Buiding competitive strategy in the rice farming industry the case of an dinh company

VIETNAM NATIONAL UNIVERSITY, HANOISCHOOL OF BUSINESS Nguyen Khac Trung BUILDING COMPETITIVE STRATEGY IN THE RICE FARMING INDUSTRY THE CASE OF AN DINH COMPANY Major: Business Administrati

VIETNAM NATIONAL UNIVERSITY, HANOI

SCHOOL OF BUSINESS

Nguyen Khac Trung

BUILDING COMPETITIVE STRATEGY

IN THE RICE FARMING INDUSTRY

THE CASE OF AN DINH COMPANY

Major: Business Administration

Code: 60 34 05

MASTER OF BUSINESS ADMINISTRATION THESIS

Supervisor: Dr Ta Ngoc Cau

Hanoi – 2010

TABLE OF CONTENTS

ACKNOWLEDGEMENT……… i

ABSTRACT……… ii

TÓM TẮT……… iv

TABLE OF CONTENTS……… vi

LIST OF TABLES AND FIGURES … ix

LIST OF ABRREVEATIONS……… xi

INTRODUCTION……… 1

1. The thesis title.……… 1

2. The thesis necessity…… ……… 1

3. Objectives……… 1

4. Method……… 2

5. Data sources……… 2

6. Significance……… 2

7. Limitations……… 3

8. Expected results……… 3

9. The thesis structure……… 3

10.Suggestion for future research……… 3

CHAPTER 1: LITERATURE REVIEW ………

1.1 Competitive strategy………

1.1.1 Strategy and business strategy………

1.1.2 Competitive strategy………

1.2 Strategic management………

1.2.1 Vision and mission………

vi -1.2.2 Strategy formulation and selection………

1.2.3 Strategy implementation……….

1.2.4 Strategy evaluation………

CHAPTER 2 : RICE FARMING INDUSTRY IN VIET NAM……… 30

2.1 An overview of rice farming ……… 30

2.2 The developing of rice farming industry in Viet Nam………

2.3 Factors effecting rice farming ………

CHAPTER 3 : BUILDING COMPETITIVE STRATEGY………

3.1 Company profile………

3.2 Strategy formulation ………

3.2.1 External environment analysis………

3.2.2 Industry environment analysis………

3.2.3 Internal environment analysis………

3.2.4 SWOT analysis ……… 63

3.2.5 Strategy formulation and selection ……… 64

3.2.5.1 Production expanding ……… 65

3.2.5.2 Japanese rice farming and Vietnamese high quality rice processing …… 65

3.2.5.3 Rice seed producing ……… 65

3.2.5.4 Marketing enhancing ……… 65

3.3 Implementing the competitive strategy ……… 66

3.3.1 Objectives ……… 66

3.3.2 Solutions ……… 67

vii -3.3.3 Action plan ………

3.3.5 Recommendation to the government ……… 71

CONCLUSION ……… 72

REFERENCES ……… 73

APENDDICES ……… 75

viii

-LIST OF TABLES AND FIGURES

Table 1.1 Example of possible factors in a PEST analysis

Table 1.2 Industry’s entry and exit barriers

Table 1.3 Bargaining powers of suppliers and buyers

Table 1.4 The completed SWOT profile

Table 1.5 Appropriate strategies selection (GREAT model)

Table 2.1 The world rice production

Table 2.2 The world rice consumption and stocks

Table 3.1 Vietnam quarterly GDP growth

Table 3.2 An Dinh external environment EFE matrix

Table 3.3 External environment analysis conclusion

Table 3.4 Industry analysis conclusion

Table 3.5 An Dinh internal environment IFE matrix

Table 3.6 Internal environment analysis conclusion

Table 3.7 Competitive strength assessment

Table 3.8 Sustainable competitive advantage

Table 3.9 AD Company’s SWOT profile

Table 3.10 AD Company’s appropriate strategies selection (GREAT model) Table 3.11 AD Company’s action plan

Figure 1.1 Porter’s Generic Strategies Figure 1.2

The strategic management process Figure 1.3

Five Forces Model Figure 1.4 The value chain

Figure 1.5 Strategic analysis processes

Figure 1.6 SWOT Matrixes

Figure 2.1 Vietnam rice farming areas

Figure 2.2 Vietnam rice productions

Figure 2.3 Rice volumes for consume and export (thousand tons) Figure 2.4 Vietnam export value by rice and commodity group (2009) Figure 2.5Vietnam agro-forestry and rice export value (US $billion) Figure 3.1: Corruption Perceptions Index 2009 Figure 3.2 Vietnam GDP per capita growth

Figure 3.3 VND/USD exchange rate (2008-2010)

Figure 3.4 Vietnam population pyramid (2009)

Figure 3.5 Impacts of sea level rise (1m scenario)

Figure 3.6 Value chain model in rice farming industry

Figure 3.7 AD Company Revenue and Net profit

Figure 3.8 AD Company’s organizational structure

Figure 3.9 AD Company’s SWOT matrix

Figure 3.10 AD Company’s strategies implementation process

x

-LIST OF ABRREVEATIONS

R&D: Research and Development

PEST: Politics, Economics, Social, TechnologySWOT: Strengths, Weaknesses, Opportunities, ThreatsEFE: External Factor Evaluation

IFE: Internal Factor Evaluation

GREAT: Gain, Risk, Expense, Achievable, Time

USDA: United State Department of Agriculture

GSO: General Statistics Office

WTO: World Trade Organization

IMF: International Monetary Fund

UK: United Kingdom

GDP: Gross Domestic Product

VCCI: Viet Nam Chamber of Commerce and IndustryCPI: Consumer Price Index

USA: United State of America

FAO: Food and Agriculture Organization

US $: United State Dollar

1. The thesis title

Building competitive strategy in the rice farming industry - The case of An Dinh Company.

2. The thesis necessity

The event of Viet Nam joining WTO in 2007 has created a range of developmentopportunities and challenges to investors in rice farming in Vietnam Vietnam isknown as one of world’s richest agricultural regions and is the second-largest(after Thailand) exporter worldwide and the world's seventh-largest consumer ofrice.Vietnam government has made effort in order to develop high quality andvalue-added rice production and export An Dinh - a rice farming and tradingcompany- has been case-studied and researched that its rice production is limited

in capability resulted in an irrelative market share A higher position in the marketrequires a competitive strategy implementation by intensively investing inexpansion and enhancing marketing activities

This thesis, in above actual fact, is to build an appropriate competitive strategy for

An Dinh Company’s development It has also added the value to the strategyformulation by giving recommendations and proposing an action plan, which can

be applied in implementing strategies

1

-4. Methodology

This thesis applies the case study to build competitive strategy for An DinhCompany The research has been prepared mainly through on desk study reviews

of available literature and data through three basic steps:

The first step is to review theories of competitive strategy and strategicmanagement The study focuses on the literature view of existing approaches tocompetitive strategy formulation, and identifies a common process to buildcompetitive strategies

The second step based on the research of rice farming industry in Vietnam in terms

of factors and influence on the business success

Last but not less, the case study of An Dinh Company is analyzed inclusive ofinterview with the managers of company who are responsible for strategicmanagement planning This is to contribute competitive strategy and providerecommendations on strategy implementation

5. Data sources

The theoretical review and collection of secondary data display from research ofbooks, reports, newspapers and internet sources The primary data was collectedthrough interviews with An Dinh Company’s managers and key employees

6. Significance

By reviewing the theory of competitive strategy and strategic management andunderstanding the impacts of business environment, the thesis benefits An DinhCompany in implementing appropriate competitive strategies This theoreticalapproach could be applied in cases of other companies in rice farming industry

7. Limitations

The study would be limited due to a small number of competitors in the localmarket are considered Moreover, those competitors could not be analyzed withdetail information and data, which may not entirely reflect the industry’scompetitive environment

8. Expected results

The result of this thesis is to build appropriate competitive strategies for furtherdevelopment of An Dinh Company The methodology is expected to be appliedeffectively in the case study of other companies in rice farming industry

9. The thesis structure

Beginning with the introduction part, the thesis concludes three chapters and theconclusion part

Chapter 1 provides a fundamental review of competitive strategy and strategicmanagement theory focusing on the competitive strategy formulation process.Chapter 2 discusses rice farming status in Vietnam, highlighting its latestachievement and key factors

Chapter 3 presents An Dinh Company and analyzes its environment to identifyexternal opportunities and threats as well as internal strength and weakness thatinfluence on building company’s competitive strategy Action shall berecommended for strategic management implementation

10 Suggestion for future research

A rapid change of factors like technological advances, climate, and customer’s lifestyle creates both opportunities and challenges to the rice farming industry and An Dinh Company Therefore, a deeper research undertaken could create more benefit to larger size companies

3

-CHAPTER 1

LITERATURE REVIEW

The importance of competitive strategy and strategic management fororganizational success is now recognized in both the literature and practice.Strategy and strategic management are necessary for an organization to achieve itsobjectives, enhance competitive advantages and improve its value

Today highly competitive business world pressures on managers and employeesacross functional areas at all organizational levels to be taken on strategicresponsibilities It is essential that they understand both strategic managementconcept and process

This chapter provides the basic understanding of competitive strategy and strategicmanagement It focuses on strategy formulation as a part of the strategicmanagement

1.1 Competitive strategy

1.1.1 Strategy and business strategy

Strategy is a plan designed to achieve a particular long-term goal.1

There is very little agreement about the meaning of strategy in the world ofbusiness Although strategists and practitioners understand strategy in differentways and in various contexts, there are some most common concepts:2

Strategy is perspective, which is vision and direction

Strategy is position, it reflects decisions to offer particular products and services in particular markets

Strategy is a plan, a “how”, a means of getting from here to there

1Oxpord English Dictionary

Strategy is a pattern in actions over time

Strategy is the art of the general 3 Strategy refers to how an objective will be

achieved, thereby; it is broad, long term and far reaching Strategy is moreconcerned with deploying the resources whereas tactics is concerned withemploying them In business, as in military, strategy bridges the gap betweenpolicy and tactics Together, strategy and tactics bridge the gap between ends andmeans

Business strategy is a plan for how a firm will compete, what its goals should be

and what policies will be need to achieve goals.4

The business strategy is a combination of the investment decision and thedevelopment of a sustainable competitive advantage The investment decision of abusiness strategy covers the product and market, its investment intensity and theresource allocation The development of a sustainable competitive advantagesbased on advantages of a business such as assets, technology, human resource,management

1.1.2 Competitive strategy

Since publication, Michael E Porter’s “Competitive Strategy” has introduced the

theory and practice of business strategy throughout the world

He defines competitive strategy as:

Competitive strategy is the search for a favorable competitive position in an industry, the fundamental arena in which competition occurs Competitive strategy aims to establish a profitable and sustainable position against the forces that determine industry competition 5

3Fred Nickols (2000), “Strategy: Definitions and Meaning”, www.nickols.us

4 Oxford English Dictionary

5Michael Porter (1985), “Competitive Advantage: Creating and Sustaining Superior Performance”

- 5

-Competitive strategy is a combination of the ends (goals) for which the firm is striving and the means (policies) by which it is seeking to get there 6

After analyzing the complexity of industry competition, Michael Porter presents

the three generic strategies: cost leadership, differentiation and focus, which can

be implemented at the business unit level to create a competitive advantage anddefend against the effects of the five factors The four basic alternative competitive

strategies are Cost Leadership, Differentiation, Cost Focus and Differentiation

Focus.

Figure 1.1 Porter’s Generic Strategies

Source: Michael Porter, 1980

1.1.2.1 Cost Leadership:

Cost leadership strategy: Producing the same product or service at a lower costthan competitors Creating a more efficient production or service delivery processthan that of competitors allows the company to sell at a lower price and beprofitable

Companies using the cost leadership strategy often have some characters:

- Good ability to approach the capital for investing in production This is the barrier for another company

6Michael Porter (1998), “Competitive strategy”

- High technical production capacity

- Good and large distribution channel

Toyota is an example of implementing cost leadership strategy

Toyota is a famous motor corporation in Japan, which applies successfully, cost leadership strategy The production system is really effectiveness with the lean production and TPS Both Lean and TPS can be seen as a loosely connected set of potentially competing principles whose goal is cost reduction by the elimination of waste These principles include of: Pull processing, perfect first-time quality, waste minimization, continuous improvement, flexibility, building and maintaining

a long-term relationship with suppliers, smart automation, load leveling and production flow and visual control This production system create a high technical production capacity and effectiveness that supply to customer a good product with low price compare to another product and make the Toyota achieve the position of largest motor production in the world now Moreover, the strength financial support from Japanese government and the large distribution network over the world also contribute to the achievement of Toyota today.

1.1.2.2 Differentiation:

Differentiation strategy: Same products or services are produced at a higherquality than competitors’ are

Companies using the differentiation strategy often have some characters:

- Good team in research and development (R&D)

- Good sales team: Ability to communicate information of product to

customer

- Reputation and ability to innovative

- 7

-Amway is an example of implementing differentiation strategy.

Amway is a corporation based in United State established in 1959, now company operates in more than 80 countries and territories over the world, getting $8.2 billion turnover in 2008 Amway focuses on producing high quality product and differentiation strategy Amway has strong research and development system with

65 research and development laboratories worldwide staffed by more than 500 scientists, engineers and technical professionals Amway research and development have been awarded more than 500 patents and have had more than

400 papers published in top industry journals Amway is a leader in the U.S Direct Selling Association, the World Federation of Direct Selling Associations, the National Association of Manufacturers, and the U.S Chamber of Commerce, Amway was ranked #43 on the Forbes Magazine 2007 list of “America’s Largest Private Companies.” Over the past 50 years, Amway has been recognized for manufacturing excellence, environmental concern, and commitment to safety and health.

Amway has more than 3 million Amway Business Owners and 13,000 people work

in Amway and its subsidiaries Amway is a company that believes every person can make a difference They live this philosophy every day They empower their employees to reach goals, fulfill ambitions, and contribute to the communities where they operate People who work with Amway stay at Amway Most of employees have been in Amway for more than 10 years, with many working here for decades.

Amway is successful company applying differentiation strategy.

1.1.2.3 Focus:

Focus strategy: Strategy focusing exclusively on a narrow segment of the market

A focus (or niche) strategy is most suitable for small firms but can be used by anycompany, especially those can afford neither a wide scope cost leadership nor awide scope differentiation strategy Companies could use a cost focus or adifferentiation focus With a cost focus, a firm aims at being the lowest costproducer in that segment With a differentiation focus, a firm creates competitiveadvantage through differentiation within the segment.

The appropriate generic strategy will help the firm to leverage its strengths anddefend against the five forces’ effects Otherwise, Michael Porter specificallyemphasized that only one of the generic strategy alternatives should be pursued for

a given product, rather than implementing a combination of these strategies.Therefore, organizations should take their competencies and strengths intoconsideration to choose the most suitable generic strategy

As Michael Porter opinion, enterprises can be successful in using combination of these strategies when they establish separated company following one strategy Rayonier’s is one example of company implementing focus strategy

Rayonier's medium-density fiberboard plant is largest panel plant in New Zealand Its capacity can produce 170,000 cubic meters of annually.

This company is using focus strategy for its product This strategy is focusing particular buyers who bought MDF for house construction and large furniture making It has only produced MDF panels with thickness from 2cm to 5cm Rayonier segmented its product line even they can produce other kinds of thickness The reason is that they found the demand of house construction and large furniture making in this country and by focusing those kind of products they can get more profits.

The strategy is focusing on a particular buyer group, segment of the product line,

or geographic market As differentiation, focus may take many forms Although the low cost and differentiation strategies are aimed at achieving their objectives industry wide, the entire focus strategy is built around serving a particular target

9

-very well, and each functional policy is developed with this in mind The strategy rests on the foundation that the firm is thus able to serve its narrow strategic target more effectively or efficiently than competitors who are competing more broadly As a result, the firm achieves either differentiation from better meeting the need of the particular target, or lower costs in serving this target, or both Even though the focus strategy does not achieve low cost or differentiation from the perspective of the market as a whole, it does achieve one or both of these positions with its narrow market target.

1.2 Strategic management

Strategic management is the process by which top-management determines thelong-term direction and performance of the organization by ensuring that carefulformulation, effective implementation and continuous evaluation of the strategytake place.7 The strategic management, hence, is an objective, logical andsystematic approach for decision making in an organization

7Lloyd L Byars, Leslie W Rue, Shaker A Zahra (1996), “Strategic management”

Figure 1.2 The strategic management process

selection

Strategy implementation

1.2.1 Vision and Mission

Vision describes

aspirations for the future without specifying the means to achieve

desired ends.8 The most effective vision must be

inspirational, which requires for

8Alex Miller, Gregory G Dess (1996), “Strategic management”

-11

-the best, -the most or -the greatest A vision becomes more visible when it isexpressed in the form of a mission statement.

A company’s mission is its reason for being The mission statement describes thecompany’s business vision, including the unchanging values and purpose of thefirm and forward-looking visionary goals that guide the pursuit of futureopportunities

1.2.2 Strategy formulation and selection

Strategy formulation includes identifying an organization’s external opportunitiesand threats, analyzing internal strengths and weakness, generating alternativesstrategies, and choosing the most appropriate strategies to pursue

1.2.2.1 External environment analysis

The external environment has two aspects: the macro-environment that affects allfirms and the microenvironment that affects only firms in a particular industry APEST analysis is a technique for understanding the macro-environment in which afirm operates PEST analysis includes Political, Economic, Social andTechnological factors

The industry, in which the firm operates (or is considering operating), is animportant aspect of the micro-environmental analysis In the book “CompetitiveStrategy: Techniques for Analyzing Industries and Competitors” (1980), MichaelPorter presents the model of the Five Competitive Forces The model has become

a useful tool for industry analysis The five forces include Barriers to entry,Customers, Suppliers, Substitute products, and Rivalry

a PEST Analysis

Many macro-environmental factors are country-specific and a PEST analysisneeds to be performed for all related countries The number of macro-environmental factors is unlimited

-12-Table 1.1 Example of possible factors in a PEST analysis Political Analysis

Political stability

Environmental regulation and protection

Consumer protection

Legal framework

Intellectual property protection

Trade regulations and tariffs

Anti-trust laws

Taxation

Wage legislation

Working hours

Mandatory employee benefits

Industrial safety regulations

Social Analysis

Demographics

Education

Culture

Attitudes to health, environmental

consciousness, work and leisure

Living conditions

Lifestyle changes

b Industry analysis: Porter’s Five Forces model

Porter’s five forces framework evaluates entry barriers, suppliers, customers,substitute products, and rivalry in the industry

Figure 1.3 Five Forces Model

Source: Michael Porter, 1980

Those five competitive forces appear in every industry and every market Theydetermine the intensity of competition and therefore the profitability andattractiveness of an industry Based on the information derived from the FiveForces analysis, managers can decide how to influence or to exploit particularcharacteristics of their industry to improve the firm’s position

-14-ratio indicates that many rivals, none of which has a significant market share, characterize the industry The market is competitive.

The intensity of rivalry is commonly based on the firms’ aggressiveness in order togain an advantage It is influenced by the industry characteristics such as:

The number of competitors

A large numbers of competitors increase rivalry because more firms must competefor the same customers and resources The rivalry is more intense if there aremany small or equally sized competitors; rivalry is less when an industry has amarket leader

Market growth

In a slow growth market, firms have to compete for market share On the contrary, firms are easy to improve revenues in an expanding market

High fixed costs

If total costs are mostly fixed costs, the firm must produce near capacity to attainthe lowest unit costs The firm must sell a large quantity of product, that lead to afight for market share and an increase in rivalry

Level of product differentiation

Low level of product differentiation is associated with higher level of rivalry.Industries where products are commodities have greater rivalry, industries wherecompetitors can differentiate their products have less rivalry

Switching costs

Rivalry is reduced if there is a significant cost associated with the decision to buy

a product from an alternative supplier

Threat of New Entrants

It is not only existing rivals that make a threat to companies in an industry, thepossibility that new companies may enter the industry also affects competition

New entrants to an industry can raise the level of competition, thereby reducing itsattractiveness However, there are barriers to entry.

Barriers to entry are unique industry characteristics Barriers maintain the level ofprofits for those already in the industry because they reduce the rate of newentrants Barriers to entry arise from several sources such as:

Government regulations

The principal role of the government in a market is to preserve competitionthrough anti-trust actions Besides, government restricts competition throughregulations Industries such as public utilities are considered natural monopolies,

as it has been more efficient to have one company rather than to permit manycompanies to compete in a local market

Patents and proprietary knowledge

Ideas and knowledge that provide competitive advantages are considered privateproperty, so that, preventing others from using the knowledge and thus creating abarrier to entry

Asset specificity

Asset specificity is the extent to which the firm’s assets can be utilized to produce

a different product Potential entrants are reluctant to invest in highly specializedassets that cannot be sold or converted into other uses

-16-profitable A common exit barrier is asset specificity If the plant and equipmentrequired for manufacturing a product is highly specialized, they cannot easily besold to other buyers in another industry.

Table 1.2 Industry’s entry and exit barriers

Easy to Enter if

Common technology

Little brand franchise

Access to distribution channels

Low scale threshold

Easy to Exit if

Salable assets

Low exit costs

Independent businesses

Bargaining Power of Buyers

Buyers are the people or organizations who create demand in an industry Thepower of buyers is the impact that customers have on a producing industry

If buyer power is strong, the relationship to the producing industry is near to amonopoly, a market in which there are many suppliers and one buyer Under suchmarket conditions, the buyer sets the price

Bargaining Power of Suppliers

Suppliers can have a significant impact on a company’s profitability If suppliershave high bargaining power over a company, then the company’s industry is lessattractive

A producing industry requires raw materials, labor, components, etc Thisrequirement leads to buyer-supplier relationships between the industry and thefirms that provide the materials used to create products Suppliers, if powerful, canput influence on producing industry such as selling at a high price to capture some

of the industry’s profits

The industry often faces a high pressure from their suppliers or buyers Thisrelationship can potentially affect its profitability

Table 1.3 Bargaining powers of suppliers and buyers

Buyers are powerful if

A few buyers with significant market

share and many sellers

The industry is not a key supplying

No substitutes for the particular input

High switching costs from one supplier

to another

The industry is not a key customer

Suppliers threaten forward integration

-18-Threat of Substitutes

In the Five Forces model, substitute products refer to alternative products in otherindustries A threat of substitutes exists when a product’s demand is affected by theprice change of a substitute product (product’s price elasticity) The moresubstitutes are available, the more elastic the demand becomes Not onlyconstrains the companies’ ability to raise prices, the substitute products also lowerindustry attractiveness and profitability

The threat of substitutes is determined by factors like:

Brand loyalty of customers

Close customer relationships

Switching costs for customers

The relative price for performance of substitutes

Current trends

c EFE matrix

External Factor Evaluation (EFE) matrix method is a strategic-management

tool often used for assessment of current business conditions The EFE matrix is agood tool to visualize and prioritize the opportunities and threats that a business isfacing External factors assessed in the EFE matrix are the ones that are subjected

to the will of social, economic, political, legal, and other external forces

Creation EFE matrix: 5 steps

Step 1.Listing factors: To gather a list of external factors and divide factors into

two groups: opportunities and threats

Step 2.Assigning weights: To assign a weight to each factor The value of each

weight should be between 0 and 1 (or alternatively between 10 and 100 if you usethe 10 to 100 scale) Zero means the factor is not important One or hundred

-19-means that the factor is the most influential and critical one The total value of allweights together should equal 1 or 100.

Step3 Rating factors: To assign a rating to each factor Rating should be between

1 and 4 Rating indicates how effective the company’s current strategies respond tothe factor 1 = the response is poor 2 = the response is below average 3 = aboveaverage 4 = superior Weights are industry-specific Ratings are company-specific

Step4.Multiplying weights by ratings: To multiply each factor weight with its

rating This will calculate the weighted score for each factor

Step5 Summing up weighed scores: To add all weighted scores for each factor This will calculate the total weighted score for the company.

Figure 1.4: EFE matrix creation process

List external factors

1.2.2.2 Internal environment analysis

a Value chain

All parts of the organization can significantly influence on its long-term success.Internal analysis evaluates relevant factors from those areas to determineorganization’s strength and weakness The analyzed specific areas vary from

organization to organization Factors that are commonly evaluated across the organization’s areas in value chain:

Figure 1.5 The value chain

Source: Michael Porter 1985

The primary value chain activities are:

Inbound Logistics: the receiving, warehousing of raw materials and the

distribution of the materials to manufacturing as it is required

Operations: the processes of transforming inputs into finished products and

services

Outbound Logistics: the warehousing and distribution of finished goods.

Marketing and 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:

-21-Infrastructure of the company: organizational structure, control systems,

company culture, 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 value chain in rice farming industry as follow:

b IFE matrix (Internal factors evaluation)

Internal Factor Evaluation (IFE) matrix is a strategic management tool for auditing

or evaluating major strengths and weaknesses in functional areas of a business.Creation IFE matrix: 5 steps

Step1.Listing internal factors: To conduct internal audit and identify both

strength and weakness in all business areas It is suggested to identify 10 to 20internal factors

Step2 Assigning weight: To range from 0.00 to 1.00 to each factor The weight

assigned to a given factor indicates the relative importance of the factor Zeromeans not important One indicates very important The sum of all weights equals1.00

-22-Step3 Rating factors: To assign a rating to each factor Rating should be between

1 and 4 The factor represents a major weakness (rating = 1), a minor weakness(rating = 2), a minor strength (rating = 3), or a major strength (rating = 4)

Step4 Multiplying weight by rating: To multiply each factor's weight by its

rating This will give you a weighted score for each factor

Step5 Summing up weighed score: To construct the IFE matrix is to sum the

weighted scores for each factor This provides the total weighted score for yourbusiness

Figure 1.6: IFE matrix creation process

List internal factors

1.2.2.3 SWOT Analysis

The external analysis identifies opportunities and threats whereas the internalanalysis defines the company’s strengths and weaknesses By understanding thatinformation, a company can better leverage its strengths, correct its weaknesses,capitalize on opportunities, and deter potentially threats

SWOT analysis is a useful technique for summarizing the external environmentalfactors SWOT stands for Strengths, Weaknesses, Opportunities and Threats.Edmund P Learned, C Roland Christiansen, Kenneth Andrews, and William D.Guth in “Business Policy, Text and Cases” described the framework in 1969

SWOT is a simple framework for generating strategic alternatives from a situationanalysis The internal and external environment analysis can provide a largeamount of information, much of which may not be highly relevant Thereby,SWOT concentrates only on the issues that potentially have the most impact.

Figure 1.7 Strategic analysis process

When the analysis has been completed, a SWOT profile can be generated and used

as the basis of goal setting, strategy formulation, and implementation

Table 1.4 The completed SWOT profile

In addition to identifying major strengths, weaknesses, opportunities and threats,the SWOT matrix incorporates potential strategies for improving the company’scompetitive position For example, the strengths can be leveraged to pursueopportunities and to avoid threats, and managers can be alerted to weaknesses thatmight need to be overcome in order to successfully pursue opportunities.

Figure 1.8 SWOT Matrixes

Suitability

Having a view of relationships between the internal and external environment, anorganization then needs to consider whether a strategy is suitable or not Forexample, does it build up organization’s strengths and environmentalopportunities? Does it match the organization’s objectives?

Feasibility is concerned with whether strategic plans can go in practice andwhether the organization has sufficient resources to carry out those plans.Resources include funds, people, time and information

The most popular approaches to select strategies include the GREAT Model

a. GREAT Model

Those potential strategies should be evaluated and compared to choose the mostproper strategy, based on the GREAT model, which stands for Gain, Risk,Expense, Achievable and Time Criteria are weighed according to their importance

to the company Strategies are marked form 1 to 5 for each criterion, of which 1 isthe worst, 3 is medium and 5 is the best Basically, companies are suggested topursue strategies get good marks

Table 1.5 Appropriate strategies selection (GREAT model)

Programs, budgets and procedures help to select strategy The implementationinvolves the company’s resources and its staffs’ motivation to achieve objectives.The strategy deployment plays a significant impact on whether it will besuccessful.

9R Charan, G Colvin (1999), “Why CEOs Fail”, Fortune Magazine, 21 Jun 1999

10 I Cobbold & G Lawrie (2001), “Why do only one third of UK companies achieve strategic

Companies have to pay attention to their human resources to apply strategies Itrequires that person in charge fully understand the strategy and correspondingaction steps they will implement The implementation might not succeed if thestrategy is misunderstood or the company fails to motivate people to work withenthusiasm towards its objectives Furthermore, managers must be aware of theinfluence of each new strategy on the human resource For instance, how change itdoes since the strategy calls for, how fast it is, they provide for that change… Theanswers help to decide whether to allow time for employees to gain experience, tointroduce training or to hire new employees.

In addition, companies need to translate their broad strategy statement into anumber of specific work assignments They develop detailed action plans listingaction steps and assigning responsibility to a specific individual for accomplishingeach of those steps They also set a due date and estimate the resources required toaccomplish each step

1.2.4 Strategy evaluation

Strategy evaluation involves examining either how the strategy has beenimplemented or its outcomes The evaluation involves monitoring results,comparing to best practices, evaluating the effectiveness and efficiency of theprocess and controlling for variances as well Companies have to adjust theprocess if necessary, such as changing the schedule, changing the action steps,changing the strategy or finally changing the objective

If it is impossible to achieve the metrics and timetables, the expectations areunrealistic and the strategy will definitely fail If the evaluation determines thatprocesses are not working, or results are not as expected, then the strategy should

be modified or reformulated

Both management and employees are involved in strategy evaluation, as they viewthe implemented strategy from different perspectives For example, a worker can

-28-recognize a problem in a specific implementation step that management would not

be able to identify

Chapter summary

As companies follow a strategic management process, it is necessary for managers

to understand either strategy concept or strategic management process Whilestrategy describes the way organizations will pursue their goals, strategicmanagement is the process by which managers ensure that careful formulation,effective implementation and continuous evaluation of the strategy takes place.Moreover, changes in the business world result in the modification of existingstrategies and the development of new strategies, which is a part of theorganization, is continuously, improving process in order to achieve its objectives

CHAPTER 2

RICE FARMING INDUSTRY IN VIETNAM

The growth in rice demand has exceeded in most expectations and continues alongwith the increasing of population

Thanks to ideal geographically conditions, rice farming in Vietnam haveexperienced a consistent growth over the past decades, and played a main role inVietnam economy, leading to the rank of fifth largest producer and the second-largest rice exporter in the world Viet Nam Government has issued a lot ofpolicies in order to increase domestic demand and rice export markets

A basic knowledge of rice farming is essential to rice producers and everyone whoinvolved in this globally massive industry This chapter describes the developmentand the current status of rice farming in Vietnam The chapter also characterizesthe economics of rice farming and highlights the industry’s key factors

Rice, the second-most produced grain in the world, has become more necessityand important globally As the quantity is no longer enough to fulfill the demand,rice is planted on big scale in many countries to meet the increasingly highconsumer demand

Rice grow in fields in two different stages Firstly, rice corn is plant in littleseedbeds becoming rice- seed Secondly, farmers use rice-seed to plant in fieldwhich were already plowed Rice could readily be harvested in about 3 to 6months After harvesting, rice is processed to remove and clean its grain It isstocked in warehouse before being sold in market

At least 114 countries grow rice and more than 50 have an annual production of100,000 tons or more Asian farmers produce about 90% of the total, with twocountries, China and India, growing more than half the total crop For most rice-producing countries where annual production exceeds 1 million ton, rice is thestaple food In Bangladesh, Cambodia, Indonesia, Lao PDR, Myanmar, Thailand,