICJC 39

2.2.2 Macro-environment analysis 40

2.2.3 Micro-environment analysis (business line environment) 49

2.2.4 Internal Business Analysis 63

2.2.5 The Company‟s competence assessment 72

2.2.6 Matrix for evaluating the internal factors of the company (IFE

matrix) 74

2.2.7 Analysis of SWOT matrix 76

CHAPTER 3: STRATEGY PROPOSE, ANALYZE PROPOSE STRATEGY, SELECT STRATEGY AND SOLUTIONS FOR IMPLEMENTING THE BUSINESS STRATEGY 80

3.1 Strategy proposal 80

3.1.1 Strategy groups SO 80

3.1.2 Strategy groups WO: 83

3.1.3 Strategy groups ST: 84

3.1.4 Strategy groups WT: 86

3.2 Analysis of the proposed business strategies for Industrial Construction Joint Stock Company 87

3.2.1 Strategy groups(S,O ) 87

3.2.2 Strategy group ( W,O ) 91

3.2.3 Strategy group ( S, T ) 96

3.2.4 Strategy group ( W, T ) 98

3.3 Select a real estate business strategy for ICJC –the period: 2018 - 2022 99 3.4 Proposal of solutions to implement real estate business strategy of Industrial Construction Joint-stock Company: the period 2018 – 2022 100

3.4.1 Vision for implementing the business strategy of Industrial Construction Joint-stock Company: the period 2018 – 2022 100

3.4.2 Objectives for implementing the business strategy of Industrial Construction Joint-stock Company: the period 2018 – 2022 101

3.4.3 Solutions for achieving business strategies 102

3.4.4 Strengthen management in strategy implementation 107

3.4.5 Createa cultural environment that supports the implementation of strategy 108

3.5 Recommendation 108

3.6 Limitations of the thesis 111

CONCLUSION 112

REFERENCES 114 Appendix

Industrial Construction Joint-Stock Company Board Of Directors

LIST OF TABLES

Table 2.1: Matrix for evaluating the impact of external factors on the company 48

Table 2.2: Equipment capacity of the Company 66

Table 2.3: SWOT MATRIX 79

Table 3.1: Strategy groups SO; WO; ST; WT 86

LIST OF FIGURES

Figure1.1: Model of classification of strategies for an organization 13

Figure 1.2: Strategic management model 17

Figure 1.3: External environmental factors 19

Figure 1.4: External Factor Matrix (EFE) 22

Figure 1.5: Five forces model of Michael Porter 23

Figure 1.6 Internal Factor Evaluation Matrix ( IFE ) 26

Figure 1.7: M.Porter‟s Value Chain Model 27

Figure 1.8: SWOT matrix 30

Figure 1.9: Table of optional strategies SO, WO, ST, WT 31

Figure: 2.1 Organization chart 35

Figure 2.3: M.Porter‟s Value Chain Model 63

Figure 2.3: The implementation of real estate project 71

Figure 2.6: Matrix for evaluating the internal factors (IFE matrix) 75

INTRODUCTION

1 Rationale

In today‟s renovation and international integration are the needs of any economy and every economic sector In particular, the construction field in Vietnam is currently coping with many difficult issues such as: a well-organized development plan for the whole nation as well as every single province;a plan of focusing on modernization related to a need of scientific cultural preservation; and a plan of developing new urban areas, new industrial zones along with improving existing infrastructures in order to create a standard for other sectors of the nation economy such as transportation, education, public health, and tourism A subsequent benefit

of the planning will be to attract foreign direct investment funds

Industrial Construction Joint-Stock Company (ICJC) is a member of Urban Infrastructure Development Investment Corporation (UDIC) which was founded according to the Decision No 3081/QD-UB of Hanoi Municipal People‟s Committee, on August, 2nd 2007

Industrial Construction Joint-Stock Company has always been one of the strongest members of UDIC and one of the leading companies of the Hanoi construction market During the 57 year of experience, ICJC has always satisfied all requirements in terms of political, business and social issues for the development of the country and the capital Moreover, a special task of reinforcing and enhancing the image of the company during the innovation, industrialization and modernization era has been to create a solid opportunity to compete successfully in the South-East Asia market and in the world as well The rapid development of the construction market and the hardship of the rules governing competitionare crucial keys to motivate the company in improving its own production scale, financial competence, technical issues and management skills Adapting to the difficult competitive environment of the past 10 years, these coping strategies have been small in scale, due to poor financial health, outdated technology and inadequate management strategy within the local and domestic market The immediate future outlook suggests further pressure to perform successfully will be more difficult than

ever owing tothe challenge of ASEAN and international integration As a result, there needs to be a continuousaccumulation of experiences and competences, with the objective of creatinga competitive advantage, building up and developinga brand name, and to enter new markets coupled with a solid development plan for current and new business

Based on that reality, creating a business strategy for each business entitywithin a company‟s portfolio is indispensable for its survival and development A good business strategy shall help to effectively orient a business, to connect and direct every individual, every division to a common goal and objective It is the best way

to reduce fragmentation, which can weaken a business through departments and divisions operating without coordinated objectives, goals and a clear corporate vision

Real estate is a business typically requiring: a strong and reliable financial source,

an ability to secure investment often within a short time frame, thedevelopment and the maintenance of positive working relationships with those in government office and a long term vision of a competent and progressive leadership Compounding these factors of much needed stability and security is thatthe real-estate market is very risky However, in the high risk - high return, real-estate field there is opportunity for a business to make substantial monetary gains and create jobs for a company that has established divisions of construction, land development and contracting Therefore, this is attracting many businesses to enter the market As a key member ICJC‟s personnel, I had a chance to take part in developing a strategic plan for the company over the past few years

For a desire of improving my business knowledge and management skills, I enrolled

in a course of Master in Business and Management at Hanoi School of Business & Management – Vietnam National University It is very useful for using and applying the knowledge that I acquired from my lecturers in analyzing and making

a business strategic plan for ICJC as.it is also my personal duty and responsibility to take part and contribute to the development and integration of my company As per the help and instructions from my lectures, I decided to choose my Thesis topic as:

“ Building the strategy for property business of Industrial Construction Joint-Stock Company (ICJC) duration 2018 – 2022”

2 Overview of related researches

It is very important to build a business strategy for a real estate business A business strategysignificantly and decisivelyinfluences on the success of a business

A business only gains a sustainable development when figure outitself a right direction and a reasonable measure In other words,building agood business strategy and carrying out it well are crucial factors to develop a business solidly

In order tobuild a good business strategy and implement it proficiently, a business needs to define their mission and objectives accurately; analyze business environment particularly; develop a strategy that match features of business

A number of references regarding real estate business study:

- "Building the real estate business strategy of BITEXCOLAND" by Nguyen

Thanh Van - University of Economics - Ho Chi Minh City

- “Building the real estate business strategy of SAVICO to 2015 " by Tran

Minh Cong - University of Economics - Ho Chi Minh City

Based on the researching documents above, I realize that each business has its own way to build a business strategy in order to meet its typical characteristics.According to my research, the topic "Building the real estate business strategy for Industrial Construction Joint Stock Company" has not been issued until now Therefore, the topic is very necessary for ICJC for the duration: 2018-2022 By analyzingthe macro, micro and internal environment of the Company, Author shall build the real estate business strategy in accordance with the current situation of the Company and provide the solutions to help ICJC overcome its limitations and achieve business goals for the period: 2018-2022

3 Aims of researchand Research task

3.1 Aims of research

Building the strategy for property business of Industrial Construction Joint-Stock Company (ICJC) duration 2018 – 2022

3.2 Research task

- Systemizing fundamental theory of strategy and business strategic plan in order

to analyze factors that influence the Company activities and to create a strategy for the Company

- Analyzing factors that influence real-estate business activities along with the Company activities Then, putting those analyzed factors and the goals and objectives of ICJC together to build up the Real-estate strategic plan for ICJC – Period: 2018 – 2022

4 Scope of research

4.1 Researching subjects:

The business activities range of ICJC consists of: real-estate investment and construction, civil & industrial construction, project management & consultancy, precast concrete member production, import – export equipment & machine, warehouse leasing service This thesis will focus on the related factors that would

be used to build up the Real-estate strategic plan for ICJC – Period: 2018 – 2022

4.2 Researching scope:

- Location: The location for real estate business of the Company is Hanoi City

- Period: Study and evaluate secondary data for the period: 2014 to 2016

Collect primary data: May, 2017 to November, 2017

- Applicableduration: 2018 to 2022

5 Research methodology

The quantitative and qualitative research methods shall be used and researching particular circumstances of each property project of Industrial Construction Joint-Stock Company

Specific method: Directly interviewing and surveying every division of the Company Then, making a summary of interviewing ideas and submitting to the experts for a total evaluation of how possible and effective they are

5.1 Researching process:

Step 1: Gather materials related to theories of strategic planning for determiningthe theoretical basis in order to plan business strategies

Step 2: Design questionnaire and survey forms to collect and analyze primary data;summarize secondary data to identify opportunities, challenges, strengths and weaknesses in real estate business of Industrial Construction Joint Stock Company Step 3: Propose the real estate business strategy for Industrial Construction Joint Stock Company – the period: 2018 to 2022

5.2 Collecting and processing data

5.2.1 Sources of secondary data:

All figures and information are based on reports and statistics of the Company; as well as based on all references, newspapers, statistical data of the Ministry of Planning and Investment, the Ministry of Natural Resources and Environment, and

the office of Hanoi People‟s Committee; The Civil Code Law 2005 of Socialist Republic Of Vietnam; Real Estate Business Law 2014; Land Law

2014;Government Portal; State Investment Department; Portal of the Ministry of Construction; Department of Investment - Ministry of Planning and Investment; Website: www.xdcn.com.vn; information from Internet and magazines

5.2.2 Sources of primary data:

Primary data sources are obtained through survey and interview method

* Surveying subjects

- Board of directors: 04 persons; 05 department managers và 01 head of project manement unitof ICJC

* Design and issue questionnaire and survey form

- The content of the questionare and survey form is to collect information for: (1) the impact of external environmental factors, opportunities and challenges

in the field of real estate business; (2) The impact of internal environmental factors, strengths and weaknesses in the field of real estate business

- Total number of issued paper : 10

Author passed the surveying paper directly to the surveying subjects In addition, I also conducted an in-depth interview with managers and senior staff

of the Company to consult their opinions and solutions to implement the business strategy for the Company

- Data processing method: Use MS Excel software

6 Structure of Thesis

There are 03 chapters (excluding title chapter):

Chapter 1: Fundamental theory of business strategic plan

Chapter 2: Analyze the conditions for building a real estate business strategy for Industrial Construction Joint Stock Company - the period 2018 – 2022 Chapter 3: Strategy propose, analyze propose strategy, select strategy and

solutions for implementing the business strategy

Conclusion

References

Appendices

CHAPTER 1: FUNDAMENTAL THEORY OF BUSINESS STRATEGIC PLAN

1.1 Fundamental concept of strategy and real-estate business strategic plan

1.1.1 Concept of strategy

Historically, the term “strategy” was primarily used in military activities involving long term plans and based on a belief of what the enemy would and would not do

In a society of competition as a dynamic process, the concept of strategy is

no longer limited to military applications but also widely applied to every economic and industrial sector: economic , political, cultural sport, tourism The essence of strategy is to summarize all sources to make a distinctive, effective plan and to create advantages over competitors according to the interests of the leadership

Since the 60s of the 20th century, the term strategy has been used for the business field and the term “business strategy” officially was born As time passed

by, the concept of business strategy quickly grew and people perceived this concept

in many different ways.And nowadays, the term „business strategy‟ has become very popular and is considered to be a vital key of a success of business There are many definitions of business strategy which have been given and each has its own viewpoints along with common viewpoints

+ M Porter (1996):“Strategy is distinctive value chain based on customer

needs and wants in order to create a competitive advantage”

+Alfred Chandler(1962): “Strategy can be defined as the determination of the long-term goals and objectives of an enterprise, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals.”

+ Keneth L.Andrews (1965): “Strategy is a model of goals, objectives and

plans to achieve these goals”

+ Quinn (1980): “Strategy is a model, a plan to integrate primary goals,

guidelines and chains of activities into a cohesive comprehension”

+ Johnson & Scholes (1999): “Strategy is the direction and scope of an

organization over the long-term: which achieves advantage for the organization through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations"

+ Brace Henderson: Strategy is to search for a prudence, a plan for collecting

and developing competitive advantages of an organization Distinctions are your advantage over competitors”

+ Assoc Prof Dr Hoang Dinh Phi: “ A corporate strategy is a document,

either written, printed or electronic, in which the responsible people set out long-term mission, vision, and strategic objectives for 5 years as standard, as well as the resources to be mobilized and solutions to be implemented in order

to achieve the set objectives”

As per those quotes above, I would like to highlight some features of a business strategy

First: A business strategy is always the direction, so changes in the

business environment need to be observed and predicted in order to instantly adjust primary activities or to somewhat adjust primary goals and objectives In other words, an optimal business strategy only suits a specific period of time and a particular circumstance Since the business environment changes, a business strategy needs to be changed too

Second: Leaders and the management board of an organization always

play an important role in building a business strategy

Third: A business strategy is always based on recognizing and

understanding the basic competitive advantages that one has over competitors and actively pursuing this favourable position to hedge risks and weaknesses Therefore, it is important to understand boththe pros and cons related to competitors when developing the business strategy

A business strategy plays the main role in business development as every short-term business plan is supposed to be based on it It motivates research and development activities and human resources training courses It also comes to the aid of actively orienting a business toward in the right direction

according to the fluctuations in the market atmosphere as well as its strong points In practice, we all have witnessed successes and failures of a business

A success or failure of a business significantly depends on how that business plans a strategy As a result, a good business strategy will result in an organization enhancing its position and competitive advantages in market

1.1.2 Concept of real-estate and real-estate business strategy

Concept of real-estate

According to the Civil Laws 2005 of Socialist Republic of Vietnam, article

174: “Real estate is property consisting of land and the buildings on it; including

immovable property of the buildings; property on land and other property stipulated by law”

Features of real-estate

a Uniqueness and scarcity

The key features of real-estate are derived from its uniqueness and scarcity of land The dimensions of the Earth are unchangeable and result in the land area being unchangeable Uniqueness and scarcity of land are restricted to a particular land slot, local land area, and the national land area Scarcity and immovability of land make real-estate very unique On a short and narrow road, two real-estate properties which are the same size and design located next to each other offer different characteristics It is impossible to locate two real-estate properties at one location in spite of how much they look alike Therefore, the only way to satisfy and convince real-estate buyers is creating the uniqueness for each real-estate and making them

attractive enough for buyers

b Durability

Land is gifted by the nature and land is considered as indestructible property (except in the case of acts of God) Structures on land could last for years and if well maintained, they could last for centuries So, the durability of real-estatemay be defined as the lifetime of structures on land

We need to distinguish between the “physical life span” and the “economic life span” An economic life span is limited by market conditions and terminates when

the expenses offset any profits realized A physical life span last much longer than

an economic life span as it only ends from the results of aging, destruction, or a serious deterioration of reinforcement structures In that case, if the action of renovating a building provide more benefits than demolishing a building and building a new one, it results in a physical life span remarkably longer than the economic life span Practically, many countries have proved that economic life span

is about real-estate using process In general, the economic life spans of structures such as: high-rise building, hotels, theaters are over 40 years; and those for industrial factories, houses etc are more than 45 years Durability of real-estate is virtually unlimited can be used for many different purposes, so real-estate products can be in multiform and plentiful

c Reciprocal effect

Real-estate has a magnificent reciprocal relation Value of property could be influenced by other properties In such a case if a government invests money to improve local infrastructures, this will drive up the value of local real-estate instantly Besides, a nice real-estate increase in value will benefit other properties as well as the whole area

d Other features:

- Adaptability:

A real-estate benefits a landlord during its lifetime We can adjust capacity of

a real-estate without changing its typical feature Simultaneously, all requirements

of user such as: accommodation demand, business-production demand and other demand shall be guaranteed and satisfied

- Management skills dependency

Real-estate products require higher management costs and management skills compared to common goods and products It takes a lot of time and money to invest and build a property Thus, thereal-estate field always requires high management skills

- Factors of local customs, tastes and demands

Real-estate products used to be greatly affected by these factors compared to any common goods Tastes and demands over real-estate products of each area, each province, and each nation are largely different and mainly depend on local customs and culture Further, those factors such as: social issues, religious and superstitious issues etc also take a significant part in real-estate consumption Basically, a good real-estate business strategic plan of an organization requires those who are responsible to spend time researching, analyzing and setting goals for it A 5-year term strategy need to be clearly verified along with detailed solutions and plans of personnel mobilization to be able to attain specified goals and

objectives

1.2 Role of strategy

The role of strategy is to guide a business on the right way in the future and probably becomes a recipe of success As long as you find out the right direction for the business, the success of your business will be assured And as the right direction has been determined, it would motivate all managers and staffs to fulfill their jobs in short-term as well long-term objectives No strategy or an unclear strategy shall mislead a business

A good strategy shall aid a business to make out and carry out primary goals In doing business, the survival and development of a business strongly depend on a wise strategy and getting missions of that strategy well done

Strategies shall help to reduce risks A good job of predicting and analyzing market conditions in the future offers a business a great chance to move forward and reduce risks of business environment as much as possible

Moreover, a good strategy shall help a business actively control over changes

of market conditions A good strategy shall also aid a business to make wise decisions and carry out these decisions precisely based on market movements There is a solid relationship between personnel, financial sources, and objectives of

a business and marketable chances during the business running process of that business

A good business strategy shall enhance the effectiveness of using all available

and hidden resources; lift up business position in the market and guarantee a continuous and firm development

The Strategy shall take a decisive part in decision making such as: investment decisions, market expansion decisions, decisions about new product development, human resource training

There are 03 strategies for Corporation strategy as following:

- The strategy for common orientation in order to aim at a particular goal: development, stabilization or shrinkage

- The strategy for listing business activities/investments that come with specified products and services

- The strategy for a comprehensive management plan which includes human resources, business activities, improving competence and coordinating with other economic sectors

Business strategy is only related to daily business activities within the scope

of corporation in the private sector This strategy shall help to improve the position and cooperation of the corporation The fundamental factors of a business strategy include:

- Competition strategy: Making competitive advantages over competitors via

a low expenditure plan or creating distinctive products/services

- Cooperation strategy: Making competitive advantages over competitors via

a strategic partnership

Authority strategy consists of: marketing strategy, financial strategy,

production, human resource and research & development strategy This strategy shall help to improve business function activities and maximizing all power resources of the corporation Authority strategies aim at enhancing core competences

of the corporation and result in competitive advantages

In order to systemizing all scope of business of a corporation, strategic business units (SBU) should be formed The SBU shall run business independently but share the same comprehensive strategy of the corporation

Figure1.1: Model of classification of strategies for an organization

(David, Fred R 2011)

1.3.2 Classification of strategies regarding functions

We can classify functions of strategies as below:

a) Strategic development via unification

A strategic development via unification means merging 02 or more business units

to reinforce corporation strength so as to take the most advantages of chances and solve challenges more quickly A development through merging asks for a lot of effort attempts and other resources of 02 or more partners to push up developments of one

or a few business fields, improve competences and hedge risks It can be a partly unified process or a totally unified process

A corporation following an unification strategy shall upgrade competitive advantages of its main career fields such as: First, this strategy shall decrease competitions within the scope of the corporation private careers and increase profits as

Company startegy

it has the right to set up higher prices Second, the corporation can improve its products/services quality Third, a merger is capable of actively planning, coordinating, and scheduling a chain of procurements, transportations and supply to customers

b) Diversification strategy

This strategy means using surplus funds to invest in other business fields since a corporation has predominance in one or few particular marketplaces There are some basic forms of diversification: Centric diversification (joining a new business related to current business as the similarity of features); Combination diversification (joining a new business which doesn‟t concern current business of organization); Horizontal diversification (focusing on researching & developing new products/services for traditional customers)

There are many businesses that take diversification strategy into account

as they have more than enough funds to remain competitive advantages in their classic markets This strategy creates values in 03 respects: First, buying and reorganizing a business allow it to grow more effectively Second, a power transferring shall take place among business units In some cases, a corporation would keep continuing after a stable strategy or retreat for safety

When this strategy is applied, businesses can detail a competitive strategy This strategy is built based on customers‟ needs and demands and distinction of products; market segment and competitive position of these businesses

c) Low cost strategy

This strategy shall create better prices for products due to low expenditures When this strategy is applied, a business often focuses on the average income class and ignores other market segmentations The advantages of this strategy include: improving strength of business as having a large production; making a barrier for competitors that want to join the market due to low cost production, so creating a solid competitive position The disadvantages are: competitors can easily make copies of products; businesses just pay attention to cutting down production costs and do not care about changes of market demand Therefore, companies that apply the low cost strategy need

to be aware of customers‟ satisfaction for products/services over those of competitors

d) Strategy of distinction

This strategy shall guide a business to create distinctive and unique products to satisfy choosy customers It means that prices of products must be expensive When this strategy applied, a business has to design a distinctive and particular plan for each period according to marketability The main capabilities that need to be focused on are research & development and marketing There are 03 choices for this strategy: Quality, renovation and satisfying customer‟s wants This strategy shall create a big barrier for market participation of competitors and a good control of price in market share of business; creating a belief and loyalty of customers for excellent quality and uniqueness

of products The disadvantages are: not easy to remain a high price, high production costs and short product life cycle, high technology production system and high marketing expenses

e) Centralization strategy

This strategy requires a business to concentrate on specialization, be small in scale, make real unique products and stay on the top for low production cost in its market share These businesses totally specialize in serving a particular group of customers or particular market segmentation Market segmentation can be divided according to geography or a branch of product line When this strategy is applied, a business needs to find out a core capability as for creating uniqueness or an advantage of production cost

A business can specialize in only one market segmentation, one product or as per marker condition A business sometimes has to specialize in both uniqueness of product and top rank of low cost production If just focusing on low cost production, a business has to fight those leading in low cost production which results in no cost advantage If focusing

on making a product real distinctive, it leads to the increasing chances of making others and a business shall have a reasonable protection for distinctively made products A loyalty of a group of customers to these distinctive products shall create a big market barrier for new comers and reduce a chance of alternative products The disadvantages are: A small change in technology or a slight decrease in market demand shall virtually eliminate this market segmentation

f) Cooperation strategy

A cooperation strategy would be carried out by a strategic partnership plan Two or more businesses shall cooperate based on each business‟s advantages for aiding each other without losing ownership of each business A cooperation strategy comes with a key purpose of enhancing each party‟s competence This strategy could take place between competitors, suppliers, distributors to target mutual benefits This strategy offers

03 working methods: Partnership: competitors, suppliers and distributors all together building up common goals and benefits Major connection: All parties coordinate their

best advantages to create better new products/services or to improve competitive position

via major connection; Studying: Partners shall be sharing and learning skills, experiences

of each partner

These strategies above refer to decisions that connect businesses, market conditions,

products/services and core value of each business to increase competitive advantage 1.4 Strategy building process

1.4.1 Strategic management process and model

Thomas Wheelen: Strategic management is a set of managerial decisions and actions that determines the long-run performance of a corporation It includes environmental scanning (both external and internal), strategy formulation, strategy implementation, and evaluation and control

Figure 1.2: Strategic management model

(Lecturer: Assoc Prof Dr Hoang Dinh Phi)

1.4.1.1 Determining vision, mission and strategic goals of a business

a Determination of vision, mission

Each business has its own mission and vision and every member of a business has

to keep them in mind whether they are in writing or not A vision declaration of a business is a mile-stone of strategic management plan It is scientific foundation for analyzing and adapting a business strategy A mission determination is not only important for a new founded company but also a long established and experienced company

And mission of a business refers to the purposes, reasons and meaning of a business establishment The mission of a business states that the existence of that business would

be helpful and useful for the society The scope of a mission declaration involves

1 Evaluating factors and Evaluating competence of a business Analyzing SWOT matrix, analyzing value chain and 05 forces

2 Choosing strategy, deciding mission, vision, core value and long-term goals & objectives

5 Supervising, supporting, evaluating, adjusting, improving, changing

4 Implementation, modification, strategic implementation and plan

3 Drafting, proposing strategy& related plan for an approval

products, services, technology, rules and philosophy which a business would be following As a result, a mission declaration shows the meaning of a business existence, what a business would like to be, types of customers it serves, and its process of business

A mission determination plays a very important role in the success of a business First of all, it helps an organization to make right decisions inchoosing goals and strategy; on the other hand, it reinforces organization image toward customers, partners, suppliers, shareholders and office authorities Practical proof shows that a business that pays more attention to a thoughtful mission would be more successful than those that take a less care

Requirements of a mission:

- Ensuring the unification of goals and objectives

- Creating a dynamic for all resources

- Proposing standards of allocating resources of an organization

- Building an efficient business atmosphere

- Creating belief of every staff over organization goals & objectives

- Making common goals be particular strategic goals

Content of a mission:

- What are customer segmentations of organization?

- What are core products/services of organization?

- Where is market position of organization?

- Is technology the most important interest of organization?

- What are fundamental values and desires and preferable philosophies of organization?

- What are intensive capabilities and competitive advantages of organization?

- Does the organization care about public issues?

- How does the organization treat staffs?

b Strategic goals determination

Strategic goal determination is a foundation to set up a business strategy A goal determination is an instruction to lead a business to expected outcomes Thus,

goals setting must match reality and business conditions for creating a highly practical strategy The current strategy of organization need to be well analyzed to

find an answer to the question: “where are we?”

1.4.1.2 Analyzing and evaluating business environment

Business environment is a set of factors and conditions that directly and indirectly influence business activities Market factors and conditions are always changing, interacting and influencing business activities Analyzing business environment shall provide a business with an overall view of advantageous and disadvantageous factors Environmental factors have a profound influence on the development of the strategy The general environment that the organization encounters can be divided into three interrelated levels, they are macro environment, micro environment and internal environment of the enterprise

a) Macro environment

Figure 1.3: External environmental factors

The macro-environment directly or indirectly affects the business operation of the enterprise The level and nature of impact are different, so it is difficult for

enterprises to control macro-environment The macro environment consists of

Political and legal issues:

These factors affect all businesses in a territory, the issues of government, legal

Organi zation

Legal issues

Economic issues

Cultural

& Social issues

Technological &

scientific issues Natural factors

issues and the political environment would affect the survival of any business in different ways They can create either opportunities or obstacles, even serious risks for businesses They are factors which affect all businesses in a territory Consider the following aspects:

Political stability: We will look at the stability of political and diplomatic conflicts of a legal system A highly stable political regime will create good conditions for business activities and vice versa, those are not stable would negatively impact on business activities

Tax policy: Export tax, import tax, consumption tax, income tax, etc would affect the revenue and profits of a business; simultaneously create opportunities and can be a brake on production

Relevant laws: Investment Law, Business Law, Real-Estate Business Law, Labor Law, Antitrust Law, Anti-dumping Law, Employment Regulations, Promotion, Retirement, Unemployment benefits are those a business has to take into account

Policy: The state's policies will have an impact on the business, which can generate profits or challenges for businesses such as trade policies, development policies for specific businesses, economic development, Competition regulation policy, consumer protection

Economic issues:

These are the factors that play a leading role and significantly influence the business operation of each organization These issues are economic targets of each country for each period; they directly affect the operation of a company Economic issues include:

+ The growth pace of the economy would increase new demands for the

development of economic sectors

+ Inflation reduces the stability of the economy If inflation increases, investment planning becomes risky as it is difficult to predict the true value of a long-term project

+ Exchange rates: determine the value of the currencies of different

countries, the exchange rate changes affect the competition in th e international market

+ Interest rates: affect customer demand

+ Fiscal & monetary policy

+ Payment balance

Cultural & social issues:

These issues would probably be an enormous change for the medium and long term A fast- changing lifestyle is an opportunity for many businesses And businesses also have to take into account consumer attitudes, age pyramid changes, marriage rate and birth rate, role of women in the workplace and family The emergence of consumer associations is an impediment that requires businesses to pay attention, especially to the quality of products to ensure the benefit of consumers Customers are now more educated which would be a real challenge for producers

Further, each country and territory has its own specific cultural values and these are the characteristics of consumers in the regions; which creates the prospect

of development with appropriate businesses In addition to culture, social characteristics also require businesses to take a good care of market research and social factors that would divide customer‟s demand into particular groups and each group has its own different characteristics, psychological features, and incomes, which require a business to have a clear orientation Social and cultural factors slowly affect the business environment, but when they do, they would be very powerful Therefore, these factors are extremely important so it is important to pay attention to building a business development orientation

Technological & scientific issues:

These are factors that would greatly & directly influence the business strategy

of business sectors as well as many organizations Many technological changes have shaken and even wiped out many business sectors in the real world; simultaneously opened many new business fields or significantly improved present fields

The 21st century is the era of the revolution of science and technology The rapid development of technology brings out more and more new products which are able to replace some or all of the existing products in the market and shorten life cycle of products gradually So, businesses face more potential challenges as well as more opportunities in the future Besides, changing technology would make a business production chain quickly outdated Thus, businesses must carefully consider and select a suitable research and development strategy

Natural factors:

Natural environment includes geographic factors, climate, ecological environment Geographic location defines the best range of activities of each business Climate change is threatening and significantly impacting business operations Predictions for climate change help a business be more proactive in making decisions over its products The deterioration of ecological environment is challenging most businesses in different economic sectors Sources of raw materials, energy are exhausted, pollution levels increase, weather condition is complicated, and floods & droughts cause drastic losses These things increase the cost of business operation since businesses have toadd more waste disposal equipment, pay more taxes for environmental protection

Therefore, wise strategists often pay more attention to environment, ecology and climate in order to make the right decisions for the production business

After analyzing the opportunities and threats arising from the external environment, I apply the External Factor Matrix (EFE) to summarize and evaluate the impact of those factors on the business

b) Micro environment

A manufacturing or service sector can offer the same or similar products and services that are interchangeable and satisfy the basic consumer needs The task of business strategists is to analyze and predict the potential competitors within the industry to identify opportunities and threats for their business The environment of

a business sector directly affects business operation as well as the existence and development of a business.In order to build a successful business strategy, managers must analyze them profoundly and comprehensively Businesses only win advantages if they are able to manage the relationship with those factors

When analyzing micro-environment (environment of business sector), I uses the Porter‟s fives force model

Figure 1.5: Five forces model of Michael Porter

Analyzing the pressure of existing competitors in the industry

The first force of the M.Porter‟s model is the competition of existing firms in a manufacturing sector It says that the higher number of competitors, the greater threat for a business And the lower competence of competitor, the more profitable chances for a business When businesses in the industry get involved in the price war, they will reduce the industry's overall profit and the level of demand elasticity does not match the fall in price In such a case, in order to increase the overall

Rivalry among extisting competitors

Cạnh tranh nội

bộ

Customers Suppliers

interest for the businesses and for the industry, all businesses have to create a big difference in the industry by enhancing the image, quality of goods and corporation branding In an industry, the following factors will increase the competitive pressure

on competitors

- Competition structure of the industry: between centralization and decentralization industry A Decentralization industry consists of many businesses competing in the market but none predominates the market A Centralization industry comes with few businesses and even one dominant business which takes control of competition, called monopoly

- Demand for an industry sector: if demand increases, it is an opportunity for enterprises to invest, develop and expand their production Conversely, if the demand falls, it will lead to a severe competition for keeping the existing market share of the business

- Withdrawal barriers are factors that make the withdrawal of a business become

difficult due to: technology barriers, investment capital; binding to workers; binding

to government and related organizations; binding to Strategy & plans As demand

falls sharply, the barrier to an exit is a serious threat of competition

Analyzing the pressure of potential competitors

Potential competitors are those that are not present in the industry yet, but they are capable of making a big impact and being very competitive in the future as they choose to enter the industry This is a threat to the current businesses Current businesses are always seeking ways to prevent potential competitors from entering the industry, as the more businesses entering into the industry, the more competition there is; the market shares and profits will be divided and the business position will

be changed

Competition pressure and potential opponents depend greatly on attraction of the industry, entry barriers into the industry, technology, capital, trade factors and specific resources etc

Analyzing supplier pressure

Suppliers are organizations and individuals capable of producing and supplying

inputs such as machines, materials, services, vehicles, etc to businesses Businesses need to be aware of the negative effects of their suppliers which can be considered as a threatening pressure as they are able to increase the price of inputs or reduce the quality

of their products or services This reduces the profits of the business

However, this force only puts pressure on businesses when there are few suppliers (a business only needs a few suppliers, even only one exclusive supplier); There are few alternative products and services, even no alternative products and services and no other suppliers; if a supplier has a typical advantage over a product

or service, the supplier is very important to the business and the supplier has

strategic capabilities to integrate along the industry

Analyzing customer pressure

Customers are the king for any business They may be end-users, but they may also be other businesses that need products of a business Customers play a central role in the strategic analysis of the business They are the people who bring direct profits to the business Customer‟s loyalty gives the business a great advantage That loyalty is usually formed on emotional relationships that a new entrant cannot easily remove immediately In general, it is the result of a successful product differentiation strategy that satisfies the needs of customers even more than their expectations Creating a distinctive product means creating a market that belongs to the seller and this is the ideal position for any business in the marketplace Having said that, the customer can also create pressure to make it difficult and reduce the profits of the business In fact, consumers are not very sensitive to the quality of the goods they buy and they will not be willing to pay a higher price for the product that

is considered to be of better quality Therefore, it is necessary to be well-planned at advertisements, marketing, seminars, presentations and product introduction for providing updated information on product quality to customers Building

customer‟s trust is a particularly important issue for businesses

Analyzing the pressure of alternative services & products

Alternative services and products are those of competitors in the industry or other industries that can satisfy the same needs of customers The characteristics of

alternative services & products are more favorable than those replaced in term of typical distinctions The explosion of science and technology todaycreates new alternatives which are more diversifiable and results in a strong price competition and

a reduction of profits which has become a big challenge for businesses In addition, the change of market demand is also an important factor in creating this threat

After analyzing the industry environment, I use the Matrix (IFE) to summarize and evaluate the important strengths and weaknesses of the functional business divisions

Figure 1.6 Internal Factor Evaluation Matrix ( IFE )

1.1.1.1 Analyzing internal environment of a business

For an overall view along with analyzing the external environment to help a business identify opportunities and threats, strategists need to pay more attention to the internal environment to know well the strengths and weaknesses of a business;

so that the business is able to choose the most appropriate business strategy

Analysis in accordance with working field - Value Chain)

Analyzing the internal environment: I apply the value chain model of American economist Michael Porter

Important factors within a

company

Level of importance Classification Score

Figure 1.7: M.Porter’s Value Chain Model

Primary activities: These activities directly affect the physical change of the

product related to the process of selling, transferring products to customers and after-sale services

Inbound logistics consists of preparation work for inputs of a business Inbound logistics is evaluated by:

- The reliability of the receiving system, materials management and stockpiling

- The effectiveness of raw material supply

Operation & production involve the creation of a product or service, including the required activities to transform the inputs into the final product Production activities are evaluated by:

- Labor productivity, efficiency of using machinery and equipment of a business compared to main competitors

- Automation is suitable for production process

- Managing production systems to improve quality and reduce costs

- The effectiveness of the layout of plants, workshops and the flow of product transferring

Outbound logistics includes activities related to the collection, storage and transportation of the final product Outbound logistics is evaluated by:

- Time, efficiency of goods and services of supply

Firm infrastructure Human resource management Technology development

Mua hàng Inbo

und Logistic

Operation

s

Outbound Logistic

Marketing &

Sales

Service

s

- The efficiency of stockpiling and supplying the final products

Marketing & Sales of a company also help to create value in a number of activities Marketing & sales include activities to ensure the most efficient exchange

of goods and services in the market Marketing and sales activities focus on:

- Market research activities to identify customer needs and market segments accordingly

- Promotions & advertisements

- Designing and evaluating the efficiency of distribution channels

- Encouraging and training sales forces

After-sales activities play a role in creating awareness of the value of a business on customer‟s mind by addressing customer issues and providing customer support After-sales activities include:

- After-sales services

- Customer guiding service

- Ability to supply equipment, spare parts

Support activities: These are activities that do not directly create value for

products but aid these activities in being carried out with high efficiency These activities include:

Human Resource Management ensures that a company has the appropriate skills to increase its value effectively Human resource management also works to ensure that all staffs are adequately trained, motivated, and paid to perform their value-added tasks

- Reward & punishment system

- Creating a working environment which reduces the rate of absence and quitting job

Human Resource Management includes activities related to recruitment, hiring, training, and development as well as employee compensation Human resource management is an important activity for the value creation The reality shows that a business that is really interested in investing in human development and management will make a difference in the market and gain a competitive advantage

in the long run

Technology development: including necessary activities to enhance the value

of products and the process used for production

- Research and development activities

- Relationship between research department and other departments

- Qualifications and experience of scientific and technical staff

- A creative environment in the business

Procurement activities:

- Looking for different sources of materials and reducing the dependence of business on sources with regard to time, cost, quality of goods

- Purchase process of materials and quality

- Build criteria to choose between buying, self-producing or renting

- Create a good and long-term relationship with key suppliers

Infrastructure:

- Identify new market opportunities or products as well as potential threats

- Strategic planning system for business

- Coordination among divisions in the business

- Searching and finding access to low cost capital

- Management information system for decision-making process

- A contact with government organizations and other related organizations

In fact, analysis of value chain for assessing each activity of a business as well

as identifying the strengths and weaknesses of business in order to create value for customers and for businesses So, the leader takes a holistic view of the business process through a value chain analysis Value chains can also help a business identify key elements and activities that leadto the success of the business

1.4.1.4 SWOT analysis

In order to build a business strategy, a business needs to carefully analyze the impact of internal factors and the external environment factors on its activities; Identify the strengths, weaknesses, opportunities and threats that the business is facing, thereby helpthebusiness to formulate a specific and effective business

strategy in line with the conditions of the business as well as to promote the strengths and overcome theweaknesses to build the best strategy

I apply SWOT matrix to build strategic business

Figure 1.8: SWOT matrix

SWOT stand for: Strengths, Weaknesses, Opportunities and Threats This is a tool for decision makers in management as well as business operation However, the SWOT matrix is a tool for outlining the feasible strategies to choose rather than deciding which strategy is best Thus, in the analysis of the SWOT matrix, the strategists pointed out four groups of strategy located in four different sectors of the matrix

- Strength-opportunity strategies (SO): Using the strengths of the Company to maximize the identified opportunities

- Strength-threat strategies (ST): Using the strengths of the Company to

minimize the identified threats from theexternal environment

- Weakness-opportunity strategies (WO): Using the identified

opportunities to minimize the weaknesses of the Company

- Weakness-threat strategies (WT): Minimizing the company‟s weaknesses

External factors

Internal

factors

Opportunities (O)

A list of important opportunities from the external environment

Threats (T)

A list of important risks from the external environment

Strengths (S)

A list of important strengths

from the internal

environment

Strength-opportunity strategies (SO)

Using strengths of the Company to maximize the identified

opportunities

Strength-threat strategies (ST)

Using strengths of the Company to minimize the

Using identified opportunities to minimize the weaknesses of

company

Weakness-threat strategies (WT)

Minimizing the Company‟s weaknesses to avoid the

identified threats