Business strategy for greenwood corporationfrom 2012 to 2017

SWOT Analysis & SWOT strategy are used to place strategic actions that fit company’s resource and capabilities to the demand of the market.. Figure 1: Framework of the research The analy

TRƯỜNG ĐẠI HỌC MỞ TP HCM UNIVERSITÉ LIBRE DE BRUXELLES

HO CHI MINH CITY OPEN UNIVERSITY SOLVAY BRUSSELS SCHOOL

MBAVB3

TRINH HUU KIEN

BUSINESS STRATEGY FOR GREENWOOD

CORPORATION FROM 2012 TO 2017

MASTER PROJECT MASTER IN BUSINESS ADMINISTRATION

ACKNOWLEDGMENT

I would like to express my deep gratitude to many people that have given me support, assistance and guidance to complete this project The undertaking of this project may not be possible without the following people

First and foremost, I would like to thank my advisor on this thesis, Dr Nguyen Van Ngai for his valuable guidance and useful advices for the project

I am thankful to the top managers and the staff of all the functional departments of Greenwood Corporation for their support during the time of data collection for this study

Thanks are also due to The Joint Master Program between Ho Chi Minh City Open University and Solvay Brussels School for providing me opportunity to pursue master degree in this MBA course

Finally, on a more personal note, I would like to thank my wife and my parents for their deep love and persistent support

ABSTRACT

Greenwood Corporation is operating in Medium Density Fiberboard (MDF) Industry which has been developing rapidly in recent years due to the strong growth of the wood processing and construction sector Greenwood is now facing fierce competition from existing rivalries and many new entrances So, building a business strategy is Greenwood’s utmost issue This research aims to develop a business strategy for Greenwood in order to compete with many of competitors then to achieve its missions, vision & goals

The research starts by reviewing the theories relating to business strategy Then, a framework of the research is designed to follow The study continues with the analysis of the internal and external environment to find out its opportunities, threats, strengths and weaknesses

The external analysis consists of macro environment, industry and customer analysis

Macro environment factors are analyzed through PEST analysis theory Porter’s Five-force Model is used to carry out industry analysis to indicate the company’s opportunities and threats To make the external analysis more realistic, an individual in-depth interview is firstly conducted to know expert’s ideas about the Five-Forces affecting firms in MDF industry

In the internal analysis, the Michael E Porters’ value chain theory is used to analyze company’s value activities to identify its strengths and weaknesses that enable its competitive advantages This helps to locate company’s present competitive positions which define Greenwood's strategic capability To make the research more realistic, a customer survey is conducted to know customer requirements & needs, behaviors and expectations and their perception about Greenwood’s product compared to competitors in the markets It is used to identify Greenwood and competitor’s current position in the market The result of the surveys and information collected from in-depth interview are consolidated into the SWOT analysis to place strategic actions for Greenwood

Finally, the research goes deeply into developing business strategy for Greenwood First, Greenwood’s missions, vision & goals are reviewed SWOT Analysis & SWOT strategy are used to place strategic actions that fit company’s resource and capabilities to the demand of the market

This study focuses on designing a strategic approach for Greenwood Corporation to compete with rivalries and to develop sustainably in the MDF Industry And this business strategy is just the first step to help Greenwood to achieve its missions, vision & goals Any recommendations are highly appreciated and useful for Greenwood to apply the business strategy successfully

TABLE OF CONTENT

Cover Page i

Warnings ii

Acknowledgement iii

Abstract iv

Professor’s comments v

Table of Content vi

List of Abbreviations ix

List of Figures x

List of Tables xi

CHAPTER 1 1

INTRODUCTION 1

1.1 Rationale of the study 1

1.2 Problem statement 2

1.3 Research Objectives 2

1.4 Research Methods 2

1.4.1 Research Framework 3

1.4.2 Information Need 5

1.4.3 Data collection method & research tools 5

1.4.4 Sampling 6

1.4.5 Data Processing 6

1.5 Scope and limitations of the study 6

1.6 Structure of the study 6

CHAPTER 2 8

LITERATURE REVIEW 8

2.1 Strategy & Business strategy 8

2.1.1 Strategy definition 8

2.1.2 Corporate strategy 8

2.1.3 Business strategy 9

2.1.4 Functional strategy 9

2.2 Competitive advantage 9

2.2.1 Definition 9

2.2.2 Generic building blocks of competitive advantage 10

2.3 Strategy formulation process 11

2.3.1 Visions, Missions and goals 12

2.3.2 External analysis 12

2.3.3 Internal analysis 16

2.3.4 Strategy formulation and strategic choice 18

2.3.5 Strategy implementation 20

CHAPTER 3 22

SITUATION ANALYSIS 22

3.1 Company Introduction 22

3.2 PEST Analysis (External Analysis) 23

3.2.1 Political factor 23

3.2.2 Economic factors 24

3.2.3 Social, cultural factors 26

3.2.4 Technological factors 27

3.3 Industry analysis (External Analysis) 27

3.3.1 Vietnam Wood Processing Sector Overview 27

3.3.2 MDF Industry analysis 29

3.3.2.1 MDF Industry Overview 29

3.3.2.2 Domestic MDF production 31

3.3.2.3 Imported MDF 34

3.3.2.4 Supply/Demand MDF of Vietnam 35

3.3.2.5 Overview of International MDF Market 37

3.3.3 Porter's Five-Forces analysis 38

3.4 Customer analysis (External analysis) 44

3.5 Greenwood’s Value Chain Analysis (Internal analysis) 47

3.5.1 Primary Activities 47

3.5.2 Support Activities 50

CHAPTER 4 52

DEVELOPING BUSINESS STRATEGIES FOR GREENWOOD 52

4.1 Greenwood's Mission, vision and goals review 52

4.2 SWOT analysis 52

4.3 SWOT strategies 53

4.3.1 SO or BASE strategy 53

4.3.2 WT or SURVIVAL strategy 53

4.3.3 WO or EXPANSION strategy 54

4.3.4 ST or DEFENSIVE strategy 54

4.4 Greenwood’s Strategy Developing 54

4.4.1 Marketing 54

4.4.2 Financial 56

4.4.3 Human Resource 56

4.4.4 Research and Development 56

4.4.5 Production and Quality Management 56

4.4.6 Integration 57

CHAPTER 5 58

CONCLUSION AND RECOMMENDATION 58

5.1 Conclusions 58

5.2 Recommendations 58

BIBLIOGRAPHY 60

APPENDICES 62

LIST OF ABBREVIATIONS

MDF: Medium Density Fiberboard

BMI: Business Monitor International Ltd

BPB: Bargaining Power of Buyer

CPI: Consumer Price Index

CRM: Customer Relationship Management

FDI: Foreign Direct Investment

GDP: Gross Domestic Product

GSO: General Statistics Office of Vietnam

CPV: Communist Party of Vietnam

ISO: International Organization for Standardization

KPI: Key Performance Indicator

PEST analysis: Political, Economic, Social, and Technological analysis SWOT analysis: Strengths, Weaknesses, Opportunities and Threats analysis WTO: World Trade Organization

UNCTAD: United Nations Conference on Trade and Development

UN: United Nations

LIST OF FIGURES

Figure 1: Framework of the research 4

Figure 2: Value to customer and producer 10

Figure 3: PEST & Porter’s Five-force Model 13

Figure 4: The Five Competitive Forces that Determine Industry Profitability 15

Figure 5: Generic Value Chain 17

Figure 6: SWOT strategy 19

Figure 7: Greenwood’s Organizational Structure 22

Figure 8: Greenwood’s Business Results 2010-2011 23

Figure 9: Vietnam GDP growth (2001-2011) 25

Figure 10: Vietnam wood processing sector export turnover (2001-2011) 28

Figure 11: MDF Industry value chain 29

Figure 12: Cost Component- MDF 31

Figure 13: Capacity of MDF Manufacturers in Vietnam 2012 33

Figure 14: The import volume of MDF of Vietnam from 2001-2011 35

Figure 15: Domestic MDF Demand/Suply from 2011 to 2017 (estimate) 36

Figure 16: MDF Price from 2002-2010 (Far East) 38

Figure 17: Summary of Porter’s Five Force Analysis 39

Figure 18: Key important factors of customers when choosing MDF supplier 45

Figure 19: Most concerned factor relating quality of MDF product 45

Figure 20: MDF Quality and Delivery Service Assessment 46

LIST OF TABLES

Table 1: Generic competitive strategy and required competencies 19

Table 2: List of MDF factories operating in 2012 32

Table 3: List of MDF factories operating in 2014 (forecast) 33

Table 4: Vietnam MDF production/demand estimation from 2012-2017 36

Table 5: MDF Capacity by regions/Country in 2009 37

Table 6: Biggest MDF Manufacturers in South East Asia 38

Table 7: Summary of Greenwood’s strategic factors 52

CHAPTER 1 INTRODUCTION

1.1 Rationale of the study

Vietnam Wood processing Sector has strongly developed for the last 10 years Wood processing enterprises are working in the fields of interior and exterior furniture or wooden handicraft to serve the domestic market and for export There are about 2.562 wood processing enterprises in all over the country, which are creating jobs for nearly 170,000 employees Vietnam wood products have been on the market of

120 countries through more than 1,000 direct and indirect exporters The turnover of wood-products exports grows by 30-35% in recent years, from US$219 million in

2000 to US$3.9 billion in 2011 The target for 2020 is US$7 billion, which can be achieved if the timber industry continues to grow by 35% per year Products of Wood processing Sector become one of the top 5 export commodities after textile, crude oil, footwear and seafood Vietnam has surpassed Indonesia and Thailand to become one of the leading furniture exporters in Southeast Asia

The development of Wood processing Sector has been accompanied with an increase

in demand for raw wood materials, including natural wood and engineered wood such as Medium Density Fiberboard (MDF) and Particle Board (PB) Vietnam had imported about 200,000 m3 of MDF in 2007 and 450.000M3 in 2011 Whereas in

2011, there were six local MDF manufacturers with a total capacity of 250,000 M3 MDF, only meet 35% of domestic demand

From the beginning of production in 2008 to 2011, MDF product of Greenwood sold easily due to good quality of MDF, effective distribution system but the most important reason is that the domestic supply of high quality MDF is not enough to meet the demand

However, in last 2-3 years, there are more MDF manufacturers launched Especially

in one year 2012, there are 5 new large MDF manufacturers launched with total capacity of 614,000 M3 This raise the total domestic MDF capacity up to 864,000 M3, exceed more than 150,000 M3 with the total demand of 2011 Among them,

there is a very big manufacturer with capacity of 300.000M3 per year, five times more than the capacity of Greenwood In addition, some more MDF plant will be put into production in the next 2-3 years This will be a huge challenge and pressure for Greenwood in context of fierce competition with domestic and imported MDF Start from the above findings, the making of development and competition strategy for Greenwood is the vital task for the company This strategy will help the company determine the direction and steps in the next five years from 2012 to 2017 for existing and sustainable development This project is to develop business strategies for Greenwood from 2012 to 2017

1.2 Problem statement

From 2012 onwards there is a fierce competition among domestic MDF manufacturers to grab the market Domestic supply exceeds demand, while imports from foreign sources continue to flow in Greenwood has lost many customers to competitors, while the decrease of MDF price influents to the profitability of the company The company is very confused to determine what has to do to compete with the competitors in order to survive and sustainably develop In present, the company does not have a long-term strategy which is needed to orient the company's activities for competition and sustainable development

1.3 Research Objectives

The objective of the research is to analyze overall the current market and condition for MDF industry in Viet Nam

It is also to analyze Greenwood’s business performance in this industry

Finally, the research aims to develop a business strategy for Greenwood in order to compete with competitors, and become one of the leading companies in the MDF industry in Vietnam

1.4 Research Methods

This is an applied research Qualitative & quantitative research methods are combined to conduct the research

Data and information needed for conducting the research were obtained basically by the desk research and qualitative research method In addition, some data is collected

by the quantitative research method

The qualitative research used here is individual in-depth interview method In the quantitative research, a survey method is used to collect data by questionnaire

1.4.1 Research Framework

Figure 1: Framework of the research

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, company visions, missions and goals are examined Then external and internal environments are analyzed to identify strategic situation that company is

External Analysis

PEST Porter’s Five-Forces Expert Interview Customer Survey

Opportunities and Threats Strengths and Weaknesses VISION, MISSION & GOALS

CONCLUSIONS AND RECOMMENDATIONS

facing Strategies are developed for the company and evaluated to choose the most suitable one for recommendation Figure 6 illustrates the framework of the research.

1.4.2 Information Need

The research has to clarify the following information, which is useful to analyze

- Expert’s ideas about the MDF Industry including Five-Forces (Threat of new entrants, threat of substitute, bargaining power of buyer, bargaining power of supplier, Rivalry in existing firms) in the Industry

- Customer requirements & needs for the MDF product

- Customer perception about Greenwood’s MDF product compared to competitors in the markets

- Customers’ behaviors and expectations;

1.4.3 Data collection method & research tools

Secondary data on PEST factors, Wood Processing Sector, MDF Industry, Greenwood’s existing competitors & customers is gathered from business and industry journals, internet and other sources via desk research method Information about company’s business and operation is gathered from Greenwood’s Financial Statement Reports, Greenwood’s brochure & website, other relevant documents This data & information gives board view about external macro-environment & micro-environment factors affecting Greenwood’s business This information is for analyzing the micro-environments that affect Greenwood’s operation

Primary data is collected via qualitative research method through individual in-depth interview with experts, existing customers’ leaders & managers in Wood Processing Sector (questions for in-depth interviews are shown in appendix 4) The purpose of primary data collecting is to get expert’s ideas about company’s forces affect in this Industry

Primary data is also collected via quantitative research method through a customer survey to identify customer requirements & needs, behaviors and expectations for the MDF product The survey is also to know customer perception about Greenwood’s MDF product compared to competitors on the markets It is used to

identify Greenwood and competitor’s current position in the market (Questionnaires shown in appendix 7).

The data collected is consolidated in the company a whole scenario, which will be used to suggest alternatives and action plans for the company

1.4.5 Data Processing

Data is processed primary by simple calculation via excel program

1.5 Scope and limitations of the study

This study researches Greenwood business activities from the start of operation It focuses on domestic MDF market and imported MDF sources, but not studies deeply about the international MDF market

1.6 Structure of the study

Chapter 1 Introduction

This chapter provides an introduction including the rationale of the research, problem statement, the objectives, the methodology of research, the scope and limitations as well as the structure of the study

Chapter 2 Literature Review

This chapter shows the literature review of the topic being considered This will encompass the fundamental ideas on strategy, business strategy, competitive advantage and competitive strategy, strategic management, strategy formulation process including models for external analysis (PEST & Porter’s Five Force Model) and internal analysis (Potter’s Value chain theory), strategy formulation & strategic choice and strategy implementation All are reviewed as the basis for analysis in following chapters

Chapter 3 Situation Analysis

This chapter analyzes both the internal and external environments of the company in order to understand the firm’s own capabilities, customers and business environment

The external analysis consists PEST analysis, industry analysis and customer analysis Environment factors including political, economic, social conditions and technological factors are analyzed through PEST analysis theory Porter’s Five-force Model is used to carry out industry analysis in this section as well This help to indicate the company’s opportunities and threats

The internal analysis deals with analyzing company’s value activities that enable company’s competitive advantages The Michael E Porters’ value chain theory is used to analyze the value activities including company’s primary & support activities This help to examine a firm’s competitive advantages Firm’s infrastructure, human resource management, marketing & sales, service activities are analyzed to identify company’s strength and weakness in order to locate its present competitive position Its ultimate goal is to determine the critical success factors which define Greenwood's strategic capability

Chapter 4 Research Results & Findings (Developing business strategy for Greenwood)

This chapter is devoted to the expected outcome of the study to develop the strategic actions based on the analysis from previous parts Greenwood’s mission, vision & goals are reviewed SWOT Analysis & SWOT strategy are used to place strategic actions that fit company’s resource and capabilities to the demand of the market in which the company operates Finally, an overall business strategy and action are chosen to implement

Chapter 5 Conclusion and Recommendation

This chapter encompasses the conclusions and practical recommendations on the implementation of the selected business strategy for Greenwood Corporation

CHAPTER 2 LITERATURE REVIEW 2.1 Strategy & Business strategy

2.1.1 Strategy definition

According to the Traditional Approach there are some definitions of strategy

- Harvard's Alfred Chandler (1962) defined strategy as "the determination of the

basic long term goals and objectives of an enterprise , and the adoption of courses

of action and the allocation of resources necessary for carrying out these goals"

- James B Quinn of Dartmouth College (1980) defined strategy as "the pattern or

plan that integrates an organization's major goals, policies, and action sequences

into a cohesive whole"

According to New Approach, Mintzberg (1987) defined strategy as "plan, ploy,

pattern, position, perspective." As plan, strategy deals how leaders establish direction for organization, to set predetermined of action As ploy, strategy takes us

into the real of direct competition, where threats and trick and various schemes are employed to gain advantage As pattern, strategy focuses on action As position, strategy encourages us to look at organizations in their competitive environment, avoid it or destroy it As perspective, strategy referred as strategic intent

Any firm can consider three level of strategy: corporate strategy, business or competitive strategy, and functional strategy

2.1.2 Corporate strategy

Corporate strategy is primarily about the strategic choice of direction for the

company as a whole It raises three key issues facing the corporation: (1) the firm’s overall strategy toward growth, stability or retrenchment (directional strategy); (2) The industries or market in which the firm competes through its products and business unit (portfolio strategy); and (3) The manner in which management coordinates activities and transfer resource and cultivate capabilities among product lines and business units

2.1.3 Business strategy

Business strategy refers to the plan of actions that management adopts to use a

company’s resource and its distinctive ability to gain a competitive advantage over

its rivals in a market or industry Michael E Porter (1985) said:

“Competitive strategy is the search for favorable competitive position in an industry, the fundamental arena in which competition occurs Competitive strategy aims to establish a profitable and sustainable position against the forces that

determine industry competition”

He proposed three generic strategies company can pursuit to outperform its

competitors in the market:

- Cost leadership strategy: strategy to design, produce and market a comparable product more efficiently and thus cheaper than its competitors do Cost leadership strategy aims at the mass market Low cost structure allows company to charge lower price and thus allow company to compete when fierce competition exist with a quite reasonable good profit

- Differentiation strategy refers to strategy to deliver uniqueness and superior value

to buyers in terms of product quality, special feature, or after sales services Unique product enables firms to charge higher price for its product Differentiation is viable for above-average profit

- Focus strategy: focus strategy can be cost focus or differentiation focus This strategy focuses to serve only specific needs of a market segment

2.1.4 Functional strategy

Of the three levels, functional strategy is the lowest level and it is clearly must

comply with business strategy Functional strategy is taken by a functional area to archive corporate and business objective and strategy by maximizing resource utilization

2.2 Competitive advantage

2.2.1 Definition

In the Book Competitive Advantage, Michael E Porter (1985) said: “Competitive advantage is at heart of a firm’s performance in competitive markets”:

“Competitive advantage grows fundamentally out of the value a firm is able to

create for it buyers It may take the form of prices lower than competitors’ for equivalent benefits or the provision of unique benefits that more than offset a premium price ” “Today, the importance of competitive advantage could hardly be

greater Firms throughout the world face slower growth as well as domestic and global competitors that are no longer acting as if the expanding pie were big enough for all”

The heart of competitive advantage lies in the concept of value creation The value of a product to a consumer may be V, the price that company can charge under

competitive pressure may be P, and the cost of producing that product is C the company profit is equal to P-C while the consumer benefit equal to V-P For two similar products with the same price P1=P2, product 1 has competitive advantage if V1>V2

Figure 2: Value to customer and producer

(Source: Hill and Jones, 1998)

2.2.2 Generic building blocks of competitive advantage

Many factors contribute to competitive advantage of a company But in general, they can be classified into four generic categories:

- Efficiency: is the ratio between a company’s output to its input The more efficient the company, the more outputs it can produce from certain units of input or in other words, it can produce the same amount of outputs from less inputs thus efficiency helping company to achieve low cost competitive advantage

- Quality: high quality of a product or service has strong contribution to company’s competitive advantage First, high product quality give positive perception of customer about product, increase customer preference thus company can charge higher price for higher quality Second, high quality comes from greater efficiency and lower defective rate Low defective rate requires less time to fix substandard product and reduce the labor cost for fixing it These two effects combined bring company higher profit rate

- Innovation: innovation can be defined as new way company produce product or product it’s self Innovation can be in the form of process, product design, management system, organization structure or even in the business practice of the company Innovation can be the most important component of competitive advantage It is the single most important to the differentiation of product or process that the competitors do not have Uniqueness can allow company to charge higher price for its products

- Customer responsiveness: to be viable, any company must find their customer and satisfy their needs The process of adjusting, tailoring product features to market will

be crucial to company competitiveness Another aspect of customer responsiveness

is customer respond-time, which is the time require company to bring a product to customer hand

2.3 Strategy formulation process

Strategy formulation process refers to the process by which managers choose a set of strategies for an enterprise This process can be broken down into five major steps:(1)- Selection enterprise’s vision, mission and goals;

(2)- External environment analysis to identify company’s opportunities and threats;(3)- Internal analysis to identify company’s strengths and weaknesses;

(4)-Strategy formulation & strategic action choice;

(5)-Strategy implementation

2.3.1 Visions, Missions and goals

The beginning point of strategic management process is to review and/or selecting new organization’s vision, mission and major goals This statement will be the foundation for strategy formulation and implementation in later steps

Vision is a guiding idea that answer the question” “What is the organization’s raison d’être?” and serves as a permanent guideline for all employees A vision says

something that clarifies the direction in which an enterprise needs to move: What we stand for and why we exist; therefore leading to the mission

The mission sets out the reason why the organization exist, what it aspire to

become, to achieve, to create; whose benefit it serve and what it should do For

example, the mission of an airline is to provide convenience and safety flight to its customers

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 Other possible goals are to get the largest share in the market that a company currently competes in two years for example, or to get annual sale growth

of 17% etc Goals should be specific and measurable within a time frame

2.3.2 External analysis

External analysis focuses on examination of relevant external elements to company The objective of this analysis is to identify company’s present and potential threats and opportunities PEST analysis theory and Porter’s Five-force Model are combined to carry out environment factors and industry analysis including competitor and customer analysis

Figure 3: PEST & Porter’s Five-force Model

(Source: Michael E Porter)

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 External analysis including the following analysis:

2.3.2.1 PEST analysis

The PEST Analysis or model is a tool specialized and focused to scan of external macro-environment that can affect present and future business The PEST acronym

stands for: Political, Economic, Social &Technological These factors have not only

a short-run impact in firm'’ performance but also an influence firm's long run

decision

- Political factors include government type and stability, legal system, administrative

procedures, rule of law, bureaucracy, corruption, regulation, social/employment legislation, government’s policies to support a certain industry, and likely political change

- Economic factors consist of business cycle GDP growth, inflation, trade deficit, interest rates, economic policies, unemployment, labour supply, labour cost,

globalization and likely economic change

- Socio-cultural factors include population growth, education, employment pattern, attitudes to work likely social-cultural change

- Technological factors include impact of emerging technology, impact of internet and reduced communication costs, impact of technology transfer and likely technological change

Secondary data on PEST factors is gathered from business and industry journals, internet web sites, and other sources via desk research method

Of course, once political, economic, social and technological factors are identified, strategist can know market trends and changes The PEST factors combined with micro-environmental factors can be classified as opportunities and threats in the following SWOT Analysis in Chapter 4

2.3.2.2 Industry analysis

Firstly introduced by Porter (1980) with the five-force model, it identifies the

important impact of five elements to the performance of an enterprise The five forces are: threat of new entrants, rivalry among existing firms, threats of substitute product, bargaining power of buyers and bargaining power of suppliers

- Threat of new entrants: New entrants to an industry typically bring to it new capacity, a desire to gain market share and substantial resource New entrants thus

are a threat to established corporation The threat of entry depends on the entry barrier of the existing companies in the industry An entry barrier is an obstruction that makes it difficult for new entrants to enter and compete in an industry Entry barrier can be economic of scale, product differentiation, capital requirement, switching cost, assess to distribution channel, and government policy

- Rivalry among existing firms: firms operating in competing market are mutual dependent to each other One firm’s move can have impact on its competitors thus

lead to retaliation and counter effect According to Porter (1980), Intense Rivalry is the result of a number of interacting structural factors include number of firms, rate

of industry growth, fixed or storage costs, product or service characteristic or switching costs, exit barrier

Figure 4: The Five Competitive Forces that Determine Industry Profitability

(Source: Michael E Porter)

- Threat of substitute products or service: substitute product is one that appears to

be different but can satisfy the same needs as another product To the extent that switching cost is low, substitute product can have strong effect on an industry Substitute products can put a ceiling price that firm within the industry can profitable charge

- Bargaining power of buyers: Buyers in an industry can affect firm’s profitability

through their ability to force price down, bargain for higher quality or more services, and play competitor against each other A buyer or group of buyers is powerful if some of following factors hold true:

• The services it purchases from the sector represent a significant fraction of the buyer’s costs or purchases

• It is concentrated or purchases large volume relative to sellers’ sales

• The services it purchases from the sector are standard or undifferentiated

• It faces few switching cost

• It earns low profits:

• Buyers pose a credible threat of backward integration

• The sector’s service is unimportant to the quality of the buyers’ products or services

• The buyer has full information

- Bargaining power of suppliers: suppliers can affect industry through ability to

raise price or reduce the quality of goods or services purchased A supplier or group

of suppliers is powerful if some of the following hold true:

• the supplier industry is dominated by a few companies but sell to many,

• Its product or service is unique or it has built up high switching cost,

• Substitute products are not readily available,

• Supplier can go forward and compete directly with current customers, or

• The purchasing industry buys only a small proportion of the supplier group’s goods and services thus unimportant to the supplier

2.3.2.3 Customer analysis

Customer analysis is the collection and evaluation of data associated with customer needs and market trends, customer’s perception about the services, through customer focus groups, customer satisfaction measurement, customer survey, etc

2.3.3 Internal analysis

The third step in strategic management process involves finding out firm’s strength and weakness The internal analysis deals with analyzing company’s value activities that enable company’s competitive advantages The Michael E Porters’ value chain theory is used to analyze the value activities including company’s primary and support activities This help to examine a firm’s competitive advantages

Figure 5: Generic Value Chain

(Source: Michael E Porter)

Outbound logistics: Once the products have been manufactured they are ready to be

distributed to distribution centers, wholesalers, retailers or customers

Marketing and Sales: Marketing must make sure that the product is targeted towards the correct customer group The marketing mix is used to establish an

effective strategy; any competitive advantage is clearly communicated to the target group by the use of the promotional mix

Services: After the product/service has been sold what support services does the organization have to offer This may come in the form of after sales training,

guarantees and warranties

With the above activities, any or a combination of them, may be essential for the firm to develop competitive advantages

Support activities:

The support activities assist the primary activities in helping the organization achieve its competitive advantage They include:

Procurement: This department must source raw materials for the organization and obtain the best price for doing so For the price they must obtain the best possible

quality

Technology development: The use of technology to obtain a competitive advantage within the organization This is very important in today’s technological driven

environment Technology can be used in production to reduce cost thus add value, or

in research and development to develop new products, or via the use of the internet

so customers have access to online facilities

Human resource management: The organization will have to recruit, train and develop the correct people for the organization if they are to succeed in their

objectives Staff will have to be motivated and paid the ‘market rate’ if they are to stay with the organization and add value to it over their duration of employment Within the service sector e.g airlines it is the ‘staff’ who may offer the competitive advantage that is needed within the field

Firm infrastructure: Every organization needs to ensure that their finances, legal structure and management structure works efficiently and helps drive the

organization forward Firm Infrastructure consists of a number of activities including General management, planning, finance, accounting, legal, government affairs, and quality management

All of the above activities are analyzed to identify company’s strength and weakness

in order to locate its present competitive position 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 etc Company strengths leads to superior performance in quality, efficiency, innovation and customer

responsiveness while weakness leads to inferior performance

2.3.4 Strategy formulation and strategic choice

The next step involves developing company strategy SWOT analysis is used to place company’s strategic actions SWOT stands for strengths, weaknesses,

opportunities, and threats Strengths and weaknesses are internal to the firm, whereas opportunities and threats come about externally.

The analysis of strengths, weaknesses, opportunities, threats (SWOT analysis) is to identify strategy that fit a company’s resource and capabilities to the demand of the market in which the company operates

To build strategies based on SWOT analysis, a 4x4 table per below is built first Risk increases from bottom to top Reward increases from left to right

Figure 6: SWOT strategy

(Source: website http://users.zoominternet.net)

After having SWOT analysis, the missions, vision and goals of company are reviewed The company places the strategic actions and chooses business strategy to achieve these goals

For business strategy, each of three generic strategies can be pursued given certain resource and capability as described in the following table:

Table 1: Generic competitive strategy and required competencies

Commonly Substantial capital Strong marketing abilities Combination of

required skills

and resources

investment and access to capitalProcess engineeringskills

Intensive supervision

of laborProducts designed forease in manufactureLow cost distributionsystem

Product engineeringCreative flair

Strong capability in basicresearch

Corporate reputation forquality or technologicalleadership

Long tradition in theindustry or uniquecombination of skills drawn from other businesses

Strong cooperationfrom channels

Common skillsdirected at theparticularstrategic market

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

Subjective measurement and incentives instead ofquantitative measureAmenities to attract highly skilled labor, scientists, or creative people

Combination ofthe commonorganizationalrequirementdirected at theparticularstrategic market

(Source: Porter, Michael E., 1980)

2.3.5 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 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 for the whole process

of strategic management

CHAPTER 3 SITUATION ANALYSIS

3.1 Company Introduction

In April 2008 Greenwood Corporation was established in Dong Phu Distric, Binh Phuoc Province, Vietnam The initial invested capital of 180 billion VND The company was established to produce the Medium Density Fiberboard (MDF) Greenwood started to construct this factory on the area of 24 hectares on Oct 2008 After 10 months of constructing, the factory launched the first MDF product in Aug,

2009 With quantity of 60,000 m3 per year, the Greenwood was considered as one of the biggest MDF’s producer in Vietnam It’s also planned to expand the capacity of 300,000 m3 per year in the future

Figure 7: Greenwood’s Organizational Structure

Shareholder Committee

Board of Management

Director

HR & Admin Dept

Sales and Marketing Dept

Procurement Dept

Logistics Dept

Technical Dept Manufacturing

Dept

Accounting &

Financial Dept Quality

Management Dept

Figure 8: Greenwood’s Business Results 2010-2011

(Source: Greenwood’s Financial Statement 2011)

3.2 PEST Analysis (External Analysis)

3.2.1 Political factor

The Communist Party government appears committed to market-oriented reforms, although specific economic policies will undoubtedly be discussed at the 2011 National Congress The one-party system is generally conducive to political stability

The Vietnamese legal system is more appropriate to international practice, more closely on the management and protecting the rights of laborers To be a member of WTO, Vietnam Legislation system will be continuous adjusted to meet the international legislation system

To support the economic liberalization and encourage the private sector, the Vietnamese Government has promulgated a series of economic laws such as Law of Foreign Investment, Business Law, Law of Private Business, etc This has formed a quite favorable environment for doing business

Vietnamese government has promoted progress in simplifying administrative procedures and laws, to create better conditions for enterprises

0 50 100 150 200 250 300 350

To be one of the most important export sectors in the coming years, the wood processing for export sector always has the concern, encouragement and protection

of the government It’s shown with the following government policies:

- The government already has policy to support wood processing manufacturer by remove the wood import license, reduce the import tax rate to 0%, and reduce VAT

to 5% for raw wood origin from the natural forest

- Fund of Supporting and Developing, which is a national financial organization, has established aims to loans, credit guarantees, and support the interest rates for export projects which including projects in wood processing and export sectors

-The indicator of the Prime Minister No 19/2004/CT-Ttg dated 01/06/2004 has setting out some solutions for developing wood processing sectors and wood products exporting

- Policy of bonus for export turnover

-The Government has made trade adjustment policies under the international common law and regulation, especially the problems related to commercial transactions such as seafood procedures, competition policy, etc

-The policy to encourage investment in the provinces which has free labor source Political and law environment has made favorable conditions for the development of the wood processing, manufacturing for export sector

3.2.2 Economic factors

Vietnam’s GDP growth averages 7.22% annually between 2000 and 2010 The economic boom has lifted many Vietnamese out of poverty, with the official poverty rate in the country falling from 58% in 1993 to 20% in 2004 Foreign direct investment (FDI) reached US$6.7bn in 2007, of which a quarter went towards fixed capital formation, according to data from UNCTAD

WTO membership has given Vietnam access to both foreign markets and capital, while making Vietnamese enterprises stronger through increased competition

Figure 9: Vietnam GDP growth (2001-2011)

(Source: GSO)

The contribution of industry sector to the real GDP is also increasing year on year, from 39.5% in 2003, to 41.4% in 2011 The wood processing industry has become one of the top 5 industries which contribute to the GDP In 2011, the export of wood product was USD 3.9 million, which accounts for 2.9% of GDP Vietnam is ranked among the top 20 largest furniture exporters in the world and largest in Southeast Asia with revenue from furniture exports

The high inflation rate of VN in recent year has negative impact on the wood industry, as well as other sectors of the economy The CPI index is 6.7% in 2009, 9.2% in 2010 and 18.7% in 2011 In general, the high inflation makes most of the society as a loser, except for those who borrows the money, as the money they pay back in the future is lower than the amount they borrow today, in case of higher inflation in the future

In recent years, Vietnam has always trade deficit, due to higher imports than exports The trade deficit was US$17 billion in 2008, US$12.8 billion in 2009, US$12.4 billion in 2010 and US$9.5 billion in 2011 According to Vietnam’s Ministry of Trade, wood product exports in 2011 reached US$3.9 billion, a year-on-year increase of 14.4%, and is one of the top 5 industry which contributes to the GDP

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 GDP growth(% change y-o-y) 6.9% 7.1% 7.3% 7.8% 8.4% 8.2% 8.5% 6.3% 5.3% 6.8% 5.9%

However, Vietnam imported about US$1.3 billion of the wood material in 2011 Negative trade deficit of Vietnam leads to depreciate of VND vs USD This is an advantage for exporters

3.2.3 Social, cultural factors

At present, Vietnam has population of 86,93 million people (estimated) rank 13th in the world 65% of the population is young people and 77.3% of the people is in the working age

Vietnamese labor is considered clever, intelligent, creative, fast absorbing modern techniques and technology transferred from the outside, but they lack of professionalism From 2001 to 2008 there were over 10 million people who have been trained in a total of nearly 45 million people in the working age- accounting for about 25 percent of "trained labor"

Labor source in Vietnam are considers abundant and cheaper than other countries in the region This is an advantage for wood processing manufacturers which use lot of human resource

According to BMI forecasts, between 2009 and 2016, Vietnam’s population will

increase by 10% Urbanization will continue to be a long-term growth driver The

UN forecasts the urban population to rise from 29% of the population to more than 50% by the early 2040s

The trend of rapid urbanization of the Vietnamese population, accompanied by strong growth of high-rise apartments in the cities created a large demand for modern and environmentally friendly furniture which made from engineered boards such as MDF instead of the traditional natural wood

There are about 85 million people (~ 17 million households) in our country Assuming that each household needs equipped with 01 table, 02 beds, 02 cabinets and some other wooden instruments, which equal to 01 m3 of wood The average life of the product is about 10 years, so our country will need 1.7 million m3 of wood Although we have not mention the other needs yet, such as wooden stuff in office, hotel, industrial and mechanical increase in population, changes in models,

etc., the demand must be so much higher It shows that the demand for MDF in Vietnam will grow strongly in the future

3.2.4 Technological factors

The industry of engineered wood producing has began long time ago in the world, which invented in the late 19th century and early 20th century, but Large-scale production of MDF began in the 1980s

MDF production technology has now reached a mature and stable Changes in technology or R&D are not significant MDF production technology is not in the form of high-tech, complex nor difficult to transfer An efficient MDF production line includes many modules which have big size so it requires investing a lot of money, large space for plants and abundant source of raw wood

There are currently many MDF production line suppliers in Europe and China The MDF production lines made by European such as Germany, Sweden, Austria has reached a high level of automation, large output and stable but they requires high investment capita Those ones made by China are cheaper but only in semi-automatic, not so stable and waste of raw materials

It shows that the investment barriers for MDF manufacturing industry are high due

to requirements of high investments, large space and source of raw wood The backward or technological change is unlikely to happen in the future because the technology has reached stability

3.3 Industry analysis (External Analysis)

3.3.1 Vietnam Wood Processing Sector Overview

Wood and forestry products processing sector of Vietnam has strongly developed, step by step meet the domestic needs, contributed greatly to export turnover and create opportunities for developing material forest Wood products is one of the key export commodities and play an important role in the growth of country’s exporting Vietnam reaches to be the biggest exporter of wood products in South-East Asia, followed by Malaysia, Indonesia and Thailand

Vietnam’s furniture exports have increased about ten times from US$385 million in

The number of Vietnamese wood processing company develops rapidly, including various types In 2005, Vietnam has more than 1,500 wood processing companies

By 2008, this number was up to 2,562 In particular, there are more than 1,300 small carpenter’s shops with processing capacity of 15 - 200 m3 per year and 1,200 enterprises with processing capacity 2 million m3 per year Among manufacturers mentioned above, there are 450 enterprises involved in exporting

The companies can be divided into three groups: state-owned companies, private and foreign-invested However, in term of regional division, the distribution of wood processing companies is uneven Among over 2,562 wood processing enterprises, the North accounted for 14%; North Central region accounting for 6%; the rest 80% concentrated in Central Coast and the South

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Value in Million USD 385 533 711 1,101 1,560 1,980 2,400 2,721 3,200 3,300 3,900

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Vietnam wood processing sector export turnover (2001-2011)