Proposal of competitive strategy for sce consultants (indo china) ltd in the period of 2011 to 2015

TRƯỜNG ĐẠI HỌC MỞ TP HCM UNIVERSITÉ LIBRE DE BRUXELLES HO CHI MINH CITY OPEN UNIVERSITY SOLVAY BRUSSELS SCHOOL MBAVB3 DANG HOANG TUNG PROPOSAL OF COMPETITIVE STRATEGY FOR Tai Lieu Chat Luong SCE CONSULTANTS (INDO-CHINA) LTD IN THE PERIOD OF 2011 TO 2015 MASTER PROJECT MASTER IN BUSINESS ADMINISTRATION (PART-TIME) Ho Chi Minh City (2011) i Acknowledgement I wish to express my loving thanks to my parents and wife for their spiritual support and encouragement during my study I wish to extend my gratitude to Dr Nguyen Quyet Thang for his valuable advice and help Finally, thanks to all friends who share with me joy, happiness and sadness ii Declaration This thesis is a presentation of my own study Wherever contributions of others are involved, every effort is made to indicate this clearly, with due reference to the literature, and acknowledgement of collaborative research and discussions The work was done under the guidance of Dr Nguyen Quyet Thang, under the framework of the Master program in Business Administration – The join Master Program between Solvay Brussels School (Belgium) and Ho Chi Minh City Open University (Vietnam) The work was completed in February 2011, in Ho Chi Minh City – Vietnam (candidate’s name and signature) DANG HOANG TUNG In my capacity as supervisor of the candidate’s thesis, I certify that the above statements are true to the best of my knowledge (tutor’s name and signature) Dr NGUYEN QUYET THANG Date: iii Abstract Positioning in consultancy of high-rise building segment, in recent years SCE Consultants (Indo-China) Ltd is considered a successful company in terms of high growth rate Nevertheless, as other consultant companies, SCE Consultants (IndoChina) Ltd is facing the question of how to develop in the environment with fiercer and fiercer competition Hence, the purpose of this study, designing a competitive strategy for the company, becomes more necessary and crucial In this study, based on the general process of strategy formulation, the most appropriate strategy for the company to develop will be found out Firstly, an external scanning relied on macro environment and industry environment analysis to identify opportunities and threats for the company is carried out Secondly, the company’s factors such as organizational structure, human resource and business activities… are examined to reveal strengths and weaknesses of the company Thirdly, derived from the determined strengths, weaknesses, opportunities and threats, the most appropriate competitive strategy for the company is developed Finally, recommendations that the company should pay attention to in order to successfully implement the proposed strategy are presented iv Table of Content CHAPTER 1: INTRODUCTION 1.1 Rationale of the study 1.2 Problem statement 1.3 Objectives 1.4 Scope and limitation of study 1.5 Methodology and framework of the study 1.6 Structure of the study CHAPTER 2: LITERATURE REVIEW 2.1 Competitive advantage 2.1.1 Definition 2.1.2 Generic building blocks of competitive advantage 2.2 Competitive strategy 2.2.1 Definition 2.2.2 Three levels of strategy 10 2.3 Process of strategic management 12 2.4 Strategy formulation process 13 2.4.1 Vision, mission and goals 13 2.4.2 External analysis 13 2.4.3 Internal analysis 17 2.4.4 Strategy formulation and strategic choice 18 CHAPTER 3: EXTERNAL ENVIRONMENT ANALYSIS 20 3.1 Vietnam construction industry overview 20 3.1.1 Housing construction 20 3.1.2 Infrastructure construction 20 3.1.3 Commercial construction 22 3.1.4 Retail and industry construction 22 3.2 Macro environment analysis 23 3.2.1 Political and regulatory factors 23 3.2.2 Economic factors 24 3.2.3 Social, culture and demographic factors 29 3.2.4 Technological factors 31 v 3.2.5 3.3 International factors 32 Industry environment analysis 33 3.3.1 Definition 34 3.3.2 Porter’s five force analysis 34 3.3.3 Conclusion 37 CHAPTER 4: INTERNAL ENVIRONMENT ANALYSIS 39 4.1 Introduction of SCE Consultants (Indo-China) Ltd 39 4.2 Company’s Vision, Mission and Core values 40 4.3 Organizational structure 41 4.4 Human resource management 43 4.5 Business activities 44 4.5.1 Current services 44 4.5.2 Core clients 49 4.5.3 Pricing strategy 50 4.5.4 Business achievement 51 4.6 SWOT analysis 51 4.6.1 Opportunities 52 4.6.2 Threats 53 4.6.3 Strength 53 4.6.4 Weakness 53 4.6.5 SWOT matrix 54 CHAPTER 5: FORMULATION COMPETITIVE STRATEGY 55 5.1 Foundation of the strategy 55 5.1.1 What is to be satisfied? (Customer needs and product differentiation) 55 5.1.2 Who is to be satisfied? (Customer groups and market segmentation) 55 5.1.3 How customer needs are to be satisfied? (Distinctive competences) 56 5.2 Competitive strategy for SCE 56 5.2.1 Generic competitive strategy 56 5.2.2 Proposed competitive strategy in the period of 2011 – 2015 59 CHAPTER 6: CONCLUSIONS AND RECOMMENDATIONS 68 6.1 Conclusions 68 6.2 Recommendations 69 vi 6.3 Limitation of the project 70 APPENDIX 71 Appendix A: Questionnaires for direct interview with directors and managers of SCE Consultants (Indo-China) Ltd Company 71 Appendix B: Questionnaires for direct interview with directors and managers of key clients of SCE Consultants (Indo-China) Ltd Company 73 Appendix C: Questionnaires for direct interview with directors and managers of partners of SCE Consultants (Indo-China) Ltd Company 75 REFERENCES 77 vii List of Figures Figure 1.1 Frame work of study Figure 2.1 Value creation to consumer and producer Figure 2.2 Strategic planning process 12 Figure 2.3 Porter’s five force model for industry analysis 15 Figure 3.1 GDP and GDP per capita in the period of 2005-2015 25 Figure 3.2 Inflation in the period of 2005-2015 26 Figure 3.3 FDI in the period of 2005-2015 27 Figure 3.4 Top 10 FDI investors in the period of 2005-2015 28 Figure 3.5 Exchange rates (at year-end) in the period of 2005-2015 29 Figure 3.6 Rising urbanization level 30 Figure 3.7 Porter’s model applied to the case of SCE 38 Figure 4.1 Manpower of SCE (at year-end) in the period of 2005-2010 41 Figure 4.2 SCE’s organizational chart in 2010 42 Figure 4.3 SCE’s service line _ Service line (SL1) 45 Figure 4.4 SCE’s service line _ Service line (SL2) 47 Figure 5.1 SCE’s generic strategy 59 Figure 5.2 Proposed competitive strategy for SCE 59 viii List of Tables Table 2.1 Generic competitive strategies and required competencies 19 Table 3.1 Top 10 major apartment building projects in HCMC in the period of 2007-2010 20 Table 3.2 Top 10 priority projects in the period 2005-2010 21 Table 3.3 Top 10 major office developments in HCMC 22 Table 3.4 Top 10 major industrial developments in the period 2007-2010 23 Table 3.5 Top 10 highest buildings in Vietnam 32 Table 4.1 Corporate milestones 39 Table 4.2 SWOT matrix of SCE 54 ix Abbreviations (In order of appearance) C&S Civil and Structural SCE SCE Consultants (Indo-China) Ltd (Vietnamese branch) FDI Foreign direct investment CRM Customer relationship management HCMC Ho Chi Minh City R&D Research and development CAGR Compound annual growth rate sqm Square meter CBRE CB Richard Ellis Co Ltd ASEAN Association of South East Asian Nations WTO World Trade Organization IMF International Monetary Fund GDP Gross domestic product CFIS Center for Foreign Investment Studies (University of Economics Ho Chi Minh City) pa Per annual MOC Ministry of Construction MPI Ministry of Planning and Investment IT Information technology HR Human resource SCEs SCE corporate including SCE Singapore and SCE Vietnam GD General Director SL1 Service line (refer to figure 4.3) PM Project Management SL2 Service line (refer to figure 4.4) ODA Official development assistance 64 developers and so on who pump major FDI and ODA capital into the country; and even the local developers Superior reputation and successful referenced projects can be used as tools for marketing the company The strategic point is that, however, since SCE’s revenue is not critical in coming years the firm is supposed to choose its clients selectively, especially local developers, in order to avoid losses from frozen projects, unprofessional behaviors and informal requirements The company should contract with clients who have good track record in investment and feasible projects, on the contrary it ought to nothing unless for business marketing purposes • Educating local clients Being a company established in Vietnam, it is so unwise shall SCE turn its back on the local clients Up till now, all stakeholders in the domestic high-rise segment including SCE have been on a learning curve of the new market [19], it takes time for mutual understanding Guided by the company’s vision – to become the Designer of our Age, SCE should play more active roles in educating local genuine developers and pick them up to international level Finally, they would turn out to be partners who demand for the company’s service This strategy compels the company to deliver a numerous efforts First of all, the firm has to find out, understand mind set and expectation of the local investors Then, through successful reference projects as well as comparison projects in Vietnam and elsewhere the company can show and describe advantages of its services, especially the SL2, to its potential clients Lastly, SCE is able to quote more competitive consultant fee thanks to collaboration with domestic consultants Accordingly, recognizing benefit they will get, the local developers can be convinced with SCE’s services As the domino effect when a local developer starts offering the company’s 65 service, it could be believed that domestic client bases formed from genuine developers is enlarging 5.2.2.3 E – Employee Human being is an important factor in all business, particularly in consultancy where employees can enhance or undermine competitive advantages of an enterprise Since 2006, SCE has been facing high staff turnover rate at 20% and more per annual Subsequently, it forces the company to strategize appropriate HR policies for attracting and retaining quality staffs for sustainable development in long run • Hunting matched people In every successful company, finding right people who can match with company’s core ideology and culture is an endless endeavor The matched person helps protect and improve the core ideology which is considered a heart of firm and differentiate company from the crowd as well Staffs who have consistent believe can perform much better than the other, they work as an entrepreneur of the company with higher commitment With the intention of turning into a lasting company, SCE is obliged to find people whose thought is closed to company’s vision and core values then attract and retain them at any price As soon as they integrate into the organization, benefits they generate are believed more abundant Conversely, the company could let people, principally at manager level and above, who not share the company’s core ideology and organizational culture go elsewhere This policy requires SCE to build up appropriate HR procedures as well as overall management philosophy • Education and training As per Collins and Porras [4], implementation of a company’s vision into daily business activities is also as important as possessing a valuable core ideology It is necessary to 66 spread the company’s vision over each individual Therefore, the company is expected to explain the core ideology to all staffs, show employees directions where they need to follow and give them reasons why they should commit themselves to the company Together with the SCE’s good vision and the coaching, the company can form core members for its lasting development Nowadays, plentiful young people, who are main workforce of the country, are unconscious of their responsibility for their own life, family and society As an unavoidable result, young employees have inappropriate performance in work It is believed one of main reasons for their low productivity, which definitely affects output of a company and the country [16] Therefore, education plays an enormously important role in improvement of staffs’ awareness SCE managers and directors could hold sharing sessions thru which the employees can be enlightened company’s expectation on various position; aware of their duty and obligation to the company, their life, society As soon as the employees gain the education, their effectiveness and efficiency is increasing With higher output, staffs’ income and living standard will be better Finally, the connection between staffs and the company is stronger and stronger; turnover rate which is quite critical presently will diminish In addition, since SCE is targeting on the niche segment of high-rise projects where requires expertise knowledge, the company has also to concentrate on technical trainings for enhancing its competitive advantages The Vietnam branch should get the best out of valuable supports of SCE Singapore for innovation and standardization of design procedures and project management The company can regularly organize internal training on skills, site experience and updated design codes, in particular the globalized design code system Furthermore, sending selected staffs to Singapore for better training is an alternative option since it is not so costly It is said that the good training plans will improve company’s output and services 67 • Profit sharing In general, expenses a consultant company has to pay for a new employee who has same competences is higher than cost to retain an old staff The new comer always takes time to catch up and get familiar with jobs handed over At the same time the company has to pay extra expenses in termination old staff as well as recruitment new one and other immeasurable costs Therefore, the company should take into serious consideration whether it is supposed to give employees higher benefits to retain them On looking another round, it seems that profit sharing policy could be a better alternative in long term Beside a basic salary, the employee will receive a certain proportion of company’s profit Should the business be good, staffs will be paid more; on the contrary, employees can get nothing if the company is lost This policy forces both the directors to be highly careful on any important decision made and the staffs to put all energy into their daily work At the moment, since SCE’s business is optimistic, the profit sharing policy should be more apposite in order to trim down the staff turnover rate and attract quality employees As mentioned in earlier part, SCE is running many projects at a same time So as, depending on economic results of each project, the company could award differently to various teams Staffs can, sooner or later, realize that they will get what they perform; the more effectively they work the higher their incomes are This strategy could present SCE positive consequences However, as a double-edged sword, this policy requires objective and proper assessments on outcome of projects unless it could cause even worse effects to the company 68 CHAPTER 6: CONCLUSIONS AND RECOMMENDATIONS 6.1 • Conclusions Industrial perspective Despise of negative effects of economic recession, it could be observed that Vietnam’s economy is recovering and the construction industry is achieving a high growth rate in upcoming years thanks to positive endeavors from public sectors and private areas Improvement of political, eco-social and demographic environment will benefit companies not only in the construction industry also whole the national economy The favorable environment together with the country’s accession to WTO, which helps attract more FDI flow into the country, are expected to boost the residential and nonresidential segments However, negative impacts resulting from complicated investment procedures, high inflation and interest rate as well as fluctuated exchange rate are eliminating advantages of the economy and preventing developers from investing in the market Finally, since the competition in the construction industry becomes fiercer and fiercer developers, consultants and contractors should have appropriate strategies • SCE’s perspective As a player in the market, SCE is benefited from optimistic affects of the environment, simultaneously affected with pessimistic impacts of the country’s economy Although SCE’s achievement is not so impressible, early successes are good signs for the sound corporate strategy of the company’s board directors Thirdly, facing the tough competition, SCE has no choice but to enhance its competitive advantages for a sustainable growth The differentiation focus strategy is the most 69 apposite generic strategy for SCE’s business in medium run thanks to company’s service differentiation, advanced technology and know-how, and focused market Moreover, a short-term competitive strategy is essential for the company to reinforce its position in the market Lastly, the competitive strategy for SCE in the next year period proposed in earlier parts of the thesis is expected one of useful strategies for the company The thesis brings practical values and it is believed constructive 6.2 • Recommendations Industrial perspective The government should take appropriate actions including strong fiscal and monetary policies in order to stabilize the country’s economy, attract more FDI and facilitate development of companies Vietnamese enterprises have to improve themselves to the global level, catch up with modern know-how in technology and management as well This enables companies to increase productivity and profitability; consequently Vietnam can reach a strong and sustainable development Employees as well as employers are supposed to be more proactive, keep enriching personal knowledge, skills and experience People should work together for success of the organizations they are working at and their own lives • SCE’s perspective Unless a better competitive strategy is built up, SCE can use the strategy proposed above for enhancing its competition The strategy was designed based on the SCE’s strengths to exploit opportunities and eliminate threats and company’s weakness The next 5-year competitive strategy aims to improve service quality, client base and 70 employees As a final point, it is going to strengthen competitive advantages of the company for a lasting and sustainable development Lastly, the strategy should be developed in more detail and precise for further executions During the implementation stage, closed monitoring should be done for timely adjustments and amendments These efforts are to make sure a definite success of the strategy 6.3 Limitation of the project Because of sensitive reasons, company’s financial information such as balance sheets, profit and loss statements, cash flow statements and market share were not presented in the thesis Those figures are expected to illustrate a better overall picture of SCE In consequence of time constrain as well as initial objectives of MBA thesis, SCE’s competitive strategy proposed is not too detail for an immediate implementation Further development should be required Finally, the thesis has no chance to deal with remaining stages of strategic planning process; namely strategy implementation, and evaluation and control In application, more precise plans and closed monitoring are necessary 71 APPENDIX Appendix A: Questionnaires for direct interview with directors and managers of SCE Consultants (Indo-China) Ltd Company • Overall SCE’s current situation History of establishment What are the company’s current vision, mission, core values, objectives (enhancing market shares or maximize profit…), strategies and policies? How is company’s performance in the period 2005-2010 in term of overall market share, profitability, growth rate, and client base? • External environment How general external factors such as global, economic, political, social and technical factors are affecting the company? How could Vietnamese construction industry be in coming 10 years? How is the trend of investment? Who are the company’s key clients and potential clients? Who are the company’s main competitors and potential competitors? What might be their competitive strategies? What are opportunities and threats for the company? Which one is the most important? • Internal environment How is the company’s current organizational structure? Is it appropriate? How does the company segment its market? What is the define target segment? How does the client assess the company’s service? 10 What criteria are for pricing the company’s service? How is the fee of the company’s service in comparison to other competitor’s? How does the client evaluate the fee? 72 11 How are balance sheet and income statement in the pass years? What are the most current difficulties on the finance of the company? 12 What is HR policy of the company in term of recruitment & selection; training & development; improvement employees’ satisfaction; rewards and punishment? 13 What are strength and weakness of the company? Which one is the most important? • Selecting strategies 14 How are the company’s services differentiated from other competitors’? What are distinctive characters that service of the company have? 15 What are the company’s expected objectives in the future? What strategy does the company intent to follow to achieve these objectives? The questionnaire and information acquired are for academy study only and will not be used for any business purpose All your answer and comments are treated in confidence You have right to refuse answering any question that you assume it is concerning with sensitive information or business secret It is, however, highly appreciated your kind response as it makes the study more valuable 73 Appendix B: Questionnaires for direct interview with directors and managers of key clients of SCE Consultants (Indo-China) Ltd Company • Industry environment How general external factors such as global, economic, political, social and technical factors are affecting Vietnamese construction industry? How could the industry be in coming 10 years? How is the trend of investment? How many projects have you had since 2005? How many consultants have you been working with? How many C&S consultants? What are opportunities and threats for the consultant companies? Which one is the most important? • Evaluating client’s satisfaction How you evaluate our current service? Comparing with other consultants, what are our advantages and disadvantages? Would you recommend us to your partner? How satisfy are you with our current service in term of: our project planning & achieving project deadline; our skill and knowledge; effectiveness of the design; our relationship with you team; our quality versus fee…? Generally, how many points in the scale of 10 might you give to our current service? • What criteria are for choosing and evaluating a consultants company? Client’s expectation What is your expectation on our service? In what extend could we to satisfy you more? Have you any suggestions for way in which our service can be improved? Assuming that there are two different service packages provided: one with consultant service during construction stage; the other consultant service to be terminated after Tender stage with lower fee, of course; which package will you choose? Which one could be more profitable and appropriate? When applying the 74 second into Vietnam market, what should be adjustment? What are its pros and cons? 10 Personal information: name, age, duration in Vietnam, current position, department and company The questionnaire and information acquired are for academy study only and will not be used for any business purpose All your answer and comments are treated in confidence You have right to refuse answering any question that you assume it is concerning with sensitive information or business secret It is, however, highly appreciated your kind response as it makes the study more valuable 75 Appendix C: Questionnaires for direct interview with directors and managers of partners of SCE Consultants (Indo-China) Ltd Company • Industry environment How general external factors such as global, economic, political, social and technical factors are affecting Vietnamese construction industry? How could the industry be in coming 10 years? How is the trend of investment? How many projects have you had since 2005? How many consultants have you been working with? How many C&S consultants? What are opportunities and threats for the consultant companies? Which one is the most important? • Evaluating quality of SCE’s service How you evaluate our current service? Comparing with other consultants, what are our advantages and disadvantages? Would you recommend us to your client and partner? How is our current service in term of our project planning; our skill and knowledge; effectiveness of the design; our relationship with you team? Generally, how many points in the scale of 10 might you give to our current service? What criteria could the client use for evaluating a consultants company? Within our coordination with you, what is your expectation on our service? What can we better? Have you any suggestions for way in which our service can be improved? Assuming that there are two different service packages provided: one with consultant service during construction stage; the other consultant service to be terminated after Tender stage with lower fee, of course; which package you prefer? Which one could be more profitable and appropriate? When applying the 76 second into Vietnam market, what should be adjustment? What are its pros and cons? 10 Personal information: name, age, duration in Vietnam, current position, department and company The questionnaire and information acquired are for academy study only and will not be used for any business purpose All your answer and comments are treated in confidence You have right to refuse answering any question that you assume it is concerning with sensitive information or business secret It is, however, highly appreciated your kind response as it makes the study more valuable 77 REFERENCES [1] Charles W.L Hill & Gareth R Jones (2001), Strategic management theory: An integrated approach, 5th ed., Houghton Mifflin Company [2] David A Aaker (1995), Developing Business Strategy, 4th ed., John Wiley & Sons Inc [3] Glueck, W F & Janch L R (1986), Business Policy and Strategic Management, International Student Edition [4] James C Collins & Jerry I Porras (2000), Building your company’s vision, Harvard Business School Publishing Corporation [5] Michael E Porter (1985), Competitive Strategy: Techniques for Analyzing Industries and Competitors, The Free Press [6] Neil Ritson (2008), Strategic management, Ventus Publishing ApS, www.BookBooN.com [7] Thomas L Wheelen & David J Hunger (2000), Strategic management and business policy: Entering 21st century global society, 7th ed., Prentice Hall [8] Asia Development Bank (ADB), www.adb.org/Statistics [9] CB Richard Ellis Co Ltd (CBRE) (2010), Hanoi and HCMC Quarterly Report Q3 2010 [10] CB Richard Ellis Co Ltd (CBRE) (2011), Fearless forecasts [11] General Statistics Office of Vietnam, Press release: Socio-economic statistics for 2010 [12] General Statistics Office of Vietnam, http://www.gso.gov.vn [13] Horizon Securities (2007), Vietnam construction, infrastructure and building material [14] International Monetary Fund (IMF), http://www.imf.org/external/data.htm 78 [15] Le Xuan Nghia (2011), Resilience of the economy in 2011, http://vef.vn/2010-1231-suc-bat-cua-nen-kinh-te-nam-2011 [16] Michael Porter (2010), Competitive report 2010 workshop, Hanoi and HCMC [17] United Nations Environment Programme (UNEP), Year book 2010-Climate Change [18] Yellow pages, http://www.yellowpages.vn/ /Construction-Management [19] In-depth interviews with directors and managers of SCE, SCE’s clients and SCE’s partners […] Others press, reports, articles and the like