Business strategy selection for Song Hong garment joint stock company period 2009 -2012

GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM GRIGGS CAPSTONE PROJECT REPORT BUSINESS STRATEGY SELECTION FOR SONG HONG GARMENT JOINT STOCK COMPANY PERIOD

GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM

GRIGGS

CAPSTONE PROJECT REPORT

BUSINESS STRATEGY SELECTION FOR SONG HONG

GARMENT JOINT STOCK COMPANY PERIOD 2009 - 2012

Group N.09 Pham Van Huan Nguyen Thị Lan Huong Nguyen The Quynh

Doan Thao Linh

HA NOI, 2009

TABLE OF CONTENTS

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LIST OF PHOTOS, LIST

Chapter 1

Figure 1.1: Steps in planning strategy

Figure 1.2: Companies and other factors affecting business

Figure 1.3: Model of five competitive forces of M Porter

(Source: Le The Gioi ., 2009, Strategic Management, five forces model of

competition Porter, tr.106)

Table 1.4: SWOT Framework Analysis minimalist

Table 1.5: The general strategy by Michael Porter

(Source: Nguyen Thanh Thao, "Brand Strategy by Michael Porter theory)

Chapter 2

Figure 2.1: Information logo of the Song Hong Garment Joint Stock Company

(Source: The Song Hong Garment Joint Stock Company)

Figure 2.2: Diagram the organizational structure of the company

(Source: The Song Hong Garment Joint Stock Company)

Table 2.3 Proportion of products through the year on total revenue

(Source: The Song Hong Garment Joint Stock Company)

Schedule 2.4: The proportion of products through the years

(Source: The Song Hong Garment Joint Stock Company)

Table 2.5: List of contracts by supplier

(Source: The Song Hong Garment Joint Stock Company)

Table 2.6: Summary of business activity indicators

(Source: The Song Hong Garment Joint Stock Company)

Table 2 July: The key financial indicators

(Source: The Song Hong Garment Joint Stock Company)

Table 2.8: Profit Planning and organization 2008 - 2009

(Source: The Song Hong Garment Joint Stock Company)

September 2 Import table textile materials 2002-2007

Figure 2:10 Map of cotton price fluctuations, fabrics

Source GSO VN

Figure 2:11: Market share

(Source: According to statistics of the General Department of Statistics) Figure 2:12 The number of industrial enterprises garment business (2000-2007)

Source GSO, in the Yearbook 2008)

Figure 2:13 Competitiveness of Vietnam and some countries

Source: WEF, The Global Competiveness Report (2007)

Figure 2:14 Competitiveness of Vietnam with some countries

(Number of ratings 2006: 125, 2005: 116, 2004: 104)

(Source: WEF, The Global Competiveness Report (2007)

Figure 2.15 Price index for domestic consumption

(Source GSO U.S.)

Figure 2:16: SXCN value and density of industrial GDP

(Source: Ministry of Industry and Trade)

Chapter 3

Table 3.1 Location map bedding products buffer the Red River in the market Table 3.2: Structure of employees by level of labor

(Source: The Song Hong Garment Joint Stock Company)

Figure: 3.3: Structure of the company’s human

(Source Song Hong Garment Joint Stock Company)

FOREWORD

1 Reason for topic choice:

The Vietnam’s economy is gradually intergrating with economies of the region and the world, and the business environment for enterprises is also expanded However, the competition is becoming more fierce This creates both business opportunies and potential risks threatening the development of enterprises At present, the Vietnam garment industry plays a role as a principal industry in the process of integration and economic development in the World In the changeable

market, ignoring the random element, the main issue affecting the success of the

enterprise is selecting a right direction, defining a timely and reasonable business

Strategy

the Song Hong Garment Joint Stock Company is a young enterprise which continuously applies strategic management methods in the real business process in the enterprise and that brough good results

Being aware of the importance of planning business strategies which play the pivotal role in the production process of the enterprise; Group 9 of GAMBAO1.02 chose the topic: “The business strategy of the Song Hong Garment Joint Stock Company” in order to put the knowledge after studying and research into the business practice

2 Purpose of this topic research is:

To clarify some primary theories and methodology on building and implementing the business strategy the Song Hong Garment Joint Stock Company

on basis of analyzing and evaluating the situation of production and business as Well as the business environment of the Company during the past time

3 Methods and scope of research:

Researching the business and production activities of the Song Hong Garment Joint Stock Company during the past time and the business strategy for the enterprise in the period of 2010-2012

3.1 Data gathering method:

Primary data gathering: by studying observing the actual operation of the company, personal interviews (with staffs and officers in the company), sending emails, ete

Secondary data gathering: from reports, documents, Statistical Yearbooks, information on newspapers on televisions, internet and previous researches

3.2 Comparison and synthesis method: comparing one figure with the original figure applied to figures of business results, market parameters, average figures, and other comparable figures Comparison conditions are that figures must fit the space, time, economic contents, measurement unit, calculation method, scale and business conditions

3.3 Statistical method in tables: to find out the trend or common characteristics of the analyzed elements

3.4 SWOT method: to find out strengths and weaknesses inside the enterprise, opportunies and threats outside the enterprise This is the key method in

strategy planning

4 Research scope:

Researching the business and production activities of the Song Hong Garment Joint Stock Company during the past time; building business and production development strategy of the Company in the period of 2010-2012

5 Contents and structure of topic:

Structure of this topic includes three parts:

Chapter_1: Basic theories on the business and production development

CHAPTER 1 BASIC THEORIES ON THE BUSINESS AND PRODUCTION

According to William F.Gluek: “Strategy is an united, overall and coordinated plan and designed to ensure that basic targets of the enterprise are achieved successfully”

The term “strategy” is often used with three common meanings:

The first: being general operation programs and deploying principal

resources to achieve targets

The second: being targets of the organization, resources used to achieve such targets, operating policies for collection, use and arrangement of such resources

The third: determining long-term targets and selecting ways for operation and allocating necessary resources to achieve such targets

Strategic management is the science and art of the strategy in order to build the direction and business targets, deploying and implementing short-term and long- term plan based on available resources to help each organization to achieve its long-

term targets

Due to different approaches to the strategy, then there are also different concepts about the strategy Thus, so far there has not been a united and general concept about the strateg Here are some concepts:

- M.Porter said: “Strategvis the art of building strong competitive advantages

for defence”

- Alain Threatart said in the “Strategy of the Company” that: “Strategy is the art of the enterprise to fight against competitiveness and to win the victory

- “Strategy is to sketches long-term and sold development orbits, of which decisions and exact actions of the enterprise can be arranged’ It is the concept of Alain Charles Martinet the author of the “Strategy”, who won the prize of Havard L’expandsion in 1983

In general, the above mentioned concepts about the term “Strategy” includes and reflects the following issues:

+ Measures and the way to achieve the target

Thus, we can see that the Strategy of the enterprise is a “product” combining what the environment has? What the enterprise can? And what the enterprise want?

1.1.2 The role of the business strategy in the enterprise’s operation

Strategic management is a direction to help these organizations overcome challenges in the market, reach the future by their efforts and ability It is really a management science, because if organizations develop a good management process, they will have a good base to go forward

Strategic management helps an organization be more active instead of being passive in planning its future It allows an organization to be proactive and to influence the environment in which it works, and thus it makes use of its ability to control variables

Strategic management creates important awareness for each person Both the directorate and employees understand and are committed to implementing the

targets of the enterprise Once everyone in the enterprise understands what and why the enterprise is doing, then they feel that they are a part in the enterprise and they will commit to supporting all activities of the enterprise

1.1.3 Strategy levels:

In any organizations, strategies have existed in several different levels — expanding from the entire enterprise (or a group of enterprises) to each individual working in it

+ Enterprise strategy : is a company-level strategy serving the purpose and overall scope of the organization to meet expectations of capital contributers

+ Business strategy — More related to how an enterprise can compete successfully

on a specific market

+ Function strategy — are strategies supporting the business-level strategy to be implemented effectively thanks to components in the aspects of resources, processess, human resources and necessary skills

+ Global strategy (international business) — is the choice to face with international

business issues when the enterprise diversifies its operation beyond the national border

1.2 Building the business strategy of the enterprise

Process of building the business strategy

The process of building the business strategy is also the process of planning the business strategy, summarized in the following diagram:

Figure 1.2 - Steps in planning the Strategy

* Identify functions and tasks of the enterprise

The first step is to indentify functions and tasks of the enterprise In fact, it is

to define the mission, vision and strategic targets of the enterprise

Mission: Mission of the enterprise is a concept to define purposes of the

enterprise, reasons for the establishment of the enterprise and basis for its existence and development Mission of the enterprise is the manifesto of the enterprise for the society It proves the usefulness and significiance in the existence of the enterprise for the society

Vision: Vision is the main purposes which the enterprise wants to achieve in the long-term period ( usually from 1- 5 years)

Strategic targets: Targets are understood as the goal which should be achieve Each enterprise as well as its parts has its own target The target of the enterprise can be defined for the whole process of existence and development but can only add to each stage of development The system of strategic targets are goals which the enterprise defines in a certain period

- On the basis of clearly defining the mission of the enterprise, we overview the issues related to the enterprise and separate each issue through the following diagram:

Figure 1.3: The enterprise and affecting factors

* Evaluating and analysing the external environment:

The second part in the process of building the Strategy is to analyse the external environment affecting the enterprise This analysis’s purpose is to be aware

of opportunies and threats from the environment outside the organization It includes the analysis of the macro environment the micro environment and the industry environment in which the enterprise takes part in operating

* Evaluating and analysing the internal environment:

The third part in the process of building the Strategy is to analyse the internal environment affecting the enterprise to find out strengths and weaknessess_ of the enterprise We determine how the company reached a competitive advantage, the role of different capacities, resources and ability to create and maintain the competitive advantage for the company Since then, the company is requested to achieve a superior performance, quality, innovation and responsibility towards its

customers

* Analysing and selecting the Strategy:

The last is to determine Strategic plans respectively with identified strengths, weaknessess, opportunities and threats of the enterprise Analysis and selection of the Strategy is conducted through SWOT analysis, the company understands the strategic direction, is aware of the nature of the competitive position on the basis of the analysis to find out resources, capacities and core competence for developing strategy selections

1.3 Analysing the entrnal and internal enveronment affecting the enterprise

1.3.1 External environment:

1.3.1.1 Analysing the macro environment

Changes in the macro environment can have direct impact on any force in the industry, altering the relative strength between the force and changing the attractiveness of a industry The macro environment consists of six segments: economy, technology, culture and society, demography, politics and law, and the global

* Economy environment

Status of the macroeconomic environment determines the healthiness and prosperity of the economy, it always makes impacts on enterprises and the industry The economy environment shows the nature and direction of the economy, in which the enterprise works Impact of the economy on a company can change the ability to

create its value and income Four important factors in the macroeconomics are: the growth rate of the economy interest rate, exchange rate and inflation

* Science and technology environment

Technological changes impact on many parts of the society, mainly through products of the technology process The change of technology environment brings both opportunity and threat The opportunity is to improve the ability to create new products of high competitiveness; the threat is to make the life cycle of products depressed directly or indirectly The most important impact of technological change

is to affect the height of accession barriers and to re-structure the industry

* Culture and society environment

This environment includes social attitudes and cultural values, social changes also create the opportunities and threats An enterprise wants to exist together with time, with partners and be accepted by the society, then it must highly appreciate business culture Cultural and social values create the foundation of the society, thus it often

lead to changes in technology conditions, politics and law, economy and

demography

* Demography environment

This environment includes issues relating to the population, age structure, geographic distribution, community of peoples and income distribution The viewpoint about consumption of goods and services of inhabitants in areas, and the viewpoint about consumption of the sex, age, occupation affecting the formation of the markets and the business strategy The lifestyle affects the demand for goods and services including: types, quality, style and design Population growth rate makes a great impact on contents of the business and production development strategy of the enterprise

* Politics and law environment

The change of politics and law environment will much affect the process of implementing the business strategy of the enterprise The fact shows that enterprises, which invest in an area in or out of the country, pay much attention to

the political environment, their influences to the Government and the Government's influences to them When analysing this environment, these factors should be taken care of: economic reform administrative reform, policy changes related to the industry, tax policies, environment protection and safety, promulgation and amendment of regulations

* Global environment

Trends of integration globalization in the world and in Vietnam make enterprises consider international factors when planning a strategy, which is long- term, highly integrated and able to reach out of the geographic and political scope Global segments include concerned global markets, current makets in changing,

important international political events, basic institutional and cultural

characteristics on global markets

1.3.1.2 Analysing industry environment (micro)

An industry is group of enterprises providing products or services that can

replace each other closely Close replacement means that products or services meet customers’ needs in the similar ways

Industry analysis and competitiveness is a set of concepts and techniques to clarify the key issues of:

+ Remarkable economic features of the industry

+ Competitive forces operating in the industry, the nature and strength of each force

+ Driving forces causing the change in the industry and their impacts

+ Who is the person to make next movement in the industry

+ Critical factors for success and failure in competition

+ Attractiveness of the industry on the aspect of gaining profits exceeding the average

Industry environment is mainly affected by the following factors:

According to M Porter there are five forces of competitive orientation in the industry such as: (1) in the risk of appearing new companies: (2) competitiveness level between existing companies in the industry: (3) negotiation strength of

purchasers; (4) negotiation strength of sellers; (5) threats from substitute products

M Porter pointed out that the stronger this force is, the more limited in raising price and gaining higher profits the existing companies are Thus, managers must be aware of opportunities and threats brought by change of these five forces and then build suitable strategies to turn the power of one or many competitive forces into advantages

Figure 1.4 : Model of five competitive forces of M Porter

Rivalry among Existing firms i Bargaining power of aa 7

the business operation is depending on the competitiveness power of the enterprise ( scale technology etc.) The apperance of these competitors also change the competitiveness picture of the industry increase the competitiveness level of the industry Thus, existing companies try their best to prevent potential competitors from jumping into their business fields

However, according to M.Poster, there are some obstacles for enterprises not

in the same industry when they want to jump into:

- The customers’ love with old products thanks to advertisement, brands, product quality and after-sale services

- Difficulity in lowering costs when jumping into the other industry

- Effectiveness of large-scaled business and production

* Substitute products

Subsitute products are products of current competitors It is regular pressure that directly threaten the enterprise Substitues are products of enterprises in the

same industry or in others but together meet customers’ needs

Thus, the existence of substitute products form an enormous competitiveness, which limits the determined price level and thus limits the profitability of the enterprise In contrast, if the product of an enterprise has few substitutes, the enterprise may have chance to increase the price and get greater profit Especially, subsitutes may appear inside the enterprise

* Price pressure caused by customers

Customers become competitive threats when they require cheap price but better quality of products and services that lead the increase of operation costs of the Company Conversely, if customers are in disadvantageous positions, the company has the opportunity to increase the price and earn higher profit

Pressure caused by customers based on following criteria:

- Customers focus or not

- Whether the enterprise is the main supplier or not

- Level of customers’ faithfulness

- Customers’ ability in finding substitute products

- Costs for conversion

- Ability of integration

* Price pressure caused by suppliers

Suppliers become threats for the enterprise when they push up price of goods supplied for the enterprise or reduce the goods quality, change payment terms, and delivery conditions, etc affecting the price and product quality that affect the profitability of the enterprise Enterprises must have relationships with suppliers of goods and other inputs such as labor forces, materials and equipment, and finance Elements increasing pressure caused by suppliers are similar to those caused by

customers:

- Small quantity of suppliers that make difficulty for the enterprise to select the supplier

- The product, which the company needs to buy, has a few substitutes

- The enterprise có phải là khách hàng chính của nhà cung cấp hay không

- Whether suppliers focus or not It means that if suppliers focus, then the pressure caused by them will be higher and the enterprise will be in disadvantageous position

1.4 Buidung the selecting the business strategy

1.4.1 Optimal strategy according to SWOT matrix

1.4.1.1 SWOT Matrix and selection of optimal strategy

SWOT is the abbreviation collection of first letters in English: Strengths; Weaknesses; Opportunities; Threats This is an extremely useful tool to help us understand the problem or make decision in organization, management and business

1.4.1.2 SWOT analysis

Albert Humphrey concretized SWOT into the 6 following items:

1 Product (What will we sell?)

2 Process (How will we sell?)

Customers (Who will we sell for2)

4 Distribution (How will we approach our customers?)

MN Finance (How much Is price, cost and investment?)

6 Management (How will we manage all activities?)

Based on the specific context, a model of SWOT analysis may make one or

several items in the list of the above six steps In any cases, SWOT will basically

tell you the good and bad things in your current business or a new proposal for the future

If business is the object of SWOT analysis, and analysis purpose is to improve the enterprise, then SWOT will be understood as follows:

° S: strengths (Maintaining, building and being a lever)

° W: opportunities (an optimistic evaluation)

° O: weaknesses (solutions to overcome weaknesses)

° T: threats (obstacles)

If SWOT analysis is used to assess an idea or proposal, it could indicate that

such idea or proposal is too weak (especially when comparing with analysis for other proposals, thus we should not invest in In this case, there is no need to make the next action plan

1.4.1.3 SWOT analysis framework

SWOT analysis framework can be described shortly as in the following diagram:

Table 1.1: /rreducible SWOT analysis framework

al to take advantages of | limit and avoid threats

weaknesses weaknesses to take | difficulties and carefully

advantages of | preparing to overcome

L——}L |9pportuniies ——— | 0ufside challenges

* SO Strategy- “Development” Strategy: combining opportunities and strengths of the company to expand and develop The enterprise needs to use its strengths and opportunities to compete with other enterprises and to continuously expand the market

* WO Strategy: there are much more weaknesses than strengths but

are also many opportunities outside, corresponding with the name

“competitiveness” This combination may help the enterprise overcome weaknesses

by taking advantages of opportunities

* ST Strategy: This is the situation that the company has strong conditions inside to fight against outside obstacles This Strategy is called “opposition” Strategy

* WT Strategy- “Defence” Strategy: The company no longer copes with the outside threats, deprived of development ability In this situation, the company is either bankrupt or associated with other companies This association requires the enterprise to take measures to reduce weaknesses and avoid threats by defence strategy

Thus, purpose of using SWOT matrix to analyse environment factors aiming

at creating ways of combining factors inside the enterprise with corresponding ones outside the environment and orienting reaction solutions which are scientific, practical and feasible, etc This is one of the important basis for the enterprise to select effective competitive strategies

1.4.2 Analysing 3 basic competitive strategies:

Each company self-defines the position in the operating field by utilizing available advantages Michael Porter said that advantages of any enterprises are always in one of the two aspects: cost advantage and product differentiation By applying these advantages, companies will pursue three common strategies: cost leadership strategy, product differentiation strategy and focus strategy They are called common strategies because they do not depend on any enterprises or any industries

Table 1.3: Common strategies of Micheal Porter

Target Leadership Differentiation

This Strategy has two tundamental advantages Firstly, with lower cost, the cost leader can set the lower price than competitors but still get as much profit as competitors If companies in the industry put the same value for their products, then the cost leader can gain higher profit because its cost is lower Secondly, if competitiveness in the industry is increasing and companies compete their price with each other, then the cost leader may stand in the competition better than other companies because of its lower cost

*Strategic solutions:

The cost leader selects the low differentiation level The cost leader also overlook different market segments They are often interested in the market in the large extent In fact, companies give out lower price than that of competitors to attract customers’ attention to their products

When developing special ability, the most important purpose of the cost leader is to develop abilities which may increase the efficiency and reduce costs lower than competitors

The cost leader makes all selections of strategies of products/ market/ special capacities for an unique target of minimizing costs to create competitive advantages for the company

Solutions to gain cost advantages varies by each industry and its structure The advantages may be derived from large-scale production, exclusive technology, strong points regarding sources of raw materials, product structure, level of services and technical process

* Advantages and disadvantages of applying cost leadership strategy

Advantages of each basic strategy is best described in the model of five forces of M.Porter Five forces include threats from competitors, pressure from customers, substitute products and new participants The cost leader can fight against attack of competitors in the industry, thanks to cost advantages Its low cost also means that it will be less affected than its competitors from increasing price of inputs if there is pressure from suppliers and less affected by the discount which it

sets for its products if there is pressure from customers

Moreover, with the cost leadership, most of cost leaders buy a large amount

of inputs then they can directly bargain with suppliers If substitute products participate in the market, the cost leader can reduce its price to compete with such products and remain its market shares

Finally, cost advantages of the cost leader is to create participation barriers because other companies can not participate in the industry and can not fit costs and price of the cost leader The cost leader is still safe as long as it can maintain its cost advantage- and price is the key factor for most customers

The main threat of the cost leadership strategy can be that competitors try to produce products with lower cost and fight against the strong point itself of the cost leader Another threat is that competitors can easily imitate methods of the cost leader

The last threat of the cost leadership strategy is that the cost leader only think about cost reduction, not follow changes in the customers’ tastes Thus, the

company may take much care in investing and improving the internal environment and ignore the improvement of its product market

Pursuing the cost leadership strategy does not exclude the specialization The importance is that the products must be accepted by customers when comparing with other competitive products Thus, the low cost has competitive advantage only when the company ensures the differentiation which is recognized and accepted by

The product differentiation of a company is to meet the demand of customers

in the way which its competitors can not meet It allows the company to set a higher price than the average level of the industry The differentiation increases the turnover by setting a higher price (not by reducing cost as of the cost leader) and it helps the company operates better than competitors and get the higher profit than the average level Customers agree to pay higher price because they believe that the product quality correspond to the price difference

* Strategic solutions

The company of differentiation selects the high differentiation level to achieve competitive advantages The differentiation can be achieved with three main ways: quality, renovation and adaptation with customers Renovation is important to complicated technology products, of which new features are from the differentiation When the differentiation bases on the adaptation with customers, producers and sellers must ensure the supply of comprehensive after-sale services

The attraction of the products to spiritual expectations of customers can become the source of differentiation The attraction may be factors going with the

position and pride of customers The differentiation can be suitable with groups of age and socioeconomic groups

In fact, the basis of differentiation are endless A company pursuing the differentiation strategy will try to differentiate its products as much as possible The less it imitates its competitors, the more it can protect its competitiveness and market attraction

The company of differentiation divides the market into many segments The product supply section is designed for each segment The company may operate in

the large scale of market but also select to serve some market segments where have

special differentiation advantage

When deciding to pursue any differentiation ability, the company of differentiation needs to focus on organization and supply of resources creating differentiation advantage for its products

Differentiation strategy requires the company to create competitive advantages by selecting products / market / unique capacities to increase the value

of goods and services according to customers’ viewpoints

However, the company of differentiation must focus much on media and communication activities to provide information on the uniques and differences in its products in comparison with products of its competitors

* advantages and disadvantages of applving differentiation strategy

Differentiation protects the company from competitors at the level that customers are faithful with the brands of the Company Faithfulness with brands is a valuable property because it protects the company in all aspects

Differentiation and faithfulness with the brand can create participation barriers against companies trying to participate in the industry New companies must create their own abilities to compete with existing companies and this is very expensive

Finally, threats from substitute products may be less because of depending on products of competitors meeting the same customers’ demands with the company of

differentiation and ability to defeat the failfulness of customers with the brand of the company

Differentiation strategy also have many disadvantages For example, competitors can easily imitate products of the company of differentiation and it is difficult to maintain high price When differentiation is derived from designs or physical features of products, then the company of differentiation has many risks because it is esasy to imitate

Differentiation does not let the company overlook costs The price difference must be greater than additional cost to create differentiation If that principle 1s ignored, the company will lose competitive advantage Moreover, when the company is finding the way for product differentiation, then the purpose is to gain the cost which is equivalent to or nearly equivalent to that of competitors Thus, costs for parts which do not affect the product differentiation must be reduced

Recently, there have been changes in technoloy for manufacturing products such as the development of new flexible technology causes difficulty for selecting one of two strategies being the cost leadership strategy and product differentiation strategy Thanks to technology development, companies can see benefits from two strategies New flexible technology helps companies pursue the product differentiation strategy at low cost, it means these companies will be the leader of both cost and product differentiation

Traditionally, product differentiation can be only achieved at high cost because different product designs will be made for different market segments It means the production cycle is short that increases costs for products In addition, the company of differentiation must bear the higher cost for marketing than the cost leader because it serves many market segments Thus, companies pursuing product differentiation strategy have higher costs than cost leaders because of manufacturing large quantity of standardized products However, manufacturing products in a flexible way may allow the company to implement the product

differentiation to manufacture many products at a cost level which is competitive with the cost leader

Another way for the company of product differentiation to achieve the production-scale advantage is to conduct standardization for many components used

in its end products

A company can reduce both cost for products and marketing if it limits designs in products by selling a package of products instead of letting customers decide which products they need

Just-in-time storage system (JIT) can also help reduce cost, improve the quality and reliability towards the Company’s products This is important to differentiated products where the quality and reliability are basic components of the product attraction Taking advantage of development of new products and marketing measures, some companies are reaping benefits both from cost leadership strategy and product differentiation strategy And they can set higher price for their

products than that of companies which only apply the cost leadership strategy, but

they also have lower cost than companies which only apply the product differentiation strategy Thus, the above mentioned companies can get profits at least equal to or higher than companies pursue only one strategy

Combining strategies is the most profitable way and companies promptly take advantage of new products, management of materials sources and marketing measures

1.4.2.3 Focal Strategy

* Features

Different from the two above strategies, the third competitive strategy is the focal strategy, serving the demand of limited group of customers or a market segment, aiming at utilizing competitive advantages of the small Company to compete with great competitors

The company pursuing focal strategy concentrates on serving a specific market segment The potential market segment may be defined according to geographic criteria, kinds of customers or a branch of product lines

A company of focal strategy, which has many opportunies to develop its own activities and compete with enterprises of low cost and product differentiation, is increasing

Focal strategy creates an opportunity for businessmen who are finding the way to fulfill the gap of necessary demands of customers The company focus on competing with the other company of product differentiation only in one or a few market segments Companies pursuing focal strategy surely develop the quality of differentiated products successfully because they are knowledgeable about only one

small group of customers or about the region

Moreover, the focus on a small product chain sometimes helps the company

of focus bring renovation more quickly than a big company of differentiation

However, the company of focus does not try to serve all market segments because it

brings back the direct competition with the company of differentiation Instead, the company focuses on occupying a market share and if this is successful, it starts to serve more market segments and stop competitive advantages of the company of differentiation

* Strategic solutions

A company of focus can have many ways to develop competitive advantages

It selects one market segment to pursue focal strategy through product differentiation or low cost Essentially, the company of focus is a company of product differentiation or cost leader Due to small scale, some companies of focus may pursue both the cost leadership strategy and product differentiation strategy If the company of focus only use the cost leadership strategy, it will compete with the cost leader in market shares which it has no cost advantage If the company of focus pursues the product differentiation strategy to compete with the cost leader, then all 7

solutions for product differentiation are open with it

The product differentiation may be high or low depending on whether the company focuses on the cost leadership strategy or the product differentiation strategy For a group of customers, the company of focus finds the way to meet each market segment, not meet the whole market as of the cost leader or meet most of market segments as of the company of differentiation

The company of focus may pursue a particular ability depending on advantages of low cost or product differentiation Thus, the company may find the cost advantage and develop more efficiently products of low cost in the region It also develops better skills in the adaptation with customers, based on ability to serve customers’ demands in the region in the way companies of product differentiation

do nationwide

* Advantages and disadvantages

Competitive advantages of the Company of focus are derived from its particular ability — efficiency, quality, renovation or adaptation with customers The company also stand firmly against the attack of competitors till the time they can supply goods and services which competitors can not produce This ability also creates the company of focus a pressure for customers because customers can buy similar products nowhere

However, with suppliers having pressure, the company of focus is in disadvantageous position because it buys small quantity of materials so the pressure

is from suppliers Until it moves the price plus to faithful customers (end price), then this disadvantage is not a big problem

Potential competitors must obtain the customers’ faithfulness of the company

of focus Customers’ faithfulness reduces threats from substitute products

Focal strategy lets the company approach customers and timely react their changeable demands Difficulty in managing most market segments of the company

of differentiation is not a problem with the company of focus Unlike companies of product differentiation in general, the company of focus can move easily to new market segment with the focus of its ability and resources on one or a few segments

Because the company of focus produces a small quantity so cost for manufacturing products is often higher than that of the cost leader Higher costs may reduce profitability if the company of focus must invest in developing a particular ability such as renovating an expensive product to compete with the company of differentiation

The second is that the market segment of the company of focus can disappear suddenly because of changes of technology or of customers’ taste Disappearance of market segments is the reason for failure of many small companies Finally, threat is that the cost leader and the company of differentiation will strenthen their competitiveness to win market segments of the company of focus

CHAPTER 2 ACTUAL SITUATION OF BUSINESS OPERATION OF THE SONG HONG

GARMENT JOINT STOCK COMPANY

2.1 Overvieww of the song hong garment joint stock company

2.1.1 Process of establishment and development:

The Song Hong Garment Joint Stock Company is one of the Vietnamese leading suppliers of garments and beddings It was established in 1998 It was equitized in June 2004 and conversed into the Song Hong Garment Joint Stock Company

Thanks to developing available resources, spirit of working and creation, overcoming difficulties, right time to create opportunities and good quality control, the company has boomed the production scale and labor forces as at present The motive power to keep these achievements is the goodwill of customers all over the world

Annual output:

- Garments:

+ Jacket: 2.5 million units

+ Trousers: 2 million units

+ Others: 200,000 units

- Laundry products: 3- 4 million semi-finished garments

- Cotton sheets: 8-10 million yard

- Luxurious beddings: | million units

Thus, after nearly 11 years of market apperance, beddings alone of Song Hong brand have been gradually confirmed the place, obtaining customers’ reliability and become familiar products of many Vietnamese households In 2009, the company continues to improve and develop traditional product lines namely Classic Collection, as well as release two new product lines namely Home Collection and Luxury Collection for all customers throughout the territory of

Vietnam

Other garments: jackets, gile fur coats of all kinds, pants, shorts for men,

women and children, women vests, and skirts

Main export markets: USA EU, Canada, Japan

Many world famous brands are produced with large quantity in the Song Hong company as: GAP, Old Navy, Timberlands, JCPenny, Diesel, Spyder Champion Sag Harbor,

Liz Claiborne, ReSet, Cabela’s, Benetton, C&A

The Song Hong Garment Joint Stock Company

Song Hong Garment JSC 0350.649365

0350.646737 Songhong@hnd.vnn.vn

GENERAL DIRECTOR

DEPUTY GENERAL DIRECTOR

” D ept >| Salary Dept plan Dept

—.»| Security guard —+»| Accounting Technical +“ laundry shop

OS — mn £ TT

Sewing oF General Admin

> shop No.6 Inspection And business

2.2 Analysis of production situation and business result of the song hong garment joint stock company during past years

2.2.1 Business and production situation of the Company

Currently, Song Hong is the main supplier of beddings for the Ministry of Defense, the Ministry of Public Security

- Garments: including processing goods and FOB goods

The Song Hong Garment Joint Stock Company always satisfy customers with products of good quality and value The company also has a variety of product designs to meet different customers’ demands

The markets for garments include both domestic and international ones The company mainly export its products to USA, EU, Japan, Korea, Taiwan, Hongkong, Canada, Mexico and Midle East countries Till now, Song Hong is a prestigious producer of famous fashion brands thanks to its production capacity Garments include clothes for men, women and children

- Coats: jackets, vests, fur coats, sweaters, etc

- Skiing suits

- Pants, shorts

- Knitwear

Table 2.2 Product density through years over total revenue Unit: Million VND

|_| services Value y %DT Value %~DT Value %DT

1 | Processing) and garment 155.976 35% | 173.766 |24% — | 179.052 | 19%

Table 2.4: List of contracts signed with big suppliers

` _— Contract Signing Supplied value

No; | Suppliers No date products (including

Title "Vietnamese high quality products" by Saigon Marketing from 1998 to

of Vietnam Textile and footwear :

VITAS LEFASO

KinhteSaigorn

Pe a ae aL

- The enterprise has good labor relationship

2.2.2 Results of business and production activities

2.2.2.1 Report on business results in three latest years

Table: Summary of some norms of business and production activities

Unit: million VND

| Before tax profit 8.103 24.310 16.207 200,02%

| After tax profit 7.293 21.879 14.586 200,02%

(Source: the Song Hong Garment Joint Stock Company) Growth in past three years is due to growth of product groups

2.2.2.2 Main financial norms

Table : Main financial norms Unit: million VND

+ Quick payment coefficient

2 Norms on capital structure

+ Debt coefficient/ Total assets 0,91 0,89 0,84

3 Norms on operation capacity

4 Norms on profitability

+ After tax profit coefficient/ net sales 0,009 0,01 0,023 + After tax profit coefficient / equity 0,27 0,26 0.48 + Profit coefficient from business 0.0095 0.012 0.025

(Source: Audited financial statements in 2007 and 2008)