Building business strategy-the case of Viet Long Company limited

Tablc 2.2: Impact ofPEST íactors on Viet Nam hicycle industry 44 Table 2.3: The numbcr of bicycle manuĩactured and assembled enterprises 45 Table 2.4: Strategic group vvithin Viet Nam bi

VIET NAM NATIONAL UNIVERS1TY, HANOỈ

SCHOOL OF BUSINESS

— H s B —

I ĩ f \ - n I - f •

Nguycn Thi Hong Hue

BUILDING BUSINESS STR ATEGY -

T H E C A SK O F V I E T L O N G C O M P A N Y L I M I T E D

M AS I i:li OK BUSINKSS A D M I N I S T R A T I O N I H K SI S

Ha Noi - 2 0 1 0

TABLE OF CONTKNT

AC K NO WL K DGE M ENTS i i i

ABSTRACT iv

I ỎM TẤT vi

TABLE OF CONTKNT vii

LIST OF CHART, TABLE AND KIGUKK xi

INTKODUCTION xiv

1 Problcm statcmcnt xiv

2 Ai 111 and obịcctivcs xiv

3 Scopc o f w o rk XV 4 M c th o d o lo g y XV 5 Research qucstions XV 6 Data collccũon XV 7 Signiíícance xvi

8 L im italion xvi

9 Kindings xvi

10 Thcsis structurc xvi

CHAPTKR I: THEOKKTICAI FOUNDATION 1

1.1 Building husinesscs strategy to cnterprise 1

1.1 1 An ovcrvicvv of slrategic managcincnt ]

1.1.2 R ole o f stratcgic m an ag em ent to entcrpriscs 2

1.1.3 Business stratcgy altcmalives 4

] 1.4 Process lo builđ busincss slrategy to cnterprise 6

1.1.5 Applied modcls to builđ business strategy to cnlerprise 9

1.1.5.1 PEST Modcl 9

1.1.5.2 Five Korcos Models 10

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1.1.5.3 Value Chain 13

1.1.5.4 SWOT Modcl 15

Kcmarkable points in huildin” busincss stratcgy for Vict 1.2 Long Coinpany Limited 17

1.2.1 Characteristics o f enterpriscs in Vict Nam bicyclc industry

1.2.2 Fragrnentation oCthe bicyclc industry 18

1.2.3 Transilion to maturity o fV iel Nam bicycle industry 21

1.2.4 Slratcgic group in Viet Nam bicycle industry 23

1.2.5 Entry into nevv business through inlcrnal developnicnt 25

CHAPTKR 2: EXTERNAL AND INTKRNAL ANALYS1S 26 2.1 Ovcrvicw o f Viel Nam bicyclc induslry 26

2.2 Extcmal analysis 29

2.2.1 Environmcntal scanning and (orccasting - Pest analysis 29

2.2.1.1 Polilical Taclors 29

2.2.1.2 Economic íactors 34

2.2.1.3 Social Taclors 38

2.2.1.4 Technology lactors 42

2.2.1.5 PKST conclusion 45

2.2.2 Industry analysis l;ivc Forces Model 45 2.3 Intcmal analysis 57

2.3.1 Ovcrvicvv o f Vict Long Company 57

2.3.2 Valuc Chain analysis 59

2 3 2 1 Primary activitics 29

2.3.2.2 Supporting activilies 65

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CHAPTER3: STRATECỈY KORMl I.ATION AND 69 IMPLEMENTATION

Estimation o í dcmand and supply íbr Viet Nam bicycle

Implemenlation o f diíĩerentiation by customer services

slratcgy

3.5.3 Supplicr nctvvork building slrategy implcmenlation 91

Invcstmcnt on research and development stratcgy

Appendix A: Importcd tax ralc to bike and components

Appendix B: List o f intcrvicvvccs

X

LIST OF FIGURE

Kigure 1.4: Relationship between environmental, competitive and internal

8

organizational analysis

Tablc 2.2: Impact ofPEST íactors on Viet Nam hicycle industry 44 Table 2.3: The numbcr of bicycle manuĩactured and assembled enterprises 45 Table 2.4: Strategic group vvithin Viet Nam bicyclc industry 46

Table 3.3: Competitive strength assessmenl for Vict Long Co Ltd 74

Table 3.6: Advantage and disadvantage analysis for cach busincss strategy

as in thc casc o f Viet Long

Tablc 3.8: Customer Service activities of industry main players 90

LIST O F T A B L E

Table 2.1: Avcrage bike per person by agc group 39

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Chart 2.2: GDP of Vict Nam 34

Chart 2.5: Daily demand o f transportation in I lo Chi Minh City 36

Chart 2.8: Sale breakdown of Viet Long Company Limited in 2008 57 Chart 3.1: Estimation o f dcmand for Viet Nam bicycle industry (2009-

2014) Chart 3.2: Projection of dcmand for bicyclc by scgments, 2014 70 Chart 3.3: Segments in Viet Nam bicyclc industry (2008 and 2014) 71 Chart 3.4: Markct share of Vict Nam bicycle industry by segments, 2008 72

LIST O F C IIA R TS

Chart 2.1: Export value of Viet Nam bicycle industry 32

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This chaptcr indicates an introduction o f thc research First problem setting will

be provided, followed by aim, objectives and scope o f work After that, methodology that is applied in the rcsearch is prcscnted It is followed by research questions, data collection, signiíìcance and limitation, and íìndings o f the research Final1y thesis structure will be presentcd in orđer to give readers an ovcrall picture o f thc paper.

ỉ Problem statemcnt

Viet Long Company Limited (Viet Long Co Ltd) is a private-ovvncd entcrprise which manufacturcs bike parts, including axlc-tree, pcdal and tnayor The company has just dcvcloped a nevv product, which is bicycle, since 2008 It’s necessary to build busincss strategy for Viet Long Company to find the way o f surviving and growing in Vicl Nam bicycle industry.

2 Aims and objectives

The aim o f the thesis is lo build an appropriate busincss slrategy for Viet Long

Co Ltd, íocusing just only one new product thai is bicyclc in the next five years, from 2010 to 2014.

The objectives o f thc thesis are as belovv:

s Firstly, providing bctter understanding o f thcorctical íbundation in building business slrategy for enterprises.

s Secondly, applying theorics into Viet Long Company to fígure ouí thc company opportunities, threats, strengths and wcaknesses Then Viet Long business stratcgy are built, íbcusing on product o f bicycle.

s Thirdly, drawing out overall implications for strategy implementation in Vict Long Co Ltd

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3 Scope o f \vork

The study íbcuses only on Vict Long Co Ltd, Hnding thc company’s business contexl, opportunities, threats, strengths and vveaknesses Business strategy for Vict Long Company in the C o rn in g fíve ycars, from 2010 to 2014, vvill be íbrmulatcd, focusing on bicyclc Finally, the research draws out implications for stratcgy implementation in Vict Long Co., Ltd.

The sludy íocuses on only Viet Long Co., Ltd, investigate a contcmporary phenomenon within its real-life context and usc multiple sources o f information Thcrclore, case study is choscn as research methodology to makc an in-dcpth investigation.

5 Research questions

In order to reach aim and objectives, thcsc rescarch questions have been developcd:

/ What is the way lo huild business stralegy for enterprise?

s What is appropriale business strategy for Viet Long’s bicycle?

S How to implemcnl the strategy?

6 Data collcctiou

Duc to rcscarch topic, aim and qucstions, data is collccted via sourccs o f documcntation, archival rccord and intcrview Documcntation and archival

record obtaincd from public papers, company profilc and annual reports o f

relcvant parties supporting analysis o f cxtemal and internal organizational environment.

Opcn-endcd interviews are conducted directly with industry experts, Vict Long’s director and employees In some cascs, interview is considered as signiíìcant iníbrmation sourcc due to limitalion o f availablc data.

7 Signiĩicancc

The rcscarch contributes signiíìcantiy to the economy and the enterprise:

To the economy: The study provides bctter undcrstanding o f building business strategy framework for cntcrprises in Viet Nam bicycle industry In addition, the

stu đ y can b e a re fe rc n c e to fírm s in o th er Industries

To the enterprise: The study finds out business context, opportunities, thrcats, strengths, vveaknesses and appropriate business strategy for Viet Long’s bicyclc

In addilion, the rcscarch proviđes implications for stratcgy implementation in Viet Long Company.

8 Li mi t a t i o n

The study íocusesjust only on Viel Long Company Conscqucntly, íìndings o f thc rcsearch can not bc applied for other íìrms, but can be good reference to other ones in the same industry.

In addilion, available data o f mechanics industry, bicyclc industry and íoreign

competitors is iimitcd ỉn some cases the author collects information froin most rclevant sources as cxpcrt ideas to solve thc issuc.

Due to íragmentation o f the bicycle industry, indưstry analysis will focus only

on main playcrs who covcr noticeable market share.

The study finds out appropriate busincss and íunctional strategies lbr Viet Long Company In addition, the study intends to draw out implications for strategy implementation in Viet Long Company.

10 Thesis structure

Due to topic and research methodology, the thesis is divided into threc main chapters: theorctical íbundation, extemal and intcrnal analysis, and strategy íbrrnulation and strategy implementation íor Viet Long Co Ltd In addition,

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research introduction and conclusion arc prcscntcd at thc beginning and the cnd

o f the papcr.

The íĩrst chapter, thcorctical íoundation, indicates theories that have been applied to analyze and build business and íunctional strategies for Viet Long Co Ltd.

Extemal and internal analysis via models o f PEST, five forccs, SWOT and value chain are indicates in thc second chapter o f thc thesis.

And íìnally, thc formulation and choice o f busincss and íunctional strategies for Vict Long bicyclc is presented at thc third chapter Moreovcr, implications to strategy implcmentation for Viet Long Company are dravvn out.

The figurc below visuali/.cs the main chaptcrs o f thesis:

Introdaítion Tlttorctical

rovadatlon

ExttrMlasd Xo»»nwl âMtyih

StrategỴ

ío r m a U tìo n

aod CondusiOB

xvii

C H A P T E R 1: THEORETICAL KOUNDATION

In this chapter, available theories relevant to solve research questions are prescnted Pirstly, deíìnitions related to strategy managemcnt, role o f business strategy to enterprises and strategy altematives are indicated It is followed by applied models and process to build business stratcgy for enterprises Finally, the research indicates some remarkable points in building business strategy for Viet Long Company Limited.

1.1 Buiiding busỉncss strategy

1.1.1 An overview o f strategic management

Stratcgy describcs the way enterprise shoulđ follow in ordcr to reach its goals undcr consideration o f cxternal and intemal environment Slratcgic management

is the process by which top managemcnt determines the long-run direction and pcrformance o f the organization by ensuring that careful íormulation, effective implementation and continuous cvaluation o f stratcgy takes place (Lloyud Byars

at et., 1996).

Stratcgic management can be broken down into three phases: strategy ibrmulalion, strategy implemcntation and strategy evaluation Strategy iormulation involvcs in analyzing extemal and intcrnal environment; dcíìning

the organization’s guiding Vision, mission and objective; and selecting

appropriate strategy Strategy implementation is conccrned with making dccisions with regard to organizational structure, leadcrship and motivational systems that is suitable to chosen strategy; establishing short-range objcctives, developing budgets and íunctional stratcgics to support chosen strategy Stratcgy evaluation involvcs in activilies o f establishing standards o f performance for the organization and its units or ĩunctional areas; assessing and measuring the implementaíion o f strategy; initiating right actions to ensure continued

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commitment to thc implcmcntation o f strategy(Lloyud Byars at et., 1996) The following Hgurc visualizcs strategic management proccss.

Pigurc 1.1: Strategic managcment process

Source: Adcipteđ from Lìoyd L Byars, Leslie w Rue, and Shaker A Zahra,

Strơtegìc Management, ỉrvvin Press USA, 1996

Strategy exists at different lcvcl in an organization base on the scope that the firm accomplishes In gencral, strategy is considcrcd at corporate, business and íunctional lcvels Sírategies lliat address what businesses a multiplc-business- unit organization will be in and how rcsourccs will bc allocated among those businesses are referrcđ to as corporatc stratcgy (Lloyud Byars at ct., 1996) Business strategics focus on how to compete in a given business (Lloyud Byars

at et., 1996) Functional stratcgies deal with how to iinprove or combine organizational rcsourccs, such as prođuction, ílnance, personnel, etc in order to gain compctitive advantagcs.

1.1.2 Rolc o f stratcgic managcmcnt to enterprises

Strategic management is necessary and valuable to not only largc but also small organization Many empirical studics have bccn done in order to evaluate the relationship betxveen strategic management and the períormance o f organizations For cxample, Robinson (1982) found that small businesses that employed consultant to hclp with strategic planning lcnded to pcríorm better

2

than íìrms lliat did not (Karhad, 2003) Several othcr studies have reportcd positivc rclationships between íormal stratcgic planning and íìnancial performancc in small ílrms (Jones, 1982; Ackclsberg and Arlow, 1985; Sexton and Van Auken, 1985 ).

Strategic management has critical impact on cxistcnce and performance o f enterprises Slrategic planning provides enlerprises necessary direction Without

reach and like to bc someone lost in matrix It is morc important to SMEs with limited resourccs to get in the right way.

It is clearly thai thc bencíìt helps eliminate weakncsscs o f many enterprises’ managers o f lacking visionary thinking Strategic planning helps top managers know wherc to go, what way to go and how to go From that, Vision, mission, goais, objectives, corporatc value, strategies and action plan was crcated Aíter that, thcsc ideas will bc sprcad to whole entity Conscqucntly, all organizational units will work tovvarđ thc same objectives and purposes Without the direction provided by strategic managemcnt, individual units can go in different ways.

Another bencfit o f strategic management to enterprises is rcsults o f the process itseir but is not produced Products by the process Thcse bcneíìts rise in the effort o f engaging strategic managcmcnt such as action plan or strategy cvaluation system those might bc produced by thc process.

The strategic management process also force managers lo be more proactive and knowledgeable about extcmal and intemal environment In addition, enterprises’ inanagers will gain the habit o f thinking in terms o f the future, which most o f SMEs managers arc lacking o f because they usually sunk into daily operation.

One o f the major benefits o f stratcgic managcment is Ihc opportunity to involve

in the process o f diíTerent management levels within enterprise Strategic management process gives a chance to lower level o f managers participating in the process o f making decision Conscquently, they will bc more understandable

3

about situation thc firm stuck into, limitcd factors and possiblc altcmatives Thereíore, resistancc from thcsc ones might reducc The cnterprises will reach a consensus.

1.1.3 Typical business strategies

There are three generic strategies to outperibrm other firms in an industry: overall cost lcadership, differentiation and íbcus.

Overall cost ỉeadership

An ovcrall cost lcadcrship strategy involvcs producing and dclivering the

producl or Service at a lovvcr cost than compctitors (Lloiy Byars et al., 1996)

Cost leadership stratcgy is attractive because it crcatcs íìrm’s competitive advantage to compctitors by low price, prolcct firm from potcntial ncw entrants

In somc case, thc stratcgy also helps fírm avoid shaving pricc prcssurc o f buyers.

Figure 1.2: Typical business sirategies

In ordcr to implement successĩully cost leadership síratcgy, the enterprise has to pursue cost rcduction from cxperience, marginal customers, overhead and cost

minimization in sale, research and dcvelopmcnt, advertising and Service In

addition, the firm has to achieve a high markct share, favorable asscss to material, well designing products for ease in manufacturing or maintaining a vvide relatcd-product rangc to spread costs.

As pursuing cost leađership strategy, the firm may coníront to risks o f tcchnological changes thai make past investmcnt and leaming worthlcss Another risk is low cost achicving by others such as ncw comers or followers via imitation or statc-of-art facilities investmcnt In some cases, the firm ihat locuses much on cost might bc blind in changcs inside and outsidc industry, such as tnarketing, product requirements, customer taste, etc Inflation may bc the ilnal risk This cconomic phenomenon can inakc thc price đistance betvvccn the fìrm and competitors eliminate or narrow down.

Diffcrentiation

A dií‘fercntiation stratcgy requires that an organization crcate a product or

Service that is recognÌ7.ed industry-widc as being unique, thus pennitting íhc

organization to charge higher-than-average prices (Lloiy Byars et al., 1996) Therc exist many approaches to takc differentiation, such as dcsign or brand name, technology, ĩcatures, customer Service, dcaler netvvork or othcrs The core

o f the concept is achicving competitive advantagcs via brand loyalty o f customers who has lower price sensitivity.

The strategy givcs íìrrn compctitive advantage due to different Products or services In addition, the company can charge higher pricc, lcading to highcr proHtability DiíTerent Products also bring íìrm an incrcasing bargaining power

to buyers because o f lacking comparable altematives Ít mak.es higher mobility barricrs as a result o f customer loyalty and producl uniqueness The strategy requires strong marketing abilities, product enginccring, Creative flair, strong

5

capacity in research, strong cooperation 1'rom channel, etc to crcatc sole Products

and gain brand idcntiíìcation o f customcrs.

As conducting differentiation strategy, thc firm may face series o f risks There exist a large pricc distance betvveen low-cost and diíTcrentiate Products, so that

image o f differentiated firms for large saving cost As customers becomc sophisticated, thcir nccd for differentiation reduces Another risk can be imitation and fake products rcducing customers’ avvarc o f differentiation, niostly

in maturity industry.

Focus

A focus strategy involves targeting a particular buycr group, a geographic market segmcnt or a ccrtain part o f the product line and serving this well-defined but narrow markct better than competitors who serve a broadcr market (Lloiy Byars et al., 1996) Focus strategy takes many forms: locus cost leadership, focus differentiation or both It meatis that the company can achieve diffcrentiation or/ and lowcr cost to better scrvc a particular target Focus strategy involves in anothcr sct o f risks The lcvel o f diffcrentiation betwecn products or S ervices o f thc who!e market and Pocus one is narrow down by timc Another risk, compctitors can íìnd out submarkets in targct market make the focuser to bc out-focused.

1.1.4 Process to build business strategy to cntcrprisc

Building business strategy is the most important phrase in stratcgic managcment process The process includcs three main stcps Firstly, cnterprise philosophy, purpose and mission arc dcíìned After that, the stagc o f objectives setting is conducted via extcmal, intcmal and SWOT analysis Finally it is the process o f strategy selection The iìgurc below visualizcs the process o f building business stratcgy to entcrprise in ordcr to draw out clearer picturc about this topic.

6

Step I : Defming the guiding philosophy, purpose and the mission o/enterprise

An organi?;ation’s guiding philosophy indicates Ihe values and belicfs o f the organization It points out what is important in life and business, how business should be conducted, thc vievv o f humanity and organization’s role in society.

Organizational purpose dcílnes the íunđamental rcasons for the organization’s existence (Collin and Porras) Ít can be expressed in a clcar statemcnt o f how the company niỉs human necd or how the business impacts thc world.

Organizational mission is an overall goal o f the organization that provides a sense o f dircction and a guidc to dccision making for all lcvcls o f managcmcnt (Lloyd L Byars ct al., 1996).

Figure 1.3: Stratcgy formulation process

Vhion d*fyf»g prow$ ObJwttví proms Strotígy tHKílni

Dtĩming lhf

ratuloD

ỈBriroBnmital íoróMting

pm m lỳiis

Comprtiliư

nnilvsHfheF»rrn

ffl0<)d

lodcoUíyỈBỉ Slrelqịv SllHlP^lC ĩonmilílion

#llau»Uvw au<) sdcrtioo

Source: Adapted from LìoydL Bvars, Lesỉìe w Rue, and Shaker A Zahra,

Strategic Management, ỉnvin Press, USA, ì 996 1

The stcp o f objective setting combines thrce major sub-stcps: extcrnal analysis (cnvironmcntal scanning and forecasting, and compctitive analysis within industry), internal organizational analysis and long-range objectives establishing The cxternal analysis identiíícs enterprise opportunities and threats The cxtcmal analysis is conđuctcd via Five Porces, Industry Life Cyclc, Value Chain and PEST (political, cconomic, social and technological ĩactors) models.

Then SWOT analysis is donc in order to draw out conclusion about the enterprise current situation and thc need for stratcgic action Finally, long-range objcctives which speciĩy the results desircd in pursuing Ihc enterprise’s mission

is cstablishcd Long - rangc objcctives directly are impactcd by SWOT analysis, because these objcctivcs should help the organization catch opportunities, exploit strengths, minimize Ihrcats and eliminate weaknesscs.

Figure 1.4: Relationship between environmental, competitive, and intemal organi/ational analysis

Step 2: Obịective setting process

Source: Lloyd L Byars, Lesỉie w Rue, and Shaker

A Zahra, Sírategic Management, Irwin Press, USA, 1996

8

There are many distinct strategies at corporate, business and functional levels that an cnterprise can choose to follow The managers can find out thc most appropriate strategies after deíĩning clearly the guiding philosophy, Vision and the mission o f organization; compleling organizational extcrnal and intemal analysis and setting objectives The most appropriate strategy has to basc on speciíìc situation o f the firm The organizational strategy may change from timc

Step 3: Sírategy seỉection process

Figurc 1.5: PEST Modcl

Source: Lloyd L Bvars, Lesỉie w Rite, and Shaker

A Zahra, Strategic Management, lrwin Press, USA, 1996

9

p - Political factor, including impact o f elected off1cials, govemment ]aws and special interest groups on organizations (Lloyd L Byars et al., 1996) such as

labor law, rules on taxation, trade, advertising, or imporl-export regulations

E - Economic factor, including fluctuation o f local, national and global

econom ies such as inflation, growth rate, interest rate, taxation, trade, exchange

rate, or CPI.

s - Social factor, relating to the values, attitudes and dcmographic characteristics o f the enterprise’s customers.

T - Tcchnological Taclor, including not only invention o f new product and

technology but also im provem ent in m ethod, Processing, design, m aterials and

application in orđcr to makc work more efficicncy, etc

All thesc factors do not directly control but affcct much on the industry and organizations thai opcratc in the industry PEST analysis is conducted through three sleps Firstly, scope o f analysis for each factor will be bounded by geographical scale oỉ' organizational operation Seeondary, scanning and tbrecasting are donc in ordcr to obtain relevant iníbrmation, focusing on current events and rcasonablc assessment o f future trcnds Pinally, information is packed inlo forms that arc useful for strategic planning.

1.1.5.2 Five forces model

Five forces modcl dcveloped by Michael Portcr is vvidcly used in industry analysis Porter’s fivc forces includes: bargaining power o f suppliers, bargaining power of'buyers, threats o f new entrants, threat o f subslitutes and rivalry among compctitors The modcl helps managers gain insight into competitive dynamics

o f induslry, undcrstand how each force influence to company proíìtability and períbrmance, and providc thc company what is the way to counter the strength

o f these forces All thesc factors together dctermine profit potential o f an industry via iníluencing prices, costs and requircd invcstmcnt o f businesses.

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Bargainingpower ọ/ suppliers

Supplicrs havc most povver whcn (Lloyd et al 1996):

( ! ) Few suppliers are availablc (2) requircd inputs are unique making it costly

to switch suppliers, (3) thc input o f the company purchases do not represcnt a signiíìcant o f the business o f thc suppliers, (4) thcre are very few substitute products, (5) suppliers can integrate forward, (6) suppliers can sell directly to customers by passing thc nccd for the company business, (7) it is difficull to switch to another supplier, (8) and the company do not have a full understanding

o f markct o f its supplicr.

Figurc 1.6: Five íorces Model

Source: Lìoyd L Byars, Leslie w Rue, and Shaker

A Zahra, Strategic Management, Irwin Press, USA, 1996

In ordcr to rcducc povver o f suppliers, the company might consider íorming a partncrship with supplicrs, such as reduce inventory cost by providing just-in- time đeliveries, infonn to suppliers information about custoincr nccds and prcferences or spced the adoption o f new technologies Another option to increase the company powcr is íbrming a buying group o f small producers The company can choose to inlcgrate back and produce its own inputs by purchasing one supplier.

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Bơrgaining pow er tìf 'buyers

Buyers have more power vvhen: (1) buyers are few and they buy in large volumcs relative lo industry salcs, (2) products rcpresent a relatively large cxpense for customers, (3) the product is not uniquc and, thereíore, easily substitutable, (4) customcrs can intcgrate backvvard and product its themselves, (5) customers can easily svvitch to another prođuct vvith little cost, (6) and finally, customers have much market iníbrination.

In order to reduce bargaining power o f customcrs, thc company can increase their loyalty by partnerships or loyalty programs, selling directly to customers, adding features or branding to incrcase pcrceived value o f product.

Threat o f new entrants

Threat o f new entrants is thc possibility the new íìrm with dcsire to gain market share will cnter the industry Analyzing threal o f new cntrants relatively considcr barriers to entry and respond o f cxisting íìrms lo a new comer Entry barriers can hc tangible and intangible Tangiblc rcquirements are Capital,

lechnology, know- how, ctc Intangible requirements are reputation o f cxisting íìrms, brands, customer loyally to current produccrs, customer switching cost The threat o f ncw cntrant is grcatest when: (1) processes arc not protected by rcgulations or patents, (2) brand loyalty o f customcrs is little, (3) low start-up cost, (4) low switching cost, (5) production proccss is lcarned easily, (6) inputs and customcrs can hc accessed casily, (8) economies o f scale are minimal Entry barriers also arc affcctcd by respond o f existing firm to ncw company Existing companies can rcduce price, conduct new markcting plan, introduce new product to make the market more compctitive In order to rcduce threat o f new entrants, company can popularize image, utilizing patcnts, creating alliances with associate Products Managcrs should also considcr barricrs to cxit, such as company’s physical assets, facilities, effect o f industry, local community, etc.

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Both cntry and exit barriers also influence on compctitivcness in the industry and preventing new comers to jump inlo the industry.

Threaí o f substitutes

Substitutes are Products served the same purpose and needs o f customers The thrcat o f substitutes appears as alternatives product have lower price or better períbrmance or both Substitules can reduce demand for your product and create pressure for lower price Substitutes are greater threat as: (1) your product do not have any real beneíìt in comparison to other Products, (2) the product is easily to svvitch, (3) high customer elasticity by price The company can reduce threat o f substitutes by satisfy customers prcferences and đifferentiating company’s product by branding.

Rivalry among competitors

Rivalry among competitors is most intense vvhen: (1) there are numerous companies, (2) companies arc similar to each other in size, (3) companies are difFerent in national culturcs, goal, or origin, (4) industry growth ratc is low, (5) one fírm or some firms would like ío be markel leader, (5) high fixed costs o f production prcssure companies to produce near capacity, (6) Products arc pcrishablc and need to be sold quickly, (7) products are not unique , (8) customers can easily to switch bctvveen product In order to reduce rivalry among compctitors vvithin industry, the company can invest in research and dcvelopmcnl to innovativc or improve products’ featurcs In addition, the company can focus on a unique markct segmcnt, distribute product via a novcl channel and form a tied relationship to customers.

1.1.5.3 Value Chain

Valuc chain analysis is vvidely useíul tool to providc manager the overall picturc

o f the enterprise It helps to understand firm’s strengths and vveaknesses; find out phases that manager should focus to crcate competitive advantagcs and create value-addcd to Products or reduce cost price Valuc Chain divides firm

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activỉties into tvvo groups: primary and supporting activities (Farhad el al 2003) Primary activitics arc those ones directly create product value, including inbound logistic, operation, outbound logistic, marketing and sales, and Service

Supporting activities are those ones indirectly create product valuc, these activities assist to utilize primary activities, including inữastructure, human resourccs, íìnance, research and development.

Figure 1.7: Value chain

[nbound logistic refers to material control and warehousing activities In vice vcrsa, outbound logistic considers timeliness and effìciency o f warehousing, and delivery íĩnished goods and services to customers Operation is a processes thosc tums inpuls inlo outputs The fírm should consider about productivity o f equipment against competitors, automation o f production process, effectiveness

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o f production control systcms and eíTectiveness o f plant layout and work-f]ovv design Markcting and sales indicates activities o f markct research, customer idcntifícation, promotion and advertising, distribution channcls, branding, sale íbrces motivation Cuslomer servicc means to solicit customcr input for product improvement, promptness o f attention to customer complaints, ability to provide replacemcnt parts to achicve cuslomers’ satisfaction and loyalty.

Supporting acti vi ti es:

Firm infrastructure indicates organization structure, culture and Capital raising, public image and control systcm Human resourcc means to effcctiveness o f recruiting, training, promoting and motivating, minimizing abscntecism and keeps tumover at desirable level In addition, human resource conccms rclations with tradc unions and level o f job satisfaction Technology development considcrs success lcading io product and process innovations, quality o f working relationship bctwccn rescarch and development personncl with other departments, and quality oi' laboratories and other íầcilities Procurement refers

to dcvclopment o f altcrnate sources for inputs in order that dopcndence OĨ1 a single supplicr is climinated Morcover, procurement might cnsure that raw materials arc on time at thc lowest cost and acceptablc quality It also relates to building good and long-term rclationship to supplicrs.

As considcring value Chain activities o f thc firm, thc company should be compare to its main compctitors or averagc lcvel o f industry in ordcr to íìnd out enterprises’ real strengths and weaknesses.

1.1.5.4 SW OT modcl

SWOT indicates existing strengths and vveakncsses, emcrging opportunities and worrisomc threats o f the organization rcspectively SWOT analysis helps summarize all information packed from external and intcmal analysis inío useful list o f stratcgy formulation Strengths and \vcaknesscs rcsult from comparison o f intemal factors bctwecn the enterprise and kcy compctitors in industry.

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Emerging opportunities and worrisome threats rcsult from extcmal analysis These íbur factors arc takcn into SWOT matrix to assess the attractiveness o f thc organÌ7.ation’s situation Stratcgic alternatives result from on combination o f strengths, weaknesscs, opportunities and threats as foIlows:

SO Strategies: Strategies that explorcs fìrm’s strengths and catches opportunities.

OW Strategies: Strategies thai helps firm overcome weaknesses and catches opportunities.

TW Strategies: Slralegies that helps finn overcoinc wcaknesses and avoids challenges.

ST Strategies: Strategies that explore firm’s strengths and overcome threats

Kigure 1.8: SWOT Matrix

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1.2 Rcmarkable p o in ts in building busincss stratcgy for Vict Long

C o m p a n y L im ite d

1.2.1 Characteristic o f enterprises in bicycle ỉndustry

Enterprises in Viet Nam bicyclc industry distinguish by thcir own features The íìrst, most o f labors in the bicyclc industry are unskilled workers, because bike production processcs do nol require high degree o f accuracy and complication Consequently, Viet Nam bicycle industry has advantagcs o f low cosí labor According to Vict Nam Bike and Motorbike Association, it is estimated about

400 - 500 employec working for one enterprise on average In vvhich, ninety pcrcent o f them are unskilled workers, leaving only 10% being trained vvorkers and engineers Most unskilled workers arc young and undcr 30 year old They usually arc assigncd to do simple opcration processcs Thcsc staff easily

switchcs to othcr indusírics, making high lcvel o f vvorker turnovcr in bike -

manufacturing companics Traincd workers and cngineers might be keys o f enterprises, taking important positions, managing production and staying longer with thc conipany.

The sccond, Vietnamcse bike - manufacturing enterprises usc homc-made or imported machincs Hovvcver, importcd machines usually are adjusted before using lo be nttcd with working proccsses o f companies In vicc verse, íoreign dircct invcstmcnt enterpriscs in Viet Nam comc from Taiwan, applying Taiwan technology Taivvan is thc most iầmous country o f advancc technology serving bicycle industry Howcver, therc exist barriers to Vietnamese bike- manufacturing enterprises applying Taiwan machincs Taivvan machines generally requirc specific materials [f a company wants to usc Taivvan machines, it has to import Taiwan materials that are more cxpcnsive and less available Consequcntly, the company will lose the initiative o f material In addition, most Vict Nam bike-manufacturing companies arc in small size and not abundant in Capital Thereíbre, Vietnamese companies prcfer to invent their

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Đai h ọc Quóc gia ha í \ i ô j TRUNG Ỉ Ã M t h õ n g Tin Ĩ HƯ VIẺN

own simple machines or improve importcd ones to be morc effcctive and efficient.

The third, every bike manufacturing company applies the same processes o f production For examplc, if a company would like to produce ữame, it might go through steps o f tailoring tubes; brazing, welding and gluing tubes; aligning and cleaning draw írame, painting and packaging Quality o f product depends much

on material and know-how.

As building slrategy for Viet Long Company Limited, it is necessary to consider characteristics o f enterprises in Viet Nam bicycle industry A company, who invests strongly on research and dcvelopment or has cngineers innovative,

Creative and enthusiaslic, will take advantages on technology, home-made

machines and know-how A company which can create tie relationship to employecs in order to achieve lowcr worker tumover than other will reduce the numbcr o f damaged Products and faults, leading to Iower cost price and other compctitive ađvantages.

1.2.2 Fragmentation o f Viet Nam bicyclc industry

Vict Nam bicycle industry is ữagmcnted There is no íĩrm in the industry that has a sỉgniílcant market sharc or strongly influences the industry output The industry is populateđ by a large numbcr o f enterprises manufacturing and assembling bike and spare parts, including 30 state-owned, more than 10 íorcign đircct investment companies, neariy 500 private enterprises, and around onc thousand small groups and coopcratives In which, a few state-owneđ, FDI and private enterprises has executed completed bike vvith their own brand name Others produce some o f three hundred kinds o f bike parts and assemble cheap bicycles without branđ name Thong Nhat Bicycle is the biggest state-owned enterprise, who has captured about 8 - 11% market sharc with production o f 84,000 to 100,000 bicycles annually FDI enterprises cover about morc than 20% markct share each ycar on avcrage.

Reasons leading to /ragmentatinn:

Firstly, overall entry baưiers are low Production processes o f bike are similar and casily to leam, and raw and basic materials are available everyvvhere, such

as Thai Nguyen, Vict Y, or Chinese Steel Therefore, there exist many small groups and cooperatives manufacturing bike parts and assembling bicycles with low quality in Viet Nam In addition, customers can be access easily via widely bicycle shops all ovcr the country Customers can find various bike brand names

in only one bike shops generally Thereíbrc, switching cost from this brand to another are low and brand loyalty o f customers is little All o f thesc things make overall entry barriers o f the bicyclc industry are fairly low.

The second reason is diversiíĩcation o f market demand To the youth, utility is less imporlant than ĩashion, such as forms, materials, colors and configurations

In vicc versa, the most important things that the clder considers are utility, comíbrtableness and quality Therefore, bicyclc styles are íragmenteđ It’s exists wide rangc types o f bike in the market, from ữeestyle bikes, scooters and road bikcs to mountain bikes vvith various color and speciíìcation.

The final reason is availability o f different technology, leading to divcrsification

o f Products Materials technology, such as composite metal malrix, carbon nbcr, plastics, titanium, injection moldings, or magncsium, linked to sophisticatcd production mcthods Frame and component designing with C om puter aided dcsign-bases research and development helps thc industry improving both in model, specincation and quality Improvements on production and design o f type, brake system, gear changing devices, íblding bicycle design have added valuc to bicycles.

There are three main reasons leading to íragmentation o f the industry:

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In order to ĩacing with íragmentation, there are speciíìc approaches to pursuc strategies o f low cost, diíĩerentiate or focus in particular environment o f fragmented industry.

Tightỉy managed decentraliiation: Keep operations small and as autonomous as possible Aluminum extrusion and fabricating industry o f Canada and India is a typical case.

Formuìa ịàcilities: Build a Standard, efficient and low-cost facilities at multiple

locations to put operation at minimum cost.

lncreased value added: Providing more Service with salc or cngaging in some ílnal fabrication o f the product, from that enhancing product differentiation as American metal distributors, eleclronic component distributors.

Specialization by product type or product segment: Specialize on a tightly conslrained group o f product, enhancing product differentiation like Ethan Allen

in American íumiture industry.

Specialization by customer type: Serve customers purchasing small annual volume with the least bargaining lcverage or specialize in least price sensitive customers or thosc ones who most need the valuc addcd follow by basic products Dell C om puter is a typical case for thai strategy.

Specìalizatitìn by type o f order: Scrve only small ordcrs for which customers want immcdiately delivery and arc fewer priccs sensitive Or the company only serves custom ordcr whose price sensitivity is lovv and build switching costs.

A focused geographic area: Concentrating facilities, marketing attention, and sale activities on a given geographic area to economize on the use o f sales force, allow more effìcient advertising, allow a single distribution center.

Facing with fragmentation of the inđustrv:

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Bare bones/ No 1rills: Kccp low overhead, low skillcd employecs, tight control cost and attcntion to dctail in order to increase competitive advantagcs on price and still make abovc average rctum.

Backward integration: Sclective backward integration may low er costs and larger market sharc, putting prcssures on competitors.

1.2.3 Transỉtion to maturity o f Viet Nam bicycle industry

Signơls o f maturity:

Vietnam bicyclc industry is in its maturity phrasc o f the industry life cycle with

following strongly critica! signals.

Vict Nam bicycle industry has been took its lcap as opcning economy at the beginning o f 1990s Without bus, bicycle was main transportation mode for the peoplc from all vvalks o f life Motorbikes have been become popular in Viet Nam duc to iinprovemcnt o f living Standard The appcarancc o f cheap Chincse motorbikes hit bike industry players in 1998 It is not only made critical changes

in moving habit o f population but also nearly eliminate pack-bike segment The bike industry is changing to another stagc o f industry dcvelopment with slow

industry g ro w th

Slow industry growth is still industry trend in the next five years The total detnand is about from 700 thousand to onc million sets o f bike per year on average Under cstimation o f the Vict Nam Bike and Motorbike Association, number o f bike sold in 2008 reduced more than 20% against 2007 due to impact

of populaiion factor and economic crisis The demand continucs to go down about 15% in 2009 Aftcr that, thc bicycle demand mighl increase slightly from

742 thousands in 2009 up to 870 thousands in 2014 in the period o f 2009-2014, demand on bike might increases 17% but average grovvth rate might achieves only 3.1%.

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There cxist some other signals that prove the malurity phasc oi'the industry Ít is

no longer time to widen buyer group It is mass market with repeat buying Customers become sophisticatcd, understanding cỉearly about bike Products and recognÌ7,e thcm by quality, brand name and price The competition vvithin Viet Nam bicycle industry is tougher vvith increasing industry players; making proíìt margin o f the industry and dealcrs rcduces.

11 is expectcd that Viet Nam bicycỉc industry decline phrasc will be delay by shiít on consuming habit o f customers Further analysis supporting this point vvill be prcsent in PEST analysis.

Strategic impỉications

Therc arc somc strategic approachcs that can hclp bike - manufacturing enterprises go Ihrough maturity stage o f the Viet Nam bicycle industry in particular situation.

Overall, cost leadership versus differentiation versus focus: companies in bike industry have to make decision on particular strategy to pursue Companies cannot execute a wiđe variety o f strategies in the time o f maturity.

Process innovation and design fo r manu/acture: Enhancing innovation in production proccsscs in order to facilitate lower-cost manufacturing and control, leading to cost-saving and productivity improvctncnts.

Buyer selection: In the time o f inalurity, there is an increase in customers’ knowledge and competitive pressurc Buyer selcction is the best way to identify good group o f buycrs.

Buy low cost assets: Buy low cost asset from distressed companies causing by transition o f maturity to improve margin The fact, some Taiwan-owned companies are going to bankruptcy because o f anli-dumping punishment.

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Increasing scope o f purchase: Increasing purchase o f existing customers by supplying pcripheral equipment and services, taking the firm into relatcd industry.

Different cost curves: In maturity, competition on price is critical However, a ílrm that can not pursue cost leadership strategy can fĩnd new cost curve among those ones available in thc industry For example, a company can choose one make lower cost for certain type o f product, type o f customer or ordcr size.

Competing internationallv: Companies should go internationally, choosing the inost favorable market to avoid maturity.

1.2.4 Strategic groups in Viet Nam bicycle industrv

Stratcgic group is the group o f íìnns in an industry íbllovving the same or a similar stratcgy along the strategic dimensions (Michael E Porter, 1980) Strategic dimensions are related, including: specialization, push vcrsus pull,

product quality, cost posilion, Service, price policy, đistribution channel, brand

identiíìcation, technological leadership, vertical integration, lcvcragc, reiationship with parent company and relationship to homc and host governrnent A strategic group can be clefined base on either all or some outstanding dimensions.

Viet Nam bicycle industry can be dividcd into thrce major stratcgic groups The first strategic group, with Taiwan FDI enterprises as the prototype, is characterized by brand identification, high quality and rclativc high price The

Bicycle Company or Lixeha Bicycle Company, íocuses on medium quality and price The last group, including privatc enterprises, small groups and cooperatives, buy domestic spare-parts or import from China to assemble low quality and cheap bicycle.

The main reasons leading to existing o f many strategic groups are diiTerences o f

resources (including finance, human resource, technology and physics) am ong

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groups Fimis in thc high quality and pricc stratcgic group originated from Taivvan, vvhich is thc most important global supply ccntre for middle and high end bikcs and bike parts These enterprises inherit advancc tcchnology with high degree o f aulomation Consequently, their Products achieve high accuracy and quality In vicc verse, China-importeđ bikes are for thc mass market Chinese companies mainly manuíầclure low and mcdium-end bikes Thereíore, China- imported bikc and spare parts are in the range o f low pricc and quality The rest, Vietnamese enterpriscs, gather into two groups The íìrst group including state- owncd and somc privatc companies achieve medium levcl o f product quality The other group including privatc groups and small coopcratives vvith lovv labor

chcap pricc bikc and bike parts.

In the proccss o f strategy formulation, it is critical lo find oul which strategic group to compete in The firm can chose betwecn jumping into an existing slrategic group and creating a ncw one Overall entry barriers đepend strongly

0 11 which strategic group the firm would like to join A particular group with high entry barricrs, such as group pursuing high price and quality, not only promises higher potcntial proíit, blocks new entrants from outside industry and shifting strategic position o f finns in other strategic groups in the industry, but also be tough to join In vice vcrsc, it is easier to join ]ow cntry barriers síratcgic group, likc group o f cheap pricc bikc, which docs not provide sustainable growth.

In addition, cach strategic group may have their own rclativc povvcr/ position to suppliers, customcrs and substitute Products Each strategic group also affects to and be affected by other groups in the industry The position o f the íìrrn in choscn strategic group, thc degrec o f competition in chosen stratcgic group, and the scale o f thc fimri rclative to others in the group parlicipate in detcrmine survival, operation and potential proíltability o f the organi/.ation.

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1.2.5 Entry into new business through internal development

Viet Long Company is a case o f entry into new business through intemal devclopment The company has prociuced axle, mayor and pedal Since 2008 the company has initiatcd a new product, bikc frame, with an ambition to bring Viet Long completed bicycle to market in 2009 It is tough for Vict Long Company

to enter a new business o f ữagmented and mature bicycle industry.

The íìrst important thing that Viet Long Company has to pay attention is structural entry barriers, such as brand identiílcation, propriety technology, distribulion channel or access o f competitors to the most ĩavorablc matcrials These barriers may require additional investment o f the intemal cntrant.

The sccond thing is expected reaction o f incumbent firms In the phase o f maturity where is lacking o f industry growth, the appearance o f Viet Long Company will beat market share o f existing íìrms, leading to theirs retaliate These ĩirms can react by various ways, such as shaving price, escalated marketing activities, special promotions, extension o f warranty term and product improvemení.

Morcover, Vicí Long cntry may affect on supply-demand balancc in bicyclc industry Viet Long Company has remarkable iníluence on industry capacity Viet Long Company with total capacity o f about ĩnorc than 60 thousand unit pcr year, equaling to two third production o f Thong Nhai Bicycle Company and 9.25% o f estimated dcmand in 2009 It mcans that success o f Viet Long products will bring toughcr competition in the industry.

All oí' above mentioned íactors should be taken into account in the process o f building business strategy o f Viet Long Company.

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CH APTER 2: EXTERNAL AND INTERNAL ANALYSIS

In this chapter, an overview o f Viet Nam bicycle industry is presented; fo]]owing by extcmal and intcmal analysis o f Vict Long case that are conducted with models o f PEST, five íorces, and value Chain in ordcr to undcrstand deeply about the firm situation The results o f this chapter are basis for the step

o f stratcgy íbnnulation, selection, and implementation.

2.1 Overvievv of Viet Nam bicycle industry

Viet Nam bicyclc industry has gonc through three íìrst steps o f the lifecycle: introduction, growth and maturity The introduction started at thc beginning o f 1960s as Ha Noi was liberated from French colonialists At that time, the

a properly o f Vietnamesc family.

pigure 2.1: Vietnam bicycle industry life cycle'

1 P 2 Ố 1 9 9 S 2 0 0 8

T im ©

Sincc 1986 the country pursucd open economic policy, giving a chance o f economy development, industries gcnerally and bicyclc industry particularly.

1 This figurc is just for rctcrcncc to indicatc industry lifc cyclc lt is drawn basing on industry salcs in

1986, 1997, 1998, 2006, 2007, 2008, etc which are providcd by V ict Nam A ssociation o f Bike and Molorbikc and industry cxpcrts’ ideas.

Bicycle becamc main transportation mean in Viet Nam duc to low living

Standard

The stage o f grovvth lasted lo the end o f 1990s when Chinese cheap motorbikes rioodcd into Viet Nam, vvining the favor o f many ỉocal low-income earners and tuming the industry to maturity stagc o f liíecycle In 1997 and 1998, motorbike prices o f joint venture companies in Viet Nam were vcry high Motorbike is an drcam o f Victnamese, like the product o f Honda Vietnam When the govcmment allowed companies to import and assemble Chinese motorbike, Vict Nam pcople have opportunities to own Iheir desired vehicles at rcasonable pricc regard o f product qualily Chinese cheap motorbikcs becomc popular both

in urban and rural areas, replacing bicycle to be main form o f transportation for Vietnamese peoplc According to the Transportation Policc Bureau, there were two millions Chinese motorbikes imported in Viet Nam each year at that tũne The appearance o f Chincse cheap motorbikes hit the bicycle industry, making bike dcmand reduce promptly and causing loss o f pack-bike segment.

As favorablc FD1 policy has taken ctTectivc in 2001, there were several Taiwan bikc - manufacturcrs has come Viet Nam to build factories in Binh Duong provincc, such as Strongman, Dragon, Asama Yuh Jih, Clientsfưst, A & J High Ridc Bicyclc, or Liang Industry Some o f these companies has received licensc

to scll prođucts in the domestic market at a gi ven rate o f productivity Others serve only oversee markct The wave o f Taiwanese bike manufacturing and assembling enterprises in Viet Nam brings difficult to Vietnamesc íĩnns competing in the domestic market Additionally, as more Taiwanese íìrms came

to Viet Nam, the European Union could tum attention to Viet Nam exports and anti-dumping suits.

The físt anti-dumping actions to Vietnamesc bicycle producers was in 2004 as the European Union announced list o f nine companies, including six FDI and thrce Victnamcse, under anti-dumping investigation Consequently, Taiwan and

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Victnamcsc bicycle cnterprises pay rnore attention on domcstic markct, making

il to be more competitive.

As Viet Nam has joined Southeast Asia Free-trade Arca, bicyclcs and bikc parts were in thc Tcmporary Exclusion List Therefore, these items had cnjoyed Common Effective Preferential Tariff (CEPT) o f not morc than 5% since 2006

It creates good condition to attract Indonesia, Thailand and other countrics in Southeast Asia to enter Viet Nam bike market.

The íìnal fact that had great and long-term impact on the bicycle industry is the rcgulation on prohibiting pupils from using motorbike In thc past, rcgarding o f the Victnam regulation, many pupils in big cities still drove motorbike to school, lcading to accidcnt and othcr social issues The Ministry o f Public Security has lightcned thc law since thc beginning o f 2007 As a result, pupils bccome the most attraclivc scgmcnl o f bike producers.

There werc somc other issues which had impacts on thc bicyclc industry such as the appearancc o f electric bicycle, the regulalion on forcing pcoplc to wear helmet when driving (helmet regulation) and the jumping o f oil price in 2008 Hovvever, il only makes the industry to be Huctuant in a particular period, not in the long run.

Figure 2.2: Highlight o f Viet Nam bicycle induslry

C him Anú-đinriping

I I

Hùm et(«gui«tion

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Viet Nam bicycle industry is on malurity stage, dcmonstrating by slow industry growth According to theory, decline stage is the One right aĩter maturity Howcver, some industry passes decline stage to go into anothcr lifccycle due to change on customer demand or product innovation The scenario has becn laking place to the bicycle industry in most developed countries, such as America England and France As oil price jumps up and pcople pay attention more on issues o f hcalthiness, cnvironment and recreation activities, Vietnamese pcople tend to lovc driving bikc, creating changes in the life cycle o f the industry.

Bike and bike spare-part import-export policy & tariff

In order to protcct Viet Nam bikc industry, the government had initiated following special policies:

s Do not allow to import second-hand bike.

s High lariff for imported bicyclc and spare parts.

s Non-tariff imported barriers, such as: quota, spcciíìcation, and stamp.

s Encourage bike and spare parts export activities.

Therc are scveral reasons for the govemment to protcct the bicycle industry Enterprises seem to gain beneíìl due to high priccs o f bicyclcs rcsulting from the

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