GRIGGS UNIVERSITY
GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM
CAPSTONE PROJECT REPORT
BUSINESS STRATEGY FORMULATION FOR
SONG HONG GARMENT JOINT STOCK COMPANY IN THE PERIOD 2013 - 2017
Group Number: 3
Student’s name:
~ Ho Quang Quynh - Leader Dinh Quang Khai
Trang 2CAPSTONE PROJECT REPORT Group No.03- GaMBA.MO2LI CONEIRMATION SONG HONG GARMENT JOINT STOCK COMPANY — oe
“——— Add: 105 Nguyen Dục Thuan Street Nam Dinh City Viet Nam
SONGHONG _ Tel: +84 3503649365 Fax: +84 3503646737
Date: 15/12/2012
To: — - Master of Business administration program — Griggs University -ETC~- Vietnam National University, Hanoi
Subject: Song Hong Garment Joint stock Company about
Capstone of Group No 03 - GaMBA.MO0211 — Griggs University
- Song Hong.JSC has done fully support for Group No 03°00 MO211 when they practiced and learned in company about operation status, vision and strategy of company
- Group memembers have expressed an enthusiastic and creative, have closely
followed up current situation of company and receive a good result in working time in Song Hong JSC For and-orrbehalf of SONG HONG JSC Ps =/CONG TY SA io
Bui Duc Thinh
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Contents
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1.i Concept, role and basic characteristics of business strategy 10
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l1.3; gSi0 CHETACISLISUCS OF BUSINESS STALE RY ascitic wenmroonacmmrormnenmnneremanns II 1.2 Specific strategies 12
1.3 Steps of strategic development 13 1.4 Strategy analysis and selection 14
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2.1 Introduction about Song Hong Garment Joint Stock Company: 24
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3.1 Vision and mission of the Song Hong Garment Joint Stock Company 65
Suk VU revere eeren eet 65
3.2 Selecting business strategy in 2013 — 2017 period 65
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jx ớt 0201011911101 VẤN censor 71
3.3 Solutions on strategy implementation: 73
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điều SOUTHS OH TINS cencorcmmecnnmerum eR 83
3.3.6 Solutions on research and development (RGD) csccescurenmsncemrsmmaascces vine 84 duôn - DOIHHIOITERISK HIGHGPEDHfEfioeedaiemeeeneironndedeeesieteddroosliolgrseihngonsiosbLlE'B 84 3.3.8 Budget plan and stratesy ñinplementation schedule e+ 85
CONCLUSION scammer 6300000039000073G0880380N0đ60đ 88
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ACKNOWLEDGEMENT
First of all, our group would like to express our gratitude to Ass.Pro.Dr Ngo Kim Thanh who has directly taught and guided us to complete this Capstone Project Report; as well as lecturers from Griggs University (USA): and Board of Leaders of Center for Educational Technology and Career development (ETC),Post Graduate Faculty - Vietnam National University of Hanoi for having supported us during the course and enable our completion of this Capstone Project Report We also would like to send our sincere thank to Board of Leaders and relevant departments of Song Hong Garment Joint Stock Company for enthusiastically providing us with essential documents and helping us complete this Capstone Project Report, especially for the advices and comments from Mr Bui Duc Thinh, Chairman of Company’s Board of Management
Owing to our limited knowledge and time, we could not avoid mistakes in the analysis of the report Therefore, we would like to receive comments from lecturers of the program to improve our report and make it applicable effectively in the current situation of Song Hong Garment Joint Stock Company
Our group would like to commit that the report is an independent research of the group All the data and results presented in the report are honest and from clear
sources
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INTRODUCTION
1 Reasons for selecting the topic:
Since 1990, Vietnam’s textile and garment industry has developed rapidly and played an important role in the growth of the economy Among all the industrial export items, textile and garment products have the highest export value and growth rate In 2011, export value of textile and garment industry reached US$ 14.043 billion, making up over 16% in the total export value of the country and ranking first in the top list of Vietnam's export value
Taking advantage of opportunities in the global economic integration and preferences of the State in the accelerating period of Vietnam’s textile and garment industry Song Hong Garment Joint Stock Company has made reasonable investment, improved technology and product quality and reduced prices to create competitiveness for its products Therefore, Company has made a huge growth, gained high profit, and made significant contribution to the socio-economic development of the locality and the region
However, in the recent years, due to the global economic crisis, demand for textile and garment products from major markets such as the U.S., EU, etc is forecast to experience a sharp drop Especially, exchange rate instability, inflation, high interest rate and rising requirements of buyers in the world on product quality, production costs, delivery schedule and tough competition also have negative influences on Company’s business and production In 2012, Company’s growth has leveled off; rate of return has decreased compared to the previous years, etc
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current economic situation and make development plan to sustain its operation, assert Its position, and make sustainable development steps in the future
2 Object and scope of the study:
- Object of the study: Song Hong Garment Joint Stock Company
- Scope of the study: Applying basic theories and methodologies on strategic formulation and strategic management based on the competitive trend in garment and textile business to make contribution to improving the strategic formulation of Song Hong Garment Joint Stock Company in the period 2013-2017
3 Objective of the study:
In the current context, each textile and garment company must formulate for it a competitive strategy in domestic market to maximize its advantages so as to gain market share and high profit Therefore, the main objective of this capstone project is to formulate a feasible and suitable business strategy for Song Hong Garment JSC
4 Research methodology:
- Using statistical description, comparison and analysis and synthesis
- Using SWOT analysis (strengths, weaknesses, opportunities, and threats), Five Forces Model and tools of business strategy selection
- Studying secondary data from relevant topics, books, newspapers, internet sources; analyzing financial statements, corporate management activities, and statistics of Song Hong Garment JSC
- Collecting comments and judgments of experts in textile and garment industry and members in Board of leaders of Song Hong Garment JSC 5 Structure of the study
Apart from the table of contents, list of abbreviations, list of charts and tables, introduction, conclusion, references appendix the report is divided into three main chapters as follows:
- Chapter 1: Theoretical background
- Chapter 2: Foundation for development of business strategy of Song Hong Garment Joint Stock Company
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- Chapter 3: Strategy selection —_ -implementation solution for Song Hong Garment Joint Stock Company
Trang 9c2 Global Advanced Master of Business Administration WTO APTA ASEAN LU VITAS tái GDP FOB EEE IFE IE CPM PEST QSPM SWOT SO vi WO WT USD VND BCTC LIST OF ABBREVIATIONS World Trade Organization
Asean Free Trade Association
Association of Southeast Asian Nations European Union
Vietnam Textile and Apparel Association The consumer price index
Gross national product
delivers finished products on board External Factor Evaluation Matrix Internal Factor Evaluation Matrix
Matrix evaluating internal and external factors Competitive Profile Matrix
Political - Economic — Social — Technology Quantitative Strategic PlaningMatrix
Matrix Strengths - Weaknesses - Opportunities — Threat
Competitive strategy combining the strengths and opportunities of Company
Competitive strategy combining the strengths and risks of Company
Competitive strategy combining the weaknesses and
opportunities of Company
Competitive strategy combining the weaknesses and risks of Company
United State Dollar Viet Nam Dong
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LIST OF DIAGRAM AND TABLE Strategic development process
Five Forces Model by Michael Porter Impact of external environment EFE Matrix CPM Matrix IFE Matrix SWOT Matrix IE Matrix QSPM Matrix
Some business results from 2010 to June 2012 GDP growth and inflation rate of Vietnam List of contracts with major suppliers Competitive Profile Matrix - CPM Comparison of financial indicators EFE Matrix of Song Hong Garment JSC
Business results of Song Hong and Garment JSC Structure of Revenue
Structure of gross profit
Structure of production cost over revenue Major financial indicators
IFE Matrix of Song Hong and Garment JSC
SWOT Matrix for SONG HONG GARMENT JSC IE Matrix
QSPM Matrix
Targets for the period 2013-2017 by year Marketing Mix Strategy
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Chart 2.1: Organizational chart of Song Hong Garment Joint Stock Company
Chart 2.2: Export value of Vietnam garment and textile products
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CHAPTER 1
THEORETICAL BACKGROUND
1.1 Concept, role and basic characteristics of business strategy 1.1.1 Concepts of business strategies
Strategies were applied into business from 1960s of the 20" century, and the term “strategy” came into existence Chandler defined, “Strategy indicates the determination of the basic long-term goals and the objectives of an enterprise and the adopticn of courses of action and the allocation of resources necessary for carrying out these goals” (Chandler A 1962 Strategy and Structure Cambridge Massachusetts)
In 1980, Quinn introduced the concept “A strategy is the pattern or plan
that integrates an organization's major goals, policies and action sequences into a
cohesive whole” (Quinn, J, B 1980 Strategies for Change: Logical
Incrementalism Homewood, Illinois, Irwin)
Johnson and Scholes defined strategy in a sharply-changing environment: “Strategy is the direction and scope of an organization over the long term which achieves advantage for the organization through its configuration of resources within a changing environment to meet the needs of markets and to fulfill stakeholders expectations (Johnson, G., Scholes, K 1999 Exploring Corporate
Strategy, 5" Ed Prentice Hall Europe)
Apart from the above traditional approaches, in the work “The Concept of Corporate Strategy”, Kenneth Andrews introduced the idea “Strategy is what an organization should do based on its strengths and weaknesses in the context that there are both opportunities and threats’ And Brace Henderson connected concepts of strategies with competitive advantages as follows: “Strategy is a cautious search for an action plan to develop and incorporate the organization's competitive advantages The difference between you and vour competitors are the hasis for your advantages."
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Whatever is the way of approaching the term “business strategy” is often used in three most common implications, namely:
Lili,
stablishing a long-term goal of an enterprise Setting out a general action program
Selecting option of acting deploying and allocating resources to reach that goal
Role of strategy
The role of business strategy for a firm is shown through following aspects: Helping a firm specify it objective and orientation in the future and being a lodestar for all business and production activities of the firm
Determining opportunities and threats from the environment and internal strengths and weaknesses of the firm to boost strengths, minimize weaknesses, seize and make use of business opportunities, and prevent threats from outside
Contributing to increase efficiency of resource usage to exist and enhance competitive advantages, helping the firm develop sustainably Business strategy is a firm basis to help make appropriate decisions and policies for a firm to meet the market changes; build a firm basis for researching and deploying activities, human resource training, and market expansion and product development
1.1.3 Basic characteristics of business strategy
Business strategy defines basic objectives and business orientations of a firm in each period
Orientativeness of strategy is to ensure the continual and sustainable development of a firm in the changing business environment
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Ld
Business strategy of a firm is reflected in a continual process Business strategy always has aggressive thought to win in business Business strategy is often built up for a long period (3 years, 5 years, 10
years, CIC.)
Specific strategies
Forward integration strategy: is to increase ownership or control over distributors and retailers
Backward integration strategy: is to seek for ownership or control over suppliers of the firm
Horizontal integration strategy: is to seek for ownership or control over competitors of the firm
Market penetration strategy: is to expand market share in the current market for existing products and services through marketing efforts Market development strategy: is to introduce existing products and services into new markets
Product development strategy: is to improve or modify existing products and services
Concentric diversification strategy: is to add new products and services which are related to each other
Conglomerate Diversification Strategy: 1s to add new products and services which are not related to each other
Horizontal diversification strategy: is to add new products and services to existing customers
Joint-venture strategy: 1wo or more companies cooperate to establish an independent corporate
Downsizing strategy: is to reform company through reducing expenses and assets to save decreasing revenue and profit
Activity reduction strategy: is to sella branch or a part of a company Liquidation strategy: ts to sell all assets of company in part
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- General strategy: is to pursuit two or more strategies at the same time 1.3 Steps of strategic development
The strategic development is a regular process requiring the participation of all members in a company, and including the following contents: Strategic function, mission and objective of company } ° Analysis of Analysis of <>» ‘External Internal an Environment Environment (O, T) (S, W) Cu x a y HS A I Uc sot Strategy selection
+ Corporate level strategy "
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1.4 Strategy analysis and selection 1.4.1 Macro environment analysis
Business environment includes external factors that can affect the goal realization of a firm The objective of business environment analysis is to seek for opportunities and detect threats, which company is facing
Changes in the macro-environment may have direct influence on any forces in the sector that would change their strength and its own one After all, it would change the attractiveness of an industry PEST model is often used to analyze and study impacts of macro environmental factors, in which four major factors are investigated, including: - Political and Regulatory Forces - Economic Forces - Socio-cultural Forces Technological Forces
At present, PEST model is widely used to study the impact of some factors such as demography, nature, global and gradually becomes an_ indispensable standard in external environment study of a firm
1.4.2 Industry environment analysis
Industry environment analysis needs an evaluation on competitive structure within industries, including competitive position of a central organization and major Competitors as well as development stages of the industries
PEST model is used to study the impact of major macro environmental elements, while Five Forces Model developed by Michael Porter — a professor at Harvard Business School helps managers recognize opportunities and threats that a firm must cope with within an industry
Trang 17CZ Global Advanced Master of Business Administration `YÍĐMM 120 101 0m 4 L4 4043940//430401143471049 002 0i 2778/1212 0 Threat of new entrants
Bargaining Rivalry Bargaining
power of among power of buyers
Suppliers existing firms a Threat of substitutes
Figure 1.2: Five Forces Model by Michael Porter
Five Forces Model by Michael Porter points out that the stronger the above forces are, the more likely that they will restrict the capacity of existing firms in raising price and gaining a higher profit In contrast, when a certain force is weak, the opportunity to gain profit will be more feasible
Trang 18CG Global Advanced Master of Business Administration ———— Global Economig Force Threat of new entrants if mm a
Bargaining a ail Rivalry A_| Bargaining
power of among power of buyers
suppliers existing firms ’ TỰ ‘ ] ` Threat of substitutes Socio3 cultural
Figure 1.3: Impact of external environment
The analysis of microenvironment and industry environment will help figure out opportunities and threats of an organization One of the tools that evaluates external factors, as well as synthetizes and summarizes major external Opportunities and threats affecting the operation of a firm is External Factor I:valuation (EFE) Matrix EFE Matrix helps managers assess the response of a firm to Opportunities and threats and verify whether external factors are advantages or disadvantages There are five steps to shape an EFE matrix:
- Step /: Listing 10 to 20 major opportunity and threat factors, which playa decisive role in the success of firms within the industry
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Step 2: Assigning weights from 0.0 (not important) to 1.0 (very important)
1
to each factor The importance of each factor depends on the influence of the factor on the firm's business The total weight for each factor must be equal 1 1.0
- Step 3: Assigning weights from 0.0to 4.0to each factor The rating of each factor depends on the response of the firm to this factor, in which: 4 is strong response: 3: above average response; 2: average response; andl: weak response
- Step 4:Multiplying the weight of each factor with its rating to determine the Weighted score of the factors
- Step 5: Summing the scores of factors to determine the total score of the matrix The total score that a firm can achieve is: Highest score: 4.0; average score: 2.5; and lowest score: 1.0 The total score evaluates the response of the Company to opportunities and threats brought in by external factors
Table 1.1: EFE Matrix Weighted Key external factors Weight Rating score Factor | | | Factor 2 Factor n Total 100 —~ en
1.4.3 Competitive profile matrix
The formulation of Competitive Profile Matrix (CPM) helps a firm see the
correlation in competition with its competitors in industry so as to recognize the firm's strengths and weaknesses compared to its competitors, determine competitive advantages for the firm, and help overcome their weaknesses There are five steps to set up a Competitive Profile Matrix (CPM) as follows:
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Step TÚ: Listing about 10 key factors having strong influence on competitors of a firm in the industry
- Step 2: Assigning a weight from 0.0 (not important) to 1.0 (very important) to each factor The weight of each factor depends on its influence on the competitiveness of the firm The total weighted score of all factors must be equal to 1.0
- Step 3: Assigning a rating from | to 4 to each factor, in which 4 is superior, 3: above average, 2: average, 1: very poor
- Step 4: Multiplying the weight of each factor with its rating to find out the Weighted score of each factor
- Step 5: Summing the weighted score of all factors to find out the total weighted score of the matrix Comparing the total weighted score of the firm with respective to their competitors to evaluate their competitiveness
Table 1.2: Competitive Profile Matrix Critical success No Weight factors Rating WS Rating WS Rating WS Factor | Factor 2 Factor n
Total 1.00 ¬ă ¬ coven:
1.4.4 Internal environment analysis
Internal environment analysis is to the assessment of the firm's internal situation to evaluate its strengths, weaknesses and competitive advantages to set up appropriate business strategies for the firm The analysis of internal environment Will focus on the following resources:
Trang 21> 17D Global Advanced Master of Business Administration Vv Financial resource Y Organizational resource v Infrastructural resource VY ‘Technological resource - Intangible resources v Human resource v Renovation resource Y Reputation resource
The analysis of above-mentioned resources will indicate strengths and weakness of a firm One of the tools to evaluate internal environment of a firm is Inernal Factor Evaluation (IFE) IFE Matrix helps a firm take maximum advantage of its strengths to exploit and prepare resources to cope with its weaknesses, meanwhile, to find out measures to improve these weaknesses Steps to set up IFE Matrix are as follows:
- Step 1: Making a list of about 10 — 20 factors, including strengths and weaknesses affecting the firm and its set target
- Step 2: Assigning a weight from 0.0 (not important) to 1.0 (Very important) to each factor The importance of each factor depends on the influence of the factor on the firm’s success The total weighted score of all factors must be equal to 1.0
- Step 3: Assigning a rating from | to 4 to each factor, in which: 4is superior, 3: above average, 2: average, 1: very poor
- Step 4: Multiplying the weight of each factor with its rating to determine the weighted score of the factor
- Step 5: Summing the weighted score of all factors to find out the total Weighted score of the matrix The internal factors of the firm are strong represented by 2.5 and above in total The internal factors of the firm are Weak represented by fewer than 2.5 in total
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Key external factors Factor | lactor 2 Factor n Total 1.4.5 1.4.5 Table 1.3: IFE Matrix Weight Rating 1.00 Building matrices for business strategy selection Weighted score
1 Building SWOT Matrix (Strengths-Weaknesses-Opportunities-Threats)
Internal factors of a firm can be classified into strengths (S) and weakness
(W) External factors can be classified into opportunities (O) and threats (T) This analysis of the strategic environment is called SWOT analysis This is a very useful
tool, helping us understand problems or make decision management as well as in business Listing important strengths from the table of Table 1.3: SWOT Matrix Strengths (S) | the most the firm's internal factors in organization, Weaknesses (W)
Listing the most important
weaknesses from the table of the firm's internal factors
Opportunities (O) S-O strategies S-T strategies :
Listing the most Use strengths to Use external opportunities
important opportunities maximize opportunities to minimize the firm's
from the table of the internal weaknesses
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important threats from minimize impact of that minimize weaknesses
the table of the firm's external threats and decrease (or avoid)
external factors external threats
1.4.5.2Internal — External (IE) Matrix
iE Matrix is used in parallel with SWOT Matrix and can be used as a
reference for SWOT Matrix IE Matrix is the combination of EFE Matrix and IFE Matrix: Table 1.4: IE Matrix IFE -SCORE 4 Strong 3 Average 2 Weak | High EFE - SCORE Medium If the strategic position of the firm locates at three blue cells, it should grow and build If the position of the firm locates at three yellow cells, it should hold and maintain If the position of the firm locates at three red cells, it should harvest and
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1.4.5.3 Quantitative Strategic Planning Matrix (QSPM) for an optimal strategy selection
Quantitative Strategic Planning Matrix (QSPM) uses input data from analyses in the previous steps to make objective decision on which strategy is most attractive and worth a pursuit for a firm to realize its goal successfully
Six steps to develop a QSPM Matrix:
- Step 1: Listing important external opportunities/threats and internal
strengths/weaknesses into column (1) of the matrix These factors are
directly taken from EFE and IFE Matrices
~- Step 2: Filling in respective number for each factor in the rating column of
EFE and IFE matrices into column (2) of the matrix
- Step 3: Studying SWOT matrix and determining alternative strategies that the firm should consider implementing, noting down these strategies to the columns of alternative strategies Alternative strategies will be classified into separate groups (if any)
- Step 4: Finding out the attractiveness score (AS) of each strategy The attractiveness score is rated as follows: I- not acceptable; 2- possibly acceptable; 3- probably acceptable: 4- most acceptable, and noting down to
(AS) column
- Step 5: Calculating the total attractiveness score (TAS) of each critical
success factor in column (1) by multiplying the weight with the
attractiveness score in each row, and noting down to (TAS) column
- Step 6: Calculating the sum total attractiveness score by accumulating all the total attractiveness scores in each strategy column of the QSPM The higher scores Would be the more suitable and worth to be selected strategy would
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CHAPTER 2
FOUNDATION FOR DEVELOPMENT OF BUSINESS STRATEGY OF SONG HONG GARMENT JOINT STOCK COMPANY
2.1 Introduction about Song Hong Garment Joint Stock Company: 2.1.1 General information Company name Name in English Short name Symbol Representative Head office Tel Fax Website E-mail Charter capital
Công ty Có phần May Sông Hồng
Song Hong Garment Joint stock Company Song Hong Garment JSC
| i oat " al
SONG HONG
Mr Bui Duc Thinh
Title: Chairman of Management Board
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Global Advanced Master of Business Administration
}
Business scopes of Company:
lor manufacture and sale: garment products, industrial materials and equipment, garment and textile materials and equipment
For sale: industrial products for civil use, domestic cigarettes, wine, beer and cosmetics
Establishment and development process:
Key development milestones of Song Hong Garment Joint Stock Company: In 1988, the Company was established with over 100 employees
In 1993, Company name was changed to Song Hong Garment Company In 1997, a workshop manufacturing regenerated cottons was merged into Song Hong, called Song Hong 2 Company owned 3 garment workshops with 1000 employees In 2001, a home-textile brand named Song Hong was created and aimed for local market In 2004, Song Hong was equitized to be Song Hong Garment Joint Stock Company
In 2006, the manufacturing site Song Hong 3 was built along Highway No 10, Nam Dinh City with 03 garment workshops Company owned 3,600 employees with 06 garment workshops, 01 laundry workshop, 01 cotton and quilting workshop
In 2007, Song Hong Apparel Co., Ltd was established, with a representative branch based in Hong Kong
In 2008, the manufacturing site Song Hong 4 was built in Xuan Truong District, Nam Dinh Province with 04 new garment workshops Company owned 6000 employees
In 2010, Company invested in Song Hong 7 project in Hat Hau District Nam Dinh Province with 04 new garment workshops
By 2012, Company is expected to have 8.000 employees with 14 garment
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workshops, 02 laundry workshops, | bedding ware workshop, 01 cotton and quilting workshop, 01 embroidering workshop
Thanks to the effective promotion of existing resources, creativeness, willpower to overcome difficulties, tight quality management and external opportunities, Company has made huge progresses in terms of production scale and labor force at such a fast and sustainable pace like nowadays
2.1.4 Organizational chart of Company:
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Chart 2.1: Organizational chart of Song Hong Garment Joint Stock Company
IS HE SEATE CRN TPS SLOT EL: SATE SOT IS NOTTS TTS RTE PERL ITS SHAREHOLDERS’ MEETING BOARD OF MANAGEMENT CONTROLLERS BOARD OF — [ BOARD OF DIRECTORS
Sa Overseas Import &
Administra Trading fe Fan tion Dept Dept Planning
TNiyoant
Inspection HR Dept Hong Kong Technical
Dept Represenat ft— Dept
ive Office
Guard Finance & Sales Dept Electro-
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2.1.5 Business results of Song Hong Garment Joint Stock Company in the period 2010-2012
2.1.5.1 Major products
Company is currently supplying two major product lines:
- Bedding products: light soft, anti-moisture, anti-mold, various designs, high quality and competitive prices
- Garment products: are mainly outsourced products and export products (FOB), such as clothing for men, women and kids: outer wears, leather jackets, women blazers, vests, skirts, pants, and shorts
2.1.5.2 Business results in 2010, 2011 and first six months of 2012
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tì
6
7
Profit before tax | 78839 [ 107725 | 36.6% 54.440
Profit after tax 70.830 92.404 30.5% 44.913
Dividend 50% (stock) | 30% (cash)
(Source: Audited financial statement in 2010, 2011 and first six months of 2012) 2.2 General environment analysis
22-221 Macro-environment analysis
In this part, the group uses PEST model to analyze macro-environmental tactors having direct influence on business activity of the Company with the purpose of figuring out external opportunities that may bring in benefit for the Company and threats that it should avoid
2.2.1.1 Political environment:
This factor has influence on all business sectors in a territory and can threaten the existence and development of many sectors Below is the consideration Of political aspects that have direct influence on Song Hong Garment Joint Stock Company:
Stability: Vietnam has been known as a country with stable politics for many years, creating confidence for both domestic and foreign enterprises to invest and do business Operating in this environment, Vietnamese companies are secured to build and promote brand, create prestige and cooperate with foreign partners
Policy: Garment and textile sector is given priority and many incentives to develop by the State In the general planning for the development of garment and textile sector by 2015, the Prime Minister has approved to “Develop garment and textile industry to become one of the key industry, focusing on exports”
In parallel with the plan, there are also certain incentives such as: interest rate subsidy for loans to invest in supporting industries serving garment and textile sector for garment companies to export to the U.S.: bailout packages
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to help companies overcome the financial crisis such as giving loans with preferential interest rate (4%/year), extending corporate income, and reducing corporate income tax by 30%
The current open-door policy and integration trend allow the Company to have many opportunities to access technological advancements, find suitable material and equipment supplies, consumption markets, etc On the other hand, the Company also has many opportunities to contact many investors, facilitating joint-venturing and coordinating process — this is the target of the Company in the current stage of development
- Tax policy: In the global integration process, Vietnam has joined Asian Free
Trade Area (AF TA) since 2006 with the commitment on reducing tariff and
giving many other preferential for imported goods This is also an opportunities for foreign investors to invest in Vietnam, meaning that the Company will have to face tough competition However, the Company also enjoys preferential tariff policies when exporting its products to foreign markets, especially to Japan with 0% tariff
- Relevant laws: Vietnam has also promulgated Investment Law, Enterprise Law, Labor Code, Anti - monopoly Law, Anti-dumping Law to create a fair and healthy business environment to project the right of enterprises In 2000, Enterprise Law was promulgated and took effect, marking a breakthrough in encouraging investment in private sector; equitizing state-owned enterprises; boosting technological renovation; and raising labor productivity The competitive environment, therefore becomes more ebullient
However, Vietnam’s legal system is still assessed as asynchronous and is in the process of completion with low efficiency of implementation As a result, the changes in the government's policies, especially tariff policies for imported garment and textile the State’s policies to support labor-intensive industries such as garment and textile ete will have more or less influence on the business of the Company
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2.2.1.2 Economic factors
It is necessary to consider both short-term and long-term economic factors and the government's intervention in the economy:
Situation of the economy: Any economy has a cycle At present, the global economy has not got out of the economic crisis starting from 2008, triggered by a housing bubble in the U.S., spreading to EU countries (with a debt crisis); and Vietnam has also suffered great influence from the crisis
Table 2.2: GDP growth and inflation rate of Vietnam
‘Item Quarter | Quarter | Quarter | Quarter | 2010 | 2011 2012 | 3/2011 4/2011 1/2012 1/2012 GDP growth} 61 | 61 | 41 466 | 6.78 | 5.89 | 5.03 | (o by year) CPI inflation,| 22.4 18.1 14.1 6.9 11.75 | 18.13 | 6.81 at the end of quarter (% by year)
(Source: General Statistics Office) GDP growth of Vietnam in 2011 was 5.89% (Table 2.2) Vietnam is one of the countries with high and stable GDP growth in the world With Vietnamese government’s effort in implementing policies on regulating the macro-economy, over the past years, Vietnam’s economy has still sustained a positive growth rate The development of the economy makes contribution to raise the purchasing power in the market year by year Ho Chi Minh City ranked first in GDP growth in 2011 with 10.3% and GDP per capita of over US$ 3.000/year
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transparency in the market was the cause of inflation, culminating in 2011 This variation has a huge impact on the industry including garment and textile The mobilization of investments for business and production becomes very difficult, entailing a decline in production and an economic recession
- The economic outlook in the future: According to the latest report released by the Organization for Economic Cooperation and Development (OECD) on November 27 the world economy has not got out of the economic crisis; the global economic growth globai will slump in 2013; and the debt crisis in Euro-zone remains the biggest threat to the world economy According to a statement of the General Statistics Office released on December 24, 2012, Vietnam's GDP and CPI in 2012 are 5.03% and 6.81%, respectively
- Suffering the negative influence from general economic situation, along with the flexible grasp and prudent adaptation to the business environment, Song Hong and Garment Joint Stock Company has made use of its strengths and restricted its weaknesses to seize new business activities
2.2.1.3 Socio-cultural factors:
Each country or territory has its own cultural values and social factors, helping form the characteristics of consumers in the region Below are some outstanding socio-cultural factors of Vietnam:
- The population of nearly 90 million people, the population growth rate of about 1.2% per year (General Statistics Office), intelligent and young population, and the high proportion of the population in working age will be a potential consumption market as well as an abundant labor supply, especially for labor-intensive industries such as garment and textile
- The population is mainly distributed in the Red River Delta and Mekong Delta (accounting for 43% of the country’s population) Population in Northern Midland and Mountainous Areas, and Central Highlands accounts
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for 19% of the country’s population The people are flocking into key industrial and economic zones
Vietnam's GDP per capita increased from $ 114 in 1991 to $ 1.300 in 2011 Although there is a big gap with other countries in the region, it is impossible to deny that the quality of life has been more and more improved and the demand for fashion has also been improved
After joining the WTO, Vietnam’s economy has conditions to deeply and widely integrate into the world economy On the other hand, the people also have more opportunities to interact with many different cultural streams Increasing social needs, their opinion is not restricted at "feeding and clothing oneself properly”, but gradually shifted to "eating delicious food and wearing good clothes" Therefore, the market needs more new designs of clothes with good quality to meet the constantly changing fashion trends It is very good opportunities for Song Hong Garment JSC capture and develop their internal resources to achieve sustainable business growth
2.2.1.4 Technological factors:
The world is still in the technological revolution Vietnam also has opportunity to use more modern and advanced equipment A series of new technologies are introduced and integrated into products and services There is the invention of many new materials and products with outstanding features such as Bamboo fiber, Polynozic, Rayon, etc treated with anti- crease technology, antispasmodic, antibacterial technologies; and produced from modern and environmentally-friendly equipment and technology The technology to link design and production is supported by computer, creating an opportunity for companies to form diverse and cost-saving designs: and improve labor productivity contributing to reducing production cost and creating competitiveness in the industry Therefore, the Company needs to pay attention to technological innovation in manufacturing its products
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However, Vietnam is one of the countries with backward techniques and technologies In the field of garment and textile manufacturing, many technologies from 1970s-1980s are still adapted Most machinery and equipment must be imported because domestic production cannot meet the quality requirements Obsolete technologies not only affect the competition on the export market, but also make textile products of Vietnam to lose advantages right in domestic market compared to Chinese products
2.2.1.5 Natural environment
Nowadays, as living standards are improved, the people pay more attention to the living environment, and also tend to use environmentally-friendly products Companies have been applying clean production technologies and select natural materials to meet the requirements on protecting the environment and human health
The climate of Vietnam with 4 seasons in the North and two seasons (rainy and dry seasons) in the South also affects the consumption of the garment products The Company needs to develop products with different features and exquisite designs suit the tastes, hygienic environment, and have high
aesthetics to dominate the market
2.2.1.6 Integration factors - Globalization
No one can deny globalization is the trend, and this trend provide an opportunity for companies and countries in developing production and business, as evidenced by a continuously increase in the value of textile exports from 2000 to date (Figure 2.1) At the same time, it also creates competitive pressure, and the competitors may come from all areas The process of integration will force companies to make adjustments to fit the comparative advantages and labor division of the region and the world
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and customers of companies will not be domestic market only, but customers worldwide
In the integration trend, Song Hong Garment Joint Stock Company must take into account the response to its competitors and seize the advantages in
markets with low trade barriers 16,000 14,000 12,006 10,000 9,082 7,794 8,000 5,834 6,000 ˆ 4.838 4,000 ' cs { ‘ 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 1 7 1,962 2 gaol
®@ Value (Billion USD)
Figure 2.1: Export value of Vietnam garment and textile products
(Source: Vietnam Textile and Apparel Association)
2.2.2 Industry environment: 2.2.2.1 Forecast on market demand
Along with the economic development and improved living standards, the demand for garment products also increases, creating high potential for the development of the world garment industry in general and Vietnam garment industry in particular
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the objectives set out in the development plan by 2015 approved by the
government, with contents as follows:
- Raising production by about!2-14% and exports by about 15% in the period 2011-2020
- Increasing revenue of the industry to $ 22.5 billion by 2015 and $ 31 billion by 2020
With sound policies of the government, the Vietnamese textile and garment industry has made certain achievements in recent years According to the development strategy for the textile and garment industry by 2015 and orientation to 2020, the government will facilitate the textile and garment sector to grow sharply, stably and effectively; consider export as the goal of the industry development; expand export markets; and maximize the development of domestic market with focus on aggressively developing supporting industries, material production, etc
However, the analysis of many experts shows that Vietnam's textile and garment industry still lacks conditions for sustainable development To raise exports, the industry has to import a large volume of raw materials and auxiliary materials from abroad every year
s* Export markets
In March 2008, the Prime Minister also approved a development strategy for the textile and industry, in which, garment and textile exports of Vietnam was expected to reach $ 22.5 billion by 2015 The Ministry of Industry and Trade is urgently preparing human resources and cotton planting for a fabric export program It shows that importers have still given orders to Vietnam
According to statistics from the General Department of Vietnam Customs, textile and garment exports of Vietnam in 2011 were $ 14.043 billion, accounting for 16.33% of Vietnam's total exports of goods With their efforts, companies in the industry have sustained a firm foothold in the key markets - USA, EU, and Japan: and taken advantage of every business opportunity As a result, textile and
Trang 39garment exports to the U.S., FU and Japan in 2011 rose by 12%, 33%, and 46% over the same period of 2010 Total textile and garment exports to the three markets reached $ 11.062 billion, accounting for 79% of total textile and garment exports of Vietnam in 2011
Although the domestic and world economies are forecast to continue to have difficulties in 2012 and 2013, Vietnam's textile and garment industry, with internal resources and efforts to overcome difficulties of companies, is expected to grow by 25% in 2012, with the expected revenue of about $ 25 billion, of which, revenue from exports are projected at about $ 19-19.5 billion In the period 2016-2020, the textile and garment industry will grow in depth and approach consumers by Winning proactiveness and aiming at higher production methods such as ODM
(Original Design Manufacturer), OBM (Original Brand Manufacturer), and
reinforcing internal resources in order to reduce the imports of raw materials so as to raise export value
“* Domestic market
Besides the development of export markets, over the past year, as well as in the future, textile and garment industry still orients to focus on the domestic market Difficulties in exports over the past year as well as in the following years have forced many companies to restructure production and business activities and invest more in the domestic market Making efforts to compete with other exporting countries to win the gradually-contracted market share and promoting the domestic market domination are successful action strategies of most textile and garment companies
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The reasons why consumers return to consume domestic products include reasonable prices, diverse designs good promotion and warranty services and higher safety for users” health relative to Chinese products
2.2.2.2 Porter’s Five Force Model
To analyze the influence of competitive pressure from the textile and garment industry environment on the Company, the group uses Five Force Model of Michael Porter
“se Suppliers:
The main materials used for manufacturing products of Song Hong and Garment JSC are high-grade fibers and cotton supplied by big and prestigious companies both in Vietnam and overseas For outsourcing business, most materials serving the Company’s production are imported from overseas in accordance with partners” requirements to ensure quality and competitive prices
Table 2.3: List of contracts with major suppliers
Currency unit: U.S dollar
| No Supplier ontract No] Date of Product | Contract value
| | _ Signing S (including VAT)
KaiCherng Shown on each