Background and Rational
The garment and textile industry is a traditional sector in Vietnam that significantly contributes to economic development and job creation, particularly in impoverished areas As Vietnam rapidly integrates into regional and global economies, this industry has been prioritized by the government to help mitigate trade deficits Numerous public resources, including newspapers and television, highlight the industry's vital role in boosting the country's GDP and generating employment opportunities.
The garment and textile industry is currently grappling with significant challenges stemming from both internal and external factors Internally, the sector is hindered by a workforce with low skill levels and outdated manufacturing technologies Externally, it faces fierce competition from strong players like China, India, Indonesia, Pakistan, and Korea, intensifying the pressure on the industry.
Many enterprises in the garment and textile industry overlook the importance of strategic business planning, which is crucial for continuous development To remain competitive, companies must implement effective business strategies that enable them to quickly adapt to market changes By analyzing their strengths, weaknesses, opportunities, and threats, businesses can formulate strategies that align with their internal resources and the external environment This proactive approach allows enterprises to set strategic objectives, choose optimal strategies, and develop policies to achieve these goals while continuously monitoring and adjusting their strategies in response to changing market conditions Ultimately, a well-defined business strategy empowers companies to maintain an offensive stance, ready to tackle any challenges presented by the business environment.
GATEXCO20 exemplifies the challenges faced in business strategic planning, as its current approach focuses primarily on short-term goals without a comprehensive long-term vision The company often reacts passively to market changes, leading to inadequate adjustments in its planning Consequently, it is crucial and urgent for GATEXCO20 to develop and implement a long-term business strategy to ensure its survival and growth in a competitive landscape.
Recognizing the crucial role of strategic business planning in shaping the development of Vietnam's garment and textile industry, as well as ensuring the long-term growth of GATEXCO20, the author has chosen to focus on this topic.
The research titled "Business Strategy for GATEXCO20, Period 2013 - 2018" focuses on macro-economic factors and business strategy formulation tools It aims to assist GATEXCO20's top managers in comprehending and implementing comprehensive long-term business strategies to ensure sustainable development.
Objectives
The objectives of the research are stated as follows:
Provide the analyses on the production and business operation of GATEXCO20 and the potential of Vietnam garment and textile industry
Find out the advantages, weaknesses, opportunities and threats which will be used to formulate a development strategy for GATEXCO20
Assess the garment and textile market by collecting the Expert Advises from The Ministry of Trade and Vietnam Textile Association
Provide the formulation and solution for business strategies for GATEXCO20 as well as program of action and contingency plans
Scope and Limitation
This study analyzes GATEXCO20's operations through the lens of business strategic planning Utilizing secondary data sourced from GATEXCO20's annual reports, along with relevant literature, journal articles, and news, the research also incorporates insights from experts at the Ministry of Industry & Trade and the Vietnam Textile Association regarding the garment and textile sector.
The research is limited as it focuses solely on GATEXCO20's business, relying heavily on data sourced from the company itself Additionally, the findings may not accurately reflect the broader perspectives within the organization, and the author faced language barriers that could impact the analysis.
The strategy for GATEXCO 20 is built for the period 2013-2018 and if the implementation process will be success, this strategy will be extended for the long term.
FOUNDATION THEORY FOR STRATEGIC
The definition of business strategy
Business strategy is defined as the integration of goals, objectives, missions, and action plans to ensure a firm's successful operation (Rumelt, 1980) It serves as a comprehensive plan that aligns all business activities with the firm's developmental objectives (Quinn, 1998) Mathur and Kenyon (1997) noted that firms offering multiple products and services often adopt various business strategies, each with distinct scopes and applications Additionally, Favaro (2012) emphasized that effective business strategy results from strategic selection aimed at maximizing the firm's long-term value.
(2012) advised firm management should takes into account the value in short term as well as risk factors existed in the market.
The definition of business strategic planning
Strategic planning serves as a roadmap for businesses to achieve their goals, as highlighted in the Strategic Planning Handbook (2001) Tapinos (2005) emphasizes that effective business strategic planning involves key steps for formulating strategies, taking into account factors such as a long-term perspective, the use of planning tools, formality, and regular monitoring Hodgetts and Kuratko (2001) underscore its significance in reducing uncertainty and the risk of failure in business strategies Additionally, Gibb and Scoot (1985) note that strategic planning enhances awareness of its importance among executive managers and employees However, risks exist, including the potential misalignment of expectations due to market changes and the reliance on a robust planning process for success.
(e.g lack of control and monitor), the achieved results may not satisfactory to firm‟s executive managers (Strategic Planning Handbook, 2001)
Evans noted that business strategic planning primarily concentrates on major issues, often overlooking other critical factors affecting the firm This limitation arises because upper management, responsible for strategic planning, lacks the time to thoroughly analyze every detail Additionally, the process is time-intensive and demands significant involvement from personnel, which can strain the organization, particularly when resources are limited.
The business strategic planning process
Grunig (2011) outlines a seven-step strategic planning process for businesses The initial step involves a comprehensive analysis, including SWOT and Porter’s Five Forces, to evaluate internal and external factors, helping the company identify opportunities and risks in relation to its strengths and weaknesses Following this analysis, the business mission statement is developed The third and fourth steps focus on selecting appropriate business and corporate strategies based on the findings The fifth step involves implementing these strategies, while the sixth emphasizes the importance of regular reviews Finally, the process concludes with the preparation and approval of the strategic documents by the board of management.
Figure 1: Business strategic planning process – sample 1
(Source: Grunig, 2011) Chetthamrongchai (2009) provided the business strategic planning process that takes into consideration seven steps, including: business mission, SWOT analysis, goal formulation, strategy formulation, program formulation, implementation, and feedbacks
Figure 2: Business strategic planning process - sample 2
According to Hax (2003), the business strategic planning process consists of five key steps: defining the mission, analyzing internal and external environments, formulating business strategies, strategic programming, and budgeting Additionally, the Strategic Planning Handbook (2001) emphasizes the importance of distinct steps in the planning process, which include crafting a mission statement, setting objectives, determining goals, and developing an action plan.
Figure 3: Business strategic planning process - sample 3
Tools used in business strategic planning
The SWOT matrix, as outlined by Bradford et al (2000), is a valuable tool for formulating business strategies by analyzing both internal and external factors affecting enterprises Strengths (S) and Weaknesses (W) pertain to an organization's internal capabilities, while Opportunities (O) and Threats (T) relate to external market conditions Chaffey et al (2006) emphasize that SWOT analysis enables companies to assess their strengths and weaknesses in relation to market opportunities and threats The accompanying figure illustrates the SWOT matrix and the strategies developed from these four critical elements.
How can our strengths be employed to take advantage of our opportunities?
How can our strengths be used to prevent threats from hindering goal achievement?
What should we do to shore up our weaknesses to take advantage of our opportunities?
What should we do to shore up our weakness to prevent the threats from slowing us down?
(Source: Adopted from Bradford et al, 2000)
Porter's Five Forces Model, introduced in 1980, identifies five key factors influencing industry competition: buyer power, supplier power, the threat of substitute products, the threat of new entrants, and rivalry among existing competitors According to Ehnke et al (2004), this model is crucial for firms as it aids in assessing the potential profitability of their industry and identifying key factors for achieving competitive advantage.
Figure 5: Porter's Five Forces Model
The suppliers are more powerful when firm has to purchase the raw materials necessarily for manufacturing products from the small number of suppliers
In this industry, the limited number of suppliers grants them significant power to dictate both the prices and the quantity of raw materials available to firms.
Buyers gain significant power when firms encounter high switching costs with suppliers or when the purchasing volume of raw materials is low, allowing suppliers to exert greater control over prices This buyer power is further amplified in non-transparent markets where firms lack sufficient knowledge about their suppliers.
Buyers hold significant power in the market when they possess extensive knowledge of the industry and a deep understanding of a firm's business processes, which limits the firm's negotiation leverage Additionally, the presence of numerous suppliers in the industry allows customers to easily access alternative suppliers or products to meet their needs, further enhancing their bargaining power.
Substitute products play a crucial role for companies, especially when their offerings lack distinctiveness According to Ehnke (2004), firms employing a low-cost strategy are more vulnerable to the threat of substitutes compared to those that adopt a differentiation strategy Furthermore, the increased risk of substitutes arises from factors such as low brand loyalty among customers and minimal costs associated with switching products.
The new entrants are becoming real threats for firms in the industry when the business law encourages the new entrants to enter the market without barriers
Customer loyalty to brands is diminishing, allowing consumers to easily switch to alternative products and services The threat of new market entrants is rising, especially when production processes are easily replicable and economies of scale are minimal Specifically, when firms produce large volumes without achieving significant cost advantages from economies of scale, they are vulnerable to intense competition from new players in the market.
In slow-growing markets, intense competition often arises as firms strive to leverage economies of scale to manage operating costs and lower prices for customers A lack of product differentiation makes it easy for competitors to replicate offerings, further intensifying rivalry Additionally, high exit costs from the industry contribute to the fierce competition among firms.
PEST analysis, as outlined by Doole and Lowe (2008), is a crucial tool for businesses to assess the effects of external environments This analytical framework examines four key aspects: the political environment, economic environment, social environment, and technological environment.
The political environment significantly influences business operations by presenting various risks associated with the actions of local governments and international bodies like the World Trade Organization and the International Monetary Fund According to Doole and Lowe (2008), the effectiveness of the legal framework for businesses tends to be less comprehensive in developing and emerging markets compared to developed countries Furthermore, local governments in developed nations often possess greater expertise, enabling them to create more effective policies that foster fair competition within the marketplace.
The economic environment encompasses both macro and microeconomic factors that directly or indirectly influence businesses High inflation and elevated lending interest rates can diminish consumer purchasing power, compelling firms to adjust their pricing strategies Specifically, rising inflation leads to increased operating costs, prompting companies to raise product prices However, this price hike risks losing customers and market share to competitors offering lower prices.
The social environment is shaped by population growth and movement, both locally and globally (Doole and Lowe, 2008) Recent studies indicate a shift in this environment, suggesting that businesses must align their products and services with urban lifestyles Specifically, offerings should be conveniently packaged and easy to transport Today's consumers are more accessible than ever, engaging with brands through supermarkets, malls, and various mass media channels, including television and online advertisements.
The technology environment encompasses the use of information technology and equipment to enhance business operations and streamline customer purchasing experiences (Doole and Lowe, 2008) Today, computer-based technologies are increasingly prevalent not only in developed nations but also in emerging markets High-level information technology is essential for multinational companies, enabling them to create comprehensive IT solutions that facilitate timely business decision-making (SAS, 2012).
In 1980, Michael Porter introduced the value chain analysis, a crucial tool for developing effective business strategies by examining two key aspects of firms: primary activities and support activities Primary activities encompass inbound logistics, operations, outbound logistics, marketing and sales, and service, while support activities include firm infrastructure, human resource management, technology development, and procurement According to Gregorio, primary activities involve the processes of acquiring raw materials, manufacturing products, and selling them to customers, along with after-sale services and customer care Support activities, on the other hand, are those that facilitate and enhance the effectiveness of primary activities.
Figure 6: Value chain analysis model of Porter (1980)
Porter (1980) emphasized the critical connection between primary and support activities within a value chain, illustrating how one activity can significantly influence others For instance, delays in the procurement process can disrupt inbound logistics, leading to insufficient resources for operations and failure to meet customer commitments, ultimately resulting in a loss of market share to competitors with more efficient procurement Additionally, Porter highlighted that firms often struggle to accurately anticipate the synchronization of activities in their value chain, which can stem from ineffective management or fluctuations in market and customer demands.
EXTERNAL AND INTERNAL ANALYSIS
EXTERNAL ANALYSIS
Vietnam stands out as a leading player in the global garment and textile export market, known for its competitive edge International buyers supply materials to Vietnamese enterprises, which then process and manufacture products before re-exporting them under their own brand names The country's advantage lies in its skilled workforce, which offers high-quality labor at a lower cost, making Vietnam an attractive destination for garment and textile production.
The macro-economy and government policies significantly impact the garment and textile industry in Vietnam Since the implementation of the Doi Moi policy in 1986, the sector has experienced substantial growth, driven by the agglomeration of manufacturing activities The Vietnamese Government's supportive policies have fostered the establishment of numerous new enterprises in manufacturing and exporting, leading to a notable contribution to the country's GDP from the garment and textile companies.
The author analyzes key economic indicators of the Vietnamese macro-economy, focusing on retail consumption volume and the social and political environment This analysis aligns with the PEST framework developed by Isobel Doole and Robin Lowe in 2008, which examines four critical factors: social environment, legal aspects, political climate, economic conditions, and technological availability.
1 Isobel Doole, Robin Lowe, (2008) International marketing strategy: Analysis, Development and
Implementation, 5th Edition, Cengage Learning EMEA, pp7-17
Political risk is defined as a risk due to a sudden or gradual change in a local political environment that is disadvantageous or counter-productive to foreign enterprise and markets
Politics significantly influence a government's approach to business and the operational freedom of enterprises Unstable political regimes present both opportunities and risks for companies, impacting their international strategies Emerging countries typically face higher political risks compared to developed nations, where stringent economic reforms can trigger civil unrest and opposition, as evidenced by recent events in Brazil and Argentina.
Economic conditions significantly influence business strategies, particularly when there are varying levels of economic development These disparities in income levels pose challenges for enterprises to maintain a consistent strategy, especially regarding pricing This issue is particularly evident when comparing developed, less developed, and emerging economies.
Emerging markets are experiencing a significant surge in demand for a wide range of products, including automobiles and furniture This growth is driven by government participation in economic reforms, the relaxation of foreign investment restrictions, and the rising trend of privatizing state-owned monopolies These factors collectively create substantial opportunities for businesses looking to expand in these dynamic markets.
Isobel Doole and Robin Lowe (2008) emphasize the significance of global population growth and movement, which drive social changes They highlight that 80% of the world's population resides in developing countries, a figure projected to rise to 85% by 2025 Notably, China and India account for two out of every five people globally However, growth patterns vary significantly; while Africa's population is expected to nearly triple in the next 50 years, China's growth will slow, and Europe is anticipated to experience a population decline.
Furthermore, there are visible movements in many countries, forming the establishment of huge urban areas where the consumers have similar needs across the globe In the year 2015, it is worth to say no European city will be in the top 10 of the world‟s mega cities of 10 millions of population Instead of that are the countries in emerging market The social changes, therefore, will follow the urban style where similar products are required The products will be packaged conveniently and easy to carry The customer will be more accessible and can be communicated through supermarkets and advertising The change in social environment also affect to the utilization of businesses
Information technology (IT) refers to the management and use of information by using computer-based tools It includes collecting, processing, storing, and distributing information Most often, it is a term used to refer to the business application of computer technology, rather than applied science The term is widely used in business to refer to whatever increase in the use of computers Mostly businesses today create data can be stored and processed on computers In some cases, the data must be entered into computers using devices such as keyboards and scanners In these cases the data can be created electronically and automatically stored in your computer The role of IT in the enterprise economy is undeniable The accounting software and management software help businesses saving a lot of time and cost
2.1.1.1 Political analysis a Political environment at present
The Communist Party of Vietnam remains committed to market-oriented reforms and it is expected there will not be major shifts in policy orientation to 2015 So, the politics may be stable for the time ahead However, the unstable economy during 2011 and 2012 are likely to reduce the belief of the people to the one-party system Although strong domestic control will ensure little change to Vietnam‟s political scene in the next few years, over the longer term, the one-party-state will probably be unsustainable b Political environment trend
The EIU reports that the current positive political environment is fostering economic growth, even amidst a global downturn, which has led to political apathy and reinforced the ruling party's claim to govern without challenge However, this legitimacy is at risk due to economic uncertainty, widespread corruption, environmental degradation, and significant grievances over land seizures In response to these threats, the leadership remains vigilant against political dissent, often suppressing opposition activism As a result, vocal advocates for multiparty politics and genuine democratic reform face punishment and imprisonment, impacting the overall business climate.
During the Doi Moi renewal process, the Communist Party of Vietnam adopted an open-door policy aimed at fostering integration with both regional and global communities This approach emphasizes building friendly relations with all nations, leading to significant impacts on Vietnamese society in response to both positive and negative shifts in the global economy.
Changes in the world economy also influence class relationships, ideology and culture in Vietnam through direct and indirect ways
The integration of non-Marxist ideologies and cultures into Vietnam, alongside the influence of the global economy, has significantly impacted the country's social relations, ideology, and culture This interaction creates both opportunities and challenges for GATEXCO The open-door policy allows GATEXCO to expand its market reach and increase profits through exports, generating foreign currency for investment However, this policy also exposes the company to potential threats, particularly during global economic crises, which can complicate its operations and market stability.
2.1.1.2 Economic analysis a Economic Environment at Present
As of 2011, Vietnam's population exceeded 86 million, with 60% of its citizens under the age of 35 Additionally, the average income per capita has experienced a significant growth of 5.89%.
2010 Vietnam has moved from the list of poorest countries to the medium income countries with the GDP per capita of around 1,300 USD and GDP
According to the General Statistical Office, Vietnam's economy experienced a growth rate of 6.78% in 2011 compared to 2010, as reported on July 1, 2012 For more detailed information, visit their official website at http://www.gso.gov.vn/default.aspx?tabidb2&ItemID133.
INTERNAL ANALYSIS
Value chain analysis, introduced by Michael Porter in 1980, is a strategic tool designed to enhance competitive advantage It emphasizes two critical components: the sharing of value chain activities across business units and the application of value chain analysis to formulate either low-cost or differentiation strategies.
Analysis on sharing value chain activities among business units requires the clarification on the interrelation within value chains activities and interrelation within business unit
7 Porter, M.E (1980) Competitive Strategy, Free Press, New York
Analyzing the interconnections between value chain activities is essential because these activities are interdependent; changes in one can influence the cost and performance of others For instance, if a company reduces costs in product design, it can lead to lower manufacturing and service costs as well Such strategic improvements can enable the company to gain a competitive advantage in the market.
A horizontal strategy relies on the interrelationships among business units, where tangible connections can create opportunities for collaboration For instance, if multiple units utilize a common raw material, consolidating procurement can lead to significant cost savings However, achieving synergy through these interrelationships can be challenging due to unforeseen drawbacks, such as coordination costs, reduced flexibility, and the overall value chain structure It is essential to analyze these factors when integrating business strategies to fully understand the advantages of interrelated operations.
To implement a low-cost strategy, the company can achieve cost reduction in its value chain by undertaking restructuring actions This process starts with clearly defining the company's value chain and identifying its primary activities, which typically include essential functions that contribute to overall efficiency and cost-effectiveness.
Figure 8: Value chain analysis model
Once the value chain is established, a thorough cost analysis can be conducted by assigning costs to various value chain activities According to Porter (1980), there are ten key cost drivers associated with these activities: economies of scale, learning effects, capacity utilization, the connections between activities, interrelationships among business units, the level of vertical integration, the timing of market entry, the firm's cost policies, geographic location, and institutional factors such as taxes and legal regulations.
Porter's value chain analysis (1980) highlights the importance of differentiation strategy through forward integration, allowing companies to take over functions previously handled by customers, and backward integration to gain control over inputs To achieve uniqueness, companies should focus on several key drivers that customize their value chain, including policies and decisions, activity linkages, timing, location, interrelationships, learning, integration, scale, institutional factors, and creativity.
In the following sections, the author will analyze each component of Gatexco20's value chain Based on this analysis, low-cost and differentiation strategies will be developed through the application of outsourced value chain activities To determine which aspects of the business to outsource, company management must first assess the current strengths and limitations of the organization.
2.2.1.1 Inbound logistics a Receiving Input Materials
Garment and textile manufacturing in Vietnam relies on various input materials, including fiber, cotton, chemicals, oil, and electricity While oil and electricity prices are regulated by the government, the costs of fabric, cotton, and chemicals are influenced by the global commodity market Due to the domestic textile industry's inability to provide high-quality fabric, Vietnamese garment companies depend heavily on imports, sourcing 75% of their fabric, 90% of their cotton, and all of their polyester filament and fiber requirements from abroad.
GATEXCO20 employs two primary methods for sourcing raw materials in its production chain: domestic suppliers and imported goods Internal reports indicate that only 15% of GATEXCO20's total raw material needs are met by domestic sources The majority of domestically sourced materials are transported to GATEXCO20's manufacturing facilities via truck In contrast, imported raw materials are shipped through sea freight to local ports, after which GATEXCO20 utilizes local transportation services to deliver these materials to its factories.
Figure 9: The process of receiving input materials b Warehousing for Input Materials
Upon arrival at GATEXCO20's manufacturing facilities, raw materials are stored in the company's warehouses GATEXCO20 implements operational standards that include various handling and storage solutions, such as very narrow aisle (VNA) systems, drive-in access, and standard pallet access The warehouse spans approximately 3,000 square meters and is equipped with fulfillment and rework facilities, ensuring efficient inventory control.
GATEXCO20's warehouses utilize advanced WMS technology from Chess Logistics, creating a real-time environment that maximizes efficiency and provides a comprehensive audit trail of all production chain activities This innovative technology allows GATEXCO20's Inventory Managers to maintain complete visibility of inventory status via a user-friendly web-based portal.
The garment and textile manufacturing process at GATEXCO20 is depicted in the accompanying figure As outlined by e-textile.org, yarn fabrication involves transforming raw fibers into yarn or thread, marking a crucial step in textile production.
GATEXCO20‟s warehouses prepared and then drawn out and twisted to form the yarn, which is then wound onto a bobbin or cone
Figure 10: The operation process of GATEXCO20
Outbound logistics involves the packaging of finished products, transferring them to the warehouse, and shipping to both retail and wholesale buyers GATEXCO20 utilizes SAP Business One, which supports three types of production orders to streamline this process.
The standard production order system utilizes the Bill of Materials to efficiently manage the production of regular items It oversees material transactions throughout the production process, allowing users to modify components during production Upon initiating a new standard production order, all necessary components are automatically populated, streamlining the workflow.
A special production order system is utilized for the production and repair of items that may not be listed in the Bill of Materials This includes activities such as creating repair orders for customer equipment cards or addressing rejected assemblies Components for these special production orders are handled manually, ensuring tailored solutions for unique production needs.