Luận văn business strategy for trung nguyen's tea product

According to Miller & Dess 1998, Industry life cycle, a conceptual model that suggests thal a market evolves thraugh the stages of intraduation, growth, maturity, and dectine The indus

1.2 Matching strategy to a company’s situatilion

2.2.7 Capital Investment Requirements 6 3.2.8 Trung Nguyen Company's Competitive Pa

LIST OF FIGURES

Figure 2.1 Tea Area

Figure 2.2 Area Under Cultivation

Vigure 2.3 Province Growing ‘lea

Figure 2.4 Tea Out Put

Figure 2.5 Tea Export

LIST OF TABLES

Table 2.1 Growth Of Tea Area

Table 2.2 Growth Of Tea Area In Province Table 2.3 Growth Of Tea Output,

Table 2.4 Growth Of ‘Tea Export

Table 2.5 Consumptione

‘Table 2.6 Comparing Price Of I'nd Product Table 2.7 Comparing Price Of Meterial

Table 2.8 Comparing Price Of Meterial

Table 2.9 Comparing Price Of Meterial

INTRODUCTION

The first chapter will provide readers with an insight to the research area It will

begin by briefly necessity of the thesis that will be followed by the purpose of the study and

research questions, key research area, methodology using for research and outline for

overall thesis

1 NECESSITY OF THE THESIS

In recently years, The Vietnam's economy has beon changed comprchensively, For few years ago, state owned company is considered as backbone of national economy, but now, wa nocd lơ make an oxamination of il Appearing in strongly way private enlarprise, specially, enterprises are descended from empty hands By miraculous steps, those anterprises have stepped up onto glorious dais, up to now, when search total process of development of it, people only feel extremely miraculous and admire that can not talk by word

‘Trung Ngnyen is one of those enterprises making miraculousness To start by

empty hand, up to now, Trung Nguyen has become a very famous company When looking

back in the history of Trung Nguyen, one can see that ‘rung Nenyen had difficult initial

steps, without property, traditional knowledge of business With this difficult start, many

other companies would fell they began their businesses under a much better condition,

The history shows that successes only come with people who try one’s best by heart and train, By tris clemeul but is not other things, Trung Nguyen has made a suovess far itself

I have been lucky having intemship in ‘Trg Nguyen for few months, both acquiring sprit and loaming exporisnes With assignment thal complcte graduated thosis, T

have chosen field tea, area that ‘rung Nguyen is newcomer

Business strategy is compared as a map that looking it, people can know which path is both reliable and shortest to succeed Base on thal, T have chosen subject: Buill business strategy for tea of Trung Nguyen With general approach, do not go deep into the details of each aspect of business action of Trung Nguyen, expected outcome will supply more information for Trung Nguyen about tea industry in what stage of development process with characteristics and strategies to succeed in that environment

2 PURPOSE

‘The purpose of this thesis 1s to study external and internal environment of ‘rung

‘Nguyen Company to detine the optimal strategy for its tea products

Research Question:

= How to match stiategy to a company’s situation?

‘The scope of this thesis is limited to:

- The tea industry in Vietnam and Trung Nguyen Corporation together with its business strategies

+ Strategie choice that such a firm could appty in its own environment

4 METHODOLOGY

Methodology usually refers to the general approaches to research while method refers to techniquss for gathering evidence, Thercfore, methodology is # theory and analysis of how a research does or should proceed Specific method for the case study willl bbe described and elaborated ngan later in the chapler three of the thesis

41, Research Purpose

A roscarch ean classify into ttrrce basic purposes exploratory, descriptive and explanatory his study comes with descriptive and explanatory purpose more than axploratory purposes only

42, Research Approach

The research approach of this sindy is quatitative Qualitative tesearch approaches have traditional been favored when the main research objective is to improve the understanding of a phenomenon is, especially when this phenomenon is complex and deeply embedded in its context, Its many methodologies and techniques have helped

researcher get a better grasp of a variety of management situations

43 Research Method

Research method were used in this thesis is case study According to theory, a case study approach should be used when how or why questions are being posed about a contemporary set of events over whieh the researcher has litle of any control ‘This study is

‘based on rescarch question of how character and focuscs on contemporary sets of events

44 Data Collection Method

There are documentary sources, archival records, participant observation, and

direct observation Each of these data sources has their strengths and weaknesses Since no

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single source of data have a complete advantage over all the others and given that the data sources ara highly complementary, and the recommendation by the 1

soarchars that 2, gant case study may want to use as many sources as possible In this study data will be collected from source: document, archival records, and direct observation

Data reduction’ The process of collecting, focusing, simplifying, abstracting, and transforming the data ‘The purpose is to organize the data so that final conclusions can be drawn and verified

Data display: Taking the resumed data and displaying it in an organized, as table, diagram,

to conclusion can be more easily drawn

5 CONTRIBUTIONS OF TH! THESIS

© Provision of an approach in building business strategy, which helps Trung Nguyen

Corporation in guiding its business activities

© Findings of the characteristics of environment of the tea industry in Vietnam, and the position of Tring Nguyen in this industry

* Strategic analyses and recommendations in marketing, product operation, imman resource and finance to improve business activities,

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6 OUTLINE

‘The thesis is divided into four chapters:

The chapter one will provide readers with an insight to the research area It will begin by bricily necessity of the thesis that will be followed by the purpose of the study and research questions, key research area, methodology using for research and outline for overall thesis

The chapler two is a summary of relevant thoorias commccted to the Tescarch questions

Chaplor three contains a case analysis lo Tring Nguyen, including case stuly methad, analysis and findings of matching strategy to the fitm’s company's situation

Chapter four recommendations and conclusions will be presented

CHAPTER 1: LITTERATURE REVIEW The chapter sanmavies theories connected to research questions, The literature has been collected to address the research: questions

Strategic management, Football strategy, Game theoretical strategy, economic strategy,

Neuro-linguistic programming strateg

+ Asstrategy in game theory is a sequence of activities and reactions, that fully determine

an agent’s behavior in a game or a business situation, The mathematically precise

description of behavior is connected ta computer programming and algorithms.”

© Ingeneral, the plan or policy for arbitrating between multiple, concurrent requests for

the use of a device, Specifically in disk device drivers, the policy for scheduling

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1nnMiple, concurrent disk block-read and black-write requests

* A strategy is a long ferm plan for success, to achieve an advantage In force terms this

is the key milestones and targels for the coming year These are bascd upon the Goveinments PPAF requirement

+ Describes the differentiating activities an organization pursues to gain competitive advantage Situated al ths conlar of the Balanced Scorceard system, all porformance measures should align with the organization's strategy Strategy

' Taken from website; en.wikipedia org/wiki/Stralegy

* Taken from website: en.wikipetlia orp/wiki/Stratexy (game the:

* Yaken from websile: biology nesa.uine.edwlibrary/SG1_bookshelves/SG1 Developer/books.hlmnl

* Taken from website: waw.devon-comval police nkA3help/alossary.bam

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» Remains one of the most widely discussed and debated topics in the world of modem

nam can be used fo denote a server-defaull, strateg:

* A plan for the conduct of a major phase, or campaign, within a grand strategy for the overall conflict, A slratogy is the basic idea of how the struggle of a specific campaign shall develop, and how its separate components shall be fitted together to contribute Thosl advantageously lo achieve ils objectives Strategy operates within the scope of the grand strategy Tactics and specific methods of action arc uscd in smaller scalc

operations to imptement the strategy for a specific campaign.”

1.2 MAICIING STRATEGY ‘LO A COMPANY’S SITUATION

According to Thompson é& Strickland III (1997), the task of matching strategy to a

company's situation is complicated beeanse of the large external and internal factors managers have to weigh However, while the number and vaticty of considerations is

necessarily lengthy, the most important drivers shaping a company's strategic op

fall into two broad categorics:

+ The nature of industry and competitive conditions

+ The firm's own competitive capabilitics, market position, and best opportunities

5 Taken from website: www balancedscorevard bi/Glossary bral

6 Taken fram website: wow myrke.in-berlin.de/dictionaryAisina, html

7 Taken from websile: www canvasopedia,org/contenl/canvasopedia/dietionary.flmt

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The dominant strategy-shaping industry and competitive conditions revolve around:

1) What stage in his life-cycle the industry is in (emerging, rapid growth, mature, declining)

2) The industry's structure (fragmented versus concentrated)

3) The nature and relative strength of the five competitive forces

4) The scope of competitive rivalry (particularly whether the company’s market is

globally competitive)

The pivotal company-specific considerations hinge on:

1) Whether the company is an industry leader, an up-and-coming challenger, a content

qunncr-up, or an also-ran struggling to survive,

2) The company’s particular sct of strengths, weaknesses, opportunitics, and threats

But even these few categories occur in too many combinations to cover here However, we can demonstrate what the task of matching strategy to the situation involves by considering five classic types of indusuy environments:

1) Competing in emerging and rapidly growing industries

2) Compcting in matuiing industries

3) Competing in stagnant or declining industries

4) Competing in fragmented industzies

‘And three classic types of company situations

1) Firms in industry leadership positions

2) Fumsin runner-up positions

3) Firms that is competitively weak or etisis-tidden

According to Miller & Dess (1998), Industry life cycle, a conceptual model that suggests

thal a market evolves thraugh the stages of intraduation, growth, maturity, and dectine

The industry ifs cycle provide @ uscful framework for studying businessdevel strategy formulation because it provides" shorthand” for the numerous differences in strategic

situations and the behavior appropriate to cach

Product life eycles and technological life cycles aro well-known, important concepts thal

we have attempt to build into our consideration of an overall industry life cycle

However, there are two caveats to bear in mind when considering the industry life cycle First, the industry life cycle is not intended lo be use as a shorl-run forecasting device Strategists find it more usefil to consider the industry lif cycle as a conceptual tramework for understanding what changes might occur over time rather than when they are likely to occur, Second, industry lite cycles are reversible and repeatable

1.24 Industry Development Stages

The following text will concentrate on characteristics and relevant strategies of four different stages for industry Four stages are: emerging, maturing, declining fragmented a- Competing in Emerging Industries

An emerging indusiry is one in the early, formative state Most company in an emerging

industry are in a start-up mode, adding people, acquiring or constructing facilities, gearing

up production, tring to broaden distribution and gain buyer acceptance (Thampson &

Strickland HI, 1997)

Characteristics

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"rhe market is new and unproven; there are many uncerlainties about how it will fonction, how fast it will grow, and how big it will get

Much of the technalogical know-how tends lo be proprictary and closely guarded, having been developed in-house by pioneering firms, some firms may file patents in an effort to

secure compelitive advantage

Often, there is no consensus regarding which of several competing praduction Lechnologics will win out or which product attributes will gain the most buyer favor Until market forces sort these things out, wide differences in product quality and performance are typical and

rivalry centers around each firm's efforts to get the market to zatify its own strategic

approach to technology, product design, marketing, and distribution

Entry barriers tend to be relatively low, even for entrepreneurial start-up companies; well-

financed, opportunity-seeking outsiders are likely to enter if the industry has promise for

explosive growth

Firms have little hard information abont competitors, how fast products are gaining buyer acceptanec, and uscrs' cxpericnecs with the product; there arc no trade associations

gathering and distributing information

Since all buyers are first-time users, the marketing task is to induce initial purchase and to

overcome customcr concerns abonl product features, performance reliabifily, and conflicting claims of rival firms

Many potential buyers expect first-generation products to be rapidly improved, so they

delay purchase until lochnology and product design malure.firms have troubls securing ample supplies of raw materials and components (until suppliers gear up to meet the industry's needs)

Many companies, finding themselves short of funds to support needed R&D and get throngh several Ioan yoars unlil the product catches on, end up merging with compatitors

or being acquired by outsiders looking to invest in a growth market

+ Search out new customer groups, new geographical areas to enter, and new user applications Make it easier and cheaper for first-time buyers to try the industry's fixst- generation product

- Gradually shift the advertising emphasis fom building product awareness to increasing frequency of use and creating brand loyalty

- As technological uncertainty clears and a dominant technology emerges, adopt it quickly While there's merit in trying to pioneer the "dominant design” approach, such a strategy camics high risk when there are many competing technologies, R&D is a costly, and rapidly moving technological development quickly make early investments obsolete

- Use price cuts to attract the next layer of price-sensitive buyers into the market

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- Expect well-financed outsiders to move in with aggressive strategies as industry sales start o lake off and the perecived risk af investing in the industry lessons, Try lo propars for the entry of powerful competitors by forecasting (a) who the probable entrants will be Chased on present and fisture entry barriers) and (b) the types of strategies they are likely to employ

b- Compcting in Maturing Industries

‘The rapid-growth environment of a young industry cannot go on forever However, the transition to a slower-prowth, maturing industry environment does not begin on an easily predicted schedule, and the transition can be forestalled by a steady stream of technological advances, product innovations, or other driving forces that keep rejuvenating market demand Nonetheless, when growth sates do slacken, the transition to market

maturity usually produces fundamental changes in the industry's competitive environment,

Characteristics

Slowing growth in buyer demand generates more head-to-head competition for market share Firms that want to continuc on a rapid-growth track start looking for ways to take

customers away ftom competitors, Outbreaks of price-cutting, increased advertising, and

other aggressive tactics are common

Bar

+s become more sophisticated, often driving a harder bargain on repeal purchases Since buyers have experience with the product and are fhmiliar with competing brands, they are better able to evaluate different brands and can usc their knowledge lo nogotiale a better deal with sellers

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Competition offen produces a greater emphasis on cost and service As sellers all begin to offer the product attributes buyers prefer, buyer choices increasingly depend on whieh seller offers the best combination of price and service

Firms have a "topping out" problem in adding production capacity Slower rates of

tach firm has lo momitor rivals’

industry growth mean slowilawns in capacity expansion

expansion plans and time its own capacity additions to minimize oversupply conditions in

the industry With slower industry growth, the mistake of adding too much capacity 100 soon can adversely affect company profits well into the future

Product innovation and new end-use applications are harder to come by Producers find it increasingly difficult to create new product features, find further uses for the produet, and

sustain buyer excitement

Intemational competition increases, Growth-minded domestic firms start to seek out sales

opportunities in foreign markets Same companies, looking for ways to cut costs, relocate

plants to countries with lower wage ratcs, Greater product standardization and diffusion of technological know-how reduce entry bamers and make it possible for enterprising foreign

companics ta become scrious murkel conlenders in more couniries Industry Izadersteip passes to companies that succeed in building strong competitive positions in most of the world's major geographic markets and in wining the biggest global market shares

Industry profitability falls lemporarily or permanently Slower growth, iucreased competition, more sophisticated buyers, and occasional periods of overcapacity put pressure on industry profit margins Weaker, less-eflficient firms are usually the hardest hit Stiffening competition induces a number of mergers and acquisitions among former competitors, drives the weakest firms oul of the mdusiry, aud, in gensral, produces

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industry consolidation, inefficient firms and firms with weak competitive strategies can aumvive ina fast-growing industry with booming silos Bul tho inionsifying competition that accompanies industry maturity exposes competitive weakness and throws second- and

third-tier compelitors into a survival-ol-the-fitlest contest

Strategies

+ Pruning the Product Line: A wide scloetion of models, (satures, and product options has competitive value during the growth stage when buyers’ needs are still evolving But such variety can become too costly as price competition stiffens and profit margins are squeezed Maintaining too many product versions prevents finms fiom achieving the economies of long production runs In addition, the prices of slow-selling versions may not cover their true costs Pruning marginal products from the line lowers costs and permits more concentration on items whose margins are highest and/or where the firm has a

competitive advantage

- More Emphasis on Process Innovations: Efforts to "rcinvent” the manufacturing process can have a tourfold payotl lower costs, better production quality, greater capability to tum oul multiple produel versions, and shorter design-to-markl cycles Process imovation can

involve mechanizing high-cost activities, revamping production lines to improve labor efficiency, creating self-directed work teams, reengineering the mannfacturing portion of the value chain, and increasing usc of advanced technology (robotics, computerized controls, and automatic guided vehicles) Japanese firms have become remarkably adept at using mmufacluring proc:

innovation to become lawer cost producers of higher-quality products

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- A Stronger Focus on Cost Reduction: Stiffening price competition gives firms extra

ineonlive to reduce unit costs Such offorts can cover a broad front: companics can push suppliers for better prices, switch to lower-priced components, develop more economical product designs, cul low-value activities oul of the value chain, streamline distribution channels, and reengineer internal processes

- Increasing Sales to Present Customers: In.a mature market, growing by taking customers away ftom rivals may not be as appealing as expanding sales to existing customers Stategies to increase purchases by existing customers can involve providing complementary items and ancillary services, and finding more ways for customers to use the product, Convenience food stores, for cxample, have boosted average sales per customer by adding video rentals, automatic bank tellers, and deli counters

- Purchasing Rival Firms at Bargain Prices: Sometimes the facilities and assets of

distres

2d rivals can be acquired cheaply Bargain-priced acquisitions can help ercalz a

low-cost position if they also present opportunities for greater operating efficiency In

addition, an acquired firm's customer base can provide expanded markel coverage The

most desirable acquisitions are those that will significantly enhance the acquiring firm's

be used in plants in less-developed foreign markets (a condition that lowered entry costs)

Such possibilitics arise when (1) forcign buyers have less sophisticated needs and have

simpler, old-fashioned, end-use applications, and (2) forsign competitors ate smaller, less formidable, and do nol employ the latest production technology Stralogics to expand internationally also make sense when a domestic firm's skills, reputation, and product are readily transferable to Corsign markets Tiven though the U.S toarkel for soft drinks is mature, Coca-Cola has remained a growth company by upping its efforts to penetrate foreign markets where soft-drink sales are expanding rapidly

c- Competing in Stagnant or Declining Industries

Many firms operate in industries where demand is growing more stowly than the economy wide average or is even declining, Although harvesting the business to obtain the greatest cash flow, selling out, or closing down are obvious end-game strategies for uncommitted competitors with dim long-term prospscts, strong, competitors may be able to achieve good

performance ina stagnant market environment Stagnant demand by itself is not enough to

make an industry unaliractive, Sclling oni may or may not be practical, and closing

operations is always a last resort

Characteristics

Businesses competing in slow-growth’declining industries have to accept the difficult realities of an crvizonment of continuing stagnation, and they must resign themselves Lo performance targets consistent with available market opportunities Cash flow and retumn- on-investiment crilaria are more appropriate than growth-oriented performance measures, but sales and market share growth arc by no means ruled out Strong competitors may be able to take sales from weaker nvals, and the acquisition or exit of weaker firms creates opportunities for the remaining companies lo capture grealcr market share

Strategies

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- Pursue a focused strategy by identifying, creating, and exploiting the growth segments within the industry Siagnant or declining markels, like other markets, are composi of mmmerous segments or niches Frequently, one or more of these segments is growing rapidly, despite stagnation in the industry asa whole An astule competitor wha is first to

concentrate on the attractive growth segments can escape stagnating sales and profits and

possibly achieve competitive advantage in ths target segments

+ Stress differentiation based on quality improvement and product innovation Either exihanced quality or innovation can rejuvenate demand by creating important new growth segments or inducing buyers to trade up Successful product innovation opens up an avenue for competing besides mecting or beating rivals’ prices Differentiation bascd on successful innovation has the additional advantage of being difficult and expensive for

tival finns to imitate

Work ditigently and persist

lơnHly to drive costs down, When increases in salcs camel be counted on to generate increases in earnings, companies can improve profit margins and

Telw71 on investment by continuous productivily improveraent and cost reduction year afer

‘year Potential cost-saving, actions include (a) outsourcing fimctions and activities that can

be performed more cheaply by outsiders, (b) completely redesigning internal business

proces

s, (c) consolidating underutilized prodnetion facilities, (@) adding more disttibution channels to ensure the unit volume needed for low-cost production, (¢) closing low-volume, ligh-cosl distribution outlols, and (0) culling twarginally bonolicial aetivities out of the value chain

d- Competing in Fragmented Industries

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A number of industries are populated by hundreds even thousands, of small and medium- sived companies, many privatsly held and none with a substantial share of tolal indusiry sales ‘the standout competitive feature of a ftagmented industry is the absence of market leaders with king-sized markel shares or widespread buysr recognition, Examples of fragmented industries include book publishing, landscaping and plant nurseries, kitchen cabinets, oil tanker shipping auto repair, restaurants and fast-food, public accounting, women's dresses, metal foundiies, meat packing, paperboard boxes, log homes, hotels and motels, and furniture

Characteristics

Low entry barriers allow small firms to enter quickly and cheaply An absence of large- soale production economies permits small companies to compete on an equal cost footing, with larger firms Buyers require relatively small quantities of customized products (as in

business forms, interior design, and advertising), because demand for any partivular product version is small, sales volumes are not adequate to support producing, distibuting,

or marketing on a scale that yields advantages Lo a large firm

The market for the industry's product/service is loca (dry cleaning, rasidential construction, medical services, automotive repair), giving competitive advantage to local

‘businesses familiar with local buyers and local market conditions

Market denmnd is so large and so diverse tliat it lakes very large numbers of firms to

accommodate buyer requirements (restaurants, cnergy, and apparel}

High transportation costs limit the radius a plant can economically service as in concrete blocks, mobile homes, milk, and gravel

Local regulations make each geographic area somewhat imique

‘The industry is so new that no firms have yet developed the skills and resources to command a significant market share

Strategies

+ Consmucting and operating "formula" facilities: This stratcgic approach is Frequently employed in restaurant and retailing businesses operating a multiple locations It involves constructing standardized outlets in favorable locations al minimum cost and then polishing to a science how to operate all outlets in a super eflicient manner, MeDonald's, [Tome Depot, and 7-Eleven have pursued this strategy to perfection eaming excellent profits in their respective industries

- Becoming a low-cost operator; When price competition is intense and profit margins are under constant pressure, companies can stress no-ftills operations featuring low overhead,

high-productivityow-cost labor, lean capital budgets, and dedicated pursuit of total

operating efficiency Successful low-cost producers in a fragmented industry can play the

Pricc-cutting game and still cam profits above the industry average

- Increasing customer value through integration: Backward or forward integration may

contain opportunities to lower costs or enhance the value provided to customers Examples include assembling cormponcnls before shipment ta customers, providing technical advice,

or opening regional distiibution centers

- Specializing by product type: When a fiagmented industry's products include a range of

siyles or services, a stalegy lo focus on one product/service category can be very offective

Some firms in the funiture industry specialize in only one furniture type such as brass beds, rattan and wicker, iawn and garden, or early American In auto repair, companies

specialize in transinission repair, body work, or speedy cil changes

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- Specialization by customer type: A firm can cope with the intense competition of a

fragmented industry by caloring to those cuslorners (1) who have the least bargaining leverage (because they are small in size or purchase small amounts), (2) who are the least price sensilive, or (3) who are inlerested in unique product aliributes, a customized

product/service, or other "extras,

- Focusing on a limited geographic area: Even though a firm in a ftagmented industry can't win a big share of total industry wide sales, it can still try to dominate a local/regional geographic area, Concentrating company efforts on a limited territory can produce greater operating efficiency, speed delivery and customer services, promote strong brand awareness, and permit saturation advertising, while avoiding the discconomics of stretching operations out over a much wider area Supermarkets, banks, and sporting goods rotailers successfully operate multipl: locations within a lirnitsd geographic arca,

Tn fragmented industries, firms generally have the strategic freedom ta pursuc broad or narrow market targets and low-cost or differenhation-based competitive advantages, Many

different stratogic approaches can oxist side by side

Provlucts/scrvices are unfamiliar

Competition —_| Slight competition; unprofitable | Growth may mask success | Competitive rivalry peaks

Few pioneers begin to explore the | competitors as competitors try to

Competitors focus inward on product rather than competition Markel exploration

Technology High level of technological Dominant design emerges, | Small increment email

change and product/service emphasis placed on produet | innovations, many base on

No established donminant design | As darninant design performance improvements

or siandiud cancrges, pradact pro Emphasis on cfficicncy

Technological development can become more most likely stage for requires a high level of specialized automation

Investment

Technology is not fally understood by the creators Capital Significant investrcnl to supparl | Peak period, needed to Reinvesiment as needed Lo Investment venture start-up and creation of | fund growth hew products/services maintain viability

Fragmented Industry -Absence of visible market Tcaders

“Low ontry bartions and abscnec of scalc economics

“Markel for produel is local

Strall quantities of

customized products

required -Market is so large and

diverse it takes rmmerous firms to accommodate

buyer needs

-Lligh transportation costs

prevent serving large

maiket area

-Local regulatory

requirements make each

geographic area unique

-Newness of industry

“rable 1.1: Summary of Stages for an Industry and the Corresponding Characteristics and Strategies

Prices High and volatile Prices decline rapidly as _| Prices decline slowly as

Market will pay high price for cost fall and competition _| productivity allows costs to

new industry's products/services Tists fall

the market cnfcr what appears to bea | growth slows and shakeout

promising market begins Promotion ‘Target irmovators and Iry lo build | Puild brand awarcness Tailor promotion toa

Sales Low butt prowing volume Sale volume soars Stabilizing sale volume Profits Negative; revenue per share is Protitabie but cash low — | Prolits declining

low but increasing as matures may still be negative inclusiry

Cash Flow Negative cash flow due to heavy | Cash tlow may still be expenses incliding debt service Larger investment level

negative may mean cash flow is

Fragmented Industry

bold, creative strategy

-Push to perfect the technology,

to improve product quality, and to develop allractive performance features

-Try to capture any first-mover

advantages associated with more models, better styling, and early

commitments to technologies and

raw matzrials supplier:

expericnes curve eff distribution channels,

and new user applications

-Gradually shift the advertising,

from building product

$ lo incrcasing frequency

of use and creating brand Loyalty

-Use price cuts to attract the noxt layer of price-sensitive buyers into the market

Growth -Pining the Product Line -More Emphasis on

Maturity and Decline

-Pursue a focused strategy

by identifying, creating,

and exploiting the growth

segments within the

industry

-Stress differentiation based on quality

improvernent and product

innovatien

-Work diligently and persistently to drive costs down

Increase customer vatuc via vertical integration

-Specialize by product type -Specislize by customer type

-Foous on limited geographic area

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1.2.2 Firm Capability

Depending on capability of the firm, companies could be class in to three categories:

Industry Leader, Rumner up firm and Weak Business

msc is a good offense Offensive-minded Icaders stress being first-movers to

sustain their competitive advantage (lower cost ar differentiation) and to reinforce

their reputation as the leader A low-cost provider aggressively pursucs cost reduction, and a differentiator constantly tries new ways to set its product apart from tivals' brands The theme of a stay-on-the-offensive strategy is relentiess pursuit of

continuous improvement and innovation Striving to be first with new products, better performance features, quality enhancements, improved customer services, or ways lo cul production cosis not only holps a leader avoid complacency but il also keeps rivals on the defensive scrambling to keep up The array of offensive options can also include ï

ialives to expand overall industry demand—discovering new uses for the product, attracting new users of the product, and promoting more frequent use In addition, a clever offensive leader stays alert for ways to make it

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easier and less costly for potential customers to switch their purchases from runner

up firms to its own products, Unless a leader's market share is already so dominant that it presents a threat of antitrust action (a market share under 60 percent is usually safe"), a slay-on-the-offnsive stralegy means Irying lo grow faster thin the industry

as a whole and wrest market share from rivals A leader whose growth does not equal

or outpace the industry average is losing ground lo competilors

- Fortifv-and-defend strategy: —The essence of "lortify and defend” is to make il harder for new fims to enter and for challengers to gain ground The goals of a strong defense are to hold onto the present markst share, strengthen current market position, and protect whatever competitive advantage the firm has

Specific defensive actions can include

© Atlempting to raise Ihe competitive ante for challengers and new entrants via incrcascd sponding for advertising, higher levcls of customer service, and bigger

R&D outlays

* Introducing more of the company's own brands fo match the product atuibutes

that challenger brands have or could employ

* Adding personalized sarvices and other “extras” that boost customer loyalty and make it harder or more costly for customers to switch to rival products

* Broadening the product linc ta close off possible vacant niches for compelitors to

slip into

* Keeping prices rcasonable and quality attractive

© Building new capacity ahaad of market demand to try to block the market

expansion potential of smaller competitors

* Investing enough to remain cost competitive and technologically progressive

© Patenting the feasible alternative technologies

* Signing exclusive contracts with the best suppliers and dealer distributors

* A fortity-and-deténd strategy best suits firms that have already achieved industry dominance and dont wish to risk antitrust action, Tl is also well-suited 1 situations where a firm wishes to milk its prescnt position for profits and cash flow because the industry’s prospects for growth are low ar because further gains

in market share do nol appear profitable crongh ie go after But the fortify-and- defend strategy always entails tying to grow as fast a5 the market as a whole (to slave off market share slippage) and requires reinvesting enough capilal in the business to protect the leader's ability to compete

- Follow-the-leader strategy—Here the leader's strategic posture involves using its competitive mmuscle (ethically and fairly!) to encourage rmner-up firms to be content followers rather than aggressive challengers The leader plays competitive hardball when smaller rivals rock the boat with price cuts or mount new market offensives that dircctly threaten its position, Specific responses can include quickly matching and pethaps exceeding challengers' price cuts, using large promotional campaigns to counter challengers’ moves lo gain market share, anil offering better deals to the major customers of maverick firms, Leaders can also court distributors assiduously

ta dissuade thơm fiom carrying rivals’ producis, provide salespersons wilh documented information about the weaknesses of an aggressor’s products, or try to fill any vacant positions in their own firms by making attractive offers to the better executives of rivals thal "get out of Linc.” When a leader consistantly mecis any

moves to cnt into its business with strong retaliatory tactics, it sends clear signals that

offensive aitacks om the leader's position will be met head-on and probably wort pay off However, leaders pursuing this strategic approach should choose their battles It may be more strategically productive to assume a hands-off posture and not respond

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in hardball fashion when smaller rivals attack each other’s customer base in ways that

don't affect its own

b- Runner-up firms

Characteristics

Runner-up firms occupy weaker market positions than the industry Jeader(s), Some rumer-up firms are up-and-coming market challengers, employing offensive strategies to gain market sharc and a stronger market position Others behave as content followers, willing to coast along in their current positions because profits are adcquatg, Follower firms have no urgont strategic issuc to confront beyond “What kinds of strategic changes are the leaders initiating and what do we need to do te follow along?*

A challenger firm interested in innproving its market standing n

a strategy

aimed at building a competitive advantage of its own Rarely can a runner-up firm improve its competitive position by imitating the strategies of leading firms A cardinal rule in offensive strategy is to avoid attacking a leader head-on with an imitative strategy, regardless of the resourees and staying power an underdog may have Moreover, if a challenger has a 5 percent market share and needs a 20 percent share to eam attractive returns, it needs a more creative approach to competing than

just "try harder.”

Strategies

Strategic options for runmer-up firm's case #1

Where large size yiclds significantly lower unit costs giving large-share firms a cost

advantage, two options exist

1) Build market share

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* Become a lower-cost producer

* Pursue a differentiation strategy

2) Withdraw from tnsingss

Strategic options for runner-up firms case #2

Where large si

does not yield a cost advantage, six options exis!

- Vacant-niche strategy—This version of a focused strategy involves concentrating

on customer or end-use applications that market leaders have bypassed or neglected

An ideal vacant niche is of sufficient size and scope to be profitable, has some srowth potential, is well-suited to a firm's own capabilities and skills, and for one reason or another is not interesting to leading firms ‘I'wo examples where vacant- niche strategies worked successfully are regional commuter aillines serving cities with too few passengers to attract the interest of major aitlines and health foods produecrs (ike Health Valley, Hein, and Tree of Life) that cater to loca health food stores a market segment traditionally ignored by Pillsbury, Kraft General Foods, Heinz, Nabisco, Campboll's Soup, and other leading food products firms,

+ Specialist strategy—A spocislist firm tains ils vonmpotitive effort on one market segment: a single product, a particular end use, or buyers with special needs The aim

is lo build competitive advantage trough product uniqueness, expertise in spscial- purpose products, or specialized customer services Smaller companics that successftdly use a specialist focused strategy include !ormby's (a specialist in stains and finishes for wood furniture, especially refinishing), Liquid Paper Co (a leader in

+ Ours-is-hetter-than-theirs strategy—The approach here is to use a differentiation- based focused strategy keyed to superior product quality or unique attributes, Sales and marketing efforts are aimed directly at quality-conscious and performance- oricnted buyers Fine craflsmanship, praslige quality, froquent producl inmavations, and/or close contact with customers to solicit their input in developing a better produet usally under gird this “superior product” approach, Some examples include Beefeater and Tanqueray in gin, Tiffany in diamonds and jewelry, Chicago Cutlery

in premium-quality kitchen knives, Baccarat in fine crystal, Cannonade in mountain dikes, bally in shoes, and Patagonia in apparel for outdoor recreation enthusiasts

- Content-follower strategy Follower finms deliberately reffain fiom initiating

trendsetting strategic moves and from aggressive attempts to steal customers away

from the leaders Followers prefer approaches that will not provoke competitive retaliation, often opting for focus and differentiation strategies that keep them out of the leaders’ paths, They reaet andl respond rather than initiate and challenge They prefar defense to offense, And they rarely get out of line with the leaders on price

- Growth-via-acquisition strategy—one way to sirenglhen a company's position is lo

merge with or acquire weaker rivals to form an enterprise that has mare competitive strength and a larger share of the markel Cormereial airline companies such as Northwest, USAir, and Delta owe their market share growth during the past decade

to acquisition of smaller, regional airlines Likewise, the Big Six public accounting

fums enhanced their national and international coverage by merging or forming

alliances with smaller CPA firms at home and abroad

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- Distinctive-image strategy—some minner-up companies build their strategies

around ways to make themsclves stand out from competitors A varicty of strategic

approaches can be used: creating a reputation for charging the lowest prices, providing prestige qualily al a good price, going all oul to give superior customer service, desigming unique product attributes, being a leader in new product

inlroduction, or devising unusually creative advertising,

Weak Businesses

A firm in an also-ran or declining competitive position has four basie strategic options If it has the financial resources, it can launch an offensive ttnaround strategy keyed either to low-cost or "new" differentiation themes, pouring snough money and talent into the effort to move up a notch or two in the industry rankings and become a respectable market contender within five years or so It can employ a fortify-and-defend strategy, using variations of its present sttategy and fighting hare

to keep sales, market share, profitability, and competitive position at current levels It can opt for an immediate abandonment strategy and gel out of the business, cithar by selling out to another firm or by closing down operations if a buyer cannot be found

Or it can etnploy # harvest siralegy, keeping reinvestment to a bare-bones minimum

and taking actions to maximize short-term cash flows in preparation for an orderly market exit The gist of the first three options is self-explanatory The fourth merits

more discussion

A harvest strategy stecrs a middle course between presciving the status quo and exiting as soon as possible, Harvesting is a phasing down or endgame strategy that invalves sacrificing market position in return for improved cash flows or shorl-lerm profitability ‘The overriding financial objective is to reap the greatest possible harvest of cash to deploy to other imsiness endeavors

‘The measures taken in a harvest strategy are fairly clear-cut, The operating budget is chopped to a rock-bottom level; reinvestment in the business is held to a barc minimum Capital expenditures for new equipment are put on hold or given low financial priority (unless roplacernen| nods are unusually ugenl); instead, efforts arc made to stretch the life of existing equipment and make do with present facilities as long as possible Price may be raised grachally, promotional expenses slowly cul, quality reduced in not-so-visible ways, nonessential customer services curtailed, and the like Although harvesting results in shrinking sales and market share, if cash expenses can be cut even faster, then after-tax cash flows may rise (at least temporarily) and the company's profits will erode slowly rather than rapidly

Harvesting is a reasonable strategic option for a weak business in the following

ercumstances:

1 When the industry's long-term prospects are unattractive

2 When rejuvenating the business would be too costly or at best marginally

5 When the enterprise can redeploy the freed resources in higher opportunity areas

6 When the business is not a crucial or core component of a diversified

Company’s portfolio of business interests (harvesting a no core business is

Strategically preferable to harvesting a core business)

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7 When the business does not contribute other desired features (sales stability, prestige, a well-rounded product Linc) to a company’s ovcrall business portfolio

The more of those seven conditions present, the more ideal the business is for harvesting

Harvesting strategies make the most sense for diversified companies that have sideline or no core business units in weak competitive positions or in unattractive industries Such companies ean take the cash flows from harvesting unattractive, no eoro businsss units and roallocate thera to business units with groalcr profil potential

or to the acquisition of new businesses

‘Tumaround Strategies for Businesses in Crisis

‘Tumaround strategies are needed when a business worth rescuing goes into crisis;

the objective is to arrest and reverse the sources of competitive and financial weakness as quickly as possible Management's first task in formulating a suitable turnaround strategy is to diagnose what lies at the root of poor performance Is it an unexpected downtun in sales brought on by a weak economy? An ill-chosen

competitive strategy? Poor execution of an otherwise workable strategy? An

overload of debt? Can the business be saved, or is the situation hopeless? Understanding what is wrong with the business and how serious its strategic problems are is essential because differonl diagnoses lead to diffsrent turnaround

strategies

Some of the most common causes of business trouble are taking on too much debt, overestimating the potential for sales growth, ignoving the profit-depressing effects

of an overly aggressive effort to “buy” market share with deep price-cuts, being

‘burdened with heavy fixed costs because of an inability to utilize plant capacity, bolling on R&D cfforts to hoosl competitive position and profitabitity and failing lo

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come up with effective innovations, betting on technological tong shots, being too

optimistic about the ability to

penetrate new markets, making Gcquent changes in strategy (because the previous strategy didn't work out), and being overpowered by the competitive advantages enjoyed by more succussful rivals, Curing these kinds of problems and achieving a successfii business tumaround can involve any of the following actions:

«Revising the existing stralcgy

* Launching efforts to boost revennes

« Pwsuing cost reduction

® Selling off assets to raise cash to save the remaining part of the business

* Using a combination of these efforts

Strategy Revision When weak performance is caused by bad strategy, the task of strategy overhaul can proceed along any of several paths: (1) shifting fo a new competitive approach to rebuild the firm's market position; (2) overhauling intemal operations and functional area strategies to better support the same overall business strategy, (3) merging with another firm in the industry and forging @ now strategy keyed lo the newly merged timm’s strengths; and (4) retrenching into a reduced core

of products and cuslomers more closcfy matched to the firm's strengths The most appealing path depends on prevailing industry conditions, the firm's particular

and the

strenglhs and weaknesses, ils competitive capabilities vissa-vis rival fh

severity of the crisis Situation analysis of the industry, major competitors, and the firm's own competitive position and its skills and resources are prerequisites for action As a tulo, successful strategy revision must be tied to the ailing firm's strengths and near-term competitive capabilities and directed at its best market

opportunities,

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Boosting Revennes Reverme-incrsasing tumaround efforts aim at generating inercaseđ salzs volume, There are a number of revemuc-building options; price cuts, increased promotion, a bigger sales force, added customer services, and quickly achieved product improvements Allempls to inercasc rovenuos and sales vohunos are necessary (1) when there is litle or no room in the operating budget to cut expenses and slill break ever and (2) when the key lo restoring profilabitity is increased utilization of existing capacity If buyer demand is not especially price

sensitive because of differentiating features, the quickest way to boost short-term

revenues may be to raise prices rather than opt for volume-building price cuts

Cutting Costs Cost-reducing tumaround strategies work best when an ailing firm's value chain and cost structure are flexible enough to permit radical surgery, when operating incfficicncics arc identifiable and readily correctable, when the firma's costs are obviously bloated and there are many places where savings can be quickly achieved, and when the firm is relatively close to its break-even point Accompanying a general belt-tightening can be an increased emphasis on paring administrative overheads, elimination of nonessential and low value-added activities

in the fim's value chain, modernization of existing plant and cqnipment to gain greater productivity, delay of nonessential capital expenditures, and debt

restructuring to reduce interest cosls and stretch oul repayments

Selling Off Assets reductiowrctrenchment slratcgies arc essential when cash flow is a ctitical consideration and when the most practical ways to generate cash are (1)

through sale of some of the firm's (plant and cquipment, land, patents, inventories, or profitable subsidiaries) and (2) through retrenchment (pruning of marginal products from ths product line, closing or selling ofder plants, reducing the workforce, withdrawing fiom outlymg markets, cutting back customer service, and the like) Sometimes crisis-ridden companies sell off assets not so much to unload

4

losing operations and to stem cash drains as to raise finds to save and strengthen the remaining

Business activitics In such cases, the choice is usually to dispose of no core business

assets to support strategy renewal in the firm's core businesses

Combination Efforts Combination tumaround strategies are usually essential in prim siluations that require fast action on a broad front, Likewise, combination actions equently came into play when new managers are brought in and given a free hand

fo make whalever changes they sce iL The toughor the problems, the more likely the solutions will involve multiple strategic initiatives

“‘Tumaround efforts tend to be high-tisk undertakings, and they often fail A landmark study of 64 companies found na snecessfil turnarounds among the most tronhied companies in eight basic industries Many of the troubled businesses waited too long,

to begim a hưnaround Others found themselves short of both the cash and entrepreneurial talent needed to compete in a slow-growth industry characterized by

a fierce batile for market share, Better-positioned rivals simply proved too strong 10 defeat in a long, head-to-head conlesl Even when successful, many troubled companies go through a series of tumaround attempts and management changes

bofore long-term compolilive viability and profitability arc finally rastored

1.2.3 FUN

ION STRATEGIES

Short-term activilies thal cach functional arca within @ firm must undertal

to unplement the grand swategy

Translate grand strategy into action designed to accomplish specific annual objectives

Key areas of strategtes development:

- Prodnetien/Operations

- Marketing

- Finance

- Human Resource Management

Functional Strategies in Production‘Cperaions

Production/ operations management, (POM) is the

‘are function of organization That function converts inputs (raw matarials, supplies, machines, and people) in to value enhanced ouput The POM functior

strategy and olher operating strategy

Functional Strategies in Marketing

The rote of the markating fimetion is to achieve the firm's objectives by bringing about the profitable sale of the business’s product’ services in target markets Marketing should guide sate and marketing managers in delernining who will sate what, where, to whom, in what quantity, and how Marketing at a minizun should address four fundamental areas: products, price, place, and promotion,

Functional Strategies in Finance and Accounting

‘While most functional strategy guide implementation in the immediate futwe, the time ftame for functional strategy in the area of finance varies, because these strategy direct the use of finance resources in support of the business strategy, iong term pools, and anmai objectives, Finance strategy with longer time pertectives guide

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financial managers in long term capital investment, debt financing, dividend

allocation, and leveraging Finance strategy designed to manage working capital and

short term assets have a more immediate focus

Functional Strategies in Human Resource Management (HRM)

The strategic importance of HRM received widespread endorsement in 1990s HRM

airs long term success in the development of managerial talent and competent employees, the creation of systems to manage compensation or regulatory concerns, and guiding the effective utilization of human resources ta achieve both the firm’s short term objectives and employees’ satisfaction and development The recruitment, selection, and orientation should establish the basic parameters for bringing new people into a form and adapting them to “the way things are done” in the firm

Framework for study

Stage of tea industry ae