(5 Rioo | Goal Avance Taser y Business Administ on UNIVERSITY 5 CAPSTONE PROJECT REPORT COMPLETION OF BUSINESS STRATEGY MILITARY COMMERCAIL JOINT STOCK BANK PERIOD: 2010 — 2015 VU VAN PHUC LE THIET HUNG NGO XUAN HUNG PHAM XUAN KIEM
PHAM TRONG HUNG
CLASS : GAMBA01.M01
Trang 2COMMENTS OF THE COMPANY ARE SELECTED RESEARCH
Prcject "perfect the business strategy Military Commercial Joint Stock Bank forthe period 2010 - 2015" by the team - the program Master of Business Administration International University class of GGMBA0O1.MO1 Griggs - United States is heading Research done seriously, research has met the folowing requirements:
- Interms of academic links and the use of more knowledge, principles and models of different theories of management to solve the practical problems of the enterprise;
- In terms of practical, research has made a profound analysis, close the reality of the business and bravely raised more detailed, strategic solutions, value to the enterprise may consider pressure used in our business
Wished the team success!
Military Commercial Joint Stock Bank
Trang 3NHAN XPT CUA DOANH \GHIEP DUOC LUA CHON NGHIEN CU
Đề tài “Hoàn thién chién lwoc kinh doanh Ngan hang TMCP Quan dội giai đoạn 2010 — 2015” do nhom nghien cuu — thuoe chuong trinh Thac si quan trị kinh doanh Quoc te lớp GaMB.XOT MOT cua Đại học Gripges - Hoa Kỹ được nhóm nghiền cứu thực hiện một cách nghiệm túc bài nghiền cứu đã đáp ứng được các yếu cầu sau:
- Vẻ mặt học thuật đã liên kết và sử dụng nhiều kiến thức nguyên lý mô
hình lý thuyết khác nhau của Quản trị đê giải quyết những vẫn đề thực te cua doanh nghiệp:
- — Về mặt thực tiền bai nghiên cứu đã có nhừng phân tích sâu sac sat thuc trang cua doanh nghiệp và mạnh dạn đưa ra nhiều ý kiến, giải pháp có tính chiến lược có giá trị đê doanh nghiệp có thê xem xét áp dụng vào hoạt động kinh doanh của mình
Chúc nhóm nghiên cứu thành công!
NGAN HANG TMCP QUAN DO!
Trang 4INDEX CONTENT Page INDEX 2 LIST OF DIAGRAM, GRAPH AND TABLE 5 Abbreviate List 6 INTRODUCTION 7 1 Why Choose Theme 7 2 Objectives of research 8 3 Objects and scope of research 8 4 Research Methodology 8 5 Expected Results 9 6 Layout of topics 9 7 Assign tasks to team members 9 CHAPTER I
THEORETICAL ISSUES ON STRATEGIC MANAGEMENT 10
1.1 An overview of strategic management 13
1.1.1 Defined strategic management 13
1.1.2 The school of strategic management 16
1.1.3 Process of strategy management 19 1.2 Strategic commitments 20 1.2.1 Vision 20 1.2.2 Mission 21 1.2.3 Core values 22 1.3 Analysis strategy 23
1.3.1 Macro environmental analysis: model PEST 23 1.3.1.1 The technical analysis of external environment 23
1.3.1.2 PEST Model 25
1.3.2 Industry Environment Analysis: Five forces Model 28
1.3.3 Analysis of Internal Environment: 33
Trang 5
1.3.3.1 Based on the value chain: 33
1.3.3.2 Define Strengths, Weaknesses, Threats and Opportunities : 35
1.3.4 General SWOT analysis Matrix 36
1.4 Select and set up a business strategy 39
1.4.1 Lowest cost strategy 39
1.4.2 Strategic differences chemical products (different chemical products) 41 1.4.3 Market-segmented strategy — _ 42 1.5 Deployment & Review 43 1.5.1 Structure 43 1.5.2 Control System 44 1.5.3 Develop implementation roadmap 45 CHAPTERR II
BUSINESS STRATEGY SITUATION OF MILITARY BANK OVER THE YEARS
2.1 Overall introduction about Military Bank (MB) 46 2.2 Analyse and evaluate current business strategy 47 2.2.1 Analyze and evaluate current strategies 47 2.2.2 Analyze the impact of the macro environment on business
Trang 6| 2.2.3.5 Inta-industry 77
2.2.4 Current business strategy in MB 81
| 2.2.5 Organizational structure control system is in MB 82 2.2.6 Commenting on business strategy operation of MB 84
CHAPTER II]
SOME SOLUTIONS TO COMPLETE BUSINESS STRATEGY OF
MILILTARY BANK IN THE PERIOD OF 2010-2015 88 3.1 Development orientation of MB 88 3.1.1 SWOT analysis TABLE 88 | 3.1.2 Development orientation of MB 90 3.2 To complete strategic commitments or MB 92 3.2.1 Vision of MB 92 3.2.2 MB Mission 93 3.3 Business Strategy of MB in the period of 2010-2015 93 3.4 Strategic solutions of MB 94 3.4.1 Technology solutions 94 3.4.2 Solutions for human resources 95 3.4.3 Financial solutions 99 3.4.4 Marketing solutions 101
3.4.5 Conditions to realize sollutions 102
Trang 7LIST OF DIAGRAM, GRAPH AND TABLE Content Page
Diagram 1.1 _: Strategic management process 20
Graph 1.2 : PEST Model 25
Graph 1.3 : five forces by M Poter 28
Graph 1.3: SWOT model 36
Graph 1.4: SWOT Matrix _ ee 39
| Graph 2.1: GDP growth rate over the years 2
Graph 2.2: Banking market share in 2008 8B —
Graph 2.3 Growth of the capital stock in Commercial Banks in
2007-2008 61
Table 2.1: Charter capital of commercial banks to December 2008 62
Graph 2.4 Business development of MB 63
Table 2.2: Results of business of the MB direct competitors in
2008 64
Graph 2.6.Total assets of commercial banks to the stock in
December 2008 65
Graph 2.7 Credit quality in 2008 by MB 66 Table 2.3 Cent of commercial banks to December 2008 66
Table 2.4 Assessing strengths and core capabilities of the MB
with rivals 70
Table 2.5 Panel reviews the remarkable ability MB 70 Grapth 2.8 Structure customer loans MB to December 31 2008 73
Grapth 2.9 Loans by sectors 74
Grapth 2.10 Graph structure deposits by product 75
Graph 2.11 : MB’s value Chain 78
Graph 1.3 : MB’s SWOT matrix 88
Table 3.1 Some specific objectives to 2015 MB of 92 Table 3.2 Scale of state-owned commercial banks and some
regional 100
Trang 8Abbreviate List NHNN State Bank NHTM Commercial Bank
NPLs Non performing Loans CAR Capital adequacy Ratio
| ROA Retuin on Asel CC |
ROE Return on Equity
WTO Word Trade Organization DNNN State owned Enterprise ACB Asia Commercail Bank
EXM Export - Import Joint stock Bank SCB SaiGon Commercial Bank
Trang 9INTRODUCTION 1 Reasons for selecting the thesis
After 20 years of renovation from the self-sufficient intensive economy to gradually the market economy with the State’s control and many opportunities as well as challenges for the Vietnamese enterprises in general and the commercial joint stock bank system in particular in the current conditions and in the future
Many opportunities are opened for the enterprises: Vietnam is a country which is considered to have a stable politics, sound security, completely renovated legal system all of which are opportunities for attracting and calling for investment, stable business; the enterprises are loosen, self-doing, self-responsible in the situation of economic integration, globalization as a basis for the enterprises to improve the creativity and activity, timely learn the experiences and advancements of the developed economies in the world; the speed of the dizzy development of the technology science is a very favorable condition for young enterprises which have not many experience to obtain the opportunities to ignore the unnecessary periods, immediately access the modern techniques, producing the high quality products
Although there are many opportunities as above, the challenges are not less: Our policies are inadequate, overlapped, inconsistent and often changed; we come to the market economy in the very short time, have a less experience, limited capital as well as the difficulties of the market economy, especially the joint stock banks with the high risks; while the competitiveness becomes more and more fierce, the competitiveness within the bank system happens not only in the domestic banks but also in other financial institutions with diversified and convenient kinds of services; In addition, the foreign banks with many typical advantages have been penetrating more and more strongly into the Vietnamese market, which is a good opportunity for us to learn experiences in management as well as a very risk fro the domestic banks
Trang 10understand and recognize the challenges to suggest the effective solutions in order to change those challenges to the advantages in the competitiveness to help the enterprises to continue operating and developing
The financial crisis and global economic recession from the end of 2007 had a big impact on the field of bank finance all over the world including Vietnam Banks At the same time, this crisis is also an opportunity for us to obtain a more general and more natural view on all risks, opportunities, advantages and disadvantages of our country’s commercial bank system, which urgently require the commercial banks to consider and plan the development strategies
Military commercial joint stock bank is one of big banks in the Vietnamese commercial bank system in scale, organization and human resources However, the results of the current operation are not satisfied and the strategies and policies fail to be clear and persuaded
From the above analysis and the knowledge equipped during 2 years of studying the international program of Master of Business Administration of Griggs University- America; Group 2 of us has 2 members who are managers of 2 banks one of which is the Military Commercial Joint Stock Bank desires to contribute to the stable development of the Military Commercial Joint Stock Bank in some part and we decide to choose the thesis "Completion of the business strategies of Military Commercial Joint Stock Bank in the period of 2010 — 2015"
2 Objectives of research:
- Systemize the theoretical issues in the strategy management
- Analyze & evaluate the situation of implementing the strategies in MB during the last time
- Suggest the solutions for completing the strategies of MB in the period of 2010 - 2015
3 Objects & Scope of research:
- Objects: Business strategies of MB
Trang 114 Method of research:
Use the qualitative method, including the following methods:
- Using the methods of studying the available materials (secondary ones) to consider the scale, structure and trend of the market operation
- Studying, investigating and surveying to collect the secondary data by the qualitative method
5 Expected results:
This thesis helps the leader of the bank to evaluate situation of the direction, business plan of the enterprise to build the business strategy in the period of 2010 — 2015 in order to improve the competitiveness capacity and value of the owner
The limitation of the thesis is that it fails to have the qualitative secondary data of the research group as well as fails to expand the scale of the study outside the Vietnam market
6 Structure of the thesis:
In addition to the introduction and conclusion, the main contents of the thesis include 3 chapters:
- Chapter 1 : Theoretical issues on strategic management
- Chapter 2: Analysis of the situation of operation of the business strategy in MB - Chapter 3: Solutions and recommendations on the management of the business
strategies in MB
7 Assignment of tasks for the members of the group:
With the above contents & structure of the thesis, our group 2 agrees to assign the
Trang 12CHAPTER I
THEORETICAL ISSUES ON STRATEGIC MANAGEMENT
The establishment and development of the Bank are associated with the formation and development of the commodity economy To develop the commodity economy, it 1s required to establish an immediate financial organization with the function to provide capital for the economy and at that time, the appearance of the bank is a prerequisite for the function of receiving, giving and lending
The first bank appeared over 2000 years ago It included persons who exchanged money, often sit in the deck or the small shop in the trade center helping the tourists coming to the city to exchange from the foreign currency to domestic one and discount the commercial bill to gain the capital for business for the merchant
In the initial period, the banks used their own capital for loan but this activity did not lengthen because the economy demanded a big capital and associated with the fact that there was the exceeding cash redundancy because the sender and borrower did not carry out at the same time Therefore, the bank owners used the idle cash for lending
Today, the bank is a kind of business organizations, which plays an important role in the economy, helping the government to implement the macro economic policies supplied by the bank to bring the big benefits to the individuals and the whole society in business, payment and consumption
Therefore, it can be understood that the commercial bank is a currency business organization with the main contents:
Receiving the deposit and pay instead of the customers Implement the lending on basis of the redundant capital
However, until now, there is no still a common definition of the commercial bank to satisfy the demand of the scholars, managers and suitable for the actual operation of the commercial bank
Trang 13According to Peter Rose in the commercial bank management book “The bank is a kind of the financial institution to supply one profile of the most diversified financial services — especially credit, savings and payment services — and implement many financial functions compared with any business organizations in the economy”
According to the Law on the credit organizations 1997 of the Socialist Republic of Vietnam, the commercial bank is understood as follows: “The credit institution is an enterprise established by the regulations of this law and others to operate the currency business do the bank services with the contents of receiving the deposit and using that deposit to supply the credit and payment services”
“The bank is a kind of the credit institution which is entitled to do all the bank activities and other relevant business ones According to the features and objectives of the operation, the kinds of the bank include the commercial bank, development bank, investment bank, policy bank, cooperation bank and others”
In this thesis, the commercial bank is an enterprise, which supplies the most diversified financial service profile, especially receiving and sending the savings, payments and loan
Main business activity of the commercial bank Capital mobilization:
Naturally, the capital mobilization of the commercial bank is that the commercial bank receives the deposit from the organizations, individuals, issues the
other debt instruments such as notes, bonds, and valuable documents according to
the regulations of the law The capital mobilization of the commercial bank is done in the way that the commercial bank shall borrow the capital in the inter-bank market or borrow from the State bank under the form of refinance
Trang 14temporarily use for business Lending and investment
In the first period, the bank discounts the commercial bill, which is actually lending activity for the seller (the seller transfers the receivables for the bank to get money in advance) Then, the next step is to change from the discount of the commercial bill to the direct lending for the customers (buyer) to buy the stocks to expand the business
In the first period, the consumption lending is considered to have a high risk and the banks do not lend actively In the course of time, the income increase of the consumers and the higher competitiveness in the lending enforce the banks to pay attention on the consumers as potential ones After the Second World War, the individual credit became the most increasing credit form in the developed countries
In addition to the short term traditional lending, the banks expand more and more in the sponsorship of building the workshops, investment projects, research and development This form of lending is high in the credit risk but big in profits Today, the housing credit is widely lended by the bank, considered as an important sector in the lending policy of the bank
Other service provision activities
- Account opening and payment: When the customers have the deposit in the bank, the bank will open an account for the customers In addition to protecting the assets for the customers, the bank also implements the payment order for its customers The payment mode without cash is initiated from the payment through tre bank The features of this mode are safe, rapid, accurate, cost-saving contributing to shorten time of business and increase the income of the customers This encourages the customers to send their money to the bank for payment
Trang 15- Budget management: This is a field of business of the bank from the beginning period The bank implements to provide the customers with the budget management service and temporarily invest the cash surplus in the profited securities and short-term credit, overnight lending in the inter-bank market until the customers need cash for paying
Apart from the above financial service business, the bank nowadays expands
its business fields to others such as securities, insurance, real estates, gold,
In summary, the Commercial Bank is a financial enterprise trading in a special commodity as money However, the management activity of the commercial bank is still based on the common theories of management of the enterprises Therefore, in order to review, evaluate the business strategies of the Military Commercial Joint Stock Bank in particular and the commercial banks in general, it must be based on the study of the common theories of the strategy
management
1.1 Overview of the strategy management 1.1.1 Definition of the strategy management
The concept of the strategy appeared from the ancient Egypt period This term is originated from the military “strategos” which means the role of the leader in military Then, it became “Art of the leaders”- indicating the skills of behavior and psychology of the leaders About the 330" year Before Christ, i.e Alexander’s strategies mean the management skills to exploit the human resources to win and build the whole domination system
Trang 16sometimes creates the conditions for them to improve the strength and skills as the causes of the competitiveness The value of the capacities creates the distinct and the competitive advantages for the organization to reduce time due to the environment change
However, the business world is not simple
In 1980, Quinn defined: “The strategy is the suitable model or plan for the basic objectives, policies and the action chains of the organization in the close structure’
Recently, Johnson and Schole defined: “The strategy is the direction and scope of one organization in the long-term to gain the advantage of the organization through the human resource structure in the changing environment to meet the demand of the market and satisfy the expectation of the relevant parties”
It can be seen that the definitions are divided into many parts It proves that one accurate strategy definition is very complex Therefore, it must have the multi- section definitions to understand the strategy more clearly Mintzberg summarizes
the multi-section definition in the definition with 5 P:
Plan: A chain of actions as expected
Pattern: Consistence of the action by time, intention and non-intention Position: Suitability between the organization and its environment Perspective: A deep method to take awareness of the world - Ploy: A specific method to win the partner
The strategy can be understood as the direction and scope of one organization in the long-term: the strategy will bring the advantages for the organization through the optimal arrangement of the human resources in one competitive environment to meet the market demand and expectation of the capital contributors
Trang 17* A place in which the enterprise tries to go in the long-term (direction) * The enterprise must compete in the enterprise and kinds of the activity of the enterprise in that enterprise (market, scope)?
* How can the enterprise do better in comparison with the competitive partners in these markets (advantages)?
* Which kinds of human resources (skills, assets, finance, relations, technical capacity, and equipment) are needed to compete (resources)?
* Which kinds of factors of the external environment affect the competitiveness of the enterprise (environment)?
* Which kinds of values and expectations are needed for the leaders inside and outside enterprise (capital contributors)?
How to manage strategies? — Strategic management
According to the widest meaning, strategic management is a process of realizing “strategic decisions” — these are decisions, which can answer the above questions In fact, the complete process of strategic management consists of 3 phases described in the following chart:
Strategic analysis
Strategic analysis is to analyze strengths, position of an enterprise, and to understand important external factors which could have influence on that position The process of strategic analysis can be supported by some tools including:
PEST analysis — techniques to understand the macro-environment in which an enterprise operates
Planning with multi-choices — techniques to build up many different prospects which may happen to the enterprise in the future
Analysis of the 5 forces model — techniques to define forces which can influence the level of competition within an industry
Trang 18Competitor analysis - a serles of techniques and analysis to define general competitive position of an enterprise
Analysis of key success factor — techniques to define segments in which an enterprise has to improve in order to compete successfully
SWOT analysis — a concise and useful technique to summarize key issues arising from evaluating impact of internal and external environments on the enterprise
This process is involved in understanding thoroughly nature of fund raisers’ expectations (“basic principle”) to define strategic options, then to evaluate and select strategic options
Strategy implementation
This is often the most difficult phase Once strategy is analyzed and selected, the next task is to put it into action
To recap, it is possible to define that Strategic management is “A series of integrated activities with the aim of mobilizing resources which an organization may have in order to reach a certain objective”
1.1.2 Schools of Strategic management
Initial stage (1960-70): immanent development
- Theory Basis:
Trang 19- Relationship between strategy and structure + Content:
- Evaluating internal distinct abilities (strengths and weaknesses) - Evaluating external key factors (opportunities and threats) - Key success factors, strategies and distinct abilities
-> Evaluating and select the best strategy -> Deploying strategy implementation School of planning
+ Setting goals
+ Evaluating external environment + Evaluating internal environment + Evaluating strategies + Concretizing strategies + Planning for the whole process - Tools + SWOT +BCG + Mc Kinsey - Business environment
+ Mass production and mass marketing
+ Some industries were saturated and declining while the U.S economy was stable and growing
+ New technologies, new global competition and consumers’ attitude -> Environmental changes forced enterprises to change their strategies
-> Because of little changes, schools of design and planning were enough to build up strategies
-> Big companies accept Multicomponent structure, and strongly diversify, develop and widely use techniques in portfolio analysis, for example, BCG matrix
Trang 20- Theory
+ Much of the theory is borrowed from Economics, especially, from economics branch of industrial organization
+ The Five forces model
+ Main opportunities to win competitive advantages are positioning and differentiation within the same industry
+ General strategies: -> Cost-leadership strategy -> Differentiation
-> Concentration
- School of positioning initiated by Porter
+ Main strategy could be used in a certain industry
+ Making reasonable general strategies accord with environment conditions - Tools
+ The five forces model + General strategies + Value chain
- Environment (-> Raising strategic management position) + The U.S traditional market is dominated by Japanese companies
+ New inventions in technology (especially, in electronics, biotechnology, Internet) -> These changes occur beyond industrial level
-> Globalization and economic freedom have brought about so many problems that strategic planning could not bring into play its effect
Today’s Development: Resources - Modern theories
+ Deriving from transaction cost theory and representative theory + Viewpoint is based on resources which answered the basic questions
-> Why do companies differ and how to create and maintain competitive advantage
Trang 21+ Study school
-> “Who really create the strategy and how is the strategy formed in organization How is it able to be considered and calculated?
+ Culture school
-> Strategy is like a collective process
-> Establishing the style of making strategic decision is the process of social and organizationally cultural interaction and motivates the reaction of changing strategy - Environment
+ More and more complex because:
-> The process of globalization and free economy is happening more and more -> Technology progresses develop at a high rate day by day
+ Many approaches -> The matter of strategy can be seen in many aspects
-> Aspect of study with core competence thinking helps companies focus more on core business activities and increases process of taking advantage of foreign resource
-> The study of transaction cost -> take advantage of foreign resource
-> Many international mergers highlight the concept of cultural conflict of culture school
1.1.3 Process of strategy management
The process of strategy management that companies should set out to achieve
includes:
Making decision
Trang 22- Sustainable strategic competitive advantage: is the advantage that company gain while setting a strategy out but competitors, both present competitors and potential competitors don’t have
- Return over average: is profit in excess of what investors expect to gain from other investments with similar risk
Diagram 1.1: Strategic management process Internal 2 Syirtta _ management Oa) cele) Environmen External Environme
Cee eis Company
Sri caeny manaipenie n{ Company Active strafepy competition and monitoring Internatio TD Merge and restructurim Hà
Corporatio Leadership Startinp a n strategy stratepy business and TTA) SID Crea { Resul tof Competitive strate Ste cota Mma | gr return 0ver i 3 Feedback - aaa average 1.2 Strategic commitments 1.2.1 Vision
A good vision is the idea of company image that your company needs to reach It often expresses the dream of the founder or leader of the company A vision should be clear and concise so that everyone in the company understand and trust company to buy shares
Trang 23Vision suggests a direction for the future, a desire for a brand of what it wants to achieve
When referring to a strategic intent, goal, we often visualize it with the picture of the future Vision encompasses the meaning of excellent standard, an ideal It’s the option of one of the most wonderful values of a brand Vision also has unique property, referring to making something special
Vision is a short and thorough message giving direction for long-term operation of a brand Vision has the role like lens converging all power of a brand into a common point Thanks to vision, companies wil! see what a brand should do and should not
1.2.2 Mission
A mission Statement
The mission of a company is a concept to determine goals of that company, the reason why it’s founded and its foundation of existing, developing Company’s mission is the declaration to society; it proves usefulness and existing meanings of the company to society
In fact, the declaration of company’s mission only proves an important problem: “What the goal of company’s business is” The declaration’s content is related to product, customer market, technology and other philosophies that company pursues Therefore, it is the mission declaration that express existing significance of a organization, what they want to become, which customers they want to serve, how they operate
The contents of the Mission Statement
- Customer: Who consumes the products and services of the company?
- Core product or service: What are the main services or products of the company?
- The market: which the market is the company operating?
- Technology: Whether technology is the top-ranking concern of the company or
Trang 24- The concerns about other important things: existence, development, profitability: Is the company bound to other business targets?
- Philosophy: What are the basic trust, value, expectation and prior philosophy of the company?
- Self-assessment: What are the special abilities or major competitive advantages of the company”?
- The concerns about community image: If community image is the major care of the company or not?
- The concern about the staff: How is the company’s treatment with the staff? 1.2.3 The core value
Some definitions about the core value Definition No.1
The core value is what the company considers to unpayable by money or unchangeable The core value may create a background to form company regulations
Definition No.2
- The core value is belief system, which influences behavior between man and man or between human groups;
- The core values are “the soul” of organization; - To be effect values deep into the organization
- The core value takes part in forming organization spirit so that it can support or reject personal spirit
Definition No.3
The core value is the rules instructing indispensably and long: - Orienting an organization’s decisions and actions;
- Not be cultured or particular actions;
- Not be created due to financial targets or opportunities in short-term;
- Organizations will wish to retain core values, even the tasks have already changed
Definition No.4
Trang 25Being essential and long principles of an organization — set of the small instructing rules have a deep influence on the way people in the organization think and act The core value is not concerned in public opinion; it has true value and very great importance with people inside the organization The core value is the very rare instructing rules being able to have a greatly deep influence and being the soul of the organization; it’s the value playing the instructing role in all actions
The core value is very deep, and it is the extremely important value The value has rarely depended on changes of the market On the other hand, usually the organizations might change the market if it’s necessary for maintaining the real core value of the organization
1.3 Analyzing the strategy
1.3.1 Analyzing the macroscopic environment: PEST model 1.3.1.1 The techniques using to analyze the outer environment
The basic techniques are used to analyze the outer environment including: Scanning, Monitoring, Forecasting, and Assessing
a Scanning environment
Scanning environment requires researching totally all factors of the outer environment Through scanning environment, businesses can recognize signs of the latent changes in the environment early and discover clearly the changes happening The hugest challenge in scanning environment is ambiguity, insufficiency, incoherent data and information
Scanning environment is extremely important for businesses to carry out competition in the strongly changing environments Moreover, scanning is to be oriented in accordance with the background of the organization, since a system, which is designed for a changing environment, will not fit for businesses operating in the stable environments
b Monitoring environment
Trang 26discovered To monitor environment successfully, the most important factor is the ability to discover the meanings of the events, as well as, the different changing trends By monitoring the trends, businesses can prepare better for launching new products or services at the appropriate time to have competitive advantages from the opportunities
To monitor effectively, companies need to recognize essential concerned parties Because the different concerned parties have very great importance and can change according to the life cycle of the business, having to pay attention carefully to the needs of the businesses and the concerned parties Scanning and monitoring are particularly important while the industry is changing in technology quickly and unforeseeably In addition, scanning and monitoring not only provide information for businesses, but they are also means to identify the new important thing taking place in the market, and the ways to commercialize the technologies that businesses is developing
c Forecasting
While scanning and monitoring pay attention to the events and trends in the environment at a time, forecasting develops the plans of the latent events The appearing way and speed of the events are logical result from the changes and trends discovered through scanning and monitoring For example, analysts can forecast the necessary time for new technology to appear in the market, the length of time for the necessary proceedings to train the changes of the labor structure, the time for the tax policies of the Government having influences on changing the pattern of consumption
d Assessing
Trang 27about businesses in the pile of data is useful but doesn’t understand about what related to the competition
1.3.1.2 PEST Model
While the five-competitive-factor model of M-Porter goes into the details of analyzing the factors in the business environment, PEST model studies impacts of the factors in the macroscopic environment
The factors, including: - Political
- Economics - Sociacultrural - Technological
It’s the four factors having directly influences on industries These are the exterior factors of companies and industries, and industries are influenced by the factors objectively In addition, companies base on those impacts in order to make business policies, activities reasonably
Graph 1.2 : PEST Model
Trang 28- Political forces There are factors that influence all business on the territory, institutional factors, the law can menace to the viability and growth of any sector does When trading on a government units, businesses will be required to comply with the legal institutional factors in the area The basic elements of institutional factors, law, politics: The stabilizing; tax policy; the laws concerned; other policies on trade, competition, integration
- Economic forces: The enterprises should pay attention to economic factors both in the short term, long term, government intervention to the economy Often businesses will be based on economic factors to decide to invest in sectors and regions
+ Factors affecting the economy: Interest rates, inflation,
+ Status of the economy: Any economy which also cycles in a certain phase of the cycle economy, businesses will have appropriate decisions for himself + The economic policies of the government: the Law on basic salary, the economic development strategy of the government, the preferential policies for the industry: Tax breaks, subsidies
+ Vietnam's economic future: growth, increase GDP, Rate of GDP on investment
- The socio-cultural forces: Each national territory have different cultural values and factors of social characteristics, and these factors are characteristics of consumers in that area.\
Cultural values are the values to make a society, can it builds for social existence and development Therefore, cultural factors often protected very large scale and tight, especially the cultural and spiritual
Besides cultural and social features also make the businesses interested in marketing research, social factors will divide the community into customer groups, each group has the characteristics, psychology, collecting Added different
Trang 29+ Lifestyle, educated, opinions about the aesthetic, psychological life + Living Conditions
- Technological forces The world is in its revolutionary technology, a series of new technology was invented and integrated into products and services Especially in the field of information technology, modern communications technology has helped the distance of geography, media downloads
+ Investment by the government and enterprises on R & D work: The combination of business and government to make research of new technologies, new materials will have positive effects on the economy
+ Speed, the cycle of technology, the rate of technological backwardness + The impact of information technology, the internet business
In addition to the basic elements, when the market research, businesses must provide elements of globalization becomes a macro factors affecting the industry
- Element of integration :: Nobody denied globalization is the trend, and this trend does not create opportunities for businesses, countries in the development of production and business
+ Globalization creates competitive pressure, competitors from all regions Integration process will cause businesses to adjust in accordance with comparative advantage., Division of labor in the region and the world + It is important as integration, trade barriers will gradually be removed, businesses have the opportunity to trade with partners in a remote geographical area, customers of this business not only the domestic market where business is business, but also customers from everywhere
P.E.S.T current model has been extended into the matrix P.E.S.L.T (Including Legal factors - the law) and S.T.E.E.P.L.E (Social/Demographic-
Demographic, Technological, Economics, Environmental, Policy, Legal, Ethical-
Trang 301.3.2 Industry Environment Analysis: Five forces Model
Michael E.Porter, a professor from Harvard Business Management University, proposed a framework which helps managers realize opportunities and threats faced by their firms within an industry® The framework developed by Porter is called five forces model, as shown in Figure 2-2 According to Porter, there are five forces which orient competition in the scope of intra-industry, as follows: (1) Threats of potential competitors; (2) Level of competition among existing companies in the industry; (3)Bargaining power of buyers; (4) Bargaining power of sellers; (5) Threats of substitute products or services;
Porter also points out that the stronger these forces are, the more limited the existing companies’ capacity in setting higher prices or making larger profit is Graph 1.3 : five forces by M Poter Potential Entrants a hreat of new Bargaining power j Threat of nei of suppliers entrants Industry B : uyers
Suppliers > Competitors Buy
Rivwiry anny Lxistiny firme Bargaining power of Bareainine powe Buyers Threat of substitute products OF Services Substitutes a Potential competitors:
This force includes companies which are not engaging in the intra-industry competition, but they are totally able to do so if they really want
Trang 31in the industry One of reasons for considering the potential entrants as threats is that they may develop new production capacities Normally, new entrants always have a fierce concern in gaining a huge market share as possible As a result, these new rivals may make the existing companies manage to be more effective and know how to compete with new features
A company is considered having its own competitive advantages when its profits ratio is higher than the average ratio of the whole industry And it has a sustainable competitive advantage when it is able to maintain such a high profit ratio in a long time
The power of competition force by potential rivals is a function with the height of entrance barriers Entrance barriers are the factors which will put difficulties and wastes on new entrants, even when they are capable of engaging in the industry, they will be under unfavorable conditions The higher the cost of industry involvement is, the more entrance barriers are The higher entrance barriers will keep potential competitors outside regardless of the industry’s high profit
Main industry entrance barriers:
Economy of scale: Economy of scale mentions that the cost of a product unit declines when absolute yield of a certain period increases Once cost advantage is considerable in the industry scope, the new entrants must be in the situation, or engage in the industry with a small scale, and miss cost advantage, or accept to take risks to begin with a large scale and higher capital costs
Conversion cost: is a kind of cost which is used only one time when a customer wants to converse his/her purchasing to another supplier
Trang 32market share Therefore, it can serve as an element to reduce entrance threats by potential competitors; the new entrants themselves realize that it is difficult and costly to change the consumers’ already-built preferences
Capital requirement: \t is necessary that a large amount of capital should be invested for the formation of participation barriers Some industries, such as energy, automobile, mining, banking, etc., require an enormous amount of money for the formation of big participation barriers
Access to distribution channels: A participation barrier can be formed as the new market entrant needs to ensure a new product distribution channel Because existing distribution channels are used by existing enterprises, the new competitor must convince these channels to accept their products by means of dumping, advertising support programs and other similar methods
Disadvantage in terms of expenditure being independent of size: existing enterprises have considerable advantages in terms of expenditure over their new potential competitors, regardless of their size and size-driven advantages The most important advantages are: exclusive product technologies, advantageous access to raw material sources, convenient geographic location, government subsidies, and operational experience obtained from the industry
Government policies: The government can restrict or even prohibit participation in some industries with management tools such as licensing, limiting access to raw materials, setting standards of capital, environment, etc
b Competitive rivalry within the industry
The second force in Porter’s five competitive forces model is the degree of rivalry between companies within an industry This is because they are interdependent; actions of a company usually lead to responses from other companies The rivalry becomes more intense when an enterprise is challenged by actions of another or when it is aware of an opportunity to improve its position in the market
Trang 33Therefore, the intensity of rivalry between companies in the industry creates a powerful threat to profitability Generally, degree of rivalry between such companies is a function of three main factors: (1) competitive structure of the industry, (2) demand conditions; (3) a lot of barriers to leaving the industry
Competitive structure: A competitive structure refers to the distribution of the number and size of companies within the industry This structure varies from dispersed to concentrated industries and relates to competition
Demand conditions: Demand conditions of an industry are another decisive factor to the degree of rivalry among existing companies
Barriers to leaving the industry: They are emotional, strategic, and economic factors that can make a company stay in the industry even in case of low income If there are many barriers to moving out of the industry, the company can be stuck in a non-profitable industry when demand neither changes nor declines This can result in excess production capacity, which, then, tends to worsen price competition since companies consider price reduction an attempt to get more orders in order to make use of their idle capacity
c Threat of substitute products:
Substitute products and services are those that can satisfy equivalent demand for products and services provided by an industry Substitute products limit the potential profitability of an industry through imposing a ceiling price at which an enterprise can sell The more attractive prices substitute products have, the higher pressure is put on profits of the enterprise
Primary competitive pressure of substitute products is the ability to meet demand over products provided by the industry, coupled with price, quality and other factors of the environment such as culture, politics, technology which also affect the threat of substitute products
Trang 34Switching costs: It is widely known that open source software like Linux, or Viet Key Linux in Vietnam, is very cheap, even free, but very few people use it as costs of the conversion from the operating system Window and its applications to another operating system are remarkably high and may affect computerized operations and work
d Bargaining power of customers:
Customers fight by pressing prices down, bargaining for better quality or more services and force competitors to compete with each others - all of this reduces profits of the industry Strength of individual important customer groups in the industry is dependent on characteristics of the market and relative importance of the purchase volume from it in their overall business activities
A group of customers will have power when it satisfies the following conditions: Buying a larger quantity of goods than sales of the seller; products purchased from the industry accounts for a large proportion in the total expenditure or total purchase of the customer; products customers buy from the industry either are standardized or have no distinct characteristics Customers have to incur insignificant switching costs only; customers earn low profits; customers make a threat of backward integration; products provided by the industry are not important to the quality of products and services of the customer and the customer has sufficient information
When these factors change over time or due to strategic decisions made by the company, the power of buyers is also changed Selecting groups of customers to serve is considered an important strategic decision
e Bargaining power of suppliers
The fifth force in the model of five forces developed by Porter is the negotiation capacity of the supplier Suppliers can be considered a threat when they can force a company to raise prices or reduce the quality of inputs they provide for it, thereby lowering the profitability of the company Conversely, if the supplier is weak, the company will stand a chance to pressure the supplier to reduce prices and
Trang 35to ask for high quality As for buyers, the ability of suppliers to pressure the company depends on the relative power between them and the company According to Porter, suppliers are most powerful when:
Products that they sell are hard to be substituted and important to the company
The operating field of the company is not a key customer group to the supplier Such a situation make the supplier’s health independent of the operating field of the company, and the supplier does not have much incentive to reduce prices or improve quality
Corresponding products of the supplier are made so differently that they can cause high costs for the company on switching from a supplier to another In those cases, the company is independent of its suppliers and can not stimulate them to compete with each others
The supplier can use the threat of forward integration towards the industry and directly compete with the company
The company can not use the threat of backward integration towards suppliers to meet its own needs as a tool for price decreases
In summary, by studying the five forces of competitive position, enterprises can develop a deep understanding necessary for determining the attractiveness of the industry in terms of the potential of reaping income on investment which is sufficient or superior In general, the stronger the competitive forces are, the smaller profitability enterprises within the industry have An unattractive industry has low participation barriers, strong negotiating positions of suppliers and buyers, strong threat of competition from substitute products and high intensity of rivalry within the industry Such characteristics of the industry will exhibit enormous difficulties for enterprises to implement the creation of value and above-average income
1.3.3 Analysis of Internal Environment:
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The theory of Value Chain Analysis was mentioned by Michael Porter in terms of Competitive Advantage theory
Value chain is a combination of a chain of activities in the process of transferring input resources into output products
Value chain shows that how a product is transferred from a raw material to a product to the final consumer, allows companies to recognize which links are creating value to their product and those are not, is a database for companies to understand their cost affordability; identify possible measures to carry out a business strategy
One operation of any entrepreneur is comprised of 2 main activities: ° Fundamental activities consists of:
Internal Logistics: Activities such as material-processing, warehousing, inventory which are implemented in order to transfer inputs into products
Production: Necessary activity in order to transfer inputs provided by internal logistics to final products, covering production and equipment and production line contribution and maintenance
External Logistics: Activities related to collecting, storing and transferring final products to customers, for instance: final product storage, material processing and order classification
Trang 37campaigns, select suitable distribution channels, recruit, improve and assist their selling force
Services: Activities which are designed to upgrade or maintain the value of a product Companies take part in a series of services activities, including installing, repairing training, replacing and modifying
Each activity should be considered in the correlation with the capacity of competitors Accordingly, each company must evaluate whether their operation is excessive, equivalent or deficient
° Assistance activities include :
Purchasing: necessary activities to buy necessary input materials for the product of one company These materials cover even equipment that are used during the production process (such as: raw materials, fixed assets, machinery, labs facilities, office device, workshop)
Technology developing: necessary activities to improve the value of the product and the production process used There are various means of technology, such as equipment process, basic research and product design, servicing process
Human resources management: activities related to staff recruitment, hiring, training, improvement and payment
The company’s infrastructure: The company’s infrastructure is consisted of activities to support the whole chain value such as general management, planning, financing, accounting, legal assistance, relationship with government agencies Via their own infrastructure, companies try to define effectively opportunities and challenges, resources and capacities and support basic potential strengths
Each activity should be considered in the correlation with the capacity of competitors Accordingly, each company must evaluate whether their operation is excessive, equivalent or deficient
Trang 38SWOT Analysis Graph 1.3: SWOT model SVVOT ANALYSIS Heitpful Harnrnmnful CO? me eer ey Ear su cv A osc em Lo ae eer were the Objern tere -& & — & os 7 + Stremagths Weaknesses Sĩ = =? =rt St =F Set t ' 2 Opportunities Threats eS SE số us ©
SWOT Analysis is one of the most useful skills Thanks to this tool, leaders work more effectively, minimize stress, improve the ability of making decision, and maximize individual efficiency and even more
SWOT Analysis is a very strong analytical technique in defining Strengths and Weaknesses, thereby figure out Opportunities and Threats Applying it in the business context will help you to firmly define the market
SWOT analysis in business
What makes SWOT analysis so strong? To put it simply, it can help you to have a close look at all opportunities that you can take advantage of By understanding your weaknesses in business, you can manage and erase all potential risks yourself
What’s more, by using the criteria of making comparision and SWOT analysis between you and your competitors, you can make a draft of strategy which helps you to differentiate you from your competitors; therefore, you’re your company to compete more effectively in the market
How to use SWOT
To carry out a SWOT analysis, note down and answer these following questions: Diem manh:
Strengths:
Trang 39What you can do better than others?
What is your most particular or cheapest resource?
What are your strengths in the market in other’s point of view?
This issue must be considered from an internal aspect and from the point of view of customers and everyone in the market Be realistic, do not be exaggeratedly creative or assume that you are the creator (of the information about the strengths and weaknesses) Therefore, if you find it difficult, let’s consider as you are writing about your personality, where you can expect to find out more clearly
Let’s think of your competitors when considering Strengths- for example, if all of your competitors offer high-quality products, then the focus on high-quality production is not a strength but it is just a necessity
Weaknesses:
What do you have to improve? What do you have to avoid?
What are seemingly considered Weak by others?
Once again, from the internal and external point of view: Is it true that others seem to recognize Weaknesses that you cannot? Is it true that your competitors are doing better than you? Is this the best time to face reality? Opportunities:
Which are best opportunities to come?
Which is the good trend that you are expecting?
Trang 40An effective approach is to have a look at strengths, then consult if any opportunity can be opened Similarly, let’s have a look at weaknesses, then consult if there is any opportunity made by eliminating these weaknesses
Threats:
e What are your threats?
e What are your competitors doing?
« Is it true that there are some changes in your career or your product/service? * Could a technology change affect your position?
* Are you having bad debts or difficulty in mobile capital? ¢ Could any weakness seriously threat to your work?
¢ Carrying out this analysis means managing to point out which actions are needed and put the issues on your target
Strengths and Weaknesses often come from inside your organization Opportunities and Threats often relate to outside factors Therefore, it is possible to consider SWOT as a very important tool because of its broad control on the organization You can also apply SWOT analysis for even your competitors, so that you can work out an effective method of competition It is said that who is fully aware of himself and his enemy as well will win the game
Note:
Although SWOT analysis is so simple, it plays a crucial part in evaluating Weaknesses as well as analysizing Opportunities and Threats which you have to face It is like an appraisal of capacity both in self-evaluation and inference and external factors beyond your will
Managing to apply it will fetch you one of skills for analysizing and evaluating situations
1.3.4 SWOT matrix
It is not compulsory for one company to chase after the best opportunities, instead of that, it can creat the ability to improve its competitive advantage by studying about the balance between strengths and forthcoming opportunities In