Competitiveness in trading activities of Trading Scientific Technological Materials Co.,Ltd (Tramat Co.,Ltd)

In the market economy, competitiveness happens everywhere. As we join WTO, competitive strategy is a very important factor that every company cares for.

In the market economy, competitiveness happens everywhere As we joinWTO, competitive strategy is a very important factor that every companycares for “Competitiveness” is the term used to refer to features which allow

a company to compete effectively with other companies due to lower cost orsuperior technology and engineering in comparison with internationalmatches In the market economy in our country today, the number ofenterprises involved in business is increasing rapidly The amount of goodsand products on the consumer markets also increases multifold Thus,competition in the market is becoming fiercer and fiercer Therefore,improving competitiveness for enterprises of Vietnam is a content that should

be greatly considered Vietnam's businesses have many advantages, but thereare still many limitations and weaknesses Being interested in thecompetitiveness of companies, I have decided to do some research on the

competitiveness of a company, as my thesis entitled “Competitiveness in

trading activities of Trading Scientific Technological Materials Co.,Ltd (Tramat Co.,Ltd) “

The Assignment is arranged as follows:

Introduction

Chapter I: Theoretical and practical background of competitiveness

Chapter II: The situation and competitiveness of Tramat Co., LTD

Chapter III: Suggestions & Solutions to improve the competitiveness of Tramat Co., LTD

I hope that it will provide the reader with some overviews about Vietnam’sbusiness in general and TramatCo., Ltd in particular, opportunities, challengesand solutions to boosting its competitiveness in the trading sector Due to lack

of references and experiences, my Graduation Assignment is certainly withmistakes here and there So I am very happy and appreciate any constructivecomments from anyone who are concerned

TABLE OF CONTENTS

Introduction 1

Chapter I: Theoretical and practical background of competitiveness 6

1.1 Theoretical background 6

1.1.1 What is competitiveness? 6

1.1.2 Competitive strategy: The core concepts 9

1.1.3 Industry Concepts of Competition 11

1.1.4 Differentiation in competitive strategy 13

1.1.5 Cost Advantage in Competitive strategy 16

1.2 Practical Background of Competitiveness in Vietnam 18

1.2.1 An overview of industry competitiveness in Vietnam 18

1.2.2 An overview of company competitiveness in Vietnam 20

Chapter II: The situation and competitiveness in Tramat Co.,Ltd 23

2.1 An overview of Tramat Co., Ltd 23

2.1.1 Establishment and development process of Tramat Co., Ltd, 23 2.1.2 Organizational structure of Tramat Co., Ltd 25

2.2 Trading activities of Tramat Co., Ltd 27

2.2.1 Trading activities 27

2.2.2 Achievements of the trading activities from 2007 to 2009 31

2.3 General assessments of competitiveness in trading activities of Tramat Co., Ltd 32

2.3.1 Strengths 32

2.3.2 Weaknesses 33

Chapter III: Suggestions and Solutions to Improving Competitiveness of

Tramat Co., Ltd 34

3.1 Company’s action plan for 2010: 34

3.2 Challenges the company faces 35

3.3 Solutions to improving competitiveness of Tramat Co., Ltd 36

3.3.1 Solutions to sales increase and marketing 36

3.3.2 Solutions to product and warranty 37

3.3.3 Solutions to improving customer services 37

3.3.4 Solutions to fostering and motivation staff 38

CONCLUSION 40

REFERENCES 41

Abbreviations and Acronyms

ASEAN Association of Southeast Asian Nations

APEC Asian Pacific Economic Conference

TramatCo.,Ltd Trading Scientific Technological Materials Co.,Ltd

ICOR Incremental Capital-Output Rate

Chapter I: Theoretical and practical

1.1.1 What is competitiveness?

For the company, competitiveness is the ability to provide products and

services as or more effectively and efficiently than the relevant competitors

In the traded sector, this means sustained success in international marketswithout protection or subsidies Although transportation costs might allowfirms from a nation to compete successfully in their home market or inadjacent markets, competitiveness usually refers to advantage obtainedthrough superior productivity Measures of competitiveness in the tradedsector include firm profitability, the firm's export quotient (exports or foreignsales divided by output), and regional or global market share In the tradedsector, performance in the international marketplace provides a direct measure

of the firm's competitiveness In the non-traded sector, competitiveness is theability to match or beat the world's best firms in cost and quality of goods orservices Measuring competitiveness in the non-traded sector is often difficult,since there is no direct market performance test Measures of competitiveness

in this part of the economy include firm profitability and measures of cost andquality In industries characterized by foreign direct investment, the firm'spercentage of foreign sales (foreign sales divided by total sales) and its share

of regional or global markets provide measures of firm competitiveness

At the industry level, competitiveness is the ability of the nation's firms to

achieve sustained success against (or compared to) foreign competitors, againwithout protection or subsidies Measures of competitiveness at the industrylevel include overall profitability of the nation's firms in the industry, thenation's trade balance in the industry, the balance of outbound and inboundforeign direct investment, and direct measures of cost and quality at theindustry level Competitiveness at the industry level is often a better indicator

of the economic health of the nation than competitiveness at the firm level.The success of a single firm from the nation might be due to company-specific factors that are difficult or impossible to reproduce The success ofseveral firms from the nation in an industry, on the other hand, is oftenevidence of nation-specific factors that might be extended and improved.Assessing the competitiveness of an industry in which there is only oneimportant firm requires an assessment of whether its success is due tomonopoly rents, government support, or true efficiency It is also important tonote that the competitiveness of a single firm does not necessarily imply thecompetitiveness of an industry

For the nation, competitiveness means the ability of the nation's citizens

to achieve a high and rising standard of living In most nations, thestandard of living is determined by the productivity with which the nation'sresources are deployed, the output of the economy per unit of labor and/orcapital employed A high and rising standard of living for all the nation'scitizens can be sustained only by continual improvements in productivity,either through achieving higher productivity in existing businesses orthrough successful entry into higher productivity businesses The level andgrowth of the nation’s standard of living, the level and growth of aggregate

productivity and the ability of the nation’s firms to increase theirpenetration of world markets through exports or foreign direct investmentmeasure competitiveness at the national level Although it is tempting toequate a nation's competitiveness in certain industries or sets of industrieswith competitiveness at the national level, or with a positive balance oftrade, this temptation should be avoided Comparative advantage dictatesthat any nation will be competitive in some industries and uncompetitive

in others A positive balance of trade has as much to do with the balance ofdomestic savings and investment as it does with the intrinsic capabilities ofthe nation's firms

Why is competitiveness important?

A nation's standard of living is increasingly dependent on the competitiveness

of its firms Competitiveness is vital if the nation's firms are to take advantage

of the opportunities presented by the international economy World trade andforeign investment have grown faster in the last several decades than worldoutput Competitiveness in industries subject to international trade andforeign direct investment can therefore provide substantial advantage foreconomic growth This is especially true for small nations, wherecompetitiveness can allow firms to overcome the limitations of their smallhome markets in order to achieve their maximum potential Competitiveness

is also vital if a nation's firms are to guard against the threats posed by theinternational economy International competition has become fiercer than everbefore Lower costs for transportation and communication, reduced tradebarriers, and the spread of technology have combined to sharpen internationalcompetition This competition has put unprecedented pressure on all a nation'seconomic actors, including management, labor, and government In anenvironment in which the nation's firms must continually improve in order tomeet the threat from an ever-wider array of competitors, the failure of

management, labor, or government to meet the challenge can spell disaster forthe nation’s firms

Competitiveness in the non-traded sector is also vital to the nation's economichealth The non-traded sector is a large portion of each economy At a timewhen economic prosperity remains only a dream for most of the world'spopulation, inefficiencies in the non-traded sector should be reduced to thegreatest extent possible In addition, the competitiveness of the non-tradedsector has a substantial impact on the competitiveness of the traded sector,which relies on it for a wide range of goods and services An inefficient,bloated non-traded sector can drag down the nation's productivity directly andindirectly through its impact on other non-traded and traded industries

There is a growing realization that nations cannot avoid the rigors ofinternational competition No nation is very self-sufficient Nations are linked

to the international economy through trade in goods and services, throughinternational capital flows, and through commodity prices The experience ofdeveloping nations in the 1980s has indicated that attempts to isolate aneconomy can have lasting detrimental effects In the modern world, nationscan try to run from the world economy, but they cannot hide This isparticularly true for small nations, in which the costs generated by economicisolation in terms of rent seeking and losses in efficiency can be substantial,and for developing nations, in which any loss of efficiency often meanshigher levels of poverty

1.1.2 Competitive strategy: The core concepts

The Structural Analysis of Industries: The first fundamental determinant of

a firm’s profitability is industry attractiveness Competitive strategy is to copewith and, ideally, to change those rules in the firm is favored In any industry,

whether it is domestic or international or produces a product or a service, therules of competition, the threat of substitutes, the bargaining power of buyers,the bargaining power of suppliers, and the rivalry among the exitingcompetitors.

The collective strength of these five competitive forces determines the ability

of firms in an industry to earn, on average, rates of return on investment inexcess of the cost of capital The strength of the five forces varies fromindustry to industry, and can change as an industry evolves The result is thatnot all industries are alike from the standpoint of inherent profitability Inindustries where the five forces are favorable, such as pharmaceuticals, softdrinks, and database publishing, many competitors earn attractive returns But

in industries where pressure from one or more of the forces is intensive, such

as rubber ,steel ,and video games, few firms command attractive returndespite the best efforts of management Industry profitability is not a function

of what the product looks like or whether it embodies high or low technology,but of industry structure .Some very mundane industries such as postagemeters and grain trading is extremely profitable, while some more glamorous,high-technology industries such as personal computers and cable televisionare not profitable for many participants The five forces determine industryprofitability because they influence the prices, costs, and requiredinvestment .Buyer power influences the prices that firms can charge, forexample ,as does the threat of substitution The power of buyer can alsoinfluence cost and investment, because powerful buyers demand costlyservice The barging power of suppliers determines the cost of raw materialsand other inputs The intensity of rivalry influences prices as well as the costs

of competing in areas such as plant, product development, advertising, andsales force The threat of entry places a limit on prices, and shapes theinvestment required to deter entrants

1.1.3 Industry Concepts of Competition

An industry is a group of firms that offer a product or class of products thatare close substitutes for each other .Industries are classified according tonumber of sellers; degree of product differentiation; presence or absence ofentry ,mobility, and exit barriers; cost structure; degree of vertical integrationand degree of globalization

Number of Sellers and Degree of Differentiation: The starting point for

describing an industry is to specify the number of sellers and determinewhether the product is homogeneous or highly differentiated These

Industry Competitors

Rivalry among Exiting Firms Potential Entrants

Substitutes

Chart 1: Five Forces Mode l

Source: A framework for Marketing Management, Philip Kothler,

2003

characteristics give rise to four industry structure types In a pure monopoly,only one firm provides a certain product or service in a certain country or area(such as a local gas company).An unregulated monopolist might charge ahigh price, do little or no advertising, and offer minimal service If partialsubstitutes are available and there is some danger of competition themonopolist might invest in more service and technology .A regulatedmonopolist is required to charge a lower price and provide more service as amatter of public interest In an oligopoly, a small number of large firmsproduce products that range from highly differentiated to standardize In preoligopoly, a few companies produce essentially the same commodity (such asoil), so all have difficulty charging more than the going price It competitorsmatch services, the only way to gain a competitive advantage is through lowercosts In differentiated oligopoly, a few companies’ services Each competitormay seek leadership in one attribute, attract customers seeking that attribute,and charge a premium for that attribute Monopolistic competition means thatmany competitors able to differentiate their offers in whole or part.Competitors focus on market segments where they can better meet customerneeds and charge more In pure competition, many competitors offer the sameproduct and services, without differentiation, all prices will be the same Nocompetitor will advertise unless advertising can create psychologicaldifferentiation, in which case the industry is actually monopolisticallycompetitive.

Entry, Mobility, and Exit Barriers: Industry differ greatly in ease of

entry It is easy to open a new restaurant but difficult to enter the aircraftindustry Major entry barriers include high capital requirements; economics ofscale; patents and licensing requirements, scarce a firm enters an industry, itmay face mobility barriers in trying to enter more attractive market segments.Firms often face exit barriers, such as legal or moral obligations to customers,

creditors, and employees, government’s restrictions, low asset salvage value;lack of alternative opportunities; high vertical integration; and emotionalbarriers Many firms stay in an industry as long as they cover tier variablecosts and some or all of their fixed costs; their continued presence, however,dampens profits for everyone.

Degree of Vertical Integration: Many companies benefit from integrating

back-ward or forward (vertical integration).Vertical integration often lowercosts in different parts of the value chain to earn profits where taxes arelowest On the other hand, vertical integration may cause high costs in certainparts of the value chain and restrict a firm‘s strategic flexibility This is whyfirms are increasingly outsourcing activities that can be done better and morecheaply by specialists

1.1.4 Differentiation in competitive strategy

A firm differentiates itself from its competitors if it can be unique atsomething that is valuable to buyers Differentiation is one of the two types ofcompetitive advantage a firm may possess The extent to which competitors

in an industry can differentiate themselves from each other is also animportant element of industry structure Despite the importance ofdifferentiation, its sources are often not well understood Firms view thepotential sources of differentiation too narrowly They see differentiation interms of he physical product or marketing practices, rather than potentiallyarising anywhere in the value chain Firms are also often different but notdifferentiated, because they purpose forms of uniqueness that buyers do notvalue Differentiators also frequently pay insufficient attention to the cost ofdifferentiation ,or to the sustainability of differentiation once achieved

Sources of differentiation: A firm differentiates itself from its competitors

when it provides something unique that is value to buyers beyond simplyoffering a low price Differentiation allows the firms to command a premiumprice, to sell more of its product at a given price, on the other hand, to gainequivalent benefits such as greater buyer loyalty during cyclical or seasonaldownturns Differentiation leads to superior performance if the price premiumachieved exceeds any added costs of being unique A firm’s differentiationmay appeal to a board group of buyers in an industry or only to subset ofbuyers wanting traditional clothing; for example, through many buyer viewBrooks Brother clothing as too conservative.

Differentiation and the Value Chain: Differentiation cannot be understood

by viewing the firm in aggregate, but stems from the specific activities a firmperforms and how they affect the buyer Differentiation grows out of thefirm’s value chain Virtually any value activity is a potential source ofuniqueness The procurement of raw materials and other inputs can affect theperformance of the end product and hence differentiation .For example,Heineken pays particular attention to the quality and purity of the ingredientsfor its beer and uses a constant strain of yeast Similarity, Steinway usesskilled technicians to choose the finest materials for its pianos, and Michelin

is more selective than its competitors about the grades of rubber it uses in itstires Value activities representing only a small percentage of total cost cannevertheless have a major on differentiation For example, inspection mayrepresent only one percent of cost ,but shipping even one defective package ofdrugs to a buyer can have majors negative repercussions for a pharmaceuticalfirm’s perceived differentiation .Value chain developed for purpose s ofstrategic cost analysis, therefore ,may not isolate all activities that areimportant for differentiation Differentiation analysis requires a finer division

of some value activities, while others may be aggregated if they have littledifferentiation impact

A firm may also differentiate itself through the breadth of its activities, or itscompetitive scope Crown Cork and Seal offers crowns (bottle caps) andfilling machinery plus cans It thus offers a full line of packaging services toits buyers, and its expertise in packaging machinery gives its more credibilityand access in selling cans Citicorp’s breadth of activities in financial servicesenhances its reputation as well as allowing its sales channels to offer abroader product range A number of other differentiating factors can resultfrom broad competitive scope:

 Ability to serve buyer needs anywhere

 Simplified maintenance for the buyer if spare parts and designphilosophies are common for a wide line

 Single point at which the buyer can purchase

 Single point for customer service

 Superior compatibility among products

Most of these benefits require consistency or coordination among activities if

a firm is to achieve them Differentiation can also stem from downstream.Firm’s channels can be potent source of uniqueness, and may enhance itsreputation, service, customer training, and many other factors

Firms can enhance the role of channels in differentiation through actions such

as the following:

 Channel selection to achieve consistency in facilities, capabilities orimage

 Establishing standards and policies for how channel must operate

 Provision of advertising and training materials for use by channels

 Providing funding so that channels can offer credit

Firms often confuse the concept of quality with that of differentiation Whiledifferentiation encompasses quality, it is much broader concept Quality istypically associated with physical product Differentiation strategies attempt

to create value for the buyer throughout the value chain

1.1.5 Cost Advantage in Competitive strategy

Cost advantage is one of the two types of competitive advantage a firm maypossess Cost is also of vital importance to differentiation strategies because adifferentiator must maintain cost proximity to competitors Less the resultingprice premium exceeds the cost of differentiating, a differentiator will fail toachieve superior performance The behavior of cost exerts a strong influence

on overall industry structure

The behavior of a firm’s costs and its relative cost position stem from thevalue activities the firm performs in competing in an industry A meaningfulcost analysis, therefore, examines costs within these activities and not thecosts of the firm as a whole Each value activity has its own cost structure andthe behavior of its cost may be affected by linkages and interrelationshipswith other activities both within and outside the firm, Cost advantage results

if the firm achieves a lower cumulative cost of performing value activitiesthan its competitors

Defining the Value Chain for Cost Analysis

The starting point for cost analysis is to define a firm’s value chain and toassign operating costs and assets to value activities Each activity in the valuechain involves both operating costs and assets in the form of fixed andworking capital Purchased inputs make up part of the cost of every valueactivity, and can contribute to both operating costs and assets The need toassign assets to value activities reflects the fact that the amount of assets in anactivity and the efficiency of asset utilization are frequently important to theactivity is cost

For purposes of cost analysis, the desegregation of the generic value chaininto individual value activities should reflect three principles that are notmutually exclusive:

- The size and growth of the cost represented by the activity

- The cost behavior of the activity

- Competitor differences in performing the activity

Activities should be separated for cost analysis if they represent a significant

or rapidly growing percentage of operating costs or assets While most firmscan easily identify the large components of their cost, they frequentlyoverlook smaller but growing value activities that can eventually change theircost structure Activities that represent a small and stagnant percentage ofcosts or assets can be grouped together into broader categories

Activities must also be separated if they have different cost drivers, to bedefined in more detail below Activities with similar cost drivers can be safelygrouped together For example, advertising and promotion usually belong inseparate value activities because advertising cost is sensitive to scale whilepromotional costs are largely variable Any activity a business unit shareswith others should also be treated as a separate value activity since conditions

in other business units will affect its cost behavior The same logic applies toany activity that has important linkages with other activities In practice ,onedoes not always know the drivers of cost behavior at the beginning of ananalysis ,hence the identification of the value activities tends to requireseveral interactions The initial breakdown of the value chain into activitieswill inevitably represent a best guess of important differences in cost behavior.Value activities can then be aggregated or disaggregated as further analysisexposes differences or similarities in cost behavior Usually an aggregatedvalue chain is analyzed first ,and then particular value activities that prove to

be important are investigated in greater detail

1.2 Practical Background Competitiveness of Vietnam

1.2.1 An overview of industry competitiveness in Vietnam

Table 1: The Global Competitiveness Index 2008 – 2009

Source: The Global Competitiveness Report 2008 - 2009

 After more than 20 years from 1986 to date, the competitive power of VietNam has improved Now we set trade with more than 120 countries in theworld We have joined trade some economic organizations such asASEAN, APEC, and WTO GDP of Viet Nam has increased more than eighttimes from 2000 to 2009 (GDP in 2000 was US $31.35 billion and GDP in

2009 was US $277.700 billion) We are improving Vietnam industrycompetitiveness and Vietnam company competitiveness in both domesticmarket and international market Many industries of Viet Nam are not onlymeeting the needs of domestic market but also play an important role inforeign market Example: Vinamilk with high quality Products for domesticconsumption and exports Company’s turnover had increased to VND10,613,771 million last year, 4.6 percent higher as compared to 2008

 Industry of Vietnam is now facing with many disadvantages Industrycompetitiveness is decreasing Most of key exports from industries (such

as Computer, cafe, rice, and sugar, paper ) are higher than those from the

similar industries of the other countries in ASEAN from 20% to 30

%.However, some elements such as quality, sale, after sale services of VietNam industry are worse than those of other countries

 Vietnam is also known as rice basket in Asia In 2008 Vietnam signed acontract to export 5.1 tonnes, with 4.65 million tons; delivered at US $ 2.9billion, more than double compared to 2007

Rice output in 2009 reached 38.9 million tons, up 116 thousand tonscompared to 2008

In 2009 a "record year" for rice, but with rice price fluctuations making thevalue lower than that last year Rice exports reached 5.8 million tons,turnover revenue of 2.6 billion, 22.6% higher in volume, but decreased 10,34% in value

 According to the Vietnam Food Association (VFA), the volume of ourcountry's rice exports this year is 6 million tons the same as the record one

in 2009, but turnover has increased, to the century record at 3 to US $3.2billion This means that rice prices will range between 500-533 dollars perton, up by US $ 94.58 to US $ 127.58 per ton (23.33 to 31.47% ascompared with that of the year 2009 is US $ 405.42 per ton )

 Vietnam’s largest foreign exchange earners were garments and textiles,(US$1.2 billion, up by 32.9 per cent a year), footwear (US$290 million),and wooden products (US$27 million) Vietnam also faces a huge tradedeficit with the US, US$1.967 billion in the first quarter this year

 According to Customs statistics, exports in 2009 of the country's aquaticproducts reached 1.216 thousand tons, worth 4.25 billion dollars, down by1.6% in volume and 5.7% in value as compared with the year 2008, thefirst decline after 13 years However, this is still considered a positiveoutcome for the export business, in the context of the difficulties in rawmaterials, markets, technical barriers and tariffs of the importing country

 In 2009, Vietnam exported 85 types of fish products to 163 markets.The

number of export products and markets all increased as compared with

2008, thanks to the flexibility of diversifying products and markets of theexporting enterprises In particular, frozen shrimp volume accounts for thehighest proportion (39.4%), catfish, squid (31.6%), octopus (6.45%), tuna(4.26%), dry goods (3.77%) sea fish and other marine products accountingfor 14.5%

1.2.2 An overview of company competitiveness in Vietnam

 Obviously, the quality and competitiveness in terms of management is stillpoor Team managers and company managers are still short of knowledgeand management skills The number of companies with good directors,high professional level and management capacity is not many A largeproportion of business owners have not been trained in business andmanagement in lack of economic knowledge - social and businessmanagement skills, particularly the weak capability in international

business As a result they are mainly engaged in common business

operations according to their management experience, with short strategicvision, poor knowledge on such aspects as organizational management,competitive strategy, brand development and use of computer andinformation technology A number of businesses open only because thecompany is available and interested in business and capital, withoutknowledge and skills in business Consequently they have all kinds ofrisks leading to failure

 Secondly, it is low labor productivity, and high in production costsweakening the competitiveness of companies Comparisons of the cost ofproducts made in other countries such as China, Thailand, Malaysia,Philippines, the products produced by companies of Vietnam at the cost1.58 to 9.25 times higher although the price of labor is lower as compared

to that in other countries in the region