Improving the competitive abilities of the bank through implementing the new product logistics financing techcombank case study

Competitive advantage creates favorable conditions for enterprise to maintain its sustainable success Strategic management- The Statistics Publishing House, 2007... Basically, competitiv

master of business administration thesis

Hanoi - 2007

vietnam national university, HANOI

Major: Business Administration

Master of business administration thesis

Supervisors: DR Ta ngoc Cau

Hanoi - 2007

CHAPTER 1: LITERATURE REVIEW

1.1 Competitiveness, competitive advantages and the importance of competitive

advantages.

1.1.1 Competitiveness and competitive advantages

1.1.1.1 Competitiveness

1.1.1.2 Competitive advantage1.1.2 The importance of competitive advantage

1.1.3 Specific expression of competitive advantage

1.1.3.1 Outweigh affectivity1.1.3.2 High quality

1.1.3.3 Continual improvement1.1.3.4 The ability to meet the demand of customers timely and quickly

1.2 Nature and process to realize sustainable competitive advantage

1.2.1 Source and process to recognize sustainable competitive advantage

1.2.2 Sources, capability, key ability, exceeded capability and sustainable

1.2.2.5 Competitive advantage and sustainable competitive advantage

1.2.3 Criteria of sustainable competitive advantages

1.2.3.1 Preciousness

1.2.3.2 Scarcity

1.2.3.3 The difficulty of imitation

1.2.3.4 A reasonable distance

1.2.3.5 Coincidence with factors of success

1.3 Functional field- The foundation to create sustainable competitive advantages

1.3.6.3 Training and Education

1.3.6.4 Salary and good-treatment- policy

1.3.6.5 Working relations

1.3.8.1 Building trademark

1.3.8.2 Building culture of enterprises

1.4.1 New service and product implementing

1.4.1.1 The new service and product definition

1.4.1.2 Why do the firms design and offer new service and product

1.4.1.3 The development process of new service and product

1.4.1.4 Mass customization

CHAPTER 2: ANALYZING THE REAL SITUATION OF TECHCOMBANK

2.1 Techcombank overview

2.1.1 Techcombank history

2.1.2 The Techcombank mission statement and vision

2.2 Techcombank internal analysis

2.3 Competitive environment analysis

2.3.1 Macro competitive environment

2.3.2 Industrial competitive environment

2.3.3 Identifying the competitive advantage of Techcombank throughcomparison with the same ones in banking field

2.3.4 SWOT analyzing

CHAPTER 3: PRODUCT DESCRIPTION

3.1 The features of Logistics Financing product

3.1.1 The conception of Logistics financing of Techcombank

3.1.2 The structure of Logistics financing of Techcombank

3.1.3 The value Logistics financing creating for its clients and Techcombank3.1.3.1 The value Logistics financing creating for Techcombank

3.1.3.2 The value Logistics financing creating for its clients

3.1.3.3 Conditions to use the service

3.1.3.4 Procedure of purchasing the service

3.1.3.5 Logistics partners of Techcombank

CHAPTER 4: SOLUTIONS RECOMMENDATIONS AND CONCLUSION

4.1 The solutions

4.1.1 Providing unique products and its structures

4.1.1.1 How to be a unique product?

4.1.1.2 Solutions to structure of the bank

4.1.1.3 Solutions to system development

4.1.1.4 Solutions to structure of procedures

4.1.1.5 Solutions to targeted customers and marketing4.1.1.6 Solutions on human resources

4.1.1.7 Solutions to technology

4.1.1.8 Solutions to finance

4.1.1.9 Solutions to risk management

a Credit risks management

b Market risks management

c Exploiting risks management

4.2 Recommendations

4.2.1 Recommendations for Techcombank

4.2.2 Recommendations for the Government

4.2.3 Conclusions

Key Words

APPENDIX2 -LOGISTICS FINANCING

BUZZ-WORDS-1- In- transit stocks

2- In- transit assembly

3- Inventory control

4- Inventory management

5- Invoicing

6- Issuing delivery invoice

7- Just in time inventory

8- Link customer information system systems for electronic management of supply chain process

9- Logistics management services

15- Multi- modal management systems

16- Multi- package shipment processing

34- Value added services

35- Warehouse and inventory

36- Warehouse localization

37- Vendor compliance

List of Tables

Tables 2-1: Visible sources……….15

Table 2-2: Invisible sources………16

Table 2-3 : Criteria to define sustainable competitive advantages 21

Table 2-4: The combination among sustainable criteria……….22

Table 2-5: The structure of culture of enterprises………34

List of Figures Figure 2-1: New service or product developnt proces………37

APPENDIX 1.-THE LOGISTICS FINANCING SERVICES QUESTIONNAIRE

APPENDIX2 -LOGISTICS FINANCING

BUZZ-WORDS-APPENDIX 3 -SUM OF THE QUESTIONNAIRE

APPENDIX 4- THE STRUCTURE OF TECHCOMBANK

1 Necessity of the thesis

The thesis comes to take full advantages of the event Vietnam joined theWTO WTO has been creating a common market among its members, speeding upcommercial exchange and improving manufacturing WTO really creates a playingfield for all countries including Vietnam The open of the big market meansVietnamese goods can be welcome in member markets Similarly, Vietnambecomes potential market for many importers, which brings about the busytransaction activities among member countries Through the penetration, Vietnamhas chances to learn experience and practice from other partners Of which,logistics seems to be an useful service used by foreign enterprises for such a longtime The logistics has helped them to gain competitive advantages over otherrivals Vietnam has no way but to do in line with common practice when joiningWTO This means Vietnamese enterprises should be offered with such a new way

of trading oversea By this way can Vietnam catch up with international practice ofdoing business as well as improve trademark of goods and reputation ofVietnamese enterprises

The thesis is in line with the directions to find out new ways to diversify andcreate competitiveness of Techcombank against other banks for its furtherdevelopment in the future The thesis offers theoretic condition to implement a newservice in addition to traditional ones such as deposit accounts, savings, loan,payments, credit and debit cards, investment, guarantees and safe custody facilities.Further more, logistics financing is an unique and completely new service whichcan help Techcombank take priority over other rivals in the race to control thepotential market The thesis also complies with the objective of Techcombank is tostrive its best for the benefit of customers and partly contribute to the development

of foreign trading

Thesis comes timely to meet the demands of many clients who are indifficulties Under the signed agreement among WTO‟s members Vietnam have

many chances to access to the common market without being taxed on some items,which creates favorable condition for Vietnam‟s products to penetrate into foreignmarkets, especially into such prosperous but highly demanded ones as EU or USA,etc However, it isn‟t easy to make money in these hard-to-deal- with markets.Doing business in the global market means all enterprises need to master “rules ofthe game” and has enough conditions to be successful Meanwhile, most ofVietnamese enterprises are in shortage of capital, which makes them have fewchances to access to the loans from banks; out of date technology; weakness inmanaging; inexperience of trading abroad and having no tools to minimize risksfloating up during oversea purchases Further more, most Vietnamese enterpriseshave difficulties in transaction due to lack of proper understanding and knowledge,which often leads to the unexpected lawsuits and loss in trading affairs To makethe matter worse, loan – given procedures of the banks are very troublesome, whichmakes enterprises confused and prolong time for a purchasing affair It is timeVietnamese enterprises needed an agent which provides a full- service to help themwith import-export activities.

Another reason that makes the thesis necessary is to change the thought ofVietnamese‟s importers and exporters I‟d like to mention the disadvantages of theold method of export- import which is used for such a long time Exporters are used

to F O B (Free on Board) method which can be illustrated by the following process:after receiving order enterprises focus on manufacturing, then they ask a bank toopen Letter of Credit ( L/C) After finishing with bank documents, they transportgoods to an assigned port, load on board then waiting till goods are delivered tobuyers Buyers only pay the exporters via above bank after checking up for thequality, quantity and model The process seems to be very easy in theory but noteffective in practice because of some following reasons:

- It is a time- consuming method because it often takes from 20 to 40 days to finish

a trade (including time for checking up goods ), which leads to the shortage of capital.

- There are so many risks during shipping and checking up such as loss, damage, fire or lack of hygienic condition of the goods, etc

- Exporters and importers may be in trouble with international Laws in delivery and clearance.

- There is high risk of information

- Adding price of the products up because of the expenditure for freight,insurance, employment and hygienic checking, this decreases the competitiveness

of the products and enterprises

Similarly, C I F method (cost, insurance and freight) used by importers alsohas the same problems which are mentioned above

In the current context, no companies can cover everything in trade affairs Toraise their competitiveness, they must outsource their weak points and focus ontheir strength This is an indispensable tendency of specialization Exporters-importers should change their mindset by having a new and effective way of doingbusiness otherwise they may be left behind or fail in the “race” with foreign rivals(According to statistics, a sum of around $3.4 and $3.9 billion USD spent intransporting, insurance and checking run into the wallet of foreign enterprises everyyear instead of that of Vietnamese ones)

2 Objective of the thesis

In the first part I have mentioned the necessity of the thesis This sectionwill clarify the objective or the meaning of the thesis The most important meaning

of the thesis is to define the long- term strategies of Techcombank The three mostimportant strategies can be considered respectively as below

First of all, Techcombank focuses on big customers in import-export field

On what bases that Techcombank decided to give out such strategy? Just have alook at the past of Techcombank At the beginning, Techcombank was a small bankand its customers were only small and medium enterprises ( SMEs) It was thelimited capital that prevented it from targeting at big clients Nowadays,Techcombank has grown to become one of the largest and fastest growing full

service joint-stock banks in Vietnam with the registered capital of VND 1,500billion, total assets of nearly VND 15,000 billion Once its financial power reaches

to an extent , Techcombank finds it timely to focus on bigger and more potentialclients Besides, we can not take into consideration objective reality that suchtraditional and small enterprises as Hoa Phat and Nam Vang, etc have developedinto big corporation They are now still using services provided by theTechcombank and of course they will still be in the limelight of the bank.Furthermore, it is big enterprises that use logistics service more frequentlycompared to small and medium ones That is because operation of big enterprisesoften spreads widely both literally and figuratively and closely attaches to logisticsservice They not only need a lot of money from the bank, usually in long term ormedium term loans, but also need Techcombank to help with processing,packaging, transporting or providing market information and legal consulting, etc.And such subsidiary services will be a channel to lure money for the bank Forshort, the more big enterprises use the services the more money Techcombank gets

It is really a bilateral benefit relationship Additionally, the risks ( bankruptcy,overdue loans, etc ) sprouting during the time trading with big customers aresomewhat fewer than that with small enterprises

The second long-term strategy given out by Techcombank is to expand itscredit services As you know, Techcombank offers a variety of credit servicesincluding savings, deposit accounts, savings, loan, payments, credit and debit cards,investment, guarantees and safe custody facilities, etc and the total amount ofexchanged money is considerable Besides such traditional services, Teccombanktargets at new services such as providing full-service for enterprises especiallySMEs or promoting non-credit service,etc Logistics comes to meet the demand

The third but most important strategy of Techcombank is to improve itscompetitiveness against other banks As you see, in the current context, there are somany banks operating in this field and offering the same services as Techcombank.Not mention the fact that some of them are really giant and experienced in terms of

size, capital and time of operation Unless Techcombank finds new methods, it mayhave difficulties in competing with such banks Morover, Logistics is a new butpotential market in the context of development of foreign trade It can be saidwithout exaggeration that logistics is the unique service given out by Techcombankthat appears in Vietnam for the first time The service strongly supports enterprisesfrom the beginning to the end of a trade transaction The bank helps its customerswith money, logistics, custom document, processing, packaging, marketinformation, legal document, etc which are often considered burden of theenterprises By such new service can Techcombank make itself different from otherbanks This is also a favorable condition to help Techcombank outruns other rivals

in the race to master the market

Below follow one information-need for which experts were consulted andthe methodology is discussed The methodology execution means the choice of theresponding consultant and the formulation of the question

At first, the time demanding investigation was made by us, gathering thecompetitors' logistics service offerings on the Internet It is easy to observe that

Techcombank offers a very new service that no competitor can compare becauseother competitors are just the normal logistic provider They just do the logisticservice then get money from the customer hire them, when their task is completed,then the service is stop For Techcombank, we supply the financial logisticsservices – an outstanding and professional one However, we still pay attention onbig and long-lasting logistic provider in the market that share our same cake Inorder to sort out the big main competitors, an expert was asked to pick out the mostimportant activities and to explain them As this is a question of a logisticscharacter, the best man to answer a question like this, must be a professor inLogistics, which is why the choice fell on one experienced logistics professors – MrDuong Duc Tang, the Director of Vinafco Logistic.

The consultant we used, Professor Vu Dinh Quang, is of good repute within thelogistics field The answer would naturally not be the same if put to another expert, but

if to an at lest as experienced professor the answers would likely be close Thedifference in answer depends on, that it is a qualitative question, which is often totallydependent on the perception of the judged environment by the respondent

5 Descriptive survey

The third research method we will use in our thesis, to be able to collectprimary data is a descriptive survey A descriptive survey is concerned primarywith addressing the particular characteristics of a specific population of subjects,either at a fixed point in time or at varying times for comparative purposes Ofgreat interest is the underlying target population that the surveyed samples aresupposed to represent

When the population is small, it is often practical to study all units, a called total survey (Lekvall & Wahlbin, 1993 p 144) The population we want tostudy only consists of (Number) units and we will therefore make a total survey

so-A population is usually defined with help from a register or a frame of theunits that the population consists of It is then important that there are no big

differences between the frame and the population that is going to be studied Whenall units in a register that are not part of the target population are cut out, a frameselection remains (Lekvall & Wahlbin, 1993 p 154) The frame selection in oursurvey is Techcombanks‟s branches in the cities and provinces of Viet Nam

However, when we do the survey, there are three broad sources of errors,sample error may likely to arise The survey we will undertake is a total survey ofall Techcombank‟s branches Consequently, the issues of the surveyed samples andsample error (population validity) will not affect the outcome of the survey Thesecond source of error, frame error refers to biases of the result that depend on amismatch between the frame of sample and the target population A frame forexample arises when the telephone directory is used as a register population Theproblem with a telephone directory as a register population is that all people do nothave a phone, some people have unlisted numbers and others have just moved in.Since our survey is directed at Techcombank‟s branches, there certainly exists anupdated directory of offices that should be included The risk of a frame error isthus extremely small

The third source of error, dropout, is more relevant in our survey Dropoutmeans a failure in getting all data that is needed for the survey Some data fall off inthe data collection process The most significant measure to restrict the dropout is

to have a clear and not too expensive questionnaire Long and complicatedquestionnaires are in general devastating for the willingness to answer Othermeasures to secure a high participation, are to contact the respondents in advanceand inform them that a questionnaire is being sent out, give respondents some kind

of reward, or remind them if they have not returned the questionnaires

It is important that the person that should answer the questionnaire reallydoes this The questionnaires are sent to the managers that have most knowledge ofthe activities taking place in each cities, regions To control this, we have questionsabout name and title of the respondents in the questionnaire

6 Contribution of the thesis

It can be said without exaggeration that the thesis makes great contribution

on different levels from the State to Techcombank and its customers

For the State, logistics links directly to its budget via tax collecting Asmentioned above, Logistics makes the way for the development of enterprises Thanks

to the logistics financing of Techcombank, enterprises are no longer worried aboutcapital, shipping, storage or related information, etc All they need to do is to focus onmanufacturing Consequently, the more enterprises develop, the more money theyearn Similarly, the more money they earn, the more they contribute to the State budgetthrough tax handing in In my opinion, logistics financing should be warmly well-come for its active contribution to the national economy

For customers, the most important contribution that the thesis makes is tochange their old mind-set of doing business oversea because of the indispensableadvantages First of all, it provides them with a new service which help them savetime and money, feel secure about their goods in stocks, limit possible risks as well

as shorten time and money circulation Secondly, the thesis will also help them getused to a professional way of importing-exporting which is now used by plenty offoreign partners So that they won‟t get into trouble with unexpected lawsuitsclaimed by foreign companies and have more chances to improve their trade marks

as well as reputation As you know, the trade- mark polishing plays a veryimportant role in doing business oversea because of the fact that foreign marketsonly accept products with proved trade- marks Techcombank with its servicecommits strongest support to maintain goods quality of the clients

For Techcombank, the thesis makes great contribution to raise its marketshare by expanding number of customers (especially ones in export-import field),raise net profit (via offering numerous services), and better control its money ingoods-deposited loans The most importantly, the thesis will raise itscompetitiveness against other banks as the first bank to deliver such initiative It

can be considered a meaningful way-out in the current context that finance market

is nearly saturated by numerous banks in operation

7 Thesis structure

The thesis is divided in 5 main chapters namely Introduction, LiteratureReview, The Research Methodology and Data Collection, Analyzing the realsituation of Techcombank and Strategic Solution recommendations and Conclusion(Besides there are two supporting parts namely Reference and Appendix at the end

of the thesis) Each chapter has its own function and relative independence fromother ones However, the older of the chapters are not by accident but symbolizes

an internal link among them Inside each chapter, there also have sub-parts which is

to supplement for the main topic of the chapter

CHAPTER 1: LITERATURE REVIEW 1.1 Competitiveness, competitive advantages and the importance of competitive advantages

1.1.1 Competitiveness and competitive advantages

1.1.1.1 Competitiveness

Competitiveness (defined by the Vietnamese dictionary which waspublished by the Culture and Information publishing House in 1999) is thecampaign among individuals and collectives which have the same function in order

to gain the success

In competitive environment, there is no bloody fighting among rivals asusually seen in army They just compete against each others to control potentialmarkets and lure customers, It‟s customers who decide which “win” or “fail” insuch combats by their decisions to use services and products

The winner is someone who meets demands of customers In the currentcontext of international economic integration and globalization, the confrontation incompetitiveness has been replaced with peace and cooperation for mutual benefits

A series of strategic cooperation between SONY_ERICSSON and Dow Chemical

&United Technologies come as an example of the trend

Via cooperation, two or more companies can share risks, expenses as well asbenefits relating to developing new chances of doing business Cooperation is nowbecoming a common trend which helps enterprises improve their market ability andexpand their market shares as well

1.1.1.2 Competitive advantage

Competitive advantage- in broad meaning- is anything that enable anenterprise to outweigh over its rivals Competitive advantage creates favorable

conditions for enterprise to maintain its sustainable success (Strategic

management- The Statistics Publishing House, 2007).

According to teaching materials of economics, an enterprise is consideredcompetitive when its benefit is higher than the average level of the market andmuch higher than that of its rivals Basically, competitive advantage includesadvantage of expense and of difference.

- Advantage of expense means an enterprise can supply the same kind ofproducts or services given by its rivals at lower expenses, which will help theenterprise offer lower price and gain more profits

- Advantage of difference means only enterprise can provide such products orservices In case customers are not sensitive, enterprise can speed up selling price

of its products or services and get more profits

1.1.2 The importance of competitive advantage

In the current context of integration and development, each enterprise has itsown way of existence and development However, the only way to reach such goal

is to set up strategies and maintain competitive advantages A common strategy willhelp enterprise maximize its strong points as well as self-defense against badeffects of 5 market forces namely strength of suppliers, threat to be replaced,barrier of joining, strength of customers and competitiveness level

The position of enterprises are preceded by the attractiveness of the industry

in making profits Even such industry has an average profit making ability,enterprises can get very high profits if they have optimal position

Each company finds its place in the industry by taking advantage of any ownstrong points Michael Porter said that advantage of any enterprises comes from 2factors: expense advantage and the isolation of products By taking such advantages

do companies create competitive advantages via pursuing 3 common strategies:leading in saving expenses, isolating products and centralizing as well .Competitive advantage enables many enterprises to gain “market power” so thatthey can succeed in business and competition It is important to understandthoroughly nature and sources which give birth to competitive advantage in order toset up and maintain it sustain ably

1.1.3 Specific expression of competitive advantage

As mentioned above, there are 4 factors creating competitive advantagenamely outweigh affectivity, different quality, continual improvement and thetimely satisfaction of demand of customers Whichever industry does the company

do, whichever products/services does the company provide the company must meetthe 4 factors It is necessary to note that each of the four factors has close relationswith the others

1.1.3.1 Outweigh affectivity

Company is a tool to turn input into output Input is basic factors ofmanufacturing such as labor, infrastructure, capital, management and technique.Output includes goods, services made by the company The simplest formula ofefficiency is that Efficiency= Output/Input The more effectively a company doesbusiness, the less output it needs

The most important factor bringing about the success of any companies is laborproductivity which is valued via the number of products made by each employee Ifowning high labor productivity, the company will cut down on production costmaximally, which partly contributes to build competitive advantage

1.1.3.2 High quality

Quality products mean ones with confidence Let take Toyota Corp, The Gapand the customer service of City Bank as examples of providing quality productsand services Quality may double the competitive advantage of enterprises When acompany supplies a good quality product it succeeds in winning the confidence ofcustomers If it maintains such value, it can change price of such item in a way thatgives it more benefits

The effect of high quality on competitive advantage comes from highaffectivity and lower expense Shorter time means employees must work withhigher efficiency to create higher productivity As a result a company not onlylowers expense but also raise selling price

1.1.3.3 Continual improvement

Improvement can be understood as anything new and unique that companyapplies to make goods Improvement includes the ability of taking advance againstother rivals in terms of design, manufacturing process, and management system anddevelopment strategies of a company

The improvement is an important factor to create competitive advantage Inthe future, the competitiveness can be affected by improvements Although not allimprovements are successful, otherwise, they will become strength which helpsenterprise get competitive advantage That it because they make enterprise uniqueand different from its rivals , which also speeds price of its products or services upand lowers production expense

Along with affectivity and quality, we will have a more detail look onimprovement Let take the development of Xerox photocopy machine, Intel microprocessor, Hewlett Packard laser printer, Nike sport shoes, Walkman as examples

of the importance of improvement It is unique features in each product that makesmoney for such companies When their rivals could imitate such improvements,companies had strengthened their places in the market

1.1.3.4 The ability to meet the demand of customers timely and quickly

To achieve such target, a company has to do better than other companies ofthe same field and satisfies customers If customers highly value such products ofthe company, it will gain competitive advantage via its difference from other rivals.Quality improvement of products means the ability to understand the taste ofcustomers then create a product which has features that no other products do Totell in other ways, ensuring quality and improvement means enabling to meet thedemand of customers

A factor to satisfy customers is to define a certain product that meets thedemand of each individual or collective For example, a series of alcoholic drinksand beers in recent years are efforts made by beverage companies to meet thedemand of customers

Another factor that enterprise should pay attention to is to define the mostsuitable time to introduce its products That is because a suitable time will helpenterprise attract customers‟ attention in the most effective way.

Along with quality and time, customers also pay attention to design, servicequality and after –sale service All such factors will increase competitiveness, meetthe demand of customers So that they strengthen the position of company in themarket as well as raise price of products

In general, outweighing affectivity, higher quality, the ability to satisfycustomers and continual improvement are very important in creating competitiveadvantage which enables the company lower expenses or raise price of products

1.2 Nature and process to realize sustainable competitive advantage

1.2.1 Source and process to recognize sustainable competitive advantage

An enterprise only competes successfully in the market when it outweighsover its rivals Such strong points of the company come from the difference ofproducts, the difference of its image and services, which is competitive advantage

of enterprise Competitive advantage can either last for long or short time As aresult, to exploit short time advantages and maintain long lasting ones, eachenterprise must analyses competitive advantage in detail to choose a suitablecompetitiveness strategy

1.2.2 Sources, capability, key ability, exceeded capability and sustainable competitive advantage.

1.2.2.1 Sources

Sources- in broad meaning- are composed of a series of factors relating tostructure, technique, labor, finance of the company In other criteria, source can bedivided into 2 types namely invisible and visible source Visible sources consist ofwhat can be seen and determined the quantity of such as finance source, structure,material conditions and technology Trademark, recognition, strategic position,inventions can be named as invisible ones

In comparison with visible sources in creating key ability, invisible sourcesseem to outweigh There is saying that “success of a company depends much onintellect and systematic sources other than material properties Moreover, the ability

to control human intellect and turn it into products or services has become acommon trend in managing in the current context” There are many evidencesshowing that the proportion between invisible sources and visible ones has beenunequal and invisible sources seem to outrun visible ones That is because it isdifficult for enterprises to recognize or imitate, buy, and replace such invisiblesources of the others‟ As a result, enterprises prefer creating their abilities as well

as key ability on the bases of invisible sources to visible ones

Table 2-1: Visible sources

Source: The strategic Management- The Statistics publishing House, 200

As you all know, sources themselves can not give birth to competitiveadvantage for company To become special ability, sources must be unique andvaluable That means there are no other companies have the same sources Sourcesare considered valuable when they can create strong demand for products ofcompany

Table 2-2: Invisible sources

Both visible and invisible sources are basic foundation resulting to thedevelopment of competitive advantage Potential ability is the state that a companyuses all its purposefully accumulated sources to reach targeted goals Like a closecooperation, chances appear via the transaction between visible and invisiblesources Such skills showed via daily activities of the companies such as the way togive out decisions and the management of domestic affairs to reach those goals.General speaking, potential abilities of a company include its structure andmanagement system It is structure and management system that influences howand where decisions are made in the institution, values and culture standard of thecompany As a key factor to form competitive advantage, abilities are often based

on the development, ability to spread, information and knowledge exchange viachannel of labor source

Leaders of companies have been for the idea that knowledgeable laborers is themost important source which is considered the root of competitive However,companies must know how to use it and spread it to all activities It is said that in theera of informatics and technology, everything must depend on each other, of whichknowledge is the central The value of the companies is not born from materials butknowledge Intellect and abilities are only found in the world of mankind.

Differentiate sources from potential abilities is to more clearly understandwhich create capacities making one company differ from the others A companywith unique and valuable sources will still not create and maintain different abilities

if it does not enable to use such sources effectively It is important to understandthat it is not compulsory of companies to have unique and valuable sources tocreate difference abilities The matter is that companies must have potentialabilities which their rivals do not have

As such key abilities are sources and abilities which are used by companies

to create competitive advantages Key abilities make enterprises competitive andhave their own values Key abilities are born via studying process and structuralaccumulation of ways to exploit sources and other abilities Key abilities whichhelp companies carry out activities better than any other rivals and increase values

of their products and services for a long time are considered “luxurious jewelry” of

a company

Not all sources and abilities of a company are strategic properties Strategicproperties must be competitive and can be used as competitive advantages.Unfortunately, some sources even affect badly strategies because they are nothing

to compare with that of rivals As a result, some sources and abilities may notdevelop to key abilities.

1.2.2.4 Outweighing abilities

It is not enough to have key abilities The matter is that such key abilitiesmust out run that of the rivals In the case enterprises have the same key abilities,any one whose key abilities outweigh over that of the rivals are winners As aresult, enterprises with the same key abilities must define which their exceededabilities are To tell in a different way, exceeded ability is a special strong pointwhich enables a company to reach desired quality and meet the demand ofcustomers much better than other rivals By doing so, enterprises can createexceeded values and maintain competitive advantages A company with a specialability will be able to supply goods which are different from that of rivals withlower cost Consequently, that company will create more values and make moremoney than the ever5age level that any other rival can do in this industry

You can take TOYOTA Group as an example of having special ability indeveloping and managing process of manufacturing The company with such newmethods as having a system of punctual stock management JIT), a team of self-monitoring and shortening time of assembling complicated objects Such aboveabilities have ensured a higher quality of its products over the rivals in the industrycar making all over the world Exceeded ability included shirt term and long termability Short term exceeded ability is sources and abilities of a company to createits competitive advantages for a short time, for example, sources of finance,material, technique, management ability, scientific and technology improvements.Above key abilities are easy to be imitated As such a company will lose itscompetitive advantages long term exceeded abilities are sources and abilities whichare formed during a long time of studying, accumulating, such above abilities aredifficult to be copied or it takes the rivals time to catch up with Long termexceeded abilities include labor force, trade mark, culture of company, recognition

to customers, etc

Long term exceeded abilities must ensure such standards as preciousness,scarcity, immutability, a suitable distance and coincide with the factors leading tosuccess Let take Walt Disney as an example The history of Walt Disney Corpduring 1980s was an example of the necessity of pursuing strategies which werebuilt from the sources and abilities of the company In early 1980s, the companyunderwent financial difficulty The hardship became extreme in 1984 when MichaelEisner was appointed the leader of the company Four years later, the turnovers ofthe company were $ 3.75 billion USD from $ 1.66 USD Net profits was up to $

570 million USD from $ 98 million USD The value of its shares increased $ 8.5billion USD The reason leading to the success is that the company tried its best totake advantage of all sources and abilities which include a big library of films; trademark; technique to make films in especially cartoons Under the leadership ofMichael Eisner, a series of classic cartoons were made- first at the theatres then byrecords- and brought millions of dollar profits to the company Disney also opened

a new cable channel namely Disney to exploit the library and capitalize thetrademark of the company During that time, film making technique of Disney alsodeveloped with the first- time - appearance of a low cost cartoon Touchstone Thetrade mark and profits of Disney also up sped with long cartoons By trademark andability to make films indoor , Disney made 3 films which were on top 4 yearscontinually namely “ The beauty and the Beast”; “ Aladdin” and “ The Fish Fairy”

In short, Disney changed as a result of exploiting existing sources of the company

1.2.2.5 Competitive advantage and sustainable competitive advantage

Sustainable competitive advantages have 4 features

First, it helps enterprises create new values, lower selling price and raisebusiness affectivity

Second, its is unique and can be combined with other sources by an unique method.Third, it is endogenous That means its production is a result of transaction amongunits and persons via cooperation and structuring all technical sources of the companies

Fourth, competitive advantage which can not be bought and imitated byothers is set up during the process of study and accumulation of the enterprises.

In short time points of views, competitive advantage can be seen as thefollowing criteria such as low price, good quality of the products, good after-saleservice However, in long time points of views, the current advantages are not asvaluable as creativity ability That is because any advantages can not last for longfor the change of technique, market or be imitated by rivals Competitive advantage

of enterprises is competitive strength attached closely to their structure.Competitive advantage Enterprises must look after and develop it continually sothat they can maintain sustainable competitive advantage in the context of changingmarket

1.2.3 Criteria of sustainable competitive advantages

As mentioned above, key abilities must ensure 4 criteria of sustainablecompetitive advantages namely preciousness, scarcity, immutability, a suitabledistance and coinciding with the factors leading to success

1.2.3.1 Preciousness

It can be understood as valuable abilities which enable companies exploitchances and overcome threats from the market By exploiting effectively chances,companies can create values for their customers Sometimes normal abilities ofcompanies turn out to be valuable if they are amended to make perfectible abilities

of such companies

1.2.3.2 Scarcity

A ability can be considered scarce in case no or not many rivals have it Onebasic way to recognize it that administrator must raise such questions as do ourrivals have the abilities? And how many rivals have the abilities? An ability whichmany companies have will certainly not be competitive advantage

Table 2-3: Criteria to define sustainable competitive advantages

Criteria

Preciousness

Scarcity

The difficulty of imitation

The ability to create distance

The coincidence with factors of success

Source: The strategic Management- The Statistics publishing House, 2007

1.2.3.3 The difficulty of imitation

That means it is difficult for rivals to imitate and develop There are 3reasons making an ability difficult to be imitated

Firstly, the ability is created from unique historical conditions “ As aprocess of evolution, companies have unique skills and abilities which symbolizetheir specific development historically Sometimes, enterprises have such uniqueabilities because they exist at the right time and place

Secondly, the cause and result relations between abilities and competitiveadvantages of the companies are not clear so that their rivals do not know how thecompanies can turn abilities into competitive advantages As such, their rivals donot know certainly which abilities to develop and how to obtain competitiveadvantages

The third reason comes from the social complication: Not only some butalso many of abilities of companies are result of complex social phenomena.International relations, confidence, friendship relations among administrators, staff,providers and customers are example of social complication

1.2.3.4 A reasonable distance

Abilities can create big enough distance are ones enable to make a big gapwhich their rivals can not fill up with As a result, companies will themselves createcompetitive advantages because of the fact that their rivals must spend much timeand effort imitating Such ability is even more valuable than the hard-to-imitatedability in the process of becoming the irreplaceable abilities

1.2.3.5 Coincidence with factors of success

Irreplaceable abilities means there are no parallel strategies 2 sources (orgroups of abilities) are called parallel if each of them can be exploited individuallybut create the same strategy In general, abilities which is the more difficult torecognize the more difficult to be replaced by something similar will becomechallenge to rivals if they want to imitate

In short, sustainable competitive advantages can be set up by the followingcriteria: preciousness, scarcity, immutability, a suitable distance and coincidingwith the factors leading to success The statistics given by the table 2- 4 will helpadministrators define the strategic values of companies

Table 2- 4: The combination among sustainable criteria

Preciousness

No

YesYesYes

Source: The strategic Management- The Statistics publishing House, 2007

Special ability is a special status enabling a company reach ability, quality,renovation or meet the demand of customers the best so that it can create anoutweighed value and maintain competitive advantage

1.3 Functional field - The foundation to create sustainable competitive advantages

1.3.1 Production and demonstration

Production and demonstration include decisions relating to such matters asperfectible premises and manufacturing process; perfectible production techniqueand storage in order to lower production expense and selling price

An indispensable part in production strategy is to define how products areproduced, which relates to the planning for subsidiary factors; process ofmanufacturing to be reformed continually It is an ideal change to combinetraditional equipment with high-tech ones and make up complex productionstrategies The technique of automatic production has been used widespread

Saving by scale is lowering expense for an unit of item or service while scale ofoutput increases The nature of such kind of saving is the ability to cover a largerquantity of products with fixed expense Fixed expense is expense that a companymust use in producing (both products and services) any quantity Such expensesinclude expenses for machine, equipment, preparation before each time of production,advertising and for development researches Obviously, covering a larger quantity ofproducts with unchanged expense will lower cost of an unit of item

Illustration 2-1: The curve symbolizes expense for an unit

Productivity The minimum affectivity model MES

Source: The strategic Management- The Statistics publishing House, 2007

Experienced curve shows the lowering expense for an unit of item issystematic and occurs during a whole life of a product According to the definition

of experienced curve expense to produce an unit of item decreases to a somewhatextent whenever the quantity of accumulated products which are producedpreviously doubles

Illustration 2-2: The experienced curve

Source: The strategic Management- The Statistics publishing House, 2007

Using improved capacity and decreasing unfinished products as well aswaste is the main benefit of flexible consortium of machines Decreasing waste is aresult of computerization in the process of manufacturing and minimization ofwaste If machines are operated separately they only use 50% of time While putinto consortium, they can use up to 80% of time and make the same end productwith half of waste which is expelled by machines put separately, which increasesaffectivity and lower expenses of production

1.3.2 Marketing

Marketing is a partial strategy and plays very important role in carrying outbusiness strategies and contributing to the business affectivity of the companies.Via marketing products and services are known to customers Marketing becomesmore important in introducing normal or new products and services Thoughmarketing is costly, enterprises can not help using it because of the fact that itaffects the consumption of products and services Carrying out a suitable marketingstrategy which consists of product strategy, pricing, setting up a system of channelfor distribution and sales promotion will help company hold a good market sharesover its rivals

The main object of marketing is products which can be seen as visible items

of company Finished products which will be on sales must ensure such thefollowing criteria as quality, design, feature, label and packing When planning tosell goods in the market, enterprises must pay attention to 5 levels of a productincluding core benefit, general products, waited products, finished products andpotential products

A very important factor when using marketing is included price which can

be understood as money that customers must cover when buying products Thereare numerous kinds of prices such as wholesale price, retail price, discount priceand conditions for delay payment Enterprise must ensure an acceptable pricewhich matches with known value of product otherwise customers will chooseproduct of other enterprises

Distribution which consists of plentiful activities that the company mustcarry out to introduce its products with potential markets and customers is also akey tool in marketing The company must also find, lure or combine middlemenand marketing supporters to pour its products into market in the most effective way.The company also has to understand thoroughly retailers, wholesalers, distributors

as well as the way they pass its decisions

Sale promotion, the fourth tool of marketing, includes numerous activitiesthat the company must implement to inform and promote its products in targetedmarkets The company should hire trainers and encourage its staff The companyhas to plan information programs and sales promotion including advertising, directmarketing to speed up consumption and public relations.

The effectiveness of marketing strategy is valued via the rate between theleaving of customers and expense over an unit of item

Illustration 2-3: The relationship between the average expense over an unit of item and the rate of leaving of customers

Source: The strategic Management- The Statistics publishing House, 2007

The rate of leaving of customers is the percentage of customers who stopusing products of one company but start buying products of its rivals within oneyear The rate of leaving of customers is also defined by the confidence ofcustomers which is the result of their satisfaction toward the company As such, ittakes company a fixed sum of money for advertising, sales promotion and similaractivities to lure new customers The rate of leaving and expenses has directrelations with each others The longer company holds a customer the more profit itgets via selling products to the customer As a result the company can lower

average expense over an unit of item sold out Consequently, lowering the rate ofleaving of customers enables company save lots of money.

On the other hand, the confidence of customers even make money for thecompany because of their free advertisements they made by accident That meansloyal customer usually praise the company and they can raise the volume oftransaction by doing so You can take Mark & Spencer Company as a typicalexample By setting up confidence among customers the company need not makeany advertisements, which saves it lots of money

1.3.3 Material management

Material management contributes to affectivity rising of the company asmuch as marketing and manufacturing strategy do Effective input materialmanagement will help to decrease producing expense and the quantity of materials

in stock As such the company will save money, lower price and raise its benefit aswell Material management consists of necessary activities from transportingmaterials to workshops; turning them into products, distributing them via thesystem of distribution and then giving them to customers in form of finishedproducts There are many chances to lower expense via effective materialmanagement For a medium manufacturing enterprise, expenses for transportationand materials account for up to from 50% to 70% of total turnover Even lowering alittle such kind of expense will affect greatly benefit of the company

The company also saves expenses via managing materials more effectively

by restructuring the unit which takes charge of material management

To raise the affectivity of material management, the company should applythe JIT (just – in- time) system The main theory of JIT is to save money forkeeping goods in stock by transporting materials to the factories just in time theyare put into producing The saved money is a result of the rise in the circulation ofinventory goods As a result, the company will save money for storing Forexample, thank to the using of JIT system, Ford Corp saved $ 3 billion USD in

early 1980s Currently, the number of inventory circulation of the old system is 9times/year while expense for storing decreases a half.

1.3.4 Research and Development (R &D)

Research and Development play a vital role in implementing strategies That

is because such kinds of activities aim at developing new products with newfeatures; improving old ones; meeting the demand of customers and effectivelysupporting the strategies implementation At present, the demand of customers forthe quality of products has been increasingly various and hard-to- deal- with As aresult, Research and Development should be paid more attention to, which alsoacquires a higher sum of money

As said above research and development play an important role in enablingthe company to do business more effectively because of the following reasons.Firstly, R &D invents easy- to- be- made products By cutting down the numbers ofparts in a product, does the company shorten time of assembling, which helps toraise labor efficiency as well as lower expense of an unit of item It is necessary ofthe company to combine closely between making function and R &D function Thecompany should set up complex teams including makers and developmentresearchers who can cooperate to give the best solutions to any rising problems.Secondly, R &D leads in reforming production manners in order to raise theiraffectivity Reforming production manners is a factor resulting to competitiveadvantage

1.3.5 Finance

Financial ability of a company can be either strong points or weakness Thepurpose of finance management of enterprises is to use capital in the most effectiveway in the meaning that expense for capital using is minimized but capital forprojects is distributed the most reasonably In that case expense for capital usingand price of products &services will be down Meanwhile, benefit of enterprisesincreases

What is expense for capital using? As you all know, capital is a vital factor

to enterprises To have capital enterprises must pay a certain sum of money asinterest to lenders Such money can be seen as wanted-profit- making rate given bylenders Normally, lenders ask for a high interest rate while borrowers expect it low

As such interest rate of loans is balanced, which is acceptable to both lenders andborrowers

Capital structure: in the market economy enterprises hardly use one source

of money to invest into all their business even when such source of money takeslesser expense of using They often use 2 sources of capital namely own capital andloans Own capital is usually not plentiful enough to capitalize for all projects bothscope and scale On the other hand, it is not a good idea to raise own moneybecause of the fact that the owners of the company will always be put underpressure of getting more benefit As a result, enterprises have to mobilize moneyvia loans However, money lenders always ask enterprises to maintain their ownmoney at a level which is high enough to ensure the ability clear debts, which reallyseems to be a hard- nut- to – crack to enterprises In the current context of marketeconomy, finance administrators for enterprises must address such difference tofind out the most suitable capital structure which ensures an acceptable ratebetween own money and loans And the highest purpose is to make biggest profitfor enterprises The structure targets at balancing between interest rate and risks sothat it can maximize benefit of enterprises To have a suitable capital structurefinance administrators must take into consideration 4 following factors: risks indoing business; income tax of the enterprise; capital capacity of enterprise as well

as points of view of managers about using capital The 4 factors affect greatlytargeted capital structure of enterprise In different stages, basing on certainconditions of economy and the enterprise itself, administrators will give out asuitable financial structure to help enterprise call for a source of financial support

Capital using affectivity of enterprise: as an economic category, itsymbolizes the ability of enterprise to put its own sources into manufacturing or

doing business and gain fruitful results with smallest expense An enterprise withability to use capital effectively means it does business well In the marketeconomy, this is a decisive factor in expanding business both scope and scale Totell in different way, when distributing capital into projects in an safe and effectiveway, enterprise can save money and avoid waste as well as raise credit and ability

to mobilize capital The affectivity of using capital depends on some factors such aspolicies of the State; the way to organize business or production; capability ofmanagement machinery especially that of finance administrators as well as thechoice and implementation of strategies of enterprises To raise the affectivity andpreserving of capital using enterprises must pay attention to such factors asmanagement, estimates of capital demand and balance the ability to mobilizecapital; fixed capital as well as mobile capital

To value the finance ability of enterprises, a formula to estimate bankruptcy

by Alan can be considered

Alan formula to estimate bankruptcy

Z=6.56X1+3.26X2+6.27X3+1.05X4

Z= a general index of financial status

X1=Mobile assets/ overall assets

X2= income excluding interest of loans and tax payment

X3= money kept back to reinvest/ overall assets

X4= money owned by the owners of the company/ total dept

Result analysis

Z > 2.60 : healthy finance status

Z<1.10: the company is in finance difficulty

Source: teaching materials of international executive MBA program, HSB, 2006

1.3.6 Human source

Labor management is any matters relating to rights, responsibilities of thestaff to gain the highest affectivities for both company and the staff Most activitiesrelate to the 5 following contents