Business strategy for consumer lending of HSBC

Strategy According to George Steiner George Steiner, a professor of management and one of the founders of The California Management Review, is generally considered a key figure in the or

vietnam national university, HANOI

school of business

Nguyen Viet Thang

BUSINESS STRATEGY FOR CONSUMER

LENDING OF HSBC

master of business administration thesis

Hanoi - 2007

vietnam national university, HANOI

school of business

Nguyen Viet Thang

BUSINESS STRATEGY FOR CONSUMER

TABLE OF CONTENTS

ACKNOWLEDGEMENTS i

ABSTRACT ii

TÓM TẮT iii

LIST OF ABBREVIATIONS v

LIST OF TABLES v

LIST OF FIGURES v

INTRODUCTION 1

1 Aim and objective 2

2 Company profiles 3

3 Problem Area 4

CHAPTER 1: LITERRATURE REIVEW 6

1.1 Definition 6

1.2 Strategic management process 11

1.3 Strategic management model 14

1.4 Evaluating and choosing a value added strategy 30

1.4.1 Evaluation Principles 30

1.4.2 Requirement 30

1.4.3 The main factor for choosing business plan 31

1.4.4 Choosing Process 31

1.5 The Strategy Hierachy 32

1.6 Type of Corporate Business Strategy 33

CHAPTER 2: HSBC AND CAR LOAN PRODUCT 36

2.1 Introduction of HSBC 36

2.1.1 HSBC Global 36

2.1 Introduction of HSBC 36

2.1.2 The HongKong and Shang Hai Banking Corporation Limited 37

2.2 HSBC in Viet Nam 41

2.3 Business Environment Analysis 44

2.3.1 External Analysis 44

2.3.2 Internal Analysis (Industry Environment) 49

2.3.3 Internal Analysis (The company) 69

2.3.4 Choosing the right strategy 71

CHAPTER 3: CONCLUSION AND RECOMMENDATION 72

3.1 Choosing the right strategy 72

3.2 Detailed Functional strategy 77

3.2.1 Business Development Strategies 77

3.2.1 Product Strategies 77

3.2.2 Product Strategies 79

3.2.3 Marketing Strategies 81

CONCLUSION 85

REFERENES 86

Table: 1.1 Three stages of strategic process

Table 2.3.1 Toyota Car Loan payment method

Table 2.3.2 Competitor analysis matrix

Table 2.3.3 Brief about HSBC Car loan

Table 2.3.4 Approval/ Underwriting Criteria

Table 2.3.5 Number of Car sales 2006 -2007

Figure 3.2.1: Ha Noi – Toyota Car Loan market share

List of figures

Figure 2.1.2 Profit before tax

Figure 2.1.2 Total assets

Figure 2.3.1 Viet Nam Economical Indicator over timesFigure 2.3.2: Side of the market

Figure 2.3.3 Car sale number of all major brands

Figure 2.3.4 Staff of PFS

To get an introductory illustration of the studied subject, in this chapter, the

author is going to describe a basic background of the theme, determine theproblem area and identify the purpose of the research, followed by anillustration of its aims and objectives

Economic globalization is a natural development trend of the labor divisionand cooperation around the world, with the support of modern science andtechnology This trend is irreversible and it involves any nation, covers mostthe facets of the socio-economic life, promote competition, strengthencooperation while increasing the interdependence between economies Thisdouble-side nature of international economic integration depends on thecondition and level of economic development in each nation

In banking and finance system, international integration opens an opportunity

to international cooperation in expand their business to other countries whichwas very sensitive and hard to enter When coming to a developing countrylike Viet Nam, foreign banks can take advantage of capital, moderntechnology, management experience, and etc to develop the comparativeadvantage to catch up with the local competition that establish a largedistribution channel and have depth knowledge about the local businessenvironment However, international integration in banking is also associatedwith the rising risk and sensitivity of the domestic financial market in front ofthe volatile world market The opening up of the new financial market willpave the way for foreign banks to penetrate the domestic financial market,with the number of strong competitors in the local market

Becoming an official member of WTO (by end of 2006) Viet Nam target is tofully integrate to the global economic and financial system In the newsituation, there is a great opportunity for foreign bank especially retail banklike HSBC to enter the new and emerging market of Viet Nam.

From the above discussion, it can be seen that with the opportunity to enterthe new market HSBC now experiencing a game with some toughcompetition in the race of obtain new customer, win their loyalty and remainthe business with them The most pressing point is that Vietnamese banks inparticular and financial institutions are important corporation that work insensitive situation therefore they have a strong back up from localgovernment In addition, they have an reckonable distribution channel with agood customer base Hence, to setup distribution channel and build updatabase is some of core targets for foreign bank to achieve in the newsituation

1 Aim and objective

This thesis‘s aim is to answer the question what the Bank should do in thenew context of accessing WTO to effectively setup the new business Strategyand build up the customer database in order to enter a very promising marketlike Viet Nam and equal compete with other local and foreign banks

The objectives of the research, therefore, will be as follow:

1) Literature review of Strategy and strategic management

2) An evaluation of the Bank‘s current position of car loan product andassess the bank‘s current strategy on kept going to be the best retailbank and build up the bank customer database

3) Highlight areas for improvement for HSBC.

2 Company profiles

Company profile

The Hong Kong & Shanghai Banking Corporation have been operation inVietnam since 1880 with quite long history However, after the Civil war, theyhave just come back to Vietnam in 1995 in HCM City and 2005 in Ha Noi.With long experience in banking services and a contingent of well-trained,dynamic and enthusiastic staff, the Bank continues to play a crucial role inVietnam's banking sector For the recent year, the bank have awarded manyimportant prize such as: ―best foreign bank in Vietnam‖ in and ―bst bank inVietnam‖ in by The Banker In parallel with its development of bankingproducts and services, the Bank has continued to expand its network in order

to better serve its customers' demand At the moment, the Bank wasrecognized for its well-established group consisting of 02 major branches attwo important city of Vietnam as Ha Noi and Ho Chi Minh City, onerepresentative offices in Can Tho In the future, when new law of bankingsystem come to effect and HSBC will be treated as local bank, they will havemore and more branches in all over the countries

Currently, the Bank have operate many activities in Vietnam such as:

 Deposit: Current account, saving account (both VND and USD),

mutual fund …

 Loan: include consumer credit, overdraft, trade finance, project

finance …

 Money transaction include account transaction, ATM, Credit card

…

 Securities services …

 …

a. Problem Area

- new to the market

- do not know the market well as the local ones

- high in capital, technologies, experienced …

Becoming an official member of WTO therefore the target for Vietnam is tofully integrate to the global economic and financial system Internationalintegration will generate more opportunities and more challenges ‗Afterjoining the WTO, we have to accept a wider opening of banking services.Foreign banks and credit organizations will have more opportunities topenetrate the Vietnamese market And thus, the competition pressure againstdomestic banks is also higher‘ (Governor Le Duc Thuy, 2006)

Therefore, with this trend of development, we can see lots of foreign bankthat coming or expanding their business into Vietnam such as ANZ, Citi Bank,

GE capital, UOB Bank … and HSBC is not exceptional And the problem ofHSBC Vietnam in particular and other bank in general is how to expand theirbusiness and win the sweet cake of this new and emerging market as much aspossible because at this moment, local bank still have powerful backup fromVietnam governor

Within the scope of this paper, I would like to emphasize a number ofactivities in the banking sector of foreign bank in Vietnam in general and

HSBC Vietnam in particular for the car loan market that would partly showthe readiness for international integration and accession of Vietnam's bankingsystem in order to rise the challenges of an exiting system of local bank.

Purpose

The purpose of this thesis is to conduct a theoretical and empirical study toanalyze and find out the strategy for Car loan product of HSBC, one of theworld largest retail bank after Vietnam with the WTO accession

CHAPTER 1: LITERRATURE REVIEW

Some Language Basics

Strategy is a term that comes from the Greek strategia, meaning

"generalship." In the military, strategy often refers to maneuvering troops intoposition before the enemy is actually engaged In this sense, strategy refers tothe deployment of troops Once the enemy has been engaged, attention shifts

to tactics Here, the employment of troops is central Substitute "resources"for troops and the transfer of the concept to the business world begins to takeform

Strategy also refers to the means by which policy is affected, accounting forClauswitz‘ famous statement that war is the continuation of political relationsvia other means Given the centuries-old military origins of strategy, it seemssensible to begin our examination of strategy with the military view For that,there is no better source than B H Liddell Hart

Strategy According to B H Liddell Hart

In his book, Strategy, Liddell Hart examines wars and battles from the time of

the ancient Greeks through World War II He concludes that Clausewitz‘definition of strategy as "the art of the employment of battles as a means togain the object of war" is seriously flawed in that this view of strategyintrudes upon policy and makes battle the only means of achieving strategicends Liddell Hart observes that Clausewitz later acknowledged these flawsand then points to what he views as a wiser definition of strategy set forth byMoltke: "the practical adaptation of the means placed at a general‘s disposal

to the attainment of the object in view." In Moltke's formulation, militarystrategy is clearly a means to political ends

Concluding his review of wars, policy, strategy and tactics, Liddell Hartarrives at this short definition of strategy: "the art of distributing and applyingmilitary means to fulfill the ends of policy." Deleting the word "military" fromLiddell Hart‘s definition makes it easy to export the concept of strategy to thebusiness world That brings us to one of the people considered by many to bethe father of strategic planning in the business world: George Steiner

Strategy According to George Steiner

George Steiner, a professor of management and one of the founders of The

California Management Review, is generally considered a key figure in the

origins and development of strategic planning His book, Strategic Planning

[2], is close to being a bible on the subject Yet, Steiner does not bother todefine strategy except in the notes at the end of his book There, he notes thatstrategy entered the management literature as a way of referring to what onedid to counter a competitor‘s actual or predicted moves Steiner also points

in the business world Some of the definitions in use to which Steiner pointed include the following:

2. Strategy is that which top management does that is of great importance to the organization

3. Strategy refers to basic directional decisions, that is, to purposes and

missions

4. Strategy consists of the important actions necessary to realize these

directions

5. Strategy answers the question: What should the organization be doing?

6. Strategy answers the question: What are the ends we seek and how should

we achieve them?

Steiner was writing in 1979, at roughly the mid-point of the rise of strategicplanning Perhaps the confusion surrounding strategy contributed to thedemise of strategic planning in the late 1980s The rise and subsequent fall ofstrategic planning brings us to Henry Mintzberg

Strategy According to Henry Mintzberg

Henry Mintzberg, in his 1994 book, The Rise and Fall of Strategic Planning

[3], points out that people use "strategy" in several different ways, the mostcommon being these five:

- Strategy is a plan, a "how," a means of getting from here to there

- Strategy is a ploy, really just a specific manoeuvre intended to outwit anopponent or competitor

- Strategy is a pattern in actions over time; for example, a company thatregularly markets very expensive products is using a "high end"strategy

- Strategy is position; that is, it reflects decisions to offer particular

products or services in particular markets

- Strategy is perspective, that is, vision and direction

Mintzberg argues that strategy emerges over time as intentions collide withand accommodate a changing reality Thus, one might start with a perspectiveand conclude that it calls for a certain position, which is to be achieved byway of a carefully crafted plan, with the eventual outcome and strategyreflected in a pattern evident in decisions and actions over time This pattern

in decisions and actions defines what Mintzberg called "realized" or emergentstrategy

Mintzberg‘s typology has support in the earlier writings of others concernedwith strategy in the business world, most notably, Kenneth Andrews, a

Harvard Business School professor and for many years editor of the Harvard

Business Review.

Strategy According to Michael Porter

In a 1996 Harvard Business Review article [5] and in an earlier book [6],

Porter argues that competitive strategy is "about being different." He adds, "Itmeans deliberately choosing a different set of activities to deliver a uniquemix of value." In short, Porter argues that strategy is about competitiveposition, about differentiating yourself in the eyes of the customer, aboutadding value through a mix of activities different from those used bycompetitors In his earlier book, Porter defines competitive strategy as "acombination of the ends (goals) for which the firm is striving and the means(policies) by which it is seeking to get there." Thus, Porter seems to embracestrategy as both plan and position (It should be noted that Porter writes about

What Is Strategy?

Then what is strategy? The answer is:

Strategy is all these—it is perspective, position, plan, and pattern Strategy isthe bridge between policy or high-order goals on the one hand and tactics orconcrete actions on the other Strategy and tactics together straddle the gapbetween ends and means In short, strategy is a term that refers to a complexweb of thoughts, ideas, insights, experiences, goals, expertise, memories,perceptions, and expectations that provides general guidance for specificactions in pursuit of particular ends Strategy is at once the course we chart,the journey we imagine and, at the same time, it is the course we steer, the trip

we actually make Even when we are embarking on a voyage of discovery,with no particular destination in mind, the voyage has a purpose, an outcome,

an end to be kept in view

Strategy, then, has no existence apart from the ends sought It is a generalframework that provides guidance for actions to be taken and, at the sametime, is shaped by the actions taken This means that the necessaryprecondition for formulating strategy is a clear and widespread understanding

of the ends to be obtained Without these ends in view, action is purely tacticaland can quickly degenerate into nothing more than a flailing about

When there are no "ends in view" for the organization writ large, strategiesstill exist and they are still operational, even highly effective, but for anindividual or unit, not for the organization as a whole The risks of not having

a set of company-wide ends clearly in view include missed opportunities,fragmented and wasted effort, working at cross purposes, and internecine

warfare A comment from Lionel Urwick's classic Harvard Business Review

article regarding the span of control is applicable here [11]:

"There is nothing which rots morale more quickly and more completelythan the feeling that those in authority do not know their ownminds."

For the leadership of an organization to remain unclear or to vacillateregarding ends, strategy, tactics and means is to not know their own minds.The accompanying loss of morale is enormous

One possible outcome of such a state of affairs is the emergence of a newdominant coalition within the existing authority structure of the enterprise,one that will augment established authority in articulating the ends towardwhich the company will strive Also possible is the weakening of authorityand the eventual collapse of the formal organization No amount ofstrategizing or strategic planning will compensate for the absence of a clearand widespread understanding of the ends sought

1.2 Strategic management process

Strategic management is the art and science of formulating, implementing

and evaluating cross-functional decisions that will enable an organization toachieve its objectives It is the process of specifying the organization'sobjectives, developing policies and plans to achieve these objectives, andallocating resources to implement the policies and plans to achieve theorganization's objectives Strategic management, therefore, combines theactivities of the various functional areas of a business to achieveorganizational objectives It is the highest level of managerial activity, usuallyformulated by the Board of directors and performed by the organization'sChief Executive Officer (CEO) and executive team Strategic managementprovides overall direction to the enterprise and is closely related to the field of

- Concurrent with this assessment, objectives are set This involves craftingvision statements (long term view of a possible future), mission statements(the role that the organization gives itself in society), overall corporateobjectives (both financial and strategic), strategic business unit objectives(both financial and strategic), and tactical objectives.

- These objectives should, in the light of the situation analysis, suggest astrategic plan The plan provides the details of how to achieve theseobjectives

This three-step strategy formulation process is sometimes referred to asdetermining where you are now, determining where you want to go, and thendetermining how to get there These three questions are the essence ofstrategic planning SWOT Analysis: I/O Economics for the external factorsand RBV for the internal factors

o Assigning responsibility of specific tasks or processes to specific

individuals or groups

o It also involves managing the process This includes monitoring results,comparing to benchmarks and best practices, evaluating the efficacyand efficiency of the process, controlling for variances, and makingadjustments to the process as necessary

o When implementing specific programs, this involves acquiring therequisite resources, developing the process, training, process testing,documentation, and integration with (and/or conversion from) legacyprocesses

 Strategy evaluation: Measuring the effectiveness of the organizational

strategy

Table 1.1 Three stages of strategic process

Strategy formulation

StrategyEvaluation

1.3 Strategic management model

Strategic management is about collecting all business activities, thenassessing, examining and adjusting value-added strategy in order to ensurethat organization makes use of all its opportunities as well as limiting ordeleting all threats of its objective achievement

 External Analysis (PEST, Five Force Model …)

PEST Model

The acronym PEST (abbreviation of Political – Economic – Social –Technological) is a framework for the analysis of 4 macro-environmentfactors PEST model is usually used to evaluate the effect of externalenvironment on all companies so that a feasible strategy could be determined

In PEST model, macro environment factors are represented as every thing that cover and regulate your business as followed:

[source:www.provenmodels.com]

PEST analysis is conducted as followed:

- Collect all current information and forecast which factors will affect thefirm‘s business - Arrange those factors in order of the influence of thosefactors

- Evaluate the effect of each factor then determining any opportunities and challenges affected by the macro-environment

Five Forces

Porter's 5 forces analysis is a framework for an industry analysis and business strategy development developed by Michael E Porter in 1979 It uses

concepts developed in Industrial Organization economics to derive 5 forcesthat determine the competitive intensity and therefore attractiveness of amarket Porter referred to these forces as the microenvironment, to contrast itwith the more general term macro environment They consist of those forcesclose to a company that affect its ability to serve its customers and make aprofit A change in any of the forces normally requires a company to re-assessthe marketplace.

[Source: Competitive Advantage, Michael Porter, 1985]

Porter's Five Forces include three forces from 'horizontal' competition: threat

of substitute products, the threat of established rivals, and the threat of newentrants; and two forces from 'vertical' competition: the bargaining power ofsuppliers, bargaining power of customers

Degree of rivalry

For most industries, this is the major determinant of the competitiveness ofthe industry Sometimes rivals compete aggressively and sometimes rivalscompete in non-price dimensions such as innovation, marketing, etc.

Number of main competitors increases rivalry because more firms must compete for the same customers and resources

Slow of industry growth: causes firms to fight for market share

High fixed costs result in economy of scale effect that increases rivalry.When total costs are mainly fixed costs, the firm must produce near capacity

to attain the lowest unit costs Since the firm must sell this large quantity ofproduct, high level of production lead to a fight for market share and results inincreased rivalry

Exit barriers place a high cost on abandoning the product It makes firms must remain in an industry even if the venture is not profitable

Diversity of competitors with different cultures, histories, and philosophiesmake an industry unstable There is greater possibility for mavericks and formisjudging rival‘s moves

Informational complexity and asymmetry

Level of advertising expense

The threat of the entry of new competitors

It is not only incumbent rivals that pose a threat to firms in an industry; thepossibility that new firms may enter the industry also affects competition Intheory, any firm should be able to enter and exit a market and if free entry andexit exists, then profits always should be nominal In reality, however,industries possess characteristics that protect the high profit levels of firms inthe market and inhibit additional rivals from entering the market These are

barriers to entry Barriers to entry are unique industry characteristics thatdefine the industry Barriers reduce the rate of entry of new firms, thusmaintaining a level of profits for those already in the industry From astrategic perspective, barriers can be created or exploited to enhance a firm‘scompetitive

Profitable markets that yield high returns will draw firms The result is manynew entrants, which will effectively decrease profitability Unless the entry ofnew firms can be blocked by incumbents, the profit rate will fall towards acompetitive level (perfect competition)

Barrier to entry comes from several sources:

The existence of barriers to entry (patents, rights, etc.)

economies of product differences

brand equity

switching costs or sunk costs

capital requirements

access to distribution

absolute cost advantages

learning curve advantages

expected retaliation by incumbents

government policies

The threat of substitute products

Substitute products refer to products in other industries To the economist, athreat of substitutes exists when a product‘s demand is affected by the pricechange of a substitute product

A product‘s price elasticity is affected by substitute products – as moresubstitutes become available, the demand becomes more elastic sincecustomers have more alternatives A close substitute product constrains theability of firms in an industry to raise prices.

The existence of close substitute products increases the propensity ofcustomers to switch to alternatives in response to price increases (highelasticity of demand)

buyer propensity to substitute

relative price performance of substitutes

buyer switching costs

perceived level of product differentiation

The bargaining power of suppliers

Also described as market of inputs, suppliers of raw materials, components,and services (such as expertise) to the firm can be a source of power over thefirm Suppliers may refuse to work with the firm, or e.g charge excessivelyhigh prices for unique resources

supplier switching costs relative to firm switching costs

degree of differentiation of inputs

presence of substitute inputs

supplier concentration to firm concentration ratio

threat of forward integration by suppliers relative to the threat of backward integration by firms

cost of inputs relative to selling price of the product

The bargaining power of customers

The power of buyers is the impact that customers have on a producingindustry In general, when buyer power is strong, the relationship to theproducing industry is near to what an economist terms a monopsony – amarket in which there are many suppliers and one buyer Under such marketconditions, the buyer sets the price In reality few pure monopsonies exist, butfrequently there is some asymmetry between a producing industry and buyers.For example, buyers are powerful if

+ Buyers are concentrated - there are a few buyers with significant market share

+ Buyers purchase a significant proportion of output – distribution of

purchases or if the product is standardized

 Internal Analysis

In his 1985 book Competitive Advantage, Michael Porter introduced a genericvalue chain model that comprises a sequence of activities found to becommon to a wide range of firms Porter identified primary and supportactivities as followed:

Primary activities include: Inbound logistics – Operations – OutboundLogistics – Marketing & Sales – Service

Support Activities: Firm Infrastructure – HR Management – TechnologyDevelopment – Procurement

Value chain mode

The goal of these activities is to offer the customer a level of value that exceeds the cost of the activities thereby resulting a profit margin.

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

Operations: the processes of transforming inputs into finished products and services

Outbound Logistics: the warehousing and distribution of finished goods

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

Human resource management: employee recruiting, hiring, training,

development, and compensation

Technology development: technology to support the value-creating activities

Procurement: purchasing inputs such as materials, supplies

Core Competencies

A core competency is something that a firm can do well and that meets the following three conditions specified by Hamel and Prahalad (1990):

1. It provides customer benefits

2. It is hard for competitors to imitate

3. It can be leveraged widely to many products and markets

Honda's expertise in engines is an example Honda was able to exploit thiscore competency to develop a variety of quality products from lawn mowersand snow blowers to trucks and automobiles To take an example from theautomotive industry , it has been claimed that Volvo‘s core competency issafety This however is perhaps the end result of their competency in terms ofcustomer benefit Their core competency might be more about their ability tosource and design high protection components, or to research and respond tomarket demands concerning safety

A core competency can take various forms, including technical/subject matterknow how, a reliable process, and/or close relationships with customers andsuppliers It may also include product development or culture such asemployee dedication Modern business theories suggest that most activitiesthat are not part of a company's core competency should be outsourced

If a core competency yields a long term advantage to the company, it is said

to be a sustainable competitive advantage

Ever since Prahalad and Hamel introduced the term in the 1990‘s manyresearchers have tried to highlight and further illuminate the meaning of corecompetency According to D Leonard-Barton (1992), "Capabilities areconsidered core if they differentiate a company strategically." On the otherhand Galunic and Rodan (1998) argue that "a core competency differentiatesnot only between firms but also inside a firm it differentiates amongst severalcompetencies In other words, a core competency guides a firm recombiningits competencies in response to demands from the environment."

 Summary (S.W.O.T model)

Definition

SWOT Analysis, is a strategic planning tool used to evaluate the Strengths,

Weaknesses, Opportunities, and Threats involved in a project or in a business

venture It involves specifying the objective of the business venture or projectand identifying the internal and external factors that are favorable andunfavorable to achieving that objective The technique is credited to AlbertHumphrey , who led a research project at Stanford University in the 1960s and1970s using data from Fortune 500 companies

Strengths: attributes of the organization that are helpful to achieving the

The aim of any SWOT analysis is to identify the key internal and externalfactors that are important to achieving the objective SWOT analysis groupskey pieces of information into two main categories:

Internal factors – The strengths and weaknesses internal to the organization

External factors – The opportunities and threats presented by the external environment

The internal factors may be viewed as strengths or weaknesses dependingupon their impact on the organization's objectives What may representstrengths with respect to one objective may be weaknesses for anotherobjective The factors may include all of the 4P's; as well as personnel,finance, manufacturing capabilities, and so on The external factors mayinclude macroeconomic matters, technological change, legislation, and socio-cultural changes, as well as changes in the marketplace or competitiveposition The results are often presented in the form of a matrix

SWOT analysis is just one method of categorization and has its ownweaknesses For example, it may tend to persuade companies to compile listsrather than think about what is actually important in achieving objectives Italso presents the resulting lists uncritically and without clear prioritization sothat, for example, weak opportunities may appear to balance strong threats

It is prudent not to eliminate too quickly any candidate SWOT entry Theimportance of individual SWOTs will be revealed by the value of thestrategies it generates A SWOT item that produces valuable strategies isimportant A SWOT item that generates no strategies is not important

A firm should not necessarily pursue the more lucrative opportunities Rather,

it may have a better chance at developing a competitive advantage byidentifying a fit between the firm‘s strengths and upcoming opportunities Insome cases, the firm can overcome a weakness in order to prepare itself topursue a compelling opportunity

To develop strategies that take into account the SWOT profile, a matrix ofthese factors can be constructed The SWOT matrix is shown as below:

S – O Strategies: pursue opportunities that are good fit to company‘sstrength

W – O Strategies: overcome weakness to pursue opportunities

S – T Strategies: identify ways that companies could use their strength to reduce its vulnerability to external threats

W – T Strategies: establish a defensive plan to prevent firm‘s weaknessesfrom making high susceptible to external threats

The Internal Factor Evaluation (IFE) Matrix:

The IFE Matrix is a strategy-formulation tool that can be utilized to evaluatehow the company is performing in regard to identified internal strengths andweaknesses of a company The matrix can be created using the following fivesteps:

1. Make a list of critical success factors: divided between strengths and weaknesses

2. Assign a weight to each critical success factor The value of theseweights should be between 0 (not important at all) and to 1 (the mostinfluential critical success factor) The total value of the weights shouldequal, but not exceed 1

3. Assign a rating to each one of the critical success factors The rating

should be between 1 (minor) and 4 (major) Thus the scores are

company-specific and the weights are industry-specific.

4. Multiply each factor weight with its rating this determines a weighted score for each critical success factor

5. Sum the weighted score for each factor to find total weighted score for the company

The External Factor Evaluation (EFE) Matrix:

1. Make a list of external factors: divided between opportunities and threats

2. Assign a weight to each critical success factors The value of theseweights should be between 0 (not important at all) and to 1 (the mostinfluential critical success factor) The total value of the weights shouldequal, but not exceed 1

3. Assign a rating to each one of the critical success factors The ratingshould be between 1 (the response is poor) and 4 (the response is

superior) Thus the scores are company-specific and the weights are

This matrix helps to create four types of strategies: SO Strategies, WOStrategies, ST Strategies, and WT Strategies There are five steps indeveloping a TOWS Matrix:

1. List a company‘s key opportunities, threats, strengths, and weaknesses

2. By matching strengths with opportunities list these SO strategies

3. By matching weaknesses with opportunities list these WO strategies

4. By matching strengths with threats list these as ST strategies

5. By matching weaknesses with threats list these as WT strategies

The Strategic Position and Action Evaluation (SPACE) Matrix:

The SPACE Matrix is yet another management tool used to determine whatsort of strategy a company should undertake The matrix is broken down intofour quadrants: aggressive, conservative, defensive, and competitive The X-axis is based on two internal dimensions financial strength (FS) andcompetitive advantage (CA) The Y-axis is based on two external dimensionsenvironmental stability (ES) and industry strength (IS) The SPACE Matrix isvery dependent on the use of factual information There are six steps increating a SPACE Matrix

1. Choose a set of variables to be used to gauge financial strength (FS),competitive advantage (CA), environmental stability (ES), and industrystrength (IS)

2. Give a score ranging from +1 (Terrible) to +6 (Great) to each of thevariable that make up FS and IS Give a score ranging from –1 (Great)

to –6 (Terrible) to each of the variables that make up ES and CA

3. Find the average scores for FS, ES, CA, and IS.

4. Plot these values for each dimension on the SPACE Matrix on the appropriate axis

5. Add the average score for FS and ES to find the X value Add theaverage score for CA and IS to find the Y value You will be able to plotone single point on the SPACE Matrix

6. Draw a line from the center of the SPACE Matrix to your point This line reveals the type of strategies the company should engage in

The Quantitative Strategic Planning Matrix (QSPM):

The format of the QSPM consists of the listing on the left column the criticalsuccess factors These factors are divided into opportunities, threats, strengths,and weaknesses This information is taken directly from the EFE and IFEMatrices In the next column the weights used for each factor in the EFE andIFE Matrices are listed The top row of the QSPM is made up of strategiesderived from the TOWS Matrix, SPACE Matrix, IE Matrix, and GrandStrategy Matrix

2.4 Evaluating and choosing a value added strategy

2.3.2 Evaluation Principles

Basic principles to determine a value-added strategy are:

- A value-added strategy should associate with the structure of the whole industry as well as of the firm itself

- A value-added strategy could change firm‘s situation and put it into a uniqueposition It means that companies provide a special mixture of value to aspecific group of representative customers A firm cannot serve all kind of

customers This strategy requires a selection of customers, that: What type of value company will serve and for whom?

Besides, a firm should consider the advantages and disadvantages of different strategies for final decision

2.3.3 Requirement

The process of choosing value-added strategies includes the following

requirements:

- A long-term effective business process

- A continuous and successive strategy

- A comprehensive and transparent strategy

- A unique and feasible strategy

- Important goals should be put in priority

2.3.4 The main factor for choosing business plan

- The strength of the whole industry and of the firm

- The goal, the attitude and skill level of the firm‘s board and

management

- Financial capability

- Independent level in business

- Reaction from related business subjects

- The timing of strategy deployment

2.3.5 Choosing process

There are 4 steps as following:

Step 1: Identify firm‘s current strategy

The purpose is to identify firm‘s current position and clarify the strategy that firm‘s pursuing, from that propose suitable alternative strategy

Step 2: Analyze investment lists – to choose suitable model and clarify marketshare, competitive advantage, and growth rate

Step 3: Determine strategy – based on the firm‘s objectives and goals

Step 4: Evaluate the chosen strategy

In this step, these questions should be considered

+ Is strategy suitable with business environment?

+ Is strategy suitable with the point of view and style of management and with deploying method?

+ Is strategy suitable with business product?

+ Is strategy deployed as proposed?

+ Is there any risk when implementing the strategy?

+ Is there any substitute?

+ Is there a more feasible alternative?

2.5 The strategy hierarchy

In most (large) corporations there are several levels of strategy Strategicmanagement is the highest in the sense that it is the broadest, applying to allparts of the firm It gives direction to corporate values, corporate culture,corporate goals, and corporate missions Under this broad corporate strategythere are often functional or business unit strategies

Corporate strategy refers to the overarching strategy of the diversified firm.

Such corporate strategy answers the questions of "in which businesses should

we compete?" and "how does being in one business add to the competitiveadvantage of another portfolio firm, as well as the competitive advantage ofthe corporation as a whole?"

Strategic business unit is a semi-autonomous unit within an organization It

is usually responsible for its own budgeting, new product decisions, hiringdecisions, and price setting An SBU is treated as an internal profit centre bycorporate headquarters Each SBU is responsible for developing its businessstrategies, strategies that must be in tune with broader corporate strategies

Operational strategy (or functional strategy) is the ―lowest‖ level of

strategy It is very narrow in focus and deals with day-to-day operationalactivities such as scheduling criteria It must operate within a budget but is not

at liberty to adjust or create that budget Functional strategies includemarketing strategies , new product development strategies, human resourcestrategies, financial strategies, legal strategies, supply-chain strategies, andinformation technology management strategies The emphasis is on short andmedium term plans and is limited to the domain of each department‘sfunctional responsibility Each functional department attempts to do its part inmeeting overall corporate objectives, and hence to some extent their strategiesare derived from broader corporate strategies

2.6 Types of Corporate Business Strategy

 Cost Leadership Strategy

This strategy emphasizes efficiency By producing high volumes ofstandardized products, the firm hopes to take advantage of economies of scaleand experience curve effects The product is often a basic no-frills productthat is produced at a relatively low cost and made available to a very largecustomer base Maintaining this strategy requires a continuous search for costreductions in all aspects of the business The associated distribution strategy is

to obtain the most extensive distribution possible Promotional strategy ofteninvolves trying to make a virtue out of low cost product features.

To be successful, this strategy usually requires a considerable market shareadvantage or preferential access to raw materials, components, labor, or someother important input Without one or more of these advantages, the strategycan easily be mimicked by competitors Successful implementation alsobenefits from:

-process engineering skills

products designed for ease of manufacture

sustained access to inexpensive capital

close supervision of labor tight cost

To maintain this strategy the firm should have:

-strong product engineering skills

strong creativity skills

good cooperation with distribution channels

strong marketing skills

incentives based on subjective measures

be able to communicate the importance of the differentiating

product characteristics

stress continuous improvement and innovation

attract highly skilled, creative people

 Segmentation Strategy

In this strategy the firm concentrates on a select few targetmarkets It is also called a focus strategy or niche strategy It ishoped that by focusing your marketing efforts on one or twonarrow market segments and tailoring your marketing mix tothese specialized markets, you can better meet the needs of thattarget market The firm typically looks to gain a competitiveadvantage through effectiveness rather than efficiency It ismost suitable for relatively small firms but can be used by anycompany As a focus strategy it may be used to select targetsthat are less vulnerable to substitutes or where a competition isweakest to earn above-average return on investments

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