a study on the impact of cost reduction measures in a chieving the competitive advantages in footwear industry

A study on the impact of cost reduction measures in achieving the competitive advantages in footwear industry By Pham Thuy Phuong Graduation Project Submitted to the Department of Busi

A study on the impact of cost reduction measures in achieving the competitive

advantages in footwear industry

By Pham Thuy Phuong

Graduation Project Submitted to the Department of Business Studies, HELP University College, in Partial Fulfillment of the Requirements for

the Degree of Bachelor of Business (Accounting) Hons

April 2011

Declaration of originality and word count

DECLARATION

I hereby declare that the graduation project is based on my original work except for quotations and citations which have been duly acknowledged I also declare that it has not been previously or concurrently submitted for any other course/degree at HELP University College or other institutions The word count is 10,399 words

_

Date:

ACKNOWLEDGEMENTS

In order to complete this project, I must be grateful to the following people for guiding me

1 Ms Sumathi: a teacher of HELP University College She helps me understand

how to prepare a graduation project and what I should do and should not do in a graduation project She gives me many various sample topics to help me choose and understand aspects and issues can be exited in accounting topics

2 Ms Shenbak: a teacher of HELP University College She helps me find the way

to choose a topic of a graduation project After I can choose some topics, she also shows me what topic is easier for me to do and what issues I should consider in this topic

3 Mrs Dao Thu Giang: a vice - director of Foreign Trade University She helps me

understand what I must do in a graduation project In each chapter, she defines clearly how I should do and what aspects I should examine She helps me reexamine and check accounting information, tables and figures She also shows

me what information I should focus on or not After finishing this project, she examines and considers the graduation project

4 Ms Ngo Hong Anh: an accountant of Thuong Dinh Shoes Company Ltd She

gives me accounting information as well as financial data of two years ( 2009,

2010 ) Thank to these information, I can calculate and draw table and figure in

this project

5 Mr Le Van Duong: a manager of The Research and Development department of

used in the previous year 2009 and new strategies company will use in the next year He also gives me the objectives of company wants to achieve Basing on

this, I can see and understand clearly the condition of company

ABSTRACT

A study on the impact of cost reduction measures in achieving the competitive

advantages in footwear industry

By

Pham Thuy Phuong April 2011 Supervisor :

Nowadays, the world trends to globalize, organization not only considers the way

to maximize profit, but also cares its competitive advantage in the market Because of this, many companies find way to improve their competitive advantages in the opened market as today There are many methods to help company improve their competitive advantages but the best way company can use is to reduce cost Reducing cost can create many opportunities for company to compete with other companies In the market, one of the most elements can attract customers most is price The lower price is, the more attractive company can gain Especially, in Vietnam, the footwear industry become more and more developed day by day Thuong Dinh Shoes company is one of the most developed shoes manufactures in Vietnam It not only has expanded its market in Vietnam but also in many foreign countries As a result, I choose Thuong Dinh Company

Ltd as a specific example to analyze

TABLE OF CONTENTS

Declaration of originality and word count i

DECLARATION i

ACKNOWLEDGEMENTS ii

ABSTRACT iv

TABLE OF CONTENTS v

LIST OF FIGURE viii

LIST OF ABBREVIATIONS ix

Chapter 1 : INTRODUCTION ix

Chapter 2 : LITERATURE REVIEW 5

2.1 Definition of accounting and its functions : 5

2.1.1 Definition of accounting 5

2.1.2 The main functions of accounting 6

2.2 Definition of cost accounting and its function and objectives 7

2.2.1 Definition of cost accounting: 7

2.2.2 Functions and objectives of cost accounting 8

2.3 The nature of competition and competitive advantage 10

2.3.1 The nature of competition 10

2.3.2 The nature of competitive advantages 11

2.3.2.1 The basic nature of competitive advantage 11

2.3.2.2 Sustaining Competitive Advantage 12

2.3.2.4 Types of competitive advantage strategic 14

2.4 The factors that can affect to the competitive advantage 15

2.4.1 The suitable strategic to gain competitive advantage in the new environment 15

2.4.1.1 Porter’s five forces 15

2.4.1.2 Low cost strategy 17

Chapter 3 : METHODOLOGY 19

3.1 Characteristics in organization production and business activities of Thuong Dinh Shoes Company Ltd 19

3.2 The method to implement this project 23

Chapter 4 : ANALYSIS 25

4.1 Analysis of the financial situation of the Thuong Dinh Company Ltd in 2010: 25

4.1.1 Assessment of general financial situation of the Thuong Dinh Company Ltd in 2010 through the balance sheet accounts: 26

4.1.2 Analysis to capital for business operations situation: 29

4.1.3 Analysis of the relationship and the fluctuation of the items in the balance sheet accounts: 31

4.1.4 Analysis of the relationship and the changing situation of indicators in the profit and loss statement: 34

4.1.5 Analysis of the situation of solvency of Thuong Dinh Company Ltd in 2010: 36

4.1.6 Analyze the effective and efficient of business performance of Thuong Dinh Company Ltd 39

4.2 Analyze the use of materials Thuong Dinh Company Ltd in 201 42

4.2.1 Analysis of the major materials supply condition: 43

4.2.2 Analysis of the major used materials 44

4.2.3 Analysis of the primarily reserve of material situation: 46

Chapter 5: CONLUSION 48 REFERENCES/ BIBLIOGRAPHY Error! Bookmark not defined

LIST OF FIGURE

Figure 2.1 : Types of competitive advantage strategies 14

Firgue 2.2 : Porter's 5 Forces - Elements of Industry Structure 17

Figure 3 : The general financial conditions of Thuong Dinh Shoes Company Ltd 20

Figure 4.1 : Assessment of general financial situation of the Thuong Dinh Company Ltd in 2010 through the balance sheet accounts (Unit: Vietnam Dong ) 26

Figure 4.2: Analysis to capital for business operations situation in year 2010 30

Figure 4.3 : Analysis of the relationship and the fluctuation of the items in the balance sheet accounts: 31

Figure 4.4 : The income statement of Thuong Dinh Shoes Company Ltd in 2010 35

Figure 4.5 : Analysis of the situation of solvency of Thuong Dinh Company Ltd in 2010 37

Figure 4.6 : The analysis the using synthetic efficiency costs 39

Figure 4.7 : The analysis of the effective business performance 40

Figure 4.8: Analysis of the major materials supply condition 43

Figure 4.9 : Analysis of the major used material in 2010 45

Figure 4.10 : Analysis of the primarily reserve of material situation in 2010 of Thuong Dinh Company Ltd 46

LIST OF ABBREVIATIONS

Chapter 1 : INTRODUCTION

In the economy, the ultimate aim that each organization always cares most is how

to maximize the profit But nowadays, when the world trends to globalize, organization should consider its competitive advantage in the market because market today is very board and there are more competitors in the market than before In the past, each organization was set up in its own country so the amount of competitors also were limited Organization only can compete with other organizations in its country Now, market is expanded, organization can set up many subsidiaries in many other different countries over the world It means this organization can face to many other organizations coming from countries that its subsidiaries are operating in As a result, the number of competitors will increase noticeable However, many organizations only pursue how to maximize profit, they forget how to achieve the competitive advantage compete with their competitors The less competitive advantage organization has, the smaller the organization’s market is So, it also affects to the profit organization can earn Although profit is the last aim the company wants to get, a famous brand also is a important aim that organizations also want to get To become a famous brand, each company must create trust to customer as well as create a higher competitive advantage than competitors In order to have a huge customer base, each company must create a good quality product with the beautiful packing but the important factor is suitable price Almost all organizations compete with each other to create a suitable price Normally, to get a suitable price, organization must create strategies to cut cost When cost is decreased, the price of products will be lower and can create higher competitive advantage In general, in order to increase profit as well as increase competitive

advantage, companies need to use accounting, especial cost accounting, as the best method Besides, cost accounting has strong impacts on product cost If product cost is low, the price of organization’s product can decrease and it also helps the organization to improve its competitive advantage

Cost accounting is considered as a good method to help managers understand clearly how much it costs to produce a product Understanding the role of cost accounting

is important when the manager is trying to make a new product The role of cost accounting is to record, measures, and report information about cost of everything within the organization to produce a product Cost accounting is often used in the following organization: manufacturing, merchandising, and service companies, governments, universities, and not-for-profit and profit-making enterprise But cost accounting is considered as the best method when using in manufacturing Besides, the role of cost management helps an organization remain a competitive advantage to compete with other competitors by creating more value at a lower cost In order to create value at a lower cost, cost accounting creates efficiently managing in an organization’s value chain of activities, processes, and functions Furthermore, the information that cost accounting bring to organization is helpful for managers So, if each manger know how to perform functions of cost accounting in the new manufacturing accounting, manger can succeed

in running a new organization in new manufacturing environment It also means organization can create higher competitive advantage than other competitors

Currently, Vietnam is in the progress of modernization Recently, our economy is opened and gets many innovative achievements Vietnam is now a member of ASEAN, APEC, WTO Besides, Vietnam also signed a trade agreement with America and

Vietnam also joined AFTA in 2006 Thank to opened and integrative conditions, Vietnam’s economy has developed fast The more developing Vietnamese economy is, the more improved Vietnamese society get Besides, this also helps Vietnamese economy can catch up with other country’s economy However, everything always has two sides Although the integration of Vietnamese economy can bring many benefits, Vietnamese economy also faces to many competitions from internal competitors as well as external competitors Day by day, these competitions become more and more severe So, in order

to exit in this market today, the improvement of competitive advantage of each company plays an vital role To put it in other way, the ability to improve organization’ s competitive advantage not only has a strong influence to the survival and development of enterprises in particular, it but also has impacted on the economic growth of the country

in general Therefore, I think the competitive advantage of organization in market should

be considered carefully because organization not only manufacture and sell products and services in its own country, it also manufacture and sell product and service over the world If an organization can remain or has a higher competitive advantage than competitors, this organization find a right strategy to follow And the organization can gain competitive advantage in market, it means the organization have a stable stand in market and is known as by many people over the world Many companies lose their competitive advantages so they also lose many customers to competitors Even this can make these company shut down in market This proves that competitive advantages play

an important role in existing in market when our economy trends to globalize

In Vietnam, when the economy is opened, many branches expand and improve fast But we cannot ignore that footwear industry developed and improved fast in recent

years It can be said that footwear industry in Vietnam has an obvious advance Vietnamese shoes brands is not only known in its own country, it is also known broader

in other countries than before Instead of importing shoes from foreign countries to use, Vietnam can manufacture shoes by itself to serve its own customers Furthermore, Vietnam can export shoes to foreign country However, the amount of shoes sold in Vietnam and foreign countries is not large This can be caused by the lack of competitive advantages of Vietnamese footwear industry in market Competitors from other countries can give customers many different choices about product with many types of price while Vietnam still face many problems about price of shoes They cannot give customers suitable price of each shoes they produce This can come from the higher cost that company must bear Because of these issue, Vietnam has met many difficulties in creating competitive advantage in the new environment compare with other competitors

In Vietnam, there are many shoe manufactures exists in market and because of limitation

of this project, I will chose a manufacture has the best oblivious advance in this industry

as an example, is Thuong Dinh Ltd Company After realizing this issue, I perform to study “ the impact of cost reduction measures in achieving the competitive advantages in footwear industry, especial in Thuong Dinh Ltd Company”

My project is divided into five main parts

The first part : Introduction The second part : Literature review The third part : Methodology The fourth part : Analysis The final part : Conclusion

Chapter 2 : LITERATURE REVIEW

2.1 Definition of accounting and its functions :

Before examining what cost accounting is and its function, we should understand definition as well as functions of accounting clearly first

2.1.1 Definition of accounting

In general, accounting is a process of collecting, recording, reporting information

To go into details, accounting is also considered as a set of practice and body of knowledge that its primary tasks are recording transaction, keeping financial record, reporting and analyzing financial information to managers, and sometimes it give some advices on taxation matters It can be identified profit or loss for a pass and current period, and it also show the value and nature of a firm's assets, liabilities and owners' equity Besides, accounting provides information for managers about the available resources in a firm, the means resources, and the results company can achieve when they use accounting information Furthermore, it helps organization create important decisions It also helps managers, investors, regulators, lenders and public know whether should invest in this organization or not because accounting information can give them account can show the current condition of this organization Account can identify to help them see that operation of organization is good or bad It also reports to them the ability

of organization in creating profit To put it in other way, accounting can show clearly whether this company is making profit or suffers heavy loss Furthermore, accounting system has an strong impact on management across organizations, manufactures, department or even economic society of many countries over the world because accounting information help manager realize and find way to earn profit which is

considered as the most interest daily of each company In order to make profit and create competitive advantages to help companies exist in the severe market today, each manager should encapsulate all accounting information to unify in a general accounting system It

is useful for manager as well as companies

2.1.2 The main functions of accounting

Accounting always plays a vital role in organization’s business Almost all companies which are existing in the market today, need at least an accountants Nowadays, accounting becomes more and more important because the functions of accounting help companies many things in operating its business Accounting has many functions but there are four main functions that are known by people most are recording and keeping information, protecting business property, meeting legal requirement and communicating

The primary function of accounting is to keep, record and collect systematic financial transactions as well as financial information in order to help accountants and managers can prepare final financial and accounting statements The second function is to protect the property of businesses In each organization, it will has many properties are unjustified and unwanted In order to avoid the rash using of these properties from people

in company, accountants and managers must set up or design a suitable accounting system to protect these properties If these properties are out of control, they can cause many damages for companies, such as the loss amount that company do not know the reason The third function is to meet legal requirement Each country over the world must

be subject to the regulation of its own government Business of each country is not also

an exception Each company must be bound by legal requirements that the government

creates to control its economy and business Under the provision or Act of law, each company want to run in market, it must prepare five various financial statement, such as income tax return and returns for sale tax, completely every years or every times government requires So, accountings is considered as a basic of information to help managers prepare these statements Finally, the most important function of accounting is

to communicate the results of firms because accounting is considered as a language to communicate between people inside company and people outside company In a firm, it has many parties who care the final operating result of a firm, are owners, creditors, government, employees They always want to know that after a long time company operates, whether its operation is good or not Then, they can decide to make decision for company and for theirs own interest

2.2 Definition of cost accounting and its function and objectives

2.2.1 Definition of cost accounting:

“Cost accounting is considered as an expanded phase of the general financial accounting of a business concern which provides management promptly with the cost of producing or selling each product or of rendering a particular service" To put it in other way, cost accounting is a step further of financial accounting in which cost of manufacturing is identified, not at the time of accounting period but at the time when the product is manufactured In simple words, costing is a systematic procedure for determining the unit cost of output produced or services rendered It provides for organization an analysis of the consumption which enables the managers to know total cost In summary, cost accounting is “the process of accounting for cost, which begins with regarding and classifying of incomes and expenditures and ends with the preparation

of periodical statements and reports for ascertaining and controlling costs” And cost accounting can be determined as the process of measuring, analyzing, computing, and reporting the cost, profitability and performance of operations

To see it in other aspect, cost accounting is considered as one of the best method to provide information for management accounting and financial accounting Cost accounting is used to measure, analyzes and report financial as well as non-financial information that concern to the costs acquiring or using resources in an organization Normally, cost accounting specializes in controlling and calculating cost of product

2.2.2 Functions and objectives of cost accounting

The role of cost accounting is to record, measures, and report information about cost of everything within the organization to produce a product So, in order to know how cost accounting can help organizations or manufactures control cost of material of products, organizations should consider carefully the functions and objective of cost accounting

The primary objectives and function of cost accounting is to ascertain and estimate cost of product for different products, job, and services Cost accounting evaluate costs of production and manufacturing process by applying different methods of cost accounting, such as job costing, process operation costing, contract costing etc according to the suitability and needs of the organization

Secondly, cost accounting can determine selling price that cost accounting provides detailed information about the composition of total cost for determining action

of the selling price of the product or service under different conditions Besides,

accounting cost can create a fixation of selling prices It also helps organization to find

out cost of production and fixation of selling prices of the product, process job and operation

Thirdly, cost accounting is used as a measure to evaluate increasing efficiency- cost accounting that involves a study of various operations used in manufacturing a product or providing service The study facilitates measuring of efficiency of organization or a whole as well as of departments besides devising means of increasing efficiency

Furthermore, cost accounting can create control Cost accounting aims is improving the efficiency by controlling and reducing cost Budgetary control and standard costing are important techniques used control costs Besides, cost accounting is controlled by setting standards and compared with the actual The deviation between them are identified and if required necessary controlling measures may be taken

Cost accounting can facilitate preparations of financial and other statements because it provides statements at such short intervals as the management may require In order to operate business at high level of efficiency it is essential on the part of the management to have a frequent review of products, sales and operating result Cost accounting produces daily weekly and monthly volumes of units produced, accumulated cost together with appropriate analysis

Nowadays, cost accounting is fully developed cost accounting system that provides ready information regarding stock of raw material, work-in-progress and finished goods, facilitates the preparation of financial and other statements And it also provides basis for operating policy Cost accounting helps manager manage the

formulating operative policies As a result, cost accounting provides useful information for organizations or manufactures

2.3 The nature of competition and competitive advantage

2.3.1 The nature of competition

The concept of competition that has come from dominate economics, is static Competition is considered as affairs It is not as a process Competition does not deal with qualitative change The difference between outputs of firm creates a distortion with respect to the model of perfect competition

During the history of economic, many shortcomings have already been showed and discussed by a number of authors In the economics literature, there are two shortcomings which have been addressed separately, while they can be both be jointly surmounted by means of a generalized definition of competition In general, competition occurs between firms that produce similar outputs, such as products or services Even when these outputs are material goods, they are sold for the services they supply to their users Thus, competition will exist whenever firms produce either similar services, or products supplying similar services To make it simple, a market simply defined is an area within which a group of seller compete against other group seller to gain a common group of buyers In some sense, all products are in the same market as all compete for a common pool of money held by consumers

In this analysis, an industrial sector is considered as a population of firms producing a differentiated product In this industry, competition exits not only from within an industry, but also from other sectors supplying some common services For example, railway companies, bus companies and airlines produce comparable transport

services and can compete Thus the intensity of competition is identified not only by the number of firms in the industry, but also by the similarity of firms' goods and services in the same industry and in other industries Or in the same market or same product as shoes industry, an organization not only compete in its own country but also compete with other country Furthermore, by means of inter-industry competition it represents an important element of the contestable market Changes in the composition of the economic system are determined by innovation In particular, basic innovations create qualitative change, and can give rise to new industrial sectors A change in the structure of the system leads to a dynamics of subsequent evolution Typically sectors are not created instantly but evolve through a life cycle In the initial phases, a small number of entrepreneurs creates the sector During these phases, the intensity of competition is very low, since the expectation of a temporary monopoly was an encouragement for the early producers to enter To put it in other words, competition and the condition of the evolvable system by influencing each other in a process were driven by innovation Innovation changes the structure, and thus the state of the system; it creates changes in competition, which become further determinants of the state of the system

2.3.2 The nature of competitive advantages

2.3.2.1 The basic nature of competitive advantage

According to Grant, competitive advantage is defined as follows: “When two or

more firms compete within the same market, one firm possesses a competitive advantage over its rivals when it earns (or has the potential to earn) a persistently higher rate of

internal sources where companies have greater creative or innovative capabilities and

from external sources around changing customer demands, prices and technological change Any change in the external environment creates an opportunity for profit and entrepreneurship is the ability to determine and respond to that opportunity With the markets are becoming increasingly turbulent, this ability to respond can be said to be a competitive advantage in itself, if it is a better ability in relation to other companies that

is It also means that each organization foresees future changes and therefore this firm needs information and flexibility to respond This changes organizational structure, decision-making systems, job design, and culture to the center of an organizations capabilities The faster the organization can respond, the less organization needs to rely

on forecasts

Innovation is not only a competitive advantage but also a capability that allows to overturn the competitive advantage of other firms According to Gary Hamel, he argues that “ business concept innovation is the foundation for value creation in the new economy” These new business concepts will often relate a reconfiguration of the value

chain of the industry in question

2.3.2.2 Sustaining Competitive Advantage

Assuming that the greatest threat here is imitation, so barriers of imitation must be found To become successful, a firm needs to identify the advantage and has to find an incentive to imitate it After that it needs to be able to identify the advantage and gain the needs of resources

Normally, a company is trying to set up barriers that can use to limit pricing in order to have such low prices so as not to attract new entrants The against incentives is deterrence It normally is threat of retaliation, can be used but must be credible If

organization threat is aggressive price cuts, the organization needs to have excess capacity or inventories For example, preemption is another option It means that a company takes up all available, current and potential niches, is helped with capacity in order to build up in advance of growth or patents Preemption depends on a small number of viable competitors and a first mover advantage in the market As a result, the more aspect or dimension organization’s competitive advantage has, the more difficult the diagnosis will be This leads to uncertain limitability

2.3.2.3 Competitive Advantage in Different Market Settings

In the efficient markets, competitive advantage does not exit Here prices reflect all available information and information flows freely Beating the market consistently is impossible

In the trading markets, competitive advantage can come from the imperfect availability of information, transaction costs, systematic behavioral trends and those that best diagnose them and overshooting which often means that acting in the opposite direction to market swings is a potential for more profit in production markets Therefore, the greater the heterogeneity in the endowments of resources and capability of different firms the greater the potential for a competitive advantage If there is a lot of change in an industry, the potential for new competitive advantage is great It also means that “the greater the choice criteria of your customers, the more likely a niche can be found for sustainability customer need, such as imperfection of information, opportunities for deterrence and preemption, and difficulties of resource acquisition”

2.3.2.4 Types of competitive advantage strategic

Completive advantage has two main types : cost advantage and differentiation advantage Cost advantage is use for similar product at lower cost while differentiation is

use for higher price for unique product

According Michael Porter, he divides type of competitive advantage into three main types They are cost leadership, differentiation and focus In the most industries, market leadership is held by a firm that has combined the differentiation with low cost Also, sometimes, in the existence of scale economies, market share leaders can improve their relative cost position Cost leadership is normally low cost position that relates to a firm’s peers It uses to control relationships throughout the entire value chain Secondly, differentiation is used to create products and services that are unique and valued It is a non price attribution for consumers only pay a premium Finally, the focus strategic is used to reduce product line, buyer segment, or targeted geographic markets It can be gained advantages either through differentiation or cost leadership

Figure 2.1 : Types of competitive advantage strategies

Narrow Target

1 Cost Leadership 2 Differentiation

3A Cost Focus 3B Differentiation

Focus

2.4 The factors that can affect to the competitive advantage

At the most fundamental level, firms create competitive advantage by perceiving

or finding out new and better ways to compete in an industry and bringing them to market, which is ultimately an act of innovation Innovations change competitive advantage when rivals either fail to perceive the new way of competing or are unwilling

or unable to feedback There can be significant advantages to early movers responding to innovations, particularly in industries with significant economies of scale or when customers are more interested in switching suppliers The most significant causes of innovations that change competitive advantage are normally new technologies, new or shifting buyer needs, the emergence of a new industry segment, changing input costs or availability and changes in government regulations

2.4.1 The suitable strategic to gain competitive advantage in the new environment

Because of globalization, there are many threats which appear in the market Many companies must find the suitable strategy to remain its business in the strict market

as today In manufacturing market nowadays, especial is in shoe industry, almost companies use two main strategy, are Porter’s five forces and low cost provider

2.4.1.1 Porter’s five forces

The model pure competition implies that risk adjusted rate of return should be contrast across firms and industries However, numerous economic studies have asserted that the different industries can remain different levels of profitability, the industry structure explains a part of this difference Industry structure and positioning within the industry are the radical models of competitive strategy improved by Michael Porter

The Porter’s five forces diagram holds the main idea of Porter’s theory of competitive advantage The Five Forces determine the rules of competition in any industry Competitive strategy must grow out of a complicated understanding of the rules

of competition that identify an industry's attractiveness Porter claims that " the ultimate aim of competitive strategy is to cope with and, ideally, to change those rules in the firm's behavior" The five forces define industry profitability, and some industries may be more attractive than others The main question in identifying profitability is how much value firms can bring for their buyers, and how much of this value will be captured or competed away Industry structure defines who will hold the value But a firm dose not control completely in industry structure, firms can affect the five forces through their own strategies The five-forces framework highlights what is important, and directs managers must toward those aspects as the most important to long-term advantage

So, Michel Porter provided the frame work that models an industry by five forces The strategic business help managers find the suitable way to understand industry that firms operate

Firgue 2.2 : Porter's 5 Forces - Elements of Industry Structure

New Entrants

Buyers Suppliers

Substitutes

Industry Competitors

Intensity

of Rivalry

Threat of Substitutes

Threat of New Entrants

• Buyer information

• Ability to backward integrate

• Buyer profits

• Decision maker’s incentives

Determinants of Substitution Threat

• Relative price performance of substitutes

• Absolute cost advantages

Proprietary learning curve

Access to necessary inputs

Proprietary low-cost product design

• Government policy

• Expected retaliation

Determinants of Supplier Power

• Differentiation of inputs

• Switching costs of suppliers and firms in the industry

• Presence of substitute inputs

• Supplier concentration

• Importance of volume to supplier

• Cost relative to total purchases in the industry

• Impact of inputs on cost or differentiation

• Threat of forward integration relative to threat of

backward integration by firms in the industry

2.4.1.2 Low cost strategy

In order to decide a right decisions concerning the products organization want to enter to market, managers need to know what their product cost Product design and new product introduction decisions will be affected by the anticipated cost and profitability of product In some environment, especial in manufacturing industries, product cost plays a rival role in setting and deciding prices So, organizations always seek way to customize product with low sale volume without readily available market price

The cumulative effect of making decisions on product design, introduction, support, discontinuance and pricing helps determine the strategy that company must create If cost of product is biased, there is no guarantee that firm will have an appropriate

strategy And low cost producers often achieve their competitive advantages by serving a board range of customers Low cost strategy is focus on the capability of the company to produce and deliver products of competitive quality at lower costs Better way to strategically situation a company on the advantage of cost is to improve market share by transforming from lowest cost producer to lowest cost supplier of products This way the company transforms its cost advantage into price advantage for its customers and thereby improves the market share The prospect of increasing the market share creates a great opportunity for the company to leverage the economies of scale coupled with the ruthless cost cutting measures it plans to execute The more competitive space it holds which also means that more competitors ignored, the more effective are economies of scale and as a result the costs are driven still lower When a company is able to transform the efforts of cost reduction into cost advantage for customers the company can be said to be successfully pursuing low cost strategy

Chapter 3 : METHODOLOGY

Before explaining how I can do this project, I want to introduce the company I choose to study This is about a company that specializes in manufacturing shoes in my own country Now, this company has intended to expand and enter to the new market at foreign country And this company use cost accounting method and strategy to gain its aim

3.1 Characteristics in organization production and business activities of Thuong Dinh Shoes Company Ltd

Name: Summit Footwear Company

Head office: 277 Nguyen Trai Thanh Xuan, Hanoi

2007 2008 2009

employees

Figure 3 : The general financial conditions of Thuong Dinh Shoes Company Ltd

The company's capital structure in 2009 as follows:

Total venture capital: 60,391,100,000 VND, including:

Working capital: 16,043,890,000 VND

If classified according to the sources of capital include the capital budget and an implementation:

The capital budget: 12,655,100,000 VND

Sources of additional equity capital: 47.736 billion VND

Thuong Dinh Footwear Company is an enterprise, so it always has a fix cost higher than the itineration capital It is a reasonable thing The company's products which have to make 2 / 3 is exported to foreign markets The company has a number of joint ventures with foreign enterprises, such as Novi (Germany), FOOTECH, YEONBONG (Korea), GOLDEN STEP (Taiwan)

In the domestic market, Thuong Dinh Footwear Company is an industry leader in manufacturing canvas shoes and long products have come into the minds of consumers However, the midland region and the Central Mekong have not been fully exploited Recently, Thuong Dinh can not keep sales of products stably but profits over recent years

to increase remarkably This is an encouragement and a motivation for this company to maintain its operation in the market because in the current market mechanism, many other state’s enterprises is in condition of making false profits but in fact this company is

in loss condition

From now to 2015, this company set overall visions to gain are as follow First, the company still continues to pursue intensive investment to implement industrialization and modernization Second, company will try to improve product quality and start to implement the quality and modern management programs that is certified ISO 9001 standards for integrating with regional markets and the world market Thirdly, company want to expand the export markets in EU, America, South America and domestic market

in Midland region and the Central Mekong region Fourthly, it will train and improve the quality of staff officers to help company meet its aims Next, it also maintain implement the Labor Code to ensure the right of employees as well as employers Finally, it will create a savings plans, support initiatives, and improved technology in order to maintain its production in the best way

Production characteristics in a company bases on orders Room designer shoe will give customer or its partners a specific sample of an product that it prepare to produce If customer or partners accept this product and two parties decide to sign contract, company will set plan and prepare for mass production And this company has many various trade