BUILDING 3g BUSINESS STRATEGY FOR MILITARY TELECOMMUNICATIONS CORPORATION

Some of business external environment analysis models in building business strategy: 6 factors of external environment, 5 competition forces.. competition advantage, general model of int

THESIS MBA BUILDING 3G BUSINESS STRATEGY FOR MILITARY

TELECOMMUNICATIONS CORPORATION PHASE 2010 - 2015

HA NOI, 2009

CONTENT

2.2 SWOT Matrix for Viettel 4

CHAPTER I: THEORETICAL BASIS 9

1 Business strategy: 9

1.1 Concepts of strategy, business strategy: 9

1.1.1 Concept of strategy: 9

1.1.2 Business strategy concept: 10

1.2 Features of business strategy: 11

1.3 Role of business strategy: 12

2 Process of business strategy management: 13

2.1 Current situation analysis: 13

2.2 Strategy building: 13

2.3 Strategy implementation: 14

2.4 Strategy evaluation: 14

3 Main issues of business strategy building: 15

3.1 Requirements for business strategy building: 15

3.2 Principles of business strategy building: 15

4 Determining tasks and system of strategic targets: 17

4.1 Strategic tasks: 17

4.2 System of strategic targets: 17

4.3 Principles of target determination: 18

Model of 5 competition forces : 27

6.4.The junction between business strategy and other strategies : 41

6.4.1 Corporate-level strategies: .42

6.4.2 Business strategy ( competitive strategy) 42

6.4.3 Functional strategies (operation strategy) 42

7 Methods analysing strategy selection: 43

7.1 The BCG growth share matrix 43

7.2 McKinsey matrix - GE (General Electric): 45

III Business strategies for 3G services from 2010 - 2015 98

Production and Business - PnB

TABLE CONTENT

1.1 Macro environment analysis

1.2 Typical factors that affect competitive strength

1.3 Typical factors that affect market attractiveness

1.4 SWOT matrix

2.1 Business and production outcomes phase 2004 – 2009

2.2 SWOT Matrix for Viettel

3.1 The number of subscriptio for recent years

3.2 Expansion of subscription using GSM technology for recent years

3.3 Prediction of the number of subscribers in Vietnam

3.4 Proposes the number of 3G subscription of Viettel in the 1st, 3rd, and

6th year

CHART CONTENT

1.1 Simulation of the company’s business environment

1.2 External environment

1.3 Force model of M.PORTER

1.4 Model of value chain

1.5 BCG growth-share matrix

2.1 Basis for selecting business strategy

2.2 The growth rate figure in years

3.1 The estimation figure for The development of mobilephone subscribes in the world

3.2 The estimation figure for The development of GSM mobile subscribes

in the world

3.3 The growth rate figure the WCDMA subscribers

3.4 The growth rate figure of subscribers

3.5 The figure for the revenues density of speech services and non-speech services

3.6 Revenue graph due to subscriber types

3.7 The estimation figure for the growth rate figure of subscribers in Viet Nam

3.8 Distribution channel model of Viettel

1 Subject selection reasons

In recent years, mobile phone market has been blooming There are 7 service providers in operation, some others are taking application procedures for entrance However, the market is getting to saturated point Competition is becoming fierce Growth of revenue, profit is weak These urge companies to have new strategies for development In this scene, 3G (a set of international telecommunication standards and technologies promoting mobile phone quality and efficiency) turns out to be a solution for companies

Viettel is the one to have a big market share in Vietnam telecommunication market and a pioneer in 3G service building and providing To implement business well, it is needed to have a correct, proper business strategy for company’s capability and appropriate to current features of Vietnam market

In recent years, Viettel has got business strategies which are definitely right and obtained outstanding results as so called magically in mobile phone business (2G) not only in Vietnam but also abroad However, 3G is a new service, full of challenges for all telecom companies in Vietnam, because it is a right business strategy and an urgent need

With the wish of applying learned knowledge into practice at the place whereas there is a group member working for, the group has selected the subject

“Building 3G business strategy for Military telecommunications Corporation phase 2010-2015” to be research subject for the group

2 Research purposes

- Researching and systematicalizing theories about building and implementing business strategy, selecting analysis models efficient to business strategy building and implementation

- Applying system of above theoretical basics and models for analysing and evaluating internal, external environments in order to build 3G business strategy for Military telecommunication corporation.

- Recommending solutions, suggestions in business strategy implementation in order to complete the corporation’s selected business strategy

3 Subject research criteria

Due to time and resource limitations, our group only had deep research in analysing and building strategy of 3G business (one of Viettel’s businesses) for the corporation phase 2010-2015, the key period for development and success of the coporation’s 3G service

4 Research methods

To solve the above issue, the report mostly uses method of qualitive analysis (analysing facts of Military telecommunication corporation) The specific methods of data collecting such as investigation sheet, expert interview have been used to collect data Using national statistic records, professional information, data; using secondary data on strategy and researches, reports previously done by Military telecommunications corporation

5 The report includes:

Introduction

Chapter I: Theoretical basic:

Concerning theoretical basics of business strategy such as: concepts, nature and basic features of strategy and business strategy Some of business external environment analysis models in building business strategy: 6 factors of external environment, 5 competition forces Some models are used to analyse the company internally in building business strategy: model of value string, sustainable

competition advantage, general model of internal and external environment analysis (SWOT).

Chapter II: Analysing Viettel’s strategic factors and activities phase 2009

2004-General introduction of Military Telecommunications Models are applied to analyse the company’s internal and external environment SWOT model is applied to generally evaluation finding the company’s strengths, weaknesses, opportunities and threats

Chapter III: Recommending 3G service business strategy for Viettel phase 2010 – 2015 and implementation solutions

General introduction of 3G Recommending 3G business strategy for Viettel phase 2010-2015 and some solutions in order to implement successfully selected business strategy

Conclusion

Reference List; Appendix.

CHAPTER I: THEORETICAL BASIS

According to Chandler, strategy is “determination of the company’s long term basic targets, purposes and series of activities as well as assignments of resources to process these targets” (Chandler, A (1962) Strategy and Structure Cambridge, Massachusetts MIT Press)

Bruce Henderson’s concept, strategist as well as founder of Boston consulting Corporation: “Strategy is a careful search of action plan to develop and join the organization’s competition advantages The difference between you and your competitors is the foundation for your advantage”

(Source: Efficient business plan, Harvard Business Essentials, Hochiminh City’s general publishing house, page 10).

Michael E Porter’s opinion, the leading strategy professor of Harvard:

- “Strategy is the creation of position that is unique and valuable, including different groups”;

- “Strategy is to carry out the balance of different factors to get the best combination in competition The nature of strategy is to decide what does not need

to be done”;

- “Strategy is the creation of harmony within company’s activities”

(Source: Michael E Porter, “What is Strategy?” Harvard Business Review, November, December 1996, page 68, 70, 75)

So, what is strategy? Strategy is a plan to bring to the company a competition advantage against competitors Strategy is to understand the targets of what the company are doing, focusing on planning how to achieve those “Strategy

is a series of complex actions to mobilize resources that an organization can have to achieve certain purposes”

Strategy has strongest impact when its core is the company’s values which have been understood clearly: what are priority criteria on aspects of product, customer, supplier, investment, shareholders and business environment Strategy is not a singly management process, but one included with commitments to company’s decisions and activities in order to get competition advantage

1.1.2 Business strategy concept:

According to Boston consulting corporation: “Business strategy is the determinations of available resources allocation with purpose to change competition balance and turn advantage to our side ”

According to Michael E Porter: “Business strategy to cope with competition is combination between targets which need to be achieved and tools that company needs to find to achieve the targets ”

The concept of business strategy as Strategic management textbook of Griggs is: a series of commitiments and actions that used by a company to get competition advantage by exploiting core capabilities in a certain market

Business strategy for a company is an art of building long term targets and implementation policies to orientate and create competition advatage for the company.

Totally, business strategy lets us understand:

- Where the company is trying to get to in long term (orientation).

- What market the company is competiting in and activities the company

is carrying out on that market (scale market)?

- How the company will do to operate better comparing to its opponents

on the market (advantage)?

- Which resources (skills, assets, finance, relations, technic capabilities,

equipments) need to have in order to be able to compete (resources)?

- How external environment factors affect the company’s competition

ability (environment)?

- What values and prospects the power holders outside and inside the

company need (capital contributors)?

( Source : www.Saga.vn )

1.2 Features of business strategy:

Although there are many different opinions and approaches on the term of strategy, main features of business strategy are concepted unanimously The features are:

- Objectiveness: business strategies often determine the fundamental goals, the business orientation of each enterprise in each period and policies to implement the objectives set out

- Appropriateness: this requires the company when building business

strategy, to evaluate precisely facts of its business performances In the mean time,

it has to regularly revise and adjust to fit to environmental changes

- Orientation, long-run: business strategy is built for long period (5 or 10

years) Thereto, business strategy has character of route and is concretized by strategies with shorter term, so called plan

- Flexibility, elasticity : business strategy is built on the basic of future

market forecast, thus, strategy should be flexible, elastic upon market fluctuations

- Continuousness: Business strategy is a continuous process from building,

implementation organisation, checking, supervising to strategy adjustment

- Competitiveness : Business strategy, nowadays, cannot be separated

from competition because business strategy partially ensures the company’s capability to compete on the market

1.3 Role of business strategy:

Business strategy plays a very important role in survival and development

of every company Right business strategy will create a good way for the company Business strategy can be deemed to be guideline for the company heading on the right direction Business strategy brings back many profits for the company Its importance is prooved as in the following aspects:

- Helping the company orientating its activities in the future through

business environment analysis and forecasts

- Helping the company hold oppotunities as well as threats to development

of the company’s resources It helps the company exploite and use properly all resources, prove the company’s strengths

- Strategy creates an operation orbit for the company, helps the company

unite personals with different benefits heading to a common target, to develope the company

- Business strategy is efficient competition tool for the company.

2 Process of business strategy management:

In the process of strategy management, the manager carries out series of following actions:

2.1 Current situation analysis:

Before deciding orientation or proper strategy reaction, it is required to analyse current situation Situation analysis requires consideration of organisation’s background, aspects of organisation’s external and internal environment:

- The company’s internal factors themself : strong or weak.

- External environment factors : opportunities or threats to the company.

- Leader’s wishes: company value, prestige and competition advantage.

2.2 Strategy building:

Strategy building includes design and selection of appropriate strategies for the organisation To do these, it is necesseary to consider from many organisational levels and set up different strategies:

- Company strategy: it relates to overall target and scale of the company to

satisfy capital contributors’ expectation Any change in the organisation’s structure

of business fields can change company strategy

- Competition strategy: considering how the organisation competes in a

certain business field or industry It relates to strategy decision for product

selection, customer satisfication, obtaining competition advantage against competitors, exploiting and creating new opportunities …

- Functional strategy: it is decisions and activities guiding targets which

are built for short term period for different functional units in an organisation It relates to how every parts in the company shall be organised to implement strategy orientation at the level of company and every part in the company Thus, functional strategy focuses on issues of resource, handling process and human

2.3 Strategy implementation:

Strategy implementation is the process bringing organisation’s different strategies into implementation Measures implementing different strategy levels are attached closely to strategy building

2.4 Strategy evaluation:

Final stage of strategy mangement is strategy evaluation All strategies depend on future changes because internal and external factors keep changing 3 main activities of this stage are:

- Reconsidering factors as basics for current strategies,

- Measuring achieved outcomes,

- Carrying out adjustments

Stage of strategy evaluation is necessary because present success will not guarantee future success The success always create new issues The organisations with thingking of satisfication shall have to pay for collapse

3 Main issues of business strategy building:

3.1 Requirements for business strategy building:

- Business strategy must be stick to market:

- Business strategy building must be count with safety in business, risk

minimization

- Key targets, strategic business area and basic conditions to achieve those

targets must be verified

- Business strategy must show the harmonious combination between 2

types of strategies : general business strategy which contains general covering issues that are most decisive, and partial business strategy including issues of partiality such as product, price, marketing, promotion strategy

- Business strategy must be presented by specific targets, having

feasibility with purpose of getting maximum result in production and business

3.2 Principles of business strategy building:

As stated by Michael E Porter at the seminar “Global competition and Vietnam advantage - 1/12/2008”, when building business strategy, the company needs to follow 5 following principles:

- Determining clearly a group of typical values which shall be shown to

customer, have unique characters against the opponent’s,

- Determining a string of different values and adjusting it as customer’s

expectation,

- Determing clearly balance and exchange (choosing what not to do),

- Confirming that activities in value string must be fit, consistent with and

supplementary to one another,

- Ensuring continousness of strategy with regular improvements in

strategy implementation

The first important step of strategy building is to determine organisation’s activities The core of determination is to answer the question : what are our business activities? To answer this question, Derek F Abell suggested that the company should determine its business activities on 3 aspects:

- Who will be satisfied ? (which customer group ?).

- What will they be satisfied with (what do customer want?).

- Way to satisfy customer demands (what different skills, capabilities?)

Customers: finding and attracting customers are usually the most importat

target of a company With customers, the works as product development, production expansion, goods distribution will become nonsense Thereto, analysis

of external factors is often started with custumer researching Customers are regularly divided into groups with common features Market segmentation is to segment a big and unidentified market into smaller segments with many identified features

Determining customer needs that should be satisfied: customer needs

regularly relate to benefits and specifications of product ; are their expectations with characteristics and efficiency capability of the product

Determing core capabilities neccessary to satisfy customer needs: core

capabilities are foundation for all new strategies or adjustment Companies use core capabilities to implement strategy creating values to satisify customer demands and only the ones with capabilities that are improved continuously, renewed and developing their internal forces will expect to satisfy or overcome customer

expectation through time However, core capabilities must be unable to be copied, long term, sustainable, suitable capacity, having competition advantage.

4 Determining tasks and system of strategic targets:

4.1 Strategic tasks:

It is a fixed statement on long term about the company’s purposel It distinguishes one company from the others The statement could be business principles, purposes, business philosophy, based on which business field of products and services, market demand will be determined

Content of strategic tasks shows overall issues, on which the company’s operation area in product aspect and market will be determined When defining strategic tasks, it is needed to pay attention to factors : establishment history, leader’s desires, business environment conditions, available resources and the company’s strong points Strategic tasks help leaders determine easier, more specifically It determines the company’s priority level in order to evaluate potentiality of each business unit and draw future direction for the company

4.2 System of strategic targets:

Strategic targets: target is future status that the company tries to carry out or the final result of arranged activities Target is found out directly from task function but more specifically and clearly, quantitated into numbers : growth rate, profit rate, revenue, market share Strategic targets can be separated into 2 types : long term and short term

- Long term targets: are expected result set forth for a long period of time

According to Peter F Drucker, company’s long term targets relate to 7 fields as follows : profit level, productivity, competition position, job creation, members relation, technology leading position, social duties

- Short term targets: are specific results that the company intends to achieve

in a short period of time Short term orientation may distract management activities, e.g cutting cost for investments that the company thinks they are not necessary in short term such as expense for R&D, marketing… This leads to insufficient investment, lack of improvements and weak market awareness jeopardizing investment capital market in long term

4.3 Principles of target determination:

- It should be clear in every stage of the company’s development;

- It has attachment, supplement to one another One target does not obstacle

the others;

- Prior targets must be determined, showing classification of targets, set

tasks for the company in each period

Target of business strategy will be deemed to be right when it is given out to every management level of the company and ensuring following features:

- Being precise and measurable: if the target is not determined precisely

and immeasurable, the process orienting to the target cannot be considered by the company Measurable target provides managers with standards for consideration of their implementation

- Target must head to important issues: to maintain concentration, the

company should perform with some targets Thus, selected targets should be important targets

- Target can have challenges but be processed: target challenges managers

as a motivation to find out improvement methods for organisation’s operation But

it is not realistic, cannot be implemented, the staff will reject it Vice versa, too easy target can not encourage managers

- Target should be determined with a period of time to achieve: Time

constraint is important because it states that success must be assured to be in time, not after that

- Target of consistency: Consistency means that strategies must fit to one

another and be consistent and that the completion of one target will not obstacle the others

5 Analysis of the company’s business environment:

Analysis of business environment including macro and micro environments

to determine opportunities and threats to the company It is the process considering different environment factors and determining the impact from opportunity and threat, by which opportunities will be taken, threats to the company will be controlled

Chart 1.1: Simulation of the company’s business environment

5.1 Analysis of macro environment:

The company’s objective environment includes 6 partitions: economy, politics and legislation, socio-culture, demography, technology and globalization Changes in macro environment can affect directly to any forces in the industry Thus, it change relative strength to other forces and itself, and finally, it changes the attractiveness of an industry

The company must realize opportunities, threats brought by objective environment which the company has to get used to and also press for environment changes Factors of macro environment are shown by following model:

Macro environment:

Economic factors Politics, legislation factors.

Socio-cultural factors Demographic factors Technology factors Globalization factorsOperation environment (industry)Competitors

Customers Suppliers Potential opponents Substitution products

The company’s internal environment

Human resource Research and Development Production

Finance, accounting Marketing

Organisation custom

Macro environment includes external

factors affecting the company.

Operation environment includes

factors outside the company,

guiding competition in the

industry.

Internal environment includes the

company’s internal forces.

Chart 1 2: External environment

Source: Strategy management textbook – Gemba01.01

5.1.1 Analysis of economic environment:

Economic environment is socio-economic situation and economic policy in the country where the company exists and develops Economic environment includes: socio-economic structure, level of economic development and macro economic policy

Analysis of socio-economic structure: socio-economic structure is also called

the structure of national economy, including the structure of: industry, distribution, exchange, consumption, techniques, ownership etc… among which development

Economy

culture

Threats from new companies

Supplier power Buyer power Threats from substitution Competition intensity

Competition Environment

strategy of industries is the most important factor Thereto, when building business strategy, the company must study development situation of industries that the company is doing business in.

Analysis of economic development level: economic development level is

scale, speed of economic development for a country, region and obtained economic level Criteria representing economic development level include GDP, national income, national income per people, economic growth rate Analysis of economic development level can help the company hold the development trend of the economy

Analysis of economic institution: economic institution is the form of

economic organization of a country It regulates the relation between government and companies, companies and companies, companies and economic industries Via certain administration tools, methods which are used to harmonize affect scale, content, methods of socio-economic activities It sets forth principles and basic conditions with system of form, content, way of the company’s survival and development

Analysis of government’s economic policy: economic policy is target of

economic development in a specific period of time stipulated by the government with strategies, policies to achieve that target Economic policy of a country includes economic development strategy for whole country, industry policy, distribution policy, price, commerce, salary, finance and monetary policies, interest rate, exchange rate, inflation rate Macro economic policy regulates scale and operation principles of companies, harmonizes relation between companies, industries, partially and wholly, ensures normal running of national economy, implementing target and mission of national economy development

5.1.2 Analysis of politics and legislation environment:

Politics, legislation environment includes: political regime, government institution, regime of political party, organizations, legislation system Factors of politics, legislation impact on the company’s development strategy in different ways They may be opportunities for one company, but also threats to the others Open policy encourages many economic elements to take part in production and business activities This is the threat for state owned enterprises but an opportunity for private companies joining the market.

Impact of politics and legislation environment to the company’ business activities are deep and wide, and even decisive General, if a country is stable in politics, clear and consistent policies, strict legislation, companies can develop healthily and stably

5.1.3 Analysis of socio-culture environment:

Social environment: it includes foundation and fluctuation of society classes, population structure, population imigration, social power structure, people work and live custom Facts and fluctuation of these factors can affect the company’s business

Cultural environment: it includes factors of philosophy, religion, language, literature, art Impacts of these factors to the company’s business are mostly indirect but cannot be underestimated

For strategy management, factors of socio-culture are sensitive and changing regularly Living custom of people automatically changes along with newly adopted trend of life that leads to change of consumption behavior High people intellect results in customer increasing demand of high production quality and This is a challenge to the producer

Every company is operating in certain socio-cultural environment Society provides resources the company needs, consumes products and services the company makes Socio-cultural environment can affect strategic decisions such as:

goods and field selection, brand selection, color, design, change of distribution channel

5.1.4 Analysis of demographic environment:

Population scale: observation of demographic change on population would

raise the importance of this partition Forecast of population will reveal global challenges about population of 21st century and opportunities for businessman

Age structure: It reveals opportunities of old people care services, insurance

services However, it also hides a challenge to companies about labor resource

Geographic allocation: this can create advantage for telecommunication

technology By computer, human can stay at home and communicate with the others via telecommunication

5.1.5 Analysis of techniques and science environment:

Techniques and sciences environment: it is the factor of techniques and science and a collection of social phenomena directly related to techniques and science at place where the company exists and develops; government’s scientific institution; policy of techniques and science and legal documents on techniques and science

Science and technology are the most important factors of the company’s technical and science environment It includes areas of science and technical which have been researched and successfully researched, advanced techniques and science, utilize of technical and scientific achievements Social force of techniques and science is the real strength of technical scientific research and development for

a count or a region Technical scientific institution of a country regulates structure, operation mode of national technical scientific system and its junction with other parts of national economy It includes social position of technical scientific career and officials, principles of establishing and operation mode of technical scientific

agency, technical scientific management policy, and application channels of technical scientific achievements All these factors effects in many aspects to the company’s business and management.

Nowadays, world technical and science are improving quickly Developing countries have stepped into the age of know-hows economy Know-hows keep changing New techniques have been born and applied so quickly that it made whole economy of developing countries intellectualized It will change the company’s environment of technical and science promotes reform of society’s techniques and science, urges for technology transfer and current industry structure The companies need to recognize brightly that change and hold the chance brought

by it, carry out technical advances and upgrade their own techniques

5.1.6 Global environment:

Global environment includes related global markets, present changing markets, significant political issues, and basic institutional and cultural characteristics in global markets

The companies without direct transactions with foreign partners still need to concern about impact possibility of international environment because it affects indirectly them through macro and micro environments

- Impact to economic environment: every fluctuations of world economy

have certain effects to the economy of every nation at different levels Economy development of one nation effects to that of the other and has relation with world economy

- Impact to politics and legislation environment: based on diplomatic relation between governments, the relation of trading on international market is founded Any change in diplomacy will result in adjustment of foreign affairs economic policy and this adjustment has impact directly or indirectly on the company

- Impact to technology environment: world technological scientific

improvements create new working tools or products which have impact on domestic technology environment

- Social and natural factors from abroad can affect the company even though it does not directly operate on international market, e.g when crude oil exploitation is tough, world fuel will increase and make a raise of domestic business cost consequently Foreign customers are always segment with full of potentialities which should be count on when the company has chance of business growth The company also needs to consider foreign suppliers to be potential partners, especially when there is price advantage Any foreign company can launch substitution products; thus, it should be watched on product development and strategic capabilities of the foreign companies operating in the same field

Macro analysis allows the company to evaluate macro economic factors effecting strongly to its operations and basic changes in competition environment Macro environment analysis can be illustrated as follows:

Chart 1.1 Macro environment analysis

Economic partition

Inflation rate Interest rate Commercial deficit or surplus Budget deficit or surplus

Personal savings ratio Business savings ratio Gross Domestic Products

Polices/legislation

partition

Anti-trust law Tax law Decentralization regulations

Labor training law Education policies and trends

Socio-cultural

partition

Women in labor force Variety in labor force Behavior of work performance

Concerns of environment Change in selection of careers and services Change in priority related

to product features and services

Demographic

partition

Population scale Age structure Geographic allocation

Racial diversification Income distribution

Technological

partition

Product renew Know-haws application

Government’s focus level of cost for R & D New communication technologies

Global partition Significant political issues

Main global markets

NICs Difference between culture and institution

Source: Strategy management textbook-Statistic publisher 2007

5.2 Analysis of industry environment (operation environment):

The industries are significantly different to one another in economic characteristics, competition position, and prospect of future profit Economic characteristics of each industry change according to the factors such as scale and growth of market, speed of technology change, geographic boundary of market (local or global), number, scale of buyers and sellers, scale of seller’s products, distribution channels… Competition forces, competition focus in industries are different, may be price, quality …

Managers cannot form a long-run orientation, or a strategic decision if they

do not understand thoroughly the company’s strategic position, competition conditions it is facing to, challenges creating fitness of resources and capabilities with such conditions

To analyze factors of industry environment effecting directly to the company’s operations, 5 force model of Michael E Porter is the best tool The competition model shows that the stronger the competition forces are, the more the existing companies’ possibility of price increase and higher profit is limited The task set to managers is to recognize opportunities and threats brought by the change

of 5 forces, and build appropriate strategy based on that

Model of 5 competition forces :

Micheal E Porter defined that 5 strong competition forces regulating competition in an industry help managers realize opportunities and threats that the company has to face in that industry:

- Threats from new entrants,

- Supplier’s negotiation ability,

- Buyer’s negotiation ability,

- Threat from substitution products or services,

- Competition intensity in the industry (Rivalry among existing firms)

Chart 1.3: 5 force model of M.PORTER

5.2.1 Analysis of existing competitors (competition in the industry)

Threat of new EntrantsIndustry Competitors

Rivalry among existing

firms

suppliers

Bargaining power of suppliers

Bargaining power of buyer’s

Threat of Substitute products or services

Buyer’s

Potential Entrants

Substituties

Industry is defined to be a group of companies offering same products or services which can be substituted by one another Economists think that mutual substitution products are the ones having very significant elastic need If the price of one product increases and makes need of the other increased, the 2 products can be substituted to each other and vice versa

For example, price wars shaked American aviation industry early 1990s At that time, the demand of transportation by air decreased because US economy was deep into crisis Airlines started cutting price to keep the number of their customer Whenever an airline had price cut, other opponents had theirs cut as well As a result, it became a strong tornado of price decrease and made this industry to suffer

a loss of 7,1 billion USD from 1990 – 1992, more than accumulated loss of 50 previous years and leaded to bankruptcy of some long aged airline such as Pan

American (Source: Strategy Management, Statistic Publisher 2007, page 113)

In 2004, Viettel officially participated in Vietnam cell phone market and bloomed it, broke monopoly of domestic mobile phone service providers

A very important thing is that the company must get to know judgements from its opponents about themselves and other companies in the industry when analysing its competitors The company needs to collect information about opponents’ strategies, targets, strengths, weaknesses and reactions When each opponent’s strengths and weaknesses have been known, the company can complete its strategy to gain advantages against opponent’s disadvantages and, at the same time, get away its attendance in those the opponent is strong at

Competition between companies in the industry usually focuses in following main contents:

- Competitiveness: between substitution prouducts to satisify a need It

means that it is the competition of buying priority level for products with the same

functions in the relation with income; competition of same products; competition of brandnames.

- Competition pressure in an industry: Structure of that competition industry

is the number and scale of competing companies in the same industry of business If companies are small and single, no commanding company, competition structure will be dispersed If market demand is huge, competition pressure will decrease Vice versa, if market demand is small, competition will become fierce

- Barriers of industry entrance and withdrawing: company who wants to

enter or withdraw from an industry should consider costs such as:

+ Investment cost: workshops, equipments, technology

+ Direct cost of investment preparation, administrative procedures

+ Social cost: workers training, firing

5.2.2 Analysis of Potential Entrants

Potential Entrants are companies who do not appear in the industry but can enter and effect to the industry in future The fact that there are many or few Potential Entrants, their pressure to industry is strong or weak depends on attracting factors of the industry These factors are showed by profit ratio, customer number, number of companies in the industry

For Vietnam telecommunication, hidden opponents nowadays could be foreign mobile phone service providers who would participate into the market by joint venture, cooperation with a domestic company (GTEL is an example)

Existing companies often try to prevent Potential Entrants from entrance into the industry, because competition market will be fiercer, market and profit will be shared, the company’s position can even be changed Barrier factors include:

- Initial investment capital

- Price advantage

- Advantage of brand name, goods, services

- Advantage of production scale

- Barriers of legislation

5.2.3 Pressure of supplier:

Number and scale of suppliers will determine competition pressure, their power of negotiation to the industry, companies Suppliers can be deemed as a threat when they can press to increase price or decrease income quality which they supply to the company, and limit possibility of profitability In return, if the supplier

is weak, it would give the company a chance of price decreasing urge and demand high quality However, the suppliers’ ability requesting the company depends on relative power between them and the company The suppliers can only create pressure on the company in following circumstances:

- There are few suppliers in the production industry.

- There are few substitution products and services.

- Having particular advantage of products and services.

- Having ability of right side integration, closed products.

5.2.4 Pressure of customer (buyers):

Customers are competition pressure which can directly affect whole business and production activities of the industry Customers create pressure on the company about price, product quality, attached services and they are the very ones who control competition in the industry by their buying decision

Customers of a company can be final consumers of its products, but may be, distribution companies distribute its products to final customers, such as agent,

retailers When analyzing distribution companies, it is necessary to pay attention to their importance They can directly enter deeply threatening within the company

Advantage of analysis of competition pressure from customers is to help to determine scale and importance of the industry However, if information of buyers

is not correct, it would lead to making judgments with lack of correct, even wrong about scale of the industry Customers usually make pressure on the company in following cases:

- They are customers with large scale.

- There are many suppliers of one product and many choices.

- Having ability to integrate back in to own whole or a part of product

manufacturing

5.2.5 Substitution products:

Substitution products are products of industries that serve customer demands

as that of the industry which is under analysis Substitution products do not compete fiercely but they can affect profitability of market and be threat for companies

The existence of substitution products represents a competition, limiting possibility to set high price, and limits profitability The threat from substitution products increases when:

- Buyers do not pay high cost for product conversion

- Price of the substituted is better,

- Quality and efficiency of the substituted is higher than that of products

which are being used

From above analysis, we see that 5 competition force model and strategy group is useful tools for researching and analyzing the nature of competition in an

industry to realize opportunities and threats However, this model also has shortcomings It is the assumption of competition picture with data in the past, underestimating role of innovations, passing the importance of difference in typical companies when stressing too much on the structure of industry, group of strategies

5.3 Analysis of the company’s internal environment:

Aim of internal environment analysis is to recognize potential resources as well as existing ones making sustainable competition advantage for the company realize strengths and weaknesses of the company creating foundation for planning and implementing business strategy Objectives under consideration are primary factors inbound the company, within its control and include: human resource, finance, accounting, marketing, communication system, organization system

5.3.1 Analysis of sustainable competition advantage:

There are 2 main ways They are resource and value chain analysis

Resource analysis shows reservation of resources, capabilities and available assets for business unit or whole company When analyzing, it is usually concentrated in financial resources (budget, capital, ability to get loans); material assets (land property, equipments, workshops); human resource (skills, values and culture of the company); assets of technology (copyright, patent) and long term contracts The important thing is that analyses must recognize resources taking part

in possibility of profitability for the company, not just list the resources

Value chain analysis will help strategy makers classify valuable resources of the company to realize its competition advantage Value chain analysis allows the company understands the chain making value of its products and the one making none It is possible to provide customers with a product (goods and service) with quality equal to that of its competitors but at lower cost (strategy of low cost); or by some ways to make products wished to buy by customers at higher price (strategy

of differentiation)?

Normally, there are 4 steps which can be used to analyze value chain as follows:

- Recognizing related elements by using an outline of inside goods chain;

- Describing what the company does in each activity;

- Recognizing methods to raise the value of every activity on theory and

classify them;

- Analyzing activities by comparing the standard with the best way of

opponent, industry or on theoretical model

Chart 1.4: Model of value chain

When analyzing value chain, it is to analyze possibility creating value of main activities including:

- Inbound Logistics: activities related to materials handling, warehouse,

inventory which are done to change income into products

- Production activities: including necessary operations to turn income

supplied by inbound logistics into final products

- Outbound Logistics: including activities related to earnings, storing and

transporting final products

- Marketing and sales: including activities to ensure goods and services

transactions on the market efficiently These works concentrate mostly on basic stages of marketing-mix complex: market research, product development, price policy planning, setting up distribution channels and sales promotion

- Services: including activities designed to enhance or maintain product

value

As above, these are basic activities contributing to making whole value chain for company Each activity should be considered in connection with capability of opponents Whereas, each company has to evaluate if each of its activities is superior, equal or lower

5.3.2 Analyzing value creating possibility of support activities:

Purchasing: including activities to buy income materials which are

necessary for the company’s products Besides raw materials, it is needed to take into account the production facilities such as workshops, machineries, labs, necessities for office… as well as other conditions for production These activities are handled by different parts in the company, but they all participate particularly in process of value creation for product as well as performance of the company

Technology development: including required activities to improve product

value and process used to manufacture products The term of technology is thought

in broad sense including both production and management technology, having close junction with each other making common value for the company Technology development includes also research and development (R&D) This is an important activity contributing to creation of new value for product and to value chain of product or the company Besides R&D, production technology level also plays a

very important role For many fields, development level of production technology is decisive greatly to final value of value chain.

Personnel management: including activities related to employee

recruitment, hiring, training, development and payment Personnel management is

an important activity appeared in all chains of value creation process Facts show that any company, who really cares to invest for human development and management, will make the differentiation on the market and take long term competition advantage

Company infrastructure: including general management activities, planning,

financing, accounting, legislation supports, relation with government agencies to support whole value chain

Like basic activities, support activities are considered in correlation with capabilities of opponents Thereto, each company has to judge if each of its activity

is superior, equal or lower

5.3.3 Current strategy analysis:

Firstly, we need to analyze current strategy of the company before creating new strategy(including corporate strategy and functional strategy) Description of the strategy often focvus on product-customer strategy, competitive opinion and

strategic logic Corporate strategy : In order to understand corporate finance, we

should consider its business units, georaphic scope, the focus ability, intergration ability and multiplized ability Thus, it would be easy to recognize the most important business unit ( being allocated the greatest human resources) or receive the most commitment

Product – customer strategy : it should determine the focus of the company

on product-customer segment

Competitive strategy viewpoint : it is necessary to understand how the

company competes according to cost strategy or differentiation strategy or combination In this stage, it should determine how the company reduce the cost or demand In other words, core activities of value chain

Functional strategy : Which functions are put into effect, which activities

need to be joint-stock or joint venture and affect of each activity to the profit of

the company Lastly, it is necessary to know the comformity among strategy levels.

5.3.4 Ananlysis of financial efficiency

Financial efficiency via profit ability, payment ability, business lever Finance efficiency is not the ultimate aim but it must bring profits if the company would like to develop for long term

6 Basic business strategies :

Business strategy is built to create the differentation between the company’s position in realtion to its competitors Basically, all companies with profit strategy aim to determin and follow strategies to help them protect and make profits in the market segment According to Harvad’s idea, most of business strategies depend on one or several rudimentary basic types as follows :

- Leading strategy because of low cost and method of application.

- Create differentiation for goods or service by creating real value for

customers

- Strategies for customers’ relationship and 6 methods to make the strategy

more valued with customers

- Effective strategies : the winner has everything.

Prof Michael E Porter gives three strategic solutions used in competitive environment :

- Leading strategy in cost

- Differentiation strategy

- Concentration strategy.

6.1 Cost leading strategy

Cost leading strategy is all activities to produce goods and service with specific characters accepted by customers with lowest cost in the relation to all competitors In other words, cost strategy bases on the abilities of the company providing goods and service with lower cost in compared to competitors

According to cost strategy, the company has two competitive advantages : the products with low price in comparison with competitors and the company can stay in the market longer than the competitors while competitors in the industry increases For the two reasons above, cost strategy seems to make higher profits than the average

In fact, for Vietnam telecommunication in period of 2004 – 2009, price competition was so fierce The companies together gave out promotional programmes (price reduction indeed) to attract customers Recently, it is Beeline with giant package of charge Big Zero In the context of Vietnam at present, cometition with cost leading strategy is still a usefull tool

In order to gain low cost strategy, the company can control cost factors and restructure value chain if necessary Cost factors are as follows:

- Changes in production procedure

- Changes in automation

- Create new distribution network

- Direct selling replaces indirect selling

- Restructure value chain

- Applying material management

- Upward integration

- Backward integration

- Changes in position in order to be suitable with the suppliers

To become the leading cost strategy, some managers focus on product and market strategy, or the ability to create differentation in order to gain competitive advantages with low cost However, the company chooses leading cost strategy bring several disadvantages because of the facts that :

- The competitors using their potential abilities can mimic the leading cost strategy of the company

- Procedure for producing and distributing goods and service can become out

of date due to the changes of competitors

- Focus on reducing the cost depending on customer’s awareness in creating differentiation

6.2 Differentiation strategy:

A range of necessary activities to produce goods and service (at acceptable price) Customers think that the product creates differentiation and it is important for them In this stage, most of the products are not standard, and they are suitable when the customers pay attention on the differentation than low price

In order to create differentation, the manafers restructure value chain to maximize competencies via controlling cost factors as follows :

- Reduce the cost

- Increase useful application of goods or service.

- Create stability via customers’knowledge about differentiation.

Like cost strategy, differentiation strategy has both advantages and disadvantage When having a look at advantatges, we would think about Porter’s five forces It is the advantages assuring the company to compete with other competitors via customer’s loyality It is easy to reduce negotiation power of the buyer because product differentation would reduce the sensitiveness of price Also,

we could low negotiation power of the supplier, against new company for entering the market

Drawbacks of differentiation strategy :

- Differentiation between product price of the company and costcompany.

- At the specific time, differentiation could not create values which the

customers are available for payment

- The competitors mimic to produce fake products.

6.3 Concentration strategy:

It includes concentration strategy in cost and differentiation, a series of activities to produce goods and service to serve demands of competitive market segment

In order to implement concentration strategy, the company must implement

as series of basic activities and support to build and maintain competitive advantages with over average profits Concentration strategy allows the company to