Formulation And Choice Of Competitive Strategy For Green Fiberboard Jsc.pdf

VIETNAM NATIONAL UNIVERSITY, HANOI SCHOOL OF BUSINESS Nguyen Tien Dung FORMULATION AND CHOICE OF COMPETITIVE STRATEGY FOR GREEN FIBERBOARD JSC MASTER OF BUSINESS ADMIINISTRATION THESIS Hanoi 2009 VIET[.]

VIETNAM NATIONAL UNIVERSITY, HANOI

SCHOOL OF BUSINESS

Nguyen Tien Dung

FORMULATION AND CHOICE OF COMPETITIVE STRATEGY FOR GREEN FIBERBOARD JSC

MASTER OF BUSINESS ADMIINISTRATION THESIS

VIETNAM NATIONAL UNIVERSITY, HANOI

SCHOOL OF BUSINESS

Nguyen Tien Dung

FORMULATION AND CHOICE OF COMPETITIVE STRATEGY FOR GREEN FIBERBOARD JSC

TABLE OF CONTENTS

ACKNOWLEDGEMENTS ………i

ABSTRACT ……….ii

TÓM TẮT ……… iv

TABLE OF CONTENTS ……… vi

LIST OF ABBREVIATIONS ……… ix

LIST OF TABLES ……….x

LIST OF FIGURES ……… xi

INTRODUCTION ……… 1

 Necessity of the Thesis ………1

 Research Purpose ………1

 Research Scope ……… 1

 Methodology ……… 2

 Contribution of the Thesis ……….2

CHAPTER 1: LITERATURE REVIEW ……….… 3

1.1 Strategy Definition ……….… 3

1.1.1 Vision ……… 4

1.1.2 Mission …….……… 4

1.2 External Analysis ……….4

1.2.1 Macro Analysis ……….… 4

1.2.1.1 Economic …….……….……… 4

1.2.1.2 Politics …….……….……… 5

1.2.1.3 Socials …….……… 6

1.2.1.4 Technology …….……….……….7

1.2.2 Micro Analysis … ………7

1.2.2.1 Potential Competitor …….………8

1.2.2.2 Rivalry among Established Companies …… ……….9

1.2.2.3 The Bargaining Power of Buyers ……… ……….….…….9

1.2.2.4 The Bargaining Power of Suppliers ……… …….10

1.2.2.5 The Threat of Substitute Products ……… 10

1.3 Internal Analysis ……….…11

1.3.1 Value Chain Model … ……… ….11

1.3.2 Identify Competitive Advantage - Key Success Factors … ….….….15

1.4 Core Competences ……….…….….16

1.5 Competitive Strategy ……….…….….17

1.5.1 Cost leadership Strategy … ……….……… 18

1.5.2 Differentiation Strategy … ……….……….…20

1.5.3 Focus Strategy … ……….………….… 21

1.6 SWOT’s Analysis to Formulate Competitive Strategy ……… 23

CHAPTER 2: ANALYSIS GREEN FIBERBOARD’S SITUATION ….26 2.1 Introduction about the Green Fiberboard JSC ……….……26

2.2 Analysis of Wood Industry ……….…….26

2.3 Forecast the development direction (Opportunity & Threats) …….……28

2.3.1 External Analysis in Artificial Wood Industry - PEST Model 28

2.3.1.1 Economic ……….……… 28

2.3.1.2 Politics … ……… 31

2.3.1.3 Socials … ……….……….……33

2.3.1.4 Technology … ……… …….33

2.3.1.5 Integration … ……… 34

2.3.2 Internal Analysis in Artificial Wood Industry - Five Forces Model 35

2.3.2.1 Rivalry among Established Companies … ……… …… …35

2.3.2.2 Potential Competitors … ……… 38

2.3.2.3 The Bargaining Power of Buyers … ………40

2.3.2.4 The Bargaining Power of Suppliers … ………40

2.3.2.5 The Threat of Substitute Products …… ………… ……….42

2.4 Value Chain Analysis for Green Fiberboard JSC……… ……… ……43

CHAPTER 3: PROPOSE SOLUTION FOR GREEN FIBERBOARD 50

3.1 Orient the development strategy for Green Fiberboard JSC …………50

3.1.1 Vision …….……….……… 50

3.1.2 Mission …….……….…………50

3.1.3 Value …….………50

3.1.4 Green Fiberboard’s Objectives to 2012 …… ……… …… 50

3.2 Key Success Factors … ……… 52

3.3 SWOT Analysis to Formulate Green Fiberboard’ Strategy ………… 53

3.4 Select the Competitive Strategy for Green Fiberboard JSC ………… 54

3.4.1 Focus Differentiation Strategy (S-O Strategy) …….……….54

3.4.2 Average Pricing Strategy (S–T Strategy) …….……….54

3.4.3 Distribution Channel Development Strategy (W– O Strategy) … … 55

3.4.4 Branding Strategy (W– T Strategy) …….……… …55

3.5 Developing Competitive Strategy for Green Fiberboard JSC …………56

3.5.1 Average Pricing Strategy ((S-T Strategy) … ……… 56

3.5.2 Focus Strategy (S-O Strategy) ……… …61

3.5.3 Distribution Channel Development Strategy (W-O Strategy) … ……63

3.5.4 Branding Strategy (W-T Strategy) … ……….64

3.6 Conclusion ……… 65

REFERENCE

LIST OF ABBREVIATIONS

LIST OF FIGURES

FIGURE 1.1: FIVE FORCES MODEL BY MICHAEL PORTER ………… 8

FIGURE 1.3: PROCESS TO IDENTIFY COMPETITIVE ADVANTAGE 15

FIGURE 2.5: VALUE CHAIN ANALYSIS FOR GREEN FIBERBOARD

FIGURE 2.8: MDF PRODUCTION PROCESS… ……….45 FIGURE 2.10: GREEN FIBERBOARD’S MANAGEMENT CHART…….48 FIGURE 2.11: PRODUCTION UNIT CHART… ………49

LIST OF TABLES

TABLE 2.4: LIST OF SUGAR PLANTS AND

TABLE 2.9: TOTAL OF GREEN FIBERBOARD’S

HUMAN RESOURCES ……… ……….47 TABLE 3.1: GREEN FIBERBOARD’S OBJECTIVES TO 2012………….51 TABLE 3.2: DESCRIPTION OF AVERAGE PRICING STRATEGY ….56

TABLE 3.5: DESCRIPTION OF DISTRIBUTION CHANNEL

DEVELOPMENT STRATEGY ……… ….63

INTRODUCTION

 Necessity of the Thesis

Vietnam has transformed in two decades of rapid It has opened its door to the outside world and liberalized its economy Over past decade, annual growth has average 7.5% More and more, the quality of life is improved and high Foreign investment is pouring in recent year and the competition in between domestic and oversea firms is fiercely

Many enterprises are lacked of competitive competencies and strategy in the integrated economy Facing with the above opportunities and threats, the organizations and firms need to try their best to exist in the severe and violent environment

With desire of developing appropriate business strategy for Green Fiberboard JSC, my thesis concentrates to the Competitive Strategy

 Purpose

This thesis aims to find the strengths and weakness, the oppotunities and threats that Green Fiberboard needs to implement and face It also evaluates the effect of internal enviroment and external enviroment to the firm and base

on the evaluation it will propose competitive strategy that is suitable for Green Fiberboard Join Stock Company

 Research Scope

Thesis only centers the factors that effect to the production capacity of Green Fiberboard and then implement to formulate competitive strategy for this company

 Methodology

The methodology will be base on by collecting data from newspapers, magazines, and internet, reviewing all the studies related to competitive strategies Statistic method is use to find the trends and characteristics for analysis factors

Quantitative survey can help to find out directors’ opinions on the Green Fiberboard operation

 Contribution of the Thesis

The student hopes this thesis will help other students who are interested in researching on the competitive strategy in future And the most important thing is that this thesis can help Green Fiberboard JSC., having a competitive strategy for its development

CHAPTER 1: LITERATURE REVIEW

Since it's establishment in April 1948, Dongwha Holdings has developed as a corporate group that specializes in the manufacture of wood materials It has also led the development of the Korean domestic wood industry by maximizing added-value The company continuously attempts to enter into high value-added business areas such as boards, surface materials, and building interior materials by intensifying wood business that has previously been the source of the company’s growth Recently, the company actively carried out overseas businesses

Dongwha Holdings believes in being equipped with an innovative business mind that enables us to respond to changes in a turbulent business environment, promptly For half a century, the company has established the firm basis for shaping the next half of the century into a new era through ceaseless developments, challenges and diversified changes

Dongwha Holdings also believes in putting its management philosophy of customer satisfaction, innovation, and respect for people into practice and endeavors to establish itself as a reliable business Not satisfied with being the leader in the Korean domestic market; Dongwha aims to realize the vision of being the leader in the Asian wood industry

1.1 Strategy Definition,

A plan that attempts to define a position for the business that utilizes the competitive advantages that the business has over its competitors

1.2 External Analysis

1.2.1 Macro Analysis

An organization’s external environment consists of competitors and other forces outside its industry that are not under the direct control of the business and its industry Every business is subject to general forces that are felt in many industries and that are not usually amenable to influence by a single organization These forces can be classified as Economic, Technological, Social and Political

1.2.1.1 Economic

Economic growth rate and GDP can effect negatively to consumption of wood products When the economic grows strongly, GDP in a country is high,

and living standard is improved people will have huge demand for house

The fluctuations of local, national, and world economies are related in many ways, but it is still important to make separate assessments based on organizational scope To assess the local situation, an organization might seek information concerning the economic base and future of the region and the effects of this outlook on wage rate, unemployment, and the transportation and commercial base On the national level, trends in growth, income level, inflation, balance of payment and taxation are only a few of the indicators of the ability of the economy to produce and consume goods and services

Some experts saying Vietnam Economy is developing strongly because of promoting individuals consumption and private investment and foreign direct investment The optimistic economic development effect positively to wood processing industry

Therefore, we can consider that the risk of economy can also cause the risk for any firm

1.2.1.2 Politics

Political and legal factors have a major affect on the level of opportunities and threats in the environment and effect to any industry’s existence and development For example, One year after Vietnam’s entering WTO, the wood processing industry for export reached 2.4 billion USD, up to 24.4% comparing with 2006

Laws influence the hiring and firing of employees, compensation, working hours, and working conditions Laws also influence advertising practices, the pricing of products and corporate growth by mergers and acquisitions In

addition to these laws, governmental tax policies influence the financial structure and investment decisions of organization For example, every wooden processing firms exporting to European and USA markets have to follow Forest Steawardship Council (FSC), which is an independent, non-governmental, not for profit organization established to promote the responsible management of the world’s forests This organization will issue a certificate for those firms having good management of forest and that means the good is not smuggle

We can say that the political and legal factor can effect strongly to the countries A developing country jointing into WTO it can be an development about capital foreign investment and export into international markets Beside, in the integration process, the wood manufacturing enterprises in that county are facing with many risks such as the competition from foreign producers who have knowledge, money and high technique

1.2.1.3 Social

Social forces include factors that relate to the values, attitudes, and demographic characteristics of an organization’s customers Dynamic social forces can significantly influence the demand for and organization’s products

or services and can alter its strategic decision Determining the exact impact

of social forces on an organization’s objectives is difficult at best Nevertheless, assessing the changing values, attitudes, and demographic characteristics of and company’s customers is an essential element in establishing firm objectives Population growth and economic development will intensify the demand of wood products and this will be opportunities for wood processing industry

In Vietnam, labor source is available and cheap and Vietnamese workers are skillful which can be advantages for Vietnamese wood firms for competition

1.2.1.4 Technology

Vietnam wood processing companies are using old equipments, backward technologies, and that effect to product quality and their competition in the market The growth of wood market will be affective to shape and develop the technology market Technology exchange and transfer will be faster through the integration Technological forces include not only the fascinating invention that revolutionizes our lives but also the gradual improvements in methods, in materials, in design, in application, in transmission into new industries and in efficiency The effects of wood technological changes are normally felt in the following ways:

- New products such as artificial wood Particle Board, MDF can be

replacing natural wood

- Alternate processing methods, raw materials such as artificial wood made

from straw, leaf, coffee bark, rice husk

1.2.2 Micro Analysis

The task facing managers is to analyze competitive forces in an industry’s environment in order to identify the opportunities and threats confronting a company Michael E Porter of the Harvard School of Business Administration has developed a framework that helps managers in this analysis Porter’s framework is known as five forces model

Figure 1.1 Source: M.E.Porter, Competitive Strategy (New York: Free Press 1980)

This model focuses on five forces that shape competition within an industry

- The risk of new entry by potential competitors

- Degree of rivalry among established companies within an industry

- The bargaining power of buyers

- The bargaining power of supplier

- The threat of substitute products

1.2.2.1 Potential Competitor

Potential competitors are companies that are not currently competing in an industry but have the capability to do so if they choose Incumbent companies (those already operating in an industry) try to discourage potential competitors from entering the industry, since the more companies enter, the

Threat of entry

by potential competitors

Rivalry among established firms

Bargaining power of buyers

Bargaining

power of

suppliers

Threat of substitute products

more difficult it becomes for established companies to hold their share of the market and to generate profits Thus, a high risk of entry by potential competitors represents a threat to the profitability of established companies

On the other hand, if the risk of new entry is low, incumbent companies can take advantage of this opportunity to raise prices and earn greater returns The strength of the competitive force of potential rivals largely a function of the height of barriers to entry Barriers to entry are factors that make it costly for companies to enter an industry The greater the cost that potential competitors must bear to enter an industry, the greater are the barriers to entry High barriers to entry keep potential competitors out of an industry, even when industry returns are high

There four main sources of barriers to new entry: brand loyalty, absolute cost advantages, economic of scale and government regulation

1.2.2.2 Rivalry among Established Companies

The second of Porter’s five competitive forces is the extent of rivalry among established companies within an industry If this rivalry is weak, companies have an opportunity to raise prices and earn greater profits If rivalry is strong, significant price competition, including price wars, may result The extent of rivalry among established companies within an industry is largely a function

of three factors: the industry’s competitive structure, demand conditions, the

height of exit barriers in the industry

1.2.2.3 The Bargaining Power of Buyers

A company’s buyers may be the customers who ultimately consume its products (its end users), but they may also be the companies that distribute its products to end users, such as retailers and wholesalers

Buyers can be viewed as a competitive threat when they are in a position to demand lower prices from the company or they demand better service On the other hand, when buyers are weak, a company can raise its prices and earn greater profits Whether buyers are able to make demands on a company depends on their power relative to that of the company

1.2.2.4 The Bargaining Power of Suppliers

Suppliers can be viewed as a threat when they are able to force up the price that company must pay for its inputs or reduce the quantity of the inputs they supply, thereby depressing the company’s profitability On the other hand, if suppliers are weak, this gives a company the opportunity to force down prices and demand higher input quantity As with buyers, the ability of suppliers to make demands on a company depends on their power relative to that of the company

1.2.2.5 The Threat of Substitute Products

Substitute products are those of industries that serve consumers’ needs in a way that is similar to those being served by the industry being analyzed The existence of close substitutes presents a strong competitive threat, limiting the price a company can change and thus its profitability However, if a company’s products have few close substitutes (that is, if substitutes are weak competitive force) then, other things being equal, the company has the opportunity to raise price and earn additional profits