LUẬN văn đề XUẤT CHIẾN lược KINH DOANH CÔNG TY CHẾ BIẾN THỨC ăn GIA súc THIÊN lộc

BUSINESS ENVIRONMENT OF THIEN LOC ANIMAL FEED PROCESSING COMPANY.. In general, the geographical position of Thien Loc Animal Feed ProcessingCompany is very advantageous, it’s easy to col

ĐỀ XUẤT CHIẾN LƯỢC KINH DOANH CÔNG TY CHẾ

BIẾN THỨC ĂN GIA SÚC THIÊN LỘC

Charter One Basis of methodology

On the competitive aspect, we will use the capacity of making a difference

to describe the special ability, creating a certain advantage The ability to createdifferences includes special abilities, skills, technologies and resources for anorganization in order to make the difference with competitors and createcompetitive advantage ideally , capabilities and skills of an organization to make somuch difference that other competitors can not copy Capabilities and skills ofevaluation in business includes activities such as: product design, manufacturinginnovation with low-cost, technology rights, outstanding quality, delivery efficiency Thus, to survive every enterprise must have a few areas of activity or skill lead tocompetitive advantage

I THE THEORY OF BUSINESS STRATEGY

threats

To

To PreventToEncounte r

Figure 1.1 Business strategy

Definition: Strategy is a series of complex actions to mobilize resources

that an organization can have to achieve a certain goal

In 1962, the Chandler defined strategy as "the determination of the term objectives and purposes of a business on the application of a series of actions

long-as well long-as the allocation of resources needed to implement the goal

Chandler, A (1962) Strategy and structure Cambridge, Massachusetts, MITPress

"Strategy is the long term direction and scope of an organization to gaincompetitive advantage for the organization through the format of its resources in thechanging environment, to meet market demand and meet expectations ofstakeholders

Johnson, GI, Choles, K (1999) Exploring Corporate Strategy, 5th EdPrentice Hall Europe

In defining strategies to Mintzberg's 5 P-word Essential aspects of strategicmanagement as follows:

Plan (plan): series of actions to be intended consistently

Pattern (pattern): consistency of behavior over time, may be intended or notintended

Position (Position): Match between the organization and its environment Concept (Perspective): How to deep recognition of the world

Tricks (Ploy): How to fool the opponent

1.1 Business Strategy:

1.1.1 Business Strategy is the art

- Alain Threlart said that "Strategy is the art that businesses use to competeagainst and win victory

M Porter said that "Strategy is the art of building competitive advantage for

- Glueck said that "Strategy is a kind of uniform, comprehensive andintegrated plan designed to ensure that the objectives of the business will be done."

1.1.3 In the opinion of the combination of unity:

- "Business Strategy is the art of coordinating activities and control them inorder to reach long-term goals of the enterprise

- Chandler considered “strategy implies the stability of the basic long-termgoals of the business, and selection of the way or process of action and distribution

of essential resources and organizing to implement the goals

- In business "business strategy is an art to design and organize the means toreach the long-term goals of the business and have relationship with thetransformation of the business environment and competition

1.2 Competitive strategies according to M.Porter opinion

Michael E Porter-professor of Harvard University presented basiccompetitive strategies in his work “competitive strategies”

1.2.1.Leading low-cost strategy

This strategy creates competitive advantage in two ways:

- Underestimate competitors in the industry aimed at attracting targetcustomers who are sensitive to price to increase total revenue This strategy isconsistent with large-scale business units which can reduce costs in the process ofoperation

- Refrain entirely cut off, content with the current market share and use thelower cost to have higher net profit per sold unit of product

1.2.2 Different strategy

Business unit will focus on creating diferent kinds of products andmarketing programs from those of its competitors to reach the leading sector Sincethen fixing prices higher than other conventional products, increasing sales byattracting customers who like brand with highlight features such as a unique taste,the ability of available reservation for distribution to customers in anywhere,scientific applications in the design and operation of implementation, optimalservice, high quality, reputation and distinctive

1.2.3 Strategy focuses on main point:

According to this strategy, the business unit focuses its attention on the

area, products and customers The attractive segments to be chosen is where nocompetitors or rivals meet the needs and expectation of customers

1.3 Competitive strategies are applied for business units according to market share position in the market

In the same company but each business unit has a different market share

in the market

1.3.1 Leading business unit in the market:

– Strategy to expand total demands: Searching for a new region for sales,finding new customers, developping new uses and encouraging greater use of theproduct

– Strategy for defense: Helping leading business unit in the market hold itsposition in current market Leading units in the market are always threatened byother competitors, especially those units that keep challenging positions for themarket Therefore, business unit have to continuously defend against attacks bycompetitors

- Strategy to expand market share: By buying back or snatching businessunits of small competitors, attack to occupy market share of major competitors

1.3.2 Provocative business units to the market :

Attacks on leading business units and other competitors to increase marketshare or business can be parallel to the competition and do not touch to behindcompetition To make attack strategy, the business unit must perform the followingsteps:

- Clearly define the competitors to attack and goal of attack strategy

- Select appropriate strategy to attack: attack forward, attack the flank, siegeattack

1.3.3 Business unit follows the market:

These are the business units that do not want to cope with the leadingcompetition or challenge of the market because of insufficient resources, fear ofloss, loss of many costs so they try to evade by following leading rivals in themarket through simulation strategies:

– Complete simulation of products, distribution method, advertising andmarketing activities, supplying products to sensitive target market with low price

- Simulating some main contents in the mixed marketing of leading rivalsled and keeping some differences in packaging, pricing, advertising, salesnetwork

- Improved simulation is to adapt to the market by basing on marketing mix

of market leading opponent to improve and make specific characteristics for itsmarketing mix to adapt to the needs and wishes of the goal market

1.3.4 Binisess unit hides in the market

The business units which hide in the markets always find one or several safeand profitable segmentso hide To succeed on narrow market segments, they oftenimplement typical specialization strategies:

- Specialize in the final user: Depending on the industry, lurking businessunits choose a kind of customers who have damand of its product anf services toserve

- Expertise in stages in the process of production and distribution ofproducts.: The business unit can choose the details, components of a finishedproduct, one addition product to the main product

- Specialize in customer: Select customers according to demographic criteria

to serve customers with high, medium or low incomes or such clients as children,teenagers, youth

- Expertise in sale zones: Select a geographic area to serve such as domestic,local markets, regional markets

- Specialize in features of products: high, luxurious or average quality

- Specialize in items of each field: one or several items in major industries

- Specialize in business services options that competitors do not offer

1.4 Process to formulate strategies

Building business strategy is the first period in process of strategicmanagement

1.4.1 Assessment of outside environment.

Environment of an organization includes the factors, forces, theinstitutions outside the business that administrators do not control them but theyaffect the operation and performance of the business Environment of theorganization can be divided into two levels: the macro environment, micro-environment

Macro environment affects all businesses, but it is not necessary in a certainway, including:

(1) Economic environment;

(2) Environment of Law, government and politics;

(3) Cultural-social environment (4) Natural environment;

1.4.2 Assessing the internal situation of the business.

Internal situation of the enterprise is usually evaluated by functional areassuch as Finance; Human Resource, operation management; Organization structure;Marketing, Research / Development; Technology Information

Analysis inside enterprises will allow to recognize strengths (S) andweaknesses (W) of the enterprise Since then, the business strategy has beenselected to maximize the strengths and overcome the weaknesses of the business

It is also similar in technical analysis of the external factors, in order tomeasure the analysis of the internal situation of the business, they usually use "matrix of internal evaluation” (IFE)

1.5 Tools to build business strategy

According to Fred R David, there are three stages to form business strategyand each stage uses different tools

Phase 1: Phase of collecting and systematizing information

This phase sums up basic informations that were collected and systemized toform the business strategy This phase uses three tools: EFE Matrix, the collectivepicture matrix and IFE matrix

Phase 2: Phase of matching

This phase selects, arranges and combines external environmental factors,internal factors to make the feasible strategies This phase will use tools of matrix:strength – weakness, opportunities - challenges matrix(SWOT);

Strategic position and activities evaluation matrix (SPACE) and largestrategy matrix

Phase 3: Phase of decision

This stage uses a single tool, the quantified strategy planning matrix(QSPM) QSPM uses information in stage 1, objectively evaluate business strategicwhich can be chosen in phase 2 to decide which strategy is optimal for the business

1.5.1 Phase of collecting and systematizing information

1.5.1.1 EFE Matrix

EFE matrix is set up by five sequential steps:

- Step 1: Making the list of factors that have decisive role in industry of thebusiness, including opportunities and challenges

- Step 2: Assessing the importance of each factor according to a scale of 0.0

to 1.0 (increasing level of importance) with a total score of the factors by 1 Thelevel is based on business industry in which the enterprise operates

- Step 3: Recording from 1 to 4 for each factor with the mark that shows thelevel of response of business to that factor Mark 4 is good response Mark 3 is overaverage reaction Mark 2 is the average response and mark 1 is little response

- Step 4: Determining the total mark for each factor ( equal to product instep 1 and 2)

- Step 5: Determining the total mark of the importance of the business by thetotal mark in step 3

Highest total mark is 4 and the lowest is 1 Average one is 2.5 Higher markshows that business responded well to external factors

1.5.1.2 Competitive picture matrix

This matrix identifies the major competitors of the enterprise This matrix is

an extension of the EFE matrix with the important levels of other factors, markmeaning of each factor and total mark that is important to have the same meaning

Competitive picture matrix is different from EFE matrix in that: there aresome internal elements having decisive importance decisions also to be used forcomparison Total mark to evaluate competitors will be compared to the businessthat is chosen as samples

1.5.1.3 IFE matrix

The IFE matrix is set up by the following steps:

Step 1 – Setting up list of decisive factors

Step 2 - Assessing the importance of each factor according to scale of 0.0 to1.0 (increasing level of importance) with a total mark of elements equal to 1 Theimportance is based on the importance of those factors for the business, not todiscriminate these factors as the strengths or weaknesses of the business

Step 3 – To mark from 1 to 4 for each factor with grade that shows theinternal features of the business for that element Mark 1 is the biggest weakness,mark 2 is the smallest weakness, mark 3 is the smallest strength, mark 4 is the majorstrength.

Step 4-Determining the total mark for each factor ( equal to product in step 1and 2)

- Step 5: Determining the total mark of the importance of the business (equal

to the total mark in step 4)

Highest total mark is 4 and the lowest is 1 Average one is 2.5 The mark ofimportance is lower than 2.5 indicates the internal weakness of the business, themark is higher than 2.5 indicates the internal strength of the business

A SWOT matrix is illustrated by the crossword as follows:

S

Listing thestrengths

W

Listing theweaknesses

O

Listing theopportunities

1.5.2.2 Space Matrix

Space matrix includes two internal factors: the financial strength (FS) andcompetitive advantage (CA), two external factors: environmental stability (ES) andthe industrial strength ( IS)

SPACE matrix is built through the steps:

- Selecting a group of variables which represent the FS, CA, ES and IS

- Assigning values from 1 (worst) to 6 (best) for FS and IS, from -1 (best) to-6 (worst) to ES and CA

– To grade average score for FS, IS, ES and CA

– To mark the average score for each aspect

– Adding 2 points on the horizontal axis and check the results, adding 2points on the vertical axis and check results To mark co-ordinate of new point

-Drawing a direction vector from original point to this new point:

- 4 Defensive strategy -5

Figure 1.3 Space Matrix

If the vector is located in the origin of attack: the company is in the best

position to use the internal strengths Strategies: market penetration, marketdevelopment, product development, forward combination, back combination,horizontal combination are possible for each specific situation of each enterprise

If the vectors is located in origin of cautious: the business should work

with its basic capabilities but not so desperate market penetration, marketdevelopment, product development and concentrated diversification

If the vector is located in the origin of defense: the enterprise should focus

on improving weaknesses and avoid the dangers from outside Defense strategies:spending limit, removation, liquidation and concentrated diversification

If the vector is located in the origin of competition: competitive strategies

can be forward combination, back combination, horizontal combination, marketpenetration, market development, product development and participation in jointventures

1.5.2.3 Major strategic matrix

Matrix includes: the horizontal axis shows the competitive position of theenterprise on the market (strong or weak) and vertical axis shows the growth of themarket (fast or slow) The appropriate strategies are listed in each square corner-below:

Quick Corner II

QSPM matrix uses information obtained from the three matrixes in stage 1(the stage to collect and systematize information) and 3 matrixes in phase 2 (phase

of matching), thereby evaluates replaceable business strategy objectively

Strategies which are selected for QSPM matrix are not all strategies found inStage 2

To build the matrix QSPM, it is necessary to make 6 steps:

- Step 1: Listing the factors S, W, O, T that is taken from EFE, IFE Matrix

- Step 2: Sorting suitable elements for EFE, IFE Matrix

- Step 3: Researching the matrixes in stage 2 and identifying alternativestrategies that may need to consider

- Step 4: Determining the mark of attractions (TAS) for each element: at ebeen evaluated from 1 to 4, with 1 is not attractive, compelling some two, threeattractive, four very attractive

- Step 5: As the total number of attractions (TAS) for each rank bymultiplying the mark of classification in step 2 with AS mark in step 4

- Step 6: Calculating total mark of attractions in each strategy

The most attractive strategy is the strategy with highest total mark in step 6

1.6 Basic characteristics of the business strategy

1.6.1 THE BUSINESS STRATEGY determines which the fundamental goals arethe business direction of the enterprise in each period

1.6.2 The orientation of the strategy is to ensure continuous and firm development

of the business in a constantly fluctuating business environment

1.6.3 THE BUSINESS STRATEGY ensures maximum mobilize and optimalcombine exploitation and use of resources of the enterprise, in the present andfuture, to promote the advantages and seize the opportunity to gain advantage incompetition

1.6.4 Business strategy of the business is reflected throughout the processcontinuously

1.6.5 THE BUSINESS STRATEGY always has thought of advancing, winningvictory in the business market

1.6.6 THE BUSINESS STRATEGY is usually built in a long time (3; 5; 10 years)

1.7 Strategic vision and strategy mission:

1.5.1 Strategy vision refers to the future business direction of the company "Whereare we going to?”

- The markets should be pursued

- Focus on technology - products – clients in the future

1.5.2 Mission statement of most companies focus on present business "Who are

we and what we do”

- Current products and services

– customer demands should be served

1.8 The mission of the enterprise

- Orientation to customers

- Define major scope and business

Figure 1.3 Three-dimensional frame of D Abell

Who should

be satisfied?

Define field of business

Which demand is sastisfied?

Group of customers

Who should be satisfied? Customer demand

Technology to meet

1.11 Enterprise Financial Management

We have reviewed the operation of financial markets and found that thesemarkets offer ways of combination of investors (who save) and users of capital(businesses provide products and services to customers) The financial markets arefactors that determine value of a business, and it is supposed that our goal is tomaximize the value of the shares, without any more fundamental factor for ourresearch like the financial markets Accounting is the language of finance Basicfinancial statements include reports of business results, balance sheet reports cashflow Firstly, we will evaluate the basic model of the financial statements of thebusiness and particularly focusing on cash flow report This report is veryimportant in financial analysis because it focuses on money rather than income orprofits Our discussion of financial indicators incorporates four targets ofindicators: solvency of the business, profitability, financial decisions and profit rate

on capital stock We combine analysis of financial statements with an overview ofindicator approach and analysis which is also known as the Dupont analysis

1.12.Management of production and work

Production and work management includes all activities related to themanagement of inputs and organizing, coordinating these factors in order to convertthem to the most effective material or service products

Figure 1.11 Process of production management

- Altering

- Adding value Feedback

1.13 Marketing Management:

Success in business often starts from the satisfaction of customer, as much aspossible Marketing is an endless source of inspiration and a place where we can goback many times to search for ideas and strategies to help us exist in storm ofcompetition in the market

CHAPTER II:

ANALYSING THE SITUATION OF THIEN LOC ANIMAL FEED

PROCESSING COMPANY 2.1 INTRODUCTION

Fig 2.1

2.1.1 Geographical position of Thien Loc Animal Feed Processing Company

Thien Loc Animal Feed Processing Company is located in the East of 1Ahighway and the East of Nghen river, far 700 m from Ha Vang bridge to the South,far 25 km from Ha Tinh city, far 25 km from Vinh City, Nghe An province;belonging to Can Loc town, Can Loc District, the area of the company is 50.000 m2

2.1.2 Introducing the history of Thien Loc Animal Feed Processing Company

- Thien Loc Animal Feed Processing Company and Breeding Company are theunits that belong to Ha Tinh Minerals and Trading Corporation, they are established

on the strong financial basis These are the units that are established on the basis ofthe project “Applying the advanced technology in manufacturing and breeding,processing feed with ensuring environmental sanitation to make super-lean pigvariety with high quality, in accordance with ecological condition of Ha Tinh”

- Manufacturing scale:

Manufacturing feed with powder form and tablet form

Including: - Feed with powder form: 20 tonnes/hour

- Feed with tablet form: 10 tonnes/hourThe factory’s capacity: 120,000 tonnes/year

The factory specializes in manufacturing types of feed for breeding pigs,cows, chickens, ducks, fishes They are manufactured on advanced manufacturingline that bases on American technology, the Company has good technical specialistswith many experiences in feed manufacturing branch inland and abroad as:Thailand, Holland, China,…

2.1.3 Organizational structure.

Fig 2.2

2.1.4 Using Thien Loc feed.

- Particularity: The feed is concentrated, Thien Loc mixture has enoughnutritional compositions: protein, energy, amino acids and vitamins, micro quantityand multi quantity minerals, biological production, they are manufactured on thebasis of leading technical science on the world, helping animals eat strongly, gainweight quickly, grow up and develop well; bringing high economic effectiveness forbreeders; manufacturing clean and safe meat for consumers; preventing diarrhea foranimals; promoting to secrete milk for sows to help them feed piggies; preventingwell poliomyelitis for pregnant sows

The company will consult for farms and breeding household, invest intechnical services if necessary, organize consumer meetings, seminars aboutdisseminating techniques and experiences in breeding, always listen to the opinions

of farmers, seem farmers to be the partners of the company, success of farmers isthe success of the company

Ha Tinh Minerals and Trading Corporation

Thien Loc Animal Feed Processing

CompanyDirector

Vice-DirectorManufacturing

Vice-DirectorTrading

Trade

Office of Organizatio

n, Administration, SàeguardPhòng

tổ chức hành chính bảo vệ

2.1.5 The slogan of the Company

Thien Loc feed: Helping farmers gain high productivity.

Always accompanying with farmers

2.2 BUSINESS ENVIRONMENT OF THIEN LOC ANIMAL FEED PROCESSING COMPANY.

2.2.1 Macroscopic environment.

2.2.1.1 Economic environment

The effects of the economy to one company can change the ability of creatingits value and income Four important factors in macroscopic economic environmentare the growth rate of economy, interest rate, exchange rate and inflation rate

+ Interest rate can affect to the product need of the Company Interest rate isone important factor when customers must borrow to sponsor their purchasingactivity for these goods

+ Exchange rate determine money’s value among nations Change of exchangerate affects directly to competition of companies on global market It’s very delicate

to the feed processing branch because raw materials of producing feed dependmainly on imported sources, manufacturing level inland is backward, which makeprice increase when price of raw materials on the world increases Vietnam FeedAssociation determines that the feed has specially important role in breedingbecause it makes up 65  75% of produce’s price So exchange rate has very bigaffect to the produce’s price

+ Inflation can decrease the stability of economy, make economy grow slowly,higher interest rate, unstable exchange rate

- In past 3 years, the economic sectors have been continuously developing, stateenterprises have been continuously renovating, organizing and equitizing,implementing increasingly more about market principle, in the end of 2007 thereare 120 enterprises on the whole country that are independent state groups,corporations, companies with big scale, their organizations and activities base on

model of parent companies, subsidiary companies In the period of 3 year 2006 –

2008, there are 173,314 private enterprises that have just been established with thetotal registered capital of VND1.186.387 trillion, bringing total enterprisesoperating in economy to 381.621 ones GDP growth rate of our country in the pastyears is presented on following table:

Table : Growth rate of GDPCalculation unit: %

Year 2002 2003 2004 2005 2006 2007 2008 2009

(expected)Growth rate of

GDP 7.08 7.34 7.79 8.44 8.17 8.44 6.5 6.6

Table 2.3Economic environment: Thien Loc Company shared the same situation ofanimal feed sector, but because of newly started production, it hasn’t been affectedmuch by the inflation in 2008 and began to develop sharply in 2009

2.2.1.2 Technological environment

One of the most important factor of technological change is that it can affect tothe height of barrier of joining and re-determining branch structure to root

Viet Nam Feed Processing Industrial Branch

Viet Nam Feed Processing Industrial Branch is the newly developed branch.Before 1960s, the feed processing branch mostly doesn’t develop Together withappearance of imported animal breed in 1960s, the demand about industrial feedbegins increasing However developing speed is slow

The amount of Vietnamese enterprises in feed processing branch increasesvery quickly in the past time Some feed processing companies inland have beendeveloping and investing with considerably large scale with the capacity from100,000  250,000 tonnes/year as Vina Company, Chau Long Company, Lai Thieu

Agricultural Product Company, Thien Loc Animal Feed Processing Company,…However, the scale of most domestic companies is small The amount of companieswith low capacity decreases gradually for big factories

In general, technological environment to Thien Loc is very advantageousbecause it is established later, has condition of selecting technology, interest ofmany offices at that time

2.2.1.3 Environment of culture and society

Feed Processing Industry and its development impulse the process ofallocating social labor in rural areas, speed up the development of manufacturingforce in these areas They allow to diversify manufacturing activities in rural areas.Since then, feed processing industry contribute to increase labor productivity,improve economic effectiveness of manufacturing in rural areas Firstly, it allow toexploit dispersed force sources that big industry can’t exploit or can’t useeffectively On this basis, it contribute to create considerable number of goods forsociety, simultaneously create income and accumulation from domestic areas forrural areas It’s necessary to emphasize that the development of feed processingindustry not only impulses the development of production, but also total economy

in rural areas in general through activities of promoting the process of urbanizing,the process of developing commerce, applying science – technique in rural areas.Increasing diversification about culture, nation raises many experiences andchallenges that are relative to the problems as the best combining method of leadingstyle of men and women to impulse their contributions that have advantages forenterprises

With regard to Thien Loc Animal Feed Processing Company it’s advantageousenvironment (strength) of rural industry that the Party and the State are encouraging

in monoculture agriculture

2.2.1.4 Natural environment

Feed processing industry is the output for cultivating products and relativeindustrial branches So most input raw material sources of feed processing branch

spring from cultivating products, so feed processing branch is increasinglydeveloping, demand about input raw materials of cultivating products isincreasingly raises.

Labor force in factories is very different, including family labor, regular laborand temporary labor The regular labor makes up big rate in total labor force in feedprocessing factories The regular labor has two groups: skilled labor and unskilledlabor

In general, the geographical position of Thien Loc Animal Feed ProcessingCompany is very advantageous, it’s easy to collect labor for the company; theagriculture is changing into manufacturing goods, the farm’s scale directsspecialization, total livestock and poultry develop strongly, it has moreadvantageous conditions than other feed processing companies

2.2.1.5 Environment of politics and law

The enterprises must analyze carefully new philosophies, policies that arerelative to state management Law of preventing monopoly, taxation law, selectedbranches to adjust or prioritize labour law, are fields in there the policies ofmanaging the state can affect to activities and abilities of creating profits of branch

or of the enterprises

In the period of renovating, the items of investing inland and abroad in feedprocessing branch are increasingly strong Feed processing branch has had positivecontributions for the process of growing and developing of breeding branch, it ispresented by the amount of consuming feed of the farmers The amount and scale offeed processing factories are increasingly raised Feed processing branch is one ofbranches that belong to agricultural field attract many investment capital fromabroad, the companies under form of joint-venture or 100% capital from abroad.Besides that, feed processing industry is selected by the Government to be one ofdeveloped priority branch and has clear developing objectives in next years

At present, demand-stimulating packages of the State, agricultural branchreceives most profits In there breeding branch and feed processing branch are main

Because food manufacturing develops, feed for breeding is abundant, so theamount of livestock and poultry increase stably The big scale of breeding appears,manufacturing good is high according to market’s direction This is output of feedprocessing companies, in general the market of consuming feed is big, especiallyfor Viet Nam at present, this is advantage of Thien Loc Animal Feed ProcessingCompany.

2.3 Porter’s competitive 5-force model

Michael.E Porter, professor of Harvard Business Administration, has proposed

a model to help business administrators to recognize chances and risks whichenterprises cope with in a sector (M.E Porter, competitive Strategy (New York:Free Press 1980))

The model of Porter is called as a model of 5 competitive forces; as shown infollowing figure:

Fig 2.4 Porter’s model on five competitive forces According to Porter, there are competitive forces in the sector, including:

1 Risk of entering of potential competitors

2 Competitiveness among current companies in the sector

Competition among current companies

Risk of potential competitors

Threat of substitute products

Bargaining power of buyers

Bargaining

power of

supplier

3 Bargaining power of buyers

4 Bargaining power of suppliers

5 Threat of substitute products

It is shown by Porter that aforesaid forces are stronger day by day, it obstructscurrent companies in price boost and higher profit gainings

2.3.1 Potential competitors

This force includes companies which arenot competitive in the sector but theycan do it if they want

Recognizing new competitors is an important factor, because they are a threat

to market share of current companies in the sector One of reasons whichcompetitors are considered as a threat in the sector is because they bring about newproductivity for the sector In general, such competitors strongly express theirinterest in market share As a result, new competitors can promote currentcompanies to be more effectiveand competitive with new attributes

Current companies try to prevent potential competitors from entering thesector Therefore, high penetration rate of potential competitors showes a threattowards profit creation of current companies Vice versa, if risk of such entering islow, current companies take advantages of this chances to boost price and reachhigher income

For animal feed processing sector, bigger potential competitors, smaller barrier

is Eg: Take an example of food import and export companies and seafoodcompanies; large-scaled subtrees and breeding institutes can enter the sector whenthey want Vietnam is a agricultural country and this young breeding sectorcompared to surrounding countries and in the world is being encouraged by theGovernment; Thien Loc Company is a challenge

2.3.1.1 Brandname loyalty

Buyers are loyal with favorite product brandnames of current companies Eachcompany can create brandname loyalty by advertising its brandname and name ofthe company continuously, protect copyright of products, improve products through

R&D programme, focus on product quality and after-sale service Brandnameloyalty will cause troubles to new entering companies which want to gain marketshare of current company Therefore, it reduces the threat of entering of potentialcompetitors; new entering competitors see that it is hard to drive away customers’fixed taste and this task is really difficult and costly Thien Loc Company has notcreated its brandname.

2.3.1.2 Absolute cost benefits:

Current companies can get absolute cost benefits in comparison with newentering competitors Absolute cost benefits come from:

- Dominant operation ability thanks to experiences in the past

- Input control capacity for production such as labor, material, equipment,machinery and administration skills

- Access cheaper capital sources because risk of current companies is lowerthan that of unformed companies

If current companies have absolute cost benefits, threat from enteringcompanies is reduced

2.3.1.3 Economy of scale.

When cost benefits in the sector are remarkable, some companies must enterthe sector with small scale and miss cost benefit take risks to enter with large scaleand bear big capital expenses And more risks of large-scale enterer are whenproduct supply demand is up and resulting in price reduction, current companieswill strongly retaliate against new competitors So, when current companies getscale economy, risks of entering will be reduced

2.3.1.4 Switching cost

Switching cost is the one appear once when customers want to change their

purchase to other suppliers Switching cost can be concerned purchase ones ofauxiliary equipment, expenses of employee training, even spirit waste in case ofstopping a low conversion relationship

2.3.1.5 Regulations of the Government.

In term of history, regulations of the Government are big barriers of entering inthe sector Through issuing certificate or special requirements, the Government cancontrol entering to a sector Feed processing sector is a new developed one,Vietnam, the agricultural country, encourages investment to it, therefore regulations

of the Government on this sector is easy

2.3.1.6 Retaliation

When enterprises enter a sector, it must forecast reaction of current enterprises

of the sector Speed and strength of retaliation of current enterprises will dispiritnew competitors Rataliation will be stronger when current enterprises haveremarkable assets, (example: the company’s fixed asset is less than its ability ofconversion), commitment of remarkable human resources or slow growth of thesector

So, getting a look to some market gaps that current enterprises do not serve in

is a good way to cope with barriers of entering, and can take part in the sector Ingeneral, small scale enterprises are easier for recognizing and serving some marketsegments; it means to gain neglected markets in order to avoid competition

Thien Loc Animal Feed Processing Company can apply this method to accesssome such markets

2.3.1.7 Barriers of entering and competition.

If current companies have created customers’ loyalty on their products,

absolute cost benefits compared to potential competitors, scale of economy, theywill benefit from high expenses of conversion, or have institutional protection,which reduces risks of potential entering competitors remarkably

When aforesaid risks are at low rate, current companies can require higherprice and gain greater profits in comparison with preceding forecasts Obviously,current companies will follow suitable strategies by increasing barriers of entering.Indeed, practical proofs show that high barrier of entering is the mostimportant factor to identify profit rate of a sector

2.3.2 Competition among companies of a sector causes a great threat to profitgainings, competition level among companies of a sector is a function with 3 mainfactors:

+ Sector’s competition structure + Demand conditions

+ Barrier of leaving a sector at high rate

2.3.2.1 Sector’s competition structure.

Animal feed sector, a concentrating sector, in which some companies suchas: Cargill company; Viet Phap Proconco Joint Venture Company; CP Group(Thailand); Green Fead Co., Ltd (Vietnam); New Hope (China); Anco animal feedprocessing company (Vietnam & Malaysia Joint Venture) Top companies such asViet Phap Proconco Joint Venture; CP Group (Thailand); Cargill Joint VentureCompany (Vietnam - America); (analyzing domestic market) Some medium sizedcompanies: Green Fead Co., Ltd (Vietnam); VIC Trading Co., Ltd; advancedcattle’s food factories: Con Heo Vang; Vienam & Malaysia Joint Venture company:ANCO food processing company; Thanh Hoa Nasaco Agricultural ProductCompany: Phu Gia; Thien Loc animal feed processing company, etc and manysmall sized companies

Competition among enterprises of a sector

Market share of Ha Tinh, Nghe An, Quang Binh in 2008, according to figures bymarket investigator of Thien Loc Animal Feed Processing Company

Thien Loc Company uses price competition method Strategy is to balanceNasnast.

as a result, the profit is still high

Vice versa, reduction in demand will speed up competition Becausecompanies have to fight over market share and maintain their income, demand isreduced when customers leave market or they buy less products For this case, eachcompany can only maintain its growth by fighting with other companies overmarket share; therefore reduction in demand results in a great threat, and it speeds

up competition among current companies in the sector Futhermore, slowdown ofdemand growth also arises some problems

2.3.2.3 Barriers to leaving the sector.

Common barriers of leaving the sector:

+ Workshop and equipment investment without other measures of use andimpossible to sell it If a company wants to leave the sector, it must leave bookvalue of such assets

+ Fixed expenses of leaving the sector are too high, eg: payment to workers isredundant

+ Sentiments towards the sector, a company does not want to leave its firstsector because of sentiment

+ Economic dependence on the sector, because some companies are notdiversified and only dependent on imcome of the sector

That Thien Loc Animal Feed Processing Company leaves the sector is verydifficult because the company has high technology and has to supply (over 10,000sowes) for 2 great large-scaled pig breeding companies) and some others

2.3.3 Bargaining power of buyers

The third force of five forces of Porter is Bargaining power of buyers, buyers

of a company can may be its final product consumers (end customers), but they may

be companies which distribute their products to final customers, such as wholesalers

or retailers

Buyers may result in competition, because they can require products withlower price or better services (result in rise in expenses of operation) On thecontrary, when number of buyers is low, the company can increase product’s priceand gain higher profits That buyers require companies whether or not depends ontheir relative power on companies According to Porter, buyers have the highestpower in following cases:

+ When supply sector is established by many small companies This allows

buyers to overpower such companies

+ When buyers purchase a great quantity of products; for this case, buyers can

use their purchase power as a lever to negotiate for price reduction

+ Supply service sector depends on its buyers; because a great percentage of

total orders is of sector’s buyers

+ When buyers select an other company with lower expenses Therefore, it

promotes companies to fight against each other, as a result of price reduction

+ When buyers want to buy products from many companies at the same time + Buyers may be a threat to supply sources when they have ability of vertical

integration, they use this ability as a tool of price reduction Eg: In cattle-feedsector,nogotiation competence of buyers is great, especially Thien Loc Animal FeedProcessing Company because many cattle-feed companies operate in the market,even there are more than 100 small and medimum sized food factories in Vietnam.2.3.4 Bargaining power of suppliers

The third force of five Porter’s force models is Bargaining power of suppliers.Suppliers may be a threat when they urge price boost or reduce input qualityrequirement for the company, therefore it reduces ability of profit creation of thecompany Vice versa, if competence of suppliers is weak, the company has thechance to promote price reduction and require high quality As for buyers, ability ofsuppliers to require the company depends on remarkable power between thecompany and them According to Porter, suppliers have the best power in followingcases:

- Products sold by suppliers are rarely to replace and important to the company

- The company is notan important customer of supplier For this case, supplierdoes not lines of business of company, and suppliers are hard to implement pricereduction or boost quantitative price

- Correlative products of supplier are made so specially that they can cause loss

to the company in case of moving from this supplier to other one For these cases,the company is dependent on its suppliers and impossible to promote competition

- Supplier may be a threat of integration on the sector and direct competitionwith the company

- Purchasing companies can not use backward integration on suppliers to meetits demands as a tool of price reduction.

Negotiation competence of suppliers of Thien Loc Animal Feed ProcessingCompany is remarkably good Because there is hidden agreement amongcompetitors

2.3.5 Substitute products:

The last force of Porter’s models is the threat from substitute products.Substitute products are ones which meet customers’ demands equivalent to sectorsbeing analyzed

In general, number of substitute products in animal feed sector is very low

2.4 Opportunities and Threats analysis:

By analyzing external factors, Opportunities and Threats of Thien Loc Animal

Feed Processing Company:

- Opportunities evaluation (O):

+ High GDP growth results in people’s high income, consumption,development of eating & drinking culture Breeding sector has the chance todevelop stronger

+ Vietnam’s integration to WTO is a big chance for enterprises includingThien Loc Animal Feed Processing Company

+ Products are more and more diversified and convenient thanks todevelopment of science and technology, which can supply all-in service forcustomers, increase turnover of the company

+ Social and cultural environment: Vietnam is a long-standing agriculturalcountry, its increasing population inquires big expenditure, greater demands oneating and drinking

+ Natural environment: Its mechanism is changing from agriculture to goodsmanufacture There is not any big cattle’s food processing factories in the South ofthe Central

+ Stable politics: Here is the chance to promote business and production

- Threats : (T)

+ Thien Loc Animal Feed Processing Company is a new developing one: Many foreign companies enter domestoc market

+ Build reasonable enterprise’s culture

+ Build distribution channels with enough competitive power

+ Need major products for popularization

2.5 A matrix to evaluate external factors (EFE)

Use the method named quantifying external factors by marking as shown inChapter I, we will imagine ability of coping with changes of environment by ThienLoc Animal Feed Processing Company through EFE matrix as follows:

No Main external factors Signifficance Classification Important

Total 1 3

Table 2.6: EFE matrix(1) Geographical location: At target market (Nghe An, Ha Tinh, Quang Binh),location of the factory can affect expense reduction, to increase turnover and profits.This expresses Thien Loc Company’s good reaction

So, ranking matrix: column (2): 0,1; column (3): 3

(2) Stable politics affect operation of the sector But in Vietnam mainenvironment is stable and hard to change, its influence rate is 5% on sucess ofbusiness, and this is the factor Thien Loc Animal Feed Processing Company doesnot try best to react with it; so, ranking matrix: column (2): 0,05; column (3): 1 (3) Development science and technology: This criteria strongly affects sucess

of the sector, about 15% This is the factor Thien Loc Animal Feed ProcessingCompany has a good reaction Ranking matrix: column (2): 0,15; column (3): 3 (4) Integration to WTO promotes innovation of companies This criteriaaffects remarkably to operation of the sector, about 5%, this is the factor Thien LocAnimal Feed Processing Company has a weak reaction So, ranking matrix: column(2): 0,05; column (3): 1

(5) GDP growth: This has great influence on sucess of the sector, 20% rate.This is the factor Thien Loc Animal Feed Processing Company is very interested in,good reaction Therefore, ranking matrix: column (2): 0,20; column (3): 4

(6) Market penetration of foreign companies

Impact rate is about 5% Thien Loc Animal Feed Processing Company hasaverage reaction towards this impact Ranking matrix: Column (2): 0,05; column(3): 2

(7) Substitute products: Impact rate of 5%; Thien Loc Animal Feed ProcessingCompany has a small reaction: Ranking matrix: Column (2): 0,05; column (3): 1.(8) Competition of many companies on a market This criteria has greatimpact on the sector, about 10% For this factor, Thien Loc Animal Feed

Processing Company has above-average reaction So, ranking matrix: Column (2):0,1; column (3): 3

(9) Risks of bankrupcy during integration

This has an impact on the sector with rate of 10% Thien Loc Animal FeedProcessing Company has an above-average reaction on this impact Therefore,ranking matrix: Column (2): 0,1; column (3): 3

(10) Demand on pefect products (potential)

This has an impact on the sector with rate of 15% Thien Loc Animal FeedProcessing Company has high reaction towards this impact; ranking matrix:Column (2): 0,15; column (3): 4 It is shown by EFE matrix: Total important points

of Thien Loc Animal Feed Processing Company is 3 It is clear that Thien LocAnimal Feed Processing Company has a high reaction towards changes of externalenvironment

2.6 Competitive matrix

On target market of Thien Loc Animal Feed Processing Company, (Nghe An,

Ha Tinh, Quang Binh) There are 8 companies which have great competitive impact

on Thien Loc Animal Feed Processing Company; each company has its privatecompetitive strength on the market Competitive environment is remarkably high:Proconco; CP Group; Cargil; Green Fead; An Co; Phu Gia; Con heo vang; ThienLoc; But companies have direct competition with Thien Loc Animal FeedProcessing Company on target market: Proconco; CP Group; Cargil; Thien Loc, thegroup selects Proconco Joint Venture Company as a model to compare withremaining companies

Competitive

factors

Significance

Proconco Cargil CP Group Thiên LộcClassi

fication

Importantpoints

Classification

Importantpoints

Classification

Importantpoints

Classification

Importantpoints(1) (2) (3) (4)=(3) (5) 6=(5)*( (7) (8)=(7) (9) (10)=(9