Improving the competitive abilities of the bank through implementing the new product - logistics financing - Techcombank case study

Competitive advantage creates favorable conditions for enterprise to maintain its sustainable success Strategic management- The Statistics Publishing House, 2007... - Advantage of expen

vietnam national university, HANOI

school of business

Trinh Van Do

IMPROVING THE COMPETITIVE ABILITIES OF THE BANK THROUGH IMPLEMENTING THE NEW

PRODUCT - LOGISTICS FINANCING-

"TECHCOMBANK CASE STUDY"

master of business administration thesis

vietnam national university, HANOI

school of business

Trinh Van Do

IMPROVING THE COMPETITIVE ABILITIES OF THE BANK THROUGH IMPLEMENTING THE NEW

PRODUCT - LOGISTICS FINANCING-

"TECHCOMBANK CASE STUDY"

Major: Business Administration

Master of business administration thesis

Supervisors: DR Ta ngoc Cau

Hanoi - 2007

1.1 Competitiveness, competitive advantages and the importance of competitive

1.1.3.4 The ability to meet the demand of customers timely and quickly 13

1.2 Nature and process to realize sustainable competitive advantage 14 1.2.1 Source and process to recognize sustainable competitive advantage 14

1.2.2 Sources, capability, key ability, exceeded capability and sustainable

1.2.2.5 Competitive advantage and sustainable competitive advantage 19

1.3 Functional field- The foundation to create sustainable competitive advantages 23

1.4.1.2 Why do the firms design and offer new service and product 35

CHAPTER 2: ANALYZING THE REAL SITUATION OF TECHCOMBANK 39

2.2 Techcombank internal analysis 50

2.3 Competitive environment analysis 52

2.3.3 Identifying the competitive advantage of Techcombank through

3.1.3 The value Logistics financing creating for its clients and Techcombank 63

3.1.3.2 The value Logistics financing creating for its clients 66

4.1.1.5 Solutions to targeted customers and marketing 73

Key Words

APPENDIX2 -LOGISTICS FINANCING BUZZ-WORDS-

1- In- transit stocks

2- In- transit assembly

3- Inventory control

4- Inventory management

5- Invoicing

6- Issuing delivery invoice

7- Just in time inventory

8- Link customer information system systems for electronic management of supply chain process

9- Logistics management services

15- Multi- modal management systems

16- Multi- package shipment processing

34- Value added services

35- Warehouse and inventory

36- Warehouse localization

37- Vendor compliance

List of Tables

Tables 2-1: Visible sources……….15

Table 2-2: Invisible sources………16

Table 2-3 : Criteria to define sustainable competitive advantages 21

Table 2-4: The combination among sustainable criteria……….22

Table 2-5: The structure of culture of enterprises………34

List of Figures Figure 2-1: New service or product developnt proces………37

APPENDIX 1.-THE LOGISTICS FINANCING SERVICES QUESTIONNAIRE

APPENDIX2 -LOGISTICS FINANCING BUZZ-WORDS-

APPENDIX 3 -SUM OF THE QUESTIONNAIRE

APPENDIX 4- THE STRUCTURE OF TECHCOMBANK

INTRODUCTION

1 Necessity of the thesis

The thesis comes to take full advantages of the event Vietnam joined the WTO WTO has been creating a common market among its members, speeding up commercial exchange and improving manufacturing WTO really creates a playing field for all countries including Vietnam The open of the big market means Vietnamese goods can be welcome in member markets Similarly, Vietnam becomes potential market for many importers, which brings about the busy transaction activities among member countries Through the penetration, Vietnam has chances to learn experience and practice from other partners Of which, logistics seems to be an useful service used by foreign enterprises for such a long time The logistics has helped them to gain competitive advantages over other rivals Vietnam has no way but to do in line with common practice when joining WTO This means Vietnamese enterprises should be offered with such a new way

of trading oversea By this way can Vietnam catch up with international practice of doing business as well as improve trademark of goods and reputation of Vietnamese enterprises

The thesis is in line with the directions to find out new ways to diversify and create competitiveness of Techcombank against other banks for its further development in the future The thesis offers theoretic condition to implement a new service in addition to traditional ones such as deposit accounts, savings, loan, payments, credit and debit cards, investment, guarantees and safe custody facilities Further more, logistics financing is an unique and completely new service which can help Techcombank take priority over other rivals in the race to control the potential market The thesis also complies with the objective of Techcombank is to strive its best for the benefit of customers and partly contribute to the development

of foreign trading

Thesis comes timely to meet the demands of many clients who are in difficulties Under the signed agreement among WTO‟s members Vietnam have

many chances to access to the common market without being taxed on some items, which creates favorable condition for Vietnam‟s products to penetrate into foreign markets, especially into such prosperous but highly demanded ones as EU or USA, etc However, it isn‟t easy to make money in these hard-to-deal- with markets Doing business in the global market means all enterprises need to master

“rules of the game” and has enough conditions to be successful Meanwhile, most

of Vietnamese enterprises are in shortage of capital, which makes them have few chances to access to the loans from banks; out of date technology; weakness in managing; inexperience of trading abroad and having no tools to minimize risks floating up during oversea purchases Further more, most Vietnamese enterprises have difficulties in transaction due to lack of proper understanding and knowledge, which often leads to the unexpected lawsuits and loss in trading affairs To make the matter worse, loan – given procedures of the banks are very troublesome, which makes enterprises confused and prolong time for a purchasing affair It is time Vietnamese enterprises needed an agent which provides a full- service to help them with import-export activities

Another reason that makes the thesis necessary is to change the thought of Vietnamese‟s importers and exporters I‟d like to mention the disadvantages of the old method of export- import which is used for such a long time Exporters are used

to F O B (Free on Board) method which can be illustrated by the following process: after receiving order enterprises focus on manufacturing, then they ask a bank to open Letter of Credit ( L/C) After finishing with bank documents, they transport goods to an assigned port, load on board then waiting till goods are delivered to buyers Buyers only pay the exporters via above bank after checking up for the quality, quantity and model The process seems to be very easy in theory but not effective in practice because of some following reasons:

- It is a time- consuming method because it often takes from 20 to 40 days to finish a trade (including time for checking up goods ), which leads to the shortage of capital

- There are so many risks during shipping and checking up such as loss, damage, fire or lack of hygienic condition of the goods, etc

- Exporters and importers may be in trouble with international Laws in delivery and clearance

- There is high risk of information

- Adding price of the products up because of the expenditure for freight, insurance, employment and hygienic checking, this decreases the competitiveness

of the products and enterprises

Similarly, C I F method (cost, insurance and freight) used by importers also has the same problems which are mentioned above

In the current context, no companies can cover everything in trade affairs

To raise their competitiveness, they must outsource their weak points and focus on their strength This is an indispensable tendency of specialization Exporters- importers should change their mindset by having a new and effective way of doing business otherwise they may be left behind or fail in the “race” with foreign rivals (According to statistics, a sum of around $3.4 and $3.9 billion USD spent in transporting, insurance and checking run into the wallet of foreign enterprises every year instead of that of Vietnamese ones)

2 Objective of the thesis

In the first part I have mentioned the necessity of the thesis This section will clarify the objective or the meaning of the thesis The most important meaning

of the thesis is to define the long- term strategies of Techcombank The three most important strategies can be considered respectively as below

First of all, Techcombank focuses on big customers in import-export field

On what bases that Techcombank decided to give out such strategy? Just have a look at the past of Techcombank At the beginning, Techcombank was a small bank and its customers were only small and medium enterprises ( SMEs) It was the limited capital that prevented it from targeting at big clients Nowadays, Techcombank has grown to become one of the largest and fastest growing full

service joint-stock banks in Vietnam with the registered capital of VND 1,500 billion, total assets of nearly VND 15,000 billion Once its financial power reaches

to an extent , Techcombank finds it timely to focus on bigger and more potential clients Besides, we can not take into consideration objective reality that such traditional and small enterprises as Hoa Phat and Nam Vang, etc have developed into big corporation They are now still using services provided by the Techcombank and of course they will still be in the limelight of the bank Furthermore, it is big enterprises that use logistics service more frequently compared to small and medium ones That is because operation of big enterprises often spreads widely both literally and figuratively and closely attaches to logistics service They not only need a lot of money from the bank, usually in long term or medium term loans, but also need Techcombank to help with processing, packaging, transporting or providing market information and legal consulting, etc And such subsidiary services will be a channel to lure money for the bank For short, the more big enterprises use the services the more money Techcombank gets

It is really a bilateral benefit relationship Additionally, the risks ( bankruptcy, overdue loans, etc ) sprouting during the time trading with big customers are somewhat fewer than that with small enterprises

The second long-term strategy given out by Techcombank is to expand its credit services As you know, Techcombank offers a variety of credit services including savings, deposit accounts, savings, loan, payments, credit and debit cards, investment, guarantees and safe custody facilities, etc and the total amount of exchanged money is considerable Besides such traditional services, Teccombank targets at new services such as providing full-service for enterprises especially SMEs or promoting non-credit service,etc Logistics comes to meet the demand

The third but most important strategy of Techcombank is to improve its competitiveness against other banks As you see, in the current context, there are so many banks operating in this field and offering the same services as Techcombank Not mention the fact that some of them are really giant and experienced in terms of

size, capital and time of operation Unless Techcombank finds new methods, it may have difficulties in competing with such banks Morover, Logistics is a new but potential market in the context of development of foreign trade It can be said without exaggeration that logistics is the unique service given out by Techcombank that appears in Vietnam for the first time The service strongly supports enterprises from the beginning to the end of a trade transaction The bank helps its customers with money, logistics, custom document, processing, packaging, market information, legal document, etc which are often considered burden of the enterprises By such new service can Techcombank make itself different from other banks This is also a favorable condition to help Techcombank outruns other rivals

in the race to master the market

Below follow one information-need for which experts were consulted and the methodology is discussed The methodology execution means the choice of the responding consultant and the formulation of the question

At first, the time demanding investigation was made by us, gathering the competitors' logistics service offerings on the Internet It is easy to observe that

Techcombank offers a very new service that no competitor can compare because other competitors are just the normal logistic provider They just do the logistic service then get money from the customer hire them, when their task is completed, then the service is stop For Techcombank, we supply the financial logistics services – an outstanding and professional one However, we still pay attention on big and long-lasting logistic provider in the market that share our same cake In order to sort out the big main competitors, an expert was asked to pick out the most important activities and to explain them As this is a question of a logistics character, the best man to answer a question like this, must be a professor in Logistics, which is why the choice fell on one experienced logistics professors –

Mr Duong Duc Tang, the Director of Vinafco Logistic

The consultant we used, Professor Vu Dinh Quang, is of good repute within the logistics field The answer would naturally not be the same if put to another expert, but if to an at lest as experienced professor the answers would likely be close The difference in answer depends on, that it is a qualitative question, which is often totally dependent on the perception of the judged environment by the respondent

5 Descriptive survey

The third research method we will use in our thesis, to be able to collect primary data is a descriptive survey A descriptive survey is concerned primary with addressing the particular characteristics of a specific population of subjects, either at a fixed point in time or at varying times for comparative purposes Of great interest is the underlying target population that the surveyed samples are supposed to represent

When the population is small, it is often practical to study all units, a called total survey (Lekvall & Wahlbin, 1993 p 144) The population we want to study only consists of (Number) units and we will therefore make a total survey

so-A population is usually defined with help from a register or a frame of the units that the population consists of It is then important that there are no big

differences between the frame and the population that is going to be studied When all units in a register that are not part of the target population are cut out, a frame selection remains (Lekvall & Wahlbin, 1993 p 154) The frame selection in our survey is Techcombanks‟s branches in the cities and provinces of Viet Nam

However, when we do the survey, there are three broad sources of errors, sample error may likely to arise The survey we will undertake is a total survey of all Techcombank‟s branches Consequently, the issues of the surveyed samples and sample error (population validity) will not affect the outcome of the survey The second source of error, frame error refers to biases of the result that depend on a mismatch between the frame of sample and the target population A frame for example arises when the telephone directory is used as a register population The problem with a telephone directory as a register population is that all people do not have a phone, some people have unlisted numbers and others have just moved in Since our survey is directed at Techcombank‟s branches, there certainly exists an updated directory of offices that should be included The risk of a frame error is thus extremely small

The third source of error, dropout, is more relevant in our survey Dropout means a failure in getting all data that is needed for the survey Some data fall off

in the data collection process The most significant measure to restrict the dropout

is to have a clear and not too expensive questionnaire Long and complicated questionnaires are in general devastating for the willingness to answer Other measures to secure a high participation, are to contact the respondents in advance and inform them that a questionnaire is being sent out, give respondents some kind

of reward, or remind them if they have not returned the questionnaires

It is important that the person that should answer the questionnaire really does this The questionnaires are sent to the managers that have most knowledge of the activities taking place in each cities, regions To control this, we have questions about name and title of the respondents in the questionnaire

6 Contribution of the thesis

It can be said without exaggeration that the thesis makes great contribution

on different levels from the State to Techcombank and its customers

For the State, logistics links directly to its budget via tax collecting As mentioned above, Logistics makes the way for the development of enterprises Thanks to the logistics financing of Techcombank, enterprises are no longer worried about capital, shipping, storage or related information, etc All they need to do

is to focus on manufacturing Consequently, the more enterprises develop, the more money they earn Similarly, the more money they earn, the more they contribute to the State budget through tax handing in In my opinion, logistics financing should be warmly well-come for its active contribution to the national economy

For customers, the most important contribution that the thesis makes is to change their old mind-set of doing business oversea because of the indispensable advantages First of all, it provides them with a new service which help them save time and money, feel secure about their goods in stocks, limit possible risks as well

as shorten time and money circulation Secondly, the thesis will also help them get used to a professional way of importing-exporting which is now used by plenty of foreign partners So that they won‟t get into trouble with unexpected lawsuits claimed by foreign companies and have more chances to improve their trade marks

as well as reputation As you know, the trade- mark polishing plays a very important role in doing business oversea because of the fact that foreign markets only accept products with proved trade- marks Techcombank with its service commits strongest support to maintain goods quality of the clients

For Techcombank, the thesis makes great contribution to raise its market share by expanding number of customers (especially ones in export-import field), raise net profit (via offering numerous services), and better control its money in goods-deposited loans The most importantly, the thesis will raise its competitiveness against other banks as the first bank to deliver such initiative It

can be considered a meaningful way-out in the current context that finance market

is nearly saturated by numerous banks in operation

7 Thesis structure

The thesis is divided in 5 main chapters namely Introduction, Literature Review, The Research Methodology and Data Collection, Analyzing the real situation of Techcombank and Strategic Solution recommendations and Conclusion (Besides there are two supporting parts namely Reference and Appendix at the end

of the thesis) Each chapter has its own function and relative independence from other ones However, the older of the chapters are not by accident but symbolizes

an internal link among them Inside each chapter, there also have sub-parts which is

to supplement for the main topic of the chapter

CHAPTER 1: LITERATURE REVIEW 1.1 Competitiveness, competitive advantages and the importance of competitive advantages

1.1.1 Competitiveness and competitive advantages

1.1.1.1 Competitiveness

Competitiveness (defined by the Vietnamese dictionary which was published by the Culture and Information publishing House in 1999) is the campaign among individuals and collectives which have the same function in order

to gain the success

In competitive environment, there is no bloody fighting among rivals as usually seen in army They just compete against each others to control potential markets and lure customers, It‟s customers who decide which “win” or “fail” in such combats by their decisions to use services and products

The winner is someone who meets demands of customers In the current context of international economic integration and globalization, the confrontation

in competitiveness has been replaced with peace and cooperation for mutual benefits A series of strategic cooperation between SONY_ERICSSON and Dow Chemical &United Technologies come as an example of the trend

Via cooperation, two or more companies can share risks, expenses as well as benefits relating to developing new chances of doing business Cooperation is now becoming a common trend which helps enterprises improve their market ability and expand their market shares as well

1.1.1.2 Competitive advantage

Competitive advantage- in broad meaning- is anything that enable an enterprise to outweigh over its rivals Competitive advantage creates favorable

conditions for enterprise to maintain its sustainable success (Strategic

management- The Statistics Publishing House, 2007)

According to teaching materials of economics, an enterprise is considered competitive when its benefit is higher than the average level of the market and much higher than that of its rivals Basically, competitive advantage includes advantage of expense and of difference

- Advantage of expense means an enterprise can supply the same kind of products or services given by its rivals at lower expenses, which will help the enterprise offer lower price and gain more profits

- Advantage of difference means only enterprise can provide such products or services In case customers are not sensitive, enterprise can speed up selling price

of its products or services and get more profits

1.1.2 The importance of competitive advantage

In the current context of integration and development, each enterprise has its own way of existence and development However, the only way to reach such goal

is to set up strategies and maintain competitive advantages A common strategy will help enterprise maximize its strong points as well as self-defense against bad effects of 5 market forces namely strength of suppliers, threat to be replaced, barrier of joining, strength of customers and competitiveness level

The position of enterprises are preceded by the attractiveness of the industry

in making profits Even such industry has an average profit making ability, enterprises can get very high profits if they have optimal position

Each company finds its place in the industry by taking advantage of any own strong points Michael Porter said that advantage of any enterprises comes from 2 factors: expense advantage and the isolation of products By taking such advantages do companies create competitive advantages via pursuing 3 common strategies: leading in saving expenses, isolating products and centralizing as well Competitive advantage enables many enterprises to gain “market power” so that they can succeed in business and competition It is important to understand thoroughly nature and sources which give birth to competitive advantage in order

to set up and maintain it sustain ably

1.1.3 Specific expression of competitive advantage

As mentioned above, there are 4 factors creating competitive advantage namely outweigh affectivity, different quality, continual improvement and the timely satisfaction of demand of customers Whichever industry does the company

do, whichever products/services does the company provide the company must meet the 4 factors It is necessary to note that each of the four factors has close relations with the others

1.1.3.1 Outweigh affectivity

Company is a tool to turn input into output Input is basic factors of manufacturing such as labor, infrastructure, capital, management and technique Output includes goods, services made by the company The simplest formula of efficiency is that Efficiency= Output/Input The more effectively a company does business, the less output it needs

The most important factor bringing about the success of any companies is labor productivity which is valued via the number of products made by each employee If owning high labor productivity, the company will cut down on production cost maximally, which partly contributes to build competitive advantage

1.1.3.2 High quality

Quality products mean ones with confidence Let take Toyota Corp, The Gap and the customer service of City Bank as examples of providing quality products and services Quality may double the competitive advantage of enterprises When a company supplies a good quality product it succeeds in winning the confidence of customers If it maintains such value, it can change price

of such item in a way that gives it more benefits

The effect of high quality on competitive advantage comes from high affectivity and lower expense Shorter time means employees must work with higher efficiency to create higher productivity As a result a company not only lowers expense but also raise selling price

1.1.3.3 Continual improvement

Improvement can be understood as anything new and unique that company applies to make goods Improvement includes the ability of taking advance against other rivals in terms of design, manufacturing process, and management system and development strategies of a company

The improvement is an important factor to create competitive advantage In the future, the competitiveness can be affected by improvements Although not all improvements are successful, otherwise, they will become strength which helps enterprise get competitive advantage That it because they make enterprise unique and different from its rivals , which also speeds price of its products or services up and lowers production expense

Along with affectivity and quality, we will have a more detail look on improvement Let take the development of Xerox photocopy machine, Intel micro processor, Hewlett Packard laser printer, Nike sport shoes, Walkman as examples

of the importance of improvement It is unique features in each product that makes money for such companies When their rivals could imitate such improvements, companies had strengthened their places in the market

1.1.3.4 The ability to meet the demand of customers timely and quickly

To achieve such target, a company has to do better than other companies of the same field and satisfies customers If customers highly value such products of the company, it will gain competitive advantage via its difference from other rivals Quality improvement of products means the ability to understand the taste of customers then create a product which has features that no other products do To tell in other ways, ensuring quality and improvement means enabling to meet the demand of customers

A factor to satisfy customers is to define a certain product that meets the demand of each individual or collective For example, a series of alcoholic drinks and beers in recent years are efforts made by beverage companies to meet the demand of customers

Another factor that enterprise should pay attention to is to define the most suitable time to introduce its products That is because a suitable time will help enterprise attract customers‟ attention in the most effective way

Along with quality and time, customers also pay attention to design, service quality and after –sale service All such factors will increase competitiveness, meet the demand of customers So that they strengthen the position of company in the market as well as raise price of products

In general, outweighing affectivity, higher quality, the ability to satisfy customers and continual improvement are very important in creating competitive advantage which enables the company lower expenses or raise price of products

1.2 Nature and process to realize sustainable competitive advantage

1.2.1 Source and process to recognize sustainable competitive advantage

An enterprise only competes successfully in the market when it outweighs over its rivals Such strong points of the company come from the difference of products, the difference of its image and services, which is competitive advantage

of enterprise Competitive advantage can either last for long or short time As a result, to exploit short time advantages and maintain long lasting ones, each enterprise must analyses competitive advantage in detail to choose a suitable competitiveness strategy

1.2.2 Sources, capability, key ability, exceeded capability and sustainable competitive advantage

1.2.2.1 Sources

Sources- in broad meaning- are composed of a series of factors relating to structure, technique, labor, finance of the company In other criteria, source can be divided into 2 types namely invisible and visible source Visible sources consist of what can be seen and determined the quantity of such as finance source, structure, material conditions and technology Trademark, recognition, strategic position, inventions can be named as invisible ones

In comparison with visible sources in creating key ability, invisible sources seem to outweigh There is saying that “success of a company depends much on intellect and systematic sources other than material properties Moreover, the ability to control human intellect and turn it into products or services has become a common trend in managing in the current context” There are many evidences showing that the proportion between invisible sources and visible ones has been unequal and invisible sources seem to outrun visible ones That is because it is difficult for enterprises to recognize or imitate, buy, and replace such invisible sources of the others‟ As a result, enterprises prefer creating their abilities as well

as key ability on the bases of invisible sources to visible ones

Table 2-1: Visible sources

distribution of equipments and workshops

- Access to sources of materials Technical sources

- Technical reserves such as trademark, invention license as well as business secrets

Source: The strategic Management- The Statistics publishing House, 200

As you all know, sources themselves can not give birth to competitive advantage for company To become special ability, sources must be unique and valuable That means there are no other companies have the same sources Sources are considered valuable when they can create strong demand for products of company

Table 2-2: Invisible sources

Source: The strategic Management- The Statistics publishing House, 2007

1.2.2.2 Ability

It is lucky of any enterprises rich at sources However, sources are still in potentiality if they are not brought into play Only when sources are used, do they become real ability In the market economy and integration, an enterprise wanting doing business effectively must promote in the most effective way all its sources or turn sources into ability

Both visible and invisible sources are basic foundation resulting to the development of competitive advantage Potential ability is the state that a company uses all its purposefully accumulated sources to reach targeted goals Like a close cooperation, chances appear via the transaction between visible and invisible sources Such skills showed via daily activities of the companies such as the way to give out decisions and the management of domestic affairs to reach those goals General speaking, potential abilities of a company include its structure and management system It is structure and management system that influences how and where decisions are made in the institution, values and culture standard of the company As a key factor to form competitive advantage, abilities are often based

on the development, ability to spread, information and knowledge exchange via channel of labor source

Leaders of companies have been for the idea that knowledgeable laborers is the most important source which is considered the root of competitive However, companies must know how to use it and spread it to all activities It is said that in the era of informatics and technology, everything must depend on each other, of which knowledge is the central The value of the companies is not born from materials but knowledge Intellect and abilities are only found in the world of mankind

Differentiate sources from potential abilities is to more clearly understand which create capacities making one company differ from the others A company with unique and valuable sources will still not create and maintain different abilities if it does not enable to use such sources effectively It is important to understand that it is not compulsory of companies to have unique and valuable sources to create difference abilities The matter is that companies must have potential abilities which their rivals do not have

1.2.2.3 Key abilities

To compete successfully, enterprises not only promote their own abilities but also find key abilities That is because they must give answer to the question which is the factor leading to the success of the companies in this field So that, key abilities are the basic, important factors leading to the success of enterprises

As such key abilities are sources and abilities which are used by companies

to create competitive advantages Key abilities make enterprises competitive and have their own values Key abilities are born via studying process and structural accumulation of ways to exploit sources and other abilities Key abilities which help companies carry out activities better than any other rivals and increase values

of their products and services for a long time are considered “luxurious jewelry” of

a company

Not all sources and abilities of a company are strategic properties Strategic properties must be competitive and can be used as competitive advantages Unfortunately, some sources even affect badly strategies because they are nothing

to compare with that of rivals As a result, some sources and abilities may not develop to key abilities

1.2.2.4 Outweighing abilities

It is not enough to have key abilities The matter is that such key abilities must out run that of the rivals In the case enterprises have the same key abilities, any one whose key abilities outweigh over that of the rivals are winners As a result, enterprises with the same key abilities must define which their exceeded abilities are To tell in a different way, exceeded ability is a special strong point which enables a company to reach desired quality and meet the demand of customers much better than other rivals By doing so, enterprises can create exceeded values and maintain competitive advantages A company with a special ability will be able to supply goods which are different from that of rivals with lower cost Consequently, that company will create more values and make more money than the ever5age level that any other rival can do in this industry

You can take TOYOTA Group as an example of having special ability in developing and managing process of manufacturing The company with such new methods as having a system of punctual stock management JIT), a team of self-monitoring and shortening time of assembling complicated objects Such above abilities have ensured a higher quality of its products over the rivals in the industry car making all over the world Exceeded ability included shirt term and long term ability Short term exceeded ability is sources and abilities of a company to create its competitive advantages for a short time, for example, sources of finance, material, technique, management ability, scientific and technology improvements Above key abilities are easy to be imitated As such a company will lose its competitive advantages long term exceeded abilities are sources and abilities which are formed during a long time of studying, accumulating, such above abilities are difficult to be copied or it takes the rivals time to catch up with Long term exceeded abilities include labor force, trade mark, culture of company, recognition

to customers, etc

Long term exceeded abilities must ensure such standards as preciousness, scarcity, immutability, a suitable distance and coincide with the factors leading to success Let take Walt Disney as an example The history of Walt Disney Corp during 1980s was an example of the necessity of pursuing strategies which were built from the sources and abilities of the company In early 1980s, the company underwent financial difficulty The hardship became extreme in 1984 when Michael Eisner was appointed the leader of the company Four years later, the turnovers of the company were $ 3.75 billion USD from $ 1.66 USD Net profits was up to $ 570 million USD from $ 98 million USD The value of its shares increased $ 8.5 billion USD The reason leading to the success is that the company tried its best to take advantage of all sources and abilities which include a big library of films; trade mark; technique to make films in especially cartoons Under the leadership of Michael Eisner, a series of classic cartoons were made- first at the theatres then by records- and brought millions of dollar profits to the company Disney also opened a new cable channel namely Disney to exploit the library and capitalize the trademark of the company During that time, film making technique

of Disney also developed with the first- time - appearance of a low cost cartoon Touchstone The trade mark and profits of Disney also up sped with long cartoons

By trademark and ability to make films indoor , Disney made 3 films which were

on top 4 years continually namely “ The beauty and the Beast”; “ Aladdin” and “ The Fish Fairy” In short, Disney changed as a result of exploiting existing sources

of the company

1.2.2.5 Competitive advantage and sustainable competitive advantage

Sustainable competitive advantages have 4 features

First, it helps enterprises create new values, lower selling price and raise business affectivity

Second, its is unique and can be combined with other sources by an unique method Third, it is endogenous That means its production is a result of transaction among units and persons via cooperation and structuring all technical sources of the companies

Fourth, competitive advantage which can not be bought and imitated by others is set up during the process of study and accumulation of the enterprises

In short time points of views, competitive advantage can be seen as the following criteria such as low price, good quality of the products, good after-sale service However, in long time points of views, the current advantages are not as valuable as creativity ability That is because any advantages can not last for long for the change of technique, market or be imitated by rivals Competitive advantage of enterprises is competitive strength attached closely to their structure Competitive advantage Enterprises must look after and develop it continually so that they can maintain sustainable competitive advantage in the context of changing market

1.2.3 Criteria of sustainable competitive advantages

As mentioned above, key abilities must ensure 4 criteria of sustainable competitive advantages namely preciousness, scarcity, immutability, a suitable distance and coinciding with the factors leading to success

1.2.3.1 Preciousness

It can be understood as valuable abilities which enable companies exploit chances and overcome threats from the market By exploiting effectively chances, companies can create values for their customers Sometimes normal abilities of companies turn out to be valuable if they are amended to make perfectible abilities

of such companies

1.2.3.2 Scarcity

A ability can be considered scarce in case no or not many rivals have it One basic way to recognize it that administrator must raise such questions as do our rivals have the abilities? And how many rivals have the abilities? An ability which many companies have will certainly not be competitive advantage

Table 2-3: Criteria to define sustainable competitive advantages

Source: The strategic Management- The Statistics publishing House, 2007

1.2.3.3 The difficulty of imitation

That means it is difficult for rivals to imitate and develop There are 3 reasons making an ability difficult to be imitated

Firstly, the ability is created from unique historical conditions “ As a process of evolution, companies have unique skills and abilities which symbolize their specific development historically Sometimes, enterprises have such unique abilities because they exist at the right time and place

Secondly, the cause and result relations between abilities and competitive advantages of the companies are not clear so that their rivals do not know how the companies can turn abilities into competitive advantages As such, their rivals do not know certainly which abilities to develop and how to obtain competitive advantages

The third reason comes from the social complication: Not only some but also many of abilities of companies are result of complex social phenomena International relations, confidence, friendship relations among administrators, staff, providers and customers are example of social complication

overcome threats from the market

culture and trademark

- Unclear cause and result: Cause and result of a ability not clear

- Social complication: international relations, confidence, friendship relations among administrators, staff, providers and customers

money to catch up with The coincidence with factors of success - No similar strategies

1.2.3.4 A reasonable distance

Abilities can create big enough distance are ones enable to make a big gap which their rivals can not fill up with As a result, companies will themselves create competitive advantages because of the fact that their rivals must spend much time and effort imitating Such ability is even more valuable than the hard-to-imitated ability in the process of becoming the irreplaceable abilities

1.2.3.5 Coincidence with factors of success

Irreplaceable abilities means there are no parallel strategies 2 sources (or groups of abilities) are called parallel if each of them can be exploited individually but create the same strategy In general, abilities which is the more difficult to recognize the more difficult to be replaced by something similar will become challenge to rivals

if they want to imitate

In short, sustainable competitive advantages can be set up by the following criteria: preciousness, scarcity, immutability, a suitable distance and coinciding with the factors leading to success The statistics given by the table 2- 4 will help administrators define the strategic values of companies

Table 2- 4: The combination among sustainable criteria

y

Suitable distance

Coinciding with the factors leading to success

Result

Disadvantage

competitive advantages

competitive advantages

Source: The strategic Management- The Statistics publishing House, 2007

Special ability is a special status enabling a company reach ability, quality, renovation or meet the demand of customers the best so that it can create an outweighed value and maintain competitive advantage

1.3 Functional field - The foundation to create sustainable competitive advantages

1.3.1 Production and demonstration

Production and demonstration include decisions relating to such matters as perfectible premises and manufacturing process; perfectible production technique and storage in order to lower production expense and selling price

An indispensable part in production strategy is to define how products are produced, which relates to the planning for subsidiary factors; process of manufacturing to be reformed continually It is an ideal change to combine traditional equipment with high-tech ones and make up complex production strategies The technique of automatic production has been used widespread

Saving by scale is lowering expense for an unit of item or service while scale of output increases The nature of such kind of saving is the ability to cover a larger quantity of products with fixed expense Fixed expense is expense that a company must use in producing (both products and services) any quantity Such expenses include expenses for machine, equipment, preparation before each time of production, advertising and for development researches Obviously, covering a larger quantity of products with unchanged expense will lower cost of an unit of item

Illustration 2-1: The curve symbolizes expense for an unit

Experienced curve shows the lowering expense for an unit of item is systematic and occurs during a whole life of a product According to the definition

of experienced curve expense to produce an unit of item decreases to a somewhat extent whenever the quantity of accumulated products which are produced previously doubles

Illustration 2-2: The experienced curve

Accumulation productivity

Source: The strategic Management- The Statistics publishing House, 2007

Using improved capacity and decreasing unfinished products as well as waste

is the main benefit of flexible consortium of machines Decreasing waste is a result

of computerization in the process of manufacturing and minimization of waste If machines are operated separately they only use 50% of time While put into consortium, they can use up to 80% of time and make the same end product with half

of waste which is expelled by machines put separately, which increases affectivity and lower expenses of production

1.3.2 Marketing

Marketing is a partial strategy and plays very important role in carrying out business strategies and contributing to the business affectivity of the companies Via marketing products and services are known to customers Marketing becomes more important in introducing normal or new products and services Though marketing is costly, enterprises can not help using it because of the fact that it affects the consumption of products and services Carrying out a suitable marketing strategy which consists of product strategy, pricing, setting up a system

of channel for distribution and sales promotion will help company hold a good market shares over its rivals

The main object of marketing is products which can be seen as visible items

of company Finished products which will be on sales must ensure such the following criteria as quality, design, feature, label and packing When planning to sell goods in the market, enterprises must pay attention to 5 levels of a product including core benefit, general products, waited products, finished products and potential products

A very important factor when using marketing is included price which can

be understood as money that customers must cover when buying products There are numerous kinds of prices such as wholesale price, retail price, discount price and conditions for delay payment Enterprise must ensure an acceptable price which matches with known value of product otherwise customers will choose product of other enterprises

Distribution which consists of plentiful activities that the company must carry out to introduce its products with potential markets and customers is also a key tool in marketing The company must also find, lure or combine middlemen and marketing supporters to pour its products into market in the most effective way The company also has to understand thoroughly retailers, wholesalers, distributors as well as the way they pass its decisions

Sale promotion, the fourth tool of marketing, includes numerous activities that the company must implement to inform and promote its products in targeted markets The company should hire trainers and encourage its staff The company has to plan information programs and sales promotion including advertising, direct marketing to speed up consumption and public relations

The effectiveness of marketing strategy is valued via the rate between the leaving of customers and expense over an unit of item

Illustration 2-3: The relationship between the average expense over an unit of

item and the rate of leaving of customers

Low Rate of leaving of customers High

Source: The strategic Management- The Statistics publishing House, 2007

The rate of leaving of customers is the percentage of customers who stop using products of one company but start buying products of its rivals within one year The rate of leaving of customers is also defined by the confidence of customers which is the result of their satisfaction toward the company As such, it takes company a fixed sum of money for advertising, sales promotion and similar activities to lure new customers The rate of leaving and expenses has direct relations with each others The longer company holds a customer the more profit it gets via selling products to the customer As a result the company can lower

average expense over an unit of item sold out Consequently, lowering the rate of leaving of customers enables company save lots of money

On the other hand, the confidence of customers even make money for the company because of their free advertisements they made by accident That means loyal customer usually praise the company and they can raise the volume of transaction by doing so You can take Mark & Spencer Company as a typical example By setting up confidence among customers the company need not make any advertisements, which saves it lots of money

1.3.3 Material management

Material management contributes to affectivity rising of the company as much as marketing and manufacturing strategy do Effective input material management will help to decrease producing expense and the quantity of materials

in stock As such the company will save money, lower price and raise its benefit as well Material management consists of necessary activities from transporting materials to workshops; turning them into products, distributing them via the system of distribution and then giving them to customers in form of finished products There are many chances to lower expense via effective material management For a medium manufacturing enterprise, expenses for transportation and materials account for up to from 50% to 70% of total turnover Even lowering

a little such kind of expense will affect greatly benefit of the company

The company also saves expenses via managing materials more effectively

by restructuring the unit which takes charge of material management

To raise the affectivity of material management, the company should apply the JIT (just – in- time) system The main theory of JIT is to save money for keeping goods in stock by transporting materials to the factories just in time they are put into producing The saved money is a result of the rise in the circulation of inventory goods As a result, the company will save money for storing For example, thank to the using of JIT system, Ford Corp saved $ 3 billion USD in

early 1980s Currently, the number of inventory circulation of the old system is 9 times/year while expense for storing decreases a half

1.3.4 Research and Development (R &D)

Research and Development play a vital role in implementing strategies That

is because such kinds of activities aim at developing new products with new features; improving old ones; meeting the demand of customers and effectively supporting the strategies implementation At present, the demand of customers for the quality of products has been increasingly various and hard-to- deal- with As a result, Research and Development should be paid more attention to, which also acquires a higher sum of money

As said above research and development play an important role in enabling the company to do business more effectively because of the following reasons Firstly, R &D invents easy- to- be- made products By cutting down the numbers of parts in a product, does the company shorten time of assembling, which helps to raise labor efficiency as well as lower expense of an unit of item

It is necessary of the company to combine closely between making function and

R &D function The company should set up complex teams including makers and development researchers who can cooperate to give the best solutions to any rising problems Secondly, R &D leads in reforming production manners in order to raise their affectivity Reforming production manners is a factor resulting to competitive advantage

1.3.5 Finance

Financial ability of a company can be either strong points or weakness The purpose of finance management of enterprises is to use capital in the most effective way in the meaning that expense for capital using is minimized but capital for projects is distributed the most reasonably In that case expense for capital using and price of products &services will be down Meanwhile, benefit

of enterprises increases

What is expense for capital using? As you all know, capital is a vital factor

to enterprises To have capital enterprises must pay a certain sum of money as interest to lenders Such money can be seen as wanted-profit- making rate given by lenders Normally, lenders ask for a high interest rate while borrowers expect it low As such interest rate of loans is balanced, which is acceptable to both lenders and borrowers

Capital structure: in the market economy enterprises hardly use one source

of money to invest into all their business even when such source of money takes lesser expense of using They often use 2 sources of capital namely own capital and loans Own capital is usually not plentiful enough to capitalize for all projects both scope and scale On the other hand, it is not a good idea to raise own money because of the fact that the owners of the company will always be put under pressure of getting more benefit As a result, enterprises have to mobilize money via loans However, money lenders always ask enterprises to maintain their own money at a level which is high enough to ensure the ability clear debts, which really seems to be a hard- nut- to – crack to enterprises In the current context of market economy, finance administrators for enterprises must address such difference to find out the most suitable capital structure which ensures an acceptable rate between own money and loans And the highest purpose is to make biggest profit for enterprises The structure targets at balancing between interest rate and risks so that it can maximize benefit of enterprises To have a suitable capital structure finance administrators must take into consideration 4 following factors: risks in doing business; income tax of the enterprise; capital capacity of enterprise as well as points of view of managers about using capital The 4 factors affect greatly targeted capital structure of enterprise In different stages, basing on certain conditions of economy and the enterprise itself, administrators will give out a suitable financial structure to help enterprise call for a source of financial support

Capital using affectivity of enterprise: as an economic category, it symbolizes the ability of enterprise to put its own sources into manufacturing or

doing business and gain fruitful results with smallest expense An enterprise with ability to use capital effectively means it does business well In the market economy, this is a decisive factor in expanding business both scope and scale To tell in different way, when distributing capital into projects in an safe and effective way, enterprise can save money and avoid waste as well as raise credit and ability

to mobilize capital The affectivity of using capital depends on some factors such as policies of the State; the way to organize business or production; capability of management machinery especially that of finance administrators as well as the choice and implementation of strategies of enterprises To raise the affectivity and preserving of capital using enterprises must pay attention to such factors as management, estimates of capital demand and balance the ability to mobilize capital; fixed capital as well as mobile capital

To value the finance ability of enterprises, a formula to estimate bankruptcy

by Alan can be considered

Alan formula to estimate bankruptcy

Z=6.56X1+3.26X2+6.27X3+1.05X4

Z= a general index of financial status

X1=Mobile assets/ overall assets

X2= income excluding interest of loans and tax payment

X3= money kept back to reinvest/ overall assets

X4= money owned by the owners of the company/ total dept

Result analysis

Z > 2.60 : healthy finance status

Z<1.10: the company is in finance difficulty

Source: teaching materials of international executive MBA program, HSB, 2006

1.3.6 Human source

Labor management is any matters relating to rights, responsibilities of the staff to gain the highest affectivities for both company and the staff Most activities relate to the 5 following contents