Buiding competitive strategy in the rice farming industry the case of an dinh company

VIETNAM NATIONAL UNIVERSITY, HANOI SCHOOL OF BUSINESS Nguyen Khac Trung BUILDING COMPETITIVE STRATEGY IN THE RICE FARMING INDUSTRY THE CASE OF AN DINH COMPANY Major: Business Administration Code: 60 34 05 MASTER OF BUSINESS ADMINISTRATION THESIS Supervisor: Dr Ta Ngoc Cau Hanoi – 2010 TABLE OF CONTENTS ACKNOWLEDGEMENT……………………………………………………… i ABSTRACT…………………………………………………………………… ii TÓM TẮT……………………………………………………………………… iv TABLE OF CONTENTS……………………………………………………… vi LIST OF TABLES AND FIGURES .… ix LIST OF ABRREVEATIONS…………………………………………………… xi INTRODUCTION……………………………………………………………… 1 The thesis title.……………………………………………………………… The thesis necessity…… ………………………………………………… Objectives………………………………………………………………… Method……………………………………………………………………… Data sources………………………………………………………………… Significance………………………………………………………………… Limitations………………………………………………………………… Expected results…………………………………………………………… The thesis structure………………………………………………………… 10 Suggestion for future research……………………………………………… CHAPTER 1: LITERATURE REVIEW ……………………………………… 1.1 Competitive strategy………………………………………………………… 1.1.1 Strategy and business strategy…………………………………………… 1.1.2 Competitive strategy……………………………………………………… 1.2 Strategic management……………………………………………………… 10 1.2.1 Vision and mission………………………………………………………… 11 - vi - 1.2.2 Strategy formulation and selection………………………………………… 12 1.2.3 Strategy implementation…………………………………………………… 27 1.2.4 Strategy evaluation………………………………………………………… 28 CHAPTER : RICE FARMING INDUSTRY IN VIET NAM………………… 30 2.1 An overview of rice farming ……………………………………………… 30 2.2 The developing of rice farming industry in Viet Nam……………………… 32 2.3 Factors effecting rice farming ……………………………………………… 35 CHAPTER : BUILDING COMPETITIVE STRATEGY……………………… 39 3.1 Company profile……………………………………………………………… 39 3.2 Strategy formulation ………………………………………………………… 41 3.2.1 External environment analysis……………………………………………… 41 3.2.2 Industry environment analysis……………………………………………… 51 3.2.3 Internal environment analysis……………………………………………… 56 3.2.4 SWOT analysis …………………………………………………………… 63 3.2.5 Strategy formulation and selection ………………………………………… 64 3.2.5.1 Production expanding …………………………………………………… 65 3.2.5.2 Japanese rice farming and Vietnamese high quality rice processing …… 65 3.2.5.3 Rice seed producing ……………………………………………………… 65 3.2.5.4 Marketing enhancing …………………………………………………… 65 3.3 Implementing the competitive strategy ……………………………………… 66 3.3.1 Objectives ………………………………………………………………… 66 3.3.2 Solutions …………………………………………………………………… 67 - vii - 3.3.3 Action plan ……………………………………………………………… 68 3.3.4 Recommendations to AnDinh Company ………………………………… 70 3.3.5 Recommendation to the government …………………………………… 71 CONCLUSION ………………………………………………………………… 72 REFERENCES ………………………………………………………………… 73 APENDDICES ………………………………………………………………… 75 - viii - LIST OF TABLES AND FIGURES Table 1.1 Example of possible factors in a PEST analysis Table 1.2 Industry’s entry and exit barriers Table 1.3 Bargaining powers of suppliers and buyers Table 1.4 The completed SWOT profile Table 1.5 Appropriate strategies selection (GREAT model) Table 2.1 The world rice production Table 2.2 The world rice consumption and stocks Table 3.1 Vietnam quarterly GDP growth Table 3.2 An Dinh external environment EFE matrix Table 3.3 External environment analysis conclusion Table 3.4 Industry analysis conclusion Table 3.5 An Dinh internal environment IFE matrix Table 3.6 Internal environment analysis conclusion Table 3.7 Competitive strength assessment Table 3.8 Sustainable competitive advantage Table 3.9 AD Company’s SWOT profile Table 3.10 AD Company’s appropriate strategies selection (GREAT model) Table 3.11 AD Company’s action plan Figure 1.1 Porter’s Generic Strategies Figure 1.2 The strategic management process Figure 1.3 Five Forces Model Figure 1.4 The value chain - ix - Figure 1.5 Strategic analysis processes Figure 1.6 SWOT Matrixes Figure 2.1 Vietnam rice farming areas Figure 2.2 Vietnam rice productions Figure 2.3 Rice volumes for consume and export (thousand tons) Figure 2.4 Vietnam export value by rice and commodity group (2009) Figure 2.5 Vietnam agro-forestry and rice export value (US $billion) Figure 3.1: Corruption Perceptions Index 2009 Figure 3.2 Vietnam GDP per capita growth Figure 3.3 VND/USD exchange rate (2008-2010) Figure 3.4 Vietnam population pyramid (2009) Figure 3.5 Impacts of sea level rise (1m scenario) Figure 3.6 Value chain model in rice farming industry Figure 3.7 AD Company Revenue and Net profit Figure 3.8 AD Company’s organizational structure Figure 3.9 AD Company’s SWOT matrix Figure 3.10 AD Company’s strategies implementation process -x- LIST OF ABRREVEATIONS R&D: Research and Development PEST: Politics, Economics, Social, Technology SWOT: Strengths, Weaknesses, Opportunities, Threats EFE: External Factor Evaluation IFE: Internal Factor Evaluation GREAT: Gain, Risk, Expense, Achievable, Time USDA: United State Department of Agriculture GSO: General Statistics Office No: Number WTO: World Trade Organization IMF: International Monetary Fund UK: United Kingdom GDP: Gross Domestic Product VCCI: Viet Nam Chamber of Commerce and Industry CPI: Consumer Price Index USA: United State of America AD: An Dinh FAO: Food and Agriculture Organization US $: United State Dollar - xi - INTRODUCTION The thesis title The thesis necessity The event of Viet Nam joining WTO in 2007 has created a range of development opportunities and challenges to investors in rice farming in Vietnam Vietnam is known as one of world’s richest agricultural regions and is the second-largest (after Thailand) exporter worldwide and the world's seventh-largest consumer of rice.Vietnam government has made effort in order to develop high quality and value-added rice production and export An Dinh - a rice farming and trading company- has been case-studied and researched that its rice production is limited in capability resulted in an irrelative market share A higher position in the market requires a competitive strategy implementation by intensively investing in expansion and enhancing marketing activities This thesis, in above actual fact, is to build an appropriate competitive strategy for An Dinh Company’s development It has also added the value to the strategy formulation by giving recommendations and proposing an action plan, which can be applied in implementing strategies Objectives The objectives of this thesis are to (a) review the theory of building competitive strategies, (b) provide an overview of rice farming industry in Vietnam, (c) present An Dinh Company and analyze its business environment, and (d) build an appropriate competitive strategy for company’s further development The study also gives a number of insights into company’s current strength and weakness, and identifying an action plan for production expansion -1- Methodology This thesis applies the case study to build competitive strategy for An Dinh Company The research has been prepared mainly through on desk study reviews of available literature and data through three basic steps: The first step is to review theories of competitive strategy and strategic management The study focuses on the literature view of existing approaches to competitive strategy formulation, and identifies a common process to build competitive strategies The second step based on the research of rice farming industry in Vietnam in terms of factors and influence on the business success Last but not less, the case study of An Dinh Company is analyzed inclusive of interview with the managers of company who are responsible for strategic management planning This is to contribute competitive strategy and provide recommendations on strategy implementation Data sources The theoretical review and collection of secondary data display from research of books, reports, newspapers and internet sources The primary data was collected through interviews with An Dinh Company’s managers and key employees Significance By reviewing the theory of competitive strategy and strategic management and understanding the impacts of business environment, the thesis benefits An Dinh Company in implementing appropriate competitive strategies This theoretical approach could be applied in cases of other companies in rice farming industry -2- Limitations The study would be limited due to a small number of competitors in the local market are considered Moreover, those competitors could not be analyzed with detail information and data, which may not entirely reflect the industry’s competitive environment Expected results The result of this thesis is to build appropriate competitive strategies for further development of An Dinh Company The methodology is expected to be applied effectively in the case study of other companies in rice farming industry The thesis structure Beginning with the introduction part, the thesis concludes three chapters and the conclusion part Chapter provides a fundamental review of competitive strategy and strategic management theory focusing on the competitive strategy formulation process Chapter discusses rice farming status in Vietnam, highlighting its latest achievement and key factors Chapter presents An Dinh Company and analyzes its environment to identify external opportunities and threats as well as internal strength and weakness that influence on building company’s competitive strategy Action shall be recommended for strategic management implementation 10 Suggestion for future research A rapid change of factors like technological advances, climate, and customer’s lifestyle creates both opportunities and challenges to the rice farming industry and An Dinh Company Therefore, a deeper research undertaken could create more benefit to larger size companies -3- 3.3.5 Recommendations to the Government In accordance with the information presented in this research, Vietnamese Government should: Develop farmer’s organization such as groups or clubs, and promote education to rice farmers and workers Increase the budget for agriculture extension services and research institutions Encourage rationalization of the production chains between rice farmers and exporters, and suppliers of rice seed and other inputs Enforce relevant legislation regarding quality control, especially for insecticides and herbicides Improve the infrastructure in rural areas Adjust and complement policies for the rice industry towards sustainable development Chapter summary Based on the environment scan, this chapter identifies many opportunities and threats, much strength and some weaknesses that characterize AD Company’s strategic situation Analyzing these factors using SWOT profile enables to formulate appropriate strategies for the company A competitive-oriented strategy is the roadmap for AD Company’s future development, which can be achieved by expanding rice production and enhancing marketing activity The chapter then gives some suggestions concerned with implementing that strategies and the Government’s administration - 71 - CONCLUSION This thesis provides a fundamental knowledge of strategy and strategic management It emphasizes on business strategy formulation for a small company The thesis also helps to apply the theory into practice by building competitive strategies and giving some recommendations on how to apply the new strategy into a company Rice farming is of considerable importance to Vietnamese economy, especially in rural areas, for its employment creation and income generation Sustainable rice farming is a central component of the government’s development strategy, with the industry’s high value addition being actively encouraged In that industry, the challenge is to meet the high demand and gain larger market share while ensuring production efficiency and quality of products AD farm are well funded and planned with technological approach, resulted in the development of the company, but this development is modest comparing to the high potential of rice farming industry in Ha Noi By strategically utilizing the industry’s opportunities and concentrating on its sustainable competitive advantages, AD is suggested to expand its production and enhance marketing activities in order to achieve leadership role and higher market position The company can achieve its strategic goal by implementing the competitive strategy, including expanding farming area and enhancing marketing activity The short-term goal of the strategy is to improving the company’s current production and marketing activity while the long-term is targeted towards the growth of the business and regional market share By reviewing the theory of strategy and strategic management and understanding the impacts of business environment, the thesis benefits AD Company in building appropriate competitive strategies This theoretical approach can be applied in cases of other companies in rice farming industry - 72 - REFERENCES Vietnamese AD Company (2009), Annual report AD Company (2007, 2008, 2009), Financial statements Ministry of agriculture and rural development (2009), Annual report Ministry of agriculture and rural development (2008), Climate change impacts on agriculture Vietnam General Statistics Office (1990 - 2009), “Annual socio-economic statistical data” Viet Nam economy development update report (2009, 2010), World Bank 2010 Viet Nam State bank report (2007 – 2010), “The USD/ VND exchange rate” “GDP Viet Nam in quarterly 2008, 2009, 2010”, VCCI report 2010 English Asia-Pacific Economic Cooperation (APEC, 2007), “Viet Nam Economy Report” Lloyd L Byars, Leslie W Rue, Shaker A Zahra (1996), “Strategic management”, Irwin, Chicago Henry Mintzberg (1994), “The Rise and Fall of Strategic Planning” Jiri Dusik, Jian Xie (2009), “East and Southeast Asia - A Progress Review and Comparison of Country Systems and Cases”, World Bank FAO (2009), “World agriculture production” http://wikipedia.org/wiki/Strategy - 73 - Alex Miller, Gregory G Dess (1996), “Strategic management”, McGrawHill, New York Fred Nickols (2000), “Strategy: Definitions and Meaning”, www.nickols.us Fred Nickols (2000), “Strategy is Execution”, www.nickols.us 10 Oxford English Dictionary (2009) 11 Michael Porter (1998), “Competitive strategy”, Free Press, New York 12 Michael Porter (1996), “What Is Strategy?”, Harvard Business Review, November-December 1999, Harvard university, Massachusetts 13 R Charan, G Colvin (1999), “Why CEOs Fail”, Fortune Magazine, 21 Jun 1999 14 I Cobbold & G Lawrie (2001), “Why only one third of UK companies achieve strategic success?”, 2GC Ltd., May 2001 15 Kai Riemer (2002), “Teaching note on strategy”, European socio-economic IST research project 16 Vietnam: 2010 Article IV Consultation—Staff Report and Public Information Notice, IMF 2010 17 “Principles and practices of rice production”, Surajit K De Datta 1981 18 United States Department of Agriculture (2010), “Rice year book table” 19 “Sustainability of rice in global food system”, N.G.Downing, S.M Greenfield and K.S Fischer 1997 20 http://www.maxi-pedia.com/EFE+matrix+external 21 http://www.maxi-pedia.com/IFE+matrix+internal - 74 - APPENDICES Appendix A Rice production by the major producer nations 2008 Rank Area Production (Int $1000) Flag Production (MT) Flag ! " ## ! $ % # " & ' * , ( ) !+ # - #./ + ) ! / ! # (! & + ! " ! ' )) + 53 6)) + 2*6 ) ! Source: FAO, 2010 - 75 - Rice production by the major producer nations 2007 Rank Area Production (Int $1000) Flag Production (MT) Flag ! " ## ! $ % # ' * ( ) !+ " & , # / - #./ + ) ! # ! (! & + ! " ! ' )) + 53 6)) + 2*6 ) ! Source: FAO, 2010 - 76 - Appendix B Vietnam production of farmed agriculture products Year Area (1000 ha) Production (1000 tons) 1990 6,042.8 19,225.1 1991 6,302.8 19,621.9 1992 6,475.3 21,590.4 1993 6,559.4 22,836.5 1994 6,598.6 23,528.2 1995 6,765.6 24,963.7 1996 7,003.8 26,396.7 1997 7,099.7 27,523.9 1998 7,362.7 29,145.5 1999 7,653.6 31,393.8 2000 7,666.3 32,529.5 2001 7,492.7 32,108.4 2002 7,504.3 34,447.2 2003 7,452.2 34,568.8 2004 7,445.3 36,148.9 2005 7,329.2 35,832.9 2006 7,324.8 35,849.5 2007 7,207.4 35,942.7 2008 7,400.2 38,729.8 2009 7,440.1 38,895.5 Source: GSO, 2010 - 77 - Appendix C AD Company’s financial performance VND 1000 2007 2008 2009 16,443,100 19,344,115 22,278,061 5,840,405 7,025,235 8,219,376 3,127,853 3,944,966 3,127,853 3,944,966 3,751,855 5,301,042 6,384,205 13,954,328 12,953,812 11,966,831 17,706,183 18,254,854 18,351,036 2,251,113 2,351,237 2,592,102 3,200,000 2,400,000 1,600,000 12,255,070 13,503,617 14,158,934 17,706,183 18,254,854 18,351,036 Sales 21.35 17.64 15.17 Net profit 51.25 36.42 26.12 Total assets 4.12 3.10 0.53 Profit and Loss Net sales Gross profit Operating income (before tax) 2,292,776 Net profit 2,292,776 Balance sheet Current assets Fixed assets Total assets Short-term liabilities Long-term liabilities Owners’ equity Total liabilities and owner equity Ratios Growth (%) - 78 - Owner's equity Gross profit margin (%) 12.31 10.19 4.85 35.5 36.3 36.9 13.94 16.17 17.71 18.71 23.16 27.86 12.95 17.13 21.50 Current ratio 1.67 2.25 2.46 Debt/equity ratio 0.44 0.35 0.30 Net profit margin (%) ROE (%) ROA (%) Source: AD Company, 2010 - 79 - Appendix D AD rice field in Thai Binh (Source: AD Company, 2010) Rice field - 80 - Processing assembly - 81 - Rice product - 82 - Appendix E AD Company’s rice processing method (Source: AD Company, 2009) Quy trình quản lý sản xuất lúa gạo Nhập giống nguyên chủng từ Nhật Bản (đối với lúa Nhật Bản), sau nhân th"nh giống cấp Chọn vùng sản xuất lúa Nhật Bản: Chân đất tốt, sạch, không ô nhiễm v" chủ động tới tiêu Sản xuất thử nghiệm diện tích nhỏ, theo dõi v" đánh giá chất lợng, suất lúa Nếu cho kết tèt sÏ triĨn khai s¶n xt lín ë vơ sau Ký hợp đồng sản xuất bao tiêu lúa với Nông dân, úng trớc giống Cung cấp quy trình kỹ thuật theo quy trình sản xuất lúa Hữu Cơ (sạch, an to"n) Giám sát sinh trởng lúa đồng, đa biện pháp kỹ thuật phù hợp Tổ chức thu hoạch kịp thời đảm bảo chất lợng gạo tốt Lúa sau thu hoạch đợc mang nh" máy sấy Sau sấy, chất lợng của lúa đồng v" an to"n bảo quản khống chế đợc độ ẩm mức cho phép Sau sấy, lúa đợc l"m v" đóng bao Sau to"n lúa đW đóng bao đợc bảo quản nhiệt độ lạnh (15 18oC) Bóc trấu v" xay sát theo đơn h"ng Đảm bảo chất lợng gạo tơi Máy bắn m"u lọc tạp chất, hạt khac m"u, sạn đảm bảo chất lợng hạt đồng đều, bắt mắt Gạo th"nh phẩm đợc khử trùng sau đợc đóng bao đem tiêu thụ - 83 - đồ quy trình sản xuất gạo chất lợng cao Lúa tơi Búc trấu Khử trùng Sấy Bảo quản lạnh Xay sát Phân loại, tách m0u §ãng gãi Th0nh phÈm Cơ sở vật chất, máy múc thit b STT Hạng mục đầu t Số lợng 10 11 12 13 14 M¸y sÊy (10 tÊn lóa /24h) Kho lạnh (300 m3) Dõy chuyền xay sát (1 tấn/h) Máy đóng gói Xe nâng Máy bắn m"u Máy rửa rau Trạm điện & hệ thống điện Thiết bị PCCC Nhà m¸y n−íc T−êng r"o (m3) Nh" kho (m2) Nh" chứa trấu (m2) Văn phòng, bảo vệ ,WC (m2) 1 1 1 1 - 84 - 315.0 1,050.0 50.0 45.0 Sân bê tông (m2) §ưêng néi bé (m2) HƯ thèng tho¸t nc (m) 15 16 17 200.0 1,000.0 250.0 HƯ thèng cung cÊp ®iƯn: H thng trạm biến áp đảm bảo chủ động cung cấp điện cho hoạt động sản xuất Từ trạm biến áp nội bộ, cáp điện đợc kéo v"o trạm phân phối điện nằm khối nh" Tất nguồn điện đợc thiết kế sử dụng điện áp 220V/380V 50Hz Hệ thống điện khu xởng đợc thiết kế máng đỡ, nguồn điện động lực đợc ống lồng kéo từ máng cáp tới điểm đấu nối v"o thiết bị theo quy chế kỹ thuật điện Nguồn điện cung cấp phục vụ cho hệ thống lạnh đợc ®i trªn s"n kü thuËt v" cung cÊp ®Õn thiÕt bị điều ho" không khí Hệ thống chiếu sáng: Hệ thống đèn chiếu sáng đợc thiết kế chống bụi, nhẵn, góc cạnh để dễ d"ng l"m Hệ thống đèn đợc đặt âm s"n bê tông để độ sáng đạt yêu cầu sản xuất đảm bảo v"o khoảng 200 lux 500 lux Mặt khác, mái kho đợc lắp đặt tôn thông minh đảm bảo ánh sáng tự nhiên ban ng"y Hệ thống chống sét: Xởng đợc thiết kế hệ thống chống sét theo phơng pháp đại chØ dïng mét kim thu sÐt thay v× dïng nhiỊu kim đặt chỗ trọng điểm theo phơng pháp cũ Đây l" phơng án kim thu sét đại, tính an to"n cao Hệ thống tiếp đất đợc ®ãng cäc liªn kÕt víi v" ®iƯn trë ®Êt phải đạt dới 10 v" đợc kiểm tra đặn h"ng năm Hệ thống Phòng cháy chữa cháy: Xởng đợc trang bị hệ thống báo cháy tự động bao gồm tủ báo cháy trung tâm đặt phòng trực bảo vệ thờng xuyên đợc theo dõi, đầu dò khói, nhiệt đợc bố trí khu sản xuất, số lợng đầu dò đợc bố trí phù hợp với tiêu chuẩn phòng cháy chữa cháy Việt Nam Hệ thống dẫn nớc từ bể nớc trung tâm Đảm bảo cung cấp đủ nớc xử lý có cố xảy Hệ thống thông tin liên lạc: Trong khu xởng v" văn phòng lắp đặt hệ thống thông tin liên lạc nội v" có khả liên lạc bên ngo"i qua tổng đ"i nội phục vụ nhu cầu sản xuất v" kinh doanh - 85 - ... provide an overview of rice farming industry in Vietnam, (c) present An Dinh Company and analyze its business environment, and (d) build an appropriate competitive strategy for company? ??s further... through interviews with An Dinh Company? ??s managers and key employees Significance By reviewing the theory of competitive strategy and strategic management and understanding the impacts of business... : RICE FARMING INDUSTRY IN VIET NAM………………… 30 2.1 An overview of rice farming ……………………………………………… 30 2.2 The developing of rice farming industry in Viet Nam……………………… 32 2.3 Factors effecting rice