GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM GRIGGS
CAPSTONE PROJECT REPORT
BUSINESS STRATEGY SELECTION FOR SONG HONG GARMENT JOINT STOCK COMPANY PERIOD 2009 - 2012
Group N.09 Pham Van Huan
Nguyen Thị Lan Huong Nguyen The Quynh
Doan Thao Linh
HA NOI, 2009
Trang 2
TABLE OF CONTENTS
ÝY | LIST OF PHOTOS, LISÏT Án 12 HS SH n1 TH x11 HH kh 4
09)4)/.20).4) 0 aaIAa 6
1 REASON ƒOF ÍODÏC CÍHỌC©- <5 0 họ họ cm 6 2 Purpose O0 ẨÏHiS ÍODIC F€S€(IFCÏI [S: << in ve 6 3 Methods and Scope Of F€S€(IFCÏHš c5 << 0 Vy, 6 4 Đ©SC(IFCÏI SCOJDØ- c- SG << Họ Họ 7 3 Contents H(Í SÍFHCÍHFC OƒÍ ÍOJDÍC- c5 << << < << < S1 S9 5959995 7 CHHAPTTIETR Í, - 75 5 G5 <9 ọ Họ cọ Họ Họ cọ ve 8 BASIC THEORIES ON THE BUSINESS AND PRODUCTION DEVELOPMENT `» 2099 8 1.1 Concept (IH(Ỉ FỌ© Oƒ SÍT(IÍG| << << << 9 3 niên 8 B69 0 -cnậRă 8
1.1.2 The role of the business strategy in the enterprise’s operafion 9 Kol 3 SREY LCV US se nen cen saememcnvomeaee soe sue S.DBE.NGHIGI T05 1H34 H81 TH.2H08/303.8)1,408 NI tồi EBEUSSA/301/061 08 HH š 10 1.2 Buikling the business strdfegÿ Oƒ ẨÏH@ €HÍ€FDFIS€ << s1 9S 4 10 1.3 Analysing the entrnal and internal enveronment affecting the enterprise 13 L dol Exxterrval Sree ir OM Me cas wes sca.ras.son.nemnews ore waa.wancemormnumen.av oxy weasel As ess 13 1.4 Buidung the Selecting the ĐHSIHGSS SÍP(IÍ€Ø cc- << S5 ve 18 1.4.1 Optimal strategy according to SWOT mafFIX c S2 ccS<cccssss 18 1.4.2 Analysing 3 basic comp€tIfIV€ SfFA{€ĐI€S: c2 S2 si sserrres 20 KH Y1 LÍ lái gongx.ccnununnosndnpsxxvsbakonaivlá031126A5008/0109042045490X2632A5010022221632000011302202230300241930v35 30 ACTUAL SITUATION OF BUSINESS OPERATION OF THE SONG HONG GARMENT JOINT S5TOCK COMPANY net 30
2.I Overvieww 0ƒ the song hong garmenf JjOiH( síOCĐ COHIDQHJ) << <5 30 2.1.1 Process of establishment and developmen: -.-‹ 5c csccx<cccseerss 30 DI 070 y/10(0000(0(00(lìì)IẠIỌIiiiađđ - 32 2.2 Analysis of production situation and business result of the song hong garment Joint stock COMPANY AUPING PAST EATS ssscserscsessrsseseresessscceserecceseeees 33
Trang 32.3 Factors affecting the business and producton activities of the company 51 2 3:1, /ÀV1BLHPESOUS DHGTOTS? sonnnits <nnennnaitdinns xn smbiiecanns nese wnnneditdimameanidiine aahiitia tien od T88 5] Dike TDNLKL OUÍL LIẾLITŠ ¿ an phu dan des oth inmanenslsSonen sen coẾŠe in seo samneshA one an Hin nah Bae es U8 5] DA, POSTION G8 EG TRUST ics cus axes cxsscanemes nssvenmsmn cesses scenivaanss aaceeansissasamsaearecmanes 52 2.4.1 Overview of Vietnamese øarment InduStrV .ccccccccsssssscsees 52 2.4.2 Position of the company in the InduStry cccccccssscccsssesseeexee 22 2.4.3 Competitive advantages of the Company .::cceeeceeeseeeeeeeeteeeneeees 53 2.4.4 Challenges for the COoimpaIIV 2 1 2222112221111 122115521 1111521111 ke 54 2.4.5 Development OppOTTfUTITICS c Q20 v1 S2 n1 S9 vn ng nghe 55 2.4.6 Prospects of industry deVeÏopI€nIL - c2 s s2 eerrreg 5S CHAPTER Š, các á cnnnncunnnoicGinncgniukL200TL21100814.bdib854x66816dbasssgSSänsaSiäEREdsa58688uãsusxsaSi 59 BUSINESS STRATEGY AND SOLUTIONS TO IMPLEMENTING THE
STRATEGY IN THE PERIOD OF 2009 - 2012 2 2222 * +2 EEsszersserses 59 $.1 Business strategy 0ƒ tH€ COTIDHJ fÏÏI 2) Ï 2 5 << <5 + «SE ° se 59
3 1x| V TU, FTTSSIDH HH LATEGÏSE mau eo sẽ om sre cuss mecmce ae BỘ ĐH: 06/280 Kee ame 59 3.1.2 Building strategies facing with Song Hong beddings: 59 3.1.3 Regarding FOB products, the company use Product differentiation
Trang 4LIST OF PHOTOS, LIST
Chapter 1
Figure 1.1: Steps in planning strategy
Figure 1.2: Companies and other factors affecting business Figure 1.3: Model of five competitive forces of M Porter
(Source: Le The Gioi ., 2009, Strategic Management, five forces model of
competition Porter, tr.106)
Table 1.4: SWOT Framework Analysis minimalist Table 1.5: The general strategy by Michael Porter
(Source: Nguyen Thanh Thao, "Brand Strategy by Michael Porter theory)
Chapter 2
Figure 2.1: Information logo of the Song Hong Garment Joint Stock Company
(Source: The Song Hong Garment Joint Stock Company)
Figure 2.2: Diagram the organizational structure of the company (Source: The Song Hong Garment Joint Stock Company) Table 2.3 Proportion of products through the year on total revenue
(Source: The Song Hong Garment Joint Stock Company) Schedule 2.4: The proportion of products through the years
(Source: The Song Hong Garment Joint Stock Company) Table 2.5: List of contracts by supplier
(Source: The Song Hong Garment Joint Stock Company) Table 2.6: Summary of business activity indicators
(Source: The Song Hong Garment Joint Stock Company) Table 2 July: The key financial indicators
(Source: The Song Hong Garment Joint Stock Company) Table 2.8: Profit Planning and organization 2008 - 2009
Trang 5September 2 Import table textile materials 2002-2007 Figure 2:10 Map of cotton price fluctuations, fabrics
Source GSO VN Figure 2:11: Market share
(Source: According to statistics of the General Department of Statistics) Figure 2:12 The number of industrial enterprises garment business (2000-2007)
Source GSO, in the Yearbook 2008)
Figure 2:13 Competitiveness of Vietnam and some countries
Source: WEF, The Global Competiveness Report (2007)
Figure 2:14 Competitiveness of Vietnam with some countries (Number of ratings 2006: 125, 2005: 116, 2004: 104)
(Source: WEF, The Global Competiveness Report (2007)
Figure 2.15 Price index for domestic consumption (Source GSO U.S.)
Figure 2:16: SXCN value and density of industrial GDP
(Source: Ministry of Industry and Trade)
Chapter 3
Table 3.1 Location map bedding products buffer the Red River in the market Table 3.2: Structure of employees by level of labor
(Source: The Song Hong Garment Joint Stock Company) Figure: 3.3: Structure of the company’s human
Trang 6FOREWORD 1 Reason for topic choice:
The Vietnam’s economy is gradually intergrating with economies of the region and the world, and the business environment for enterprises is also expanded However, the competition is becoming more fierce This creates both business opportunies and potential risks threatening the development of enterprises At present, the Vietnam garment industry plays a role as a principal industry in the process of integration and economic development in the World In the changeable
market, ignoring the random element, the main issue affecting the success of the
enterprise is selecting a right direction, defining a timely and reasonable business
Strategy
the Song Hong Garment Joint Stock Company is a young enterprise which continuously applies strategic management methods in the real business process in the enterprise and that brough good results
Being aware of the importance of planning business strategies which play the pivotal role in the production process of the enterprise; Group 9 of GAMBAO1.02 chose the topic: “The business strategy of the Song Hong Garment Joint Stock Company” in order to put the knowledge after studying and research into the business practice
2 Purpose of this topic research is:
To clarify some primary theories and methodology on building and implementing the business strategy the Song Hong Garment Joint Stock Company on basis of analyzing and evaluating the situation of production and business as Well as the business environment of the Company during the past time
3 Methods and scope of research:
Researching the business and production activities of the Song Hong Garment Joint Stock Company during the past time and the business strategy for the enterprise in the period of 2010-2012
Trang 7Primary data gathering: by studying observing the actual operation of the company, personal interviews (with staffs and officers in the company), sending emails, ete
Secondary data gathering: from reports, documents, Statistical Yearbooks, information on newspapers on televisions, internet and previous researches
3.2 Comparison and synthesis method: comparing one figure with the original figure applied to figures of business results, market parameters, average figures, and other comparable figures Comparison conditions are that figures must fit the space, time, economic contents, measurement unit, calculation method, scale and business conditions
3.3 Statistical method in tables: to find out the trend or common characteristics of the analyzed elements
3.4 SWOT method: to find out strengths and weaknesses inside the enterprise, opportunies and threats outside the enterprise This is the key method in
strategy planning
4 Research scope:
Researching the business and production activities of the Song Hong Garment Joint Stock Company during the past time; building business and production development strategy of the Company in the period of 2010-2012
5 Contents and structure of topic: Structure of this topic includes three parts:
Chapter_1: Basic theories on the business and production development
Strategy
Chapter 2: Real situation of the business and production development strategy of the Song Hong Garment Joint Stock Company
Chapter 3: Business strategy of the Song Hong Garment Joint Stock Company till 2012 and solutions
Trang 8CHAPTER 1 BASIC THEORIES ON THE BUSINESS AND PRODUCTION DEVELOPMENT STRATEGY 1.1 Concept and role of strategy 1.1.1 Concept:
According to Micheal Porter “Strategy is the study to find out a suitable competitive position in an industry, a scope of main activities where competitiveness occurs.”-
According to William F.Gluek: “Strategy is an united, overall and coordinated plan and designed to ensure that basic targets of the enterprise are achieved successfully”
The term “strategy” is often used with three common meanings:
The first: being general operation programs and deploying principal
resources to achieve targets
The second: being targets of the organization, resources used to achieve such targets, operating policies for collection, use and arrangement of such resources
The third: determining long-term targets and selecting ways for operation and allocating necessary resources to achieve such targets
Strategic management is the science and art of the strategy in order to build the direction and business targets, deploying and implementing short-term and long- term plan based on available resources to help each organization to achieve its long-
term targets
Due to different approaches to the strategy, then there are also different concepts about the strategy Thus, so far there has not been a united and general concept about the strateg Here are some concepts:
- M.Porter said: “Strategvis the art of building strong competitive advantages
Trang 9- Alain Threatart said in the “Strategy of the Company” that: “Strategy is the art of the enterprise to fight against competitiveness and to win the victory
- “Strategy is to sketches long-term and sold development orbits, of which decisions and exact actions of the enterprise can be arranged’ It is the concept of Alain Charles Martinet the author of the “Strategy”, who won the prize of Havard L’expandsion in 1983
In general, the above mentioned concepts about the term “Strategy” includes and reflects the following issues: + Target of Strategy + Implementation duration + Process for making the Strategy + Competitive environment + Advantages and weaknesses of the enterprise in general and for each activity in particular
+ Measures and the way to achieve the target
Thus, we can see that the Strategy of the enterprise is a “product” combining what the environment has? What the enterprise can? And what the enterprise want?
1.1.2 The role of the business strategy in the enterprise’s operation
Strategic management is a direction to help these organizations overcome challenges in the market, reach the future by their efforts and ability It is really a management science, because if organizations develop a good management process, they will have a good base to go forward
Strategic management helps an organization be more active instead of being passive in planning its future It allows an organization to be proactive and to influence the environment in which it works, and thus it makes use of its ability to control variables
Trang 10targets of the enterprise Once everyone in the enterprise understands what and why the enterprise is doing, then they feel that they are a part in the enterprise and they will commit to supporting all activities of the enterprise
1.1.3 Strategy levels:
In any organizations, strategies have existed in several different levels — expanding from the entire enterprise (or a group of enterprises) to each individual working in it
+ Enterprise strategy : is a company-level strategy serving the purpose and overall scope of the organization to meet expectations of capital contributers
+ Business strategy — More related to how an enterprise can compete successfully on a specific market
+ Function strategy — are strategies supporting the business-level strategy to be implemented effectively thanks to components in the aspects of resources, processess, human resources and necessary skills
+ Global strategy (international business) — is the choice to face with international
business issues when the enterprise diversifies its operation beyond the national border
1.2 Building the business strategy of the enterprise Process of building the business strategy
The process of building the business strategy is also the process of planning the business strategy, summarized in the following diagram:
Trang 11
* Identify functions and tasks of the enterprise
The first step is to indentify functions and tasks of the enterprise In fact, it is to define the mission, vision and strategic targets of the enterprise
Mission: Mission of the enterprise is a concept to define purposes of the
enterprise, reasons for the establishment of the enterprise and basis for its existence and development Mission of the enterprise is the manifesto of the enterprise for the society It proves the usefulness and significiance in the existence of the enterprise for the society
Vision: Vision is the main purposes which the enterprise wants to achieve in the long-term period ( usually from 1- 5 years)
Trang 12- On the basis of clearly defining the mission of the enterprise, we overview the issues related to the enterprise and separate each issue through the following diagram:
Figure 1.3: The enterprise and affecting factors Science- technique Natural conditio Culture- Society ns Internatio nal Popul ation Thus, we can
separate factors affecting the enterprise into two groups: External environment group and internal environment group
* Evaluating and analysing the external environment:
The second part in the process of building the Strategy is to analyse the external environment affecting the enterprise This analysis’s purpose is to be aware of opportunies and threats from the environment outside the organization It includes the analysis of the macro environment the micro environment and the industry environment in which the enterprise takes part in operating
Trang 13The third part in the process of building the Strategy is to analyse the internal environment affecting the enterprise to find out strengths and weaknessess_ of the enterprise We determine how the company reached a competitive advantage, the role of different capacities, resources and ability to create and maintain the competitive advantage for the company Since then, the company is requested to achieve a superior performance, quality, innovation and responsibility towards its
customers
* Analysing and selecting the Strategy:
The last is to determine Strategic plans respectively with identified strengths, weaknessess, opportunities and threats of the enterprise Analysis and selection of the Strategy is conducted through SWOT analysis, the company understands the strategic direction, is aware of the nature of the competitive position on the basis of the analysis to find out resources, capacities and core competence for developing strategy selections
1.3 Analysing the entrnal and internal enveronment affecting the enterprise
1.3.1 External environment:
1.3.1.1 Analysing the macro environment
Changes in the macro environment can have direct impact on any force in the industry, altering the relative strength between the force and changing the attractiveness of a industry The macro environment consists of six segments: economy, technology, culture and society, demography, politics and law, and the global
* Economy environment
Trang 14create its value and income Four important factors in the macroeconomics are: the growth rate of the economy interest rate, exchange rate and inflation
* Science and technology environment
Technological changes impact on many parts of the society, mainly through products of the technology process The change of technology environment brings both opportunity and threat The opportunity is to improve the ability to create new products of high competitiveness; the threat is to make the life cycle of products depressed directly or indirectly The most important impact of technological change is to affect the height of accession barriers and to re-structure the industry
* Culture and society environment
This environment includes social attitudes and cultural values, social changes also create the opportunities and threats An enterprise wants to exist together with time, with partners and be accepted by the society, then it must highly appreciate business culture Cultural and social values create the foundation of the society, thus it often
lead to changes in technology conditions, politics and law, economy and
demography
* Demography environment
This environment includes issues relating to the population, age structure, geographic distribution, community of peoples and income distribution The viewpoint about consumption of goods and services of inhabitants in areas, and the viewpoint about consumption of the sex, age, occupation affecting the formation of the markets and the business strategy The lifestyle affects the demand for goods and services including: types, quality, style and design Population growth rate makes a great impact on contents of the business and production development strategy of the enterprise
* Politics and law environment
Trang 15the political environment, their influences to the Government and the Government's influences to them When analysing this environment, these factors should be taken care of: economic reform administrative reform, policy changes related to the industry, tax policies, environment protection and safety, promulgation and amendment of regulations
* Global environment
Trends of integration globalization in the world and in Vietnam make enterprises consider international factors when planning a strategy, which is long- term, highly integrated and able to reach out of the geographic and political scope Global segments include concerned global markets, current makets in changing,
important international political events, basic institutional and cultural
characteristics on global markets
1.3.1.2 Analysing industry environment (micro)
An industry is group of enterprises providing products or services that can
replace each other closely Close replacement means that products or services meet customers’ needs in the similar ways
Industry analysis and competitiveness is a set of concepts and techniques to clarify the key issues of:
+ Remarkable economic features of the industry
+ Competitive forces operating in the industry, the nature and strength of each force
+ Driving forces causing the change in the industry and their impacts + Who is the person to make next movement in the industry
+ Critical factors for success and failure in competition
+ Attractiveness of the industry on the aspect of gaining profits exceeding the average
Trang 16According to M Porter there are five forces of competitive orientation in the industry such as: (1) in the risk of appearing new companies: (2) competitiveness level between existing companies in the industry: (3) negotiation strength of
purchasers; (4) negotiation strength of sellers; (5) threats from substitute products
M Porter pointed out that the stronger this force is, the more limited in raising price and gaining higher profits the existing companies are Thus, managers must be aware of opportunities and threats brought by change of these five forces and then build suitable strategies to turn the power of one or many competitive forces into advantages
Figure 1.4 : Model of five competitive forces of M Porter Potential Entrants Threat of new entrants Bargaining power of suppliers co Industry § 5 1 ˆ mi uyer
Suppliers Competitors | <a yers
Rivalry among Existing firms i Bargaining power of aa 7 a Buyers Threat of substitute products or services ws Substitutes (Source: World, ., 2009, Strategic management, Model of five competitive forces of M Porter, page 106) * Potential competitors :
Trang 17the business operation is depending on the competitiveness power of the enterprise ( scale technology etc.) The apperance of these competitors also change the competitiveness picture of the industry increase the competitiveness level of the industry Thus, existing companies try their best to prevent potential competitors from jumping into their business fields
However, according to M.Poster, there are some obstacles for enterprises not in the same industry when they want to jump into:
- The customers’ love with old products thanks to advertisement, brands, product quality and after-sale services
- Difficulity in lowering costs when jumping into the other industry - Effectiveness of large-scaled business and production
* Substitute products
Subsitute products are products of current competitors It is regular pressure that directly threaten the enterprise Substitues are products of enterprises in the
same industry or in others but together meet customers’ needs
Thus, the existence of substitute products form an enormous competitiveness, which limits the determined price level and thus limits the profitability of the enterprise In contrast, if the product of an enterprise has few substitutes, the enterprise may have chance to increase the price and get greater profit Especially, subsitutes may appear inside the enterprise
* Price pressure caused by customers
Customers become competitive threats when they require cheap price but better quality of products and services that lead the increase of operation costs of the Company Conversely, if customers are in disadvantageous positions, the company has the opportunity to increase the price and earn higher profit
Pressure caused by customers based on following criteria: - Customers focus or not
- Whether the enterprise is the main supplier or not
Trang 18- Customers’ ability in finding substitute products - Costs for conversion
- Ability of integration
* Price pressure caused by suppliers
Suppliers become threats for the enterprise when they push up price of goods supplied for the enterprise or reduce the goods quality, change payment terms, and delivery conditions, etc affecting the price and product quality that affect the profitability of the enterprise Enterprises must have relationships with suppliers of goods and other inputs such as labor forces, materials and equipment, and finance Elements increasing pressure caused by suppliers are similar to those caused by
customers:
- Small quantity of suppliers that make difficulty for the enterprise to select the supplier
- The product, which the company needs to buy, has a few substitutes - The enterprise cĩ phải là khách hàng chính của nhà cung cấp hay khơng - Whether suppliers focus or not It means that if suppliers focus, then the pressure caused by them will be higher and the enterprise will be in disadvantageous position
1.4 Buidung the selecting the business strategy 1.4.1 Optimal strategy according to SWOT matrix 1.4.1.1 SWOT Matrix and selection of optimal strategy
SWOT is the abbreviation collection of first letters in English: Strengths; Weaknesses; Opportunities; Threats This is an extremely useful tool to help us understand the problem or make decision in organization, management and business
1.4.1.2 SWOT analysis
Albert Humphrey concretized SWOT into the 6 following items:
Trang 19Customers (Who will we sell for2)
Ln
4 Distribution (How will we approach our customers?)
MN Finance (How much Is price, cost and investment?)
6 Management (How will we manage all activities?)
Based on the specific context, a model of SWOT analysis may make one or
several items in the list of the above six steps In any cases, SWOT will basically
tell you the good and bad things in your current business or a new proposal for the future
If business is the object of SWOT analysis, and analysis purpose is to improve the enterprise, then SWOT will be understood as follows:
° S: strengths (Maintaining, building and being a lever) ° W: opportunities (an optimistic evaluation)
° O: weaknesses (solutions to overcome weaknesses) ° T: threats (obstacles)
If SWOT analysis is used to assess an idea or proposal, it could indicate that
such idea or proposal is too weak (especially when comparing with analysis for other proposals, thus we should not invest in In this case, there is no need to make the next action plan
1.4.1.3 SWOT analysis framework
SWOT analysis framework can be described shortly as in the following diagram: Table 1.1: /rreducible SWOT analysis framework : 8 External environment Environment analysis = O opportunities T_ threats
Intern | S- strengths S-O: promoting strengths | S-T: promoting strengths to al to take advantages of | limit and avoid threats
enviro opportunities, business
nment orientation
W- W-O: Overcoming | W-T: Overcoming _ inside
weaknesses weaknesses to take | difficulties and carefully advantages of | preparing to overcome
Trang 20* SO Strategy- “Development” Strategy: combining opportunities and strengths of the company to expand and develop The enterprise needs to use its strengths and opportunities to compete with other enterprises and to continuously expand the market
* WO Strategy: there are much more weaknesses than strengths but
are also many opportunities outside, corresponding with the name “competitiveness” This combination may help the enterprise overcome weaknesses by taking advantages of opportunities
* ST Strategy: This is the situation that the company has strong conditions inside to fight against outside obstacles This Strategy is called “opposition” Strategy
* WT Strategy- “Defence” Strategy: The company no longer copes with the outside threats, deprived of development ability In this situation, the company is either bankrupt or associated with other companies This association requires the enterprise to take measures to reduce weaknesses and avoid threats by defence strategy
Thus, purpose of using SWOT matrix to analyse environment factors aiming at creating ways of combining factors inside the enterprise with corresponding ones outside the environment and orienting reaction solutions which are scientific, practical and feasible, etc This is one of the important basis for the enterprise to select effective competitive strategies
1.4.2 Analysing 3 basic competitive strategies:
Each company self-defines the position in the operating field by utilizing available advantages Michael Porter said that advantages of any enterprises are always in one of the two aspects: cost advantage and product differentiation By applying these advantages, companies will pursue three common strategies: cost leadership strategy, product differentiation strategy and focus strategy They are called common strategies because they do not depend on any enterprises or any industries
Trang 21Competitive Advantage Cost Uniqueness Broad Cost Leadership Differenation eed Target Competitive
Scope Narrow Focused Cost Focused
Target Leadership Differentiation
(Source: Nguyen Thanh Thao, “Brand Strategy by Michael Porter theory) 1.4.2.1 Cost leadership Strategy
* Features:
The purpose of the company to pursue the cost leadership strategy or low cost strategy is to perform better (have more advantages) than competitors by trying its best to produce goods or services at a lower cost than that of competitors
This Strategy has two tundamental advantages Firstly, with lower cost, the cost leader can set the lower price than competitors but still get as much profit as competitors If companies in the industry put the same value for their products, then the cost leader can gain higher profit because its cost is lower Secondly, if competitiveness in the industry is increasing and companies compete their price with each other, then the cost leader may stand in the competition better than other companies because of its lower cost
*Strategic solutions:
The cost leader selects the low differentiation level The cost leader also overlook different market segments They are often interested in the market in the large extent In fact, companies give out lower price than that of competitors to attract customers’ attention to their products
Trang 22The cost leader makes all selections of strategies of products/ market/ special capacities for an unique target of minimizing costs to create competitive advantages
for the company
Solutions to gain cost advantages varies by each industry and its structure The advantages may be derived from large-scale production, exclusive technology, strong points regarding sources of raw materials, product structure, level of services and technical process
* Advantages and disadvantages of applying cost leadership strategy
Advantages of each basic strategy is best described in the model of five forces of M.Porter Five forces include threats from competitors, pressure from customers, substitute products and new participants The cost leader can fight against attack of competitors in the industry, thanks to cost advantages Its low cost also means that it will be less affected than its competitors from increasing price of inputs if there is pressure from suppliers and less affected by the discount which it
sets for its products if there is pressure from customers
Moreover, with the cost leadership, most of cost leaders buy a large amount of inputs then they can directly bargain with suppliers If substitute products participate in the market, the cost leader can reduce its price to compete with such products and remain its market shares
Finally, cost advantages of the cost leader is to create participation barriers because other companies can not participate in the industry and can not fit costs and price of the cost leader The cost leader is still safe as long as it can maintain its cost advantage- and price is the key factor for most customers
The main threat of the cost leadership strategy can be that competitors try to produce products with lower cost and fight against the strong point itself of the cost leader Another threat is that competitors can easily imitate methods of the cost leader
Trang 23company may take much care in investing and improving the internal environment and ignore the improvement of its product market
Pursuing the cost leadership strategy does not exclude the specialization The importance is that the products must be accepted by customers when comparing with other competitive products Thus, the low cost has competitive advantage only when the company ensures the differentiation which is recognized and accepted by
customers
1.4.2.2 Product differentiation strategy * Features:
The purpose of product differentiation strategy is to achieve competitive advantages by making products — goods or services which customers consider as the most unique
The product differentiation of a company is to meet the demand of customers in the way which its competitors can not meet It allows the company to set a higher price than the average level of the industry The differentiation increases the turnover by setting a higher price (not by reducing cost as of the cost leader) and it helps the company operates better than competitors and get the higher profit than the average level Customers agree to pay higher price because they believe that the product quality correspond to the price difference
* Strategic solutions
The company of differentiation selects the high differentiation level to achieve competitive advantages The differentiation can be achieved with three main ways: quality, renovation and adaptation with customers Renovation is important to complicated technology products, of which new features are from the differentiation When the differentiation bases on the adaptation with customers, producers and sellers must ensure the supply of comprehensive after-sale services
Trang 24position and pride of customers The differentiation can be suitable with groups of age and socioeconomic groups
In fact, the basis of differentiation are endless A company pursuing the differentiation strategy will try to differentiate its products as much as possible The less it imitates its competitors, the more it can protect its competitiveness and market attraction
The company of differentiation divides the market into many segments The product supply section is designed for each segment The company may operate in
the large scale of market but also select to serve some market segments where have
special differentiation advantage
When deciding to pursue any differentiation ability, the company of differentiation needs to focus on organization and supply of resources creating differentiation advantage for its products
Differentiation strategy requires the company to create competitive advantages by selecting products / market / unique capacities to increase the value of goods and services according to customers’ viewpoints
However, the company of differentiation must focus much on media and communication activities to provide information on the uniques and differences in its products in comparison with products of its competitors
* advantages and disadvantages of applving differentiation strategy
Differentiation protects the company from competitors at the level that customers are faithful with the brands of the Company Faithfulness with brands is a valuable property because it protects the company in all aspects
Differentiation and faithfulness with the brand can create participation barriers against companies trying to participate in the industry New companies must create their own abilities to compete with existing companies and this is very expensive
Trang 25differentiation and ability to defeat the failfulness of customers with the brand of the company
Differentiation strategy also have many disadvantages For example, competitors can easily imitate products of the company of differentiation and it is difficult to maintain high price When differentiation is derived from designs or physical features of products, then the company of differentiation has many risks because it is esasy to imitate
Differentiation does not let the company overlook costs The price difference must be greater than additional cost to create differentiation If that principle 1s ignored, the company will lose competitive advantage Moreover, when the company is finding the way for product differentiation, then the purpose is to gain the cost which is equivalent to or nearly equivalent to that of competitors Thus, costs for parts which do not affect the product differentiation must be reduced
Recently, there have been changes in technoloy for manufacturing products such as the development of new flexible technology causes difficulty for selecting one of two strategies being the cost leadership strategy and product differentiation strategy Thanks to technology development, companies can see benefits from two strategies New flexible technology helps companies pursue the product differentiation strategy at low cost, it means these companies will be the leader of both cost and product differentiation
Trang 26differentiation to manufacture many products at a cost level which is competitive with the cost leader
Another way for the company of product differentiation to achieve the production-scale advantage is to conduct standardization for many components used in its end products
A company can reduce both cost for products and marketing if it limits designs in products by selling a package of products instead of letting customers decide which products they need
Just-in-time storage system (JIT) can also help reduce cost, improve the quality and reliability towards the Company’s products This is important to differentiated products where the quality and reliability are basic components of the product attraction Taking advantage of development of new products and marketing measures, some companies are reaping benefits both from cost leadership strategy and product differentiation strategy And they can set higher price for their
products than that of companies which only apply the cost leadership strategy, but
they also have lower cost than companies which only apply the product differentiation strategy Thus, the above mentioned companies can get profits at least equal to or higher than companies pursue only one strategy
Combining strategies is the most profitable way and companies promptly take advantage of new products, management of materials sources and marketing measures
1.4.2.3 Focal Strategy * Features
Trang 27The company pursuing focal strategy concentrates on serving a specific market segment The potential market segment may be defined according to geographic criteria, kinds of customers or a branch of product lines
A company of focal strategy, which has many opportunies to develop its own activities and compete with enterprises of low cost and product differentiation, is increasing
Focal strategy creates an opportunity for businessmen who are finding the way to fulfill the gap of necessary demands of customers The company focus on competing with the other company of product differentiation only in one or a few market segments Companies pursuing focal strategy surely develop the quality of differentiated products successfully because they are knowledgeable about only one
small group of customers or about the region
Moreover, the focus on a small product chain sometimes helps the company of focus bring renovation more quickly than a big company of differentiation
However, the company of focus does not try to serve all market segments because it
brings back the direct competition with the company of differentiation Instead, the company focuses on occupying a market share and if this is successful, it starts to serve more market segments and stop competitive advantages of the company of differentiation
* Strategic solutions
A company of focus can have many ways to develop competitive advantages It selects one market segment to pursue focal strategy through product differentiation or low cost Essentially, the company of focus is a company of product differentiation or cost leader Due to small scale, some companies of focus may pursue both the cost leadership strategy and product differentiation strategy If the company of focus only use the cost leadership strategy, it will compete with the cost leader in market shares which it has no cost advantage If the company of focus pursues the product differentiation strategy to compete with the cost leader, then all 7
Trang 28The product differentiation may be high or low depending on whether the company focuses on the cost leadership strategy or the product differentiation strategy For a group of customers, the company of focus finds the way to meet each market segment, not meet the whole market as of the cost leader or meet most of market segments as of the company of differentiation
The company of focus may pursue a particular ability depending on advantages of low cost or product differentiation Thus, the company may find the cost advantage and develop more efficiently products of low cost in the region It also develops better skills in the adaptation with customers, based on ability to serve customers’ demands in the region in the way companies of product differentiation do nationwide
* Advantages and disadvantages
Competitive advantages of the Company of focus are derived from its particular ability — efficiency, quality, renovation or adaptation with customers The company also stand firmly against the attack of competitors till the time they can supply goods and services which competitors can not produce This ability also creates the company of focus a pressure for customers because customers can buy similar products nowhere
However, with suppliers having pressure, the company of focus is in disadvantageous position because it buys small quantity of materials so the pressure is from suppliers Until it moves the price plus to faithful customers (end price), then this disadvantage is not a big problem
Potential competitors must obtain the customers’ faithfulness of the company of focus Customers’ faithfulness reduces threats from substitute products
Trang 29Because the company of focus produces a small quantity so cost for manufacturing products is often higher than that of the cost leader Higher costs may reduce profitability if the company of focus must invest in developing a particular ability such as renovating an expensive product to compete with the company of differentiation
Trang 30CHAPTER 2
ACTUAL SITUATION OF BUSINESS OPERATION OF THE SONG HONG GARMENT JOINT STOCK COMPANY
2.1 Overvieww of the song hong garment joint stock company 2.1.1 Process of establishment and development:
The Song Hong Garment Joint Stock Company is one of the Vietnamese leading suppliers of garments and beddings It was established in 1998 It was equitized in June 2004 and conversed into the Song Hong Garment Joint Stock Company
Thanks to developing available resources, spirit of working and creation, overcoming difficulties, right time to create opportunities and good quality control, the company has boomed the production scale and labor forces as at present The motive power to keep these achievements is the goodwill of customers all over the world
Annual output: - Garments:
+ Jacket: 2.5 million units + Trousers: 2 million units
+ Others: 200,000 units
- Laundry products: 3- 4 million semi-finished garments - Cotton sheets: 8-10 million yard
- Luxurious beddings: | million units
Trang 31Vietnam
Other garments: jackets, gile fur coats of all kinds, pants, shorts for men,
women and children, women vests, and skirts
Main export markets: USA EU, Canada, Japan
Many world famous brands are produced with large quantity in the Song Hong company as: GAP, Old Navy, Timberlands, JCPenny, Diesel, Spyder Champion Sag Harbor, Company name: Abbriviated name: Tel.: Fax: Email : Website : Business registration No.: Address: Province/City: Business lines: Business type
Trang 322.1.2 Organization structure: DIAGRAM OF ORGANIZATION STRUCTURE OF THE COMPANY +— CONTROL BOARD MANAGEMENT BOARD GENERAL DIRECTOR DEPUTY GENERAL DIRECTOR DEPUTY GENERAL DIRECTOR DEPUTY GENERAL DIRECTOR TT (oo (
Admin Org./Labor/ Import-export |_ VPSH2 «4
” D ept >| Salary Dept plan Dept
Naeem eg Se
) TT ——
: Cotton ht
—.»| Security guard —+»| Accounting Technical +“ laundry shop
mm Dept ee Dept see ————— ————— i : 4— —> Hệ v Internnatio |*— ¬ LÊN nh OD nal Trade i SOP ( : )
_,»| Sewing Electro- ạ— | Sewing
shop No.5 eee à mechanical 4 SOP) sho
OS — mn £ TT
Trang 332.2 Analysis of production situation and business result of the song hong garment joint stock company during past years
2.2.1 Business and production situation of the Company 2.2.1.1 Products:
At present the Company is supplying two main product lines as beddings and garments
- Beddings
Many different kinds of products, the Song Hong Garment Joint Stock Company bring customers high quality products with competitive price All products of the Song Hong company have strong points such as light, soft and anti- moldy
Currently, Song Hong is the main supplier of beddings for the Ministry of Defense, the Ministry of Public Security
- Garments: including processing goods and FOB goods
The Song Hong Garment Joint Stock Company always satisfy customers with products of good quality and value The company also has a variety of product designs to meet different customers’ demands
The markets for garments include both domestic and international ones The company mainly export its products to USA, EU, Japan, Korea, Taiwan, Hongkong, Canada, Mexico and Midle East countries Till now, Song Hong is a prestigious producer of famous fashion brands thanks to its production capacity Garments include clothes for men, women and children
- Coats: jackets, vests, fur coats, sweaters, etc - Skiing suits
- Pants, shorts
Trang 34Table 2.2 Product density through years over total revenue Unit: Million VND
[ Name of| Year2006 | Year2007 | Year 2008 |
No | products and Densit Density Density
|_| services Value y %DT Value %~DT Value %DT 1 | Processing) and garment 155.976 35% | 173.766 |24% — | 179.052 | 19% Zz FOB 72.066 | 16% 260.393 | 36% 439.955 | 47% 3 Beddings 55.468 | 12% 93.075 13% 159.995 | 17% |4 |Others 163.885 | 37% 195.784 | 27% 165.718 | 17% Total 447.286 | 100% | 723.018 | 100% 944.720 | 100%
Trang 35Table 2.4: List of contracts signed with big suppliers Unit: million VND Contract
` _— Contract Signing Supplied value No; | Suppliers No date products (including VAT) ` we - Materials I Kai Cherng | CL/SH- 05/01/200 and b- | 28.300 Enterprise Co LTD | KC/0802 |8 mm a8 | materials " Materials NC/SH- 05/02/2200 2 z Hư 2 Kanboton KB/0801 8 and _Sub 15.500 | materials Materials " RS/SH- - 3 Shanghai Shenda SD/0801 15/02/08 and _Sub- 8.300 materials
(Source: the Song Hong Garment Joint Stock Company)
2.2.1.2 Outstanding achievements of the Company during the past time: With ongoing efforts, the Song Hong Garment Joint Stock Company was awared many noble titles
Title "Vietnamese high quality products" by Saigon Marketing from 1998 to 2006
Especially, in this vote, the Company is also one of 100 Vietnamese strong brands
In the vote "Typical enterprises of Vietnam Textile " in 2009 (organized by Saigon Economic Times and Vietnam Textile Association), the Song Hong Garment Joint Stock Company was honored in the ceremony for typical enterprises
of Vietnam Textile and footwear :
VITAS LEFASO
KinhteSaigorn
Trang 36- The enterprise has good labor relationship
2.2.2 Results of business and production activities 2.2.2.1 Report on business results in three latest years
Table: Summary of some norms of business and production activities Unit: million VND Norms Year Year Year Increase, eee n 2006 2007 2008 decrease ma decrease Total assets 304.453 | 305.090 | 637 0,21% Net sales 722.963 | 944.631 |221.668 30,66% Net prolt from 8.765 23.688 |14.923 170,27% business activity | Other profits = || |-662 622 1.284
| Before tax profit 8.103 24.310 16.207 200,02% | After tax profit 7.293 21.879 14.586 200,02%
(Source: the Song Hong Garment Joint Stock Company) Growth in past three years is due to growth of product groups 2.2.2.2 Main financial norms
Table : Main financial norms Unit: million VND
Norms Year 2006 | Year 2007 | Year 2008
1 Norms on solvency 1,46 1,40 1,40
+ Quick payment coefficient
(movables-Inventory/ Current debts 1,04 0,90 1,10
2 Norms on capital structure
+ Debt coefficient/ Total assets 0,91 0,89 0,84
+ Debt coefficient / equity 12,67 9,72 5,67
3 Norms on operation capacity
| + Net sales/ Total assets 2.0 oo | 3,10
4 Norms on profitability
+ After tax profit coefficient/ net sales 0,009 0,01 0,023 + After tax profit coefficient / equity 0,27 0,26 0.48 + Profit coefficient from business 0.0095 0.012 0.025
| operation/ net sales_
(Source: Audited financial statements in 2007 and 2008)
Trang 37In 2008, solvency coefficient of the Company 1s greater than | proving that the solvency is quite good Espcially, quick payment coefficient trends to increase from 1.04 in 2006 up to 1.10 in 2008
Debt coefficient/ equity of the Company trends to decrease from 12.67 in
2006 down to 5.67 in 2008 thanks to remarkable increasing of undistributed profits in 2008 This helps the company increase financial self-control
In addition, norms on operation capacity and profitability of the Company are improved through years thanks to sale policies and market expanding that lead
the remarkable increasing of revenue and profit
2.2.2.3 Plan for profit and organization in 2008
Table: Plan for profit and organization in 2008— 2009 Unit: Million VND
oun Year 2009 Year 2010
Norms Percentage Percentage of increase of increase Value Value and Value and Pe decrease decrease | Equity 45.334 40.047 -11.66% 41.276 3,07% Revenue 944.721 891.342 -5,65% 922.435 3,49% Gross profit 117.489 93.457 -20.45% 102.398 9,57% profit tax} 2431 19.023| — -21.75% 21.156 11,21% — 2.431 1.902} -21.75% 2.116 11,25% After tax profit 21.879 17.121 -21,75% 19.04 11.21% Rate of after tax _ profit/net 0.023 0.019 0.021 | Sales Rate of after tax profit/ 0.48 0.43 0.46 equity
(Source: the Song Hong Garment Joint Stock Company)
Trang 38At present, the company focuses on the plan for changing the production into producing Fob goods and beddings, till 2010 — 2012, FOB goods and beddings are estimated to gain the main density in the product structure of the Company
The company finds prestigious domestic suppliers, increasing localization in processing products and decreasing the density of processing goods in the revenue structure This is a new movement, help the company be more active in the production, increase the profit, and ensure the steady and long development
However, under the impact of global economic crisis from late 2008 and estimated that till early 2010 the world economy can recover Thus, plan for revenue and profit of the Company in 2009 and 2012 is adjusted Revenue in 2009 is estimated to decrease in comparison with that of 2008 However, from 2010 — 2012, there will be more improvement for profit norms
The company tries to escape from the global economic crisis completely in 2010 - 2012 and beginning the period of steady and sustainable development of all aspects
2.2.2.4 Business environment factor A Macro environment
a Economic environment
The global economic depression and financial crisis make impact on market segments for luxurious garments of Vietnam due to the tight expending of customers In addition, opening the retail market for big corporations in the world under commitments of WTO’s accession also creates pressure for enterprises right in the domestic market
According to Vietnam Textile Association, biggest difficulty is of enterprises exporting products to USA market (covering about 55% of market share of garments for export in 2008) Many famous brands and traditional customers reduce down to 50% of orders
The next is EU market Due to the price loss of EURO, exports to this market
Trang 39the year start to now export value of companies to these markets reduces from 30- 40%, remarkably reduce in USA market This makes great influence on Vietnamese textile enterprises including the Song Hong Garment Joint Stock Company Greatest impacts on business and production activities of the Company firstly comprise the following factors
* Interest rate: Due to the world economic situation, the Vietnamese State conducts many policies to support enterprises such as supporting interest rate, using demand stimulus packages, etc At present, the interest rate 1s at lowest rate under the Decision 131 of the Government Prime Minister Thereof, enterprises pay only 6%/year for bank loans and the State compensates the remaining 4% for enterprises With the State’s supporting policies, enterprises reduce costs for interest rate that leads to the more favourable conditions to reduce production costs, lower the price and to boost the business and production to develop Customers often obtain bank loans for paying for product consumption Thus, low interest rate increase selling capacity of customers, debt solvency is easier low interest rate leads to decrease of expense for capital so it will increase the investment demand
The company takes advantage of this opportunity to get investment capital for new projects, to improve equipment and machinery for units and to better the quality of employees
* Exchange rate
Value of USD, EURO in the past year rise highly, making great impact on domestic production operation because pressure from investors decreases, cost
for domestic production is low and opportunities to receive investment capital increase that boost the production of export goods
Trang 40* Economy growth speed :
However, financial crisis and its impact on the world economy is great Many big organizations and companies in the world become bankrupt due to the past economic depression Vietnam is also affected Vietnamese enterprises meet many difficulties, especially for a company specializing in producing, processing and exporting garments as the Song Hong Garment Joint Stock Company
Howeve, according to statistical data of the General Statistics Office, in past 10 years, economy growth speed of Vietnam gains from 6 - 7,5%, in 2008, it is 7,24% This is a convenient condition for enterprises because the increase of GDP will lead to the increase of the average income per capita and of consumption capactiy, etc that stimulates the production and consumption
* In recent years, the relationship between countries is better The quick integration trend both boost the economic development for adaptive countries and cause difficulties for developing countries In past years, many countries and
international organizations set the diplomatic relationship with Vietnm Song Hong
Garment JSC continuously expands the market Currently, the company boost the export of products to the markets of South East Asian countries, particularly Japan, EU and Africa
* Labor capacity of many enterprises is still lower than 30% - 40% in comparison with the average level of enterprise in the region 90% of enterprises in the garment industry are new to ERP