Scope and Limitations of the Study

Vietnam has always been primarily an agricultural country, with most of its population residing in rural areas and living off rice planting, fishing and rubber.

Chapter 1 Introduction 1.1 Introduction Vietnam has always been primarily an agricultural country, with most of its population residing in rural areas and living off rice planting, fishing and rubber. Yet from 1954, both South and North Vietnam keyed on economic development through manufacturing. Despite war and turmoil, by 1976, within a space of 20 years, manufacturing provided over one-quarter of gross national product. But for the following decade, until “doimoi” liberalization, there were problems for industry. By 1986, most industry was under State control of various types and, having lost its war- based direction and suffering under general instability as the reunited countries adapted to each other, industry was negatively affected. Still, by the late 1980s, there were positive indications that the country’s manufacturing sectors were progressing, having won back their benchmark share of gross domestic product. With the winds of change, business environment in Vietnam has been changing fast. As long as opening the economy to the world, international relationship has been improved. Government policies and regulations are amended to facilitate domestic businessmen and encourage foreign investment. The arrival of a free market economy created not only opportunities but also threats for domestic companies. State enterprises were given much more freedom to choose their market directions, but with less Government support. Also, selective privatization of State industry was promulgated under the term “equitation” for example, by forming a company and selling shares. Foreign companies entered the market and occupied a significant market shares in some industries. Machinery industry is one of them. Representing roughly 10 per cent of gross national product, automobile and machinery manufacturing is poised in a delicate balance. Vietnam is facing with the choice of either refurbishing and refining existing production facilities through joint-venture participation, or leaving such machinery manufacture to other countries, remaining a net importer of vehicles and machines to support its other industries. For the developing countries like Vietnam, machinery industry remains to be a highly important industry. The Government put great significance to the industry but a few years ago it still was very poor. A lot of factories were closed, thousands of employees lost their jobs and production could not meet domestic demand for industrial machinery while a few machine tool which demanded for large capital investment was over capacity in the short-run. The reasons might come from bureaucracy lasting year by year, lack of competence and experienced managers that led to inability to compete successfully with foreign products. Recent years, the situation is changing. Vietnam Machinery Industry is refurbishing more and more. The high end machine tool market in the world (1994) is worth more than about US $ 250 billions, ASIA has about 35% of the world machine tool market and is predicted to increase to 50% before the year 2010. Besides Singapore and Thailand, Vietnam would be the 47 third country in ASEAN producing CNC machines commercially. This is an excellent opportunity and a highly profitable one if it materialized. Hanoi Mechanical Company is a very particular representative for the growth of Vietnam Machinery Industry. The company is considered as one of the most successful companies in the Machinery Industry nowadays. What is the strategy that the company used to overcome the poverty in the past and compete successfully in domestic market? What should they do to keep up the growing and develop strongly in the future? 1.2 Problem Statement The research will focus directly on Hanoi Mechanic Company (HAMECO). Based on the finding and analysis of company’s situation, external and internal environment impact, it is felt interesting to find out the strategy that was adopted by this company to survive and compete successfully in the domestic market. Foreseeing the future challenges and opportunities, the study will also try to develop a strategy for HAMECO to keep up growth and be able to compete successfully internationally. 1.3 Objectives of The Research • To analyze the business environment (external and internal) and how it impacts on company’s operation. • To identify the industry structure through Porter’s five forces model. • To identify the strengths and weaknesses as well as opportunities and threats that HAMECO has been facing with. • To find out the strategy used by company to compete successfully in domestic market. • To strategic recommend to the company, what it should do in the following years to maintain the leading position in Vietnam Machinery Industry and its contribution in the world’s machinery market. 1.4 Research Methodology Literature review: The study comprehensively reviewed the available literature to build the rationale of the strategic management in Vietnam Machinery Industry in general and the Hanoi Mechanical Company in particular. In order to assess the company’s strengths and weaknesses, to analyze the strategy used to survive and compete successfully in domestic market, Porter’s framework, known as the five forces model, has been used. Materials were gathered from the textbooks, journals and other publications which are related to strategic management. Data collection: 48 The data was collected in Vietnam and details regarding primary and secondary data as follow: • Primary: This part of data collection consisted of in-depth interviews. The interviews were targeted to General Director Senior Managers, Functional Managers. The personnel from Ministry of Industry, Industrial Machinery and Equipment Corporation were interviewed simultaneously. • Secondary information: Relevant information as well as data about Vietnam economy in general, about Machinery industry, and about Hanoi Mechanical Company were collected from newspapers, journals, media etc. Moreover, the information was also be obtained from sources such as Statistical Department of Vietnam, Department of Statistics and Planning of the Ministry of Industry. The annual reports, profile report also were collected during this process. Following framework could give the tentative flows of the research methodology: 49 PROBLEM ANALYSIS LITERATURE REVIEW SECONDARY & PRIMARY INFORMATION • INDUSTRY ANALYSIS • COMPANY ANALYSIS ASSESSMENT OF SUCCESS FACTORS CONCLUSION & RECOMMENDATIONS STRATEGY REVIEW &ANALYSIS Figure 1.1: Framework of the study 1.5 Scope and Limitations of the Study 50 The study analyzed in general the present competitive situation in Vietnam Machinery Industry. The case taken of Hanoi Mechanical Company was able to explain the up-downs in the industry and strategy the company had used to become successful. The study basically depended on the in-depth level of information that was supplied by the company and targeted groups. Moreover, the study mainly considered that portion of overall effort, for strategy development, in which the author remained in touch with the investigated company. The unresponded portion was not be discussed in detail. The major products are machine tools and industrial machines and equipment using in almost industries, especially in Chemical and Foodstuff Industry. The limitation of the study is that it depends partly on how supportive the company was and its related departments. The data concerning to industrial financial ratios and indices is not available in Vietnam. Thus, it is difficult to make the exact and clear comparison with other companies within machinery industry. 51 Chapter 2 Literature Review 2.1. Strategy: An Introduction 2.1.1. The Definition of Strategy What is strategy? There is no single, universally accepted definition. Different authors and managers use the term differently; for example, some include goals and objectives as part of strategy while others make firm distinction between them. Reflecting the military roots of strategy, the American Heritage Dictionary defines strategy as “the science and art of military command as applied to the prevail planning and conduct of large-scale combat operations”. The planning theme remains an important component of most management definitions of strategy. Strategy is “the determination of the basic long-term goals and objectives of an enterprises, and the adoption of courses of action and the allocation of resources necessary for carrying out these goals”. (Chandler,1989). There is also the another definition of strategy as “the pattern or plan that integrates an organization’s major goals, policies, and action sequences into a cohesive whole.” (Quinn, 1988). Along the same lines, Glueck defined strategy as “a unified, comprehensive, and integrated plan designed to ensure that the basic objectives of the enterprise are achieved”. (Hill/Jones, 1989) According to Mintzberg, definitions of strategy that stress the role of planning ignore the fact that strategies can emerge from within an organization without any formal plan. That is to say, even in the absence of intent, strategies can emerge from the grassroots of an organization. Mintzberg’s point is that strategy is more than what a company intends or plans to do; it is also what it actually does. With this in mind, Mintzberg has defined strategy as “a pattern in a stream of decisions or actions”, the pattern being a product of whatever intended strategies. Marketing has its 4P’s (product, price, place and promotion). So why can’t strategy do likewise, even go one better? But these 4P’s pertain not to components of the field so much as to its most central concept, that of the nature of strategy itself. Mintzberg defines strategy as an plan, ploy, pattern, position and perspective. (Quin et al, 1988) 2.1.2. The Nature of Corporate Strategy Definition Corporate strategy is the pattern of decisions in a company that determines and reveals its objectives, purposes, or goals, produces the principal policies and plans for achieving those goals, and defines the range of business the company is to pursue, the kind of economic and human organization it is or intends to be, and the nature of the economic and non-economic contribution it intends to make to its shareholders, employees, customers and communities . (Kenneth/Andrews, 1980) Corporate Competitive Strategy 52 Companies compete in three ways. One is building core competencies that imbue products and services with unique functionality. Secondly, they compete to build a worldwide distribution and brand infrastructure, i.e. an ability to access and serve global market. An important part of this competition for global market access is the race to build global corporate brands and thereby capture economies of scope in creating the share of mind necessary to ensure that customers have a pre-disposition to buy and that competitors are preempted. a pre-disposition to buy and that competitors are preempted in the quest for global market share. Thirdly, they compete to create product integrity disciplines-quality, time to market and customer service, all the things that allow a company to do things faster, more cheaply and more consistently. Nowadays, every company of any size that is to have a chance of surviving in an industry must have a global market-servicing capability. So more and more, competition is shifting towards functionality-based competencies. Functionality competencies are about giving the customers something unique, some unique benefit. The thinking of corporate strategy has been focus on competition for competence, to recognize that competence has these three different dimension, functionality, market access and product integrity, and to understand that a core competence can be contained in any one of these dimensions, though, distribution may become less ‘core’ in some industries. (European Management Journal, Vol. 11 No. 2 June 1993) Levels of strategy Strategies will exist at a number of levels in an organization. An individual may say he has a strategy-to do with his career, for example. This may be relevant when considering influences on strategies adopted by organizations but it is not what is meant by corporate strategy. There is the corporate level: here the strategy is concerned with what types of business the company, as a whole, should be in and is therefore concerned with decisions of scope. The second level can be thought of more in terms of competitive or business strategy. Here strategy is about how to compete in a particular market. So, whereas corporate strategy involves decisions about the organization as a whole, competitive strategy is more likely to be related to a unit within a whole. The third level of strategy is at the operating end of the organization. Here there are operational strategies which are concerned with how the different functions of the enterprise - marketing, finance, manufacturing and so on - contribute to the other levels of strategy. Such contributions will certainly be important in terms of how an organization seeks to be competitive. Competitive strategy may depend to a large extent on, for example, decisions about market entry, price, product offer, financing, manpower and investment in plant. In themselves these are decisions of strategic importance but are male, or at least strongly influenced, at operational levels. (Johnson/Scholes, 1988) Formulation of strategy The principal subactivities of strategy formulation as a logical activity include identifying opportunities and threats in the company’s environment and attaching some estimate or risk to the discernible alternative. Before a choice can be made, the company’s strengths and weaknesses should be appraised together with the resources on hand and available. Its actual or potential capacity to take advantage of perceived market needs or to cope with attendant 53 risks should be estimated as objectively as possible. The strategic alternative which results from matching opportunity and corporate capability at an acceptable level of risk is what we may call an economic strategy. The determination of strategy also requires consideration of what alternatives are preferred by chief executive and perhaps by is or her immediate associate as well, quite apart from economic considerations. Personal values, aspirations, and ideals do, and in our judgment quite properly should, influence the final choice of purposes. Thus what the executives of a company want to do must be brought into the strategic decision. (Quinn/Mintzberg/James, 1988) The implementation of strategy Since effective implementation can make a sound strategic decision ineffective or a debatable choice successful, it is as an important to examine the processes of implementation as to weigh the advantages of available strategic alternatives. The implementation of strategy is comprised of a series if subactivities which are primarily administrative. If purpose is determined, ten the resources of a company can be mobilized to accomplish it. An organizational structure appropriate for the efficient performance of the required tasks must be made effective by information systems and relationships permitting coordination of subdivided activities. The organizational processes of performance measurement, compensation, management development - all of them enmeshed in systems of incentives and controls - must be directed toward the kind of behavior required by organizational purpose. The role of personal leadership is important and sometimes decisive in the accomplishment of strategy. (Quinn et al, 1988) Implementation problems Difficult as it may be to make good plans, the effort of making them is nothing compared to what is necessary to actually implement them, implementation requires patience, tact, perseverance and determination. The lack of people that can make plans come true cannot be the only explanation for the fact that a large number of plans stay exactly what they are; merely plans. One has to realize that some plans are just of no use anymore after some time. The environment in which a company operates may have changed drastically since the plan necessary. It needs no further argument that in such cases it is wise not to implement the original plan. Not implementing a designed strategy may also have its roots in badly executed design phase. Normally, strategies tend to be worded in more or less abstract terms. Sometime they have not been formulated at all. In the case of turbulent and dynamic environment the management of a company will have to be very careful when trying to make the company’s strategic explicit. Management will have to see to it that a large enough degree of freedom remains. Thus, making it possible to change the company’s course in case the changes in the environment so demand. Putting the strategy into writing and communicating it to the employees may be a risky undertaking. There is nothing so difficult as having to explain that the circumstances have changed and that, therefore, the strategy has to be revised (once more). (European Management Journal, Vol. 11, No 1., pp. 122-131, 1993) Figure 2.1 may be useful in understanding the analysis of strategy as a pattern of interrelated decisions: 54 FORMULATION (Deciding what to do) IMPLEMENTATION (Achieving results) 1. Identification of opportunity and risk 2. Determining the company’s material, technical, financial, and mangerial resources 3. Personal values and aspirations of senior management 4. Acknowledgement of noneconomic responsibility to society CORPORATE STRATEGY: Pattern of purposes and policies defining the company and its business 1. Organisation structure and relationships Division of labor Coordination of divided responsibility Information systems 2. Organisational process and behavior Standards and measurement Motivation and incentive systems Control systems Recruitment and development of managers 3. Top leqadership Strategic Organisational Personal Figure 2.1: Analysis of Strategy as A Pattern of Interrelated Decisions (Source: Quinn/Mintzberg/James, 1988) 2.1.3. Strategic Management Process The easy answer is the management of the process of strategic decision making. Strategic management is concerned with deciding on strategy and planning how that strategy is to be put into effect. There is strategic analysis in which the strategist seeks to understand the strategic position of the organization. There is strategic choice which is to do with the formulation of possible courses of action, their evaluation and the choice between them. Finally there is strategy implementation which is concerned with planning how the choice of strategy can be put into effect. This three-part approach is summarized in figure 2.2 55 Strategic analysis Strategic choice Strategy implementation Expectation objectives & power The environment Resources Generation of options Evaluation of options Selection of strategy Resource planning Organisation structure People & systems Figure 2.2: A Summary Model of the Elements of Strategic Management (Source: Johnson/Scholes, 1988) 2.2. Strategy Analysis Analysis of industry and competitive conditions is the starting point in evaluating a company's strategic situation and market position. 2.2.1. Identifying The Industry's Dominant Economic Characteristics As a working definition, we use the word industry to mean a group of firms whose products have so many of the same attributes that they compete for the same buyers. The factors to consider in profiling an industry's economic features are fairly standard: 56 [...]... companies? • The number of buyers and their relative sizes • The prevalence of backward and forward integration • Ease of entry and exit • The pace of technological change in both production processes and new product introductions • Whether the product(s)/service(s) of rival firms are highly differentiated, weakly differentiated, or essentially identical • Whether there are economies of scale in manufacturing,... overcame the domestic ones long back and is continuing to increase their reputation in Vietnam’s market if the domestic production can not catch the pace of technological development and modernization in the world The power of suppliers: Whether the suppliers to an industry are a weak or strong competitive force depends on market conditions in the supplier industry and the significance of the item they... low, and buyers believe substitutes have equal or better features 60 As a rule, then, the lower the price of substitutes, the higher the quality and the performance, and the lower the user’s switching costs, the more intense are the competitive pressures posed by substitute products For Vietnam’s machinery industry, foreign products became a rather important threat of substitute products thanks to their... example combining the ministries of Light and Heavy industry, and the Ministries of Forestry and Agriculture They are also aim to turn the ministries into administrators of their assets, rather than active players in the economy Without these administrative reforms, further efforts to privatize Vietnam’s state - owned enterprises are futile One more important thing is the import problems The Government... because they affect the balance between industry supplier and buyer demand, entry and exit, and how hard it will be for a firm to capture additional sales • Changes in Who buys the Product and How They Use It: Shifts in buyer demographics and the emergencies of new ways to use the product can force adjustments in customer service offerings (credit, technical assistance, maintenance and repair), open the. ..• Market size • Scope of competitive rivalry (local, regional, or global) • Market growth rate and where the industry is in the growth cycle (early development, rapid growth and takeoff, early maturity, late maturity and saturation, stagnant and aging, decline and decay) • Number of rivals and their relative sizes-is the industry fragmented with many small companies or concentrated and dominated by... equipment: The clear reason of low profitability is low efficiency of equipment (adjusted lower than 20 per cent) It is because of the lack of jobs as well as equipment and production being not suitable 3) Unused machines and raw materials: There are a lot of abundant machines and raw materials in every factories This led to the changes in existing harmony of the factories And it is difficult for factories’... price cuts of other competitive weapons to boost unit volume d Rivalry is stronger when the costs incurred by customers to switch their purchases from one brand to another are low e Rivalry is stronger when one or more competitors is dissatisfied with its market position and launches moves to bolster its standing at the expense of rivals f Rivalry increases in proportion to the size of the payoff from... enter a phase of what might be termed consolidated growth in 1995 The original policy changes (doimoi) that kick - started the country’s shift to a market economy in the second half of the 1980s are being refined and expanded today, creating a more workable economic environment, particularly from the point of view of foreign business Industrial growth remains vigorous across the board, and there is evidence... - off, as evidenced in recent major projects involving Taiwanese and Korean companies Vietnam has 6,289 registered state enterprises, a 48% decrease from 12.084 at the beginning of 1990 Although the numbers have dropped, state enterprises are still the main engine of the company, accounting for nearly 90% of total funds of all enterprises, 85% of the fixed assets in industry, 100% of large mines and . OF SUCCESS FACTORS CONCLUSION & RECOMMENDATIONS STRATEGY REVIEW &ANALYSIS Figure 1.1: Framework of the study 1.5 Scope and Limitations of the Study. adoption of courses of action and the allocation of resources necessary for carrying out these goals”. (Chandler,1989). There is also the another