One of the highlighted trends that characterize today's business environment is fiercer and fiercer competition. This brings business organizations a wide array of opportunities and threats that require the design and implementation of strategy or strategic planning in doing business
Chapter 1 Introduction 1.1. General ideas One of the highlighted trends that characterize today's business environment is fiercer and fiercer competition. This brings business organizations a wide array of opportunities and threats that require the design and implementation of strategy or strategic planning in doing business [34]. Thus, strategic management as a concept has evolved over the last three decades and will continue to evolve. Strategic management is carried on in most organizations today - and most organizations that practice it benefit significantly [37]. The ultimate goal of the strategy of a company is the creation and improvement of sustainable competitive advantages to secure the long term future of the company. The process of strategic management will help the managers of the company to get a better understanding of their company with its strengths and weaknesses as well as opportunities and threats, to know where their company is, where it should be, can be, and must be within the competitive environment. Therefore, the question of how a company's superior performance against its competitors can be achieved and sustained must be addressed. Finding out the answers is subject matter of developing a competitive strategy. In the course of economic transformation from a centrally planned to a market-oriented system, Vietnam is emerging as a potential market for both consumer products and industrial products. A lot of foreign and domestic investors are entering into this unsaturated market. As a consequence, all business sectors have to cope with really strong competition raising in business environment - that is the nature of a free-market economy. However, many domestic manufacturers, especially the state-owned ones, have got little experience of how to do business in an atmosphere of competition. Filling this gap is the author's original idea for doing research on competitive strategy in the Vietnamese context. So far, the beer industry has been chosen as an objective of the research because of the typical cutthroat competition which is happening there and will be depicted clearer through the description of the problems faced by Danang Brewery Company at present. Danang Brewery is one of the largest breweries which has dominated solely the beer market in the central region of Vietnam for the last five years. Nowadays, the competition is sharper and sharper, requesting the company to develop differential advantages. Then the priority belongs to developing its own competitive strategy. 1.2. Statement of the problem Keeping pace with Vietnam is fast economic growth rate, the citizen's standard of living is soaring. Accompanying this good fortune is the demand for beer. While beer consumption in Vietnam is then only four to five liters a head each year (statistical figure in 1994), compared to a global average of 15 liters a head or up to 150 liters in Britain, France or Germany, many domestic and foreign investors saw that there was money to be made from it. - 59 - Not only private domestic but also joint-venture breweries have come into being with substantial investment from home and abroad [32]. In addition, the "free-flow" of import beer, both legal and illegal has led to fiercer competition between a myriad of brands. With a tour of the beer distribution and agent network, we can see how the high volume of domestic and import beer are sold. Some more than 60 different brands of bottled and canned beer are sold everyday. They are Tiger from Singapore, Heineken, Amstel and Dab from Holland, San Miguel from the Philippines, Guiness from Ireland, Foster from Australia, Stella Artois from Belgium, BGI and Castel of a Franco-Vietnam joint-venture, Saigon bottled beer and 333 canned beer manufactured by Saigon Brewery, and so on. The flow of investment into new breweries has shown an upward tendency. The recent introduction of bottled and canned beer bearing such brand names as BGI and Castel or Vinagen has created tough competition for a number of domestic breweries and beer joint-ventures. With the starting of Heineken in Ho Chi Minh city at the end of 1994, together with the San Miguel Brewery in Khanh Hoa, Ha Noi and other beer joint-ventures in other provinces which also will start operating, the battle of the breweries is bound to become quite a spectacle of cutthroat competition. As competition among the brewers is getting fiercer and as it is only a question of time until the larger foreign brewers which have been concentrating their efforts on the two main cities Hanoi and Ho Chi Minh will try to enter regional market as well, the Danang Brewery is facing the thorny question of how to develop in this competitive environment. Hence, the problem of designing an effective competitive strategy is becoming more and more essential and crucial. This will form a benchmark for the company's performance in order to meet best the satisfaction of consumers and the company's objective with respect to the constraints of the company and the business environment. 1.3. Objectives of the study This research is designed to understand the situation of the local companies in new business environment of a market-oriented economy that is characterized by fierce competition. Generally, from the result of understanding the process, the objective is to develop a competitive strategy in order to grow strongly taking into account many chances and constraints for a local brewery. This study particularly focuses on the development of a competitive strategy including the following steps: • To assess the current strategic situation of the company in order to develop its competitive profile. • To assess the existing and potential competitors in Vietnamese beer market in general and especially in that of central region of Vietnam. • To help the concerned firm in first developing strategic alternatives, assessing them and then suggesting possible courses of actions in order to achieve desired performance level. - 60 - • To serve in providing information about competitors for the investors who pay their attention to enter beer market in central Vietnam. 1.4. Scope and limitations This research study will be undertaken purely from a viewpoint of strategy with the aim to design a competitive strategy for a particular company since it is regarded as an essential issue in the increasingly competitive environment in Vietnam now. As stated above, the author chooses the beer industry for the study since it is regarded as particularly dynamic showing development which will sooner or later also affect other industries in Vietnam. The company chosen in this study is Danang Brewery - a medium-size local manufacturer of beer product which is located in the central of Vietnam - and its local market there. However, the business environment of Danang Brewery should not be limited to those which are identified in this research - since the study will be conducted only for major activities and product-market strategies. Other limitations of this research are: 1. First, in the domain of strategy, the study is narrowed to competitor analysis to define the strategic position and more carefully analyze marketing function in defining strategy capability. 2. Second, primary data is collected just from the major geographic area - Danang city - which are concerned to real business strategy of the company. Meanwhile many geographic areas which could be the promising potential markets for the company can not be treated in this study because of the time constraints. 3. Third, this study relies heavily on the available secondary data, the primary data used are relatively limited because of time limitation and the author's ability to conduct a large survey. 4. Last, the study will focus mainly on strategy process in which propose what strategies should be opted to succeed in the market, while other functional aspects such as R&D or management of technology will be mentioned but not thoroughly treated . 1.5. Organization of the study The study is organized as follows: Chapter 1 provides an introduction including the rationale of the research, the identification of the problem, the objectives as well as scope and limitations of the study. Chapter 2 shows the literature review of the topic being considered by the research proponent. This will encompass the fundamental ideas on corporate strategy, the role of competitor analysis in forming a company's competitive strategy and an overview of beer product industry in the world and Vietnam. - 61 - Chapter 3 deals with the methodology of the study including: Design of the framework of the study, identification of the sources of information, of the instruments to collect data and of the stages of data collection. Chapter 4 provides an analysis of external factors that help to identify the firm's strategic position. The main contents of the chapter, therefore, will convey environmental scan that emphasizes on central region of Vietnam, then structural analysis of the industry. Simultaneously, this part mainly focuses on the analysis of the major domestic and foreign brewery manufacturers who are competing in the Danang market and the whole country. Chapter 5 is devoted to the analysis of the current situation of the Danang Brewery Company in terms of production, organization management, marketing, finance, and human resource management. Its ultimate goal is to determine the critical success factors which define firm's strategic capability. Chapter 6 will provide the expected outcome of the study in trying to develop strategic alternatives based on the analyses from previous parts, which can help Danang Brewery gain superior performance in the next coming years. Chapter 7 encompasses the practical recommendations on the implementation of a competitive strategy for the chosen company and conclusions. - 62 - Chapter 2 The approaches to competitive strategy and beer industry: an overall view 2.1. The nature of corporate strategy 2.1.1. Integrated definition of strategy Strategy, starting from its military roots, is defined by Webster's New World Dictionary as "the science of planning and directing military operations". Thereby, the concept of strategy is not quite a new one in the last centuries. However, applying and developing the concept of corporate strategy into the arena of doing business is a breakthrough idea since the later half of this century. Then the decades of the sixties and seventies saw a tremendous growth in the development and application of the tools and techniques of strategic planning. At that time, most management definitions of strategy by many authors were emphasized on the planning theme as an important component. This traditional approach is elaborated by Charles W.L. Hill and Gareth R. Jones as the following: "Harvard's Alfred Chandler defined strategy as "the determination of the basic long-term goals and objectives of a enterprise, and the adoption of course of action and the allocation of resources necessary for carrying out these goals". Implicit in Chandler's definition is the idea that strategy involves a rational planning process. The organization is depicted as choosing its goals, identifying those courses of action (or strategy) that best enable it to fulfill its goals, and allocating resources accordingly. Similarly, Jame B. Quinn of Dartmouth College has defined strategy as "the pattern or plan that integrates an organization's major goals, policies and action sequences into a cohesive whole. And finally, along the same line, William F. Glueck defined strategy as "a unified, comprehensive, and integrated plan designed to ensure that the basic objectives of the enterprise are achieved" [7]. However, planning based definitions of strategy had evoked criticism. Then Hill and Jones showed a new approach based on Henry Mintzberg's definition of strategy as "a pattern in a stream of decisions or actions", the pattern being a product of whatever intended (planned) strategies are actually realized and of any emergent (unplanned) strategies. Both of them argued that Mintzberg's revision of the concept of strategy suggests that strategy involves more than just planning a course of action. It also involves the recognition that successful strategies can emerge from deep within an organization . In the sequence decades of 1980s and 1990s, "strategy" becomes essence in business domain than ever before, the term "corporate strategy" and "strategic management" are a responsibility of all managers - a responsibility that is becoming more and more crucial. So far, the concept of strategy has received a great deal of attention by various authors until now. Many of them realized that it should not be emphasized a different perspective, providing merely a single dimension of this fairly complex concept. Further more, they have attempted to develop a widely accepted concept of strategy. - 63 - By 1991, Arnoldo C. Hax and Nicolas S. Majluf pointed out that strategy can be seen as a multidimensional concept that embraces all of the critical activities of the firm, providing it with a sense of unity, direction, and purpose, as well as facilitating the necessary change induced by its environment. Reviewing some of the most important work in the field of strategy, Hax and Majluf have identified the following critical dimensions that contribute to a unified definition of the concept of strategy: • Strategy as a coherent, unifying, and integrative pattern of decision • Strategy as a mean of establishing the organizational purpose in terms of its long-term objective, action program, and resource allocation priorities • Strategy as a definition of the competitive domain of the firm • Strategy as a response to external opportunities and threats and internal strengths and weaknesses in order to achieve competitive advantage • Strategy as a channel to differentiate managerial tasks at the corporate, business and functional levels. • Strategy as a definition of the economics and non economic contribution the firm intends to make to its stakeholders [4]. Gerry Johnson and Keval Schole (1993), in the similar way, have stated the nature of corporate strategy by the characteristics usually associated with the word "strategy" or "strategic decision". In sum, according to the mentioned authors, strategy is the direction and scope of an organization over the long-term; ideally, which matches its resources to its changing environment, and in particular its markets, customers or clients so as to meet stakeholder expectations [12]. From this unifying approach, strategy becomes a fundamental framework through which an organization can assert its vital continuity, while, at the same time, it forcefully facilitates its adaptation to a changing environment. The essence of strategy thus becomes the purposeful management of change toward the achievement of competitive advantage in every business. Applying corporate strategy concept to Vietnamese business conditions now is extremely important in order to enhance the building up of a strategic vision for the managers who are operating all the domestic companies there, especially for managers of state-owned companies. Business environment in Vietnam today is likely different from that of the previous planned- economy where all of the resources and the output were subsidized by central government and where the existence of a predetermined long-term plan was merely a formal procedure by subjective figures without any environmental consideration. Actually, the managers today are challenged by the uncertainty and the faster change of the new business environment as well as by the competitive forces surrounding their firms. The task of keeping up the firm's growth requires setting up a well-defined strategy at all levels of management within their firm. 2.1.2. Hierarchical levels of strategy Within the company, strategic managers are found not just at the apex of the organization, but also at different levels within its hierarchy. There are three basic conceptual hierarchical levels which have always been identified as essential layers of the formulation and execution of the firm's strategy: the corporate level, the business level, and the functional level. - 64 - Corporate level At the corporate level, the main strategic issue seems to be concerned with the overall scope of the organization. Typically, this involves defining its mission and goals, determining what business it should be in , allocating resources between the different business areas, and formulating and implementing strategies that span individual businesses. The corporate level of management consists of the Chief Executive Officer (CEO), other senior executives, the board of directors, and corporate staff. These individuals occupy the apex of decision making within the organization. The CEO is the main strategic manager at this level. His or her strategic role is to oversee the development of strategies for the total organization. Of course, it should be noticed that the decision maker at the corporate level is not necessarily the isolated CEO. Depending, among other things, on the management style of the CEO, corporate strategy might be shaped and implemented by the core team of top executives. Business level The second level can be thought of in terms of competitive or business strategy with the main efforts aimed at securing the long-term competitive advantage in all the current businesses of the firm. In the single-industry company, the business and corporate level are the same. In order to decide how to compete in a market, the concerns are therefore about which products or services should be developed and offered to which markets; and the extent to which these meet customer needs in such a way as to achieve the objectives of the organization. So, business strategy is more likely to be related to a unit within a whole. The main strategic managers at this level are the heads of the divisions. Their strategic role is to translate general statements of direction and intends at the corporate level into concrete strategies for individual businesses, constrained by the overall resources assigned to the particular business unit. Thus business-level strategic managers are concerned with strategies that are specific to a particular business. Functional level Functional (or operational) strategies are concerned with how the different functions of the enterprise - marketing, finance, production, personnel and so on - contribute to the other levels of strategy. Such contributions will certainly be important in terms of providing the ultimate competitive weapons to develop the unique competencies of the firm. By definition, there are no strategic manager bear responsibility for specific business functional. They are not in a position to look at the big picture. Nevertheless, they have important strategic role, for it is their responsibility to develop functional strategies that help fulfill the strategic objectives set by business. 2.2. Strategic management process Strategic management is not simply the management of the process of strategic decision making. According to Balaji S. Chakrvarthy (1986), strategic management is the process through which managers ensure the long-term adaptation of their firm to its environment. It should be also emphasized that strategic management process is continuous - it never really stops within the organization. Samuel C. Certo and J. Paul Peter (1990) defined strategic management as "a continuous, integrative process aimed at keeping an organization as a whole appropriately matched to its environment". - 65 - Johnson G. and Scholes K. point out that the nature of strategic management is different from other aspects of management. Some of these differences are summarized in the table 2.1 below: Table 2.1: Differences between strategic and operational management Strategic Vs Operational management management • Ambiguity • Complexity • Non-routine • Organization-wide • Fundamental • Significant change • Environment or expectation driven • Routinised • Operationally specific • Small- scale change • Resource driven (Source: Johnson G. and Scholes K., Exploring Corporate Strategy, Prentice Hall, 1993) Organizational effectiveness depends on the ability of the organization to adapt to its environment, which is in turn influenced primarily by the strategic management of the organization. Strategic management includes making such major choices as which environments in which to compete (corporate level strategies) and how to compete within those environments (business-level strategy). These choices may either diminish or enhance the probability of specific types of management actions and plans, thereby influencing business performance outcomes (Child, 1972; Hambrick and Mason, 1984; Pfeffer and Salancik, 1978 ). Different components of the strategic management process are visualized in figure 2.1. The components include the selection of the corporate mission and major corporate goals, analysis of the organization's external competitive environment and internal operating environment, the selection of appropriate business and/or corporate level strategies, and the designing of organizational structures and control systems to implement the organization's chosen strategy. The task of analyzing the organization's external and internal environment and then selecting an appropriate strategy is normally referred to as strategy formulation. The task of designing appropriate organizational structures and control systems, given the organization's choice of strategy, is called strategy implementation. Business performance, however is not only a function of how well strategy is formulated. Business performance also depends on whether the strategy which was chosen is actually implemented, and how well the implementation is done. In other words, performance is likely to depend on the extent to which "intended" strategy and "realized" strategy are the same (Mintzberg, 1978). Insight into the nature and content of business-level strategic choices, the patterns of managerial actions by which their implementation is accomplished, and reasons for their relative effectiveness [7]. - 66 - 2.3. Competitor analysis and competitive strategy for a company As mentioned in the previous part, the second level of strategy is concerned with the competitive strategy which is considered as the core of managerial actions. In order to answer the question of how to compete in a market, strategic managers must examine the choice of a business competitive strategy which targets to develop a superior position for the business unit. It is also the ultimate objective of the business strategy. There are two key sets of factors in deciding how to position the business within its competitive environment: (1) factors that determine the attractiveness of the industry pertaining to the business, as measured primarily by its long-term profitability prospects; and (2) factors that determine the relative advantage of the business with respect to competitors in the industry [4]. - 67 - External Analysis Strategic choice Internal Analysis Business level Strategy -------------------------- Corporate level strategy -------------------------- Portfolio analysis and Entry and Exit strategy Choosing Organization structure Conflict, Politics and Change Choosing organization control Matching strategy, Structure and control Corporate Mission and goals Feedback Figure 2.1: Components of strategic management process (Source: Hill C. W., Strategic management) [...]... in both US and Europe are facing two significant challenges: saturation and changing consumer attitudes 2.4.2 US beer market The type of beer consumed in America today originated in the 1840s with the introduction of lager beer, a light beer with a mellow taste It did not take long for lager beer to gain popularity and for the American beer industry to grow as consumers' taste shifted away from the... establish a national minimum drinking age The industry responded to the threat of even more restrictive legislation by developing "low-alcohol" beer Moreover, the "fitness fad" has leveled off and the introduction of light beers satisfied the demands of consumers concerned about fitness [29] 2.4.3 European Beer Industry Experts on brewing industry of Europe stated that during last 15 years, beer volume... realism and relevance to the study of strategic management [1] This research therefore is presented in the form of a case study exposing the complexities of a real business situation in Vietnamese market Finally, the problem solving here is to formulate an effective competitive strategy for Danang Brewery Company following a thorough situation analysis The study of strategy is often likened to using a... which Danang Brewery Company (DBC) is operating In order to contribute to an effective strategy designing for the company, it is relevant to examine its environment in both macro and operating environment Finally, DBC strategic position is defined bases on opportunities and threats drawn out from this scanning process 4.1 Overview of Vietnamese Economy 4.1.1 Economic growth After the successful implementation . Chapter 1 Introduction 1.1. General ideas One of the highlighted trends that characterize. of investment into new breweries has shown an upward tendency. The recent introduction of bottled and canned beer bearing such brand names as BGI and