CAPSTONE PROJECT REPORT BUILDING STRATEGICAL REAL ESTATE BUSINESS IN 2010 – 2015 FOR SONG MA COMPANY BÁO CÁO DỰ ÁN CAPSTONE XÂY DỰNG CHIẾN LƯỢC KINH DOANH BẤT ĐỘNG SẢN 2010 – 2015 CHO CÔNG TY SONG MÃ

CAPSTONE PROJECT REPORT BUILDING STRATEGICAL REAL ESTATE BUSINESS IN 2010 – 2015 FOR SONG MA COMPANY BÁO CÁO DỰ ÁN CAPSTONE XÂY DỰNG CHIẾN LƯỢC KINH DOANH BẤT ĐỘNG SẢN 2010 – 2015 CHO CÔNG TY SONG MÃ

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GRISS UNIVERSITY

GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM

CAPSTONE PROJECT REPORT

BUILDING STRATEGICAL REAL ESTATE BUSINESS IN 2010 — 2015

FOR SONG MA COMPANY

SRIGGS for Song Ma Company” GAMBAOI.MOI! Group I

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In particular, we would like to express thanks to organizations and leadership in Thanh Hoa province as well as Department of People’s Committee, Department of Construction, Department of Investment and Planning, Department of Finance, Department of Statistics, etc in Thanh Hoa city who has recommended and helped us

collect information and shape the ideas of this capstone project report

We also wish to thank Song Ma Company for their much support, consideration and help

Last but not least, it is our very sincere acknowledgements to our families and friends for their kindly helping us and their constant encouragement

For Group Í

Luong Tat Thang Group Leader

STONE PROJECT REPORT: ‘Building Strategical Real Estate Business in 2010-2015

2 Meanings of the Study

3 Aims of the Study

4 Methods of the Study

tì Expected results

6 Design of the Study

Chapter !: General on Building Strategical Real Estate Business

Summary of chapter I

1.1 Strategy and Strategical Business

1.1.1 Strategy and its Role in Enterprise Development

1.1.2 Basic strategies

1.1.3 Advantages of Competition and Core Competitive Capacity

1.1.4 Building Strategical Business Process

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IRIGGS for Song Ma Company” GGMBAOI.MOIL Group I

).2.1.2 Micro-Environment

|.¢ Building and Selecting strategical objectives

|.s Implementation and Evaluation

|.2.1 Framework

Conclusion of Chapter I

Chapter 2: Situation of Real Estate Business in Song Ma Company during 2010 — 2015 Summary of chapter II

2.1 General information of Song Ma Company, Thanh Hoa province

2.1.1 History of establishment and development

2.1.2 Features of production structure and management organization

21.3 Special features of Song Ma company affects real estate business strategy

STONE PROJECT REPORT “Building Strategical Real Estate Business in 2010-2015

19

29

31 a2

22.1 Real estate investment

22.2 Main features of real estate

2.2.3 Role of real estate investment

2.3 Business strategy analysis of Song Ma company

3.1 Vision and mission of Song Ma Company

3.2 Macro-analysis — PEST model

:.3,2.1 Legal & political environment

7.3.2.2 Economic environment

2.3.2.3 Social — cultural environment analysis

?.3.2.4 Technical scientific — technological environment

).3.3 Industrial environment analysis (micro-environment)

7 3.3.1 Existence of industrial competition within communities

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2.3.4.6 Equipment’s technology

2.3.4.8 Assessment against competency of Ma River Company (in comparison with

2.3.4.9 Internal factors assessment matrix 68

Chapter 3: Building Strategical Real Estate Business for Song Ma Company in 2010 — 2015

3.1 Directions and strategic objectives of Song Ma Company in 2010-2015 72

3.1.2 Objectives and industrial structure of Song Ma Company to 2015 72

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3.3 Solutions for real estate business of company 80

3.4 Suggestions and Recommendations for better strategy implementation 87

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ACRONYMS

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LIST OF GRAPHS, FIGURES AND TABLES

Figure 1: Summary of housing demand prediction of Thanh Hoa in 2015 50

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INTRODUCTION

1 Rationale

Vietnam is one of countries in which its GDP growth has averaged about 2.5-3% per year since 1998 Meanwhile, its urbanization gets accelerated and needs on housing in terms of number and design become higher and higher That Vietnam joined in WTO and became the 150"" member in 2006 was a historical event marked

in the country's economic history as well as a lever for its economic growth in general and its real estate business in particular

Enterprises in Vietnam have had lots of opportunities to develop but also met challenges in competition In this case, building appropriate business strategies plays a very important role in success decision

governing laws such as Enterprise Law, Real Estate Business Law, Investment Law,

Housing Law, Civil Work Law, Competition Law, Commerce Law, etc aiming to

environment, enterprises need more innovative, creative and motive and find more newly appropriate strategies to build their brand names and ensure its development

In present, real estate business enterprises meet global complicated crisis In one side, the Government has implemented some solutions against inflation with the aim of economy promotion These actions get some active feedback but remain instable implicit issues leading to regression and may create high risks for real estate business sector On the other side, the Government has reinforced the management of land with some more policies of land and housing taxation to prevent speculation in real estate Hence, real estate business may not be thriving in these economy regression days

Song Ma Company located in Thanh Hoa city, Thanh Hoa province is one state mother-son company established on December 29, 2005 pursuant to Decision

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Noi;ÁttnDBER†?SiISđ Mag eee of Provincial Department of Committee Song Ma Company has many sectors such as real estate business, civil work, design and consultation, hotel and restaurant business, tourism, transportation, mineral resource exploration, etc Following to Government policies in state enterprises renovation and rearrangement, Song Ma Company is becoming joint- stock Due to its financial capacity is limited, investment into its son companies has met difficulties Moreover, technology and management capacity in production and business are not still improved Due to international integration with pressed competition, Song Ma Company need focus more on business and production for making its competitive position in new markets From the mentioned-above reality our group in which three out of five members are deputy managers in Song Ma Company decides to study “Building Strategical Real Estate Business in 2010-2015 for Song Ma Company” We all hope to apply our knowledge learnt in Master of Business Administration course hold by Center for Educational Technology and Career, Vietnam National University and Griggs University, America into analysis and building strategical production and business in Song Ma company

2 Meanings of the study

- Help to systematize theoretic knowledge learnt in the MBA course

- Help the company with long-term appropriate strategies in new activity models and present real conditions in market mechanism in period 2010-2015

- Be reference for other enterprises with similar size, scale, sectors and

conditions

3 Aims of the study

- Analyze environment effect to real estate business

- Analyze opportunities and challenges, company’s weakness and strengths

- Apply theory of strategy building into specific enterprises to build solutions

of strategical real estate business for Song Ma Company

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Sompre Vòng Mã Company to become a leading enterprise in real estate

business

4 Methods of the study

- Qualitative and quantitative methods combine with case study for real situations of Song Ma Company

- Questionnaire: We interview departments and units in Song Ma Company Then our collection of feedback is analyzed and finalized based on consultation of international and national experts with their reality, practice, value and

effectiveness

5 Expected results

The study is very close with reality of present production and business of Song Ma Company Although scope of the study is narrow, with scientific methods and update knowledge on building strategical real estate business for enterprises we believe that our study shall contribute meaningfully to company’s production and business in renovation and integration time of the country

6 Design of the study

The study consists of Introduction and three Chapters in development and Conclusion

Introduction presents Rationale, Objectives and Scope of the study, Methods applied in the study as well as expectations and design of the study

Chapter I: General on Building Strategical Real Estate Business

Chapter II: Situation of Real Estate Business in Song Ma Company

Chapter III: Building Strategical Real Estate Business in 2010-2015 for Song Ma Company

Conclusion

Reference and two appendixes are at the end of the study

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This chapter presents rationale of strategic administration of enterprises including imalysis of strategies selected by some enterprises and process of strategic building deeply studied This process consists of analyzing and assessing internal and external environment, determining strategic’ objectives, building strategic plans and selecting the best one Models applied in the study are PEST, Michael

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GENERAL ON BUILDING STRATEGICAL REAL ESTATE BUSINESS 1.1 Strategy and Strategical Business

1.1.1 Strategy and its Role in Enterprise Development

Definition: The term ‘strategy’ has many different meanings The most simply meaning is ‘plans and activities planned and implemented with the specific aims of enterprise’ (translated from Strategical Administration for Developing Competitive Position — Education Publisher Therefore, strategy is considered as

plans and activities in future

Strategy shows united, comprehensive and coordinative characteristics to ensure that those main objectives of enterprises are achieved (Wiliam J.Glueck Business Polixy and Strategic Management, Mc.Graw Hill, 1980) Strategy is a long-term decisive element of any organization (Prof.Alfred D.Chandler, 1962); Strategy is a red oriented thread through all activities of any enterprises (Prof.H.Igor Ansoff, 1965); Strategy is models of objectives, plans to achieve tentative objectives, plans (Prof.Kenneth L.Andrews, 1965)

Michael E.Porter, a famous professor on strategical business of Harvard University

states his consistent ideas: Developing strategical business is developing competitive position through developing competition advantages In 1996, he presents his new ideas in an article named “What’s a strategy?” that strategy creates valued and special position including various activities Strategy is best selection, exchange in competition and creates appropriation activities in enterprises

Strategy consists of series of objectives and policies such as plans to gain the plan objectives It shows what business activities enterprises are doing Strategy does not define specifically how to achieve planed objectives but build orientation frame for

activates

In general, definitions of strategy are a little different but they all mean general long- term program orienting enterprise activates to planed objectives Strategy is close with future and present market research, forms planned enterprise objectives,

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achievement The most important characteristic of strategical business is competitive position In fact, any enterprise need strategies since only aim of strategies is to ensure that enterprises may find and achieve more stainable benefit and position than their competitors

Role of Strategical Business for Enterprises

Strategical Business plays a very important role in production and business activities

of enterprises Strategies make enterprises more active in forecast of environment changes therefore they may control activities in market economy and international integration

Strategical Business helps enterprises with longer line of vision and to avoid cope

with stress of short-term mistakes in business

Strategical Business is basis for giving appropriate decisions timely and precisely even decisions to prevent enterprise from bankrupt Due to Strategical Business, enterprises need take full of available advantages, strength and opportunities and cope with challenges and surmount weakness, develop their enterprise label

Strategical Business helps everyone to aware of that objectives of this process mainly

is thoroughly understanding and committee to implement among leadership and staff These are most important advantages in Strategical Business

Firmly, Strategical Business always plays a very important role in deciding success or failure of any enterprises Hence it is really necessary to build long-term and highly

practical Strategical Business

1.1.2 Basic strategies

One enterprise needs pursue some strategies appropriate with its model, size, etc so strategies become different between a mother company and its son company not only in terms of scope and model

Strategies for mother company consist of overall orientation on development, management and list of products Tasks of Strategies are to define mission for the

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mother company, to define What sector the mother company should develop, to

This strategy may be hostile or agreeable, full or partly Agreeable association means that enterprises implement activities of outcome by merging firms, providing partners or organizing its supply network Hostile association means that enterprises produce and provide itself income materials by merging, buying products of

suppliers or establishing its own suppliers Full association means that enterprises

produce, provide total incomes for its production and self-comsume On partly association, enterprises partly supply incomes and buy products from different supllier or sell products in its distribution channel

One enterprise applying association strategy may improve its competitive position

in business by following elements Firstly, this limits competion in internal business and permit enterprises quoting higher prices and getting more benefit For instance,

in 1930s, Alcoa Company and Alcan Company in America implemented contrastive unification strategy to explore Bolxite mines in an island of Caribe, in Jamaica Using contrastive unification strategy, the asssociation of two companies defeated competitors because they met more disadvantaged conditions Secondly, this also makes enterprises ensure quality of products Duc Viet sausage company is an example applying this type of strategy The company has a farm supplying fresh

meat for making sausages so quality of its products is always ensured and high

Thirdly, enterprises applying unification strategy may implement, cooperate and

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plan more initiatively and appropriatively in activity succession from materials preparation to delivery to users The aim of applying cascade unification strategy 1s

to get low expenses However, enterprises may meet difficulties if their son- companies supply lower-quality income products than those of outside companies

An outstanding example is General Motors Company which produces 68 percent of car spare parts for its mother-company Price of General Motors Company's products is evaluated highest over the world This means that cascade unification strategy makes enterprises’ products out-of-date when technology changes quickly everyday Enterprises meet disadvantages in product distribution if they do not change sullpiers timely

Diversification Strategy is to invest surpus into different sectors after enterprises get advantaged in competition Some basis diversification types are namely Consensus diversification ( participation in a new activity relating to present activity because of similarity among function units in enterprises For example, Philip Morris Tobacco

diversification ( participation in a new activity differnt from present activities); width diversification (developing one or more products for present users)

Diversification Strategy is applied by many enterprises when they make much more benefit than neccessary for remaining competition position in traditional business This strategy helps enterprise get benefits by following activities Firstly, purchase and rearrange companies makes these new companies more effective Secondly, it appears better capacity tranfer among staff of companies Enterprises maybe hope that their special capacity in some sectors will be applied successfully in new companies This helps enterprises to improve their competition position That Philip Morris Tobacco Company purchased Miller Beer Company helped Miller Beer Company promote itself from Position 6 up to Position 2 in the world market However, number of son-companies should be not too many This leads whole enterprises to ineffective implementation and expense increase In 1970s, General Motor Company had 40 son-companies but this number was less after an

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management among partners

Besides, in some cases enterprises may pursue strategies stainablely or stop applying them to prevent risks with opinion “one step back, three steps forwards”

In pursuing these mentioned-above strategies, enterprises may divide one general strategies into specific strategies (these specific strategies are applied in son- companies) These strategies focus on improving competition position for products

in one sector based users’ need and differences on products, need of groups of customers, markets and company capacity

Strategy on price leading Enterprises produce products with lower expense than other competitors hence their products are sold at lower prices Applying this strategy enterprises need ignore different markets but pay their attention to supply for customers at medium class Necessary capacity for applying this strategy is special capacity in process of incomes supply and process of production Advantage of the strategy is that enterprises may get as much benefit as other competitors meanwhile they quote lower prices or may get more benefit while their prices are as much as other competitors’ Moreover, if there were wars, these enterprises would be still better than competitors However, in some cases enterprises may focus on reducing expense so much that their products become lower qualified In addition to this, some enterprises trend “illusion of majority” with slogan “one for all” It is really

difficult to level need of customers

Strategy of difference

Enterprises should mark difference between their product and other competitors’ to satisfy customers’ need This leads to higher expenses for enterprises and their products must be sold at higher prices Applying this strategy, enterprises should select markets and supply products appropriately to different markets Necessary capacity and qualification for applying this strategy is special capacity in market research and development Enterprises may select differences in terms of quality,

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innovation, Cutter satisfaction Applying this strategy helps enterprises prevent

competitors and control prices in their markets However, enterprises should pay attention to prevent outside companies from imitation or copying and to control expenses because of high cost in applying this strategy

Strategy of concentration

In fact, enterprises applying this strategy are professional with small- scale in making difference of products or leading on prices in selected markets Enterprises supply for groups of customers or selected markets Markets may be selected in terms of geography or product supply Applying this strategy, enterprises pay attention to qualification on reducing expenses or making differences Enterprises may focus on one selected market with expert on marketing or production Due to small-scale enterprises they may apply strategy leading on price and strategy of difference at the same time If that enterprises apply Strategy leading on price means these enterprises compete with other enterprises which are leading on price

in selected markets If enterprises apply strategy of difference, there are many

chances for them to make their products different from others Applying this strategy helps enterprises ensure them in competition to some a certain extent of difference Differences of products for usual customers also create barrie for other competitors and reduce risks of product changing One disadvantage in this strategy happens when technology changing leads to changing needs of customers For instance, technology of black and white television were changed quickly into

colored television

These mentioned-above competitive strategies all mention to enterprises and dicisions relating to products, markets, company qualification, competition advantages

1.1.3 Advantages of Competition and Core Competitive Capacity

To build and select appropriate strategy, enterprise need define their competition advantages, specify their core competitive capacity

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Competition advantage consists of elements of qualification, resources used to implement activities more effectively than their competitors Elements for success

in competition are effectiveness, innovation, need sastifaction These four elements have close mutual relation shown in four basis ways to reduce cost and create differences for getting competition advantages

To gain much effectiveness, it is necessary to use most effectively incomes in which productivity increase plays a very important role If other elements unchange, enterprises which have high productivity shall get more advantaged in cost competition Mark & Spensor (M&S) Company is a retail enterprise in England which has close relation with suppliers Moreover, the company does not need advertisements It has source of active staff with high productivity due to its committee on welfare for its employee These elements create competition advantages with low expense in Mark & Spensor (M&S) Company

Product quality always shows implementation result following to product design High quality products may present differences and low expense in comparison with others Qualiy of products plays an important role in getting advantages in competition time In fact, quality is not only the way to gain competition advantages but also the most important element for being and developing enterprises Mercedes-Benz produces and assembles high quality cars with higher price than its competitors

Innovation may consist of product amelioration, production process, management system, enterprise mechanism and strategies applied at present Innovation is the most important element to create competition advantages Many companies launch new products and get benefits from its innovation Examples of new products are new printers of Hewlett Packard Company, high-technology shoes of Nike Company, Walkman of Sony, etc

Satisfying customer needs is to supply products which they want timely More effectiveness, higher quality and innovation are all for better customer need satisfaction This allows enterprises create differences and ability of higer price for

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Sources of enterprises consist of financial source, material source, labor source,

technology and company culture These sources are both visible and invisible types Visible sources include land, stores, shops and equipments, furniture, staff and partners, etc while invisible sources are prestige, copyrights, success secret, marketing arts, relationship with authorities, etc Abilities are skills of enterprises in combine and use sources most effectively These skills belong to modes of decision- making and internal management to gain objectives for the enterprises More generally, skills are results of their personnel mechanism, observe and mornitor system in enterprises The skills show how decisions are given, what enterprises’

standard culture and norms are

To gain core abilities, all sources of enterprises are both unique and worth to explore or manage and use It is certain that core abilities become stronger as enterprises have both unique and value sources Unique sources are ones that other enterprises do not have For instance, one of core abilities in Polaroid Company is technology of instant film development Core ability becomes worth if an enterprise may create large amount of needs for its products

To achieve leading competition position, an enterprise needs implement strategies based on its present sources and capacities (present ones) and build strategies for improve sources and capacities (new ones) History of Disney Company is an example In 1980, it met a very disadvantage relating to finance Luckily, a new director was in charge of the company in 1984, and the company could raise its

turnover from US$ 1.66 bullion to US$ 3.5 billion after only one year This success

was created by biggest efforts in exploring present sources and capacity including a very large Disney library, technologies in making films Meanwhile, its company

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However, core abilities are imitated easily Capacity of enterprises is more difficult

to copy because it is not visible Hence, core abilities based on unique capacity is most stainable Three basic issues need more attention to remain long-term competition advantages namely: (i) elements effect competition advantages (effectiveness, quality, customer satisfaction, unique capacity development); (2) Benchmarking practice (learning period and pursuing standards of goods and

services, business of enterprises with most effective all over the world); (3) decrease

of slackness (break the fence against innovation)

In conclusion, enterprises need consider to building strategical business based on their competition advantages i.e their core competition capacity

1.1.4 Building Strategical Business Process

(1) Define vision and mission meanwhile understand differences in comparison with other enterprises

(2) Plan activities and strategies

(3) Research and analyze external business market to specify opportunities and risks for enterprise

(4) Analyze internal environment to define strengths and weakness

(7) Define short-term objectives

(10) Measure and evaluate implementation results and adjust business strategies (if any)

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Graph 1: Vision and Mission

guiding and Selectin: Process of Understanding

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1.2 Vision and Missfem

- Core ideas include two parts:

+ Core value: Basic and stainable principles of enterprises These have internal value and importance in enterprises

+ Core purpose: enterprise existing

- Future vision: Objectives in time period from 10 to 30 years and description of expected implementation results

1.2.2 Mission

Mission Declaration is one key order on requirements for relating units Mission also considered as basis for Vision Mission is focus and order to use capacity and potentiality, but it also shows what enterprises gain Mission declaration creates basis for planning and are reference for evaluating objectives and strategies

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prosperity of the economy This also gives effects to enterprises and sectors

- Economy environment help to define nature and orientation of economy environment in which enterprises exist and develop Effects of economy to enterprises may change their abilities in getting value and incomes

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- Four'important elements in macroscopic economy environment:

+ Economy growth rate, +Interest,

+ Exchang rate, + Inflation

Technology environment

Technology element plays more and more important and decisive role in business of enterprises in accordance with two ways The first is that new technology affects directly quality and price of products

Các yéu t6 Secondly, new technology affect supply of facilities for enterprises by technology transfer and collection, storing process, dissemination

- Technology changing affects many social areas

-Technology includes:

+ Regulations;

+ Activities relating to new knowledge improvement;

+ Apply new knowledge to outcomes: products, processes and new

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changing, consumption habits changing Elements relate to social attitudes and

Elements on politics and law create bases for other elements in business

Environment of whatever politics and laws will create that kind of business environment These elements include regulations, politics policies, laws system Mr Vladimir Lenin said that any politic issue is for some economic profit and vice versa Therefore, stable regulations and fair policies shall create good opportunities for enterprises and vice versa

- Politics elements also affect opportunities and threats of enterprises

- Mode of integration of enterprises and Government is important

- Constant changes of this mentioned above integration must affect significantly business competition

- Issues need analyzed:

+ Philosophies;

+ New policies regard on Government management;

+ Law of anti-monopoly, Tax law + Sector selection for adjustment or priority;

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+ Issues including Government management policies may affect activities and benefits in sectors as well as enterprises

- Enterprises also face with many global issues on politics and laws

+ International commercial polities,

+ Different protection barriers of nations International environment

Basic elements are namely:

+ International market,

+ Changes of present markets

+ International events,

+ Basic international regulations and cultural characteristics

- Globalization makes both more opportunities and threats

- Awareness of distinction on culture and regulation over the world

1.3.1.2 Micro-Environment ( Sector environment and competition)

We apply Michael Porter model on five basic elements which may create both opportunities and threats for enterprises namely: (1) Supplier, (2) Competitors

at present, (3) Competitors in near future, (4) Customers, (5) Substitutive products These five elements have mutual relations Each element needs to be researched

carefully to collect facts and figures on competition inside sectors Mutual relations

among five elements also create both opportunities and threats for enterprises

- A sector includes an enterprise group supply goods and services which

can be substituted each others

- Mentioned-above substitution means that all goods and services can satisfy similar needs of customers

Differences among sectors:

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+ Boundaries (regional or international) + Quantity and scope of sellers and buyers + Economic Effects on scope and products

+ Distribution channels

- Competition situation and plans

+ Competition may be moderate, formidable, even destructive

+ Core elements of competition may be price, quality, innovation,

- Salient economic charateristics

- Competitors, their nature and power

- Motive elements that causes changes and their effects

- Powerful companies and unsound companies

- People will create next changes

- Elements of Success and Failure

- Attractiveness on arevage benefit Five competition elements Model (Michael E.Porter)

- Five competition elements are defined in a sector as follows:

1) Supplier, (2) Competitors at present, (3) Competitors in near future, (4) Customers, (5) Substitutive products

+ Participation of Competitors in near + Competitors at

+ Power of sellers:

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+ Power of Suppliers:

+ Threats of Substitutive products

- More powerful competition, more limited chances of enterprises in raising

price and getting more benefit

- Powerful competition leads to threats in benefit reduce

- These five competition elements will reduce their power gradually when sector conditions changes

- Enterprises need aware of opportunities and threats which rise from changes of five mentioned above elements, then build appropriate business strategies

Graph 3:Competition components

Threats of substitutive

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Potential Competitors

Potential competitors may creat a sector new production abilities -> This forces present enterprises to act more effective for more qualified results in competition with new changes

- Present enterprises in any sector need try to prevent potential competitors from participation

- Power of potential competitors is a function for height of barrier of participation

Barrier of participation consists elements which causes difficulties for potential

competitors Potential competitors will meet these difficulties, disadvantages not only when they intend to join the sector but also when they really join it

Mr Joe Bain recognized three types of barrier:

-> Advertisements,

-> Copyrights,

-> Innovation through R&D programs

-> Product quality and after-selling services

+ Low price is a result of:

-> High productivity with much experience

-> Income control, especially in production

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+ Transfer expense happens if customers move to other outside suppliers Expenses relates to:

-> Expense for spare parts,

-> Expense for staff training,

-> Even, mental expense for breaking a relation

If transfer expense is high, customers may not move to supplier even when other newly-participated companies have high qualified products

- Retaliation is reactions of enterprise in one sector -> Retaliation actions need to be enough drastic to make potential competitors stop their intention

-> Retaliation actions may be very bitter in cases enterprises are holding much stocks and shares (For example, enterprises have much property what is difficult to converse) and enterprises committee to considerable capitals and a sector grows slowly

Threats from new comers (Potential competitors) are defined by "height of barrier

of participation" If this barrier is high, these threats are reduced and enterprises get more opportunities Elements in preventing potential competitors are economics of scope, special of products, close relations of customers to brands, distribution channels and advantages on low price

On economics of scope, enterprises need plan to produce less with disadvantages of high expenses or produce much with large scale, big investment as well as

unestimated threats

If present enterprises have close and loyal relations of customers to their products, new comers must invest very much into advertisements and meet uncountable difficulties These potential competitors shall lose their investment sum if they do not succeed in participation

If enterprises have advantages of low expense, they shall have abilities to reduce so low price that new comers are difficult to maintain One of significant ways in low

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etc

Competition inside one sector Enterprises depend mutually and launch an offensive against each other

- Competition becomes violent in the following cases:

+ Meet challenges issued by an enterprise in the same sector + or an different enterprises in the same sector has an opportunities

to develop its business position

- Internal competition is decided by the following elements:

+ Competitive structure in sector;

+ Conditions:

+ Barrier preventing enterprise from moving is high

- Competitive structure in sector

+ Distribution and scale of enterprises in sector

+ Sector structure varies by being dispersed -> both dispersing

sector and concentrating sector relate to competition

+ Structure of dispersing sectors

-> Many small and medium companies and there is no dominating company

-> Barrier of participation is short and their products have low or medium quality with no special

These above issues Structure of dispersing sectors spontaneously create income increase or decrease periodically As a result, structure of dispersing sectors may cause more threats than opportunities

+ Structure of concentrating sector

-> affects of big companies

-> it is difficult to foresee competition inside a sector because all companies are dependable each others Therefore, this structure may create:

-> Violent reaction by competitors,

-> an unsafe competitive spiral

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- Conditions affect speed of competition in enterprises They conclude sub-

elements as follows:

+ Customer need increase may reduce competition in sector and

vice versa

- Sector barrier:

+ means elements such as emotion, strategies, and economy to

maintain an enterprises in a sector + sector barrier shall be high if customer needs are consistent or less

+ redundance of labor force

+ sector barrier causes significantly competition on price

+ Popular types of sector barrier:

-> No converse of investment

-> Expense for moving is too high (for example, expense for unemployed staff) -> Close relation with Sector, (for instance: element of emotion)

-> Economy dependence on sector

On competition of present enterprises, it is very important to review competition in sectors In a sector with much competition, competition price reduces lower This leads to a result of low benefit for enterprises This is a threat to them In conclusion, decisive elements in competition level are sector growth, number of enterprises, their scale and size, sector barrier, differences of products and transfer expense for customers

If a sector grows dramatically, each enterprise may develop without competition

This means that competition level in the sector is low On the contrary, if a sector

grows slowly or declines, in the sector that one enterprise develops leads to failure

of others Therefore, sector competition becomes very high

In small sectors including small and medium enterprises and no dominating one, for instance milk, tooth paste, etc their competition level is high Enterprises compete

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on price The leads to Tow enefit Such structure causes a lot threats than opportunities for enterprises Otherwise in big sectors with a number of several enterprises including a dominating one, enterprises compete orderly through a mechanism such as guidelines on price

If an enterprises move out of a sector, it shall pay very much for expenses and procedures This leads to a result that enterprises become careful in moving to other sectors Therefore, competition in sector gets more simply Sector barrier also includes lawful concerns to customers, staff, owners as well as Government regulations and little remains

If products in a sector are the same or similar, customers may move from an enterprise to others easily without any expenses As a result, customers are sensitive with price This causes increase and decrease of customer needs In that case, competition level is high On the contrary, if enterprises in one sector produce special goods or services and customers pay for their movement from one enterprise

to others, customer needs become stable This makes competition less stressful

Negotiation Ability of Customers

- This may is a threat if customers is allowed to require a lower price or higher qualified services ( this may leads to expense increase)

- If there is no influence of customers, enterprises may increase their product price and get higher benefit

- Customers are powerful in following cases:

+ Sectors consist of small companies and a lot customers

+ Customers consume large amount of products,

+ Sectors depend on human element, + Sectors where customers can change services with low, + Customers purchase from several companies simultaneously + Customers are able to integrate

- Power of both customers and suppliers may change periodically

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In relationship of enterprises and customers, if there is no influence of customers,

enterprises may increase their product price and get higher benefit For instance, Xerox Company has had monopoly on technology of photocopy machines for twenty-five years As a result, customers depend on the company Customers become a more powerful element if customers buy a large amount of products, customers have many options, customers are constant, or if customers can supply themselves

Negotiation Ability of Supplier

- Supplier may cause threats if they can increase price or reduce quality of

income materials

- Supplier may give opportunities if they increase quality of income materials and reduce price

- Supplier becomes powerful in the following cases:

+ Their products are important but not replaceable + Enterprises are not important partners of Supplier + Their products are so special that enterprises may meet difficulties if they move

+ They may cause threats when they participate in the same sector with enterprises and compete directly

Substitutive products

In accordance with Mr.Michael Porter, substitutive are made by competitors

in a different sector Their products with similar functions satisfy customers’ need For example, enterprises in coffee sector compete indirectly enterprises in tea sector and drink sectors If substitutive are produced by new technology and their price is lower with higher quality, this is a significant threat for enterprises However, if customers do not seek for such substitutive and change their supplier, enterprises may meet softer threats

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PD ressor Free, Version

A fter te VANI g threats and opportunities from outside environments, strategists usually apply EFE Matrix to summarize and evaluate influences There are five steps in applying EFE Matrix

1) Collect decisive elements on success of enterprises 2) Define importance from 0.0 (not important) to 1.0 (very important) Total of classification is 1.0

3) Classify from | to 4 for elements and get feedback of applied strategies

In which feedback numbered 4 means good, 3 means above average, 2 is average and / is for little feedback

4) Multiply importance and classification into score of importance 5) Accomulate score of importance for total score of each enterprise

Table 1; EFE Matrix

Highest total score of one enterprise is 4.0 and the lowest score is 1.0 Total score of

importance averages 2.5 If total score of importance of an enterprise is 4, that enterprise reacts effectively with both threats and opportunities given by present environment In other words, strategies applied in this enterprise create much opportunities and reduce threats affected by outside environment If an enterprise has total importance score of |, this enterprise has applied inappropriate strategies Therefore, it can not take advantages of outside environment and avoid threats

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DF Compr sor Fre ¢- version

1.3.2 ah of nternal Environment in Enterprises

Analysis of internal environment in enterprises helps them to recognize strengths and weakness From these they can build system of appropriate objectives and strategies Moreover, they need take full of advantages of strengths to make them special and reduce bad influences of their weakness In the following graph, enterprise business environment is analyzed following to "value chain" designed by

-ties

Resear Mater Exec- Acceptan- After-

others

Value chain is divided into core activities (function activities) and support activities

Core activities are production, marketing, distribution to customers These are divided into two function units One of units is called Production Other is

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NEIKEHDe which 1s assigned marketing, distribution to customers, after-sale

to satisfy requirements of financial activities Other activities of enterprises such as administration, observe and monitor system, company culture, etc play a rather important influence to core activities

Strategists usually apply IFE Matrix to summarize and evaluate strengths and weakness influencing internal activities of enterprises Process of IFE Matrix is similar with EFE Matrix except step 3 Classification score here is given / if it is the biggest weakness, 2 if it is the small weakness and 3 if it is smallest strength and 4

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Term tiến C1 purposes or aims that enterprises plan to achieve Elements such as function, mission, and analysis results of internal business environment are basis for building objectives Long-term objectives are planed in a long period of time

Objectives need be specific, flexible, qualitative, practicable, consistent, and appropriate However, objectives are sometimes contradictory It is important to harmonize objectives logically

To succeed, enterprises need build long-term objectives in the following sectors: The first is benefit ability Objectives on benefit are shown by EPS indicator or

ROE indicator

Second is competition position Enterprises often plan to be at a leading or second position in one market They use turnover or market to show their competition position

Thirdly, objectives on staff are activities of labor security, representatives of employee in administration board, preference in buying stocks and shares of enterprises

The fourth is leading capacity on technology Enterprises need define the leading competitor or the next-coming competitor on technology in the same sector Then they may apply more appropriate strategies

Last but not least, responsibilities for public opinions Enterprises remember to take responsible for their customer and country

In addition to these, enterprises may concern objectives on developing staff and son-companies Hence, they can create whole power for production and business 1.4 Building and Selecting strategical objectives

An useful tool applied in this part is SWOT matrix There are eight steps :

(1) List opportunities in external environment

(2) List threats in external environment

(3) List strengths in internal environment

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