NECESSITY OF THE THESIS
Strategic management is a necessary job of all managers In business operation, strategy is a tool to support the corporation gain it objects, mission, and vision Especially in competition, strategic management even keeps an important role in conducting the companies It has a main effect on existence, growing, and developing of an enterprise A company can win lots of success, if it has right strategies for its situation
Vinh Tuong Industrial Corporation (VTI) is a Vietnamese business At the time, it is facing to the stressful competition with two big international corporations To keep strongly the position of leader in domestic market as well as to gain the purpose of growing and developing the business, the company must set up the suitable strategies in the new challenge period
Through the working time at VTI, I am interested in joining to contribute the business strategies for company Therefore, I decide to the topic: “Business strategy for Vinh Tuong Industrial Corporation in competing with the big foreign Corporations.”
PURPOSE
- Research the issues about strategic management of business including the analysis tools, the strategic chosen, and the strategic implementation
- Research the real situation of the company of VTI at the moment
- Apply the issues of strategic management for building up the right effective strategies for the company in practice.
KEY RESEARCH AREA
Research and apply the strategic management in business is the main topic
Thesis only concentrates on using the tools to analyze the current situation of VTI By the way, it sets up the strategies chosen Then, it presents the ways to implement the strategies in practice operation.
METHODOLOGY
First, the thesis bases on the real issues of the case study of Vinh Tuong Industrial Corporation in competing with two big foreign groups
Second, thesis is used methodology of descriptive analysis, logic reason combination materialistic history The data is drawn from the primary and secondary sources The methods of collecting data are taking researches, and expert advices from theory foundation and personal experience
Finally, thesis is also used statistic, formula illustration, interpreting the issues means.
CONTRIBUTIONS OF THE THESIS
- Introduce all process of setting up the strategic management for a business
- Apply the issues in the real situation of VTI to analyze the information, bring out the strategic chosen, and present the ways to implement the strategies in practicing conduction of the company.
THEORY FOUNDATION 1.1 What is strategy?
Definition
Johnson and Scholes (Exploring Corporate Strategy) define strategy as follows:
"Strategy is the direction and scope of an organisation over the long- term: which achieves advantage for the organisation through its configuration of resources within a challenging environment , to meet the needs of markets and to fulfill stakeholder expectations"
In other words, strategy is about:
* Where is the business trying to get to in the long-term (direction)?
* Which markets should a business compete in and what kinds of activities are involved in such markets? (markets; scope)
* How can the business perform better than the competition in those markets? (advantage)?
* What resources (skills, assets, finance, relationships, technical competence, facilities) are required in order to be able to compete?
* What external, environmental factors affect the businesses' ability to compete? (environment)?
* What are the values and expectations of those who have power in and around the business? (stakeholders)
Strategy at different levels of a business
Strategies exist at several levels in any organization - ranging from the overall business (or group of businesses) through to individuals working in it
Corporate Strategy - is concerned with the overall purpose and scope of the business to meet stakeholder expectations This is a crucial level since it is heavily influenced by investors in the business and acts to guide strategic decision-making throughout the business
Corporate strategy is often stated explicitly in a "mission statement"
Business Unit Strategy - is concerned more with how a business competes successfully in a particular market It concerns strategic decisions about choice of products, meeting needs of customers, gaining advantage over competitors, exploiting or creating new opportunities etc
Operational Strategy - is concerned with how each part of the business is organized to deliver the corporate and business-unit level strategic direction Operational strategy therefore focuses on issues of resources, processes, people etc.
How strategy is managed – strategic management
In its broadest sense, strategic management is about taking "strategic decisions" - decisions that answer the questions above
In practice, a thorough strategic management process has three main components, shown in the figure below:
Figure 1.1 – a thorough strategic management process
This is all about the analyzing the strength of businesses' position and understanding the important external factors that may influence that position The process of Strategic Analysis can be assisted by a number of tools that will be presented in the next part
The process involves understanding the nature of stake holder expectations (the “ground rules”), identifying strategic options, and then evaluating and selecting strategic options
Normally, the business can use the matrix of strategic choice to decide what its best strategies are
Figure 1.2 - The matrix for strategic choice
The growing rate of market
The competitive position of the business
This is often the hardest part When a strategy has been analyzed and selected, the task is then to translate it into organizational actions
They include the action plans of administrative management, marketing, finance, R&D, information system management.
Analysis tools in building a strategy
A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices
Following on from his work analysing the competitive forces in an industry, Michael Porter suggested four "generic" business strategies that could be adopted in order to gain competitive advantage The four strategies relate to the extent to which the scope of a businesses' activities are narrow versus broad and the extent to which a business seeks to differentiate its products
The four strategies are summarized in the figure below:
The differentiation and cost leadership strategies seek competitive advantage in a broad range of market or industry segments By contrast, the differentiation focus and cost focus strategies are adopted in a narrow market or industry
This strategy involves selecting one or more criteria used by buyers in a market - and then positioning the business uniquely to meet those criteria This strategy is usually associated with charging a premium price for the product - often to reflect the higher production costs and extra value-added features provided for the consumer Differentiation is about charging a premium price that more than covers the additional production costs, and about giving customers clear reasons to prefer the product over other, less differentiated products
Examples of Differentiation Strategy: Mercedes cars; Bang & Olufsen
With this strategy, the objective is to become the lowest-cost producer in the industry Many (perhaps all) market segments in the industry are supplied with the emphasis placed minimizing costs If the achieved selling price can at least equal (or near) the average for the market, then the lowest-cost producer will (in theory) enjoy the best profits This strategy is usually associated with large-scale businesses offering "standard" products with relatively little differentiation that are perfectly acceptable to the majority of customers Occasionally, a low-cost leader will also discount its product to maximize sales, particularly if it has a significant cost advantage over the competition and, in doing so, it can further increase its market share
Examples of Cost Leadership: Nissan; Tesco; Dell Computers
In the differentiation focus strategy, a business aims to differentiate within just one or a small number of target market segments The special customer needs of the segment mean that there are opportunities to provide products that are clearly different from competitors who may be targeting a broader group of customers The important issue for any business adopting this strategy is to ensure that customers really do have different needs and wants - in other words that there is a valid basis for differentiation - and that existing competitor products are not meeting those needs and wants
Examples of Differentiation Focus: any successful niche retailers;
(e.g The Perfume Shop); or specialist holiday operator (e.g Carrier)
Here a business seeks a lower-cost advantage in just on or a small number of market segments The product will be basic - perhaps a similar product to the higher-priced and featured market leader, but acceptable to sufficient consumers Such products are often called
Examples of Cost Focus: Many smaller retailers featuring own-label or discounted label products
Competitor Analysis is an important part of the strategic planning process This revision note outlines the main role of, and steps in, competitor analysis
Why bother to analyse competitors?
Some businesses think it is best to get on with their own plans and ignore the competition Others become obsessed with tracking the actions of competitors (often using underhand or illegal methods)
Many businesses are happy simply to track the competition, copying their moves and reacting to changes
Competitor analysis has several important roles in strategic planning:
• To help management understand their competitive advantages/ disadvantages relative to competitors
• To generate understanding of competitors’ past, present (and most importantly) future strategies
• To provide an informed basis to develop strategies to achieve competitive advantage in the future
• To help forecast the returns that may be made from future investments (e.g how will competitors respond to a new product or pricing strategy?
What questions should be asked when undertaking competitor analysis? The following is a useful list to bear in mind:
• Who are our competitors? (see the section on identifying competitors further below)
• What threats do they pose?
• What is the profile of our competitors?
• What are the objectives of our competitors?
• What strategies are our competitors pursuing and how successful are these strategies?
• What are the strengths and weaknesses of our competitors?
• How are our competitors likely to respond to any changes to the way we do business?
Sources of information for competitor analysis
Davidson (1997) describes how the sources of competitor information can be neatly grouped into three categories:
• Recorded data: this is easily available in published form either internally or externally Good examples include competitor annual reports and product brochures;
• Observable data: this has to be actively sought and often assembled from several sources A good example is competitor pricing;
• Opportunistic data: to get hold of this kind of data requires a lot of planning and organization Much of it is “anecdotal”, coming from discussions with suppliers, customers and, perhaps, previous management of competitors
The table below lists possible sources of competitor data using Davidson’s categorization:
Recorded Data Observable Data Opportunistic Data
Pricing / price lists Meetings with suppliers
Newspaper articles Promotions Sales force meetings Analysts reports Tenders Seminars / conferences
Regulatory reports Patent applications Recruiting ex- employees
Government reports Discussion with shared distributors
Presentations/ speeches Social contacts with competitors
Table 1.1 - Sources of competitor data
In his excellent book [Even More Offensive Marketing], Davidson likens the process of gathering competitive data to a jigsaw puzzle
Each individual piece of data does not have much value The important skill is to collect as many of the pieces as possible and to assemble them into an overall picture of the competitor This enables you to identify any missing pieces and to take the necessary steps to collect them
What businesses need to know about their competitors?
The tables below lists the kinds of competitor information that would help businesses complete some good quality competitor analysis
You can probably think of many more pieces of information about a competitor that would be useful However, an important challenge in competitor analysis is working out how to obtain competitor information that is reliable, up-to-date and available legally (!)
What business probable already know their competitors?
Sales and profits by market
Market shares (revenues and volumes)
Identity/profile of senior management
What businesses would really like to know about competitors?
Sales and profits by product
Customer satisfaction and service levels
Size and quality of customer databases
Contractual terms with key suppliers
An industry is a group of firms that market products which are close substitutes for each other (e.g the car industry, the travel industry)
Some industries are more profitable than others Why? The answer lies in understanding the dynamics of competitive structure in an industry
The most influential analytical model for assessing the nature of competition in an industry is Michael Porter's Five Forces Model, which is described below:
Figure 1.4 - Michael Porter's Five Forces Model
Porter explains that there are five forces that determine industry attractiveness and long-run industry profitability These five
- The threat of entry of new competitors (new entrants)
- The bargaining power of buyers
- The bargaining power of suppliers
- The degree of rivalry between existing competitors
New entrants to an industry can raise the level of competition, thereby reducing its attractiveness The threat of new entrants largely depends on the barriers to entry High entry barriers exist in some industries (e.g shipbuilding) whereas other industries are very easy to enter (e.g estate agency, restaurants) Key barriers to entry include:
- Access to industry distribution channels
- The likelihood of retaliation from existing industry players
The presence of substitute products can lower industry attractiveness and profitability because they limit price levels The threat of substitute products depends on:
- The relative price and performance of substitutes
- The costs of switching to substitutes
Suppliers are the businesses that supply materials & other products into the industry
The cost of items bought from suppliers (e.g raw materials, components) can have a significant impact on a company's profitability If suppliers have high bargaining power over a company, then in theory the company's industry is less attractive The bargaining power of suppliers will be high when:
- There are many buyers and few dominant suppliers
- There are undifferentiated, highly valued products
- Suppliers threaten to integrate forward into the industry (e.g brand manufacturers threatening to set up their own retail outlets)
- Buyers do not threaten to integrate backwards into supply
- The industry is not a key customer group to the suppliers
Buyers are the people/organizations who create demand in an industry The bargaining power of buyers is greater when
- There are few dominant buyers and many sellers in the industry
- Buyers threaten to integrate backward into the industry
- Suppliers do not threaten to integrate forward into the buyer's industry
- The industry is not a key supplying group for buyers
The intensity of rivalry between competitors in an industry will depend on:
- The structure of competition - for example, rivalry is more intense where there are many small or equally sized competitors; rivalry is less when an industry has a clear market leader
- The structure of industry costs - for example, industries with high fixed costs encourage competitors to fill unused capacity by price cutting
- Degree of differentiation - industries where products are commodities (e.g steel, coal) have greater rivalry; industries where competitors can differentiate their products have less rivalry
- Switching costs - rivalry is reduced where buyers have high switching costs - i.e there is a significant cost associated with the decision to buy a product from an alternative supplier
- Strategic objectives - when competitors are pursuing aggressive growth strategies, rivalry is more intense Where competitors are
"milking" profits in a mature industry, the degree of rivalry is less
- Exit barriers - when barriers to leaving an industry are high (e.g the cost of closing down factories) - then competitors tend to exhibit greater rivalry
SWOT is an abbreviation for Strengths, Weaknesses, Opportunities and Threats
SWOT analysis is an important tool for auditing the overall strategic position of a business and its environment
Once key strategic issues have been identified, they feed into business objectives, particularly marketing objectives SWOT analysis can be used in conjunction with other tools for audit and analysis, such as PEST analysis and Porter's Five-Force analysis It is also a very popular tool with business and marketing students because it is quick and easy to learn
The Key Distinction - Internal and External Issues
Strengths and weaknesses are internal factors For example, a strength could be your specialist marketing expertise A weakness could be the lack of a new product
Opportunities and threats are external factors For example, an opportunity could be a developing distribution channel such as the Internet, or changing consumer lifestyles that potentially increase demand for a company's products A threat could be a new competitor in an important existing market or a technological change that makes existing products potentially obsolete
Strategic planning
Introduction to Values and Vision
Values form the foundation of a business’ management style
Values provide the justification of behavior and, therefore, exert significant influence on marketing decisions
Consider the following examples of a well-known business – BT Group - defining its values:
BT's activities are underpinned by a set of values that all BT people are asked to respect
- We work as one team
- We are committed to continuous improvement
These are supported by our vision of a communications-rich world - a world in which everyone can benefit from the power of communication skills and technology
A society in which individuals, organizations and communities have unlimited access to one another and to a world of knowledge, via a multiplicity of communications technologies including voice, data, mobile, internet - regardless of nationality, culture, class or education
Our job is to facilitate effective communication, irrespective of geography, distance, time or complexity
(Source: BT Group plc web site)
Many Japanese businesses have used the value system to provide the motivation to make them global market leaders They have created an obsession about winning that is communicated at all levels of the business that has enabled them to take market share from competitors that appeared to be unassailable
For example, at the start of the 1970’s Komatsu was less than one third the size of the market leader – Caterpillar – and relied on just one line of smaller bulldozers for most of its revenues By the late 1980’s it had passed Caterpillar as the world leader in earth-moving equipment It had also adopted an aggressive diversification strategy that led it into markets such as industrial robots and semiconductors
If “values” shape the behavior of a business, what is meant by
To succeed in the long term, businesses need a vision of how they will change and improve in the future The vision of the business gives it energy It helps motivate employees It helps set the direction of corporate and marketing strategy
What are the components of an effective business vision?
Davidson identifies six requirements for success:
- Consistently followed and measured 1.3.2 Mission
A strategic plan starts with a clearly defined business mission
Mintzberg defines a mission as follows:
“A mission describes the organisation’s basic function in society, in terms of the products and services it produces for its customers”
A clear business mission should have each of the following elements:
Taking each element of the above diagram in turn, what should a good mission contain?
Why does the business exist? Is it to create wealth for shareholders? Does it exist to satisfy the needs of all stakeholders (including employees, and society at large?)
A mission statement provides the commercial logic for the business and so defines two things:
- The products or services it offers (and therefore its competitive position)
- The competences through which it tries to succeed and its method of competing
A business’ strategic scope defines the boundaries of its operations These are set by management
For example, these boundaries may be set in terms of geography, market, business method, product etc The decisions management make about strategic scope define the nature of the business
(3) Policies and Standards of Behavior
A mission needs to be translated into everyday actions For example, if the business mission includes delivering “outstanding customer service”, then policies and standards should be created and monitored that test delivery
These might include monitoring the speed with which telephone calls are answered in the sales call centre, the number of complaints received from customers, or the extent of positive customer feedback via questionnaires
The values of a business are the basic, often un-stated, beliefs of the people who work in the business These would include:
• Business principles (e.g social policy, commitments to customers)
• Loyalty and commitment (e.g are employees inspired to sacrifice their personal goals for the good of the business as a whole? And does the business demonstrate a high level of commitment and loyalty to its staff?)
• Guidance on expected behavior – a strong sense of mission helps create a work environment where there is a common purpose
What role does the mission statement play in marketing planning?
In practice, a strong mission statement can help in three main ways:
• It provides an outline of how the marketing plan should seek to fulfill the mission
• It provides a means of evaluating and screening the marketing plan; are marketing decisions consistent with the mission?
• It provides an incentive to implement the marketing plan 1.3.3 Objectives
Objectives set out what the business is trying to achieve
Objectives can be set at two levels:
These are objectives that concern the business or organization as a whole
Examples of “corporate objectives” might include:
• We aim to achieve an operating profit of over £10 million on sales of at least £100 million
• We aim to increase earnings per share by at least 10% every year for the foreseeable future
E.g specific objectives for marketing activities Examples of functional marketing objectives” might include:
• We aim to build customer database of at least 250,000 households within the next 12 months
• We aim to achieve a market share of 10%
• We aim to achieve 75% customer awareness of our brand in our target markets
Both corporate and functional objectives need to conform to the commonly used SMART criteria
The SMART criteria (an important concept which you should try to remember and apply in exams) are summarized below:
Specific - the objective should state exactly what is to be achieved
Measurable - an objective should be capable of measurement – so that it is possible to determine whether (or how far) it has been achieved
Achievable - the objective should be realistic given the circumstances in which it is set and the resources available to the business
Relevant - objectives should be relevant to the people responsible for achieving them
Time Bound - objectives should be set with a time-frame in mind
These deadlines also need to be realistic.
CASE STUDY OF VINH TUONG INDUSTRIAL CORPORATION 2.1 Overview of grid ceiling and gypsum board marketing in Viet nam 34 2.1.1 Overview
Five forces analysis in 2007
2.1.2.1 Bargaining power of buyers: High
In the previous years, the supplement of gypsum board completely depended on importation It meant that the supplement was not regularly Therefore, the bargaining power of buyers was mainly upon suppliers
In the late year of 2006, two domestic manufactories (Lafarge and VTJ – Vinh Tuong Join Stock Company) introduced the products into the market There were many dynamic competitions of theirs for entrance market It raised the bargaining power of buyers higher in
However, the demand is growing highly; maybe bigger than supply in some next years Hence, the bargaining power of buyers will decrease when the growing speed of market increases
2.1.2.2 Bargaining power of suppliers: Average The bargaining power of suppliers is not high
To grid ceiling, VTI – Vinh Tuong Industrial Corporation is a sole agent of BlueScope Steel (Australia) in Viet Nam However, the source of steel (category 2) is decreasing It requires VTI have to search substitute material to make sure the effect of investment of the new machine
To gypsum board, VTJ has many suppliers from Thailand, China, Korea, and Taiwan
2.1.2.3 Threat of new entrants: Low
The investment amount of manufacturing grid ceiling is not much, but of the gypsum board is so big It takes the amount of 10 millions USD
Moreover, it is hard to meet the considerable profit if the business produces only grip ceiling Beside the difficulty of setting up the low cost rate, the building of distribution system is very hard
Therefore, with two already big factories of Lafarge and VTJ in Viet Nam, the threat of new entrants is low There will no have investors joining into manufacturing gypsum board in Viet Nam next 3 years
2.1.2.4 Threat of substitutes: Low average
To grid ceiling and partition, VTI is the leader in Viet Nam The purpose of the year 2007 is that VTI will present some new products
Accordingly, the threat of substitutes is so low
To gypsum board, there are many substitutes like Eron, Cemboard, Prima, Villaboard, Cellulose board, Metals board… However, all most these boards have a big difference of cost and quality compare with gypsum board Thus, in a general view, gypsum board will be a main product in the interior decoration
Although the growing rate of gypsum board market is big (average of 30% per year), the intensity of rivalry is so blazing hot by doing of Lafarge to gain the current distribution
In addition, when VTI falls in being lacking in supplying board, many small producers make a pressure on customers to take their grip ceiling.
Introduction of Vinh Tuong Corporation
2.2 INTRODUCTION OF VINH TUONG INDUSTRIAL CORPORATION –
Vinh Tuong Industrial Corporation – VTI – has the headquarters at Lot C23A, Hiep Phuoc Industrial Zone, Nha Be District, HCM city VTI began becoming a joint stock company at the date of 1 st January, 2006, with the total of charter capital - 80 billions VND, from combining three main members:
- Vinh Tuong 2 Private Enterprise: operating in trading
- Vinh Tuong Joint Stock Company in Vinh Phuc – Ha Noi
- The new manufactory plants in Hiep Phuoc IZ: starting operation in July
The capital increased 105 billions VND in September, 2006
VTI has a head office located in the address of 333 To Hien Thanh street, District 10, HCM city
Continuously, the part will present some key particular traits and operating performances of VTI in the recent years
VTI is the first and leading Vietnamese business in manufacturing and supplying grid ceiling, partition, and gypsum board, which replace for importing products VTI owns two factories (one in Hiep Phuoc IZ, another in Quang Minh IZ) of grid ceiling and partition with the total capacity of 16,000 tons (products) per year Considerably, in 2006, VTI took a joint-venture with UCC group (the biggest group of manufacturing cement and gypsum in Taiwan) to invest a modern factory of gypsum board with the designed capacity of 8,000,000m 2 gypsum board per year It is Vinh Tuong Joint-Venture Corporation – VTJ – in Hiep Phuoc IZ Nha Be District HCM city All products of VTJ are distributed by VTI
At the present, the market share of VTI takes about 60 percentage of Viet Nam market The distribution system includes 350 agents in whole country Beside the strong internal position, VTI defines the brand name of good quality by exporting the products into some markets like Singapore, Malaysia, Cambodia, and Bangladesh…
In the proud, VTI is considered as “the leader in wall and ceiling systems” in Viet Nam
This is the operating performance of the business in the recent years of Vinh Tuong 2 Private Enterprise – VT2
Turnover of VT2 in the years of 2001 - 2005
Figure 2.3 – Turnover of VT2 of the years of 2000 -2005 (Soucre: Sale department of VTI)
The Revenue of the first year operation of VTI (2006) is 305 millions VND
The brand of VTI is so popular with the image of the logo o Describe the logo:
- Background: the square in black with the yellow border
- Content: The stylized letters of V, T in yellow at the left show the products of VTI includes grid ceiling and gypsum board
The small circle in yellow at the below corner
- Colors: Black and Yellow o Meaning of the logo is the characteristics of the brand:
- Name: Vinh Tuong: “Vinh Vien Cat Tuong” – Good Fortune Forever is like the wish for customers
1 The stylized letters of V, T: stand for the images of ceiling and partition of a house
2 The small circle in the big square: make the balance for the logo In addition, it presents the philosophy of Square and Circle of Vietnamese This is like a commitment for customers about the improvement to get the perfect in quality of products and service of VTI Prestigious and Quality
1 Black: means elegant, luxurious, smart, strong, reliable and enduring
2 Yellow: means happy, rich, well-off and prosperous
VTI operates in the model of joint stock company, decentralizing to two vice general directors, the managing director in the South, the managing director in the North, and the managing director in oversea market
- The managing director in the South (Southern managing director): control the area from Da Nang province to Southern provinces, including the manufactory in Hiep Phuoc IZ
- The managing director in the North (Northern managing director): control the area from Quang Tri province to Northern provinces, including the manufactory in Quang Minh IZ
- The managing director in oversea market (Oversea managing director): is under controlling of the Southern managing director.
Table 2.2 Organizational structure of Southern area
Table 2.3 Organizational structure of Northern area
The total employees of VTI have 346 persons (calculating on the date of 1 st December, 2006)
Figure 2.4 – Quantity and Qualification of Employees of VTI (Soucre: Human Resource department of VTI)
Qualification of Employees in VTI
BA, BSc College High School Others
Figure 2.5 – Qualification of Employees of VTI 2.3 COMPETITIVE STITUATION
In the early time (in 1992), Vinh Tuong was a small store of materials building in Hochiminh city In 1995, the business owners concentrated in trading products of wall and ceiling systems, which were imported from Thailand, Taiwan… In 1997, Vinh Tuong private enterprise set up a first manufactory of grid ceiling in Le Minh Xuan
IZ (Southern); and continuously importing the gypsum board of Elephant and BPB Board form Thailand These are the high quality products which were favored by the customers The business contributed the distribution system with more than 300 agents in the whole Viet Nam To satisfy the being bigger demand in the Northern, Vinh Tuong built a new factory of grid ceiling in Quang Minh IZ in
With the economic development, the speed of building of Viet Nam is increasing very considerable In the late year of 2005, the La Farge group, the manufacture of Elephant board, wanted to contribute a plant of producing gypsum board in Hiep Phuoc IZ, Viet Nam Vinh Tuong with the great advantage of the owning wide distribution system asked them for being an exclusive distributor of this product in Viet Nam However, La Farge denied the request
No give-up In 2006, the owners of Vinh Tuong business decided to move the grid ceiling factory form Le Minh Xuan IZ to Hiep Phuoc
IZ, where they were building a new big manufactory of gypsum board They formed the biggest manufactories plants of grid ceiling and gypsum board in Viet Nam (with the total investment of 11 millions USD) Besides, Vinh Tuong private enterprise transferred to Vinh Tuong Industrial Corporation – VTI – on January 1 st 2006
When Vinh Tuong business made decision of building the new manufactories plants in Hiep Phuoc IZ, Lafarge group and BPB group immediately stopped supplying gypsum boards for VTI LaFarge wanted to set up new distribution system And BPB group chose the companies of Le Tran, Huy An, An Huy, Huy Hoang (the previous big agents of Vinh Tuong) as the official distributors in Viet Nam
2.3.2 Introduction of La Farge and BPB
2.3.2.1 La Farge group (with Lagyp board in Vietnam) 2
Lafarge, which comes from France, is the world leader in building materials Lafarge holds top-ranking positions in each of its four Businesses: n°1 in Cement, n°2 in Aggregates & Concrete, and n°3
2 Referent from the website: www.lafarge.com in Gypsum The Lafarge Group is listed on Paris and New York stock exchanges With a workforce of 71,000 people, the Lafarge Group is present in 70 countries Its sales for 2006 amounted to € 17 billion
The Gypsum Business sells plasterboard systems, gypsum blocks and sprayable plaster for construction finishing work, new buildings and renovation In 2006, they gained the sales of € 1,632 million (up 10.3% compare with the year 2005) with 6,361 employees In this year, Lafarge inaugurated the new production lines in Vietnam and Morocco They were successful in the start-up of the Buchanan plant near New York following modernization and a doubling of capacity, thereby strengthening Lafarge’s position as a high-quality, and low- cost producer in each of its North American markets Active in 25 countries, the Gypsum Business has 73 industrial sites worldwide
Gypsum Division locations of Lafarge in the world
Illustration 2.1 - Gypsum Division locations of Lafarge in the world
2.3.2.2 BPB group with BPB board 3
BPB, which comes from British, is the world leader in the supply of plasterboard and gypsum plasters, and a major supplier of insulation, ceiling tiles and related products for interiors, serving growing markets for building systems in over 50 countries Its sales for 2006 amounted to $41,596 million To gypsum, the sale gains $3,895 million this year
BPB is one of the world's leading fast-track lightweight building systems companies, operating 90 manufacturing plants and serving markets in over 50 countries A subsidiary of the UK based BPB Group; BPB Asia is managed from its headquarters in Bangkok, Thailand BPB supplies to over 25 countries throughout Asia form Australia/ New Zealand to the Middle East form Korea to Sri Langka
These operations supply and offer the widest range of products for ceiling and wall and partition systems The range includes gypsum boards, ceiling tiles, plasters, galvanized steel frames and all associated accessories including finishing solutions, tools, fixtures and fixings
Competition situation
BUSINESS STRATEGY FOR VINH TUONG INDUSTRIAL CORPORATION IN COMPETING
WITH THE BIG FOREIGNER CORPORATIONS 3.1 STRATEGIC PLANNING
VTI keeps the position of leading in supplying building materials of interior decoration in Viet Nam
To Customers, VTI commits non-stop improving the quality of products and services to gain the most satisfaction of customers
To Shareholders, VTI commits the effective doing business and giving the expecting profit
To Colleagues, VTI commits challenge environment with appropriated awards, encouraging the creations
To Community, VTI takes care of protecting fresh environment, dignifying culture values, supporting developing community
The objects of VTI in the period of 2007 – 2010:
The rate of net profit per revenue gains from 7% to 7.5% per year.
RECOMMENDATIONS 3.1 Strategic planning
Vision
VTI keeps the position of leading in supplying building materials of interior decoration in Viet Nam.
Mission
To Customers, VTI commits non-stop improving the quality of products and services to gain the most satisfaction of customers
To Shareholders, VTI commits the effective doing business and giving the expecting profit
To Colleagues, VTI commits challenge environment with appropriated awards, encouraging the creations
To Community, VTI takes care of protecting fresh environment, dignifying culture values, supporting developing community.
Objects
The objects of VTI in the period of 2007 – 2010:
The rate of net profit per revenue gains from 7% to 7.5% per year
Keep strongly the first position of market share in Vietnam market: 55%
Increasing double the rate of exporting from 10% in 2007 to 20% in 2010
Meet the quality standards of ASTM (USA and UK) for all products; keep the quality controlling of ISO
To gain the strategic planning, it begins go to the strategic management process It includes three parts below.
Strategic analysis
Facing the pre-noticed competitive situation, VTI should set up a suitable strategy for existing and developing of business Follow the strategic management process, the first component is using the analysis tools
Value chain analysis describes the activities that take place in VTI and relates them to an analysis of the competitive strength of the business
- Inbound logistics: o Most of materials imported from overseas o Own the wharf behind the manufactory plants in Hiep Phuoc IZ o Store the materials in a large storage area of manufactory plants in Hiep Phuoc IZ
- Operations o Signed an exclusive contract of importing steel with BlueScope Steel – Australia o Have a good relationship as well as the purchasing negotiation procurement with many foreign suppliers o Invest the new and modern production lines of Japanese technology for the manufactory plants in Hiep Phuoc IZ and Quang Minh IZ o Have two biggest factories of producing grid ceiling in Viet Nam with total capacity of 16,000 tons (products) per year o Have one factory of gypsum board in Hiep Phuoc IZ with the designed capacity of 9,000,000m 2 per year o Have a head office in HCM city, one branch in Ha Noi, one representative office in Da Nang
- Outbound logistics o The manufactory plants in Hiep Phuoc IZ, Nha Be district have a large area to store the products The position has advantage for launching the products to HMC city market and Western South market by trucks and vans There is a suitable wharf system for transporting cargo to market of the Central and the North o The manufactory plant in Quang Minh IZ, Vinh Phuc province has advantage for transporting the products for the North market
- Marketing, Sales and Distribution o Have the largest network of distribution system with 350 agencies in whole Vietnam market and some countries like Cambodia, Singapore, Taiwan, and Brunei… o Have a group of sale people selling by phone o The payment by cash and done every week o Have the policies of credit, price and discount for agencies
- Service o Have the policy of warranty o Have the direct under companies of assembling product system in the distribution network o Have the technical assistant team to support the customers of big projects
- Procurement o Have a procurement department to purchase all materials for producing o The board of director has a good relationship with many foreign suppliers
- Human Resource management o Workforce is so hard-working Almost of them come from the relationship concerning Therefore, the trust is so high working attitude is so good o BOD have high requirement in recruiting They firstly ask the good characters and personalities of employees o Have the reasonable labor policy For example, support buying a house for the couples working together in the company; rewarding and motivating policy; performing salary… o Organizational behavior system is so informal and friendly like a big Vietnamese family
- Technology Development o Machines come from Japan o Hiring some specialists from Taiwan for controlling the process of producing gypsum board o The development and protection of "knowledge" in the business is still weakness
- Infrastructure o Have quality control system for management ISO 9000 o Control the quality of products to meet the standard system of ASTM of USA o Supporting internet and LAN system in the whole company o Use the software of TIHA and FAST for supporting selling and accounting
The BOD is very experience and willing to stand for the business at all costs
Come from the value chain analysis, the competitive advantage can be identified VTI has some great advantages compare with two big rivals
- The biggest manufactory of grid ceiling with modern technology
- The largest and most effective distribution network in Vietnam market
- High quality of products accepted in the current market
- Good experience in understanding domestic market
Basing on the competitor analysis and the key success factors on gypsum board industry including of three main keys: distribution network, quality and price of the products, the table below draw up the competitive position of three main parties The index has 7 fingers Each finger is estimated from the mark of 1 to 5 Mark 1 stands for the worst; and mark 5 stands for the best
The number 1, 3, and 5 are the key success factors Therefore, they are multiplied double
Table 3.1 - Competitive position 3.2.3 SWOT analysis
Continue the analyzing work, the tool of SWOT is presented to consider thoughtful Certainly, the used factors are mainly compared with competitors and the real current market in Vietnam
Competitive advantages LaGyp BPB VTI
Strengths: i Technological skills base on the long experience in the field; the workforce is so faithful with the business ii Vinh Tuong brand has well-known in architectural and construction industry through by many prizes from Vietbuild’s and others in many years iii High quality of the products iv The largest distribution network nationwide with long term relationship and strong attachment v Have many levels of the production quality to suit to various demands in market vi Large scale, capital of over 200 billions VND and workforce of
400 people Being the first and largest scale company in the industry in Vietnam vii Have many good relationships in the construction industry; and understand well about Vietnam market and culture viii The management is so flexible and dynamic ix Many experience assembling companies are loyal agencies
Weaknesses: i The R&D department has not set officially ii Defy the important role of brand building and developing iii Selling policy and promotion program on distribution network are not proper for each region Managing and expanding distribution network are completely unprompted; directly impact on benefit of distribution network, especially for big agents iv Some weaknesses in management like: not have material buying and planning strategy, material quantity forecast proceeded from producing plan; not have process, regulation to examine/ control input material cost in order to effectively use budget and save cost, as this is the largest proportion in cost of good sold; not built a forecast process of sales and production for each line/ product type with the connection among:
Marketing - Sales - Purchasing – Manufacturing; loose in cost management v Input material sources mainly import or make purchasing with foreign companies in Vietnam It highly depends on suppliers
Opportunities: i Vietnam joining WTO => expand material market, more and various material suppliers with better services; learn new knowledge and advanced producing method in the world;
Approach professional and modern machine and technology system; easier to develop the distribution network to oversea ii Exploiting high quality domestic and foreign material sources with reasonable price when steel and thermo-electricity industry sharply develop iii Large potential market Product demand growth rate is quite high average 30%/year iv The movement of combining or linking many Vietnamese companies in the same industry to compete with big foreign corporations or groups
Threats: i High risk as material cost account for large proportion in cost of good sold but frequently fluctuates; Input material sources mainly import or buy from foreign companies in Vietnam => highly depend on suppliers ii Risks in technological advances is so high: Low barriers from technical and machinery equipment => easy appear new competitors {for machineries of producing grid ceiling}; improvement in technology science and technology development => Machinery and production line depreciation duration is shorter because of the rapid out of date machineries; Improvement in technology science => Speedy development and appearance of better substitutes iii Matter of the counterfeit products is popular iv The current and future competitors (LA, BPB…) are stronger in brand, finance and experience… The competition will be more stressful
After using the tools of analysis, the next part will show the matrix to form some suitable strategies for the business
3.2.4 SWOT matrix to form strategies
Basing on the SWOT analysis, the matrix of SWOT can be formed to give out some kinds of strategy for the business
(S + O) The strategy of making the best of opportunities by using the strengths
(S + T) The strategy of using the strengths to overcome the threats
(W + O) The strategy of making the best of opportunities to improve the weaknesses
(W + T)The strategy of minimizing the weaknesses to avoid the threats
3.2.4.1 The strategy of making the best of opportunities by using the strengths (S+O)
The strategy of developing new products (S i S ii S iv S vi + O i O ii O iii )
The strategy of developing the products requiring the hi-tech (S i
The strategy of integrating back (S ii S iv S vi S viii + O i )
The strategy of integrating forth (S ii S iii S vii S viii + O iv )
The strategy of growing the market (S iii S v S viii + O i O ii )
3.2.4.2 The strategy of using the strengths to overcome the threats
The strategy of developing the products requiring the hi-tech (S i
S ii S iv S vi + T ii T iii T iv )
The strategy of integrating back (S ii S iv S vi S viii + T i )
The strategy of integrating forth (S ii S iii S vii S viii + T iv )
The strategy of growing the market (S iii S v S viii + T iv )
3.2.4.3 The strategy of making the best of opportunities to improve the weaknesses (O+W)
The strategy of integrating back (O i + W v )
3.2.4.4 The strategy of minimizing the weaknesses to avoid the threats (W+T)
The strategy of reorganizing the business to gain more effective (W i W ii W iii W iv + T iii T iv )
In the other way, the formed strategies that come from the combining of SWOT matrix will represent in explaining detail on the following part.
Strategic choice
In this part, the strategies presented come from the information analyzed above combine with the objects of the business in the period of year 2007-
3.3.1 The strategy of developing new products, especially products requiring the hi-tech
The strategy comes from taking the strengths combine with the opportunities to overcome the threats
VTI owns the faithful workforce with good technological skills The business’ trade mark is so popular The domestic customers have confidence in the brand name of VTI Another big advantage of VTI is the biggest distribution network Furthermore, there are many opportunities such as Vietnam joining WTO will expand material market, more and various material suppliers with better services; approaching modern machine and technology system; exploiting high quality domestic and foreign material sources with reasonable price when steel and thermo-electricity industry sharply develop Therefore, developing new products, especially products requiring the hi-tech with high quality and low cost, can help VTI overcome the threats of appearing new domestic competitors, who caused by low barriers from technical and machinery equipment, and counterfeit matter In addition, the strategy will enhance the competitive competencies for the business in competing to the international competitors
The strategy aims to develop the current market by launching the new products The new products can be developed in the internal business; or linking with other external businesses
3.3.2 The strategy of integrating back
The strategy is formed on combining four factors of SWOT analysis: making the combining of strengths and opportunities to improve the weaknesses and overcome the threats
The eighty percentage of producing cost comes from materials The producing situation of gypsum board often falls in noncontinuing because the suppliers are not regularly To minimize the depending on suppliers as well as widen the growing, the company should learn how to integrate back The strategy focuses on gaining the property or the right of controlling increasing source of supplies This is the best way to ensure that the suppliers must always do all orders from VTI
At the moment, Vietnam is already an official member of WTO It is a good opportunity for the business doing integrating with foreign suppliers However, the strategy will have some difficulties from management and negotiation with suppliers By the way, VTI has a board of director is so flexible and effective They have good experience and knowledge in the industry The other advantages of VTI to negotiate with the suppliers are the well-known brand name, the biggest scale of business in the industry, and the largest distribution network in Vietnam
3.3.3 The strategy of integrating forth
The strategy takes the strengths combining with the opportunity to solve the threat
At the time, the most dangerous threat that VTI is facing is the stressful competition of two big foreign corporations of La Fagre and BPB They are concentrating to fight over the distribution network of
VTI to push the products into market quickly to gain more market share The strategy of integrating forth will aim to gain more controlling the distribution or get more affecting into the final market
The distribution network of VTI includes two parts: one is belongs to VTI’s ownership, one is independent The strategy will focus to the independent distributors, middlemen
The movement of combining or linking many Vietnamese companies in the same industry to compete to big foreign corporations or groups is the great opportunity for the strategy In addition, the advantages of prestigious trade mark with high quality products and effective management will be easier for VTI in negotiation with the partners
One more strength can help for the strategy is that VTI have many good relationships in the construction industry and understand well about Vietnam market and culture
3.3.4 The strategy of growing the market
The strategy not only solves the threat but also takes the opportunities effectively and maximizes the advantages of VTI
The strategy of growing the market is to gain the growing of the business by entering new markets with the current products The strategy will help VTI lessen pressure on competition Besides, VTI can apply the advantages of products with many levels of the production quality to suit to various demands in new markets
Moreover, the event of Vietnam joining WTO will make VTI easier to develop the business to oversea Of course, the opportunity of exploiting high quality domestic and foreign material sources with reasonable price (because steel and thermo-electricity industry sharply develop) are opening By the way, the strategy also requires high level of managerial skills
3.3.5 The strategy of reorganizing the business to gain more effective
The strategy is formed to improve the weaknesses as well as overcome the threats of VTI
This is a short term or temporary strategy It concentrates to the ineffectiveness of organization to improve the current situation better
The business improves the quality of management in administration (the connection among departments), cost, sale and distribution, marketing, branding VTI must also invest more in R&D department
This is the most important department in future long-term strategies of the business This is the way to face with the threats of counterfeit matter as well as the current and future competition
3.3.6 The strategy of differentiation in competition
The strategy is given from the value chain analysis and competitive advantages
This is a strategy of differentiation of support services of products on the whole market The strategy bases on some conditions of current market Vietnam is a quickly changing market Demands with many new requirements are increasing The customers specially expect in quality of service, design, and image … There is not a unity on demands, which gives out many divisions of market Moreover, the strategy comes from the competitive advantages of company The large scale can provide products for the whole market VTI can create many support service for products Furthermore, company has a strong finance resource to protect the competitive advantages of products in long time
Continuously, the next part will present how to apply the strategies in practice.
Strategic implementation
The strategic management includes three stages:
2007: the stage of reforming o Products and Services
- Diversify the range of products
- Define the unique service support of VTI products
- Support technique and project consultant o Resources
- Controlling directly distribution system in the twenty percentage of the top revenue
- All distributors are stockholders o Manufacturing
- Expanding the large scale of manufactory in Vinh Phuc to provide for Northern market o Research and Develop
- Establish the department of Research and Develop o Branding
- Building the system of VTI’s brand identify
2008: the stage of growing o Research and Develop o Association o Cooperation o Diversify o Customer service
2009 – 2010: the stage of expanding o Expanding market to oversea
3.4.1.1 Objects of VTI in the strategic period
- The revenue will increase double in four years through the strategies of developing new products and growing the market
- The annual net profit always keeps at the rate of 7 to 7.5% per revenue
- The return on equity keeps always higher than 20%
- The domestic market share of gypsum board keeps always in 55 percentages
- The export rate will increase double in four year through the strategies of integrating forth and growing market oversea
In year 2008, VTI will joint with VTJ This is the table of annual objectives of VTI in the period
Figure 3.1 – Annual objects of VTI for the period of 2007 - 2010
From the annual objects above, each department gives out the own specified annual objects following the functions and responsibilities
3.4.1.2 The policies to gain the objects
To gain the objects, the board of directors and the mangers of departments should build up the policies for operation of business strategies a The external policies
- The price policy for distribution system is lower than retail system, which is directly under the company
- The policy of free trading for distributors They can deal with other brands
- The awarding policy for distributors bases on sale amount
- The supporting policy for distributors expands the market into oversea
- The policy of supporting technique for distributors joining the big projects b The internal policies
- The awarding policy for employees with quality improvement or new ideas for products, services; or ideas for decreasing cost, expense
- The awarding policy for sale force bases on the quotas of turnover of months, quarter, year…
- The policy of encouraging the employees learns and studies to enhance the qualification
3.4.1.3 Allocation of resources for organization
The allocation of resources for organization will base on the stages of strategic period and the chosen strategies above
The resources will be allocated in order such as:
- Machines 3.4.1.4 Measuring and appraising the performance
The strategic implementation will be measured and appraised during the strategic period It bases on the given objects and the performances quarterly or yearly on the strategic period There are four factors for appraising They are quantity, quality, time, and cost
The criteria will be formed on the annual objects
The jobs will be done by a strategic board
The strategic implementation should be supported by marketing, finance, research and develop, information system management to gain the strategic objects
The strategies of developing new products and growing new markets require some certain market researches to gain the information for making decisions
For example, the picture 1 tells about the percentage of total turnover at geography markets
The marketing department should take more researches on current markets as well as the new markets It is a base for launching suitable marketing plans, ordering new products from the manufactory
The strategies of integrating back and integrating forth heavily require many market researches to choose the best suppliers and distributors, customers to combine
Illustration 3.1 - Turnover percentage of geographic areas of market
(Source: Marketing department of VTI)
3.4.2.2 Managing the distribution network more effective
The current distribution network with more than 350 agencies is too crowded to be able to manage well The direct is that VTI will take 20 percentages of agencies (about 60 agencies around the country) owning 80 percentage of turnover to manage with special policies for them The policies of price, discount, credit, customer services, and owning stocks aim to attract the distributors
Research and contribute distribution networks at main export markets
3.4.2.3 Dividing and choosing the parts of market
VTI has a lot of levels of products for many parts of market In the past, it seems to be a sole supplier in Vietnam market Therefore, the business didn’t have any specific dividing market The current competitive situation asks the company must have the dividing to choose the suitable parts of market to provide Then, it forms the marketing-mix for the business strategies in competition
3.4.2.4 Locating the position of products
After dividing market and choosing the target customers, marketing department must make the locating for the position of products This job aims to server the strategy of differentiation
3.4.2.5 Branding One advantage of VTI is well-known brand name Branding is required to develop the core competence for the business The branding strategies include public relations, advertising, organizing events… The branding must unite in characteristics of the brand of VTI It requires the brand should have the branding identified system
The part presents some activities aim to save and collect enough money to do the strategies above The activities include:
- Concentrating on improving the producing processes in big scale to decrease cost of products In the activities of producing study, the important point lies on the cost price of products
- Manufacturing plan, inventory plan, purchasing plan, sale and marketing plan must link together to reduce cost price from saving labor cost, and time
- The business raises more equity via calling investments from distributors, employees, customers, and other investors
- Finance and account department also contributes the key role on the activities of cost managing, cash flow managing, and balance sheet
- Cost managing should base on reducing administration cost This requires conducting on the whole of company
- The company must set up a department of researching and developing with a force of skillful engineers on build material and chemistry The department will be responsible on researching new products or new functions of products to continuously improve quality
- Organizing some contests of finding out new building materials for young construction students, engineers and architectures; the contest of applying new build materials in architecting and interior design
- The company should link with universities of architect, building materials and construction to look for and apply the new solutions for the industry
- Taking the material and other additives of gypsum to make the product of joint compounds
- Keeping the ISO 9000 on quality management Registering the quality standard of ASTM UK, ASTM USA for all products
Registering the style, format, name of products
Strategic implementation asks information system management The company should build up an own IT group, or IT department They are responsible on managing the application softwares or hardwares of all departments, local area network, website, and internet It makes sure that the information must be unique, correct, specially the security data
The IT system management is very important for the strategy of reorganizing the business to gain more effective
3.4.6 Timeline table for the implementation
Manage the ASTM and ISO system annual 400 per year QC department
Build up R&D department 2/2007 N/A Vice G.Director+
Look for and import hi-tech products
Find out the strategic alliance (Knauf)
Classify and organize the distribution system
Invite agents become key stockholders annual N/A Finance + Acc
Building the favor policy for the key agents
Build up the performance appraisal system and salary system
Training and developing human resource
Annual 2000 per year HRM Dep
The strategic implementation is often the hardest and most complex part in the strategic management It requires a general coordination of all departments of the company of VTI Departments have to give out their own specific strategies and policies to support the business strategies above.
Recommendation
The part talks about the other recommendations to support the strategic management more effective
- VTI’s board of directors must translate the business objects to the gained goals of employees During the strategic management, the discussions and united actions must be always happened By the way, the measuring and appraising the performances is necessary to make or change the strategies more suitable in practice basing on the time and the place
- VTI should define that the most important point in applying the strategies is human resource Therefore, the organization must develop the business culture focusing on promoting ability, creation, and united spirit of all workforces The company should let them understand that they are owners of the business; encourage the eager members to service the benefits of corporation In addition, it introduces many training courses and programs to help them develop their knowledge and skill
- The last ten years achievements of growing and developing continuously of VTI is the strong belief on success of the strategies chosen However, the company should be always in dynamic, innovated managing to catch the current competitive situation
Nowadays, the economic of Viet Nam integrated on the global economic through becoming an official member of WTO When the process happens, the international competition is an obvious impact for the Vietnamese businesses To keep the position as well as develop the business, Vietnamese corporations must set up the suitable and effective strategies in the new opening challenges All activities of companies should be in professional of the international market economy
Understanding, many Vietnamese enterprises are serious in building up and applying the strategic management in doing business
By the way, VTI that was just established on one year, but having a fifteen years history of business with many great achievements is contributing the own business strategies in the new period with many new difficulties challenges The strategies chosen are not only focusing on the current competitive situation, but also keeping the growing and developing rate of the business Somehow, the strategies should base on analysis tools of the corporation Then, VTI’s strategies chosen will be formed on the analysis data The strategic management requires highly the responsibility of all departments of VTI The business strategies must be support by many function strategies and policies of all departments The process of implementation, measuring, appraising the performances, and changing the strategies are a continuous circle to make the company gain the objects, missions, and vision
In general, the business strategy is the key direct of the company Especially in international competition situation, the strategic management has a key role on existence as well as contributing the success of the business organization.