Strategy formulation for PV gas subsidiary-pvgas tradinglimited period 2011-2025

3.6.4 The IE Matrix Analysis 693.7 THE DECISION STAGE ANALYSIS STRATEGY 69 3.7.1 The Quantitative Strategic Planning Matrix QSPM 69 3.7.2 The Key Success Factor Model 71 3.7.3 Detail

CAPSTONE PROJECT REPORT

STRATEGY FORMULATION FOR PV GAS SUBSIDIARY- PVGAS TRADING LIMITED

Period 2011-2025

Group No.: 4

 NGUYEN VAN MY

 NGUYEN DUC THANG

 LE THI THU THAO

 TRAN THANH CONG

 NGUYEN HOANG DUNG

 NGUYEN TIEN ANH

CAPSTONE PROJECT REPORT

STRATEGY FORMULATION FOR PVGAS SUBSIDIARY- PVGAS TRADING LIMITED

Period 2011-2025

Group Number: 04 Student’s name:

1 NGUYEN VAN MY

2 NGUYEN DUC THANG

3 LE THI THU THAO

4 TRAN THANH CONG

5 NGUYEN HOANG DUNG

6 NGUYEN TIEN ANH

HOCHIMINH CITY, VIETNAM – 2011

ACKNOWLEDGEMENTS

ACKNOWLEDGEMENTS

This reseach paper can be only completed upon the great support and

continuous encouragement from Petro Vietnam Gas Corporate and

PVGas Trading Company respectively In particular, We would like to

send our deepest gratitude to:

Our family for loving us and encouraging us to complete this course

Without two years support to our non-presence in family activities, we

could not finish the MBA program

Our Professors, for their valuable time and consultancy in methodology

design, data analysis and result validation Without their expert guidance,

we could hardly complete this paper on time and on the right direction

Our colleagues in Petro Vietnam Gas Corporate, Binh Duong Province

Customs, , TPC Vietnam Company for supporting us with encouraging

words and valuable time to complete this capstone

Our classmates who have generously shared their knowledge and

experience and time together with laugh, good food, good drink and

beautiful friendship I have found a great company in GaMBA01.C0609

class

Once again, thank you everyone

Ho Chi Minh City, Vietnam

May 31, 2011

1.5 ORGANIZATION OF THE RESEARCH PAPER 4

2.1 BUSINESS STRATEGY: CONCEPT AND THEORY 5

2.1.2 General strategy management model 5

2.1.4 Environmental industry analysis: 7

2.1.5 Internal Environment Analysis 11

2.1.6 Identify Strategic Objectives 12

2.2.4 BCG (Boston Consulting Group-Growth –Share Matrix 24

2.3.5 Customer behavior analysis 28

2.3.6 Competitive strategy formulation: 28

2.3.7 Brand and brand identity 29

2.3.8 Product and services strategy – Product life cycle and marketing 30

PART TWO: STRATEGIC PLANNING MODEL 32

CHAPTER 3: PVGas TRADING COMPANY STRATEGY FORMULATION 32 3.1 PVGas HISTORY AND DEVELOPMENT 32

3.1.4 PVGas Transportation, Processing and Distribution 34

3.1.5 On-going Progress Projects 37

3.1.6 Collecting, Transportation, Processing 37

3.2 PV GAS TRADING - A MEMBER OF PVGAS COMPANY -

3.2.2 PVGas Trading Operations 40

3.3 WORLD AND VIETNAM GAS MARKET 44

3.3.6 Upstream LPG suppliers in Vietnam market 51

3.3.7 Typical downstream competitors 54

3.4 PEST AND FIVE FORCES ANALYSIS 57

3.4.2 Five force industry analysis model 58

3.4.3 Successful cases in gas industry 60

3.5 STRATEGY INPUT ANALYSIS STAGE 61

3.5.1 The External Factor Evaluations Matrix (EFE) 61

3.5.2 The Internal Factor Evaluation Matrix (IEF) 61

3.5.3 The Competitive Profile Matrix (CPM) 62

3.6 THE STRATEGY COMBINATION STAGE 63

3.6.3 The BCG Matrix analysis 67

3.6.4 The IE Matrix Analysis 69

3.7 THE DECISION STAGE ANALYSIS STRATEGY 69

3.7.1 The Quantitative Strategic Planning Matrix (QSPM) 69

3.7.2 The Key Success Factor Model 71

3.7.3 Detailed Strategy Activities 72

CHAPTER 4: PVGAS TRADING STRATEGY IMPLEMENTATION 74

4.1 SUPPLY CHAIN MANAGEMENT CAPABILITIES 74

4.1.1 Manage the supplier side effectively 75

4.1.3 Gas storage and transportation capabilities 76

4.1.5 SCM human resources capabilities building up 83

4.2 INTERNATIONAL EXPANSION, BACKWARD AND FORWARD

4.3.1 Establish the direct sales forces 85

4.3.2 Establish the intelligence marketing section 86

4.3.3 Brand Name Design and Building 87

4.4 CUSTOMER SERVICES MANAGEMENT PORTAL CRM 91

4.5 NEW PRODUCT/SERVICES DEVELOPMENT 93

4.6 ORGANIZATION AND HUMAN RESOURCES DEVELOPMENT 98

4.8 STRATEGY PERFORMANCE MEASUREMENT 100

5.1 PV GAS TRADING STRATEGY PLANNING SUMMARY 101

5.2 PVGAS TRADING STRATEGY FORMULATION PLANNING

5.3 FURTHER STRATEGY PLANNING RECOMMENDATION 105APPENDIX 1: PV GAS OPERATING INFORMATION 106APPENDIX 2: PVGAS TRADING DISTRIBUTOR LIST 107APPENDIX 3- SPACE MATRIX SCORE FOR PVGAS TRADING 109APPENDIX 4: IFE MATRIX SCORE 111APPENDIX 5: EFE MATRIX SCORE 112

APPENDIX 6: LPG STORAGE SYSTEM IN VIETNAM 113APPENDIX 7: KEY AREA IN VIETNAM 118APPENDIX 8: POTENTIAL CONVERSION CAR PLAN 118APPENDIX 9: SCM INFORMATION STRUCTURE SYSTEM 119APPENDIX 10: PVGAS TRADING ORGANIZATION IN 2010 120APPENDIX 11: THE CPM MATRIX FOR PVGAS TRADING AND ITS

APPENDIX 12: VIETNAM LPG CONSUMPTION STATISTICS 122APPENDIX 13: VIETNAM LPG CONSUMPTION GROWTH RATE 122APPENDIX 14- FORECASTED LGP SUPPLY 2007-2025 123APPENDIX 15: FORECASTED LPG SUPPLY AND DEMAND PERIOD 2007-2025

124APPENDIX 16 - PREDICTED PV GAS MARKET VOLUME, MARKET SHARE IN

APPENDIX 17: VIETNAM LPG FLEET 126Appendix 18 : The QSPM Matrix for strategic option 127

LIST OF TABLES

1 Table 3.1 Estimation on Nationwide Production Plan for period of

2010~2025

2 Table 3.2 PV Gas Trading Market Share

3 Table 3.3 LPG World Production

4 Table 3.4 The most ten LPG producing company over the world

5 Table 3.5 World LPG Consumption

6 Table 3.6 Forecast LPG Demand and Supply in Vietnam period

2010-2025

7 Table 3.7 Key Success Factor in relation with strategic option

8 Table 3.8 Action in relation with market operation

9 Table 4.1 On going Project to 2025 of PV Gas Trading and PV

Corporation

10 Table 4.2 Second-tier gas storage expansion

11 Table 4.3 Municipal Gas System

12 Table 4.4 Sales forces plan

13 Table 4.5 PV Gas Trading SCM scope of work

14 Table 4.6 Branding Action

15 Table 4.7 Branding expenses

16 Table 4.8 Gas Insurance Expenses

17 Table 4.9 Payback analysis for gas conversion car

18 Table 4.10 Gas filling station plan

LIST OF ABBREVIATIONS

1 LPG Liquefied petroleum gas

2 SCM Supply Chain Management

3 CRM Customer Relation Ship Management

4 PV Gas Trading Petro Vietnam Gas Trading Company

5 PV Gas Petro Vietnam Gas

6 PV Corporation Petro Vietnam Corporation

7 PEST Political, Environment, Social cultural, technological

factors

8 IEF Internal Evaluation Factor

9 EEF External Evaluation Factor

10 CPM Competitive Profile Matrix

11 BCG Boston Consulting Group

12 TOE ton of oil equivalent

13 M toe million tons of oil equivalent

14 LNG liquefied natural gas

15 GHG greenhouse gas

16 GJ Giga joule, or one joule x 109 (see joule)

17 GJ/t Giga joule per ton

18 IEA The International Energy Agency

20 kWh kilowatt/hour, or one watt x one hour x 103

21 M Btu million British thermal units MJ/m3 mega joule/cubic

meter Mm3 million cubic meters MPP main (public) power producer MSW municipal solid waste

22 MW megawatt, or one watt x 106

tce ton of coal equivalent = 0.7 toe

32 TFC total final consumption

LIST OF APPENDICES

1 Appendix 1 PV GAS OPERATING INFORMATION SPACE

2 Appendix 2 PVGAS TRADING DISTRIBUTOR LIST IFE

3 Appendix 3 SPACE MATRIX SCORE FOR PVGAS TRADING

4 Appendix 4 IFE MATRIX SCORE

6 Appendix 6 LPG STORAGE SYSTEM IN VIETNAM

7 Appendix 7 KEY AREA IN VIETNAM

10 Appendix 10 PVGAS TRADING ORGANIZATION IN 2010

11 Appendix 11 THE CPM MATRIX FOR PVGAS TRADING AND ITS

COMPETITORS

12 Appendix 12 VIETNAM LPG CONSUMPTION STATISTICS

13 Appendix 13 VIETNAM LPG CONSUMPTION GROWTH RATE

14 Appendix 14 FORECASTED LGP SUPPLY 2007-2025

15 Appendix 15 FORECASTED LPG SUPPLY AND DEMAND PERIOD

PART ONE: INTRODUCTION AND LITERATURE REVIEW

CHAPTER 1: INTRODUCTION

Gas and gas products play important roles in Petro Vietnam Corporation PV Gas is a

member of Petro Vietnam Corporation and is responsible for over 60 % turnover of

corporation Unlikely other business, PV Gas trading company operates in both consumer

and business sectors that require different management approach and knowledge Both

sectors will face fierce competitor pressures from big region competitors that have more

muscle in production, shipment, financial and human knowledge such as Petronas, PPT

One of the biggest threat is the big different economic of scale among PV Gas Trading and

region competitors

PV Gas Trading now is the biggest Vietnam player in domestic market by having largest

gas infrastructure and the synergy and support from Petro Vietnam However, these

current competitive advantages will not last longer In prediction, after 2015, PV Gas will

see a major competitor coming from region key competitor, the growing of local

competitor and/or joint ventures among them

One of the environment factors is the energy importance to national security and

sustainable development Gas energy is preeminent in compare to traditional fuels in

terms of thermal value, heat expenditure effect, product quality assurance, environmental

protection and significant role in all nations’ energy security strategy The development of

the gas industries plays an important role in the strategy of economic development, energy

security, environment protection, international integration as well as national defense

According to studies of the Strategy Institute, the total energy demand of Vietnam will

reach about 47~49 million tones of oil equivalent (TOE) in 2010, 65~72 million tones of

oil equivalent (TOE) in 2015 and 94~97 million TOE in 2025

The healthy growth of gas industry has significant impact to the social and economic

development of the whole country Gas is one of the commodities that is under price

control of government

Although PV Gas has already developed a plan for period 2010~2015, which aims to

become the number one gas corporation in Indochina region, the plan only focuses in

many gas products such as dry gas, LNG The need to have individual strategy plan for the

biggest company – PV Gas Trading of PV Gas is the must This specific strategy will help

the PV Gas Trading in business operation and ensure the strategic position of PV Gas

Corporation in the future fierce competition

Therefore, it is essential for PV Gas Trading to have a more realistic and actionable

strategy plan during 2011-2025 period

The primary objective of this study is to formulate PV Gas Trading strategy under broad

strategy of PV Gas Corporation during 2011-2025

In specific, this strategic plan should be able to identify strategic and actionable steps that

help PVGas Trading to upgrade internal capabilities and to formulate the strategic options

to deal with competitor entries into Vietnamese market The strategic formulation should

go under three important phases:

- Assessing the internal capabilities and external conditions for PVGas Trading

- Generate the strategic option and evaluate their effects to PVGas Trading

competitiveness

- Based on the strategic option, formulate the detailed action plan for strategic

options until 2025 for PVGas Trading

The ultimate object of PVGas Trading is to capture at least 60 % market share at year 2015

and keep this growing steadily to 80 % in 2025 The specific business strategy for period

2011-2025 as following:

- Establish the PV Gas Trading as the biggest gas wholesales in Vietnam

market by year 2025 with over 80 % market share

- Maintain and increase both tangible and intangible PV Gas Trading assets

during 2011-2015

- Leverage current PV Gas Trading capabilities into infrastructure by

cooperating with other PV Corporate companies such as Southern PV Gas to

synergize the PV Corporate resources as soon as possible

- PV Gas Trading should aggressively expand into both domestic and

international market to get the economics of scale benefit

- Establish the strong PV Gas Trading brand name in the market

Some specific business operation

- Operate the gas distribution from gas processing plant, oil refinery and imported

sources The total volume will reach 809.000 tones in year 2015 and 1.258.000

tones in year 2025 PV Gas Trading will get 80 % market share when Nam Con

Son LPG plant beginning operation

- PV Gas should expand into international markets such as China, Laos and

Cambodian when business conditions permit The LPG export target is 200.000

tones in year 2015 and 500.000 tones in year 2025

1.3 SCOPE AND LIMITATION

There are three limitations in this study as follow:

Firstly, because of the limited schedule, the data is mainly secondary

Secondly, some data should be disguised to keep the confidentiality and government

restriction

Thirdly, the data of competitors is not specific and deep, as we would want to know

Finally, the research focus only in LPG market in Vietnam

1.4 METHODOLOGY

Group has used following methods such as descriptive methods, data collection, data

synthesize, data forecast to analyze business operation and activities of PV Gas Trading

The research include five chapters into three parts

PART ONE: INTRODUCTION AND LITERATURE REVIEW

Chapter 1: Introduction

Chapter 2: Literature Review

PART TWO: STRATEGIC PLANNING MODEL

Chapter 3: PV Gas Trading Company Strategy Formulation

Chapter 4: PV Gas Trading Strategy Implementation

PART THREE: CONCLUSIONS AND RECOMMENDATION

Chapter 5: Conclusion

CHAPTER 2: LITERATURE REVIEW

2.1.1 Strategy overview

Strategy is a mix of complex actions to mobilize resources owned by organization for

achieving defined goals in certain period time

Business strategy :Is a series of commitments, decisions and actions that a company uses

to get a competitive advantage by exploiting the core competencies in market A company

will need to have commitments, decisions and actions to get

- The strategic competitive advantage: It is an advantage that a company gets when

it builds and implements a strategy to overcome the competitors

- Sustainable competitive advantage: It is the advantages a company has when it

builds one strategy plan comparing with current and potential competitors

- Return on average: Profit exceeded what investors have expected from

investments in industry under similar risks

- Create products with differentiation: This is a key factor for company to position

in the market

- Reduce costs: for the advantage to compete on price with rivals when they have

similar products and services

2.1.2 General strategy management model

Strategy Formulation: to conduct the situational analysis to understand the existing

internal and external factors for organization The external capabilities are to know the

environment factor affects and to identify opportunities and threats coming to the

organization from outside The internal capabilities are to know the strengths and

weaknesses inside After conducting the external and internal analysis, a company is going

to establish long-term goals and to develop, to select the appropriate strategy for the

company

Figure 1.1: General Strategy Management Models

Strategy Implementation: It is the action plan to get designed and chosen strategy into

implementation The strategy formulation are tied up with different implementation for

different level of strategy

Strategy Control: Evaluate how is strategy implemented and also its results and effects to

company situation This process should be continuous in order to adjust or timely to

change the implementation of the strategy or the strategy itself There is one tool that

company widely use to evaluate the strategy implementation is the balanced score card

2.1.3 Situation analysis

Macro environment analysis

Using the PEST model to analyze the affects of factors in macro environment These

PEST factors are following:

External analysis to

find out the threats

and opportunities

Internal analysis

to find out the

strong and weak

points

Strategy options for selecting

Resources allocation

Business goals adjustmen

Annual objectives setting

Company policies setting up

Measurement and evaluation

Feedback

ation

Strategy evaluation

Political: The institutional and law factors can threaten to the viability and growth ability

of any industry When business operating, it will be required to comply with the legal

institutional and law factors in the geography

Economics: Focus on short-term and long-term economy factors and the government

interferences to economy

Socio cultural: Each country or region has different cultural values, social characteristics

These factors affect the characteristics and consumer behavior of people in areas In turns,

these factors affect seriously to strategic development process

Technological: Developing rapidly technologies with their applications affect widely to

the investment trends of all industries

Integration environment: this factor measure the risk for integration such as competitor

entering the new market, merging among competitors, trade barrier reducing etc

These four external factors have directly to all economy sectors Their affects are considered as objective factors

Company will base on these factors to give the business policies and operations accordingly

Figure1.2: PEST model

2.1.4 Environmental industry analysis:

Environmental industry is a series of factors that directly affect a company,

competitive actions and its competitive reactions It includes a range of diversified

competitive strategies that companies use to achieve strategic competitive advantage and

to get above average profitability

Michael E Porter proposed the competitive five forces model which creates the

competitive context for one industry as follows: (1)Threats of new entry competitors; (2)

Supplier Power; (3)Buyer Power; (4) Threat of Substitutes; (5) Rivalry among existing

competitors (figure 1.3)

Threats of new potential entry competitors: When new entry competitors enter a

industry, it will reduce the market share and profitability of current operating companies

In order to protect the competitive advantage, current company in the industry must

promote the industry entry barriers According to Joe Bain, there are three main entry

barriers: (1) Customer loyalty to the company product or services; (2) Absolutely low cost

advantage; (3) Economy of scale advantage

Current existing competitor pressures in the industry: This is regular pressure

directly threatening existing companies When the competitive pressures among

companies increase more, they will threaten more and more the existing company

positions and their existences If there is a week competition in the industry, companies

will have the opportunity to increase prices and get higher profits However, if there is a

strong competition, it will lead to price war Competition will limit the profitability by

reducing the marginal profit on turnover Therefore, the competition intensity among

companies in the industry creates a powerful threat to the profitability In general,

competition levels of among companies in the industry consist of four main parts: (1)

competitive industry structure, (2) growth sectors; (3) The difference products, (4)

Barriers to withdraw

Competitor analysis:This aims to collect and analyze information about all competitors

with the company The understanding of the competitive environment will help companies

better to understand the information companies collected during the research environment

and industry environment The analysis should focus in predictions of dynamic actions,

reactions and intentions of competitors

Customer Pressures: The fourth forces of the Porter five forces model is the customer

negotiating capacity of customers Customers (buyers) can be viewed as a threat as they

require a lower price or when they request better service (which can lead to increase

operational costs).in contrast, if customer position is week, company can raise prices and

earn higher profits When customer can make request to company is depending on the

relative power to the company The buyer can ask the company or not depends on their

relative power company According to Porter buyer power is the most powerful in the

following cases:

• The industry is made up from many small companies and the buyer number is a

small.This situation permit buyer to dominate the supplying side

• When buyers make purchase volume In that case the buyer can use the purchasing

power as leverage to negotiate discounts

• Supplier depends on the buyer due to a large proportion of total orders coming from the

buyer

• When the buyer can switch between the supplying company due to s low-cost switching,

this action stimulates the companies compete against each other and leads to price

reduction

•The buyer can use the threat to supplier when they are able to integrate backward

•The buyer has full information of products or services

•Products or services are not important to the buyer

Suppliers Pressure: It includes the suppliers to provide inputs such as raw materials,

machinery, finance, workforce etc to the existing companies When providers have the

advantage, they will put disadvantageous pressure for enterprises such as higher selling

prices, shorter payment terms

Figure 1.3: Five forces model – Sources: Michael E Porter (1985), “Competitive

strategy”, NewYork: Free Press

SUPPLIER POWER Supplier concentration Importance of volume to supplier Differentiation of inputs

Impact of inputs on cost or differentiation Switching costs of firms in the industry Presence of substitute inputs

Threat of forward integration Cost relative to total purchases in industry

BARRIERS

TO ENTRY

Absolute cost advantages

Proprietary learning curve

-Price-performance trade-off of substitutes

BUYER POWER Bargaining leverage Buyer volume Buyer information Brand identity Price sensitivity Threat of backward integration Product differentiation Buyer concentration vs industry Substitutes available

Buyers' incentives

DEGREE OF RIVALRY -Exit barriers

-Industry concentration -Fixed costs/Value added -Industry growth -Intermittent overcapacity -Product differences -Switching costs -Brand identity -Diversity of rivals -Corporate stakes

2.1.5 Internal Environment Analysis

+ Internal company environment include factors that businesses can control such as the

management, production, finance, accounting, material supply, marketing, external

relations (PR), source human resources, information systems etc All of the above is

called the company value chain Doing internal analysis is to analyze the company value

chain to identify business strengths and weaknesses and to propose the appropriate

business strategy During the value chain analysis, the chain is divided into two primary

activity groups- main operational activities and supportive activities (chart 1.3)

Figure 1.4 The Value Chain – Sources: Michael E Porter (1985), “Competitive advantage

“, New York: Free Press

Main operations: Operations and activities directly tied up with company products

or services such as input activities, production and operation activities, distribution

activities, marketing, sales and customer services activities

 Material inputs: These activities are tied up with operations such as

raw material receiving, storage, inventory control and input preserving If

these activities are perfect and are done in the Just-In-Time philosophy, it will

reduce the operational expenses and increase the productivity By managing

well the material input, company can exploit better the business opportunities

 Production (Operation): Mastering the operational process will help

company to increase the product quality, to reduce the product defect, to

lessen the manufacturing expenses and to increase the competitive advantage

 Distribution: It includes storage, goods management, distribution

activities, order processing Mastering these activities will lead to higher

effectiveness and customer service level

 Marketing-Sales: It aims to bring products to target customers They are the

following activities: determining market segmentation, product positioning, and

product strategy, pricing strategy, distribution and promotion The company that

has well managed marketing and sales activities will create a competitive

advantage and dominate the target market or keep market share firmly

 Services: It includes after-sales activities such as installation, repair, customers

warranty, customer complaints resolving etc If a company does these activities

well, this will maintain the business reputation and belief to customers that

contribute to firm holding market share firmly

Supporting Operations: It includes activities indirectly associated with the company

product and services By these activities, main company operations will work better These

activities are human resources, research and development (R & D), facilities and

equipment, finance and accounting

2.1.6 Identify Strategic Objectives

+ Strategic objectives are specific conditions, target and goals that company wants to have

in certain period normally above 5 years The strategic objectives are for getting the

mission in specific ways through the environmental analysis As of this, strategic

objectives are the long-term business goals

Strategic objectives have key characteristics:

First: strategic objectives should include the financial and non-financial goals Strategic

objectives also meet all stakeholder requirements They should include the system

objectives that include the quantity, quality, financial and non-financial perspective

Second: strategic objectives prioritize options It is understood that when a company

builds strategy objectives, the company should set objective importance priority The

company is willing to trade off the most important objective with the least important one

for strategy implementation when the company resource is limited and not enough to

cover all company objectives

Third: strategy objectives must be in reality however they should challenge the company

staff to implement (the objectives should not be too easy to reach

Fourth: strategic objectives are related to functional operation and their integration from

different functions in the company It means that completing the strategic objectives

requires the close integration among different sections and departments in the company

In order to implement strategic objectives, company need to specify the implementation

goals into the short term and medium term goals The medium term goals: they are in

between the long-term and short-term objectives Its timeline is about 3 years and less

The short-term goals: they are the objectives whose lifetime is less than 1 year There is

one rule for short-term objectives setting – SMART rule SMART stands for S- Specific,

M- Measurable, A-Attainable, R-Realistic, T-Time bound

2.1.7 Strategic option

Figure 1.5 General Strategy Growing and Developing Phases Source: Michael E Porter

(1985), “Competitive strategy “, NewYork: Free Press

Focus in one

domestic industry

Vertical integration

or expand in foreign nations, globalization

Expand into other business sectors

- Phase 1: Company working in the domestic market and focusing in single business The

advantage of one business focus permits company to concentrate all resources in terms of

financial, technology, management and competitive advantages to win in the business

This strategy is important in fast-growing industry where company need to mobilize all

recourses to compete

- Phase 2: In order to strengthen and to maintain the competitive advantage, company can

apply the vertical integration, expansion strategy or going into globe This strategy

advantage is that company can reduce the production cost due to the technology process

can be operated continuously, better coordination and scheduling activities, being more

proactive in material supply, being in favorable position when negotiating with supplier

instead of being in unfavorable position with them having more conditions to monitor the

product quality and technology protection However, doing the integration can have some

disadvantages such as (1) Cost disadvantages; (2) Technology change; (3) Unstable

demand Integration strategy can be the forward integration when companies buy or

invest into the client companies or backward integration when companies buy or invest

into their suppliers and fully integration when companies do both backward and

forward integrations International entering and expansion strategy: a company selects

the country and timing to enter the international market by strategies such as low cost,

differentiation or quick response

- Phase 3: A company diversifies and expands operations into new business areas

Successful diversification strategy will add value to the company as it increases revenue

by reducing costs Companies often implement this strategy when they have surplus

financial resources and labor, high-level management experiences There are mainly two

diversification types: (1) Related diversification, (2) irrelevant diversification Related

diversification happens when a company diversifies into new business related to the

current ones The relations among news and olds can be presented in the similarity among

their value chain activities Unrelated diversification happens when a company diversifies

into new business, which is very different from current ones

Vertical integration, abroad market expansion and operational diversification are the

strategic modes to help a company to grow better, to strengthen and fortify a competitive

position and to increase the company value However, in reality, it is not certain that a

company is successful in these modes due to many reasons When it happens, the

company should experience the cutting and changing period The goal of this stage is to

consider and to rearrangement business structure to prevent the decline and to restore

growth

SWOT Matrix: The purpose of the environment analysis is to identify threats ,

opportunities, strengths and weaknesses which company is confronting with and will face

in the business operation By doing that, company will build the business strategy SWOT

matrix is the tool to integrate all environment research and propose the strategy It also

assesses strengths, weaknesses, opportunities and risks

- Major opportunity: It is the chance that has the multiply factor between the business

impact level when using and the probability in which company can exploit is considerably

huge

- Major risk: It is the risk that has multiply factor between the impact level when risk

occurring and risk-happening probability is maximum

- Identify core strengths and weaknesses: The internal business environmental evaluation

and analysis could draw a lot of factors However, it is important to select the core factors

that affect company competitiveness and company business strategy implementation

Company should consider the factors in operational system and compare with general

industry standards and the competitors

- Link internal and external factors: After identifying the basic elements of the internal and

external conditions, company should apply the process including the following steps to

analysis and propose strategies

Step 1: List the key factor of external and internal conditions in the corresponding cells of

SWOT matrix SWOT stands for four abbreviations S for Strengths W for Weaknesses, O

for Opportunities and T for Threats

Step 2: Give the logic connection for strategy options S/O, S/T, W/O, W/T

 S/O: Which strength that we can use to exploit the best from external opportunity

 S/T Which strength that we can use to counter attack to the external opportunities

 W/O Which weakness we should to improve for exploiting the opportunities,

which opportunities we can exploit to overcome the weakness?

 W/T Which weakness we should improve to reduce the current opportunities

Step 3: Figures out the combination among four factors S+W+O+T.It creates the synergy

among four factors in order to formulate the strategy in which a company can use

strengths to exploit the opportunities, to overcome the weakness and to reduce the threats

Step 4: Summary and evaluate the strategic options The strategic sub system and strategy

combinations should form the inter supported system

Figure 1.6 SWOT matrix

Strong : Identify the strong and weakness of the company and also define the opportunities

and threats from external environment The SWOT matrix has capabilities to integrate the

strong, weakness, opportunities and threat into strategic implementing options

Limitation : SWOT just gives the strategic option for selecting It is not the tool for

selecting and deciding what is the best strategy

2.1.8 Business level strategy

+ Business level strategy is the total action and commitment that make a company to get

the competitive advantage by exploiting the core competencies in certain product

markets According to Derek F Abell’s, in order to build business level strategy, a

company should rely on three factors: (1) Customer need or what is satisfied (What); (2)

The customer group or who ge t satisfied (who); (3) Differentiated options or ways

the customers get satisfied in ( How)

The business level strategy is formulated to exploit the value chain and other strengths to

create the competitive advantage Due to this reason, there are many different competitive

strategies however, there are three general approach to build the competitive advantages as

follows: (1) Cost leadership strategy; (2) Differentiation strategy; (3) Focus strategy

(graph 1.5)

Broad (Industry Wide) Cost Leadership

Figure 1.7: Three general strategy options Sources: Michael E Porter (1985),

“Competitive Advantage”: Free Press, pp.12

 Cost leadership strategy (low cost)): This strategy is to create the product or

services having a lower cost structure than the competitor does The strategy

advantages are : (1) Due to low cost structure, company can sell product or services

with lower price than competitor price and still get the expected profitability; (2 ) If

there is the price competitor in the industry that company follows, the cost

leadership company will withstand the pressures than the competitors do (3)

Company is easy to withstand the price increase pressures from supplier pressure

 Differentiation strategy: Its objective is to create the unique product or services to

meet the customer needs that the competitors do not satisfy Due to that, a company

can increase the price even higher than the industry average price The product

differentiation can be achieved in three ways- quality, innovation and customer

satisfaction

 Focused strategy: It is different from two said-above strategies, focused strategy

aims to meet a certain market segment that is defined by geographical, customer

target or product attributes Company can implement focused strategy in two

way: (1) Focused low-cost strategy,(2) Focused differentiation strategy

2.1.9 Functional strategy:

+ Strategy function is built and developed in order to utilize the capacity, to coordinate

different activities in each function, to maximize resource efficiency, to improve and to

enhance each functional department performance for achieving the strategic objectives at

both business and company levels These functional strategies include Marketing Strategy:

The objective of this strategy is to help products and services quickly reach customer

targets This strategy also tries to occupy and to maintain market share by strategies such

as product strategy, pricing strategy, distribution strategy and promotion strategies

Strategic Finance: The objective of this strategy is to manage the cash flow planning This

also tries to establish reasonable financial structure through considering the debt and

capital correlation in order to ensure effectively to use and to exploit the money flows and

to maximize profits for shareholders and company market value Strategic R & D:

According to Michael E Porter, the company may choose to be the technology pioneer or

the follower to gain competitive advantage through low cost or differentiation positions

Operation strategy: This strategy identifies how and where products are manufactured

The strategy answers questions of how far does a company go into the vertical integration,

how does one allocate resources and how does one make relationship with suppliers

Human resources strategy: human resource strategy: The objective of this strategy is how

to get the best from human resources, how to utilize their capabilities and strengths at most

and how to facilitate them to their utmost conditions that they can have

2.1.10 Strategy implementation

+ Turn Strategy into action and get its integration: One strategy when formulated

successfully needs a good implementation plan If the implementation is not good, the

strategy formulation is nothing and cost a lot for company Having a good strategy is

difficult However, its implementation is much more difficult

+ Allocate resources for the strategy implementation: The successful strategy

implementation always requires changes in the use of resources within the organization

Different strategic levels will deal with resources planning and allocation in different

ways

+ Strategy organizational structure and control: Strategy when implemented requires the

existence of an organic, dynamic capable organization This organization can have

capabilities to quickly react to the environment changes and encourage the creativity of

each organization member

2.1.11 Review and adjust strategy

+ Due to the rapid environmental elements changes and the incorrectness of future

prediction, company needs of in and predict future difficult to achieve absolute precision,

so the implementation process requires businesses need to continually test, evaluate and

adjust appropriate strategies for each stage and each condition

2.2.1 IFE and EFE Matrix

After analyzing the overview market condition, company should use both strategic tools

IFE and EFE to evaluate the internal and external factors effecting company strategy

formulation The IFE stands for Internal Factor Evaluation This tool evaluates major

strengths and weaknesses in functional areas for company The EFE stands for External

Factor Evaluation This tool assesses of current business conditions The EFE matrix is a

good tool to visualize and prioritize the opportunities and threats that a business is facing

The IFE Model Construction

Rating

There are some important point related to rating in IFE matrix

Rating is applied to each factor

Major weakness is represented by 1.0

Minor weakness is represented by 2.0

Minor strength represented by 3.0

Major Strength represented by 4.0

Weight

Weight attribute in IFE matrix indicates the relative importance of factor to being

successful in the firm’s industry Sum of all assigned weight to factors must be equal to

1.0 otherwise the calculation would not be consider correct

Weighted Score

Weighted score value is the result achieved after multiplying each factor rating with the

weight

Total Weighted Score

The sum of all weighted score is equal to the total weighted score, final value of total

weighted score should be between range 1.0 (low) to 4.0(high)

The EFE Model Construction is the same process with IFE model The EFE matrix is very

similar to the IFE matrix The major difference between the EFE matrix and the IFE

matrix is the type of factors that are included in the model While the IFE matrix deals

with internal factors, the EFE matrix is concerned solely with external factors

When getting both score from IEF and EFE, company can see whether strategy does the

company should follow

2.2.2 The CPM Matrix

Competitive profile matrix is an essential strategic management tool to compare the firm

with the major players of the industry Competitive profile matrix shows the clear picture

to the firm about their strong points and weak points relative to their competitors The

CPM score is measured on basis of key success factors Critical success factors are

extracted after deep analysis of external and internal environment of the firm The higher

rating show that firm strategy is doing well to support this critical success factors and

lower rating means firm strategy is lacking to support the factor

Rating

Rating in CPM represents the response of firm toward the critical success factors Highest

the rating better the response of the firm towards the critical success factor rating range

from 1.0 to 4.0 and can be applied to any factor

Rating is applied to each factor

The response is poor represented by 1.0

The response is average is represented by 2.0

The response is above average represented by 3.0

The response is superior represented by 4.0

Weighted Score

Weighted score value is the result achieved after multiplying each factor rating with the

weight

Total Weighted Score

The sum of all weighted score is equal to the total weighted score, final value of total

weighted score should be between range 1.0 (low) to 4.0(high)

2.2.3 The SPACE Matrix

It looks into the four dimension of company to setup the strategic option

Internal strategic dimensions includes financial strength FS and competitive advantage

CA The external strategic dimension looking the environmental stability ES and industry

strength IS After scoring four dimensions from 1 to 6 for FS and IS ( 1 is for the worst

and 6 for the best ), -1 to – 6 for CA and ES ( -1 for the best and -6 for the worst), we get

the average of factor scoring We put the average score in the accordance axis and get the

position to show what strategy is should be We can choose one of four options:

Conservative-Defensive -Aggressive -Competitive

Figure 1.8: SPACE Matrix Analysis

Defensive Competitive

The variable for four dimensions can be following:

• Ease of entry

• Capacity utilization

2.2.4 BCG (Boston Consulting Group-Growth –Share Matrix

The tool objective is to give the industry overview on the prospective and future

information, company strengths and weaknesses in each business sector

Step 1 : Divide a company into SBUs by two criteria – Relative Market Share and the

Market Growth Rate

Step 2 : Classify and rate the SBU in the matrix ( figure 1.9 )

 Stars: They are the SBUs having a relatively high market share and in the

high-growth rate industry They provide growing opportunity and attractive long-term

profitability to company

Question mark: They are relatively weak SBUs in term of competition due to relatively

low market share However, they are in high-growth industries Due to this reason, they

probably have hidden profitable opportunities and long-term growths for the company

Figure 1.9: BCG Growth-Share Matrix – Sources: Charles W L Hill, Gareth

R Jones (1989), “Strategic management”

 Cash Cows: They are SBUs having a relatively high market share and in the

low-growth industries They have strong competitive positions in the saturated industries

These SBUs have high profitability however, low growth industry implies a lack of

opportunities for future expansion Therefore, BCG group supposes that the

investment capital need is negligible Due to this reason, they are considered as

sources of strong positive cash flow to company

 Dogs: They are SBUs in the low-growth industry and have relatively low market

share BCG classifies that these SBUs probably do not generate positive cash flow

and they become budget burdens to company

Step 3: SBU strategic objective: Using excess capital generating from cash cow SBUs to

invest in question mark SBUs and to nurture star SBUs Companies need to eliminate the

question mark SBUs that are weakest or have the least promising long-term and

sustainable successes Due to this, companies can reduce the pressure on financial

resources Companies should withdraw from industry whose their SBUs are dogs by

eliminating, harvesting and liquidating strategies etc

 Advantages: The BCG matrix identifies the ability to create cash flow of SBUs in

the industry It also show the way to use the financial resource to maximize the value

of the company business structure

 Limits: The BCG matrix is a considerably simple It uses only two criteria –the

relative market share and the industry growth rate The relationship between relative

market share and cost saving is not always proportional as BCG points out A high

market share does not always ensure a cost advantage to company Thirdly, a high

market share in low-growth industries does not always create a Positive fund like

cash cow attribute

2.2.5 The QSPM Matrix

Quantitative Strategic Planning Matrix (QSPM) is a high-level strategic management

approach for evaluating possible strategies In this tool, we evaluate the strategic option by

four factors – Threat, Opportunities, Strength and Weakness factors For each option we

come up with factor weight, attractiveness score and the final score for each factor The

total sum up will show the importance of strategic option More higher the score is, More

likely the strategic option will be used in the reality

We shoud provide a list of internal factors strengths and weaknesses Then generate a

list of the firm's key external factors opportunities and threats These will be included in

the left column of the QSPM These factors can be taken from the EFE matrix and the IFE

matrix

Each key external and internal factor should have some weight in the overall scheme You

can take these weights from the IFE and EFE matrices again You can find these numbers

in our example in the column following the column with factors

Attractiveness Scores (AS) in the QSPM indicate how each factor is important or

attractive to each alternative strategy Attractiveness Scores are determined by examining

each key external and internal factor separately, one at a time, and asking the following

question The strategies should be compared relative to that key factor The range for

Attractiveness Scores is 1 = not attractive, 2 = somewhat attractive, 3 = reasonably

attractive, and 4 = highly attractive If the answer to the above question is no, then the

respective key factor has no effect on our decision If the key factor does not affect the

choice being made at all, then the Attractiveness Score would be 0

Calculate the Total Attractiveness Scores (TAS) in the QSPM Total Attractiveness Scores

are defined as the product of multiplying the weights (step 3) by the Attractiveness Scores

(step 4) in each row

The Total Attractiveness Scores indicate the relative attractiveness of each key factor and

related individual strategy The higher the Total Attractiveness Score, the more attractive

the strategic alternative or critical factor Calculate the Sum Total Attractiveness Score by

adding all Total Attractiveness Scores in each strategy column of the QSPM

The QSPM Sum Total Attractiveness Scores reveal which strategy is most attractive

Higher scores point at a more attractive strategy, considering all the relevant external and

internal critical factors that could affect the strategic decision

2.3.1 Definition

Marketing is the process of planning and implementing the idea, the price setting,

promote, and distribute ideas, products, and services to create transaction for satisfying the

individuals and organization objectives

2.3.2 Marketing management

From the perspective of a company, marketing management is to use marketing as

an effective method to achieve the goals of the enterprise This is the process of planning,

implementation and testing plan that includes the optimal use of available resources for

creating goods, pricing, distribution of goods, etc to achieve the business- defined

objectives

2.3.3 Market segment

- Market segmentation is to divide the overall market of one product or services

into many smaller segment in which customer in the same segment will have the

similar consumption behavior and be different from other segments

- Market segment aims to identify the targeted customer It means to identify who

are the customer, what they need and how does a company achieve that

- The basic for market segment is the factor or its combination used to category

customers into the heterogeneous segment

+ The segment market should be based on the customer characteristics factor such

as population, social-economical factors, geographical factor, psychographic

factor, consummation model and perception

+ Identify the customer demand and needs related to product and services benefits

and features

+ Identify the company core competencies to satisfy the customer demand and to

implement these strategies to create the value in satisfying the customer demand

- Identify the target segment: Identifying the target segment is to evaluate and to

select one or more proper segments for company

2.3.4 Estimate and evaluate the demand:

Analyze the potential market, target market, available market and penetrated

market

2.3.5 Customer behavior analysis

Figure 1.10: Steps approaching to customer behaviors

Customer behavior analysis answer these issues such as how does individuals conduct

their selection, buying and using services and products in order to satisfy their own needs

and wants These analyzed issues should be based on the cultural, team, and social class

characteristics Through this process, a company can know the customer motivation,

attitude, trust, buyer role and even behavior after buying

2.3.6 Competitive strategy formulation:

Three Competitive strategy analyses

- Market leader strategy is for companies are in the dominant positions in the market

- Market-challenger strategy is for companies in the 2nd, 3rd and 4th position and are

challenging the market leaders

- Market- follower strategies is for company which has a small market share or has just

run These companies try to be profitable when not challenging the market leaders

2.3.7 Brand and brand identity

- Brands are names, terminology, symbols, logos or coordination among them to

identify products and to distinguish the seller product with competitors When

analyzing the brand, the company should be interested in the customer’s behavior to

the brand

- Consumers attitudes to the brand: Has satisfied – do not want change, Has satisfied –

change may increase the cost, Very loyal to the brand, highly rated brand, consider

brand as yourself, ready to change brand – not loyal to the brand,

- Corporate Identity (Brand Identify) is the way companies want people to aware of

their brands consistently, differently and outstandingly over competing brands

- Brand positioning are the directions and operations of the company in order to convey

brand characteristic into customers’ minds, thereby creating the brand perception

consistently and properly

- Brand image: is the method that customer aware of the brand

General concept of brand decision

Figure 1.11: Brand Development Decision