Marketing strategy for successful competition

The project firstly internally assessed company situation, come out what SAGS’s competitive advantages, what SAGS’s weaknesses to figure out opportunities and threats in ground handling

(PART-TIME)

Ho Chi Minh City

(2013)

COMMITMENT

I hereby, Le Thi Hong Hanh, confirmed that my thesis preparation and the content was written by myself with information studied and obtained from reliable sources I undertake this is my own research project All information, data and survey results are true and never announce in any other research projects

Ho Chi Minh City, 7 April 2013

Le Thi Hong Hanh

ACKNOWLEDGEMENT

First and foremost, I would like to express my gratitude to the support and guidance from my tutor, Dr.Vo Thi Quy who gave me her continuous guidance during doing the final project Without her, my project would not have been completed

I would like to say thank you to:

- Professors from the Solvay Business School and Open University of HCMC for all support throughout the whole program

- Management Board of Open University Ho Chi Minh City who have provided

me a very good condition for studying and sharing ideas

- All members of MBAVB3 and Group 1 who always encouraged me to share during the study and implement the final project

- Mrs Le Thi Thu Ha with her encouragement suggestion and enthusiastic help

I am special thanks to Mr Danh who is kindly enthusiastic about supported and encouraged me throughout the dissertation process No words could possible to express deepest gratitude to my beloved family for their inspirational and moral support

During executing the final project, due to the limitation of experience and knowledge, I

am unable to avoid some mistake I hope the Professors could help me to improve for achieving better results in the future

Finally, I wish you good health and so much success in work and life!

ABSTRACT

Established in 2005, Saigon Ground Services (SAGS) is a subsidiary of Airports Corporation of Vietnam (ACV) After years of development efforts, SAGS becomes the dynamic and professional provider of full - range ground services at Tan Son Nhat International Airport (SGN)

SAGS ambition to become the leader in ground handling services with safety and international standards, overcome one great competitor which has many years of experiences - Tan Son Nhat International Airport Ground Services (TIAGS) SAGS has been continuously improving service quality and applying modern aviation technology to all operations in order to meet and exceed customers’ expectations

The project firstly internally assessed company situation, come out what SAGS’s competitive advantages, what SAGS’s weaknesses to figure out opportunities and threats in ground handling service sector in Ho Chi Minh City Following the internal assess, a qualitative and quantitative survey were conducted to get information from the market, understand market characteristic, its demand and SAGS’s target customers needs for setting up marketing strategies for successful competition

The project also did some research about SAGS’s competitors via external sources to understand what they are doing well and not well, what is the direction of SAGS for differentiation strategy should be

Based on main findings, a proposal differentiation marketing strategies was chosen Some recommendations have then been suggested to grow sales and build up brand name for SAGS

TABLES OF CONTENT

COMMITMENT i

ACKNOWLEDGEMENT ii

ABSTRACT iii

TUTOR’ C COMMENT iv

TABLE OF CONTENT v

LIST OF ABBREVIATIONS viii

LIST OF FIGURES ix

LIST OF TABLES x

LIST OF PICTURE xi

CHAPTER 1 - INTRODUCTION OF THE PROJECT 1.1 Introduction 1

1.2 Statement of the problem 1

1.3 Purpose of the project 2

1.4 Research methodology 2

1.5 Scope and limitation 4

1.6 Structure of the project 4

CHAPTER 2 – LITERATURE REVIEW 6

2.1 Marketing definition 6

2.2 Marketing strategy and Services marketing mix 6

2.3 Target consumer, market segmentation and positioning 10

2.4 Competitive marketing strategy 12

2.5 Market Analysis 12

2.6 Porter Five Force 14

2.7 Competitive advantages 19

2.8 SWOT analysis 21

CHAPTER 3 – MARKET ANALYSIS AND RESEARCH FINDING 22

3.1 Market analysis 22

3.1.1 Market size 22

3.1.2 Market growth rate 23

3.1.3 Industry cost structure 26

3.1.4 Market trends 27

3.1.5 Key success factors 28

3.2 Porter Five Force 29

3.2.1 The threat of entry 29

3.2.2 Rivalry among the industry competitors 29

3.2.3 Threat of substitutes 30

3.2.4 Bargaining power of suppliers and buyers 30

3.3 Macro environment analysis - PEST Analysis 31

3.3.1 Political 31

3.3.2 Economic 32

3.3.3 Social 32

3.3.4 Technology 33

3.3.5 Legal 34

3.3.6 Geographic and demographic 35

3.3.7 Summary of company’s opportunities and threats 35

3.4 Micro environment analysis 36

3.4.1 Company overview 36

3.4.2 SAGS’s customers 38

3.4.3 Human resource 40

3.4.4 Marketing 41

3.4.5 Price policy 43

3.4.6 Financial 44

3.4.7 Investment 46

3.4.8 Research and development 46

3.4.9 Summary of company’s strength and weakness 47

3.5 Competitive capacity 48

3.6 SWOT analysis 49

3.7 Result and discussion of customer survey 50

3.7.1 Qualitative research 50

3.7.2 Quantitative research 51

CHAPTER 4 – MARKETING STRATEGY OF SAGS IN YEAR 2013-2016 4.1 Marketing strategy 59

4.1.1 Marketing objective 59

4.1.2 Targeting, segmentation, and positioning 59

4.1.3 Competitive advantages strategy 61

4.2 Marketing Mix 7Ps 61

4.2.1 Product – Services 61

4.2.2 Price 62

4.2.3 Promotion 64

4.2.4 People 65

4.2.5 Place 66

4.2.6 Process 67

4.2.7 Physical evidence 70

CHAPTER 5 – CONLUSSION 72

REFERENCES & APPENDICES 73

LIST OF ABBREVIATIONS

AHM Airport Handling Manual

IATA International Air Transport Association

ICAO International Civil Aviation Organization

IGHC IATA Ground Handling Council

ISAGO IATA Safety Audit for Ground Operation

PIR Property Irregular Report

SAC Southern Airport Corporation

ACV Airport Corporation of Vietnam

SAGS Saigon Ground Services

TIAGS Tan Son Nhat International Airport Ground Services SASCO Southern Airports Services Company Limited

SGHA IATA Standard Ground Handling Agreement

SLA Service Level Agreement

CAAV Civil Aviation Administration of Vietnam

CAA Civil Aviation Authority

SGN IATA 3 letter code of Tan Son Nhat Airport

LIST OF FIGURES

Figure 2.1 Services marketing mix 8

Figure 2.2 A model for structural analysis 17

Figure 2.3 Porter’s Three Generic Strategies 20

Figure 3.1 Market structures of ground handling services sector 22

Figure 3.2 Revenues of ground handling services sector in 2012 23

Figure 3.3 Number of foreign airlines in Ho Chi Minh City 24

Figure 3.4 Number of passengers each year (whole Vietnam) 26

Figure 3.5 Cost structure of Ground services by percentage 27

Figure 3.6 Marketing cost 42

Figure 3.7 Growth rate of cost and profit over 4 years 45

Figure 3.8 SAGS’s key performance 2009 – 2012 45

Figure 3.9 SAGS’s service capacity 56

LIST OF TABLES

Table 2.1 Power of suppliers and buyers 18

Table 3.1 Number of airlines over 8 years 24

Table 3.2 Number of passengers 2003 – 2012 25

Table 3.3 Cost structure of Ground services 26

Table 3.4 Rate of Marketing cost/profit 43

Table 3.5 SAGS’s Financial Performance 2009 – 2012 44

Table 3.6 Level of SAGS’s Managers 48

Table 3.7 SWOT Matrix 49

Table 3.8 Competitive Profile Matrix 51

Table 3.9 Competition analysis based on key success factors 52

Table 4.1 Marketing objective of SAGS 59

Table 4.2 Customers using SAGS’s ground services 59

LIST OF PICTURES

Picture 3.1 SAGS’ s full range partners 39

Picture 3.2 SAGS’ s ramp partners 39

Picture 3.3 SAGS’ s freighter partners 40

Picture 3.4 SAGS’ s non-schedule partners 40

Picture 3.5 SAGS’ s website 41

Picture 4.1 Some physical evidence of SAGS 70

CHAPTER 1 - INTRODUCTION OF THE PROJECT

1.1 INTRODUCTION

Saigon Ground Services (SAGS) was established in 2005 They are dynamic and professional provider of full-range of ground service at Tan Son Nhat Airport SAGS establishment marked a major turning point in process of international economic integration thus ending the monopoly of ground handling service market of Tan Son Nhat International Airport Ground Services (TIAGS) at Tan Son Nhat International Airport (SGN) Hence, international airlines have more opportunities to choose their business partners in providing ground services which promote good quality and competitive prices

Nowadays, there are three providers of ground handling services at Tan Son Nhat International Airport: TIAGS, SAGS and a Ground Handling Team of Jetstar Pacific Airlines But TIAGS is the main competitor of SAGS

From the date of its establishment, SAGS has made great efforts in the development process After seven years, SAGS has became a company that supplies the ground handling services in prestige and quality for many major international airlines such as United Airlines, AirMekong, Tiger Airways, Asiana Airline,

However, to maintain the existing momentum and continue to increase the market share and achieve an ambitious plan that SAGS will be a top class services to clients in providing ground services at Tan Son Nhat Airport, company needs to improve the organization, management and especially the marketing strategy to achieve the highest business performance That is the reason why this thesis “Marketing Strategy for Sucessful Competition: A Case of Saigon Ground Services in 2013-2016” can work

Although invest extensively since the establishment in 2005, SAGS holds the second position in the ground handling service SAGS has not achieved its strategic goal of becoming the leader in providing ground handling service in Ho Chi Minh City for foreign airlines Until 2012, SAGS's market share is still behind its key competitor (TIAGS) This issue is an important problem that SAGS needs to concern in context of competitive market today Many factors affect performance of SAGS, in which effective marketing strategy may play a vital role

1.3 PURPOSE OF THE PROJECT

The purpose of this final thesis is to have a deep understanding of current situation of their brand and competition position with competitor, then build the effective strategies for marketing activities to improve the sales and build up their brand The research question of this thesis is all about how customers (airline corporations) and passengers who directly using SAGS’s service perceive about SAGS, how they think the company could improve quality of service From that the recommendations of marketing strategies will be provided based on the results of this study

Secondary data

Internal source: data from SAGS: financial statement in 2009-2013, price book,

service process and current marketing activities

External source: all the data was collected from academic source, press, aviation

magazine, aviation statistics in newspapers, airlines customer statistics, airport authority and previous final project and so on

Primary data

The primary data was collect from SAGS’s customers and airline’s passengers Some data was from internal managers of SAGS

Qualitative:

Using direct interview technique of some reputable managers work within this industry Applying clear questionnaires mainly focus on evaluation about SAGS and TIAGS’s services Some information was collected by supporting of SAGS’s marketing department It’s an in office interview, so all the participants will be free to exchange information together for the study

The result shows that:

100 passengers who are directly provided our services

Quantitative:

1- Survey for our customers from 22 airport station and airlines representative branch in Vietnam

2- The survey questionnaire was composed and distributed to many direct passengers using the SAGS’s services who really involved in ground handling services The size for sampling is 102 people with 15 questions

After finding out the issues of SAGS’s operation, there are some discussions and recommendations of marketing strategy will be proposed For more detail about the survey, please prefer to annex portion

1.5 SCOPE AND LIMITATION

Due to limited capacity of the author and the lack of time of the study, this project only mentions the following aspects:

- This project only focus on the customers who are foreign airlines representative doing business in Ho Chi Minh City

- The competitor information such as price, process, and technical equipments are collected very hardly because of business secret

- The Interviewees in Qualitative research are related to the managers of the SAGS’s customers and rival customers that can make the decision to choose the services supply organization It is specifically the person holding important positions in the organization such as board of director and marketing or business managers However, all of them are usually busy so the questionnaire is limited

to a short respond period and cannot be constructed to explore complex issues relating to marketing strategy of the company

1.6 STRUCTURE OF THE PROJECT

The structure of the project includes 5 chapters

Chapter 1 – Introduction

Take a general view of final project, determine marketing problem and give out the reason why the study exist The introduction also states the methodology that used in this study

Chapter 2 - Literature review

This chapter would define the theoretical background which be applied in the final project It provides key conceptual definitions of marketing strategy, market analysis, market structure, competitive analysis, Porter Five Force, competitive advantages, Competitive competency, competitive marketing strategy, SWOT analysis Most of them are referred from academic resources

Chapter 3 - Market analysis and finding

This chapter generally analyzes the current status of business environment, the market trend of SAGS All information had been analyzed in detail according to the data collected Then find out the issues of marketing strategy which company should be upgraded and what could be done in the near future in other to maintain present customers, attract the new one and becoming a leading company in ground handling service market, beat the main competitors TIAGS in the next three years

Chapter 4 - Marketing strategy of SAGS in year 2013-2016

This chapter presents some presents marketing mix strategy in detail in the next 4 years, form 2013 to 2016 It includes the marketing strategy of services, place, price, promotion, physical evidence, process and people It also gives the recommendations

to support the solutions for upgrading the marketing activities and management more effectively

Chapter 5 – Conclusion

CHAPTER 2 – LITERATURE REVIEW

2.1 Marketing definition

Marketing is not solely advertising or selling Real marketing is less about selling and more about knowing what to make (Philip Koler, 1999, p.9)

Marketing is the delivery of customer satisfaction at a profit The goal of marketing is

to attract new customers by promising superior value, and to keep current customers by delivering satisfaction Therefore, marketing must be understood not in the old sense of

making a sales-“selling”- but in the new sense of satisfying customer needs

The marketing concept holds that the key to achieving organizational goals consists of the company being more effective than its competitors in creating, delivering, and communicating customer value to its chosen target markets

The marketing management is as the analysis, planning, implementation and control of programs designed to create, build and maintain beneficial exchanges with target buyers for the purpose of achieving organizational objectives Thus, marketing management involves managing demand, which in turn involves managing customer relationships

2.2 Marketing strategy and services marketing mix:

Marketing Objective: For firms to have a formulation of marketing strategy, they

should have a marketing objective Objectives include maximization of profit, maximization of market share, and maximization of sales, enhance brand image, improve customer satisfaction, provide customer value, and maintain price stability

Focus: It is recommended for a marketing strategy to have customer orientation and

competitor focus It is also sometimes called market orientation

Domain: The domain of decision making for marketing strategy includes the following: (1) market selection, (2) positioning/ differentiation, (3) market entry / exit / timing, (4) product, price, place, promotion, (5) functional offering of the product Market selection involves deciding which customer segments the firm will serve, which functions of those customer segments will be supported, the technologies that will be used to provide or support the functions Positioning is the central theme of a brand/ product around which the marketing mix elements of product, price, place, and promotion are selected Market entry/ exit decisions can be based on market attractiveness, competitive position or advantages and extent of risk involved in the market

Prerequisites: Three prerequisites are recommended to the formulation of marketing

strategy The first is there should be an organizational opportunity for the product or service under consideration This entails existence of market size, reasonable strength

of buyer need, manageable risk of market and the ability of the firm to meet the key success factors of the market The second is that the marketing strategy should be dovetailed with the vision and values of the organization A high quality firm may find it difficult to introduce low quality, low cost products The third prerequisite is that contingency should be built for the marketing strategy formulated

Functionality: The different functions that marketing strategy has to perform include

(a) strategic decision making (b) dynamic adjustments to competition and market (c)

resource allocation in marketing (d) action setting (e) relationships with key publics It

is this last function that stresses the importance of the role of relationship marketing in competitive marketing strategy It has been postulated that marketing strategy is a product of marketing relationships, marketing offerings, marketing timing, resources allocation (Sudarshan D, 1995) He states that relationships for a key component of marketing strategy Each relationship is defined by the identity of partner public (customers, channels) and the contract with it (nature of the relationship)

2.2.2 Services marketing mix:

The service marketing mix is also known as an extended marketing mix and is an integral part of a service blueprint design The service marketing mix consists of 7 P’s

as compared to the 4 P’s of a product marketing mix Simply said, the service marketing mix assumes the service as a product itself However it adds 3 more P’s which are required for optimum service delivery

Figure 2.1 Services marketing mix

(Source: Marketing Professional Services” By Philip Kotler )

The product marketing mix consists of the 4 P’s which are Product, Pricing, Promotions and Placement These are discussed in my article on product marketing mix – the 4 P’s

The extended service marketing mix places 3 further P’s which include People, Process and Physical evidence All of these factors are necessary for optimum service delivery Let us discuss the same in further detail

Product – The product in service marketing mix is intangible in nature Like physical

products such as soap or a detergent, service products cannot be measured Tourism industry or the education industry can be an excellent example At the same time service products are heterogeneous, perishable and cannot be owned The service product thus has to be designed with care Generally service blue printing is done to define the service product

Place - Place in case of services determine where is the service product going to be

located The best place to open up a petrol pump is on the highway or in the city A place where there is minimum traffic is a wrong location to start a petrol pump Similarly a software company will be better placed in a business hub with a lot of companies nearby rather than being placed in a town or rural area

Promotion – Promotions have become a critical factor in the service marketing mix

Services are easy to be duplicated and hence it is generally the brand which sets a service apart from its counterpart

Pricing – Pricing in case of services is rather more difficult than in case of products If

you were a restaurant owner, you can price people only for the food you are serving But then who will pay for the nice ambience you have built up for your customers? Who will pay for the band you have for music? Thus these elements have to be taken into consideration while costing Generally service pricing involves taking into consideration labor, material cost and overhead costs By adding a profit mark up you get your final service pricing You can also read about pricing strategies

Here on we start towards the extended service marketing mix:

People – People is one of the elements of service marketing mix People define a

service In case of service marketing, people can make or break an organization Thus many companies nowadays are involved into specially getting their staff trained in interpersonal skills and customer service with a focus towards customer satisfaction In fact many companies have to undergo accreditation to show that their staff is better than the rest

Process – Service process is the way in which a service is delivered to the end

customer On top of it, the demand of these services is such that they have to deliver optimally without a loss in quality Thus the process of a service company in delivering its product is of utmost importance It is also a critical component in the service blueprint, wherein before establishing the service, the company defines exactly what should be the process of the service product reaching the end customer

Physical Evidence – The last element in the service marketing mix is a very important

element As said before, services are intangible in nature However, to create a better customer experience tangible elements are also delivered with the service Several times, physical evidence is used as a differentiator in service marketing Imagine a private hospital and a government hospital A private hospital will have plush offices and well dressed staff Same cannot be said for a government hospital Thus physical evidence acts as a differentiator

This is the service marketing mix (7Ps) which is also known as the extended marketing mix

2.3 Target customer, market segmentation and positioning

2.3.1 Target customer

To succeed in today's competitive market place, companies must be customer centred - winning customers from competitors by delivering greater value However, before it

can satisfy consumers, a company must first understand their needs and wants So, sound marketing requires a careful analysis of consumers

Companies know that they cannot satisfy all consumers in a given market - at least, not all consumers in the same way There are too many kinds of consumer with too many kinds of need, and some companies are in a better position to serve certain segments of the market As a consequence, each company must divide the total market, choose the best segments and design strategies for profitably serving chosen segments better than its competitors do This process involves five steps: demand measurement and forecasting, market segmentation, market targeting, market positioning and competitive positioning

of buyers with different needs, characteristics or behavior, who might require separate products or marketing mixes, is market segmentation

2.3.3 Positioning

After a company has decided which market segments to enter, it must decide what 'position' it wants to occupy in those segments A product's position is the place the product occupies in consumers' minds If a product were perceived to be exactly like another product on the market, consumers would have no reason to buy it

Market positioning gives a product a clear, distinctive and desirable place in the minds

of target consumers compared with competing products Marketers plan positions that distinguish their products from competing brands and give them the greatest strategic advantage in their target markets.

2.4 Competitive marketing strategy

Any marketing strategy has to have a marketing objective Based on the marketing objective, there are two types of analysis – strategic market analysis and internal analysis Strategic market analysis involves customer management and analysis, market management and analysis, environmental scanning and future building or scenario planning Management of relationships with customers and important external bodies in the market such as dealers, suppliers and the government is an important part

of marketing strategy formulation and management Internal analysis includes strengths, weaknesses, core competencies, resource constraint analysis

Based on the marketing objective, strategic market analysis, internal analysis (and past performance records and present strategy), the marketing strategy for a particular decision problem or situation is developed This includes the decisions on the 4Ps (Product, Price, Promotion, Place) or 7Ps with services company During the process of marketing strategy development, an analysis of competition and other analytical inputs

of the market are used The competitive marketing strategy developed is so implemented and any deviations from the plan are feedback to the marketing objectives and the development of marketing strategies

2.5 Market Analysis

The goal of a market analysis is to determine the attractiveness of a market and to understand its evolving opportunities and threats as they relate to the strengths and weaknesses of the firm

David A Aaker is the author of Building Strong Brands, 1995, outlined the following dimensions of a market analysis:

Market size

Market growth rate

Industry cost structure

Government data

Trade associations

Financial data from major players

Customer surveys

Market Growth Rate

A simple means of forecasting the market growth rate is to extrapolate historical data into the future While this method may provide a first-order estimate, it does not predict important turning points A better method is to study growth drivers such as demographic information and sales growth in complementary products Such drivers serve as leading indicators that are more accurate than simply extrapolating historical data

Industry Cost Structure

The cost structure is important for identifying key factors for success To this end, Porter's value chain model is useful for determining where value is added and for isolating the costs

The cost structure also is helpful for formulating strategies to develop a competitive advantage For example, in some environments the experience curve effect can be used

to develop a cost advantage over competitors

Market Trends

Changes in the market are important because they often are the source of new opportunities and threats The relevant trends are industry-dependent, but some examples include changes in price sensitivity, demand for variety, and level of emphasis on service and support Regional trends also may be relevant

Key Success Factors

The key success factors are those elements that are necessary in order for the firm to achieve its marketing objectives A few examples of such factors include:

Access to essential unique resources

Ability to achieve economies of scale

Access to distribution channels

An industry environment consists of a particular set of competitive forces that establish both opportunities and threats that confront the company Michael E Porter (1980) postulates that there are five forces which typically shape the industry structure: intensity of rivalry among competitors, threat of new entrants, threat of substitutes, bargaining power of buyers, and bargaining power of suppliers

The pattern of forces changes due to the action of competitors Strategic moves by any

of these competitors can alter prevailing relationships and thereby change the pattern of forces in a firm's environment Figure 2.2 summarizes the "five forces" approach to structural analysis and their interrelationship

2.6.1 The threat of entry

The threat of new entrants is due to potential competitors who are companies that currently are not competing in the industry but have the capability to do so if they choose Established companies try to discourage potential competitors from entering, since the more companies enter an industry, the more difficult it becomes for established companies to hold their share of the market and to generate profits

Therefore, the threat of new entry depends on the extent to which there are barriers to

entry Most typically these are as follows:

Economies of scale

The capital requirement of entry

Access to distribution channel

Differentiation

Indeed, empirical evidence also suggests that the height of barriers to entry is the most important determinant of profit rate in an industry

2.6.2 Rivalry among the industry competitors

The rivalry among competitors is at the center of the forces contributing to industry attractiveness The extent of rivalry among established companies within an industry is largely a function of three factors:

Industry competitive structure: This refers to the number and size distribution of

companies in an industry Structures vary from fragmented industry to consolidated industry Different competitive structures have different implication for rivalry

Demand condition: Growing demand tends to moderate competition by providing

greater room for expansion Conversely, declining demand results in more competition

as companies fight to maintain revenues and market share

Exit barriers: Exit barriers are economic, strategic, and emotional factors that keep

companies competing in an industry even when returns are low If exit barriers are high, companies can become locked into an unfavorable industry

A reflection on the combined impact of exit and entry barriers on the profitability of an industry is presented in figure 2.2

2.6.3 Threat of substitutes

Substitutes could affect the attractiveness of an industry in different ways Their mere presence establishes a ceiling for industry profitability whenever there is a price threshold after which a massive transfer of demand takes place Also the impact that the threat of substitution has on industry profitability depends on a number of factors such as availability of close substitutes, user's switching cost, aggressiveness of

substitutes' producers, and price-value trade-off between the original products and its substitutes

Figure 2.2 A model for structural analysis

COMPETITIVE RIVALRY

POTENTIAL ENTRANTS

BARGAINING POWER

BARGAINING POWER

(Source: Adapted from M.E Porter, Competitive Strategy)

2.6.4 Bargaining power of suppliers and buyers

Table 2.1 Power of suppliers and buyers

Number of important suppliers

Availability of substitutes for suppliers'

products

Differentiation or switching costs of

suppliers products

Suppliers' threat of forward integration

Industry threat of backward integration

Suppliers' contribution to quality or

services of the industry products

Total industry cost contributed by

Buyers' switching cost Buyers threat of backward integration Industry threat of forward integration Contribution to quality or service of buyers' products

Total buyers' costs contributed by the industry

Buyers' profitability

(Source: M.E Porter, Competitive Strategy)

The industry structure model contains only passing references to the environment beyond the industry level What might be termed as general environment is simply discussed as a source of "external forces" There is no explanation of how these forces are configured or linked to competitors and patterns of competitive forces within industry environments The strategic implications of events originating in the general environment can only be determined after assessing their impact on industry conditions and the relative strategic positions and capabilities of competing organizations (Porter,

1977, 1980; Lenz, 1980)

Having identified key competitive forces through structural analysis, the sequences important step is to analyze the business's competitive position (or strategic position): that is how it stands in relation to those other companies competing for the same resources, or customers One of the most relevant ways is undertaking competitor analysis in order to examine it against competitors or rivals it faces Gerry Johnson and Kevan Scholes suggest that in order to understand how a given competitor is attempting to cope with the environment it faces, the following question could usefully

be asked:

What are the objectives of the company: is it seeking growth, for example; and

if so, is it mainly concerned with profit growth, revenue growth or market share

What resource strengths do competitors have, and what are their weaknesses What is the record of performance of each competitor?

What is the current strategy of competitors?

What are the assumptions underlying the competitors' approach to their strategy development

Uncovering these strategic aspects of companies can help understand how competitors have in the past dealt with the forces identified as important in the competitive and wider environment, and how they are likely to deal with them in the future

2.7 Competitive advantages

According to the Competitive Advantage model of Porter, a competitive strategy takes offensive or defensive action to create a defendable position in an industry, in order to cope successfully with competitive forces and generate a superior Return on Investment According to Michael Porter, the basis of above-average performance within an industry is sustainable competitive advantage

Figure 2.3 Porter’s Three Generic Strategies(Source: M.E Porter, Competitive

Strategy)

Two basic types of Competitive Advantage: Cost Leadership (low cost) and differentiation Both can be more broadly approached or narrow, which results in

the third viable competitive strategy: Focus

Competitive Advantage type 1: Cost Leadership

Achieving Cost Leadership means that a firm sets out to become the low cost producer in its industry

A cost leader must achieve parity or at least proximity in the bases of differentiation, even though it relies on cost leadership for its competitive advantage

If more than one company try to achieve Cost Leadership, this is usually disastrous

Often achieved by economies of scale

Competitive Advantage type 2: Differentiation

Achieving of Differentiation means that a firm seeks to be unique in its industry along some dimensions that are widely appreciated by buyers

A differentiator cannot ignore its cost position In all areas that do not affect its differentiation it should try to decrease cost; in the differentiation area the costs should at least be lower than the price premium it receives from the buyers Areas of differentiation can be: product, distribution, sales, marketing, service, image, etc

Competitive Advantage type 3: Focus

Achieving Focus means that a firm sets out to be best in a segment or group of segments

Two variants: Cost Focus and Differentiation Focus

2.8 SWOT analysis

The comparison of strengths, weaknesses, opportunities and threats is normally referred to as a SWOT analysis The central purpose of the SWOT analysis is to identify strategies that align, fit, or match a company’s resources and capabilities to the demands of the environment in which the company operates To put it another way, SWOT analysis should be to build on a company’s strengths in order to exploit opportunities, counter threats, and correct weaknesses

CHAPTER 3 – ENVIRONMENT ANALYSIS AND FINDINGS

3.1 Market analysis

3.1.1 Market size

The number of foreign airlines entering Viet Nam market has increased since 2005 Although this number declined in 2009-2010 due to the great impact of the global economic crisis, the situation has improved significantly in 2011-2012 There are 48 foreign airlines operate regularly in the whole market

According to statistics given by ACV (Airports Corporation of Vietnam) in 2012, there are 48 foreign airlines operating in Ho Chi Minh City SAGS provides services for 23 airlines while the rest is handled by TIAGS

Structure of gound handling services of SAGS and TIAGS in Ho Chi Minh City over years is presented in below figure:

Figure 3.1 Market structures of ground handling services sector (Source:

SAGS (%) 16.00% 29.41% 42.86% 46.67% 45.45% 47.50% 46.34% 47.92%

Structure of ground services sector

TIAGS (%) SAGS (%)

This chart shows that since its very beginning, SAGS held a really small market share After three years of development, SAGS has got a foothold in the market The rate of service airlines has increased gradually SAGS quickly holds a larger market share of ground services and nearly catches up with its rival TIAGS currently Until 2012, SAGS has served 23 airlines, which make up 47,92% of the whole market

In 2012, the whole ground service market had a turnover of about 48 million USD, part of which SAGS accounted for more than 21 million USD thus held about 44% of the whole market

Figure 3.2 Revenues of ground handling services sector in 2012

SAGS

21,476,190 44.62% TIAGS

26,654,555 55.38%

Total:

(Source: TIAGS & SAGS’s financial report 2012)

The SAGS’s turnover over the few years has also increased SAGS has proven its business competence in comparison with its rival’s By efforts such as recruiting good and experienced employees from its rival or taking full advantage of being a subsidiary company of ACV, which owns strong points of finance, information and source of capital, SAGS has increasingly strengthened its position in the market thanks to such proven figures

3.1.2 Market growth rate:

The number of airlines entering HCM City’s market has increased over the few years However, due to the impacts of the global financial crisis from 2008 to 2010, several

45%

55%

Revenues

SAGS TIAGS

airlines withdrew from the market because of great business losses Nonetheless, the situation has been improved since 2011 New airlines continue to enter Vietnam markets Specific figures are shown in Table 3.1 as below:

Table 3.1 Number of airlines over 8 years

(%)

TIAGS (%)

According to the National Statistics Office, in 2012 Vietnam received 5.35 million foreign tourists, up 13% from last year, and most of the customers come from China, Korea, Taiwan Taiwan and Japan

Figure 3.3 Number of foreign airlines in Ho Chi Minh City (airlines)

0 10 20 30 40 50 60

2004 2006 2008 2010 2012 2014

Number of Airlines

People’s living standards are getting higher The average income per capita over the few years has increased and the number of foreign tourists coming to Vietnam has also gone up significantly The number of passengers has increased over years:

Table 3.2 Number of passengers 2003 - 2012

2012, the growth rate of passengers, which only increased by 5,2% in comparison with 2011, also declined The global economy of 2012 still encountered a lot of difficulties, which influenced the way people spend their money

Figure 3.4 Number of passengers each year (whole Vietnam)

3.1.3 Industry cost structure

Different industries have different cost structures Some industries are labor intensive Others are material or capital intensive Aviation service is high-tech industrie which requires the modern and safe equipment Further, this insdustry needs a large area for airlines parking with special construction requirements for the aviation industry Besides, costs related to the human factor are very high proportion of the total cost Cost structure of gound services is show on the table bellow:

Table 3.3 Cost structure of Ground services by USD

1 Wage and insurance 6,157,518 39.94

2 Material, tools and devices 377,088 2.45

3 Repairing for equipments 181,384 1.18

Ground services industry requires large of number in human resources With SAGS, key managers must be good, experienced and highly qualified Besides, due to specific jobs, many employees must work at whole night serving the foreign airlines, leading to affects health quite a lot SAGS have to spaend a a lot of money for the recruitment and training the new staffs Wage and insurance cost is 39,94% of total cost

Figure 3.5 Cost structure of Ground services by percentage

(Source: SAGS financial statement)

3.1.4 Market trends

Growth target for Vietnam aviation is set in the period 2010 - 2020 in Decision no 21/QD-TTg of the Prime Minister Government dated 08/01/2009 is 14-16% for the total passengers transport market in and 16-18% of the total freight market in Vietnam

By 2020, the Government will expand the airfreight business, delete the monopoly environment, and ensure fair competition, to meet the needs of economic development

Cost structure of ground service Wage and insurance

Material, tools and devices

Repairing for equipments

Operation

Depreciation

Rental cost (land, - Aerobridge, - Check-in counters,…)

Therefore, ground services sector is always receive an attention of government interm

of technical, policy and capital Moreover, when competition occurs, every enterprise needs to improve its position in the market to break long-term and sustainable development

3.1.5 Key success factors

Through the study of some professional journals such as Vietnam Aviation, Aviation magazine, aviation website and some articles writing about ground services sector, the author raised some points relating to key success factors as below:

c Develop and maintain the experienced staffs:

The staffs in this field choose to work for either SAGS or TIAGS They show special consideration towards training and treatment policies to engage in the long-term commitment to their company

d Service quality

Passengers are direct service users and their feedbacks, to some extent, make a partial contribution to the airlines choosing their partners Among these services, departure procedures and luggage handling (time waiting to receive) are particularly concerned

e Branding media makes it different: