COMPETITIVE ADVANTAGES IN OFFICE FURNITURE INDUSTRY IN VIETNAM: A CASE STUDY OF SON THUY COMPANY
COMPETITIVE ADVANTAGES IN OFFICE FURNITURE INDUSTRY IN VIETNAM: A CASE STUDY OF SON THUY COMPANY by Duong Thi Ngan A research study submitted in partial fulfillment of the requirements for the degree of Master in Business Administration. Examination Committee Dr. Do Ba Khang (Chairman) Prof. Dr. John C. S. Tang Dr. Fredric W. Swierczek Nationality Vietnamese Previous degree Diploma of Business Administration Ho Chi Minh University of Technology, Vietnam Scholarship donor The Government of Switzerland/Swiss Development Corporation (SAV) Asian Institute of Technology School of Management Bangkok, Thailand April 2000 i Acknowledgement I would like to express my deepest gratitude to my advisor of research study, Dr. Do Ba Khang, for his guidance and suggestion. I also would like to express my profound gratitude to Dr. Fredric W. Swierczek and Dr. Prf. John C. S. Tang for being members of Examination Committee and for providing comments and advises that help me complete my research. My deepest thanks to the Government of Switzerland – the sponsor who creates opportunities for me to pursue MBA study at Swiss AIT Vietnam management program and the Asian Institute of Technology. Also, I would like to thank the entire SAV and School of Management faculty and staff for helping me during my studying MBA program. Special thanks are due to my close friend – Miss. Pham Thi Hong Van – manager of Material Supply and Planning department in Son Thuy office furniture company who help me a lots on supporting me information that I need for my research. I am grateful to my beloved parents, my younger sisters and my uncle – Mr. Ta Huong, whose love and support always encourage me to further study. ii Abstract Small and Medium Enterprises play an important role in Vietnamese economic development. It creates jobs, incomes and value to society. Therefore, the government has supported the development of this business since the economic renovation. Most of the investors interested in some sectors: textile & garment, metallic products, wooden & office furniture processing etc. which utilize manual work and use many employees. Office furniture industry is rather attractive for investors. This research is carried out in order to understand more about medium business in office furniture industry. Firstly, the research will examine the current development of SMEs with the support of government. Secondly, Son Thuy Company, a private and medium enterprise, in office furniture industry will be selected to analyze the success and competitive advantages. Currently, office furniture industry is rather attractive for investor who interested in due to the low barrier to entry, less government interference, low bargaining power of suppliers. Also, private and medium enterprise would take opportunities from supporting activities of government to develop. Moreover, to success in the market, it is important for company to create and sustain its competitive advantages. This research will strategically analyze the company and determine its competitive advantages. Also, the author tries to suggest the activities for company to sustain its current leading position in the market. iii Table of contents Chapter Title Page Title page .i Acknowledgment ii Abstract iii Table of contents .iv List of figures .v List of tables vi Acknowledgement ii Small and Medium Enterprises play an important role in Vietnamese economic development. It creates jobs, incomes and value to society. Therefore, the government has supported the development of this business since the economic renovation. Most of the investors interested in some sectors: textile & garment, metallic products, wooden & office furniture processing etc. which utilize manual work and use many employees iii List of figures vii PAGE .VII List of Tables viii PAGE VIII Chapter 1 1 Introduction 1 1. RATIONALE .1 2. PROBLEM STATEMENT .1 3. OBJECTIVES OF THE STUDY .2 4. METHODOLOGY .2 5. SCOPE OF THE RESEARCH 3 6. LIMITATION .3 7. ORGANIZATION OF THE RESEARCH 3 Chapter 2 5 Literature review 5 2.1 DEFINITION OF SMES 5 2.2. COMPETITIVE ADVANTAGES .6 2.2.1. Low Cost 8 2.2.2. Differentiation .9 2.3. SOURCE OF COMPETITIVE ADVANTAGES .9 2.4. TOOLS FOR ANALYZING COMPETITIVE ADVANTAGE 10 2.4.1.Value chain .10 2.4.2. Five forces model and macroeconomic environment 11 2.4.3. Strengths – Weaknesses - Opportunities - Threats analysis 13 2.5. COMPETITOR ANALYSIS 13 2.6. POSITION OF COMPANY IN THE MARKET .14 iv Chapter 3 16 Overview of Small and Medium Enterprise in Vietnam 16 3.1. SMES BUSINESS IN VIETNAM .16 3.2. SMES’ ROLE IN THE ECONOMY AND ADVANTAGES OF SME DEVELOPMENT IN VIETNAM 16 3.3. WHY SMES ARE SMALL IN NUMBERS 17 3.4. CHARACTERISTICS OF SMES IN VIETNAM .18 3.5. PROBLEMS FACING SMES 18 3.6. SUPPORTING ACTIVITIES FOR SMES DEVELOPMENT IN VIETNAM 20 Chapter 4 21 Son Thuy Office Furniture company and SWOT analysis 21 4.1. SON THUY BACKGROUND .21 4.1.1 Introduction .21 4.1.2 Owners profile 21 4.1.3 Organization structure .22 4.1.4 Son Thuy’s business progress .22 4.2. SWOT ANALYSIS .25 4.2.1 Internal scanning .25 4.2.2. Findings 29 4.3. EXTERNAL SCANNING 29 4.3.1. Macro environment .29 4.3.2. Legal environment 31 4.3.3 Demographic environment 32 4.3.4. Social environment .33 4.4. OFFICE FURNITURE INDUSTRY ANALYSIS .34 4.4.1. Barrier to entry the Office Furniture market 34 4.4.2. Bargaining power of suppliers 34 4.4.3. Bargaining power of customers 35 4.4.4. Rivalry among competitors .35 4.5. FINDINGS 35 4.5.1. Opportunities 35 4.5.2. Threats 36 Chapter 5 38 Competitor analysis, findings and discussion 38 5. 1. COMPETITOR ANALYSIS .38 5.1.1. Son Thuy position in office furniture market 38 5.2. COMPETITOR ANALYSIS 39 5.2.1 Competitors profile 39 5.3. FINDINGS AND DISCUSSION .42 5.4. BENCHMARKING STRENGTHS AND WEAKNESSES OF SON THUY WITH COMPETITORS .43 5.5. COMPETITIVE ADVANTAGES AND VULNERABILITY OF COMPETITIVE ADVANTAGE .47 5.5.1. Competitive advantages 47 5.5.2. Vulnerability of competitive advantage .47 5.6. SON THUY ACTIVITIES AGAINST COMPETITORS 47 Chapter 6 50 Conclusions and recommendations 50 v 6.2. RECOMMENDATIONS 51 6.2.1. Create higher entry barrier 51 6.2.2. Defending its current market share .51 6.2.3. Employee satisfaction .52 References 53 Table A: Comparison strengths and weakness between Son Thuy and Moc Dong A (wooden office furniture) .54 COMPANY .56 Company background 57 1.When did the company start to run business in office furniture? .57 2.Why did managers interest in the field? .57 3.What is the company’s history? .57 Product 57 8.Which products do the company produce? 57 9.What are the characteristic of company’s products” 57 10.How long does the company invest in changing the design of products .57 PRODUCTION .57 Customers .57 Selling .57 Marketing activities 57 vi LIST OF FIGURES Figure Title Page Figure 1.1: Research frame work 3 Figure 2.1: Generic Building Blocks of Competitive advantages 7 Figure 2.2: Impact of quality on company’s profit 8 Figure 2.3: The root of competitive advantages 10 Figure 2.4: Generic Value Chain 10 Figure 2.5: Managerial capability checklist 11 Figure 2.6: Five forces model – Element of industry structure 12 Figure 2.7: The role of Macroeconomic Environment 13 Figure 4.1: Company’s organization 22 Figure 5.1: Son Thuy market share for each product line 40 Figure 5.2: New product with low cost 49 vii List of Tables Table Title Page Table 2.1: Small and Medium Enterprise criteria 5 Table 2.2: Definition of SMEs according to Department of Science, Industry and Environment 6 Table 2.3: Definition of SMEs as Division of Trading and Industry 6 Table 2.4: Hypothetical Market Strategies 15 Table 3.1: SMEs share of production volume 18 Table 4.1: Compensation policy for wooden office products according to selling volume (for wooden table 1.2 m x 0.75 m x 0.75 m) 28 Table 4.2: Index of Gross Domestic Product by ownership and by kind of economic activities 31 Table 4.3: Foreign direct investment 31 Table 4.4: Numbers of Industrial Establishments 32 Table 4.5: Population in working age 34 Table 5.1: Market share of office furniture products in Hanoi market 39 Table 5.2: Benchmarking Son Thuy with its competitors 47 Table 5.3: Company product innovation against the imitation of competitors 49 viii Chapter 1 Introduction 1. Rationale Small and Medium Enterprises (SMEs) are the current attractive issue to be discussed in the Vietnamese economy. There are many organizations in Vietnam that support the development of the SMEs. Currently, SMEs play significant role in the country’s industrialization and modernization process due to its big contribution to economic development and by solving the unemployment situation in Vietnam. The process of economic reform in Vietnam during the last few year had direct impact on the development SMEs and has promoted the comprehensive development and diversification of trade, organization form and business areas. This development however, is still limited in many aspects, especially market constraints and the SMEs' internal physical limitations such as capital shortage, old and slowly renewed equipment, outdated technology, poor diversification of product sample, and lack of good skills and management experience. SMEs have not reached their full potential. In addition, the lack of specific policies and strategies for SMEs also restricts their development. However, SMEs in Vietnam could take advantage of the labor force, and raw material resources. Vietnam has been implementing a large number of measures to further encourage and support the development of SMEs. Those measures include creating a favorable legal environment to ensure all the business activities are effective; providing favorites and promotion policies for SMEs in sectors such as textile and clothing, shoe and leather, consumer goods and export production, parts and spare parts manufacturing, food and foodstuff processing, electrical and electronics and information technology; receiving and implementing a number of technical assistance projects of international organizations and countries to develop SMEs; establishing centers for consulting and supporting SMEs in sectors, cities and provinces; and looking for and expanding internal and external markets. In Vietnam, Son Thuy Furniture Ltd. is taken for illustration in this research study. Generally, Son Thuy is a private company with about 500 employees and specializes in manufacturing and trading office furniture products (fabric office chairs, steel cabinets, steel pipe chairs and safe boxes) in Hanoi market with a large distribution network throughout the whole country. The results of this paper would benefit the management board of Son Thuy Ltd. to improve its business, sustain its development and understand its competitors. 2. Problem statement SMEs in Vietnam have been less developed in comparison with those in other countries in South East Asian. Awareness of the importance of improving the situation for SMEs has lead the Vietnamese government to gradually support the development of SMEs in the market economy in order to improve development. To understand the motivation for development, it is necessary to understand the real situation of the companies and the trends of development of those companies in the industry. 1 This paper will examine the current situation related to SMEs in Vietnam and the actual situation of Son Thuy and other competitors (Bach Khoa Ltd., Moc Dong A Ltd., Xuan Hoa Company) in order to determine the movement for developing the SMEs sector. As result of the discussion, it is very interesting to understand the current situation and help managers build the opportunities for developing their company. 3. Objectives of the study In general, the research is undertaken in order to determine the elements that support the development of the small and medium company and try to dig deeply in the real business of companies in the office furniture market. The objective of the study is broken down into secondary objectives as follows: 1. Examining the current situation of SMEs’ operation in Vietnam, 2. Examining the external factors that affect on SMEs development, 3. Analyzing Son Thuy’s business to find the strengths and weaknesses, 4. Benchmarking Son Thuy strengths and weaknesses against competitors to determine the competitive advantages. 5. Recommending for Son Thuy to sustain its competitive advantages. 4. Methodology To carry out the research, primary and secondary data are collected. Secondary data is used to examine the whole picture of SMEs in Vietnam, to find the opportunities and threats that affect directly on the development of the company. Secondary data is collected from report from supporting organization and projects for developing SMEs in Vietnam and other related book on SMEs. To understand the external environment that affects positively or threats to the development of company, some information is needed. Firstly, input and output market information (characteristic of input and output market). Secondly, information describes customers profile. Thirdly, it is office furniture market information such as customers, demand, price. Information concentrates on company’s competitors’ characteristics, government policy for manufacturing SMEs and company’s relationship with their material suppliers etc. Primary data concentrates mostly on the company information that will help analyze the real situation of Son Thuy and writing strengths and weaknesses of the company. Also, primary data will include competitors’ information that helps analyze their strengths and weaknesses. Drawing the comparison between strengths and weaknesses among Son Thuy and its competitors is necessary to analyze the competitive advantages. Primary data is collected through in - depth interview with managers and other officials in Son Thuy Company Interviewing the information of company’s history, company’s performance, company’s organization and function of departments (operating, managers, marketing, human resource and so on), manufacturing strategy and capacity, company’s current business strategy and how it contribute to company’s success, management and employees’ characteristic, company’s ability to access information about foreign markets and domestic markets, and distribution network. 2 [...]... different parts and easily for packaging and installing Sale department also has function of dealing with customer’s complaints And most of the customers’ complaints are dealing very quickly 4.2.1.7 Managerial capability Son Thuy s managers are risk - taker They pioneer in the investing of high technology for manufacturing office furniture products Son Thuy is also the first manufacturer in office furniture. .. Son Thuy background 4.1.1 Introduction Hoa Phat is the trading company on construction machine It had started its business since 1980 Awareness of the potential market for office furniture in the North, Hoa Phat expanded its business to office furniture in 1995 with separated brand – Son Thuy office Furniture Company Currently, the company has about 500 employees There are about 40 office staff (male:... Thuy s managers found suppliers through International Office Furniture Fair hold annually in March and May in Malaysia, Taiwan and Singapore As a result, Son Thuy established the relationship with some Office Furniture suppliers UNICO from Malaysia for steel cabinet products, CHEA – EE (Malaysia) for Wooden office furniture, OLYMPIC (Indonesia) for Home & Office wooden furniture, LEECO (Thailand) for... R& D Investment/ planing dept Sale Dept I (local) Sale Dept II (Exporting) office wooden Steel Steel Chair office Cabinet pipe Factory Factory Factory Administrative Dept Factory Son Thuy current organization includes six main departments: research and development, accounting, investment and planing, sale I, sale II and administrative department under the control of one director and board of management... 1985, Competitive advantage: create and sustain superior performance Value chain displays total value and consists of value activities and a margin Value activities are the physical and technologically distinct activities a firm performs Value activities can be divided into two big categories: primary activities and support activities Primary activities are the activities involved in physical creation of. .. analysis Substitution Technology I Demographic Social environment 5 Scope of the research Son Thuy has large distribution network in Vietnamese market However, in this paper, to analyzing the competitive advantages of SMEs, especially in case of Son Thuy office Furniture Company, Hanoi office furniture market is concentrated to narrow down the scope of analysis Also, all competitors selected to analyze... Source: Adaptation of Ansoff’s management capability profile (H I Ansoff, Implanting Strategic management) 2.4.2 Five forces model and macroeconomic environment A major role of external audits is to provide an understanding that, the organization objectives may be achieved as well as allowing for company to recognize opportunities for setting additional objectives, and threats that a company copes with in. .. market in Hanoi Besides, Son Thuy s managers are responding very quickly to the change of office furniture market situation in Hanoi Among suppliers who are trading Office Furniture products, Son Thuy pioneered in investing technology, machine and equipment Office staff was empowered to have own right in deciding in the works They are encouraged to involve in contributing ideas to the decision making... Malaysia or Singapore However, this method was not effectiveness Besides, Son Thuy had directly participated in the Fair hold in one of the Middle East countries by displaying its products in the Fair In October 1999, Son Thuy displayed its products in Dubai Office Furniture Fair Son Thuy s products attracted many Furniture suppliers from Arabia, Iraq, Kuwait, Malaysia, Taiwan, China as well as suppliers... Selling department’s report, 1999 27 4.2.1.5 Manufacturing function Company has good factory infrastructure: new factories with new machine and equipment such as Crom, Nikel, and Copper plating line Company aimed at mass production strategy in order to cut cost Its manufacturing products are named: SG for Office Chair, CAT for steel cabinet and CI & AT for table, SD and SV In the Office Furniture seasons, . market.............................................................. 34 4 .4. 2. Bargaining power of suppliers.................................................................................... 34 4 .4. 3. Bargaining. environment.....................................................................................................33 4. 4. OFFICE FURNITURE INDUSTRY ANALYSIS....................................................................... 34 4 .4. 1. Barrier to entry