Building strategy for Vietnam National Tea Corporation to improve exportation to Pakistan market

CG Global Advanced Master of Business Administration CAPSTONE PROJECT REPORT BUILDING STRATEGY FOR VIETNAM NATIONAL TEA CORPORATION TO IMPORVE EXPORTATION... GaMBA.01.M06 LIST OF TABLES

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CG Global Advanced Master of Business Administration

CAPSTONE PROJECT REPORT

BUILDING STRATEGY FOR VIETNAM NATIONAL TEA CORPORATION TO IMPORVE EXPORTATION

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ACKNOWLEDGEMENT

In the first words, I would like to send my best thankfulness to teachers and professors in Centre for Educational Technology and Career Development — Higher Education — Vietnam National University, America Griggs University for creating the best favorable situation for all trainees during the whole course, especially, when

we Carrying out this thesis

Our group also thank to Board of Directors of Vietnam National Tea Corporation and related sections for guiding enthusiastically and providing necessary

data for us to complete this thesis

Despite of trying our best in studying and collecting data, the thesis still have some unavoidable shortcomings We sincerely hope to receive comments of teachers and friends to makes it more meaning full

COMMITMENT Our group commit that this is our special work Data and figures in this thesis

are accurate, our analysis and conclusions have not been announced in any other scientific research

Hanoi, Mar, 2010 Group leader

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Proj

Group 07 GaMBA.01.M06

TABLE OF CONTENT TABLE GP CONTEN TT sorssns saagtt gìn ngtp5:Z001087880101S50/718 88800300 SESSG0: iu ĐBĂNH tia Ea BN1-78E.TđH SG0ATSIDS0G0385 nel 3 LIST OF TABLES AND FIGURES - án SH HH HH th Hư ưu 6 LIST OF ABBREVIATIONS HT HH HH HT 7 FOREWORDS LH TT TH ng Thu HH TT HH 8

CHAPTER I: OVERVIEW OF STRATEGIC PLANNING AND STRATEGIC

1.1 Definitions and roles of strategy and strategic managemenI - ‹- 1]

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1.4.3 SWOT matrix ố e 24

1.5 Strategy building and choosing key strat€Øy - -ccScsSs sec rrkg 27

CHAPTER I]: ANALYZE PRODUCTION AND EXPORTATION REALITY OF

VIETNAMESE TEA CORPORATION TO PAKISTAN MARKET 32

2.1 Overview of Vietnam National Tea CorpOratiOn 5s *sssssereees 32 4: x1 ES†aD]IshrrrerrL an eveliDTGTÍ DTOGESSeosgeeres thun nunhngi nhường nngg8ghgDi sống 05485803 32

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Griccd Capstone Project Report

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2.3.3.4 Threats ha 63 2.3.3.4 SWOT analysis and strategy selection for Vietnam National Tea Corporation

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CHAPTER II: SOME SOLUTIONS TO IMPLEMENT BUSINESS STRATEGY

FOR VIETNAM NATIONAL TEA CORPORATION ccecccssceeseesteeteesseeeeenneeaes 69

3.1 Development objectives of Vietnam National Tea Corporation in the coming VIE bev unequnneininsmenjhemnenasiondhitomesionmmen nisi title is iene eSB am mcr ie Si S SSEE 0100 69

3 1 Pakistan market in T6 GĐITHHĐỠ Ba sa nhgkeneonLrirnnttiiBSGII-lER 2.01302330001088205 019100806388 69

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Group 07 GaMBA.01.M06 3.1.2 Development objectives of Vietnam National Tea Corporation in the coming

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SE Te ccs at smn eS ts RS, SRS TRATES tT 88

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Grigad Capstone Project Report

Group Ø7 GaMBA.01.M06

LIST OF TABLES AND FIGURES

Tables:

Table 1.1: SWOT matrix

Table 2.1: Internal Factors Evaluation Matrix

Table 2.2: External Factors Evaluation matrix

Table 2.3: Tea cultivation in recent years

Table 2.4: Volume and value of tea exportation to Pakistan from 2000 to 2007 Table 2.5: DCR of some main Vietnamese exported products

Table 2.6: SWOT analysis for Vietnam National Tea Corporation

Table 3.1: Pakistani demand for tea in the coming years (*)

Table 3.2: Tea area target up to 2020

Table 3.3: Attracted capital for tea regions in the period: 2006 to 2010

Figures

Figure 1.1: P.E.S.T model

Figurel.2: Michael Porter’s Five Forces

Figure 2.1: Labor structure in Vinatea

Figure 2.2: Market share of tea products in Pakistan market

Figure 2.3: Some main related and supporting industries for Vinatea

Figure 2.4: Comparison between Vietnam’s, Kenya’s, and world tea price

Figure3.1: Volume of Black tea imported to Pakistan to 2016

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Group 07 GAMBA.01.M06

LIST OF ABBREVIATIONS

No Abbreviation Full meaning

l ADB Asia Development Bank

2 BTA Bilateral Trade Agreement

3 FAO Food and Agriculture Organization

4 FTA Free Trade Agreement

5 GDP Gross Domestic Product

6 ICRG International Country Risk Guide

7 MOU Memorandum Of Understanding

8 MARD Ministry of Agriculture and Rural Development

9 PPP Purchasing Power Parity

10 | SBP State Bank of Pakistan

II | VINATEA Vietnam National Tea Corporation

12 | VITAS Vietnam Tea Association

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wants to be success in the world market it needs to examine its internal factors,

external factors and competitors and give out a sound strategy Studying the process which a company set up its strategy become a very imperative topic attracts many economic researchers

Drinking tea is a long standing tradition of Vietnamese Tea industry not only plays an important role in satisfying domestic consumption but also contribute millions USD into GDP Tea is mainly cultivated in mountainous and highlands and

it plays important role in daily life of people in these areas Tea cultivation and production contribute about 50% to 70% their income To raise living standard for farmers in mountainous and improve contribution in GDP companies which produce tea need to find out foreign markets for exportation

There have been many researches which studied about tea cultivation and exportation: They are:

- “Orientation and solutions to promote tea production to 2010”, implemented

by Dr Nguyen Kim Phong, Director of Vietnam Tea Association in 2005 In this article, the author proposed some petitions for operation and management in tea industry and policy to promote exportation as well

- “Tea production and exportation, reality and solution’, studied by Dr Nguyen Sinh Cuc, Ministry of Agriculture and Rural Development in 2001 Dr Nguyen Sinh Cuc brought out comprehensive solutions for tea production and exportation

However, from 2001 to present, with integration trend of the world economy,

Vietnam economy has got many big changes So some of these solutions have not been suitable any longer

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- “Modernize equipment and technology for tea production” implemented by Vietnam Tea Association The project shown out the importance of improving quality

of tea products to compete in the world market

- “Tea - Current market situation and middle term out look” implemented by FAO in 2005 By using econometric method, the research gave out some predictions about the development of the world market (include Vietnam production and Pakistan exportation)

These theses bring meaningful contribution to development of tea industry and also orient strategic managements for managers of tea producing companies However, economic context has changed much so far so data and analysis in these

researches cannot cover these changes Moreover, these works concentrate on

studying operation of the whole industry and tea market generally We really need a research which study operation of a specific company in a specific market With all these below reasons we decide to choose study production of Vietnamese Tea Corporation and its strategy when reach to Pakistan market

Purposes of research

By using practical experiences when working in tea industry and study about Strategic management We would like to give out a real picture of operation of Vietnamese Tea Corporation in Pakistan market — a new and potential market for Vietnamese tea industry

Through study and analyze operation of company we also give out some short term and long term solution for the company to orient and built up sound strategies when working with Pakistan market as well as other foreign markets

Scope of research

The research aims at analyzing operation of Vinatea when building up Strategies for Vinatea in general and its operation in Pakistan market From this analysis the company will get judicious decisions for operation

Data and information in this research were collect from production and exportation of company form 1995 to 2013

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Methodologies of research

The research uses qualitative and quantitative method in studying These methods are:

Collecting and analyzing method

Comparative analysis method

Specialist analysis method

Economic statistic method

The research also use kinds of models for analyze such as: SWOT matrix,

GREAT matrix, etc

Information and data in the research were collect from annual report, magazines, papers, and other scientific researches of many specialist and experienced managers in tea industry

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CHAPTER I: OVERVIEW OF STRATEGIC PLANNING AND STRATEGIC

MANAGEMENT 1.1 Definitions and roles of strategy and strategic management

“Strategy” is the term which has been widely and long standing used in many fields “Strategy” was firstly used in military then in political field From 1950s to 1960s of XX century, the concept of “strategy” was used in economic and social field Generally, “strategy” was understood as trend and method to resolve long term and overview mission According to UNIDO definition: “Generally, a development Strategy can be described as an outline of developing process to reach intended targets for a period from 10 to 20 years, it instruct strategic managers in attracting and allocating resources It can be said that, strategy provides a vision for development process and the consistence for implement solutions Strategy also can

be basics for overview developing plan in long term and short term or can be general awareness of related people about prospects and willingness and challenges in a

specific period”

There are many definition of “strategy” To Fred R David (2003), strategy includes numbers of method to reach long term target To Michael E Porter (1996), Strategy is the creation of special and valuable positions include variable activities

In general, there are some differences in expression of concepts and definitions of strategy They still have some common content:

+ Define company’s short term and long term targets

+ Bring out solutions and methods to choose these solutions

+ Deploy and allocate resource to implement these targets

Besides understanding concept of strategy managers of company also need to know the way to manage these strategies and make right decisions to reach company’s target, this process is called strategic management I can be generally said

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that: “Strategic management is defined as a set of decisions and actions expressed via results of planning, implement and evaluating strategies, created to reach corporation’s long-run targets”

Strategic management includes these following specific steps:

+ Strategic planning

+ Strategic implement

+ Strategic checking and evaluation

1.2 Roles of strategy and strategic management

Characteristics of business environment have a big affect to existence and development of company They can create new opportunities and challenges for corporation And the company which wants to exist has to find out a new management method, it is exactly “strategic management” - strategy is the basis of this management method In model business environment, strategy becomes more and more important to existence of company These roles are:

- Strategy is the tool that generally shows the long-term goals of the organization or enterprise Enterprise’s goals are special targets which it wants

to reach during its operation process Specialization and making documents these targets via strategies will help members of enterprise or organizations when finding the targets which they want to reach so, they will know what they have to do It will help the enterprise easier in reaching its goals

- Strategy connects short term targets closely in long run conditions In model business situation, every enterprise has to flexibly move to adapt to changing

of environment Sometimes this movement will make the enterprise be separated from its long term goals In this case, strategy with strategic goals will help managers of enterprise a long run direction So, resolving short term

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- Strategy helps to ensure unification and make plans for enterprise’s activities

In existence and development process, strategy provides a comprehensive and logical point of view in resolving problems which arises in_ business performance Strategy also helps to associate different sections in a company and orient them to reach to a unit goal, it is enterprise’s goal

- Strategy helps enterprises and organizations to catch up with market opportunities and create comparative position in the market Strategy unifies the enterprise’s operation process in order to reach to enterprise’s strategic goals It means that enterprise will have to use its resource in most efficient way So, enterprises have to choose fastest way to catch up with market opportunities and deploy its available abilities to create new comparative advantages

Form below analysis we can see very important roles of strategy in enterprise’s performance so, strategic management becomes one of the most necessary keys which helps enterprise open the door to advance toward success Strategic management brings theses following advantages:

- More efficient in making plans by using more reasonable and logical approach method when choosing strategies

- Widely take care of related beneficiaries of enterprises (stock holders)

- Connect short term development in long term development

- Take care of both efficiency and effectiveness

1.3 Steps to study strategic planning

1.3.1.1 External factors

Every enterprise exists and develops in a given business environment and its development is much affected by external factors Affection of external factors

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Macro conditions: When analyzing affection of macro conditions to enterprise’s activities we use P.E.S.T model PEST model studies affection of 4 main factors which affect to enterprise’s activities These factors are: Political, Economics, Social and technological

- Interest rate, inflation - Living tradition

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e Political: This is the factor which has affection to all industries in a country,

factors like: regulations and legal system can affect to every industries When doing business in administrative unit enterprise has to follow its legal system

- Stability: when study the political factor of enterprise we will take care of stability of conflict political factors with legal systems The country which has high stability in political condition will give a better environment for enterprise to expand its activities On the contrary, instability in political conditions will give bad affection

e Economic factors: Enterprise needs to take care of economic factors both in short term and long term It also has to take care of intervention of Government into economy In general, enterprise will base on economic factor to decide which industry or section to invest in

- Economic situation: Any economy also has different cycles in a specific period of a cycle enterprise will have different decisions for its development

- Factors which affect to economy: Interest rate, inflation

- Economic regulators of Government: Basic salary law, Government’s economic development strategy, favorable regulation for a specific industry, increase

tax or subsidiary, etc

- Orientation of economy: Growth rate, GDP growth, GDP per capital

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like:

- Average longevity, health situation

- Average income, income allocation

- Life style, life psychology, knowledge level

- Living conditions

e Technological: Recently, the whole world is still in technological revolution, list

of model technologies are implied and they are integrated into goods and services Thirty years ago, computer is only a tool used for calculation, now it is a tool with full functions and can work as a person Especially, in information technology section, model communication helps us to shorten geographical distance

e Integration: No one can deny that, global integration now is an unavoidable trend and this trend created many opportunities for enterprise and country in developing and expand their business

- Globalization creates competitive pressure from every sections and regions Integration process will force enterprises to adjust in order to conformity with comparative advantages and global labor allocation in the world market

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- In integration process commercial barriers will be step by step removed to

create a fresh and fair business environment for all countries in the world

e Natural condition: Natural condition is one of the most important factors in

human life, it also provide raw materials for many industries Recently, natural

condition is much changed because of human destruction It also can affect to development trend of enterprises

Nowadays, PEST model is expanded into PESLT matrix (political, economics, social-cultural, legal, technological) and S.T.E.E.P.L.E (Social/Demographic-,

Technological, Economics, Environmental, Policy, Legal, Ethical) and becomes more and more completed standard when studying external factors of an enterprise

Micro environment: They are conditions which tightly concern to enterprise’s activities Factors of micro conditions will decide investment condition, competitive

level, and industry’s profit According to Professor Michael Porter, micro conditions

are affected by five competitive forces it called “Michael Porter’s Five Forces” model Five forces are: The threat of substitute products or services, the threat of the entry of new competitors, the intensity of competitive rivalry, the bargaining power

of customers, the bargaining power of suppliers

(Source: Strategic management: Concepts and cases — Fred David)

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Group 07 GaMBA.01.M06 The threat of substitute products or services

The existence of products outside of the realm of the common product boundaries increases the propensity of customers to switch to alternatives:

« Buyer propensity to substitute

e Relative price performance of substitute

e Buyer switching costs

¢ Perceived level of product differentiation

e Number of substitute products available in the market

e Ease of substitution Information-based products are more prone to substitution, as online product can easily replace material product

e Substandard product

¢ Quality depreciation

The threat of the entry of new competitors

Profitable markets that yield high returns will draw firms This results in many new entrants, which eventually will decrease profitability Unless the entry of new

firms can be blocked by incumbents, the profit rate will fall towards a competitive

level (perfect competition)

e The existence of barriers to entry (patents, rights, etc.)The most attractive segment is one in which entry barriers are high and exit barriers are low Few new firms can enter and non-performing firms can exit easily

e Economies of product differences

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e Absolute cost advantages

e Learning curve advantages

e Expected retaliation by incumbents

se Government policies

e Industry profitability; the more profitable the industry the more attractive it will be to new competitors

e Internet era; today competitors need only a website to enter a market

The intensity of competitive rivalry

For most industries, the intensity of competitive rivalry is the major determinant of the competitiveness of the industry

e Sustainable competitive advantage through innovation

e« Competition between online and offline companies; click-and-mortar -v- brick-and-mortar

e Level of advertising expense

e Powerful competitive strategy

e The visibility of proprietary items on the Web

The model used by a company which can intensify competitive pressures on their rivals How will competition react to a certain behavior by another firm? Competitive rivalry is likely to be based on dimensions such as price, quality, and innovation Technological advances protect companies from competition This applies to products and services Companies that are successful with introducing new technology are able to charge higher prices and achieve higher profits, until

competitors imitate them Examples of recent technology advantage in have been

mp3 players and mobile telephones Vertical integration is a strategy to reduce a business’ own cost and thereby intensify pressure on its rival

The bargaining power of customers (buyers)

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The bargaining power of customers is also described as the market of outputs: the ability of customers to put the firm under pressure, which also affects the customer's sensitivity to price changes

e Buyer concentration to firm concentration ratio

e Degree of dependency upon existing channels of distribution

se Bargaining leverage, particularly in industries with high fixed costs

se Buyer volume

¢ Buyer switching costs relative to firm switching costs

e Buyer information availability

e Ability to backward integrate

e Availability of existing substitute products

¢ Buyer price sensitivity

e Differential advantage (uniqueness) of industry products

e RFM Analysis

The bargaining power of suppliers

The bargaining power of suppliers is also described as the market of inputs Suppliers of raw materials, components, labor, and services (such as expertise) to the firm can be a source of power over the firm, when there are few substitutes Suppliers may refuse to work with the firm, or, e.g., charge excessively high prices for unique

resources

e Supplier switching costs relative to firm switching costs

e Degree of differentiation of inputs

e Impact of inputs on cost or differentiation

e Presence of substitute inputs

e Supplier concentration to firm concentration ratio

e Employee solidarity (e.g labor unions)

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¢ Supplier competition - ability to forward vertically integrate and cut out the buyer

1,3.1.2 Internal environment analysis

Enterprise’s ability is one of the most important factors which decide what it can do and whether it can be successful or not To en sure the feasibility of a strategy

we have to evaluate enterprise’s current situation, realize strong points and weak points by that way we can find out its comparative advantages Internal analysis is implemented in these following sides:

Valuable chain analysis

Valuable chain is the sum of enterprise’s activities which can improve its value Organization’s valuable chain includes these components:

- Main activities: they are activities which closely connect with company’s products and services For example: purchase and control materials, marketing, and after sale services These activities are evaluated to know whether they are save cost, increase products’ and services’ quality and satisfy customers’ need or not The more these activities are highly evaluated the higher company’s valuable chain is and the company will have comparative advantage

- Supporting activities: Besides main activities, supporting activities will indirectly influence to company’s products and services Supporting activities will

help main activities to be implemented better and more efficient These supporting activities are: human resource management, technology improvement, etc

Financial analysis:

Financial situation and financial indexes is the reflection of efficiency and company’s financial ability Company’s financial situation is not only reflects company’s current ability but also indicates its development ability in future Some

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Group 07 GaMBA.01.M06 indexes which frequently used in financial analysis include: current liquidity (total fixed assets/current debt), leverage factors, liquidity ((current assets -— inventory)/current debt), turnover rate of current assets, indexes indicate profit ability, etc

Organization’s culture and enterprise’s reputation:

Enterprise’s reputation is now become more and more important for its foundation and development Each enterprise needs to make its employees understand its target and philosophy This will force all members to reach company’s common goals

Company’s reputation also helps to make its goals be successful Reputation can be achieved in long process A company with famous reputation will easier in approach new market and its products will be easily accepted However creating reputation is as difficult as maintaining and enforcing it Besides analyzing internal factors we also take care of some more factors like: legal in its activity and management culture, etc

After analyzing internal factors, strategic managers will compare them These comparisons indicate the company’s development in comparison with competitors in the same sector

These comparisons are implemented follow three directions:

- Period comparison: This is compare company’s activities in different period p p pany p

in relationship with its context

- Industry’s standard: Managers will compare company’s standards in comparisons with industry’s standards and main competitors This action will help to realize company’s position in the whole industry

- Identify essential success of industry: they are some important factors which have deep influence to company’s activities

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Group 07 GAMBA.01.M06 1.4 Supporting tools for defining and choosing strategies

To support for establish and choosing strategy we use some main tools These below models will be some typical examples

1.4.1 Internal Factors Evaluation matrix (IFE)

Internal factors evaluation matrix summarizes and evaluates main strong points, weak points of some sections in company or the whole company IFE matrix

is developed through five steps:

First step: Establish the list of main factors which have determinant functions

to competitive ability of a company in an industry (normally, the list will have from

10 to 20 factors)

Second step: Defining important level by classifying from 0.0 (no important)

to 1.0 (very important) for each factor Be noted that important level defined for each factor will indicate its relative importance to success of company in doing business

So, for all company in an industry important level of all factors in first step are equal

Third step: Classify from | to 4 for each representative factor Biggest weak point equal to 1, smallest weak point equal to 2, smallest strong point equal to 3 and biggest strong point equal to 4 So, they will be score for each factor in comparison with other competitors in industry

Forth step: Calculate score for each factor by multiplying important level of

each factor to its correlative classification score

Fifth step: Calculate total score for all factors in matrix by plus correlative score of each factor This number will indicate company’s absolute competition ability

So, if total score for all factors in matrix equal to 4 the company will have highly absolute competition ability If this number is from 2.5 and over, company

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Group 07 GaAMBA.01.M96 will have medium competition ability If it is smaller than 2.5 company’s competition ability will lower than medium

1.4.2 External Factors Evaluation (EFE)

External factors evaluation matrix helps to summarize and quantify influence

of external factors to enterprise It is also the same as IFE matrix analysis to analyze EFE matrix we will implement through five steps:

First step: Establish the list of main opportunity and threat factors which will have influence to company’s activities (normally, from 10 to 20 factors)

Second step: Defining important level by classifying from 0.0 (no important)

to 1.0 (very important) for each factor Be noted that important level defined for each factor will indicate its relative importance to success of company in doing business Total important level of all factors is equal to 1

Third step: Classify from | to 4 for each representative factor Biggest weak point equal to 1, smallest weak point equal to 2, smallest strong point equal to 3 and biggest strong point equal to 4 So, they are scores which indicate the reaction of

company to opportunities and threats of market

Forth step: Calculate score for each factor by multiplying important level of

each factor to its correlative classification score

Fifth step: Calculate total score for all factors in matrix by plus correlative

score of each factor

So, if total score for all factors equal to 4 company will have quick reaction to opportunities and threats of market If total score is from 2.5 and over, company will have reaction level greater than medium If this number is less than 2.5 company’s

reaction will be lower than medium

1.4.3 SWOT matrix

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Group 07 GaMBA.01.M06 SWOT matrix is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective The technique is credited to Albert Humphrey, who led a convention at Stanford University in the 1960s and 1970s using data from Fortune

500 companies SWOT matrix usually gives out four basic strategies: (1) SO (strength — opportunity): strategies which base on company’s strengths to deploy market’s opportunities (2) WO (weaknesses - opportunities): strategies which base

on ability of getting through company’s weaknesses to deploy market’s opportunities (3) ST (strengths - threats): company’s strategies to avoid market’s threats (4) WT (weaknesses- threats): company’s strategies to get through weaknesses and avoid

- Using strong points to | Getting through weakness

- Using strong points to | Minimize weaknesses to

- avoid threats avoid threats

(Source: Strategic management: Concepts and cases — Fred David)

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Strengths: Two factors contribute to your strengths: ability and resources available + Ability is evaluated on 3 counts:

Versatility: your ability to adapt to an ever changing environment

Growth: your ability to maintain a continuing growth

Markets: your ability to penetrate or create new markets

+The strength of resources has three dimensions:

Availability: your ability to obtain the resources needed

Quality: the quality and up-to-data of the resources employed

Allocation: your ability to distribute resources both effectively and efficiently Weaknesses: A company’s weaknesses are determined through failures, defeats, losses and inability to match up with the dynamic situation and rapid change The weaknesses may be rooted in lack of managerial skills, insufficient quality, technological backwardness, inadequate systems or processes, slow deliveries, or shortage of resources There are three possible outcomes to the analysis

of your weaknesses

+Correction of an identified defect

+Protection through cover-up and prevention strategies to reduce the exposure

of your weaknesses

+Aggression to divert the attention from you weaknesses

Opportunities: Opportunities are abundant You must develop a formula which will help you define what comes within the ambit of an opportunity to focus

on those areas and pursue those opportunities where effectiveness is possible The formula must define product/service, target market, capabilities required and resources to be employed, returns expected and the level of risk allowed

Weaknesses of your competitions are also opportunities for you You can exploit them in two following ways:

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Group 07 GaMBA.01.M06 + Marketing warfare: attacking the weak leader's position and focusing all your efforts at that point, or making a surprise move into an uncontested area

+ Collaboration: you can use your complementary strengths to establish a strategic alliance with your competitor

Threats: External threats arise from political, economic, social, technological (PEST) forces Technological developments may make your offerings obsolete Market changes may result from the changes in the customer needs, competitors’ moves, or demographic shifts The political situation determines government policy

and taxation structure

1.5 Strategy building and choosing key strategy

Strategy is a system which includes list of policies and great solutions to

deploy and coordinate action routines help the company get the best way to

archive its targets Each enterprise can create a competitive advantage for

itself And they also have them all way routine and steps operate, for example,

the best quality, the best service, lowest cost or focusing on target market, etc

Low cost strategy

Enterprises’ target in reducing their cost is working and operating with

lower cost but still produce and operate better than competitors This strategy

has two advantages:

First, enterprise can set a lower price but still get equal benefit in

comparison with its competitors If other enterprises in the same industry can

get equal value, lower cost enterprise still get higher profit because of its lower

cost

Second, when the competition rises in the industry this enterprise still

has a steady standing because of is lower cost advantage

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GRIGG Capstone Project Report

Advantages and disadvantages

- Create a barrier to protect from competitive actions of competitors It

means that: enterprise will not be much affected from rising in price of

materials or reducing in price of finish goods or services to powerful

customers

- When substitution products enter into market, enterprise with low cost

strategy can reduce it price to compete

- Creating barriers for enterprises which intend to join into market

because they cannot immediately have competitive advantage

- Besides, this strategy still has some weak points as following details:

Firstly, other current competitors also are able to lower their cost to enlarge

market share or they can imitate our strategy to get advantage of lowest cost

enterprise Secondly, if the enterprises only focusing on lower their cost and

forget other market factors as well as its changes their share will be affected

So, lower price product also has to ensure it specialization to get customer

attraction

Product specialization strategy

Product specification’s target is getting competitive advantage by

creating products, services which can be easily identified and originally

evaluate When its products can satisfy special need of customers these

products can be set a higher price level in comparison with average price of

industry, so the enterprise can achieve higher profit than other competitors

Otherwise, creating products with special factors will bring new added value

for customer Product specialization has some following characteristics

- Less sensitive market to price fluctuation

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Group 07 GAMBA.01.M06

- There’s special point in customer need

- Products can be easily created special points in comparison with others

- The enterprise does not want to face to price competitions

This strategy also has some advantages and advantages as following:

- When enterprise successfully applied product specialization strategy it

will get more advantage than others and reduce competitive pressure from

competitors, and suppliers

- Creating customers’ loyalty to its product label It will be invaluable

asset of the enterprise If the enterprise is new comer in market it will have to

invest a very big capital and human resource

- Creating specialization cost the company a very big amount So the

additional benefit reached by develop special products must greater than the

Cost to create them Enterprise also has to create different kind of products for

each market segment It will enlarger the cost And finally, advertisement fee

and marketing fee for many market segments

- In the short time competitors can easily imitate our idea and produce

similar products And they will use them as the weapon to compete with us

Centralization strategy

Centralization helps the enterprise focus on its strong field and deploy its

salient advantages to expand market share Enterprise which wants to apply

centralization strategy needs to focus on a fixed market segment This market

segment can be separated base on area or customer In a fixed market segment

the enterprise can avoid a part of competitive pressure from other ones in the

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Group 07 GaMBA.01.M0ó6 same field because other ones have not get advantages or they have not

realized it yet

In this market segment the enterprise can use cost advantage and

develop efficiently by producing with lower cost or deploy its best skills to

satisfy customer’s need

- Competitive ability of enterprise was built base on its special point,

efficiency, quality, innovation or adjustment base on customer needs The

Strategy helps enterprise be protected from competitors when it can provide

products and services which other ones cannot It also shows out the

enterprise’s power to customers because they cannot have any other place to

choose the same products

- Creating loyalty of customers also help to reduce pressure of

substitute products New enterprise which wants to join into the industry has

to overcome customer’s loyalty to products which centralization strategy

enterprise created

However, enterprise which applies centralization strategy will miss out

a chance to expand market share It also cannot deploy all its salient

advantages

Strategy is a system of large policies and measures aiming at deploying

and coordinating the action programs, enables organizations to complete the

goals most effectively Company unit strategy covers all activities of the

company in order to compete most effectively, dominate on the market, and

ensure sustainable development Company unit strategy is to ensure

sustainable development selected from the following types of strategies:

Mixed strategy:

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Gricd Capstone Project Report

Group Ø7 GaMBA.01.M06

A company can apply many different strategies in a period The company can pay much attention to development in this area while cut down in others Those activities aim at implementing successfully the company’s general objective during the strategy implementation period

The strategic choice out of strategies above depends on the company’s capability and related environment factors From the result of analysis of SWOT matrix, the company will choose for itself the best business strategy

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CHAPTER II: ANALYZE PRODUCTION AND EXPORTATION REALITY

OF VIETNAM NATIONAL TEA CORPORATION TO PAKISTAN MARKET

2.1 Overview of Vietnam National Tea Corporation

2.1.1 Establishment and development process

From 1974 to 1978

Vietnamese tea union was established according to 95/CP decision on 19/04/1974 of Government and its official name is “Union of tea business firms” belonged to Ministry of Foods and Foods industry Its main duty is collecting and processing exported tea products

From 1979 to 1986

In 1979, union of tea business firm merged with National tea corporation (belonged to Ministry of Rural) and became union of tea business firm followed 75/CP (3/1979) of council of state

From 1987 to 1995

In 1987, Vietnamese Government allowed enterprises to complete all processes of production and exportation Vietnamese tea Union merged with Vinalimex to establish Vietnam National Tea Corporation

Vinatea is a corporation of tea business firms in many kinds of fields: tea

cultivation, processing, exportation with different kind of scales Even when the union rearranged its management structure its control method still has some limitations of old system

From 1996 up to now

Together with many changes of economic environment structure of Vietnamese tea union has not been suitable and tea industry needs a top enterprise which has enough strength to manage and control industry’s main activities from

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cultivation, production to exportation This new model is Vietnam National Tea

Corporation (VINATE)

After considering exportation and production demand of business firms in tea

union Ministry of Rural and Development decided to establish Vinatea On 29"" Dec

1995 Minister of Ministry of Rural and Development signed 394NN-TCCB/QD decision to allow officially existence of Vietnam National Tea Corporation

Abbreviation: VINATEACORP

Head office: 46 Tang Bat Ho street, Hai Ba Trung district, Hanoi

In June 1996 Vinatea officially operated

Legal capital: 101,867.5 million VND

Fixed assets: 68,163.6 million VND

Current capital: 27,256.2 million VND

Basic construction capital: 5,601 million VND

Production development capital: 846.7 million VND

2.1.2 Functions and missions

With new management structure from establishment day, functions and missions of Vinatea were much expanded Besides production and business Vinatea also plays an important role in service field Some main activities of Vinatea are: establishing and rearranging intensive tea regions with high productivity and good quality products

Beside existed business units to well complete its functions Vinatea

established some sections like: information center, Vietnamese tea auctioning center,

tea research institute, quality checking center, and service business units, etc

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Group 07 GAMBA.01.M06 Main products:

Tea products of Vinatea were produced and processed by 100% domestic materials Tea production was followed a very strict and complicated process Tea products of Vinatea include some main type: Black tea OTD, black tea CTD, Japanese green tea, Japanese Taiwan tea, etc Besides, company also produces some

Vietnamese kind of tea like: OLong tea, yellow tea, fermented tea, etc These

products are mainly provided for domestic consumption Up to now, tea products of company’s members are really various with more than 200 kind of different products

2.1.3 Organization structure

With these below functions and missions, Vinatea needs to have a logical and efficient organization structure to make plan and operate its strategies Company’s organization includes these following sections:

- Board of Directors: Board of Directors is the management section of Vinatea Board of Directors operated follows as its function mentioned in the 8 Clause, 14th article in regulation of Vinatea Chairman of the Board is person who signs documents and solves matters belong to his or her responsibility as rule of

Board of Directors

- Supervision section: Supervision section will check and supervise management activities of Chairman of the Board, assistance sections, and members in Vinatea in these fields: Finance, production and business, basic instruction, rules

follow, etc

- Board of Managers:

+ General manager is legal representative of Vinatea, who will be responsible with Board of Directors, Ministry of Rural and Development General manager can give decisions by discussing with assistance manager and assistant sections

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Group 07 GaMBA.0I.M06

+ Assistant to general manager: assistant to general manager will help for general manager follow allocation of general manager and will be responsible with general manager and legal system about allocated responsibilities

Unit members:

- Four production members

- Seven independent posting units

- Seven join stocks units

- One join venture unit

- Representative office in Russia

- Other administration and general affair sections

2.2 Analyze operation reality of Vietnam National Tea Corporation

2.2.1 Internal environment analysis

2.2.1.1 Internal factors

- Source of capital and financial ability

Source of capital: Vinatea now holds the biggest ration of capital per assets in comparison with others companies in the same fields However company’s source of capital has many changes and is unstable In 2003 total capital decreases 26.32% (about 166.408 millions) There are some reasons for this problem:

+ In 2003, the world market has evil fluctuations, Irac — one of the biggest imported tea countries in the world was affected by the war against America It leaded to production and exportation met many difficulties Current capital decreased 39.09% (about 219,908 millions), credit capital also decreased 34.29% (about 174,460 millions) To resole this situation managers of Vinatea decided to change investment trend by building a factory in Russia, buying new and modern

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Group 07 GaMBA.01.M06 technology to satisfy exportation standard of other countries like: UK, Japan, Pakistan, etc This solution increased company’s fixed capital to 76.86% (about 53.500 millions)

+ In 2004, exportation to new market (Pakistan, Japan, UK) increased so demand for total capital increased much: about 30.24% equivalent to 140,828 millions dong

As said below, because of changing investment trend to new market: Pakistan,

UK, Italia and Japan, etc, there was more orders which forces demand for total

Capital to increase to 42.71% equivalent to 146,356 millions dong This also made an increase in credit capital about 41.07% it is equivalent to 137,313 millions dong

+ From 2004 up to now, company’s demand for capital increases year by year

In 2007 and 2008, any how the bad influence of the world financial crisis was terrible

company’s activities were not much affected There are many new markets bring the company big order forms and company had big change for development one of this

market is Pakistan

Analysis of main financial indexes: In general, current situation of Vinatea is

not good The company is not good at controlling cost, and inefficient in using capital It leads to income and business efficiency not very high

Some main financial indexes:

+ Profit/income ration: Recently, company’s profit/income ration is very low The highest year is 2006 this number is 0.77% and decreased to 0.54 in 2008 Via this index we can see that company’s ability in control cost and profit is very weak

In 2006 each 100 dong income the company had 0.77 dong profit but in 2007 decreased to 0.51 dong and this number in 2008 was 0.54 dong

+Profit/capital ration: This number is not very satisfactory In 2006 each 100 dong of capital invested out the company will have about 0.98 dong of profit, 0.61

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Gricod) Capstone Project Report

Group 07 GAMBA.01.M06 dong in 2007 and 0.66 dong in 2008 It can be said that the company is not efficient

in using capital and it needs a reasonable strategies to improve this situation

+Total income/average current capital: This number indicates production ability of current capital From 2006 to 2008, these numbers are in turn: 1.12 in 2006, 1.36 in 2007 and 1.24 in 2008

+ Profit/average current capital, this index indicates profitability of current

capital In three years this number remains 0.01 It means that with one dong of

current capital the company will have about 0.01 dong of profit

+Rate of turnover: Company’s rate of turnover is very long In 2006 this number is 252 days in 2007 is 221 days and in 2008 is 227 days So, the company’s cycle of turnover is very low

- Human resource:

Vietnam has young population structure and stable growth rate of population,

so tea industry will have a young and stable labor resource Vietnamese also have long standing culture in drinking tea Labor in tea industry almost has deep experience in cultivation and looking after tea plans

Company’s labor structure: Almost labor forces concentrate on the age from

25 to 45 years old In which the age from 25 to 30 holds about 42.27%, from 30 to 45 holds about 33.68% This is the age of strength so labor will have improvement not only in awareness but also in experiences

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Group 07 GA€MBA.01.M06

Labor structure in Vinatea

# From 25 to 30

@ From 30to 45 Others

Figure 2.1: Labor structure in Vinatea (Source: Human Resource department — Vinatea)

About education level of labor: A large number of labors are temporary labors

with education level is high school or secondary school (about 30.21%) Company’s labor structure is rather logical (with average age 34) Because of the general characteristics of industry labor resource in Vinatea also has temporary nature This characteristic will make the company be complicated in control human resource so productivity and quality of products also are influenced

- Infrastructure: About infrastructure, now Vinatea has the most modern system of infrastructure in comparison with other company in tea industry Up to

2009 the company has:

+25 modern tea plants which near by main and stable materials regions

+ 2 refining and packing tea centers

+ 2 factories which produce equipment and accessories for tea plants

+ | tea research institute

38

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Group 07 GaMBA.01.M06 + | rehabilitate and recover occupational disease center

In comparison with domestic companies, this system of infrastructure will help the company create a big comparative advantage with other companies in the

Same industry However, when compare with other countries like: India, China,

Kenya this system still has many limitation points This is also the reason why our product value is still low

- Company’s prestige

Vinatea now is the biggest company which operates in tea production and exportation Its brand name has asserted position in consumers’ heart and mind In foreign markets company’s products step by step has consumers’ love Recently, there are many brand names established by Vinatea have brought big turnover: Suoi

Giang, Moc Chau, Tan Cuong, etc

In hard situation of unhealthy competition, the company still keep famous brand name in the foreign market such as: Suoi Giang, Moc Chau, Thai Nguyen Customer’s belief for Vinatea products is still strong and it will be a very big advantage to Vinatea To anti imitation products and protects company’s prestige Vinatea has to study more about market regulations and rules

2.2.1.2 Internal Factors Evaluation matrix

After analyze all factors which affect to internal activities of Vinatea: strong points, weak points and results of production and exportation in Pakistan market and refer to suggestion of specialist and related section in Vinatea Researcher established Internal Factors Evaluation matrix includes some main and important factors which affect to company’s operation in Pakistan market Impaction of factors are evaluated according to important level from 0.0 (no importance) to 1.0 (very important) Total score of all factors in matrix is equal to | and reaction of company to these factors are evaluated from | (weak reaction) to 4 (quick reaction)

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resource

4 Low capital profitability 0.1 3 0.3

Infrastructure is much better than

3 other companies in the same 0.1 2 0.2

Quality of products are not as

good as other countries

Che Viet brand name is now

9 rather popular in the world 0.1 3 0.3

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