Family small and medium enterprises (smes) management how toapply effectively to phu cuong coffe export company

I HCMC UNIVERSITY OF FOREIGN LANGUAGES TECHNOLOGY & INFOR1\1ATION (HUFLIT) SCHOOL OF FOREIGN LANGUAGES GRADUATION PAPER FAMILY SMALL AND MEDlUM ENTERPRISES (SMEs) MANAGEJ\'IENTHOW TO APPL Y EFFECTIVELY TO PHD cudNG COFFEE EXPORT CO~v.IPANY • ADVISOR STUDENT STUDENT NUMBER CLASS ACADEMIC YEAR : DR.-lNG, DANG l'flNH TRANG 1: PHAN NGUYEN HO~ MI : 0071427 : KA 0001 : 2000-2004 TV Dgi H9C Huflit 11111111111111111111111 II III 101000507 JULY, 2004 HCMC UNIVERSITY OF FOREIGN LANGUAGES & lNFORMA nON TECHNOLOGi T (HUFLIT) SCHOOL OF FOREIGN LANGUAGES GP t\DUATION PLt\PER FAMILY SMALL AND MEDIUM ENTERPRISES (SMEs) MANAGEMENTHOW TO APPLY EFFECTIVELY TO PHU cudNG COFFEE EXPORT CO]VIPANY • ADVISOR STUDENT STUDENT NUMBER CLASS ACADEMIC YE~Ai' : DR.-lNG D~NG MINH TRANG : PHAN NGUYEN HO~ MI : 0071427 : KA 0001 }lJo;~ ~~~~ ,C~JF~~r- ~~}v~7 f 11.;;;;i/ JULY, 2004 • EVALUATOR'S ASSESSME~iT ( ••••••••••••••••••••••••••••••••••• ••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••••• ~ j ~ < •.•.•.•••.•.•.••••••.••••••••.•••••••.••••••••••.••.•••••••.••••.• •.•••••••••••••••.••.•••••••• ••••••••••••••••••.•.••••••••••• ( I i ::::::::::::::::::::::::::::::::::::::::::::::::::::::::: f ::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::::: ~ ACKNOWLEDGEMENTS I would like to thanks Mr D?ng Minh Trang, who is my supervisor, for all his instructions on this graduation report I many thanks to the generous support of Mr Phan Van D&u, Director of PM Cuemg Company, who had provided all necessary information about the company to fullfil this research I especially thanks my family members and friends who have given me the encouragement and confident to continuing and finish this graduate research paper July, 2004 Phan Nguy~nHQa Mi K~lvtirtt-[hJ ~ilClU tiuPU'j r.J JOe, c1::;- ;] - "uv 4- ;r.~ PREFACE With the policy of encouraging the development of the private section of the State, a large number of small and medium enterprises (SME), especially family businesses, are increasing day by day, giving more contribution to the country's economy and society It is undeniable the important role of SME to the development of our country But this business is now facing many difficulties such as lacking capital, limited managerial ability, competitiveness under-qualified technical conditions and limited that prevent them from running the company effectively and integrating into the international market There are limited for SME to expanding , to an Incorporation or bigger joint Corporation due to lack of basic management skills Solving those problems would thus serve to strengthen this important sector of the economy The aim of this research is to bring theory into reality However, I am aware that there is always room for improvement in this research, so I am very happy to receive any comments in order to make this research better Many thanks July, 2004 PURPOSE OF THE RESEARCH The study focuses on the advantages and disadvantages of family SME From this, some suggestions have been made to run the family SME effectively such as good managers, team construction and successful successor planning The next section of the research is to focuses to the real situation of PM CUOng coffee export company The strengths and weaknesses of the company will be analyzed by SWOT analysis method in order to set planning for business growing Therefore, this study may serve as a manual for the managers of family SME TABLE OF CONTENT Chapter 1: An overview on family small and medium enterprises Vi et Nam IO •••••••••••••••••••••••••••• 10 ••••••••••••••••••••••• The development (SME) in 10 ••••••••••••••••••••••••••••••••••••••••••••••••••••• and real state ofSME in Viet Nam Definition of family SME 10 2.1 Definition of family business 2.2 Definitio n of SME 2.3 Definition of family SME in Viet Nam Characteristic of family SME 3.1 Establish men t 3.2 Ownership and management 3.3 Human resou rces 3.4 Inter-relation Advantages between family and business and disadvantages 4.1 Advantages of family SME of family SME • ; 8 4.1.1 Freedom 4.1.2 Finan cia I ben efit 4.1.3 Prestige and pride 4.1.4 Tightening the family relationships 10 4.1.5 Good relationship 10 between employer and employees 4.1.6 Flexibility in management 4.2 Disadvantages of family SME 11 ; 11 4.2.1 Lack of capital 11 4.2.2 Inter-related 12 between family and business 4.2.3 Unclear role definition 12 4.2.4 Unskillful staff 13 4.2.5 Lack of managerial skills 13 4.2.6 Lack of su ccesso r Chapter 2: Effective management Competencies 13 of a family company 14 of a good manager •• 1.1 The important 1.2 Competencies of great boss .• of a good manager 15 15 16 1.2.1 Lead ership 17 1.2.2 Flexi bility • • 17 1.2.3 Creativity • 18 1.2.4 Decision making-seizing 19 of opportunities 1.2.5 Self-motivation 20 1.2.6 Risk assessm en t 20 B uildin g family team 2.1 The importance 22 of teamwork in an organizational setting 22 2.2 Behavioral science principle supporting team building ;•• 22 2.3 Six characteristics 2.4 Team-building of an effective work team guidelines for leaders 2.4.1 C on sid era tion 2.4.2 Stru ctu re • 24 ; 25 25 " 26 2.5 Conflict solving for family team 2.5.1 Ca uses of conflict 2.5.1.1 Poor communication 28 28 skills • 28 2.5.1.2 Val ue clash es 29 2.5.1.3 Work policies and practices • 29 2.5.1.4 Adversarial 29 management • 2.5.1.5 No ncomplian ce • 2.5.1.6 Inter-relations 29 between family and business •• 30 2.5.2 Key element of conflict resolution 30 2.5.2.1 Attitude adj ustmen t 30 2.5.2.2 An effective leader 31 2.5.2.3 A formal conflict resolution plan • 32 The succession of a family SME 33 3.1 Family problem in the succession process 33 3.2 The entrepreneurs of the first generation 34 3.3 The inheritors and successors • 35 3.4 Factors for a successful succession 36 3.5 How to start dealing with succession 37 3.6 Planning of a successful succession 37 Chapter 3: Phu CU'Ollg coffee export company 39 Establish and development process 40 Managing structure 41 and working staff of Phu CU'Ollgcompany 2.1 Infrastru cture an d eq uip men t .• 41 Chapter Advisor: £>?ng Minh Trang By analyzing this sort of information, the company can fill the market gap and create competitive advantages to its competitors The keys to success for Phii Clfimg 4.1 Good relationship with suppliers and customers The company will maintain and tighten good relationships with local suppliers Also it will establish and maintain good working relationships and contractual agreements with foreign importers and Vietnamese wholesalers The company values its relationships communicate with current its appreciation and future customers to them through and hopes to its outstanding, guaranteed product quality, personal service, and efficient delivery Its commitment to the customers will be reflected through honest and responsible business 4.2 Product competitive In order to compete with future local and foreign competitors when Viet Nam joint WTO, the company must produce high quality coffee which all beans are guaranteed fresh and are shipped within several days of preparation In addition all beans must be sorted at ninety-five percent screen 18 and above compared to the industry standard ninety percent screen of 17 and above The beans shipped by Phil Cuang are therefore larger than most and are guaranteed fresh Furthermore, the company will develop future product by exporting Arabica coffee besides Robusta, and by roasting coffee • Arabica coffee: Although sharing some similarities with the Robusta bean, Arabica coffee is very different The Arabica species grows at much higher elevations, better soil rich areas, and is the source of the world finest coffees So that Arabica has better q~ality and higher price to Robusta coffee By providing the finest species of coffee, Phil Cuang could take the first step towards a differentiated product To further distinguish its coffee, the company Student: Phan Nguy~nr HQa Mi 59 Chapter Advisor: 8~ng Minh Trang adheres to higher quality standards than approximately the market The company's customers, ninety-five percent of American and Vietnamese specialty roasters, recognize Phil Cuemg for its ability to provide the type of beans they require to produce award winning coffee • Roasted coffee: the company can build competitive advantages roasted coffee by better quality with lower price than competitors of in the market At present, there are approximately local competitors who offer a product similar to Ph(t Cuemg in Uim 86ng province In my opinion, the additional capacity the company would become one of the top ten direct-export company, in terms of quantity, providers The company must create advantage of established distribution channels and reputation In addition, improvements to the company's marketing efforts will further separate it from the larger market and from its close competitors 4.3 Increasing sales Phil Cuang cun"cndy works with two American direct-invested wholesalers who handle all of its shipments Likewise, the company has dealt with the same Vietnamese wholesalers, for internal sales, each year Sales to this point have been handled through personal selling The enterprise can increase sales by direct export to foreign market like EU, or US It can contact with customers through website, direct mail, or print advertising in several trade publications such as Coffie Times, a monthly publication which targets American business dealing with issues relevant to the coffee industry 4.4 Technology The company can bring the new facility to maximum production within three years of operation The use of partially automated selecting machines will allow for increased production capacity compare to lower machine-to-operator ratio that the company has currently used Additional storage capabilities will Student: Phan Nguy~n HQa Mi 60 Chapter Advisor: E)~ng Minh Trang decrease shipping charges and will reduce the need for permanent employees by thirty-five percent High-technology information shipping system upgrades will improve all aspects of business, especially inventory control, tracking of shipments, and communication with clients in import countries Several suggestions to the manager and family members 5.1 Suggestions to the manager 5.1.1 Re-organizing the chart (see figure 4.1) The first thing the company must is reorganize the company's structure The chart has a little change from the previous one (Figure 3.1) while adding marketing department While organizing the operation, the director should have job description and clear role definition to commit employees' human need for organization Most workers want to know specifically what they are supposed to do, what they are responsible for, where they stand in the business itself, who they report to, who reports to them, and simply where they fit into the company as a whole The next thing the owner must is to install an intemal computer network to control the business operation from purchasing material to shipping finished product The network include one host computer which controlled by the director, the other five computers will be installed at each department Through the computer network, the CEO can control all activities in the company and have useful information in hand without face-to-face contact for getting information And the network can reduce a large a mount of paper-work which need a lot of time to Student: Phan Nguy~n, HQa Mi 61 , I Director = CEO Marketing department Production Department Vice-director CIF Accounting Department = >Q ~ -< o ,'" Personnel Department Sales Department FIGURE 4.1: SUGGESTION OPERATION CHART FOR PHU CUONG COMPANY Chapter • Advisor: Di,ing Minh Trang Write down a description of the work This is the principle of definition Some people find position descriptions to be an unnecessary hassle They claim that their people know what to do; they know the work What's all this paperwork for? If you feel this way and you don't have position descriptions in your organization, try a brief experiment Write down the work (responsibility) and authority that you think one of your employees is accountable for Ask that person to the same Then compare the two In most cases, the results will read like two different jobs 5.1.2 Effective development of business plan The owner and key managers should train themselves planning skills for planning is the most basic managerial function When done properly, it sets the direction for the organizing, leading and controlling functions The planning involves defining organizational goals and proposing ways to reach them Planning is the formal process of: • Choosing the organization's vision Missions and overall goals for both the short run and long run, • Conceive team and even individual goals based on the gradual achievement of strategic choices, • Choosing methods, tools and tactics to achieve those goals If undertaken properly, planning should assist in: • identifying future opportunities, • anticipating and avoiding future problems, • developing courses of action (strategies and tactics) and • understanding the risks and uncertainties associated with various options Student: Phan Nguy€nJ HQa Mi 64 Chapter Advisor: D?ng Minh Trang It is most important that the plan is clearly communicated within the business and with the family to ensure understanding, ensuring commitment and buy-in from all parties Fam ily businesses who wish to be successful in the 21 st century must preserve the values of the past, whilst creating a culture of change, innovation and flexibility for the future FAl\UL\: BUSINESS PLANNING CYCLE Ownership and Estate Life/Career Strategic •• Business Plan Management ••• Development Family Participation 5.1.3 Effective financial management -The chief in finance (elF) must separate the business budgets from the family budget The important word is "specific," and it means numbers, percentages, dollars, units-perfonnance measures that can be put in black and white for everybody to see, and agree to -The financial structure of the family business needs to be reviewed on a regular basis to ensure that it is tax efficient and appropriate to support the Student: Phan Nguy~n~ HQa Mi 65 Chapter Advisor: Di:ing Minh Trang business, It should be flexible enough to ensure that there is sufficient finance available to allow the company to achieve its' strategic growth goals -An essential control for the family business is the preparation and monitoring of a cash flow forecast on a reguiar basis to ensure that management is always aware of the cash position of the business Measures should also be introduced to ensure the prompt payment from customers in settlement of debts to manage the debtor risk within the business 5.1.4 Team construction The manager can set a board of manager in which he is the President The shareholders are his children and wife The task of the board is walking through the overall planning, setting goals, and solving conflict -Set ownership encompassed policies: These should within a shareholders' be clearly agreement defined and ideally Key issues that are often included for a family business include procedures for the transfer, acquisition and disposal of shares an equitable and appropriate method of valuing them The creation of a shareholders agreement can help to reduce the potential for conflict within the family business -Review management skills: the family business needs to consider the different management roles and determine whether there are any skills gaps within the existing management team that may require the introduction of outsiders to fill the gaps 5.1.5 Policies for family employees The board of director should have strategy to recruit family members as follow: • They have to be efficient and really capable to perform the job that has been assigned to them • The employer has to make a plan of what he/she wants, what the company needs in view of strategic decision made, so that he/she could select Student: Phan Nguy~n HQa Mi 66 Chapter Advisor : D~ngMinh Trang hislher employees by using specific criteria and not acting on a sentimentally basis • The employer has to train the family members, who have not qualifications required by the tasks they will have to perform meritocracy - the employer should treat employees equally and he should give them equal chances • It is essential to know how to assess the skills of each member of the family who works in the company and how the company could take most advantage of it and to know how to have good working relations with members and non members of the family The salary paid to family members should be based on the service they perfOlm for the business and be comparable to that of other employees doing the same work It is common in family businesses to pay family members what they need rather than what they are worth This can lead to tension with key nonfamily executives Strategies can be put in place to give family members more money, for example the owner-manager could establish an executive family committee for which each family member is paid a fee 5.2 Suggestions to build a harmony atmosphere in the company as well in the family To build a good relationship, there are some issues for every family member to consider: -Building trust -Self-disclosure -Discipline 2.1 Building trust Good relationships, whether among coworkers or between employer and employee, are based on trust Without trust, most human relationships will degenerate into conflict William Ouchi, author of Theory Z, a popular book Student: Phan Nguy~n HQaMi 67 Chapter Advisor: Dljng Minh Trang about how American business can meet the Japanese challenge, recognizes trust as a key to long-term personal and organizational success He says, "To trust another is to know that the two of you share basic goals in the long-run so that left to your own devices, each will behave in ways that are not harmful to the other." When a lack of trust exists III an organization, a decline in the flow of information almost always results Employees communicate less information to their supervisors, express opinions reluctantly, and avoid discussions Cooperation, so necessary in a modem work setting, deteriorates When a climate of trust is present, frank discussion of problems and a free exchange of ideas and information are encouraged 2.2 Self-disclosure Self-disclosure is the process of sharing to the other knows what you think, feel, or want The primary goal of self-disclosure is to build strong and healthy interpersonal relationship • Self-disclosure and trust are two halves of a whole The better sharing is the stronger bond of trust is built The more trust there is in a relationship, the safer you feel to disclose who you are Self-disclosure is also part of good communication It takes the guess-work out of the communication process No one is a mind reader; if people conceal how they really feel, it is difficult for others to know how to respond to them appropriately The accuracy of communication can often be improved if you report both facts and feelings The other person then receives not only information but also an indication of your feelings Self-disclosure can reduce stress To the extent that persons can share with others their inner thoughts and feelings, they experience less stress Student: Phan Nguy~nHQaMi 68 Chapter Advisor : D~ng Minh Trang Constructive self-disclosure can be a very important dimension of a stress management program Too many people keep their feelings bottled up inside, which can result in considerable inner tension 2.3 Discipline Discipline is an essential characteristic of successful family owned businesses Here are some of the ways it shows itself: Discipline is systematic, orderly management It's formulating rules and procedures for running the company and then applying them consistently to every business decision and to every employee family member or not Discipline is holding family members to standards of excellence In fact, many family businesses demand more of family members than of non-family employees Their view is that the family whose name is on the door should set examples of leadership and initiative for the rest of the company Discipline is suspending family relationships in the workplace It's sometimes hard to set aside the image of son Sammy as a runny-nosed little kid and accept him as the grown-up Vice -President for product development It can also be tough to remember that the man behind the desk isn't dear old Daddy but the CEO of the company and your employer Discipline makes it possible to accept one another's business roles and to behave accordingly Discipline is letting others be as good as they can be It's delegating responsibility and authority to the coming generation It's letting younger family managers get the feel of the wheel so they can learn to steer the company with skill and confidence It's allowing them to find their level and their niche so they can know the personal satisfaction of being in the business Student: Phan Nguy~n HQa Mi 69 Chapter4 Advisor: Dijng Minh Trang GENERAL CONCLUSION With the policy of encouraging the development of the private section of the State, a large number of small and medium enterprises (SME), especially family businesses, are increasing day by day, giving more contribution to the country's economy and society However, these enterprises were facing such difficulties as lacking capital, limited managerial competitiveness ability, under-qualified technical conditions and limited Besides common difficulties, family businesses have their own disadvantages such as inter-relationship between family and business, unclear role definition, and lack of successor Those weaknesses were prevented family SME from running the company effectively and integrating into the international market To improve the current situation, the family SME must choose good managers to run the husiness effectively Then, the managers must organize people into groups or teams to accomplish the organization's goals and objectives Finally, choosing appropriate successor will help the family SME immortalize In the case of Phu Cuong coffee export company, to overcome difficulties, the director must use SWOT analysis to set effective strategic and operational planning and organize people into group to reach the company's goals To the family member, they must treat the business as it is and not transfer the conflicts and problems from the family to the enterprise and vice-versa They can build harmony atmosphere through building trust, self-disclosure, and discipline The important thing for well-run family business is to keep the balance between family system and business system and to translate the harmony into growth Student: Phan Nguy~n HQa Mi 71 Graduation Paper Advisor: Dllng Minh Trang APPENDIX Table Screen size Screen size mm Classification N"IO N°12 4.00 4.75 Shell N°n N°14 5.00 5.60 Small N°15 N°16 6.00 6.30 Medium N"17 N°18 6.70 7.10 Large N°19 N°20 7.50 8.00 Very large (From Green Coffee Specification, Vietnam Standards, Vietnam Coffee and Cocoa Association) Table Primary Defects Primary Defect Full Black Full Sour Pod/Cherry Large Stones Medium Stones Large Sticks Medium Sticks Student: Phan Nguy~nHQaMi Number of occurrences equal to one full defect I I I 5 72 Graduation Paper Advisor: Dljng Minh Trang Secondary Defects Secondary Defects Number of occurrences equal to one full defect Parchment Hull/Husk Broken/Chipped Insect Damage Partial Black Partial Sour Floater Shell Small Stones Small sticks Water Damage (Sources: SCAA Green Coffee Classification http://www.coffeeresearch.org/coffee/brazilclass.htm Student: Phan Nguy~n HQaMi 2-3 2-3 2-5 2-3 2-3 5 1 2-5 ) 73 REFERENCES Broom, H.N & Justin, G Small Business Management (2nd ed.) 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