LV Thạc sỹ_Business strategy direction for Newtatco Corp

3 Model for business strategy selection...28 2.3.1 TOWS matrix model...28 2.3.2 Porter’s generic strategies...30 CHAPTER 3: EXTERNAL BUSINESS ENVIRONMENT ANALYSIS FOR NEWTATCO CORPORATIO

Writing this thesis I had a lot of encouragement along the way from my supervisor,teachers, my family, colleagues and friends I would like to take this chance to express mydeep gratitude to them

I am grateful for my supervisor support, Dr …

I would like to thank all of my seniors, colleagues at Newtatco Corp., who have given me alot of support and encouragement during my time of studied and finishing this thesis

I would like to thank all of my interviewees who had provided me with very usefulinformation needed for my thesis Without those precious information and material, mythesis would not have been completed

I would also like to thank all the NEU Business School staff who has always beenavailable to provide useful services Thanks to all of my classmates for their warmfriendship and supports during our time of studying together

Last but not least, I wish to express my deepest thank to my family, especially my wife, fortheir invaluable encouragements, support and tolerance Without those sources, this thesiswould not have been completed

TABLE OF CONTENTS

ABBREVIATIONS 4

LIST OF TABLES 5

LIST OF FIGURES 6

EXECUTIVE SUMMARY 7

CHAPTER 1: INTRODUCTION 9

1.1 Rationale 9

1.2 Research objectives 10

1.3 Research questions 10

1.4 Research methodology 11

1.4.1 Research process 11

1.4.2 Data collection and analysis 11

1.5 Research scope 13

1.6 Thesis structure 13

CHAPTER 2: THEORETICAL BACKGROUND ON BUSINESS STRATEGY DIRECTIONS 14

2.1 The nature of business strategy 14

2.1.1 The concept of strategy and strategic direction 14

2.1.2 Hierarchical levels of strategy 16

2.2 Models for business environment analysis 18

2.2.1 Models for external environment analysis 18

2.2.2 Models for internal environment analysis 24

2 3 Model for business strategy selection 28

2.3.1 TOWS matrix model 28

2.3.2 Porter’s generic strategies 30

CHAPTER 3: EXTERNAL BUSINESS ENVIRONMENT ANALYSIS FOR NEWTATCO CORPORATION 34

3.1 Analyzing general business environment of Newtatco 34

3.1.1 Newtatco's political environment analysis 34

3.1.2 Newtatco's economic environment analysis 35

3.1.3 Newtatco's socio – cultural environment analysis 36

3.1.4 Newtatco's technological environment analysis 39

3.2 Analyzing industrial environment of Newtatco 40

3.2.1 Overview of Hanoi real estate market 40

3.2.2 Analyzing five forces related to the business of Newtatco 44

3.3 Real estate industry life circle analysis 64

3.4 Opportunities & Threats of Newtatco 66

CHAPTER 4: INTERNAL BUSINESS ENVIRONMENT ANALYSIS FOR NEWTATCO CORPORATION 67

4.1 Overview of Newtatco corporation 67

4.2 Resource based view (RBV) analysis for Newtatco 68

4.2.1 Newtatco's physical resources analysis 68

4.2.2 Newtatco's organizational structure analysis 72

4.2.3 Newtatco's human resources analysis 76

4.2.4 Newtatco's other resources analysis 78

4.3 Newtatco’s value chain analysis 78

4.3.1 Newtatco’s primary activities analysis 78

4.3.2 Newtatco’s supporting activities analysis 80

4.4 Newtatco’s core competencies analysis 82

4.5 Strengths and weaknesses of Newtatco 82

CHAPTER 5: RECOMMENDATIONS FOR BUSINESS STRATEGY DIRECTIONS OF NEWTATCO CORP FROM 2011 TO 2015 84

5.1 TOWS matrix analysis for Newtatco 84

5.2 Corporate level strategy directions for Newtatco 89

5.2.1 Vision, mission, and long-term objectives for Newtatco 89

5.2.2 Business strategy directions to 2015 for Newtatco 90

5.3 Proposing solutions to implement business strategy directions for Newtatco 91

CONCLUSION 96

LIST OF REFERENCES 97

APPENDIX 99

VAST Viet nam academy of Science and Technology

NEWTATCO Newtechnology application and tourism Corp

SWOT Strengths – Weakness – Opportunities –Threats

PEST Politic – Economic – Social – Technology

LIST OF TABLES

Table 1.1: Secondary data collection and analysis 11

Table 1.2: Primary data collection and analysis 12

Table 2.1: Result of combination 4 factors in RBV model 26

Table 3.1: Typical Condominium suppliers 53

Table 3.2: 5 forces analysis for condominium, Mid.-lowend segment 54

Table 3.3: Office for lease suppliers 55

Table 3.4: Typical retail area suppliers 57

Table 3.5: Typical Apartment project & its owner 58

Table 3.6: Typical Hotel project & its owner 59

Table 3.7: Opportunities and Threats for Newtatco 66

Table 4.1: Newtatco strengths and weaknesses 83

Table 5.1: Strengths/weaknesses – Opportunities/ threats of Newtatco 85

Table 5.2: TOWS matrix analysis 86

LIST OF FIGURES

Figure 1.1: Research process 11

Figure 2.1: PEST model analysis 19

Figure 2.2: Forces driving industry competition 22

Figure 2.3: Industry life cycle 24

Figure 2.4 Generic Value chain 27

Figure 2.5 TOWS Strategic Alternatives Matrix 30

Figure 2.6 Porter’s Generic Strategies 31

Figure 3.1 PEST analysis 41

Figure 3.2 Development of Real estate company in Profit 42

Figure 3.3 Development of Real estate company in Sales 43

Figure 3.4 Five forces analysis 64

Figure 3.5 Industry life cycle analysis 66

Figure 4.1: Newtatco's business process 68

EXECUTIVE SUMMARY

Getting opportunities to achieve sustainable growth requires an appropreate strategy ofNewtatco The company has joined in real estate industry with potential resources but hasnot got long term plan or strategy directions Newtatco’s practice actions are trying toproduce a wide range of product by both its strengths and weakness

The thesis has objectives: (1) to gather, choose suitable theoretical background related toform strategy, and review it; (2) to conduct external and internal environment analysis tofind out opportunities, threats, strengths, weaknesses for Newtatco; (3) to form a suitablestrategic directions for Newtatco in period from 2011 to 2015 base on the two step results.Following the objectives, the thesis consist of five chapters At the first, chapter 1introduce the rationales, research objectives, methodology…Chapter 2 review theoreticalbackground related to business strategy Chapter 3, 4 analyze external, internal businessenvironmental In chapter 5, the author worked out suitable strategy directions andprimarily solution for Newtatco base on environment analyzing result

The data collected for the thesis depicted a picture of Newtatco’s business environment.Base on that, the author discovered opportunities, threats, strengths, weakness of thecompany Secondary is collected from newspaper, industry journal, websites, and books.Primary data is collected by in-depth interview (3 leaders in real estate industry, 2 leaders

of Newtatco, and 6 managers), surveys ( staffs, potential customers), and author’sesperience in working time for the company

The analysis of Newtatco’s business environment has pointed out findings:

- Macro environment is favorable for Newtatco’s future growth

- Real estate industry is in the early growth stage, so there are high potential growthahead

- Newtatco has values, rare, hard to imitate, hard to subtitute resources It isbasement for getting sustained competitive advantage

- The company has not pointed out its core competencies, has been trying toprovided wide range of products by both its strengths, weakness

From these finding the author prosposed business strategy direction as below:

 At corporate level:

o Newtatco shall create buildings that fit with new trend in consuming, friendly, and leveling between modern, traditional culture

eco-o Newtatceco-o’s Missieco-on, visieco-on, eco-objectives

o Products are condominium in mid-high end, office for lease grade C

o Upgrading project management to be core competency

o Creating supply chain to serve customer as the mission

o Creating joint venture to learn partner’s experience

 At business unit level: Newtatco should choose Focus cost strategy to follow inboth its product lines

For more feasible of strategic direction, priliminary solutions to implement the directionshas been proposed That are solutions on Marketing, Finance, HRM, Technology,Information system…However, for practice, it should be develop further, create action plan

CHAPTER 1 INTRODUCTION1.1 Rationale

Vietnamese real estate is a big potential market Especially in Hanoi and Hochiminh city,two growth center Hanoi has average GDP increasing 9.85% in period 2006-2010,planning continue growth 9-10% in period 2010-2020 (21) Together with GDP growth isper capita income up to 33.2% each year (2006-2010), reach to 1700 USD in 2009.Housing is an essential demand but Hanoi only gets 7-7.5m2 per person in 2010 (7) Fromthe macro economy data, we can foresee a big increase in demand of real estate in future inHanoi

Knowing the potential, there are many companies belong to every economic sector dobusiness in real estate industry Very few of them are successful development in long term,taking high share of their market segment for a long time The successful one is companyknows who they are, where they want to go, and have a good strategy to pursue

Market is potential but challengers for a new comer in real estate industry are huge It can

be lack of relationship, capital, information, management… Real estate company also have

to cope with bureaucratic procedure, unfair between companies, risk of lawmodification….A new comer enter the industry then survive, develop is not easy

Newtatco is a state own enterprise There are more constrains in doing business thanprivate one The company has just taken part in real estate market by plan to build someoffice for lease, apartments block, and hotel in Northern of Vietnam, mainly in Hanoi.The company has some scatter land properties in worthy location in Hanoi It has anintention to build some office building for lease, apartment, condominium for selling, and ahotel in Ha Long However, they consider each projects is a separated unit, not linktogether

Newtatco tried to create project at all the land properties it own The company do not have any imagination about future after 5 or 10 years as well as goals & directions to reach the goals Therefore the company plan to have a diversify products while it does not

know well potential customer, low capital, lack of experience in constructing

As a new comer needs exist and successful development in real estate industry, Newtatcohave to know where they are, where they want to go (destination) then find out directions

to get there Answer for all the question above is an appropriate business strategy With astrategy, the company will not surprise to changing in business environment, active in theirbusiness.

Being an employee of Newtatco, I have information for further understand about itsculture, its resources Besides that, MBA course equipped me some tools to answer thequestion above Therefore, I choose topic “Business strategy direction for Newtatco Corp.from 2011 to 2015” to be my thesis topic I take the research with hope that it will worth inpractice

1.2 Research objectives

My objectives in this research are:

- Analyze internal business environment of Newtatco to show out strengths,weaknesses

- Analyze external business environment of Newtatco to clarify the opportunities andthreats of the company

- Propose business strategy directions to 2015 for Newtatco

1.3 Research questions

The thesis focuses on answering the follow questions:

- What are main opportunities and threats for Newtatco in period 2011-2015?

- What are strengths, weaknesses of Newtatco in real estate business?

- What are Newtatco’s business strategy directions?

1.4 Research methodology

1.4.1 Research process

Figure 1.1: Research process

1.4.2 Data collection and analysis

Table 1.1: Secondary data collection and analysis

Objectives Collecting method Information to be collected

Lastest trend and devlopment of industry.Policy of government to real estate

industry

Lastest trend of consumer

Forecasting future marketHaving view of

company’s

operation

Searching informationfrom internal report,annual finance report

Report of environment analysis

Strategic choice for Newtatco

Table 1.2: Primary data collection and analysis

Objectives Collecting method Information to be collected

Lastest trend and devlopment of industry.Policy of government to real estate

industry

Lastest trend of consumer

Forecasting future market

Understanding

customers

Survey instrument:

Questionaires, samplesize is 52 potentialcustomer ofcondominium, office forlease, retail area

Customer’s demand in future.The way they choose product Their finace

Image in the future of Newtatco.Newtatco’s resources

Company’s operation

Plan for future

Strengths, weakness, opportunities,

Problem in operation

The way they use resources

Their mutual insight

Their co-operation

Major weakness of company.Survey instrument:

Questionaires, samplesize is 8 (out of 8) staffs

of PMUs

How senior manage them

Their opinion of the management.Their thinking about company’s future.Company’s strengths, weakness

(Source: Author)

In-depth interviewees are:

+ 3 leaders in Real estate industry:

- Mr Tran Khanh – Vice director of Sun group (a real estate developer)

- Mrs Pham Thi Linh Chi – Vice director of HUD real estate trading floor

- Mr Nguyen Van Lan – Director of Detech land Real estate trading floor.+ In-depth interview 2 leaders in Real estate business of Newtatco:

- Mr Trinh Thanh Giang – Director of Newtatco

- Mr Nguyen Thanh Hai – Vice director in real estate business of Newtatco

+ In-depth interview 6 managers of units and department:

- Mr Tran Xuan Thang – Chief of planning department

- Mr Nguyen Trong Hien –Chief of accounting department

- Mr Nguyen Quoc Vinh – Chief of investment management

- Mr Le Sy Tung – Head of PMU1

- Mr Nguyen Chi Thanh – Head of PMU2

- Mr Tran Duc Minh – Director of R trading floor

The questionaire is conduted in Vietnamese, via Google document service The content of questionare is translated into English, attached to Appendix

1.5 Research scope

 Time:

+ The research collected secondary (economic) data of the last 5 years

(2006-2010) to propose strategy directions for period from 2011 to 2015

+ The primary data is collected from 2008 to 3rd quarter of 2010

 Place: The research is conducted in Hanoi city.

 Content:

The research aims to give Business strategy directions for Newtatco in realestate field The other business fields of Newtatco (new technology application,hotel service, motorbike distribution…) are not in scope of the research

1.6 Thesis structure

In line with the objective, the study is structured as follows:

Executive summary

Chapter 1: Introduction

Chapter 2: Theoretical background on business strategy directions

Chapter 3: External business environment analysis for Newtatco corporation Chapter 4: Internal business environment analysis for Newtatco corporationnternal business environment analysis for Newtatco corporation Chapter 5: Recommendations for business strategy directions of Newtatco corp from 2011 to 2015

CHAPTER 2 THEORETICAL BACKGROUND ON BUSINESS STRATEGY

DIRECTIONS2.1 The nature of business strategy

2.1.1 The concept of strategy and strategic direction

Strategy shows way to achieve objectives It combines your missions, objectives, strengths,weaknesses, opportunities, threats in a system Strategy has different appearance fromdifferent point of view Henry Mintzberg (32) gave five definitions for strategy from fivepoint of view:

Strategy is a plan, some sort of consciously intended course of actions, a guideline to dealwith a situation

Strategy is a ploy, really just a specific “maneuver” intended to outwit an opponent orcompetitor

Strategy is a pattern, specifically, a pattern in a stream of actions In other words, strategy

is consistency in behavior whether or not intended

Strategy is a position, specifically, a means of locating an organization in whatorganization theorist like to call an “environment”

Strategy is a perspective, its content consisting not just a chosen position, but of aningrained way of perceiving the world

For a business, Michael E Porter defines “Strategy is the creation of a unique and valuableposition, involving a different set of activities” (33,pp60)

Strategic management consist of three main components as shown in figure below

Vision Statements define the organizations purpose, they do so in terms of the

organization’s values rather than bottom line measures (values are guiding beliefs abouthow things should be done) The vision statement communicates both the purpose andvalues of the organization For employees, it gives direction about how they are expected

to behave and inspires them to give their best Shared with customers, it shapes customers’understanding of why they should work with the organization.(40)

Vision statement of organization answer the question “ What do we want to become?” Itdepicts a vivid picture about how company will be in the future Vision is similar withNorth star to sailors It shows directions but you can never come to.

Mission Statement defines the organization's purpose and primary objectives Its prime

function is internal – to define the key measure or measures of the organization’s success –and its prime audience is the leadership team and stockholders.(40)

Mission statement of organization answer the question “ What is our business? Or Why weexist?” Mission shows how we reach to the picture that draw in vision It is basement forpriorities, strategies, plans, work assignment

Strategic objectives

Strategic objectives broadly defined target that an organization must achieve to make its

strategy succeed Strategic objectives are, in general, externally focused and fall into eight major classifications (35):

1 Market standing: desired share of the present and new markets

2 Innovation: development of new goods and services, and of skills and

methodsrequired to supply them

3 Human resources: selection and development of employees

4 Financialresources: identification of the sources of capital and their use

5 Physical resources: equipment and facilities and their use

6 Productivity: efficient use of the resources relative to the output

7 Social responsibility: awareness and responsiveness to the effects on the wider community of the stakeholders

8 Profitrequirements: achievement of measurable financial well being and

growth.Objectives must be meaningful and satisfy SMART rules:

S – Specific: it must be clear message as to what need to be accomplished

M – Measurable: It must be at least one indicator that measure progress against fulfilling the objective

A - Agreed: It must be consistent with the vision and mission of organization

R – Realistic: It must be achievable target given the organization’s capabilities and opportunities in the environment In essence, it must be challenging but doable

T – Timely: It must have a time frame for finishing the objective

Role of a business strategy

Business strategy lead company to its objectives by getting actions to ensurecompetitiveness over the long haul Strategy embodies clear priorities, based onunderstanding the strengths we need to preserve and the weaknesses that threaten ourprosperity the most.(34)

To deploy strategy, we must create a systematic that ensure every part of the process locks

in to place so that the whole business move forward in an integrated and effective way.Each part must have a plan to ensure the company catches its market at exactly the righttime in exactly the right way The plan maybe very specific

A strategy is needed when your business is going to joined in a new industry or yourbusiness wants to change its position The business environment always change,sometimes it is great change, you must adapt it by new strategy One more case is that yourcompany change its objectives

In practice, companies often conduct strategic management process Four key elements ofthe process are: situation analysis, strategy formulation, strategy implementation, andstrategy evaluation This thesis focus on the first step and business strategy directionformulation

2.1.2 Hierarchical levels of strategy

Strategy can be formulated on three different levels: corporate level, business unit level,and

functional or departmental level

a Corporate strategy

Corporate level strategy fundamentally is concerned with the selection of businesses inwhich the company should compete and with the development and coordination of thatportfolio of businesses

Corporate level strategy is concerned with:

 Reach - defining the issues that are corporate responsibilities; these mightinclude identifying the overall goals of the corporation, the types of businesses

in which the corporation should be involved, and the way in which businesseswill be integrated and managed

 Competitive Contact - defining where in the corporation competition is to belocalized

 Managing Activities and Business Interrelationships - Corporate strategy seeks

to develop synergies by sharing and coordinating staff and other resourcesacross business units, investing financial resources across business units, andusing business units to complement other corporate business activities

 Management Practices - Corporations decide how business units are to begoverned: through direct corporate intervention (centralization) or throughmore or less autonomous government (decentralization) that relies onpersuasion and rewards

Corporation is responsible for creating value through their businesses They do so bymanaging their portfolio of businesses, ensuring that the businesses are successful over thelong-term, developing business units, and sometimes ensuring that each business iscompatible with others in the portfolio.(42)

b Business Unit Level Strategy

A strategic business unit may be a division, product line, or other profit center that can beplanned independently from the other business units of the firm

At the business unit level, the strategic issues are less about the coordination of operatingunits and more about developing and sustaining a competitive advantage for the goods andservices that are produced At the business level, the strategy formulation phase deals with:

 positioning the business against rivals

 anticipating changes in demand and technologies and adjusting the strategy

c Functional Level Strategy

The functional level of the organization is the level of the operating divisions anddepartments The strategic issues at the functional level are related to business processesand the value chain Functional level strategies in marketing, finance, operations, humanresources, and R&D involve the development and coordination of resources through whichbusiness unit level strategies can be executed efficiently and effectively.

Functional units of an organization are involved in higher level strategies by providinginput into the business unit level and corporate level strategy, such as providinginformation on resources and capabilities on which the higher level strategies can be based.Once the higher-level strategy is developed, the functional units translate it into discreteaction-plans that each department or division must accomplish for the strategy to succeed.(42)

2.2 Models for business environment analysis

2.2.1 Models for external environment analysis

a PEST model for macro environment analysis

(Also known as PESTLE, PESTEL, PESTLIED, STEEPLE and SLEPT Analysis depend

on the focusing)

There are many factors in the macro-environment that will affect the decisions of themanagers of any organization Tax changes, new laws, trade barriers, demographic changeand government policy changes are all examples of macro change PEST Analysis is asimple, useful and widely-used tool that helps you understand the "big picture" of yourPolitical, Economic, Socio-Cultural and Technological environment As such, it is used bybusiness leaders worldwide to build their vision of the future After analyzing process,main clues shall be arrange in four box like Figure 2.1 (40)

b Five Forces model for industry environment analysis

The Porter's 5 Forces model is a simple but powerful tool for understanding where powerlies in a business situation It assesses the Balance of Power in a Business Situation This isuseful, because it helps you understand both the strength of your current competitiveposition, and the strength of a position you're considering moving into

- Government type and stability

- Freedom of press, rule of law and levels

of bureaucracy and corruption

- Regulation and de-regulation trends

- Social and employment legislation

- Tax policy, and trade and tariff controls

- Environmental and

consumer-protection legislation

- Likely changes in the political

environment

Economic:

- Stage of business cycle

- Current and projected economic growth, inflation and interest rates

- Unemployment and labor supply

- Population growth rate and age profile

- Population health, education and social

mobility, and attitudes to these

- Population employment patterns, job

market freedom and attitudes to work

- Press attitudes, public opinion, social

attitudes and social taboos

- Lifestyle choices and attitudes to these

- Socio-cultural changes

Technological Environment

- Impact of emerging technologies

- Impact of Internet, reduction in communications costs and increased remote working

- Research and development activity

- Impact of technology transfer

- developments can benefit consumers as well as the organizations providing the products

Figure 2.1: PEST model analysis

(Source: PEST analysis www.mindtool.com )

With a clear understanding of where power lies, you can take fair advantage of a situation

of strength, improve a situation of weakness, and avoid taking wrong steps This makes it

an important part of your planning toolkit

With a clear understanding of where power lies, you can take fair advantage of a situation

of strength, improve a situation of weakness, and avoid taking wrong steps This makes it

an important part of your planning toolkit

Conventionally, the tool is used to identify whether new products, services or businesseshave the potential to be profitable However it can be very illuminating when used tounderstand the balance of power in other situations too

Five Forces Analysis assumes that there are five important forces that determinecompetitive power in a business situation These are:

1 Supplier Power: Here you assess how easy it is for suppliers to drive up prices.

This is driven by the number of suppliers of each key input, the uniqueness of theirproduct or service, their strength and control over you, the cost of switching fromone to another, and so on The fewer the supplier choices you have, and the moreyou need suppliers' help, the more powerful your suppliers are Some clues oftenuse:

2 Buyer Power: Here you ask yourself how easy it is for buyers to drive prices

down Again, this is driven by the number of buyers, the importance of eachindividual buyer to your business, the cost to them of switching from your productsand services to those of someone else, and so on If you deal with few, powerfulbuyers, then they are often able to dictate terms to you Some clues often use:

- Number of customer

- Size of each order

- Differences between competitors

- Price sensitivity

- Ability to substitute

- Cost of changing

3 Competitive Rivalry: What is important here is the number and capability of your

competitors If you have many competitors, and they offer equally attractiveproducts and services, then you'll most likely have little power in the situation,because suppliers and buyers will go elsewhere if they don't get a good deal fromyou On the other hand, if no-one else can do what you do, then you can often havetremendous strength Some clues often use:

- Number of competitors

- Quality differences

- Switching costs

- Customer loyalty

- Costs of leaving market

4 Threat of Substitution: This is affected by the ability of your customers to find a

different way of doing what you do – for example, if you supply a unique softwareproduct that automates an important process, people may substitute by doing theprocess manually or by outsourcing it If substitution is easy and substitution isviable, then this weakens your power Some clues often use:

- Substitute performance

- Cost of change

5 Threat of New Entry: Power is also affected by the ability of people to enter your

market If it costs little in time or money to enter your market and competeeffectively, if there are few economies of scale in place, or if you have littleprotection for your key technologies, then new competitors can quickly enter yourmarket and weaken your position If you have strong and durable barriers to entry,then you can preserve a favorable position and take fair advantage of it Some cluesoften use:

- Time and cost of entry

- Specialist knowledge

- Cost advantages

- Technology protection

- Barriers to entry

These forces can be neatly brought together in a diagram like the Figure 2.2

Figure 2.2: Forces driving industry competition

(Source:adapted from Michael E.Porter(1998).Competitive advantage Free press.)

c Industry life cycle model

The life cycle of industry (similar to product) refers to stages of development(introduction), growth, maturity, and decline It is very important to know exactly whatstage the industry in to have suitable strategy Each of stage has own some features thatcompany try to fit with

The first stage of the industry life cycle is what is known as the developmental orformative stage This stage is frequently driven by entrepreneurial and innovative focus.The industry sales and earnings are more often than not small or possibly negative

The growth prospects are usually high Competition is likely to enhance during thedevelopment of this stage as other entrepreneurs become acquainted with the marketpotential High risks can be seen in this phase given that there is insecurity as to whether or

Bargaining power of buyers

Threat of new entrants

Threat of substitute products or services

Bargaining power

of suppliers COMPETITORSINDUSTRY

Rivalry Among Existing Firms

POTENTIAL ENTRANTS

SUBTITUTES

not consumers will generally acknowledge the product, and which firms will continue toexist Venture capitalists are frequently on the go during this period as well

The second stage of the industry life cycle is what is known as the expansion or growthstage This stage is set apart by quick growth of both unit sales and profits Market leadersare inclined to come into view as a result of consolidation and shakeout of competitors thatwere weaker Consumer recognition extends the market as the leaders develop the productmore The risk in this stage reduces because of increased consumer acceptance andcustomer loyalty starts to come about At this stage companies are inclined to start to gopublic with initial public offerings Companies are likely to reinvest earnings as a result, avery small amount no dividends at all are paid to investors, but return on equity has atendency to be high

In the third stage of industry life cycle the maturity stage comes about This is by and largethe most extended stage in the life cycle and can last for a good number of years Onaverage, in this stage, something like eighty percent of the market has been inundated Thegrowth rate slows down and becomes stable at a level that is sustainable over a long period

of time, as a result of competition and shrinking profit margins Companies have atendency of expanding into extra market roles by developing accompaniments for theoriginal product, which helps to maintain a higher rate of growth As growth slows down,the need to increase production amenities reduces and this then reduces the need for moneyexpenditures, improving the firm's overall financial flexibility Surplus cash thatbeforehand had been invested back into expansion is now accessible to lessen corporatedebt or to be paid as dividends to investors

The fourth stage of the industry life cycle is the declining or harvesting stage The actualgrowth rate has a tendency to go down to a level that is less than that of the overalleconomy Alternate products and technologies tend to make the industry's productoutdated Companies usually try to focus on keeping costs down, in order to preserve, orslow the decline in profit margins and profits Companies can actually sell productionassets that are no longer essential Dividends paid to investors are usually quite large.Nonetheless, it is possible for firms and industries to enable themselves by becoming moredynamic and by adding new products or new product lines.(36)

Figure 2.3: Industry life cycle

(Source: Stages or Phases of the Industry Life Cycle www.beginnermoneyinvesting.com)

2.2.2 Models for internal environment analysis

a Resource based view

The resource-based view (RBV) is a business management model used to determine thestrategic resources available to a company The fundamental principle of the RBV is thatthe basis for a competitive advantage of a firm lies primarily in the application of thebundle of valuable resources at the firm's disposal To transform a short-run competitiveadvantage into a sustained competitive advantage requires that these resources areheterogeneous in nature and not perfectly mobile Effectively, this translates into valuableresources that are neither perfectly imitable nor substitutable without great effort If theseconditions hold, the firm’s bundle of resources can assist the firm sustaining above averagereturns

The key points of the theory are:

1 Identify the firm’s potential key resources

2 Evaluate whether these resources fulfill the following (VRIN) criteria:

o Valuable - A resource must enable a firm to employ a value-creating

strategy, by either outperforming its competitors or reduce its ownweaknesses(38) Resources are valuable when they enable a firm to

Sales

Time Introduction Growth Maturity Decline

conceive of or implement strategies that improve its efficiency andeffectiveness (31)

o Rare – as long as the number of firms that possess a particular valuable

resource is less than the number of firms needed to generate perfectcompetition dynamics in a industry (38) In a perfectly competitive strategicfactor market for a resource, the price of the resource will be a reflection ofthe expected discounted future above-average returns (38)

o Imperfectly imitable - If a valuable resource is controlled by only one firm

it could be a source of a competitive advantage This advantage could besustainable if competitors are not able to duplicate this strategic assetperfectly (39) Firm resources can be imperfectly imitable for one or acombination of three reason: the ability of a firm to obtain a resource is

dependent upon unique historical condition, the link between the resources possessed by a firm and a firm sustained competitive advantaged is causally ambiguous, or the resource generating a rim’s advantage is socially complex

(31)

o Non-substitutable - Even if a resource is rare, potentially value-creating and

imperfectly imitable, an equally important aspect is lack of substitutability

If competitors are able to counter the firm’s value-creating strategy with asubstitute, prices are driven down to the point that the price equals thediscounted future rents, resulting in zero economic profits

3 Care for and protect resources that possess these evaluations because doing so canimprove organizational performance

According to Daft,(1983), firm resources include all assets, capabilities, organizationalprocesses, firm attributes, information, knowledge, etc; controlled by a firm that enable thefirm to conceive of and implement strategies that improve its efficiency and effectiveness.More clearly, it can be named in two categories: Tangible and intangible resources

Tangible resources include Physical capital (technology used in firm, plant & equipment,geographic location, access to raw material), Finance (ability to borrow, self ability tofinance ), and Organization capital (formal planning/controlling, reporting structure,informal relation among groups within firm and firm-environment)

Intangible resources consist of Human resources (Training, experience, insight,organization habit, intelligence (idea, creation, innovation), management capabilities),Positive reputation (to customers, to suppliers, to other stake holder) (6).

The combination of the four factor in a resource may bring business result as Table 2.1

Table 2.1: Result of combination 4 factors in RBV model

Income from equal to higherthan industry average

competitiveadvantage

Income higher than industry

of competitors to imitate such resources However, the existing resources of a firm may not

be adequate to facilitate the future market requirement due to volatility of thecontemporary markets There is a vital need to modify and develop resources in order toencounter the future market competition

An organization should exploit existing business opportunities using the present resourceswhile generating and developing a new set of resources to sustain its competitiveness inthe future market environments, hence an organization should be engaged in resourcemanagement and resource development In order to sustain the competitive advantage, it’scrucial to develop resources that will strengthen their ability to continue the superiorperformance Any industry or market reflects high uncertainty and in order to survive andstay ahead of competition new resources becomes highly necessary (38)

b Value chain model

Figure 2.4 Generic Value chain

(Source: Michael E.Porter(1998).Competitive advantage Free press pp37)

To better understand the activities through which a firm develops a competitive advantageand creates shareholder value, it is useful to separate the business system into a series of

value-generating activities referred to as the value chain In his 1985 book Competitive

Advantage, Michael Porter introduced a generic value chain model that comprises a

sequence of activities found to be common to a wide range of firms Porter identifiedprimary and support activities as shown in the following Figure 2.4 (40)

The goal of these activities is to offer the customer a level of value that exceeds the cost of

the activities, thereby resulting in a profit margin Primary activities are those that directly add value to the final product Support activities do not directly add value themselves but

indirectly add value by supporting the effective execution of primary activities

The primary value chain activities are:

 Inbound Logistics: the receiving and warehousing of raw materials, and theirdistribution to manufacturing as they are required

 Operations: the processes of transforming inputs into finished products andservices

 Outbound Logistics: the warehousing and distribution of finished goods.

 Marketing & Sales: the identification of customer needs and the generation of sales

 Service: the support of customers after the products and services are sold to them.These primary activities are supported by:

 The infrastructure of the firm: organizational structure, control systems, companyculture, etc

 Human resource management: employee recruiting, hiring, training, development,and compensation

 Technology development: technologies to support value-creating activities

 Procurement: purchasing inputs such as materials, supplies, and equipment

The firm's margin or profit then depends on its effectiveness in performing these activitiesefficiently, so that the amount that the customer is willing to pay for the products exceedsthe cost of the activities in the value chain It is in these activities that a firm has theopportunity to generate superior value A competitive advantage may be achieved byreconfiguring the value chain to provide lower cost or better differentiation

The value chain model is a useful analysis tool for defining a firm's core competencies and

the activities in which it can pursue a competitive advantage as Cost advantage or differentiation.

2 3 Model for business strategy selection

2.3.1 TOWS matrix model

TOWS matrix develops strategic options from an external-internal analysis The letterstands for: T - Threats you face, O - Opportunities you got (external), and W -Weaknesses, S - Strengths of your company (internal)

TOWS analysis helps you get a better understanding of the strategic choices that you face

It helps you ask, and answer, the following questions: How do you:

 Make the most of your strengths?

 Circumvent your weaknesses?

 Capitalize on your opportunities?

 Manage your threats?

A next step of analysis, usually associated with the externally-focused TOWS Matrix,helps you think about the options that you could pursue To do this you match externalopportunities and threats with your internal strengths and weaknesses, as illustrated in thematrix in Figure below

This helps you identify strategic alternatives that address the following additionalquestions:

- Strengths and Opportunities (SO) - How can you use your strengths to takeadvantage of the opportunities?

- Strengths and Threats (ST) - How can you take advantage of your strengths toavoid risk and potential threats?

- Weaknesses and Opportunities (WO) - How can you use your opportunities toovercome the weaknesses you are experiencing?

- Weaknesses and Threats (WT) - How can you minimize your weaknesses and avoidthreats?

Evaluate the options you've generated, and identify the ones that give the greatest benefit,and that best achieve the mission and vision of your organization Add these to the otherstrategic options that you're considering

The TOWS Matrix is a relatively simple tool for generating strategic options By using it,you can look intelligently at how you can best take advantage of the opportunities open toyou, at the same time that you minimize the impact of weaknesses and protect yourselfagainst threats Used after detailed analysis of your threats, opportunities, strength andweaknesses, it helps you consider how to use the external environment to your strategicadvantage, and so identify some of the strategic options available to you.(40)

External Opportunities (O)

ST

"Maxi-Mini" Strategy

Strategies that use strengths to minimize threats.

Internal Weaknesses (W)

Figure 2.5 TOWS Strategic Alternatives Matrix

(Source:Using the TOWS matrix Www.mindtools.com)

2.3.2 Porter’s generic strategies

Michael Porter introduced his ideal in 1985 in his book Competitive Advantage: Creating and Sustaining Superior Performance Porter called the generic strategies "Cost

Leadership", "Differentiation" (creating uniquely desirable products and services) and

"Focus" (offering a specialized service in a niche market) He then subdivided the Focus

strategy into two parts: "Cost Focus" and "Differentiation Focus" These are shown inFigure below.

Figure 2.6 Porter’s Generic Strategies

(Source: Porter’s generic strategies Www.mindtools.com)

The terms "Cost Focus" and "Differentiation Focus" can be a little confusing, as they could

be interpreted as meaning "A focus on cost" or "A focus on differentiation" Rememberthat Cost Focus means emphasizing cost-minimization within a focused market, andDifferentiation Focus means pursuing strategic differentiation within a focused market.(40)

a The Cost Leadership Strategy

Porter's generic strategies are ways of gaining competitive advantage - in other words,developing the "edge" that gets you the sale and takes it away from your competitors.There are two main ways of achieving this within a Cost Leadership strategy:

 Increasing profits by reducing costs, while charging industry-average prices

 Increasing market share through charging lower prices, while still making areasonable profit on each sale because you've reduced costs

Remember that Cost Leadership is about minimizing the cost to the organization ofdelivering products and services The cost or price paid by the customer is a separateissue! The Cost Leadership strategy is exactly that - it involves being the leader in terms

of cost in your industry or market Simply being amongst the lowest-cost producers is notgood enough, as you leave yourself wide open to attack by other low cost producers whomay undercut your prices and therefore block your attempts to increase market share

You therefore need to be confident that you can achieve and maintain the number oneposition before choosing the Cost Leadership route Companies that are successful inachieving Cost Leadership usually have:

 Access to the capital needed to invest in technology that will bring costs down

 Very efficient logistics

 A low cost base (labor, materials, facilities), and a way of sustainably cutting costsbelow those of other competitors

The greatest risk in pursuing a Cost Leadership strategy is that these sources of costreduction are not unique to you, and that other competitors copy your cost reductionstrategies This is why it's important to continuously find ways of reducing every cost Onesuccessful way of doing this is by adopting the Japanese Kaizen philosophy of "continuousimprovement"

b.The Differentiation Strategy

Differentiation involves making your products or services different from and moreattractive those of your competitors How you do this depends on the exact nature of yourindustry and of the products and services themselves, but will typically involve features,functionality, durability, support and also brand image that your customers value

To make a success of a Differentiation strategy, organizations need:

 Good research, development and innovation

 The ability to deliver high-quality products or services

 Effective sales and marketing, so that the market understands the benefits offered

by the differentiated offerings

Large organizations pursuing a differentiation strategy need to stay agile with their newproduct development processes Otherwise, they risk attack on several fronts bycompetitors pursuing Focus Differentiation strategies in different market segments

c The Focus Strategy

Companies that use Focus strategies concentrate on particular niche markets and, byunderstanding the dynamics of that market and the unique needs of customers within it,develop uniquely low cost or well-specified products for the market Because they servecustomers in their market uniquely well, they tend to build strong brand loyalty amongtheir customers This makes their particular market segment less attractive to competitors

As with broad market strategies, it is still essential to decide whether you will pursue CostLeadership or Differentiation once you have selected a Focus strategy as your mainapproach: Focus is not normally enough on its own.

But whether you use Cost Focus or Differentiation Focus, the key to making a success of ageneric Focus strategy is to ensure that you are adding something extra as a result ofserving only that market niche It's simply not enough to focus on only one market segmentbecause your organization is too small to serve a broader market (if you do, you riskcompeting against better-resourced broad market companies' offerings.)

The "something extra" that you add can contribute to reducing costs (perhaps through yourknowledge of specialist suppliers) or to increasing differentiation (though your deepunderstanding of customers' needs)

d Choosing the Right Generic Strategy

Your choice of which generic strategy to pursue underpins every other strategic decisionyou make, so it's worth spending time to get it right

But you do need to make a decision: Porter specifically warns against trying to "hedge

your bets" by following more than one strategy One of the most important reasons whythis is wise advice is that the things you need to do to make each type of strategy workappeal to different types of people Cost Leadership requires a very detailed internal focus

on processes Differentiation, on the other hand, demands an outward-facing, highlycreative approach

So, when you come to choose which of the three generic strategies is for you, it's vital thatyou take your organization's competencies and strengths into account

CHAPTER 3 EXTERNAL BUSINESS ENVIRONMENT ANALYSIS FOR

NEWTATCO CORPORATION3.1 Analyzing general business environment of Newtatco

3.1.1 Newtatco's political environment analysis

In Vietnam, Communist Party is the unique, leading by giving directions, opinions,resolutions…Base on these foundation, Government manages country (16) This politicalregime is stable heading to provide a better environment for developing economy, culture,social Therefore, while Thailand had frozen by demonstrations, other countries worriedabout terrorism, Vietnam is stable, safety, people try to develop economic

Vietname has policy to keeping peace, stable politic, ethnic solidarity to develop economic.Therefore military is not always in highly readly status Military also takes part in doingbusiness (Viettel, 36, 319…) It is not a big policy but their units (approved) can use itsadvantage to improve solder’s living such as exchange land for housing

Real estate industry is governed by some related laws however mainly by Investment law,Real estate business law, and Land law According to Investment law, capital investmentand lawful property of the investor shall not be nationalized Real estate business lawwrote that land use right can be trade, mortgage, using as capital contribution Land lawregulates that land belongs to the entire-people ownership with the State acting as theowner’s representative The State assigns the land use rights to land users in forms of landassignment, land lease, recognition of land use rights for current stable land users Lawsystem is on the way to build, complete so there are some occupancies for corruption.Political and Economic risk consultancy list Vietnam as the third corrupted country in Asia(37) Doing real estate business takes high cost for money under the table beside officialcost The money under the table is paid for passing the overlap and lack of unity in thelegal documents as well as the complexity of administrative procedure (17)

Government is now try to reform the administrative procedure for more logical, unity, lesscomplexity, pay the way for enterprises doing business Law and legal document has beenreviewed, modified for reducing overlap, unity, and flexible with actual business The trend

is better environment for business

For adjusting real estate market which in booming stage, Government released Decree69/2009 NDCP and 71/2010 NDCP Decree 69 changed the way to calculate land use fee,forced real estate enterprises create value from properties on land, limited profit from lowland use fee Decree 71 higher industry entry, clarified the way to contribute capital,increase customer protection.

Besides keeping politic stable, try to process economic growth go with social fair, protectenvironment is requirement of strategy to develop economic-social 2010-2020 In practice,government guided enterprises orient protecting environment (21) Environment protection

is consider as activities for community These have been increasingly welcomed

The next 11th National communist party congress on early 2011 shall release newVietnamese policies for next period of Renovation Foreign companies (worldwide size)forecast that it will provide better environment for business It will provide betteropportunities for companies from countries in WTO, push economic grows quickly

3.1.2 Newtatco's economic environment analysis

The economy has its cycle Vietnamese economy is now on recovery time after financialcrisis at 2008-2009 GDP grows 6.31, 5.3 percent for 2008-2009 and 6.5 (estimate), 6.8(estimate) percent for 2010-2011 (43) Expecially Hanoi in first 9 months grows 10.6percent (4) However the recovery has many challengers such as exchange rate, tradedeficit, and restructuring the economy (27)

At time before 2008, Vietnam has seven years continuous grew average 7.6 percent peryears The booming period end in late 2008, the year has inflation rate up to 23.1 percent(39) Vietnamese economy went in to stagnation from late 2008 and 2009 (inflation ratewere 6.88 percent) Until now, the hardest came over, inflation rate of 2010, 2011 areestimated 8.5 and 7.5 percent by ADB (27)

In 2010, demand for capital is high but actual interest rate of loan from banks up to 15percent per years prevent enterprises from business (2) Loan by USD in Vietnam hasinterest rate ten times higher than international market (3) Worry about real estate bobble,even high interest, real estate companies still hard to catch loan (22)(30) Interest rate washigh pushed enterprises looking to USD

However exchange rate fluctuated with big amplitude From a stable around 1 USD equal

to 19100 VND at first half of 2010 (14), exchange rate jump to 20020 VND on October(5), being estimated 20500VND on 2011 Exchange rate changing is a big risk to company

doing any activities relate to import/export business It also increase cost for real estatebuilding due to imported supplies, material.

The development of economy bring per capita income rise more than 30 percent per year

in continuously 10 years, reach to 1700 USD in 2009 in Hanoi Authorities made plan thatper capital income will rise to 4100 USD in 2015 The increasing income will entaildemand on housing (only average 7m2 per person in 2009), consuming

Being a member of WTO, Vietnam has joined in an open world of business, trade,technology Vietnamese companies takes part worldwide supplies chain Internationalcompany has been arrived with advanced technology, marketing, experience takes somesegment of domestic market Real estate industry also does not stand aside that trend

In a free trade world, companies compete by its ability to produce better product withlower price but Vietnamese enterprises is not They mainly use relationship for business.Therefore they are not good at marketing to find demand, trying to do all step ofproduction with out thinking of competency Newtatco at the present has full of thatfeatures

Hanoi market is more potential for real estate company In the way to develop, HochiminhCity goes ahead, Hanoi steps behind Together with foreign company, there are many wellknown companies from Hochiminh City penetrate in Hanoi market They comes withexperienced, capital, professional activities to catch opportunities in the lowerdevelopment level market

Together with complicated monetary of economic, real estate market slows down infrezeed situation Trading reduce to very low Price is stable at high level It is not easy tocontinue schedule forming in the past

Vietnamese economy has many component, dominant by state owner ship It is not anactual market economy, state own companies always have more advantage than other inworking with authority However Vietnamese authorities is trying to make it nearer tomarket, to fit with WTO regulation

3.1.3 Newtatco's socio – cultural environment analysis

Vietnam has population of nearly 86 million (29) Growth rate is 1.2 percent per year (12).Age 15-64 takes more than 69 percent This is a huge labor force for the economy

In 86 million, Hanoi contributes nearly 6.5 million (29) Population growth rate in urban is3.4 percent The urbanization process is forecasted that will increase sharply lead toincrease demand on housing (12) in next few year.

Almost people can read However trained worker always lacking at construction site,almost worker is trained by mentoring, the old teach the young one Therefore theirproduct is not standard, quality is not stable

University educated labor is easy to find But they often have good understand on theory,lack of practice They need time to train before actual working There are some peopleeducated abroad turn back to their country to work

Some people come back from East Europe after learned time and worked years there.They are above 40 years old, accumulated capital, knowledge, experience over changingperiod after collapsing of socialism Few of them are very much successful in business inVietnam now, represent for a new reach group Their corporate are Euro Windows, VIBbank, Techcombank,Vincom, Sun group, Masan group, mostly on bank and investmentfield

The other part younger, come back after trained in developed country This group oftenaccumulate knowledge, experience only Most of them work for foreign or joint venturecompany Number of people in this group is increasing This is potential labor force forVietnamese company applying management technology from developed country

Generally, Vietnamese people appreciate learning and work hard Government has policytry to support learning, in lifetime learning direction Budget expedition for educationincreasing to the top paying for education government (8) Vietnamese people also in thetrend invest much for education

In Vietnamese company, employees (except worker) are not usually take too muchworking pressure Reason is their management not tight, labor productivity is not so high.Sometimes boss paid salary mainly for loyalty instead of ability to work This point bossshould consider to work with employees

Economy grow, income increase, there are more people go abroad for tourism, workingthen come back Information worldwide can be approach easily via internet All of thatpoints pushes people explore new life style For example, in Hanoi, at time before 2002,urbanization process in Hanoi were recorded by new urban city such as Linh Dam, MyDinh with many condominiums have no style, mainly provide a house After that, Korea

city style, Euro city style emerged with Trung Hoa – Nhan Chinh, The Manor, The Gardennew urban city Up to now, real estate developers continue to introduce some new style;luxury Europe in Royal city, worldwide in Splendora, environmental friendly in Eco city.Economic development strategy - social Hanoi in 2030, vision 2050; Master planning ofcapital to 2030, vision 2050; scheme overall planning of economic development and socialcapital to 2020, vision 2030 shall be release after National Communist Party Congress 11thdepict a picture of Hanoi in future, show directions to authorities’ goal (26) The clearlydirections, picture of future helps entrepreneurs have plan to fit with government’spolicies, pointing out opportunities for companies.

On documents, government encourages environment friedly, knowledge business, suitablecombination of modern and traditional culture In practice, companies that do business onthat way gets love from everybody Dolphin plaza, royal city, eco park are projects thatfollowing that trend

Vietnamese is learning the way developed country by taking education, forming jointventure, franchising They established their value chain, supply chain, work in professionalway Collar workers work in office, the other worker works in industrial park People relax

in resort or stay in standard hotel in their tour It is a new enlarging trend

Vietnamese purchase more than the others asian Viet nam has been rated as the mostattractive market in retail industry in the world(A.T.Kearney -2008) Retail industry hashigh growth rate up to 20percent per year (28)

In Vietnamese tradition, people must have their own land for basement From thebasement, they can get rich, build career, create family That thinking is absorb to people’smind So that, to every people, owning a house is fist priority This property enlargedemand for a house (villa, semi detach villa, apartment) but reduce demand for apartmentfor lease

Social developed, culture changed Farm become new urban city, village culture is fading.Urban culture gradually take place Neighbor is not pay attention much together, but everyperson take care community People like shopping on free time at supermarket, tradecentre, or optional store Goods with clear origin, expiry date, applying well known qualitymanagement system is appreciate

3.1.4 Newtatco's technological environment analysis

Being a member of WTO helps Vietnamese company approaching to model technology.Free or lowest tax, tariff lead to boost trading, transportation, exchange knowledge.Foreign investment, joint stock company, franchising business transfer new technology toVietnamese

Technology may be using in production, in supplying international service, or inmanagement Management technique helps Vietnamese companies do business moreefficiency in the same way as developed countries do Quality management system (ISO)

is now applying broadly makes local products has quality as high as international.Marketing in Kotler way makes local companies more understand customers, creatingbigger profit margin

Technology also transfer in construction industry Advanced material can be imported orproduced in Vietnam High rise building can be constructed by new technology of foreignconstructor Therefore you can see 100 stories building in Hanoi or Ho Chi Minh city.Internet is popular in Vietnam Government bring it to so far village with hope that it will

be a tool for people approaching to model knowledge There are more than 24 millionpeople using internet (15)

Company can use internet to reduce its cost by exchanging internal information, using as atool for marketing, running software application Internet also makes remote working to bereal Base on it, conference without travelling can happen However Vietnamesecompanies often did not use this advantage

In Vietnam, people often use internet for information, tighten relationship, news, games.Internet changed culture, habit in young people It makes them far different to the previousgeneration

Technology is always receiving priority of government Authorities try to develop it,having strategy, plan to develop it Even though, Vietnamese products, typical housingproduct, do not contain high technology inside as developed countries’ one

All the analysis above can be collected in Figure 3.1