FORMULATING DEVELOPMENT STRATEGY for FSC company

Major theories on SWOT and industry competitive forces, strategiesand strategic management will be studied as the group try to form a strategy forFSC in the 2011-2015 period.. - Analyzin

MBA THESIS TITLE

FORMULATING DEVELOPMENT STRATEGY

FOR FSC INFORMATICS ELECTRONICS JOINT STOCK COMPANY

(FSC)

TABLE OF CONTENTS

ACKNOWLEDGEMENTS 2

TABLE OF CONTENTS 3

LIST OF ABBREVIATIONS 6

LIST OF TABLES 7

LIST OF FIGURES 8

A INTRODUCTION 10

1 Rationale 10

2 Objectives 11

3 Methodology 11

4 Structure of the research 11

B DEVELOPMENT 13

CHAPTER 1 : THEORETICAL BACKGROUND 13

1.1 Definitions of strategy and strategic management process 13

1.2 SWOT analysis – the tool to formulate the strategy 15

1.2.1 External Environment Analysis 16

1.2.1.1 Macro environment Analysis 17

1.2.1.2 Industrial analysis and Michael Porter’s competitive five forces 18

1.2.1.3 Competitor analysis 21

1.2.2 Internal Analysis 23

1.2.3 Value chain analysis 24

1.3 Business-level Competition Strategies 26

1.3.1 Cost Leadership Strategy 27

1.3.2 Differentiation Strategy 28

1.3.3 Focus Strategy 29

1.3.4 Integrated Cost Leadership/ Differentiation Strategy 30

1.3.5 Selecting suitable strategies 31

CHAPTER 2 CHAPTER II: AN ANALYSIS ON THE CURRENT SITUATION OF FSC 33

2.1 Company Profile 33

2.1.1 Introduction 33

2.1.2 Products and services 33

2.1.2.1 Hard-ware products and IT services 34

2.1.2.2 IT products and solutions 34

2.1.3 Financial reports 35

2.2 Current situation of macro and industrial environment 37

2.2.1 Macro economic conditions 37

2.2.1.1 Economic 37

2.2.1.2 Technological 40

2.2.1.3 Political-legal 43

2.2.1.4 Demographics 45

2.2.1.5 Global environment 46

2.2.1.6 Social Environment 48

2.2.2 General industry situations 49

2.2.2.1 IT industry situation 49

2.2.2.2 Industry Competitive forces 51

2.2.3 Evaluation of the industry’s opportunities and threats via EFE matrix 60

2.3 FSC’s internal analysis 63

2.3.1 An analysis of tangible resources 63

2.3.1.1 Financial Resources 63

2.3.1.2 Organizational Resources 65

2.3.1.3 Physical Resources 67

2.3.1.4 Technological Resources 67

2.3.2 An analysis of intangible resources 68

2.3.2.1 Human Resources 68

2.3.2.2 Innovation Resources 69

2.3.2.3 Reputational Resources 69

2.3.3 Value chain analysis 70

2.3.3.1 Company’s Value chain analysis 70

2.3.3.2 Supporting activities 71

2.3.3.3 Main activities 75

2.3.4 Evaluation company’s strengths and weaknesses via IFE matrix 81

2.4 SWOT analysis and IE matrix results 83

CHAPTER 3 : FORMULATION OF DEVELOPMENT STRATEGY FOR FSC FOR PERIOD 2011-2015 86

3.1 FSC’s visions/missions 2011-2015 86

3.2 Selecting development strategy for FSC 2011-2015 86

3.3 Solutions for the implementation of the strategies 92

3.3.1 Market Strategy 92

3.3.2 Cost Management Strategy 93

3.3.3 Human resource development (HRM) Strategy 95

3.3.4 Branding Strategy 97

3.4 Roadmap and Gantt chart for the implementation of the strategy 99

C CONCLUSION 101

REFERENCES 103

LIST OF ABBREVIATIONS

FSC FSC informatics electronics joint stock company

GREAT Gains, Risks, Expenses, Achievability, Time

SWOT Strengths, Weaknesses, Opportunities and Threats

LIST OF TABLES

Table 1.1 SWOT Matrix 16

Table 1.2 The general Environment: Segments and Elements 18

Table 1.3 Tangible resources 23

Table 1.4 Intangible resource 24

Table 1.5 Value chain analysis 25

Table 1.6 GREAT model 32

Table 2.1 FSC’s Financial reports over years 36

Table 2.2 FSC’s key financial indicators 37

Table 2.3 Forecast for Vietnam 39

Table 2.4 The application of IT and e-commerce in firms 43

Table 2.5 FSC’s hardwares provision as against that of its competitors 56

Table 2.6 FSC’s hardwares provision as against that of its competitors 58

Table 2.7 External Factor Evaluation for FSC 63

Table 2.8 Financial Resources 64

Table 2.9 General Balance Sheet 67

Table 2.10 Internal Factor Evaluation (IFE) Matrix 83

Table 2.11 FSC’s Internal-External Matrix 85

Table 3.1 Quantitative matrix with GREAT criteria 90

Table 3.2 Total investment of FSC 98

Table 3.3 Expected financial resources 99

LIST OF FIGURES

Figure 1.1 The strategic management process 14

Figure 1.2 Layers of the business environment 17

Figure 1.3 5 force model of M.E Porter 20

Figure 1.4 Competitor analysis components 22

Figure 1.5 Porter's Generic Strategies 27

Figure 1.6 Types of business-level strategies 30

Figure 2.1.Growth chart of Turnover (Mil VND) 36

Figure 2.2 Vietnam GDP changes over from 1980 to 2009 38

Figure 2.3 Structure of IT investment and e-commerce of enterprises in 2008 and 2009 42 Figure 2.4 FSC’s customers’groups 52

Figure 2.5 Composition of FSC’s customers 53

Figure 2.6 Network of providers 54

Figure 2.7 FSC’s HRMS product as against that of its competitors 55

Figure 2.8 FSC’s hardwares provision as against that of its competitors 57

Figure 2.9 FSC’s e-gov solution software provision as against that of its competitors 58

Figure 2.10 FSC Informatics Electronics J.S.C shareholoders Plenum 66

Figure 2.11 FSC Staff’s qualifications 68

Figure 2.12 FSC Staff’s range of age 69

Figure 2.13 FSC’s Value chain analysis 70

Figure 2.14 A comparison of infrastructure between FSC and its competitors 71

Figure 2.15 Growth of Human resource chart 73

Figure 2.16 A comparison of Human Resrouces between FSC and its competitors 73

Figure 2.17 A comparison of Technology development between FSC and its competitors .74

Figure 2.18 A comparison of Technology development between FSC and its competitors .75

Figure 2.19 A comparison of Inbound logistics between FSC and its competitors 76

Figure 2.20 A comparison of Operations between FSC and its competitors 77

Figure 2.21 A comparison of Outbound logistics between FSC and its competitors 78

Figure 2.22 A comparison of Marketing and sales between FSC and its competitors 79

Figure 2.23 A comparison of Services between FSC and its competitors 81

Figure 2.24 SWOT analysis results 84

Figure 3.1 FSC new organizational structure for the strategy 94

Figure 3.2 Roadmap for the implementation of the strategy 99

Figure 3.3 Gantt chart for the implementation of the strategy 100

LIST OF MATRIX Matrix 1: Combination of exploiting strengths and taking advantage of opportunities plan -S/O 87

Matrix 2: Combination of exploiting strengths and overcoming threats plan - S/T 88

Matrix 3: A combination to minimize weaknesses and overcome threats – W/T 88

Matrix 4: A combination to minimize weaknesses and take advantage of opportunities – W/O 89

A INTRODUCTION

1 Rationale

Despite the three remarkable crises, namely the 1994 Mexico’s currency crisis, the1997-1998 Asian crisis and the not-yet-over 2008 financial global crisis, Vietnamstill remains one of the fastest-growing economies in the world, averaging around8% annual gross domestic product (GDP) growth from 1990 to 1997 and 6.5% from1998-2003 From 2004 to 2007, GDP grew over 8% annually Foreign trade andforeign direct investment have improved significantly From 1990 to 2005,agricultural production nearly doubled, transforming Vietnam from a net foodimporter to the world's second-largest exporter of rice The average Vietnamesesavings rate is about 30% Inflation in 2007 was 7.3% but was in the double digitsand approaching 30% year-on-year by August 20081 Generally in 2009, GDPincreased by 5.1% against that of 2008.2

However, according to the Ministry of Planning and Investment’s reports3, theeconomy is showing signs of slower growth while its quality is relatively lower due

to the low efficiency and productivity resulting in high production cost At present,investment is contributing to 60% of the annual GDP growth and the rest comefrom labor values However, due to low productivity and obsolete technology, thehigh-tech products account for only a limited amount in total export volume Thisfact, in turns, results in an imbalance in the macro economy To find the way out,the Vietnamese government has decided to strongly conduct a structural shift in theeconomy In this shift, the private sector is encouraged to become drivers of theeconomy Especially, the technology sector is to be spearheaded and seen as agentsleading the whole economy movement toward a more advanced high tech economy

1 http://www.gso.gov.vn/default_en.aspx?tabid=622

2 http://www.gso.gov.vn/default_en.aspx?tabid=501&thangtk=09/2009

3 http://www.laodong.com.vn/Home/Tai-co-cau-nen-kinh-te-10-nam-toi-la-giai-doan-tang-toc/

20101/171949.laodong

Having navigated this trend, FSC predicts great opportunities will be opened forprivate enterprises in general and in the IT field in particular It also sees the needsfor revising its current strategy and forming a new strategy to actively grasp thepotential new developments in the industry.

2 Objectives

The project is aims at following objectives:

 Form theoretical background for the analysis of the external and internalenvironment Major theories on SWOT and industry competitive forces, strategiesand strategic management will be studied as the group try to form a strategy forFSC in the 2011-2015 period

- Analyzing FSC’s strengths, weaknesses, opportunities, threats while taking intoconsideration FSC’s market status against its competitors

- Formulating the development strategy for FSC in the 2011-2015 period on thebasis of the SWOT analysis

- Proposing an implementation plan for the new strategy with specific roadmapand plan for the co-ordination of different resources

The research includes 3 mains parts with following compositions:

A INTRODUCTION

B DEVELOPMENT

CHAPTER I: THEORETICAL BACKGROUND

CHAPTER II: AN ANALYSIS ON THE CURRENT SITUATION OF FSC

3.2 Selecting development strategy for FSC 2011-2015

3.3 Solutions for the implementation of the strategies

3.4 Roadmap for the implementation of the strategy

3.5 Recommendations

C CONCLUSION

B DEVELOPMENT

Chapter 1 : THEORETICAL BACKGROUND 1.1 Definitions of strategy and strategic management process

Originally, the word “strategy” comes from word for “general” in Greek and has a

military connotation As a general who is more involved with telling other how to

do than to do it himself, a strategy tends to deal with the “how” part rather than the “what” The free Wikipedia defines generally “A strategy is a plan of action

designed to achieve a particular goal”4 In its authentic sense, “a strategy” can beunderstood as a set of action plan that one party undertake to gain a particularpurpose in relation to its competitors In the military context, the competitors may

be the enemy while that of the game theory may be another player.5

In a business context, Thomson A.A., Jr., Strickland III A.J and Gamble J.E

defined “a company’s strategy consists of the competitive moves and business that managers employ to attract and please customers, compete successfully, grow the business, conduct operations and achieve targeted objectives” (p3, 2003, Crafting

and Executing Strategy-The Quest for Competitive Advantage, Concepts andCases) Despite the details that the definition touch upon in specifying what abusiness should do to compete successfully, we think that it lays too much theworkload on the role of the “managers” in developing and implementing thestrategy while ignoring the other factors, i.e., the role of the followers in theprocess Instead, this research adopts the Hitt, A, M; Ireland D.R and HoskissonE.R’s definition of business strategy put forward in the first chapter of the book

“Strategic Management, Competitiveness and Globalization: Concepts and Cases”

Accordingly, strategy is defined as “a coordinated series of actions which involve the deployment of resources to which one has access for the achievement of a given purpose.” (slide1, chapter 1) Elaborating from this definition, the strategic

4 http://en.wikipedia.org/wiki/Strategy

5 http://en.wikipedia.org/wiki/Strategy

management process include the involvement of “the full set of commitments, decisions and actions which are required for firms to achieve strategic competitiveness, sustained competitive advantage and above-average returns” In

comparing the two definitions, one can easily see that they both target enhancedcompetitiveness but the latter tend to be more sustainable since it aims to bring

about the “sustained competitive advantage and above-average returns” On the

base of the definition, Hitt, A, M; Ireland D.R and Hoskisson E.R also suggest amodel of the whole strategic management process as follows:

Figure 1.1 The strategic management process

(Source: slide 5, chapter 1, “Strategic Management, Competitiveness and Globalization:

Concepts and Cases”, Hitt, A, M; Ireland D.R and Hoskisson E.R’s, 2007)

In an attempt to realize the objectives, a company should be able to know exactlywhat is happening in the external environment while tapping the internal strengths

to deal with it Therefore, it is not by chance that the whole process starts with theexternal and internal environment analysis which is seen as the inputs for thestrategic mission and intent On the base of the inputs, a strategy will be formulatedand afterward implemented in order to result in the strategic competitiveness whichmay generate the above-average returns However, it is noticeable that the process

is a non-stop circle where continuous feedback is extremely important to furtherenhance the inputs quality which in turns betters the mission and the processrepeated itself at a higher level It is this continuity that brings about the sustainablecompetitive advantages and above-average returns Obviously, the external andinternal analysis plays crucial roles in developing an effective strategy A tool thathas been used for long to generate inputs for the formulation of strategy is SWOTanalysis

1.2 SWOT analysis – the tool to formulate the strategy

Environmental factors internal to the firm usually can be classified as strengths (S)

or weaknesses (W), and those external to the firm can be classified as opportunities(O) or threats (T) Such an analysis of the strategic environment is referred to as aSWOT analysis

The SWOT analysis provides information that is helpful in matching the firm'sresources and capabilities to the competitive environment in which it operates Assuch, it is instrumental in strategy formulation and selection The following diagramshows how a SWOT analysis can be used in environmental scan:

Table 1.1 SWOT Matrix

The first use of SWOT analysis is to get to identify strengths and weaknesses,external opportunities and threats In which, the internal strengths are seen as corecompetencies, corporate capabilities and resources that provide the basis for acompany’s strategy Second, the internal Weaknesses are the critical parts of abusiness a company must strengthen or hide from its competitors The externalopportunities are the benefits that are likely to accrue from pursuing a company’svision and external opportunities while the external threats are the pitfalls and thedangers, the variations and exceptions possible

Another use of SWOT is to march and convert Matching is used to findcompetitive advantages by matching the strengths to opportunities Converting is toapply conversion strategies to convert threats or weaknesses into strengths oropportunities

1.2.1 External Environment Analysis

The broader external economy and society but also the industry environment that the business operates in is the two factors composing the external environment

6 http://www.1000ventures.com/business_guide/crosscuttings/swot_analysis.html

1.2.1.1 Macro environment Analysis

No business can exist in a vacuum Each is set in a particular country and region towhich it is inextricably linked This setting provides multiple contexts that influencehow the organization operates and how and what it produces Thus, the concept of

"external environment" is an important consideration for a business in its attempts

to understand the environment it is operating in An analysis of the externalenvironment is an attempt to understand the forces outside organizationalboundaries that are helping to shape the business The layers of businessenvironment are clearly illustrated below

Figure 1.2 Layers of the business environment 7

To effectively formulate a strategy, a firm should not only look at the currentsituations but also the trends in those factors in order to be more actively ininfluencing the future since most strategy are usually set in a longer term Thegeneral environment factors can be summarized in the following table:

7 Source: www.busmgt.ulster.ac.uk/modules/bmg547m1/Strategy%202.ppt

Table 1.2 The general Environment: Segments and Elements

In analyzing the external environment, a company should not only figure out a list

of influences but it should also need to understand key drivers of change Moreimportantly, the focus should be laid on future impact of environment factors withconsiderations to the combined effect of some other factors likely to be mostimportant

1.2.1.2 Industrial analysis and Michael Porter’s competitive five forces

As seen in the figure 1.1, external environment factors include both the

macroeconomic environment and the industrial one The industry is defined as “a group of firms producing products that are close substitutes or the firms that influence one another.”9 Moreover, an industry also “includes a rich mix of competitive strategies that companies use in pursuing strategic competitiveness and above-average returns”

8 Hitt, A, M; Ireland D.R and Hoskisson E.R, Slide 9, chapter 2,

9 Hitt, A, M; Ireland D.R and Hoskisson E.R, Slide 9, chapter 2,

A very useful tool that has been long used for industrial analysis is Michael Porter’s

five force model published in the book Competitive Strategy (1980), Free Press,

New York, 1980 Michael Porter developed a framework, which identified 5 forcesthat act to either increase or reduce the competitive forces within an industry asfollows

Threat of New Entrants: The easier it is for new companies to enter the industry,

the more severe competition there will be Factors that can limit the threat of new

entrants are known as barriers to entry which may include economies of scale,

product differentiation, capital requirements, switching costs, access to distributionchannels, and cost disadvantages independent of size and government policy

Power of Suppliers: This is how much pressure suppliers can place on a business.

Suppliers may become powerful when:

 Supplier industry is dominated by a few companies but sells to many

 Its product is unique and/or has high switching costs

 Substitutes are not readily available

 Suppliers are able to integrate forward and compete directly with presentcustomers

 Purchasing industry buys only a small portion of the supplier’s goods

Figure 1.3 5 force model of M.E Porter Power of Buyers/ Customers: This is how much pressure customers can place on

a business Buyer is powerful when:

 Buyer purchases large proportion of seller’s products

 Buyer has the potential to integrate backward

 Alternative suppliers are plentiful

 Changing suppliers costs very little

 Purchased product represents a high percentage of a buyer’s costs

 Buyer earns low profits

 Purchased product is unimportant to the final quality or price of a buyer’sproducts

10 Source: Porter, M.E (1980) Competitive Strategy, Free Press, New York, 1980.

Availability of Substitutes: Those products that appear to be different but can

satisfy the same need as another product To the extent that switching costs arelow, substitutes can have a strong effect on an industry

Competitive Rivalry: The term refers to the intensity of competition between

existing firms in an industry Consequently, intense rivalry closely related to:

 Number of competitors

 Rate of Industry Growth

 Produce or Service Characteristics

 Amount of Fixed Costs

1.2.1.3 Competitor analysis

Hitt, A, M; Ireland D.R and Hoskisson E.R defined “competitor analysis” as a way

of “gathering and interpreting information about all of the companies that the firmcompetes against.”11 The key objectives in competitor analysis are to develop agreater understanding of what competitors have in place in terms of resources andcapabilities, what they plan to do in their businesses, and how the competitors may

11 Hitt, A, M; Ireland D.R and Hoskisson E.R, Slide 6, chapter 2

react to various situations in reaction to what the firm does Michael Porter hasdefined a competitor analysis framework that focused on four key aspects (Porter,

1980 cited in netmba.com): competitor’s objectives, competitor’s assumptions, competitor’s strategy, and competitor’s resources and capabilities These four

aspects of competitor analysis are the areas critical for a firm to understand and theyshould pursue this knowledge not only for current competitors but also for otherpotential competitors in the business This framework is broken into two parts Thecompetitor’s objectives and assumptions drive the competitor while thecompetitor’s strategy and resources and capabilities define what the competitor isdoing or is capable of doing Together, these four aspects define a competitorresponse profile which gives the firm an understanding of what actions a competitormay take Taking this analysis across a firm’s key competitors will give the firm aviewpoint on where the sector is heading, and provides the firm with a basis fordeveloping their strategy and actions

Figure 1.4 Competitor analysis components (Source: netmba.com, 2009)

In conclusion, the external analyses’ outcomes are to find out opportunities andthreats to a business from macro, industry and competitors’ exposure By studyingthe external environment, firms identify what they might choose to do Afterknowing the opportunities and threats, firms should also know how to maximize theformer while at the same time mitigate the latter An internal environment analysis

is an effective tool in so-doing

1.2.2 Internal Analysis

The internal analysis is expected to provide a comprehensive evaluation of theinternal environment's potential strengths and weaknesses In other words, a firm isexpected to successfully identify its unique resources, including both tangible andintangible ones, capabilities and competencies required for sustainable competitiveadvantage Specifically, the tangible resource of a company is listed in thisfollowing table:

Table 1.3 Tangible resources 12

Intangible resources are largely invisible, but over time become more important tothe firm than tangible assets because they can be a main source for a competitiveadvantage The typology of the intangible resources is specified in the followingtable:

12 Hitt, A, M; Ireland D.R and Hoskisson E.R, Slide 8, chapter 2

Table 1.4 Intangible resource

The analysis of a firm’s tangible and intangible resources may help it know itscapabilities and core competencies better Capabilities14 represent the capacity todeploy resources that have been purposely integrated to achieve a desired end state.Meanwhile, Core Competencies15 are defined as the activities that a firm performsespecially well compared to competitors or the activities through which the firmadds unique value to its goods or services over a long period of time

Four criteria for determining strategic capabilities16 include Value, Rarity, to-imitate, and Non-substitutability

Costly-1.2.3 Value chain analysis

Additionally, a company is also expected to analyze its own value chain to allow thefirm to understand the parts of its operations that create value and those that do not.According to Michael E Porter in his book of “Competitive Advantage: Creatingand Sustaining Superior Performance, pp 39–40, 1998, a value chain’s primaryactivities involved with a product’s physical creation, a product’s sale anddistribution to buyers and the product’s service after the sale while its supportactivities may involve a company’s provision of the assistance necessary for theprimary activities to take place Other elements are explained as follows:

13 http://students.aftrs.edu.au/nhijazi/MBT/Ass1/Assessing%20Core%20Intangible%20resources.pdf

14 Hitt, A, M; Ireland D.R and Hoskisson E.R, Slide 18, chapter 3

15 Hitt, A, M; Ireland D.R and Hoskisson E.R, Slide 22, chapter 3

16 Hitt, A, M; Ireland D.R and Hoskisson E.R, Slide 20, chapter 3

Table 1.5 Value chain analysis

Outbound Logistics

Activities involved with collecting, storing, and physically distributing the finalproduct to customers Examples of these activities include finished goodswarehousing, materials handling, and order processing

Marketing and Sales

17 Hitt, A, M; Ireland D.R and Hoskisson E.R, Slide 25, chapter 3

Activities completed to provide means through which customers can purchaseproducts and to induce them to do so To effectively market and sell products, firmsdevelop advertising and promotional campaigns, select appropriate distributionchannels, and select, develop, and support their sales force.

Services

Activities designed to enhance or maintain a product’s value Firms engage in arange of service-related activities, including installation, repair, training, andadjustment

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

In conclusion, a SWOT analysis is expected to help us understand better acompany’s resource strengths, resource weaknesses, best opportunities, externalthreats However, a SWOT analysis on its own won't help a business The next step

is where things start to get interesting and that is when the SWOT study isincorporated into a business strategy A firm may do this informally or informallybut it is imperative that a company should be able to develop different alternativestrategies and select the best for itself

1.3 Business-level Competition Strategies

A business-level strategy is defined as “an integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets.”18 A firm positions itself

by leveraging its strengths Michael Porter has argued that a firm's strengthsultimately fall into one of two headings: cost advantage and differentiation Byapplying these strengths in either a broad or narrow scope, three generic strategies

result: cost leadership, differentiation, and focus These strategies are applied at the

business unit level They are called generic strategies because they are not firm or

18 Hitt, A, M; Ireland D.R and Hoskisson E.R, Slide 2, chapter 4

industry dependent The following table illustrates Porter's generic strategies:

Target Scope

Advantage

Low Cost Product Uniqueness

Broad (Industry Wide)

Cost Leadership Strategy

Differentiation Strategy

Narrow (Market Segment)

Focus Strategy

(low cost)

Focus Strategy

(differentiation)

Figure 1.5 Porter's Generic Strategies

Source: http://www.quickmba.com/strategy/generic.shtml

1.3.1 Cost Leadership Strategy

This generic strategy calls for being the low cost producer in an industry for a givenlevel of quality The firm sells its products either at average industry prices to earn aprofit higher than that of rivals, or below the average industry prices to gain marketshare In the event of a price war, the firm can maintain some profitability while thecompetition suffers losses Even without a price war, as the industry matures andprices decline, the firms that can produce more cheaply will remain profitable for alonger period of time The cost leadership strategy usually targets a broad market

Some of the ways that firms acquire cost advantages are by improving processefficiencies, gaining unique access to a large source of lower cost materials, makingoptimal outsourcing and vertical integration decisions, or avoiding some costsaltogether If competing firms are unable to lower their costs by a similar amount,the firm may be able to sustain a competitive advantage based on cost leadership

Firms that succeed in cost leadership often have the following internal strengths:

 Access to the capital required making a significant investment in productionassets; this investment represents a barrier to entry that many firms may notovercome

 Skill in designing products for efficient manufacturing, for example, having

a small component count to shorten the assembly process

 High level of expertise in manufacturing process engineering

 Efficient distribution channels

Each generic strategy has its risks, including the low-cost strategy For example,other firms may be able to lower their costs as well As technology improves, thecompetition may be able to leapfrog the production capabilities, thus eliminating thecompetitive advantage Additionally, several firms following a focus strategy andtargeting various narrow markets may be able to achieve an even lower cost withintheir segments and as a group gain significant market share

Firms that succeed in a differentiation strategy often have the following internalstrengths:

 Access to leading scientific research

 Highly skilled and creative product development team.

 Strong sales team with the ability to successfully communicate the perceivedstrengths of the product

 Corporate reputation for quality and innovation

The risks associated with a differentiation strategy include imitation by competitorsand changes in customer tastes Additionally, various firms pursuing focusstrategies may be able to achieve even greater differentiation in their marketsegments

1.3.3 Focus Strategy

The focus strategy concentrates on a narrow segment and within that segmentattempts to achieve either a cost advantage or differentiation The premise is that theneeds of the group can be better serviced by focusing entirely on it A firm using afocus strategy often enjoys a high degree of customer loyalty, and this entrenchedloyalty discourages other firms from competing directly

Because of their narrow market focus, firms pursuing a focus strategy have lowervolumes and therefore less bargaining power with their suppliers However, firmspursuing a differentiation-focused strategy may be able to pass higher costs on tocustomers since close substitute products do not exist

Firms that succeed in a focus strategy are able to tailor a broad range of productdevelopment strengths to a relatively narrow market segment that they know verywell

Some risks of focus strategies include imitation and changes in the target segments.Furthermore, it may be fairly easy for a broad-market cost leader to adapt itsproduct in order to compete directly Finally, other focusers may be able to carveout sub-segments that they can serve even better

1.3.4 Integrated Cost Leadership/ Differentiation Strategy

Elaborated from Michael Porter’s strategy, Hitt, A, M; Ireland D.R and Hoskisson E.R also suggests following types of business-level strategies shown in the

following figure:

Figure 1.6 Types of business-level strategies

(Source: Hitt, A, M; Ireland D.R and Hoskisson E.R, slide 33, chapter 2)

In the Figure 1.6 above, the integrated strategy is added and expected to bring about

a better position for the company in term of quick adaptation to environmentalchanges, early adoption of new skills and technologies A company of this kindcould better leverage a company’s core competencies while competing against itsrivals

According to Hitt, A, M; Ireland D.R and Hoskisson E.R19, a firm that follows theintegrated cost leadership/differentiation strategy is advised to commit to strategicflexibility which involves flexible manufacturing systems (FMS), adaptableinformation network and total quality management systems (TMQ)

19 Hitt, A, M; Ireland D.R and Hoskisson E.R, slide 36, chapter 4

Flexible Manufacturing Systems is characterized by computer-controlled processes

to produce a variety of products in moderate, flexible quantities with a minimum of

manual intervention This may help a company eliminate the “low-cost-versus-wide product-variety” tradeoff and produce large variety of products at relatively low

costs

Information networks link companies electronically with their suppliers,distributors, and customers By having good connection with the stakeholders, acompany may better facilitate efforts to satisfy customer expectations in terms ofproduct quality and delivery speed Additionally, it may improve flow of workamong employees in the firm and their counterparts at suppliers and distributors.Customer relationship management (CRM) will also be implemented effectively

Total Quality Management Systems would help the firm to commit totally to thecustomer through continuous improvement using data-driven, problem-solvingapproaches and empower employee groups and teams to increase the customersatisfaction, lower costs and reduced time-to-market for innovation products

1.3.5 Selecting suitable strategies

Based on the above analysis, the authors will select a company specific strategy.Possible basis for selection strategies will be rationalized by the use the GREATmodel

Weight (1)

Assessment score (2)

Convertible scores (1x2)

Assessment score (3)

Convertible scores (3x2)

G - gain

R - risk

E - expense

A - achievability

T- time

Total

Table 1.6 GREAT model

(Source: http://www.maxi-pedia.com)

Step 1: Select criteria that need to be analyzed (column 1)

Step 2: Use the impact coefficient showing the importance and the influence of

By the end of the first chapter, Michael Porter’s business- level competitivestrategies, namely, cost leadership, differentiation, and focus with A Hitt’sintegrated strategy have also been described in details The best strategy to beselected for FSC in the period 2011-2015 shall be formulated on the basis of aprofound analysis in chapter 2

Chapter 2 CHAPTER II: AN ANALYSIS ON THE CURRENT SITUATION

OF FSC 2.1 Company Profile

Business Import and export electronic, telecommunication, automatic, office and

IT products; Supplying and trading packaged software, solutions, computer, IT equipment system and office instrument; Consulting comprehensive solutions and informatics equipment system; repairing and maintaining communication and informatics system; Whole application Solution in the Television Conference System, IT training and other IT services

2.1.2 Products and services

2.1.2.1 Hard-ware products and IT services

Import and export electronic, telecommunication, automatic, office instruments and IT products

Consult comprehensive solutions to apply in Communication and

informatics equipment system; repairing and maintaining

communication and informatics system

Consult and install the Television Conference System, communication solution for meeting rooms and conferences.

Install the control in and out system, electronic door, camera and

supervision, timekeeping equipments

Import and install experiment equipments for training andcommunication and IT searching

Distribute all kind of Printers, scanners, large size A0 Printer for

Industry, architecture, construction, geography

2.1.2.2 IT products and solutions

Human resources and payroll management, timekeepingand access control management was integrated withtimekeeping equipments and control in – out system bycards, bar-code, electronic, automatic lock or unlocksystem.

Finance and accounting management apply in enterprises,

administrative units and flexible application, easy to use in

project management Especially, let customers themselves

chose the data base

Supply E-portal solution and apply the Portal construction

to integrate management and demonstrator modules.Systematize tools to manage easier and useful than before

Training and management solution for universities,

colleges, technical secondary schools Allow to extend the

training model: degree or credit

Construct and develop management system according todemand of customers

Customize software services

2.1.3 Financial reports

Over 7 fiscal years, FSC’s financial situation is evaluated by tax office and

the shareholders as: healthy, completing the implementation of tax obligations for

the State At the end of each year, financial reports of FSC are evaluated and

verified by independent audit Offices or local tax agencies For partners and

suppliers, FSC always affirm to keep our integrity by the ability of full payment on

time

After 7 years, all the financial targets such as: Total Assets, Turnover, and Profit

after tax have been sustainably and continuously grown as in following Table 2.1:

4 Profits before tax 77,898,278 1,258,979,947 1,597,404,209 1,238,400,935 6,335,409,011

5 Profits after tax 74,985,551 1,145,616,365 1,461,500,828 1,123,131,040 6,110,533,916

Table 2.7 FSC’s Financial reports over years

(Source: FSC’s financial reports over years)

Figure 2.7.Growth chart of Turnover (Mil VND)

(Source: FSC’s financial reports over years)

In term of other financial indicators such as EPS, ROA and ROE, FSC is compared with other competitors in the table 2.2 below:

Table 2.8 FSC’s key financial indicators

(Source: FSC’s financial reports over years)

In general, the company has a significant EPS, ROA and ROE as against itscompetitors Especially, its ROE is almost double its strongest competitors in themarket, which is the FPT Therefore, it is totally convincing to say that FSC hasquite good development outlook as against other competitors

2.2 Current situation of macro and industrial environment

2.2.1 Macro economic conditions

2.2.1.1 Economic

Economic performance recorded in Vietnam over the past 20 some years has madethe country known as a very successful story in the socio-economic reform amongdeveloping countries Vietnam has been ranked among the fastest growing and mostdynamic economies in Asia (Ishii, 2007), and reported to be one of the world’sfastest growing economies in 2003 by the Asian Development Bank The figuresshow that the country’s GDP growth rate has started to improve in 1986, and

accelerated after 1992 During the mid-1980s, the GDP growth rate increased bymore than 5% on average per annum and achieved an impressive record of GDPgrowth in the mid-1990s, averaging 9% between 1992 and 1997 After a few years

of suffering the negative impact of the 1997 Asian financial crisis, whichdiminished the GDP growth by half, Vietnam’s economic growth has started to risesince 2000 From 2004 to 2007, GDP grew over 8% annually Foreign trade andforeign direct investment have improved significantly The average Vietnamesesavings rate is about 30% Inflation in 2007 was 7.3% but was in the double digitsand approaching 30% year-on-year by August 2008 In 2009, Vietnam’s GDP percapita has crossed the line of more than 1000 USD

The economic growth of Vietnam illustrated via GDP growth has been generalized

by IMF in the following Figure 2.2:

Figure 2.8 Vietnam GDP changes over from 1980 to 2009

(Source: International Monetary Fund - 2009 World Economic Outlook)

As shown in Figure 2.2, the country’s 2009 GDP went down to around 5% in 2009due to the effect of the financial global crisis This is seen as a very positive signgiven the fact that most other countries are suffering from a recession The outlook

for the country’s economic situation seems bright according to the OxfordEconomics’ country’s briefing as shown in the table 2.3 below:

Table 2.9 Forecast for Vietnam

(Source: Oxford Economics, 2009, Country Briefings: Vietnam)

Accordingly, the country’s GDP per capita is expected to be 1,376 USD by 2012with the average annual growth rate of around 7.8% More importantly, according

to Oxford Economics, “Vietnam’s software industry will be the fastest growing inSouth East Asia next year, according to independent consultancy reports It hasbecome the third largest exporter of software to Japan, after China and India, andpossibly the fastest-growing according to the trade association, which believes itscurrent 0.5% market share can grow to 5% by 2015 Official promotion of fixed andmobile internet links is paying off in terms of programming activity, though theindustry’s exports are likely to remain constrained by lack of marketing and

language proficiency, and the slowness of large IT players to emerge” (P5, Oxford Economics, 2009, Country Briefings: Vietnam)

All in all, the macro economic conditions have show favorable signs for thedevelopment of IT sector in general and for FSC in particular The first condition isthat FSC is in a macro environment with upward economic trend Second, theforecast for the next 3 years is quite positive with the fact that GDP/capita of more

than 1300 USD Third, IT companies are seen as the key players for the export ofVietnam in the time to come, especially to the Japan market Those conditions areclearly favorable for FSC to develop Together with that, the technologicalenvironment is also showing optimistic signs with clear trends

2.2.1.2 Technological

There are three major trends that are noticeable in the technological environmentthat may affect strongly FSC, namely, the trends of internet access, more enterprisesconducting business with the help of a website and electronic commerce andincreasing investment that enterprises are now making in their IT technology

The first noticeable trend is the trend of internet access As Internet infrastructurecontinues to be improved, bandwidth and speed are up and service is increasinglyreliable By November 2009, Vietnam had estimated 18 million Internet users out of

a population of around 85 million people, or a 21 percent penetration rate In someurban areas where many enterprises and homes still lack computers, Internet cafesare ubiquitous and Wi-Fi access is increasingly common (US Commercial services,2009).20

Along with the robust growth of Internet access and the development of electronicpayment systems, business-to-business (B2B) website of enterprises has beenexpanding with increasing speed According to the Ministry of Industry andCommerce21, about 38 percent of Vietnamese businesses had websites and morethan 83 percent of Vietnamese businesses had Internet access as of the end of 2009

20 Vietnam at a glance, http://www.buyusa.gov/vietnam/en/vietnam_facts_data.html

21 http://tttm.moit.gov.vn/Default.aspx?itemid=70

The third trend is the application of E-Commerce to daily business activities inenterprises of industries in Vietnam Basically, the Government of Vietnam hasissued regulations governing E-Commerce with a view to encouraging andfacilitating the country’s E-Commerce development, including the E-commerceLaw No 51/2005/QH11 dated November 29th 2005, Decree No 26/2007/NDCPdated 15th February, 2007 on e-signatures and certification of e-signatures, Decree

No 35/ND-CP dated March 8th 2007 on E-Commerce in banking transactions, andothers The government is attempting to enhance the national competitivenessthrough modernization of administrative systems and E-government Governmentagencies have increasingly turned to information technology applications in dealingwith businesses and the general public A few central and local offices have started

to provide simple public services electronically such as business registration, customs declaration, E-bidding, and E-certificate of origin systems Nearly half ofall provinces and municipalities in Vietnam have created master plans for E-Commerce development (US commercial service, 2009)22

E-In terms of investment in information technology, there is a considerable increase ofinvestment from 2007 to 2008 and 2009 (Ministry of Industry and Trade, 2009) In

2007, there were about 17.5 percents of the total number of firm surveyed spentmore than 5 percents of their total operational expenses on information technologyand e-commerce application Furthermore, the structure of firms’ investments ininformation technology and e-commerce application has considerably changed As

22 Doing business in Vietnam, http://www.buyusa.gov/vietnam/en/country_commercial_guide.html