analysis and recommendations in strategic adjustment for vndirect securities jont stock company

VIETNAM NATIONAL UNIVERSITY, HANOI SCHOOL OF BUSINESS NGUYEN THI PHUONG THAO ANALYSIS AND RECOMMENDATIONS IN STRATEGIC ADJUSTMENT FOR VNDIRECT SECURITIES JOINT STOCK COMPANY 2011 – 20

VIETNAM NATIONAL UNIVERSITY, HANOI

SCHOOL OF BUSINESS

NGUYEN THI PHUONG THAO

ANALYSIS AND RECOMMENDATIONS IN STRATEGIC ADJUSTMENT FOR VNDIRECT SECURITIES JOINT

STOCK COMPANY (2011 – 2016)

MASTER OF BUSINESS ADMINISTRATION THESIS

Hanoi - December 2010

VIETNAM NATIONAL UNIVERSITY, HANOI

SCHOOL OF BUSINESS

NGUYEN THI PHUONG THAO

ANALYSIS AND RECOMMENDATIONS IN STRATEGIC ADJUSTMENT FOR VNDIRECT SECURITIES JOINT

STOCK COMPANY (2011 – 2016)

Major: Business Administration

Code: 60 34 05

MASTER OF BUSINESS ADMINISTRATION OF THESIS

Supervisor: Dr Nguyen Viet Anh

Hanoi - December 2010

TABLE OF CONTENT

ACKNOWLEDGEMENTS i

ABSTRACT ii

TÓM TẮT v

TABLE OF CONTENT viii

LIST OF TABLES xi

LIST OF FIGURES xii

LIST OF ABBREVIATIONS xiii

INTRODUCTION 1

1 Necessity of the thesis 1

2 Objective of the thesis 3

3 Research questions 3

4 Scope of work 3

5 Methodology 4

6 Contributions of the thesis 5

7 Expected results 5

8 Further research directions 5

9 Limitation of the thesis 6

10 Thesis structure 6

CHAPTER 1: LITERATURE REVIEW 7

1.1 Strategy and role of strategy 7

1.1.1 Definition of strategy 7

1.1.2 Role of strategy 9

1.2 Strategic management process 9

1.3 Strategic vision and business mission 12

1.4 Setting objectives 12

1.5 External environment analysis 13

1.5.1 Macro environment analysis 14

1.5.2 Industry and competition environment analysis 17

1.6 Company situation analysis 26

1.6.1 Analysis of how well the current strategy works 26

1.6.2 Analysis of company’s roots of competitive advantage 27

1.6.3 Analysis of company‘s cost structure 30

1.6.4 Evaluate the company‘s competitive position 33

1.7 SWOT analysis 35

1.7.1 What is SWOT? 35

1.7.2 SWOT matrix 36

1.8 Formulating a strategy 36

1.8.1 Levels of strategy - The Strategy making pyramid 36

1.8.2 Specific strategy at different levels 37

CHAPTER 2: CASE STUDY OF VNDIRECT 45

2.1 Over all about VNDIRECT 45

2.1.1 General information about VNDIRECT 45

2.1.2 The establishment and development of the company 46

2.1.3 The company organizational structure 47

2.2 Analysis of strategic vision and business mission 48

2.2.1 Analysis of current strategic vision of VNDIRECT 48

2.2.2 Analysis of current business mission of VNDIRECT 49

2.3 Objectives of VNDIRECT 50

2.4 External environment analysis 50

2.4.1 Macro environment analysis 50

2.4.2 Industry and competition environment analysis 58

2.5 Situation analysis of VNDIRECT 80

2.5.1 Analysis of how well the corporate strategy works 80

2.5.2 Analysis of how well the business strategy works 82

2.5.3 Analysis of how well the functional strategy works 89

2.5.4 Analysis of business result of the company 106

2.5.5 Analysis of company’s resources and capabilities 108

2.5.6 The value chain and the company ‘s cost structure 111

2.5.7 Evaluate the company ‘s competitive position 113

CHAPTER 3: SUMMARY AND RECOMMENDATIONS 116

3.1 Summary and recommendations for theory development 116

3.2 Summary and recommendations for Government bodies 117

3.3 Findings for VNDIRECT 119

3.3.1 SWOT matrix analysis of VNDIRECT 119

3.3.2 Distinct competencies of VNDIRECT 122

3.4 Recommendations for VNDIRECT company from 2011 – 2016 122

3.4.1 Recommendations in strategic vision and business mission adjustment 122

3.4.2 Recommendations for corporate strategy adjustments 123

3.4.3 Recommendations for business strategy adjustments 125

3.4.4 Recommendations for functional strategy adjustments 129

3.4.5 Summary of strategic development direction of VNDIRECT 133

CONCLUSION 135

REFERENCES 137

APPENDICES 140

LIST OF TABLES

TABLE 1-1:A MODEL OF WEIGHTED COMPETITIVE STRENGTH ASSESSMENT 34

TABLE 1-2:MODEL OF SWOT MATRIX 36

TABLE 2-1:GENERAL INFORMATION ABOUT VNDIRECT 45

TABLE 2-2:PREDICTION OF GDP OF VIETNAM IN 2010 51

TABLE 2-3:THE DEVELOPMENT OF SECURITIES INDUSTRY VIA SOME CATEGORIES 58 TABLE 2-4:MINIMUM REQUIRED CAPITAL FOR SECURITIES OPERATIONS 61

TABLE 2-5:AVERAGE PROFITABILITY INDEX OF SOME MAJOR INDUSTRIES IN 2009 63 TABLE 2-6:DOMINANT ECONOMIC FEATURES OF THE SECURITIES INDUSTRY 63

TABLE 2-7:TOP 20 COMPANIES IN TERM OF CHARTER CAPITAL 69

TABLE 2-8:TOP 10 LEADING COMPANIES IN REVENUES IN EACH ACTIVITY IN 2009 70 TABLE 2-9:REVENUE STRUCTURE IN 2009 OF MAJOR COMPANIES IN GROUP 3 74

TABLE 2-10:A SUMMARY OF MAIN RIVALS ‘S CHARACTERISTICS AND MOVES 76

TABLE 2-11:TOTAL SALARY AND BENEFIT FOR BOARD OF MANAGEMENT OF VNDIRECT IN 2009 102

TABLE 2-12:EMPLOYEES ‘S QUALIFICATION OF VNDIRECT 103

TABLE 2-13:CAPITAL INCREASING PROCESS OF VNDIRECT 104

TABLE 2-14:SEVERAL CATEGORIES OF BUSINESS RESULT OF VNDIRECT (2007-2009) 107

TABLE 2-15:BUSINESS UNIT COST STRUCTURE ANALYSIS AMONG VNDIRECT AND RIVALS IN 2009 112

TABLE 2-16:A MODEL OF WEIGHTED COMPETITIVE STRENGTH ASSESSMENT OF VNDIRECT,SSI AND TLS 114

TABLE 3-1:SWOT MATRIX ANALYSIS OF VNDIRECT 119

TABLE 3-2:RECOMMENDED DEVELOPMENT ROAD MAP OF VNDIRECT FROM 2011-2016: 133

LIST OF FIGURES

FIGURE 1-1:STRATEGIC MANAGEMENT MODEL 9

FIGURE 1-2:EXTERNAL ENVIRONMENT 13

FIGURE 1-3:5 FORCES COMPETITION MODEL 18

FIGURE 1-4:THE GENERIC BUILDING BLOCKS OF COMPETITIVE ADVANTAGE 27

FIGURE 1-5:A REPRESENTATIVE VALUE CHAIN MODEL 31

FIGURE 1-6:THE STRATEGIC MAKING PYRAMID MODEL IN A DIVERSIFIED COMPANY 37

FIGURE 1-7:MODEL OF BUSINESS STRATEGIES 40

FIGURE 2-1:ORGANIZATIONAL STRUCTURE OF VNDIRECT 47

FIGURE 2-2:INTERNET USERS GROWTH 2000-2009 IN SELECTED ASIAN COUNTRIES 57

FIGURE 2-3:INTERNET USERS IN VIETNAM 2005-2009 57

FIGURE 2-4:THE VALUE CHAIN OF VNDIRECT 111

LIST OF ABBREVIATIONS

VNDIRECT : VNDIRECT Securities Joint Stock Company HSX : Ho Chi Minh City Securities Exchange

VNNIC : Vietnamese Internet Center

ABS : An Binh Securities joint stock company

AGRISECO : Agribank securities joint-stock corporation

BVSC : Baoviet securities joint stock company

FPTS : FPT securities joint stock company

HBS : Hoa Binh securities joint stock company HSC : Hochiminh city securities corporation

SBS : Sacombank securities joint stock company SHS : Saigon Hanoi securities joint stock company SSI : Saigon securities incorporation

TLS : Thang Long securities joint stock company VCBS : Vietcombank securities company Ltd

VIETINBANKSC : Vietnam Bank for Industry and Trade securities Joint

stock company

INTRODUCTION

This part will give an introduction to readers about the thesis Firstly, the necessity of the thesis is mentioned, next are objectives of the thesis, then researches questions are raised up, followed by scope of work, methodology, thesis ‘s contributions, expected results, further research directions and limitations of the thesis Finally, the thesis structure is presented in order to help readers have an over-all picture of the whole study

1 Necessity of the thesis

The Vietnamese securities market was established in 2000 at a very small initial scale In the first 5 years, the market developed slowly with low market capitalization and low number of listed stocks, which leads to the small number of securities companies and the slow activity of these companies Since 2006, with the stronger implementation of State owned enterprises, the supply of stock in the market is bigger, which creates a motivation for the development of the market in term of both market volume, demand and growth rate and therefore, helps the market to become one of the most interested industry by the whole society The total number of securities companies, therefore, has also increased accordingly in the peak period of the market in 2007 However, in 2008, due to the world crisis, the Vietnamese securities market had been continually slowed down and reached the bottom at the beginning of 2009, which created main difficulties for companies within the industry Although after that, the market had a sign to recover in 2009, but the recovery trend was not quite clear and at present, the market is still in fluctuation period In the hard time of the economy with a decrease of the demand, securities companies have to cope with many difficulties relating to the existence, such as big loss in investment and dealing activities, high overhead and personnel costs, low brokerage revenue, and the severe price war in cutting down brokerage fees Moreover, the threats of foreign rivals also exist This leads to hidden risks for

securities companies in coping with severe competition pressure to find out an effective strategy to sustainable exist and develop in the market

Established in 2006 with a very small initial investment capital, only 50 billions dong, VNDIRECT securities joint stock Company has also passed nearly all periods (developing and recession) of the market VNDIRECT had a comparatively effective strategy in the starting period aiming at online customers and focus on technology development and gained a comparative high earning and return on equity (earning after tax in 2007 was nearly billions dong, ROE was 21.5%) The economic crisis and the recession of the stock market has put VNDIRECT to cope with very difficult strategic issues, which are a big loss of more than 86 billions dong in 2008, low trading value and the serious lack of operating capital Before these big pressures, the board of management had comparatively relevant steps which are restructuring to cut cost, separate the brokerage activity and dealing activity, implementing to be listed to increase capital These steps helped to recover the activities of the company and regain the belief of investors, which create a base for the following developing periods However, before the severe and changing business environment like today, it is required that the company must have some certain adjustment in the strategy which is more effective to take advantage of all resources and capabilities of the company, to create a sustainable competitive to cope with opportunities and threats of the market

With the research and analysis of the macro environment, the securities industry and securities companies, as well as the situation of VNDIRECT Company, this thesis has shown out a necessity in strategic adjustments to effectively compete in the market

The purpose of this thesis was to analyze the macro environment, analyze the security industry and competitive pressure among securities companies, analyze the specific situation of VNDIRECT Company, and from the above analyses, giving out several recommendations in strategic adjustment for VNDIRECT in the upcoming time 2011-2016 to enhance the competitiveness in the market

2 Objective of the thesis

The objectives of this thesis focus on:

 Review the theory in strategy and strategic management

 Analyze the Vietnamese securities industry and competitive pressure among securities companies in Vietnam

 Analyze the specific situation of VNDIRECT company

 Give out several recommendations in strategic adjustment for VNDIRECT in the upcoming time 2011-2016 to enhance the competitiveness in the market

3 Research questions

The research‘s author seeks answers for the following questions:

 What is strategy and what is the role of strategy?

 What are major steps in a strategic management process in formulating a strategy?

 How does the external environment (including macro and the industry) affect to the activity of VNDIRECT?

 How well does the current strategy of VNDIRECT work? (Corporate strategy, business strategies, functional strategy)? What are roots of competitive advantage of VNDIRECT? What is the competitive position of VNDIRECT?

 What is needed to be developed in the theory for strategic management in finance and securities industry?

 What are suggested for Government bodies to stimulate the Vietnamese securities market?

 How does the strategy of VNDIRECT should be adjusted in order to be competitive in the market within the next few years?

4 Scope of work

The research areas are limited to analysis and adjust a strategy for a specific securities company (VNDIRECT) To do this, macro environment and securities

industry environment are included in the research The period of time for past analysis in securities industry environment is from 2000-2010 It is taken since the time of establishing the securities market in Vietnam For the analysis of VNDIRECT, the period of time for past analysis is from 2007, as VNDIRECT was established in late 2006

The time for future strategy is from 2011-2016 This is partly because of the fast development of the industry; it should take short-term to mid-term time to review this strategy

5 Methodology

5.1 Research method

Qualitative methods: Qualitative methods were used when reviewing the

theory and the general remarks of the fact as results of direct interview or observation/collecting data from secondary resources The typical used method is expert interview, which helps a lot in analysis in Chapter 2 (industry and company situation analysis)

Quantitative methods: Quantitative methods (together with statistic data) were

used widely in some parts like comparison on some specific figures (market share, revenue growth development, etc)

5.2 Data collection

Data was collected from 2 sources:

Primary sources: Part of the facts on the thesis is collected by observation and

direct interview (with several old and current managers and employees of VNDIRECT, strategic experts in securities industry and official publication like annual reports and prospectus of VNDIRECT and other securities companies)

Secondary sources: In some part (especially in Chapter 1 – Literature review),

data was collected from secondary sources like textbooks, previous publishing, official information in internet and in electronics newspapers, and some industry reports of several investment funds and securities companies

6 Contributions of the thesis

The thesis contributes to:

 Approach systematically strategic theory applying in securities industry

 Give out an overall analysis in macro environment and in securities industry, especially the key success factors, drivers of changes, 5 forces model analysis

 Study the case of a specific securities company (VNDIRECT)

 Recommend in strategic adjustments for VNDIRECT Securities Company This can also be a reference source for other securities companies

7 Expected results

Expected results of the study are:

 Giving out a whole picture of the securities industry: macro environment, dominant economics features and industry environment

 Giving out a deep analysis about the current situation of VNDIRECT securities company: How well the current strategies work, the company‘s roots of competitive advantage and its competitive position

 Giving out recommendations for theory development, for Government bodies

 Suggesting strategic adjustment for VNDIRECT to be more competitive in the market

8 Further research directions

Further research directions might be:

 Research and suggest solutions to develop the Vietnamese securities market in a specific time schedule (5 or 10 years)

 Research the strategic management model of other securities companies (which might be in the same or different strategic group of VNDIRECT)

 Deeper research on dominant economics features, including key success factors

in the securities industry

 Research model of establishment and development of foreign securities companies (or securities market) to draw out practice lessons for applying in Vietnamese securities companies/securities market

9 Limitation of the thesis

The thesis has some certain limitations:

 The interview for securities experts is conducted qualitatively but not quantitatively The result will be more reliable if a survey is conducted quantitatively (in a large sample survey) and analyzed under a form of statistic model

 The cost structure analysis based on the value chain among VNDIRECT vs rivals is not completed because of the lack of detailed financial figures

 The competition analysis among rivals within the industry only covers 2 biggest rivals but does not cover all major ones

10 Thesis structure

Besides the introduction, conclusions and additional parts (references and appendices), the thesis is divided into 3 major chapters as follows:

Introduction

Chapter 1: Literature review

Chapter 2: Case study of VNDIRECT

Chapter 3: Summarize and recommendations

Conclusion

References

Appendices: Interview content

CHAPTER 1: LITERATURE REVIEW

Literature review is an important part of any thesis as if helps to remind readers about previous theories relating to the topic discussed In this chapter, the theory in strategy and strategic management will be reviewed as a based for analyses in following chapter

1.1 Strategy and role of strategy

Professor Michael L.Porter of Harvard University, USA, has stated his own viewpoints in the article “What is strategy?” in Harvard Business Review In his opinion, strategy is performing different activities from rivals’ or performing similar activities in different ways It is the creation of a unique and valuable position, involving a different set of activities Strategy, therefore, is quite different from

“Operational Effectiveness (OE) which is only “Performing similar activities better

1

Arthur Thompson and Stricklands, Strategic Management: Concepts and Cases,10th edition, McGraw Hill

than rivals perform them” Although both operational effectiveness and strategy are necessary for the superior performance of an organization, they operate in different ways

From the viewpoint, it can be seen that a company can overcome rivals only if

it can establish a difference it can preserve and maintain this He also points out some certain core points when mentioning strategy:

- Strategy depends on Unique Activities Competitive strategy is about being different It means deliberately choosing a different set of activities to deliver

a unique mix of value

- Sustainable strategic position requires Trade-offs As a company’s resources are limited, it should invest its valuable resources in what is considered important, and say “no” in other less or unimportant factors investment Thus, in order for a strategic position to be sustainable there must be trade-offs with other positions That is why the term of “positioning” has become very well-known in the business recently A company, to become successful

in the market, has to focus all of its resources to a certain set off activities to create a different position in the market

- Strategy creates the fit driving Both Competitive Advantage and Sustainability It is considered as a system (i.e a combination of activities, not a sum of separate ones) Therefore, if a company has a sound and clear strategy, it can create a difference system which is very difficult to imitate, and therefore, can brings both competitive advantage and sustainability From these definitions, it can be seen that although the description of strategy are different, all authors agreed at a common viewpoint that strategy is a clear and best way (or road map) that a company has to “choose” to go to reach success As there might be different ways, a company can only choose the best way and ignore others If not, if will go around and never reach the final destination

1.1.2 Role of strategy

Strategy plays an important role in the overall business activity of the company Firstly, if helps the company go ahead in a clear direction, avoid being mislead in the way ahead or go around in a circle Secondly, a clear and sound strategy helps to clarify and communicate within the organization and to its customers/partners, so that all knows where the company goes and all implement this strategy in a consistent and coordinated way Thirdly, strategy helps companies

to create the competitive advantage and stimulate the sustainable development of the company in the long-term by focus all of its resources to implement which is considered as critical activities and to design an effective business system in order

to maintain its chosen positions in the market By doing this way, strategy helps companies to refuse implementing unimportant activities, therefore, save time, efforts and resources and reinforce the strong position It can be said that, without a sound strategy, company hardly can maintain and develop its position in the market

in the long-term

1.2 Strategic management process

The Strategic management process is a problem which is interested by many strategists as well as economists Simply understanding, strategic management is a process of implementing “strategic decisions” to answer 3 main questions: 1- Where

is the company now? 2- Where will the company go? 3- How can the company reach there?

As there are many different viewpoints in strategic management process, within the limitation of this thesis, a model of Strategic management is rebuilt up based on 2 models of Thompson and Strickland (which are Five Tasks of Strategic management model and The Strategy making pyramid model), to present the relations among major steps in the process

Figure 1-1: Strategic management model

SWOT Analysis

Internal analysis Strengths & Weaknesses

External analysis

Opportunities & Threats

Developing a Strategic Vision and

Business Mission

Organizational

Structure

Combine strategy, structure, organization

Organizational Control

Setting objectives

Formulating a strategy

Evaluating, Monitoring and

Adjustment Implementing the Strategy

Source: Based on Arthur Thompson and Strickland, Strategic Management: Concepts and Cases, 10th edition, McGraw Hill Companies, the Five Tasks of Strategic management Model and the Strategy Making Pyramid model

It can be seen that there are several steps in that model:

Firstly, the strategic management process begins with the identification of vision and mission of the company, which is to answer the questions “where will the company go?”

Secondly, the strategist should analyze the environment, including external and internal one, this is to answer the question “Where is the company now?” and

“What does the company have?”

Thirdly, the strategists have to set its own objectives, these objectives is in shorter time than the vision and mission, they might be annual or in several years and are very specific They can be illustrated as the milestones in the way that the company would like to go

Fourthly, after knowing the point of departure and of destination, the strategist has to draw out how the company can reach there, by what means, and what resources it has to prepare for, that is called a strategy

Then, the manager will organize to implement the strategy

During the process of strategy implementation, it needs the evaluation and monitoring to revise if the way it goes is right and the best way and if there is another better way to go, as the environment changes very quickly That is why adjustments might be made in all steps from redefining vision and mission, setting objectives, to formulating strategy and implementation

Therefore, it can be concluded that strategic management is an interrelated process, not a group of single activities, i.e all of the steps have the close relations with one another

Following parts in this chapter will review the theoretical aspects of this model

1.3 Strategic vision and business mission

As described in the above part, a strategic management process begins with the identification of vision and mission of the company

According to Thompson and Strickland, a strategic vision is a roadmap of a company‘s future – the direction it is headed, the business position it intends to stake out, and the capabilities it plans to develop A company’s mission is what a company is currently seeking to do for its customers From these definitions, it can

be seen that the vision is for the long-term future of the company, while the mission

is for the current business If a company ‘s mission does not only include the current business but also mention where the company is headed and what it will become in the future, then the mission merge into the vision, or we have both vision and mission in one statement

To become effectively communicate within and outside of the company, a company‘s vision and mission should meet ensure following characters: 1- The current business of the company 2- The long-term strategic course that the company will pursue 3- The statement should be clear, exciting, and inspiring Normally, the vision and mission is not to make a profit and therefore, not related to specific figures and numbers

1.4 Setting objectives

The third step after establishing strategic vision and business mission in the model is setting objectives Objectives can be defined as specific performance target converted from the vision and mission They represent the commitment of leaders to

achieve specific performance targets within a specific time frame Without objectives, vision and mission are only vague dreams

Unlike vision and mission, objectives should be very specific and can be illustrated by numbers and figures In general, objectives are divided into 2 types:

- Financial objectives: They are related to financial performance like growth in revenues and earnings, reduction in cost, higher dividends, better financial ratio (Return on assets, return on equity, earning per share, …)

- Strategic objectives: They are related to other non-financial performance like higher product quality and customer service than competitors, a bigger market share, higher brand awareness, more loyalty of customers, more qualified human resource, …

An objective must be “SMART” to be effective, that is the abbreviation of specific, measurable, achievable, realistic and time-bond

1.5 External environment analysis

External environment is the environment which affects directly or indirectly to the activities of a company but the company hardly impacts or changes this It includes macro environment (economics, politics, socio-cultural and technology) and industry (or competitive) environment, which can be illustrated in the following figure This environment creates opportunities or threats for the company

Figure 1-2: External environment

Source: From www.bolender.com

1.5.1 Macro environment analysis

When mentioning macro environment, the “PEST” analysis technique is often used, that is the analysis of 4 factors “Politics, economics, socio-culture and technology”

Analyze economic environment

The economic environment is factors and forces which impact the capability

of production and supplying (supply factor) as well as and the ability and willing to buy product/services (demand factor) Some most important factors of the economic environment are the economic system, economy condition, interest rate, inflation rate and exchange rate

The economic environment affects stronger to the securities industry than to other industries, firstly because the securities market is under the impact of economic factors like economic growth, inflation, interest rate (under the driving of

Organization

Specific Environment Industry-Competitors

Substitute Products Bargaining Power of Suppliers

Bargaining Power of Buyers

Potential Entrants

Current Rivalry

General Environment

Political-Legal

Socio-cultural

Economic Technological

current currency policy of State Bank) It can be said that the securities market is the “thermometer” of the economy:

Economic growth: When the economy is under recession, the stock price of joint-stock companies decrease and the index of the securities market also decreases; the investors (both domestic and foreign) will their lose belief and limit their investments into the securities market or even withdraw from the market, which means a securities lose it customers and revenue/profit Moreover, companies who self-trade the securities directly suffer worse from the recession Vice versa, when the economic growths, securities companies also take great benefit from this Interest rate: Under recession, the State bank tends to tighten its currency like increase basic interest rate, decrease currency supply in the open market, decrease credit growth or increase compulsory reservation with commercial banks, the consequence is the decrease in investment, increase financial expense of companies, decrease future earning and delay the expansion plan

Inflation and exchange rate: These factor affects indirectly to the company activities Firstly as when the inflation or the exchange rate between local and foreign currencies is high, people tends to invest in gold and foreign currencies rather than in saving or invest in the stock market These investments, in some extent, can be considered as the “substitutes” of securities Secondly, the exchange rates will affect to the investment decision of foreign clients If the Vietnamese dong become “cheaper”, foreigners tends to invest more in the Vietnamese market and vice-versa

Therefore, it can be concluded that the securities company is affected both directly and indirectly from the economic environment

a Analyze political-legal environment

The goal of the analysis in political-legal environment is to identify impacts of politics and legal system on the stable and sustainable development of the company Legal environment includes legal system and politic system (like policies of the Government, politic environment in both domestic and international) A politic

stability and an open, convenient legal environment will facilitate investors and enterprises to start up and develop their business in the long run

b Analyze socio-cultural environment

Socio-cultural environment includes values and standards accepted and respected by a society or a specific culture, including viewpoints in lifestyle and consuming; attitude, traditional habits and customs; interests of the society; level of knowledge To identify and catch up with consuming tendencies will bring competitiveness and success for the company The main goal of analysis the social-cultural environment is the attitude and behaviour of actors and customers who have

a direct relationship with the company The social environment also includes factors like population, the growth rate and distribution of the population, structure of age and gender, income Analysis of these factors will help the company to estimate the market volume and exploit the right characteristics of the market to look for a profit

c Analyze technology environment

Technology progress is a basic factor to develop the economy Although without technology progress, people of a country still can have a high living standard base on their natural resources (like Brunei or previous middle east countries based on their oil resources), but this tend is not sustainable and will not prolong forever as these resources are limited This is similar to decide to give a fisherman a fish or a “fishing rod” It is the development of technology that is the

“fishing rod” which plays a key role in all periods of the economic development In developing countries with low technology level like Vietnam, the successful transfer and adoption of technology from foreign countries decide the sustainable growth of the economy

The development of technology, especially information and communication technology affect positively to the activity of a company in general and a securities company in particular, as securities industry has a close relation with information technology industry First, it decrease the cost of transportation and communication With a computer connected to the Internet, customers can buy/sell securities and use

other extra-services (such as analysis and consulting services) online, which save costs (including “opportunity costs” like time) for both customers and the company When nearly all information is available in the website and via the automatic toll-free, the company will need less employees for customer care as some activities can

be implemented automatically, and therefore, saving expense for paying salaries for these employees Secondly, it promotes the innovation and creativeness, increases productivity and creates new added values Thirdly, information technology and communication combine with other technologies are useful means to enhance the management effectiveness Fourthly, it can affect to the barrier of entrance into the industry and quickly restructure the competition within the industry The company will save a lot of time, money and work if it knows how to apply technology progress into its business activity Of course, the negative side of technology progress is that it puts a great pressure on the company to continually renovate, but this pressure is certain and is a motivation to develop Therefore, one of important things that a company needs to do is usually research on new technology, development level of technology,… to take opportunities brought by technology progress in order to enhance its competitiveness

1.5.2 Industry and competition environment analysis

Industry can be understood as a group of firms whose products have so many

of the same attributes that they compete for the same buyers

To identify opportunities as well as cope with threats in business, strategists have to analyze competition pressures within the industry environment To help them doing this, Professor Thompson and Strickland stated in their book “Strategic management – Concepts and Cases” that, when analyzing the industry and competition within that industry, a strategist should look for answers for seven basic questions, that are:

1 What are the industry's dominant economic features?

2 What competitive forces are at work in the industry and how strong are each of the competitive forces?

3 What are the drivers of changes in the industry and what impact will they have?

4 Which companies are in the strongest/weakest competitive positions?

5 Who’s likely to make what competitive moves next?

6 What key factors will determine competitive success?

7 How attractive is the industry in terms of its prospects for above-average profitability?

a What are the industry's dominant economic features?

As each industry has its own character and structure, the industry analysis should begins with an overall of the industry ‘s dominant economic features by considering the basic factors such as market size and growth rate, geographic scope, number and sizes of buyers and sellers, pace of technological change and innovation, scale economies, experience curve effects, capital requirements, and so

on

Analyzing the industry economic features is important, as it will help much for planning the strategy For example, a company deals in an industry which requires a lot of capital investment, might have to consider the strategy of raising capital by equitization or look for a strategic investor to pour capital in, a company deals in an industry with fast pace of technological change and innovation must invest relevantly in R&D It is crucial to understand well about the industry before going

in to more details like competition and drives of change

b What is competition like and how strong is each of the competitive forces?

According to Professor Michael Porter of the Harvard Business School, the state of competition in an industry is a composite of five competitive forces, which can be illustrated in following figure:

Figure 1-3: 5 forces competition model

Source: Porter, M E (Jan 2008), The Five Competitive Forces that Shape Strategy, Harvard Business Review

Force 1: Rivalry among competing sellers:

This is the competition among current rivals within an industry This competition may vary from friendly, moderate, strong to fierce, depending on how competitors move to threaten rivals ‘ profitability These moves might happen in action relating to price, quality, customer service, warranties, performance features, advertising, dealer network, and new product innovation, to attract the buyers Competitive rivalry is fierce when actions of competitors are driving down industry profit, moderate when most companies can earn acceptable profit and weak when most companies in the industry can earn above average return on investment

There are several general factors that have impacts on competition among competing sellers in any industry, which are as follows:

INDUSTRY COMPETITORS

Rivalry Among Competing Sellers SUPPLIERS

Bargaining

Power

Of Suppliers

POTENTIAL ENTRANTS Threat of New Entrants

BUYERS

Bargaining Power

Of Buyers

SUBSTITUTES Threat of Substitute Products in other Industries

- The competition structure: If the industry has numerous competitors of equal size and capability, the rivalry might be more intense

- Rate of industry growth: Slow growth leads to greater rivalry, as there might not enough customers for all current rivals and new entrants In a slow growth industry, the company will growth by beating its competitors to re-share the market and increase the earning In an increasing demand industry, there will be room for all competitors in the market without severe competition

- Value of fixed costs: In industry with high fixed costs, the rivalry will be more severe, as companies may try to cut price as fixed cost can be spread with more units of selling

- Customer‘s cost to switch brands: If this cost is low, the competition pressure

is higher, as customer can easily move to use products of other competitors when they are dissatisfied with the current one

- Whether the product is a commodity dependent upon price and service

- The diverse of competitor strategies: If competitors have different ideas of how to compete, the rivalry will become more complicated and unpredictable

- Whether the industry exhibits high exit barriers: If a company has to pay more to get out of the industry than to stay in, it will tend to remain in the industry even if it make low or no returns These barriers might be a big investment in fixed assets with low liquidity; high exit cost (like cost relating

to compensate the old employees or customers for its existence), and the capability to diversify/move to other business of the company

The strategist‘s task is to understand the current tactics that competitors use to draw out an effective strategy

Force 2: Threat from potential entry

Potential competitors are companies in the future who might enter to the industry and might become competitors of current companies If barriers to potential entry to the current industry are low, the threat from potential entry will be high Barriers to potential entry might include, but not limit to following factors:

- Economies of scale — this is the advantage in expense for large scale current companies A large scale company can have advantage base on economies of scale as they have a big discount from buying a large amount of inputs, decreases in fixed expense per unit of output and even other expense per unit like marketing, R&D and advertising These advantages push a potential competitor to consider carefully before entering the new business: either to start up with a large-scale size (which requires a lot of investment) or to accept a cost disadvantage (which leads to lower profit)

- Brand loyalty: This is the preference to the current brand of customers The higher the brand loyalty is, the more difficult for potential entrants, as they have to spend a big expense to do advertising and marketing in order to build

up new brands

- Resource requirements to enter the business: If the total investment and other resource requirements needed to enter the market are high, potential entrants are likely not to integrate into the business These resources ranges from basic types like facilities and equipment, initial marketing and sales expenses; to enhanced ones like technology, expertise and know-how, and R&D requirements

- Besides, Government‘s regulations and restriction policies within the industry are also important factors for potential competitors to consider before deciding whether to go into the market or not

Force 3: Competitive pressure from substitutes

Substitutes are products in other industries which can meet the similar demand

of customers If a product has no or few substitutes, the threat is low and companies can take this opportunity to increase price and make more profit If the number of substitutes is large and they are all available to customers, the threats might be high,

as customers can easily compare among prices, quality, services and other terms Also, if current price and quality of substitutes are competitive, it is a danger to the company Another factor that has impact on pressures from substitutes is the customer’s switching cost If the switching cost is low, customers will find it easier

to switch to buy the substitutes

Force 4: The power of Buyers

To identify the power of buyers is strong or weak; the strategist has to analyze the ability of buyers in bargaining price, quality, service or other factors According

to Michael Porter, the power of buyers is strong in following situations:

- The number of buyers is small

- Buyers purchase large quantities of commodities

- Buyers’ costs of switching to other brands of competitors or substitutes are relatively low

- The volume of information buyers known about sellers’ products, prices, costs and others

- Buyers can implement a backward integrating strategy into the business of sellers, which means they pose a threat of entering the business of sellers

- The purchase of the product is not a compulsory for buyers

Force 5: The Powers of Suppliers

Suppliers might pose threats to the company if they have the power to increase price or decrease the quality of input If the power of suppliers is weak (i.e there are

many competitive suppliers and this competition is severe), the company can put pressure on suppliers to decrease input price and enhance quality

c What are the drivers of changes in the industry and what impact will they have?

According to Michael Porter, industry and competitive conditions change

because forces are in motion that creates incentives or pressures for change The

most dominant forces can be considered as driving forces

There are two phases in analyzing driving forces: The first is to define these forces, the second is to define the impact they have on the industry The most common driving forces include, but are not limited to changes in the long-term industry growth rate, changes in buyer characters and behaviour, product innovation, changes in technology applications (especially in Information technology and the Internet), marketing innovation, increase globalization of the industry, entry or exit of major firms, changes in cost and efficiency, changes in buyer preferences for standardized versus differentiated products or services, changes in regulatory influences and government policy, changes in societal factors, attitude and lifestyle; and reductions in uncertainty and business risk This analysis

is very critical for preparation for a strategy planning, as it is a base to predict the future of the industry, and helps to draw out which field the firm have to pay attention to in order to be competitive

d Which companies are in the strongest/weakest competitive positions?

It is critical to understand clearly about the overview of positions of competitors in an overall picture, i.e which are strongest and which are weakest However, in an industry with many competitors, it is difficult to assess one by one

To give out a solution for this issue, Professor Thompson suggests a tool of

“Strategic group mapping”, which can be defined as a “technique for displaying the

competitive positions that rival firms occupy in the industry” By this tool, all

companies have similar competitive approaches and positions belong to a same

strategic group This is a very effective tool for understanding the similarities, differences, strengths, and weaknesses inherent in the market positions of rival companies Companies in the same or similar strategic groups are close competitors, while rivals in separate strategic groups in the map hardly compete with one another, therefore have little threat

One more thing strategist could consider is that some positions on the map are different in term of profit potential This happens because of various differences like different degree of competition within the strategic groups, different powers of suppliers and buyers and different growth rate for each market segment

e What strategic moves are rivals likely to make next?

This step relates to find out and understand about strategies of rivals, identify which are main close competitors in the time to come This is to analyze the historical facts and the current strategy, to see which are likely to be stronger, as well as which are likely to be weaker This also relates to the prediction of what they are likely to do next If the prediction is correct and a plan of reaction is carried out effectively, the firm can even beat the rivals and take over their market

f What key factors will determine competitive success?

“An industry's key success factors (KSFs) are the particular strategy elements, product attributes, competitive capabilities, and business outcomes that spell the difference between profit and loss and ultimately, between competitive success or failure” KSFs are so important to competitive success that all companies in the

industry must focus to them Before finding out the key success factors, strategists must analyze the 3 following issues:

- Identify the base that customers choose between competing brands of sellers

- Identify must-to-do actions of a seller to succeed within the industry, and which resources it has to mobilize to do this

- Identify what the seller has to do to reach a sustainable competitive advantage

When answering all of the above problems, the identification of key KSFs will

be much easier They can be either technology related, or marketing related, organizational capability related, or others

Finding out correct industry's KSFs helps the company to plan an effective strategy together with distributing its resources On the opposite site, if the company fails to define the correct KSFs, it might be mislead and invest a big amount of resources in unimportant factors and thus, become uncompetitive at all

In general, a company hardly is in the top in all KSFs due to limitation of its resources Therefore, in a certain period of time, it should aim at being good on all

of the KSFs and trying to be the in the top on 1 (or maybe 2 KSFs) that it has more competitive advantage by doing differently This is concluded as a very effective approach

g How attractive is the industry in terms of its prospects for above-average profitability?

After answering 6 questions above, the final question is to find out a conclusion about the attractiveness of the industry in the position of a certain company It should emphasize at “of a certain company” because an industry might

be very attractive to several companies (like leading ones) but unattractive to others (like weak ones, new entrants or outsiders) If an industry's overall profit prospects are above average, the industry environment is basically attractive; if industry profit prospects are below average, conditions are unattractive Some factors should be considered before giving out the final conclusion about the industry attractiveness might be …

This conclusion has great impacts on the long-term strategy of the company If

an industry is considered as attractive to the company, it can invest more resources

in certain KSFs to and develop its position in the market, enhance the market share

and revenues If an industry is considered as unattractive to a strong company, it may choose to simply maintain its present position and exploit it, reduce investing and looking for opportunities in other more attractive industries If an industry is considered as unattractive to a weak company, it might want to exit the industry by selling its business unit to other company

1.6 Company situation analysis

The analysis of a company’s situation begins from the analysis of how well the current strategy works Then it has to analyze the base and source of competitive advantage, which helps a company outstands its rivals The source of competitive advantages relates to the analysis of several major concepts such as resource, capability, competency, distinct competency, the value chain, and the strength and weakness Only when well-understanding the current strategy and internal competencies and weakness, strategist might draw out a specific new (or revised) strategy to create a durable competitive advantage

1.6.1 Analysis of how well the current strategy works

To evaluate how well the current strategy works, a strategist has to begin from the current strategy that the company is pursuing The first thing to do is to identify the current competitive approach of the company: whether it pursuits cost leadership or differentiation, and whether it serves a large or a narrow market The second thing to do is to analyze the competitive scope within the industry: how deep the company involve in the production-distribution chain of the industry, the geographic area, the size and structure of its customers The strategist also has to understand current functional strategies such as production or operations, human resources, finance and marketing

While it is good when evaluating the current strategy in qualitative viewpoint, the quantitative approaches is also needed, as it supply the specific evidence of the company‘s efficiency in the market The evaluation of current strategy is also be

implemented by looking at trends in certain numbers and indexes, such as the trends

in market share, charter capital, revenue and net income, financial indexes (ROA, ROE, EPS), the brand and image of the company in the eyes of customers, and so

on The weak number and indexes might be results of the current strategy, or the way to implementation, or both

1.6.2 Analysis of company’s roots of competitive advantage

Concept of competitive advantage: It is defined that a company has a competitive advantage when its profit rate is higher than its competitors, and it has a sustained competitive advantage when it is able to maintain this high profit rate over many years (Hill, page 110) Profit rate is normally return on assets (ROA), return

on equity (ROE) It is needed to see the profit rate over a certain period of time (at least from 3-5 years)

Michael Porter pointed out that there are two conditions deciding a company’s profit rate and then its competitive advantage: values created to customers and costs

of production In general, the more value created to customers, the higher amount of money customers are willing to pay He has argued that via differentiation, company can create more value to customers, and via activities toward cost leadership, the company can gain competitive advantage Based on this viewpoint, Charles Hill and Gareth Jones suggested 4 blocks to build competitive advantage in the following figure:

Figure 1-4: The generic building blocks of competitive advantage

Source: From Charles W.L Hill and Gareth R Jones Hill, page 113

Efficiency is understood as number of outputs created based on certain number of inputs The higher outputs a company created in comparison with its competitors based on certain number of inputs, the higher efficient that the company

is

“Quality products are goods and services that reliable in the sense that they are the job they were designed for and do it well” (Charles W.L Hill and Gareth R Jones Hill, page 116)

“Innovation can be understood as anything new about the way a company operates or the products it produces” (Charles W.L Hill and Gareth R Jones Hill, page 116) It is considered the most important building block of competitive advantage

Customer responsiveness is understood as the capability to respond quickly to customers ‘ideas or complains To have good customer responsiveness, the company needs to out-perform its rivals in satisfying its customers ‘demand This

Competitive advantage:

Superior innovation

can be done by understanding customer’s needs and demands via customers‘satisfaction research and a system which allows customers’ feedback One thing to increase the customers’ responsiveness is product customization that allows the company to serve best for a specific segmentation Also, time in response customers ‘feedback is also an important factor of customer’s responsiveness

Resources, capabilities, and distinct competencies

Resources can be understood as tangible and intangible things which the company can use and mobilize in its business Plant, real estate, equipment and machines are examples of tangible resources; whereas human resource, brand names, invention, license, patent, marketing know-how, factors belonging to organization and management like business culture, management and control system are instances of intangible resources

According to Charles W.L Hill and Gareth R Jones Hill, capabilities are skills at coordinating it resources and putting them to productive use These skills may be built up during a company’s operations, in the way a company makes decision and manage its internal processes in order to achieve organizational objectives They are products of organizational structure and control systems They specify how and where decisions are made within a company, the kind of behaviours the company rewards, and the company’s culture and values Capabilities therefore are intangible

The distinction between resources and capabilities is important to understand what create a distinct competency A company may have unique and valuable resources, but unless it has capabilities to use those resources successfully, it may not be able to create or sustain a distinctive competency (Charles W.L Hill and Gareth R Jones Hill)

A distinct competency is a unique strength that allows a company to achieve superior efficiency, quality, innovation or customer responsiveness and therefore to

create superior value and attain a competitive advantage (Charles W.L Hill and Gareth R Jones Hill, page 123)

Those are distinct competencies that decide the sustainable competitive advantage of the company To become a distinct competency, it must ensure the following criterion: 1- It is difficult to be imitated 2- It lasts in a comparatively long time 3- It is really superior relative to other competitors’ 4–It cannot be replaced by other resources/capabilities Because of these criteria, a distinct competency is rarely a physical single resource, as it is very easy to copy A distinct competency, normally is a combination of certain good resources that make the company different from other rivals This is again back to Porter’s definition of strategy If a company does not have a distinct competency and a clear strategy, it is easily to be imitated and knocked out by its rivals

The situation analysis of a company is very important, as it helps a strategist to know the competencies needed to focus on and the major weaknesses needed to be improved Even if a company has no competency, it might have to decide to invest and build up some competencies to change the competitive situation Successful strategy often either build on a company’s existing distinctive competences or help

a company develop new ones (Charles W.L Hill and Gareth R Jones Hill)

1.6.3 Analysis of company‘s cost structure

The analysis of whether a company ‘s costs are competitive with its competitors is very important in company situation analysis, as it can help to increase the profit margin of the company or supply a low cost product to customers To understand the company‘s cost deeply and compare easily with its competitors, the strategist should break the over all cost into each activity cost It can be done based on the value chain of the company As every company’s business includes a series of activities where cost arises, a value chain can be understood as a chain of primary activities and supporting ones that create the valuable outputs for