Luận văn thạc sĩ Quản trị kinh doanh: Competitive strategies the case of Hanosimex

Problem Statement “To identify the alternative strategies for development of Hanoi Textile Company Hanosimex in the challenging economic situation” Objectives e Overall Objectives: - To

VIETNAM NATIONAL UNIVERSITY, HANOI

SCHOOL OF BUSINESS

kế

Tran Thi Thanh Tu

COMPETITIVE STRATEGIES

THE CASE OF HANOSIMEX

Major : Business Administration

Code : 60 34 05

MASTER OF BUSINESS ADMINISTRATION THESIS

Supervisor: Dr Pham Thi Nhuan

Dang Ngoc Su, MBA

R A.L0 /2

Hanoi — 2009

TABLE OF CONTENTS

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CHAPTER 2 FORMULATION OF COMPETITIVE STRATEGY FORBANOS IMEX, oe sisiccsrsicacsconinamanivinmenamansalencncsensreniemsnucuxeavenscniscnsnee 34

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CHAPTER 3: MEASURE TO IMPLEMENT THE CHOSEN

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LIST OF FIGURES

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Pigure 1.7: SWOPE analysis famewOrks ccc sssccscensswsnvsescsecsweevssneess 33 Figure 2.1: The organizational chart-of HanNGSHHEX¿osocsczztniteoassasiee 3) Figure 2.2: GDP during the period of2000-2008 40

Figure 2.3: GDP growth rate in the period of 2000-20086 40

Figure 2.4: GDP growth rate in the period of2010-2015 41

Figure 2.5: Income per capital in the period of 2010-2015 42

Figure 2.6: Consumption structure of household and individual tf FBPDÍ ccconssveanweerer eens e eRe RROve 43 Figure 2.7: Inflation in period from 2004 to 2008 44

Figure 2.8: Separate number of textile companies to capital 48

Figure 2.9: Separate number of textile companies to area 49

Figure 2.10: Separate number of textile companies to group of product 49

Figure 2.11: Yarn production in period of2000-2008 50

Figure 2.12: Sales in thousand tones of some major yarn producers Ot VIEDHHỮĂS cưng G4 es Re 50 Figure 2.13: Yarn production in period of 2000-2008 51

Figure 2.14: Yarn import volume of Vietnam period of 2004-2008 52

Figure 2.15: Cotton import in period from 2004 to 2008 55

FtữF 2.16; SWOT mains of Hancsimekemssccessarcencemorenneseamecen 67

IX

LIST OF TABLESTable 2.1: The main financial indexes in period from 2004 to 35

Table 2.2: Ranking of opportunities and threats for Hanosimex 56

‘Fable 2.3: Export and total sales from 2004 to 2008 wisu:ssisersecsrsaxinesvens 58

Table 2.4: Yarn production, its export and domestic from 2004 to 2008 59

Table 2.5: Number of employees and average income from 2005 to 2008 62

Table 2.6: Comparative competitive anaÌySIS cà 65

Table 2.7: Ranking of strengths and weaknesses cic cesscinasssesvvisvesvesens 66

Table 3.1: Great MOdel 0 nus ecencdenrdennreanenradarnatdeaeamasaenenmnenamuse 70

Table 3.2: Implementation of diversifying product strategy 73

Table 3.3: Implementation of improve R&D and customer services 74

Rationale

In the near past, we have seen so many changes in the global economy

and context Especially, the world economy and society have been strongly

impacted by the currency crisis and then financial crisis at the whole world

level, which began at the end of the year 2007 It requires every nation and

company to revise the ways they look the future Certainly, nobody can

predict 100% right what will happen in the future and/or program for it but at

least people can have some proactive actions to prevent these kinds of crisis

and its effects in our businesses

Textile and apparel industries are important in the human life The

employment created by these industries account for large portion in anyeconomies For many developing countries or also in developed countriesthese industries were paid close attention to because they contribute muchbenefit for national economy and social welfare

Vietnam is a developing economy and is assessed as one of the fastest

growing countries in the world with the average annual growth rate from 2000

to 2008 at 7%-8.5% In fact, it is still in the transition process from central

economy to more market oriented economy For the long time, companies do

not need strategic planning, marketing And now they are facing

challenging situation from no competition to hard competition, being survive

or not, not only between domestic companies but also global giants

Recently, the economy has realized some signals of its unstable development.The growth rate in 2008 is less than some previous years

Textile and garment industries are playing important role in the

economy They are accounted for 11% of employment in total employment of

all industries But now the competition climate is changing and getting fierce.

Hanosimex is not out of the situation What the company can do is to develop

fit strategies, which can help them to come over the current situation and also

to climb as a dominant player in the domestic market.

Problem Statement

“To identify the alternative strategies for development of Hanoi Textile

Company (Hanosimex) in the challenging economic situation”

Objectives

e Overall Objectives:

- To analyze overall domestic business environment and analyze

Hanosimex businesses, and then develop strategy for Hanosimex to

give right way to become the leader in the industry

- To examine global market and build suitable expansion strategy in

potential abroad markets

e Specific Objectives:

- To get full understanding ofthe current business environment situation:

what are threats and opportunities for Hanosimex, both domestically

and globally? What are the main trends of the industry?

- To identify strengths and weaknesses of Hanosimex

- Toclarify competitive situation of the company in domestic market.

- To identify possibility to expand the market activities globally of

Hanosimex

Research Study Framework

Mission and Goals

Figure: Framework of the research study

Scope and limitation of the Research

The scope of this research is limited to developing corporate alternative

strategies for HANOSIMEX to strengthen competitiveness mainly in

domestic market, and global market to some extent

The formulation and choice of appropriate strategies in this thesis are applied

in the case of Hanosimex only In order to be applied in the cases of other

companies, it required further researches

Data Collection Methodology

Both quantitative and qualitative analyses are done on the basis ofavailable secondary and primary data for this research

a) Primary data:

- In-depth interview and discussion with the Managing Director and

some functional managers of Hanosimex to obtain information on thefirm’s current situation and their assessment about the current

industry's environment

- Discussion with shop floor managers and supervisors of Hanosimex

b) Secondary data:

- Annual Statistical Reports on the social, economical aspects from the

Bureau of Statistics to get general information on the macroenvironment;

- Textile and garment industry’s reports to get information on the

industry's structure

- Annual balance sheets and income statements from the selected

company to get information on the operating situations in the past and

at present.

- Newspapers, magazines, journals, book

- Information from Internet

Presentation of the Research Report

The thesis consists of three main parts: introduction, content and conclusion

e The introduction part deals with the methodology to carry out the research

This part includes rationale, problem statement, research methodology,scope and limitation of the research, data collection, outlines of the

research study

e The content part begins with the literatures review and then the application

of theory into the case of Hanosimex.

e The final part point out some conclusions and suggestions for the

implementation of the chosen strategy for Hanosimex

CHAPTER I1: LITERATURE REVIEW

1.1 Overview of Competitive Strategies

1.1.1 The competitive strategies

Competitive strategy is about being different It means deliberately

choosing to perform activities differently or to perform different activities

than rivals to deliver a unique mix of value [Michael E Porter 1996, “What

is a strategy?” P.64]

The essence of strategy lies in creating tomorrow's competitive

advantages faster than competitors mimic the ones you possess today [Gary

Hamel & C K Prahalad]

In competitive strategy, the focus is on how to compete successfully in

each of the lines of business the company has chosen to engage in The

central thrust is how to build and improve the company's competitive position

for each of its lines of business A company has competitive advantage

whenever it can attract customers and defend against competitive forces better

than its rivals Companies want to develop competitive advantages that have

some sustainability (although the typical term "sustainable competitive

advantage" is usually only true dynamically, as a firm works to continue it).

Successful competitive strategies usually involve building uniquely strong or

distinctive competencies in one or several areas crucial to success and usingthem to maintain a competitive edge over rivals Some examples ofdistinctive

competencies are superior technology and/or product features, better

manufacturing technology and skills, superior sales and distribution

capabilities, and better customer service and convenience

1.1.2 Kinds of competitive strategies

He argues that a business needs to make two fundamental decisions in

establishing its competitive advantage: (a) whether to compete primarily on

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price (he says "cost," which is necessary to sustain competitive prices, butprice is what the customer responds to) or to compete through providing somedistinctive points of differentiation that justify higher prices, and (b) howbroad a market target it will aim at (its competitive scope) These two choicesdefine the following three generic competitive strategies which he argues

cover the fundamental range ofchoices.

Figure 1.1: Generic strategies

[Source: Michael E Porter, 1985]

1.1.2.1 Cost Leadership Strategy

This strategy appeals to a broad cross-section of the market by providingproducts or services at the lowest price This requires being the overall low-

cost provider of the products or services (e.g., Costco, among retail stores,

and Hyundai, among automobile manufacturers) Implementing this strategy

successfully requires continual, exceptional efforts to reduce costs - without

excluding product features and services that buyers consider essential It also

requires achieving cost advantages in ways that are hard for competitors to

copy or match Some conditions that tend to make this strategy an attractive

choice are:

* The industry's product is much the same from seller to seller

* The marketplace is dominated by price competition, with highly

price-sensitive buyers

* There are few ways to achieve product differentiation that have much

value to buyers

* Most buyers use product in same ways - common user requirements

* Switching costs for buyers are low

* Buyers are large and have significant bargaining power

Required Skills and Resources: Sustained capital investment and access

to capital; Process engineering skills; Intensive supervision of labor; Productsdesigned for ease of manufacture; Low-cost distribution system

Organizational Elements: Tight cost control; Frequent, detailed reports;

structured organization and responsibilities Incentives based on meeting strict

quantitative targets

Risk of Cost Leadership Strategy: Technological change that nullifiespast investments or learning Low-cost learning by industry newcomers orfollowers through imitation, or through their ability to invest in state of the artfacilities; Inability to see required product or marketing change because oftheattention placed on cost Inflation in costs that narrow the firm’s ability to

maintain enough of a price differential to offset competitors’ brand images or

other approaches to differentiation

1.1.2.2 Differentiation strategy

This strategy appeals to a broad cross-section of the market throughoffering differentiating features that make customers willing to pay premium

prices, e.g., superior technology, quality, prestige, special features, service,

convenience (examples are Nordstrom and Lexus) Success with this type of

strategy requires differentiation features that are hard or expensive for

competitors to duplicate Sustainable differentiation usually comes from

advantages in core competencies, unique company resources or capabilities,

and superior management of value chain activities Some conditions that tend

to favor differentiation strategies are:

* There are multiple ways to differentiate the product/service that

buyers think have substantial value

* Buyers have different needs or uses of the product/service

* Product innovations and technological change are rapid and

competition emphasizes the latest product features

* Not many rivals are following a similar differentiation strategy

Required Skills and Resources: Strong marketing abilities; Productengineering with creative flair; Strong capability in basic research; corporatereputation for quality or technological leadership; Long tradition in theindustry or unique combination of skills drawn from other businesses; Strongcooperation from channels

Organizational Elements: Strong coordination among functions inR&D, product development, and marketing; Subjective measurement and

9

incentives instead of quantitative measures; Amenities to attract highly skilled

labor, scientists, or creative people.

Risk of differentiation: The cost differential between low-costcompetitors and the differentiated firm becomes too great for differentiation

to hold brand loyalty Buyers thus sacrifice some of the features, services, orimage possessed by the differentiated firm for large cost savings Buyers’

need for the differentiating factor falls This can occur as buyers become moresophisticated Imitation narrows perceived differentiation, a commonoccurrence as industries mature

1.1.2.3 Focus Strategy

These two generic ways can be combined with the market scope in

which the firm tries to achieve competitive advantage This leads to the focus

strategy, according to Porter, which is based on “the choice of a narrow

competitive scope within an industry The focuser selects a segment or group

of segments in the industry and tailors its strategy to serving them to the

exclusion of others.” [Michael E Porter Porter, 1985] There are two variants

here, “in cost focus a firm seeks a cost advantage in its target segment, while

in differentiation focus a firm seeks differentiation in its target segment”

{Michael E Porter Porter, 1985]

- Price (Cost) Focus: a market niche strategy, concentrating on a narrowcustomer segment and competing with lowest prices, which, again, requireshaving lower cost structure than competitors (e.g., a single, small shop on aside-street in a town, in which they will order electronic equipment at lowprices, or the cheapest automobile made in the former Bulgaria) Some

conditions that tend to favor focus (either price or differentiation focus) are:

* The business is new and/or has modest resources

10

* The company lacks the capability to go after a wider part of the total

market

* Buyers’ needs or uses of the item are diverse; there are many different

niches and segments in the industry

* Buyer segments differ widely in size, growth rate, profitability, and

intensity in the five competitive forces, making some segments more

attractive than others

* Industry leaders don't see the niche as crucial to their own success

* Few or no other rivals are attempting to specialize in the same target

segment

- Differentiation Focus: a second market niche strategy, concentrating on a

narrow customer segment and competing through differentiating features

(e.g., a high-fashion women's clothing boutique in Paris, or Ferrari).

Required Skills, Resources and Organizational Elements: Combination

of the above policies directed at the particular strategic target.

Risks of focus: The cost differential between broad-range competitors

and the focused firm widens to eliminate the cost advantages of serving a

narrow target or to offset the differentiation achieved by focus The

differences are desired products or services between the strategic target and

the market as a whole narrows Competitors find submarkets within the

strategic target and out-focus the focuser.

1.1.3 The importance of Competitive Strategy

Competitive strategy offered a rich framework for understanding the

underlying force of competition in industries, captured in the “Five forces”.

The framework reveals the important differences among industries, how an

1

industry evolves, and helps companies find a unique position Competitive

strategy provided tools for capturing the richness and heterogeneity of

industries and companies while providing a disciplined structure for

examining them

Competitive strategy identified a range of phenomena that economists,

armed with new game-theoretic techniques, have begun to explore

mathematically for the first time.

Competitive strategy has not only been widely used in teaching but has

motivated and served as a starting point in other efforts to bring economic

thinking to bear on practice

1.1.4 Process to formulate Competitive Strategy

Ín press Competitive Strategies 1980 of Michael Porter, there are three

main questions in the process to formulate Competitive Strategy.

The first one is “What is the Business Doing Now?” It determines the

current position of the company The formal strategy process begins with a

definition of where the company is now - what its current strategy is - and the

assumptions that the company managers currently make about the company's

current position, strengths and weaknesses, competitors, and industry trends.

Most large companies have a formal strategy and have already gone through

this exercise several times Indeed, most large companies have a strategycommittee that constantly monitors the company's strategy

The second question is “What is happening in the Environment?”

Determine what's happening in the environment In the second phase ofPorter's strategy process the team developing the strategy considers what is

happening in the environment and ignores the assumptions the company

makes at the moment and gathers intelligence that will allow them to

formulate a current statement of environmental constraints and opportunities

facing all the companies in their industry The team examines trends in the

industry the company is in, and reviews the capabilities and limitations of

competitors It also reviews likely changes in society and government policy

that might affect the business When the team has finished its current review,

it reconsiders the company's strengths and weaknesses, relative to the current

environmental conditions

The third question is: “What should the business be doing?” Determine a

new strategy for the company During the third phase, the strategy team

compares the company's existing strategy with the latest analysis of what'shappening in the environment The team generates a number of scenarios or

alternate courses of action that the company could pursue In effect, the

company imagines a number of situations the company could find itself in afew months or years hence and works backward to imagine what policies,

technologies, and organizational changes would be required, during theintermediate period, to reach each situation Finally, the company's strategy

committee, working with the company's executive committee, selects

one alter native and begins to make the changes necessary to implement the

company's new Strategy

The following chart summarizes the process to formulate a competitive

Strategy:

| : jExternal , Formulationand , ! Internal Analysis

1.1.4.1 Vision and MissionMission

Mission defines the fundamental purpose of an organization or an enterprise,

basically describing why it exists and what it does to achieve its Vision.Mission answer the question: “What is the purpose of existence of thecompany?”

A corporate Mission can last for many years, or for the life of theorganization It is not an objective with a timeline, but rather the overall goalthat is accomplished over the years as objectives are achieved that are aligned

with the corporate mission

Elements ofa mission statement:

- Clear articulated: means that mission should be easy to understand thevalues and purpose

- Relevant: in terms of its history, culture and shared values

- Current: not outdated

- Unique: not copied from similar units

- Enduring: should guide, inspire and challenging

- Adapted to the target audience - stock holders, consumers, employees

through shared values and standards of behavior

Mission should be clear both in terms of intentions and words used It

should be feasible, neither too high to be achievable, nor too low to

demotivate the people for work It should be precise but explanatory, neither

too narrow so as to restrict the company’s activities, nor too broad to make

itself meaningless It should be distinctive, both in terms of the company’s

contribution to the society and how these contributions can be made.

Mission often contains purpose and aim of the company; company’s

primary stakeholders, clients, stockholders, etc ; responsibilities of the

company toward these stakeholders; products and services offered.

Vision

Vision defines the desired or intended future state of an organization or

enterprise in terms of its fundamental objective and/or strategic direction.

Vision answer the question: “What company wants to become in the future?”

Vision is a long term view, sometimes describing a view of how the

organization would like the world in which it operates to be For example a

charity working with the poor might have a vision statement which read "A

world without poverty”

Vision must be clearly specified and set taking into account the various

factors affecting their achievement Vision should be consistent with

organizational mission, rational and realistic rather than idealistic It should be

achievable but must provide challenge to those responsible to the

achievement Furthermore, it should yield specific results when achieved It

may start with the word “to” and be followed by an achievement It probably

is consistent over the period of time and periodically reviewed

1.1.4.2 External Analysisa/ Macro Analysis (PEST model)

16

In analyzing the macro-environment, it is important to identify the

factors that might in turn affect a number of vital variables that are likely to

influence the organization’s supply and demand levels and its costs The

"radical and ongoing changes occurring in society create an uncertain

environment and have an impact on the function of the whole organization".

A number of checklists have been developed as ways of cataloguing the vast

number of possible issues that might affect an industry A PEST analysis isone of them that are merely a framework that categorizes environmentalinfluences as political, economic, social and technological forces

Kotler [1998] claims that PEST analysis is a useful strategic tool forunderstanding market growth or decline, business position, potential anddirection for operations The headings of PEST are a framework for

reviewing a situation, and can in addition to SWOT and Porter’s Five Forces

models, be applied by companies to review a strategic directions, including

marketing proposition The use of PEST analysis can be seen effective forbusiness and strategic planning, marketing planning, business and productdevelopment and research reports PEST also ensures that company’s

performance is aligned positively with the powerful forces of change that areaffecting business environment [Porter, 1985] PEST is useful when acompany decides to enter its business operations into new markets and newcountries

Main Aspects of PEST Analysis

Economic conditions affect how easy or how difficult it is to besuccessful and profitable at any time because they affect both capitalavailability and cost, and demand [Thompson, 2002] If demand is buyout,

17

A-1o/se

for example, and the cost of capital is low, it will be attractive for firms to

invest and grow with expectations of being profitable In opposite

circumstances firms might find that profitability throughout the industry is

low The timing and relative success of particular strategies can be influences

by economic conditions When the economy, as a whole or certain sectors of

the economy, are growing, demand may exist for a product or service which

would not be in demand in more depressed circumstances Similarity, the

opportunity to exploit a particular strategy successfully may depend on

demand which exists in growth conditions and does not in recession.

Although a depressed economy will generally be a treat which results in a

number of organizations going out of business, it can provide opportunitiesfor some [Robinson , S., Hichens, R and Wade, D , 1978; Thompson,2002]

Economic factors

Economic conditions are influenced by political and government

policy, being a major influence affecting government decisions The issue of

whether European countries join, or remain outside, the single Europeancurrency is a case in point At any one time either exported or imported

goods can seem expensive or inexpensive, dependent upon currency

exchange rates There are many other ways, however, in which governmentdecisions will affect organizations both directly and indirectly, as theyprovide both opportunities and threats

Technological factors

Technology is widely recognized by various literature on strategic

management [Capron and Glazer, 1987; Johnson and Scholes, 1993; Jan,2002], as part of the organization and the industry part of the model as it is

used for the creation of competitive advantage However, technology

external to the industry can also be captured and used, and this again can beinfluenced by government support and encouragement Technological

breakthroughs can create new industries which might prove a threat to

existing organizations whose products or services might be rendered

redundant, and those firms which might be affected in this way should bealert to the possibility Equally, new technology could provide a useful input,

in both manufacturing and service industries, but in turn its purchase will

require funding and possibly employee training before it can be used.

19

Political and Legal factors

While economic conditions and government policy are closely related,

they both influence a number of other environmental forces that can affect

organizations Capital markets determine the conditions for alternative types

of funding for organizations They tend to be a subject to government

controls, and they will be guided by the prevailing economic conditions The

rate of interest charged for loans will be affected by inflation and by

international economics and, although the determining rate may be fixed by a

central bank According to Thompson [2002], government spending can

increase the money supply and make capital markets more buoyant The

expectations of shareholders with regard to company performance, their

willingness to provide more equity funding or their willingness to sell theirshares will also be affected

The labor market reflects the availability of particular skills at national

and regional levels; this is affected by training, which is influenced by

government and other regional agencies Labor costs will be influenced by

inflation and by general trends in other industries, and by the role ad power

of trade unions

Social factors

The socio-cultural environment encapsulates demand and tastes, which

vary with fashion, disposable income, and general changes, can again

provide both opportunities and threats for particular companies [Thompson,

2002; Pearce and Robinson, 2005] Over-time most products change from

being a novelty to a situation of market saturation, and as this happens

pricing and promotion strategies have to change Similarly, some products

20

and services will sell around the world with little variation, but these are

relatively unusual Organizations should be aware of demographics changes

as the structure of the population by ages, affluence, regions, numbers

working and so on can have an important bearing on demand as a whole and

on demand for particular products and services Threats to existing products might be increasing: opportunities for differentiation and market

segmentation might be emerging.

b/ Industry Analysis (Five forces model)

The model of the Five Competitive Forces was developed by Michael

E Porter in his book “Competitive Strategy: Techniques for Analyzing

Industries and Competitors” in 1980 Since that time it has become an

important tool for analyzing an organizations industry structure in strategic

processes Porter’s model is based on the insight that a corporate strategy

should meet the opportunities and threats in the organizations external

environment Especially, competitive strategy should base on and

understanding of industry structures and the way they change

Porter has identified five competitive forces that shape every industry and

every market These forces determine the intensity of competition and hence

the profitability and attractiveness of an industry The objective of corporate

strategy should be to modify these competitive forces in a way that improvesthe position of the organization Porter’s model supports analysis of the

driving forces in an industry Based on the information derived from the Five

Forces Analysis, management can decide how to influence or to exploit

particular characteristics of their industry.

The Five Competitive Forces are typically described as follows:

SUPPLIERS BUYERS

Threats of

substitute products

SUBSTITUTES

Figure 1.4: Five forces model

[Source: Porter, M.E., 1980 Competitive Strategy, the Free Press]

Threat of New Entrants

The competition in an industry will be the higher; the easier it is for

other companies to enter this industry In such a situation, new entrants couldchange major determinants of the market environment (e.g market shares,

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prices, customer loyalty) at any time There is always a latent pressure for

reaction and adjustment for existing players in this industry

The threat of new entries will depend on the extent to which there are barriers

to entry These are typically

- Economies of scale (minimum size requirements for profitable operations),

- High initial investments and fixed costs,

- Cost advantages of existing players due to experience curve effects of

operation with fully depreciated assets,

- Brand loyalty of customers,

- Protected intellectual property like patents, licenses etc,

- Scarcity of important resources, e.g qualified expert staff,

- Access to raw materials is controlled by existing players,

- Distribution channels are controlled by existing players,

- Existing players have close customer relations, e.g from long-term service

contracts,

- High switching costs for customers

- Legislation and government action

Rivalry among existing firms

This force describes the intensity of competition between existing

players (companies) in an industry, high competitive pressure results in

pressure on prices, margins, and hence, on profitability for every single

company in the industry

Competition between existing players is likely to be high when:

- There are many players of about the same size,

- Players have similar strategies,

- There is not much differentiation between players and their products, hence,there is much price competition,

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- Low market growth rates (growth ofa particular company is possible only at

the expense ofa competitor),

- Barriers for exit are high (e.g expensive and highly specialized equipment)

Threat of Substitutes

A threat from substitutes exists if there are alternative products with

lower prices of better performance parameters for the same purpose They

could potentially attract a significant proportion of market volume and hence

reduce the potential sales volume for existing players This category also

relates to complementary products Similarly to the threat of new entrants, the

treat ofsubstitutes is determined by factors like:

- Brand loyalty of customers,

- Close customer relationships,

- Switching costs for customers,

- The relative price for performance ofsubstitutes,

- Current trends

Bargaining Power of buyers

Similarly, the bargaining power of buyers determines how much buyers

can impose pressure on margins and volumes

Buyers bargaining power is likely to be high when:

- They buy large volumes; there is a concentration of buyers,

- The supplying industry comprises a large number of small operators,

- The supplying industry operates with high fixed costs,

- The product is undifferentiated and can be replaces by substitutes,

- Switching to an alternative product is relatively simple and is not related to

high costs,

- Customers have low margins and are price sensitive,

- Customers could produce the product themselves,

- The product is not of strategically importance for the customer,

- The customer knows about the production costs of the product

- There is the possibility for the customer integrating backwards

Bargaining Power of Suppliers

The term ‘suppliers’ comprises all sources for inputs that are needed in

order to provide goods or services

Supplier bargaining power is likely to be high when:

- The market is dominated by a few large suppliers rather than a fragmented

source of supply,

- There are no substitutes for the particular input,

- The suppliers’ customers are fragmented, so their bargaining power is low,

- The switching costs from one supplier to another are high,

- There is the possibility of the supplier integrating forwards in order to obtain

higher prices and margins This threat is especially high when

- The buying industry has a higher profitability than the supplying

industry,

- Forward integration provides economies of scale for the supplier,

- The buying industry hinders the supplying industry in their development

(e.g reluctance to accept new releases of products),

- The buying industry has low barriers to entry

In such situations, the buying industry often faces a high pressure onmargins from their suppliers The relationship to powerful suppliers canpotentially reduce strategic options for the organization

1.1.4.3 Internal Analysis

Internal analysis begins with identification of the organization’s resource

allocations This analysis should produce an enumeration of organizational

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strength - what the organization does well Strengths must then be analyzed for their strategic significance It is also necessary to identify areas of

weakness and to determine whether these weaknesses have strategic

significance — that is, whether they make the organization vulnerable All

these assessments are relative; they must incorporate environmental

Support

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Service Outputs

Figure 1.5: Value chain Model [Source: Charles W.L.Hill and Garethr Jones,

Strategic Managerment: An Intergrated Approach (Houghton 1998)]

1.1.5.1 Primary Activities

Primary activities: those that are directly concerned with creating and

delivering a product and providing support and after-sale service to the

buvers of the product Those include:

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Research and development: New product design and development is

more often than not a crucial factor in the survival of a company In anindustry that is fast changing, firms must continually revise their design and

range of products This is necessary due to continuous technology change and

development as well as other competitors and the changing preference of

customers A system driven by marketing is one that puts the customer needs

first, and only produces goods that are known to sell Market research is

carried out, which establishes what is needed If the development is

technology driven then it is a matter of selling what it is possible to make The

product range is developed so that production processes are as efficient aspossible and the products are technically superior, hence possessing a naturaladvantage in the market place

R&D has a special economic significance apart from its conventional

association with scientific and technological development R&D investment

generally reflects a government's or organization's willingness to forgo

current operations or profit to improve future performance or returns, and its

abilities to conduct research and development

Production: the processes of transforming inputs into finish productsand services

Marketing and sales: the identification of customer needs and thegeneration of sales

Service: All those activities associated with maintaining product

performance after the product has been sold

1.1.5.2 Support Activities

Support activities which whilst they are not directly involved in

production, may increase effectiveness or efficiency (e.g human resource

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management), It is rare for a business to undertake all primary and support

activities Those are:

Company infrastructures: these concerns with a wide range of

support systems and functions such as finance, planning, control systems,

company culture, etc

Human resources: these deals with employee recruiting, hiring,

training, development and compensation.

Materials management: is concerned with the planning, coordination

and control of the acquisition, storeage, handling and movement of raw

materials, purchased parts, semifinished goods, tools and other materials those

are an integral parts of company.

The company’s margin or profit then depends on its effectiveness in

performing these activities efficiently, so that the amount that the customer is

willing to pay for the products exceeds he cost of the activities in the value

chain It is in these activities that a firm has the opportunity to generate

superior value A competitive advantage may be achieved bay reconfiguring

the value chain to provide lower cost or better differentiation.

1.1.6 Identify sustainable Competitive advantages and Core

Competences

Competitive advantage exits when the company is able to deliver the

same benefits as competitors but at a lower cost (cost advantage), or deliver

benefits that exceed those of competing products (differentiation advantage).

Thus, a competitive advantage enables the company to create superior value for its customers and superior profits for itself Strategy must be built basing

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on sustainable competitive advantage, not core competencies or other factors.

To identify sustainable competitive advantage, managers must understand:

- The role of resources, capabilities, and distinctive competencies in the

process by which companies create value and profit,

- The importance of superior efficiency, innovation, quality, and

Resources are capital or financial, physical, social or human,

technological, and organizational factor endowments Resources are

firm-specific and difficult to imitate resource is likely to lead to distinctivecompetency A valuable resource that creates strong demand for a firm’sproducts may lead to distinctive competency

Capabilities are company’s skills at coordinating and using its

resources These skills reside in the way a company makes decision andmanage its internal processes in order to achieve the company objectives

Capabilities are the product of organizational structure, processes, and control

systems We must add people, particularly leadership in building the

structure, etc.

Core competencies are those capabilities that are critical to a business

achieving competitive advantage The starting point for analyzing core

competencies is recognizing that competition between businesses is as much a

race for competence mastery as it is for market position and market power It

is something that a company can do well and that meets conditions of

providing consumer’ benefits, not being easy for competitors to imitate, andbeing able to be leveraged widely to many markets and products Core

competencies are critical keys to exist and succeed in a particular industry

Distinctive competencies are company-specific strengths that allow a

company to gain competitive advantage by differentiating its products and/orachieving lower costs than its rivals It arises from unique application ofresources and acquisition of capabilities

Sustainable competitive advantage is the competitive edge sought by

a firm which will allow it to satisfy customer needs while maintaining anadvantage over its rivals because of the uniqueness of its products or its lowerproduction or marketing costs

1.1.7 Formulation and Choice of Competitive Strategy

A man named Albert Humphrey created the technique, known as SWOT,when leading a research project at Stanford University in the 1960's and

1970's using data from the Fortune 500 companies This stands for strength,

weakness, opportunity, and threats SWOT analysis is a strategic planning

tool used to evaluate the factors involved in a project or in a business venture

In doing so, the external and internal factors that are favorable andunfavorable are identified in order to achieve an objective

If an objective has been identified, SWOT analysis can be used to help in

the pursuit of that objective SWOTs are identified as:

_ Strengths: attributes of the organization those are helpful to achieving theobjective

(] Weaknesses: attributes of the organization those are harmful to achievingthe objective

Opportunities: external conditions those are helpful to achieving the

objective.

| Threats: external conditions those are harmful to achieving the objective

It is critical that correct identifications of SWOT's are identifiedbecause of the subsequent steps in the process of planning for the

achievement of the selected objective are to be derived from the SWOT's

Those who are involved in making the decisions must, first, determine

whether the objective is attainable with the given SWOT’S Ifthe objective isnot attainable a different objective must be selected and the process repeated

If the objectives seem attainable, the SWOTs are used as inputs to thecreative era of possible strategies, by asking and answering each of thefollowing four questions, several times:

1 How can we Use each Strength?

2 How can we Stop each Weakness?

3 How can we Exploit each Opportunity?

4 How can we Defend against each Threat?

A broad range of perspectives, by a cross-functional team or a task

force, should carry out the SWOT analysis A SWOT team may include anaccountant, a salesperson, an executive manager, an engineer, and arepresentative of the government

The main goal of any SWOT analysis is to identify the key internal and

external factors that are important to achieving the objective Key pieces ofSWOT group information into two main categories:

Internal factors - The strengths and weaknesses internal to the organization

|| External factors - The opportunities and threats presented by the external

environment

Depending upon the impact of the organization's objectives, internal

factors may be viewed as strengths or weaknesses External factors may

include macroeconomic matters, technological change, legislation, and

socio-cultural changes, as well as changes in the marketplace or the competitiveposition

ad to

Figure 1.7: SWOT analysis framework

The usefulness of SWOT analysis is not limited to profit-seekingorganizations SWOT analysis may be used in any decision-making situationwhen a desired objective has been defined It is a technique widely used by agroup, department, unit, organization, or even an individual

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CHAPTER 2 FORMULATION OF COMPETITIVE STRATEGY FOR

Address: No.1, Maidong, Hoangmai District, Hanoi, Vietnam

The company specializes in:

- Manufacturing — Trading - Importing and exporting textile and apparelincluding: raw material such as: cotton, polyester fiber, yarn, knit fabric andknitwear; denim and jeans wear, woven wear, towel, equipment, engine andspare parts, electronics, dye-stuff and chemical, other consumer goods

- Business of warehousing, transportation, office rental, factory rental,restaurant, hotel, supermarket, entertainment services.

Hanosimex history

Hanosimex is a big state run company in textile and garment industry of Vietnam The process of development of the company can be viewed with

these following benchmarks:

e The company officially started operation in 21“, November 1984 with the

initial name “Hanoi Yarn Company” Company had only produced threemain types of yarn such as Cotton, PE, and PECO with variety technical

characteristics.

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