The thesis title
Building competitive strategy in the rice farming industry - The case of An Dinh Company.
The thesis necessity
Vietnam's accession to the WTO in 2007 has opened up numerous opportunities and challenges for rice farming investors As one of the world's richest agricultural regions, Vietnam stands as the second-largest rice exporter globally and the seventh-largest consumer The Vietnamese government is committed to advancing high-quality, value-added rice production and exports However, a case study of An Dinh, a rice farming and trading company, reveals that its production capabilities are limited, resulting in a negligible market share To achieve a stronger market position, the company must implement competitive strategies that focus on significant investments in expansion and enhanced marketing efforts.
This thesis, in above actual fact, is to build an appropriate competitive strategy for
An Dinh Company’s development It has also added the value to the strategy formulation by giving recommendations and proposing an action plan, which can be applied in implementing strategies.
Objectives
The objectives of this thesis are to (a) review the theory of building competitive strategies, (b) provide an overview of rice farming industry in Vietnam, (c) present
An Dinh Company is analyzed within its business environment to formulate a competitive strategy for future growth This study highlights the company's current strengths and weaknesses while also identifying an actionable plan for production expansion.
Method
This thesis utilizes a case study approach to develop a competitive strategy for An Dinh Company The research is primarily based on a comprehensive desk study, reviewing existing literature and data, and follows a structured three-step process.
The initial phase involves examining theories of competitive strategy and strategic management This research highlights various existing methodologies for formulating competitive strategies and identifies a standardized process for developing effective competitive strategies.
The second step based on the research of rice farming industry in Vietnam in terms of factors and influence on the business success
The case study of An Dinh Company includes insights from interviews with the company's strategic management planning managers, aiming to enhance competitive strategy and offer recommendations for effective strategy implementation.
Data sources
The theoretical review and secondary data collection involved analyzing research from various sources, including books, reports, newspapers, and online materials Additionally, primary data was gathered through interviews with managers and key employees of An Dinh Company.
Significance
This thesis enhances An Dinh Company's ability to implement effective competitive strategies by analyzing competitive strategy theory and strategic management while considering the influences of the business environment The insights gained from this theoretical framework can also be applied to other companies within the rice farming industry.
Limitations
The study is constrained by the limited number of local competitors considered, and the lack of detailed information and data on these competitors may not accurately represent the competitive landscape of the industry.
Expected results
This thesis aims to develop effective competitive strategies for the growth of An Dinh Company, with a methodology that can also be applied to other companies in the rice farming industry.
The thesis structure
Beginning with the introduction part, the thesis concludes three chapters and the conclusion part
Chapter 1 provides a fundamental review of competitive strategy and strategic management theory focusing on the competitive strategy formulation process
Chapter 2 discusses rice farming status in Vietnam, highlighting its latest achievement and key factors
Chapter 3 focuses on An Dinh Company, examining its environment to uncover external opportunities and threats, along with internal strengths and weaknesses that impact the development of the company's competitive strategy Recommendations for implementing strategic management will be provided.
Suggestion for future research
A rapid change of factors like technological advances, climate, and customer’s lifestyle creates both opportunities and challenges to the rice farming industry and
An Dinh Company Therefore, a deeper research undertaken could create more benefit to larger size companies.
LITERATURE REVIEW
Competitive strategy
Strategy is a plan designed to achieve a particular long-termgoal 1
In the business realm, the definition of strategy remains largely ambiguous, with varying interpretations among strategists and practitioners across different contexts However, several core concepts consistently emerge in discussions about strategy.
Strategy is perspective, which is vision and direction
Strategy is position, it reflects decisions to offer particular products and services in particular markets
Strategy is a plan, a “how”, a means of getting from here to there
2 Henry Mintzberg (1994), “The Rise and Fall of Strategic Planning”
Strategy is a pattern in actions over time
Strategy is the overarching plan that outlines how objectives will be achieved, emphasizing long-term goals and resource deployment In both business and military contexts, strategy serves as a crucial link between policy and tactics, ensuring that the means align with the desired ends.
Business strategy is a plan for how a firm will compete, what its goals should be and what policies will be need to achieve goals 4
A successful business strategy integrates investment decisions with the cultivation of a sustainable competitive advantage This involves selecting the right products and markets, determining investment intensity, and effectively allocating resources Additionally, developing a sustainable competitive advantage relies on leveraging a business's strengths, including its assets, technology, human resources, and management capabilities.
Since publication, Michael E Porter’s “Competitive Strategy” has introduced the theory and practice of business strategy throughout the world
He defines competitive strategy as:
Competitive strategy involves identifying a favorable position within an industry, focusing on achieving profitability and sustainability It aims to navigate and withstand the competitive forces that shape industry dynamics.
3 Fred Nickols (2000), “Strategy: Definitions and Meaning”, www.nickols.us
5 Michael Porter (1985), “Competitive Advantage: Creating and Sustaining Superior Performance”
Competitive strategy is a combination of the ends (goals) for which the firm is striving and the means (policies) by which it is seeking to get there 6
Michael Porter identifies three generic strategies for gaining a competitive advantage in industry competition: cost leadership, differentiation, and focus These strategies can be applied at the business unit level to counteract the impact of the five competitive forces The four fundamental competitive strategies include Cost Leadership, Differentiation, Cost Focus, and Differentiation Focus.
A cost leadership strategy involves offering the same product or service at a lower cost than competitors, achieved by optimizing production or service delivery processes This efficiency enables the company to set lower prices while maintaining profitability.
Companies using the cost leadership strategy often have some characters:
- Good ability to approach the capital for investing in production This is the barrier for another company
- Good and large distribution channel
Toyota is an example of implementing cost leadership strategy
Toyota, a renowned Japanese motor corporation, successfully implements a cost leadership strategy through its effective production system, which utilizes lean production and the Toyota Production System (TPS) Both Lean and TPS focus on reducing costs by eliminating waste through principles such as pull processing, perfect first-time quality, waste minimization, continuous improvement, flexibility, and strong supplier relationships This approach enhances Toyota's production capacity and efficiency, enabling the company to offer high-quality products at competitive prices, solidifying its position as the world's largest automobile manufacturer Additionally, robust financial support from the Japanese government and a vast global distribution network further contribute to Toyota's success.
Differentiation strategy: Same products or services are produced at a higher quality than competitors’ are
Companies using the differentiation strategy often have some characters:
- Good team in research and development (R&D)
- Good sales team: Ability to communicate information of product to customer
- Reputation and ability to innovative
Amway is an example of implementing differentiation strategy
Amway, a U.S.-based corporation founded in 1959, operates in over 80 countries and territories worldwide, achieving a turnover of $8.2 billion in 2008 The company emphasizes high-quality products and employs a differentiation strategy, supported by a robust research and development system.
65 research and development laboratories worldwide staffed by more than 500 scientists, engineers and technical professionals Amway research and development have been awarded more than 500 patents and have had more than
Amway, a prominent leader in the U.S Direct Selling Association and the World Federation of Direct Selling Associations, has published 400 papers in top industry journals Ranked #43 on Forbes Magazine's 2007 list of "America’s Largest Private Companies," Amway has earned recognition over the past 50 years for its manufacturing excellence, commitment to safety and health, and dedication to environmental concerns.
Amway is home to over 3 million Amway Business Owners and employs 13,000 individuals across its subsidiaries The company is committed to the belief that every person can make a difference, a philosophy that is reflected in their daily operations Amway empowers its employees to achieve their goals, fulfill their ambitions, and positively impact their communities This commitment to employee satisfaction is evident, as most staff members have been with Amway for over a decade, with many dedicating decades to the company.
Amway is successful company applying differentiation strategy
Focus strategy: Strategy focusing exclusively on a narrow segment of the market
A focus strategy is ideal for small firms but can also benefit larger companies that cannot pursue broad cost leadership or differentiation strategies This approach includes cost focus, where a company strives to be the lowest-cost producer within a specific market segment, and differentiation focus, where a firm gains a competitive edge by offering unique features tailored to that segment.
To effectively leverage strengths and mitigate the impact of competitive forces, firms must select the right generic strategy, as emphasized by Michael Porter, who advocates for pursuing only one strategy per product rather than a combination Organizations should carefully assess their competencies and strengths to determine the most appropriate generic strategy for their needs.
According to Michael Porter, companies can achieve success by employing a combination of strategies when they create distinct divisions focused on a single approach An example of this is Rayonier, which effectively implements a focus strategy.
Rayonier's medium-density fiberboard plant is largest panel plant in New Zealand Its capacity can produce 170,000 cubic meters of annually
Rayonier employs a focus strategy by targeting specific buyers in the house construction and large furniture sectors, producing only MDF panels with thicknesses ranging from 2cm to 5cm Although capable of manufacturing various thicknesses, the company has strategically segmented its product line to meet the high demand in these markets, ultimately maximizing profits.
The focus strategy centers on a specific buyer group, product segment, or geographic market, allowing firms to serve a targeted audience more effectively than competitors Unlike broad strategies aimed at industry-wide objectives, the focus strategy tailors each functional policy to meet the unique needs of its narrow target This approach enables firms to either differentiate themselves by better satisfying the specific needs of their target market or achieve lower costs in serving that market, or both While the focus strategy may not provide low cost or differentiation on a broader scale, it excels in delivering one or both advantages within its defined market niche.
Strategic management
Strategic management is a systematic approach used by top management to define the long-term direction and performance of an organization It involves careful formulation, effective implementation, and ongoing evaluation of strategies, ensuring objective and logical decision-making processes.
7 Lloyd L Byars, Leslie W Rue, Shaker A Zahra (1996), “Strategic management”
Figure 1.2 The strategic management process
Vision describes aspirations for the future without specifying the means to achieve desired ends 8 The most effective vision must be inspirational, which requires for
8 Alex Miller, Gregory G Dess (1996), “Strategic management”
Strategy evaluation the best, the most or the greatest A vision becomes more visible when it is expressed in the form of a mission statement
A company's mission defines its core purpose and guides its vision for the future The mission statement outlines the organization's enduring values and objectives, serving as a foundation for pursuing new opportunities and achieving long-term goals.
Strategy formulation includes identifying an organization’s external opportunities and threats, analyzing internal strengths and weakness, generating alternatives strategies, and choosing the most appropriate strategies to pursue.
The external environment comprises two key elements: the macro-environment, which impacts all firms, and the microenvironment, specific to particular industries To navigate the macro-environment effectively, businesses can utilize PEST analysis, a strategic tool that examines Political, Economic, Social, and Technological factors influencing their operations.
The industry in which a firm operates is crucial for micro-environmental analysis, as highlighted in Michael Porter's influential book "Competitive Strategy: Techniques for Analyzing Industries and Competitors" (1980) His Five Competitive Forces model serves as a valuable framework for industry analysis, encompassing barriers to entry, customer dynamics, supplier relationships, the threat of substitute products, and the level of rivalry within the industry Additionally, conducting a PEST analysis can further enhance understanding of the external factors affecting the industry landscape.
Many macro-environmental factors are country-specific and a PEST analysis needs to be performed for all related countries The number of macro- environmental factors is unlimited
Table 1.1 Example of possible factors in a PEST analysis
Political stability Environmental regulation and protection Consumer protection
Legal framework Intellectual property protection Trade regulations and tariffs Anti-trust laws
Taxation Wage legislation Working hours Mandatory employee benefits Industrial safety regulations
Government intervention in the market Economic growth
Comparative advantages of the country Infrastructure quality
Skill level of workforce Labor costs
Unemployment rate Inflation rate Monetary policy Government spending
Attitudes to health, environmental consciousness, work and leisure
New discoveries and development Speed of technology transfer Government spending on research Energy use and costs
Impact of changes in Information Technology b Industry analysis: Porter’s Five Forces model
Porter’s five forces framework evaluates entry barriers, suppliers, customers, substitute products, and rivalry in the industry
The five competitive forces are present in every industry and market, shaping the level of competition and impacting profitability and attractiveness By utilizing insights from the Five Forces analysis, managers can strategically influence or leverage specific industry characteristics to enhance their firm's competitive position.
This force describes the intensity of competition between existing players in an industry in which firms strive for a competitive advantage over their rivals
Economists assess competition in an industry through concentration ratios A high concentration ratio signifies that a few large firms dominate the market, indicating low competition Conversely, a low concentration ratio reflects an industry with numerous competitors, none of which command substantial market share, suggesting a more competitive environment.
The intensity of rivalry is commonly based on the firms’ aggressiveness in order to gain an advantage It is influenced by the industry characteristics such as:
Increased competition arises when numerous firms vie for the same customers and resources, intensifying rivalry within the market This competition is heightened in industries with many small or similarly sized competitors, while the presence of a dominant market leader tends to reduce rivalry.
In a slow growth market, firms have to compete for market share On the contrary, firms are easy to improve revenues in an expanding market
To achieve the lowest unit costs when total costs are predominantly fixed, a firm must operate near its full capacity This necessitates selling a significant volume of products, which intensifies competition and increases market rivalry.
A low level of product differentiation leads to increased competition among businesses In industries where products are considered commodities, rivalry is heightened, while industries that allow competitors to distinguish their offerings experience reduced competition.
Rivalry is reduced if there is a significant cost associated with the decision to buy a product from an alternative supplier
It is not only existing rivals that make a threat to companies in an industry, the possibility that new companies may enter the industry also affects competition
New entrants to an industry can raise the level of competition, thereby reducing its attractiveness However, there are barriers to entry
Barriers to entry are distinctive characteristics of an industry that help sustain profits for existing companies by limiting the influx of new competitors These barriers can originate from various sources, effectively protecting established businesses and maintaining their market position.
The government's primary function in a market is to maintain competition through anti-trust measures, while also imposing regulations that can limit competition Certain industries, like public utilities, are classified as natural monopolies, as having a single company operate in these sectors is more efficient than allowing multiple competitors in a local market.
Ideas and knowledge that provide competitive advantages are considered private property, so that, preventing others from using the knowledge and thus creating a barrier to entry
Asset specificity refers to how well a firm's assets can be repurposed for producing different products Potential new entrants often hesitate to invest in highly specialized assets due to the risk that these assets cannot be easily sold or adapted for other uses.
The existence of an economy of scale (minimum size requirements for profitable operations) creates a barrier to entry
Barriers to exit, akin to barriers to entry, restrict a firm's ability to exit a market, leading to increased rivalry when these barriers are high Firms may remain in an unprofitable industry due to substantial exit barriers, with asset specificity being a common example; specialized plants and equipment used for manufacturing a product are difficult to sell to buyers in other industries.
Table 1.2 Industry’s entry and exit barriers
Common technology Little brand franchise Access to distribution channels Low scale threshold
Patented or proprietary know-how Difficulty in brand switching Restricted distribution channels High scale threshold
Salable assets Low exit costs Independent businesses
Specialized assets High exit costs Interrelated businesses
Buyers are the people or organizations who create demand in an industry The power of buyers is the impact that customers have on a producing industry
In a market characterized by strong buyer power, the dynamics resemble a monopoly where numerous suppliers exist but only one buyer dominates In this scenario, the buyer wields significant influence, ultimately determining the price of goods and services.
Suppliers can have a significant impact on a company’s profitability If suppliers have high bargaining power over a company, then the company’s industry is less attractive
The manufacturing sector relies heavily on raw materials, labor, and components, establishing crucial buyer-supplier relationships with firms that supply these essential inputs When suppliers hold significant power, they can impact the manufacturing industry by increasing prices, thereby capturing a portion of the industry's profits.
The industry often faces a high pressure from their suppliers or buyers This relationship can potentially affect its profitability
Table 1.3 Bargaining powers of suppliers and buyers
A few buyers with significant market share and many sellers
The industry is not a key supplying group
Low switching costs: products are standardized
Many different buyers, no buyer has any particular influence on product or price
Producer can take over own distribution or retailing
Significant switching costs Producers threaten forward integration
Many buyers and few dominant suppliers
No substitutes for the particular input
High switching costs from one supplier to another The industry is not a key customer Suppliers threaten forward integration
Low switching costs: products are standardized
Purchase commodity product The industry is a key customer Buyers threaten backward integration
RICE FARMING INDUSTRY IN VIET NAM
An overview of rice farming
Rice, the world's second-most produced grain, is increasingly essential on a global scale With demand outpacing supply, large-scale cultivation of rice is being implemented in numerous countries to satisfy the rising consumer needs.
Rice cultivation occurs in two main stages: initially, rice seeds are planted in small seedbeds to grow into rice seedlings, and then these seedlings are transplanted into plowed fields The rice is typically ready for harvest in approximately 3 to 6 months Once harvested, the rice undergoes processing to clean and remove the grains, after which it is stored in warehouses before being sold in the market.
Rice is cultivated in at least 114 countries, with over 50 producing more than 100,000 tons annually, primarily in Asia where farmers contribute approximately 90% of global production China and India alone account for over half of the world's rice crop In countries like Bangladesh, Cambodia, Indonesia, Lao PDR, Myanmar, Thailand, and Vietnam, rice serves as a staple food, supplying 50-80% of total caloric intake However, in Egypt, Nigeria, and Pakistan, rice only makes up 5-10% of daily caloric consumption.
Global rice production, consumption, and stocks have shown consistent growth, rising from 420.36 million tons in the 2006/2007 crop year to 441.5 million tons in 2009/2010, with an estimated increase to 454.6 million tons in the 2010/2011 crop year, reflecting a 3% rise over the previous year This production growth is primarily driven by increases in India, Bangladesh, Brazil, the Philippines, and the United States, which offset declines in China, Egypt, Pakistan, and South Korea.
Table 2.1: The world rice production
Rice consumption rose from 421.33 million tons in 2006/2007 to 438.2 million tons in 2009/2010, with an estimated increase to 454.36 million tons in the 2010/2011 crop year While there was a reduction in consumption in China, Indonesia, and Iran, this was offset by increases in Russia and Thailand Additionally, declining stocks in China, Vietnam, Indonesia, and Iran were balanced by rising stocks in the USA.
Table 2.2: The world rice consumption and stocks
2.2 The development of rice farming industry in Vietnam
Vietnam entered the global rice market later than many other Asian nations, but its advantageous climate, economic reforms from the "doi moi" process, and the expanding global rice market facilitated a remarkable entry.
Vietnam's geographical features, including over 55,000 km² of the Red Delta River and Mekong Delta River, an extensive network of dikes and canals, and a tropical monsoon climate with an average humidity of 84% year-round, create optimal conditions for rice and other agricultural product farming.
Rice farming in Vietnam dates back to between 3,000 and 2,000 BC, with the Mekong River Delta in the south and the Red River Delta in the north serving as the primary agricultural regions In 1945, rice cultivation covered approximately 2.7 million hectares in the Mekong Delta and around 1.8 million hectares in the north The sector experienced significant growth starting in 1990, expanding from about 6.04 million hectares to 7.44 million hectares by 2009.
Figure 2.1 Vietnam rice farming areas
Vietnam's rice production saw a remarkable increase from 19.225 million tons to 38.896 million tons in 2009, marking a 100% growth over 19 years Since 1990, the country has established itself as one of the top five rice producers globally.
Figure 2.2 Rice production in Vietnam
Rice farming in Vietnam experienced an average growth rate of 7% from 1990 to 1999, followed by a decline to about 2% from 2000 to 2009 During the earlier period, the area dedicated to rice farming increased, while it decreased in the latter period By 2009, total rice production reached 38,896,500 tons, reflecting a slight increase of 0.4%, with approximately 85% of this production consumed locally.
Figure 2.3 Rice volumes for consume and export (thousand tons)
Viet Nam rice consume and export
Since 2000, Vietnam's agricultural product exports have seen significant growth, becoming a key source of income and a vital component of the country's export economy Notably, rice exports consistently represent a substantial portion of the total export value.
Figure 2.4 Vietnam export value by rice and commodity group (2009)
Viet Nam export 2009 Heavy industry
In detail, the agriculture and forestry exported US $ 2.719 billion in 2000, US
In 2006, agriculture exports reached $4.72 billion, increasing to $9.0 billion by 2008 Rice dominated these exports, representing over 28% of total agricultural earnings in 2005 and 27% in 2009.
2010, the turnover from agriculture exports had reached US $13.93 billion USD, of which US $2.56 million was rice Viet Nam is the second largest of rice exporter in the world
Figure 2.5 Vietnam agro-forestry and rice export value (US $billion)
Agro-forestry value Rice value
In 2009, Asia emerged as the largest market for Vietnamese rice exports, representing 61.68% of total exports, a significant rise from 50.8% in 2008 The Philippines and Malaysia were the primary markets, contributing 35% and 9% respectively to the total export value Notably, rice exports to the Philippines reached 1.7 million tons, valued at $912 million.
Vietnam is diversifying its rice export markets beyond traditional destinations, targeting higher-value regions such as Russia, Iraq, Japan, and the USA This expansion in rice exports not only creates significant employment opportunities but also improves living standards for many, helping to curb the migration of individuals to larger cities.
For a farmer to get maximum input efficiency and optimum grain yield from a crop he must have a deep knowledge of crop environment The environment is affected by two components:
- Nature: is geographical condition such as weather, soil, and biotic surroundings
Farmers strive to enhance their grain yields through effective agricultural practices, including plowing and harrowing, while also utilizing essential inputs such as rice seeds, fertilizers, insecticides, and herbicides.
Factors effecting rice farming
For a farmer to get maximum input efficiency and optimum grain yield from a crop he must have a deep knowledge of crop environment The environment is affected by two components:
- Nature: is geographical condition such as weather, soil, and biotic surroundings
Farmers strive to enhance their grain yields by implementing effective agricultural practices, including plowing and harrowing, while also utilizing essential inputs like rice seeds, fertilizers, insecticides, and herbicides.
Climate factors such as rainfall, solar radiation, temperature, relative humidity, and wind significantly influence grain yield Among these, rainfall, solar radiation, and temperature play crucial roles by providing essential water and energy to rice plants.
Vietnam boasts favorable geographical conditions for agriculture and forestry, characterized by a tropical climate with an average annual rainfall of 2,000mm, predominantly occurring in the summer months The country is home to two major delta rivers, encompassing areas of 15,000 km² and 40,000 km², with approximately 7 million hectares dedicated to rice cultivation Additionally, Vietnam features around 2,860 rivers and 4,200 km² of lakes and natural water bodies, providing essential irrigation resources for the dry season.
Vietnam's tropical climate offers ample sunlight and favorable temperatures, making it ideal for agricultural production In the southern region, temperatures typically range from 21 to 28°C, providing a stable environment for crop growth.
The quality of rice seed is the key factor in determining harvest success, as it significantly influences rice growth and farming productivity High-quality seeds that are well-adapted to local climate conditions and exhibit increased disease resistance enhance the detection of diseases, ultimately leading to better yields.
The integration of science and technology has significantly enhanced the sustainability of the rice farming industry Achieving a successful harvest relies on a blend of experience and precise technical guidance Key factors for success include the effective application of fertilizers, timely use of insecticides and herbicides, intensive farming practices, and the utilization of machinery for plowing and harrowing Additionally, advancements in technology contribute to higher productivity and value, as well as improved methods for harvesting and post-harvest processes.
While small farmers can manage extensive farms with minimal investment, transitioning to industrial-scale farming necessitates significant financial resources, particularly for rice-seed research, modern equipment, and advanced technology.
Farming businesses need a high current ratio, indicating that a significant amount of cash and cash equivalents is essential for paying for materials during the harvest This requirement often leaves small investors with limited access to credit unable to secure enough capital to recover from a single failure.
Diseases pose a significant challenge to rice farming, as farmers have limited defenses against insects and pests The prevalence of diseases often stems from low-quality rice seeds and inadequate feeding practices, leading to serious difficulties for farmers in maintaining healthy crops.
The expansion of industrial rice farming has been actively promoted by governments, international organizations, and national corporations due to its vital role in enhancing the global food supply, generating substantial foreign exchange earnings, and improving employment opportunities and community incomes With its consistently high market demand, rice farming remains a compelling investment opportunity for businesses.
Rice farming worldwide has significant negative consequences, including land and water pollution, social issues that exacerbate poverty, landlessness, and food insecurity Additionally, it increases vulnerability to natural disasters such as floods, typhoons, and droughts, while also adversely affecting health and education.
To promote sustainability in the rice farming industry, it is essential to adopt technological innovations, cultivate local species, and establish intensive farming zones Furthermore, government policies must be revised and enhanced to support these sustainable development efforts effectively.
BUILDING COMPETITIVE STRATEGY
Company profile
An Dinh Co., Ltd, founded on May 5, 2005, is based in Ha Noi, with its head office situated at No 39, 34/156 lane, Vinh Tuy, Hai Ba Trung district The company boasts a registered capital of 10 billion VND.
The company excels in rice farming, overseeing the entire process from importing and producing F1 rice seeds to selling processed rice in both domestic and international markets It collaborates closely with farmers, providing technical support and supervising the entire planting and harvesting process This ensures that the rice remains fresh, uniform, and stable, while also being properly stocked and packaged to meet export standards for both foreign and local markets.
The company has a factory of 23,000m2 in Pho Noi, Hung Yen province The factory located in a very geographical prosperous area for rice farming as well as material receiving and transportation
From early in May 2005, the production of company increased year by year and reached 1100 tons, worth 21 billions VND in 2009
Become the leading producer of high quality rice in Ha Noi
An Dinh is dedicated to delivering high-quality rice products that adhere to the highest food safety standards and environmental protection regulations, reflecting the company's long-term commitment to excellence.
Company values governing the development
An Dinh operates in accordance with the highest standard in all relationships with customers, suppliers, environment and the community
An Dinh creates a dynamic working environment which encourages innovation and diligence
To expand the business aggressively and offer above-average returns to owner
To become the leading producer of high quality rice in the local market Company sustainable development strategy (2010-2015)
Training the next generation of managers and workers
Investing in up-to-date technology and equipment
Enhancing the marketing activities Environment policy
An Dinh is dedicated to environmental protection, adhering to regulations and engaging in local initiatives The company minimizes its environmental impact by optimizing natural resource use and reducing waste and pollution.
Strategy formulation
3.2.1 External environment analysis 3.2.1.1 Political factors
Viet Nam is a country having a stable politics The government creates transparences and convenience legal environment to promote all social resources to develop
Vietnam has actively promoted agriculture to meet development goals and boost exports, implementing a zero export tax on all agricultural and forestry products, including rice Additionally, regulations and procedures that hinder exporters have been largely eliminated.
Government Decision No 63 (2010) aims to enhance productivity in agriculture, forestry, and fishery sectors by providing financial support for the purchase of machinery and equipment The government will cover 100% of the interest for the first two years and 50% for the third year, encouraging investments in these critical industries.
Government Decree No 41 (2010) aims to stimulate investment in agriculture and rural areas by credit entities, facilitating economic restructuring, infrastructure development, and enhancing the quality of life in these regions Eligible borrowers include individuals, farm owners, cooperatives, exporters and traders of agricultural, fishery, and forestry products, as well as enterprises involved in agricultural product processing.
The Vietnamese government, as outlined in Resolution 24/NQ-CP (2008), aims to develop a modern agriculture sector characterized by mass production, high productivity, and competitiveness, targeting an annual growth rate of 3.5-4% This initiative focuses on ensuring sustainable national food security both in the short and long term, while also prioritizing the training of human resources in rural areas Additionally, the strategy seeks to transition labor from agriculture to industry and services, thereby addressing employment challenges and increasing rural incomes by 2.5 times.
Government Decrees No 56 (2005) and No 02 (2010) focus on encouraging agriculture and fisheries by enhancing business production activities to increase income and alleviate poverty Decree No 02 emphasizes training farmers in knowledge, skills, and service provision to improve their business efficiency and adaptability to changing ecological, climatic, and market conditions These initiatives aim to restructure the agricultural economy, promote commodity production, enhance quality, ensure food safety, and meet both domestic and export demands Additionally, they support the industrialization and modernization of rural areas, contribute to the development of new rural communities, ensure national food security, stabilize socio-economic conditions, and protect the environment.
Key successful principle activity: closely cooperation among government management, scientific study entity, businesses to farmer and between farmers
Vietnam's agricultural sector benefits from policies that promote investment in production, processing, and export However, challenges such as bureaucracy, corruption, inadequate regulation, a weak legal system, and poor infrastructure hinder agricultural economics According to the World Bank's annual ease of doing business ranking, Vietnam has one of the longest tax return processes globally Additionally, Transparency International's corruption index highlights Vietnam as a low performer in combating corruption.
Vietnam has recently become one of the most appealing new investment destinations globally, driven by its 2007 WTO accession and a significant influx of foreign direct investment and portfolio inflows This remarkable economic reform, especially in trade and investment liberalization, has resulted in an impressive average annual growth rate of 7.3% over the past decade, positioning Vietnam among the fastest-growing economies in Asia.
The Vietnamese government deserves recognition for its prompt and decisive actions in response to the global crisis of late 2008 Their timely policy measures effectively addressed the economic overheating experienced in late 2007 and early 2008 As a result, Vietnam's GDP grew by 5.32% in 2009 and 6.5% in the first nine months of 2010 Thanks to these stabilization policies, Vietnam's economy is now in a stronger position compared to many other countries in the region.
12 UK Border Agency (2009), “Country of origin information report, Vietnam” a Strong GDP growth
The global crisis has significantly impacted Vietnam's economic growth, with GDP growth slowing from 6.18% in 2008 to just 3.1% in the first quarter of 2009 compared to the same period in 2008 By the end of 2009, Vietnam's GDP had rebounded to 5.32%, driven by a 1.83% increase in agriculture, forestry, and fishery, a 5.52% rise in industry and construction, and a 6.63% growth in the service sector The economy showed signs of recovery with a 6.5% increase in the first nine months of 2010.
Table 3.1 Vietnam quarterly GDP growth
Source: World Bank, VCCI 2010 b GDP per capita
In 2009, GDP per capita reached $1,068, reflecting significant economic growth in recent years This increase in GDP per capita indicates a positive trend in income levels, which is likely to drive higher demand for goods and services.
Figure 3.2 Vietnam GDP per capita growths
Source: IMF, 2010 c High consumer price index (CPI)
In Vietnam, the Consumer Price Index (CPI) experienced a significant surge of 23% in 2008 compared to 2007, driven by rising commodity prices and increased domestic demand In 2009, the CPI growth slowed to 6.9%, while the first nine months of 2010 saw an 8.46% increase compared to the same period in 2009 This high CPI poses challenges for both consumers and businesses, as it escalates input costs.
In 2008, Vietnam adopted a more flexible exchange rate regime, enhancing the effectiveness of its monetary policy and aiding macroeconomic management The fluctuation band for the dollar was expanded to +/-5 percent in March 2009, up from +/-3 percent in November 2008 and +/-2 percent in June 2008.
The VND/USD exchange rate is expected to rise slightly, providing a competitive edge for Vietnamese exports, particularly rice However, many Vietnamese industries remain reliant on imports, meaning that a higher VND/USD exchange rate could lead to increased costs for fertilizers, herbicides, and equipment due to domestic supply shortages in the rice farming sector.
Figure 3.3 VND/USD exchange rates (2008-2010)
Source:Viet Nam State Bank, 2010
3.2.1.3 Social factors a High population density
As of 2009, Vietnam's population reached 86.02 million, reflecting a growth rate of 1.06% With over 70% of its inhabitants residing in rural areas, which amounts to approximately 60.56 million people, Vietnam stands as one of the most populous countries globally.
Source: Committee for Population, Family and Children, 2010 b Low-cost labor force
The working age population is rapidly expanding with over a million people joining the workforce each year In 2009, the working population was about 47.7 million people, 2.76% increased comparing to 2008
Over 23 million people are working in agricultural and forestry industry 13 In addition, due to low productivity and falling of resource, the number of people working in agricultural farming and forestry has gradually increased
Vietnam is a destination of choice for cheaper labor recently The low labor costs make its products more competitive, particularly in labor-intensive industries like aquaculture, agriculture, textile and engineering
Implementing the competitive strategy
AD Company operates in a promising industry with notable strengths and some weaknesses To achieve its vision of becoming the leading producer and processor of high-quality rice in Ha Noi, the company should intensively invest in a growth strategy that leverages industry opportunities and focuses on its strengths The primary goal of this strategy is to boost production capacity to 1,500 tons by 2015 and capture a 40% market share.
The competitive strategy focuses on business expansion through two key approaches: increasing rice production and improving marketing efforts This involves establishing a new farming area, expanding the cool warehouse, and acquiring new drying machines Additionally, the company aims to build a robust sales and marketing team to support these operations.
3.3.2 Solutions 3.3.2.1 Set up new farming area
AD Company plans to invest in a new machine and expand its Japanese rice plant in collaboration with local farmers This initiative will include recruiting and training new employees, as well as transferring essential technology and skills to emerging farmers Despite the significant costs associated with this strategy, it is deemed appropriate due to the steady and sustained growth in both local and global demand for rice.
Effective distribution and marketing strategies are crucial for achieving success and sustainable growth Expanding distribution networks allows a company to secure a strong market position, while engaging and impactful marketing efforts help customers gain a deeper understanding of An Dinh’s rice Building a skilled sales and marketing team is essential for developing a robust distribution network and implementing successful marketing initiatives.
The quality of rice seeds is crucial for rice farmers, and AD Company has established strong partnerships with reliable suppliers to provide top-quality seeds at competitive prices and timely delivery To ensure a stable supply of inputs for production, the company must continue to strengthen these valuable relationships.
Besides, AD Company should consider dealing with new suppliers to ensure the quantity, choose the most reasonable products as well as reduce the power of current suppliers
A motivated workforce significantly enhances productivity and quality in rice production Companies can implement various financial and non-financial strategies to inspire their employees, with a focus on fostering a positive work environment that encourages growth Additionally, recognizing employees' contributions and providing performance-based incentives, such as bonuses or salary increases, are essential for driving high performance.
3.3.2.5 Train the workforce and farmers
A robust training system is essential for AD Company to establish new rice farming operations, as this agricultural practice demands specialized techniques and expertise By offering on-the-job training and seminars focused on rice yield improvement, AD can enhance the skills of both employees and farmers Furthermore, it is crucial for company experts to provide farmers with the latest knowledge and best practices in standard rice farming to ensure successful cultivation.
3.3.3 Action plan Table 3.11 AD Company’s action plan Expanding production
Determine rice farming expansion, rice process expansion
Jan-11 Technical criteria Field criteria
Purchase seed and cross into F1
Health Hard- working Training for farmer
Enhancing Marketing Activities Resources Responsibility
General manager Sales & marketing manager
Sales & marketing manager Sales Executive
All supermarket, Japanese and Korea restaurant in Ha Noi, HCM city
Getting the strategy implemented is much more difficult than formulated; therefore, the company should follow a systematic process
Figure 3.10 AD Company’s strategies implementation process
To successfully implement an expansion strategy, a company must create a comprehensive action plan that outlines specific steps, assigns responsibilities to staff members, and establishes due dates along with resource estimates for each task Each division will have tailored work assignments, ensuring alignment with the overall annual business plan and budget to prevent unforeseen budgeting issues.
Successful strategy implementation hinges on effective communication both vertically and horizontally within the organization Vertical communication fosters coordination and support among divisions and departments, while horizontal communication ensures collaboration across all areas For a strategy to succeed, it is essential that everyone in the organization actively participates in the process.
Regularly assessing the company's progress is essential to ensure that the planned action steps are being effectively executed and that the results align with the expected objectives This monitoring process also facilitates necessary adjustments, which may include altering the schedule, modifying action steps, revising strategies, or even redefining objectives as needed.
In accordance with the information presented in this research, Vietnamese Government should:
Develop farmer’s organization such as groups or clubs, and promote education to rice farmers and workers Increase the budget for agriculture extension services and research institutions
Encourage rationalization of the production chains between rice farmers and exporters, and suppliers of rice seed and other inputs
Enforce relevant legislation regarding quality control, especially for insecticides and herbicides
Improve the infrastructure in rural areas
Adjust and complement policies for the rice industry towards sustainable development
This chapter highlights the opportunities, threats, strengths, and weaknesses identified in the environmental scan of AD Company, revealing its strategic position By utilizing a SWOT analysis, the company can develop effective strategies tailored to its unique circumstances.
AD Company’s future development relies on a competitive-oriented strategy focused on increasing rice production and improving marketing efforts This chapter offers recommendations for implementing these strategies while considering the role of government administration.
This thesis offers essential insights into strategy and strategic management, focusing specifically on the formulation of business strategies for small companies It bridges theory and practice by developing competitive strategies and providing actionable recommendations for implementing new strategies within an organization.
Rice farming plays a vital role in the Vietnamese economy, particularly in rural areas, by creating jobs and generating income The government prioritizes sustainable rice farming as a key element of its development strategy, actively promoting high value addition within the industry.
The rice farming industry in Ha Noi presents significant potential, yet AD Farm faces challenges in meeting high demand while ensuring production efficiency and product quality Although well-funded and technologically advanced, AD Farm's growth remains modest compared to the industry's opportunities To enhance its market position and achieve a leadership role, AD Farm should strategically leverage its sustainable competitive advantages by expanding production and intensifying marketing efforts.