NĂNG lực CẠNH TRANH – NGHIÊN cứu TÌNH HUỐNG CÔNG TY cổ PHẦN đầu tư và xây DỰNG số 18 (LICOGI 18) e

This is the value for which customers are willing to pay and what preventing requests for lower prices, compared to that ofcompetitors, for equivalent benefits or provision of unique ben

NĂNG L C C NH TRANH – NGHIÊN ỰC CẠNH TRANH – NGHIÊN ẠNH TRANH – NGHIÊN

C U TÌNH HU NG CÔNG TY C ỨU TÌNH HUỐNG CÔNG TY CỔ ỐNG CÔNG TY CỔ Ổ

PH N Đ U T VÀ XÂY D NG S 18 ẦN ĐẦU TƯ VÀ XÂY DỰNG SỐ 18 ẦN ĐẦU TƯ VÀ XÂY DỰNG SỐ 18 Ư VÀ XÂY DỰNG SỐ 18 ỰC CẠNH TRANH – NGHIÊN ỐNG CÔNG TY CỔ

(LICOGI 18)

THESIS COMPETITIVE CAPPABILITIES

- CASE STUDY OF CONSTRUTION AND

INVESTMENT JOINT STOCK

COMPANY NO.18 (LICOGI 18)

( Au g us t ) 2 0 1 4

TABLE OF CONTENTS

ACKNOWEDGEMENT……….ii

LIST OF FIGURES ……… … ……iii

LIST OF TABLES ……….iv

LIST OF CHARTS ………v

INTRODUCTION ……… 1

CHAPTER 1: THEORICAL BASIC OF FIRM COMPETITIVE CAPABILITIES ……… 7

1.1 The concepts of competition, competitive capabilities and advantages 7

1.1.1 Competition 7

1.1.2 Competitiveness 7

1.1.3 Competitive Advantage 8

1.2 The importance of quanlity in creating competitive capabilities and advantage 9

1.3 How to identify the components of sustainable competitive advantage 9

1.3.1 Resources 11

1.3.2 Capabilities 13

1.3.3 Core competencies 14

1.3.4 Superior competencies 14

1.3.5 Sustainable Competitive Advantage 15

1.4 Functional domains - the keys to sustainable competitive advantages .19

1.4.1 Operation production 19

1.4.2 Marketing 20

1.4.3 Materials management 23

1.4.4 Research and Development (R&D) 23

1.4.5 Finance 24

1.4.6 Human resources 25

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1.4.7 Customer relations, customer services 26

1.4.8 Branding and corporate culture 28

1.4.8.1 Branding 28

1.4.8.2 Corporate cultural development 28

1.5 International experiences in enhancing competitive capabilities and advantages 29

Summary of chapter 1 34 CHAPTER 2: THE CURRENT SITUATION OF COMPETITIVE CAPABILITIES AT CONSTRUCTION AND INVESTMENT JOINT STOCK COMPANY NO.18 (LICOGI 18)… 35

2.1 About Construction and Investment Joint Stock Company No.18 35

2.1.1 History and Development 35

2.1.2 Organizational structure and Business activities 36

2.1.2.1 Organizational structure 36

2.1.2.2 Business activities 38

2.1.3 Business results in the period of 2011-2013 38

2.2 The current situation of competitive capabilities at Construction and Investment Joint Stock Company No.18 41

2.2.1 The awareness of the Company’s leaders about competitive capacity and the importance of competitive capacity 41

2.2.2 Competitive situation of LICOGI 18 44

2.2.2.1 Impact of external factors on competitive capacity: 44

2.2.2.2 Functional areas - Bases for competitive capacity creation of LICOGI 18 JSC CO., .47

2.3 Identification of the competitive advantages of LICOGI 18 through comparisons with competitors in the same industry 75

2.3.1 Market share 75

2.3.2 Synthesis of competitiveness assessment 77

2.4 Some drawbacks and causes 78 Summary of chapter 2 80

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CHAPTER 3: THE SOLUTIONS TO ENHANCE COMPETITIVE EFFICIENCIES OF CONSTRUCTION AND INVESTMENT JOINT STOCK

3.1 Development orientation of LICOGI 18 Joint Stock Company to

2015, vision to 2020 81

3.1.1 Gerneral orientations 81

3.1.2 Specific objectives 82

3.2 Some solutions to enhance competitive capabilities of the company 83

3.2.1 Increase charter capital, balance capital structure and optimally use capital efficiency 83

3.2.2 Continue investment activities, equip the most advanced equipment 85

3.2.3 Apply advanced management methods in construction to reduce product price 87

3.2.4 Improve administrative capacity 91

3.2.5 Provide trainings, foster and develop human resources 93

3.2.6 Complete and develop LICOGI 18’s brand and culture 94

Summary of Chapter 3 ……… 95

CONCLUSIONS……… 96

REFERENCES

APPENDICES

v

: PhucHung Holdings Construction joint stock company

SONG DA 12 : Song Da No.12 joint stock company

vi

LIST OF FIGURES

Figure 1.1 How to identify sustainable competitive advantage 10

Figure 1.2 Origin of sustainable competitive advantage 11

Figure 1.3 The curve of long-term unit cost 19

Figure 1.4 Experience curve 20

Figure 1.5 The relationship between the average cost per unit of product and the percent of customers leave 22

Figure 1.6 Human resources management content 25

Figure 2.1 Chart of organizational managemeny of LICOGI 18 37

Figure 2.2 The Process of economic and technical management of LICOGI 18 .48 Figure 2.3 Summary and comparison of assets and capital structure, 2012 - 2013 65

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LIST OF TABLE

Table 1.1 Tangible resources 12

Table 1.2 Intangible resources 13

Table 1.3 Standards to define sustainable competitive advantages 16

Table 1.4 The outcome of integration of sustainable standards 18

Table 1.5 Corporate cultural structure 29

Table 2.1 Consolidated Business Results 2011-2013 38

Table 2.2 Business results of the parent company 2011-2013 39

Table 2.3 The detailed cost analysis of products sold in 2012, 2013 56

Table 2.4 Summary of competing tool comparison among companies 61

Table 2.5 Indicators of assets – capital sources of the Parent company in 2011-2013 .65

Table 2.6 Revenue, Price, Net profit in 2012, 2013 67

Table 2.7 Summary table of labor structure 70

Table 2.8 Financial indicators against competitors 75

Table 2.9 Value of business operation and market share of construction field in 2011, 2012, and 2013 76

Table 2.10 Evaluation of competitive capacity among companies 77

Table 3.1 Of plan of investment and purchasing facilities for civil works 86

viii

LIST OF CHART

Chart 2.1 Total assets of the parent Company 2011-2013 40Chart 2.2 Consolidated revenue and revenue of the parent Company 2011-2013

40Chart 2.3 Consolidated profit and profit of the parent Company 2011-2013 41

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1 Rationale

Although the world economy has fallen into crisis in the past few years andVietnam is no exception, Vietnam is still a country with impressive economic growth,accompanied with increasingly rapid urbanization speed As forecasted by Vietnam’sMinistry of Construction, the housing market demand in the period of 2015-2020 is newlyconstruction of 425 million square meters of floor area, with about 3 million newly builtapartments/ houses; and investment in construction of 12.5 million square meters of socialhousing in urban areas The annual growth of the construction industry is 8%-9%,illustrating that the demand of the construction market in Vietnam is still very huge

The construction industry is indispensable to the socio-economicdevelopment of every country In Vietnam, it is significantly important because ofthe country’s ongoing industrialization and modernization Therefore, thedevelopment of construction enterprises in order to meet the industrialization andmodernization is an urgent task

LICOGI 18 Joint Stock Company (JSC.) is a privatized state enterprise Bypromoting its advantages and achievements gained during 50 years of growth anddevelopment, and quickly adapting to the mechanisms, the Company has graduallyestablished and improved its competitiveness in the marketplace As thecompetition in the construction industry these days is increasingly fiercer, LICOGI

18 JSC is likely to encounter a large number of strong competitors, and what it hasachieved is always threatened in the future, hence enhancing the Company’scompetitiveness is a must

For the ability to preserve and promote the achieved successes, it is essentialfor LICOGI 18 JSC to take measures to retain and increase its market shares anddominate the market Proceeded from the reality and the competition status of

LICOGI 18 JSC., the thesis named “Competitive Capabilities - Case Study of Constructon and Investment Joint Stock Company No.18 (LICOGI 18)" is

selected by the author as one of measures for the goals above

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2 Aims and objectives

Based on basic theories on competition, combined with practical researches,analysis and assessment of the current status and competitive trends of LICOGI 18JSC., this thesis proposes a number of measures for the Company to enhance itscompetitiveness in the construction sector

3 Objects and scope of research

Due to the diversity and complexity of the subject, the focus of this thesis isstudying the competition theory, analyzing issues related to the competitiveness ofLICOGI 18 JSC in the construction marketplace, and at the same time introducingmajor, strategic and targeted solutions for enhancement of the Company’scompetitiveness in the construction sector

4 Methodology

Selecting research methodologies

In order to work on the thesis and answer all the research questions, first ofall, the author chose the qualitative method to analyze the secondary data This way,based on previous researches and documentation of relating issues, the authorgathered information for study on theories and judgments on issues related toresearch questions such as competition, competitiveness, sustainable competitiveadvantages, etc and construction businesses Specifically, the author did a searchfor and study on documents, regulations, reports, textbooks, reference materials andjournals for theories on enhancement of competitiveness, techniques for analysis ofcompetitiveness, and competitors of LICOGI 18 JSC., etc., then proposing moresuitable measures for the Company

The survey research was carried out with the quantitative method from theprimary data source, which is done through interviews and questionnaires, withparticipation of 21 leaders and management staff of LICOGI 18 JSC., includingChairman, members of the board, head of management board, board of directors,heads of departments and 8 directors of its subsidiaries, investors of someconstruction works, leaders of several construction companies, LICOGI

2

Corporation and leaders, some experts of the Department of Enterprise Managementunder MOC.

The research process consists of the following steps: Determining researchobjectives, developing research model, selecting scale, designing questionnaire,conducting survey, collecting and processing data, analyzing and conclusion

The questionnaire content basically consists of two parts as follows:

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Research objectives

Research model

Analyzing and conclusion

Collecting and processing dataConducting surveyDesigning questionaire

General information:

This part is to ask for relevant basic information of the surveyees such asgender, age, qualifications, seniority, position, in which nominal scale, ratio scaleand ordinal scape are applied

Research content:

For the questionnaire related to the knowledge of LICOGI 18’s leaders: Arethey aware of competitiveness, core competency, superior competency, competitiveadvantage, sustainable competitive advantage, and the importance ofcompetitiveness and that of sustainable competitive advantage? To what extent?And how do they apply this knowledge into their real work?

In order to assess the perception of the respondents, in this case theunderstanding of competitiveness, two types of questions are selected for thequestionnaire The first one is open questions, i.e the respondents can answer ontheir own The second one is closed questions, i.e multiple choices on levels of

understanding such as don’t know, know a little, know, know well, know very well

are available for the respondents to choose

For the questionnaire relating to the survey, closed questions are prepared tocollect data from construction businesses on scale, human resources, finance,machinery, brand, corporate culture, business production outcomes and so on

(For details of questionnaires, see the Appendix)

Data collection and result analysis method

In order to do the survey, the author first made attempts to build friendlyrelationships with respondents to gain their trust and assure of use of theirinformation only for research, not for any other purposes

In terms of the secondary data source, a search for materials such as books,newspapers, professional journals was conducted on websites, reports andregulations before classified Then, relating must-read issues were identified.During the process of studying materials, all significant and essential data wasmarked and sumed up for the future lookup and reference Some data was quoted

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directly in the paper, while the rest was generalized or rephrased to help the authorexpress his personal opinions and assessments In terms of collection of thecompany information through secondary data sources, as the author himself used towork at the company, most of the information can be accessed By studing materialsand documents, combined with observations, the author managed to integrateessential information as well as judgements and comments in his research.

The analysis of results was conducted with methods of statistics, comparison,analysis and collection of real data

Research process

After the detailed research proposal was approved, the author collecteddata and materials for literature review, which was carried out within 4 weeks.Observations and studies on the company were conducted and accumulatedduring the author’s working time in the company and the Ministry ofConstruction Following study on materials, the writing process and survey wasstarted through interviews and questionaires Then, the results, after obtained,were summarized and analyzed in two weeks’ time During writing up the thesis,the author kept in close touch with his supervisor for timely advice andcomments The thesis was completed after 3 months from starting

The validity and reliability of data

This research is developed based on the secure validity and reliability ofinformation and data with evidences as follows:

First, the research model was analyzed on the basis of theories which havealreadey been proven in reality and recognized in previous studies

Second, the research methodology was developed in accordance with theresearch questions and the author’s research purpose, particularly selection ofquestionnaire of multiple choices

The content of the questionnaires was based on previous studies, comments

of professionals and the supervisor, as well as of a small group of samplerespondents, so that the questions would be adjusted and modified to be moresuitable to the research purposes

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Besides, the result analysis contributed to improved validity of the findings;therefore, all replies from respondents were retained, respected and analyzedobjectively.

In short, the results of this research are of objectivity and high reliability Theresearch results will be analyzed in details in Chapter 2

5 Structure of the thesis

In addition to the introduction, conclusion, list of tables, references andappendices, this thesis consits of 3 chapters, including:

Chapter 1: Theorical Basic of firm competitive cappabilities

Chapter 2: The current situation of competitive capabilities at Constructionand Investment Joint Stock Company No.18 (LICOGI 18)

Chapter 3: The solution to enhance competitive capabilities efficiencies ofConstruction and Investment Joint Stock Company No.18 (LICOGI 18)

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CHAPTER 1 THEORICAL BASIC OF FIRM COMPETITIVE

“loser” The competition results are demonstrated by the achievement of eachcompetitor in the market, which must be recognized by customers In theconsumers’ eyes, the "winner" seemingly stands out with important featuressatisfying their needs.1

Competition, in the enterprise level, is fighting for or grabbing fromopponents customers, market share and business resources However, the nature ofcompetition today is not destroying opponents; it is the businesses themselveswhich must create and provide customers with new or higher value added than theircompetitors, so that customers would choose them instead of their opponents 2

1.1.2 Competitiveness

During the research on competition, people introduced the concept ofcompetitiveness, which was considered at different levels such as nationalcompetitiveness, business competitiveness, and competitiveness of products andservices

The competitiveness of an enterprise is revealed through its competency andadvantages in satisfying as much as possible the customers’ demands, compared toits opponents, for increasingly higher profits That said the competitiveness of anenterprise must first be derived from its competencies These are the inner elements

of every business, taking account of criteria on technology, finance, human

1 Source: Strategic Management - Statistical Publishing House, 2007

2 Source: Michael Porter, 1998

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resources, corporate organization, etc not only separately, but in assessments andcomparison with competitors in the same field and the same market It would bepointless if the inner strengths and weaknesses of an enterprise are evaluatedwithout respective comparison with its competitors Based on those comparisons,enterprises have to create and obtain their own competitive advantages in order todevelop their competitiveness This helps enterprises not only better satisfy thedemands of their target customers, but attract competitors’s customers as well

In fact, there is no business with sufficient ability to fully satisfy allcustomers’ requirements Often, an enterprise is good at one aspect and limited inanother Importantly, they have to be aware of this, and make attempts to improvetheir strengths to best satisfy the demands of customers The inner strengths andweaknesses of a business are revealed mainly through its main activities such asmarketing, finance, production, human resources, technology, management,information systems

Therefore, it is obvious that the concept of competitiveness is a dynamic one,which is constituted by various factors and is subject to the impact of both microand macro environment A product can be considered competitive this year, but nolonger in the next year or the year after next if it is unable to maintain itsadvantages

1.1.3 Competitive Advantage

Competitive advantages, in the broad sense, are those enabling an enterprise

to be superior to its rivals Competitive advantage brings enterprises the ability toretain its success in the long term.3

Competitive advantage is the value provided for customers by enterprises,which exceeds the cost to create it This is the value for which customers are willing

to pay and what preventing requests for lower prices, compared to that ofcompetitors, for equivalent benefits or provision of unique benefits rather than ahigher arisen price.4

When a business gains competitive advantages, it will have things which its

3 Source: Strategic Management – Statistical Publishing House, 2007

4 Source: Michael Porter, 1998, page 3

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competitors do not own, i.e the business will perform better than its opponents, or

be able to do things that the others can not Competitive advantage is needed for thesuccess and long-term survival of a business That is why many businesses effort todevelop their own competitive advantages; however, this is easily eroded byimitation of competitors

1.2 The importance of quanlity in creating competitive capabilities and advantage

In the trend of integration and development, every business has their own way tosurvive and grow The activities needed to affirm the ultimate goals are establishingstrategies and maintaining competitive advantage as basis for strategic planning Anoverall suitable strategy will help businesses maximize their strengths and protectthemselves against adverse impacts of the five market forces, namely Supplier power,Threats of substitutes; Entry barriers; Buyer power and Level of competition

While the first thing determining the profitability of a business is theattractiveness of the sector in which it is operating, the second one is its position inthat sector Even though a business operates in a sector of profitability belowaverage, it is likely to generate very high profits if it reaches a competitive position.Each company determines their own position in their sectors by introducingtheir own available advantages Michael Porter believed that the advantages of anybusiness always lie in one of the two aspects: cost advantage and productdifferentiation By applying these advantages, the company will create acompetitive advantage through the pursuit of three generic strategies: lower cost,product differentiation and focus

Competitive advantage help many businesses achieve the "market power" tosucceed in business and in competition

The important thing for competitive advantage to be developed and maintainedsustainably is to understand well the nature and origin of competitive advantage

1.3 How to identify the components of sustainable competitive advantage

The most important thing for any businesses, according to M.Porte, isbuilding a sustainable competitive advantage, which means the businesses mustcontinually provide the market with a special value that no rivals can offer

To determine a sustainable competitive advantage, it is necessary to make a

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look to resources It is a fortune that a business is rich in resources However, if theyare not deployed, they remain resources, otherwise they will become capacity Inthe market mechanism and integration tendency, a business wishing success indevelopment has to seek out and promote their key capabilities, which are calledcore competencies However, core competencies are good but not sufficient, as thecompetitors can have the same advantage We have to determine what is trulysuperior competency to get sufficiently large (safe) distance so that competitors cannot or take very long time to catch up us From scientific analyses, the sustainablecompetitive advantage of a business can be identified

Figure 1.1 How to identify sustainable competitive advantage

Source: Dr.Dang Ngoc Su - MBA program materials

A core competence (which makes differences) is the unique strength enabling

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Resources

Tangible Intangible

to gain revenues above average

Sustainable Competitive Advantage helps organizations

to gain revenues above average

- Coinciding with the success factors

a company to achieve superiority in efficiency, quality, innovation and customerresponsiveness, thereby creating superior value and gaining competitive advantage.

A company with core competencies will be able to differentiate its products orretain lower costs than its rivals Thanks to that, the company has created morevalue than its competitors and will achieve rates of return above average

Figure 1.2 Origin of sustainable competitive advantage

Source: Charle W.L.Hiclk; Gareth Rjones (1998)”An Integrated Approach”

Strategic Management, Houghton MifflinCo.

Table 1.1 Tangible resources

Difference

Low price

Creating the superior value

Higher profit

- Ability to self-fund Organizational resources - Formal reporting relationship structure,

planning system, official joint control Material resources

- The complexity and distribution ofmachineries, equipment and factories

- Access to raw materials Technical resources - Technical reserves such as copyright,

trademarks, patents, trade secrets

Source: Strategic Management – Statistical Publishing House, 2007

Intangible resources include innovation and reputation In the development ofcore competencies, intangible resources are more useful and outstanding, compared

to tangible resources

In the global economy, "success" of a company depends more on its wisdomand systematic resources than its properties Furthermore, the ability to managehuman intellect and transform it into products/services successfully is rapidlybecoming the basic operation skills of the times Many evidences show that theproportion of intangible resources tends to rise very fast and dominates tangiblesources As intangible resources are difficult for competitors to notice, learn about,acquisite, imitate or replace, businesses prefer them as basis for capabilities andcore competencies over tangible resources

Resources themselves can not create competitive advantage for companies

To generate different capabilities, resources must be unique and worthwhile A

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unique resource is that can not owned by any other company, while a valuable one

is that, in some ways, helps to create a strong demand for the company's products

Table 1.2 Intangible resources

Source: Strategic Management – Statistical Publishing House, 2007

1.3.2 Capabilities

Considered as the origin of abilities, intangible and tangible resources arebasic things resulting in the development of competitive advantage Potentialcapability is the ability of a company to deploy purposely integrated resources inorder to achieve a desired goal As a re-organized close link, capabilities aregenerated over time through the interactions between tangible and intangibleresources These skills focus on the daily routines of the organization, that is, how tomake decisions and manage internal processes to achieve the organization’s goals.More generally, the potential capabilities of a company are the products oforganizational structures and control systems They define how and where decisionsare made in the organization, reward behavior, values and cultural norms of thecompany As essential for competitive advantage, the capabilities commonly rely onthe development, transmission, and exchange of information and knowledge through

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human resources.

The business leaders in the global environment have increasingly supportedthe point of view that knowledge in human resources is the most significant factoramong a company’s capabilities and can be the root of all competitive advantages.Companies also have to be able to use the knowledge they have and make it spread

to all of their activities The distinction between resources and potential capabilities

is mainly to understand what generates the capacity to make difference A companymay possess unique and worthwhile resources, but without potential capabilities touse these resources efficiently, that company is still unable to create and maintainthe ability to make differences

1.3.3 Core competencies

Core competencies are the resources and capabilities of a company which areused as sources of competitive advantage They bring a company the competitivenessand its own qualities Core competencies are developed over time through organizedlearning and accumulation of how to exploit various resources and capabilities As apractical capability, core competencies are "luxuries of a company," what thecompany performs better than its competitors and hence increases value of goods andservices in a long time

Not all of the resources and capabilities of a company are strategic assets.Strategic assets must be competitive and potentially used as a source of competitiveadvantage; they may even include the resources and capabilities that aredisadvantageous strategically as they lie in the limitations of the company incomparison with competitors Therefore, some resources and capabilities may not

be developed into a core competency

1.3.4 Superior competencies

A superior competency is a special strength that enables a company toachieve a superior ability in quality, innovation and customer responsiveness,thereby creating outstanding values and maintaining competitive advantage Acompany with special abilities can offer different products or lower costs than its

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competitors Consequently, it creates more values than its competitors and gainspossible profits above average

Superior competencies include short-term and long-term ones Short-termsuperior competencies are the resources and abilities of a company to create itsshort-term competitive advantage, for example financial, material, technicalresources, management ability and innovation ability These capabilities are easilyimitated or caught up by competitors, and the company will lose its sustainablecompetitive advantage

Long-term superior competencies are the resources and capabilities of acompany which are generated during a process of learning, supplementing andaccumulating These capabilities are difficult for competitors to imitate or take longtime to catch up They include human resources, reputation with customers, brand,and company culture

Long-term superior competencies ensure the standards of preciousness,rarity, difficulty in imitation, sufficiently large distance and coincidence withsuccess factors

1.3.5 Sustainable Competitive Advantage

The sustainable competitive advantage of businesses has four features:

Firstly, it can help businesses create value, reduce costs and enhance businessperformance

Secondly, it is unique and combined with resources in a unique way

Thirdly, it is endogenous; its production is the result of interactions between theunits and individuals within the organization, through the coordination and organization

of technical resources of the business, creating basic capability of the business

Fourthly, the competitive advantage of a business is formed during the process

of learning and accumulation of that business; therefore, it can not be purchased inthe market and difficult to be imitated by others

From the short-term perspective, the competitive advantage of enterprises islow cost, good product features, and good after-sales services But from the long-

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term perspective, creativity is much more important than the existing advantages, as

no advantage can be lasting forever and they can be diminished due to changes intechniques, market, and the imitation of competitors The competitive advantage ofbusinesses is a competitive strength associated with the organization, which must beconstantly nurtured and developed by enterprises to retain their long-termcompetitive advantage in the changeable market

Standards of sustainable competitive advantages

The core competencies need to ensure the four standards of sustainable

competitive advantages: Preciousness, rarity, difficulty in imitation, sufficiently

large distance, and coincidence with the success factors.

Table 1.3 Standards to define sustainable competitive advantages

Standards Content

Preciousness - Helping companies to defuse threats and exploit

opportunitiesRarity - Not owned by many opponents

Sufficiently large distance

- Surpassing the competition in many aspects; it takes time and efforts for opponents to shorten the distance

Coincidence with success

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companies can become valuable through modifications to improve their capabilities.

Rarity

The capability means no or very few competitors would own it The basicquestion for managers to realize how rare an ability is is whether "competitorspossess it or not? And how many of them?" The capabilities owned by manycompetitors will not be competitive advantages for all of those competitors

Difficulty in imitation

The capabilities are those not easy for opponents to develop There are threesources to create difficulty in imitation

First, that capability was created from a unique historical condition "As an

evolutionary process, a company has obtained the skills, capabilities and resourceswhich are unique to it, reflecting its specific development path in terms of history.Sometimes, businesses have the unique capabilities just because they are at the righttime and in the right place

Second, the ambiguity about the causal relationship between the capabilities

of a company and its competitive advantage makes difficulty for rivals to imitate Inthis case, the opponents hardly figure out how a capability is transformed into acompetitive advantage Therefore, they are not sure what to develop and how torecognize the capability to obtain a competitive advantage

Third, the social complexity There may be a few, usually a lot, capabilities

of a company which are the product of complex social phenomena Internationalrelationships, credibility, friendships between managers and between managers andstaff, the company's reputation with suppliers and customers are some examples of

social complexity.

Sufficiently large distance

The capabilities create a sufficiently large distance, i.e a remarkabledifference that is difficult for competitors to catch up, thus the company always hasits competitive advantage by the superiority of the capabilities, which take

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opponents time and resources if they wish to imitate This is more than difficulty inimitation, it is which can not be substitued.

Coincidence with the success factors

The capabilities which can not be subtitued are those not equivalentstrategically Two resources (or resources groups) of a company are consideredequivalent strategically if each of them is exploited separately but results in thesame strategy Generally, the less noticeable a capability is, the more difficult it issubstituted and the more challenging for opponents to imitate

In short, sustainable competitive advantages can be created with the factors:preciousness, rarity, difficulty in imitation, sufficiently large distance, andcoincidence with success factors The analyses shown in Table 1.4 help managersdetermine the strategic value of the capabilities of their company

Table 1.4 The outcome of integration of sustainable standards

Preciousness Rarity

Dificultyinimitation

Sufficientlylarge distance

Coincidencewith successfactors

Conclusion

disadvantageYes No No No/ Yes No/ Yes Equality

Yes Yes No No/ Yes No/ Yes

Temporarycompetitiveadvantage

SustainableCompetitiveAdvantage

Source: Strategic Management – Statistical Publishing House, 2007

1.4 Functional domains - the keys to sustainable competitive advantages

1.4.1 Operation production

Operation production includes issues such as optimization of space,production processes, production technologies and optimal production reserves, allaiming to reduce production costs and lower product prices

An integral part of operation production strategy is to identify how products

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will be produced This relates to planning for ancillary factors and manufacturingprocess, and constantly-renewed production technology of products and services.The combination of manufacturing equipment of high technology with that oftraditional technology and development of effective integrated manufacturingstrategies are the very ideal changes Automated manufacturing technology is acritical strength applied more widely.

Savings of scale is the diminishing unit cost of a product or service while theproduction scale is increasing The origin of savings of scale is the ability to spreadfixed costs to a larger amount of products produced The fixed costs are thoseincurred to produce products or services regardless of the output These costsinclude equipment costs, preparation costs for each phase of production, advertisingcosts and research and development costs Spreading fixed costs for the largeroutput allows companies to reduce the unit cost of products

Figure 1.3 The curve of long-term unit cost

Source: Strategic Management – Statistical Publishing House, 2007

The experience curve indicates the systematical reduction of the unit cost of aproduct occurs during its lifecycle According to the concept of the experiencecurve, the costs of a unit of product decrease to some extent whenever the output ofproducts accumulated doubles The result of this process is a relationship betweenthe unit cost of a product and the cumulative output (Figure 1.4)

Figure 1.4 Experience curve

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Minimum efficient scale MES

Co

st uni

t

Output

Cumulative output

A

B

Source: Strategic Management - Statistical Publishing House, 2007

Applying the improved capacity, reducing half-done products (inventoryreduction) and reducing waste are the main benefits of the combined flexiblemachines Reduction of waste comes from the ability to control machines withcomputers during the process of transforming input to output with the smallestamount of waste With these above factors, machines operating seperately can beused only 50% of their time, whereas if these machines, in the same number, arecombined properly, they can work in more than 80% of their time and generate thesame end product with just half of the waste This increases efficiency and reducesproduction costs

1.4.2 Marketing

Marketing is a departmental strategy, playing an important role in effectiveimplementation of business strategies and business performance of companies.Through marketing activities, products and services can access and become closer tocustomers Marketing strategies are much more significant for consumption ofconventional products or new products and services Although doing marketing meansincreasing costs, it could not be ignored by businesses as it determines the consumption

of products and services Conducting adequate marketing strategies, including product strategy, pricing strategy, establishment of distribution channels and promotion will

help companies to be better positioned in the market than their competitors

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Un

it cos

t

The most basic tool of marketing is products, i.e tangible goods of companies

which are launched in the market, including product quality, design, features, brandand packaging When planning to introduce a product, a businessman should considercarefully the five product levels: Core benefit, Generic product, Expected product,Augumented product and Potential product

Another extremely critical tool of marketing is price, i.e the amount that

customers must pay for the product, including wholesale price, retaile price,discount, allowances and deferred payment terms The price should correspond tothe perceived value of goods; otherwise the buyer will turn to the product ofcompetitors

Distribution is another key tool in marketing, including various activities

carried out by companies to bring products to the places where the customers need

to approach and buy them Companies should find, recruit and connect variousmarketing intermediaries and staff, so that their products are supplied to the market

in an efficient manner They should be familiar with different types of retailers,wholesalers and material distributors, challenging them through their decisions

Promotion, the fourth marketing tool, includes the various activities carried

out by companies to inform of and promote their products in the targeted market Salesstaff should be hired, trained and motivated by companies They should developcommunications and promotional programs including advertising, direct marketing,consumption stimulation and public relations

The effectiveness of marketing strategies is evaluated through the relationshipbetween the percent of customers leave and unit costs of products

Figure 1.5 The relationship between the average cost per unit of product and

the percent of customers leave

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Low The percentage of customers leaving High

HighAverag

e cost / Produc

t unit

Low

Source: Strategic Management - Statistical Publishing House, 2007

The percent of customers leave is the percentage of customers of a companywho leave that company and turn to purchase products of its competitors in oneyear The percentage of customers leave is determined by the customer loyalty,which is a function of the company’s ability to satisfy its customers To get a newcustomer, companies have to spend some fixed costs on advertising, salespromotion and similar activities The percent of customers leave and costs arerelating directly to each other The longer a company retains a customer, the higherrevenue of products sold for this customer, thus compensating the fixed costsmentioned above and reducing the average cost per unit of product sold Therefore,lowering the percent of customers leave enables companies to save a huge expense.Figure 1-6 shows that the high percent of customers leave means the huge averageunit cost and vice versa

Besides, the long-term customer loyalty brings about different economicbenefits such as free advertising made by customers for companies Loyalcustomers usually offer extravagant praise to their company and help to increaserapidly the volume of transactions thanks to whispering A typical example is Marks

& Spencer Plc, which has already gained loyalty from customers, resulting in noneed to perform any advertising activities and a big savings from avoided costs

1.4.3 Materials management

Good management of input materials helps to reduce production costs andinventory amount, thereby saving costs for correspondent funds in case of thatinventory amount, and reducing costs and prices while increasing profits ofbusinesses Materials management includes activities required to bring rawmaterials to the production area throughout the production process and distribution

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system to consumers The potential for reducing costs through effective materialsmanagement is very high A medium-scaled manufacturer has its costs of materialsand transportation accounted for 50-70% of its revenue Even a tiny reduction inthese costs has a great influence on the return of the company.

Companies can save costs through more effective management of materials

by reorganizing the materials management department

1.4.4 Research and Development (R&D)

R&D itself holds a vital position in strategy implementation R&D activitiestake charge of developing new products with new attributes, improving oldproducts, satisfying the needs of customers, and effectively supportingimplementation of strategies Today, the customers’ demands are increasinglydiverse and quality requirements for products and services are higher Therefore,R&D activities should be paid more attention to, leading to the increasingly largerbudget for R&D

The role of R&D in bringing companies greater efficiency is enormous First,R&D can improve efficiency through designing easy-to-manufacture products Byreducing the number of parts forming a product, R&D can help to decreasesignificantly the assembly time, thereby enhancing productivity and lowering unitcosts of products

It should be noted that design and manufacturing works requires closecoordination between manufacturing function and R&D function of the company.This can be done by forming groups of manufacturing staff and R&D staff, so theycan jointly solve problems efficiently

Second, R&D can help companies to achieve higher efficiency by taking thelead in innovation of manufacturing process, which is innovation in productionmethods, thereby improving the efficiency of these processes

1.4.5 Finance

The financial capacity of the company can be considered as strength orweakness Corporate finacial management has duties to use the optimal capital

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structure with minimum capital cost and allocate investment capital in optimalprojects Well-done tasks will decline the capital cost, reduce product and serviceprices, and increase profit.

Cost of capital: Capital is a very fundamental factor for production To be

funded, a business have to bear a certain cost, i.e the income paid to the capital owners

or rate of return required by those owners Investors only accept funding businesses ifthey are paid deserved profits Typically, lenders always want a high interest rate whileborrowers want a low one; therefore, the loan interest rate is the balaced one which isaccepted by both lenders and borrowers

Capital structure: An enterprise in the market economy rarely uses a fund to

finance its entire operations, even if that fund takes lower cost than the others:equity capital and loans Normally, equity capital is not sufficient to finance theentire intensive and extensive development of businesses, so they have to mobilizeloans However, lenders always want businesses to retain their sufficient proportion ofequity to ensure its creditworthiness, which is always a trouble to businesses In themarket economy, corporate financial managers struggle to resolve that conflict for anoptimal capital structure, ensuring a reasonable proportion of equity capital and loan sothat the gained benefits are highest That structure is oriented towards the balancebetween risks and interest rates, and thereby maximizing the value of enterprises

Corparate capital efficiency: reflects the ability of businesses to use their

available resources in production and operation to achieve the highest outcome withthe lowest cost An enterprise of high capital efficiency means that its business ishighly effective In the market economy, this factor determines the scalability of anenterprise in its production and business intensively and extensively In otherwords, if an enterprise’s capital is distributed reasonablly and well maintained, itcan save capital and avoid waste, enhancing credibility and its ability in fund-rasing Whether the capital efficiency of an enterprise is high or low depends onmany factors such as the state policies, organization and management of productionand business, capacity of the executives, especially financial managers, and selection

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and implementation of corporate strategies In order to improve the capital efficiencyand maintenance, businesses should pay attention to a number of factors: managementcapability, calculation of capital demand forecast, mobilization balance, fixed capitalmanagement and working capital management.

1.4.6 Human resources

Human resources management relates to all matters of rights, obligations andresponsibilities of staff wih the aim of achieving high efficiency for both theorganization and employees Almost all organizations execute basic activities in thefive main content groups as follows:

Figure 1.6 Human resources management content

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OBJECTIVES

OF HUMAN RESOURCES MANAGEMENT

LABOR RELATIONS

Recruitment: Recruitment is a process to attract talented people from

different sources to apply and be hired The objective of recruitment is to attracttalented people who are capable to meet the essential requirements of the job

Training and development: Staff training and development is a frequent

requirement, involved in the reproduction of labor in terms of quantity This activity

is carried out for not only management but employees in the organization Trainingmethods are varied and selected in accordance with the specific situation of eachcompany

Salary and rewarding: Salary and rewarding is all kinds of rewards that an

individual is rewarded in exchange for their labor The financial section includesdirect financial items (wage, salary, commissions and bonuses) and indirectfinancial items (life insurance, health care, social allowances and benefits involvingpension plan, social security, allowances for workers in toxic environments, shiftwork, overtime, work on holidays, education subsidies, paidholidays/vacation/illness/maternity leave ) However, salary and rewarding is not

simply financial items, but non-financial items which are more and more important,

i.e the job itself and the working environment Is the job itself attractive? Is itchallenging and demanding? Can employees take charge and be recognized by themanagemen? Are they feel happy when finishing a task? Can they have opportunityfor promotion?

Labor relations: Corporate labor relations include promotion, appointment,

nomination, demotion, transfer, resignation, retirement Discipline is alsoinvolved in this content Besides, labor relations are the combination of somepeople so as to stimulate them to cooperate effectively and satisfy themeconomically, socially and psychologically

1.4.7 Customer relations, customer services

Sale is critical and should be highly prioritized among all production and

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business activities of enterprises Sales planning is the first thing to do and the mostimportant, whose premises and bases are customer relations and customer services.Resolving customers’ complaints is the second chance to confirm the relationshipwith the customers Care for and provision customers with services and productsinformation help to bring customers closer to products and enterprises, creating thecompetitive advantage of the enterprises.

Customer relationship marketing is a key issue With extra costs and certainefforts, how much should companies invest in relationship marketing? To answerthis question, we need to distinguish the five different levels of customer relations:

Basic relation: The salesperson sells to the final customers without

interaction

Reactive relation: The salesperson sells the product and encourages thecustomer to call for any comments or enquiries

Accountable relation: The salesperson calls the customers to ensure whether

the product is working as per satisfaction and if there is any problem in the product.Furthermore he also asks the customer for any suggestions/feedback to improve theservice/product

Proactive relation: The salesperson sometimes calls customers to suggest

effective usage of the purchased product or introduce new products with betterfunctions

Partnership: The company works continuously with its large customers to

save money for them or enjoy more effective outcomes

In order to win the market today, companies have to keep track of customerexpectations, their recognized achievements and customer satisfaction The sameshould be done for competitors For customer-centered company, customersatisfaction is both a goal and a marketing tool

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1.4.8 Branding and corporate culture

1.4.8.1 Branding

Customers recognize the brand image from not only the products but also allthe messages about products that they can see They are aware of the relationshipbetween product quality and brand image All these things contribute to the conceptthat we call "brand" The brand is very important as it is accompanied by higherprices, more effective marketing, more stable position than competitors and manyother advantages The following are seven steps required to develop a brandidentity:

- Evaluate the existing brand identity

- Create the branching system applied brand identity for all media

- Develop the data of the brand identity

- Continue over time

1.4.8.2 Corporate cultural development

Corporate culture is a system of values created and accumulated bybusinesses through operation and business activities in relation to their social andnatural environments To develop corporate culture as a system of values, it isnecessary to establish each of its sub-systems, including perceptual culture,organizational culture and behavioral culture

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Table 1.5 Corporate cultural structure

Perceptual

culture

Generic perceptions Business philosophy, ethics ,

responsibilities, etc of businessesIntensive

perceptions

Business experiences and professionalknowledge that firms have accumulatedEmotional

The culture manages all corporateactivities

Organizingpersonal life

Organizing material life (food, clothing ,housing, transportation) and emotionallife (entertainment, communications )Behavioral

The first lesson: Technological independence and R&D

Samsung Electonics, a South Korean electronics corporation, has beaten itscompetitor, Sony Corporation of Japan By the time Sony's profit fell 2.5%,Samsung’s profit rose 12% While Sony's total capital was up to USD 30 billion,Samsung achieved its success, according to the analysts by its independence in

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technology and proper investments in R&D During its first 15 years, Samsung hadactively invested in assembly equipment and lines, gradually becoming independenttechnologically Currently, Samsung does not buy anything; they themselvesproduce all, even electronic products from screens, memory circuits, decoders,software, hard disks, and processors With policy of technological independence,Samsung has been buying low and selling high It currently has 25 factories aroundthe world, selling products to not only consumers but competitors Dell, anAmerican PC manufacturer, has long purchased LCD monitors from Samsung Inaddition, Samsung has also been particularly interested in R&D activities, as onlyhigh-tech products avoid fakes and gain high profits Samsung Leadership hadlaunched the slogan "Either innovation or bankruptcy" and took decision to investmassively in R&D, increasing the number of designers from 150 to 300 in Seoul.This development strategy of Samsung has won 17 prestigious IDEA awardsrewarded by the U.S Industrial Design Company Samsung mobile phones havebeen favored by people around the world thanks to their beautiful design andsuperior technology In 2003, Samsung has launched 40 new mobile phone models,while Nokia launched only 25 models That achievement helped Samsung to beadmitted into the club of best industrial groups in the world.

The second lesson: How to use price as a competitive advantage?

Wipro is a famous information industrial group of India In 2000, the exportvalue of software products of the Group was USD 6.2 billion, in 2001 USD 9.3billion, and in 2002 USD 13.5 billion dollars As calculated by Azim Premji, theChairman of the Group, thanks to very low production cost in India, domesticcompanies could compete with foreign ones in terms of price and features Thus,Wipro’s products have been ordered by many companies; and its regular customers

so far are 300 leading mutinational companies of telephones, aviation, and software.According to experts, Wipro’s secret of success is that it has used price as acompetitive advantage by taking advantage of lower costs

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The third lesson: Branding

Samsung Electronics was not only successful in selecting competitivetechnology innovation measures, but it had pursued the strategy for turningSamsung brand into one of the famous brand, conquering the whole planet Thiswas a long stratery; therefore, the Chairman Mr Yun Jung Yong required his75,000 employees to win at all costs, developing a world-renowned Samsung brand.The annual budget for marketing accounts for 5% of the total revenue of the Group,about USD 2.5 billion This right policy in branding has helped Samsung rank the25th position in 2003, compared with its 34th position in 2002, surpassing Nokia,Kodak, Dell in the top of 100 world prestigious brands ranked by InterBrand incombination with Business Week Magazine

The fourth lesson: Deployment of human resources: It is necessary to awake the creativity of staff in enterprises.

General Electric is a giant international corporation operating primarily in thearea of electrical machines The reputation of the Group is always associated withthe name of Jack Welch, the great leader of the Group He is known for skillfulorganization and management, particularly in personnel management Jack Welchrejected the notion on monitoring and checking Instead, he always encouraged hissubordinates to work and create The staff has done works that they did not dare to

do previously and gained achivements they never dreamed about Jack Welchalways respects the talents but he is also very tough In just five years, he dismissed118,000 workers, equivalent to one quarter of the Group's employees After 5 years,the Group had escaped from stagnation and become the most powerful corporation

in the world The secret of his leadership is creating pressures of competition in onehand, and on the other hand regulating pressures, psychological relief, awakeningthe potential creativity of employees, showing them their unbelievableachievements

The fifth lesson: Failure due to lack of information about competitors and the market.

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