LV Thạc sỹ_Perfect the business strategy of Nhung Ceramics Joint Stock Company

Structure of great exercises Chapter 1: Basical arguments of business strategy Chapter 2: Situation of business strategy of Nhung ceramics joint stock company includes the last time. Chapter 3: Solutions for Nhung ceramics JSC to improve business strategies

GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM

CAPSTONE PROJECT REPORT

SITUATION AND SOLUTIONS FOR NHUNG CERAMICS JSC

TO IMPROVE BUSINESS STRATEGIES

Group No.:4 Student’s name:

Pham Thi Mai Ly Pham Thi Nhung Nguyen Đinh Nhuan Đang Van Tuan

HANOI, 2009

Subject: Perfect the business strategy of Nhung Ceramics Joint Stock Company

INTRODUCTION

1 Urgency of the subject

The first thing we mention the importance of business strategy Indeed, anorganization in general or in particular business to succeed needs to be able to copewith any situation, be completely autonomous, decide and take responsibility for alltheir activities Therefore, requires organizations to understand the trends arechanging, that exploit the strengths and reduce the weakness to create innovativestep for you, in other words to build them a suitable strategy

Can say the role of business strategy is becoming especially important for businessespecially in terms of economic integration, production level and increasingcompetitiveness in the increasingly fierce market In fact, many enterprises inVietnam has not really interested in the formulation of strategies for them

In recent years, when Vietnam opens its economy, promote the export of thousands

of businesses are established and take a new look for the economy, businesses ofdiverse industries enough, enough fields in which traditional industries, handicrafts,especially pottery manufacturing enterprises contributed an important role innational economic structure

From ancient pottery to date are associated with living art, pottery has become awitness to the lives of people; it changes in sign of economic social cultural andreligious history at each stage country In many ceramic kilns across the country,Phu Lang pottery kiln is still a familiar name to people our country with severalhundred pottery kilns of which Nhung Phu Lang pottery known and famous both athome and abroad

Production units Nhung Phu Lang pottery has established a joint stock companyNhung Pottery, started its operations in 2002 with initial membership of 40members of the village of ceramic artisans, Director is Nhung Vu Huu, now the

basis of the number has grown up to 800 workers, skilled workers so that more andmore sophisticated products, profits yearly rise.

Vu Huu Nhung, 33 years old born and grew up in Phu Lang village, he graduatedfrom the University of Industrial Arts in 1997 Unlike other students who stay inHanoi, after his graduation, he returned home Nhung has returned homeland to starthis career by the crafts of traditional handicraft village

Nhung ceramics joint stock company located 20km north of Hanoi, where we will

be witnessed the process of making pottery, and we understand why he choose thisprofession He is a talented artisan pottery, he had the idea of making ceramicproducts in its traditional beauty of the Vietnamese soul Over many generations,Phu Lang village only make simple products such as: vases, peace, jar, coffin andother common households He is a pioneer in creating ceramic art products, bringsthe brand name for Phu Lang pottery village

In Phu Lang today,there are many small pottery kilns with small business, Nhung isonly kiln which make valuable artproducts.There were vases, the bottle contained creactivity and unique style and design, and they have been exhibited in many galleries in Hanoi and Ho Chi Minh These products have brought many valuable not only known in the country but also attract attention, favorite friends all over the world (The USA and EU)

Since its establishment (2002) Nhung Ceramics Joint stock company tends to makeuse of methods of strategic management in business management and in fact, has brought good results

With awareness of the importance of planning business strategies in the business we

boldly choose project "Perfect the business strategy of Nhung Ceramics Joint Stock Company stage 2010 - 2015" in order to put knowledge to Business Reality.

2 Research problems

- Factors in the external environment impact the construction business strategy

- The elements of internal enterprise impact on the construction businessstrategy

- Analysis and assessment of general state construction business strategy ofNhung Ceramics Joint Stock Company.

- Orientation business strategy for 2015 includes joint stock company based on acombination of theoretical and practical analysis

5 Methodological

Major exercises using secondary sources and primary as follows:

- Collecting data through secondary sources such as newspapers, internet,distribution channels, internal documents

- Collecting primary data: Using the method of quantitative and qualitative datacollection to record levels

- Using a statistical analysis method to analyze the primary data collected

- Interview with the members of the company's leadership as Chairman,members of the Board, Director, the development orientation of thecompany in the future

6 The contribution of major exercises

- Systematize a number of theoretical basics of business strategy;

- Analysis and assessment of general state construction business strategy ofNhung Ceramics company

- Propose a complete solution to build business strategy at Nhung JSC

7 Structure of great exercises

- Chapter 1: Basical arguments of business strategy

- Chapter 2: Situation of business strategy of Nhung ceramics joint stockcompany includes the last time

- Chapter 3: Solutions for Nhung ceramics JSC to improve business strategies the period 2010 - 2015

TABLE OF CONTENTS Acknowledgements

Table of content

Introduction 6

Chapter 1: BASICAL ARGUMENT OF BUSINESS STRATEGY 9

1.1. Basical concepts 9

1.2. Vision, Mission and core competencies 10

1.3. Strategic management 11

1.4. Strategy formulation .14

1.5. Selecting and implementing strategy .23

Chapter 2: SITUATION OF BUSINESS STRATEGY OF NHUNG CERAMICS JOINT STOCK COMPANY INCLUDE LAST TIME 29

2.1 Introduction .29

2.2 Commitment to business strategies in the last few years .34

2.3 Analysis of macro-environment 34

2.4 The assessment of competitive ability of the Company .45

2.4.1 Analyzing industry environment 45

2.4.2 Evaluation of company’s strong and weak points .50

2.4.3 Evaluation of the business outstanding competence .55

2.4.4 Analysis of value range .56

2.4.5 SWOT matrix .59

2.5 The current business strategy .61

2.6 The current organization and controlling mechanism 61

2.7 Nhung Ceramics's position in the market .63

Chapter 3: SOLUTIONS FOR NHUNG CERAMICS JSC TO IMPROVE BUSINESS STRATEGIES THE PERIOD 2010 – 2015 .65

3.1 Some orientation in formulating the Company’s strategy .65

3.2 The Company’s development directions .68

3.3 Targets and strategy for the period 2010-2015 .69

3.3.1 External environment analysis .70

3.3.2 Internal environment analysis .71

3.3.3 SWOT matrix .72

3.3.4 Business strategy for the period 2010 – 2015 .78

3.3.4.1 Organizational structure .78

3.3.4.2 Competition and investment strategy 79

3.3.4.3 Business strategy .81

3.4 Strategic solutions 84

3.4.1 Strategic solutions in production and technology .84

3.4.2 Strategic solutions in finance .85

3.4.3 Strategic solutions in HR and organizational structure 85

3.4.4 Strategic solution in marketing .86

3.5 Implementation 87

3.5.1 GANTT chart .87

3.5.2 Organization for implementation .89

CONCLUSION AND RECOMMENDDATION .90

REFERENCES 91

APPENDICES 92

List of tables

Table 1.1 – SWOT matrix

Table 1.2 – Strategy implementation

Table 2.1 – Table of general analysis on macro-economic environment

Table 2.2 – Result summary of five competitive forces model analysis

Table 2.3 – Evaluation of company’s strong and weak points

Table 2.4 – Evaluation of the company’s outstanding competences

Table 3.1 – Table of assessment of business environment factors

Table 3.2 – The table of assessing key internal factors

Table 3.3 – Sum up table of assessments under SWOT matrix

Table 3.4 – Table of results under the GREAT model

Table 3.5 – the Company’s targets for 2010 - 2015

Table 3.6 – Gantt chart

List of figures, graphs…

Figure 1.1 – The strategic management process

Figure 1.2 – Step in planning strategy

Figure 1.3 – The external environment analysis model

Figure 1.4 – Industry environment analysis model

Figure 2.1 – The company’s organizational structure and Board of

management Figure 2.2 – the Company’s revenue from 2002 to 2008

Figure 2.3 – Vietnam export ceramics market

Figure 2.4 - Market of company

Figure 3.1 – Organizational structure

Figure 3.2 – GE matrix model

Figure 3.3 – Types of potential competitive advantages

CHAPTER 1 BASICAL ARGUMENT OF BUSINESS STRATEGY

The strategy definition most commonly known today as in business environment –business strategy The word "strategy" has been used implicitly in different wayseven if it has traditionally been defined in only one Explicit recognition of multipledefinitions can help people to manoeuvre through this difficult field Mintzbergprovides five definitions of strategy:

Strategy is a perspective Show the awareness of the leaders

Match the different definitions about business strategy, we can see that “a coordinated series of actions which involve the deployment of resources to which

one has access for the achievement of a given purpose.” (a lecture of Griggs

University)

1.1.2 The Strategic Management Process

Involves the full set of:

A set of decisions and actions the CEO and lower-level managers use to gain ageneral commitments Traditional process of strategic management – responsibility

of the CEO is out of date But a multi-level strategic management system isreplaced with the same goal in the action to carry out the business strategy.Therefore, the primary commitments will be the key factors of the whole system

1.2 Vision, mission and core value

The first step of strategic management process is the firm’s commitments It is theprocess of specifying the firm's mission, vision and core values, which are designed

to achieve these objectives

- Vision: Defines the desired or intended future state of a firm in terms of its

fundamental objective and/or strategic direction Vision is a long-term view

al environment analysis, industry environment and SWOT analysis

Basing on external/intern

al environment analysis, industry environment and SWOT analysis

Combination between structure and control

Combination between structure and control

al environment analysis, industry environment and SWOT analysis

Basing on external/intern

al environment analysis, industry environment and SWOT analysis

Combination between structure and control

Combination between structure and control

Figure 1.1 - The Strategic Management Process

(According to: The lecture on the strategy management - Griggs University)

- Mission: Defines the fundamental purpose of a firm, basically describing why

it exists and what it does to achieve its vision

- Core values: Core values are resources and capabilities that can serve as a

source of Competitive Advantage

1.3 Strategic management

Identifying strategic groups equivalently to the firm’s defined strengths,weaknesses, opportunities and threats Strategic management process can besummarized as in the following diagram

Mission and the goal

Strategy formulation and strategy building

Functional Strategy Business-Level Strategy Global Strategy Corporate-Level Strategy

The internal environment analysis

Organizational Control

Structure of

organization

Mission and the goal

Strategy formulation and strategy building

Functional Strategy Business-Level Strategy Global Strategy Corporate-Level Strategy

The internal environment analysis

Organizational Control

Structure of

organization

Figure 1.2 - Steps in planning strategy

(According to: Chapter 1 - Associated professor, Doctor Le The Gioi and Doctor Nguyen Thanh Liem a course book on “Strategy Management” – Statistical Publishing House)

These core strategic management processes will help firms define their strategiccompetitiveness on the background of analyzing to find out resources, capabilities,and core values to develop chosen strategies.

1.3.1 Strategy formulation

Strategy formulation is the process of determining appropriate courses of action forachieving organizational objectives and thereby accomplishing organizationalpurpose This includes Corporate-Level Strategy, Competitive Strategy andFunctional Strategy with supporting justification, that revise as necessary themission and objectives of the organization, and supply the strategies foraccomplishing them

1.3.1.1 Corporate-Level Strategy

Specifies actions taken by the firm to gain a competitive advantage by selecting andmanaging a group of different businesses competing in several industries andproduct markets Key questions for corporate-level strategy are: What businessesshould the firm be in? How should the corporate office manage the group ofbusinesses? The degree to which the businesses in the portfolio are worth moreunder the management of the company than they would be under other ownership

1.3.1.2 Business-Level Strategy

An integrated and coordinated set of commitments and actions the firm uses to gain

a competitive advantage by exploiting core values in specific product markets Wewill study the three major types of business-level strategy: Cost LeadershipStrategy, Differentiation Strategy and Focused Strategy We also study thecombination between the business-level strategies with the industry structure ThePurpose of a Business-Level Strategy is intended to create differences between thefirm’s positions relative to those of its rivals We will consider competitive strategy

by using a particular strategy as the fundamental choice, and then adding variouscompetitive tactics such as competitive advantage and challenge of integrated costleadership strategy Successful competitive strategies usually involve building

uniquely strong or distinctive competencies in one or several areas crucial tosuccess and using them to maintain a competitive edge over rivals.

1.3.1.3 Functional Strategy

The definition of functional strategies includes marketing strategies, new productdevelopment strategies, human resource strategies, financial strategies, legalstrategies, supply-chain strategies, and information technology managementstrategies The emphasis is on short and medium term plans and is limited to thedomain of each department’s functional responsibility Each functional departmentattempts to do its part in meeting overall corporate objectives, and hence to someextent their strategies are derived from broader corporate strategies

1.3.1.4 Global strategy

The global strategy is a strategy through which the firm sells its goods or servicesoutside its domestic market By identifying the international opportunities, thereasons to having an international strategy, the firm will base on the four majortypes of International Corporate-Level Strategies such as multi-domestic strategy,international strategy, global strategy and transnational strategy in internationalmarket

In the context of the market and global competition today, achieving a competitiveedge and maximizes the capacity of a company increasingly require companies toexpand its operations outside the country it exists Appropriately company hasdifferent global strategy that it can pursue While looking for ways to penetrate theglobal company will consider the benefits and costs of the expansion work on aglobal scale, on the basis of four different strategies, including: multinationalstrategy (multidomestic), international strategy (international) global strategy(global) and transnational strategies (transnational) that the company may agree tocompete on global markets Furthermore, it should pay attention to issues and costbenefits of strategic alliances between global competition, and the different ways inorder to penetrate into foreign markets, the role of the List of countries to influenceglobal strategy choices of the organization

1.3.2 Strategy Implementation

Strategy implementaiton is a firm's process of defining its strategy, or direction, andmaking decisions on allocating its resources to pursue this strategy, including itscapital and people The strategy implementation concentrates on four key successfactors: appropriate structures, objectives, controls, integration mechanisms, andincentives for implementing the firm’s strategy

1.3.2.1 Organizational structure

Organizational structure specifies: The firm’s formal reporting relationships,procedures, controls, and authority and decision-making processes; The work to bedone and how to do it, given the firm’s strategy or strategies It is critical to matchorganizational structure to the firm’s strategy

1.3.2.2 Organizational Controls

Purposes of Organizational Controls is to guide the use of strategy, to indicate how

to compare actual results with expected results, and to suggest corrective actions totake when the difference between actual and expected results is unacceptable Types

of Organizational Controls are: strategic controls, financial controls, marketcontrols, input/output controls, ect

1.3.2.3 Matching Control and structure to Strategy

It is necessary to match control and structure to strategy All organizations requiresome forms of organizational structure and control to implement and manage theirstrategies Therefore, they must create appropriate organizational structures andcontrols

1.3.2.4 Evolutionary Patterns of Structure and Organizational Structure

A firm’s growth patterns determine its structural form All organizations requiresome form of organizational structure to implement and manage their strategies.Firms frequently alter their structure as they grow in size and complexity They usebasic structure types to implement the formulated strategies efficiently

1.4 Strategy formulation

1.4.1 The external environment analysis

By studying the external environment, firms identify what they might choose to do

 Economic environment:

It is important for the firm to know how the organization the Centre is supporting is affected by these and other economic forces The economic environment is an amalgamation of various economic factors In the economic environment, the organizational analysis should centre on those aspects of the economic system that directly impact the type of project being considered For example, economic

growth, macro-economic policies, business cycle, inflation, unemployment rate, exchange rate, financial system, interest rate, customs policies, balances of paymentand opportunity costs for researchers in public institutions directly impact

organizational activities

 Political/Legal Environment:

The politcal and legal environment in a country provides a framework within which

an organization operates In some countries this environment is very restrictive and

Figure 1.3 – The external environment analysis model

(According to: The lecture on the strategy management - Griggs University)

has significant impact on all aspects of the organization; in other countries theadministrative/legal context is more permissive Understanding theadministrative/legal environment is essential to determining if organizationalchange can take place The administrative context within which the organizationoperates may be shaped by a unique combination of forces, including international,governmental, nongovernmental policy, legislative, regulatory, and legalframeworks An organization is affected by the policy or regulatory context thatgave rise to it This includes specific laws and regulations that support or inhibit theinstitution's development.

 Social and Cultural Environments:

Social and cultural forces at local, national, and often regional levels have profoundinfluence on the way organizations conduct their work and on what they value interms of outcomes and effects Understanding the national/regional/local valuestoward learning and research provides insight into the type and nature of researchthat is valued For example, what is the relative priority placed on contract research

in partnership with local clients, e.g testing products and procedures withindigenous populations, as opposed to sharing information with academic peersinternationally, or generating biostatistician data that will shape national or regionalpolicy? Arriving at these priorities involves culture-based decisions

 Demography environment:

Demography is the statistical study of certain characteristics of the population.Some of these population characteristics, or demographics, are: age, sex, education,income level, and geographical location The demography environment is a key ofvariable of interest to marketing management, since people, channels, and businessmake up markets Demographics and business data can be used to forecast thegrowth and ultimate potential of present products and to provide a picture of futureeconomic conditions of the firm Such data can indicate any changes needed inpresent products as well as provide an evaluation structure for new product ideas

 Technology Environment:

It is important to understand the level of relevant technology in the firm context andwhether such technology is defined by computer literacy or by highly developedindigenous methods of verbal and nonverbal communication It might also behelpful for an assessment to include a consideration of the process by which newtechnology comes into use, both to understand how difficult it is to acquire neededresearch technologies and to develop an appreciation for the society's willingness toembrace both new knowledge and change.

 Global environment

Globalization issues, multilateral treaties and bilateral relationship among nations,legal system and international common practices, global and regional economicintegration trends, the impact of global and regional economic crisis, these factorshave direct or indirect influence to the firm’s business activities It is important toanalyze and choose the suitable business strategy for the firm Internal environmentanalysis will help the firm identify its opportunities and threats

1.4.2 Industry environment analysis model - The Five Forces of Competition Model

Michael Porter referred to these forces as the micro environment, to contrast it withthe more general term macro environment They consist of those forces close to acompany that affect its ability to serve its customers and make a profit A change inany of the forces normally requires a company to re-assess the marketplace Theoverall industry attractiveness does not imply that every firm in the industry willreturn the same profitability Firms are able to apply their core competences,business model or network to achieve a profit above the industry average

Figure 1.4 - Industry environment analysis model

(According to: The lecture on the strategy management - Griggs University)

1.4.2.1 Intensity of Rivalry Among Competitors

For most industries, the intensity of competitive rivalry is the major determinant ofthe competitiveness of the industry

Industry rivalry increases when:

- There are numerous or equally balanced competitors

- Industry growth slows or declines

- There are high fixed costs or high storage costs

- There is a lack of differentiation opportunities or low switching costs

- When the strategic stakes are high

- When high exit barriers prevent competitors from leaving the industry

These forces of competition are a powerful tool for managers to identify the keyactivities within the firm which form the competitive forces for that organisation,and have the potential of a sustainable competitive advantage for a company.Therein, competitive advantage of an organisation lies in its ability to performcrucial activities along the competitive forces better than its competitors

1.4.2.2 Threat of New Entrants

The competition in an industry will be the higher, the easier it is for othercompanies to enter this industry In such a situation, new entrants could changemajor determinants of the market environment (e.g market shares, prices, customerloyalty) at any time There is always a latent pressure for reaction and adjustmentfor existing players in this industry The threat of new entries will depend on theextent to which there are barriers to entry These are typically: economies of scale,product differentiation, capital requirements, anf access to distribution channels

1.4.2.3 Threat of Substitute Products

Subsitute products are those products that perform the same generic function as theoriginal products Subsitute products reflect the competing choices available to theconsumer Differentiated industry products that are valued by customers reduce thisthreat

1.4.2.4 Bargaining Power of Suppliers

The term 'suppliers' refer to those industries, or companies, that provide the inputnecessary to offer the product Bargaining power is the ability to influence thesetting of prices The more concentrated and controlled the supply, the more power

it wields against the market

1.4.2.5 Bargaining Power of Buyers

Buyer bargaining power refers to the pressure consumers can exert on businesses toget them to provide higher quality products, better customer service, and lowerprices The bargaining power of buyers in an industry affects the competitiveenvironment for the seller and influences the seller’s ability to achieve profitability.Strong buyers can pressure sellers to lower prices, improve product quality, andoffer more and better services All of these things represent costs to the seller Astrong buyer can make an industry more competitive and decrease profit potentialfor the seller On the other hand, a weak buyer, one who is at the mercy of the seller

in terms of quality and price, makes an industry less competitive and increasesprofit potential for the seller

1.4.3 Internal environment analysis model – Value Chain Analysis

By studying the internal environment, firms identify what they can do Value chainanalysis allows the firm to understand the parts of its operations that create valueand those that do not Therefore, the firms will know their strength and weakness Avalue chain is a chain of activities Products pass through all activities of the chain

in order and at each activity the product gains some value The chain of activitiesgives the products more added value than the sum of added values of all activities.The value chain categorizes the generic value-adding activities of an organization:the primary activities and support activities

1.4.3.1 Primary activities

Primary activities involved with: a product’s physical creation, a product’s sale anddistribution to buyers, the product’s service after the sale The primary activities ofthe company include the following:

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

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

Technological Development

Activities completed to improve a firm’s product and the processes used tomanufacture it Technological development takes many forms, such as processequipment, basic research and product design, and servicing procedures

Human Resource Management

Activities involved with recruiting, hiring, training, developing, and compensatingall personnel

Firm Infrastructure

Firm infrastructure includes activities such as general management, planning,finance, accounting, legal support, and governmental relations that are required tosupport the work of the entire value chain Through its infrastructure, the firmstrives to effectively and consistently identify external opportunities and threats,identify resources and capabilities, and support core competencies

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

Value chain analysis is a powerful tool for managers to identify the key activitieswithin the firm which form the value chain for that organisation, and have thepotential of a sustainable competitive advantage for a company Therein,competitive advantage of an organisation lies in its ability to perform crucialactivities along the value chain better than its competitors.

Besides, internal environment analysis can apply the Mckinsey 7-S model

1.4.4 SWOT Matrix

A scan of the internal and external environment is an important part of strategyplanning process A firm should not necessarily pursue the more lucrativeopportunities Rather, it may have a better chance at developing a competitiveadvantage by identifying a fit between the firm’s strengths and upcomingopportunities In some cases, the firm can overcome a weakness in order to prepareitself to pursue a compelling opportunity

To develop strategies that take in to account the SWOT profile, a matrix of thesefactors can be constructed Environmental factors internal to the firm usually can beclassified as strength (S) or weakness (W), and those external to the firm can beclassified as opportunities (O) and threats (T)

Table 1.1 –SWOT Matrix

S-T strategy identify waythat the firm can use itsstrengths to reduce itsvulnerability to external

W-T strategy establish adefensive plan to prevent thefirm’s weaknesses frommaking it highly susceptable

1

2

…

Matrix

to external threats

(According to: The review on the strategy management - Griggs University)

1.5 Selecting and implementing strategy

1.5.1 Business strategy formulation fundamentation

An integrated and coordinated set of commitments and actions the firm uses to gain

a competitive advantage by exploiting core competencies in specific productmarkets These commitments will help the firm answer the questions: Who will beserved? What needs will be satisfied? How will those needs be satisfied?

1.5.2 Generic competitive strategies

Michael Porter has described a category scheme consisting of three general types ofstrategies that are commonly used by businesses to achieve and maintaincompetitive advantage These three generic strategies are Differentiation Strategy,Cost Leadership Strategy and Focus Strategy

1.5.2.1 Differentiation Strategy

Differentiation is aimed at the broad market that involves the creation of a product

or services that is perceived throughout its industry as unique The company orbusiness unit may then charge a premium for its product

Firm that succeed in differentiation strategy often have the following internalstrengths:

- Access to the leading scientific research

- Higly skilled and creative product development team

- Strong sales team with the ability to successfully communicate theperceived strengths of the product

- Corporate reputation for quality and renovation

Differentiation strategy is appropriate when customers value differentiated featuresmore than they value low cost

Advantages:

- Raise performance of product or service;

- Create sustainability through perceptions of customer of unique products;

- Defend against competitors because brand loyalty to differentiated productoffsets price competition;

- Cost advantages: mitigate buyers’ power because well differentiated productsreduce customer sensitivity to price increases;

Conditions for implementing the differentiation strategy:

- Highly developed information systems to better understand customers’purchasing preferences; A company-wide emphasis on the importance ofproducing high-quality products;

- Compensation programs intended to encourage worker creativity andproductivity Somewhat extensive use of subjective rather than objectiveperformance measures Superior personnel training

- Strong capability in basic research, investments in technologies that will allowthe firm to produce highly differentiated products

- Systems and procedures used to find the highest-quality raw materials,purchase of highest-quality replacement parts

Competitive Risks of Differentiation:

- The price differential between the differentiator’s product and the cost leader’sproduct becomes too large

- Differentiation ceases to provide value for which customers are willing to pay

- Experience narrows customers’ perceptions of the value of differentiatedfeatures

- Counterfeit goods replicate differentiated features of the firm’s products

1.5.2.2 Cost Leadership Strategy

This strategy emphasizes efficiency By producing high volumes of standardizedproducts, the firm hopes to take advantage of economies of scale and experiencecurve effects The product is often a basic no-frills product that is produced at arelatively low cost and made available to a very large customer base Maintainingthis strategy requires a continuous search for cost reductions in all aspects of the

business The associated distribution strategy is to obtain the most extensivedistribution possible.

Cost saving actions required by this strategy including:

- Building efficient scale facilities

- Tightly controlling production costs and overhead

- Minimizing costs of sales, R&D and service

- Building efficient manufacturing facilities

- Monitoring costs of activities provided by outsiders

- Simplifying production processes

To be successful, this strategy usually requires one or more of the followingadvantages:

- Achieving the lowest cost position means that a company's competitors willhesitate to compete on the basis of price because, in the event of a price war,the low cost company will continue to earn profits after its competitorscompete away their profits

- Achieving the low cost position provides some protection against powerfulcustomers who attempt to drive down prices If customers attempt to driveprices below the cost of the next most efficient company, that company mightchoose to exit the market (rather than remain and earn below average profits),leaving the low cost company with a monopoly position If that happens,customers would lose any bargaining power, as the monopoly company would

be in a position to raise prices

- Because they have achieved the lowest cost position in the industry, the costleadership strategy enables a company to absorb a greater amount of costincreases from powerful suppliers before it must raise prices charged tocustomers This may enable the company to be alone among its competitors inearning above-average returns In addition, a low-cost leader that also has adominant market share may be in a position to force suppliers to lower prices

or to hold down the level of price increases, and thus reduce the power ofsuppliers

- Companies successfully following cost leadership strategies generally mustproduce and sell in large volumes to earn above-average returns And, with acontinuous focus on efficiency and reducing costs, low-cost leadershipcompanies create barriers to entry New entrants must either enter the industry

at a large scale (large enough to achieve the same economies of scale as thenext lowest cost company) or be satisfied with average profits until they movesufficiently far down the experience curve to match the efficiencies of the low-cost leader

- The low-cost leader is in a more attractive position relative to substituteproducts than are other companies in the industry To retain customers, thelow-cost leader can more easily reduce prices to maintain the price valuerelationship and retain customers

Low-cost conditions required by this strategy:

- Relatively standardized products

- Process engineering skills

- Production process specilization

Despite the attractiveness of the cost leadership strategy, it is accompanied by risks

- Relatively low prices will result in creating a negative attitude towards thequality of the products or services in the mindset of the customers Customer’simpression regarding such products will enhance the tendency to shift towards

a product which might be higher in price but projects an image of quality

- Competitors, using their own core competencies, may successfully imitate thecost leader’s strategy

- Overly focusing on process efficiency may weaken other competitiveadvantages such as product quality strategy or differentiation strategies

- Focus on cost reductions may occur at expense of customers’ perceptions ofdifferentiation

- Focus cost leadership strategy: Companies that compete by following costleadership strategies to serve narrow market niches generally target thesmallest buyers in an industry

- Focused differentiation strategy: Companies following focused differentiationstrategies produce customised products for small market segments They can

be successful when either the quantities involved are too small for wide competitors to handle economically, or when the extent of customisation(or differentiation) requested is beyond the capabilities of the industry-widedifferentiator

industry To implement a focus strategy, firms must be able to complete various primaryand support activities in a competitively superior manner, in order to developand sustain a competitive advantage and earn above-average returns

Competitive risks of focus strategies are with the following:

- Competitors may successfully focus on an even smaller segment of themarket, "out focusing" the focuser, or focus only on the most profitable slice

of the focuser's chosen segment

- An industry-wide competitor may recognise the attractiveness of thesegment served by the focuser and mobilise its superior resources to betterserve the segment's needs

- Preferences and needs of the narrow segment may become more similar to thebroader market, reducing or eliminating the advantages of focusing.

1.5.3 Strategy implementation

Basing on formulated strategy analysis, basing on GREAT model:

Table 1.2 –GREAT model

(According to: The review on the strategy management - Griggs University)

GREAT model allows the firm to revaluate qualitative values to find outcompetitive advantages Each content is marked maximum 10 marks Good-rank isfrom 8.5 to 10 Average-rank is 5.0 – 8.5, weak-rank is under 3 Each content has itsweight by the decimal number, weight total is 10

Mark total for each option is the combination of all factors, so the firm will have thefundamentation to choose the suitable strategy

CHAPTER 2 SITUATION OF BUSINESS STRATEGY OF NHUNG CERAMICS JOINT

STOCK COMPANY INCLUDE LAST TIME

2.1 Introduction

2.1.1 History and Development

Nhung CERAMICS JSC, which is 20km far from Hanoi, located in Phu Langvillage, Que Vo district, Bac Ninh province Its initial business method is personalbusiness, Vu Huu Nhung, a potter, who is now the manager of the company didresearches himself and created and sent his works to furnaces in his village to burn.His first products were sent to Australia by one of his friend In 2002, his firstpottery plan with over 40 employees was established In 2003, this workshop’sproducts became famous with “Nhung Pottery” trade mark At that time itsworkforce was only 100 workers On February 17th 2004, being consulted andsupported by Bac Ninh Tourism and Trade Promotion, and relied on his plan’sdevelopment as well as its success, his pottery company was established with thename of Sao Bac Limited Company with 2 members and VND 900 million ofcharter capital Its head office located in Phan Trung Village, Phu Lang Commune,Que Vo Dist, Bac Ninh Province The company’s professional business is toproduce and sell fine art ceramics On February 20th 2007, the company wasrenamed to be Nhung CERAMICS Joint Stock Company The company uses itsown website for trading and looking for products distributing partners, especialoverseas ones

Up to now, Nhung Ceramics JSC has about 800 workers, of which, 20 percent isseasonal labor The warehouse’s area is about 16000 square meters NhungCeramics JSC has high-skill workers, especially, the staffs working in theengineering department and the art designing department They graduated fromVietnam University of Fine Art and they are selected carefully They are job-lovers,creative They have created the spirit for Nhung pottery products

However, the company has taken a small part (only 4% of the market share) in thepottery and fine art market The key products are pottery paintings, potterysculptural relief, pottery pots, ornamental bricks, hanger fixtures, ect.

The export market of the company as well as the Vietnamese fine art and potterytraditional market such as EU, Japan, America, Korea, Taiwan, Thailand and China– a recent large market

The Nhung Ceramics JSC has operated according to the joint stock company modelsince 2007 The company’s organizational structure and Board of management ispursuant to the Vietnamese Law on Enterprises

Board of Chairman

The highest decision-making apparatus in the company is the Board of Chairmanincluding individuals contributing capitals to establish and manage the company

Supervisory Board

Board of Chairman

Board of Directors

Finance and

accounting

department

Administrative department

Art and skill department

Plan and materials department

Prefabricati

on plant 1

Prefabrication plant 2

Marketing department

TP HCM representative office

Da Nang representative

office

Supervisory Board

Board of Chairman

Board of Directors

Finance and

accounting

department

Administrative department

Art and skill department

Plan and materials department

Prefabricati

on plant 1

Prefabrication plant 2

Marketing department

TP HCM representative office

Da Nang representative

office

Figure 2.1 - The company’s organizational structure and Board of management

(According to: Nhung ceramics JSC )

They have rights to decide issues relating to the company to ensure objectives,mission and sustainable economic development of the company The Board ofChairman decides the following issues:

- Amending and supplementing the operation regulations

- Deciding the organizational structure or dissolve the company, appointing,exempting or dismissing the Chairman of Board, members of the SupervisionBoard

- Deciding on the increase or reduction in the charter capital, share dividend andbenefits of the Board of Chairman and the Supervision Board

- Approving the annual financial reports, business activities of the company, theBoard of Chairman’s and the Supervision Board’s activities

- Deciding on the development strategy and annual business plan of thecompany

Supervisory Board:

Control Board is the agency to monitor all activities of the company, has threemembers including at least one member of a professional accountant Control Boardhas 5-year term; members of the control can be elected

Board of Directors

The Board of Directors consists of a director, a marketing duty-director, a fine artand technical deputy-director and a chief accountant The director represents thecompany to manage the day-to-day business operation of the company inaccordance with the decision of the Board of Chairman

Other functional sections

Other functional sections are 5 professional divisions in the Company, 2 plants and

2 representative offices in Da Nang and Ho Chi Minh City

Each functional section has its own clear-cut authority and duties They areindependent but interactive with one another, totally under the management,supervision and regulations of Board of Managers

Since the year of 2002 when the company was established and came intooperations, Nhung pottery stocked company has occupied its market and asserted itsbrand name in the market with annual growth rate in output, sales, benefits andcontribution to State Budget.

Figure 2.2- The Company’s revenue from 2002 to 2008

(According to: Nhung ceramics JSC)

Nhung Ceramics JSC doubled its charter capital, in 2004 increased to VND 900million and in 2006 increased to VND 10 billion after changing its organizationfrom a limited company to a joint stock company The development of the saledepartment with the represent office in the Central area and the South of Vietnam,together with large export contracts of fine art and pottery products to German,Italy, America and Japan This brought about 20% of developing speed for theCompany The evidence is that the revenue in 2006 and 2007 increased highly withthe revenue increase rate by 25% This trend was continuous in 2008 but slowgrowth rate due to decrease in the demand of new markets in the world Nhung

Ceramics JSC’s growth is the pride of the traditional handicraft village-Phu Lang,Que Vo Dist, Bac Ninh Province Also, it opened a new economic growth for thetraditional handicraft for this place Along with tangible values recorded indocuments, the company is also highly appreciated by the market as a famous andprestigious trade mark with the following comments:

- In 2005, ADB Bank commented Nhung pottery as one of 15 oustanding firms,

50 fine arts and pottery products were chosen to be souvenirs at the Europe Summit organized in Hanoi

Asia In 2008, the Company’s Director, Mr Vu Huu Nhung was chosen to make adocumentary film about Phu Lang pottery village named “ The person re-drawing the village name”

Besides, a set of personal success of fine arts and pottery products of the company’sDirector, Mr Vu Huu Nhung, who found the way for himself and created the stylefor the Company’s products

- In 2005, he received the award line hold by the Vietnam-Sweden CultureDevelopment Fund at the Vietnam National Fine Arts Exhibition 2001-2005for his work named “Pottery Melody” In that year, he also achieved theincentive prize at the Vietnam National Fine Arts Exhibition 2001-2005 for thework named “Tram Tich”

- He won the bronze prize at the Vietnam National Fine Arts Exhibition FourthTime for the work named “Meeting”

- In 2003, he won the bronze prize for the pottery statue group named “TheMeeting” at the Vietnam National Sculpture Exhibition for the 1993-2003 10-

year- period This work was chosen by UNESCO organization to exhibit in its

head office In the same year, Nhung pottery achieved the bronze prize of theViet Star prize-the highest prize in festival for Vietnam traditional handicraftfor 2 works named “Festival Season” and “Clay flowers”

- In November 2001, the plotter Vu Huu Nhung also the Director of NhungCeramics JSC was awarded the prize “Golden Hand Craftsman” hold by the

British Council and Swedish-Danish Culture Supporting Fund, FrenchCivilization Language Centre and German Embassy.

- In 2000, he was awarded the incentive prize at the Vietnam National Fine ArtsExhibition 1996-2000 hold by the Ministry of Culture and Information andVietnam Fine Arts Association for the work named “The Teammate”, a workdone by baked clay This work was selected to show in the Vietnam Fine ArtsMuseum

A set of challenges are faced with by an enterprise in the market Nhung CeramicsJSC has asserted its trade mark and sustainable development

2.2 Commitment to business strategies in the last few years

Since its foundation, the Company has had strategic commitments to its vision,mission and core competences

- Vision: The Company has desired to become the leading firm in Vietnam tocreate beautiful living spaces from traditional handicraft pottery

- Mission: bring modern fine arts to traditional handicraft pottery products”

- Core competences: traditional handicraft pottery products with high fine arts,humanitarian, and usable values

2.3 Analysis of macro-environment

2.3.1 Economical environment

- Input suppliers for production process are rather simple and rarely affected byprice volatility due to production materials such as clay, firewood exploitedlocally Meanwhile, workforce of the company is from the village who arevery experienced in pottery producing Pottery kilns are traditional which weremainly built by bricks And this is a great advantage for investment intoproduction

- The year of 2008 was one of the most difficult years of our economy According

to data of Statistics General Department, compared with GDP growth speed in

2009, which of 2008 was 3.7%, 4.5% and 5.8% in the quarter 1, quarter 2 andquarter 3 correlatively These data were assessed to be much lower than that of

previous years, but they are good signs to show that the economy isrecovering This period is a great challenge to small firms in terms of capitalmarket and consumer market In order to develop production effectively,companies need to have suitable, exact and adaptable investing measures tokeep pace with market changes.

- Economic stimulus package of our Government is obviously effective In 403thousand billion loans, 273 thousand is for non-stated owned companies This

is a significant signs for a fast development and to assert the position ofpersonal businesses in Vietnam

- However, total contribution of Vietnamese china pottery plays a small part inoverall exporting values of Vietnam (0.24% in 2008- according to StatisticsGeneral Department) In addition, the economy in some main importingcountries like the USA, EU is recovering too slowly This somber informationabout general recovery signs of the global economy is the obstacle that firmshave to overcome in 2 years

- According to the Statistics General Department, total exporting value of chinapottery industry decreased by 26%, this data reflected the movement ofDemand curve due to the economic crisis and the lower development is a bigchallenge

- In 2008, the price varied dramatically In 2009, the consumer indicator is morestable, at the beginning of the year, price indicator increased by 14.11%compared with the same period in 2008 However, in September, 2009, thisdata fell to 2.42 % in comparison with the same period in 2008 and 4.11%risen compared with that in 12/2008 But inflation risk has been warning Thiswas shown in reduced growth rate to 6% but beneficial indicators frominvested capital(ICOR data) increased by 8% compared with 6.6% of 2008thanks to economic stimulus package Thus, growth rate was maintainedowning to stimulus package rather than inside factors of the economy This

also affected on demand for goods and services in general and for fine artspottery products in particular.

- According to mass media, Governmental surplus debt currently is 44.6%GDP( excluding local borrowings and rotating advance loans from StateBudget through years) Governmental debt and financial risks can affectmicroeconomic environment, state financial policy and capital market ofprivate businesses

- Vietnam government and local authorities always put the maintenance anddevelopment of traditional trade villages in the first place, and this is also thepolicy used to maintain and develop traditional culture, to ensure economiclives and income of citizens

- Bac Ninh administration has frequently provided firms with information,business environment to popularize their brands, condition them to widenplants

- Additionally, it encourages local inhabitants to develop their own economy, thenhelp their own families, villages and the whole country more and moreprosperous In fact, traditional trade village development has become anessential part in local developing strategy of Bac Ninh province for period of

2010 - 2020

2.3.2 Politic and legal environment.

- Vietnam has a stable political situation, which is one of the greatest motivationsand advantages for firms, especially for ones at home This helps them feelsecure about their capital invested into business

- Domestic legal environment creates many opportunities for private enterprises.Law of copyright, policy of protecting and popularizing brands have provided

a good legal frame which conditioned healthy competition in the market.However, there are still some shortcomings such as prolix administrativeformalities about brand, which are time-consuming and confined within ourterritory Besides, sentence mechanism is not strict and thorough

- Local traditional trade village development mechanism is quite synchronic.Together with policies to encourage traditional trade village expansion, BacNinh has supported private enterprises by capita and land-tax incentive.Besides, Bac Ninh has built a mechanism to attract investment to develop tradevillages, infrastructure to connect historical monuments, tourism development

in order to create a overall development of Bac ninh provide itself

- By opening trade policy with other nations on the world, Vietnam became amember of ASEAN group in 1995 and of WTO organization in 2006 Vietnamimplemented common commitments of trade cooperation with other countries

in all continents Commercial agreements and economic policies hasencouraged Vietnamese enterprises to exchange, approach, associate andpromote business with nations and great markets all over the world

- Besides, Vietnam is competing legal system, synchronic explicit and clearmanagement mechanism to create factors of market economy These areexertions to execute commitments signed when Vietnam joined regional andglobal trade organizations, and to shape vital elements for a level playing field.However, these are challenges for Vietnamese young firms who lack capital,experience about an international and multiethnic market

- Environment protection Law of Vietnam is rather simple in comparison withthat of other nations, and has not improved the awareness of private enterprises

in traditional trade villages about sustainable economic development It isessential to complete this law, to reduce quantity of private spontaneousbusinesses, and to raise public awareness of firms when joining the market

- According to information on a web of exporting fine arts products, Reach code,which is 800-page thick, has been issued It will be applied in 2011 in order toclosely stipulate requirements on safeness of all products (including fine artsproducts) imported in EU In that code, there is a list of chemicalsmanufacturers who are accepted by this market when goods containing

chemicals are produced And this is also a great challenge to newly developingenterprises.

2.3.3 Socio-cultural environment

- To explain about the appearance of pottery traditional village, legend has it that:

In Ly’s regime in 12th century, there were 3 Thai students appointed to BacTong who were Hua Vinh Kieu, Dao Tri Tien and Luu Phuong Tu Afterfulfilling their mission, on the way home through Trieu Chau, Quang Dong,China, they met with a storm and had to stay there In that region, there was afamous pottery producing plant, they paid it a visit and studied sometechniques, then they came back to their country and propagated thosetechniques to other people Hua Vinh Kieu taught Bat Trang residents how tomake white crackle glaze Dao Tri Tien propagated Tho Ha and Bac Giangtechniques of making yellow-red glaze Luu Phuong Tu taught Phu Lang, Que

Vo, Bac Ninh how to create dark red and yellow glaze

- Old-aged legend and the prosperity of traditional trade village in centuriescemented Phu Lang residents and the pride of famous fine arts potteryproducts The local administration and people highly aware of respectingtraditional culture features Bac Ninh Service of tourism, sports and culturealways encourages and launches movements so that the young can understandmore about traditional history of their hometown Then, they will have goodactions to conserve and develop culture and traditional trade village

- Orientation to develop economy of our country is parallel to preservation andpromotion of national culture as well as building movements, public awareness

of preserving tangible and intangible cultural heritage in Vietnam.

- In the 21st century, along with economic development and orientation of theState, consumers at home like domestic goods more And Vietnam highquality products asserted their brand in the domestic market Economy is now

in crisis and internal consuming trend is one of demand encouraging factors It

helps fine arts pottery in particular and other products in general to assert themarket and to exploit more effectively the domestic market.

- New consuming style and using environment-friendly products trend help somehome household goods such as pottery, china pottery, rattan and bambooknitting become more favorite not only in domestic market but alsointernational market

- Vietnamese economic growth accumulation over the last few years, thedevelopment of urban architecture has shaped a new taste of fine arts amongVietnamese They now know to use and enjoy traditional fine arts productssuch as: pottery, china pottery, rattan and bamboo knitting……

2.3.4 Technological environment

- The world’s technology has been dramatically developed However, technologyapplied in pottery burning is still back warded Firewood kilns which offeredonly 70% of success are still used in many households in Vietnam generallyand in Phu Lang village particularly With these kilns, experience of users isthe deciding factor on the success of the batch

- With gas burning technology, there is a greater percentage of success, but theinvestment of about VND 20 million is not small at all to many families Theadvantage of this kind of kiln is that the burning time is shorter (just lasting forseveral hours) compared with the time used for a firewood kiln (lasting from 3

to 5 days) This is a significant feature which can help pottery producer protecthealth and improve the productivity in a short time

- Apart from technology in Vietnamese market, automatic production technologywhich allows producing a lot at the same time has not appeared in Vietnam.This technology provides higher productivity and ensures products’ qualitybetter

- The process of product shaping, glaze cover is also done by hand or depends alittle on rudimentary machinery This also brings about asynchrony quality andlow productivity

- However, based on experienced pottery producers’ comments, with a brick kiln,burned by firewood, thanks to temperature changes at 1000 Census degrees,there are some flaws on the surface of products, and this will create an uniquefeature to distinguish this product to others burned at the same time but inanother kilns And this also expresses the original beauty of clay but stillensures high demand in terms of fine arts.

2.3.5 Demographic environment

- According to data in 2009, Vietnam population is about 86 million people, with

54 ethnics but Viet ethnic takes about 86% and mainly lives in delta areas.Population structure is young, 68% of this is in labor age (from 15 to 60), then

it creates a great labor market and consumer market in our country.

- The number of children is forth times more than the old, this shows that potterymarket for children in particular and other goods in particular have manyopportunities to be consumed and developed

2.3.6 Global environment

- As these are fine arts products, so modern requirements for fine arts areexpressed from pattern to sharpness of products is really great Theserequirements are different in different places (North-Central-South) and indifferent countries (the USA-Japan-EU…) This demands non-stoppedresearch and discovery of the business

- The global economic crisis has affected exporting market of fine arts chinapottery products To change using habit of consumers, it requires potteryproducts both of beauty and easiness in uses

Below is a general analysis on macro-economic environment

Table 2.1 - Table of general analysis on macro-economic environment

Economy

Supply of inputs has no affected to the price fluctuation

Vulnerable market will be excreted without

opportunities to invest in