Building the development strategy for the period 2007 to 2010 for Vietnam schréder Co., ltd

The objective of the studywill therefore design a development strategy for the company in the long term.Based on the examination and analysis of the external and internalenvironment, the

PROGRAMME DE MAITRISE EN MANAGEMENT VIETNAM-COMMUNAUTE

FRANCAISE DE BELGIQUE

TRAN VINH QUANG

BUILDING THE DEVELOPMENT STRATEGY FOR

THE PERIOD 2007-2010

FOR VIETNAM SCHREÙDER Co., Ltd.

MASTER DEGREE THESIS

In MANAGEMENT MMVCFB6

HO CHI MINH CITY YEAR 2007

MMVCFB PROGRAMME DE MAITRISE EN MANAGEMENT VIETNAM-COMMUNAUTE

FRANCAISE DE BELGIQUE

TRAN VINH QUANG

BUILDING THE DEVELOPMENT STRATEGY FOR

THE PERIOD 2007-2010

for VIETNAM SCHREÙDER Co., Ltd.

MASTER DEGREE THESIS

in MANAGEMENT MMVCFB6

GUIDING PROFESSOR:

Prof Dr HO DUC HUNG

HO CHI MINH CITY YEAR 2007

as small but promising of high demand in the future The situation ofcompetition among lighting companies, the growth trend and the failure or thesuccess of the companies requires domestic lighting companies to havesuitable development strategy.

Vietnam Schreùder company is one of the most successful companies in terms

of high market share It has assembled lighting products of various kinds inwhich public and industrial lighting is the core product of the company Thoseproducts account for 45 % of the market share However, in the competitiveenvironment, Vietnam Schreùder company has faced various difficultiesespecially the lack of the vision in the long term The objective of the studywill therefore design a development strategy for the company in the long term.Based on the examination and analysis of the external and internalenvironment, the study will determine strengths, weaknesses, opportunitiesand threats (SWOT) Derived from the SWOT and based on the generalprocess of strategy formulation, the study will develop the most appropriatedevelopment strategy for the company Finally some recommendations aresuggested for the company to be able to implement the proposed strategy

PERIOD 2007-2010 FOR VIETNAM SCHREÙDER

GUIDED BY: Prof , Dr HO DUC HUNG

So based on these objectives, I think the thesis has provided the mainfundamental solutions for these posed objectives

3 The literature review of the Chapter 2 provides a theoretical framework ofthe thesis, especially to point out the process of the strategic managementand standard tools for strategies formulations and selections

This theoretical background is rather sufficiently for the research of thethesis

4 The Chapter 3 and 4 provide and overview of the external and internalenvironment analysis The analysis is rather of high value But it will be

5 The writer’s efforts have been revealed distinctly in the strategy evaluationand solution So I highly appreciate his attempts.

6 I am in agreement with the author’s conclusion and recommendations

The thesis, on the whole, is eligible for the MBA degree As the guidancecounselor, I evaluate the quality of this thesis at the level: Great

Distinction with mark of 17/20

Ho Chi Minh city, 25 February 2007

Prof., Dr Ho Duc HungGuidance Counselor

2.2 Process of the strategic management and standard tools for

strategies formulation and selections

08

2.2.2 External Analysis and Michael Porter’s five forces model 11

3 EXTERNAL ENVIRONMENT ANALYSIS

3.3 Orientations in development of the Vietnam lighting industry

4.3.1 Assembling process, quality control and technology 83

4.4 Profitability, financial performance and financial resources 84

4.5 Management Information System 864.6 Summary of Strengths and Weakness for Vietnam Schreùder 86

5 DEVELOPING STRATEGIES FOR VIETNAM SCHREÙDER

5.5 Some specific solutions proposed for development strategy

for Vietnam Schreùder

100

LIST OF FIGURES

Figure 2.2 The Determinants of Process of Strategic Management 08

Figure 2.4 The Main Components of the Strategic Planning Process 10

Figure 4.3 Sales growth rate from Year 2000-Chart 70

     

LIST OF TABLES

Table 2.2 Product / Market / Distinctive competence - Choice and

Table 3.5 Summary of strength and weakness of lighting companies 54

Table 4.10 Combined balance sheets 85

     

LIST OF ABBREVIATIONS

5S Sort, Straighten, Shine, Systemise and Sustain

ASEAN Association of Southeast Asian Nations

EC&EE Energy Conservation and Energy Efficiency

ISO International Standards Organisation

MIT Massachusetts Institute of Technology

RD&A Research, Development and Applications

SWOT Strengths, Weaknesses, Opportunities and Threats

ULB Universiteù Libre de Bruxelles

WTO World Trade Organisation

     

INTRODUCTION

CHAPTER 1 INTRODUCTION

1.1 Rationale of the study.

One of the highlighted trends that characterize today’s business environment isfiercer and fiercer competition This brings business organizations a wide array ofopportunities and threats that require the design and implementation of strategy orstrategic planning in doing business

In Vietnam, on the course of rapid developing for the last several years, thetransforming of economy has created a lot opportunities for lighting industry todevelop Last decade was remarked by the booming of infrastructuredevelopment, one of the most critical factors for the development of lightingindustry in Vietnam

The upcoming unavoidable fact is the opening wider of Vietnam’s economy asVietnam has integrated more and more to the world economy This fact has beencreating both opportunities and threats for Vietnam lighting companies

Vietnam Schreùder is a typical medium FDI lighting development company It has

a full potential to be a main player in the market, being able to compete withdomestic giants and foreign companies The fast growth of lighting industry, thedesire to be leading company and the fact of tough competition lead to the need

to establish a development strategy In fact, there is still a gap in strategy researchfor lighting companies like Vietnam Schreùder Hence, this research couldeffectively dedicate to how to develop a strategy for a particular lightingcompany – Vietnam Schreùder

1.2 Problem statement

Based on the examination and analysis the external and internal environment, thestudy will formulate the development strategy for the Vietnam SchreùderCompany in the long term

• Primary data: Interviews with by persons of Vietnam Schreùder Company

as well as other lighting companies

• Secondary data: Annual reports and other relevant data about the Vietnam

Schreùder Company Relevant data about the lighting industry and theVietnam economy will be collected from Ministry of Industry, the NationalStatistics Office, Ho Chi Minh City Statistics Office, Ho Chi MinhDepartment of Industry and Commerce, from newspapers, magazines andfrom Internet and media as well.

The framework of the study can be illustrated by Figure 1.1

Figure 1.1 Research Methodology

1.5 Scope and limitations of the study

The study is about the Vietnam Schreùder Company It aims at the formulation ofthe development strategy for the company in the long term

The research study is undertaken focused in one case study regarding strategyrespective; study about other aspects is not done in a deep manner

The study is focused on outdoor lighting companies Other lighting industry such

as indoor lighting is not within the scope of the study

Limitations

By doing so, the research has some limitations due to following reasons: (i)Relevant data on several market segments is inconsistent and sometimes, notavailable for public and research documentation; (ii) Data on the market share ofthe Company and other competitors in various market segments are not fullyavailable Primary data is collected in limited number, though try to widespreadamong the different economic sectors but still not sufficient That could cause thebias for the analysis and results to some extent

1.6 Organization of the study

The study report is organized as follows:

Chapter 1 presents an introduction including the rationale of the study, andstatement, the objectives, the scope and limitations as well as the methodologyand framework of the study

Chapter 2 summarizes the literature review and contains the fundamental ideas

on strategy, strategic management, and strategy formulation process as well asthe Porter Model for analyzing industry

Chapter 3 provides and analysis of external factors to identify the company'sstrategic position as well as strategic orientations and investment opportunities forthe Vietnam plastic industry in the coming years Based on the Porter model forexamining the plastic industry environment, the opportunities and threats for theVietnam Schreùder company is found out.

Chapter 4 includes the current analysis of the Vietnam Schreùder Company interms of organizational structure, production, sales, marketing and finance Thegoal is to identify strengths and weaknesses of the company to depict its currentcompetitive situation

Chapter 5 presents the design, evaluation and selection of the developmentstrategy for the Vietnam Schreùder company

Finally Chapter 6 includes recommendations on the implementation of theproposed strategy

LITERATURE REVIEW

CHAPTER 2

2 LITERATURE REVIEW

2.1 Strategic management perspective

The central objective of strategic management is to assess why someorganizations succeed why others fail Three broad factors determine acompany’s success: the industry where it is based, the country (or countries)where it is located, and its own resources, capabilities and strategic It isillustrated in Figure 2.1:

Figure 2.1 - The Determinants of Company Performance

Source: Hill / Jones 1995

Before mentioning the strategic management process in greater detail, we need todefine: “What is strategy?”

2.1.1 Definitions of strategy

Reflecting the military roots of strategy, The American Heritage Dictionarydefines strategy as “the science and art of military command as applied to theoverall planning and conduct of large - scale combat operations” (Boston:

Company resources, capabilities & strategies

National context Industry context

Company performance

of most management definitions of strategy Chandler defined strategy as “thedetermination of the basic long-term goals and objectives of an enterprise, andthe adoption of courses of action and the allocation of resources necessary forcarrying out these goals” (Cambridge, Mass.: MIT Press, 1962) The main idea inChandler’s definition is that strategy involves a rational planning process Theorganization is depicted as choosing its goals, identifying the courses of action (orstrategies) that best enable it to fulfill its goals, and allocating resourcesaccordingly.

Quinn of has defined strategy as “the pattern or plan that integrates anorganization’s major goals, policies, and action sequences into a cohesive whole.(Hill / Jones 1995)

However, planning-based definitions of strategy have been strongly criticized Anew approach based on Henry Mintzberg’s definition of strategy as “a pattern in astream of decisions or actions” the pattern being a product of whatever intendedplanned strategies are actually realized and of any emergent (unplanned)strategies (Management Science, 24-1978)

2.1.2 Definition of strategic management

Strategic managementis the process of specifying an organization's objectives,developing policies and plans to achieve these objectives, and allocatingresources so as to implement the plans It is the highest level of managerialactivity, usually performed by the company's Chief Executive Officer (CEO) andexecutive team It provides overall direction to the whole enterprise Anorganization’s strategy must be appropriate for its resources, circumstances, andobjectives The process involves matching the companies' strategic advantages tothe business environment the organization faces One objective of an overall

corporate strategy is to put the organization into a position to carry out its missioneffectively and efficiently A good corporate strategy should integrate anorganization’s goals, policies, and action sequences (tactics) into a cohesivewhole

2.2 Processes of the strategic management

Why do some organizations succeed while others fail? According to Hill andJones (1998, 3), the strategies in an organization pursues have a major impact

upon its performance relative to that of a competitor A strategy is a specific

pattern of decisions and actions that managers take to achieve superiororganizational performance A strategy allows an organization to be proactiverather than reactive in shaping its own future

Figure 2.2 - The Determinants of Process of Strategic Management

In order to formulate a set of strategies for the organization, it is firstly necessary

Company’s Strategic Situation

Craft the strategy

Company opportunities and threats to company’s well-being

Shared values and company culture

Identify and evaluate alternatives

Determine relevance

of internal and external factors

defined strategic management However, there is no significant difference indefining major components/steps of strategic management.

Wheelen and Hunger (2000, 8) defined “Strategic consists of four basic elements:

environmental scanning (both external and internal), strategy formulation, strategy implementation , and evaluation and control”.

Hill and Jones (1998,5) broke the strategic management process into five steps:

Figure 2.3 - Strategic management process

Source: Hill / Jones 1998

• Development of the strategic corporate visions and mission;

• Analysis of the external competitive environment to identify opportunities andthreats;

• Analysis of internal operating environment to identify the organization’sstrengths and weaknesses;

Analysis of internal environment to identify strengths and weakness

Analysis of external environment to identify opportunities and threats

Improve/

Change

Revise as Needed

Revise as

Needed

Revise as Needed

Recycle

as Needed

Strategy Implemetation ( including monitoring, evaluating, taking corrective actions)

• Selection of strategies that build on the organization’s strengths and correct itsweaknesses in order to take advantage of external opportunities and counterexternal threats (SWOT); and

• Strategy implementation

Though the number of steps defined by these two authors is different, all majorcomponents are included in their definitions (in the Hill and Jones definition, theevaluation and control component is included in the strategy implementation)

In this study, the Hill and Jones’s Basic Model (Figure 2.4) is adopted as theconceptual framework for the formulation of strategies for Vietnam Schreder.The next parts are detailed discussions of each component in the model

Figure 2.4: The Main Components of the Strategic Planning Process

Mission and Goals

SWOT Strategic Choice Internal Analysis External Analysis

2.2.1 Mission and Goals

The mission sets out why the organization exists and what it should be doing The

mission statement promotes a sense of shared expectations in employees andcommunicates a public image to important stakeholder groups in the company’s

task environment It tells who we are and what we do as well as what we’d like to become.

Goals specify what the organization hopes to fulfill in the medium to long term.

The achievement of goals should result in the fulfillment of a corporation’smission The term “goal” is often used interchangeably with the term “objective”

2.2.2 External Analysis

The objective of external analysis is to identify strategic opportunities and threats

in the organization’s operating environment Two interrelated environments

should be examined at this stage: the macro-environment (or societal environment) and the industry (or task) environment (Figure 2.5)

Macroeconomic Environment

Potential competitors

Rivalry

Substitutes

Buyer power Supplier power

Technological Environment

Figure 2.5: Components of External Environment

Source: Hill and Jones, (1998, 84)

The macro-environment (societal environment)

The societal environment includes general forces that do not directly touch on theshort-run activities of the organization but that can, and often do, influence itslong-run decisions These are macroeconomic environment, technologicalenvironment, social environment, demographic environment, and legal/politicalenvironment (Hill and Jones, 1998, 84-86)

The task environment analysis and Michael Porter’s five forces model

The task environment includes those elements or groups that directly affect thecorporation and, in turn, are affected by it A corporation’s task environment is

typically the industry within which that firm operates.

To succeed a company must either fit its strategy to the industry environment inwhich it operates, or be able to reshape the industry environment to its advantagethrough its chosen strategy Companies typically fail when their strategy nolonger fits the environment in which they operate, as illustrated in Figure 2.6

Figure 2.6 - Requirements for Competitive Success

Competitive

success

requires

Reshape environment

by choice of strategy

Creates a new environment where there is a fit between strategy and environment

Fit with environment

An industry is a group of firms producing a similar product or service To analyze

an industry, the Porter’s five forces model is used (the model inside the circle ofFigure 2.5)

A formal strategic industry analysis can be used to identify environmentalopportunities and threats Opportunities arise when environmental trends createthe potential for a company to achieve a competitive advantage Threats arisewhen environmental trends endanger the integrity and profitability of acompany’s business

Porter’s framework, known as the five forces model helps managers in thisanalysis This model focuses on five forces that shape competition within an

industry: (1) the risk of new entry by potential competitors, (2) the degree of

rivalry among established companies within an industry , (3) the bargaining power

of buyers , (4) the bargaining power of suppliers, and (5) the closeness of

substitutes to an industry’s products, as shown in Figure 2.5 The task facingstrategic managers is to determine which of these forces are of greatestimportance to the organization and which can be influenced by the strategicdecisions of management and to recognize opportunities and threats as they ariseand to formulate appropriate strategic responses as well

Porter argues that “competition in an industry is rooted in its underlyingeconomics, and competitive forces exist that go well beyond the establishedcombatants in a particular industry” (Porter, 1980) He further suggests that tocompete effectively a company should strive to find a position where it is bestable to defend itself against these competitive forces or can influence them itsfavor The task of the strategist is therefore to determine which of these forcesare of greatest importance to the organization and which can be influenced by the

strategic decisions of management Each of these forces is now considered ingreater detail.

Potential competitors are companies that are not currently competing in an

industry but have the capability to do so if they choose The threat of entrydepends on the presence of entry barriers An entry barrier is an obstruction thatthat make it difficult for companies to enter an industry Main sources of barriers

to new entry are brand loyally, absolute cost advantages, economies of scale,government policy, etc (Wheelen and Hunger, 2000, 61)

The strength of competitive force of potential rivals is largely a function of theheight of barriers to entry The concept of barriers to entry implies that there aresignificant costs to joining an industry The greater the costs that potentialcompetitors must bear, the greater are the barriers to entry High entry barrierskeep potential competitors out of an industry even when industry returns are high.Clearly, it is in the interests of existing firms to have as high entry barriers aspossible Porter lists major barriers to entry which are:

Rivalry among established companies: In most industries, corporations are

mutually dependent Intense rivalry is related to the presence of several factors,including number of competitors, rate of industry growth, product/servicecharacteristics, capacity, height of exit barriers, etc (Wheelen and Hunger, 2000,63)

The degree of rivalry is likely to be based on the following:

The bargaining power of buyers: A buyer is powerful if some of the following

hold true: a buyer purchases a large proportion of the seller’s product of service;

A buyer has the potential to integrate backward; Alternative suppliers areplentiful; Changing suppliers costs very little; The purchased product/servicerepresents a high percentage of a buyer’s costs; A buyer earns low profits and isthus very sensitive to costs and service differences; The purchase product/service

is unimportant to the final quality or price of a buyer’s products/services.(Wheelen and Hunger, 2000, 64)

Buyers can be viewed as a competitive threat when they force down prices orwhen they demand higher quality and better services (which increase operatingcosts) Whether buyers are able to make demands on a company depends on theirpower relative to that of the company According to Porter, buyers are mostpowerful in the following circumstances:

• Buyers are few in number and large and the supply industry is composed ofmany small companies

• Buyers purchase in large quantities

• The supply industry depends on the buyers for a large percentage of itstotal orders

• The buyers can switch orders between supply companies at a low cost,thereby playing off companies against each other to force down prices

• It is economically feasible for the buyers to purchase the input fromseveral companies at once

• Buyers have the potential for backward integration

• Buyers have full information

The bargaining power of suppliers: A supplier is powerful if some of the

following factors apply: The supplier industry is dominated by a few companies;Its product or service is unique; Substitutes are not readily available; Apurchasing industry buys only a small portion of the supplier group’s goods andservices and is thus unimportant to the supplier (Wheelen and Hunger, 2000, 64)

company must pay for input or reduce the quality of goods supplied, therebydepressing the company’s profitability As with buyers, the ability of suppliers tomake demands on a company depends on their power relative to that of thecompany According Porter, suppliers are most powerful in the followingcircumstances:

• The product that suppliers sell has few substitutes and is important to thecompany

• The industry supplied is not an important customer

• The suppliers’ product is an important component to the buyer’s business

• The suppliers’ product is differentiated

• Suppliers can integrate forward

The threat of substitute products/services: Substitute products are those products

that appear to be different but can satisfy the same need as another product Theexistence of close substitutes presents a strong competitive threat, limiting theprice a company can charge and thus its profitability (Wheelen and Hunger,

One way of conducting an organization analysis to ascertain a company’s

strengths and weaknesses is by using the Strategic Audit The audit provides a

checklist of questions in three following areas: (Wheelen and Hunger, 2000, 258)

Corporate Structure:

• How is the corporation structured at present?

• Is the structure clearly understood by everyone in the corporation?

• Is the present structure consistent with current corporate objectives, strategies,policies, and programs?

• In what way does this structure compare with those of similar corporations?

• What is the culture’s position on important issues facing the corporation?

• Is the culture compatible with the employees’ diversity of backgrounds?

Corporate Resources: Issues to be analyzed belong to various areas, such asmarketing, finance, research and development, operations and logistics, humanresources management, information systems, etc

2.2.4 Strategy formulation and selection

SWOT can be used to generate a number of possible alternative strategies The

TOWS Matrix (TOWS is just another way of saying SWOT) illustrates how theexternal opportunities and threats facing a particular corporation can be matchedwith that company’s internal strengths and weaknesses to result in four sets ofpossible strategic alternatives (Figure 2.7)

Generate strategies here

that use strengths to take advantage of opportunities

WO Strategies

Generate strategies here

that take advantage of opportunitiesby

overcoming weaknesses

Threats (T)

List 5-10 threats

ST Strategies

Generate strategies here

that use strengths to avoid

threats

TW Strategies

Generate strategies here

that minimize weaknesses and avoid threats

Figure 2.7: SWOT Matrix

Source: Wheelen and Hunger, (2000, 112)

2.2.5 Strategy Implementation

Strategy implementation is the sum total of the activities and choices required forthe execution of a strategic plan It is the process by which strategies and policiesare put into action Strategy formulation and strategy implementation should be

considered as two sides of the same coin.

Strategy is implemented through designing organizational structure, designingstrategic control systems, matching structure and control to strategy, andimplementing strategic change (Hill and Jones, 1998, 346)

2.2.6 Hierarchy of Strategy

The typical business firm usually considers three types of strategy: corporate,business, and functional as illustrated in Figure 2.8 (Wheelen and Hunger, 2000,12)

strategies typically fit within the three main categories of stability, growth, and retrenchment.

• Business strategy emphasizes improvement of the competitive position of a

corporation’s products or services Business strategies may fit within the two

overall categories of competitive or cooperative strategies.

• Functional strategy is the approach taken by a functional area to achieve

corporate and business unit objectives and strategies by maximizing resources

productivity It is concerned with developing and nurturing a distinctive competenceto provide a company with a competitive advantage

2.3 Selecting development strategies

Companies have to select a strategy that is most appropriate for development.Options about development strategies involve decisions about three elements thatare shown in Figure 2.9

• The generic strategy to be pursued, i.e the basis on which the

organization will compete or sustain excellence

• The alternative directions in which the organization may choose to

develop

• The alternative methods by which any direction of development might be

achieved

Whereas decisions on generic strategy, direction, and method are not independent

of each other, they do benefit from separate discussion For example, an

Corporate Strategy

organization pursuing cost leadership may choose to achieve this whilst pursuing

a strategy of market development However, this still leaves a further choice as towhether entry to new markets is best achieved by acquisition of companiesalready operating in those markets, through the company’s own efforts or jointlywith other organizations

2.3.1 Generic strategies

According to Porter, the competitive strategies will be designed based on thechoice from the three basic competitive approaches: cost leadership,differentiation, and focus (Porter, 1985) These strategies are shown in Table 2.1

A cost leadership strategy, where “a firm sets out to become the low-costproducer in its industry… a low-cost producer must find and exploit all sources ofcost advantage Low-cost producers typically sell a standard product and placeconsiderable emphasis on reaping scale or absolute cost advantage from allsources… 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 ornear the industry average” (Porter, 1985)

Figure 2.9: Development strategies

(Source: Johnson / Scholes, 1993)

A differentiation strategy, which Porter defines as seeking “to be unique in itsindustry along some dimensions that are widely valued by buyers… It is rewardedfor its uniqueness with a premium price… A firm that can achieve and sustaindifferentiation will be an above – average performance in its industry if its pricepremium exceeds the extra costs incurred in being unique… The logic of thedifferentiation strategy requires that a firm choose attributes in which todifferentiate itself that are different from its rivals” (Porter, 1985)

These two generic ways can be combined with the market scope in which the firmtries to achieve competitive advantage This leads to the focus strategy, according

to Porter, which is based on “the choice of a narrow competitive scope within anindustry The focuser selects a segment or group of segments in the industry andtailors its strategy to serving them to the exclusion of others” (Porter, 1985)

DEVELOPMENT STRATEGIES

ALTERNATIVE DIRECTION

Withdrawal Consolidation Market penetration Product development Market development

ALTERNATIVE METHODS

Internal development Acquisition Joint development / alliances

There are two variants here, “in cost focus a firm seeks a cost advantage in itstarget segment, while in differentiation focus a firm seeks differentiation in itstarget segment” (Porter, 1985)

COMPETITIVE ADVANTAGE

COMPETITIVE

SCOPE Narrow target Cost focus Differentiation focus

Table 2.1 - Generic strategies

(Source: Porter, 1985)

Each of the above generic strategies results from the company is makingconsistent choices on product, market, and distinctive competences – choices thatreinforce each other Table 2.2 summarizes the choice appropriate for eachgeneric strategy

Cost leadership Differentiation Focus

Product

differentiation

Low (principally by price)

High (principally by uniqueness)

Low to High (price or uniqueness)

Market

segmentation

Low (mass market)

High (many marketing segments)

Low (one or few segment)

Distinctive

competence

Manufacturing and materials management

Research and Development Sales and marketing

Any kind of distinctive competence

Table 2.2 - Product / Market / Distinctive competence - Choice and generic

competitive strategy(Source: Hill / Jones, 1995)