buiding competitive strategy in the rice farming industry the case of an dinh company xây dựng chiến lược cạnh tranh trong ngành sản xuất lúa gạo

VIETNAM NATIONAL UNIVERSITY, HANOI SCHOOL OF BUSINESS Nguyen Khac Trung BUILDING COMPETITIVE STRATEGY IN THE RICE FARMING INDUSTRY THE CASE OF AN DINH COMPANY Major: Business Admini

VIETNAM NATIONAL UNIVERSITY, HANOI

SCHOOL OF BUSINESS

Nguyen Khac Trung

BUILDING COMPETITIVE STRATEGY

IN THE RICE FARMING INDUSTRY

THE CASE OF AN DINH COMPANY

Major: Business Administration

Code: 60 34 05

MASTER OF BUSINESS ADMINISTRATION THESIS

Supervisor: Dr Ta Ngoc Cau

Hanoi – 2010

TABLE OF CONTENTS

ACKNOWLEDGEMENT……… i

ABSTRACT……… ii

TÓM TẮT……… iv

TABLE OF CONTENTS……… vi

LIST OF TABLES AND FIGURES … ix

LIST OF ABRREVEATIONS……… xi

INTRODUCTION……… 1

1 The thesis title.……… 1

2 The thesis necessity…… ……… 1

3 Objectives……… 1

4 Method……… 2

5 Data sources……… 2

6 Significance……… 2

7 Limitations……… 3

8 Expected results……… 3

9 The thesis structure……… 3

10 Suggestion for future research……… 3

CHAPTER 1: LITERATURE REVIEW ……… 4

1.1 Competitive strategy……… 4

1.1.1 Strategy and business strategy……… 4

1.1.2 Competitive strategy……… 5

1.2 Strategic management……… 10

1.2.1 Vision and mission……… 11

1.2.2 Strategy formulation and selection……… 12

1.2.3 Strategy implementation……… 27

1.2.4 Strategy evaluation……… 28

CHAPTER 2 : RICE FARMING INDUSTRY IN VIET NAM……… 30

2.1 An overview of rice farming ……… 30

2.2 The developing of rice farming industry in Viet Nam……… 32

2.3 Factors effecting rice farming ……… 35

CHAPTER 3 : BUILDING COMPETITIVE STRATEGY……… 39

3.1 Company profile……… 39

3.2 Strategy formulation ……… 41

3.2.1 External environment analysis……… 41

3.2.2 Industry environment analysis……… 51

3.2.3 Internal environment analysis……… 56

3.2.4 SWOT analysis ……… 63

3.2.5 Strategy formulation and selection ……… 64

3.2.5.1 Production expanding ……… 65

3.2.5.2 Japanese rice farming and Vietnamese high quality rice processing …… 65

3.2.5.3 Rice seed producing ……… 65

3.2.5.4 Marketing enhancing ……… 65

3.3 Implementing the competitive strategy ……… 66

3.3.1 Objectives ……… 66

3.3.2 Solutions ……… 67

3.3.3 Action plan ……… 68

3.3.4 Recommendations to AnDinh Company ……… 70

3.3.5 Recommendation to the government ……… 71

CONCLUSION ……… 72

REFERENCES ……… 73

APENDDICES ……… 75

LIST OF TABLES AND FIGURES

Table 1.1 Example of possible factors in a PEST analysis

Table 1.2 Industry’s entry and exit barriers

Table 1.3 Bargaining powers of suppliers and buyers

Table 1.4 The completed SWOT profile

Table 1.5 Appropriate strategies selection (GREAT model)

Table 2.1 The world rice production

Table 2.2 The world rice consumption and stocks

Table 3.1 Vietnam quarterly GDP growth

Table 3.2 An Dinh external environment EFE matrix

Table 3.3 External environment analysis conclusion

Table 3.4 Industry analysis conclusion

Table 3.5 An Dinh internal environment IFE matrix

Table 3.6 Internal environment analysis conclusion

Table 3.7 Competitive strength assessment

Table 3.8 Sustainable competitive advantage

Table 3.9 AD Company’s SWOT profile

Table 3.10 AD Company’s appropriate strategies selection (GREAT model) Table 3.11 AD Company’s action plan

Figure 1.1 Porter’s Generic Strategies

Figure 1.2 The strategic management process

Figure 1.3 Five Forces Model

Figure 1.4 The value chain

Figure 1.5 Strategic analysis processes

Figure 1.6 SWOT Matrixes

Figure 2.1 Vietnam rice farming areas

Figure 2.2 Vietnam rice productions

Figure 2.3 Rice volumes for consume and export (thousand tons) Figure 2.4 Vietnam export value by rice and commodity group (2009) Figure 2.5 Vietnam agro-forestry and rice export value (US $billion) Figure 3.1: Corruption Perceptions Index 2009

Figure 3.2 Vietnam GDP per capita growth

Figure 3.3 VND/USD exchange rate (2008-2010)

Figure 3.4 Vietnam population pyramid (2009)

Figure 3.5 Impacts of sea level rise (1m scenario)

Figure 3.6 Value chain model in rice farming industry

Figure 3.7 AD Company Revenue and Net profit

Figure 3.8 AD Company’s organizational structure

Figure 3.9 AD Company’s SWOT matrix

Figure 3.10 AD Company’s strategies implementation process

LIST OF ABRREVEATIONS

R&D: Research and Development

PEST: Politics, Economics, Social, Technology SWOT: Strengths, Weaknesses, Opportunities, Threats EFE: External Factor Evaluation

IFE: Internal Factor Evaluation

GREAT: Gain, Risk, Expense, Achievable, Time

USDA: United State Department of Agriculture

GSO: General Statistics Office

No: Number

WTO: World Trade Organization

IMF: International Monetary Fund

UK: United Kingdom

GDP: Gross Domestic Product

VCCI: Viet Nam Chamber of Commerce and Industry CPI: Consumer Price Index

USA: United State of America

AD: An Dinh

FAO: Food and Agriculture Organization

US $: United State Dollar

INTRODUCTION

1 The thesis title

Building competitive strategy in the rice farming industry - The case of An Dinh Company

2 The thesis necessity

The event of Viet Nam joining WTO in 2007 has created a range of development opportunities and challenges to investors in rice farming in Vietnam Vietnam is known as one of world’s richest agricultural regions and is the second-largest (after Thailand) exporter worldwide and the world's seventh-largest consumer of rice.Vietnam government has made effort in order to develop high quality and value-added rice production and export An Dinh - a rice farming and trading company- has been case-studied and researched that its rice production is limited

in capability resulted in an irrelative market share A higher position in the market requires a competitive strategy implementation by intensively investing in expansion and enhancing marketing activities

This thesis, in above actual fact, is to build an appropriate competitive strategy for

An Dinh Company’s development It has also added the value to the strategy formulation by giving recommendations and proposing an action plan, which can

be applied in implementing strategies

4 Methodology

This thesis applies the case study to build competitive strategy for An Dinh Company The research has been prepared mainly through on desk study reviews

of available literature and data through three basic steps:

The first step is to review theories of competitive strategy and strategic management The study focuses on the literature view of existing approaches to competitive strategy formulation, and identifies a common process to build competitive strategies

The second step based on the research of rice farming industry in Vietnam in terms of factors and influence on the business success

Last but not less, the case study of An Dinh Company is analyzed inclusive of interview with the managers of company who are responsible for strategic management planning This is to contribute competitive strategy and provide recommendations on strategy implementation

5 Data sources

The theoretical review and collection of secondary data display from research of books, reports, newspapers and internet sources The primary data was collected through interviews with An Dinh Company’s managers and key employees

6 Significance

By reviewing the theory of competitive strategy and strategic management and understanding the impacts of business environment, the thesis benefits An Dinh Company in implementing appropriate competitive strategies This theoretical approach could be applied in cases of other companies in rice farming industry

7 Limitations

The study would be limited due to a small number of competitors in the local market are considered Moreover, those competitors could not be analyzed with detail information and data, which may not entirely reflect the industry’s competitive environment

8 Expected results

The result of this thesis is to build appropriate competitive strategies for further development of An Dinh Company The methodology is expected to be applied effectively in the case study of other companies in rice farming industry

9 The thesis structure

Beginning with the introduction part, the thesis concludes three chapters and the conclusion part

Chapter 1 provides a fundamental review of competitive strategy and strategic management theory focusing on the competitive strategy formulation process

Chapter 2 discusses rice farming status in Vietnam, highlighting its latest achievement and key factors

Chapter 3 presents An Dinh Company and analyzes its environment to identify external opportunities and threats as well as internal strength and weakness that influence on building company’s competitive strategy Action shall be recommended for strategic management implementation

10 Suggestion for future research

A rapid change of factors like technological advances, climate, and customer’s lifestyle creates both opportunities and challenges to the rice farming industry and

An Dinh Company Therefore, a deeper research undertaken could create more benefit to larger size companies

CHAPTER 1

LITERATURE REVIEW

The importance of competitive strategy and strategic management for organizational success is now recognized in both the literature and practice Strategy and strategic management are necessary for an organization to achieve its objectives, enhance competitive advantages and improve its value

Today highly competitive business world pressures on managers and employees across functional areas at all organizational levels to be taken on strategic responsibilities It is essential that they understand both strategic management concept and process

This chapter provides the basic understanding of competitive strategy and strategic management It focuses on strategy formulation as a part of the strategic management

1.1 Competitive strategy

1.1.1 Strategy and business strategy

Strategy is a plan designed to achieve a particular long-termgoal.1

There is very little agreement about the meaning of strategy in the world of business Although strategists and practitioners understand strategy in different ways and in various contexts, there are some most common concepts:2

Strategy is perspective, which is vision and direction

Strategy is position, it reflects decisions to offer particular products and services in particular markets

Strategy is a plan, a “how”, a means of getting from here to there

Strategy is a pattern in actions over time

Strategy is the art of the general 3 Strategy refers to how an objective will be achieved, thereby; it is broad, long term and far reaching Strategy is more concerned with deploying the resources whereas tactics is concerned with employing them In business, as in military, strategy bridges the gap between policy and tactics Together, strategy and tactics bridge the gap between ends and means

Business strategy is a plan for how a firm will compete, what its goals should be

and what policies will be need to achieve goals.4

The business strategy is a combination of the investment decision and the development of a sustainable competitive advantage The investment decision of a business strategy covers the product and market, its investment intensity and the resource allocation The development of a sustainable competitive advantages based on advantages of a business such as assets, technology, human resource, management

1.1.2 Competitive strategy

Since publication, Michael E Porter’s “Competitive Strategy” has introduced the

theory and practice of business strategy throughout the world

He defines competitive strategy as:

Competitive strategy is the search for a 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 5

Competitive strategy is a combination of the ends (goals) for which the firm is

striving and the means (policies) by which it is seeking to get there 6

After analyzing the complexity of industry competition, Michael Porter presents

the three generic strategies: cost leadership, differentiation and focus, which can

be implemented at the business unit level to create a competitive advantage and defend against the effects of the five factors The four basic alternative

competitive strategies are Cost Leadership, Differentiation, Cost Focus and

Differentiation Focus

Figure 1.1 Porter’s Generic Strategies

Source: Michael Porter, 1980

1.1.2.1 Cost Leadership:

Cost leadership strategy: Producing the same product or service at a lower cost than competitors Creating a more efficient production or service delivery process than that of competitors allows the company to sell at a lower price and be profitable

Companies using the cost leadership strategy often have some characters:

- Good ability to approach the capital for investing in production This is the barrier for another company

6

Michael Porter (1998), “Competitive strategy”

- High technical production capacity

- Good and large distribution channel

Toyota is an example of implementing cost leadership strategy

Toyota is a famous motor corporation in Japan, which applies successfully, cost leadership strategy The production system is really effectiveness with the lean production and TPS Both Lean and TPS can be seen as a loosely connected set of potentially competing principles whose goal is cost reduction by the elimination of waste These principles include of: Pull processing, perfect first-time quality, waste minimization, continuous improvement, flexibility, building and maintaining

a long-term relationship with suppliers, smart automation, load leveling and production flow and visual control This production system create a high technical production capacity and effectiveness that supply to customer a good product with low price compare to another product and make the Toyota achieve the position of largest motor production in the world now Moreover, the strength financial support from Japanese government and the large distribution network over the world also contribute to the achievement of Toyota today

1.1.2.2 Differentiation:

Differentiation strategy: Same products or services are produced at a higher quality than competitors’ are

Companies using the differentiation strategy often have some characters:

- Good team in research and development (R&D)

- Good sales team: Ability to communicate information of product to customer

- Reputation and ability to innovative

Amway is an example of implementing differentiation strategy

Amway is a corporation based in United State established in 1959, now company operates in more than 80 countries and territories over the world, getting $8.2 billion turnover in 2008 Amway focuses on producing high quality product and differentiation strategy Amway has strong research and development system with

65 research and development laboratories worldwide staffed by more than 500 scientists, engineers and technical professionals Amway research and development have been awarded more than 500 patents and have had more than

400 papers published in top industry journals Amway is a leader in the U.S Direct Selling Association, the World Federation of Direct Selling Associations, the National Association of Manufacturers, and the U.S Chamber of Commerce, Amway was ranked #43 on the Forbes Magazine 2007 list of “America’s Largest Private Companies.” Over the past 50 years, Amway has been recognized for manufacturing excellence, environmental concern, and commitment to safety and health

Amway has more than 3 million Amway Business Owners and 13,000 people work

in Amway and its subsidiaries Amway is a company that believes every person can make a difference They live this philosophy every day They empower their employees to reach goals, fulfill ambitions, and contribute to the communities where they operate People who work with Amway stay at Amway Most of employees have been in Amway for more than 10 years, with many working here for decades

Amway is successful company applying differentiation strategy

1.1.2.3 Focus:

Focus strategy: Strategy focusing exclusively on a narrow segment of the market

A focus (or niche) strategy is most suitable for small firms but can be used by any company, especially those can afford neither a wide scope cost leadership nor a wide scope differentiation strategy Companies could use a cost focus or a differentiation focus With a cost focus, a firm aims at being the lowest cost producer in that segment With a differentiation focus, a firm creates competitive advantage through differentiation within the segment

The appropriate generic strategy will help the firm to leverage its strengths and defend against the five forces’ effects Otherwise, Michael Porter specifically emphasized that only one of the generic strategy alternatives should be pursued for

a given product, rather than implementing a combination of these strategies Therefore, organizations should take their competencies and strengths into consideration to choose the most suitable generic strategy

As Michael Porter opinion, enterprises can be successful in using combination of these strategies when they establish separated company following one strategy Rayonier’s is one example of company implementing focus strategy

Rayonier's medium-density fiberboard plant is largest panel plant in New Zealand Its capacity can produce 170,000 cubic meters of annually

This company is using focus strategy for its product This strategy is focusing particular buyers who bought MDF for house construction and large furniture making It has only produced MDF panels with thickness from 2cm to 5cm Rayonier segmented its product line even they can produce other kinds of thickness The reason is that they found the demand of house construction and large furniture making in this country and by focusing those kind of products they can get more profits

The strategy is focusing on a particular buyer group, segment of the product line,

or geographic market As differentiation, focus may take many forms Although the low cost and differentiation strategies are aimed at achieving their objectives industry wide, the entire focus strategy is built around serving a particular target

very well, and each functional policy is developed with this in mind The strategy rests on the foundation that the firm is thus able to serve its narrow strategic target more effectively or efficiently than competitors who are competing more broadly As a result, the firm achieves either differentiation from better meeting the need of the particular target, or lower costs in serving this target, or both Even though the focus strategy does not achieve low cost or differentiation from the perspective of the market as a whole, it does achieve one or both of these positions with its narrow market target

1.2 Strategic management

Strategic management is the process by which top-management determines the long-term direction and performance of the organization by ensuring that careful formulation, effective implementation and continuous evaluation of the strategy take place.7 The strategic management, hence, is an objective, logical and systematic approach for decision making in an organization

7

Lloyd L Byars, Leslie W Rue, Shaker A Zahra (1996), “Strategic management”

Figure 1.2 The strategic management process

1.2.1 Vision and Mission

Vision describes aspirations for the future without specifying the means to achieve desired ends.8 The most effective vision must be inspirational, which requires for

8

Alex Miller, Gregory G Dess (1996), “Strategic management”

Vision Mission

• Value chain

SWOT Analysis

Strategy implementation

Strategy formulation &

selection

Strategy evaluation

the best, the most or the greatest A vision becomes more visible when it is expressed in the form of a mission statement

A company’s mission is its reason for being The mission statement describes the company’s business vision, including the unchanging values and purpose of the firm and forward-looking visionary goals that guide the pursuit of future opportunities

1.2.2 Strategy formulation and selection

Strategy formulation includes identifying an organization’s external opportunities and threats, analyzing internal strengths and weakness, generating alternatives strategies, and choosing the most appropriate strategies to pursue

1.2.2.1 External environment analysis

The external environment has two aspects: the macro-environment that affects all firms and the microenvironment that affects only firms in a particular industry A PEST analysis is a technique for understanding the macro-environment in which a firm operates PEST analysis includes Political, Economic, Social and Technological factors

The industry, in which the firm operates (or is considering operating), is an important aspect of the micro-environmental analysis In the book “Competitive Strategy: Techniques for Analyzing Industries and Competitors” (1980), Michael Porter presents the model of the Five Competitive Forces The model has become

a useful tool for industry analysis The five forces include Barriers to entry, Customers, Suppliers, Substitute products, and Rivalry

a PEST Analysis

Many macro-environmental factors are country-specific and a PEST analysis needs to be performed for all related countries The number of macro-environmental factors is unlimited

Table 1.1 Example of possible factors in a PEST analysis

Political stability

Environmental regulation and protection

Consumer protection

Legal framework

Intellectual property protection

Trade regulations and tariffs

Anti-trust laws

Taxation

Wage legislation

Working hours

Mandatory employee benefits

Industrial safety regulations

Government intervention in the market

Attitudes to health, environmental

consciousness, work and leisure

Living conditions

Lifestyle changes

New discoveries and development

Speed of technology transfer

Government spending on research

Energy use and costs

Impact of changes in Information Technology

b Industry analysis: Porter’s Five Forces model

Porter’s five forces framework evaluates entry barriers, suppliers, customers, substitute products, and rivalry in the industry

Figure 1.3 Five Forces Model

Source: Michael Porter, 1980

Those five competitive forces appear in every industry and every market They determine the intensity of competition and therefore the profitability and attractiveness of an industry Based on the information derived from the Five Forces analysis, managers can decide how to influence or to exploit particular characteristics of their industry to improve the firm’s position

ratio indicates that many rivals, none of which has a significant market share, characterize the industry The market is competitive

The intensity of rivalry is commonly based on the firms’ aggressiveness in order

to gain an advantage It is influenced by the industry characteristics such as:

The number of competitors

A large numbers of competitors increase rivalry because more firms must compete for the same customers and resources The rivalry is more intense if there are many small or equally sized competitors; rivalry is less when an industry has a market leader

Market growth

In a slow growth market, firms have to compete for market share On the contrary, firms are easy to improve revenues in an expanding market

High fixed costs

If total costs are mostly fixed costs, the firm must produce near capacity to attain the lowest unit costs The firm must sell a large quantity of product, that lead to a

fight for market share and an increase in rivalry

Level of product differentiation

Low level of product differentiation is associated with higher level of rivalry Industries where products are commodities have greater rivalry, industries where competitors can differentiate their products have less rivalry

Switching costs

Rivalry is reduced if there is a significant cost associated with the decision to buy

a product from an alternative supplier

 Threat of New Entrants

It is not only existing rivals that make a threat to companies in an industry, the possibility that new companies may enter the industry also affects competition

New entrants to an industry can raise the level of competition, thereby reducing its attractiveness However, there are barriers to entry

Barriers to entry are unique industry characteristics Barriers maintain the level of profits for those already in the industry because they reduce the rate of new entrants Barriers to entry arise from several sources such as:

Government regulations

The principal role of the government in a market is to preserve competition through anti-trust actions Besides, government restricts competition through regulations Industries such as public utilities are considered natural monopolies,

as it has been more efficient to have one company rather than to permit many companies to compete in a local market

Patents and proprietary knowledge

Ideas and knowledge that provide competitive advantages are considered private property, so that, preventing others from using the knowledge and thus creating a barrier to entry

Asset specificity

Asset specificity is the extent to which the firm’s assets can be utilized to produce

a different product Potential entrants are reluctant to invest in highly specialized assets that cannot be sold or converted into other uses

profitable A common exit barrier is asset specificity If the plant and equipment required for manufacturing a product is highly specialized, they cannot easily be sold to other buyers in another industry

Table 1.2 Industry’s entry and exit barriers

Easy to Enter if

Common technology

Little brand franchise

Access to distribution channels

Low scale threshold

Difficult to Enter if

Patented or proprietary know-how

Difficulty in brand switching

Restricted distribution channels

High scale threshold

 Bargaining Power of Buyers

Buyers are the people or organizations who create demand in an industry The power of buyers is the impact that customers have on a producing industry

If buyer power is strong, the relationship to the producing industry is near to a monopoly, a market in which there are many suppliers and one buyer Under such market conditions, the buyer sets the price

 Bargaining Power of Suppliers

Suppliers can have a significant impact on a company’s profitability If suppliers have high bargaining power over a company, then the company’s industry is less attractive

A producing industry requires raw materials, labor, components, etc This requirement leads to buyer-supplier relationships between the industry and the firms that provide the materials used to create products Suppliers, if powerful, can put influence on producing industry such as selling at a high price to capture some

of the industry’s profits

The industry often faces a high pressure from their suppliers or buyers This relationship can potentially affect its profitability

Table 1.3 Bargaining powers of suppliers and buyers

Buyers are powerful if

A few buyers with significant market

share and many sellers

The industry is not a key supplying

group

Low switching costs: products are

standardized

Buyers threaten backward integration

Buyers are weak if

Many different buyers, no buyer has any particular influence on product or price

Producer can take over own distribution or retailing

Significant switching costs

Producers threaten forward integration

Supplier is powerful if

Many buyers and few dominant

suppliers

No substitutes for the particular input

High switching costs from one supplier

to another

The industry is not a key customer

Suppliers threaten forward integration

Suppliers are weak if

Many competitive suppliers

Low switching costs: products are standardized

Purchase commodity product

The industry is a key customer

Buyers threaten backward integration

 Threat of Substitutes

In the Five Forces model, substitute products refer to alternative products in other industries A threat of substitutes exists when a product’s demand is affected by the price change of a substitute product (product’s price elasticity) The more substitutes are available, the more elastic the demand becomes Not only constrains the companies’ ability to raise prices, the substitute products also lower industry attractiveness and profitability

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

c EFE matrix

External Factor Evaluation (EFE) matrix method is a strategic-management

tool often used for assessment of current business conditions The EFE matrix is a good tool to visualize and prioritize the opportunities and threats that a business is facing External factors assessed in the EFE matrix are the ones that are subjected

to the will of social, economic, political, legal, and other external forces

Creation EFE matrix: 5 steps

Step 1.Listing factors: To gather a list of external factors and divide factors into

two groups: opportunities and threats

Step 2.Assigning weights: To assign a weight to each factor The value of each

weight should be between 0 and 1 (or alternatively between 10 and 100 if you use the 10 to 100 scale) Zero means the factor is not important One or hundred

means that the factor is the most influential and critical one The total value of all weights together should equal 1 or 100

Step3 Rating factors: To assign a rating to each factor Rating should be

between 1 and 4 Rating indicates how effective the company’s current strategies respond to the factor 1 = the response is poor 2 = the response is below average

3 = above average 4 = superior Weights are industry-specific Ratings are company-specific

Step4.Multiplying weights by ratings: To multiply each factor weight with its

rating This will calculate the weighted score for each factor

Step5 Summing up weighed scores: To add all weighted scores for each factor

This will calculate the total weighted score for the company

Figure 1.4: EFE matrix creation process

List

external

factors

Assign factors’

weight

Rate factors from 1 - 4

Multiply weight by rating

Total all weighted score

organization to organization Factors that are commonly evaluated across the organization’s areas in value chain:

Figure 1.5 The value chain

Source: Michael Porter 1985

The primary value chain activities are:

Inbound Logistics: the receiving, warehousing of raw materials and the

distribution of the materials to manufacturing as it is required

Operations: the processes of transforming inputs into finished products and

services

Outbound Logistics: the warehousing and distribution of finished goods

Marketing and Sales: the identification of customer needs and the generation of

sales

Service: the support of customers after the products and services are sold to them

These primary activities are supported by:

Infrastructure of the company: organizational structure, control systems,

company culture, etc

Human resource management: employee recruiting, hiring, training,

development, and compensation

Technology development: technologies to support value-creating activities

Procurement: purchasing inputs such as materials, supplies, and equipment

The value chain in rice farming industry as follow:

Company infrastructure Human resource management Technology development

Rice farming Rice

processing

Sales and Marketing

b IFE matrix (Internal factors evaluation)

Internal Factor Evaluation (IFE) matrix is a strategic management tool for auditing

or evaluating major strengths and weaknesses in functional areas of a business

Creation IFE matrix: 5 steps

Step1.Listing internal factors: To conduct internal audit and identify both

strength and weakness in all business areas It is suggested to identify 10 to 20 internal factors

Step2 Assigning weight: To range from 0.00 to 1.00 to each factor The weight

assigned to a given factor indicates the relative importance of the factor Zero means not important One indicates very important The sum of all weights equals 1.00

Step3 Rating factors: To assign a rating to each factor Rating should be between

1 and 4 The factor represents a major weakness (rating = 1), a minor weakness (rating = 2), a minor strength (rating = 3), or a major strength (rating = 4)

Step4 Multiplying weight by rating: To multiply each factor's weight by its

rating This will give you a weighted score for each factor

Step5 Summing up weighed score: To construct the IFE matrix is to sum the

weighted scores for each factor This provides the total weighted score for your business

Figure 1.6: IFE matrix creation process

1.2.2.3 SWOT Analysis

The external analysis identifies opportunities and threats whereas the internal analysis defines the company’s strengths and weaknesses By understanding that information, a company can better leverage its strengths, correct its weaknesses, capitalize on opportunities, and deter potentially threats

SWOT analysis is a useful technique for summarizing the external environmental factors SWOT stands for Strengths, Weaknesses, Opportunities and Threats Edmund P Learned, C Roland Christiansen, Kenneth Andrews, and William D Guth in “Business Policy, Text and Cases” described the framework in 1969

List

internal

factors

Assign factors’

weight

Rate factors from 1 - 4

Multiply weight by rating

Total all weighted score

SWOT is a simple framework for generating strategic alternatives from a situation analysis The internal and external environment analysis can provide a large amount of information, much of which may not be highly relevant Thereby, SWOT concentrates only on the issues that potentially have the most impact

Figure 1.7 Strategic analysis process

When the analysis has been completed, a SWOT profile can be generated and used

as the basis of goal setting, strategy formulation, and implementation

Table 1.4 The completed SWOT profile

In addition to identifying major strengths, weaknesses, opportunities and threats, the SWOT matrix incorporates potential strategies for improving the company’s competitive position For example, the strengths can be leveraged to pursue opportunities and to avoid threats, and managers can be alerted to weaknesses that might need to be overcome in order to successfully pursue opportunities

Figure 1.8 SWOT Matrixes

External

Opportunities

S-O Strategies pursue opportunities which are suitable to the company’s strengths

W-O Strategies overcome weaknesses to pursue opportunities

External

Threats

S-T Strategies identify ways that the firm can use its strengths to reduce its vulnerability to external threats

W-T Strategies establish a defensive plan to prevent the firm’s weaknesses from making it highly susceptible to external threats

1.2.2.4 Strategy selection

Choosing an appropriate strategy, basically, involves careful considerations to ensure that the option selected will work in practice Strategic options that may be relevant in different situations need to be weighed up against each other The three most important criteria are suitability, acceptability and feasibility

 Suitability

Having a view of relationships between the internal and external environment, an organization then needs to consider whether a strategy is suitable or not For example, does it build up organization’s strengths and environmental opportunities? Does it match the organization’s objectives?

Stakeholders’ reactions deal with anticipating reactions of stakeholders Shareholders could oppose the issuing of new shares, employees and unions could oppose outsourcing for fear of losing their jobs, customers could have concerns over a merger about quality and support

 Feasibility

Feasibility is concerned with whether strategic plans can go in practice and whether the organization has sufficient resources to carry out those plans Resources include funds, people, time and information

The most popular approaches to select strategies include the GREAT Model

a GREAT Model

Those potential strategies should be evaluated and compared to choose the most proper strategy, based on the GREAT model, which stands for Gain, Risk, Expense, Achievable and Time Criteria are weighed according to their importance

to the company Strategies are marked form 1 to 5 for each criterion, of which 1 is the worst, 3 is medium and 5 is the best Basically, companies are suggested to pursue strategies get good marks

Table 1.5 Appropriate strategies selection (GREAT model)

Criteria Weight Strategy 1 Strategy 2 Strategy 3 Strategy 4

to be implemented first

In strategic management, almost managers find implementation more difficult than either strategic analysis or strategy formulation Most companies have strategies, but a few can fulfill them A Fortune Magazine study suggested that 70% of 10 CEOs who fail do so not because of bad strategy, but because of bad execution.9

In another study of 200 companies in the Times 1000, 80% of directors said they had the right strategies but only 14% thought they were implementing them well.10

Programs, budgets and procedures help to select strategy The implementation involves the company’s resources and its staffs’ motivation to achieve objectives The strategy deployment plays a significant impact on whether it will be successful

Companies have to pay attention to their human resources to apply strategies It requires that person in charge fully understand the strategy and corresponding action steps they will implement The implementation might not succeed if the strategy is misunderstood or the company fails to motivate people to work with enthusiasm towards its objectives Furthermore, managers must be aware of the influence of each new strategy on the human resource For instance, how change it does since the strategy calls for, how fast it is, they provide for that change… The answers help to decide whether to allow time for employees to gain experience, to introduce training or to hire new employees

In addition, companies need to translate their broad strategy statement into a number of specific work assignments They develop detailed action plans listing action steps and assigning responsibility to a specific individual for accomplishing each of those steps They also set a due date and estimate the resources required to accomplish each step

1.2.4 Strategy evaluation

Strategy evaluation involves examining either how the strategy has been implemented or its outcomes The evaluation involves monitoring results, comparing to best practices, evaluating the effectiveness and efficiency of the process and controlling for variances as well Companies have to adjust the process if necessary, such as changing the schedule, changing the action steps, changing the strategy or finally changing the objective

If it is impossible to achieve the metrics and timetables, the expectations are unrealistic and the strategy will definitely fail If the evaluation determines that processes are not working, or results are not as expected, then the strategy should

be modified or reformulated

Both management and employees are involved in strategy evaluation, as they view the implemented strategy from different perspectives For example, a worker can

recognize a problem in a specific implementation step that management would not

be able to identify

Chapter summary

As companies follow a strategic management process, it is necessary for managers

to understand either strategy concept or strategic management process While strategy describes the way organizations will pursue their goals, strategic management is the process by which managers ensure that careful formulation, effective implementation and continuous evaluation of the strategy takes place Moreover, changes in the business world result in the modification of existing strategies and the development of new strategies, which is a part of the organization, is continuously, improving process in order to achieve its objectives

CHAPTER 2

RICE FARMING INDUSTRY IN VIETNAM

The growth in rice demand has exceeded in most expectations and continues along with the increasing of population

Thanks to ideal geographically conditions, rice farming in Vietnam have experienced a consistent growth over the past decades, and played a main role in Vietnam economy, leading to the rank of fifth largest producer and the second- largest rice exporter in the world Viet Nam Government has issued a lot of policies in order to increase domestic demand and rice export markets

A basic knowledge of rice farming is essential to rice producers and everyone who involved in this globally massive industry This chapter describes the development and the current status of rice farming in Vietnam The chapter also characterizes the economics of rice farming and highlights the industry’s key factors

2.1 An overview of rice farming

Rice, the second-most produced grain in the world, has become more necessity and important globally As the quantity is no longer enough to fulfill the demand, rice is planted on big scale in many countries to meet the increasingly high consumer demand

Rice grow in fields in two different stages Firstly, rice corn is plant in little seedbeds becoming rice- seed Secondly, farmers use rice-seed to plant in field which were already plowed Rice could readily be harvested in about 3 to 6 months After harvesting, rice is processed to remove and clean its grain It is stocked in warehouse before being sold in market

At least 114 countries grow rice and more than 50 have an annual production of 100,000 tons or more Asian farmers produce about 90% of the total, with two countries, China and India, growing more than half the total crop For most rice-producing countries where annual production exceeds 1 million ton, rice is the staple food In Bangladesh, Cambodia, Indonesia, Lao PDR, Myanmar, Thailand,

and Vietnam, rice provides 50-80% of the total calories consumed Notable exceptions are Egypt, Nigeria, and Pakistan, where rice contributes only 5-10% of per capita daily caloric intake

We can see the world rice production, consumption and stocks increase annually from 420.36 million tons in crop 2006/2007 to 441.5 million tons in crop 2009/2010 and estimated achieve 454.6 million tons in crop 2010/2011Sep, produce 3% higher than the last crop The production increase in India, Bangladesh, Brazil, Philippines and United State compensate for the decline in China, Egypt, Pakistan and South Korea

Table 2.1: The world rice production

Unit: million ton

Crop 2006/07 2007/08 2008/09 2009/10 2010/11*

World rice production 420.36 433.62 448.15 441.51 454.6

* Estimated

Source: USDA 2010

The rice consumption increase from 421.33 and 74.99 million in crop 2006/2007

to 438.2 and 94.5 million tons in crop 2009/2010 and estimated achieve 454.36 and 94.57 million tons in 2010/2011 crop The world consumption reduction in China, Indonesia and Iran compensate by the increasing in Russia and Thailand The stocks decline in China, Vietnam, and Indonesia and Iran compensation by the stocks increase in USA

Table 2.2: The world rice consumption and stocks

Unit: million ton

Crop 2006/07 2007/08 2008/09 2009/10 2010/11*

World rice consumption 421.33 427.99 437.68 438.16 454.36

World rice stocks 74.99 80.63 91.11 94.46 94.57

* Estimated

Source: USDA 2010

2.2 The development of rice farming industry in Vietnam

Vietnam entries into the global rice market later than many other Asian countries However, favorable climatic conditions, the opening of the economy following the

economic renovation process of “doimoi” and the expansion of the global rice

market all lead to the country’s spectacular market entry

With an over 55,000km2 of Red Delta River and Mekong Delta River, and an extensive system of dikes and canals, plus a tropical monsoon climate, with humidity averaging 84 % throughout the year, Vietnam has geographically ideal conditions for rice and another agricultural product farms

Rice farming began in Vietnam for long time from 3,000 – 2000 BC The Mekong River Delta in the south and the Red River Delta in the north have been main rice farming areas for decades Area of rice farming reached 2,700,000 hectares in the Mekong River Delta (1945), and about 1,800,000 hectares in the North (1945) Vietnam rice farming actually developed since 1990 In 1990 the area of rice farming was about 6,043,000 ha and expanded 7,440,000ha in 2009

Figure 2.1 Vietnam rice farming areas

Area rice plant 1990 - 2009

0 2,000

The production increased from 19.225 million tons to 38.896 million tons in 2009, increase 100% of production after 19 years From 1990, Vietnam became one of the top five countries having the largest rice production in the world

Figure 2.2 Rice production in Vietnam

Figure 2.3 Rice volumes for consume and export (thousand tons)

Viet Nam rice consume and export

Source: Viet food, GSO