setting business strategy of an phuoc garment company in local market pdf

SETTING BUSINESS STRATEGY OF AN PHUOC GARMENT COMPANY IN LOCAL MARKET CAPSTONE PROJECT REPORT Ho Chi Minh City Group No.: 8... TABLE OF CONTENT  Statement of the Problem  Objective

SETTING BUSINESS STRATEGY OF AN

PHUOC GARMENT COMPANY

IN LOCAL MARKET

CAPSTONE PROJECT REPORT

Ho Chi Minh City

Group No.: 8

TABLE OF CONTENT

 Statement of the Problem

 Objectives of the Study

 Research Methodology

 Research Scope and Limitations

 The Conceptual Framework of Study

 Structure of Research Study

Chapter 1: The literature of business strategy and

1.1.3.1.3 The EFE (External Factor Evaluation) Matrix 25 1.1.3.1.4 The IFE (Internal factor evaluation) Matrix 27 1.1.3.1.5 The SWOT

(Strengths, Weaknesses, Opportunities and Threats) Matrix 28 1.1.3.1.6 Strategic Position & Action Evaluation (SPACE) Matrix 30

1.1.3.2 Strategic Choice 33

1.1.3.2.1 Quantitative Strategic Planning Matrix (QSPM) 33

Chapter 2: Analysis and assessment on

current operations situation of An Phuoc company 47

2.1.1 Establishment and development 47

2.1.2 Operations, Domestic and Foreign market, Production capacity 48

2.2 The necessary of building

the business strategy in local market of An Phuoc company 78

Chapter 3: Building – proposing solutions for deployment

business strategy of An Phuoc company in local market 79

3.1.1.1.1 Market share of Vietnam in the world garment and textile industry 79

3.1.1.1.2 Vietnam Textile & garment export turnover 80

3.1.1.2 Domestic market 82

3.1.1.2.1 The consumption value of local garment market 82

3.1.1.2.2 The sources of supply to local garment market 83

3.1.2 Analysis of macro - economic factors affecting

3.1.3 Five forces of Michael Porter - Analyzing the competitive

3.3 SWOT Matrix in An Phuoc company case 106

3.6 QSPM Matrix – Strategies are selected based on

3.7 Fundamental solutions and proposals to

LIST OF FIGURES

Figure 1.1: Levels of strategy

Figure 1.2: A thorough strategic management process

Figure 1.3: A graphical representation of Porters Five Forces

Figure 1.4: SWOT matrix

Figure 1.5: Space matrix model

Figure 1.6: CPM model

Figure 1.7: The Selling and Marketing Concepts

Figure 1.8: The Marketing Management Process

Figure 1.9: Model of strategic planning and strategy implementation

Figure 2.1: Head office of An Phuoc Garment - Embroidery - Shoes Co., Ltd

Figure 2.2: Network of factories of An Phuoc garment company

Figure 2.3: Pictures of factories & production procedure of An Phuoc

Figure 2.4: Pictures of award and cup of An Phuoc company

Figure 2.5: Organization structure of An Phuoc garment company

Figure 2.6: Manufacturing Process of An Phuoc Company

Figure 2.7: Some product lines of Men‟s collection of An Phuoc

Figure 2.8: Some product lines of Women‟s collection of An Phuoc

Figure 2.9: The Trade Mark of An Phuoc Products

Figure 2.11: The Distribution of shops of An Phuoc

Figure 3.1: SPACE Matrix of An Phuoc

Figure 3.2: Suggested Structure of the Marketing Department

LIST OF CHARTS

Chart 2.1: Proportion of consumption in local market

Chart 2.2: Revenue structure of An Phuoc

Chart 2.3: Revenue structure of An Phuoc in 2010

Chart 2.4: Proportion of production capacity of An Phuoc in 2010

Chart 2.5: Proportion of turnover of An Phuoc in 2010

Chart 2.6: Proportion of consumption between An Phuoc and Pierre Cardin brand name Chart 2.7: Proportion of consumption in market among product lines of An Phuoc

Chart 3.1: Market share of Vietnam garment industry in the world in year 2010

Chart 3.2: Vietnam Textile & garment export turnover (USD ml)

(period of 2007-10 first months of 2011) Chart 3.3: The property structure of Vietnamese export companies in 2010

Chart 3.4: The consumption value of local garment market from 2004 to 2100

and estimate to 2015

Chart 3.5: The sources of supply to local garment market

Chart 3.6: GDP Vietnam in the period time of 1998-2011

Chart 3.7: Vietnam GDP Growth Rate chart from 1996 to 2011

Chart 3.8: Inflation rate of Vietnam in the period time of 1999-2011

Chart 3.9: Vietnam GDP per capita in the period time of 1998-2011

Chart 3.10: Structure of market segment in local market

Table 2.1: Sales Revenues of Garment Sector of An Phuoc

Table 3.1: Strengths and weaknesses of key competitors in local market

Appendix

Appraisal forms

 Appraisal form of importance rating

 Appraisal form of response rating

 Appraisal form of attractiveness score to market penetrating strategy

 Appraisal form of attractiveness score to market development strategy

 Appraisal form of attractiveness score to product development strategy

 Appraisal form of attractiveness score related to low- cost strategy

 Appraisal form of importance rating to competitive factors in CPM matrix

LIST OF ABBREVIATIONS

EFE : Extornal Factors Evaluation matrix

GDP : Gross Domestic Product

IFE : Internal Factors Evaluation matrix

SWOT : Strengths – Weaknesses – Opportunities – Threatens

S/O : Strategy to use Opportunities by using strengths

S/T : Strategy to use strengths to overcome Threats

USD : United States Dollar

VND : Viet nam currency

W/O : Strategy to use opportunity to fix Weaknesses

W/T : Minimize weaknesses to avoid Threats

WTO : World Trade Organization

ACKNOWLEDGEMENT

We would like to express our most sincere gratitude to all Professors of Griggs University (U.S.A) and Ha Noi National University (Vietnam) for genuine and valuable guidance for our study We also would like to express our thanks to the Committee Members who help us to make our research more appropriate

Sincere thanks are extended to:

Mrs Nguyen Thi Dien, Director of An Phuoc Garment Embroidery and Shoes Company Ltd,

Mrs Phung Thi Hong Huong - No.2 factory Manager

Mrs Nguyen Thi Tuyet Van - No.4 factory Manager

Mr Tashima - Tan Binh factory Manager

Mr Tran Duc Thinh - No.6 factory Manager

And Managers, Staffs of other departments for their help in understanding

An Phuoc‟s operation and future directions

We would like to thank all faculty members, staff and friends at Griggs University (U.S.A) and Ha Noi National University (Vietnam) for their help during the time of study in Hochiminh city

Last but not least, we greatly express our endless love to our parents and family members for their love and warm encouragement, without which we could have never completed this study

ABSTRACT

The Vietnam‟s garment industry generates one of the highest export turnover thanks to the low labor cost and optimization of technology in-use Recently, the export turnover has been stagnant due to the affects of the world and regional financial crisis and the growing competition of other low-cost countries

in the region

This research study is undertaken to assess An Phuoc garment embroidery and shoes company‟s operations under the condition that many garment enterprises have now started to pay attention to the domestic market as an alternative to enhance its survival chance and development On the basis of analyzing the external and internal factors including competition, production, and consumption, this study tries first to identify the opportunities and threats, strengths and weaknesses of the company, and finally gives some suggestions related to business strategy of the company A conclusion that can be drawn from the study is that the company needs to develop a comprehensive strategy to compete and develop in the domestic market

INTRODUCTION Statement of the Problem

Garment industry has always played an important role in supplying the clothes demand for mankind This industry has high speed change in technology and is labor intensive In particular, it brings the high proportion in export turnover for the countries having cheap labor cost

Vietnam now has over 2,400 garment companies With the cheap labor cost, the Vietnamese garment manufacturers also have the advantage in export trading and obtained many subcontracts from foreign countries As a result, most of garment manufacturers are the subcontractors for foreign customers, leaving the local market unattended As a matter of fact, the Vietnamese garment industry only meets a small proportion of the domestic‟s demands, the remainder is supplied with imported garment from foreign countries such as China, Thailand and Korea However, this situation is changing

Most recently, due to the fierce competition from other countries in the region such as China, Bangladesh, the low labor cost is no longer Vietnam‟s competitive strength and the financial crisis of United of America, European countries which resulted in a sharp drop in the Vietnam‟s export rate in the 2010s

In addition, the import tariff had been removed from 2003 and 2006 among ASEAN country member‟s markets and the joining to WTO in 2006 had created even fiercer competition in foreign and domestic markets These trends have forced Vietnamese garment companies to pay more attention to the domestic market for survival and development

In recent years, the living standard is more and more improved, so the demand of garment also increases The ready-made garments with diversified style and fashionable models have met the current demands of customers As a result, the local garment market has got the remarkable points of development

With a population of nearly 90 million, Vietnam is a great internal market for garment products Moreover, Vietnam now has entered the “Golden Population Structure” period, an opportunity that happens only once in the history of demography of each nation and will make a contribution to the country‟s social and economic development (http://vietnam.vn/vietnam-enters-golden-population-structure-period-c1069n20110617114303468.htm)

Local market is really the big and attractive market with the high-speed development Thus, the foreign companies try to penetrate Vietnam market with the famous brand name such as Armani, Lacoste, D&G, Espirit, Polo, Nike, Adidas, Arrow, Alain Delon, Valentino and so on The quantity of garment enterprises penetrating the local market is increasing fast The numbers of local garment companies have been building their own brand name such as May 10, Viet Tien, Nha Be, Saigon 2, Viet Thang and so on The distribution network has been widened through the network of showrooms, fashion shops, agents

An Phuoc garment embroidery and shoes company (An Phuoc) is a

private company, established in 1997, to produce garment product such as jackets, pants, children clothes, underwear and sport shoes In this respect, An Phuoc is one successful garment companies in Vietnam, especially in Ho Chi Minh City (HCMC) As its main activities, An Phuoc undertakes garment subcontracts for foreign partners and produces garment products for export and domestic consumption Its products are exported to many countries in North America, Europe and Asia However, like many other garment companies, drastic changes in the external business environment compel An Phuoc to look inward and try to expand its market share in the local market for further survival and development Thus, there is a necessary need for studying its market in terms of business strategy, which could help company exploit its competitive advantages to cope with the other bigger competitors and be the successful leader in the local garment market

Objectives of the Study

 To assess the opportunities and threats regarding the possibility of expanding market for the An Phuoc company

 To assess the strengths, weaknesses, competitive competence, current sales and marketing activities, the target market and customer of An Phuoc

 Based on the practical figures and data analysis, a proper business strategy is set for An Phuoc in local market

Research Methodology

Secondary data

 Reports and articles about the garment industry published in the local

newspapers, journals, magazines

 Reports of General Statistical Office, Vietnam National Textile & Garment

Corporation (VINATEX) and others

 Reports from An Phuoc

Primary data

 In-depth interviews and discussions with the sales manager, factory manager and

other functional managers of An Phuoc

Research Scope and Limitations

 An Phuoc has operations involving different sectors in domestic as well as

overseas markets However, the research focused only on garment activity domestically

 The garment market encompasses an array of garment products from imported,

home-sewer-made and local companies sources, however, the research concentrated typically on the local company-made garment

 An Phuoc has wide range of garment products, but only some kinds of them

(shirts, trousers, kaki pants, vest) are chosen as representative for this research

The Conceptual Framework of Study

Structure of Research Study

CHAPTER 1: THE LITERATURE OF BUSINESS STRATEGY AND STRATEGIC

MANAGEMENT CHAPTER 2: ANALYSIS AND ASSESSMENT ON CURRENT OPERATIONS

SITUATION OF AN PHUOC COMPANY

CHAPTER 3: BUILDING – PROPOSING SOLUTIONS FOR DEPLOYMENT

BUSINESS STRATEGY OF AN PHUOC COMPANY IN LOCAL MARKET

COMPANY MISSION and GOALS

CHAPTER 1: THE LITERATURE OF BUSINESS STRATEGY AND

STRATEGIC MANAGEMENT 1.1 An overview on strategic management literature

1.1.1 Concepts of strategy

Johnson and Scholes (Exploring Corporate Strategy) define strategy as follows:

"Strategy is the direction and scope of an organisation over the long-term:

which achieves advantage for the organisation through its configuration of

resources within a challenging environment, to meet the needs of markets and to

fulfil stakeholder expectations"

In other words, strategy is about:

 Where is the business trying to get to in the long-term (direction)

 Which markets should a business compete in and what kind of activities are

involved in such markets? (markets, scope)

 How can the business perform better than the competition in those markets?

(advantage)?

 What resources (skills, assets, finance, relationships, technical competence,

facilities) are required in order to be able to compete? (resources)?

 What external, environmental factors affect the businesses' ability to

compete? (environment)?

 What are the values and expectations of those who have power in and around

the business? (stakeholders)

Nowadays, concepts of strategy is increasingly complicated and

multi-faceted, which, together with the impact of drastic changes in the macro

environment, is forcing companies to establish different strategies to respond to

them very quickly (Lin et al., 2007) Setting up strategy is an important thing in any

organization It is the understanding an industry structure and dynamics,

action to either change the industry's structure or to the organization's position to improve organization results‟ (Oliver, 2001, 7 cited in Johnson, 2006) And John (2006) further defines that it is about choices, which we are, what we want to be, and how we accomplish that Put simply, strategies are means to ends (Thompson et al., 2005) According to Johnson (2006), „It is not enough to have a strategy of being as good as the competition; one must have a strategy to be innovative, different, better, and with a sustainable competitive advantage‟ Mintzberg (1987 cited in Johnson, 2006) believes that „If the strategy is solid, a company can make some tactical errors and still come out on top‟

1.1.2 Strategy at Different Levels of a Business

Strategies exist at several levels in any organization - ranging from the overall business (or group of businesses) through to individuals working in it

Figure 1.1: Levels of strategy

(Source: Hannagan, 2005)

Corporate Strategy - is concerned with the overall purpose and scope of the

business to meet stakeholder expectations This is a crucial level since it is heavily

Research Experiments Design Registration Technology Products

Budgeting Advertising Delivery

Distribution channels Distribution network Communication

Procedures and processes Allocating resources Production Quality control Service centre Customer service

Recruitment Training and Development Performance management Compensation and Benefits Corporate policies Corporate Culture

Cash flows Investment mobilization Sponsorship and investment Cost Financial statements Share values

Corporate Group Business Unit Business Unit Business Unit

Research and Development Marketing

Operational management

Human Resource Management

Financial management

influenced by investors in the business and acts to guide strategic making throughout the business Corporate strategy is often stated explicitly in a

decision-"mission statement"

Business Unit Strategy - is concerned more with how a business competes

successfully in a particular market It concerns strategic decisions about choice of products, meeting needs of customers, gaining advantage over competitors, exploiting or creating new opportunities etc

Functional strategy - is concerned with how each part of the business is

organized to deliver the corporate and business-unit level strategic direction Operational strategy therefore focuses on issues of resources, processes, people

1.1.3 Strategic management

„The study of strategic management is one of the most important issues in all business areas, since every decision made by an organization's managers has strategic implications, and people at every organizational level have a role to play in developing, implementing and changing the organization's strategies‟ (Chen, 2005) Hannagan (2005, 131) defines that „strategic management consists of decisions and actions used to formulate and implement strategies that will provide a competitively superior fit between the organization and its environment to enable it to achieve organizational objectives‟

Strategic management thus includes three following key content:

 Establishing strategic goals, defining corporate missions and visions

 Strategic planning on how to achieve corporate objectives

 Implementing intended plans: an organization needs to allocate resources, utilize means and equipments, and determine tactics to achieve established goals and plans

A major part in strategic thinking on developing business operations and corporate performance is managers‟ ability to build a deliberate plan of actions which aims at achieving established objectives Nevertheless, the process of strategy implementation is also influenced by other business environmental factors such as increased service demands, advanced technology which shortens product life cycles and lessens emergent impacts of the high competition Furthermore, internal corporate policies such as revising and establishing new business goals can initiate changes in constructing directions and goals At the same time, an organization needs to pursue its short term business objectives while aligning its planning and execution practices with the long-term strategy Accordingly, strategic management has implications regarding managers‟ being accountable for each decision made and their considerations on making appropriate adjustments to pursue either the intended strategy or a new direction ahead Similarly, strategic management is also referred

to as methods of organizing and controlling functional operations as well as allocating and coordinating corporate departments and resources Correspondingly, the relationship status between business functions, corporate departments and organizational resources has significant impacts on the effectiveness of strategic management process In practice, a thorough strategic management process has three main components, shown in the figure below:

Figure 1.2: A thorough strategic management process

1.1.3.1 Strategic Analysis

This is all about the analyzing the strength of businesses' position and understanding the important external factors that may influence that position The process of Strategic Analysis can be assisted by a number of tools, including:

1.1.3.1.1 PEST analysis

PEST Analysis is a simple but important and widely-used tool that helps to

understand the big picture of the Political, Economic, Socio-Cultural and

Technological environment the organization operating in PEST is used by

business leaders worldwide to build their vision of the future

(Source: http://www.mindtools.com/pages/article/newTMC09.htm)

Using the tool is a three stage process:

 Firstly, brainstorm the relevant factors that apply to, using the prompts below

 Secondly, identify the information that applies to these factors

 Thirdly, draw conclusions from this information

Political:

 Government type and stability

 Freedom of press, rule of law and levels of bureaucracy and corruption

 Regulation and de-regulation trends

 Social and employment legislation

 Tax policy, and trade and tariff controls

 Environmental and consumer-protection legislation

 Likely changes in the political environment

Economic:

 Stage of business cycle

 Current and projected economic growth, inflation and interest rates

 Unemployment and labor supply

 Labor costs

 Levels of disposable income and income distribution

 Impact of globalization

 Likely impact of technological or other change on the economy

 Likely changes in the economic environment

Socio-Cultural:

 Population growth rate and age profile

 Population health, education and social mobility, and attitudes to these

 Population employment patterns, job market freedom and attitudes to work

 Press attitudes, public opinion, social attitudes and social taboos

 Lifestyle choices and attitudes to these

 Socio-cultural changes

Technological Environment:

 Impact of emerging technologies

 Impact of Internet, reduction in communications costs and increased remote

working

 Research & Development activity

 Impact of technology transfer

1.1.3.1.2 Porter's Five Forces

One famous and useful method which used to analyze at an industry level is

Five Forces The model of pure competition implies that risk-adjusted rates of

return should be constant across firms and industries Michael Porter provided a framework that models an industry as being influenced by five forces which include: bargaining power of customers, the bargaining power of suppliers, the threat of new entrants, and the threat of substitute products combined with other variables to influence a fifth force, the level of competition in an industry Each of these forces has several determinants

1.1.3.1.3 The EFE (External Factor Evaluation) Matrix

The EFE matrix is the strategic tool used to evaluate firm existing strategies, EFE matrix can be defined as the strategic tool to evaluate external environment or macro environment of the firm include economic, social, technological, government, political, legal and competitive information The EFE matrix is similar

to IFE matrix the only difference is that IFE matrix evaluate the internal factors of the company and EFE matrix evaluate the external factors The EFE matrix consists

of following attributes mentioned below

External Factors: External factors are extracted after deep analysis of

external environment Obviously there are some good and some bad for the company in the external environment That‟s the reason external factors are divided

into two categories opportunities and threats

Opportunities: Opportunities are the chances exist in the external

environment, it depends firm whether the firm is willing to exploit the opportunities

or maybe they ignore the opportunities due to lack of resources

Threats: Threats are always evil for the firm, minimum no of threats in the

external environment open many doors for the firm Maximum number of threats for the firm reduces their power in the industry

Rating: Rating in EFE matrix represents the response of firm toward the

opportunities and threats Highest the rating better the response of the firm to

exploit opportunities and defend the threats

There are some important points related to rating in EFE matrix

 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

Weight: Weight attribute in EFE matrix indicates the relative importance of

factor to being successful in the firm‟s industry The weight range from 0.0 means not important and 1.0 means important, 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 scores, final value of total weighted score should be between range 1.0 (low) to 4.0(high) The average weighted score for EFE matrix is 2.5 any company total weighted score fall below 2.5 consider as weak The company total weighted score higher than 2.5 is consider as strong in position

Steps in developing the EFE matrix:

 Identify a list of KEY external factors (critical success factors)

 Assign a weight to each factor, ranging from 0 (not important) to 1.0 (very important)

 Assign a 1-4 rating to each critical success factor to indicate how effectively the firm‟s current strategies respond to the factor (1 = response is poor, 4 = response is extremely good)

 Multiply each factor‟s weight by its rating to determine a weighted score

 Sum the weighted scores

Source:http://www.mba-tutorials.com/strategy/76-the-efe-matrix-external-factor-evaluation-matrix.html)

1.1.3.1.4 IFE (Internal factor evaluation) Matrix

A summary step in conducting an internal strategic management is to construct an Internal Factor Evaluation (IFE) Matrix This strategy formulation tool summarizes and evaluates the major strengths and weaknesses in the functional areas of a business, and it also provides a basis for identifying and evaluating relationships among those areas Intuitive judgments are required in developing an IFE Matrix, so the appearance of a scientific approach should not be interpreted to mean this is an all powerful technique A thorough understanding of the factors included is more important than the actual numbers IFE Matrix can be developed in five steps:

1 List key internal factors as identified in the internal audit process Use a total of from ten to twenty internal factors, including both strengths and weaknesses List strengths first and then weaknesses Be as specific as possible, using percentages, ratios, and comparative numbers

2 Assign a weight that ranges from 0.0 (not important) to 1.0 (all important)

to each factor The weight assigned to a given factor indicates the relative importance of the factor to being successful in the firm‟s industry Regardless of whether a key factor is an internal strength or weakness, factors considered to have the greatest effect on organizational performance should be assigned the highest weights The sum of all weights must equal 1.0

3 Assign a I to 4 rating to each factor to indicate whether that factor represents a major weakness (rating = 1), a minor weakness (rating = 2), a minor strength (rating = 3), or a major strength (rating = 4) Note that strengths must receive a 4 or 3 rating and weaknesses must receive a 1 or 2 rating Ratings are thus company based, whereas the weights in Step 2 are industry based

4 Multiply each factor‟s weight by its rating to determine a weighted score for each variable

5 Sum the weighted scores for each variable to determine the total weighted score for the organization

Regardless of how many factors are included in an IFE Matrix, the total weighted score can range from a low of 1.0 to a high of 4.0, with the average score being 2.5 Total weighted scores well below 2.5 characterize organizations that are weak internally, whereas scores significantly above 2.5 indicate a strong internal position IFE Matrix should include from 10 to 20 key factors The number of factors has no effect upon the range of total weighted scores because the weights always sum to 1.0

(Source: internal-factor-evaluation-matrix-ife-matrix.html)

http://www.soopertutorials.com/business/strategic-management/478-how-to-develop-1.1.3.1.5 SWOT (Strengths, Weaknesses, Opportunities and Threats) Matrix

SWOT analysis is a basic, straightforward model that provides direction and serves as a basis for the development of marketing plans It accomplishes this by assessing an organizations strengths (what an organization can do) and weaknesses (what an organization cannot do) in addition to opportunities (potential favorable conditions for an organization) and threats (potential unfavorable conditions for an organization) SWOT analysis is an important step in planning and its value is often underestimated despite the simplicity in creation The role of SWOT analysis is to take the information from the environmental analysis and separate it into internal issues (strengths and weaknesses) and external issues (opportunities and threats) Once this is completed, SWOT analysis determines if the information indicates something that will assist the firm in accomplishing its objectives (a strength or opportunity), or if it indicates an obstacle that must be overcome or minimized to achieve desired results (weakness or threat) (Marketing Strategy, 1998)

Elements of SWOT Analysis:

Strengths and Weaknesses:

Relative to market needs and competitors characteristics, a manager must begin to think in terms of what the firm can do well and where it may have deficiencies Strengths and weaknesses exist internally within a firm, or in key relationships between the firm and its customers SWOT analysis must be customer focused to gain maximum benefit, a strength is really meaningful only when it is useful in satisfying the needs of a customer At this point, the strength becomes a capability (Marketing Strategy, 1998) Weaknesses should also be considered from

an internal and external viewpoint It is important that listing of a firm weaknesses

is truthful so that they may be overcome as quickly as possible Delaying the discovery of weaknesses that already exist within a company will only further hurt the firm A well-developed listing of weaknesses should be able to answer a few questions What can be improved? What is done poorly? What should be avoided?

The role of the internal portion of SWOT is to determine where resources are available or lacking so that strengths and weaknesses can be identified From this, the marketing manager can then develop marketing strategies that match these strengths with opportunities and thereby create new capabilities, which will then be part of subsequent SWOT analysis At the same time, the manager can develop strategies to overcome the firm weaknesses, or find ways to minimize the negative effects of these weaknesses (Marketing Strategy, 1998)

Opportunities and Threats

Managers who are caught up in developing strengths and capabilities may ignore the external environment A mistake of this magnitude could lead to an efficient organization that is no longer effective when changes in the external environment prohibit the firm ability to deliver value to its targeted customer segments These changes can occur in the rate of overall market

It is not simply enough to identify the strengths, weaknesses, opportunities, and threats of a company In applying the SWOT analysis it is necessary to

minimize or avoid both weaknesses and threats Weaknesses should be looked at in order to convert them into strengths Likewise, threats should be converted into opportunities Lastly, strengths and opportunities should be matched

to optimize the potential of a firm Applying SWOT in this fashion can obtain leverage for a company (Marketing Strategy, 1998)

To develop strategies that take into account the SWOT profile, a matrix of these factors can be constructed The SWOT matrix (also known as a TOWS Matrix) is shown below:

Figure 1.4: SWOT matrix

Source: http://www.stfrancis.edu/content/ba/ghkickul/stuwebs/btopics/works/swot.htm

 S-O strategies pursue opportunities that are fit to company's strengths

 W-O strategies overcome weaknesses to pursue opportunities

 S-T strategies identify ways that firm can use its strengths to reduce its vulnerability to external threats

 W-T strategies establish a defensive plan to prevent firm's weaknesses from making it highly susceptible to external threats

1.1.3.1.6 Strategic Position & Action Evaluation (SPACE) matrix

The SPACE matrix is a management tool used to analyze a company It is used to determine what type of a strategy a company should undertake The Strategic Position & Action Evaluation matrix or short a SPACE matrix is a strategic management tool that focuses on strategy formulation especially as related to the competitive position of an organization The SPACE matrix is broken down to four quadrants where each quadrant suggests a different type or a nature of a strategy:

Steps to Developing a SPACE Matrix

1 Select a set of variables to define FS, CA, ES, & IS

2 Assign a numerical value: From +1 to +6 to each FS & IS dimension, From -1 to -6 to each ES & CA dimension

3 Compute an average score for each FS, CA, ES, & IS

4 Plot the average score on the appropriate axis

5 Add the two scores on the x-axis and plot the point Add the two scores on the y-axis and plot the point Plot the intersection of the new XY point

6 Draw a directional vector from the origin through the new intersection point

Figure 1.5 : SPACE matrix model

Source: http://www.maxi-media.com/SPACE+matrix+model+strategic+management+method

1.1.3.1.7 CPM (Competitive Profile 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 critical success factors, each factor is measured in same scale mean the weight remain same for every firm only rating varies The best thing about CPM that it includes your firm and also facilitates to add other competitors make easier the comparative analysis IFE matrix only internal factors are evaluated and in EFE matrix external factors are evaluated but CPM include both internal and external factors to evaluate overall position of the firm with respective to their major competitors The competitive profile matrix consists of following attributes mentioned below:

Figure 1.6: CPM model

Source: http://www.maxi-media.com/CPM model

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 There are some important point related to rating in CPM 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

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 average weighted score for CPM matrix is 2.5 any company total weighted score fall below 2.5 consider as weak The company total weighted score higher than 2.5 is considered as strong in position The other dimension of CPM is the firm with higher total weighted score considered as the winner among the competitors

1.1.3.2 Strategic Choice

This process involves understanding the nature of organization‟s expectations (the "ground rules"), identifying strategic options, and then evaluating and selecting strategic options The process of Strategic Choice can be assisted by a number of tools, including:

1.1.3.2.1 Quantitative Strategic Planning Matrix (QSPM)

The Quantitative Strategic Planning Matrix is a strategic tool which is used

to evaluate alternative set of strategies The QSPM incorporate earlier stage details

in an organize way to calculate the score of multiple strategies in order to find the best match strategy for the organization

Steps to develop Quantitative Strategic Planning Matrix (QSPM):

1 List of the firm's key external opportunities/threats and internal strengths/weaknesses in the left column of the QSPM

2 Assign weights to each key external and internal factor

3 Examine the Stage 2 (matching) matrices and identify alternative strategies that the organization should consider implementing

4 Determine the Attractiveness Scores (AS) The range for Attractiveness Scores is 1 = not attractive, 2 = somewhat attractive, 3 = reasonably attractive, and 4 = highly attractive

5 Compute the Total Attractiveness Scores

6 Compute the Sum Total Attractiveness Score

1.1.3.3 The literature on strategy implementation

Business strategy implementation is basically about describing execution methods in the long term It implies organizational commitments about product or service quality to consumers; or at a higher level, a corporate declaration to the market Therefore, organizations are expected to effectively perform what they have promised afterwards If an organization fails to accomplish their missions and fulfilling customers‟ expectations, it accordingly fails to achieve the established goals

Depending on each organization‟s specific conditions, the process of strategy implementation includes the following steps:

 Specifying strategic business goals in each stage for each department according to its function

 Constructing a system of supportive policies and plans of actions

 Managing organizational resources in the long term: establishing and allocating resources basing on corporate demands, developmental stages, and levels of rarity, priority and recyclability

 Selecting and enhancing an appropriate corporate structure to ensure an optimum corporate size

1.1.3.3.1 Operational management

“Enterprise Resource Planning” (ERP) is defined as “multi-module application system” that integrates activities across functional departments, from managing resources to executing corporate operations ERP provides managers with solutions in managing functional departments such as human resource management, financial management, regulating production, project management, product planning, parts purchasing, inventory control, product distribution, customer service management, business planning and reporting etc

Operational management plays a significant part in utilizing and coordinating inputs such as human resources, production materials, equipments, technology in the aims of creating such outputs as physical products or intangible services, which comprehensively maximize organization‟s savings and its effectiveness Among all corporate business activities, operational management is the process of creating basic values that are under the form of products or services and thus is a means enterprises use to accomplish their missions and achieve their strategic goals Operational management includes short-term and long-term business planning on production time and venue, managing product quality and quantity, controlling implementation process, providing prompt adjustments if necessary, evaluating the

outcomes, and enhancing systematic procedures

1.1.3.3.2 Marketing management

There are many definitions of marketing:

“Marketing is a total system of business activities designed to plan, price, promote, and distribute want-satisfying products to target markets to achieve organizational objectives.” (Stanton, 1994)

“Marketing is a social and managerial process by which individuals and groups obtain what they need and want through creating, offering, and exchanging products of value with others” (Kotler, 1994)

“Marketing is the process by which an organization relates creatively, productively, and profitably to the marketplace” (Kotler, 1996)

“Marketing is getting the right goods and services to the right people at the right places at the right time at the right price with the right communications and promotions” (Kotler, 1996)

All above definitions imply that marketing is the process which takes place before products and services produced and it continues even after the sale Marketing involves entire system of business activities Because customer satisfaction is affected by the performance of the other departments, marketing as the integrative function needs to influence other departments in company to cooperate in delivering customer satisfaction

In 1985, the American Marketing Association defined marketing management as the process of planning and executing the conception, pricing, promotion, and distribution of goods, services, and ideas to create exchanges with target groups that satisfy customer and organizational objectives (Kotler, 1996)

This definition recognizes that marketing management is a process involving analysis, planning, implementation, and control Within marketing planning, marketers must make decision on target markets, market positioning, product development, pricing, distribution channels, physical distribution, communication, and promotion

According to Kotler (1996), the marketing concept rests on four main pillars, namely target market, customer needs, coordinated marketing, and profitability Figure 2-1 shows the contrary between selling concept and marketing concept The selling concept takes an inside-out perspective, whereas the marketing concept takes

an outside-in perspective

Figure 1.7: The Selling and Marketing Concepts

(Source: Kotler, 1996)

In brief, the marketing concept is a market focused, customer oriented, coordinated marketing effort aimed at generating customer satisfaction as the key to achieve organizational goals

The marketing process consists of analyzing marketing opportunities, researching and selecting target markets, designing marketing strategies, planning marketing programs, and organizing, implementing and controlling the marketing effort (Kotler, 1996)

The analysis can be done through situation analysis including two parts: external environment and internal environment The analysis of external environment covers two aspects of environment: societal and task environment Societal environment includes general forces which do not influence the short run activities of the companies, but they will influence the long run activities of the company They are economic, socio-cultural, technological, political, and legal factors Task environment includes all players directly affecting companies They are stakeholders, customers, financial institutions, suppliers, creditors, middlemen, etc The internal environment of companies includes the factors determining their strengths and weaknesses They involve the company structure, culture and resources

(a) The selling concept

(b) The marketing concept

Factory Products Selling and

promoting

Profits through sales volume

Target

market

Customer needs

Coordinated marketing

Profits through customer satisfaction

Figure 1.8: The Marketing Management Process

(Source: Kotler, 1996)

The competition analysis also is important before company design marketing strategy Cravens (1991) takes into account various aspects for analysis such as competitor strategies, strengths, limitations, and plans Whereas Porter (1985) developed a framework for industry analysis called “five-force model” The model looks into five strategic forces that shape the competition in each industry: new entrants, power of buyers, power of suppliers, industry rivalry, and threat of substitution

In analyzing market opportunities, marketing research is an indispensable marketing tool, in that companies can serve their customer markets well only by researching their needs and wants, their locations, their buying practices, and so on (Kotler, 1996)

1.1.3.3.3 Human resource management (HRM)

HRM is a modern term for what has traditionally been referred to as

„personnel administration‟ or „personnel management‟ Under personnel management, the managing of employees is a „package‟ of „personnel work‟ such as salary, bonus schemes, personal and social matters However, since the human resources concept swept through US and British companies in the 1980‟s, HR manager becomes not merely hire and fire or negotiate with employees or unions, they would be at the front of business planning, persuading employees to change their way of working Organizations then recognize that the management of people

Analyzing marketing

opportunities

Researching and selecting target market

Designing marketing strategies

Planning marketing programs

Organizing, implementing, and controlling marketing effort

is too important to be left to personnel managers This management should be at all level of managers and in all areas in the organization

HRM according to Byars and Rue (2000) is activities designed to provide

for and coordinate the human resources of an organization HRM is also has an aspect of strategy in its activities, Michael (2000) comments that HRM can be a strategic and coherent approach to the management of an organization‟s most „value assets‟ Braton and Gold (1999) asserts that HRM is a part of management process, and employees are critical to achieving sustainable competitive advantage that HR practices needs to be integrated with the corporate strategy, and that HR specialists help organization controllers to meet both efficiency and equity objective HRM

covers the five functional areas – Staffing, Rewards, Employee development,

Employee maintenance, and Employee relation (Braton and Gold (1999:14)

Strategic human resource management (SHRM) according to Michael

(2000) is concerned with the relationship between HRM and firm‟s SHRM it is an approach to making decisions on the intensions and plans of the organization concerning HRM five functional areas HRM strategy is closely linked to business strategy (Bratton and Gold, 1999:45) Tyson and Witcher (1994) on the other hand, stress that HR strategies can only be studied in the context of corporate and business strategies The important of the environment as a determinant of HRM policies and practices has been incorporated in to some models, Bamberger and Philips (1991), from their extending strategic management concept, and their model depicts links between the environment, HR strategy, and business strategy

1.1.3.3.4 Financial management

Corporate finance is concerned with the efficient and effective management

of the finances of an organization in order to achieve the objectives of that organization Traditionally, corporate finance was seen to involve two distinct areas of decision making: the investment decision, where investment projects are evaluated and suitable projects selected; and the finance decision, where finance is raised to enable the selected projects to be implemented

Corporate financial management is a functional business process of creating and executing values in short and long term Accordingly, it plays an important role

in business management generally and in strategic management in particular Financial goals can be strategic Achieving financial effectiveness is an outcome as well as a means to implement strategy It is necessary for an organization to specify its strategic goals and turn these into specific tasks or evaluation criteria which need

to be quantifiable and measurably qualitative

Based on corporate financial reports and analyses, financial management is a process of planning, determining and executing corporate decisions regarding mobilizing, sponsoring, saving and recovering financial resources to ensure organization‟s short-term payment and long-term investment It supports other business functional operations by coordinating budget planning with sponsorship policies In addition, financial resources are significant to ensure a sufficient and prompt supply of other resources which are needed for other business functions such as operational management, marketing and human resource management

1.1.3.3.5 Research and development (R&D)

Research and development plays an indispensable part in corporate strategic management It is significant for creating and sustaining organizational competitive advantage; researching future trends; producing warnings of threats and developing innovations It consists of plans of actions which assist organizations in leading or keeping pace with environmental trends to be ahead of competitors by sustaining the current business competitive advantage or creating a new one

In strategic management, it is necessary for an organization to focus on the perspective of research and development (R&D) to promote proactive innovations and sustainable business competitive advantage Moreover, during the process of strategy implementation, R&D lays a foundation for enhancing the effectiveness of execution procedures, resource utilizing operations, re-designing products or services, constructing major marketing campaigns and saving costs while adding values for customers Correspondingly, appropriately coordinating R&D activities