Building a competitive strategy for datacraft Vietnam until 2015

Putting altogether, the Quantitative Strategic Planning Matrix is built up to choose the best suitable strategies among three generic strategic, cost leadership, differentiation and focu

TRƯỜNG ĐẠI HỌC MỞ TP.HCM UNIVERSITÉ LIBRE DE BRUXELLES

HO CHI MINH CITY OPEN UNIVERSITY SOLWAYS BRUSSELS SCHOOL

MBAVB3

LÊ PHONG DINH

BUILDING A COMPETITIVE STRATEGY FOR DATACRAFT VIETNAM

UNTIL 2015

MASTER PROJECT MASTER OF BUSINESS ADMINISTRATION

Ho Chi Minh City

(2010)

COMMITMENT

I hereby, Le Phong Dinh, committed my honesty for my thesis preparation and the content was written by myself with information retrieved and obtained from reliable sources The information was re-produced from publication information and clearly indicated with no plagiarism violation

HoChiMinh City, December 2010

Le Phong Dinh

ACKNOWLEDGMENT

I would like to express my since thanks to all professors of the program My deepest gratefulness goes to professors of Solway Brussels School – University of Brussels for the profound knowledge I have achieved during the courses and great time for discussion in case studies

I am also thankful to Dr Tran Anh Tuan, Co-director of Vietnam-Belgium program for organizing the program My thanks are also to Mr Serge Bywaski, the helpful co-ordinator, who has been with us throughout the MBAVB3 course, giving help when needed and acting enthusiastically as a bridge connection between the class and Solway professors

I would like to express my sincere thanks to Mr Lim Puay Koon, ASEAN Managing Director of Datacraft Asia, for his advices for my thesis I also would like to extend my gratitude to colleagues, Mr Francis Lee – Head of Solution of Datacraft Asia, executive managers of technology vendors and managers of different companies who have spent time answering the questionnaires that help to drive the market direction

I would like to thanks Dr Nguyen Dinh Tho, my tutor, for helping me to complete the thesis Last but not least, I also would like to express my sincere thanks to my wife for her support during the past two years of my study

Ho Chi Minh City, December 2010

LE PHONG DINH

EXECUTIVE SUMMARY

Datacraft Vietnam is the subsidiary of Dimension Data, one of the leading system integrators in the world In Vietnam, Datacraft has been operated for many years and competed well with many local companies Given the fact that there are big opportunities as Vietnam is growing fast and more investment in the telecommunications industry is expected, it is necessary for Datacraft to maintain competitive The thesis therefore goes deeply into analyzing the internal and external environment of the company to find the fittest strategy for the company

The thesis firstly conducts an external audit of the company environment to figure out opportunities and threats Following the external audit, an internal audit is done to illustrate the strengths and weaknesses Putting altogether, the Quantitative Strategic Planning Matrix is built

up to choose the best suitable strategies among three generic strategic, cost leadership, differentiation and focus To make the study more realistic and objective, two surveys and one direct interview are conducted The result of the surveys and information collected from direct interview are consolidated into the Quantitative Strategic Planning Matrix

Based on main findings from the Quantitative Strategic Planning Matrix, differentiation strategy was chosen Some recommendations have then been suggested to build up differentiation

strategy for Datacraft Vietnam

TABLE OF CONTENTS

COMMITMENT i

ACKNOWLEDGMENT ii

EXECUTIVE SUMMARY iii

TABLE OF CONTENTS iv

LIST OF ABBREVIATIONS vii

LIST OF FIGURES viii

LIST OF TABLES ix

INTRODUCTION OF THE STUDY x

Chapter 1 1

LITERATURE REVIEW 1

1.1 Definition of competitive advantage 1

1.2 Porter’s generic competitive strategy 1

1.2.1 Cost leadership strategy 2

1.2.2 Differentiation strategy 2

1.2.3 Focus strategy 3

1.2.4 Summary of generic strategies and its requirements 4

1.3 Strategy formulation process 5

1.3.1 Mission and goals 5

1.3.2 External analysis 5

1.3.2.1 Macro environment analysis 6

1.3.2.2 Micro environment analysis 6

1.3.3 Internal environment analysis 10

1.3.4 Strategy formulation and strategic choice 11

1.3.5 Strategy implementation 12

Chapter 2 14

ANALYSIS OF DATACRAFT VIETNAM’S EXTERNAL ENVIRONMENT 14

2.1 Macro environment analysis 14

2.1.1 Political environment 14

2.1.2 Economics environment 15

2.1.3 Social environment 16

2.1.4 Technological environment 17

2.2 Microenvironment analysis 18

2.2.1 Industry and market overview 18

2.2.2 Industry competitiveness and competitors analysis 22

2.2.2.1 Barriers of entry 22

2.2.2.2 Substitute products 23

2.2.2.3 Bargaining power of buyers 23

2.2.2.4 Bargaining power of suppliers and suppliers analysis 24

2.2.2.5 Competitors Analysis 25

2.3 Summary of company’s opportunities and threats 28

2.3.1 Opportunities 28

2.3.2 Threats 28

2.4 External Factor Evaluation Matrix 29

Chapter 3 32

ANALYSIS OF DATACRAFT VIETNAM’S INTERNAL ENVIRONMENT 32

3.1 Company’s profile 32

3.1.1 Introduction of Datacraft Asia 32

3.1.2 Introduction of Datacraft Vietnam 32

3.2 Organizational structure 33

3.2.1 Organization chart 33

3.2.2 Management 34

3.2.3 Human resources 35

3.3 Business operation 35

3.3.1 Company vision and goals 35

3.3.2 Market segmentation 36

3.3.3 Major Suppliers 38

3.3.4 Products and services 38

3.3.5 Operation - Sales Team 41

3.3.6 Pricing 43

3.4 Financial analysis 44

3.5 Capabilities 47

3.6 Summary of Datacraft’s strength and weakness 48

3.6.1 Strengths 48

3.6.3 The Internal Factor Evaluation (IFE) Matrix 49

3.6.4 Competitive Profile Matrix (CPM) 51

Chapter 4 53

DEVELOPING COMPETITIVE STRATEGIES FOR DATACRAFT VIETNAM 53

4.1 SWOT analysis 53

4.2 SWOT strategies 55

4.3 Strategy formulation 56

4.3.1 Mission and vision for the company till 2015 56

4.3.2 Developing competitive strategies for Datacraft Vietnam 56

4.3.2.1 Cost leadership strategy 56

4.3.2.2 Differentiation strategy 58

4.3.2.3 Focus strategy 59

4.4 Strategy evaluation – Quantitative Strategic Planning Matrix 59

4.5 Strategy implementation 63

CONCLUSIONS AND RECOMMENDATIONS 66

REFERENCES i

APPENDIX 1 CUSTOMER SURVEY iii

APPENDIX 2 RESULTS OF CUSTOMERS’ SURVEY ix

APPENDIX 3 EMPLOYEE SURVEY xv

APPENDIX 4 RESPONSES FROM DATACRAFT’S SALES TEAM xvii

APPENDIX 5 DIRECT EXECUTIVE INTERVIEW xx

APPENDIX 6 KPI TEMPLATE FOR CLIENT MANAGERS xxii

APPENDIX 7 KPI SETTING TEMPLATE FOR SALES MANAGERS xxiv

LIST OF ABBREVIATIONS

3GPP The 3rd Generation Partnership Project

CDMA Code division multiple access

DPI Department of Planning and Investment

FSI Finance, Securities and Insurance

GPRS General packet radio service

GSM Global System for Mobile Communications ITU International Telecommunications Union

MPI Ministry of Planning and Investment

MPT Ministry of Post and Telecommunications

Wi-Max Worldwide Interoperability for Microwave Access

LIST OF FIGURES

Figure 2.2 Revenue structure of the telecommunications industry 2006-2009 20

Figure 3.2 Datacraft Vietnam’s revenue by customers’ segmentation 37

LIST OF TABLES

Table 1.1 Generic competitive strategies and required competencies 04

Table 1.3 The Quantitative Strategic Planning Matrix (QSPM) 12

Table 2.2 External Factor Evaluation (EFE) Matrix of Datacraft Vietnam 29 Table 3.1 Benchmark Datacraft’s products and services with key competitors 40

Table 3.3 Internal Factor Evaluation (IFE) Matrix of Datacraft Vietnam 49

Table 4.1 Benchmark key requirements of cost leadership strategy and Datacraft’s

Table 4.2 Benchmark key requirements of differentiation strategy and Datacraft’s

Table 4.3 Quantitative Strategic Planning Matrix (QSPM) of Datacraft Vietnam 60

INTRODUCTION OF THE STUDY

I Rationale of the study

Profitability is essential to all business In order to be profitable and maintain reasonable growth rate year on year, Datacraft must be competitive by offering services and products that satisfy the changing clients’ demand Datacraft’s main competitive advantage lies in its capability to provide to the clientele business solutions that are based on client’s business domain needs Client’s assimilation of technology can help with the automation of certain processes, but this will need to be tempered based on the location, business-climate and geography where the client’s business will reside

The Vietnamese government has expressed strong support for the growth and development of the telecommunications industry Given the potential growth of the industry in the next few years, it is time for Datacraft to look back into its business environment, evaluate its strengths and weaknesses so that Datacraft can keep track of the new trends and be competitive The research analyses Datacraft Vietnam’s business and how they can develop a competitive strategy for its business, as a major system integrator in IT and telecommunications industry in Vietnam market

II Problem statement

Datacraft is one of the largest corporations in the world, ranking number three after IBM and HP

in systems integration Datacraft is the only independent system integrator Datacraft Vietnam was established in 1996 After nearly 15 years of operations, Datacraft Vietnam is now facing harsher competition from local and other foreign companies, such as FPT, DTS, HPT, Sao Bac Dau, CT-IN, CMC, 3D Networks…Alcatel-Lucent, Ericsson, Huawei

Though known worldwide as a multinational system integrator supported by competent and skillful employees, Datacraft Vietnam still does not enjoy a suitable role in the Vietnamese market in comparison with other players Within Datacraft Group, Datacraft Vietnam contributes not much to the bottom line and the group’s growth

The thesis aims at building a differentiation competitive strategy for Datacraft Vietnam based

on its key competencies and applying it in Vietnam market The thesis will go first into

analyzing the macro environment in which Datacraft is operating to find out the threats and opportunities Then a deeper analysis via Michael Porter’s five forces will give a closer view of the company’s industry and its performance An internal audit is also conducted to show out the company’s key strengths and weaknesses All findings are then summarized in the SWOT analysis of the company Based on main findings, the research develops three generic strategies for the company An overall evaluation via the Quantitative Strategic Planning Matrix (QSPM)

is conducted to choose the most suitable competitive strategy

III Research methodology

a) Objectives

• Overall analysis of the Vietnamese IT and Telecommunications industry

• Examine Datacraft’s current business strategy

• Overview of the SI market in Vietnam IT and Telecommunications industry Competitors’ perceived key strengths and weakness

• Analysis Datacraft-Vietnam’s performance in IT and Telecommunications industry, with reference to the competition

• Propose suitable competitive strategies for Datacraft

b) Research questions

The research questions are as following:

• What is the addressable SI market for IT and Telecommunications?

• What is the status quo of the competitive environment of Datacraft Vietnam?

• How can we evaluate the SWOT of Datacraft Vietnam?

• What is the key value of Datacraft in the client’s perception? What is the key value of the competition? How can Datacraft change this perception?

• What kind of competitive strategy should Datacraft develop to grow its business in Vietnam and why?

c) Data collection method

Secondary data on telecommunications industry, Datacraft’s competitors, their capability, their operation is gathered from Business and Industry journals, Internet web sites, Vietnam statistical year book, sales review reports and other sources This information gives board view about the external environment of the company Primary data is collected mostly through in-depth interview with company’s executive managers, key sales person at regional level Information about company’s business and operation is gathered from company’s annual reports, company’s brochure and other relevant documents A customer survey is conducted to identify customer requirements and their potential needs The questionnaire of customer survey was distributed to 50 IT managers who are existing clients of Datacraft Vietnam The survey also aims at finding the current position of Datacraft and identifying key competitors In addition, an employee survey is done to get more thorough understanding of the company’s personnel resources and sustainability Lastly, an executive survey is conducted from technology vendors to understand how they are viewing Vietnam market and to utilize their technology strengths to grow their business in Vietnam This also helps to evaluate how Datacraft can achieve a winning business formula with these technology vendors

The data collected is consolidated in the company a whole scenario, which will be to suggest

alternative and action plan for the company

d) Conceptual framework of the study

The analysis of current performance of industry and company is based on the process of strategic management, which is used to implement SWOT analysis for the company First of all, the company’s missions and goals are examined Then external and internal environments are analyzed to identify strategic situation that company is facing Strategies are developed for the company and evaluated to choose the most suitable one for recommendation

The below graph illustrates the framework of the research study

IV Scope and limitation of the study

The research focuses on analyzing the company’s current environment Based on the results from analyzing the company’s internal and external environment, the research develops a competitive strategy in the next five years for the company One of the key limitations of the research is that strategy evaluation is subjective

External Analysis

Mission and Goals

SWOT analysis Strategic Choice Internal Analysis

Alternative strategies

Strategy evaluation

Recommended strategy

Recommendation

V Structure of the study

Besides the introductory chapter and conclusion chapter the study is divided into four main chapters as following:

Chapter 1: Literature review

Literature on competitive advantage and competitive strategy as well as the strategic management process are reviewed as the basis for analysis in following chapters

Key objective of this chapter is to set up the theoretical framework for following chapters

Chapter 2: Analysis of Datacraft Vietnam’s external environment

External factors including political, economic, social and technological factors are analyzed Customer analysis and industry analysis including competitor analysis is discussed extensively

in this section as well

Based on the theoretical framework in chapter one, chapter 2 goes deeply into analyzing the company’s macro and micro environments

Key objectives of this chapter are to identify the opportunities and threats of the company

Chapter 3: Analysis of Datacraft Vietnam’s internal environment

Company organization, business performance, operation, sales performance, and other internal related activities are analyzed to identify strength and weakness

Chapter 4: Developing competitive strategy for Datacraft Vietnam

Three competitive strategies are developed including cost leadership strategy, differentiation strategy, and focus strategy and evaluated Based on the company’s SWOT analysis, the Quantitative strategic Planning Matrix (QSPM) is created to choose the most suitable strategy

Chapter 1

LITERATURE REVIEW

1.1 Definition of competitive advantage

According to Michael Porter, competitive advantage is defined as follows: “When two or more firms compete within the same market, one firm possesses a competitive advantage over its rival when it earns or has the potential to earn a persistently higher rate of profit.”1

Competitive advantages give the firm an edge over its competitors and an ability to generate greater value for the firms Competitive advantage can lead to the firm’s success Simply obtaining competitive advantage is inadequate since competitors will soon adapt and imitate that advantage A firm instead must strive to achieve sustainable competitive advantage by continually adapting to changes in external trends and events and internal capabilities competencies and resources and by effectively formulating, implementing and evaluating strategies that capitalize upon those factors

1.2 Porter’s generic competitive strategy

Different sources of competitive advantage leads to different competitive strategy According to Michael Porter, there are strategies that allow firms to gain competitive advantage from three different bases: cost, differentiation and focus These strategies are called generic strategies Cost leadership emphasizes producing standardized products at a very low per unit cost for consumers who are price sensitive Meanwhile, differentiation strategy aims at producing products and services considered unique industry-wide and directed at consumers who are relatively price sensitive The generic strategy of focus rests on the choice of a narrow competitive scope within an industry The focuser selects a segment or group of segments in the industry and tailors its strategy to serving them to the exclusion of others

1.2.1 Cost leadership strategy

In cost leadership, a firm sets out to become the low cost producer in its industry The sources of cost advantage are varied and depend on the structure of the industry They may include the pursuit of economies of scale, proprietary technology, preferential access to raw materials and other factors A low cost producer must find and exploit all sources of cost advantage If a firm can achieve and sustain overall cost leadership, then it will be an above average performer in its industry, provided it can command prices at or near the industry average There are two major ways that a firm can gain a cost advantage:

- Control cost drivers: A firm can gain an advantage with respect to the cost drivers of value activities representing a significant proportion of total costs

- Reconfigure the value chain: A firm can adopt a different and more efficient way to design, produce, distribute, or market the product

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

- Access to the capital required to make 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 to shorten the assembly process

- High level of expertise in manufacturing process engineering

- Efficient distribution channels

Uniqueness does not lead to differentiation unless it is valuable to the buyer A successful

differentiator finds ways of creating value for buyer that the price premium in excess of extra cost A firm creates value for a buyer that justifies a premium price (or preference at an equal price) through two mechanisms: by lowering buyer cost and by raising buyer performance Firms that succeed in 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

a competitive advantage overall Firm using focus strategy often enjoys a high degree of customer loyalty, and this entrenched loyalty discourages other firms from competing directly The focus strategy has two variants

- In cost focus a firm seeks a cost advantage in its target segment

- In differentiation focus, a firm seeks differentiation in its target segment

Both variants of the focus strategy rest on differences between a focuser's target segment and other segments in the industry The target segments must either have buyers with unusual needs

or else the production and delivery system that best serves the target segment must differ from that of other industry segments Cost focus exploits differences in cost behavior in some segments, while differentiation focus exploits the special needs of buyers in certain segments

1.2.4 Summary of generic strategies and its requirements

Internally, in order to pursuit a generic strategy, firms need to evaluate its own resources and capabilities The below table summarize key internal requirements of each generic strategy:

Table 1.1 Generic competitive strategies and required competencies 2

Process engineering skills Intensive supervision of labor

Products designed for ease in manufacture Low cost distribution system

Strong marketing abilities

Product engineering Creative flair Strong capability in basic research Corporate reputation for quality or technological leadership

Long tradition in the industry or unique combination of skills drawn from other businesses Strong cooperation from channels

Combination of common skills directed at the particular strategic market

Structure organization and responsibilities Incentives based on meeting strict quantitative

Strong coordination among functions in R&D, product development, and marketing

Subjective measurement and

Combination of the common

organizational requirement directed

at the particular strategic market

2 Adapt from Porter, Michael E., 1980 Competitive Strategy: Techniques for Analyzing Industries and

Competitors 1998 Ed with new introduction, NewYork, The Free Press, page 40-41

targets incentives instead of

quantitative measure Amenities to attract highly skilled labor, scientists, or creative people

1.3 Strategy formulation process

Strategy formulation process refers to the process by which managers choose a set of strategies for company This process can be broken down into five major steps: (1) developing company’s mission and goals; (2) analysis of external environment to identify opportunities and threats; (3) analysis of organization’s strength and weakness; (4) selection of strategies built on organization’s strength and other external factors and correct its weakness in order to take advantage of opportunities and counter threats; and (5) strategy implementation

1.3.1 Mission and goals

The beginning point of strategic management process is to review and/or selecting new organization’s mission and major goals This statement will be the foundation for strategy formulation and implementation in later steps The mission sets out the reason why the organization exists, whose benefit it serves and what it should do

Major goals are the targets that an organization wants to fulfill in long or medium term Most profit-seeking organizations place maximization of profit near the top of their goals Goals should be specific and measurable within a time frame

1.3.2 External analysis

External analysis focuses on examination of relevant external elements to organization The object of this analysis is to identify threats and opportunities facing organization both present and potential An opportunity is a trend or event that could lead to significant upward change in sales and profit pattern- given appropriate response A threat is a trend or event that will result in the absence of strategic move, in a significant reduction in sales and profit figures The essence

of building competitive is relating to the company’s environment Company’s environment

1.3.2.1 Macro environment analysis

- Political factors These refer to government policy such as the degree of intervention in

the economy What goods and services does a government want to provide? To what extent does it believe in subsidizing firms? What are its priorities in terms of business support?

- Economic factors These include interest rates, taxation changes, economic growth,

inflation and exchange rates

- Social factors Changes in social trends can impact on the demand for a firm's products

and the availability and willingness of individuals to work In the United Kingdom, for example, the population has been ageing This has increased the costs for firms who are committed to pension payments for their employees because their staffs are living longer

- Technological factors: new technologies create new products and new processes

Technology can reduce costs, improve quality and lead to innovation These developments can benefit consumers as well as the organizations providing the products

1.3.2.2 Micro environment analysis

Normally, a micro environment analysis is done via Porter's five forces These forces include - three forces from 'horizontal' competition: threat of substitute products, the threat of established rivals, and the threat of new entrants; and two forces from 'vertical' competition: the bargaining power of suppliers and the bargaining power of customers The five forces determine industry profitability because they influence the prices, costs and required investment of firms in an industry

The threats of the entry of new competitors

The competition in an industry will be higher, the easier it is for other companies to enter this industry In such a situation, new entrants could change major determinants of the market environment at any time The threat of new entries will depend on the extent to which there are barriers to entry These are typically:

- Economies of scale,

- High initial investments and fixed costs, capital requirement,

- Cost advantages of existing players due to experience curve effects of operation with fully depreciated assets,

- Brand loyalty of customers,

- Protected intellectual property like patents, licenses etc,

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

- Access to raw materials is controlled by existing players,

- Distribution channels are controlled by existing players,

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

- High switching costs for customers,

- Legislation and government policies,

- Access to distribution,

- Expected retaliation by incumbents,

- Industry profitability; the more profitable the industry the more attractive it will be to new competitors,

The intensity of competitive rivalry

Rivalry among competing firms is usually the most powerful forces This force describes the intensity of competition between existing players in an industry High competitive pressure results in pressure on prices, margins, hence on profitability for every single company in the industry Competition between existing players is likely to be high when:

- There are many players of about the same size, similar strategies;

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

- Low market growth rates (growth of a particular company is possible only at the expense

of a competitor);

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

For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry Competitive rivalry is likely to be based on dimensions such as price, quality, and innovation Technological advances protect companies from competition Companies that are successful with introducing new technologies are able to charge higher prices and achieve higher profits, until competitors imitate them

The threat of substitute products or services

A threat from substitutes exists if there are alternative products with lower prices of better performance parameters for the same purpose They could potentially attract a significant proportion of market volume and hence reduce the potential sales volume for existing players This category also relates to complementary products Similarly to the threat of new entrants, the threat of substitutes is determined by factors like:

- Brand loyalty of customers,

- Close customer relationships,

- Switching costs for customers,

- The relative price for performance of substitutes,

- Current trends

The bargaining power of customers (buyers)

The bargaining power of customers determines how much customers can impose pressure on margins and volumes Customers bargaining power is likely to be high when:

- They buy large volume or there is a concentration of buyers,

- The supplying industry comprises a large number of small operators

- The supplying industry operates with high fixed costs,

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

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

- Customers have low margins and price sensitive,

- Customers could produce the product themselves,

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

- The customer knows about the production costs of the product

The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes

The bargaining power of suppliers

The term 'suppliers' comprises all sources for inputs that are needed in order to provide goods or services Supplier bargaining power is likely to be high when:

- The market is dominated by a few large suppliers rather than a fragmented source of supply,

- There are no substitutes for the particular input,

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

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

- There is the possibility of the supplier integrating forwards in order to obtain higher prices and margins This threat is especially high when

- The buying industry has a higher profitability than the supplying industry,

- Forward integration provides economies of scale for supplier

- The buying industry hinders the supplying industry in their development (e.g reluctance

to accept new releases of products),

The industry forces have its own attributes that can affect the firm’s decision in pursuing competitive strategies The following table gives an overall view of each strategy in the context

of the Porter’s five forces:

Table 1.2 Generic strategies and the five forces 3

Customer loyalty can discourage potential entrants

Focusing develops core competencies that can act

Large buyers have less power to negotiate because of few close alternatives

Large buyers have less power to negotiate because of few close alternatives

to pass on supplier price increases

Special products and core competency protect against substitutes

1.3.3 Internal environment analysis

The third step in strategic management process involves finding out firm’s strength and weakness Sales, sales growth and profitability are major measurements of business performance and past strategy The analysis covers resources, capability that is vital to build and sustain competitive advantage Resource and capability are distinctive competencies lying in different functional departments like marketing, manufacturing, manager or employee’s skills

3 Adapt from Porter, Michael E., 1980 Competitive Strategy: Techniques for Analyzing Industries and

Competitors 1998 Ed with new introduction, NewYork, The Free Press

etc Company strength leads to superior performance in quality, efficiency, innovation and customer responsiveness while weakness leads to inferior performance

1.3.4 Strategy formulation and strategic choice

The next step involves generating a series of strategy alternatives given company internal strength and weakness and its external opportunities and threats The comparison of strength, weakness, opportunities, threats (SWOT analysis) is to identify strategy that align, fit a company’s resource and capabilities to the demand of the market in which the company operates Within the specified alternatives, managers should choose the best one to follow The technique normally applied to achieve the best strategy among alternatives is the Quantitative Strategic Planning Matrix (QSPM) Conceptually, the QSPM determines the relative attractiveness of various strategies based on the extent to which key external and internal critical success factors are capitalized upon or improve The relative attractiveness of each strategy is computed by determining the cumulative impact of each external and internal critical success factor There are six steps in developing a QSPM:

• Step 1: Make a list of the firm’s external opportunities/threats and internal strengths/weaknesses in the left column of the QSPM This information should be taken directly from the External Factors Evaluation (EFE) matrix and the Internal Factors Evaluation (IFE) matrix

• Step 2: Assign weighs to each key external and internal factors These weights are identical to those in the EFE matrix and IFE matrix The weights are presented in a straight column just to the right of the external and internal critical success factors

• Step 3: Examine the State 2 matrices, and identify alternative strategies that the firm should consider implementing Record these strategies in the top row of the QSPM

• Step 4: Determine the attractiveness score (AS) defined as numerical values that indicate the relative attractiveness of each strategy in a given set of alternative Attractiveness scores (AS) are determined by examining each key external or internal factor one at a time The range for AS is 1 = not attractive; 2= somewhat attractive; 3 = reasonably attractive; 4 = highly attractive

• Step 5: Compute the total attractiveness scores (TAS) The higher the TAS, the more attractive the strategic alternative

• Step 6: compute the sum total attractiveness scores Add total attractiveness scores in each strategy column of the QSPM The sum TAS reveals which strategy is most attractive in each set of alternatives Higher scores indicate more attractive strategies The below table shows a sample of the QSPM and its contents:

Table 1.3 The Quantitative Strategic Planning Matrix (QSPM) 4

Key external factors

The positive feature of QSPM is that sets of strategies can be examined Developing QSPM make it less likely that key factors will be overlooked or weighted inappropriately The QSPM however also have many limitations Among which is the intuitive judgments and assumptions The ratings and attractiveness scores require judgmental decision

1.3.5 Strategy implementation

Having chosen a strategy, the next step is to put strategy into practice Managers should choose

an appropriate organizational structure and control system to implement selected strategy

4 Adapted from David, Fred R., Thirteenth Edition, Strategic Management – Concepts and Case, Prentice Hall,

New Jersey, 2009, page 225

Organizational structure defines role and responsibility of each manager and personnel within a business unit as well as reporting relationships If the old organizational structure is unfitted, managers should develop a new one The control system is designed to measure the performance and control the actions of the sub-units Measures like sales, market share, margin, profit can be used to monitor and control performance In addition, manager should also decide when to review and revise strategy This will be the feedback loop for the whole process of strategic management

Chapter 2

ANALYSIS OF DATACRAFT VIETNAM’S EXTERNAL ENVIRONMENT

2.1 Macro environment analysis

This part analyzes the macro environment of Datacraft Vietnam The following parts will go deeply examining key features that affect the telecommunications industry

This view is formally mentioned in Decision No.158/QD-TTg dated 18th October 2001, which ratifies VNPT’s development strategy until 2010 and Orientation until 2020 The decision provides a comprehensive range of sector development objectives and targets, along with key underlying strategies to achieve these targets

In details, the government sets that the growth in annual revenue of the industry reaches 2 to 3 times the growth rate of GDP or more With GDP growth rate of Vietnam estimated to be around 7%, the growth rate of the industry is estimated to reach 15-20% The mission of this period is that Vietnam is in the 15 leading countries providing outsourcing services and digital content and Vietnam's information technology is advanced enough to compete on the domestic market To achieve these targets, the government will support to build up telecommunications companies, industrial zones to produce hardware products, software, and digital content under Vietnam brand to supply domestic market and aim at export The government also mentions to improve efficiency of production and business activities of enterprises and information technology and communication corporations in Vietnam such as Vietnam National Post and Telecommunication (VNPT), Viettel Corporation (Viettel), Vietnam Media Corporation (VTC),

Vietnam Mobile Telecom Services Company (VMS-MobiFone), Vietnam Telecom Services Company (VinaPhone)

2.1.2 Economics environment

Vietnam has been one of the fastest growing economies in Asia in recent years, with GDP growth averaging 7.6% annually between 2000 and 2007 The economic boom has lifted many Vietnamese out of poverty, official poverty rate in the country falling gradually

Vietnam however still suffers from substantial trade, current account and fiscal deficits, leaving the economy vulnerable as the global economy continues to suffer in 2010 The fiscal picture is clouded by considerable 'off-the-books' spending The heavily-managed and weak dong currency reduces incentives to improve quality of exports, and also serves to keep import costs high, thus contributing to inflationary pressures

Vietnam is increasingly attracting investment from key Asian economies, such as Japan, South Korea and Taiwan This offers the possibility of high tech and know how transfer

Vietnam is pressing ahead with the privatization of state-owned enterprises and the liberalization of the banking sector This should offer foreign investors new entry points

Table 2.1 Summary of Vietnam’s key economic indicators

8.48

6.18

5.32

7.50

6.50

7.00

7.50

7.50

7.50 CPI

% change

y-o-y

6.60

8.30

22.97

6.88

9.50

8.00

6.50

5.00

5.00

5.00 GDP per

The government’s strategy sets that the country’s GDP increase an average of 7% year on year This strategy is in line with projections of foreign entity like IMF and World Bank which show that Vietnam can well maintain the GDP growth rate from now till 2015 around 7%

Although the rate of internet user penetration among young people, and in Vietnam’s more affluent urban centers, is already higher than the national average, it will be necessary to ensure that new demographic groups have internet access if internet user growth is to continue over the next few years This in particular relates to providing internet services in rural areas of the country, where fixed-line infrastructure is particularly poor and in some cases non-existent One phenomenon which bodes well for continued growth in the number of internet users is the high level of PC ownership which exists in Vietnam According to a survey conducted by Alcatel-Lucent, some 80% of Vietnamese households now have access to a desktop PC, of which 16% are planning to purchase a laptop Traditionally, affordability has been one of the main reasons behind the slow take-up of internet and broadband services in the market However, access to PCs and laptops is growing as a number of cheaper models become available in the market

Meanwhile, growth in demand for broadband services is set to soar, as the Vietnamese government has been investing heavily in developing the broadband sector, announcing its commitment to inject VND100trillion (US$6.3bn) in order to raise penetration rates significantly Also, since joining the WTO, a number of high-profile global companies have relocated their operations to Vietnam, and the employment of local staff has boosted incomes The result has been that a significant number spend between US$10 and US$20 on home internet bills, accessing multimedia content including games and downloads

Increased competition is also expected to encourage increased broadband usage According to the VNNIC, the number of broadband subscribers reached 2.895million at the end of November

2009, an increase of 41.3% over the first 11 months of 2009 This was on the back of a 58.3% increase in the number of broadband subscribers in 2008 By the end of 2008, there were said to

be 2.049million broadband subscribers in the country, which is equivalent to a penetration rate

of 2.4% Although the rate of growth slowed in 2008, dropping 150% in the previous year, it was still strong nonetheless The VNNIC’s figures show that the rate of broadband subscriber growth in 2009 will be only slightly lower than in the previous year

In terms of government’s policy, the government sets that by 2015, the percentage of people using the internet is more than 50%; completed basic broadband network to all communes, wards in the country; Internet access to all schools; broadband information signal coverage 85%

of the population; Vietnam is of the 65 countries in the ranking of the International Telecommunications Union (ITU)

2.1.4 Technological environment

The government has placed more emphasis on science and technology This has led to increases

in funding, an improved scientific structure and more available money for research purposes These combined factors have led to advancements in numerous fields, including agriculture, medicine and genetics

Globally, since the launch of third generation mobile communications services, high speed wireless access services that provide high speed data transmission in a mobile environment have come to be used in diverse applications including e mail and web access using a mobile phone Smart phones have emerged as a key driver of the global mobile market, with 15% of all devices shipped This phenomenon will be very important in both mature and emerging markets Another key driver will be the emergence of connected devices, such as embedded laptops and a plethora of industrial/machine to machine (M2M) devices

In the infrastructure segment, mobile broadband will continue to be the focus in the next few years Operators in mature markets will continue implementing high speed package access (HSPA) WiMAX will be a key driver in many emerging markets, while LTE (long term

- Wi-max: WiMAX is a wireless digital communications system, also known as IEEE

802.16 that is intended for wireless "metropolitan area networks" WiMAX can provide broadband wireless access (BWA) up to 30 miles (50 km) for fixed stations, and 3 - 10 miles (5 - 15 km) for mobile stations In contrast, the Wi-Fi/802.11 wireless local area network standard is limited in most cases to only 100 - 300 feet (30 - 100m) With WiMAX, Wi-Fi-like data rates are easily supported, but the issue of interference is lessened WiMAX operates on both licensed and non-licensed frequencies, providing a regulated environment and viable economic model for wireless carriers WiMAX can be used for wireless networking in much the same way as the more common Wi-Fi protocol WiMAX is a second-generation protocol that allows for more efficient bandwidth use,

interference avoidance, and is intended to allow higher data rates over longer distances

- Long-term Evolution: LTE (Long Term Evolution) is the trademarked project name of

a high performance air interface for cellular mobile telephony It is a project of the 3rd Generation Partnership Project (3GPP), operating under a named trademarked by one of the associations within the partnership, the European Telecommunications Standards Institute LTE is a step toward the 4th generation (4G) of radio technologies designed to increase the capacity and speed of mobile telephone networks Where the current generation of mobile telecommunication networks are collectively known as 3G (for

"third generation"), LTE is marketed as 4G The main advantages with LTE are high

throughput, low latency, plug and play, FDD and TDD in the same platform, an improved end-user experience and a simple architecture resulting in low operating costs LTE will also support seamless passing to cell towers with older network technology such as GSM, CDMAOne, W-CDMA (UMTS), and CDMA2000 The next step for LTE evolution is LTE Advanced and is currently being standardized in 3GPP Release 10

2.2 Microenvironment analysis

2.2.1 Industry and market overview

The telecoms industry is divided into different sectors, among which key sectors are fixed telephone service, mobile services, and internet services These three sectors also contribute the most total revenue of the industry The growth of one sector also affects that of other sector since this sector might be the customer of the other

Figure 2.1 Revenue of the telecommunications industry

Source: Vietnam Information and Communication Technology White Book 2010, page 38

The telecommunications industry is growing very fast Revenue of the industry sharply increases year on year with grow rate at more than 20% This is one hand due to the fact that the Vietnamese economy is growing, investment in telecommunications attracting more concerns from many companies and other industries as a way to keep track of changes worldwide On the other hand, the support of government as well as government spending on telecommunications

to upgrade the country’s information technology infrastructure also plays a key role in the growth of the industry

Figure 2.2 Revenue structure of the telecommunications industry 2006 - 2009

Source: Vietnam Information and Communication Technology White Book 2010, page 39

Due to fast changes of technology, the mobile sector has contributed more to revenue of the industry while that of the fixed telephone services gradually decreased Another noticeable point is the increasing revenue of other sector, among which is the system integration sector As previously mentioned, in the telecommunications industry, the growth of one sector might lead

to the growth of another one since input of this sector is the output of another sector Mobile sector and internet sector are two key sectors that use the applications and technology of the system integration sector The growing revenue of other services in the industry shows the potential and long term development of high end technology, system integrated services sector

as well Since these two sectors’ performance is attached to the telecommunications industry, a brief overview on growth of these two industries is necessary to have an overall point of view on the telecommunications industry

The most recent official figures on the size of Vietnam’s internet and broadband markets show that the number of internet users rose by 7.9% in the first 11 months of 2009 to reach 22.48 million There were a total of 2.9 million broadband subscribers as at November 2009, reflecting growth of 41.3% in the first 11 months of 2009 In the next five year, there will be relatively robust broadband subscriber growth from continued investment in broadband infrastructure Slowing growth trend reflects two phenomena On the one hand, internet user growth to date has been largely confined to urban centers In major cities and town, the internet user penetration rate is already relatively high On the other hand, penetration levels remain very low in rural parts of the country This means that the ability to sustain higher growth rates in future will depend on the pace of internet infrastructure development in rural parts of the country Nevertheless, the rate of decline will be gradual By the end of 2015, market might reach over 30million internet users; this would be the equivalent to around 32.1% of the population As for broadband customers, by the end of 2015, it is predicted that there will be just over 14.5million broadband customers and a penetration rate of around 15.4% The strong broadband growth in the latter years will be supported by a number of developments, including the considerable investment which is currently occurring in the broadband sector

The number of 3G subscriptions continues to grow during 2010 following the commercial launch of services by Vinaphone in October 2009, followed by MobiFone in December of the same year BMI reported that there would be around 900,000 3G subscribers by the end of 2010, accounting for 0.6% of the total mobile subscriber base This percentage will rise to 2.2% by the end of 2015

The commercial launch of 3G services in the country at the end of 2009, as well as a number of investment plans announced by other operators in the deployment of 3G network infrastructures boost more 3G subscribers The growth of 3G and the investment in infrastructures will be a

chance for Datacraft to provide necessary products and services to these companies

Though being a potential market with large investment, currently customers tend to purchase hardware rather than invest in long term growth via more complicated solutions This means that clients are trying to buy more products with the specific features to support the system and not really appreciated complex solution The revenue will come from winning large

projects will come with service attach of maximum 10% and empirical data has shown that clients do not buy maintenance after warranty expiry even if it is a large installed base Given the above, gross margin percentage and service mix will also be challenged

2.2.2 Industry competitiveness and competitors analysis

The Porter’s five forces model is applied here to illustrate the Vietnamese telecommunications industry and to give the company a deeper insight into the company’s current competitive environment

2.2.2.1 Barriers of entry

The barriers of entry of the industry are medium Vietnam’s ministry of post and telecommunications (MPT) is responsible for all licensing related to telecommunications services Prior to Vietnam’s entry to the World Trade Organization (WTO), foreign telecoms operators were prevented from making direct investments in Vietnamese telecoms operations Since joining the WTO, however, Vietnam’s MPT has allowed a number of local telecoms companies to enter into Joint-venture models (JVs) with foreign partners for the provision of a wide range of communications services, including fixed voice telephony, packet-switched data transmission services, circuit-switched data transmission services, telex services, telegraph services, facsimile services and private leased circuit services

In terms of initial investment and fixed costs, capital requirements and legal requirements, there are no high barriers and any corporate can join the industry However, surviving and building up reputation is not that easy Human resources for the industry is scared as the technology is changing so fast that high competency engineers must follow continuous course to achieve a certain level of the know-how Brand loyalty of customers is important to existing players and new players cannot easily achieve customers’ reliability Normally, customers request for experienced system integrators which similar projects have been deployed Customers have different criteria to select a qualified supplier including years of experience, involvement in previous sophisticated and sizeable projects and number of won projects These conditions are not easily obtained by new players One more important barrier is the relationship with strategic technology suppliers for each solution Key strategic technology suppliers are Cisco Systems, EMC, Netapp, Checkpoint, Microsoft, F5, VMWare, Tandberg, Riverbed…ect…

Recently, there are many new players participating in the system integration sector These

companies start up with small capital, simple solutions to build up customer base Gradually, they try to participate in bigger scale projects However, most of them are failed In the early of

2000, there were about 5 system integrator companies; the number now amounts to more than

30 Market share is mostly grasped by about 8-10 key players only with large investment, strong global support and skillful human resources

2.2.2.2 Substitute products

Threat from substitute products and services for those of the information technology and telecommunications is very low and nearly not existed since the outcome of the industry is unique and non surrogate Due to its unique characteristics, most substitute products and services are imperfect and cannot meet the requirements of customers For example, to build up internal local area network and wide area network (LAN/WAN) for the companies, there are no substitute products for the routers For storage purpose, the company can choose to apply storage solutions or use the imperfect substitutes of traditional recording tape Of course, recording tape is unsafe, more costly and higher risk than the standardized storage full package solutions As technology is developing daily, products and services of the industry are un-adaptable and non- surrogate; the threat from substitute products and services therefore is becoming lower and lower

2.2.2.3 Bargaining power of buyers

Bargaining power of buyers is high, except for the bargaining power of multinational companies where the decision is made from the headquarters Local companies, especially local stated own company has high bargaining power These companies normally call for tender according to the regulations of the Ministry of Planning and Investment (MPT) For small and normal projects, the company can decide on its own

Decision making process is normally simple and fast In most companies, IT manager or purchasing staff can release the purchase order to suppliers once all technology and discount structure, terms and conditions match with its headquarters’ information and policy Thanks to that, suppliers can receive payment as per committed in the purchase order

Recently, customers prefer to deal directly with suppliers so that they can get the best products

The result from customer survey of 50 customers as in the appendix shows that 72% of them will ask for competitive quote, 22% invite tenders and only 6% reply that they will appoint suppliers The 6% that replies to appoint suppliers are mostly multinational companies who are bounded by its head office master agreement Whether it is a competitive price quote or tender invitation, the bargaining power of customer is high and all companies are equally chosen provided that its solutions and price best fit customer’s requirements

2.2.2.4 Bargaining power of suppliers and suppliers analysis

System integrators are normally strategic partners of many manufacturing companies depending

on the solutions: networking, security voice, storage and value added solutions As the dependence of system integrators on these strategic partners are so high, the bargaining power

of supplier in the industry is extremely high The leading suppliers in the industry are Cisco Systems, EMC, Netapp, Checkpoint, Tandberg, VMWare, Microsoft, Riverbed, F5, Polycom, Bluecoat…The market is dominated by four key players namely Cisco System, Alcatel – Lucent, Huawei and Ericssons who together accounted for 68% of total market share Datacraft has partnership with Cisco System VMWare, F5, Riverbed Checkpoint, EMC, Netapp, Tandberg, Bluecoat and Microsoft who represents around 40% of market share

In order to be strategic partners of these suppliers and win certain level of partners, companies must meet strict requirements on human resources, capital and experience It also largely depends on the global relationship Strategic partners are then divided into different levels ranging from gold, silver, registered With each level, the support and discount are also different

As the discount level is different, suppliers have power to intervene in the price of the company

Figure 2.3 Suppliers’ market share

Suppliers' Market Share

Source: IDG Report 2010

2.2.2.5 Competitors Analysis

Main players of the industry are FPT, DTS, SBD, CMC, ITC, CT-IN, CMC and HPT Information technology has been developing and contributing more profit to companies In addition, monopoly is no longer existed Most of the companies in the industry become strategic partners providing strategic products and services Competition becomes harsher and harsher Market players focus more on price competition as customers become more priced sensitive Competition is done over building customer relationship For multinational customers, competition is done globally as these customers tend to sign global contract for providing products and services For these customers, global companies have advantage over local