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FORMULATING BUSINESS STRATEGY FOR HAIHA CONFECTIONERY JOINT-STOCK COMPANY IN 2011 – 2015 PERIOD CAPSTONE PROJECT REPORT Ho Chi Minh City Group No.: 2 1.. 25 CHAPTER 2: BASES FOR FO

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FORMULATING BUSINESS STRATEGY

FOR HAIHA CONFECTIONERY

JOINT-STOCK COMPANY IN

2011 – 2015 PERIOD

CAPSTONE PROJECT REPORT

Ho Chi Minh City

Group No.: 2

1 HOANG DUONG TAN ANH

2 DINH NGUYEN PHUONG THAO

3 HOANG MINH DUNG TIEN

4 NGUYEN THI THU THAO

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TABLE OF CONTENTS

INTRODUCTION 1

CHAPTER 1: THEORETICAL BACKGROUND OF BUSINESS STRATEGY4 1.1 Concept of business strategy 4

1.1.1 Concept of business strategy 4

1.1.2 Types of business strategy 5

1.1.3 Role of business strategy 7

1.2 Process of formulating business strategy 8

1.3 Models used for analyzing the formulation of business strategy 12

1.3.1 External (macro) environment analysis with PEST model 12

1.3.2 Analyzing sectorial environment with Five Forces Model of Porter 17

1.3.3 Internal – External (IE) Matrix 20

1.3.4 SWOT Matrix 23

1.3.5 Quantitative Strategic Planning Matrix - QSPM 25

CHAPTER 2: BASES FOR FORMULATING BUSINESS STRATEGY OF HAIHA CONFECTIONERY JOINT-STOCK COMPANY 28

2.1 Overview of HaiHa Confectionery Joint-Stock Company 28

2.1.1 Process of establishment and development 28

2.1.2 Business lines and main products 30

2.1.3 Function and mission of the Company 31

2.1.4 Organizational structure 32

2.2 Analyzing external environment of HaiHa Confectionery Joint-Stock Company 33

2.2.1 Macro Environment Analysis (PEST model application) 33

2.2.2 Analyzing the confectionery business environment (Applying Five Forces Model of Porter) 38

2.2.3 External factors (table EFE- External Factor Evaluation) 46

2.3 Analyzing internal environment of HAIHACO 49

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2.3.1 Evaluating material and technical bases 49

2.3.2 Evaluation on human resources 50

2.3.3 Evaluation on financial capacity 51

2.3.4 Brand of HAIHACO 54

2.3.5 Management capacity 54

2.3.6 Marketing activity 55

2.3.7 Summary on the internal factors of HAIHACO 57

CHAPTER 3: STRATEGY AND SOLUTIONS TO IMPLEMENT BUSINESS STRATEGY OF HAIHA CONFECTIONERY JOINT-STOCK COMPANY IN 2011-2015 PERIOD 61

3.1 General development orientation of HaiHa Confectionery Joint-Stock Company 61

3.2 Selecting business strategy for HAIHACO 63

3.2.1 SWOT Matrix of HAIHACO 63

3.2.2 IE- Internal – External Matrix of HAIHACO 67

3.3 Solutions to formulate business strategy for HaiHa Confectionery Joint-Stock Company in 2011- 2015 period 72

3.4 Solutions to implement t strategy (Focus strategy) 75

3.5 Solutions to cope with risks and unforeseen problems 76

3.6 Roadmap for strategy implementation 77

CONCLUSION 78

LIST OF REFERENCES 80

APPENDIX 81

APPENDIX 1: ORGANIZATIONAL STRUCTURE OF HAIHACO 81

APPENDIX 2: CURRENT COMPETITORS OF HAIHACO 84

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LIST OF TABLES AND FIGURES

Figure 1.1: Process of formulating strategy 8

Figure1 2: External environment 12

Figure 1.3: Sectorial business environment 18

Figure 2.1: Organizational structure of HaiHa Confectionery Joint-Stock Company 32

Figure 2.2: Some economic targets of Vietnam over the years 33

Figure 2.3: Domestic market share of Vietnam’s confectionery market 44

Table 1.1: SWOT Matrix 25

Table 1.2: QSPM Matrix 26

Table 2.1: Competitive Profile Matrix 45

Table 2.2: Summary table representing opportunities and threats of HAIHACO 48

Table 2.3: EFE Matrix of HAIHACO 49

Table 2.4: Business results of Hai Ha Confectionery JSC……… 53

Table2.5: Financial ratios of Hai Ha Confectionery JSC……… ……… 54

Table 2.6: Summary table of strengths and weaknesses of HAIHACO 59

Table 2.7: IEF of HAIHACO 60

Table 3.1: SWOT Matrix of HAIHACO 63

Figure 3.1: IE Matrix of HAIHACO 67

Table 3.2: Quantitative Strategic Planning Matrix (QSPM) for HAIHACO 68

Table 3.3: Roadmap for strategy implementation of HAIHACO 77

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to the existence and development of enterprises

Formulating strategy is one of the most important tasks of managers Most failures in doing business may result from lacking a strategy, having a wrong strategy, or lacking a sound method of deploying a strategy Business strategies for enterprises in each period make significant and decisive contribution to their business and production performance

In recent years, Vietnam’s confectionery industry has made steady development steps There are about over 30 well-known confectionery enterprises

HaiHa Confectionery Joint-Stock Company (abbreviated name: HAIHACO) is

one of the leading confectionery producers in Vietnam and a direct competitor of some companies like Bibica, North Kinh Do with equivalent scale in terms of market share, production capacity and technological qualification

HAIHACO is a State-owned company with a long history and owns one of the strongest brands in Vietnam Products of the Company are continuously elected

as “Vietnam’s high-quality goods” for many years from 1996 to date Most recently, HAIHACO is included in the list of 100 strongest brands in Vietnam The achievements of HAIHACO over the past years have affirmed that confectionery products of the Company will continue to dominate domestic market However, if wanting to sustain and firm foothold and develop in the volatile market economy, enterprises in general and HaiHa Confectionery Joint-Stock Company in particular have to formulate specific business strategies for each period to cope with the changes of business environment and focus all resources to realize the set targets

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In response to the urgent needs of the Company and to make a small contribution to the formulation of suitable business strategy to the real situation of HaiHa Confectionery Joint-Stock Company in 2011 – 2015 period, our group has

agreed on selecting the topic “Formulating business strategy for HaiHa

Confectionery Joint-Stock Company in 2011 – 2015 period.”

The content of the study is applying basic theories on business strategy to consider and evaluate external environment to determine opportunities, threats, strengths and weaknesses of the Company to make the most use of opportunities,

minimize threats and suggest business strategy for HAIHACO in the coming time

2 Objective of strategy

Studying bases to formulate strategies, process of formulating strategies and methods of analyzing and selecting optimal strategies to help enterprises select the most appropriate business strategy;

Clarifying and applying theory on formulating business strategy into reality

to formulate and select an optimal strategy for HAIHACO in 2011 – 2015 period; Suggesting groups of solutions to successfully deploy and implement the

business strategy selected

3 Object and scope of the study

- Object of the study: production and trade of confectionery products of HaiHa Confectionery Joint-Stock Company

- Scope: Confectionary business and production industry nationwide

4 Methodology of the study

Within the time limitation to complete this capstone project report, our group has used some key researches:

- Qualitative method, expert method: surveying, interviewing and consulting experts’ ideas

- Method of studying specific situations

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Data used in the topic are collected from two main sources: primary and secondary sources

5 Implication of the capstone project report

The topic is studied based on the theoretical background and the real situation at HAHACO The result of the research can be used as reference for HAIHACO in formulating business strategy in 2011-2015 period

6 Structure of the capstone project report

Apart from the introduction, conclusion, table of contents and references, the content of the capstone project report is divided into three chapters as follows:

Chapter 1: Theoretical background of formulating business strategy

Chapter 2: Bases for formulating business strategy for HaiHa Confectionery Joint-Stock Company

Chapter 3: Strategy and solutions to implement business strategy of HaiHa Confectionery Joint-Stock Company in 2011- 2015 period

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CHAPTER 1 THEORETICAL BACKGROUND OF BUSINESS STRATEGY

1.1 Concept of business strategy

1.1.1 Concept of business strategy

As there are many different approaches, there are various concepts of business strategy

According to Alain Threlart, “Strategy is the art that enterprises use to fight against competition and gain success.”

According to Michael E Porter “Strategy is the art of formulating firm competitive advantages to defend.”

Therefore, these authors consider business strategy as an art to compete in the market and develop enterprises

According to management scope, business strategy is a type of plan

According to G.Arlleret, “Strategy is the determination of roads and means to reach the set goals via policies.”

D.Bizrell and a group of authors supposed, “Strategy is a general strategy to lead or orient enterprises to reach their expected goals It is the basis for mapping out policies and operational tactics”

Alfred Chandler thought, “Strategy consists of basic and long-term goals of an organization and the method of selecting action process and allocation of essential resources to realize those goals”

According to William J’ Gluecl, “Strategy is a type of united, comprehensive and general plan which is designed to ensure that enterprises’ goals will be realized.”

According to consolidated viewpoint, “Business strategy is an art of designing and organizing means to reach long-term goals of enterprises and has relation with the

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changes of business environment and competition.” (GaMBA, 2011, Textbook on Strategic Management)

Although concepts are different, all of them agree in a content that is business strategy reflects activities of business units including the process of setting goals and measures and means used to realize those goals

According to the textbook of Griggs University, a concise and general viewpoint

is that strategy is perceived as a series of combined activities to mobilize resources of an organization/an individual to achieve a certain target

1.1.2 Types of business strategy

Classification of business strategy is an important task at which managers need to select suitable strategies with the set goals as well as the function and mission of each division in an enterprise or the whole enterprise

* Based on the scale and function of enterprises’ production and business:

- Corporate-level strategy:

This is the highest-level strategy of enterprises or organizations involving in big, decisive and long-term issues to the future operation of enterprises Normally, corporate-level strategies are highly affected by the changes in the enterprises’ business structure It will have significant influence on the business performance of enterprises It may result in an effect that is an enterprise can continue to operate in that field or not? Or the enterprise should participate in other fields at which profit

in general and other objective will be easy to be achieved with higher efficiency The enterprise’s future will much depend on that decision It is inevitable that corporate-level strategy is designed, formulated, selected and responded by the highest level in the enterprise like board of management, board of directors, and high-level strategists, etc

- Business-level strategy (Competitive strategy):

This is an overall of commitments and actions helping an enterprise gain competitive advantages by exploiting their core capacity into specific markets

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This is a lower level strategy compared to corporate-level strategy The basic issue that each enterprise needs to solve when selecting business strategy is that they will supply to customers which products or services; the methods to create those products and services and how to introduce products and services to customers The core element of business strategy is “selecting actions creating differentiation or implementing different actions compared to its competitors.”

- Functional-level strategy:

Functional-level strategy is the lowest level strategy of an enterprise It is a set

of decisions and actions targeting to short-term goals (under one year) of different functional departments of an enterprise (finance, human resources, technology, marketing, production, investment, etc.) Functional-level strategy has an very important role because when implementing this strategy, managers will be able to exploit strengths of resources in the enterprise This is the basis to investigate and formulate competitive advantages of enterprises to support business strategy Normally, functional departments of enterprises will form their own strategies and

be responsible to the Management Board and Board of Directors for their achieved results

* Based on the approach of business strategy:

- Business strategy focusing on key factors: the guiding thought to business

strategy here is not spreading resources, but focusing on business activities having decisive implication to production and business of the enterprise

- Business strategy based on relative advantage: The guiding thought for

formulating business strategy here starts from the analysis and comparison of products or services of an enterprise compared to its competitors to set the basis for business strategy Relative advantage is shown via different aspects such as quality or selling price

of products or services; or technology, distribution network, etc

- Business strategy creating attachment: In this type of business strategy, the

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formulation of business strategy follows the basic approach and always looks straight into the issues considered as common and difficult to be changed to set out questions

“why” to reconsider what seems have to be concluded By continuously setting out questions, it is possible to have new discoveries to set the basis for business strategy of the enterprise

- Strategy on exploiting potentials: The method of formulating business

strategy here does not target to the key factors, but exploits potentials of surrounding factors of the key one

1.1.3 Role of business strategy

- Helping enterprises to clearly see their orientation in the future and recognize possible opportunities and threats to help them make sound decisions with the environment to ensure the most effective business and production activities

- Helping enterprises formulate better business strategies via the use of systematic approach method to set the basis for enhancing the coherence and the attachment of managers in realizing their goals

- Raising sales, labor productivity, effectiveness of management, avoiding financial risks, and enhancing the capacity of preventing and fighting against difficulties

of enterprises

- Creating firm bases for mapping out appropriate policies and decisions with the market’s fluctuations

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1.2 Process of formulating business strategy

Figure 1.1: Process of formulating strategy

Figure 1.1: Process of formulating strategy

(source: Textbook on Strategic Management of GRIGGS University, 2011)

The process of formulating strategy will undergo following steps:

Step 1: Function, mission and strategic goal of an enterprise:

From the function and tasks of an enterprise determining the vision and mission of the enterprise

Vision: is a message to concretize mission into a general goal, creating belief into the figure of the enterprise

Function, mission and strategic goal

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Mission: specifies the reason for existence of the enterprise and points out what does it need to do

Strategic goal: indicates missions of the enterprise and what it wants to achieve in the long-term and medium-term

Step 2: Analyzing business environment

The second part in formulating strategy is analyzing external environment of the enterprise The target of external environment analysis is recognizing opportunities and threats from the external environment of the organization, including the analysis of macro-environment and sectorial environment in which the enterprise is operating The evaluation of sectorial environment also means evaluating the impact of globalization on the scope of the industry as well as the advantages of the industry

To analyze and evaluate the influence of the macro-environment, External Factor Evaluation (EFE) Matrix is used

Step 3: Analyzing internal factors of an enterprise

The analysis of internal environment of an enterprise aims at finding out strengths and weaknesses of the enterprise

When formulating business strategies, the enterprise always has to base on its potentials that can generate different competitive advantages compared to other enterprises However, where those potentials come from? The answer lies

in the enterprise’s available resources including internal and external resources These resources play the role as inputs without them, the enterprise cannot operate These inputs may be effective or ineffective depending on the requirements of each business strategy The participation of resources is also not necessary to be balanced Each resource will generate an unique and different power If managers know how to correctly analyze strengths and weaknesses of resources, it is certain that they will effectively exploit those resources Resources are divided into two types:

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* Internal resources: include finance, human resources, science, technology, fixed assets such as factories, machine, stores, means of transport, prestige and brand of enterprises, etc All these resources belong to the internal ownership of the enterprise Enterprises can use these internal resources to serve business and production Each enterprise has strengths with these resources, but weaknesses with other resources; evaluation has shown that enterprises will base on their strengths to create competitive advantages For example, enterprises with financial strength will spend more on new technology, studying new products, etc., creating differentiation for their products Those products will attract customers more than other products of the same type That is competitive advantage of those enterprises Enterprises with strong financial capacity, their owners’ equity will be high and they will not depend

on banks Therefore, all activities of the enterprises will be proactive In contrast, enterprises with strengths of human resources often focus on exploiting some potentials like intelligence and grey matter of the people That is also a competitive advantage

* External resources: including the support of external organizations that the enterprise can exploit to enhance its strengths Good relations of the enterprise with outside organizations can bring about necessary support that the enterprise expects

to have For example, the support of bank can create conditions for the enterprise to borrow capital with preferential interest rates, raising capital and strengthening financial capacity

To analyze and evaluate the influence of the macro-environment, Internal Factor Evaluation (IFE) Matrix will be used

Step 4: Selecting strategy

The following step is determining strategic plans in correspondence with the strengths, weaknesses, opportunities and threats that have been identified of the enterprise, called SWOT analysis The basic purpose of SWOT analysis is recognizing strategies that orient, create suitability, or balance among the enterprise’s resources and capacities with the market demand, and being well-aware of the essence of competitive

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position via the analysis to find out resources, capacity and core values to set the base for the development of strategies selected

After analyzing the strategic position of the enterprise with IE matrix combined with strategic plans from SWOT, it is possible to select appropriate group of strategies Using Quantitative Strategic Planning Matrix (QSPM) to objectively evaluate strategies and select the optimal one

Step 5: Implementing strategy

Implementing strategy is formulating suitable solutions and measures with the implementation and achievement of the set goal The implementation of strategy needs to clarify tasks and roadmap for carrying tasks

To implement strategy more effectively, the enterprise can build their organization structure as follows:

- Vertically-allocated organizational structure

- Horizontally-allocated organizational structure

- Combined structure

Step 6: Checking and evaluating the result of implementation

The enterprise needs to establish an appropriate controlling system for all stages such as organizing, controlling the input and output, etc to soon realize unsuitable issues

to have timely adjustments to make the strategy more effective

Steps of controlling include:

Step 1: Setting out standards and targets that are possible for evaluating the

implementation

Step 2: Establishing a system for supervision and measurement to signal

whether standards and goals can be reach or not?

Step 3: Comparing the implementation of existing goal and the set goal

Step 4: Adjustments start when standards and goals are unachievable

Requirements for evaluation:

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- Evaluating the success or failure of the strategy

- Which lessons of experience and factors bringing about success to the strategy?

- Which are the causes making the strategy unsuccessful?

- Evaluating policies on remuneration, reward, career advancement opportunities for collective and individuals contributing the success of the strategy

1.3 MODELS USED FOR ANALYZING THE FORMULATION OF

BUSINESS STRATEGY

1.3.1 External (macro) environment analysis with PEST model

External environment consists of external factors indirectly affecting enterprises; and enterprises can hardly control them These factors express the changing situations that may have positive impact (opportunities) or negative impact (threats) to enterprises

Figure1 2: External environment

(source: Textbook on Strategic Management of GRIGGS University, 2011)

Sectorial environment

Threat of new entrants Bargaining power of suppliers

Bargaining power of buyers Threat of substitute products Competitive rivalry among existing firms

Competitive environment

Economics

cultural

Socio-Global Political

Technological

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In studying macro-environment, PEST model can be used:

- Political

- Economics

- Socio-cultural

- Technological

These are four factors having direct influence on economic sectors

Apart from the four basic factors mentioned above, there must be the study of globalization and natural environment

- The political stability: politics reflects a system of political leadership and direction to build the country which is made and implemented by that government Political stability makes investors feel safe and trusted It is a prerequisite for the economic stability and development

- The economic and social policies: The policy will show the encouragement or limitation on certain aspects of social and economic life in each country Therefore, the policy will directly reflect the opportunities or threats to Marketing decisions

- The legal system: A system of rules that regulate behaviors in the social and economic life of a country The concentration of political thought is show through a system of duties, rights and responsibilities of businesses, what they are allowed or not allowed to do

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b Economic environment is the characteristics of the economic system,

expressing the economy’s nature and direction in which businesses operate The state of macro-economic environment determines the economic transparence and prosperity It always causes impacts on businesses and industries The economic impacts may change the ability to create value and income of a company

When analyzing economic environment often mention to:

- The state of the economy: Whatever the economy does have cycles, in each specific phase of the economic cycle; businesses will have the appropriate decisions for themselves

- Elements affecting the economy: Interest rate, inflation, etc

- Governmental economic policies: Basic salary law, economic development strategy of Government, priority policies: tax reduction, subsidy, etc

- The economic prospect: Growth rate, GDP growth rate, the rate of GDP on

- Interest rate: Interest rate is one of the elements of monetary policy High or low interest rates all have a direct impact on business and market need Higher deposit interest rates will encourage residents and businesses to deposit money weakening the payment ability of the market; shrinking purchasing power is a risk to business

- Exchange rate: The exchange rate has a large impact on the businesses in the areas related to export activities

- Tax policy: This is one of the most concerned issue of any business Generally, high tax will create disadvantages for the business Low tax will stimulate business In Vietnamese conditions, enterprises have to pay attention to interest rate and its stability

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as well Unstable tax rates would cause difficulties for the long-term business strategy of the businesses

c Socio-cultural environment: is understood as the spiritual life of every nation,

every country It creates its own characteristics in people’s consumption as well as the intangible limitations that businesses encounter when entering the market Therefore, we must study carefully to avoid the negative reactions of people because we cause harm to their traditional values Researching this environment comprehensively, managers will avoid the unexpected loss and reduce company’s prestige It is also the essential base to establish the congruent market with each other to focus on mining

These cultural values are the values forming society and fostering the society

to be existed and developed Thus, the common cultural elements are protected very tightly and systematically, especially the spiritual culture Besides the cultural factors, social factors will divide the community into groups of customers with their own traits, psychology, and income such as: The average life expectancy, health status, income, diet, income, etc Cultural and social fields could affect the strategic decisions such as selecting fields and items, selecting the brand, color, style and changing the distributed channel

Environmental analysis often analyses the following factors:

- The concept of life values and consumer values: The concept of life value will rise to the concept of consumer value And then, it will impact subsequent formation of lifestyle and career aspirations Sooner or later, it eventually affects customers’ decisions They can buy or reject or reduce the purchase other goods This may create opportunity or threat to business threat up the opportunity or threat to business

- Changes in society: As the rate of population growth, population structure, trends shift, the population density

d Technological environment: the continuous improvement of science and

technology has increased labor productivity such as the generations of new products with unique features Technological changes affect many parts of society mainly through the

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process of technological products including physical activity related to the creation of new knowledge and transfer that knowledge to the outputs, products, processes and new materials Changing technological environment will bring enterprises both opportunities and threats On the one hand, it allows businesses to create products with high quality, low cost Increasing labor productivity will create a competitive advantage; On the other hand, with the rapid development of science and technology, the technological innovation cycle will develop rapidly It lifts the needs of people from low to high Hence, businesses must have major effort in technology to satisfy these needs Investment costs for research and development are increased more and more

The environmental aspects of technology need considering and analyzing:

- Investment of government and enterprises: The combination between business and government to study out the new technology, new materials, etc will have a positive effect on the economy

- The technological speed and cycle, the percentage of outdated technology;

- Impacts of information technology and the internet on production and business activities

e Global environment: The tendency of integration, globalization in the

world and in Vietnam forces businesses to put international factors into account when planning for their business a long-term strategy which have not only high integration but also expandable capacity the geographic and political aspects Global segment includes the related global market, the current changing market, the important events of politics, characteristics of institution and basic culture on the

basis of global market

The environmental aspects of globalization should be considered and analyzed:

- Globalization creates competitive pressures, competitors from all regions The process of integration will make businesses adjust to be in accordance with comparative advantage, labor distribution in the region and in the world

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- It is important that when integrating, the trade barriers will gradually be removed; businesses have the opportunity to conduct trade with partners in remote areas Business customers come from not only the domestic market but also the worldwide one

f Natural environment

Vietnam has a tropical climate with humid weather and heavy rainfalls which have great impacts on the production activities (food, sweets, fruit export, etc.) The tropical climate also facilitate source of materials for business and production activities related to livestock products, crops (food industry, fruit exports, etc.) However, that climate created a lot of difficulties in storage, transportation and consumption of products in some kinds of manufacturing sector

In addition, some industrial activities will have adverse impact on the quality

of the natural environment, the burning concern of all people today Therefore, it is one of affecting factors to production plan of each enterprise

1.3.2 Analyzing sectorial environment with Five Forces Model of Porter

An industry is a group of companies having mutual influence and

manufacturing products which are highly interchangeable

Analysis of sectorial environment includes a series of diverse competition that companies use to reach strategic competitive advantages and above average profit

Analyzing sectorial environment with five forces model (According to

M Porter)

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Figure 1.3: Sectorial business environment

(source: Textbook on Strategic Management of GRIGGS University, 2011)

→ Bargaining power of buyers: Buyers are organizations or individuals using

products or services of enterprises Buyers can be classified into 5 following objects: end-users; intermediary distributors: agents; wholesalers; enterprises; agencies and organizations of the State and the Party; and International buyers Buyers are the objects that enterprises serve and are decisive factors to the success for failure of enterprises because the scale of buyers creates market scale; therefore, enterprises must regularly observe their buyers and anticipate changes in their demands The requirements of customers on quality and price are always challenges

to every enterprise If enterprises cannot meet those requirements, buyers will consume other substitute products or select products made by other suppliers to satisfy their needs with the lowest expense This will force enterprises to raise expenses for doing researches to create products satisfying those expectations of buyers, at the same time have to find solutions to save input cost and raise

Rivalry among existing firms

Buyers Suppliers

Threat of new entrants

Threat of substitute products and services

Bargainin

g power of suppliers

Substitute products

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productivity It is very difficult because it contains the conflict between input cost and price of products If an enterprise is unable to do that, it will show that the company’s competitiveness is very low and it will be easy to be pushed out of the market by their competitors Enterprises need to catch and observe information about buyers to have appropriate business strategies Regarding competition, buyers often put pressure on sellers when there are favorable conditions The higher the capacity of generating pressure of buyer is the more disadvantageous enterprises are To minimize bargaining power of buyers, enterprises need to serve buyers better and make document to observe and manage buyers, establishing a marketing system with sustainable relations between buyers and enterprises

→ Bargaining power of suppliers: To carry out production process,

enterprises need to regularly contact with suppliers of equipment, laborers, finance, etc These factors also have positive or negative impact on strategies of enterprises Suppliers can be considered as a threat when they can raise input price or reduce quality of products and services they provide; thus, reducing profitability of the enterprises The level of influence depends on the concentration of suppliers, the importance of the number of products to suppliers, the differences of the suppliers, the impact of the inputs cost or product differentiation, switching cost of enterprises

in the industry, the existence of alternative suppliers, the risk of strengthening the unity of the suppliers, the cost of supply compared with a total income of the industry

→ Competitive rivalry among existing firms: Competition is inevitable in the

market economy There is fierce competition when an enterprise is challenged by the activities of other enterprises or when a certain enterprise is aware of an opportunity to improve its position in the market Tools are often used in the races to generate value to customers are price, quality and differentiation of products & services, distribution, promotion, innovation and customers’ satisfaction The level of influence depends on structure of competition in the industry, demands, departure barriers, the proportion of fixed cost over value added tax, growth rate of the industry, redundancy of capacity,

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product differentiation, switching cost, typical characteristics of goods, diversification of competitors and selection in the industry

→ Threat of substitute products: Substitute products are products made by

competitors in the industry or products of other industries but can satisfy the same demand of customers With the boom of new technology, substitute products have become more and more diverse and generate a threat of a price competition to contract the company’s profit The level of influence depends on the switching cost in using products, the trend of using substitute products of customers and the correlation between price and quality of substitute products

→ Threat of new entrants: Threat of new entrants will increase along with

the number of enterprises in operation If it cannot create large enough barriers to prevent new entrants Regarding essence, this force includes companies that do not compete in the industry, but they can participate in the industry owing to the competitiveness, the attraction of the industry and entry barriers The attraction of the industry is shown via some criteria such as profitability, number of customers, number of enterprises in the industry, etc Entry barriers are factors causing difficulties and being costly for potential competitors when they want to participate

in the industry, placing them into a disadvantageous position The protection of the competitive position of enterprises in the industry consists of the sustentation of legal barriers and existing advantages of enterprises operating in the industry, including brand loyalty, absolute cost advantage thanks to outstanding operation, economics, protection regulations of the government, the retaliation of enterprises

in the industry, entry barriers and other competition

1.3.3 Internal – External (IE) Matrix

a External Factor Evaluation (EFE) Matrix

EFE Matrix evaluates external factors, generalizes and summarizes major external opportunities and threats affecting the operating process of enterprises in order to help managers evaluate the response of enterprises to the opportunities and

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threats and make judgment on whether external factors are advantages or disadvantages to their companies There are 05 steps to set up this matrix:

Step 1: Forming a list of 10- 20 major opportunities and threats that are

supposed to have influence on the success of enterprises in the industry/business line

Step 2: Rating the importance from 0.0 (unimportant) to 1.0 (very important)

to each factor The importance of each factor will depend on the influence of that factor to the success of enterprises Total weighted score of all factors must be equal

to 1.0

Step 3: Determining weight from 1 to 4 for each factor to the success of

enterprises to show the threats that the company’s current strategies have to face to show the methods that current strategies response to these factors Specifically, 4 is the best response, 3 is above average response, 2 is average response and 1 is weak response These levels depend on the effectiveness of the company’s strategy (Meanwhile step 2 depends on the industry)

Step 4: Multiplying the rating of each factor with its weight to determine the

weighted score of the factor

Step 5: Totaling the weighted score of all factors to determine the total

weighted score of the organization

Evaluation: Total weighted score of matrix does not depend on the number of

factors in the matrix The highest score is 4 and the lowest score is 1

- If the total weighted score of an enterprise is 4, the enterprise responses well with opportunities and threats in their environment

- If the total weighted score is 2.5, the enterprise responses averagely to opportunities and threats

- If total weighted score is 1: Strategies set by the enterprise cannot make use

of external opportunities and avoid threats

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b Internal Factor Evaluation (IFE) Matrix

Internal factor is considered very important in each business strategy and goal set by an enterprise After investigating internal factors, strategic managers need to set up a matrix for these factors to summarize and evaluate important strengths and weaknesses of functional departments and it also provides a basis for determine and evaluate the relations among these departments To form an IEF, there are 5 steps as follows:

Step 1: Setting up a list of 10 – 20 factors including basic strengths and

weaknesses having influence on the enterprise and the goals set by the enterprise

Step 2: Rating the importance from 0.0 (unimportant) to 1.0 (very important)

for each factor The importance of the factor will depend on their influence on the success of enterprises in the industry The total weighted score of all factors must be equal to 1.0

Step 3: Determining the weight for each factor from 1 to 4, in which 4 is the

biggest strength and 3 is the smallest strength, 2 is the smallest weaknesses and 1 is the highest weaknesses Therefore, the rating is based on company level while the weight in step 2 depends on sectorial level

Step 4: Multiplying the rating of each factor by its weight to determine the

weighted score for each variable

Step 5: Totaling the score of all factors to determine the total weighted score

of the organization

Evaluation: Total weighted score of the matrix ranges from 1 to 4 and will not

depend on the number of important factors in the matrix

- If the total weighted score of an enterprise is lower than 2.5, the internal factors of the enterprise are weak

- If the total weighted score is higher than 2.5, the internal factors of the enterprise are strong

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c Internal – External (IE) Matrix

IE Matrix places different business strategies of an enterprise into 01 table with 09 cells This matrix bases on 02 major aspects:

- Total weighted score of IFE Matrix is represented in X axis

- Total weighted score of EFE Matrix is represented in Y axis

- Each small business unit (SBU) must establish an IFE matrix and an EFE Matrix to set up IE Matrix of the company

- X axis represents the total weighted score of IFE Matrix

If the total weighted score is from 1.0 to 1.99, the internal of the company is week

If the total weighted score is from 2.0 to 2.99: average

If the total weighted score is from 3.0 to 4.0: strong

- Y axis represents total weighted score of EFE matrix, in which:

If the total weighted score is from 1.0 to 1.99: low

If the total weighted score is from 2.0 to 2.99: average

If the total weighted score is from 3.0 – 4: strong

Evaluation:

+ If a SBU belongs to cell II, II, IV: It should develop and construct

+ If a SBU belongs to cell III, V, VII: It should keep and sustain

+ If a SBU belongs to cell VI, VIII, IX: It should harvest or remove

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situations depending on the combination of factors together With each situation, the enterprise will determine the goal that it is interested in, which goals that it can realize and which it cannot The outstanding feature of this method is that there is not completely difficulty or advantage in each situation, but some situation contains both difficulty and advantage It is important that the enterprise knows how to use strengths to overcome threats and use opportunities to compensate for weaknesses From the evaluation, the enterprise can determine advantages and disadvantages in each specific situation

This is very helpful tool helping us make decision on organizing and managing as well as in doing business Formulating SWOT matrix on the basis of connecting strengths, weaknesses, opportunities and threats Then, systematically combining each corresponding pairs to create logically-combined pairs:

- Combining S/O: Using strengths to make use of opportunities;

- Combining S/T: Overcoming threats by making use of strengths;

- Combining W/O: Making use of opportunities to overcome weaknesses of the enterprise;

- Combining W/T: Working out solutions to reduce weaknesses and avoid threats from external environment

To set up SWOT Matrix, managers need to carry out 08 steps as follows:

Step1: Listing major opportunities from external environment (O1, O2…) Step2: Listing major threats from external environment (T1, T2…)

Step3: Listing major strengths of the enterprise (S1, S2…)

Step4: Listing major weaknesses of the enterprise (W1, W2 )

Step5: Combining strengths with opportunities to form SO strategies

Step6: Combining weaknesses with opportunities to form WO strategies Step7: Combining strengths with threats to form ST strategies

Step 8: Combining weaknesses and threats to formulating WT strategies

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Table 1.1: SWOT Matrix

2

3

The purpose of creating combined pairs: to work out feasible strategies that can be selected rather than selecting or deciding which the best strategy is Therefore, not all strategies developed in SWOT Matrix can be selected for implementation

1.3.5 Quantitative Strategic Planning Matrix - QSPM

Apart from classifying strategies to map out a list of preferences, according

to document, there is only one technique of analysis can be used to decide the attractiveness of feasible strategy can replaceable in selecting business strategy

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Table 1 2: QSPM Matrix

(Source:Fred R.David (2006), Strategic Management Notes)

Internal factors: 1- Weakest; 2- Less weakest; 3- Less strongest; 4-Strongest External factors: 1 – Response of the enterprise is poor

2- Response of the enterprise is average 3- Response of the enterprise is above average 4- Response of the enterprise is very good Strategies considered must be in the same group There are 6 steps to develop QSPM Matrix as follows:

Step 1: Listing big external opportunities/threats and internal strengths/weaknesses

Step 2: Classifying each internal and external successful factors Step 3: Studying SWOT matrix and determining alternative strategy that the

enterprise should consider to implement

Key factors Weight

Strategies Strategy 1 Strategy 2 … Strategy n

Attractiveness score

Total attractiveness score

Attractiveness score

Total attractiveness score

Attractiveness score

Total attractiveness score

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Step 4: Determining the attractiveness score

Step 5: Calculating total attractive score

Step 6: Calculating total attractiveness score

Evaluation: The higher total attractive score that the enterprise has, the more

attractive the strategy is The difference between total attractiveness score in a certain group of strategies will show the relative attractiveness of a strategy compared to other strategy

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CHAPTER 2 BASES FOR FORMULATING BUSINESS STRATEGY OF HAIHA

CONFECTIONERY JOINT-STOCK COMPANY

2.1 Overview of HaiHa Confectionery Joint-Stock Company

2.1.1 Process of establishment and development

Name and address of the Company

Company’s name: HaiHa Confectionery Joint-Stock Company

Abbreviated name: HAIHACO

Business line: Being a state-owned company specializing in trading confectionery and food products

Head office: No.25, Truong Dinh Str., Hanoi

- In 1970, implementing the Directive of the Ministry of Food, the Factory officially accepted HaiChau’s Confectionery Factory with the capacity of 900 tons/year to produce candies, malt and starch paper To fit the new mission, the Factory was renamed HaiHa Food Factory By 1980, the Factory was still basically

a manual and partially mechanized one

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- In 1981, the Factory was shifted to be management by the Ministry of Food under the name HaiHa Food Factory

- In 1987, HaiHa Food Factory was once again renamed HaiHa Confectionery Export Company under the management of the Ministry of Agriculture and Food Industry Afterwards, the Factory was renamed HaiHa Confectionery Company

- In 1991- 2000, HaiHa Confectionery Company achieved great success in business and production

- In 1992, HaiHa Confectionery Company merged with Viet Tri Foodstuffs Factory (old monosodium glutamate factory) In December 1992, the Company separated a production division to establish “HaiHa-Kotobuki” Joint-venture with Kotobuki Japan with the capital contribution as follows:

- Vietnam: 30% (equivalent to VND 12 billion)

- Japan: 70% (equivalent to VND 28 billion)

- In 1995, the company joint-ventured with Miwon (Korea) to establish

“HaiHa-Miwon” Joint-venture with the contributed capital of 16.5% (equivalent to VND 1 billion)

- In 1996, “HaiHa-Kamenda” Joint Venture was established in Nam Dinh with the Company’s contributed capital of VND 4.7 billion However, due to less effective operation, so in December1998, this joint venture was dissolved

- In 2004, HaiHa Confectionery Company was converted into HaiHa Confectionery Joint-Stock Company with 51% state-owned capital and 49% capital

of laborers On December 9, 2004, the Ministry of Industry (currently, the Ministry

of Industry and Trade) made decision to transfer the state-own capital at HaiHa Confectionery Joint-Stock Company to Vietnam National Tobacco Corporation

- In 2007, the Company was allowed to list stocks on the Hanoi Stock Exchange and has been officially traded since November 20, 2007

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After over 50 years of striving and growing, from a factory manufacturing sauce and magi, HaiHa Confectionery Joint-Stock Company has become one of the leading confectionery companies in Vietnam with over 1,200 cadres, 07 boards and departments,

06 member factories in Hanoi, Viet Tri, Nam Dinh and branches in Ho Chi Minh City and Da Nang with the capacity of up to 20,000 tons of products per year

2.1.2 Business lines and main products

*Business lines of the Company include:

- Producing and trading confectionery and processing foodstuffs

- Trading, importing and exporting materials, machine, equipment and

products of the industry, consumers’ goods and other products

- Investing in construction, leasing office, houses and commercial centers

- Doing other businesses as regulated by the law

> Cakes: Sweet cakes, salted cakes, ice-cream wafers, soft cakes

> Candies including three product lines: Hard candy, soft candy, marshmallow

> Nutrient products: Glucose, etc

+ Based on quality and value of products:

> High-quality products: nutrient products, Chocolate-covered ice-cream wafers, ice-cream wafer bar, Da Lan Huong Cake, Jelly candy, Caramel candy, Chew candy, etc., Glucose

> Average-quality products: Some hard and soft candy, biscuit, dry provisions, etc

> Low-grade products: broken biscuits, massive-sold candies, etc

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2.1.3 Function and mission of the Company

The Company is specializing in producing and trading Via that, it has made contribution to boost the development of the market economy, ensuring the life of laborers and raising income for the State Bank of Vietnam

The main business mission of HaiHa Confectionery Joint-Stock Company (according to the supplemented business license) is directly exporting the Company’s products to foreign countries Besides, the Company also has some specific missions:

- Formulating and organizing business and production

- Generating source of capital for business and production and effectively exploiting that source of capital

- Well implementing commitments in related economic contracts

- Organizing the process or preserving and ensuring circulation process happening regularly, continuously and stably in the market

- Studying and implementing measures to raise business performance

- Non-stop taking care to enhance the material and spiritual life for laborers Regularly training and fostering professional qualification for workers

Vision

- Strengthening operational structure of the company in the direction of diversifying the business activities to meet the development demands in the new situation

- Sustaining the title of a leading confectionery manufacturer in Vietnam

- Diversifying products, specializing production, verifying business lines and developing services and general businesses

- Enhancing comprehensive management capacity, investing in resources, paying attention on developing human resources – a key factor to successfully implementing missions in the world economic integration

- Continuing to drastically the International Standard ISO 9001: 2008

- Building and developing the company’s brand, trademarks, expanding domestic and international distribution channel

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- Establishing a healthy financial base

- Using many methods to create best conditions and policies in order to take care of the life and attract laborers

Business power:

- Satisfying the demand and expectations of customers

- Enhancing the sense of responsibility, activeness, creativeness and maximizing potentials and advantages of the Company

- Ensuring a green, clean and beautiful environment

- Serving the interest of each member and the community

- Constructing the company into a typical example of corporate culture

2.1.4 Organizational structure

(See figure 2.1 and appendix 1)

Figure 2.1: Organizational structure of HaiHa Confectionery Joint-Stock

Company

(Source: http://www.haihaco.com.vn/)

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2.2 Analyzing external environment of HaiHa Confectionery Joint-Stock Company

2.2.1 Macro Environment Analysis (PEST model application)

a Economic factor

The financial crisis and global economic downturn continued affecting economic growth in Vietnam In 2010, GDP reached 104.6 billion U.S dollars in the country increasing 13 billion USD in comparison with those in 2009 With the growth of 6.78 %, attracting foreign investment reached 17.23 billion dollars reducing nearly 20% over 2009; the fluctuations of financial and monetary markets, natural disasters, floods, epidemics directly impacted on the life of people

However, the demand for food in general and for confectionery particularly in the beginning 2011 will tend to increase In addition, the gradual increase of consumer confidence index is also a factor showing that consumers will spend lavishly As a result, the consumption of confectionery products in general and in particular HAIHACO is encouraged

GDP per capita over years Consumer Confidence Index over years

Source: Nielsen-Vietnam Grocery Report August 2010 Source: Nielsen Global Online Survey 2007-2010

Figure 2.2: Some economic targets of Vietnam over the years

Factors affecting the cost to stabilize the price of the Company:

- Increased interest rate: At the beginning 2011, bank interest rates were relatively ranging at high level from 16-22% and the interest rate is unlikely to be reduced by the effects of the factors related to the strict regulations of the State

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Bank of Vietnam in order to ensure the safety of the banking system and other objective factors Rising interest rates make the cost of HAIHACO’s bank loans increased

-Price (electric, water, etc.) tended to increase dramatically, as a result, it made the overall cost price of their products raised - Exchange rates constantly fluctuated with the gold price from the late 2010; arguments are massive in the first period of quarter 3/2011 and may continue in an upward trend in the late

2011 HAIHACO must import most of input materials, so increased interest rate will drive up its production cost

- Tax policy: Import tariff was reduced to 20 % in 2003 and decreased to 0.5% in 2006 This will cause many disadvantages for HAIHACO because it must compete with more foreign enterprises enter the Vietnam confectionery market

b Political and legal factor

The Vietnam’s political environment and law system continue to be stabilized and improved in the direction of the trend: Maintaining political stability and further reforming administrative procedures to attract investment

The period 2011-2015: It is the opening period for Vietnam to establish the bilateral trade relations with U.S expand and join the major economic organizations

in the region and the world as the EU, AFTA, and WTO This creates favorable conditions for enterprises to export to potential markets, but they also have to face with a lot of harshness and severe competition Many confectionery products with quality, attractive designs for domestic customers affected confectionery consumption of the inside country in general, of the HAIHACO in particular

Since the tariff reductions for imported confectionery items to 20% in 2003, and further lessening to 0.5% in 2006, the domestic firms under competitive pressure from importers must constantly innovate in technology However, this opens up more opportunities than challenges due to lower tariff barriers facilitating the product of the business sector to enter the ASEAN countries’ market

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For confectionery items, the Government promulgated the Law of food safety and the Law on industrial property rights which require specified labeling, packaging to protect the interests of consumers and reputable companies But the implementation of the authorities is not so radical; therefore, there are the large number of counterfeits, unclear labeling, poor quality and expired products which still exist in the market

c Socio-cultural factor

Although confectionery is not an essential needs of human, it is a product of traditional culinary legacy of Vietnam in general and of each regions in particular The trend of using domestic confectionery items are more preferred

Cultural traditions and lifestyles of each region significantly affect the consumption of confectionery Consumers’ taste for confectionery products of the people in the North, Central and South are different so the consumption capacity of the Company’s products in each market will be different For the North, customers pay more attention to the type of packaging design and moderately sweet taste, while the South concern more about the sweet, fruit flavors

Cultural exchanges with countries in the world have helped Vietnam learn and obtain new colorful cultures, new perspectives, new methods of consumption in the period 2011-2015.Vietnamese emphasis on issues such as design, style, flavor, attractiveness, etc of a product Vietnam is a tropical country with lots of fruits which is favorable condition for the production of candies with different fruit flavors Moreover, it is also supported by introduction of fruits from Europe, such

as chocolate, cocoa, and coffee They are advantages for the Company to diversify product lines

Besides those who believe in the domestic goods, there are still many people who still prefer foreign goods They assert that foreign goods are more high-quality than domestic goods This is really a big challenge for the Company to penetrate the luxury market

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Confectionery products are consumed mostly in urban residential areas With the rapid urbanization in Vietnam, the market for confectionery products will be also expanded

Tropical weather, humid climate and heavy rainfall of Vietnam have strongly affected the seasonal nature of manufacturing technologies and consumption of candy There are many troubles in storage, the confectionery items are perishable easily so the increasing cost of maintenance and transportation drive up the high cost of products; the majority of materials used for confectionery products come from agriculture However, Vietnam’s weather changes complicatedly with storms, floods, drought constantly, as a result, the domestic market supply of raw materials

is unstable, the cost of raw material reserves is high The demand for confectionery varies greatly according to season (consumption increased massively from August

to the Lunar New Year, including the staples of Vietnam’s traditional flavor such

as cakes, hard and soft candies, luxury biscuits, assorted jams, nuts which are consumed heavily).Therefore, human resource activities( management, labor recruitment) and the moderation of the Company's production encounter many difficulties

Vietnam has a young population structure with a high proportion of children who consume confectionery products greatly, especially confectionery products of HAIHACO Their products tend to meet the needs of the youth and children about the type, design This is advantage for the HAIHACO confectionery market in the coming years

d Technological factor

Compared with other countries in the region and in the world, research capacity, developments, technology transfer of Vietnam remain very poor, particularly biotechnological, engineering and processing technology as well as automation In general, technological level of our country is more backward to the world than a few decades This is a great restriction for Vietnam businesses in general and in particular HAIHACO in the renewal of equipment, technological line

Ngày đăng: 26/03/2015, 10:58

Nguồn tham khảo

Tài liệu tham khảo Loại Chi tiết
7. Pham Thi Thu Huong (2002), Strategic management in global economy – Statistical Publishing House Sách, tạp chí
Tiêu đề: Strategic management in global economy
Tác giả: Pham Thi Thu Huong
Năm: 2002
8. Fred R.David (2006), Strategic Management Notes – Statistical Publishing House Sách, tạp chí
Tiêu đề: Strategic Management Notes –
Tác giả: Fred R.David
Năm: 2006
9. Rudolf Gruning (2003), Formulating strategy by process – Publishing House for Science & Technology Sách, tạp chí
Tiêu đề: Formulating strategy by process
Tác giả: Rudolf Gruning
Năm: 2003
10. Garry D.Smith (1994), Business Strategy and Tactic – Statistical Publishing House Sách, tạp chí
Tiêu đề: Business Strategy and Tactic
Tác giả: Garry D.Smith
Năm: 1994
11. Micheal E.Porter (1996), Competitive Strategy – Publishing House for Science & Technology Sách, tạp chí
Tiêu đề: Competitive Strategy
Tác giả: Micheal E.Porter
Năm: 1996
15. P.Rinđova & C.J. Fombrun, “Constructing competitive advantage. The role of film-constitute interactions”, Strategic Management, 2007 Sách, tạp chí
Tiêu đề: Constructing competitive advantage. The role of film-constitute interactions
1. Document for internal use of HaiHa Confectionery Joint-Stock Company Khác
2. Financial Statement of HAIHACO in 2007 Khác
3. Annual reports of HAIHACO in 2010, 2009, 2008 Khác
5. Statistics by the Ministry of Industry and Trade in 2010 Khác
6. Textbook on Strategic Management of GRIGGS University, 2011 Khác
13. Bakery industry report, (2010), http://tinnhanhchungkhoan.vn English Khác
14. Fred R.David, Strategic Management, 2011 Khác
16. D.F.Abll, Defining the Business: The Starting Point of Strategic Planning, Egglewood Cliffs, N.J. Prentice Hall, 2000 Khác

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