Building corporate business strategy for Vietnam Australia Refrigeration Electrical Engineering Group Joint Stock Company in the period of 2012-2016

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Andrews University GRIGGS

CAPSTONE PROJECT REPORT

Building corporate business strategy for Vietnam Australia Refrigeration Electrical Engineering Group Joint Stock Company in

i the period of 2012 - 2016

| Group |

Nguyen Thanh Phuong - Group leader

Doan Thi Ngoc Bich Do Dinh Hieu

Dinh Thi Phuong Class GaMBA0O1.X0610

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CAPSTONE PROJECT REPORT Group No.01- GAMBAOT.X0610 CONFIRMATION VIETNAM AUSTRALIA ELECTRONICS JOINT -STOCK COMPANY Address: 30 — Tran Dai Nghia Hai Ba Trung - Ha Noi Tei: 04 3628 1698 Fax: 04 3628 3115 Website: kangaroo.vn Date: 45 / 4⁄2 / 2011

To: - Master of business administration program — Grigg University - ETC -— Vietnam national university Ha noi

SUBJECT: BUILDING THE BUSINESS STRATEGY OF VIETNAM AUSTRALIA ELECTRONICS JOINT -STOCK COMPANY IN THE PERIOD OF 2011 -2015

- Kangaroo has done fully support for Group | — X0610 when they practiced and learned in company about operation status, vision and strategy of company

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ACKNOWLEDGEMENT

On behalf of our group, we would like to give our deep gratitude to dedicated support of lecturers in Center for Educational Technology and Career Development ETC, Post University Department — Vietnam National University; Griggs University — The US

We also expressed our thanks to Board of Management of Vietnam Australia Refrigeration Electrical Engineering Group Joint Stock Company providing data for completion of this capstone project

Although our group tried our best to weil do this capstone project due to limited knowledge this capstone project has limitations Thus, we wish to receive significant contribution of lecturers, colleagues and friends to obtain completed project

COMMITMENT

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GRIGG UNIVERSITY Strategic management

INTRODUCTION PART

As participating in the market economy enterprise needs to define its specific objectives and strategies to be able to survive long and strong growth As mentioned by Fredr.David in "Strategic management concepts - Statistical Publishing House, 2006" then "Strategy is the means to achieve long-term goals Business strategy may include the geographical development, diversification of activities, ownership, product development, market penetration, spending cutiing, liquidation and joint venture "and "Targets according the defination are defined achievements that an organization seeks to achieve in pursuit of itss duties." To survive and grow, the businesses need to identify the policies and business strategies to fully take advantage of the opportunities to increase profits and limit at the lowest level of risks, from that to improve production efficiency in business and competitiveness of enterprises Identifing strategy or otherwise forming strategy 1s first job to do of every business, this work includes what new business decision to participate? What business industry should be drawn? how ts the distribution of resources, whether or not develop or expand operations? participate in the world market or not? affiliate or joint venture and how to avoid a power of control of competitor Existing and development problems of a business not only depends on the activities of the enterprise itself but also is influenced much by environmental factors Today, information technology and global unitary are environment changes which are changing business model and human society The world we are living is becoming borderless with global citizens, global suppliers and distribution agents The world is changing and businesses must adapt to that change, otherwise they will perish before the face The frequent changes of business environment, the demands of consumption are opportunities of these enterprises but also can be tremendous challenges for other businesses which make them always must set out the matter of survival and growth To want survival and development, the enterprises need to map out the policies and business strategies in order to fully take advantage of

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business opportunities and limit at the lowest level of risks from which to improve efficiency and competitiveness and efficiency of production and business activities of enterprises Thus, business strategy 1s indispensable has especially important sense for the development of current and future businesses

Vietnam Australia Refrigeration Electrical Engineering Group Joint Stock Company formerly known as Vietnam Australia Refrigeration Electrical Engineering Co., Ltd established since 2000 has created a strong foothold in the market of appliances, refrigeration & electrical engineering in the country In 2003, to promote its strengths and to continue to grow, Thanh Do company deployed additional services of event organization and combining with activities, to launch a new product "Household, Refrigeration, electrical engineering combined professional event organization"and by 2006, a major change when Thanh Do successfully organized operating model of Team Building, the company was officially renamed into VIETNAM AUSTRALIA REFRIGERATION ELECTRICAL ENGINEERING GROUP JOINT STOCK COMPANY Since then, this breakthrough product has gained the attentions of the customer, becoming one of the development strategy of VIETNAM AUSTRALIA REFRIGERATION ELECTRICAL ENGINEERING GROUP JOINT STOCK COMPANY In 2009, the company went one more step as putting into operation "TRAINING ACADEMY OF VIETNAM AUSTRALIA REFRIGERATION ELECTRICAL ENGINEERING GROUP JOINT STOCK COMPANY." This academy was built on the campus of entertainment V'star located in Hoa Binh, Hoa Binh province, both a resort combined with the game system for its customers Today, VIETNAM AUSTRALIA REFRIGERATION ELECTRICAL ENGINEERING GROUP JOINT STOCK COMPANY has nearly 100 lines of other refrigeration and household products such as meat grinders, blenders, food detoxify ozone jacuzzi, steam fan, rice cooker In which, appliances are considered the most special products, as the long-term development strategy of the company Through its business and development process, VIETNAM AUSTRALIA REFRIGERATION

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ELECTRICAL ENGINEERING GROUP JOINT STOCK COMPANY _ has achieved many successes, the company's revenue Is increasing the income of staff members is increasingly improved the company ahs also contributed many household products with high quality to serve consumer demands for the whole society and believed and selected by domestic and foreign consumers During development, the demand for product quality as well as the demand for product supply service to the society is increasingly demanding, the company has been growing over its scale and diversity of products However, in a straight angle in the actual operations of the business, the company still exists some defects which have not high competition to catch up the flow of the enterprise such as product price for the same products of the businesses at the same industry 1s still high, customer care is not enough to attract employees and customers to come to the business which 1s mainly due to the prestige and brand of the company Based on the needs of domestic and foreign markets, based on the strengths of the company should promote and overcome some weaknesses which are faulty, not strong enough to compete with businesses in the same industry, the corporate business strategy construction for the period of 2012-2016 is set out as a matter of urgency The thesis "Building corporate business strategy for Vietnam Australia Refrigeration Electrical Engineering Group Joint Stock Company in the period of 2012 - 2016" is carried out by the student group of the MBA class at the company with the help of Associate Prof Dr Vu Thanh Hung along with the team of staff within the company, combined with the knowledge learned in the class, we have learnt, studied and completed the graduation capstone with the thesis:

1 Study objective of the thesis

- Systematization of the theoretical issues on strategic management

- Analysis and evaluation of the internal and external situation of the enterprise, from which to evaluate the strengths, weaknesses, opportunities and challenges for the enterprise

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GRIGGS UNIVERSITY Strategic management

- Propose some strategic complete solutions of the company in the period of 2012-2016

2 Scope of study

General theoretical basis and foundation toform the business strategy

Scope of study does not include building materials industry safety deposit

boxes mobile phones, solar energy

- Analysis & evaluation of the internal and external situation of the enterprise, evaluation of strengths, weaknesses, opportunities and challenges for the enterprise

- Determination of some strategic complete solutions of Vietnam Australia in the period of 2012-2016

3 Research method

- Use of the available documents (secondary data) to consider the size, structure and trend of the market

- Research, investigation and survey to collect primary data which is mainly qualitative method

- Interview method 4 Structure of the thesis:

In addition to the introduction and conclusion, the thesis is divided into three chapters:

- Chapter |: Theoretical basis

- Chapter 2: Business strategy construction for KANGAROO - Chapter 3: Selection of strategic implementation

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CHAPTER I

THEORETICAL BASIS

International trends along with the scarcity of resources Is increasing, the rushing development of technology, especially the explosion of global information technology and beside is the needs of the domestic and foreign market which require more rigorous for the commodities products with quality, design and type of more diversity Survive and thrive in the business environment ts constantly fluctuating and increasingly fierce competition between peers today requiring every business must have a strategy for survival and development of his own business and also to contribute to the survival and development of the industry in which business enterprises to participate

For each enterprise, the construction of proper business strategy is indispensable, to form the right strategy will create the ability to seize opportunities, ability of success, and avoiding the threats and risks, ensuring the stable and sustainable development of the business

Since the '60s, the twentieth century, the strategy was applied to the business field and the term of "Business Strategy" was born The concept of business strategy developsover time and we approach it in different ways

In 1962, Chandler defined strategy as "the identification of long-term fundamental goal, purpose of the enterprise and the application of the sequence of actions as well as the allocation of necessary resources to implement this goal

"(Chandler, A (1962) Strategy and Structure Cambridge Massacchusettes MIT Press)

By the 1980s, Quinn gave definition which was more general "strategy is the pattern or plan to integrate the major goals policies, and action sequences into a tight cohesive whole"(Quinn, JB1980 Strategies for Change: Logical Incrementalisn Homewood, Illinois, Irwin)

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(GRIGG UNIVERSITY Strategic management

Later, Johnson and Scholes re-defined strategy in environmental conditions which had a lot of rapid change: "Strategy is the direction and scope of an organization for long term to gain competitive advantage for the organization through format of its sources in the changing environment, to meet market demand and satisfy the expectations of stakeholders "(Johnson, G., Scholes, K (1999), Exploring Corporate Strategy , 5th Ed Prentice Hall Europe)

1.1 Concept

1.1.1 Concept of business strategy 1.1.1.1 Traditional approach

"Strategy" is a term derived from the Greek "Strategos" used in military

Modern time military theorist Clawzevit also said that: Military strategy 1s the art of commanding in advantageous position

A publication of the Larous dictionary considered: strategy is commanding art of the means to win

Scholar Dao Duy Anh, in the Vietnamese Dictionary wrote: strategy 1s plans set to win on one or more fronts Thus, in the field of military, the term of strategy in general has been considered as a commanding art to win a war

1.1.1.2 Approach in the new concept

In addition to the traditional approach as above, many business organizations approach strategy in the new ways: Business strategy is a plan to control and use human resources, finance, assets with the aim to improve and ensure its vital interests Kenneth Andrews Is the first one to make this prominent idea in classic book "The Cencept of Corporate Strategy", he said, strategy 1s what an organization should do based on its strengths and weaknesses in the context of opportunities and threats

Brace Henderson, strategist and the founder of Boston Consulting Group has connected with the strategic concept with competitive advantage Competitive advantage is the placement of a company in a better position than competitors to create economic value for its customers "The strategy is a careful search for a plan

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of action to combine and develop competitive advantage of the organization The difference between you and your competitor is basis for your advantage." He believes that it can not coexist two competitors if their business method ts identical New differences should be made then it can exist

Michael Porter also agreed the identification of Henderson: "Competitive strategy 1s related to the difference It is careful selection of a different series of activities to create a set of unique values "

Despite any approach, the nature of the business strategy 1s outline of future image of the enterprise in the field of operation and exploiting ability In this understanding, the term of business strategy is used by three most common senses:

- Determination of long-term goals of the business - Recommendation of general action programs

- Selection of the action plans, deployment of the allocation of resources to implement that goal

1.1.2 Characteristics of strategic management

The strategy clearly identifies the basic objectives, business direction to achieve in each period and thoroughly complete in the areas of administrative activities of the business Orientation of the strategy aims at ensuring the business to develop continuously and firmly in the business environment which often volates

Business strategy only draws operation directions of the business in the long term, Operation frame of the business in the future Strategy is orientation and in business practice requires combining strategic objectives with economic objectives, consider the reasonableness and adjusted to suit the environment and business conditions to ensure business efficiency and overcome the bias due to the strategic orientation of the cause

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competencies of the business now and in future to promote the advantages, seize the opportunity to gain competitive advantage

Business strategy is reflected in a constant process from construction to implementation, evaluation, inspection and adjustment of the strategy

Business strategy always has offensive thought to win in the competition Business strategy is formed and implemented on the basis of detection and taking advantage of business opportunities, the comparative advantages of the business to achieve high business performance

All important strategy decisions in the process of strategic building, implementation, evaluation and adjustment are focused on senior management group To ensure the accuracy of long-term decisions, the confidentiality of competitive information

1.1.3 Role of business strategy:

With those characteristics, it can be said that in the market mechanism, construction and implementation of the business strategy has an important role for the survival and development of the enterprise

Business strategy helps the business identify its purpose direction in the future as the guideline for all activities of the business

Business strategy play a orientation role in long-term operation of the business, it is a solid basis for the deployment of the operations The absence of strategy or unclearly established strategy or no solid argument will make the operations of the business lose its way, there are many ahead arising problems that not associated with long-term or found only locally but not seeing the local in the whole activities of the enterprise

Business strategy helps the firm understand and take advantage of business opportunities, and simultaneoulsy have active measures to deal with the threats on the business market

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Business strategy contributes to improve the use effectiveness of resources, strengthening the position of the firm to ensure it to develop continuously and sustainaby

Business strategy creates solid bases for the business to make decisions in accordance with market fluctuations It creates a solid basis for research and development, investment, training and development of personnel, product development and expansion operations In fact most of the mistakes in investment, technology, markets comes from strategic construction or having difference in determining strategic goals

1.2 Construction of business strategy

1.2.1 Selection of the targets, visions, missions and strategies 1.2.1.1 Vision

A vision or that is idea about the image of your company should be reached out Normally, it reflects the dream of the founders or leaders of the company A vision should be clear and concise so that everyone in the company understands and has confidence to buy shares of the company

Vision suggests a orientation for the future, a desire of a brand about what it wants to achieve

When referring to an strategic intention, a purpose, we usually imagine it with an image of the future Vision covers the meaning of an excellent standard, an ideal It is optional for one one great values of a brand The vision is also unique, it refers to the creation of something special

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The company's mission is a concept used to determine the purposes of the company, the reasons that company was founded and the basis of its existence, development Company's mission is the proclamation of the company to society, this statement proves the usefulness and meaning in the existence of the company on society

In essence, the mission statement of the company focuses on clarifying a very important issue, "What is the business of the company aimed?" The scope of the mission statement is often related to product, market, customers technology and other philosophies which the company pursues Thus it can be said, the mission statement means that the existence of an organization, what they want to become, the customers they want to serve, the ways they operate

The content of a mission

e Customers: Who are the consumers of products and services of the company?

¢ Product or core service: what is the company's main service or product? e Market: Which market does company compete?

e Technology: Is technology a leading concern of the company?

e The attention to other important issues: such as the survival and development, profitability and the company is bound to target any other business or not?

¢ Philosophy: What are the basic beliefs, values, aspirations and philosophical priorities of the company?

¢ Self-assessment: what are primarily special powers or competitive advantages of the company?

¢ Concern for public image: Is the image of the community primary concern of the company?

¢ Concern for employees: How is the company's attitude for its staff? 1.2.1.3 Core values (There are 4 definations about core values mentioned) Definition 1:

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Core values are all what are deemed to be unable to pay in cash or can not be changed by the company The core values create a foundation to form the company's internal rules

Definition 2:

- As a belief system affects behavior between people with people or between groups of people together;

- The core values are "soul" of the organization,

- As the efficient values which are ingrained In the organization

- Core values help form the psychological organization from which it can support or remove individual psychology

Definition 3:

The core values are the essential, long-term guidelines and_ rules: - To help orient decisions and actions of an organization;

- Not to be cultural actions or specific activities;

- To be not built for the financial purpose of or other interests in the short term;

- The organization will want to retain the core values even when the task has changed

Definition 4

As the essential and long-term principles of an organization - a set of small guiding rules which have a profound effect on how people in organizations think and act

Core values are not interested in public opinion, it has intrinsic value and great Importance for those inside the organization Core values are a few very rare these guidelines which is capable of enormous influence, as the soul of the organization; it is the values which have mission to guide all actions

Core values are very deep And those are extremely important values These values are rarely changed by the change of the market On the other hand, the

Global Advanced (aster of Business Administration

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organization will often change the market if necessary to maintain the real core values of its organization

1.2.2 External evaluation 1.2.2.1 General environment 1.2.2.1.1 Economic environment

The state of macro-economic environment determines the health, prosperity of the economy, it always causes impacts on the businesses and industries Therefore, the firm has to study economic environment to identify its stratetic changes, trends and implications

Economic environment shows the nature and direction of the economy in which the business operates Such definition in the economic environment in the present condition should be understood relatively, because, as a result of a global economy, countries are linking together, so little or much the firm also have to review, monitor, estimate, and assess the health of the economies outside their country Indeed, you can find quite profound influences of the U.S., China, Japan economies and the European Union communities into the other economies

The impact of the economy on a company may alter the ability to create its value and income Four important factors in the economic environment are rate of economic growth, interest rates, exchange rate, and the rate of inflation

Economic growth leads to a boom in the expenditure of customers, so it can bring the trend which is more comfortable on competition pressure in an industry This may be dedicated opportunity to the companies to expand operations and gain higher profits In contrast, the economic recession will lead to the reduction of consumer spending, and thereby increasing competitive pressure The declined economy usually causes the price wars in the saturated industry

The interest rate may affect demand for the company's products The interest rate 1S an important factor when customers have to borrow to finance their procurement activities of these goods

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Exchange rate determines the value of national currencies together The shift of the exchange rate has direct impact on the competitiveness of the companies in the global market For example, when the value of domestic currency 1s lower than the value of other currencies, the domestic products are cheaper relatively than products made overseas Domestic currency with low or declined value will reduce the threat from foreign competitors while creating opportunities for sales increase outside

Inflation may reduce the stability of the economy, making the economy grow more slowly higher interest rates, unstable exchange rate movements If inflation increases, the investment planning becomes risky The key feature of inflation 1s that it causes problems for the projections of the future In an inflationary environment, you can hardly estimate correctly the real value of income received from the projects in the five-year Such uncertainty makes the companies not dare to invest The status of contending investment of the companies in the case of high inflation will reduce the economic activities, eventually push the economy to stagnation Thus, high inflation 1s a threat for the company

1.2.2.1.2 Political conditions

The political factors have greater impact on the operation of the businesses They can create opportunities and obstacles even real risks for the businesses for political change

1.2.2.1.3 Law and policy

Legal and policy factors also have great impact on the level of the opportunities and threats from the environment

Firms must carefully analyze the philosophies, the new concerning policies of the state management Antitrust laws, tax laws, selective industries to adjust or prioritize labor law, are areas in which the state management policies can impact on operations and profitability of the industry or of the business

On a global scale, companies also face a range of food issues which are also paid attention by nations to protect consumer interests, and security, so the strict

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regulations set out are significant impacts on the business activities of the industry and the business

1.2.2.1.4 Culture and society

The social conditions are considered to have very strong impact on all strategic activities

+ Conditions of the population

For production or business managers need to use human resources, to sell goods, they also require the presence of the sales force To plan the development strategy of each company, people can’t come from both these influential factors In other words, population and population growth in each market, each country have elways been the forces that have great influence to all activities related to business management in every business

Usually, in every business, managers must analyze population structure on the basis of gender, age to segment and define target markets, must identify the actual reeds of its commodities and based on it to decide the plan of product production end consumption of the enterprise

The shift of population from one region to another, from this locality to enother is also factors affecting the operation of the strategic planning and policy of tuman resource management, market strategy and other supportive production and tusiness strategies in available business space

+ Culture Conditions

Culture is a complex category Culture is considered as a phenomenon which exists objectively in human society Every man, every administrator, every crganization is belonged to a particular culture Under the influence of each culture, rersonality, morals, beliefs, attitudes, value systems, .1n each person are formed end developed Business strategy is directly affected by the cultures, governing the tehavior of consumers, governing purchasing behavior of customers

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In addition, familial love, social understanding, education, 1s still the starting point when buying goods - services, meaning that controling the drafting of business strategy in each specific firm

+ Occupational condition

Specialization and cooperation of social labor is an inevitable rule in the development process of each country, each region and worldwide We find that, where the social economy develops strongly, the degree of labor specialization and cooperation in such places 1s higher and vice versa This also means that the more the society grows, the stronger the specialization and diversification of the career Different occupation will lead to different demands on differently specifical working facilities and tools In addition, because the different industries that demand for accommodation, travel, entertainment is also different To meet the different needs of the career in society, the managers at each firm will certainly take into account all the effects of the mentioned-above factors to the planning and implementation of its business strategies and tactics

+ Conditions of national psychology

Emotion of homeland, love of tcountry, national pride, stubborn wills, the hospitality, kindness altruism are always spiritual elements of the national psychology They have a strong influence not only how to think and act for each of the managers as well one who is managed, but it also deeply influences the style of consumption, affect ingthe formation of different market segments and this forces the administrators to consider and calculate their business management decisions

+ Conditions of style and lifestyle

Society is a colorful picture which is created by individuals with different styles and lifestyles Although there are no two people with the same absolute style or lifestyle seeing them anywhere, at any time it exists also the typical style and way of life for certain place or that time Each style and way of life has its own characteristics about how individual thinks, acts and shows to the outside world This drives if don’t want to say very strongly to the formation of the demands for

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C3RIGGS UNIVERSITY Strategic management

variety, quality, quantity, shape, design, of typical goods and services for that style and lifestyle So, to want to do business effectively, managers can not adjust their activities according to the breath and rhythm, style and lifestyle of contemporary society and future society

+ Conditions of marriage and family

Marriage and family in the life of each person has an extremely important position and role Marriage and family is the inevitable and eternity rule of human society Each family is a cell of society, which speaks of the close association between the administration actions and managers with his marriage and family

Marriage and family does not only directly affect the action of managers in every business but it also has very profound influence to the formation of a variety of social needs such as accommodation, television, washing machine, and other goods and services related to the households As the administrators outline and organize the implementation of the business strategies and tactics, they are not allowed to ignore the impact of these factors in their operations

+ Religional conditions

Religion was born early in the development history of mankind Today, there are many religions in the world Each religion has its personal perception, beliefs and attitudes about life, about how to behave amongst believers and with the people Religion has great influence with morality, ethics, culture and lifestyle which are not only managers themselves but also to officers and employees under their management It can be seen that the leadership and management activities of managers can not take into account the impact of religious factors in perception, in behavior, in compliance and implementation of decisions of subordinates Not only that, the psychology of the consumer is not out of the profound influences of religion All these have strong influence to the planning and implementation of business policies of the administrators Ones who are agile, in-depth understanding of religion can find opportunities in the operations of their business management

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1.2.2.1.5 Science - technique - technology

This is type of factor that influences directly to the business strategy of the tields industries as well as many businesses In fact, in the world has witnessed the transformation of technology which makes wobble, even losing many areas, but also appearing several new business areas, or more improvement

Twentieth century is the century of science and technology Therefore, the analysis and prediction of technological change is important and urgent than ever The examples are often cited with the appearance of electronic, information technology and biotechnology In fact, technological change affects all businesses, even small and medium enterprises

The technological change, of course, affects the life cycle of a product or a service A theoretical cycle consists of phases, start, grow, ripen and decay Actually, for some businesses and a number of products will have a new development stage after stage of decay Furthermore, the technological change also affects the production methods and materials as well as the behavior attitude of employees

1.2.2.2 Five factors of competitive model 1.2.2.2.1 Level of competition among rivals

The first force in Porter’s model of five competitive forces, that 1s, the level of competition between firms within an industry Because firms in an industry are interdependent, the actions of a company is usually attached to response actions of other companies The intense rivalry when a business is challenged by the actions of other businesses or as any business is aware of an opportunity to improve its position in the market

It’s rare to have the homogeneity of firms in an industry Because they're always different from the resources, capabilities and seek to differences with rivals It’s often seen businesses create competitive advantage by causing differences between its products with what competitors offer The tools which are often used in

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C3RIGGS UNIVERSITY Strategic management

the race to create value for customers 1s price, quality, innovation and customer response

If the competition in the industry 1s weak, companies will have the opportunity to raise prices and get higher profits But if the competition is strong, price competition can occur strongly, this will lead to price wars Competition limits profitability by reducing the profit margin on sales Thus, the intensity of competition between companies in the industry creates a strong threat for profitability Broadly, the level of rivalry between the companies in the industry depend on three main factors: industry competition structure, demand conditions; high barriers of the industry leaving

Structure of competition

Competitive structure shows the distribution of the number and size of companies in the industry The industry structure varies from dispersion to focus industry and related to the rivalry

Dispersion industry includes a large number of small or medium companies, no companies which hold a dominant position Dispersion industry often have low entry barriers and its product is belonged to the primary product and little difference These two features combine to create tend of cyclical profit increase or reduction The low entry barriers will facilitate the people lines to enter the industry, whenever the high demand and high profits, with the hope to make money at prices up and down to levels of demand (through bankruptcy), te the time that price can return stability

Therefore, dispersion industry structure brings a threat more than an opportunity Most of the explosion happens relatively short, because of the easy entry, and next by the price wars along with the bankruptcy cases It is difficult to make a product difference in the industry so the best strategy for companies to put in its pocket big profits in the boom times and survive tn any decline

A focus industry is industry overwhelmed by a few large companies (in this case It is seen as the group monopoly) or in extreme case, there 1s only one firm

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(monopoly) The focus industries include aerospace, automotive and pharmaceutical

production

The nature and extent of the rivalry in the focus industry 1s difficult to anticipate Because, in the industry it concentrates interdependent firms Competitive actions of a company will directly impact on profitability and impact on market share of the other competitors in the industry That raises a strong reaction from the opponent, the consequences of interdependent competitive so could create a dangerous spiral of competition They try to lower prices to compete, or series of expensive reactions which push the profit of industry down

Clearly, in the focus industry, the rivalry between the companies and the possibility of price war creates major threat Sometimes, companies try to mitigate this threat by using leading prices because the company has advantages in the industry set However, they must be careful, because the price-fixing agreements are illegal, although there may be implicit agreement (an implicit agreement means that going to the agreement which there is no direct contact) Instead of direct negotiation, the companies explain and observe behaviors of each other Usually, the implicit agreements are going to follow the leading prices which are set by a company with advantages However, implicit agreements of leading price often is broken under disadvantageous economic conditions

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The conditions of an industry’s needs is a different decision factor about the level of rivalry in the current companies The growth in demand from new customers or the purchase increase of existing customer tends to soften the competition, because it opens a larger space for development Growth in demand tends to lessen competition, because all the companies may sell much more not necessary to occcupy the market of other companies, and the result is usually higher profit

Conversely a decrease in demand will push the rivalry stronger, because at that time, the company must try to struggle to maintain the income and market share Demand falls when customers leave the market or when they buy less At that situation, each company can only grow by winning the company's other markets, so the reduction of need creates a huge threat, because this increases the level of competition among existing companies in the industry Furthermore, slow demand growth may arise problem

Barriers to exit the industry

Barriers to exit the industry is able to keep a company stay in the industry even as low income If the barriers to exit the industry are high, the company may be restrained in an unprofitable industry, as demand is constant or declines This can cause excession of production capacity Then, excessive production capacity tends to make deeper than price competition, as companies have seen the price cut is an attempt to get more orders to use their idle capacity The barriers to exit barriers

include:

- Investment in plant and machinery without other use options anlld can not se If the company wants to exit the industry it must leave the book value of these assets

- Fixed costs to exist the industry too highly as pay money to redundant workers

- Economic dependence on the industry, as the company does not diversify and only relies the income in the industry

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1.2.2.2.2 Bargaining power of buyers

Second force in Porter's five forces 1s bargaining power of buyers The buyer of a company may be end-user clients of its products (end users), but they can also be distribution companies of its products to end customers, such as wholesalers and retailers For example, while Unilerver sell soap powder to end consumers, those who buy its products are system of supermarkets and then resell to end users Buyers can be viewed as a competitive threat as they are in a position of requesting a lower price or when they require better service (which can lead to increase Operating costs) The buyers may require the Company or not, depending on their relative power for the company According to Porter, the most powerful buyers in the following cases:

1 - As the supply industry is created by many small companies and buyers are few and large This case allows buyers to overwhelm the providing companies

2 - When the purchaser implement procurement with large volume In that case, the buyer can use procurement power as a leverage of bargaining to discount

3 - When the supply industry depends on the buyer, because a large percentage ot the orders are their

4 - When the buyer can switch between the supply companies with low cost, so it stimulates the companies against each other to lead to reduce price

5 - When the economic characteristics of the buyer is buying from several companies at once

6 - When the buyer can use the threat for the supply sources when they are capable of vertical integration, they use this capability as a tool to lead to reduce

price

1.2.2.2.3 Bargaining power of suppliers

Third force in Porter’s the model of five forces is the bargaining power of suppliers Vendors can be viewed as a threat as they can push to raise prices or reduce the profitability of the company Conversely, if the vendors are weak, this gives an opportunity for the company to push prices down and require high quality

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As for the buyer, the vendor's ability requires the company depending on the relative power between them and the company According to Porter, the suppliers have the most power when:

- Products that the vendors sell fewer, capable of substitute and important for the company

- In the corporate sector 1s not an important customer to the supplier Such situation makes health of providers not depend on the company's industry, and providers have little motivation to discount or increase quality

- The respective products of the suppliers are made different enough to cause costly for the company as changing from this supplier to another supplier In such cases, the company depends on its suppliers and may not stimulate them to compete with each other

- Providers can use the threat of integration backward to the industry and compete directly with the company

- The purchase companies can not use threats of integration backward to the vendors to self-meet their needs as a tool to cause discount

1.2.2.2.4 Threat of new entrants

The fourth force, includes the currently non-competitive companies in the industry but they are able to do it if they want For example, the electricity industry could be potential competitors for telecommunications companies for telephone service and Internet access

Identification of competitors that can enter the industry is an important thing, because they can threaten the market share of existing companies in the industry One of the reasons is to be considered competitors that want to enter the industry as a threat because they will bring into the industry the new production capacities Normally, new entrants are concerned strongly to gain significant market share As a result, the new competitors can push the existing firms in the industry to become more effective and to know to compete with new properties (for example use of a distribution system based on Internet)

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The existing companies in the industry try to prevent potential rivals from entering the industry Therefore, the risk of entry of potential competitors presents a threat for the profitability of the operating companies Conversely, if the low entry risk, modern companies take advantage of this opportunity to raise prices and get higher income

When the competitors want to enter the industry they will encounter barriers The barriers to entry are factors that make it difficult and costly for competitors when they want to enter the industry, and even when they can enter, they will be placed at a disadvantageous position The higher cost for joining the industry of the new entrants, the higher the barriers to entry The high entry barriers will keep potential competitors outside even as the high income of the industry In the classic work on the barriers to entry of economist Joe Bain, he identified three sources of the barriers to entry as: brand loyalty; absolute cost advantages, and economies of scale In addition to the factors of Bain, we can add two important barriers which are worthy of consideration in many cases they are: conversion costs, government regulations and retaliation

Brand loyalty

Brand loyalty shows only the belove of buyer for the products of the modern companies Each company can generate brand loyalty by continuous advertisement of brand and name of the company, and protection of the copyrights of the products, product innovation through R & D programs, emphasis on product quality, after sale service Brand loyalty will make difficult for newcomers who want to occupy market share of existing companies Therefore, it reduces the threat of entry of potential competitors The competitors who are willing to enter shall must see that the mission to dispel the preference has been formed in customers as very difficult and expensive

Absolute cost advantage

The modern companies can have the absolute advantage on costs compared to the people enter The advantages of such absolute cost are born from:

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- Ability of excellent manufacturing operation by past experience

- Ability of control of special inputs for manufacture such as labor, materials, equipment, and management skills

- Access of cheaper capital sources because modern companies bear lower risk than the companies that have not been established

If the current companies have absolute cost advantage, the threat from the entry people declines

Economies of scale

Economies of scale are efficient margin improvement due to the business ac:cumulates the experience when its size increases Source of creation of economies of scale includes lowering if costs by mass production or large quantity of standardized products, discount when purchasing large quantities of materials and details, advantages obtained by the distribution of fixed costs for large volume of production, and economies of scale in advertising

When the cost advantages in the industry is significant the penetrators are forced to enter with the small scale and taking away the advantage of cost, or must accept the risk to enter at a large scale and taking large capital expenditures And more risks can come up with penetrators with large-scale, that is when the supply of products increases will lead to reduce the price, that causes violent retaliation of the current companies Thus, when the existing companies has been the economics of scale, threat of penetration will be reduced

Conversion cost

Conversion cost is the cost of conversion which occurs one time when the customer wants to switch his purchases to other suppliers The conversion cost can be related to the procurement cost of auxiliary equipment, staff training costs, even waiste of spirit as a relationship must be ended

If high conversion cost is high, customers like being restrained into the company's current products, even if the product of newcomers is better For example, we consider the situation that consumers want to change from this

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Operating system to another operating system If a personal uses related software applications (like Word), spreadsheets, games .) and the document files, 1f they want to switch to other operating systems like Apple's Macintosh OS will be more expensive The reason is simple, if changing, they will have to buy a new software application, because the Windows applications does not run on Macintosh operating system Moreover, they will also spend time and significant effort to convert the files how to use along with applications written for Macintosh OS Such costs of time and money make most people not want to change unless the change promises a surge in performance (and it 1s believed that Macintosh is not the case) On this point shows that high conversion costs are high barriers to those who want to join the operating system market for personal computers and competition and the operating system has been closed on the market

Provisions of the Government

Historically, the government’s regulations have created a major barrier in many industries Through the issuance of permits or special requirements, the government can control the entry into an industry For example, the provisions on trade in pharmaceuticals, bank The government also usually restrict to enter for the public industries, because requirement to provide quality services to people and necessary capital requirements to do It

Retaliation

The enterprises as entering an industry, need to anticipate the response actions of the businesses in the industry Estimation of speed and intensity of the retaliation of existing competitors will be able to deter the rivals who want to penetrate in the industry

Thus, the gap direction of the market that the existing competitors don’t serve, the competition is how to new competitors overcome barriers to engage, crept into the industry In general, small businesses are appropriate for identifying and serving the segments made of neglect, when Honda was first to penetrate the U.S market, it focused on Harley - Davidson By directing to the open market, Honda avoided

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competition After consolidating its position, Honda used its power to attack on the rival by offering larger and competive motorcycles in the broader market

1.2.2.2.5 Threat of new substitute products

The last force in Porter's model is that the threat from substitute products The substitutes are products of the industries that serve the same customer needs as for industry 1s analyzing For example, the companies in the coffee industry directly compete with companies in the tea industry and beverage industry All these industries serve the drinking needs of customers The price which the coffee industry companies provide can be limited by the coverage of substitute products such as tea and soft drinks If coffee prices are too high in relative relation to the tea and beverage then drinkers will move from coffee to substitute products This phenomenon occured when unusually cold weather destroyed many coffee plantations in Brazil in 1975 - 1976 Coffee prices rose highly record, reflecting a shortage, and coffee drinkers began to move to drink tea with a large number

The existence of close substitutes represents a competitive threat, limiting the ability to set high prices and thus limit its profitability However, if the company's products have less close substitutes (that is, the case of weak competitive substitute products) and the other factors are normal, the company will have the opportunity to raise prices and receive additional profit As a result, its strategy will be designed to

gain competitive advantage from this fact

1.2.2.3 External factor evaluation matrix

External factor evaluation matrix allows the strategies to summarize and evaluate economic, social, cultural, demographic, geographic .1information, There are five steps in developing an external factor evaluation matrix

1 Make a list of factors which have decisive role for the success as identified during inspection process of the external factors, including the total number from 10 to 20 factors, including the opportunities and the threats affecting the company and the company's business

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| Clasify importance from 0.0 (not important) to 1.0 (very important) for each factor This classification shows the relevant importance of that factor for the success in the business of the company The opportunities often have higher classification level than threat, though the threat may also receive the higher classification level if it is particularly serious or threatening Appropriate level of classification can be determined by comparing the successful competitors with the unsuccessful competitors or by discussing about this factor and achieving consensus among the group Total classification levels are assigned to these factors must be equal to 1.0

3 Classify from | to 4 for each determinant factor of the success to show how the current strategies response to these factors, of which 4 is a good response, 3 is reaction over the average, 2 is the average response and a less reactive These levels are based on the effectiveness of the company strategy So, such classification is based on the company, in which the classification in step 2 is based on the industry

4 Multilpy importance of each variable with its type to determine the importance score

5 Sum total important scores of for each variable to determine the total number of important points for the organization

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1.2.2.4 Competitive Profile Matrix 1.2.3 Internal evaluation

The internal environmental factors of the business includes all factors about the internal system of the enterprise Enterprises need a thorough analysis of those internal factors, taking measures to identify strengths and weaknesses of the business On that basis, the remedy of weaknesses and promoting strengths are overcome to achieve maximum profit The internal factors include major functional areas: production capacity, resources, research and development, technology level, financial capacity,

1.2.3.1 Analysis of production capacity

In a business, production is an indispensable function because it is the starting point of all business and production process Manufacturing is the source of value added, from which providing income for business owners and employees

Production function in production and business operation is the process of changing inputs into goods and services For most industries, the production cost is mainly to produce goods and services accounting for a large proportion Therefore, the production function is generally considered competitive weapon in_ the company's strategy The main decisions related to production strategies are:

- Decision on production processes such as technology selection and arrangement of working conditions, equipment positioning, balance of the production line, sort of transport system

- Decision on raising production capacity, as determining level of output, operation productivity of machinery, equipment, layout of production shift

- Decision on the quality of products, such as technical parameters need to check, quality control methods

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Or some enterprises carry Out improvement of machinery and equipment, strengthening of research and development to offer the products with different f2atures to satisfy customer needs Although according to this way the business must spend huge expense, but thanks to the distinctiveness of the product consumers are willing to pay high prices for products So, the enterprise retains its rosition in the market

To be able to brign effectiveness in the production, enterprises need to make a rroduction planning process clearly and production management in the most logical way Enterprises need to identify: what should be produced? With how much cuantity? where is consumption? And when producing? So, enterprises must establish plans to direct production, inventory plans and supply of raw materials for froduction and inventory plans and supply of products

1.2.3.2 Analysis of the technological level

In investment activities, investment in research and development often brings very large result However, research and development also involves huge risks, cnly about 12-20% of projects based on real research and development which trings profitable However, many companies still create strong advantage on research and development

Research and development activities can be divided into three categories: novation, study of product to create entirely new products before competitors; continuous innovation research of product to improve quality or complete the ciaracteristics of existing products; Third is to study innovation of technologies to inprove production process to reduce costs or improve quality

Product innovation requires most skills, the company must be able to conduct peliminary study, using research results to choose the products that can bring the highest success and put into practice by the project To obtain the skills, it needs to fave great cost, only the leading companies in an industry is capable of continuous novation and only they also bear the risks

Program

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Product innovation is often less risky, the company does not must offer a completely new product, which improve the existing products Product iNprovement pose lower requirements below than the company

Engine technology innovation different from the motivation of innovation and product improvement While innovation and product innovation for expansion of tie market is primary target, the technological innovation is aimed at reducing costs cr improving product quality Technological innovation does not always require tasic technical and scientific research, but it needs the skills to exploit the new slentific achievements

1.2.3.3 Analysis of financial capacity for innovation and development

Financial analysis allows enterprise to determine the strengths and weaknesses in the financial operations of the business Identification of the causes and offerring cf solutions to solve that problem Enterprise can only survive and bring wealth to tne owner if it is well managed financially Thus, at any scale, large or small the fnancial management is also focused by the business Financial management activities do not exist independently, but it is related to other functions of business sich as manufacturing, marketing and administrative personnel to perform business tasks of the business When analyzing corporate finance should perform the following steps: Selection of criteria for the analysis and determination of those indicators; compared with the targets in the past, the average targets of the industry, vith the indicators of competition

First, the firm carry out analyzing finance through financial reports including talance sheet, business result reports, financial statements By doing so, providing general information on the potential use of capital, labor, technology and it aiswers to the problems related to the in and out money flow in the business, 1ivestment funding situation by the currency of the business in a certain period

Second, analysis through four basic criteria: Indicators of liquidity such as cuick liquidity, current liquidity, net working capital Target group of the financial sructure such as debt ratio, coefficient of asset structure, capital structure

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coefficient Next 1s the target group of the operational capacity including the targets: iiventory turnover, working capital turnover, use productivity of fixed assets, efficiency of total assets and average collection period Finally, the group of profit targets such as the coefficient of profitability of assets, sales profit ratio and profit factor of equity

In short, a company with strong financial strength and competitiveness of the company will be high and the company will enhance its position and image of the company in the market

1.2.3.4 Analysis of management ability

“he enterprise will have to maintain the following factors at the highest level - Organizational structure, reputation and appearane of the business

- Score of the business to achieve goals

- Organization of information communication system -Control system of general organization

- Atmosphere on organizational routines

-Capacity, level of interest and the highest leadership level -System of strategic planning

1.2.3.5 Internal factor evaluation matrix

Forming tool of this strategy summarizes and reviews the strengths and veaknesses of the functional business departments and it also provides the basis to identify and assess the relationship between these components To develop IFE natrix, then reviewe of axis is necessary, so on form side of the scientific method nust be immune science to show that this is most effective skill Similar to EFE natrix described above, IFE matrix can be developed in five steps

1 List the critical success factors as identified in the specific internal control pocess Using all from 10 to 20 internal factors, including the strengths and veaknesses

2 Assign the importance by sorting from 0.0 (not important) to 1.0 (very inportant) for each factor The importance assigned to each certain factor shows the

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relative importance of that element to the success of the companies in the industry Not including key factor that 1s internal strength or weakness, the factors are considered the greatest influence on the performance of the organization must considered the most importance Total number of classification levels assigned to these factors must be equal to 1.0

3 Classification from | to 4 for determinant factor of success to show how the current strategy of the company has weak response to these factors, of which 4 1s a good response, 3 Is response over average, 2 1s average response and | Is less response These levels are based on the effectiveness of the company strategy Hence, such classification is based on the company, in which the classification in step 2 is based on the industry

4 Multiply each of the importance of each factor with its type to determine general important scores for each variable

5 Sum a total score of importance for each variable to determine the total number of important score for the organization

No matter how many elements IFE matrix have, the total attractiveness score that an organization can have as 4, the| lowest is 1 Total attractiveness socre with the average is 2.5 optical Total attractiveness score is 2.5, the total attractiveness score lower than 25 showing the company is weak total attractiveness point showing the company Is strong on internal

1.3 Tools used in business strategy 1.3.1 TOWS matrix

Matrix of threats - opportunities - weaknesses - strengths as an importantly combined tool that can helps managers develop four types of following strategies: the strategy of strengths - opportunities (SO) , strategy of strengths - weaknesses (WO), strategy of strengths - threats (ST), and strategy of weaknesses - threats (WT) The combination of internally and externally important factors is the most difficult task of developing a SWOT matrix, it requires a good prediction, and will not have the best combination

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SO strategies use internal strengthsof the company to take advantage of external opportunities All managers want their organizations to be in a position where the internal strengths can be used to take advantage of trends and events of the external environment Normally, organizations pursue WO, ST or WT strategies so that the organizations can be in the position where they can apply SO strategies When a company has major weaknesses, it will try to overcome, making them into strengths When an organization to confront the important threats it will find to avoid them to be able to focus on opportunities

WO strategies aim at improving internal weaknesses by taking advantage of external opportunities External pportunities are sometimes existing but the company has the internal weaknesses which prevent it from exploiting such opportunities

ST strategies use a firm's strengths to avoid or reduce the impact of external threats This does not mean strong organization always must meet the threats from the external environment

WT strategies are defensive tactics to reduce internal weaknesses and avoid the external threats An organization confronts with a numerous external threats and internal weaknesses can fall into the state which is not safe at all In fact, one such company always must struggle to survive, connect, limit expenditure, declare bankruptcy or must bear insolvent Diagram of TOWS matrix s Strengths - S Weaknesses - W

List out the strengths List the out weaknesses P Opportunities - O SO strategies WO strategies

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Threats - T | ST Strategies | WT Strategies | | List out threats Use strengths to avoid threats | Minimize the weaknesses and _ avoid threats 1.3.2 Strategic position and action evaluation matrix (SPACE) Matrix SPACE FS +6 +5 Conservative Aggressive +4 +3 +2 +1 CA 6 -5 4 -3 -2 -10 +1 +2 +3 +4 +5 +6 IS Defensive -5 Competitive

Strategic position and action evaluation matrix (SPACE), other combined tool in phase 2, is described as the above chart One corner of this chart shows competitive, aggressive, defensive or competitive strategy 1s most appropriate for a certain organization The axes of the SPACE Matrix represent the internal aspect of the organization (financial strength FS and competitive advantage CA) and two extemal aspects (environmental stability ES and industry strength IS) These four factors are important determinants for overall strategic position of the organization

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Depending on the type of organization, there are many variables that may lie in the representing factors for the axis of the SPACE matrix

Here are the steps to develop a SPACE Matrix:

| Select a group of variables with financial strength (FS), competitive advantage (CA), environmental stability (ES) and industry strength (IS)

2 Assign a numerical value from +1 (worst) to +6 (best) for each variable of the FS and IS aspects Assign a numerical value from -1 (best) to -6 (worst) for each variable of ES and CA aspects

3 Calculate the average score for FS, IS, ES and CA by summing the values assigned to the variables in each aspect and then divide them to the the variables of respective aspects

4 Mark the average score of the FS, IS, ES, and CA on the appropriate axis of the matrix SPACE

5 Sum up 2 scores of the x-axis and mark the result on the X axis Sum up 2 scores of the Y-axis and mark the result on the Y Mark the intersection of two new points on this xy axis

6 Draw vector with direction from the original point of the SPACE matrix through the new intersection This vector presents type of strategy for the organization: aggressive, competitive, defensive or conservative

1.3.3 Consulting group matrix (BCG)

The self-governing units (or profit centers) of an organization forms which called business investment portfolio.Khi parts of the organization compete in various industries, a separate strategy often must be developed for a business operation Consulting group Boston Matrix (BCG) and internal and external factor (IE) have been established especially to encourage companies with parts to form of the strategies

BCG matrix describes graphically by the different images between the parts in terms of market share position and growth of the industry BCG matrix allows an organization with management parts of ‘business investment portfolio ' by

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researching the market share and growth of the industry of every part compared to other parts in the organziation Relative market share level is the ratio between the share of a part in a particular sector with market share of the biggest competing firm in the that industry Relative market share level lies on the x axis of the BCG matrix Midpoint of the X axis is located at position of 0.50 where represents the part accounting for half of the market share of a company which is leading in the industry Y axis represents the growth rate of sales in the industry, measured by the ratio % % Growth rate on the Y axis is divided from -20% to +20%, with 0.0 as the midpoint Dividing level by the number on these axes of X and Y are often used, but the numerical values may also be appropriately useed for the special organizations

Figure 3 is an example of the BCG matrix Each circle represents a separate department The size of each circle 1s equivalent to the income of that business unit, and rounded corners show that the profits of that unit

BCG Matrix

RELATIVE MARKET SHARE POSITION

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The departments are located in the corner | of BCG Matrix called Question marks, at the corner II as Stars, located at corner II] as Cash Cows and finally located at the corner IV as Dogs

- Question Marks - The parts lie on the corner I have a relatively low level of market share but competition in the industry has high growth rates

- Stars - Parts lie in the corner II represent the best and long-term Opportunities for growth and profitability of the organization

- Cash Cows - Parts of the corner III have the relatively high market share but competition in the industry has low growth

- Dogs - Parts lie at the corner IV of the organization have a relatively low level of market share and competition in the industry has low growth or no market The biggest benefit of BCG matrix is that it attracts attention to the issue of cash flow, investment characteristics and needs of many different parts of the crganization Parts of many companies develop sequentially over time: dogs tecome question marks; question marks into stars; stars become cash cows and cogs and cash cows become so and keep moving counterclockwise of the clock In some organizations, there is no apparent movement in a circle like that Over time tie organization must make every effort to achieve the investment portfolio consisting of parts of stars

1.3.4 Quantitative strategic planning matrix (QSPM)

In addition to the classification of strategies to establish the priority list,

according to document there is only an analysis technique set to determine the relative attractiveness of feasible strategies which can be replaced This technique is cuantitative strategic planning matrix (QSPM), it is the third phase of the analytical tamework of strategic establishment This technique will show objectively which aternative strategy 1s best QSPM matrix uses the inputs through the analysis of sage | and the combination results of the analysis in Phase 2 to determine the cbjective of which the strategies can be replaced le the EFE matrix, the competitive profile matrix and IFE matrix of phase 1 with the TOWS Matrix, SPACE Matrix

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