Formulation and choice of competitive strategy for green fiberboard JSC

LIST OF FIGURES FIGURE 1.1: FIVE FORCES MODEL BY MICHAEL PORTER ………… 8 FIGURE 1.3: PROCESS TO IDENTIFY COMPETITIVE ADVANTAGE .15 FIGURE 2.5: VALUE CHAIN ANALYSIS FOR GREEN FIBERBOARD FIG

VIETNAM NATIONAL UNIVERSITY, HANOI

SCHOOL OF BUSINESS

Nguyen Tien Dung

FORMULATION AND CHOICE OF COMPETITIVE STRATEGY FOR GREEN FIBERBOARD JSC

MASTER OF BUSINESS ADMIINISTRATION THESIS

VIETNAM NATIONAL UNIVERSITY, HANOI

SCHOOL OF BUSINESS

Nguyen Tien Dung

FORMULATION AND CHOICE OF COMPETITIVE STRATEGY FOR GREEN FIBERBOARD JSC

TABLE OF CONTENTS

ACKNOWLEDGEMENTS ………i

ABSTRACT ……….ii

TÓM TẮT ……… iv

TABLE OF CONTENTS ……… vi

LIST OF ABBREVIATIONS ……… ix

LIST OF TABLES ……….x

LIST OF FIGURES ……… xi

INTRODUCTION ……… 1

 Necessity of the Thesis ………1

 Research Purpose ………1

 Research Scope ……… 1

 Methodology ……… 2

 Contribution of the Thesis ……….2

CHAPTER 1: LITERATURE REVIEW ……….… 3

1.1 Strategy Definition ……….… 3

1.1.1 Vision ……… 4

1.1.2 Mission …….……… 4

1.2 External Analysis ……….4

1.2.1 Macro Analysis ……….… 4

1.2.1.1 Economic …….……….……… 4

1.2.1.2 Politics …….……….……… 5

1.2.1.3 Socials …….……… 6

1.2.1.4 Technology …….……….……….7

1.2.2 Micro Analysis … ………7

1.2.2.1 Potential Competitor …….………8

1.2.2.2 Rivalry among Established Companies …… ……….9

1.2.2.3 The Bargaining Power of Buyers ……… ……….….…….9

1.2.2.4 The Bargaining Power of Suppliers ……… …….10

1.2.2.5 The Threat of Substitute Products ……… 10

1.3 Internal Analysis ……….…11

1.3.1 Value Chain Model … ……… ….11

1.3.2 Identify Competitive Advantage - Key Success Factors … ….….….15

1.4 Core Competences ……….…….….16

1.5 Competitive Strategy ……….…….….17

1.5.1 Cost leadership Strategy … ……….……… 18

1.5.2 Differentiation Strategy … ……….……….…20

1.5.3 Focus Strategy … ……….………….… 21

1.6 SWOT’s Analysis to Formulate Competitive Strategy ……… 23

CHAPTER 2: ANALYSIS GREEN FIBERBOARD’S SITUATION ….26 2.1 Introduction about the Green Fiberboard JSC ……….……26

2.2 Analysis of Wood Industry ……….…….26

2.3 Forecast the development direction (Opportunity & Threats) …….……28

2.3.1 External Analysis in Artificial Wood Industry - PEST Model 28

2.3.1.1 Economic ……….……… 28

2.3.1.2 Politics … ……… 31

2.3.1.3 Socials … ……….……….……33

2.3.1.4 Technology … ……… …….33

2.3.1.5 Integration … ……… 34

2.3.2 Internal Analysis in Artificial Wood Industry - Five Forces Model 35

2.3.2.1 Rivalry among Established Companies … ……… …… …35

2.3.2.2 Potential Competitors … ……… 38

2.3.2.3 The Bargaining Power of Buyers … ………40

2.3.2.4 The Bargaining Power of Suppliers … ………40

2.3.2.5 The Threat of Substitute Products …… ………… ……….42

2.4 Value Chain Analysis for Green Fiberboard JSC……… ……… ……43

CHAPTER 3: PROPOSE SOLUTION FOR GREEN FIBERBOARD 50

3.1 Orient the development strategy for Green Fiberboard JSC …………50

3.1.1 Vision …….……….……… 50

3.1.2 Mission …….……….…………50

3.1.3 Value …….………50

3.1.4 Green Fiberboard’s Objectives to 2012 …… ……… …… 50

3.2 Key Success Factors … ……… 52

3.3 SWOT Analysis to Formulate Green Fiberboard’ Strategy ………… 53

3.4 Select the Competitive Strategy for Green Fiberboard JSC ………… 54

3.4.1 Focus Differentiation Strategy (S-O Strategy) …….……….54

3.4.2 Average Pricing Strategy (S–T Strategy) …….……….54

3.4.3 Distribution Channel Development Strategy (W– O Strategy) … … 55

3.4.4 Branding Strategy (W– T Strategy) …….……… …55

3.5 Developing Competitive Strategy for Green Fiberboard JSC …………56

3.5.1 Average Pricing Strategy ((S-T Strategy) … ……… 56

3.5.2 Focus Strategy (S-O Strategy) ……… …61

3.5.3 Distribution Channel Development Strategy (W-O Strategy) … ……63

3.5.4 Branding Strategy (W-T Strategy) … ……….64

3.6 Conclusion ……… 65

REFERENCE

LIST OF ABBREVIATIONS

LIST OF FIGURES

FIGURE 1.1: FIVE FORCES MODEL BY MICHAEL PORTER ………… 8

FIGURE 1.3: PROCESS TO IDENTIFY COMPETITIVE ADVANTAGE 15

FIGURE 2.5: VALUE CHAIN ANALYSIS FOR GREEN FIBERBOARD

FIGURE 2.8: MDF PRODUCTION PROCESS… ……….45 FIGURE 2.10: GREEN FIBERBOARD’S MANAGEMENT CHART…….48 FIGURE 2.11: PRODUCTION UNIT CHART… ………49

LIST OF TABLES

TABLE 2.4: LIST OF SUGAR PLANTS AND

TABLE 2.9: TOTAL OF GREEN FIBERBOARD’S

HUMAN RESOURCES ……… ……….47 TABLE 3.1: GREEN FIBERBOARD’S OBJECTIVES TO 2012………….51 TABLE 3.2: DESCRIPTION OF AVERAGE PRICING STRATEGY ….56

TABLE 3.5: DESCRIPTION OF DISTRIBUTION CHANNEL

DEVELOPMENT STRATEGY ……… ….63

INTRODUCTION

 Necessity of the Thesis

Vietnam has transformed in two decades of rapid It has opened its door to the outside world and liberalized its economy Over past decade, annual growth has average 7.5% More and more, the quality of life is improved and high Foreign investment is pouring in recent year and the competition in between domestic and oversea firms is fiercely

Many enterprises are lacked of competitive competencies and strategy in the integrated economy Facing with the above opportunities and threats, the organizations and firms need to try their best to exist in the severe and violent environment

With desire of developing appropriate business strategy for Green Fiberboard JSC, my thesis concentrates to the Competitive Strategy

 Purpose

This thesis aims to find the strengths and weakness, the oppotunities and threats that Green Fiberboard needs to implement and face It also evaluates the effect of internal enviroment and external enviroment to the firm and base

on the evaluation it will propose competitive strategy that is suitable for Green Fiberboard Join Stock Company

 Research Scope

Thesis only centers the factors that effect to the production capacity of Green Fiberboard and then implement to formulate competitive strategy for this company

 Methodology

The methodology will be base on by collecting data from newspapers, magazines, and internet, reviewing all the studies related to competitive strategies Statistic method is use to find the trends and characteristics for analysis factors

Quantitative survey can help to find out directors’ opinions on the Green Fiberboard operation

 Contribution of the Thesis

The student hopes this thesis will help other students who are interested in researching on the competitive strategy in future And the most important thing is that this thesis can help Green Fiberboard JSC., having a competitive strategy for its development

CHAPTER 1: LITERATURE REVIEW

Since it's establishment in April 1948, Dongwha Holdings has developed as a corporate group that specializes in the manufacture of wood materials It has also led the development of the Korean domestic wood industry by maximizing added-value The company continuously attempts to enter into high value-added business areas such as boards, surface materials, and building interior materials by intensifying wood business that has previously been the source of the company’s growth Recently, the company actively carried out overseas businesses

Dongwha Holdings believes in being equipped with an innovative business mind that enables us to respond to changes in a turbulent business environment, promptly For half a century, the company has established the firm basis for shaping the next half of the century into a new era through ceaseless developments, challenges and diversified changes

Dongwha Holdings also believes in putting its management philosophy of customer satisfaction, innovation, and respect for people into practice and endeavors to establish itself as a reliable business Not satisfied with being the leader in the Korean domestic market; Dongwha aims to realize the vision of being the leader in the Asian wood industry

1.1 Strategy Definition,

A plan that attempts to define a position for the business that utilizes the competitive advantages that the business has over its competitors

1.2 External Analysis

1.2.1 Macro Analysis

An organization’s external environment consists of competitors and other forces outside its industry that are not under the direct control of the business and its industry Every business is subject to general forces that are felt in many industries and that are not usually amenable to influence by a single organization These forces can be classified as Economic, Technological, Social and Political

1.2.1.1 Economic

Economic growth rate and GDP can effect negatively to consumption of wood products When the economic grows strongly, GDP in a country is high,

and living standard is improved people will have huge demand for house

The fluctuations of local, national, and world economies are related in many ways, but it is still important to make separate assessments based on organizational scope To assess the local situation, an organization might seek information concerning the economic base and future of the region and the effects of this outlook on wage rate, unemployment, and the transportation and commercial base On the national level, trends in growth, income level, inflation, balance of payment and taxation are only a few of the indicators of the ability of the economy to produce and consume goods and services

Some experts saying Vietnam Economy is developing strongly because of promoting individuals consumption and private investment and foreign direct investment The optimistic economic development effect positively to wood processing industry

Therefore, we can consider that the risk of economy can also cause the risk for any firm

1.2.1.2 Politics

Political and legal factors have a major affect on the level of opportunities and threats in the environment and effect to any industry’s existence and development For example, One year after Vietnam’s entering WTO, the wood processing industry for export reached 2.4 billion USD, up to 24.4% comparing with 2006

Laws influence the hiring and firing of employees, compensation, working hours, and working conditions Laws also influence advertising practices, the pricing of products and corporate growth by mergers and acquisitions In

addition to these laws, governmental tax policies influence the financial structure and investment decisions of organization For example, every wooden processing firms exporting to European and USA markets have to follow Forest Steawardship Council (FSC), which is an independent, non-governmental, not for profit organization established to promote the responsible management of the world’s forests This organization will issue a certificate for those firms having good management of forest and that means the good is not smuggle

We can say that the political and legal factor can effect strongly to the countries A developing country jointing into WTO it can be an development about capital foreign investment and export into international markets Beside, in the integration process, the wood manufacturing enterprises in that county are facing with many risks such as the competition from foreign producers who have knowledge, money and high technique

1.2.1.3 Social

Social forces include factors that relate to the values, attitudes, and demographic characteristics of an organization’s customers Dynamic social forces can significantly influence the demand for and organization’s products

or services and can alter its strategic decision Determining the exact impact

of social forces on an organization’s objectives is difficult at best Nevertheless, assessing the changing values, attitudes, and demographic characteristics of and company’s customers is an essential element in establishing firm objectives Population growth and economic development will intensify the demand of wood products and this will be opportunities for wood processing industry

In Vietnam, labor source is available and cheap and Vietnamese workers are skillful which can be advantages for Vietnamese wood firms for competition

1.2.1.4 Technology

Vietnam wood processing companies are using old equipments, backward technologies, and that effect to product quality and their competition in the market The growth of wood market will be affective to shape and develop the technology market Technology exchange and transfer will be faster through the integration Technological forces include not only the fascinating invention that revolutionizes our lives but also the gradual improvements in methods, in materials, in design, in application, in transmission into new industries and in efficiency The effects of wood technological changes are normally felt in the following ways:

- New products such as artificial wood Particle Board, MDF can be

replacing natural wood

- Alternate processing methods, raw materials such as artificial wood made

from straw, leaf, coffee bark, rice husk

1.2.2 Micro Analysis

The task facing managers is to analyze competitive forces in an industry’s environment in order to identify the opportunities and threats confronting a company Michael E Porter of the Harvard School of Business Administration has developed a framework that helps managers in this analysis Porter’s framework is known as five forces model

Figure 1.1 Source: M.E.Porter, Competitive Strategy (New York: Free Press 1980)

This model focuses on five forces that shape competition within an industry

- The risk of new entry by potential competitors

- Degree of rivalry among established companies within an industry

- The bargaining power of buyers

- The bargaining power of supplier

- The threat of substitute products

1.2.2.1 Potential Competitor

Potential competitors are companies that are not currently competing in an industry but have the capability to do so if they choose Incumbent companies (those already operating in an industry) try to discourage potential competitors from entering the industry, since the more companies enter, the

Threat of entry

by potential competitors

Rivalry among established firms

Bargaining power of buyers

Bargaining

power of

suppliers

Threat of substitute products

more difficult it becomes for established companies to hold their share of the market and to generate profits Thus, a high risk of entry by potential competitors represents a threat to the profitability of established companies

On the other hand, if the risk of new entry is low, incumbent companies can take advantage of this opportunity to raise prices and earn greater returns The strength of the competitive force of potential rivals largely a function of the height of barriers to entry Barriers to entry are factors that make it costly for companies to enter an industry The greater the cost that potential competitors must bear to enter an industry, the greater are the barriers to entry High barriers to entry keep potential competitors out of an industry, even when industry returns are high

There four main sources of barriers to new entry: brand loyalty, absolute cost advantages, economic of scale and government regulation

1.2.2.2 Rivalry among Established Companies

The second of Porter’s five competitive forces is the extent of rivalry among established companies within an industry If this rivalry is weak, companies have an opportunity to raise prices and earn greater profits If rivalry is strong, significant price competition, including price wars, may result The extent of rivalry among established companies within an industry is largely a function

of three factors: the industry’s competitive structure, demand conditions, the

height of exit barriers in the industry

1.2.2.3 The Bargaining Power of Buyers

A company’s buyers may be the customers who ultimately consume its products (its end users), but they may also be the companies that distribute its products to end users, such as retailers and wholesalers

Buyers can be viewed as a competitive threat when they are in a position to demand lower prices from the company or they demand better service On the other hand, when buyers are weak, a company can raise its prices and earn greater profits Whether buyers are able to make demands on a company depends on their power relative to that of the company

1.2.2.4 The Bargaining Power of Suppliers

Suppliers can be viewed as a threat when they are able to force up the price that company must pay for its inputs or reduce the quantity of the inputs they supply, thereby depressing the company’s profitability On the other hand, if suppliers are weak, this gives a company the opportunity to force down prices and demand higher input quantity As with buyers, the ability of suppliers to make demands on a company depends on their power relative to that of the company

1.2.2.5 The Threat of Substitute Products

Substitute products are those of industries that serve consumers’ needs in a way that is similar to those being served by the industry being analyzed The existence of close substitutes presents a strong competitive threat, limiting the price a company can change and thus its profitability However, if a company’s products have few close substitutes (that is, if substitutes are weak competitive force) then, other things being equal, the company has the opportunity to raise price and earn additional profits

1.3 Internal Analysis

Internal analysis begins with identification of the organization’s resource allocations This analysis should produce an list of organizational strengths and what the organization does well Strengths must then be analyzed for their strategic significance It is also necessary to identify areas of weakness and to determine whether these weaknesses have strategic significance that is whether they make the organization vulnerable All these assessments are relative and they must incorporate environmental information

1.3.1 Value Chain

Support

Activities

Figure 1.2 Source: Charlers W.L.Hill and Garethr Jones, Strategic Management: An

Integrated Approach (Houghton 1998)

An example of material management in the value chain

Flakeboard Company Ltd., a manufacturer of particleboard and MDF based in Markham, Canada, recently received ISO 14001 certification for its environmental management system These systems cover process efficiency,

as well as reducing waste generation and expanding the utilization of recoverable resources Dave Moffat, environmental coordinator for Flakeboard, said, "This registration will be an invaluable toot in managing our material resources It showed the demonstration of our commitment and attention to the resources valued by us, our customers and the community as a whole." the manufacturing process meets the highest environmental standards set by the Canadian government and that technologically advanced MDF equipment is being used to meet these standards plus produce a high-quality MDF board

The plant has targeted the North American market, particularly the residential and office furniture industries, although applications also include cabinet doors, moldings, slot wall, flooring, etc Superior MDF is available in 4-foot

by 6-foot to 5-foot by 16-foot sheets, with thicknesses ranging from 3/8 inch

to 1 1/8 inches Plant capacity calls for producing up to 120 million square feet on a 3/4-inch basis annually

Primary Activities:

Primary activities have to do with the design, creation, and delivery of the product as well as its marketing and its support and after-sales service

Research and development (R&D) is concerned with the design of products

and production processes By superior product design, R&D can increase the functionality of products, which makes them more attractive to consumers

Alternatively, the work of R&D may result in more efficient production processes, thereby lowering production cost Either way, the R&D function of

an enterprise can create value

Production is concerned with the creation of a good or service For physical

products, production generally has to do with manufacturing For services such as banking or retail operation, production typically takes place when the service is actually delivered to customer

Marketing and sales can create value through brand positioning and

advertising The marketing function can increase the value that consumers perceive to be contained in a company’s product Marketing and sales also create value by discovering consumer needs, and communicating them back

to the R&D function of the company, which can then design product that better match those needs

Service function of an enterprise is to provide after-sales service and support

This function can create a perception of superior value in the minds of consumers by solving consumers’ problems and supporting consumers after the have purchased the product

Support Activities:

The support activities of value chain provide inputs that allow the primary activities to take place

The materials management function controls the transmission of physical

materials through the value chain, from procurement through production and

into distribution The efficiency with which this is carried out can significantly lower cost, thereby creating more value

Similarly, there are number of ways in which the human resource function

can help an enterprise create more value The human resource function ensures that the company has the right mix of skilled people to perform its value creation activities effectively It is also the job of the human resource function to ensure that people are adequately trained, motivated and compensated to perform their value creation tasks

The final support activity is the company infrastructure This has a somewhat

different character from other support activities Infrastructure has to do with the companywide context within which all the other value creation activities take place The infrastructure includes the organizational structure, control system, and culture of the company Since top managers can exert considerable influence in shaping these aspects of a company, top managers should be also viewed as part of the infrastructure of a company Though strong leadership top management can consciously shape the infrastructure of

a company, and through that the performance of all other value creation activities that take place within it

1.3.1 Identify competitive advantage - Key Success Factors

Figure 1.3 - Identify competitive advantage

Resources: it is the things in the company including tangible or intangible

asset

Capabilities: When the company uses the resources, they become capabilities Core Competency: the critical/key capabilities are used to compete in the

field of company business activities

Distinctive Competency: This competency overwhelms comparing with

competitors (better competency) However, the competitors easily can copy and do the same in near future This is short run strength and we bases on this

to set up tactics for the company

Resources

Capability

Core Competency

Distinctive Competency Sustain Competitive Advantage

Sustainable Competitive Advantage: it costly to imitate when the competency

is better than competitors and also the competitor can not copy or do the same

it is long run strength and we base on this to establish strategy for the company and also we call it key success factor (KSF)

Key success factors determine the requirements for successful participation in

an industry KSF vary from one industry to another Delineating KSF requires two interrelated activities: analysis of customers and analysis of the factors that lead to survival in the industry Analysis of customers requires attention

to three area: Who are the customers? What do they want? How do customers choose between competing companies?

Analysis of competition often centers on depicting those factors that lead to market success in an industry It focuses on examining the factors that determine the success of leading companies One must be careful, however, because success cannot be achieved simply by copying industry leaders

1.4 Core Competences

Core competencies are capabilities that serve as a source of competitive advantage for a firm over its rivals Core competencies emerge over time through an organizational process of accumulating and learning how to deploy different resources and capabilities

Examples of capabilities include management (ability to envision the future of their industry, effective organizational structure), marketing (effective promotion of brand-name products, effective customer service, innovative merchandising), human resources (motivating, empowering and retaining employees), manufacturing, distribution, management information systems and research & development

The criteria for determining whether a capability is a core competency is whether it is capable of producing sustainable competitive advantage A capability can deliver competitive advantage without meeting all of the required criteria, but this will only be for a limited time

Hanson uses an updated model with four criteria of sustainable competitive advantage:

- Valuable means the capability allows the firm to exploit opportunities or

neutralize threats in its external environment

- Rare means capabilities that few, if any, of its competitors possess

- Costly to imitate that means capabilities that other firms cannot easily

develop Take note however, this does not simply mean it is expensive to imitate, it means it is difficult to imitate (i.e the capability developed through unique historical conditions, the capability itself is ambiguous or the relationships that underpin the capability are complex to understand and imitate)

- Non-substitutable: the capability does not have a strategic equivalent One

example is R&D, the objective of which is obtaining new technology To obtain new technology you could develop it internally, or you could monitor the external environment for developments then acquire them and these are strategic equivalents

- Differentiation Strategy

- Focus Strategy

Sometimes the firm can successfully pursue more than one approach as its primary target Effectively implementing any of these common strategies usually requires total commitment and supporting organization arrangements that are weak if there is more than one primary target

1.5.1 Cost leadership strategy

The first strategy is to achieve overall cost leadership in an industry through a set of functional policies aimed at this basic objective Cost leadership requires aggressive construction of efficient scale facilities, dynamic pursuit

of cost reductions from experience, tight cost and overhead control, avoidance

of marginal customer accounts and cost minimization in areas like R&D, service, sales force, advertising, and so on

A great deal of managerial attention to cost control is necessary to achieve these aims Low cost relative to competitors becomes the theme running through the entire strategy, through quality, service, and other areas con not

be ignored

Having low cost position yields the firm above average returns in its industry despite the present of strong competitive forces Its cost position gives the firm a defense against rivalry from competitors, because its lower costs mean that it can still earn returns after its competitors have competed away their profits through rivalry A low cost position defends the firm against powerful buyers because the buyers can exert power only to drive down prices to the level of the next most efficient competitor Low cost provides a defense against powerful suppliers by providing more flexibility to cope with input

cost increases The factors that lead to a low cost position usually also provide

substantial entry barriers in terms of scale economies or cost advantages

Thus, a low cost position protects the firm against all five competitive forces because bargaining can only continue to erode profits until those of the next most efficient competitor are eliminated, and because the less efficient competitors will suffer first in the face of competitive pressures

Achieving a low overall cost position often requires a high relative market share or other advantages, such as favorable access to raw materials

In turn, implementing the low cost strategy may require heavy up-front capital investment in state of the art equipment, aggressive pricing, and start-up losses to build market share High market share may in turn allow economies

in purchasing which lower costs even further Once achieved, the low cost position provides high margins, which can be reinvested in new equipment and modern facilities in order to maintain cost leadership Such reinvestment may well be a prerequisite to sustaining a low cost position

Example:

Bajaj Eco-Tec Products Ltd (BEPL), a part of the Bajaj Group, headquartered

at Mumbai India is an example This company is one of the only two companies in the world manufacturing completely wood-free Medium Density Fibre (MDF) boards from sugarcane bagasse residue However, BEPL's production line will be the largest single production line in the world, manufacturing MDF Boards from sugarcane bagasse

This company’s competitive strategy is cost leadership to be a leader in the artificial wood market One of the BPEL's major strength is the in-house availability of raw material, the sugarcane bagasse residue Because Bajaj Group is the India's largest sugar manufacturer

BEPL has three manufacturing units to produce MDF Boards Each unit has

an installed capacity of 80,000 cubic metres of MDF Boards in a year two units are next to BHL's sugar mill in Palia Kalan (District Lakhimpur Kheri)

in central UP, while the other unit is adjacent to the sugar plant in Kunderkhi (District Gonda) in Eastern UP The advantage of raw material is the strength point comparing to other competitors

1.5.2 Differentiation strategy

The strategy is one of differentiating the product or service offering of the firm, creating something that is perceived industry as being unique Approaches to differentiating can take many forms: design or band image, technology, features, customer service, or distribution network

Differentiation, if achieved, is a viable strategy for earning above average returns in an industry because it creates a defensible position for coping with five competitive forces, though in a differentiation way than cost leadership Differentiation provides insulation against competitive rivalry because of brand loyalty by customers and resulting lower sensitivity to price It also increases margins, which avoids the need for a low cost position The resulting customer loyalty and the need for a competitor to overcome uniqueness provide entry barriers Differentiation yields higher margins with which to deal with supplier power, and it clearly mitigates buyer power, since buyers lack comparable alternatives and are thereby fewer prices sensitive Finally, the firm that has differentiated itself to achieve customer loyalty should be better positioned substitutes than competitors

Achieving differentiation may sometimes prevent gaining a high market share It often requires a perception of exclusivity, which is incompatible with

high market share More commonly, however, achieving differentiation will imply a trade off with cost position if the activities required in creating it are inherently costly such as extensive research, product design, high quality materials, or intensive customer support In other businesses, differentiation may not be incompatible with relatively low costs and comparable prices to those of competitors

The following is an example on differentiation strategy on MDF

CSIRO has developed a state-of-the-art MDF Pilot Plant to help meet the growing demand for medium density fibreboard (MDF) CSIRO's state-of-the-art MDF pilot plant is based in Melbourne, Australia The facility accurately simulates industry practice, and is available to interested parties for research and development of new process technologies and products

The details of differentiation strategy are “new and improved fiberboard products and production systems” This company is differentiating its product comparing with other competitors The key features of the product is new adhesives and catalysts that accelerate the curing process such as biocides to prevent insect and fungal attack, fire retardants and more water resistance Implementing this strategy, this company has differentiated itself to achieve customer loyalty and be better than competitors

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

The firm achieving focus may also potentially earn above average returns for its industry Its focus means that the firm either has a low cost position with its strategic target, high differentiation or both Focus may also used to select targets least vulnerable to substitutes or where competitors are the weakest The focus strategy always implies some limitations on the overall market share achievable Focus necessarily involves a trade off between profitability and sales volume Like the differentiation strategy, it may or may not involve

a trade off with overall cost position

1.6 SWOT’s Analysis to Formulate Competitive Strategy

SWOT is an acronym for an organization’s strengths, weakness, opportunities, and threats Managers can set up better strategy after carefully reviewed the organization’s strengths and weaknesses in light of the threats and opportunities presented by the environments A SWOT analysis emphasizes that organizational strategies must result in a good fit between the organization’s internal and external environments

Core competencies in key area

Adequate financial resources

Well thought of by buyers

Better manufacturing capacity

No clear strategic direction Outdated facilities

Lack of managerial talent Missing competencies Weak market image Weak distribution network Too narrow a production line inadequate finance resources Below average marketing skill

Opportunities Threats

Sever additional customer groups

Enter new market or segment

Expand product line

Diversify in to related products

Faster market grow

Entry of lower cost competitors Rising sales of substitute products Slower market growth

Adverse shifts in exchange rate and policy

Growing bargaining power from Suppliers and buyers

Ideally, an organization’s long-range objectives should match its strengths to opportunities, minimize its threats to the organization, and eliminate its weakness in the organization Thus, an organization’s long-range objectives should be directly impacted by the SWOT analysis

SWOT Analysis

Figure 1.4 - Source: Richard D.Irwin, a Times Mirror Higher

Education Group, Inc, 1996

In 1994, Patina furniture plant has become in famous in New Zealand The strategy is to provide every week low prices and very low margins to discourage competition and generate high volume sales This company has used its advantage cost of materials comparing with other competitors Patina set up a objective to decrease manufacturing cost by relocating producing and encouraging workers’ initiatives for production

CHAPTER 2: ANALYSIS GREEN FIBERBOARD JSC’S

Green Fiberboard JSC was established in December of 2007

Business area: Produce fiberboard

The plant is located in Hoa Hiep Industrial Zone, Phu Yen Province and expected to operate in the middle of 2009

The production capacity is 50,000 m3/year

The production line is imported from European Union The technology that uses PMDI resin is modern and advanced in the world

2.2 Analysis of Wood Industry

The Vietnam’s wood processing industry has been developing rapidly in recent years and becomes the top 7 exports that bring the highest turn-over in the South East Asia

At present, there are more than 2,000 wood processing manufacturers with total 170,000 workers The production capacity increases four times comparing with the year of 2003 Not only is the industry growing in the

quantity but also it increases in production scale and advanced machine and equipment

The year of 2007 is the successful year for wood processing industry as increasing demand for wood import in the world Vietnam’s wood products, more and more, create the value and prestige in the world of interior wood furniture

In 2007, export turnover of wood processing products reaches 2.5 billion USD, increase 21% comparing with the year of 2006 The wood processing industry is one of the high-speed industries for development It is growing continuously 20% each year

Vietnam wood processing industry is exporting to more than 120 countries in the world EU, America, Japan are three main export market

The weakness of Vietnamese wood processing enterprises depends on wood material import The domestic wood material is only met 20% of the market demand

Most of wood export enterprises are small and medium size and lack of cooperation among them that usually face difficulties for buying material and signing the valuable contracts Moreover, the quality is a big problem that Vietnamese firms need to resolve

The goal for this industry in 2020 is that the domestic wood materials will meet 70% of the demand with the output of 22million m3/year and the export turnover is 8 billion US dollars

According to the wood development strategy formulated by Vietnamese Government in 2005 – 2010 the interior and outdoor wood furniture will have the high density of export products and from 2010 – 2020 the artificial board will be the main export product

2.3 Forecast The Development Direction (Opportunity & Threats)

2.3.1 External Analysis in Artificial Wood Industry - PEST Model

2.3.1.1 Economics

Since 2003, the GDP growth rate kept on going up year by year; from 7% to

8.44% in 2007.The trend during this period depicted in the graph below:

Table 2.1 – GDP growth rate from 2002 to 2007 (%)

(Source: General Statistic Office of Vietnam)

The per capita income of the Vietnamese population is up from US $250 in

1995 to US $835 in 2007, according to the World Bank Vietnam achieved these huge gains for its population after retaining its position among the best-performing economies in the world for the past 10 years

This said to have positive impact on the consumption of furniture in Vietnam

in general

Foreign direct investment (FDI) in Vietnam has surged in recent years In

2007, FDI reached 20,3 billion USD, up to 8.3 billion USD comparing with

12 billion USD in 2006 The new signal of FDI was investment structure, which transferred from industry area to hotels, house for rent, tourism and banking

Moreover, the oversea national currency exchange to Vietnam is increasing remarkably In 2007, it reached 5.5 billion USD comparing with 4.7 billion

USD in 2006 and it had 157 times comparing in 2001 The growth rate is up generally about 37% Both FDI and the oversea national currency exchange to Vietnam show the opportunity of consumption and development in the coming years

Between Jan and Jun, the CPI and the inflation in Vietnam have risen promptly and it seems there are some doubts about economics crisis but the government has controlled and managed closely The CPI and inflation has going down and the economics is going on the tracks Vietnamese economics’ growth rate estimated about 6% in this year, 2008 The inflation rate in 2008 may be 25%

Annual inflation

0 2 4 6 8 10 12 14