Building a business strategy for personal protective equipment division of 3M Vietnam phase 2012 to 2016

LIST OF ABBREVIATIONS ANSI American National Standards Institute AS/NZS Australia and New Zealand Standard COB Consumer and Office Supply Business CPI Consumer Price Index DGB Display an

TRƯỜNG ĐẠI HỌC MỞ TP.HCM UNIVERSITÉ LIBRE DE BRUXELLES

HO CHI MINH CITY OPEN UNIVERSITY SOLVAY BRUSSELS SCHOOL

(PART-TIME)

Supervisor: Dr LÊ THÁI THƯỜNG QUÂN

Ho Chi Minh City

2011

COMMITMENT

It is to confirm that I hereby, Nguyen Thi Thanh Ha conducted this final project of the MBA program with the acknowledgement of my professional supervisor and the management of 3M Vietnam This is entirely my own work and any use of the materials extracted from books, articles, research papers, 3M’s data as well as other sources is indicated in the reference sources

I am confident to submit this project to the professors of the MBA program

Ho Chi Minh City, March 2012

Nguyen Thi Thanh Ha

ACKNOWLEDGEMENT

I would like to express my sincere thanks to the professors of Solvay Business School for their lectures with useful knowledge and practical experience that I gained in the entire MBA course, to the program coordinator who provide much support and assistance from the beginning course till the accomplishment time

My deepest gratefulness goes to professional supervisor, Dr Le Thai Thuong Quan for his valuable and practical advice that helps me complete the thesis

I acknowledge Mr Parameswaran Nair - Managing Director, Leader team and colleagues of 3M Vietnam for conveniences and conditions they gave me to write this thesis

I am also thankful to my friends for the best sharing and support during my study Last but not least, I would like to convey my lovely thanks to my husband for his support and great encouragement during the past two years of my study so that I can well complete the MBA course today

With my best regards,

Ho Chi Minh City, March 2012

Nguyen Thi Thanh Ha

COMMENTS OF SUPERVISOR

The topic has practical meaning and the author has successfully shown the ability to build a strategy for market development The results are based on the analysis of the industry structure and the customer survey Therefore, the solution is persuasive In overall, the presentation is clear and the thesis is up to the standard I approve for the public presentation

Ho Chi Minh City, March 15th 2012

Le Thai Thuong Quan

TABLE OF CONTENTS

COMMITMENT i

ACKNOWLEDGEMENT ii

COMMENTS OF SUPERVISOR iii

TABLE OF CONTENTS iv

LIST OF FIGURES vii

LIST OF TABLES vii

LIST OF ABBREVIATIONS viii

ABSTRACT ix

INTRODUCTION TO THE STUDY 1

1 Rationale of the study 1

2 Problem statement 1

3 Research objectives and questions 2

4 Scope and Limitation of study: 3

5 Methodology and Framework of Research Study 3

6 The structure of study 4

1.1 Definition of Strategy 1

1.2 Stage of Strategic Management 1

1.2.1 Strategy Formulation 2

1.2.1.1 Mission and vision 2

1.2.1.2 External Analysis 3

1.2.1.3 Internal Environment Analysis 8

1.2.1.4 Strategy formulation Choice 9

1.2 2 Strategy Implementation 12

1.2.3 Strategy evaluation 13

Chapter 2: ANALYSIS OF 3M VIETNAM PPE DIVISION’S EXTERNAL ENVIROMENT 15

2.1 Macro environment 15

2.1.1 Political, Government and Legal environment 15

2.1.2 Economic environment 18

2.1.3 Social, Culture, Demography and nature environment 20

2.1.4 Technological environment 21

2.2 Micro- environment analysis 22

2.2.1 Industry and market overview 22

2.2.2 Competitive environment 23

2.2.2.1 Barrier of entry 23

2.2.2.2 Substitute products 24

2.2.2.3 Bargaining power of buyers 25

2.2.2.4 Bargaining power of suppliers 25

2.2.2.5 Rivalry and competitor analysis 26

2.3 Summary of 3M Vietnam PPED opportunities and threats: 28

2.3.1 Opportunities 28

2.3.2Threats 29

Chapter 3 ANALYSIS OF 3M VIETNAM PPE DIVISION INTERNAL ENVIRONMENT 31

3.1 Business background 31

3.1.1 Introduction of 3M 31

3.1.2 Introduction of 3M Vietnam- PPE Division 31

3.2 Organization structure 32

3.2.1 Organization chart 32

3.2.2 Management 33

3.2.3 Human Resource 34

3.3 Business operation 34

3.3.1 Division vision and goals 34

3.3.2 Products and services 35

3.3.3 Market segmentation and customers: 38

3.3.4 Pricing 39

3.3.5 Distribution 40

3.3.6 Business current performance 40

3.4 Summary of 3M Vietnam PPED Strength and Weakness 42

3.4.1 Strength 42

3.4.2 Weakness 42

Chapter 4 DEVELOPING THE BUSINESS STRATEGY FOR PPE DIVISION OF 3M VIETNAM PHASE 2012 – 2016 44

4.1 Strategy Formulation 44

4.1.1 Mission and Goals of 3M Vietnam PPE Division till 2016 44

4.1.2 SWOT strategy 44

4.1.3 Generic Strategies 48

4.1.3.1 Cost leadership strategy 48

4.1.3.2 Differentiation Strategy 49

4.1.3.3 Focus Strategy 50

4.2 Strategy Choice 50

4.3 Strategy Implementation 51

4.3.1 Implementing differentiation strategy 51

4.3.2 Management in strategy implementation 52

4.4 Evaluation strategy 53

CONCLUSIONS 55

REFERENCES 56

APPENDICES 58

APPENDIX A - EMPLOYEE SURVEY 58

APPENDIX B - RESPONSE FROM EMPLOYEE SURVEY 61

APPENDIX C - CUSTOMER SURVEY 66

APPENDIX D - RESPONSE FROM CUSTOMER SURVEY 71

LIST OF FIGURES

Figure 1.1 – Framework of the study 4

Figure 1.3 – Porter’s Five Forces Model 4

Figure 1.4 Vietnam’s exchange rate and inflation 20

Figure 1.5 Population and Health Expenditure Indicators 2006 - 2012 21

Figure 1.6 Market share by competitors 26

Figure 1.7 3M Vietnam organization chart by big businesses 32

Figure 1.8 Organization chart by division 32

Figure 1.9 Sales by market segment and geographic in 2011 38

Figure 1.10 Division’s sales and earnings before tax by commodities 2011 41

LIST OF TABLES Table 2.1 Generic Strategies and the Five Forces 12

Table 2.2 Summary of Vietnam’s key economic indicators 18

Table 2.3 FDI Investment by industry 19

Table 2.4 Six competitive platforms of 3M and key competitors 28

Table 2.5 Benchmark 3M PPE product line with key competitors 37

Table 2.6 Summary of Financial Statement of 3M Vietnam PPED 41

Table 2.7 Summary of financial projection 2012-2016 44

Table 2.8 SWOT summary 45

Table 2.9 Summary of strategy valuation 51

LIST OF ABBREVIATIONS

ANSI American National Standards Institute

AS/NZS Australia and New Zealand Standard

COB Consumer and Office Supply Business

CPI Consumer Price Index

DGB Display and Graphic Business

ECB Electronic and Communication Business

EN471 European Standard

FDI Foreign Direct Investment

GDP Gross Domestic Product

HCB Health Care Business

HCMC Ho Chi Minh City

ILO International Labor Organization

IMMA International Mining and Minerals Association

IT Information and technology

ITB Industry and Transportation Business

KOSHA Korea Occupational Safety and Health Agency

KPI Key Performance Index

LCU Local Currency Unit

MOH Ministry of Health

MOLISA Ministry of Labor Invalids and Social Affairs

NFPA National Fire Protection Association

OEM Original Equipment Manufacturer

OSHA Occupational Safety and Health Association

PEST Political, Economic, Social and Technological analysis PPE Personal Protective Equipment

PPED Personal Protective Equipment Division

R&D Research and Development

SSPS Safety, Security, Protection Services Business

SWOT Strengths, Weaknesses, Opportunities and Threats WTO World Trade Organization

ABSTRACT

3M Vietnam Limited is a subsidiary of 3M Global headquartered in the United States, a diversified company serving customers with more than 69,000 products and services Personal protective equipment (PPE) division is one of the over 35 divisions of the company, has been operating in Vietnam for many years and achieving strong growth rates year by year The division has soon realized many good opportunities in Vietnam PPE market and, at the same time, been aware of the increasing competition among players More and more PPE suppliers are coming to Vietnam and some of the famous players are considering the option to build factories here to dominate the local market

In a recent press conference held by Honeywell Vietnam, a key competitor of 3M in PPE market, the management of Honeywell expressed their interests in investing in Vietnam, especially setting up a local factory (as www.dantri.com.vn posted 5th Dec 2011) As a result, PPED of 3M Vietnam is now facing a strong competition from not only other global and regional firms but also domestic players With the aim to maintain loyalty customers, expand market share and become a leader in supplying PPE in Vietnam market, PPED needs to develop business strategies to drive accelerated growth

Joes Ross and Michael Kami stated: “Without a strategy, an organization is like a ship

without a rudder, going around in circle, it’s like a tram; it has no place to go” In

response to business objectives that maintain high growth rates and dominate the market, this thesis will analyze the external and internal environmental factors that impact on business and indentify what external opportunities and threats are, what internal strengths and weaknesses are in order to choose the best strategy for the division Recommendation will be made to guide how to carry out the strategy properly

to achieve the best result

To support this thesis, there is an external survey conducted to collect customer’s feedback to 3M PPE products and services The employee survey is conducted to understand the organization and human resource of division The study has used the

secondary data and internal materials/ data of 3M Global and 3M Vietnam, some research that had been completed by Corporate Marketing and Public Affair Department of 3M Global and 3M Vietnam The analysis based on the framework of Fred D David, the theory of some subjects I have learned during the MBA course such as: Strategy Management, Marketing, Labor Law, Applied Marketing, Management

1 Rationale of the study

Vietnam has a stable human resource with a population of 87 million people, as at Dec

2011, ranked No 13 of the most populous countries in the world and No 3 in the region

The number of people in working age increases rapidly and accounts for about 67% of the national population There are 5 millions of blue color workers, accounting 6% of national population With an average population growth rate of 1.2% / year, every year Vietnam has an addition of 62000 workers This promises of an optimistic picture for all PPE business in Viet Nam

According to prediction of the labor safety department of Ministry of Labor Invalids and Social Affairs, there are about 170,000 people who have occupational accidents every year and 1000 people of the incidence of occupational diseases in which 19.5% caused by not using personal protective equipment and safety equipment These occupational accidents cost the nation more than 2,000 billion dong / year Thus the issue of labor and personal protection equipment is a critical one in Vietnam The demand in buying PPE for employees to minimize occupational accidents is necessary and must be prioritized in every company in order to protect workers in working and life Understanding the market demand, 3M Vietnam PPE needs to develop proper strategies, not only to gain market share but also to build up customer’s loyalty

2 Problem statement

3M is the world leader in PPE market, with 27% new product introduction launch every year by the innovative product , 3M is ranking one of top companies in adding value to protect the world through protect health and life 3M Vietnam PPED has been set up in Vietnam since 1997 and be a first PPE supplier under multinational company having operation in Vietnam

Although having nearly 16 years of operation and achieving the success in building brand in PPE market and high growth by yearly, 3M PPED in Vietnam has not had a

clear strategy to develop business and protect its share in Vietnam market PPED’s market share is now smaller than what it should have gained if its own strengths had been used There are not much contribution to top line and bottom line among Asia subsidiaries

The aim of this thesis is to analysis the external environment factors that impacts to business growth to take advantages of opportunities and avoid the threat that creates barriers to business The natural internal analysis will help company evaluate the strength and weakness across functional areas, based on those the company will maximize the capability strength and overcome the weakness and turns them into strength Combining the external and internal audit, the company will develop the suitable strategy for PPE division period 2012- 2016 by gaining competitive advantages, differentiating and focusing on the key market segment

3 Research objectives and questions

Objective:

The following are the fundamental of objectives of this study:

• To identify internal and external factors impacting on competitiveness of PPE business of 3M Vietnam

• To build up an appropriate business strategy for PPED of 3M Vietnam and identify the direction in implement during 2012- 2016

• Evaluation the strategy for realistic application

Research questions:

The following are research question for study:

• What are the issues PPED is facing?

• What is competitive advantage of PPED in Vietnam market (from suppliers, rivals, new entrants, substitute products, customers)?

• What are strength, weaknesses, opportunities and thereat of PPED of 3M Vietnam?

• What size or market position do we plan to achieve?

• What kind of strategy should PPED develop to grow business at Vietnam market (low price, differentiation, and niche)?

• How to implement the selected strategy into realistic situation?

4 Scope and Limitation of study:

The research focus on analysis the internal and external factors that impact to PPED business , based on the analysis result, the research develop the strategy in the next five year for PPED of 3M Vietnam The limitation of the research is using secondary data that might be come from observation, the data of this industry hadn’t ever been recorded, even the government department who manages and inspects the industry doesn’t file statistics of demand of PPE, the strategy implementation is not happen yet that cause the strategy evaluation is subjective

5 Methodology and Framework of Research Study

During conducting the study, there are some researches methods have been used such

as secondary data from internet, newspaper, internal report, data library system of company and some valuable book that recommend by supervisor and lectures Beside,

a customer survey is conducted to identify the factor impacting purchase decision of customer that helps the thesis have clear customer demands and needs to have appropriate strategy An employee survey provides the overview of organization and human resource of division that determine the division’s capability to implement strategy

Following and applying the strategy formulation of Fred R David, the framework of this thesis is illustrated in Figure 1.1

Figure 1.1 – Framework of the study

6 The structure of study

Beside the introduction chapter, the study is organized into four chapters as below

Chapter 1: Literature Review

This chapter covers relevant literature to this thesis including definition of strategy, Porter Generic competitive strategy as well as state of strategic management The objective of this chapter is to set up the fundamental theory and framework for next chapters

Chapter 2: Analysis of 3M Vietnam PPED Division’s external Environment

Based on the framework, this chapter analyzes macro and micro environment that impact on PPED business The objectives of this chapter is to identify the opportunities and threats of business

Problem Statement

Literature Review

Strategy Formulation process Porter’s Five Forces and Generic Strategy

Mission and Goal of Division

External Analysis SWOT Analysis Internal Analysis

Generic Strategy analysis

Strategy Choice

Strategic Implementation

Strategic Evaluation

Conclusion

Chapter 3: Analysis of 3M Vietnam PPED Division’s Internal Environment

The current situation of business includes company organization, business operation and financial that will help to identify what are strengths and weaknesses of business

Chapter 4: Develop the strategy for 3M Vietnam PPE Division phase 2012-2016

Based on the SWOT and competitive analysis in chapter 2 and chapter 3, strategies will

be developed and tailored for 3M Vietnam PPED to achieve high growth rate and become a leader in PPE market for the period 2012-2016 The plan of implementation

is built for business; the evaluation is set to ensure the goal can be achieved

Fred R David defined strategy as “the art and science of formulating, implementing,

and evaluating cross- functional decisions that enable an organization to achieve its objectives” Similarly, Thomas L Wheelen and J.David Hunger have defined strategy

as “set of managerial decision and actions that determines the long run performance of

It states how business should be conduct to achieve the desired goals Without a strategy management has no roadmap to guide them

1.2 Stage of Strategic Management

Strategic consist of three stages are formulation, implementation and evaluation of strategies Each stage based upon set of activities performed by the individual working

in the organization

Figure 1.2 Stage of Strategic Management

Source: David, Fred R., (2009), Thirteenth Edition, Strategic Management – Concept and Cases, Prentice Hall, New Jersey

1.2.1 Strategy Formulation

Strategy formulation is the first stage of strategic management It includes developing vision and mission statement, specifying achievable objectives, identifying an organization’s external opportunities and threat determining internal strengths and weakness, establishing long term objectives, generating alternative strategies and selecting strategies which benefit the business to purse

1.2.1.1 Mission and vision

The beginning point of strategic management process is to review and/ or selecting new organization’s vision and mission The vision statement answer for the basic question

“What do we want to become?” to reflect the ideal image of the organization in the future, while the mission will answer for question “What is our business?” to communicate the purpose and value of organization Both Vision and Mission provide

the benefit to organization in developing the strategy As Perter Drucker said “A

Develop

vision and

Mission

Evaluate and select strategy

Implement strategy (managem- ent issue)

Implement strategy Marketing /F inance, R&D and MIS issue

Measure and evaluation performance

Establish long term objectives

business is not defined by its name, statutes, or article of incorporation It is defined by the business mission” and Theodore Hesburgh found that “the very essence of leadership is that you have to have vision You can’t blow an uncertain trumpet”

Therefore it could be understood that vision and mission are powerful tools for defining and guiding organization's ability to create the future

1.2.1.2 External Analysis

The external analysis helps to identify opportunities that could benefit a firm and find out the threat that should be avoid or find the solution to avoid it External analysis conducts based (1) PEST model that includes (P) political, legal and government forces, (E) economic force, (S) social, cultural, demographic and environment natural factor, and (T) technological forces and (2) Porter’s Five Force model

1.2.1.2.1 PEST analysis

- Political, Legal and government forces: These factors relate to government

policy, regulation and deregulation which impact to business operation and making decision These factors can represent key opportunities or threat for both

large and small company

- Economic forces: this includes interest rate, taxation change, economic

growth, inflation, unemployment trend Economic forces have an impact on the potential attractiveness of various strategies

- Social, cultural, demographic and environment natural forces: The change

of social, cultural, demographic and environment natural factor are creating the different type of consumer and customer’s behavior, consequently, need a different product, different services and different strategy

- Technological forces: new technology can create new products or new

process Technology can impact cost, quality of product and services A firm should develop strategy to catch up the new technology, take advantage of technological opportunity to achieve sustainable and competitiveness in the marketplace

1.2.1.2.2 Porter’s Five Force Analysis

The firm has to know who is competitor and what are they doing in the market, what is firm’s competitive advantage compared to others within its industry to have suitable strategy Porter’s Five Forces model which is developed by Michael E Porter is a tool for competitive analysis and assessment This model identifies 5 competitive forces that shape every industry and help firm determine the intensity of industry competition and profitability Five forces described as Figure 1.3

Figure 1.3 – Porter’s Five Forces Model

Source: Porter, Michael E (1998), Creating and Sustaining Superior Performance, New York, The

Free Press

The Threats of New Entrants:

The threat of entry depends on the entry barrier that is present The entry barrier is an

obstacle that makes it difficult for one company to enter an industry If the firm is easy

to enter a particular industry, the competitive intention among firms increases There are six major sources of barriers to entry:

• Economies of scale: This refer to decline in unit cost of product (or

operation or function that goes into producing a product) as the absolute volume per period increases Economies of scale create the barrier to entry

by forcing the entrant either to come in at large scale and risk strong reaction from existing firms or to come in at small scale and accept a cost disadvantage

• Product differentiation: The established firms have brand identification and

customer loyalties which stem from past advertising, customer services, product differences or simply being first into the industry Differentiation forces the entrance to spend heavily to overcome existing customer loyalties

• Capital requirement: the need to invest huge financial resources in order to

create a significant barrier to entry, particularly if the capital is required for risky or unrecoverable up- front advertising or research and development (R&D)

• Switching cost: That is one- time costs facing the buyer of switching from

one supplier’s product to another’s These costs maybe employee retraining, new ancillary equipment, testing and qualifying, technical support, product redesign or even services costs

• Access to distribution channel: To persuade the distribution channel for

entry must induce the channel to accept distributing its product though price breaks, cooperative advertising allowances and the like which reduce profit

• Cost disadvantages Independent of size: Established firms may have cost

advantages not replicable by potential entrants The most critical advantages are proprietary product technology, raw materials sources, favorable locations, government subsidies and learning or experience curve

• Government policy: Government can limit or even foreclose entry into

industries through license requirement and restricting access to raw

materials

Rivalry among Existing Firm:

The intensity of competitive rivalry is usually the most powerful forces This force describes the completion between existing players in an industry High completion

comes from pressure on price, margin, hence on profitability for every single company

in industry The intense rivalry is related to the presence of several factors including:

• Number of competitors: The rivalry intensifies if the firms have similar market

share, leading to a struggle for market leadership

• Slow Industry growth: cause the firm to fight for market share In growing

market, the firm can improve result by expanding market

• High fixed or storage costs: When the costs are mostly fixed, the firm must

produce near full capacity to attain the lowest unit costs Since the firm must sell this large quantity of product to market, High storage costs forces caused producer to sell product as soon as possible, those lead the fighting in gaining market share and results in increased intensity

• Lack of differentiation and switching cost: where product and services is

perceived as a commodity or near commodity, choice of buyer will larger based

on the price and services, that pressure causes the strong competition

• Capacity augmented in large increments: if the only way a manufacturer can

increase capacity in a large increment by building a new plant and run it at full capacity to have low costs thus producing so much that the selling price falls

throughout industry

• Diverse competitors: Rivals that have very different ideas and strategies to their

parent companies may likely run head on into each other in the process

• High Strategic Stakes: A growing market and the potential for high profits

persuade new firm to enter a market and incumbent firms to increase production

• High exit barriers: Exit barrier keep a company from leaving an industry

Sources of exit barrier are specialized assets, fixed costs of exit and strategic interrelationships

Threat of Substitute Products and Services:

The substitute products are a threat to existing products because of being alternative products with lower price of better performance parameters for the same purpose The presence of substitute products puts a ceiling on the price that can be charged before consumers will switch to the substitute product Price ceiling equate to profit ceilings and more intense competition among rivals The threat of substitute is determined by factor like: brand loyalty of customers, close customer relationships, switching costs for consumers, the relative price for performance of substitutes and current trend

The Bargaining Power of Customers (Buyers)

Buyer affect an industry through their ability to force down price, bargain for high quality and more services and play competition against each other Customer bargaining power is likely to be high when:

• The buyer can buy large volume or there is a concentration of buyer,

• The buyer purchase a large proportion of seller’s products or service,

• The buyer has the potential to integrate backward by producing the product itself,

• The product is standard or undifferentiated, alternative supplier are plentiful,

• Switching to an alternative products is relative simple and is not related to high costs,

• The purchased products represents a high percentage of buyer’s costs, thus providing an incentive to shop around for a lower price,

• Customer have low profit and price sensitive,

• The purchased products is unimportant to buyer’s products thus can easily substitute without effecting the final product of buyers

The bargaining power of customer can be the most important forces affecting to competitive advantages

The Bargaining Power of Suppliers (Sellers)

The term” suppliers” comprises all sources for inputs that are needed to provide goods

or services Supplier can affect an industry through their ability to increase or reduce the quality and price of purchased products or services Supplier bargaining power is likely to be high when:

• The supplier industry is dominated by a few companies,

• There is no substitute for particular inputs, product and services is unique,

• The costs of switching raw materials is especially costly,

• Suppliers are able to integrate forward and compete directly with their present customers

• The buyers have a higher profitability than the supplying industry

• A purchasing industry buys only small portion of supplier’s goods or services and it is unimportant to suppliers

• Supplier’s products and services is very important thing to buyers to improve their operation

1.2.1.3 Internal Environment Analysis

Scanning and analyzing the external environment helps a firm determine the opportunities and threats in industry but it is not enough to provide an organization a competitive advantage The firm must also look within itself to indentify internal strategic factors, that will give analysts know what are organization’s strength and weaknesses- those critical strengths and weakness that are likely to determine if the firm will e able to take advantage of opportunities while avoiding threats

The internal analysis refers to as organization’s analysis and is concerned with identifying and developing an organization’s resources A resource is an assets, competence, process, skills, or knowledge controlled by firm It requires the involvement from firm’s management, marketing, finance/ accounting, production, R&D and management information system in internal analysis

1.2.1.4 Strategy formulation Choice

This part focuses on generating and evaluating alternative strategy as well as selecting strategies to pursue Strategy formulation choice determine alternative course of action that could best enable the firm to achieve its mission and objectives

Porter’s Generic competitive Strategy

Competitive advantage is at heart of a firm’s performance in competitive market It provides architecture for describing and accessing strategy It is a particular strategy that makes most resources and capabilities valuable, their value is diminished by a different strategy (Michael E Porter)

There are three generic strategies to achieve competitive advantage: cost, differentiation and focus The firm has to make decision in choosing what type of competitive advantage that seeks to attain to achieve the scope of firm

Cost Leadership Strategy:

Cost leadership strategy means selling the goods at the cheapest price in the market Companies that possess a cost leadership strategy enable them to defend market share, defend supply, build entry barriers, weaken threat of substitutes, defend market share against rival, increase market share, enter new markets and reduce the cost of capital Some of the ways that firms acquire cost advantages are by improving process efficiencies, lowering defects and improving quality, efficient- scale facilities, vigorous pursuit of cost reduction from experience, tight cost and overhead control, avoidance of marginal customer accounts and cost minimization in areas like R&D, services, sales force, advertising, and so on

Firm that succeed in cost leadership often have the following internal strengths:

• Access to the capital required making a significant investment in production assets; this investment represents a barrier to entry that many firms may not overcome

• Skill in designing products for efficient manufacturing, for example, having a small component count to shorten the assembly process

• High level of expertise in manufacturing process engineering

• Efficient distribution channels

A cost leadership strategy may have the disadvantage of lower customer loyalty, as price-sensitive customers will switch once a lower-priced substitute is available A reputation as a cost leader may also result in a reputation for low quality, which may make it difficult for a firm to rebrand itself or its products if it chooses to shift to a differentiation strategy in future

Differentiation Strategy

In a differentiation strategy, a firm seeks to be unique in its industry along some dimensions that are widely valued by buyers The value add by the uniqueness of the product may allow the firm to charge the premium price for it The firm hopes that the higher price will cover the extra costs incurred in offering the unique products In other cases, differentiation strategy is to create brand loyalty, which in turn can create price inelasticity on the part of buyers As a result, customers will be less sensitive on price decisions, and more sensitive on the actual product In turn, it can erect competitive barriers to entry, higher margins and possibly mitigate the power of buyers who will eventually lack acceptable substitute products

Approaches to differentiating can take many forms: design or brand image, technology, features, customer services, technical support, distribution network or other dimensions

Firms that succeed in a differentiation strategy often have the following internal strengths:

• Access to leading scientific research

• Highly skilled and creative product development team

• Strong sales team with the ability to successfully communicate the perceived strengths of the product

• Corporate reputation for quality and innovation

The risks of differentiation strategy include imitation by competitors and changes in customer’s tastes, competitor’s strategy with greater differentiation

Focus Strategy

Focus strategy rests on the choice of narrow competitive scope within an industry The focuser selects a segment or group of segment in the industry and tailors its strategy to serving them to the exclusion of others By optimizing its strategy for the target segments, the focuser seeks to achieve a competitive advantage in its target segment even though it does not possess a competitive advantage overall

Focus strategy has two variants:

• Cost focus: A firm seeks to a cost advantage in its target segments Cost focus exploits differences in cost behaviors in some segments

• Differentiations focus: A firm seeks differentiation in its target segments Differentiations focus exploits the special needs of buyer in certain segment The risks of focus include imitation and changes in the target segments Furthermore, it may be fairly easy for a broad-market cost leader to adapt its product in order to compete directly Finally, other focusers may be able to carve out sub-segments that they can serve even better

These generic strategies each have attributes that can serve to defend against competitive forces The following table compares some characteristics of the generic strategies in the context of the Porter’s Five Forces That will be the tools for management in choosing the right strategic for organization

Table 2.1 Generic Strategies and the Five Forces

Source: www.quickmba.com

1.2 2 Strategy Implementation

As Thomas L Wheelen and J David Hunger, “Strategy implementation is the sum of

the activities and choices required for the execution of strategic plan It is the process

by which strategies and policies are put into action through the development programs, budgets, and procedures” Successful strategy formulation does not at all guarantee

successful strategy implementation The important things are how management and employee put successful strategy formulation into practice

Management issues considered central to strategy implementation includes:

• Establishing annual objectives: This requires the involvement of all managers in organization Annual objective serves as aim for action, directing and channeling effort and activities of organization member, it also serves as an important source of employee motivation and identification They give incentives for employees and managers to perform

• Devising policy: Annual objectives should be compatible with employees’ and managers’ value and should be supported by clear stated policies Policies refers

to specific guidelines, methods, procedures, rules, forms and administrative practices established to support and encourage work toward stated goals

• Allocating resources

• Altering an existing organization structure

• Restructuring and reengineering

• Revising reward and incentives plans

• Minimizing resistance to change

• Matching managers with strategy

• Developing a strategy support culture

• Adapting production/ operation processes

• Developing an effective human resources function

• Cooperating among all functional and division managers in organization

Depending on strategy formulation, the firm needs to select and choose what changes

in implemental strategy in providing it answer for questions:

Who are the people who will carry out the strategy plan?

What must be done to align the company operation in the new intended direction?

How is everyone going to work together to do what is needed?

1.2.3 Strategy evaluation

It is essential that strategists systematically review, evaluate, and control the execution

of strategies to make sure they are working and to make timely changes in order to matching with firm’s external and internal environment changes, otherwise the best formulated and best implemented strategies become obsolete Three fundamental strategy evaluation activities are:

• Reviewing internal and external impact to know what changes compared to analysis had been done before, so the management will decide to continue the plan or have to modify to adapt with environment changes

• Measuring performance to compare expected results and actual results, investigate deviation from plans, evaluate individual performance and examine progress being made toward meeting stated objectives

• Taking correct action that requires making changes to competitively reposition a firm for the future

EXTERNAL ENVIROMENT

This chapter will focus on identifying and evaluating the external environment beyond the control of 3M Vietnam The content will reveal the opportunities and threats that exist and confront to 3M Vietnam PPE business so that the manager of company can formulate strategy to take advantage of opportunities and avoid the threats

2.1 Macro environment

Macro environment analysis is a part of the external analysis when conducting a strategic analysis or doing market research, and gives an overview of the different macro environmental factors that the company has to take into consideration PEST analysis stands for "Political, Economic, Social, and Technological analysis" and describes a framework of macro-environmental factors used in the environmental scanning component of strategic management It is a useful strategic tool to understand market growth or decline, business position, potential and direction for operations

2.1.1 Political, Government and Legal environment

Vietnam is an active member of the following international organizations, which have potential influence on the state of occupational health and safety within the country:

• Asia Pacific Economic Cooperation (APEC)

• Asian Development Bank (ADB)

• Association of South East Asian Nations (ASEAN)

• G-77

• International Labor Organization (ILO)

• International Monetary Fund (IMF)

• United Nations Conference on Trade and Development (UNCTAD)

• World Health Organization (WHO)

The responsibility for protecting workers’ health and safety is shared by several state agencies:

• The Ministry of Labor Invalids and Social Affairs (MOLISA) is primarily responsible for the administration and enforcement of the Labor Code within the country State inspectors under this Ministry are charged with ensuring that workplaces comply with labor policies on workplace safety and occupational hygiene

• The Ministry of Health (MOH) (Vietnam Administration of Preventive Medicine) oversees the management of occupational health services at the national level Formulation of regulations and standards pertaining to occupational hygiene, determination of health standards for specific fields of work, management of occupational health care service delivery through its branches, performance of periodic health examination for workers, diagnosis of occupational disease, education and implementation of therapy and rehabilitation of workers and enhancing international cooperation in occupational health are its key Ministry of Health Dept of Preventive responsibilities

• The Ministry of Science and Technology works in coordination with the MOLISA and MOH to develop and manage national technical standards for occupational health and safety

• The Ministry of Education and Training supervises the integration of occupational health and safety training into the program curriculum at universities and technical/vocational schools

• The Vietnam General Federation of Labor, representing the interests of the labor force, works in conjunction with these government ministries to establish national occupational health and safety programs, policies and researches Other organizations outside of government ministries that are involved in occupational health and safety issues in Vietnam include professional associations such as the

Vietnamese Occupational Safety and Health Association, technical institutions like the National Institute of Occupational and Environmental Health and the Scientific and Research Institute of Labor Protection, and organizations representing employers such

as the Vietnam Chamber of Commerce and the Vietnam Cooperative Federation Vietnam’s 1992 National Constitution contains Article 56 which states, “Government issues the policies and regulations on labor protection.” The Labor Code, which was drafted with strong input from ILO, contains several chapters that pertain to protecting workers from hazardous exposures and unsafe work practices

The Law on People’s Health Protection, promulgated in 1989, mandates employers to directly care for, protect and enrich the health of workers at their units (Article 4); provide workers with decent and safe working conditions (Articles 14, 20, 21); ensure safe work sites and work processes; strictly follow health standards for hazardous work exposures and provide for periodic worker health examinations (Article 14) Other relevant legislation include the Environmental Protection Law, the Labour Union Law, the Law of Fire and Explosive Prevention, the Decree/Law of Botany Quarantine and Protection and various Directives on the implementation of the Labor Protection Law Although there are a number of Environment and Occupational health protection laws, there have been more than 6,000 workplace accidents every year in which more than

500 died, in the first of six months of 2011, 3,531 labor accidents occurred nationwide,

an increase of 920 compared to the same period last year, according to a report of the Ministry of Labor, Invalids and Social Affairs The accidents killed 273 and injured

544 people This number does not include the occupational diseases

It is estimated that by 2015 around 1,700 people will die from workplace accidents every year and more than 200,000 of occupational disease and accidents

Top provinces and cities with a high number of fatal labor accidents are Dong Nai, HCM City, Binh Duong, Quang Ninh, Ha Noi and Da Nang where many industrial parks and export processing zone locate

Source:http://vietnamnews.vnagency.com.vn/social-issues

2.1.2 Economic environment

Vietnam is one of the fastest growing economies in Asia, with an average GDP growth rate of 6.8% for the period 2008 – 2016 In spite of global economic recession in 2008 and 2009, Vietnam recorded a high GDP growth rate of 5.3% Economists forecast a growth rate of 5.8% in 2012 and approximately 7% on coming years

Table 2.2 Summary of Vietnam’s key economic indicators

2008 2009 2010 2011 2012 2013 2014 2015 2016

Real GDP (% change) 6.2 5.3 6.9 5.9 5.8 6.6 7 7 7

Nominal GDP (US$ bil.) 90.6 96.4 105.9 123.8 138.4 151.5 166.4 183.7 202.9

Nominal GDP Per Capita (US$) 1055 1110 1205 1394 1543 1671 1817 1987 2175

Consumer Price Index (% change) 23.1 7.1 8.9 18.7 8.7 7.7 7.5 7.1 6.7

Exchange Rate (LCU/US$, end of period) 16977 17941 19503 20828 22184.9 23386.8 24398.4 25244.8 26064.5

Source: IHS Global Insight.

Till the end of 2011, there were 13,664 foreign invested projects with a total registered capital of over US$197 billion licensed in Vietnam (excluding investment by overseas Vietnamese)

Among the industries, processing and manufacturing accounts for the largest quantity

of foreign capital flowing into Vietnam, with a registered capital of more than US$ 93,053 billion

All 63 cities and provinces of Vietnam have been receiving foreign investment in which Ho Chi Minh City, Ba Ria-Vung Tau, Hanoi, Dong Nai and Binh Duong are dominated areas Among these large cities and provinces, HCMC is the most attractive one, which accounts for 20% of the total registered capital in Vietnam, followed by Hanoi and Binh Duong accounting for 16% of the total registered capital

Table 2.3 FDI Investment by industry

Processing and Manufacturing Industry 7,987 93,053,036,629.00

Agri, food and forest processing 496 3,218,267,739.00

Source: Ministry of Planning and Investment, Foreign Investment Agency dated 5 Jan

2012

High GDP growth rate and the attractiveness to FDI of Vietnam are crucial elements for such a big firm as 3M Vietnam to invest in Vietnam The PPED will have more opportunities to expand the business in Vietnam and build up a realistic production plan by analyzing the flow of FDI into Vietnam to anticipate the number of workers who are the PPED’s potential customers

Vietnam is experiencing high inflation which the consumer price index (CPI) reached peak at 23% in August 2011 Although it is forecasted to remain 17% in 2012, high dependence on imports, currency weakness, high credit growth and fairly inept monetary policy all suggest that the risks of recurrent inflationary flare-ups in Vietnam remain high over the next few years

Figure 1.4 Vietnam’s exchange rate and inflation

Source: HIS Global Insight

Vietnam's key products are: rice, cashew nuts, black pepper, coffee, tea, fishery products and rubber Manufacturing, information technology and high-tech industries constitute a fast growing part of the economy Vietnam is also one of the largest oil producers in the region

2.1.3 Social, Culture, Demography and nature environment

The total population of Vietnam is now accounting for about 87 millions The population age 15-64 is 60 million, 68% of total population The average population growth rate now is about 2% per year which is among the highest rate in the region

Thanks to the Government's enforcement in recent years, the future population growth rate is expected to likely be reducing to about 1.5% per year by the year 2012 Hanoi and HCMC are the two largest population-density cities, with about 7 million and 8.5 million, respectively A matter of fact is that the rate of migration to urban areas is growing significantly in recent years and expected to continue in the future, from rural

to urban areas and/or big cities The main reason is that agricultural sector becomes more mechanized while high labor demand is arising in urban areas and in industrial zones

Figure 1.5 Population and Health Expenditure Indicators 2006 - 2012

Source: Global Insight, Population and Health Indicators (Nov 2011)

The total Health expenditure (% of GDP) in Vietnam was 7.8 in 2011, according to a World Bank report, published in 2011 Total health expenditure is the sum of public and private health expenditure The trend is increasing year by year for both public and private health spending

2.1.4 Technological environment

Personal protective equipment is equipment worn to minimize exposure to a variety of hazards including helmet, mask, earplug, eyewear, body clothing, gloves, gloves…Hazards exist in every workplace in many different forms: sharp edges, falling objects, flying sparks, chemicals, noise and a myriad of other potentially dangerous situations

Specific requirements for PPE are presented in many different standards The common standard is NIOSH (National Institute for Occupational Safety and Health), CE

(Conformité Européenne), OSHA (Occupational Safety & Health Administration US),

KOSHA (Korea Occupational Safety and Health Agency), AS/NZS 1996 (Standard of Australia and Newzealand Occupational Safety and health) The products that meet other above standards will qualify Vietnamese standards

There are some particular standard specializing in workplace such as NFPA (National Fire Protection Association) for fire condition workplace, EN471 (European Standard for visibility clothing for workers in poor light and deserve weather) and so on

With the advance of technology, the PPE nowadays is not only to protect worker against hazards, but also offer the comfortable to workers, easy to wear and convenience in keeping

2.2 Micro- environment analysis

2.2.1 Industry and market overview

The PPE market has large number of customer from small and medium manufacturers

to big manufacturers PPE is mostly used at all industrial segments The PPE is supplied by most of foreign companies in Vietnam through distribution channel The domestic PPE manufacturer joins the PPE market with low end products and non-standard products

Even though there is a regulation and law to employer who has to buy PPE for employee but the enforcement is weak, employer doesn’t pay attention to this issue The foreign investing enterprise has implemented more strictly than domestic enterprise The employee and worker comes from rural, there is lack of safety awareness in using PPE to protect themselves even they are provided PPE during working

There is limited capability of safety officer of company in managing and executing the safety activities Some companies don’t have safety officer, the human resource and administration department holds responsibility as safety officer

MOH is on the process to standardize the safety regulation, however, there is a limited resources and experience, the standardize department of MOH is learning from developing countries in the region to replicate and build the standard for Vietnam This department is also working with foreign PPE suppliers to get advice and contribution in developing standard

Vietnam is member of some international organization such as WTO, IMMA and so on; the implementation of occupational health and safety must be improved, therefore, there are many opportunities for PPE suppliers like 3M

2.2.2 Competitive environment

Vietnam creates a fair playground for enterprises in the market economy There are a lot of players in PPE supplying market Beside global suppliers such as 3M, Honeywell, Drager safety, Protector, MSA and regional suppliers such as Koken, Shigematsu, Moldex , Blue Eagle, local suppliers also join the market 3M Vietnam PPED’ competitors represents at each market segment As regulation, all PPE products that is sold in market have to be certified by Quatest 3 (Quality Test Center that is assigned to test quality product before being distributed into market) This requirement

is strictly applied to importing PPE because the certificate has to be included in customs procedure during customs clearance But it doesn’t apply to products that are produced by local suppliers

The porter five force models is applied here to illustrate the Vietnam PPE market and

to give the company a deeper insight into the company’s current competitive environment

2.2.2.1 Barrier of entry

The barrier of entry of the PPE industry is at medium level The biggest barrier to PPE firms who want to join the industry is to invest the clean and safety production line Because PPE is kind of products require absolutely clean from choosing the materials

to packaging and delivery PPE includes many commodities to protect workers from

top to toe The customers have trend to choose suppliers who can offer them full solution, this will be a barrier to new entry when investing in this industry

Furthermore, a new company has to pay for the license and certificates that certifies product meet some standard for safety such as Vietnamese standard, NIOSH, OSHA… Brand loyalty of customer is important to existing players and new players can not easily gain customer’s reliability without those certificates Unless the new firm focuses on the low end product without standard, the target customer is small and medium enterprise who buys PPE for their worker as a way to cope with MOLISA’s inspection The entrants have to consider about retaliation from existing players with some program to protect their customer such as duping price, promotion program and

so on Market share is mostly grasped by about 10-15 key global companies with strong support from headquarter regarding capital investment, training and management skills

In term of initial investment and fixed costs, capital investment, legal requirement and brand loyalty, there are no high barrier and any corporate can join the industry

2.2.2.2 Substitute products

Threat from substitute products and services for those of the personal protective equipment is very low The PPE is very important to protect health and life, most substitute product and services are low quality and do not meet any standard in safety and protection For example, the worker works around lead, he should wear a cartridge respirator with filters that neutralize lead The respirator provided to him must: (1) fit well enough so that fumes or dust cannot leak in; (2) have the cartridge filters to prevent the fume and smells of lead that is one of toxic damaged to health The substitute product is cotton or fabric mask with cheap price but no useful to prevent the dust and lead fume The cotton mask is common product using to prevent the sunlight The customer accepted this product because of (1) low price, (2) low awareness of respirator to choose the right product for right hazard workplace, (3) the feel of easy to use