DEVELOPMENT OF BUSINESS STRATEGY FOR NAMHA GARMENT STOCK COMPANY

DEVELOPMENT OF BUSINESS STRATEGY FORNAM HA GARMENT STOCK COMPANY.The different views of Corporation business strategyPlanning business strategy processAnalysis the impacts of macro environmentUsing Porter’s Five Forces model to analyze business sectorAnalysis potential new entrantsANALYZE THE SITUATION OF NAM HA GARMENT STOCK COMPANY

THESIS

DEVELOPMENT OF BUSINESS STRATEGY FOR

NAM HA GARMENT STOCK COMPANY

ACKNOWLEDGEMENTS

Firstly, we would like to give my deeply appreciation to Faculty Group for their comments We also want to give many thanks who offer us support throughout the academic year

We guarantee this capstone project is our team’s research It was gathered from multiple sources and the actual document This capstone project is not copied from any research before We are completely responsible for the content of this capstone project

Hanoi, August 11th 2009

TABLE OF CONTENTS

ACKNOWLEDGEMENTS 2

TABLE OF CONTENTS 3

INTRODUCTION 9

CHAPTER 1:LITERATURE REVIEW AND THEORETICAL BASIS 11

1.1 Business strategy: Concepts and classifications 11

1.1.1 The different views of Corporation business strategy 11

1.1.1.1 Classical views 11

1.1.1.2 Evolution views 11

1.1.1.3 According to process views 12

1.1.1.4 Systems views 12

1.1.2 The concept of business strategy 12

1.1.3 Classifications of business strategy 13

1.1.3.1 General Strategy 13

1.1.3.2 Functional strategies 15

1.2 Planning business strategy process 16

1.3 Develop business strategy 17

1.3.1 Analysis the impacts of macro environment 17

1.3.1.1 Analysis the impacts of economics 18

1.3.1.2 Analysis the impacts of politics 19

1.3.1.3 Analysis the impacts of social 19

1.3.1.4 Analysis the impacts of technology 22

1.3.2 Using Porter’s Five Forces model to analyze business sector 22

1.3.2.1 Analysis the rivalry among competitors 22

1.3.2.2 Analysis the bargaining power of buyers 26

1.3.2.3 Analysis the bargaining power of suppliers 26

1.3.2.4 Analysis potential new entrants 27

1.3.2.5 Analysis the threat of substitute products 31

1.3.3 Enterprise analysis 31

CHAPTER II: ANALYZE THE SITUATION OF NAM HA GARMENT STOCK COMPANY 36

2.1 Introduce about Nam Ha Garment Stock Company 36

2.1.1 Introduce about Nam Ha Garment Stock Company 36

2.1.2 The process of formation and development 36

2.1.3 Functions, responsibilities and organization structure of Nam Ha Garment Stock Company: 37

2.1.3.1 Functions: 37

2.1.3.2 Organization structure of Nam Ha Garment Stock Company 38

2.1.4 Quality Standard 40

2.2 Analyze macroeconomic environment 41

2.2.1 Economics 41

2.2.1.1 The growth of the economy 41

2.2.1.2 Inflation 42

2.2.1.3 Unemployment rate 43

2.2.1.4 Exchange rate 44

2.2.2 Analysis the impact of politic events 44

2.2.3 Analysis of impacts from law and policies 47

2.2.4 Analysis of impact by social conditions 51

2.2.5 Analysis of impact from technology change 52

2.3 Analysis of environment of garment and textile industry 53

2.3.1 Analysis the rivalry among competitors 53

2.3.1.1 The competitors of Nam Ha Garment Stock Company 53

2.3.1.2 Analyis of rivalry of competitors 56

2.3.1.3 Making the table of position assessment of Nam Ha Garment Stock Company compared to its competitors 59

2.3.2 Analysis of customers’ pressure 61

2.3.2.1 Classification of customers 61

2.3.2.2 Analysis of customers’ position 62

2.3.3 Analysis of suppliers pressure 62

2.3.4 Analysis of pressure from potential competitors 63

2.3.5 Analysis of pressure from substituted product 63

2.4 Analysis of internal situation of Nam Ha Garment Stock Company 63

2.4.1 Analysis of productivity 63

2.4.2 Financial analysis 66

2.5 Summary of opportunity, risks, strong points, weak points of the Company 71

CHAPTER III: BUSINESS STRATERGY OF NAM HA GARMENT STOCK COMPANY IN 2009 -2015 73

3.1 Summary the situation of Nam Ha Garment Stock Company 73

3.2 General strategy of Nam Ha Garment Stock Company in 2009-2015 75

3.3 Functional strategy of Nam Ha Garment Stock Company 75

3.4 Implementing functional strategies of Nam Ha Garment Stock Company 79

Using Value chain Model to apply functional strategies 79

3.4.1 Infrastructure 79

3.4.2 Human Resources Management 79

3.4.3 Technology Development 80

3.4.4 Procurement 80

3.4.5 Operations and Logistics 80

3.4.6 Marketing, Sales and Services 81

CONCLUSION 82

REFERENCES 83

I Vietnamese Sources 83

II English Sources 84

LIST OF TABLES

2.1 GDP of Vietnam in 2006 – 2009

2.2 Inflation rate of Vietnam in 2006-2009

2.3 Unemployment rate of Vietnam in 2006-2009

2.4 List of Domestic competitors

2.5 Turnover of Nam Ha Garment and competitors in US and EU market in 2008 2.6 Assessment of rivalry of Nam Ha Company compared to its competitors 2.7 Market share of competitors of local market

2.8 List of international customers of Nam Ha Garment Stock Company 2.9 Export turnover of Nam Ha Garment Stock Company in 2008

2.10 Productivity of the company in 2006-2008

2.11 Company’s Profit& Loss in 2007-2008

2.12 Solvency and profit of the company in 2007-2008

2.13 Capital structure of the company in 2007-2008

2.14 Organization by profession and skill

2.15 Summary of opportunities and threats of Nam Ha Garment Stock

Company

2.16 Summary of strengths and weaknesses of Nam Ha Garment Stock

Company

3.1 SWOT Matrix

LIST OF FIGURES AND GRAPHS Figure 1.1 The Five Forces That Shape Industry Competition

Figure 2.1 Organization structure of Nam Ha Garment Stock Company

Figure 2.2 Quality Standard of Nam Ha Garment Stock Company

Figure 3.1 Value Chain Model

INTRODUCTION

1 The necessity of project

Enterprises when involve in the market have to define the specific long-term goals and long-term business strategy for development However, the existence and development of a business not only depends on the enterprises’ activities but also affected by many factors The changes of business environment and the demands are these enterprises’ opportunities but also are the challenges for other enterprises

To develop, the enterprises have to determine policies and strategies to take full advantage of business opportunities and limitations at risk From that, the enterprise can enhance the effectiveness, competitiveness and performance of business Therefore, business strategy cannot be missing, it is very important for the development of enterprises in the future

In studying and research period of Nam Ha Garment Stock Company, I found that strategic business planning is an important factor to the enterprises’ success

Therefore, I chose the topic: “Development of Business strategy for Nam Ha Garment Stock Company in 2009-2015”

2 Research range

Topics focus on three mainly ideas:

- The basis of business strategy

- The issues to develop the business strategy

- Develop a strategic business for the company from 2009 to 2015 and the solutions

Besides the introduction and conclusion, the topic is divided into 3 parts:

Part 1: The theory of planned business strategy

Part 2: Analysis of base to form a strategic business

Part 3: Strategic formed

CHAPTER 1:LITERATURE REVIEW AND THEORETICAL

BASIS 1.1 Business strategy: Concepts and classifications

1.1.1 The different views of Corporation business strategy

Strategy term was created from a very long time, this term was first used in the military Today, this term has been used in almost all fields: economic, political and cultural society [I.5]

The appearance of business strategy concept is not just borrowing It originated from the need of business in the market mechanism

Here are some views of business strategy

1.1.1.1 Classical views

This point appears before the 1960s, by this point, the business can plan and maximize all the inputs to create a long-term competitive advantage, performance targets and maximize profits

Indeed, in 1970 this view was not used because it was not to mention the business environment of the enterprise and operation of the business are controlled by chief accountant and manager On the other hand, many economic areas were established such as North America, South America, Western Europe, and Eastern Europe These appearances dominated over the operation of business From the competition between areas, businesses have to coordinate with each other [I.5]

1.1.1.2 Evolution views

This point considered "Business is a living and it is affected by external environment, and it can self-adjust to adapt with business environment." Thus, this opinion did not admit business as a black box, the business as an open system under the impact of external environment [I.5]

1.1.1.3 According to process views

In this point, enterprise that wants to be successful on market need process a term business From this process, the enterprise can get experience that can be used

long-in buslong-iness

According to calculations by Harvard University, the United States: Company takes from one to three years to step into the market, from three to five years to stand on the market and more than eight years to success Therefore, businesses must have long-term plan, to develop long-term strategic in the market [I.5]

1.1.1.4 Systems views

According to this point, the enterprise is a part of economic system In this economic system, the business have relationship with each other, are governed together and be affected by macro-environment and environment sectors Therefore,

a business does not only consider themselves that must pay attention to the effect of environmental factors Therefore, the analysis of business environment is very necessary

In summary, although the views are accessible categories strategy under any angle, they are also for a purpose to help the enterprises fastest growing, sustainable, maximize profits, increasingly competitive in the market [I.5]

1.1.2 The concept of business strategy

From the different approach, the economist described business strategy differently

* Access to aspects of "competition": A group of authors has considered that strategy is the art in competition

- According M.E.Porter "Business strategy is the art of building competitive advantage steadily to defend." [I.8]

- By K Ohmae, "The purpose of the strategy is bringing the most convenient for enterprise, evaluation time to attack or withdraw, determine the boundaries of compromise" and he emphasized: “No competitor is no strategy, purpose of strategy

is to ensure sustainable victory for the competitors” [I.6]

* Another approach: There is a group of authors who said that strategy is a set of strategic plans as a base to guide activities [I.5]

- According James.B.Quinn: "Strategy is a format or a plan to coordinate main objectives, policies and the actions of a whole to stick together."

- According Wiliam.J.Gluech: "Strategy is a united, comprehensive and coordinated plan, it is designed to ensure that the objectives of a sector will be implemented."

In general, the concept of business strategy is inclusive and reflects the following issues:

+ The objective of the strategy

1.1.3 Classifications of business strategy

To manage strategy effectively, the strategist often classify strategy based on multiple different targets Each strategy is planning enterprises’ future development Sorting by the scope of strategy: "We can divide business strategy into 2 levels, general strategy and functional strategy”

+ Create powerful on the market

+ Ensure safety in business

- Increase profitability

In case of no competitor, and even with competitors, all businesses want to maximize profits The high capital rate and high profits rate are general objectives

of any business

- Create powerful on the market

However, in the most of the period, businesses can invest more capital and the profit rate will be low if it ignored the first target and achieve the second: to create powerful on the market Businesses want to find a good location where many consumers know, and spend more costs to get the reputation For example, the enterprises put more capital to innovate technology, improve product quality or research new products When the product launches to the market, the price maybe low to take up the market Researching product, technology innovation and the penetration to the target market, maximize profits goals cannot be achieved, but the second goals ca be achieved Powerful on the market of the enterprise is often measured by market, which the enterprise controls Proportion of the goods or services of the business compared with the total amount of supply of goods and services on the market, the capital, the level of dependency to other businesses, prestige and reputation of the business

- Ensure safety in business

Business is always associated with risk Business strategy, which is reckless, high competition, is high benefit and high risk

Causes of risk include:

- Lack of knowledge and skills in business management;

- Lack of suitable competition;

- Lack of economic information;

- Objective causes when the policies change, high inflation and economic crisis; by accident, fire, theft, natural disasters

Risk is unexpected However, the strategists when develop business strategies have

to looking for the solution to prevent, avoid and limit the risks If the enterprises have policies to prevent, the damage will be the lowest

Risk preventive system includes diversifying products and services, buying insurance, strategic analysis

Each enterprise can set three strategic goals at the same time; maybe can only put one or two of the three goals [I.9]

1.1.3.2 Functional strategies

Functional strategy includes many types such as strategies based on the business itself, based on the customer to achieve general objectives, or marketing strategy, finance strategy, human resource development strategy These are the activities, which each enterprise must plan to achieve the targets

There are many functional strategy classifications such as:

a Based on develop strategy:

(1) Strategy based on customers

(2) Strategy based on competitors

(3) Strategy based on the strength of the company

b Based on the content of the strategy are the four types of strategy such as: (1) Strategy focus on key factors:

This strategy is not spread the resources and focus to the areas which are good for business enterprises

(2) Strategy to create advantages:

In this strategy, the enterprises have to analysis and compare products or services with their competitors From that, they can find advantages in cost or price for their products Since then the enterprise will build business strategy

(3) Creative attack strategy:

To implement this strategy, the enterprise must look into these issues, which are considered common, invariant to review them They need to ask many questions for these issues From the questions, the enterprise can explore the new issues for businesses and develop them in business strategy

(4) The strategy of exploiting potential abilities:

Develop strategies based on the analysis with information systems to exploit the abilities of all other factors surrounding key factor Since then, the enterprises find the solution to use and promote these abilities for the best business effect

c Based on the marketing activities diverge 4 type of division strategy

(1) Product Strategy:

Enterprises have to attend and enhance the characteristic of the product such as durability, longevity, color, design, materials, safety, packaging, the convenience, the variety of options, the level of processing, service associated with

(2) Pricing strategy:

Companies always pursued this strategy because they always want to produce products with low cost to attract customers

(3) Distribution strategy

(4) Strategies promote communication

Thus, four marketing policies are also the division strategies by classification Marketing - Mix Each division strategy in any classification, they orient the business operation in the future focus on this marketing policy At the same time, businesses can apply division strategies in many different ways For example, based

on competitors combined with strategy of exploiting the potential abilities [I.5]

1.2 Planning business strategy process

Planning business strategy, the first step is analysis the business environment Analyze the business environment is looking for the opportunities, threats, strengths, weaknesses of the business Businesses strategic management is development of their strengths, overcome the weaknesses, exploit the opportunities and avoid the threats from the environment Business environment of enterprises is assigned to the external environment and the environment

Analyze external environment: It is to analyze the effect of external factors on business enterprises It identifies the threats to avoid, the opportunities to take advantage

Analyzing internal environment: It is the analysis, awareness the strengths, weaknesses of the business in operation and compare with the competitors Business strategic management finds and develops competitive advantages, so understanding of business environment is very important

Information is an important factor to build and implement business strategies Rich handled well and in time information is a good basis for business strategy

On the world, in developed countries, information market has established Data bank collects and provides information as requested by customers

Before operation, an organization or an enterprise needs to identify the target Define strategic goals are quite broad and can be classified into three parts: functional tasks, goals and objectives The first and biggest part of target strategic is functional tasks; it is the basic reason for launching businesses Goals and objectives are the purpose or results which the enterprises want to achieve The purpose is got from the functions and duties in order to perform the function After defining the function, the tasks and goals of the business, all people who involved have to know what the business wants to achieve This is the specific target, which should be achieved in each period

Define strategic goals need to base on benefits of relevant parties, such as the owner, business leaders, state, local governments, banks, customers, competitors, suppliers and employees

1.3 Develop business strategy

1.3.1 Analysis the impacts of macro environment

In fact, the industries and enterprises in a macroeconomic include six segments: economic, technological, cultural, social, demographic, political law, and global The changes of the macroeconomic will effect directly to all segments At the end,

it will change the attractiveness of an industry

1.3.1.1 Analysis the impacts of economics

State of macroeconomic identifies the healthy and prosperous of economy; it always causes the impact to businesses and industries Therefore, enterprises have to study economic environment to identify changes, trends and its strategy

Economic environment is the nature and direction of the economy where the enterprise operates As the result of a global economy, countries are linked together,

so small enterprises have to review, monitor, estimate and evaluate the health of the economy outside their country United States, China, Japan and the European Community economies effect deeply to other economies

The impact of the economy to a company can change the create value ability and its income Four important factors in the economic environment are the economy growth rate, interest rate, exchange rate, and the inflation rate

Economic growth leads to an explosion of customers spending, so it can make trends of pressure in a competitive industry The enterprises can get opportunities to expand market and gain profit However, economic decline will lead to reduce consumers spending and increase the competition pressure Economic decline often cause price wars in the saturated industry

The interest rate can affect to the demand of company products It is an important factor when customers have to borrow money for their shopping

Exchange rates determine the country’s money value together The moving of exchange rates has a direct impact on competitiveness of companies in the global market For example, when the currency value is lower than other is, products, which are produced in these countries, will cheaper than others from overseas The low currency value will reduce threats from oversea competitors and create opportunities for increased sales outside

Inflation can reduce the stability of the economy, the economy will grow more slowly, interest rate is higher and the exchange rate is not stable If inflation increases, the planned investment is risk Key characteristic of inflation is that it causes difficulties for information about the future In the inflation environment,

enterprises cannot estimate accurately the value of income from 5 years It is a reason why it is hard for the companies to invest The investment of company when inflation increases will reduce economic activities, finally it push the economy to discontinue Thus, high inflation is a threat to the company [I.1]

1.3.1.2 Analysis the impacts of politics

The political factors have affected to the growing activities of enterprises They can create opportunities, barriers and even the real risk for businesses when they change

Laws and policies also have an impact to the opportunities and threats of companies

The enterprises have to analyze carefully the philosophy, the new policies which are promulgated by the government Law and policies can affect to operations and the capacity of or businesses [I.1]

1.3.1.3 Analysis the impacts of social

The social conditions affect strongly to all strategies

+ The population

In all activities such as production and business, managers have to use human resources Planning development strategies of each company have to base on human resources In another way, population and the increasing of population in each market or each country always have great influence to all activities of business management in the enterprise

In general, in each enterprise, managers have to analyze the structure of the population based on gender, age, the market segment and determine the target market In addition, they also have to identify the demand of products and base on the need of market to have production and consumption plan

The moving of population from this region to another region is the factors that affect to the planning of strategies, policies of human resource management, market strategy and business strategy

+ The culture

Culture is a complex category Culture is considered as a phenomenon exists in humanity social Each person, each manager, each organization belongs to a specific culture The influence of each culture, personality, ethics, beliefs, attitudes, systems of values in each person is taken form and developed Business strategy

is affected directly by the culture, which controls behavior of consumers and purchase behavior of customers

In addition, family, knowledge, education governs business strategy in the specific enterprise

+ The Career

Expertise and cooperation of social workers as an actually rule in the development

of each country, each region and the world We found that, where economic development of society is strong, the qualification and cooperation of labor in which the higher and vice versa This means that the social develops, specialized and diversified career increase strongly Different occupation will lead to the required of tools and different specialized workers Besides, the different industries will lead to the different of demands on accommodation, travel, entertainment To meet the needs of different professions in society, the managers in each business will have to see all effects of the factors to the planning and implementation strategies and its business

+ The Psychology ethnic

Homes, the country, ethnic pride, strength of the intelligent, fondness for learning always are elements of ethnic psychology They have a great influence not only how to think and act for each of the management as well as each human being administrator, but it also deeply influenced to consumers style, affecting the formation of different markets and this force managers to consider in calculating the decision management of their business

+ The style and lifestyle

Society is a colored picture which created by the individual styles and different lifestyles Each style and lifestyle has its own characteristics of each of their individual thoughts, actions and shows to the outside It governs to the formation of the demand for type, quality, quantity, shape, design of goods and services specific to the style and the lifestyle If the managers want launch business effectively, they have to adjust their activities according to style and lifestyle of the society and the social future

+ The marriage and family

Marriage and family of each person have an important role Marriage and family are the actually rule in society Each family is a cell of society, and it will affect strongly to management and enterprise business

Marriage and family not only affect directly to the activities of managers in enterprises but also affected very deeply to the formation of a variety of needs such

as social housing, the vi, washing machines, and goods and services related to the household The managers when determine and implementing business strategies do not ignore the impact of these factors in its activities

+ The religion

Religion was born early in the history of humanity Today, there are many types of religions in the world Each religion has its concept, beliefs and attitudes about life, about the behavior with each other and with people Religion has great influence on the ethical, culture and lifestyle not only for the managers but also to the officers and employees under their management The leadership and administration activities of the managers are influenced by religious factors in perception, in behavior, and in the activities of employees In addition, the mind of consumers also will be influenced deeply by religion All of these also have a great influence to the planning and implementation of business managers Those who are sensitive, understanding of the religion can find opportunities in their business management

1.3.1.4 Analysis the impacts of technology

This factor has great influence directly to the strategic business areas and sectors as well as enterprises In the world, there are many changes of technology which lead

to disappear many fields and appear many new business, or more perfectly

20th century is the century of science and technology Therefore, the analysis and judgments of technology conversion is very important and urgent than ever Indeed, the technology changes affect all businesses, even medium and small

Changes in technology affect the life cycle of a product or a service A cycle in theory includes such as introduction, growth, mature and decline [I.18] In some companies, products will have a new life cycle after decline Moreover, the change

of technology also affects to the production methods, raw materials and behavior of employees

1.3.2 Using Porter’s Five Forces model to analyze business sector

Figure 1.1 The Five Forces That Shape Industry Competition [II.2]

1.3.2.1 Analysis the rivalry among competitors

The first force in Porter’s 5 forces model is the competition between companies within a sector An enterprise in an industry depend on each other, the activities of a

company often lead to reaction by other companies The competition is fierce when

an enterprise is challenged by the actions of other or it recognizes an opportunity to improve its position in the market

Rarely have the best of businesses in a sector Because they are different resources, capabilities and find ways to make difference with competitor Often see businesses create competitive advantage by causing differences between the products of it with what its rivals offer Tools commonly used in the race to create value for customers are price, quality, innovation and customers’ satisfaction

If the competition in a sector is not powerful, companies will have the opportunity

to increase prices and gain higher profit However, if the competition is strong, competitive pricing may be a strong; this will lead to price war Competition limits the generation of profits due to reduction of edge profit on sales Therefore, strength

of competition between companies in the industry created a strong threat to the ability to generate profit The level of competition between companies in the industry depends and three main factors: the competitive structure of industry; conditions of demand; high-risk barrier for leaving the industry

Competitive structure

Competitive structure means the quantity and scale distribution of companies in the industry Industry structure varies from dispersed to concentrated industry with relation to the competition

Dispersed industry including a large number of small- scale or medium size companies and no company hold dominated position Dispersed sector usually have

a low joining barrier and its products are primary with a little difference These two features combined and created tend to increase profits by cycle The low barriers will create favorable conditions for a line of joiners to the sector, whenever the demand and profit are high with the hope to earn money when the price up or down

to the demand (through bankruptcy), that is the time that price is stable again

Therefore, the dispersed industry structure brings a threat rather than an opportunity Most of the explosion takes place in relatively short time, because of

the easier joining and successive wars and bankruptcy It is very difficult to make a difference in products in such sectors, so the best strategy for companies is to put in its pocket the profits in boom period and survive in any decline in time

A concentrated sector is dominated by few of large companies (in this case it is seen

as the exclusive group) or in extreme case only one company (exclusive) The

pharmaceuticals

The nature and degree of competition in concentrated sector are hard to foresee Because in concentrated sector, companies depend on each other The actions of competing of a company will directly impact on the ability to generate profit and impact on market shares of the others in the industry It arose as a strong response from the competitor The consequences of mutual dependency in the competition so can create a dangerous competitive spiral They try to lower prices to compete, or series of costly reactions shall reduce the profits down in the sector

Clearly, in the dispersed industry, the competition between companies and the possibility of price war creates major threats Sometimes companies find ways to alleviate the threats by the use of lead in price by the company have the advantage

in the set However, they must be careful Because the agreed price determined to

be illegal, although there may be tacit agreements (a tacit agreement means an agreement without direct contact) Instead of direct agreement, the companies observe and explain the behavior of each other The tacit agreement means to go following the lead price set up by a dominated company However, the tacit agreed lead of price is often broken under the conditions of economic disadvantage

How much more, when the price war is a threat, companies tend to switch to compete on factors other than cost such as advertising, promotion, brand positioning, function design and product quality This competitive category is trying

to create differences for products of the company compared to competitors, so to build a brand loyalty and minimize the possibility of a price war However, the effects of this strategy depend on the ability to cause the difference in the product or

not Some products (like cars) relatively easy to cause the differences but some others (such as air transport) are again difficult

Demand condition

The demand condition of a sector is another decisive factor on the level of competition in the existing companies The growing demand from new customers or increase purchases of existing customers tend to cool down the competition, because it opens a larger space for development Demand growth tends to reduce the competition, because the companies may sell more do not need gain the market from other companies, and the result is often still high profits

Conversely, the reduced demand will lead the competition stronger Because at the time the company must try to fight to maintain it and market share Demand decreases when customers leave the market or when they buy less Situations that, each company can only grow by gaining the market of other companies Thus, demand reduction creates a greater threat because it increases level of competition between companies in the industry Moreover, the slow demand growth may also arise problems

Barriers to leave the industry

Barriers to leave the industry can keep a company to stay in the industry even with low-income If the barriers to leave the industry high, the company may be kept in

an industry, where there is no profit and demand is unchanged or decreased This can cause the excess of production capacity Then, the excesses production capacity tends to make deep price competition, as companies are seeing the price cut is an attempt to receive more orders to use idle capacity of them Barriers to leave the industry commonly include:

- Investment in the factory and machinery without other using option and cannot sell If companies want to leave the industry, it has to leave the book value of these properties

- Fixed costs to leave the industry are too high such as payments for redundant workers

- The economy depends on industry, when a company is not diversified and only relied on the income in the industry [I.8]

1.3.2.2 Analysis the bargaining power of buyers

The second force in Porter's is the capacity to negotiate the purchase The buyer of a company may be the final consumers of its product (the end user), but they can also

be the company distributes its products to end customers such as the wholesalers, retailers For example, while Unilever sell soap powder to final consumers, who buy the products of the system are the supermarkets that then sell to end users The buyer can be viewed, as a threat of competition when they compete in the position required a lower price or when they demand better service (which can lead to increased operational costs) The buyer can ask the company or not depends on their relative power to their company According to Porter, buyers have most power in the following cases:

1 - When the supply industry is made of many small companies and buyers are a few and large In this case, the buyers are allowed dominate supply companies

2 - When the buyer purchases with high quantity In this case, the buyer can use the power of shopping as a lever to negotiate a discount

3 - When supplying sector depends on the buyer, because a large percentage of the total order are from them

4 - When the buyer can switch between the supplying companies with low cost, so

it stimulates the companies to go against each other leading to price reduction

5 - When the economic characteristics of buyers are shopping from several companies at the same time

6 - When the buyer can use the threat of supplies when they are able to integrate vertically, they use this capability as a tool to reduce cost [I.8]

1.3.2.3 Analysis the bargaining power of suppliers

The third model of the five Porter’s models is negotiating capacity of suppliers Suppliers can be viewed as a threat when they can increase the pressure to increase

the cost or reduce the profitability of the company Conversely, if supplier is weak then this is an opportunity to press for price reduction and higher quality As buyers, the ability of suppliers request to the company depending on the relative power between them and the company According to Porter suppliers has the most power when:

- The suppliers have less range of product to sell and have the ability to replace and become important to the company

- In the industry, the company is not an important customer to supplier In such situations, the health of suppliers does not depend on company sector, and suppliers have fewer motives to reduce the price or improve product quality

- The corresponding products of the respective suppliers are different as can be costly to the company transition from this supplier to another supplier In those cases, the company depends on suppliers and it cannot stimulate them to compete with each other

- Suppliers can use the threat of reverse integration against the industry and compete directly with the company

- The company purchased cannot use threats against integration of the suppliers to satisfy its demand as a tool for price reduction [I.8]

1.3.2.4 Analysis potential new entrants

Fourth model including the company does not compete in the industry but they can

do it if they want For example, electricity can be a competitor potential for telecommunications companies on phone services and Internet access

Identifying the competitor who can penetrate into the sector is important, because they can threat to market shares of existing companies in the industry One of the reasons to consider all want to enter the industry as a threat is because they will bring to the industry a new production capacity Normally, the new joining competitors have a great concern to gain big market share As a result, the new competitors can press the existing companies in the industry to become more

efficient and must know how to compete with new properties (for example using a distribution system based on the Internet)

The existing company of the industry is trying to prevent the potential competitors from joining the industry Therefore, the risk of entering of high potential competitors shows a threat to the profitability of the company on operation Conversely, if the risk of entering is low, the existing companies use the advantage

of this opportunity to increase prices and receive higher income

When competitors want to join the industry, they will face barriers Barriers of joining are the difficult and expensive factors for competitors when they want to enter the industry, and even when they can penetrate, they will be put to the disadvantage The higher costs for joining the industry of the new company, the higher the barriers to join are The high barriers of joining shall keep potential competitor stayed outside even when income in the industry is high In the classic work on barriers of joining of Economics of Joe Bain, he identifies three sources of barriers for joining which are: Brand loyalty; absolute cost advantage and the scale economic characteristic In addition to Bain factors, we have two important barriers, which are worth to consider in many cases: conversion costs, the Government's regulations and reprisal

The brand loyalty

The brand loyalty means the buyers’ preference for the products of the existing companies Each company can create a loyalty

Brand of companies are advertised continuously and brand name of the company, protection of copyright products, improved products through the R & D, emphasis

on quality products, after sales services The brand loyalty will cause difficulties for new comers who want to gain the market share of the existing companies Therefore, it reduces the threat of joining of potential competitors The competitors with the wish to join themselves will have to aware that the task to drive away the interests that has rooted in the customers is very difficult and expensive

Advantage of absolute cost

The existing companies can have the advantage of absolute cost compared with the new comers The advantages of absolute cost are:

- Ability to remarkably operate and manufacture through the experience

- Ability to control the special inputs for production such as labor, materials, equipment and machine, and management skills

- Access to capital cheaper because the existing companies suffer the lower risk than the company has not been established

If the existing companies has the advantages of absolute cost then the threats from new joining ones decreases

Economic characteristic of scale

The economic characteristic of scale is the improvement of edge efficiency because the corporate accumulates experience when its scale is expanded Source created the economic characteristic of scale includes the reduction of cost by mass production

or large volume of standard products and, discounting for the purchase of bulk materials and details, advantages have by allocation of fixed costs for large production volume and economic characteristic of scale in advertising

When the advantage of cost in the industry is significant, the joining people are forced to join with a small-scale and loss the advantage of cost, or must accept the risk to join with large scale and bear large capital costs Risks and more can come to the ones who join with the large scale That is when the supply increases and the price decrease This causes the reprisal of existing companies Thus, when the new joining companies have the economic characteristics of scale, the threats of joining reduce

If conversion costs are high, customers are seemed to be kept with the products of the existing companies, even when the product of new joining companies is better For example, we consider the situation customers want to change this operating system of their computer to a different operating system If an individual having software applications related (like Word), spreadsheets, games .) and document files and they want to switch to other operating systems like Apple's Macintosh OS

it will be more expensive The reason is simple If they changes they will have to buy a new set of software applications because Window applications does not run

on Macintosh operating systems Moreover, they will have to save more time and contribution to convert the files to be usable with applications written for the Macintosh OS Seeing the costs and time to do so, most people do not want to change unless the change promises a sudden change of performance (and we believe that the Macintosh is not the case) From this point of view we find that the high cost of conversion is the barrier to the ones who desires to join the market operating system for personal computers and competition and the operating system has been shut on the market

Government’s regulations

In the past, the Government has created a great barrier for joining various sectors Through licensing or special requirements, the Government can control the penetration into an industry For example, the regulations for pharmaceutical business, banks The government also often restricts the joining to the sectors for public benefit, because it requires providing quality service to people and capital requirements should to do so

Reprisal

Businesses when joining a sector should foresee the reaction of the enterprises in the sector It is estimated that the speed and vehemence of reprisal of the present competitors will discourage the new joining competitors

Thus, aiming at the split of the market that the competitor does not have in its service as a way for new joining competitors to pass the barriers and join the industry In general, small scale enterprises are appropriate to identify and serve the staged implementation neglected When Honda first penetrated the U.S market, it has focused Harley - Davidson By direction to the forget market, Honda avoids the competition After consolidating its positions, Honda uses its power to attack the competitors by offering bigger motorcycles and competition in the expanded market [I.8]

1.3.2.5 Analysis the threat of substitute products

The final model of Porter is the threat from substituted products The replacement product is the product of the industry that serves the needs of customers similar to the industry is analyzed For example, companies in the coffee industry to compete directly with companies in the tea and beverage industry All branches are serving the needs of the customers drink Prices that companies in the coffee industry can provide are limited by the level of presence of the alternative products such as tea and soft drinks If coffee prices are too high in relation to the relatively tea and soft drinks, the guests will switch from coffee to other products instead This phenomenon occurs when cold weather has been unusual destroy many garden coffee in Brazil in 1975 - 1976 Coffee prices increased record high, reflecting a shortage, and a large number of coffee drinkers started to switch to drinking tea The existence of substituted products closely reflected a competitive threat limiting ability to set prices and therefore limit its profitability However, if products of the company with few products to replace closely (that is the case when the substituted product has weak competitiveness) and other factors are normal, the company will have the opportunity to enhance and receive increased profits As a result, the strategy will be designed to gain this competitive advantage from this fact [I.8]

1.3.3 Enterprise analysis

Internal environment factor of the business includes all internal elements of the system in the enterprises Enterprises need to analyze a particularized internal factor

to give out measures to identify the strong points and weak points of the businesses

On that basis, given the measures to overcome weak points and promote strong points to achieve maximum profits The internal factors mainly includes functional areas: productivity, resources of research and development, the level of technology, availability of funds

1.3.3.1 Analysis the capacity of enterprise

In a business, a production function cannot be missing because it is the beginning of any process of production Production is the source of benefit, thereby bringing income for business owners and employees

Production function in business is the conversion of inputs into goods and services For most industries, production costs mainly to create goods and services have accounted for a large percentage Thus, production functions are often regarded as a weapon in the competitive strategy of the company The decisions mainly related to manufacturing strategy are:

- Decision on production processes such as technology selection, layout of working conditions, positioning equipment, balanced line, arranging transportation system

- Decision on mobilizing capacity, such as defining output levels, capacity of equipment, working shift arrangement

- Decision of quality products, such as technical data need to test, method of quality control

In the development process, businesses attempt to find any way to gain benefit in the market as expanding production scale, accumulated experience to lower cost

of products and to increase the competitiveness of products on market with the final goal is to increase sales and profits of the business Alternatively, some businesses conducted innovative equipment, increase research and development to make products with different features to satisfy customer needs Although the method of this enterprise must take a large cost, but thanks to the difference of products that consumers are willing to pay higher prices for products Therefore, companies are still maintaining their position in the market

To be able to bring efficiency in production, enterprises need to make the process of planning production clearly, managing production in a reasonable one Businesses should consider producing what? With the number of how many? Where consumption? And when the production? So enterprises must set up the plan directed production, plan and provision of materials for production, plan, and deliver products [I.2]

1.3.3.2 Analysis the technology of enterprise

In investment activities, investment in research and development often lead to great results However, research and development also has high risks, only 12-20% of the projects which based on research and development can get real profits However, many companies still invest on research and development

Research and development activities can be divided into three categories: innovation product research, to create a brand-new product before competitors; innovative research products to improve quality or the characteristics of existing products; third study is the new technology to improve production processes to reduce costs or improve quality

Product innovation requires the most skills The company must have the ability to conduct the preliminary research, using research results to choose the products can bring success to the highest and put into performance via projects To have the skills necessary, costs are large, only the leading companies in a sector have the ability to innovate continuously and only them who can bear the risk

Improved products are often experienced less risk The companies must not offer a brand-new product but to complete the product Improve product sets lower requirements for companies

The motive for technology innovation differs from the motive for innovation and improvement of product While innovation and improve product, expanding market are the goals, renewing the technology aims to reduce costs or improve product quality Technological innovation does not always require scientific research of technology, but need the skills to exploit the science achievements [I.2]

1.3.3.3 Analysis the finance for innovation and development of enterprise

Financial analysis that allows businesses identifies strengths, weaknesses in financial operations of enterprises Identify causes and develop solutions to resolve the problem Business can only survives and brings wealth to the owner if it is good management of finance Therefore, at any scale of any project even large or small, the financial management business is focused The financial management does not exist independently but it has relation with other functions of business such as production, marketing, human resources administration to perform duties of business enterprises When analyzing financial businesses it is necessary to implement these steps: Select the criteria to analyze identify targets that compared with those in the past, the criteria of average, with Goals of the competitors

Firstly, business conducts financial analysis through the financial reports such as

balance accounting; report business results, the financial statement Through that, provide general information on using the potential of capital, labor, technology and it answers the problems related to cash flow input and output of the business, the funding invested by funds of enterprises in a period

Secondly, the analysis via 4 main criteria groups: solvency such as quick or slow

solvency, the present ability of the payment, net working capital Target group on the financial structure such as debit, the system asset, capital source structure Next group is the operating ability including: inventory cycle, working capital cycle, performance of fixed assets, the performance using of the total assets and the average cash input term Final group is the profit such as profit rate from asset, profit from turnover and profit from capital owners

In short, a company with potential financial strength, its competitiveness will be high and it will improve the position and image of the company in the market [I.2] 1.3.3.4 Analysis the enterprise management

Enterprises will have to maintain the factors:

- Structure, reputation of business

- Score of the enterprise to achieve

- Organize information system interface

- Organizations control system

- Atmosphere of organization

- Capacity, the level of interest and leader

- Planning strategy system

CHAPTER II: ANALYZE THE SITUATION OF NAM HA GARMENT

STOCK COMPANY

2.1 Introduce about Nam Ha Garment Stock Company

2.1.1 Introduce about Nam Ha Garment Stock Company

- Name: Nam Ha Garment Stock Company (NAGAR)

- Logo:

- Address: 510 Truong Chinh road, Nam Dinh City, Nam Dinh

- Legal form: Stock Company

- Industry field: Textile and Fashion

- Main export markets: the U.S., EU, Canada, Japan, South Korea and Colombia [I.17]

2.1.2 The process of formation and development

Nam Ha Garment Stock Company has been established sine 1969 with main function as activities in domestic garment Export products have been made from

1989 and this company has been change to stock company since 1999

With 40 years experience in garment field since 1969 NAGAR have been always a reliable supplier for all domestic and abroad customers and get a remarkable reputation worldwide

In order to gain 20% to 30% of economic increasing, NAGAR is implementing the project continues to develop the depth in order to improve efficiency and product quality [I.17]

2.1.3 Functions, responsibilities and organization structure of Nam Ha Garment Stock Company:

2.1.3.1 Functions:

- Manufacturing and trading garment for export and domestic consumption

- Link with local and foreign economic to produce and business garments, cotton yarn, sewing equipment spare parts

- Build and implement of business export

- Build the business development plan and strategic goals of the company

- Research to improve the product quality to match customer tastes and customer orders

- Manage and use of effective capital, create capital for business investment to improve the equipment to ensure effective production

- Improving the product quality to increase competitiveness and expand markets

- Management team training staff to keep up the innovation in the country.- Development of the production, trade and maximize profits can be achieved, improve working conditions, raise incomes and living standards of workers to ensure benefits for shareholders and to fulfill obligations to the state budget

2.1.3.2 Organization structure of Nam Ha Garment Stock Company

The organization structure of Nam Ha Garment Stock Company is built and organized as follows: (see Figure 2.1)

Board of Director Board of Supervisor

Deputy Director of Business

Deputy Director of Technology

Financial Accounting Department

Planning Department

Administrative

Department

Business Department

Quality Assurance Department

Electricity &

Mechanic Department

Technology Department

Washing Factory Clothing Factory Embroidery Factory Cutting Factory

Figure 2.1 Organization structure of Nam Ha Garment Stock Company [I.17]

by shareholders meeting (according to the company policies) This department is company leaders between the two terms Board of Management has the right to decide all issues of company operation except the issues which under the authority

of the shareholders

+ Manage of resources, which own by the state such as capital, resources, land + Decide the development, business plan, profits, the profit share to the shareholders and the responsibility of loss in production

+ Elect the member of Board of Management, or Board of Supervisor

Board of Management in Nam Ha Garment Stock Company includes three persons:

 Chairman, concurrently post the Director has the right to the highest in all activities of the company, manage all activities of business directly and responds for activities of financial and technology department

 Vice President of Management Board, concurrently post the Deputy Director

of Technology is an assistant of the Director, and responds for technical production, human resource, Operation the quality management system

 The members of the Management Board, concurrently post the Deputy Director of Business is an assistant of the Director, and responds for business, export, raw material, administration, company policies

- There are five people in Board of Supervisor (includes a chief of board and four members) They monitor all activities of Management Board, and launch the decision of the shareholders

2.1.4 Quality Standard

Figure 2.2 Quality Standard of Nam Ha Garment Stock Company [I.17]