DEVELOPMENT STRATEGY FOR POST AND TELECOMMUNICATION TECHNOLOGY OF OPTICAL FIBER AND EQUIPMENT JSC

DEVELOPMENT STRATEGY FOR POST AND TELECOMMUNICATION TECHNOLOGY OF OPTICAL FIBER AND EQUIPMENT JSC (TFP) PART 1: Introduction Rational .5 Thesis objective Study scope Study methodology .6 PART 2: CONTENT CHAPTER 1: GENERAL THEORY .8 1.1 Strategic management 1.1.1 What is strategy? 1.1.1.1 Views on strategic management .8 1.1.1.2 Definitions of strategy .9 1.1.2 Strategic management 10 1.1.2.1 Definition of strategic management 10 1.1.2.2 The necessity of strategic management in the company .11 1.1.2.3 Process of strategic management 13 1.2 Structural analysis of the competitive environment 17 1.3 Selecting development strategy 25 1.3.1 Generic strategies 25 1.3.2 Strategic development directions 27 CHAPTER 2: STRATEGIC MANAGEMENT ANALYSIS IN POST AND TELECOMMUNICATION TECHNOLOGY OF OPTICAL FIBER AND EQUIPMENT JSC 29 A External factor analysis 29 2.1 Macro environment analysis 29 2.1.1 Global financial crisis and world economic downturn .29 2.1.2 The position, role and development orientation of telecommunication industry in Vietnam economy 37 2.2 Vietnam Optical Fiber Production Industry Analysis 40 2.2.1 Overview of Vietnam optical fiber production industry .40 2.2.2 Competitor analysis 41 2.2.3 Buyer position .42 2.2.4 Material supplier position 43 2.2.5 Substitute products 43 2.3 Opportunities and threats for TFP .44 2.3.1 Opportunities 44 2.3.2 Threats 45 B Internal factor analysis .46 2.4 History of TFP 46 2.5 TFP's mission .47 2.6 Organization structure 47 2.7 The production of TFP .50 2.7.1 Production process and quality control: 50 2.7.2 TFP Production Capacity 54 2.7.2.1 Technical capacity .54 2.7.2.2 Technology capacity 54 2.7.2.3 Human resources capacity 55 2.7.3 TFP products .56 2.7.3.1 Optical cable 56 2.7.3.2 Post and telecommunication equipments and accessories 56 2.8 Sales and profit 74 2.9 Marketing 76 2.9.1 Price Policy 76 2.9.2 Distribution network 79 2.10 TFP finance status 80 2.10.1 Liquidity ratios: 85 2.10.1.1 Current ratio .85 2.10.1.2 The quick ratio 85 2.10.1.3 Inventory to Net Working Capital .86 2.10.1.4 Cash ratio 86 2.10.2 Profitability ratios .86 2.10.2.1 Net Profit Margin .87 2.10.2.2 Gross Profit Margin 87 2.10.2.3 Return on Assets (ROA) 88 2.10.2.4 Return on Equity (ROE) 88 2.10.3 Activity ratios 89 2.10.3.1 Inventory turnover .89 2.10.3.2 Day of inventory ratio 90 2.10.3.3 Net working capital turnover .90 2.10.3.4 Asset turnover ratio 90 2.10.3.5 Fixed asset turnover ratio 90 2.10.3.6 Average collection period: 91 2.10.3.7 Account receivable turnover 92 2.10.3.8 Days of cash .92 2.10.4 Leverage ratio 92 2.11 Identifying strengths, weaknesses of TFP .93 CHAPTER 3: FORMULATING DEVELOPMENT STRATEGY FOR TFPCONCLUSION AND RECOMMENDATIONS 95 3.1 Formulating development strategy for TFP 95 3.1.1 Foundations of TFP’s strategy 95 3.1.1.1 What is to be satisfied? (Customer needs and product differentiation) 95 3.1.1.2 Who is to be satisfied? (Customer groups and market segmentation) .95 3.1.1.3 How customer needs are to be satisfied? (Distinctive competences) 96 3.1.2 Strategic options for TFP 96 3.1.2.1 Generic competitive strategies and a recommended strategy for TFP 96 a Cost leadership strategy 97 b Differentiation strategy 97 c Focus strategy 98 3.1.2.2 Directions for TFP’s strategy development .98 3.1.2.3 Methods for TFP’s strategy development 99 3.2 Conclusion .99 3.3 Recommendations 100 3.3.1 Organization structure 101 3.3.2 Products .101 3.3.3 Product price .101 3.3.4 Advertisement and promotion activities 102 3.3.5 Financial recommendations 102 References .103 PART 1: Introduction Rational After 20 years of renovating Post, Telecommunication and Information Technology industry, Vietnam has had comprehensive and great step forward, improved capacity, modernized continuously, shortened the development gap in comparison with other countries in the region and the world, integrated actively in the international economy, ensured security and national defense for the country modernization and industrialization Post, Telecommunication and Information Technology industry which now is Vietnam Information Technology and Communications industry has made great development step Telephone density is almost 50% (surpassing the target of 35% set by the X National Party Congress), 100% communes have telephones, internet users are more than 20 % of the population, the average radius of post office reduced to less than 2.3 km Most of state agencies and more than 50% of private companies having applied information technology The rate of state officers using information technology and internet skillfully in the central agencies is 70% Information technology has developed with higher speed day by day Hardware industry development speed is 20-30% on the average Software and service industry has a development speed of 30-40% Many world leading information technology and communication corporations have enter Vietnam market and created many favorable conditions Information technology and communication contributes an important part in improving management capacity, business and production, poverty reduction, digital gap shortening, national information security and safety insurance It’s necessary to mention the great contribution of the post equipment and telecommunication material production and supplying industry in the whole industry success Having been established in May 2007, Post and Telecommunication Technology of Optical Fiber and Equipment JSC (TFP) is one of the leading units in producing and supplying optical in Vietnam market With the favorable location in the industrial production zone of Vietnam Post and Telecommunication Corporation (Dốc Vân - Yên Viên - Gia Lâm - Hà Nội), the European comprehensive production line which is the most modern one in Vietnam now, the company has the capacity to produce and supply more than 15,000 km optical cable/year in the market The optical cable types that the company produce are: duct fiber cable, figure cable, electricity attaching cable, direct buried cable, telecommunication accessing cable; family connecting cable Moreover, the company also supplies accessories like: incandescent gas-lamp, ODF, patch cord and pigtail… TFP is gradually proving its brand name in domestic and international market with the quality of each product Thesis objective This thesis aims at formulating a development strategy for TFP especially with the following orientations:  Defining strengths, weaknesses as well as opportunities and threats that TFP will have to face  Evaluating TFP's current strategy  Formulating a long term development strategy for TFP Study scope This is the study of TFP only, especially of telecommunication optical cable products which are the main products of TFP The thesis is a systematic presentation of TFP's long term development strategy The thesis is the outcome of analyzing and evaluating available data of Vietnam economy, telecommunication industry in general and TFP's information Study methodology The study was conducted according to the below diagram: External influencing factor evaluation Competition factor consideration Internal influencing factor consideration Opportunities, threats Current result evaluation Strengths, weaknesses FORMULATING, EVALUATING AND SELECTING THE BEST STRATEGY CONCLUSION AND RECOMMENDATION Study diagram PART 2: CONTENT CHAPTER 1: GENERAL THEORY 1.1 Strategic management Strategic management is a fast-developing field of study It looks at the corporation as a whole and attempts to explain why some firms develop and thrive while others stagnate and go bankrupt Strategic management typically focuses on analyzing the problems and opportunities faced by people in top management Before mentioning in detail about the process of strategic management, specially the strategy formulation stage, firstly, we try to answer the question: “What is strategy?” 1.1.1 What is strategy? 1.1.1.1 Views on strategic management There are in fact many different views on strategic management It depends on the different study purpose and different development period in which economists have different views on strategy According to General Ailleret, strategy is “identifying ways and applied tools to achieve goals defined by policies” F.J.Gouillart said that the strategy of businessmen is “the whole decisions aimed at winning important positions, defending and creating results which can be exploited and used immediately” “Strategy is the art of coordinating controlling activities to achieve long term goals” (G Hissh) “The strategy of companies is to outline the long term and sustainable development orbit around which accurate decisions and actions of companies can be arranged” ( Alain Charlec Martinet) Some economists in the world has unified the business strategy with company development strategy Representatives for this view are BCG economist who said that “the development strategy is the general strategy of companies including parts of the secondary strategies of marketing, finance, research and development etc.” However, for M Parter and K Ohmac, the purpose of business strategy is to create the most favorable conditions to make the competitive advantages for companies According to the common approach, strategy is a system of long term objectives, policies and major measures for production and business in terms of finance, human resources to make the company one step forward 1.1.1.2 Definitions of strategy From different definitions of strategy, we can draw from those the most common definition of strategy as follows: Strategy is a system of view points, purposes and basic objectives together with solutions and policies aiming at using the best resources, advantages, opportunities of the company to achieve the objective set in a certain period Business strategy has the features of: - Business strategy is the overall company strategy which defines objectives and business directions for a relatively long term period (5-10 years) and is fully understood in all production and business activities of the company to ensure that the company will develop sustainable - Business strategy only outline the long term orientation and is for orientation only In the actual practice, business should be conducted with a combination of strategic objectives and the situational objectives, strategy and tactics, long term and short term objectives After that it’s possible to ensure the business results and overcome mistakes caused by strategy - All the important decision during the strategy formulation, selection, preparation, monitoring and evaluation should be made by the top manager of the company This ensures the accuracy of long term decisions and information confidentiality - The business strategy is always made based on the competitive advantages It requires that in the strategy formulation, the company should evaluate correctly its actual business and production situation to find out the strengths, weaknesses and frequently review the internal factors during strategy implementation - Business strategy is first and foremost made for business areas, specialized businesses, and traditional strengths of the company This put the company in a position where it should make, select and implement the strategy as well as the business in existing markets where it has strengths 1.1.2 Strategic management 1.1.2.1 Definition of strategic management “Strategic management” is a rather new concept and is not as popular as “strategy” concept Similar to strategy, there are many different views on strategic management “Strategic management is the management process of pursuing an organization’s functions and responsibilities while managing the relations to its environment.” According to this view point, strategic management is to make the company work in the orientation of the environment, exploit opportunities, avoid risks to complete the functions and responsibilites of the company “Strategic management is a combination of the management view points and acts, deciding the permanent success of the company” 10 And the TFP’s fixed assets turnover ratio is 1.79 It also indicates that the company isn’t efficient in management of fixed assets Figure 2.12: Activity ratios 2.10.3.6 Average collection period: The average collection period indicates how long it takes for company to get money from it customers after doing business with them, which can be defined in the follows formula Average collection period = (Trade accounts receivable x 365) / Sales for year So, the TFP’s average collection period is 186.17 It means that the customers in 2008 are postponed in payment 90 2.10.3.7 Account receivable turnover The accounts receivable turnover ratio measures the cycle of accounts receivable turn over during a year, which can be defined by the formula Accounts receivable turnover = Annual credit sales / Accounts receivable In the TFP’s circumstance, the accounts receivable ratio is 0.51 It shows that TFP has paid to its suppliers very quickly This is also good purchasing way in order to maintain suppliers' loyalty 2.10.3.8 Days of cash The days of cash ratio refers to the number of days of cash on hand, which can be determined by the following formula Days of cash = (Cash x 365) / Net sales for year And in 2008, the days of cash ratio are 3.16 2.10.4 Leverage ratio Debt to asset ratio: The debt to assets ratio measures the extent of borrowed funds using to finance the company’s operations, which can be defined by formula Debt to assets = Total debt / Total assets In case of TFP, the debt to assets ratio is 41.1% By analyzing TFP financial status in 2008, the group has made some conclusions: 2008 is a difficult year for the world and Vietnam economy but TFP has made many efforts to be successful in production and business Although the above figures show that TFP business results haven’t corresponded to TFP position like the EP rate is not high, high settlements from customers, stocked goods is numerous, it has proved its position with a market share of 30% in the whole industry 91 2.11 Identifying strengths, weaknesses of TFP By analyzing the internal factors of TFP and compare those to its rivals, TFP's strengths and weaknesses are summarized in the following table: STRENGTHS • Being a newly established company, WEAKNESSES • Being a newly established company, the organization structure is logical finding customers or competition with and methodical complying with rivals in the industry is difficult standards • Modern and synchronous production • Store and workshop system is still line with high productivity helps TFP small and narrow products have high quality and meet the requirements of customers • The current market share is 30% • Being dependent totally on the which is a success for TFP Being a joint stock company whose main imported materials • Limit share holder are companies in on the information about international market and rivals telecommunication and information technology industry , TFP has advantage in selling and distributing products • TFP has good financial status • In general, TFP' finance status in 2008 is good but the goods amount in stock is big, customer owes much and this is a difficult problem for TFP's leaders • TFP distribution system spreads 92 widely in the country and some regional countries • Production and quality check process by ISO 93 CHAPTER 3: FORMULATING DEVELOPMENT STRATEGY FOR TFPCONCLUSION AND RECOMMENDATIONS 3.1 Formulating development strategy for TFP The purpose of this chapter is to design a development strategy for TFP Beginning with the strategy’s foundations; the chapter is ended with the selected development strategy An investment strategy will also be mentioned in this section 3.1.1 Foundations of TFP’s strategy In order to recommend a right strategy for TFP company, firstly it is necessary to answer three questions which are at the heart of the company’s strategy choice because they help to indicate the sources of the company’s competitive advantage over its rivals and determine how the company will compete in its business These three questions are: 3.1.1.1 What is to be satisfied? (Customer needs and product differentiation) TFP current products are optical cable of all kinds with to 96 fibers each Optical cable length can meet all utility requirements of customers TFP optical cable products are widely used in telecommunication, internet, TV cable etc as mentioned above, the competition on optical cable market is increasingly strong With the great efforts, TFP has produced the best quality optical cable with different designs which helps TFP to gain high position in optical cable market TFP can meet all requirements of customers in small and large projects It can be said that the difference in TFP products is the product quality and types 3.1.1.2 Who is to be satisfied? (Customer groups and market segmentation) As mentioned above, TFP product distribution system exists in all provinces and cities of the country The distribution channels that TFP chose are diversified also TFP products are sold through whole sale, retail and supplying contracts etc The products 94 are sold to big telecommunication corporations and information technology product trading companies, post offices in provinces and cities, Laos and Cambodian telecommunication corporations Retail buyers can get TFP products from agents, telecommunication material and IT product trading shops etc TFP is always dedicated to serving customers and commits that it will provide customers with high quality products and services professionally at the highest satisfaction 3.1.1.3 How customer needs are to be satisfied? (Distinctive competences) In terms of how customer needs are to be satisfied, TFP has always concentrated on technology to build a technological distinctive competence to satisfy customer needs through the excellent characteristics of its products And, as analyzed in earlier parts, it is the advanced technology in producing cables that helps the company to get brand loyalty and charge a premium price for its products In the situation of fiercer and fiercer competition, TFP recognizes that advanced technology is the competitive advantage for the company to maintain and consolidate its current first position 3.1.2 Strategic options for TFP Options about the development strategy for TFP are derived from solutions for the three following issues: • What generic strategy will the company base on to develop? • Which direction will the company develop in? • What method will the company use to develop? 3.1.2.1 Generic competitive strategies and a recommended strategy for TFP A selected generic strategy is the result from the Company’s making consistent choices on product, market and distinctive competences Based on TFP’s product differentiation, market segmentation and distinctive competence in part I, now strategic 95 alternatives are assessed to find out the most appropriate strategy for the Company a Cost leadership strategy The low-cost strategy requires TFP to be good at materials management and to have cost minimization in Research and Development, advertising, etc At present the Company has to rely 100% on the import of raw materials As analyzed in the parts of Chapter B, the bargaining power of suppliers now is not strong The suppliers could be Japanese, Korean companies One more advantage is that TFP has the right to import directly from abroad Though the cost of advertising was low (0.16%), the company has got good image on customers Based on the analysis of TFP’s current situationproduct differentiation, market segmentation and distinctive competence-the cost leadership strategy is suitable for the Company for the reasons as follows: In order to meet the domestic market all over the country, TFP must increase the production capacity by using advanced technology and its special skills Being the local leader in plastic business scale, production technology and scope of activities and a reliable supporter of consumers’ products manufacturers, the company has had the experience with new technology and market Moreover its cost advantage is gained through the regular suppliers of raw materials b Differentiation strategy Following differentiation strategy, TFP has some advantages as follows: • TFP has established high level of differentiation for its cables in terms of high quality and variety of product size As a result, brand of TFP has been considered by customers as being unique in the company’s target market • TFP has build brand loyalty for its cables Together with high quality and variety of product size, brand loyalty will safeguards TFP against its competitors and create an entry barrier for other companies seeking to enter the industry 96 • Differentiating in terms of investing in production technology to improve product quality is TFP’s forte Getting advanced technology to make product with highest quality is the first concern of the company in the past c Focus strategy TFP focus strategy now is market development Although TFP products are distributed widely in the country, with the competition from existing and new optical cable production companies (including new companies and those shifting production lines for from copper cable to optical cable), TFP should focus on market development to not only maintain market share but also rise to the leading one in Vietnam optical cable market TFP should enhance advertisement and marketing activities and extend more distribution channels and look forward to exporting 3.1.2.2 Directions for TFP’s strategy development The main development strategy of TFP is to combine product quality and the market TFP now has a great competitive position in optical cable market To maintain and raise the position, TFP should concentrate frequently the quality of products and services relating to optical cable diversify product types The company should keep the existing market and make it more developed while looking for more new markets and partners TFP’s main development strategies are summarized in the following table: Table 3.1 - Direction for TFP’s strategy development Fiber Optical cables Product Market Present Consolidation Product development New Market penetration 97 3.1.2.3 Methods for TFP’s strategy development In summary, TFP Company will develop on the basis of the cost leadership strategy with the directions of consolidation and product development for present market and of market penetration for new market by the methods of internal development and alliances designed in Figure 3.1 DIRECTION Consolidation Product development Market penetration COST LEADERSHIP DEVELOPMENT STRATEGY METHODS Internal development Alliances Figure 3.1: Development strategy designed for TFP Company 3.2 Conclusion Telecommunication industry is an important technical economic industry in the national economy It is the tool of the Party and State, serves the national security, and helps to raise the social civilization and knowledge It also contributes not a minor part in the gross domestic product With the rapid development of the economy, telecommunication industry is the fastest and most robust economic industry recently Technology development allows producing telecommunication material products 98 Information technology was born and develops vigorously, replacing old and technologically obsolete products Optical cable is one of the replacing products With its advantages, optical cable is the number one choice which helps telecommunication activities run smoothly Vietnam optical cable production and trading market is quite young in the world but it has made gigantic step forward Optical cable production companies are making effort to compete with each other to ensure meeting the total demand of the domestic market and aiming at the regional one, contributing in the telecommunication and information technology development Post and Telecommunication Technology of Optical Fiber and Equipment JSC was established in the context of world economy entering a crisis phase However, being equipped with a modern technology production line, good management and technical staffs, skilled workers, it has overcome the difficulties of the economy and the industry entry as a new company, TFP has been developing vigorously, proving gradually its leading place in Vietnam optical cable production and trading Although it has achieved certain successes, there are many difficulties and challenges to Post and Telecommunication Technology of Optical Fiber and Equipment JSC in the future Therefore, TFP should always focus on maintaining and improving optical cable product quality It should always learn and update with the world technical and scientific advances to improve productivity, reduce product cost to win the great advantages in the severely competitive market Despite of 30% market share, TFP needs to enhance marketing activities to improve TFP brand name and increase its market share 3.3 Recommendations From the recommended development strategy for TFP in the coming time, the group proposed the following specific measures to TFP: 99 3.3.1 Organization structure At present, the technical supervision unit of TFP is one unit of the factory in Gia Lam This makes the unit less independent in terms of product quality supervision and control It can be a potential risk for the quality of products made by TFP The group suggests TFP to set up one technical department under the direct management of the company leaders The technical department will check and supervise directly the production process in the factory, check product quality, evaluate production process implementation Moreover, to enhance marketing activities, TFP should have a separate unit to carry out advertisements, promote sales, look for new customers, and manage distribution channels and sales This unit should have professional, active and creative marketing staff etc Finance and Accounting Department should cooperate with other departments to study and offer product price reduction strategy to make a big competitive advantage for TFP 3.3.2 Products TFP should always keep track of technology changes so it can renovate products timely to meet all requirements from customers Not renovating products only, TFP should always put product quality on top It’s not possible to ignore quality for the sake of product quantity TFP should comply closely with the set technical requirements, select best quality material, supervise closely production process, select and train to make the technical workers skilled… 3.3.3 Product price To implement the leading price strategy, the company should improve work productivity and save in production and sales 100 3.3.4 Advertisement and promotion activities At present, TFP hasn’t really focused much on promotion for its products TFP products are known by customers through direct offer or VNPT and TFP shareholders In the coming time, TFP should formulate an appropriate product promotion plan through advertisement program on mass media (TV, newspapers, radio, internet etc.) TFP should make detailed and professional marketing strategy to speed up sales, promote TFP image to customers in the country 3.3.5 Financial recommendations From the analysis of strengths and threats in terms of financial status, TFP should try to reduce the goods in stock, avoid damages and losses during transportation and storage TFP should improve the situation where customers owes large amount of money for a long time, making the company capital utilized by customers 101 References Ansoff, H I., Corporate Strategy, 1987 Below, P J / Morrisey 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Market development Product development Diversification Alternative directions for development (Source: Ansoff, 1987) 28 CHAPTER 2: STRATEGIC MANAGEMENT ANALYSIS IN POST AND TELECOMMUNICATION TECHNOLOGY OF OPTICAL FIBER AND EQUIPMENT JSC A External factor analysis 2.1 Macro environment analysis 2.1.1 Global financial crisis and world economic downturn In 2008, The World Economy witnessed a year full of. .. persistence of excess capacity and consequently increased competition (Source: McNamee, 1987) A reflection on the combined impact of exit and entry barriers on the profitability of an industry is presented in Table 2.1 Table 1.1 High Low High High but possibly High and stable unstable profit profit Low BARRIE ENTRY EXIT BARRIERS Low and unstable Low and stable profit profit The impact of entry and exit... objectives and wrong way with the requirements Most of companies nowsaday only formulate strategies and don’t focus much on strategy implementation Strategy formulation is the most important stage of strategic management process However, the strategy is only what on paper if the implementation is not good On the other hand, to formulate the strategy management process, company need lots of time and efforts... Economy and Forecast magazine issue 3 February 2009) Sex structure of population: The women labor force is at third place and tends to be increasingly vital Now, Vietnamese women contribute a large share in the development history of the country, expressed in the number of women accounting for a large proportion of the labor force With over 50% of the population and nearly 50% of the social labor force,... direction of developing Vietnam’s information technology and communications up to 2010 and orientation of development to 2020 are defined as follow: - Forming and developing E-Vietnam along with E-citizen, E-government, Ecorporation, E-transaction and E-commerce to attain average and fair standards in ASEAN area by 2010 - By 2010, density of telephones will reach 32-42 phones/100 people, in that density of. .. this, then its strategy should be to move against the weakest sectors in its competitive map 1.3 Selecting development strategy As soon as completing the tasks of identification of the most relevant competitors, of selection of the critical success factors and of developing a competitive profile, companies have to select a strategy that is most appropriate for their development Options about development. .. Manufacturing and Research and Any kind of competence materials Development distinctive management Sales and competence Marketing Table 1.3 Product / Market / Distinctive competence choice and generic competitive strategy (Source: Hill / Jones, 1989) 1.3.2 Strategic development directions Based on sets of “product/market” choice, there are different directions for companies’ strategy development These... corporation’s current performance results in terms of return on investment, profitability, etc., and 14 b the corporation’s current mission, objectives, strategies, and policies 2 Examination and evaluation of the corporation’s strategic managers - board of directors and top management 3 Scanning of the external environment to locate strategic opportunities and threats 4 Scanning of the internal corporate... Management Model, the formulation process is concerned with developing a corporation’s mission, objectives, strategy, and policies In order to do this, corporate strategy makers must scan both the external and internal environments for needed information on strategic factors The first six steps commonly found in strategy formulation are a series of interrelated activities: 1 Evaluation of: a the corporation’s... the formulation, implementation and monitoring the decision implementation for achieving those objectives in the current and future environments Therefore, strategic management analyzes internaal and external conditions of the company Thanks to this, the company’s strengths and weaknesses can be defined to take advantage of external opportunities and mitigate internal problems 1.1.2.2 The necessity of