Competitive strategies the care of Hapro Travel

68 Table 2.10: GREAT Model for I lapro Travel’s Differentiation Focus Strategy...68 Table 3.1: Implementation o f Product Attribute Differentiation Focus Strategy for Hapro Travel .... T

A B S T R A C T ii

T Ó M T Ấ T iv

T A B L E O F C O N T E N T S vi

L IST O F T A B L E S ix

L IST O F F IG U R E S X IN T R O D U C T IO N 1

1 R esearch P ro b le m s 1

2 O b je ctiv es and A im s 2

3 R esearch Q u e s tio n s 2

4 S co p e o f W o r k 2

5 R esearch M e th o d o lo g y 3

6 S ig n ific a n c e 3

7 L im ita tio n s 3

8 E xp ected R e s u lt s 3

9 T h esis S tr u c tu r e 4

C H A P T E R 1: L IT E R A T U R E R E V IE W 5

1.1 Competitive Strategies and The Importance o f Competitive Strategies 5

1.1.1.D efinition o f Com petitive Strategies 5

1.1.2.The Importance o f Competitive Strategies 6

1.1.3 Kinds o f Com petitive Strategies 6

1.2 P rocess to F orm u late C om p etitive S tr a te g ie s 7

1.2.1 V ision /M ission 10

1.2.1.1 V iss io n 10

A C K N O W L E D G E M E N T S i

1.2.2 External A n a ly sis 14

1.2.2.1 Macro A n alysis 14

1.2.2.2 Industry A n a ly sis 17

1.2.2.3 Opportunities & T h re a ts 19

1.2.3 Internal A n a ly sis 20

1.2.3.1 Value Chain M odel 21

1.2.3.2 Process to Identify Sustainable Competitive Advantages 27

1.2.3.3 Strengths & W eak n esses 30

1.2.4 Formulation and Choice o f Appropriate Competitive Strategies 31

1.2.4.1 SW OT M atrix 31

1.2.4.2 GREAT M o d e l 32

1.3 T h e B est P ractices o f C om p etitive Strategy F o rm u la tio n 33

C H A P T E R 2: F O R M U L A T IO N A N D C H O IC E O F A P P R O P R IA T E C O M P E T IT IV E S T R A T E G IE S FOR H A P R O T R A V E L 36

2.1 An In tro d u ctio n o f H apro T r a v e l 36

2.1.1 General Information 36

2.1.2 Organizational Structure and L eadership 36

2.1.3 B usiness R esults 37

2.1.4 O bjectives 37

2.1.5 Current Strategies and Im plem entation 38

S cope o f Strategy Form ulation 38

2.2 F orm u lation and C h o ice o f A p p rop riate C o m p etitiv e Strategies for

H ap ro T r a v e l 39

2.2.1 V isio n /M issio n 39

2.2.2 External A n a ly sis 39

2.2.2.1 Macro A nalysis 39

2.2.2.2 Industry A nalysis 47

Ranking o f Opportunities and Threats for Hapro T ravel 52

2.2.3 Internal A n a ly sis 52

2.2.3.1 Value Chain M o d e l 52

2.2.3.2 Process to Identify Sustainable Competitive Advantages 59

Ranking o f Strengths and W eaknesses for Hapro T ra v el 62

2.2.4 Formulation and Choice o f Appropriate Competitive Strategies 62

2.2.4.1 SW OT M atrix 62

2.2.4.2 G REAT M O D E L 67

CHAPTER 3: MEASURES TO IMPLEMENT THE CHOSEN STRATEGIES 70 3.1 M easu res to Im p lem en t the D ifferen tiation F ocu s S trategy T h rou gh P rod uct A ttr ib u te s 73

3.2 M easu res to Im p lem en t the D ifferen tiation F ocu s S trategy T h rou gh C u sto m er S e r v ic e s 74

C O N C L U S IO N 77

R E F E R E N C E S

Table 1.2: The Support Activities and Factors for Assessment 25

Table 13: Sustainable Competitive Advantage 29

Table 1.4: Comparative Competitive Analysis 30

Table 1.5: Strategy Formulation 32

Table 1.6: GREAT Model 32

Table 2.1: Types o f the Tour in Vietnam 44

Table 2.2: Travel Spots in Vietnam 46

Table 23 : The Number o f Transport Means in Flanoi 48

Table 2.4: Ranking o f Opportunities and Threats for Hapro Travel 52

Table 2.5: Comparative Competitive Analysis for Hapro Travel 61

Table 2.6: Ranking o f Hapro Travel’s Strengths and Weaknesses 62

Table 2.7: Differentiation Strategy Details (O-W ) 65

Table 2.8: Cost Leadership Strategy Details (O-T) 67

Table 2.9: GREAT Model for 1 lapro Travel 68

Table 2.10: GREAT Model for I lapro Travel’s Differentiation Focus Strategy 68

Table 3.1: Implementation o f Product Attribute Differentiation Focus Strategy for Hapro Travel 73

Table 3.2: Implementation o f Customer Service Differentiation Focus Strategy for Hapro Travel 75

T a b l e 1 1 : T h e P r i m a r y A c t i v i t i e s a n d F a c t o r s f o r A s s e s s m e n t 2 3

F igu re 1.2: E lem ents o f Macro A n a ly s is 15

F igu re 1.3: F ive Forces M odel by M ichael Porter 1 7 F ig u re 1.4: V alue Chain M o d e l 21

F igu re 1.5: Process to Identify Sustainable C om petitive A d van tage 27

F igu re 1.6: SW O T A nalysis Fram ew ork 31

F igu re 2.1: Organizational Chart o f Hapro T r a v e l 37

Figure 2.2: Consumption Structure o f Flouseholds and Individuals in H anoi 40

F igu re 2.3: Top Ten M ost Reliable Travel A g e n ts 50

F igu re 2.4: Five Forces M odel o f Tourism Industry in H a n o i 51

F igu re 2.5: SW O T Matrix o f Hapro T ravel 63

F igu re 2.6: Strategy Formulation for O-W Quadrant 64

F igu re 2.7: Strategy Formulation for T -W Q uadrant 66

F igu re 3.1: C om ponents o f Strategy Im plem entation 70

F i g u r e 1 1 : P r o c e s s t o F o r m u l a t e C o m p e t i t i v e S t r a t e g i e s 9

1 R esearch Problem s

Competitive strategy helps firms find out the ways to compete against competitors so it is very important for the firms to stay comfortable in the market Companies with appropriate strategies will lead to growth and expansion In contrast, companies with inappropriate strategies will lead to failure or even collapse In order to formulate competitive strategy, managers need to scan external and internal environment with some models and analysis tools For companies with chosen strategies already, they also need to monitor the environment and adjust their strategies appropriately because the environments are always changing.

Hapro Travel, a new company in tourism industry, already has the competitive strategy by differentiating their products The problem is that the company did not pay enough attention to the implementation and adjustment o f the chosen strategies.

This research will test again if the chosen strategy o f Hapro Travel is the appropriate one and provide som e measures to implement the suggested strategies for the company The tourism industry in Vietnam now is very fierce with strong and numerous competitors Therefore, it is very necessary for Hapro Travel to have appropriate competitive strategies and implement them in a right way to compete against other rivals.

2 O b jectiv es and A im s

The objectives o f this thesis are as below:

- To provide a better understanding o f com petitive strategy including the definition, the importance and the formulation o f com petitive strategy.

- To provide a better understanding o f tourism industry in Hanoi and review the business operation o f Hapro Travel Then, to apply the theory into the case study o f this company in order to formulate the right strategy.

- To give out som e conclusions and suggestions for the implementation

o f the chosen strategies for Hapro Travel.

The aim o f this thesis is to provide guidance for anyone w ho wants to

formulate com petitive strategies.

3 R esearch Q u estion s

In order to obtain the objectives and aim, the follow in g questions have been developed:

- Why is it necessary for Hapro Travel to have com petitive strategies?

- What does it have to do to formulate and choose the appropriate

com petitive strategies or to adjust the existing strategies?

- How does Hapro Travel implement the chosen strategies?

4 S cope o f W ork

This thesis focuses on the formulation and choice o f appropriate com petitive strategy for Hapro Travel up to 2013.

5 R esearch M eth od ology

The qualitative method (ease study) is applied for this thesis A detailed review o f literature was undertaken to understand the process to formulate and choose the appropriate strategies Both primary and secondary data were used for this thesis The literature review involved a study o f books, newspapers and Internet sources The primary data was collected through in- depth interviews with management board o f Hapro Travel and self­ observation The data was processed by M icrosoft Excel and Word.

6 S ig n ifica n ce

This thesis will help Hapro Travel to understand more about strategy, recognize opportunities, threats, strengths, and w eaknesses, and then exploit them in an appropriate way to achieve objectives o f the company This thesis

is highly applicable for Hapro Travel.

7 L im itation s

The formulation and choice o f appropriate strategies in this thesis are applied

in the case o f Hapro Travel only In order to be applied in the cases o f other com panies, it requires further researches.

8 E xp ected R esults

F ollow ing are som e expected results o f this thesis:

- R eview the process to formulate and choose appropriate com petitive strategy for a company;

- Successfully formulate and choose appropriate com petitive strategies for Hapro Travel.

- Suggest som e appropriate measures for Hapro Travel to implement the chosen strategies.

9 T h esis S tru ctu re

The thesis consists o f three main parts: Introduction, Content and Conclusion.

The introduction part deals with the m ethodology to carry out the research This part includes research problems, objectives and aim s, research questions, scope o f work, research m ethodology, significance, lim itations and expected results.

The content part begins with the literature review and then the application o f theory into the case o f Hapro Travel.

The final part draws out som e conclusions and suggestions for the implementation o f the chosen strategy for Hapro Travel.

C H A P T E R I: L IT E R A T U R E R E V IE W

1.1 C o m p e titiv e S tr a teg ie s and T he Im p ortan ce o f C om p etitive S trategies The term “strategy’' w as firstly used in military and literally meant how military forces were used to win a battle, but with the notion that “business as war”, it was quickly and w idely adopted in the world o f business.

In business, there are many definitions o f strategy, som e are very lengthy and some are very short H ow ever, in summary, strategy can be understood as “a way to achieve an organization’s objectives and m issions” In a company, there are four lev els o f strategy at functional, business, corporate and global level Functional strategy answers the question o f how to improve and combine resources to achieve com petitive advantages Functional strategy is also a measure to ach ieve strategy at business level B usiness or com petitive strategy answers the question o f how to com pete in a given business area Corporate strategy answer the question o f what businesses should the company enters and how to allocate resources between these businesses And finally, global strategy answ ers the question o f where and how to com pete in international market.

Com petitive strategy is the strategy that this thesis focuses on to build strategy for Hapro Travel C om petitive strategies answer the question o f how to compete against com petitors According to M ichael Porter in his book published in 1986, C om petitive Strategy’, he defines a com petitive strategy as

"a com bination o f the ends (goals) fo r which the fir m is striving a nd the

means (policies) by w hich it is seeking to get there” Basing on this definition,

com petitive strategy is understood more deeply as both plan and position.

With the developm ent o f technology and increasing living standards, com petition is becom ing fiercer and fiercer; custom ers are becom ing more and more dem anding and sophisticated Therefore, it requires com panies to have suitable strategy to meet demands from custom ers and to compete against their rivals to gain market share D efinition o f com petitive strategy show s how' important o f com petitive strategy is to the survival and developm ent o f com panies In general, strategy plays a role to help organization find a way to com pete against rivals, to exploit the com pany’s resources and to build up com petitive advantages in turn.

K inds o f C o m p e titiv e Strategy

Michael Porters also categorizes com petitive strategy into three kinds: Overall cost leadership, differentiation, and focus.

Cost leadership strategy means that company can gain com petitive advantages over com petitors by becom ing the leader o f low cost producing This can be achieved through econ om ies o f scale, technology, access to raw materials,

m inim ization o f costs in all the operations o f the company, etc Cost leadership strategy does not mean that the com pany does not pay attention to quality, services or other areas Company pursues this strategy not only have advantages over com petitors but also over custom ers and suppliers With low cost for production, company can sell products at lower prices which can reduce the bargaining power o f buyers when they compare the price with that

o f com petitors and this creates an entry barrier for potential competitors.

Differentiation strategy m eans that the com pany tries to make its products or services unique in the market There are three approaches to fo llo w this strategy The com pany can be unique in terms o f product attributes, brand image or custom er services Research and develop m en t, marketing, and customer services are three m easures to ach ieve these three approaches respectively Like cost leadership strategy, differentiation strategy does not mean that com pany w ill ignore costs but this is not the main concern When company can obtain this strategy, it can gain high returns from its premium price and it is the main reason for com pany to fo llo w this strategy Differentiation can becom e a big barrier for com petitors because o f brand loyalty from custom ers It can reduce bargaining pow er o f buyers as well when they do not have alternatives to choose.

The last kind o f com p etitive strategy is focus The different point betw een this strategy w'ith cost leadership and differentiation strategy is that focu s strategy

is aimed at serving a particular group o f custom ers in the market very w ell, not serving industry w ide as the tw o above ones There are tw o variants in focus strategy: cost focu s and differentiation focus W hy com pany fo llo w s this strategy? It is based on the premise that com pany had better does w ell in

a narrow market rather serves a large market but less effectiv ely

1.2 P rocess to F o rm u la te C o m p etitiv e S tr a teg ies

Also according to M ichael Porter, 1998, C om petitive Strategy>, there are three

main questions need to be answered in the process to formulate com petitive strategy The first question is “ What is the business doing n ow ”? This

question im plies the relative position o f the firm in the market and wants to identify i f the firm currently has an im plicit or explicit strategy or not The second one is “What is happening in the environm ent?” This m eans that an environmental analysis should be carried out to see how external and internal factors impact the business and com petitiveness o f the firm The third one is

“What should the business be doing?” This question helps to identify all the strategic alternatives basing on the analysis and ch oose the best one that relates to the com pany’s situation.

The follow in g chart summarizes the process to formulate a com petitive strategy:

Vision and m ission work as a guide and direction in building strategy and strategy must match up with vision and m ission o f a firm Therefore, it is very important to clearly identify vision and m ission before form ulating strategy.

1.2.1.1 V ision

Burt Nanus, in his book published in 1992, Visionary Leadership, defines a

vision as realistic, credible, attractive fu tu r e f o r an o rg a n iza tio n ” This is a

very short but very co n cise and com plete d efinition o f vision A vision must

be realistic because it must be based on reality to be m eaningful for the organization A vision must be credible because it must make all the

em p loyees and m em bers o f the organization b eliev e that the vision is achievable A vision also must be attractive to inspire and m otive all the people in the organization And finally, a vision m ust be in the future because

it states where the organization wants to be in the future O nce the vision is attained, it is no longer a vision and a new vision needs to be formulated.

Hence, a vision is very important for a business because it creates a com m on ground for all sta ff and owners; it lets other people kn ow what direction o f a business is goin g in; it distinguishes the role and aspirations o f a com pany; it prov ides inspiration to lure attention from investors; it m akes the work flow more efficien tly, etc.

How to develop a vision? A lso according to N anus, there are seven steps to develop a vision The first step is to understand the organization by answ ering

som e questions like what its purposes are, what values it provides to society, what characteristics o f the industry are, what it takes the organization to succeed, who the critical stakeholders are and what their interests and expectations are N ext, a vision audit should be conducted to assess the current direction and mom entum o f the organization K ey questions to be answers are: D oes the organization have a clearly stated vision ? W hat’s the organization’s current direction? Do the key leaders o f the organization know where the organization is headed and agree on the direction? Do the organization’s structures, processes, personnel, incen tives, and information system s support the current direction? Then the vision m ust be targeted or narrowed Key questions are: What are the boundaries or constraints to the vision? What must the vision accom plish? What critical issu es must be addressed in the vision ? The fourth step is to set a visio n context This is to make som e informed estim ates about what future environm ents m ight look like, how' they affect the organization Right after that, future scenarios must

be developed These scenarios are the alternative futures the organization is likely to operate w ithin The sixth step must be alternative vision s for alternative scenarios in the previous step A s there are several alternative futures for the environm ent, there are several directions the organization might take in the future The purpose o f this step is to generate vision s reflecting those different directions And the last step is to ch o o se the final vision which is the best p ossible vision for the organization To do this, first look at the properties o f a good vision, and what it takes for a vision to succeed in accordance with the organization’s cultures and values N ext, compare the vision s generated with the alternative scenarios, and determ ine which o f the possible vision s will apply to the broadest range o f scenarios The final vision should be the one w hich best m eets the criteria o f a good

vision, is com patible with the organization's culture and values, and applies to

a broad range o f alternative scenarios.

1.2.1.2 M ission

While a vision defines what an organization wants to becom e in the future, a

m ission defines what an organization wants to achieve In other words, a

m ission determines the overall goal o f the organization in the future.

As R Duane Ireland, 1992, “Mission Statements: Importance, Challenge, and

Recom m endations f o r D evelopm ent”:

An effective m ission statement describes the firm's fundamental, unique purpose An important part o f this description indicates how' a firm is unique in its scope o f operations and its product or service offerings In sim ple yet powerful terms, a m ission statement proclaims corporate purpose This proclamation indicates what the organization intends to accom plish, identifies the market(s) in w hich the firm intends

to operate, and reflects the philosophical prem ises that are to guide actions.

M ission statements are also intended to provide m otivation, general direction, an image o f the company's character, and a tone, or set o f attitudes, through which actions are guided Furthermore, because

m ission statements embody a company's soul, they are often inspirational.

It is clear that a m ission statement is very important and many com panies fail

in developin g a m ission statement Several factors may account for the failure are: the number and diversity o f organization stakeholders; the amount o f work required to develop an effective m ission statement; the b e lie f that

m ission statements may reveal too much confidential, com petitive information; the controversy that can be created through developm ent o f a

m ission statement, etc Therefore, in order to develop an effective m ission statement, the organization should take the follow in g factors into consideration First, it is support from top-level managers Top-level managers must accept responsibility for articulating a m ission in w ays that are

m eaningful for each stakeholder group M ission statements should be formed only when top-level managers have made the philosophical and operational com m itm ent required to focus the organization’s resources on m ission accom plishm ent N ext is the need for transformational leadership Transformational leaders inspire, energize, and intellectually stimulate and stir em p loyees to look beyond their own self-interest for the benefit o f individual work groups and the organization as a w hole Typically, such leaders are seen as charismatic and capable o f providing individualized consideration to stakeholders in efforts to satisfy their unique interests and needs Then, m ission statement guidance must be consistent It is the responsibility o f key individuals to verify that once formed, a m ission statement is used consistently as a guide for all organizational decisions and actions The last one is to listen to customers because the organization exists

is to satisfy custom ers’ needs In this sense, customers could be view ed as the most critical stakeholder group and therefore should pay a prominent role in a

m ission statem ent’s focus.

The purpose o f external analysis is to see how external factors impact the company External factors are any factors outside the company and beyond the control o f the company External analysis includes macro analysis and micro analysis External analysis must be carried out because managers need

to be aware o f these conditions in order to take advantage o f opportunities that can lead to higher profits and reduce the impact o f threats that can harm the organization’s future In other words, external analysis is to find out the opportunities and threats to the firm.

1.2.2.1 M a cro A n alysis

Macro factors are those that affect any organizations in the w hole econom y There are many factors in the macro environment that affect the business o f any organization They are Political, Econom ic, Social, T echnological, Environmental, and Legal factor It is abbreviated in PESTEL Depending

w hich elem ents are included it can be also referred to as STEP, STEEP, PESTEL, PESTLE, or LEPEST Recently, it was even further extended to STEEPLE and STEEPLED, including education and demographics.

F igu re 1.2: E lem en ts o f M acro A n alysis

P olitical F actors T hese refer to government policies such as the degree o f intervention in the econ om y, the political orientation, political stability, investm ent incentives, business regulations relating to labor and environment, goods and services a governm ent want to provide, the extent o f subsidy, priorities in terms o f business support Political d ecision s from a government can impact on many vital areas for business such as the education o f workforce, quality o f infrastructure.

E con om ic F actors The com ponents o f these factors include interest rates, taxation changes, econ om ic growth, inflation, exchange rates, unemployment, rates o f saving and investm ent, per capita incom e levels, and foreign trade deficit or surplus All o f these factors can have a major impact on a firm For exam ple, inflation may lead to higher w age demand from em ployees and raise costs; higher per capita incom e may boost demand for a firm’s product;

higher interest rates may restrict investment because it costs more to borrow money.

Social F actors Changes in social trends can impact on the demand for product and the quality o f labor o f a firm A ge, population, gender, race, education, religion, marital status, language, m obility, sexual orientation, ownership, incom e are social factors need to be taken into consideration.

T ech n o lo g ica l F actors Technology plays an important role in creating com petitive advantage by reducing costs, improving quality, and increasing productivity The level o f technology, adoption o f new technology, technology transfer and diffusion are technological variables to analyze.

E n viron m en tal F actors These include weather and climate change which can impact on many industries like textile & garment, farming, tourism Another issue o f environmental factors is the grow ing desire to protect the environment from a government which will increase operating costs o f many firms.

Legal F actors These are legal regulations o f a governm ent in using labor, treatment to em ployees, minimum w ages, recycling, etc These laws can affect a firm ’s costs, and the demand for its product.

Besides, global factors are also macro environmental factors that are taken in analysis recently G lobalization, free trade areas, bilateral/multilateral/ trade agreements, cultural exchange, etc may affect business o f a firm.

Industry analysis is carried out to see how intensive the com petition in a given industry is It is very important for managers to understand the industry in which their firms operate in to compete for resources, customers, sales and profits Five Forces Model is the most com m on analytical tool to help managers formulate appropriate strategy.

T h e F i v e f o r c » > r > i hnx S h a p e I n d u s t r y C o m p e t i t i o n

Five Forces model was developed by M ichael Porter in 1980 in his book

“C om petitive Strategy According to his m odel, five forces o f an industry are threat o f new entrants, bargaining power o f buyers, bargaining power o f suppliers, threat o f substitutes, and rivalry am ong existing competitors

Thrent of Substitut»

Product« or Survie««

from ‘ The I ivc Competitive F orces That Siiape Stiatcyy’' by

Midiacl I Porter, t L*r litr&tncpsœ ffeweiv January ?008

F igu re 1.3: Five F orces M odel by M ich ael Porter

G?iA HA NO

T h rea t o f N ew E n tra n ts N ew entrants into an industry will threaten existing com panies; it w ill shrink the market and make the com petition within the industry more and more intensive Barriers to entry are econ om ies o f scale, experience effects, brand identification, sw itch in g costs, techn ology and capital.

B a rg a in in g P o w er o f B u y ers In som e industries, buyers are m ost powerful when buyers are few and they buy in large volum es; a sin gle buyer is a large custom er to a firm; buyers can sw itch from this supplier to other suppliers easily and at low' costs; the product is not differentiated and easily substitutable; buyers can purchase from many sellers at once; and buyers can easily integrate backward to com pete w ith suppliers.

B a rg a in in g P o w er o f S u p p lie rs Suppliers have high bargaining power when the number o f suppliers is few in the market; their products have few substitutes and important to buyers; their products are differentiated and not easy to find substitutes; suppliers can integrate forward to com pete with buyers and buyers cannot integrate backward to produce them selves.

T h rea t o f S u b stitu te s A ccordin g to Byars, Rue, Zahra, (1 9 9 6 ), “Strategic

M anagem ent”, “substitutes are products that accom plish the sam e purpose or

fulfill the sam e n eed s” A s more substitutes are available, the demand becom es m ore elastic because custom ers have more alternatives to choose The threat o f substitute products increases w hen they com e closer to serving similar cu stom ers’ needs.

R ivalry a m o n g E x istin g F irm s The rivalry is measured by indicators o f industry concentration A high concentration ratio indicates that a high

concentration ratio o f market share is held by the largest firms - it means the industry is concentrated In contrast, a low ratio means that there are many rivals in the industry and none o f which has a significant market share The rivalry am ong existing firms is also affected by the capabilities and allocation

o f these firms.

1.2.2.3 O p p o rtu n ities and T h reats

Listing these above factors is just the first step in external analysis because this action does not tell managers very much The next important step for managers is to think about which factors are m ost likely to change and which ones w ill have the greatest impact on their com panies It means that each firm must identify key factors in their own environm ent because this factor is critical for this firm but may not important for others In other words, managers must identify and classify which factors are opportunities for and which factors are threats to their firms.

According to the definition from the American Heritage Dictionary 2008, “an opportunity is a favorable or advantageous circum stance or combination o f circumstance It is an external condition that is helpful to achieving the objective” Som e exam ples o f opportunities are the unsatisfactory demand o f customers, the application o f new technologies, loose regulations or removal

o f trade barriers And “a threat is an external condition which could do damage to the business performance.” Som e exam ples o f threat include the change in demand o f customers, the em ergence o f substitutes, the number o f competitors is increasing, etc.

One way to decide the relative importance o f various factors is to rank or score the likelihood o f a change and rate o f impact to the firm The higher the likelihood o f a change occurring and the greater the impact o f any changes, the more significant this factor will be to the firm By answer the three follow in g questions, managers can rank the opportunities and threats:

- W hich are the most important now?

- W hich are likely to be most important in a few years?

- W'hat are the factors influencing any changes?

In con clu sion , understanding the dynamics o f com petition in the industry is a crucial step in formulating strategy It helps managers to determine the factors that affect rivalry in their industry, to identify prospectus competitors, to recognize current and em erging substitutes, and to understand how different rivals com pete.

1.2.3 In tern al A n alysis

W hile external analysis is to find out opportunities and threats, internal analysis is to evaluate relevant factors in an organization in order to determine its strengths and w eaknesses Within a given industry, som e com panies are more profitable than others thanks to com petitive advantage The source o f com petitive advantages is the com pany’s abilities to outperform competitors

in terms o f efficien cy, innovative capability, product quality, and customer responsiveness T w o tools used to analyze internal environm ent is the value

chain m odel and the process to identify sustainable com petitive advantage.

V alue chain m odel w as also developed by M ichael Porter and was introduced

in his book “C om petitive Advantage: C reating a n d Sustaining Superior

P erfo rm a n ce" (Porter, 1985,) “The term value ch a in refers to the idea that a

com pany is a chain o f activities for transform ing inputs into outputs that custom ers value The process o f transforming inputs into outputs is com posed

o f a number o f primary activities and support activities Eiach activity adds value to the product.” And the concept o f value added, in the form o f value chain, can be utilized to develop an organization’s sustainable com petitive advantage V alue chain is com m on to a w ide range o f firms There are three main purposes in value chain analysis First, it is to see the overall pictures o f all activities o f a com pany, and then compare these activities to those o f com petitors Secon d , it is to identify in w hich steps the organization has chance to com pete And the last one is to find out w hich steps generate value for products or services.

T h e V a lu e C hain

P o rte r 1985

I | G r o s s S a l e s

■] S u p p o r t A c t i v i t i e s ( H P r i m a r y A c t i v i t i e s

F igu re 1.4: V alu e C h ain M od el

Primary activities are those that are directly concerned with creating and delivering a product In other words, primary activities directly add value to a product Primary activities (Porter, 1985) are broken down into five functions: Inbound L ogistics, Operations, Outbound Logistics, Marketing and Sales, and Services.

Inbound L ogistics T hese are the activities concerned with receiving the materials from suppliers, storing these materials, and handling them within the firms.

O p eration s T hese are the activities related to the production o f products or services.

O u tb ou n d L o g istics T hese are all activities concerned with distributing the final product and/or service to the customers.

M ark etin g and S a les This functional area essentially analyze the needs and wants o f custom ers and is responsible for creating awareness among the target audience o f the com pany about the firm’s products and services.

C u stom er S er v ices All those activities associated with maintaining product performance after the product has been sold.

Appropriate automation of production process

Effectiveness production control systems to improve quality and reduce costs

Efficiency of plant layout and work­

flow design

Timeliness and efficiency of delivery of finished goods and services

Efficiency

of finished goods warehousing activities

Effectiveness of market research

to identify customer segments and needs

Innovation in sales promotion and

advertisement

Evaluation of alternative distribution channels

Motivation and competence of sales forces

Development of

an image of quality and favorable reputation

Extent of brand loyalty among customers

Extent of market dominance within the market segment or overall market

Means to solicit customer input for product improvement

Promptness

of attention

to customer complaints

Appropriate­ ness of warranty and guarantee policies

Quality of customer education and training

Ability to provide replacement parts and repair services

The support activities o f the value chain provide inputs that allow the primary activities to take place T hese activities do not directly add value to products

or services Support activities include Procurem ent, Human Resource

M anagement, T ech nology D evelop m ent, and Infrastructure.

P ro cu rem en t This concerns how resources are acquired for a business (e.g sourcing and negotiating with material suppliers) An efficien t procurement department should be able to obtain the highest quality good s at the lowest prices.

H um an R esou rce M a n a g e m e n t T hose activities concerned with recruiting, developing, m otivating and rewarding the w orkforce o f a business.

T ech n o lo g y D e v elo p m en t A ctivities concerned with m anaging information processing and the develop m en t and protection o f k n ow led ge in a business.

In fra stru ctu re This concerns with a w id e range o f support system s and functions such as finance, planning, quality control and general senior management.

Quality of the strategic planning system to achieve corporate objectives

Coordination and integration of all value chain activities among organizational

subunits

Ability to obtain relatively low-cost funds for capital expenditures and working capital

Level of information systems support in making strategic and routine decisions

Timely and accurate management information on general and competitive

environments

Relationships with public policy makers and interest groups

Public image and corporate citizenships

Effectiveness of procedures for recruiting, training, and promoting all levels of employees

Appropriateness of reward system for motivating and challenging employees

A work environment that minimize absenteeism and keeps turnover at desirable levels

m - Levels of employee motivation and job satisfaction

Success of research and development activities in leading to product and process innovations

Quality of working relationships between R&D personnel and other departments

H Timeliness of technology development activities in meeting critical deadlines

w - Ability of work environment to encourage creativity and innovation

J - Qualification and experience of laboratory technicians and scientists

Procedures for procurement of plant, machinery, and buildings

Development o f criteria for lease-versus-purchase decisions

Good, long-term relationships with reliable suppliers

(Source: M ichael Porter, Competitive Advantage: Creating and Sustaining Superior Performance, 1985)

Value chain analysis appear sim ple in theory but it is quite tim e - consum ing

in practice There are three sequential steps in value chain analysis (M acm illan et al, 2000).

(1) Break dow n a m arket/organization into its key activities under each o f the major headings in the model;

(2) A ssess the potential for adding value via cost advantage or differentiation,

or identify current activities where a business appears to be at a com petitive disadvantage;

(3) Determ ine strategies built around focu sing on activities where com petitive advantage can be sustained

Information for value chain analysis can be found from the com p any’s annual reports, com p an y’s w ebsite, journal articles, other trade m agazines, etc And the nature o f value chain activities differs greatly in accordance with the types

o f com panies and industries.

A com petitive advantage is an advantage over com petitors gained by offering consumers greater value C om petitive advantage can be obtained through cost advantage or differentiation advantage (Porter, 1985) The goal o f business strategy is to achieve sustainable com petitive advantages w hich mean that these advantages cannot be duplicated or intimated by other firms and stay with the com pany for a long time And strategy must be built basing on sustainable com p etitive advantage, not core com p eten cies or other factors.

In order to identify sustainable com p etitive advantage, it is necessary to identify resources, capabilities, core com p etencies, distinctive com p etencies

o f the organization first.

Process to Identify Sustainable C om petitive A dvantages

R esou rces T hese are anything that the organization has in hand Resources are divided into tangible and intangible ones Land, building, plant, and equipment are tangible resources and brand nam es, reputation, patents, and technological or marketing know -how are exam p les o f intangible resources.

C a p a b ilities T hese refer to a com p an y’s sk ills at coordinating its resources and putting them to productive use (H ill, Jones, 1998 “Strategic M anagement

- an integrated approach” ) These skills reside in the w ay a com pany makes decisions and m anage its internal processes in order to achieve the organizational ob jectives More general, a com p an y’s capabilities are product

o f its organizational structure and control system s.

C ore C o m p ete n c ie s Core com p etencies are the key ones that help a company to su cceed in an industry They are capabilities that serve as a source o f com p etitive advantage for a firm over its rivals It is som ething that

a firm can do w ell and that m eets conditions o f providing consum ers’ benefits, not being easy for com petitors to im itate, and being able to be leveraged w id ely to many products and markets Core com petencies are critical keys to exist and su cceed in a particular industry.

D istinctive C o m p e te n c ie s Core com p eten cies becom e distinctive com petencies when a firm does better than com petitors A distinctive com petency is a unique strength that allow s a com pany to achieve superior efficiency, quality, innovation and custom er resp onsiveness With a distinctive com p eten cy, a firm can differentiate its products or obtain lower costs than its rivals and consequently create more values and earn higher profits.

S u sta in a b le C o m p etitiv e A d van tage It is an advantage that enables business to survive against its competition over a long period o f time In order for a distinctive com petency to become a sustainable com petitive advantage,

it must be: (1) valuable - it must help the firm neutralize threats or exploit opportunities; (2) rare - it is not possessed by many others; (3) costly to imitate - other firms can not develop easily, usually due to unique historical conditions, causal ambiguity and social com plexity; (4) and it must have enough gap.

T a b le 1.3: S u stain ab le C om p etitive A d van tage

C o m p eten cies V alu e R are C ostly to

im itate

E nough gap

T otal o f Yes

After the internal analysis is done, it is necessary to find out the strengths and

w eaknesses o f the com pany Albert Humphrey, a Professor at Stanford University defined strength as an attribute o f the organization that is helpful to achieving the objective and this attribute is better w hen compared with that o f competitors Strengths o f a com pany can be patents, brand name, low cost advantages, easy a ccess to natural resources and distribution channels, etc And in contrast, he also defined w eakness as an attribute o f the organization that is harmful to achievin g the objective Som e exam p les o f w eaknesses are high operation costs, low brand nam e, d ifficu lties in accessin g natural resources and distribution channels Then, a com parable table needs to be worked out to com pare the attributes o f the com pany with other com petitors

to know w hich attribute is strength and w hich attribute is w eakness.

Strengths, W eaknesses, Opportunities and Threats w hich are the results o f scanning internal and external environm ents are the elem en ts o f SW OT matrix SW O T matrix needs to be formed because it is the foundation for the formulation o f strategy The SW O T analysis provides information that is helpful in m atching the firm ’s resources and capabilities to the com petitive environm ent in w hich it operates The fo llo w in g diagram sum m arizes how a

And the next action is to formulate strategies by com b in ing strengths and

w eakn esses with opportunities and threats.

S -O S tr a teg ies H ow d oes the com pany use the strengths to take advantages

o f the opportunities?

W -O S tra teg ies H ow does the com pany overcom e the w eakn esses that prevent it from taking advantage o f the opportunities?

S-T S tra teg ies H ow does the com pany use its strengths to reduce the likelihood and im pact o f these threats?

W -T S tra teg ies H ow d oes the com pany overcom e the w eak n esses that will make it highly su sceptible to external threats?

T a b le 1.5: S tr a teg y F o rm u la tio n

S trategy F o rm u la tio n S tr en g th s W e a k n e sse s

O p p o rtu n itie s S-O S tra teg ies W -O S tra teg ie s

T h reats S -T S tr a teg ies W -T S tr a teg ie s

D ifferent strategies w ill be formulated and these strategies w ill support with each other or conflict each other The com pany can ch o o se one strategy or som e strategies at the sam e time The criteria for ch o o sin g the strategies are to base on GREAT m odel w hich stands for Gain, Risk, E xpenses, A chievable and Tim e-bound o f each strategy.

Strategy formulation is the job o f all managers M any managers help to bring their firms to su ccess by form ulating appropriate strategies with special practices.

Saigon Tourist is the leading tourism com pany in Vietnam It was established

in 1999 and it has been awarded “Vietnam Top Ten Tourism C om panies” by Vietnam National Tourism Adm inistration and the A ssociation o f Vietnam Tourism C om panies for six tim es A ccording to Mr V o Tan Tai, Director o f Saigon Tourist, this su ccess is thanks to the market and product diversification strategy o f the com pany.

With intensive advertising strategy in order to attract foreign custom ers o f different nationalities, Saigon Tourist attends about 18 international tourism fairs and events every year T ypes o f custom ers o f the com pany are much diversified, including normal travelers, M ICE (M eetin gs, Incentives, Conferences and E vents) tourists and cruise travelers Mr Tai said “ in order

to continue the high growth rate, Saigon Tourist is boostin g the three business areas (inbound, outbound, and dom estic) by using its current human resources, expanding multilateral agreem ents, diversifyin g products and services in order to enhance the com p etitiven ess o f Saigon Tourist trademark.”

Cox & King, a 248 year old travel com pany o f India, has developed the differentiation strategy by fulfilling all requirem ents o f its grow ing custom er base It is im plem ented through the establishm ent o f franchisee shops across India Ms Urrishila Kerka, CEO o f C ox & K ing says “each o f these franchisees will offer a host o f travel related services under one r o o f and in

the process, make travel a lot sim pler for our custom ers The entire basket o f services such as hotel booking, flights, car rentals, sigh tseein g, rail, cruises, holidays and insurance w ill be offered.” She also adds “The support system for a franchisee w ould be unparalleled The strong brand equity o f C ox & Kings w ou ld g iv e the franchisee a head start T ech n ology support w ould be in the form o f C ustom er R elationship M anagem ent System (C R M ) that analyses the custom ers’ needs, 24x7 call centers that w ould act as a point o f contact in case o f an em ergency or urgent queries and a robust online platform that

w ould upload real tim e inventory o f all the products The franchisee w ill have access to preferential deals that w ould be derived from the im m ense purchasing pow er that C ox & Kings com m ands The com pany w ould also provide m arketing support even in small cities and tow n s to assist the franchisee Finally, the franchisee w ould be provided with com prehensive training to master the art o f sellin g holiday products This w ould also be constantly upgraded.”

Another considerable practice is from online travel agents, esp ecially in the

US They are n ow em p loyin g more innovative strategies in order to survive,

as they also face com petition from other rivals, including Internet giants Yahoo! And eB ay as w ell as information providers and general retailers, in the online travel retail industry A number o f these strategies have been identified in Eurom onitor International’s report “G lobal E-Travel habits” including:

- Partnership with environm ental groups offering travelers the opportunity

to contribute financially to carbon em ission reductions;

- A dding dynam ic packaging functionality to their offering;

- Improving custom er service and transparency with the introduction o f

“Live Person” technology.

Online players are also stepping up their marketing campaigns, with more innovative tactics being used to reach consum ers, such as 'top-deal' email bulletins Helen Roberts from Euromonitor International com m ents, “These

m oves not only serve to make com panies such as Travelzoo a household name, but also help travel suppliers improve their reach and visibility”.

This is a differentiation strategy o f online travel com panies.