LV Thạc sỹ_Strategy formulation for Viet Vuong telecom strategic business unit of telecom service

SOLVAY-BRUSSELS SCHOOL OFECONOMICS AND MANAGEMENT NATIONAL ECONOMICS UNIVERSITY Vietnam – Belgium Master Programs MASTERS IN BUSINESS MANAGEMENT FINAL PROJECT STRATEGY FORMULATION FOR

SOLVAY-BRUSSELS SCHOOL OF

ECONOMICS AND MANAGEMENT

NATIONAL ECONOMICS UNIVERSITY

Vietnam – Belgium Master Programs MASTERS IN BUSINESS MANAGEMENT

FINAL PROJECT

STRATEGY FORMULATION FOR VIET VUONG TELECOM’S

STRATEGIC BUSINESS UNIT OF TELECOM SERVICE

Supervisor: Dr

Do Thi Hai Ha

T ABLE OF C ONTENTS

I INTRODUCTION 1 II THEORETICAL FRAMEWORK 5

2.1 STRATEGIC MANAGEMENT

52.2 SERVICE IN MARKETING LENS

3.2 THE COMPETITORS AND MARKETS

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3.2.1 Competitors 17 3.2.2 Markets 20

3.3 STRATEGIC CAPABILITY ANALYSIS

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3.3.1 BCG Matrix 22 3.3.2 Value chain and value network 24 3.3.3 Core competences 26

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3.4 SWOT ANALYSIS

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IV STRATEGY FORMULATION 31

4.1 SBU OF TELECOM SERVICE’S VISION AND MISSION

314.2 STRATEGIC OBJECTIVES

324.3 STRATEGIC CHOICES

344.4 IMPLEMENTATION SOLUTIONS

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V CONCLUSION 38

VI References 39

I NDEX OF F IGURES

FIGURE I-1: REVENUE BY BUSINESS LINE 2

FIGURE I-2: VIET VUONG TELECOM'S ORGANIZATION STRUCTURE 3

FIGURE II-1: A MODEL OF THE ELEMENTS OF STRATEGIC MANAGEMENT 5

FIGURE III-1: FIVE FORCES FRAMEWORK 13

FIGURE III-2: TOP REASONS FOR OUTSOURCING 20

FIGURE III-3: WHY TELECOM OPERATORS CONSIDER TO OUTSOURCING 21

FIGURE III-4: THE BCG MATRIX 23

FIGURE III-5: GENERIC VALUE CHAIN BY M.PORTER 24

FIGURE III-6: RF ENGINEERING SERVICE VALUE CHAIN 25

FIGURE III-7: VVT IN ITS VALUE NETWORK 25

FIGURE III-8: TELECOM VENDORS AND OPERATORS' VALUE CHAIN 26

FIGURE III-9: TELECOM SERVICES MARKET SEGMENTATIONS 27

Figure IV-1: EFLAG OSS-based software solutions 36

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I NDEX OF T ABLES

TABLE I-1: REVENUE BY BUSINESS LINE 1

TABLE III-1: CAPITAL REQUIREMENTS FOR TYPICAL FACILITIES 14

TABLE III-2: SUPPLIERS AND PRODUCTS 14

TABLE III-3: GROUPS OF CUSTOMERS 15

TABLE III-4: VIET VUONG TELECOM'S COMPETITORS 17

Table III-5: Radio Access Network Equipments - Key Operators 21

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I would like to express my sincere gratitude to Professor Dr… for her valuablesupervision and guidance Her detail and constructive comments greatly help me

to complete the thesis

I also would like to thank Viet Vuong Telecom’s Board of Management for theirallowance of doing this thesis with their share of the company strategy

My great appreciation to contributions of Viet Vuong Telecom’s DepartmentManagers for their share of knowledge, sincere ideas on company’s strategicSWOT

My deepest thank to my parents and my wife for their supports Without theirunderstanding and encouragement, I am unable to complete the program

And all loves to my sons

Executive Summary

The purpose of this thesis is to formulate a competitive strategy for Viet VuongTelecom – a Vietnam – based private join-stock company to compete within itsbusiness line of telecom service The central thrust is how to build and improvethe company's competitive position for the business line

The author uses PESTLE framework to study the external environment, findingout the opportunities that the Company can capture and threats that it needs todeal with The Five Forces Framework of M.E Porter is used to assessattractiveness on the basis of competition in the industry, to highlight areas inwhich the industry trends may pose opportunities and threats and to analyzewhere the company stands vis-à-vis the underlying causes of each competitiveforce

The author devotes one part of the thesis for studying the competitors and themarkets what are the opportunities as well as the threats that these forces maypose As a master of fact that all the local companies in the RF engineering arethe private join-stock companies, approaching to their financial data is verydifficult However, the Company’s management team is able to sense deeply whoare the Company’s competitors, what are their core competences through many

of the real biddings where it won and also lost as well as through official orunofficial meetings with high level managers of other companies (partners,customers and even competitors) in the industry The popular trend ofoutsourcing among telecom vendors and operators is also mentioned, this reflectsvery much the market trends that the business line engage in

The value chain of delivering value to the customers shows that the employeesworking in direct interface towards the customers have the greatest possibilities

to add value They are the main factor that decides whether the customers comeback to buy the service or not Therefore the competence of those employees inrespect of technical knowledge and their soft skills are the most fundamental.The core competences of the Company are studied since successful competitivestrategies usually involve building uniquely strong or distinctive competencies inone or several areas which are crucial to success and using them to maintain acompetitive edge over rivals

SWOT analysis is used to summarize all the opportunities and threats that theexternal environment, the competitors and the markets pose as well as thestrengths and weaknesses that derive from the Company’s strategic capabilities

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Management team of Viet Vuong Telecom gives SBU of Telecom Service a lot offreedom to set its own sales and profit goals and strategies From the strategicmeeting with all key managers of the company, the vision and mission areformulated To define its mission, Peter Drucker's classic questions areaddressed: What is our business? Who is the customer? What is of value to thecustomer? What will our business be? What should our business be?

Setting objectives flow from the mission and growth ambition of the Company.They are set regarding of service scope, market scope, geographical scope,partners, revenue and profit These provide direction, allow synergy, aid inevaluation, establish priorities, reduce uncertainty, minimize conflicts, stimulateexertion, and aid in both the allocation of resources and the design of jobs

Developing a strategic vision, setting objectives, and crafting a strategy are basicdirection-setting tasks They map out the company's direction, its short-range andlong-range performance targets, and the competitive moves and internal actionapproaches to be used in achieving the targeted business results

In making strategic decisions, inputs from a variety of assessments in the earlyare used to develop a strategy that exploits business strengths and competitorweaknesses and neutralizes business weaknesses and competitor strength

Due to the broad range of the strategic management, and the limitations of athesis, the research is limited to strategic position and strategic choice only Thevery important topic - the strategy into actions that include the implementationplan, monitoring developments, evaluating performance and making correctiveadjustments – is left for further study

I Introduction

Viet Vuong Telecom Trading and Service Join Stock Company was established in

2008 The founders are three telecom professionals and one professional investorwho has been successful with several companies in mechanical industry andexpected to expand the mechanical product’s market to telecom industry

The initial idea of foundation is to operate in two business lines:

 The business line of telecom service: providing telecom equipmentinstallation, commissioning and maintenance service to telecom operatorsand vendors

 The business line of trading: trading IT and telecom products, especially

to perform sale activities supporting the other companies of the group –Viet Vuong Group – to sell their mechanical products to telecom vendorsand operators

After the first year of operation, by taking the advantages of its strengths andcapturing opportunities, the Company focused more on the business line oftrading and was very successful, especially in sales activities that broughtmillions USD contracts (between Viet Vuong Group and customers) of sellingmechanical products (e.g., telecom towers and shelters) to telecom vendors andoperators At the mean time, the business line of telecom service received lessfocus

Table Introduction-1 : Revenue by Business Line

Business Line 2008 (VND) 2009 (VND) 2010 (VND) 2011 (VND)

Trading

9,521,177,542

32,966,514,425

30,959,501,235

43,354,587,245

Service

155,383,803

934,090,909

3,019,334,680

11,259,811,207

Source: Viet Vuong Telecom’s Financial Reports Y2008 – Y2011

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Source: Viet Vuong Telecom’s Financial Reports Y2008 – Y2011

Figure Introduction-1: Revenue by business line

After initial achievements with trading business line, based on clearunderstandings of Vietnam telecom market, analyzing its internal resources andcurrent situation… In late 2009, the Company decided to focus more on thebusiness line of telecom service, especially choosing RF engineering service (thisterms can be considered to be equivalent to the terms of Radio Network Designand Optimization service) as its core business

Source: Viet Vuong Telecom’s Company Profile - 2011

Figure Introduction-2: Viet Vuong Telecom's Organization Structure

Even though, each year, the management team and its key managers e.g., Head ofNetwork Design and Optimization, Head of Test and Measurement Department,Head of Sales Department… have a meeting about the strategic direction wherethey analyze such factors as human resources, management system, finance tosee its current situations and directions for the future The Company’s strategy isstill not systematically planed The vision and mission are not well formulatedand not communicated well to its stake-holders including shareholders,customers, partners and employees

Therefore, the author decided to conduct a research on the Company’s strategicposition including how the external environment impact on the Company, itsstrategic capabilities and expectations of the stake-holders The research also

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aims at formulating the vision and mission for the business line, setting itsexpected objectives for the strategy Due to the broad range of the strategicmanagement, and the limitations of a thesis, the research is limited to strategicposition and strategic choice only The very important topic - the strategy intoactions – is left for further study.

II Theoretical framework

The theoretical framework for the thesis is centered on Strategic Management

Theory that, according to Gerry Johnson, Kevan Scholes and Richard

Whittington in their book “Exploring Corporate Strategy”, 8 th Edition, includes

understanding the strategic position of an organization, strategic choices for the

future and turning strategy into action.

Source: Gerry Johnson, Kevan Scholes and Richard Whittington, Exploring Corporate Strategy, Prentice Hall,

8th edition, 2008, p12

Figure Theoretical framework -3: A model of the elements of strategic

management

The strategic position is concerned with the impact of the external environment,

an organization’s strategic capability (resources and competences) and theexpectations and influence of stake-holders on its strategy

 The environment The organization exists in the context of a complex

political, economic, social, technological, environmental (i.e green) andlegal world This environment changes and is more complex for someorganizations than for others How this affects the organization couldinclude an understanding of historical and environmental effects, as well

as expected or potential changes in environmental variables Many ofthose variables will give rise to opportunities and others will exert threats

on the organization – or both

 The strategic capability of the organization – made up of resources and

competences One way of thinking about the strategic capability of anorganization is to consider its strengths and weaknesses (for example,where it is at a competitive advantage or disadvantage) The aim is to form

a view of the internal influences – and constraints – on strategic choicesfor the future It is usually a combination of resources and high levels ofcompetence in particular activities (core competences) that provideadvantages which competitors find difficult to imitate

 The expectations and influences of stakeholders on strategy (the strategy

is encapsulated in an organization’s vision, mission and values): Here theissue of corporate governance is important: who should the organizationprimarily serve and how should managers be held responsible for this?This raises issues of corporate social responsibility and ethics

Strategic choices involve understanding the underlying bases for future strategy

at both the business unit and corporate levels and the options for developingstrategy in terms of both the directions and methods of development

 There are strategic choices in terms of how the organisation seeks to

compete at the business level Typically these involve pricing and

differentiation strategies, and decisions about how to compete orcollaborate with competitors

 At the highest level in an organisation there are issues of corporate-level

strategy, which are concerned with the scope, or breadth, of anorganisation These include diversification decisions about the portfolio ofproducts and the spread of markets Corporate-level strategy is alsoconcerned with the relationship between the separate parts of the businessand how the corporate ‘parent’ adds value to these various parts

 International strategy is a form of diversification, into new geographical

markets It is often at least as challenging as diversification

 At the start of every organisation is an act of entrepreneurship Mostorganisations have to innovate constantly simply to survive Innovation

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choices involve issues such as being first-mover into a market, or simply afollower, and how much to listen to customers in developing new products

or services Entrepreneurship choices are many, but include choices offunding, building key external relationships, and timing of exit

 Organisations have to make choices about the methods by which theypursue their strategies Many organisations prefer to grow ‘organically’, inother words by building new businesses with their own resources Otherorganisations might develop by mergers/acquisitions and/or strategicalliances with other organisations

Strategy in action is concerned with ensuring that strategies are working in

practice

 First of all, it is important to consider the strategy development processes

of an organisation The strategies that an organisation actually pursues aretypically a mixture of the intended and the emergent Intended strategiesare the product of formal strategic planning and decision making, but thestrategy that is actually pursued is typically somewhat emergent, includingbottom-up initiatives, rapid responses to unanticipated opportunities andthreats, and sheer chance

 Structuring an organisation to support successful performance Thisincludes organisational structures, processes and relationships (and theinteraction between these elements)

 Resourcing strategies in the separate resource areas (people, information,finance and technology) of an organisation in order to support overallstrategies The reverse is also important to success that is the extent towhich new strategies are built on the particular resource and competencestrengths of an organisation

 Managing strategy very often involves strategic change This will includethe need to understand how the context of an organisation shouldinfluence the approach to change and the different types of roles forpeople in managing change It also includes the need to understand thestyles that can be adopted for managing change and the levers by whichchange can be effected

2.2 Service in marketing lens

Since RF engineering is by nature a service, by studying the service concept help

to understand the nature of service, the consumer behaviors

According to Phillip Kotler in his book “Marketing Management”, 13 th Edition,

a service is any act or performance one party can offer to another that is

essentially intangible and does not result in the ownership of anything Serviceshave four distinctive characteristics that greatly affect the design of marketingprograms: intangibility, inseparability, variability, and perishability.

INTANGIBILITY: Unlike physical products, services cannot be seen,

tasted, felt, heard, or smelled before they are bought A person getting cosmeticsurgery cannot see the results before the purchase, and the patient in thepsychiatrist's office cannot know the exact outcome of treatment To reduceuncertainty, buyers will look for evidence of quality by drawing inferences fromthe place, people, equipment, communication material, symbols, and price.Therefore, the service provider's task is to "manage the evidence," to "tangibilizethe intangible."

INSEPARATABILITY: Whereas physical goods are manufactured, put into

inventory, distributed through multiple resellers, and consumed later, services aretypically produced and consumed simultaneously In the case of entertainmentand professional services, buyers are very interested in the specific provider.When clients have strong provider preferences, the provider can raise its price toration its limited time

VARIABILITY: Because the quality of services depends on who provides

them, when and where, and to whom, services are highly variable Service buyersare aware of this variability and often talk to others before selecting a serviceprovider To reassure customers, some firms offer service guarantees that mayreduce consumer perceptions of risk

PERISHABILITY: Services cannot be stored, so their perishability can be a

problem when demand fluctuates Demand or yield management is critical-theright services must be available to the right customers at the right places at theright times and right prices to maximize profitability

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III The Company’s strategic position

3.1 The environment analysis

3.1.1 PESTEL analysis

The PESTEL framework provides a comprehensive list of influences on thepossible success or failure of particular strategies PESTEL stands for Political,Economic, Social, Technological, Environmental and Legal

Political

Opportunities  The Communist Party government committed to

market-oriented reforms The one-party system is generally conducive to short-term political

stability

 The government recognizes the threat that corruption poses to its legitimacy, and has acted to clamp down on graft among party officials

 Vietnam has allowed legislators to become more vocal in criticizing government policies This is opening up opportunities for more checks and balances within the one-party system

Threats  The slowdown in growth from 2009 to 2011 is

likely to weigh on public acceptance of the party system, and street demonstrations to protesteconomic conditions could develop into a full-onchallenge of undemocratic rule

one- Corruption among government officials poses amajor threat to the legitimacy of the rulingCommunist Party

 Although strong domestic control will ensure littlechange to Vietnam's political scene in the next fewyears, over the longer term, the one-party-state willprobably be unsustainable

 Relations with China have deteriorated over thepast few year s due to Beijing's more assertivestance over disputed islands in the South China Seaand domestic criticism of a large Chineseinvestment into a bauxite mining project in the

central highlands, which could potentially causewide scale environmental damage

Economics

Opportunities  Vietnam has been one of the fastest-growing

economies in Asia in recent years, with GDP growth averaging ~ 7.5% annually between 2000 and 20011

 The economic boom has lifted many Vietnamese out of poverty, with the official poverty rate in the country falling from 58% in 1993 to 20% in 2004

 WTO membership has given Vietnam access to both foreign markets and capital, while making Vietnamese enterprises stronger through increased competition

 The government will in spite of the currentmacroeconomic woes, continue to move forwardwith market reforms, including privatization ofstate-owned enterprises, and liberalizing thebanking sector

 Urbanization will continue to be a long-term growth driver The UN forecasts the urban population to rise from 29% of the population to more than 50% by the early-2040s

Threats  Vietnam still suffers from substantial trade, current

account, inflation and fiscal deficits, leaving the economy vulnerable as the global economy continues to suffer in 2012 The fiscal picture is clouded by considerable 'off-the-books' spending

 The heavily-managed and weak dong currency reduces incentives to improve quality of exports, and also serves to keep import costs high, thus contributing to inflationary pressures

 Inflation and deficit concerns have caused some investors to re-assess their hitherto upbeat view of Vietnam If the government focuses too much on

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stimulating growth and fails to root out inflationarypressure, it risks prolonging macroeconomic instability, which could lead to a potential crisis

 Prolonged macroeconomic instability could promptthe authorities to put reforms on hold, as they struggle to stabilise the economy

Social

Opportunities  Vietnam has a relatively young population (24.50%

is the proportion of population under 15 years of age, and 69.10% is that between 15- 64), which should be a very rich workforce and more receptive

to new technology and trends

 The literacy rate of the population is high: 93.9% for men and 86.9% for women

 The government recognized the importance of thehuman resources’ quality, and increasingly focuses

on improving it

Threats  Business relationships are very important in doing

business and take time to develop

 Doing business can be quite slow as there is often alot of bureaucracy to go through before any deal can be made

 The labor force even though is young and large in the quantity; the quality is not as expected: lack of knowledge, English and soft skills

technology ignoring the transient steps.

Threats  Vietnam has a obsolete technological basis in

almost all the industries

 R&D investment is still very limited

 The forces work in the R&D are still very small in quantity, weak in quality

 Vietnam faces the danger of lagged far behind other countries in the region and become more and more dependent on imported technology, and less competitive products

Environment (green)

Strengths  Working in services industry, VVT does not need

to pay attention to environment protect policies as well as to invest in environment protect methods

Weaknesses

Opportunities  The government enacted the policies (e.g., tax

reduction) that favor firms working in services (clean) industry

Threats

Legal

Opportunities  Vietnam’s legal system is evolving fast and the

legislation work has been significantly improved

 The number of laws and other legal texts increases rapidly that covers most aspects of social and economics activities

 Corporate law was issued and being improved that more favor the start-up and private sector

Threats  The legal system is still inadequate and unstable

 Laws are usually drafted in such general terms that they are not enforceable without the implementing decrees and circulars

 Court’s decisions are implemented lately or are not strictly complied

 The National Assembly does not consist of

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professional and specialized legislators, while its legislation workload increased tremendously underthe country’s commitment under the 2000 U.S.-Vietnam Bilateral Trade Agreement and under the pressure to adhere to the World Trade Organization

 Law awareness of enterprise as well as of individuals is still limited; this might lead to many disadvantages in doing business

3.1.2 Five Forces analysis

Source: Michael E Porter, Harvard Business Review, The Five Competitive Forces That Shape Strategy

Figure The Company’s strategic position-4: Five forces framework

The threat of entry

 Economy of scale: In the field of providing RND&O service, the

economies of scale are not too much important It is quite one-off model.One typical project lasts around 6 months from project start to FACapproval

 Incumbency advantages independent of size: The experience is important

in the aspect of shortening the project implementation time, and thequality of the network It helps to reduce the project cost, ensure thequality/performance of the project Since VVT provides the RND&Oservice, the project reference is very important This is the critical

conditions that the customers use to evaluate the candidates and decidewhether or not grant the project to them.

 Switching cost: if the service suppliers are equal in the capabilities of

delivering the project’s value to customers, the customer will not face thehigh cost of switching from this supplier to another one

 Capital requirement: As any of other services, the capital requirements for

new entrants are not very big In capital investment perspective, the newentrants just need to fund some sorts of following facilities:

Table The Company’s strategic position-2: Capital requirements for typical facilities

Cost of buying

Investigation

Can be rent as per project

Table The Company’s strategic position-3 : Suppliers and products

Office

Working seats &

meeting rooms Office owners Common products

Car

Mostly for drive test

Car renting companies Common products

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