Formulating business strategy for haiha confectionery joint stock company

Quantitative Strategic Planning Matrix - QSPM...25 CHAPTER 2: BASES FOR FORMULATING BUSINESS STRATEGY OF HAIHA CONFECTIONERY JOINT-STOCK COMPANY...28 2.1 Overview of HaiHa Confectionery

TABLE OF CONTENTS INTRODUCTION 1

CHAPTER 1: THEORETICAL BACKGROUND OF BUSINESS STRATEGY 4

1.1 Concept of business strategy 4

1.1.1 Concept of business strategy 4

1.1.2 Types of business strategy 5

1.1.3 Role of business strategy 7

1.2 Process of formulating business strategy 8

1.3 Models used for analyzing the formulation of business strategy 12

1.3.1 External (macro) environment analysis with PEST model 12

1.3.2 Analyzing sectorial environment with Five Forces Model of Porter 17

1.3.3 Internal – External (IE) Matrix 20

1.3.4 SWOT Matrix 23

1.3.5 Quantitative Strategic Planning Matrix - QSPM 25

CHAPTER 2: BASES FOR FORMULATING BUSINESS STRATEGY OF HAIHA CONFECTIONERY JOINT-STOCK COMPANY 28

2.1 Overview of HaiHa Confectionery Joint-Stock Company 28

2.1.1 Process of establishment and development 28

2.1.2 Business lines and main products 30

2.1.3 Function and mission of the Company 31

2.1.4 Organizational structure 32

2.2 Analyzing external environment of HaiHa Confectionery Joint-Stock Company 33

2.2.1 Macro Environment Analysis (PEST model application) 33

2.2.2 Analyzing the confectionery business environment (Applying Five Forces Model of Porter) 38

2.2.3 External factors (table EFE- External Factor Evaluation) 46

2.3 Analyzing internal environment of HAIHACO 49

2.3.1 Evaluating material and technical bases 49

2.3.2 Evaluation on human resources 50

2.3.3 Evaluation on financial capacity 52

2.3.4 Brand of HAIHACO 54

2.3.5 Management capacity 54

2.3.6 Marketing activity 55

2.3.7 Summary on the internal factors of HAIHACO 57

CHAPTER 3: STRATEGY AND SOLUTIONS TO IMPLEMENT BUSINESS STRATEGY OF HAIHA CONFECTIONERY JOINT-STOCK COMPANY IN 2011-2015 PERIOD 61

3.1 General development orientation of HaiHa Confectionery Joint-Stock Company 61

3.2 Selecting business strategy for HAIHACO 63

3.2.1 SWOT Matrix of HAIHACO 63

3.2.2 IE- Internal – External Matrix of HAIHACO 67

3.3 Solutions to formulate business strategy for HaiHa Confectionery Joint-Stock Company in 2011- 2015 period 72

3.4 Solutions to implement t strategy (Focus strategy) 75

3.5 Solutions to cope with risks and unforeseen problems 76

3.6 Roadmap for strategy implementation 77

CONCLUSION 79

LIST OF REFERENCES 81

APPENDIX 82

APPENDIX 1: ORGANIZATIONAL STRUCTURE OF HAIHACO 82

APPENDIX 2: CURRENT COMPETITORS OF HAIHACO 85

LIST OF TABLES AND FIGURES Figure 1.1: Process of formulating strategy 8

Figure1 2: External environment 12

Figure 1.3: Sectorial business environment 18

Figure 2.1: Organizational structure of HaiHa Confectionery Joint-Stock Company 32

Figure 2.2: Some economic targets of Vietnam over the years 33

Figure 2.3: Domestic market share of Vietnam’s confectionery market 44

Table 1.1: SWOT Matrix 25

Table 1.2: QSPM Matrix 26

Table 2.1: Competitive Profile Matrix 45

Table 2.2: Summary table representing opportunities and threats of HAIHACO 48

Table 2.3: EFE Matrix of HAIHACO 49

Table 2.4: Business results of Hai Ha Confectionery JSC……… 53

Table2.5: Financial ratios of Hai Ha Confectionery JSC……… ……… 54

Table 2.6: Summary table of strengths and weaknesses of HAIHACO 59

Table 2.7: IEF of HAIHACO 60

Table 3.1: SWOT Matrix of HAIHACO 63

Figure 3.1: IE Matrix of HAIHACO 68

Table 3.2: Quantitative Strategic Planning Matrix (QSPM) for HAIHACO 68

Table 3.3: Roadmap for strategy implementation of HAIHACO 77

to the existence and development of enterprises.

Formulating strategy is one of the most important tasks of managers Mostfailures in doing business may result from lacking a strategy, having a wrongstrategy, or lacking a sound method of deploying a strategy Business strategies forenterprises in each period make significant and decisive contribution to theirbusiness and production performance

In recent years, Vietnam’s confectionery industry has made steadydevelopment steps There are about over 30 well-known confectionery enterprises

HaiHa Confectionery Joint-Stock Company (abbreviated name: HAIHACO) is

one of the leading confectionery producers in Vietnam and a direct competitor ofsome companies like Bibica, North Kinh Do with equivalent scale in terms ofmarket share, production capacity and technological qualification

HAIHACO is a State-owned company with a long history and owns one ofthe strongest brands in Vietnam Products of the Company are continuously elected

as “Vietnam’s high-quality goods” for many years from 1996 to date Mostrecently, HAIHACO is included in the list of 100 strongest brands in Vietnam Theachievements of HAIHACO over the past years have affirmed that confectioneryproducts of the Company will continue to dominate domestic market However, ifwanting to sustain and firm foothold and develop in the volatile market economy,enterprises in general and HaiHa Confectionery Joint-Stock Company in particularhave to formulate specific business strategies for each period to cope with thechanges of business environment and focus all resources to realize the set targets

In response to the urgent needs of the Company and to make a smallcontribution to the formulation of suitable business strategy to the real situation ofHaiHa Confectionery Joint-Stock Company in 2011 – 2015 period, our group has

agreed on selecting the topic “Formulating business strategy for HaiHa

Confectionery Joint-Stock Company in 2011 – 2015 period.”

The content of the study is applying basic theories on business strategy toconsider and evaluate external environment to determine opportunities, threats,strengths and weaknesses of the Company to make the most use of opportunities,

minimize threats and suggest business strategy for HAIHACO in the coming time

2 Objective of strategy

Studying bases to formulate strategies, process of formulating strategies andmethods of analyzing and selecting optimal strategies to help enterprises select themost appropriate business strategy;

Clarifying and applying theory on formulating business strategy into reality

to formulate and select an optimal strategy for HAIHACO in 2011 – 2015 period;

Suggesting groups of solutions to successfully deploy and implement thebusiness strategy selected

3 Object and scope of the study

- Object of the study: production and trade of confectionery products ofHaiHa Confectionery Joint-Stock Company

- Scope: Confectionary business and production industry nationwide

4 Methodology of the study

Within the time limitation to complete this capstone project report, our grouphas used some key researches:

- Qualitative method, expert method: surveying, interviewing and consultingexperts’ ideas

- Method of studying specific situations

Data used in the topic are collected from two main sources: primary andsecondary sources

5 Implication of the capstone project report

The topic is studied based on the theoretical background and the realsituation at HAHACO The result of the research can be used as reference forHAIHACO in formulating business strategy in 2011-2015 period

6 Structure of the capstone project report

Apart from the introduction, conclusion, table of contents and references, thecontent of the capstone project report is divided into three chapters as follows:

Chapter 1: Theoretical background of formulating business strategy

Chapter 2: Bases for formulating business strategy for HaiHa

Confectionery Joint-Stock Company

Chapter 3: Strategy and solutions to implement business strategy of HaiHa

Confectionery Joint-Stock Company in 2011- 2015 period

CHAPTER 1 THEORETICAL BACKGROUND OF BUSINESS STRATEGY

1.1 Concept of business strategy

1.1.1 Concept of business strategy

As there are many different approaches, there are various concepts of businessstrategy

According to Alain Threlart, “Strategy is the art that enterprises use to fightagainst competition and gain success.”

According to Michael E Porter “Strategy is the art of formulating firmcompetitive advantages to defend.”

Therefore, these authors consider business strategy as an art to compete in themarket and develop enterprises

According to management scope, business strategy is a type of plan

According to G.Arlleret, “Strategy is the determination of roads and means toreach the set goals via policies.”

D.Bizrell and a group of authors supposed, “Strategy is a general strategy to lead ororient enterprises to reach their expected goals It is the basis for mapping out policiesand operational tactics”

Alfred Chandler thought, “Strategy consists of basic and long-term goals of anorganization and the method of selecting action process and allocation of essentialresources to realize those goals”

According to William J’ Gluecl, “Strategy is a type of united, comprehensive andgeneral plan which is designed to ensure that enterprises’ goals will be realized.”

According to consolidated viewpoint, “Business strategy is an art of designingand organizing means to reach long-term goals of enterprises and has relation with the

According to the textbook of Griggs University, a concise and general viewpoint

is that strategy is perceived as a series of combined activities to mobilize resources of anorganization/an individual to achieve a certain target

1.1.2 Types of business strategy

Classification of business strategy is an important task at which managersneed to select suitable strategies with the set goals as well as the function andmission of each division in an enterprise or the whole enterprise

* Based on the scale and function of enterprises’ production and business:

- Corporate-level strategy:

This is the highest-level strategy of enterprises or organizations involving inbig, decisive and long-term issues to the future operation of enterprises Normally,corporate-level strategies are highly affected by the changes in the enterprises’business structure It will have significant influence on the business performance ofenterprises It may result in an effect that is an enterprise can continue to operate inthat field or not? Or the enterprise should participate in other fields at which profit

in general and other objective will be easy to be achieved with higher efficiency.The enterprise’s future will much depend on that decision It is inevitable thatcorporate-level strategy is designed, formulated, selected and responded by thehighest level in the enterprise like board of management, board of directors, andhigh-level strategists, etc

- Business-level strategy (Competitive strategy):

This is an overall of commitments and actions helping an enterprise gaincompetitive advantages by exploiting their core capacity into specific markets

This is a lower level strategy compared to corporate-level strategy The basicissue that each enterprise needs to solve when selecting business strategy is thatthey will supply to customers which products or services; the methods to createthose products and services and how to introduce products and services tocustomers The core element of business strategy is “selecting actions creatingdifferentiation or implementing different actions compared to its competitors.”

- Functional-level strategy:

Functional-level strategy is the lowest level strategy of an enterprise It is a set

of decisions and actions targeting to short-term goals (under one year) of differentfunctional departments of an enterprise (finance, human resources, technology,marketing, production, investment, etc.) Functional-level strategy has an veryimportant role because when implementing this strategy, managers will be able toexploit strengths of resources in the enterprise This is the basis to investigate andformulate competitive advantages of enterprises to support business strategy.Normally, functional departments of enterprises will form their own strategies and

be responsible to the Management Board and Board of Directors for their achievedresults

* Based on the approach of business strategy:

- Business strategy focusing on key factors: the guiding thought to business

strategy here is not spreading resources, but focusing on business activities havingdecisive implication to production and business of the enterprise

- Business strategy based on relative advantage: The guiding thought for

formulating business strategy here starts from the analysis and comparison of products orservices of an enterprise compared to its competitors to set the basis for business strategy

Relative advantage is shown via different aspects such as quality or selling price

of products or services; or technology, distribution network, etc

- Business strategy creating attachment: In this type of business strategy, the

- Strategy on exploiting potentials: The method of formulating business

strategy here does not target to the key factors, but exploits potentials ofsurrounding factors of the key one

1.1.3 Role of business strategy

- Helping enterprises to clearly see their orientation in the future and recognizepossible opportunities and threats to help them make sound decisions with theenvironment to ensure the most effective business and production activities

- Helping enterprises formulate better business strategies via the use of systematicapproach method to set the basis for enhancing the coherence and the attachment ofmanagers in realizing their goals

- Raising sales, labor productivity, effectiveness of management, avoidingfinancial risks, and enhancing the capacity of preventing and fighting against difficulties

of enterprises

- Creating firm bases for mapping out appropriate policies and decisions with themarket’s fluctuations

1.2 Process of formulating business strategy

Figure 1.1: Process of formulating strategy

Figure 1.1: Process of formulating strategy

(source: Textbook on Strategic Management of GRIGGS University, 2011)

The process of formulating strategy will undergo following steps:

Step 1: Function, mission and strategic goal of an enterprise:

From the function and tasks of an enterprise determining the vision and mission ofthe enterprise

Vision: is a message to concretize mission into a general goal, creating belief intothe figure of the enterprise

Function, mission and strategic goal of

Step 2: Analyzing business environment

The second part in formulating strategy is analyzing external environment of theenterprise The target of external environment analysis is recognizing opportunities andthreats from the external environment of the organization, including the analysis ofmacro-environment and sectorial environment in which the enterprise is operating Theevaluation of sectorial environment also means evaluating the impact of globalization onthe scope of the industry as well as the advantages of the industry

To analyze and evaluate the influence of the macro-environment, External FactorEvaluation (EFE) Matrix is used

Step 3: Analyzing internal factors of an enterprise

The analysis of internal environment of an enterprise aims at finding out strengthsand weaknesses of the enterprise

When formulating business strategies, the enterprise always has to base onits potentials that can generate different competitive advantages compared toother enterprises However, where those potentials come from? The answer lies

in the enterprise’s available resources including internal and external resources.These resources play the role as inputs without them, the enterprise cannotoperate These inputs may be effective or ineffective depending on therequirements of each business strategy The participation of resources is also notnecessary to be balanced Each resource will generate an unique and differentpower If managers know how to correctly analyze strengths and weaknesses ofresources, it is certain that they will effectively exploit those resources.Resources are divided into two types:

* Internal resources: include finance, human resources, science, technology,fixed assets such as factories, machine, stores, means of transport, prestige andbrand of enterprises, etc All these resources belong to the internal ownership of theenterprise Enterprises can use these internal resources to serve business andproduction Each enterprise has strengths with these resources, but weaknesses withother resources; evaluation has shown that enterprises will base on their strengths tocreate competitive advantages For example, enterprises with financial strength willspend more on new technology, studying new products, etc., creating differentiationfor their products Those products will attract customers more than other products ofthe same type That is competitive advantage of those enterprises Enterprises withstrong financial capacity, their owners’ equity will be high and they will not depend

on banks Therefore, all activities of the enterprises will be proactive In contrast,enterprises with strengths of human resources often focus on exploiting somepotentials like intelligence and grey matter of the people That is also a competitiveadvantage

* External resources: including the support of external organizations that theenterprise can exploit to enhance its strengths Good relations of the enterprise withoutside organizations can bring about necessary support that the enterprise expects

to have For example, the support of bank can create conditions for the enterprise toborrow capital with preferential interest rates, raising capital and strengtheningfinancial capacity

To analyze and evaluate the influence of the macro-environment, Internal FactorEvaluation (IFE) Matrix will be used

Step 4: Selecting strategy

The following step is determining strategic plans in correspondence with thestrengths, weaknesses, opportunities and threats that have been identified of theenterprise, called SWOT analysis The basic purpose of SWOT analysis is recognizingstrategies that orient, create suitability, or balance among the enterprise’s resources andcapacities with the market demand, and being well-aware of the essence of competitive

Step 5: Implementing strategy

Implementing strategy is formulating suitable solutions and measures with theimplementation and achievement of the set goal The implementation of strategy needs

to clarify tasks and roadmap for carrying tasks

To implement strategy more effectively, the enterprise can build theirorganization structure as follows:

- Vertically-allocated organizational structure

- Horizontally-allocated organizational structure

- Combined structure

Step 6: Checking and evaluating the result of implementation

The enterprise needs to establish an appropriate controlling system for all stagessuch as organizing, controlling the input and output, etc to soon realize unsuitable issues

to have timely adjustments to make the strategy more effective

Steps of controlling include:

Step 1: Setting out standards and targets that are possible for evaluating the

implementation

Step 2: Establishing a system for supervision and measurement to signal

whether standards and goals can be reach or not?

Step 3: Comparing the implementation of existing goal and the set goal

Step 4: Adjustments start when standards and goals are unachievable

Requirements for evaluation:

- Evaluating the success or failure of the strategy

- Which lessons of experience and factors bringing about success to thestrategy?

- Which are the causes making the strategy unsuccessful?

- Evaluating policies on remuneration, reward, career advancementopportunities for collective and individuals contributing the success of the strategy

1.3 MODELS USED FOR ANALYZING THE FORMULATION OF

BUSINESS STRATEGY

1.3.1 External (macro) environment analysis with PEST model

External environment consists of external factors indirectly affectingenterprises; and enterprises can hardly control them These factors express thechanging situations that may have positive impact (opportunities) or negativeimpact (threats) to enterprises

Figure1 2: External environment

(source: Textbook on Strategic Management of GRIGGS University, 2011)

In studying macro-environment, PEST model can be used:

Sectorial environment

Threat of new entrants Bargaining power of suppliers

Bargaining power of buyers Threat of substitute products Competitive rivalry among existing firms

Competitive environment

Economics

cultural

Socio-GlobalPolitical

Technological

These are four factors having direct influence on economic sectors

Apart from the four basic factors mentioned above, there must be the study ofglobalization and natural environment

- The political stability: politics reflects a system of political leadership anddirection to build the country which is made and implemented by that government.Political stability makes investors feel safe and trusted It is a prerequisite for theeconomic stability and development

- The economic and social policies: The policy will show the encouragement orlimitation on certain aspects of social and economic life in each country Therefore, thepolicy will directly reflect the opportunities or threats to Marketing decisions

- The legal system: A system of rules that regulate behaviors in the social andeconomic life of a country The concentration of political thought is show through asystem of duties, rights and responsibilities of businesses, what they are allowed or notallowed to do

b Economic environment is the characteristics of the economic system,

expressing the economy’s nature and direction in which businesses operate The state ofmacro-economic environment determines the economic transparence and prosperity Italways causes impacts on businesses and industries The economic impacts may changethe ability to create value and income of a company

When analyzing economic environment often mention to:

- The state of the economy: Whatever the economy does have cycles, ineach specific phase of the economic cycle; businesses will have the appropriatedecisions for themselves

- Elements affecting the economy: Interest rate, inflation, etc

- Governmental economic policies: Basic salary law, economic development strategy of Government, priority policies: tax reduction, subsidy, etc

- The economic prospect: Growth rate, GDP growth rate, the rate of GDP on

- Interest rate: Interest rate is one of the elements of monetary policy High orlow interest rates all have a direct impact on business and market need Higher depositinterest rates will encourage residents and businesses to deposit money weakening thepayment ability of the market; shrinking purchasing power is a risk to business

- Exchange rate: The exchange rate has a large impact on the businesses in theareas related to export activities

- Tax policy: This is one of the most concerned issue of any business Generally,high tax will create disadvantages for the business Low tax will stimulate business InVietnamese conditions, enterprises have to pay attention to interest rate and its stability

as well Unstable tax rates would cause difficulties for the long-term business strategy of

the businesses

c Socio-cultural environment: is understood as the spiritual life of every nation,

every country It creates its own characteristics in people’s consumption as well as theintangible limitations that businesses encounter when entering the market Therefore, wemust study carefully to avoid the negative reactions of people because we cause harm totheir traditional values Researching this environment comprehensively, managers willavoid the unexpected loss and reduce company’s prestige It is also the essential base toestablish the congruent market with each other to focus on mining

These cultural values are the values forming society and fostering the society

to be existed and developed Thus, the common cultural elements are protected verytightly and systematically, especially the spiritual culture Besides the culturalfactors, social factors will divide the community into groups of customers with theirown traits, psychology, and income such as: The average life expectancy, healthstatus, income, diet, income, etc Cultural and social fields could affect the strategicdecisions such as selecting fields and items, selecting the brand, color, style andchanging the distributed channel

Environmental analysis often analyses the following factors:

- The concept of life values and consumer values: The concept of life value willrise to the concept of consumer value And then, it will impact subsequent formation oflifestyle and career aspirations Sooner or later, it eventually affects customers’decisions They can buy or reject or reduce the purchase other goods This may createopportunity or threat to business threat up the opportunity or threat to business

- Changes in society: As the rate of population growth, population structure,trends shift, the population density

d Technological environment: the continuous improvement of science and

technology has increased labor productivity such as the generations of new products withunique features Technological changes affect many parts of society mainly through theprocess of technological products including physical activity related to the creation of

new knowledge and transfer that knowledge to the outputs, products, processes and newmaterials Changing technological environment will bring enterprises both opportunitiesand threats On the one hand, it allows businesses to create products with high quality,low cost Increasing labor productivity will create a competitive advantage; On the otherhand, with the rapid development of science and technology, the technologicalinnovation cycle will develop rapidly It lifts the needs of people from low to high.Hence, businesses must have major effort in technology to satisfy these needs.Investment costs for research and development are increased more and more

The environmental aspects of technology need considering and analyzing:

- Investment of government and enterprises: The combination betweenbusiness and government to study out the new technology, new materials, etc willhave a positive effect on the economy

- The technological speed and cycle, the percentage of outdated technology;

- Impacts of information technology and the internet on production andbusiness activities

e Global environment: The tendency of integration, globalization in the

world and in Vietnam forces businesses to put international factors into accountwhen planning for their business a long-term strategy which have not only highintegration but also expandable capacity the geographic and political aspects.Global segment includes the related global market, the current changing market, theimportant events of politics, characteristics of institution and basic culture on thebasis of global market

The environmental aspects of globalization should be considered and analyzed:

- Globalization creates competitive pressures, competitors from all regions.The process of integration will make businesses adjust to be in accordance withcomparative advantage, labor distribution in the region and in the world

- It is important that when integrating, the trade barriers will gradually be

removed; businesses have the opportunity to conduct trade with partners in remoteareas Business customers come from not only the domestic market but also theworldwide one

f Natural environment

Vietnam has a tropical climate with humid weather and heavy rainfalls whichhave great impacts on the production activities (food, sweets, fruit export, etc.)The tropical climate also facilitate source of materials for business and productionactivities related to livestock products, crops (food industry, fruit exports, etc.).However, that climate created a lot of difficulties in storage, transportation andconsumption of products in some kinds of manufacturing sector

In addition, some industrial activities will have adverse impact on the quality

of the natural environment, the burning concern of all people today Therefore, it isone of affecting factors to production plan of each enterprise

1.3.2 Analyzing sectorial environment with Five Forces Model of Porter

An industry is a group of companies having mutual influence and

manufacturing products which are highly interchangeable

Analysis of sectorial environment includes a series of diverse competitionthat companies use to reach strategic competitive advantages and aboveaverage profit

Analyzing sectorial environment with five forces model (According to

M Porter)

Figure 1.3: Sectorial business environment

(source: Textbook on Strategic Management of GRIGGS University, 2011)

→ Bargaining power of buyers: Buyers are organizations or individuals using

products or services of enterprises Buyers can be classified into 5 followingobjects: end-users; intermediary distributors: agents; wholesalers; enterprises;agencies and organizations of the State and the Party; and International buyers.Buyers are the objects that enterprises serve and are decisive factors to the successfor failure of enterprises because the scale of buyers creates market scale; therefore,enterprises must regularly observe their buyers and anticipate changes in theirdemands The requirements of customers on quality and price are always challenges

to every enterprise If enterprises cannot meet those requirements, buyers willconsume other substitute products or select products made by other suppliers tosatisfy their needs with the lowest expense This will force enterprises to raiseexpenses for doing researches to create products satisfying those expectations ofbuyers, at the same time have to find solutions to save input cost and raise

Rivalry among existing firms

Buyers Suppliers

Threat of new entrants

Threat of substitute products and services

Bargainin

g power of suppliers

Substitute products

productivity It is very difficult because it contains the conflict between input costand price of products If an enterprise is unable to do that, it will show that thecompany’s competitiveness is very low and it will be easy to be pushed out of themarket by their competitors Enterprises need to catch and observe informationabout buyers to have appropriate business strategies Regarding competition, buyersoften put pressure on sellers when there are favorable conditions The higher thecapacity of generating pressure of buyer is the more disadvantageous enterprisesare To minimize bargaining power of buyers, enterprises need to serve buyersbetter and make document to observe and manage buyers, establishing a marketingsystem with sustainable relations between buyers and enterprises

→ Bargaining power of suppliers: To carry out production process,

enterprises need to regularly contact with suppliers of equipment, laborers, finance,etc These factors also have positive or negative impact on strategies of enterprises.Suppliers can be considered as a threat when they can raise input price or reducequality of products and services they provide; thus, reducing profitability of theenterprises The level of influence depends on the concentration of suppliers, theimportance of the number of products to suppliers, the differences of the suppliers,the impact of the inputs cost or product differentiation, switching cost of enterprises

in the industry, the existence of alternative suppliers, the risk of strengthening theunity of the suppliers, the cost of supply compared with a total income of theindustry

→ Competitive rivalry among existing firms: Competition is inevitable in the

market economy There is fierce competition when an enterprise is challenged by theactivities of other enterprises or when a certain enterprise is aware of an opportunity toimprove its position in the market Tools are often used in the races to generate value tocustomers are price, quality and differentiation of products & services, distribution,promotion, innovation and customers’ satisfaction The level of influence depends onstructure of competition in the industry, demands, departure barriers, the proportion offixed cost over value added tax, growth rate of the industry, redundancy of capacity,

product differentiation, switching cost, typical characteristics of goods, diversification ofcompetitors and selection in the industry

→ Threat of substitute products: Substitute products are products made by

competitors in the industry or products of other industries but can satisfy the samedemand of customers With the boom of new technology, substitute products havebecome more and more diverse and generate a threat of a price competition to contractthe company’s profit The level of influence depends on the switching cost in usingproducts, the trend of using substitute products of customers and the correlation betweenprice and quality of substitute products

→ Threat of new entrants: Threat of new entrants will increase along with

the number of enterprises in operation If it cannot create large enough barriers toprevent new entrants Regarding essence, this force includes companies that do notcompete in the industry, but they can participate in the industry owing to thecompetitiveness, the attraction of the industry and entry barriers The attraction ofthe industry is shown via some criteria such as profitability, number of customers,number of enterprises in the industry, etc Entry barriers are factors causingdifficulties and being costly for potential competitors when they want to participate

in the industry, placing them into a disadvantageous position The protection of thecompetitive position of enterprises in the industry consists of the sustentation oflegal barriers and existing advantages of enterprises operating in the industry,including brand loyalty, absolute cost advantage thanks to outstanding operation,economics, protection regulations of the government, the retaliation of enterprises

in the industry, entry barriers and other competition

1.3.3 Internal – External (IE) Matrix

a External Factor Evaluation (EFE) Matrix

EFE Matrix evaluates external factors, generalizes and summarizes majorexternal opportunities and threats affecting the operating process of enterprises inorder to help managers evaluate the response of enterprises to the opportunities andthreats and make judgment on whether external factors are advantages or

disadvantages to their companies There are 05 steps to set up this matrix:

Step 1: Forming a list of 10- 20 major opportunities and threats that are

supposed to have influence on the success of enterprises in theindustry/business line

Step 2: Rating the importance from 0.0 (unimportant) to 1.0 (very important)

to each factor The importance of each factor will depend on the influence of thatfactor to the success of enterprises Total weighted score of all factors must be equal

to 1.0

Step 3: Determining weight from 1 to 4 for each factor to the success of

enterprises to show the threats that the company’s current strategies have to face toshow the methods that current strategies response to these factors Specifically, 4 isthe best response, 3 is above average response, 2 is average response and 1 is weakresponse These levels depend on the effectiveness of the company’s strategy.(Meanwhile step 2 depends on the industry)

Step 4: Multiplying the rating of each factor with its weight to determine the

weighted score of the factor

Step 5: Totaling the weighted score of all factors to determine the total

weighted score of the organization

Evaluation: Total weighted score of matrix does not depend on the number of

factors in the matrix The highest score is 4 and the lowest score is 1

- If the total weighted score of an enterprise is 4, the enterprise responseswell with opportunities and threats in their environment

- If the total weighted score is 2.5, the enterprise responses averagely toopportunities and threats

- If total weighted score is 1: Strategies set by the enterprise cannot make use

of external opportunities and avoid threats

b Internal Factor Evaluation (IFE) Matrix

Internal factor is considered very important in each business strategy andgoal set by an enterprise After investigating internal factors, strategic managersneed to set up a matrix for these factors to summarize and evaluate importantstrengths and weaknesses of functional departments and it also provides a basis fordetermine and evaluate the relations among these departments To form an IEF,there are 5 steps as follows:

Step 1: Setting up a list of 10 – 20 factors including basic strengths and

weaknesses having influence on the enterprise and the goals set by the enterprise

Step 2: Rating the importance from 0.0 (unimportant) to 1.0 (very important)

for each factor The importance of the factor will depend on their influence on thesuccess of enterprises in the industry The total weighted score of all factors must beequal to 1.0

Step 3: Determining the weight for each factor from 1 to 4, in which 4 is the

biggest strength and 3 is the smallest strength, 2 is the smallest weaknesses and 1 isthe highest weaknesses Therefore, the rating is based on company level while theweight in step 2 depends on sectorial level

Step 4: Multiplying the rating of each factor by its weight to determine the

weighted score for each variable

Step 5: Totaling the score of all factors to determine the total weighted score

of the organization

Evaluation: Total weighted score of the matrix ranges from 1 to 4 and will not

depend on the number of important factors in the matrix

- If the total weighted score of an enterprise is lower than 2.5, the internalfactors of the enterprise are weak

- If the total weighted score is higher than 2.5, the internal factors of theenterprise are strong

c Internal – External (IE) Matrix

IE Matrix places different business strategies of an enterprise into 01 tablewith 09 cells This matrix bases on 02 major aspects:

- Total weighted score of IFE Matrix is represented in X axis

- Total weighted score of EFE Matrix is represented in Y axis

- Each small business unit (SBU) must establish an IFE matrix and an EFEMatrix to set up IE Matrix of the company

- X axis represents the total weighted score of IFE Matrix

If the total weighted score is from 1.0 to 1.99, the internal of thecompany is week

If the total weighted score is from 2.0 to 2.99: average

If the total weighted score is from 3.0 to 4.0: strong

- Y axis represents total weighted score of EFE matrix, in which:

If the total weighted score is from 1.0 to 1.99: low

If the total weighted score is from 2.0 to 2.99: average

If the total weighted score is from 3.0 – 4: strong

Evaluation:

+ If a SBU belongs to cell II, II, IV: It should develop and construct

+ If a SBU belongs to cell III, V, VII: It should keep and sustain

+ If a SBU belongs to cell VI, VIII, IX: It should harvest or remove

enterprise will determine the goal that it is interested in, which goals that it canrealize and which it cannot The outstanding feature of this method is that there isnot completely difficulty or advantage in each situation, but some situation containsboth difficulty and advantage It is important that the enterprise knows how to usestrengths to overcome threats and use opportunities to compensate for weaknesses.From the evaluation, the enterprise can determine advantages and disadvantages ineach specific situation

This is very helpful tool helping us make decision on organizing andmanaging as well as in doing business Formulating SWOT matrix on the basis ofconnecting strengths, weaknesses, opportunities and threats Then, systematicallycombining each corresponding pairs to create logically-combined pairs:

- Combining S/O: Using strengths to make use of opportunities;

- Combining S/T: Overcoming threats by making use of strengths;

- Combining W/O: Making use of opportunities to overcome weaknesses ofthe enterprise;

- Combining W/T: Working out solutions to reduce weaknesses and avoidthreats from external environment

To set up SWOT Matrix, managers need to carry out 08 steps as follows:

Step1: Listing major opportunities from external environment (O1, O2…) Step2: Listing major threats from external environment (T1, T2…)

Step3: Listing major strengths of the enterprise (S1, S2…)

Step4: Listing major weaknesses of the enterprise (W1, W2 )

Step5: Combining strengths with opportunities to form SO strategies

Step6: Combining weaknesses with opportunities to form WO strategies Step7: Combining strengths with threats to form ST strategies

Step 8: Combining weaknesses and threats to formulating WT strategies

Table 1.1: SWOT Matrix

2

3

The purpose of creating combined pairs: to work out feasible strategies thatcan be selected rather than selecting or deciding which the best strategy is.Therefore, not all strategies developed in SWOT Matrix can be selected forimplementation

1.3.5 Quantitative Strategic Planning Matrix - QSPM

Apart from classifying strategies to map out a list of preferences, according

to document, there is only one technique of analysis can be used to decide theattractiveness of feasible strategy can replaceable in selecting business strategy

Table 1 2: QSPM Matrix

ss score

Attractivene

ss score

Total attractivene

ss score

Attractivene

ss score

Total attractivene

ss score Column 1 2 3 4=2x3 5 6=2x5 … i j=2xi

(Source:Fred R.David (2006), Strategic Management Notes)

Internal factors: 1- Weakest; 2- Less weakest; 3- Less strongest; 4-StrongestExternal factors: 1 – Response of the enterprise is poor

2- Response of the enterprise is average

3- Response of the enterprise is above average

4- Response of the enterprise is very good

Strategies considered must be in the same group

There are 6 steps to develop QSPM Matrix as follows:

Step 1: Listing big external opportunities/threats and internal

strengths/weaknesses

Step 2: Classifying each internal and external successful factors

Step 3: Studying SWOT matrix and determining alternative strategy that the

enterprise should consider to implement

Step 4: Determining the attractiveness score

Step 5: Calculating total attractive score

Step 6: Calculating total attractiveness score

Evaluation: The higher total attractive score that the enterprise has, the more

attractive the strategy is The difference between total attractiveness score in acertain group of strategies will show the relative attractiveness of a strategycompared to other strategy

CHAPTER 2 BASES FOR FORMULATING BUSINESS STRATEGY OF HAIHA

CONFECTIONERY JOINT-STOCK COMPANY

2.1 Overview of HaiHa Confectionery Joint-Stock Company

2.1.1 Process of establishment and development

Name and address of the Company

Company’s name: HaiHa Confectionery Joint-Stock Company

Abbreviated name: HAIHACO

Business line: Being a state-owned company specializing in tradingconfectionery and food products

Head office: No.25, Truong Dinh Str., Hanoi

- In 1970, implementing the Directive of the Ministry of Food, the Factoryofficially accepted HaiChau’s Confectionery Factory with the capacity of 900 tons/year to produce candies, malt and starch paper To fit the new mission, the Factorywas renamed HaiHa Food Factory By 1980, the Factory was still basically amanual and partially mechanized one

- In 1991- 2000, HaiHa Confectionery Company achieved great success inbusiness and production.

- In 1992, HaiHa Confectionery Company merged with Viet Tri FoodstuffsFactory (old monosodium glutamate factory) In December 1992, the Companyseparated a production division to establish “HaiHa-Kotobuki” Joint-venture withKotobuki Japan with the capital contribution as follows:

- Vietnam: 30% (equivalent to VND 12 billion)

- Japan: 70% (equivalent to VND 28 billion)

- In 1995, the company joint-ventured with Miwon (Korea) to establish

“HaiHa-Miwon” Joint-venture with the contributed capital of 16.5% (equivalent toVND 1 billion)

- In 1996, “HaiHa-Kamenda” Joint Venture was established in Nam Dinhwith the Company’s contributed capital of VND 4.7 billion However, due to lesseffective operation, so in December1998, this joint venture was dissolved

- In 2004, HaiHa Confectionery Company was converted into HaiHa

Confectionery Joint-Stock Company with 51% state-owned capital and 49% capital

of laborers On December 9, 2004, the Ministry of Industry (currently, the Ministry

of Industry and Trade) made decision to transfer the state-own capital at HaiHaConfectionery Joint-Stock Company to Vietnam National Tobacco Corporation

- In 2007, the Company was allowed to list stocks on the Hanoi StockExchange and has been officially traded since November 20, 2007

After over 50 years of striving and growing, from a factory manufacturing sauceand magi, HaiHa Confectionery Joint-Stock Company has become one of the leadingconfectionery companies in Vietnam with over 1,200 cadres, 07 boards and departments,

06 member factories in Hanoi, Viet Tri, Nam Dinh and branches in Ho Chi Minh Cityand Da Nang with the capacity of up to 20,000 tons of products per year

2.1.2 Business lines and main products

*Business lines of the Company include:

- Producing and trading confectionery and processing foodstuffs

- Trading, importing and exporting materials, machine, equipment and

products of the industry, consumers’ goods and other products

- Investing in construction, leasing office, houses and commercial centers

- Doing other businesses as regulated by the law

> Cakes: Sweet cakes, salted cakes, ice-cream wafers, soft cakes

> Candies including three product lines: Hard candy, soft candy,marshmallow

> Nutrient products: Glucose, etc

+ Based on quality and value of products:

> High-quality products: nutrient products, Chocolate-covered ice-creamwafers, ice-cream wafer bar, Da Lan Huong Cake, Jelly candy, Caramel candy,Chew candy, etc., Glucose

> Average-quality products: Some hard and soft candy, biscuit, dryprovisions, etc

> Low-grade products: broken biscuits, massive-sold candies, etc

2.1.3 Function and mission of the Company

The Company is specializing in producing and trading Via that, it has madecontribution to boost the development of the market economy, ensuring the life oflaborers and raising income for the State Bank of Vietnam

The main business mission of HaiHa Confectionery Joint-Stock Company(according to the supplemented business license) is directly exporting theCompany’s products to foreign countries Besides, the Company also has somespecific missions:

- Formulating and organizing business and production

- Generating source of capital for business and production and effectivelyexploiting that source of capital

- Well implementing commitments in related economic contracts

- Organizing the process or preserving and ensuring circulation processhappening regularly, continuously and stably in the market

- Studying and implementing measures to raise business performance

- Non-stop taking care to enhance the material and spiritual life for laborers.Regularly training and fostering professional qualification for workers

Vision

- Strengthening operational structure of the company in the direction ofdiversifying the business activities to meet the development demands in the newsituation

- Sustaining the title of a leading confectionery manufacturer in Vietnam

- Diversifying products, specializing production, verifying business linesand developing services and general businesses

- Enhancing comprehensive management capacity, investing in resources,paying attention on developing human resources – a key factor to successfullyimplementing missions in the world economic integration

- Continuing to drastically the International Standard ISO 9001: 2008

- Building and developing the company’s brand, trademarks, expandingdomestic and international distribution channel

- Establishing a healthy financial base

- Using many methods to create best conditions and policies in order to takecare of the life and attract laborers

Business power:

- Satisfying the demand and expectations of customers

- Enhancing the sense of responsibility, activeness, creativeness andmaximizing potentials and advantages of the Company

- Ensuring a green, clean and beautiful environment

- Serving the interest of each member and the community

- Constructing the company into a typical example of corporate culture

2.1.4 Organizational structure

(See figure 2.1 and appendix 1)

Figure 2.1: Organizational structure of HaiHa Confectionery Joint-Stock

Company

(Source: http://www.haihaco.com.vn/)

However, the demand for food in general and for confectionery particularly inthe beginning 2011 will tend to increase In addition, the gradual increase ofconsumer confidence index is also a factor showing that consumers will spendlavishly As a result, the consumption of confectionery products in general and inparticular HAIHACO is encouraged

GDP per capita over years Consumer Confidence Index over years

Source: Nielsen-Vietnam Grocery Report August 2010 Source: Nielsen Global Online Survey 2007-2010

Figure 2.2: Some economic targets of Vietnam over the years.

Factors affecting the cost to stabilize the price of the Company:

- Increased interest rate: At the beginning 2011, bank interest rates wererelatively ranging at high level from 16-22% and the interest rate is unlikely to bereduced by the effects of the factors related to the strict regulations of the State

Bank of Vietnam in order to ensure the safety of the banking system and otherobjective factors Rising interest rates make the cost of HAIHACO’s bank loansincreased

-Price (electric, water, etc.) tended to increase dramatically, as a result, itmade the overall cost price of their products raised - Exchange rates constantlyfluctuated with the gold price from the late 2010; arguments are massive in the firstperiod of quarter 3/2011 and may continue in an upward trend in the late

2011 HAIHACO must import most of input materials, so increased interest ratewill drive up its production cost

- Tax policy: Import tariff was reduced to 20 % in 2003 and decreased to0.5% in 2006 This will cause many disadvantages for HAIHACO because it mustcompete with more foreign enterprises enter the Vietnam confectionery market

b Political and legal factor

The Vietnam’s political environment and law system continue to bestabilized and improved in the direction of the trend: Maintaining political stabilityand further reforming administrative procedures to attract investment

The period 2011-2015: It is the opening period for Vietnam to establish thebilateral trade relations with U.S expand and join the major economic organizations

in the region and the world as the EU, AFTA, and WTO This creates favorableconditions for enterprises to export to potential markets, but they also have to facewith a lot of harshness and severe competition Many confectionery products withquality, attractive designs for domestic customers affected confectioneryconsumption of the inside country in general, of the HAIHACO in particular

Since the tariff reductions for imported confectionery items to 20% in 2003,and further lessening to 0.5% in 2006, the domestic firms under competitivepressure from importers must constantly innovate in technology However, thisopens up more opportunities than challenges due to lower tariff barriers facilitatingthe product of the business sector to enter the ASEAN countries’ market

For confectionery items, the Government promulgated the Law of foodsafety and the Law on industrial property rights which require specified labeling,packaging to protect the interests of consumers and reputable companies But theimplementation of the authorities is not so radical; therefore, there are the largenumber of counterfeits, unclear labeling, poor quality and expired products whichstill exist in the market

c Socio-cultural factor

Although confectionery is not an essential needs of human, it is a product oftraditional culinary legacy of Vietnam in general and of each regions in particular.The trend of using domestic confectionery items are more preferred

Cultural traditions and lifestyles of each region significantly affect theconsumption of confectionery Consumers’ taste for confectionery products of thepeople in the North, Central and South are different so the consumption capacity ofthe Company’s products in each market will be different For the North, customerspay more attention to the type of packaging design and moderately sweet taste,while the South concern more about the sweet, fruit flavors

Cultural exchanges with countries in the world have helped Vietnam learnand obtain new colorful cultures, new perspectives, new methods of consumption inthe period 2011-2015.Vietnamese emphasis on issues such as design, style, flavor,attractiveness, etc of a product Vietnam is a tropical country with lots of fruitswhich is favorable condition for the production of candies with different fruitflavors Moreover, it is also supported by introduction of fruits from Europe, such

as chocolate, cocoa, and coffee They are advantages for the Company to diversifyproduct lines

Besides those who believe in the domestic goods, there are still many peoplewho still prefer foreign goods They assert that foreign goods are more high-qualitythan domestic goods This is really a big challenge for the Company to penetrate theluxury market

Confectionery products are consumed mostly in urban residential areas Withthe rapid urbanization in Vietnam, the market for confectionery products will bealso expanded

Tropical weather, humid climate and heavy rainfall of Vietnam have stronglyaffected the seasonal nature of manufacturing technologies and consumption ofcandy There are many troubles in storage, the confectionery items are perishableeasily so the increasing cost of maintenance and transportation drive up the highcost of products; the majority of materials used for confectionery products comefrom agriculture However, Vietnam’s weather changes complicatedly with storms,floods, drought constantly, as a result, the domestic market supply of raw materials

is unstable, the cost of raw material reserves is high The demand for confectioneryvaries greatly according to season (consumption increased massively from August

to the Lunar New Year, including the staples of Vietnam’s traditional flavor such

as cakes, hard and soft candies, luxury biscuits, assorted jams, nuts which areconsumed heavily).Therefore, human resource activities( management, laborrecruitment) and the moderation of the Company's production encounter manydifficulties

Vietnam has a young population structure with a high proportion of childrenwho consume confectionery products greatly, especially confectionery products ofHAIHACO Their products tend to meet the needs of the youth and children aboutthe type, design This is advantage for the HAIHACO confectionery market in thecoming years

d Technological factor

Compared with other countries in the region and in the world, researchcapacity, developments, technology transfer of Vietnam remain very poor,particularly biotechnological, engineering and processing technology as well asautomation In general, technological level of our country is more backward to theworld than a few decades This is a great restriction for Vietnam businesses ingeneral and in particular HAIHACO in the renewal of equipment, technological line