BUSINESS STRATEGY OF ALPHANAM PAINTS FOR THE PERIOD FROM 2010 TO 2015

INTRODUCTION6CHAPTER 1: THEORETICAL BASIC OF BUSINESS STRATEGY81.1. OVERVIEW81.1.1. Definitions of strategy81.1.2.Strategic management processes91.2ENVIRONMENTAL ANALYSIS111.2.1. External environment analysis111.2.2 Internal environment analysis151.3. SWOT ANALYSIS231.4. DECISION OF STRATEGIES25CHAPTER 1: THEORETICAL BASIC OF BUSINESS STRATEGY81.1. OVERVIEW81.1.1. Definitions of strategy81.1.2.Strategic management processes91.2ENVIRONMENTAL ANALYSIS111.2.1. External environment analysis111.2.2 Internal environment analysis151.3. SWOT ANALYSIS231.4. DECISION OF STRATEGIES25CHAPTER 2: ACTUAL SITUATION ANALYSIS27OF ALPHANAM PAINTS272.1. INTRODUCTION272.1.1.General information of company272.1.2.Alphanam paints312.2. ACTUAL SITUATION ANALYSIS342.2.1. Macro environment analysis342.2.2. Industry environment analysis382.2.3. Competitor environment analysis422.2.4. Internal environment analysis452.3. PART CONCLUSIONCHAPTER 3: DECISION ON BUSINESS STRATEGY ANDRECOMMENDATIONS FOR THE PERIOD 2010 TO 2015

BUSINESS STRATEGY OF ALPHANAM PAINTS

FOR THE PERIOD FROM 2010 TO 2015

We also would like to express our thanks to the people who has helped and supported us during completion of this report, especially to ALPHANAM’s leaders and business department of paints who freely and warmly provided us the trust information of company

Finally, we would like to commit that, the capstone project report stated below had been honestly completed by all of our group’s members

TABLE OF CONTENTS

INTRODUCTION 6

CHAPTER 1: THEORETICAL BASIC OF BUSINESS STRATEGY 8

1.1 OVERVIEW 8

1.1.1 Definitions of strategy 8

1.1.2 Strategic management processes 9

1.2 ENVIRONMENTAL ANALYSIS 11

1.2.1 External environment analysis 11

1.2.2 Internal environment analysis 15

1.3 SWOT ANALYSIS 23

1.4 DECISION OF STRATEGIES 25

CHAPTER 2: ACTUAL SITUATION ANALYSIS 27

OF ALPHANAM PAINTS 27

2.1 INTRODUCTION 27

2.1.1 General information of company 27

2.1.2 Alphanam paints 31

2.2 ACTUAL SITUATION ANALYSIS 34

2.2.1 Macro environment analysis 34

2.2.2 Industry environment analysis 38

2.2.3 Competitor environment analysis 42

2.2.4 Internal environment analysis 45

2.3 PART CONCLUSION 47

CHAPTER 3: DECISION ON BUSINESS STRATEGY AND 48

RECOMMENDATIONS FOR THE PERIOD 2010 TO 2015 48

3.1 SWOT ANALYSIS 48

3.2 COMBINATION STRATEGIES 48

3.2 RECOMMENDATIONS FOR THE PERIOD 2010 TO 2015 50

3.2.1 Actual market analysis 50

3.2.2 Redefine the target and strategies: 55

3.2.3 Corporate-level strategies: 58

CONCLUSION ………60

LIST OF ABBREVIATIONS

Abbreviations Full names

AFTA ASEAN Free Trade Area

ASEAN Association of South-East Asian Nations

APEC Asia – Pacific Economic Cooperation Forum

ASEM The Asia-Europe Meeting

CEPT Common Effective Preferential Tariff

GDP Gross Domestic Product

GREAT Gain – Risk – Expense – Achievable – Time

PEST Politics – Economy – Society – Technology

SWOT Strengths – Weaknesses – Opportunities – Threats

WTO World Trade Organization

2.2.b Market size and Players on decorative paints 43

LIST OF FIGURES and GRAPHICS

1.1 Three main achieves of strategic management process 10

1.5 General components of internal environment analysis 16

1.8 Generic building blocks of competitive advantage 22

1 Rationales

Nowadays, the economy of Vietnam is generally joining to globalization, strategicmanagement plays an important and undisputable role in creating value forstakeholders Due to the competitive environment of rapid change and alignedconstant need for growth and development, companies have to exploit organicsources of expansion as well as external ones in order to compete

As our group has a member who is a manager of ALPHA NAM JSC, the selectedsubject of the report is:

“Business Strategy of Alphanam paints for the period 2010-2015”

2 Objectives of research

The report aims to introduce international standards and practices in strategicmanagement and apply them into business strategy of Alphanam paints in order toprovide a better understanding with following objectives:

 Providing theoretical basic of business strategy

 Providing the scientific analysis of actual situation of the firm

 Providing the evaluations and solutions for developing business of thefirm for the period of 2010 to 2015

3 Limitation and methodology of research

With a limited duration for preparing and completing the report, the subject onlyfocused on the matter of “business-level strategy” for ALPHANAM Paints

The methodology practiced in the report is a combination of deduction approach,qualitative method, case study strategy with the following methods:

 Surveying and collecting data provided by firm’s managers and staffs

 Analyzing scientifically the environment according to the knowledgeacquired from MBA course

Proposing, comparing and suggesting some solutions andrecommendations

4 Significance of the research

The report has made some certain contributions to the economy in generally and theenterprises in particularly

 To the economy: the study shows nature of strategic management and itsinfluences to the overall economy in terms of creating value

 To the enterprises: the study provides them a better understanding of whythey should take strategic management process, how it occurs and howmanagers can effectively manage it in order to make the strategiessuccessful

5 Report structure

The report is divided into four main parts including introduction, content andconclusion parts

 Introduction

 Chapter 1: Theoretical basic of business strategy

 Chapter 2: Actual situation analysis of Alphanam paints

 Chapter 3: Solutions and recommendations of business strategy for

the period 2010 to 2015

CHAPTER 1: THEORETICAL BASIC OF BUSINESS STRATEGY

1.1 OVERVIEW

1.1.1 Definitions of strategy

Strategy is a word with many definitions and all of them are relevant and useful tothose who are charged with setting strategy for their corporations, businesses, ororganizations Some definitions of strategy as offered by various writers arebriefly reviewed below

 Alfred D Chandler, Jr defined in 1962: “the determination of the basic long-term goals and objectives of an enterprise and the adoption of courses of action and the allocation of resources for carrying out these goals”

 Kenneth Andrews defined in 1980: “the pattern of decisions in a company that determines and reveals its objectives, purposes or goals, produces the principal policies and plans for achieving those goals, and defines the range of businesses the company is to pursue, the kind of economic and human organization it is or intends to be, and the nature

of the economic and non-economic contribution it intends to make to its shareholders, employees, customers, and communities.”

In 1980, Michael Porter defined competitive strategy as “a broad formula for how

a business is going to compete, what its goals should be, and what policies will be needed to carry out those goals.”

 In 1994, Henry Mintzberg, provided definitions of strategy in five Ps:

Plan, Ploy, Pattern, Position and Perspective

 In 1980, Johnson, G and Scholes, K defined strategy as “the direction and scope of an organization over the long-term: which achieves advantage for the organization through its configuration of resources

within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations"

Finally, after MBA course, a provisional definition of strategy has been simply

found out as: “a coordinated series of actions which involve in the deployment of

resources to which one has access for the achievement of a given purpose.”

Academically, strategic management process involves the full set of:

Figure 1.1: Three main achieves of strategic management

process

[Source: Slide No.3 of - session 1: GU’s program – Strategy

Management]

Actually, strategic management process requires a firm to achieve:

 Strategic Competitiveness: Achieved when a firm successfully formulatesand implements a value-creating strategy

 Sustained Competitive Advantage: Occurs when a firm develops astrategy that competitors are not simultaneously implementing and providesbenefits which current and potential competitors are unable to duplicate

 Above-Average Returns: Returns in excess of what an investor expects toearn from other investments with similar risk

The flow chart of process defines three main stages as below:

Figure 1.2: Model of strategic management processes

[Source: Slide No.5 - session 1: GU’s program – StrategyManagement]

 Input: Analyzing the environment and defining mission and goal

 Strategic actions: Including strategy formulation and implementation

 Strategic outcomes: Above-average returns

The mission statement describes how a company intends to incorporatestakeholders’ claims into its strategic decision making and thereby reduce the risk

of losing the support of stakeholders The mission statement contains three boardelements: (i) a statement of the overall vision of the company, (ii) a statement thatindicates the key philosophical values that managers are committed to, and (iii) thearticulation of key goals that management believes must be adhered to in order tofulfill the mission statement.

1.2 ENVIRONMENTAL ANALYSIS

1.2.1.1 Macro environment analysis

1.2.1.1 Macro environment

Figure 1.3: Model of strategic management processes

[Source: Slide No.31 - session 1: GU’s program – Strategy Management]

 Political and legal factor also has a major effect on the level of

opportunities and threats in the environment The philosophy of the politicalparties in power influences business practices The legal environment serves

to define what organizations can and cannot do at a particular point in time.One of the most significant trends in recent years has been the move towardderegulation By eliminating many legal restrictions, deregulation haslowered barriers to entry and led to intense competition in a number ofindustries

 Economic factor determines the general health and well-being of the

economy This in turn affects a company’s ability to earn an adequate rate ofreturn The four most important factors in the macro economy are the growthrate of the economy, interest rates, currency exchange rates, and inflationrates

 Social environment consists of customs, lifestyles, and values that

characterize the society in which the firm operates Social components of theenvironment influence the ability of the firm to obtain resources, make itsgoods and services, and function within the society Social factors includeanything within the context of society that has the potential to affect anorganization

 Technological factor: Technological change can make established

products obsolete overnight, and at the same time it can create a host of newproduct possibilities Thus, technological change is both creative anddestructive, both an opportunity and a threat One of the most importantimpacts of technological change is that it can affect the height of barriers toentry and, as a result, radically reshape the structure of an industry

 Demographic factor: The changing composition of the population is

another factor in the macro-environment that can create both opportunitiesand threats

 Global factor: In the globalization context nowadays, the

competitiveness is increasingly tighter A firm has to change to suitable stateaccordingly to strong moves of global economy Global factor should beconsidered when a firm defining its business strategy

1.2.1.2 Industry environment analysis

Figure 1.4: Five forces Model

[Michael E Porter]

Threat of new entrants

Bargaining

power of

suppliers

Bargaining power of buyers

Threats of substitute products Rivalry among competing firms

Michael E Porter has developed a framework known as five forces modelillustrated in Figure 1.4 This model focuses on five forces that shape competitionwithin an industry:

 Threat of new entrants: Potential competitors are the firms that are not

currently competing in the same industry but they have enough the capability

to entry the market

 Rivalry among competing firms: If it is weak, companies have an

opportunity to raise prices and earn greater profits; if it is strong, significantprice competition may result that limits profitability by reducing the marginsthat can be earned on sales Thus, intensive rivalry among establishedcompanies constitutes a strong threat to profitability

The bargaining power of buyers: Buyers may be the end users or the

distributors (retailers and wholesalers) Buyers can be viewed as acompetitive threat when they are in a position to demand low prices from thecompany or when they demand better service which can increase operatingcosts

The bargaining power of suppliers: Suppliers can be viewed as a threat

when they are able to force up the price that a company must pay for itsinputs or reduce the quality of the inputs they supply, thereby depressing thecompany’s profitability The force of supplier to make demands on acompany depends on their power relative to that of the company

 The threat of substitute products: Substitute products are those of

industries that serve consumer’s needs in a way that is similar to those beingserved by the industry being analyzed

1.2.1.3 Competitive environment analysis

 Gathering and interpreting information about all of the companies that thefirm competes against

 Understanding the firm’s competitive environment complements theinsights provided by studying the general and industry environments

The components of Internal Analysis Leading to Competitive Advantage andStrategic Competitiveness defined on figure below:

Figure 1.5: General components of internal environment

analysis

[Source: Slide No.31- session 2: GU’s program – StrategyManagement]

The most important of internal environment analysis is the discovery of corecompetencies.

Figure 1.6: Model of Discovering Core Competences

[Source: Slide No.18 of Part 3: GU’s program – Strategy Management]

1.2.2.1 Resources of a firm are a firm’s assets, including people and the value of

its brand name and represent inputs into a firm’s production process, such as: Capital equipment, Skills of employees, Brand names, Financial

resources and Talented managers that is classified into two groups:

 Tangible resources include four main components: Financial Resources,Organizational Resources, Physical Resources and TechnologicalResources

 Intangible resources includes three main components: Human Resources,Innovation Resources and Reputation Resources

 Distribution Effective use of logistics management techniques

 Human resources Motivating, empowering, and retaining

employees

 Management Effective and efficient control of inventories

 Information system Point-of-purchase data collection methods

 Marketing Effective promotion of brand-name products,

Effective customer service, Innovativemerchandising

 Management Ability to envision the future of clothing and

Effective organizational structure

 Manufacturing Design and production skills yielding reliable

products, Product and design quality andMiniaturization of components and products

 Research and Development Innovative technology, Development of

sophisticated elevator control solutions, Rapidtransformation of technology into new productsand processes and Digital technology

1.2.2.3 Core competencies of a firm are activities that a firm performs especially

well compared to competitors and through which the firm adds unique value to its goods or services over a long period of time.

1.2.2.4 Building core competencies:

 Four Criteria of Sustainable Competitive Advantage:

 Valuable capabilities Help a firm neutralize threats or exploit

opportunities

 Rare capabilities Are not possessed by many others

 Costly to imitate

Historical: A unique and a valuable organizational

culture or brand nameAmbiguous cause The causes and uses of a competence are

unclear

Social complexity Interpersonal relationships, trust, and

friendship among managers, suppliers, andcustomers

 Non-substitutable That no firm has equivalent strategy

depending on specific features such as:firm-specific knowledge, profound

organization culture and superiorexecution of the chosen business model

 Value chain analysis

The term of value chain refers to the idea that a company is a chain of activitiestransforming inputs into outputs that value customers This process is composed of

a number of primary activities and support activities Each activity adds value to theproduct

Primary activities have to do with the design, creation, and delivery of the product

as well as its marketing and its support and after-sales service The primaryactivities are broken down into following functions:

 Inbound logistics are activities, such as materials handling, warehousing,

and inventory control, used to receive, store, and disseminate inputs to aproduct

 Operations are activities necessary to convert the inputs provided by

inbound logistics into final product form Machining, packaging,

assembly, and equipment maintenance are examples of operationsactivities.

 Outbound Logistics are activities involved with collecting, storing, and

physically distributing the final product to customers Examples of theseactivities include finished goods warehousing, materials handling, andorder processing

 Marketing and Sales are activities completed to provide means through

which customers can purchase products and to induce them to do so Toeffectively market and sell products, firms develop advertising andpromotional campaigns, select appropriate distribution channels, andselect, develop, and support their sales force

 Services are activities designed to enhance or maintain a product’s value.

Firms engage in a range of service-related activities, including installation,repair, training, and adjustment

Each above-mentioned activity should be examined relatively to competitors’abilities Accordingly, firms rate each activity as superior, equivalent, or inferior

Support activities of the value chain provide inputs that allow the primary

activities to take place

 Procurement is the activities completed to purchase the inputs needed to

produce a firm’s products

 Technological Development is the activities completed to improve a

firm’s product and the processes used to manufacture it

 Human Resource Management is the activities involved with recruiting,

hiring, training, developing, and compensating all personnel

 Firm Infrastructure includes activities such as general management,

planning, finance, accounting, legal support, and governmental relationsthat are required to support the work of the entire value chain

Each activity should be examined relatively to competitors’ abilities Accordingly,firms rate each activity as superior, equivalent, or inferior.

1.2.2.5 Competitive advantage

Four factors building competitive advantage are efficiency, quality, innovation andcustomer responsiveness They are generic building blocks of competitiveadvantage that any company can adopt, regardless of its industry or its products andservices These factors are highly interrelated Superior quality can lead to superiorefficiency, while innovation can enhance efficiency, quality and customerresponsiveness

competitive advantage

 Efficiency: A company is a device for transforming inputs into outputs.

Inputs are basic factors of production such as labor, land, capital,management and technological know-how Outputs are the goods andservices that a company produces The simplest measure of efficiency isthe quantity of inputs that it takes to produce a given output The moreefficient a company, the fewer the inputs required to produce a givenoutput The most important component of efficiency for many companies

is employee productivity, which is usually measured by output peremployee A company with the highest employee productivity will have acost-based competitive advantage

Superior innovation

 Quality products are goods and services that are reliable in the sense that

they do the job they were designed for and do it well The impact of highquality product on competitive advantage is twofold First, a company cancharge a higher price for its high quality products Second, high qualityproducts bring the company greater efficiency and lower unit costs.Achieving high product quality can no longer viewed as just one way ofgaining a competitive advantage, but an absolute imperative for survival

 Innovation can be defined as anything new or novel about the way a

company operates or the products it produces Innovation includesadvances in the kinds of products, production process, managementsystems, organizational structures, and strategies developed by acompany Innovations give a company something unique which itscompetitors lack until they imitate the innovation Uniqueness can allow acompany either to differentiate from its rivals and charge a premium pricefor its product or to reduce its unit costs far below those of competitors

 Customer responsiveness: A company must be able to do a better job

than competitors of identifying and satisfying the needs of customers.Achieving superior quality and innovation is an integral part of achievingsuperior customer responsiveness Another factor that stands out in anydiscussion of customer responsiveness is the need to customize goods andservices to the unique demands of individual customers or customergroups An aspect of customer responsiveness is customer response time,which is the time it takes for a good to be delivered and a service to beperformed Besides quality, customization, and response time, othersources enhance customer responsiveness including superior design,superior service, superior after-sale service and support All these factorsallow a company to differentiate itself from its less responsive competitorsthat enables a company to build brand loyalty and to charge a premiumprice for its products

Together, these four factors – efficiency, quality, innovation, customerresponsiveness – help a company to create more values by lowering costs ordifferentiating its products from those of competitors, which enables the company

to outperform its competitors

1.3 SWOT ANALYSIS

SWOT analysis consists of an analysis of the external environment factors andinternal environment factors in order to provide useful information for connectingthe company’s resources and capabilities with competitive environment where thecompany is engaged in

 Strengths and Weaknesses are internal factors.

 Opportunities and Threats are external factors

Strong financial condition

Strong brand name

Product innovation skills

Good customer service

Better product quality

Internal operating problems Falling behind in R&D

Too narrow product line Weak marketing skills

Serving additional customer groups

Expanding to new geographic

areas

Expanding product line

Transferring skills to new products

Costly new regulations Vulnerability to business cycle Growing leverage of customers or suppliers

Shift in buyer needs for product Demographic changes

Table 1.1: Example of SWOT analysis

To develop strategies that take into account the SWOT profile, a matrix of thesefactors can be constructed A firm should not necessarily pursue the more lucrativeopportunities Rather, it may have a better chance at developing a competitiveadvantage by identifying a fit between the firm's strengths and upcomingopportunities In some cases, the firm can overcome a weakness in order to prepareitself to pursue a compelling opportunity

There are four combination strategies based on SWOT analysis result and one ofthem should be considered for the strategy of firm:

 S – O strategy: pursues opportunities that are a good fit to the company’s

strengths

 W – O strategy: overcomes weaknesses to pursue opportunities.

 S – T strategy: identifies ways that the firm can use its strengths to reduce

its vulnerability to external threats

 W – T strategy: establishes a defensive plan to prevent the firm’s weaknessesfrom making it highly susceptible to external threats

Environment

analysis

External Factors Opportunities

S-O: encourage strong

point to get opportunity, define business policy

S-T: encourage strong point to

Table 1.2: Combination strategies

1.4 DECISION OF STRATEGIES

After analyzing and considering for the studied method, some alternatives ofstrategy should be defined There are some popular models in strategic formulationsuch as QSPM (Quantitative Strategic Planning Matrix) or GREAT model Thesemodels help managers to decide the strategy by comparison of points, then anoptimal one shall be considered for formulation stage

Point Amount Point Amount Point Amoun

Amoun

t n Table 1.2: GREAT model

In conclusion, strategic management is an infinite science subject With limitation

time, there is only some main sections of the subject could be mentioned in our capstone project report such as: external, internal analyses and strategy formulation

focused only on business-level strategy.

CHAPTER 2: ACTUAL SITUATION ANALYSIS OF ALPHANAM PAINTS

2.1 INTRODUCTION

Company name Alphanam Joint Stock Company

Abbreviation Alphanam JSC

Address  Pho Noi A Industrial Zone, Trung Trac, Van Lam, Hung

Yen Province

 Head office: No 2, Dai Co Viet, Hai Ba Trung, Ha Noi

 Danang office: No.9/ Rd No 2, Hoakhanh IP

 Ho Chi Minh office: No.14-Lot 3 TanBinh IP

General Director Mr Nguyen Tuan Hai

Milestones  1995: Established ALPHANAM Co., LTD

 2001: Invested in Hung yen factory 53,000m2

 2002: Built up public company

 2003: Invested in Danang factory 68,000m2

 2005: Established ALPHANAM Danang JSC and ALPHANAM Sai Gon JSC

 2006: Invested in the Northern biggest factory to manufacture paints

 2007: Strategically invested into associated companies as Momota, VINACONEX-ALPHANAM

 2008: Invested in Pacific-ALPHA paints JSC

Values

 Human resource is invaluable asset

Products are the results of creativeness

firm’s infrastructure and organization  Integrity and honesty

 Capital circulation chart

Organizational structure

Figure 2.1: Capital circulation chart

[Source: ALPHANAM-Annual report 2008]

 Organisational chart

Figure 2.2: General organization chart

[Source: ALPHANAM - Business report Jun-2009]

 Finance situation (e=estimated, f=forecasted)

Elements 2007 2008 2009 (e) 2010 (f)

Total Assets

930 ,485 953,074

Paints 6 3,200 118,200 155,35 0 216,5 00

EBIT 148 ,559 35,718 95,25 0 114,3 00

EBIT of Paints

7,584 9,850

Figure 2.3: Chart of finance characters

[Source: ALPHANAM annual report 2008]