An investigation in building business strategy the case of nam a company

VIETNAM NATIONAL UNIVERSITY, HANOI SCHOOL OF BUSINESS TRINH LAN HUONG AN INVESTIGATION IN BUILDING BUSINESS STRATEGY – THE CASE OF NAM A COMPANY Major: Business Administration Code: 60 34 05 MASTER OF BUSINESS ADMINISTRATION THESIS Supervisors: Tran Doan Kim, PhD Ha Nguyen, MBA Hanoi - 2012 TABLE OF CONTENT ACKNOWLEDGEMENTS i ABSTRACT ii TÓM TẮT iv TABLE OF CONTENT vi LIST OF TABLE ix LIST OF FIGURE x LIST OF CHART xi INTRODUCTION 1 Problem statement Paper objectives Research question Methodology Significance Limitation Thesis structure CHAPTER 1: THEORETIC FOUNDATION 1.1 Strategy and strategic management 1.1.1 Definition and levels of strategy 1.1.2 Business strategies 1.1.3 Strategic management process vi 1.1.4 The role of strategic man 1.1.5 Strategic decision makin 1.2 Analysis models 1.2.1 PESTLE model 1.2.2 Five-force model 1.2.3 Value chain model 1.2.4 SWOT model CHAPTER 2: INTERNAL AND EXTERNAL ANALYSIS 2.1 External analysis 2.1.1 Background information 2.1.2 Environmental scanning 2.1.3 Industry analysis – Five 2.2 Internal analysis 2.2.1 Nam A Company profile 2.2.2 Value chain analysis 2.3 External and internal analysis summary – SWOT analy CHAPTER 3: STRATEGY RECOMMENDATION 3.1 Strategy formulation 3.2 Strategy implementation 3.2.1 Cost leadership by cuttin 3.2.2 Cost leadership by impr 3.2.3 Cost leadership by impr 3.2.4 Cost leadership by impr vii 3.2.5 Cost leadership by gaining access to lower-cost materials .71 3.2.6 Cost leadership by maintaining low warehousing and marketing costs 72 CONCLUSION 73 REFERENCE 74 viii LIST OF TABLE Table 2.1: Construction growth in percentage from 2005 to 2012 32 Table 2.2: Comparison of doors and windows’ characteristics 42 Table 2.3: SWOT analysis of Nam A Company 60 Table 3.1: Comparison of typical strategies in the case of Nam A Company .62 Table 3.2: Function strategies for Nam A Company 64 ix LIST OF FIGURE Figure 1.1: Porter’s Generic Competitive Strategies Figure 1.2: Strategic management process Figure 1.3: PESTLE model 13 Figure 1.4: Five-force model 15 Figure 1.5: Value chain model 17 Figure 1.6: SWOT model 19 Figure 2.1: Vietnam uPVC doors and windows industry life cycle 21 Figure 2.2: Correlation between product quality and price of fragmentation group in the industry 27 Figure 2.3: UPVC door and window production process 50 Figure 2.4: Organization structure 54 x LIST OF CHART Chart 2.1: Market share in uPVC doors and windows industry 25 Chart 2.2: FDI registered capital 2000-2006 28 Chart 2.3: Division of FDI 1988-2007 (billion USD 29 Chart 2.4: Vietnam population 34 Chart 2.5: Vietnam population structure in 2009 35 Chart 2.6: Five forces in uPVC doors and windows industry 46 Chart 2.7: Human resource distribution 55 Chart 2.8: Proportion of employee groups with different qualification 57 xi ABSTRACT AN INVESTIGATION IN BUILDING BUSINESS STRATEGY – THE CASE OF NAM A COMPANY Trinh Lan Huong MBA candidate Vietnam National University, Hanoi School of Business Supervisors: Tran Doan Kim, PhD Ha Nguyen, MBA December 2012, 86 pages UPVC door and window industry is in a difficult situation due to its maturity as well as the stagnation of construction industry in Vietnam Because of the decrease in the quantity of customers and a great number of players, uPVC door and window industry becomes more and more competitive It is tough for Nam A Company, whose operations belong to this industry, to survive the crisis in this condition The purpose of this thesis is to build appropriate business strategy for Nam A Company concentrating on their main activities of producing and assembling uPVC doors and windows in order to instruct the firm to overcome this hard phase of the market The study indicates that cost leadership is the most suitable business strategy for Nam A Company This is the method assisting the firm to earn more competitiveness by reducing the costs of manufacture and management The construction of this suggestion is in accordance with the strengths and weaknesses of the company aiming at catching opportunities and avoiding threats in current industry ii Then, six functional strategies are developed base on general business strategy as well as the company characteristics to give Nam A Company further suggestions in the way they should implement business strategy Included in there are cost leadership by cutting organization structure, cost leadership by improving material using efficiency, cost leadership by improving stage transfer efficiency, cost leadership by improving asset utilization, cost leadership by gaining access to lower-cost materials, and cost leadership by maintaining low warehousing and marketing costs Key words: strategy, strategic management, uPVC door and window industry iii INTRODUCTION This chapter presents an introduction of the research Included in this part, problem setting, objectives of this report, research questions, methodology, significance, limitation and thesis structure will be displayed in order to provide an overview of this paper for the readers Problem statement Strategic management is a necessary job of all managers In business operation, strategy is a tool to support the corporation in gaining its objects, mission, and vision Especially in competition, strategic management even keeps an important role in conducting the companies It has a main effect on existence, growing, and developing of an enterprise A company can win lots of success, if it has right strategy for its situation Nam A Construction and Production Joint Stock Company is an enterprise manufacturing uPVC doors and windows At the time, it is facing to a hard period of time, due to the difficulty in economy and construction industry and fierce competition between uPVC companies It is necessary to build up a business strategy for Nam A Company to direct the existence and development of the firm in Vietnamese uPVC doors and windows industry Therefore, I decided to work on this topic in my thesis Paper objectives To build an appropriate business strategy for Nam A Company for the next years, following objectives are focused on - The first objective is to provide a better understanding of theoretical foundation in constructing business strategy for enterprises Since uPVC doors and windows are the product with limited forms as it is explained in chapter 2, it is very difficult for any company in this industry to concentrate on differentiation or focus differentiation strategies Also, the capacity of Nam A Company is small, so they cannot manufacture and assemble too many types of the products at the same time Moreover, after developing a new design, the firm will need to broadcast it in order to raise people’s awareness of the product Because the marketing system of Nam A Company is limited, differentiation cannot be the ideal alternative for their development Considering the current situation in uPVC door and window market, it will not be wise to choose focus alternatives When little work is available in the whole industry, having the customers only is good enough, no matter who the customers are Hence, there is no point in targeting at just a segment in the market since it will reduce the opportunity for the firm to find customers Therefore, focus differentiation and focus cost leadership is eliminated from the choice of strategy recommendation With excluding method, cost leadership is the best alternative for Nam A Company to apply At the same time, the table analysis shows that it also is the strategy with the greatest number of advantages and fewest disadvantages When all the costs and expenses are reduced, the company will have more chance to survive in this harsh market condition 3.2 Strategy implementation Since business strategy of cost leadership has been chosen for Nam A Company, a number of functional strategies have been developed base on SWOT analysis in order to translate the general direction into more specific methods The table below will illustrate these suggestions 63 Table 3.2 Function strategies for Nam A Company High mobility Low warehousing costs Low marketing expenses Guaranteed product quality Good communication among hierarchy levels Top managers have thorough understanding of daily activities High ratio between engineer and worker Good attention to technical issues A number of uPVC firms leaves the market Current demand has not been satisfied Chance to develop Internet marketing Little work available Strengthening of regulation on quality management of construction projects Low product diversification High number of competitors 64 3.2.1 Cost leadership by cutting organization structure Due to current situation in uPVC doors and windows market, it is predicted that the company will have difficulty finding customers in 2013, which may result in a plunge in their revenue The largest trouble is that the firm still has to bear their periodic expenses such as management costs and salaries despite their order condition Since the biggest objective of the company is to survive this industry crisis rather than expanding their business, they should reduce as much costs as they can One option for them is to cut off non-important part of the company operation, which can be done by reorganizing company structure They can choose to outsource some of their activities in order to restrict unnecessary costs This recommendation is proposed due to the following reason First, one of the company strength is their mobility, so they are flexible in their operation to quickly adapt with new situation, which prevents the negative influences of changes in one component of the structure toward the remaining parts Second, effective communication between managers and workers will help the company impart the necessary of this strategy and relieve people’s mind Furthermore, Board of Directors can directly supply concrete guidance of changing process and then assist post-changing stabilization based on their deep knowledge of company daily activities Finally, operation reduction leads to the decrease in the workforce If the company makes redundant some of their workers, a certain amount of fixed monthly expenses on salary will be saved The company can choose to keep the elderly who are more dedicated to the firm while making young people who are easy to switch companies redundant In other words, Nam A Company has adequate conditions to reorganize their structure with little negative impacts on their activities while taking full advantages of cost cutting In order to implement this strategy, these following steps can be taken First step: The company has to carefully review their structure in order to identify the main activities that cannot be replaced and not-very-important ones that not 65 require to be carried out by the company Considering the case of Nam A Company, they have three main components in their organization, namely Board of Directors, office block and production block Board of Directors includes people who have control over the whole company Since the firm is small, they decide general direction as well as instruct specific tasks for all other employees In other words, the level of delegation in the company is not high and power is gathered in the hand of Directors, so it is impossible for the firm to push these people outside Next, the staffs in Administration Department are responsible for all the tasks related to management, contracting, accounting and recruitment Because a small number of people in this department has to hold several functions concurrently, it seems to be unable to reduce staff quantity in this department, let alone wholly cut it off There are only two employees who are hired with little basic salary in Sales Department They are the only people in the company earning most of their income base on sales rather than fixed monthly wages In addition, these people are necessary to find customers for the company since the main marketing method of Nam A Company is for them to introduce the products at construction site in person Therefore, this department cannot be torn down The last department in office block is Design Department where several engineers design technical drawings for specific contracts, which is integral for production Without these drawings, the manufacture cannot take place, so this department also an essential component of the company In production block, there are a manufacturing group who make the products and an assembling group who take the finished products to construction site for fitting Manufacturing process is simple, so it is unnecessary to divide it into smaller phases and outsource just a little part of work Also, it is the main process to create the company’s products, so it cannot be completely eliminated Hence, there is only the activity of assembling left for outsourcing decision This piece of work is separated from all other activities in the company and it is also not very important The workers only need to fit the products in door holes, which is not difficult to 66 Therefore, even if this activity is outsourced, other functions in the company will not be disordered In the second step, the firm has to calculate both costs and savings created by this alternative A careful financial management report should be carried out to predict different scenarios with relevant costs For example, if the work is outsourced, how much is the costs of outsourcing and how much fixed monthly salary will be saved from the dissolution of assembling group Also, the quality of product and spare capacity of machines needs to be taken into account The third step requires a comparison between two alternatives base on the information created from the previous step If outsourcing decision brings financial benefits to the company while qualitative aspects not show too many negative impacts, then this alternative should be chosen In the final step, in case decision has be made to outsource this activity, a detailed plan need to be composed in order to translate this decision into specific actions for finding subcontractor, dissolving assembling teams and stabilizing company situation The plan needs to be carefully revised before it is implemented to avoid insecure situation that may happen in the company if the dissolution of assembling teams is not carried out in the right way making other workers anxious about their own positions 3.2.2 Cost leadership by improving material using efficiency In production, material spilling cannot be avoided completely However, for the company who want to be cost leadership, it is important that they can restrict these wastes to a maximum extent In case of Nam A Company, there are two possible ways for them to achieve this goal First, leftover steel, plastic and glass pieces have to be minimized Since doors or windows, which are in specific dimensions base on the door holes in each project, is made from Profile bars and large glass plates of which dimensions may be greatly different, the choice of these bars and plates as well as the calculation of how to cut 67 them are two decisive factors influencing the level of material leftover These pieces are usually too small or too short to be used in the production of anything else They also cannot be sold Therefore, the larger these leftover pieces are, the more squandering level the company has If the firm can minimize them, the production costs will reduce Second, a case of regular happening is that paint is easily dropped or spilled when it is covered onto uPVC plastic surface It can be prevented if the workers their job more carefully Trying to decrease cases like this will help the company to save a certain material costs These methods are able to be implemented in Nam A Company due to three reasons The product quality of the firm is guaranteed, which means there is little errors occurring in their production process and their manual workers has done their jobs smoothly These factors will be the foundation for the company to improve efficiency without worrying about the reliability of their process or their employees Moreover, the ratio between engineer and worker in Nam A Company is high, so these engineers can carefully monitor the manufacture progress and give timely advices to workers Another strong point of the company is that their engineers pay attention to specifications, so they will be able to propose reasonable dissection recommendation 3.2.3 Cost leadership by improving stage transfer efficiency Since the characteristics of uPVC product orders for different construction projects are heterogeneous, the company should develop specific type of implementation solution for each type of contract If the solution is suitable for contract features, the productivity will be improved In general, there are two types of order that the firm should consider One includes the contracts for big construction projects The houses, flats and rooms in these projects are designed in uniform, so the designs of doors and windows are also at the same style and size Though the quantity of product is large, 68 the manufacture process requires little interruption since an identical series of stages including measuring, cutting and assembling is repeatedly carried out many times The production costs and time consumed per square meter of doors or windows are reduced for manufacture process Furthermore, the assembling of these goods has to follow the progress of construction project, which means if the company finishes the production of the order early, they still cannot deliver them right away It may cause them trouble since the firm does not have spare space to keep finished products Therefore, implementation solution for this type of contract needs to be smooth and associate with the work in construction site On the contrary, private customers’ orders are usually in small quantity with various types of doors and windows The company cannot mass produce these products since there are different technical drawings and measurements for each and every type of them However, though there are more difficulties in the manufacture of these products, the price for them also goes up Also, these goods are not likely to be inspected by quality management agencies, so the risk is lower Furthermore, the transfer between production and assembling is more flexible and up to the company to decide In short, the implementation remedy for this type of contract requires more attention and monitor in production process but being more comfortable in timing and transfer progress The development of appropriate solution will help the company to avoid the threat of being criticized in case that the construction project is inspected since the production and assembling of the products has been adjusted to satisfy the requirements of quality management It also improves the productivity and efficiency of working process to overcome the weakness of small capacity and fixed salary The possibility for this method to be successful is high due to the fact that Nam A Company has high mobility, good communication and large number of supervisors to deploy the work in various ways 69 3.2.4 Cost leadership by improving asset utilization Since few jobs are available in the next years, it is likely that the company will sometimes have spare capacity In such a case, the firm can search for alternative use of asset and capacity to take full advantages of the situation There are two possible methods that the company can consider The first option is that the firm can lease their assets, especially their specialized machines, for a short period of time Another one is that the firm can accept other technical jobs and work for other companies who lack manpower for a number of works These jobs may be different from uPVC door and window production but they have to be appropriate with the ability of employees in the firm and not too difficult so that engineers in the company can quickly adjust and instruct manual workers to them For the customers from two options are not included in the company’s normal segmentation and the contracts may be considered one-time only, there is not likely that future main operation of the firm will be affected Moreover, the company does not have any alternative for their unused resources at this moment, which means the spare capacity will be wasted if they not search for other works Another point is that big proportion of their fixed costs includes investment on plant, administrative expenses and labor which cannot be avoided, so these temporary businesses can give them a huge benefit in covering their fixed costs The revenue form this special offer only needs to cover the incremental variable costs of doing these works In the process of applying this strategy, these following steps should be taken In the first step, the company needs to list all their assets and abilities They have to analyze in the time of having no job which assets and capacity can be used for other works without a problem to take them back for normal operation if they are needed The company will look for alternative use of these assets and capacity in the second step A list of these alternatives should be made with detailed explanation as well as financial computation 70 In the third step, the options will be compared to find out which one has the best benefit for the company It is important to keep in mind that the firm should only choose the alternative that does not negatively influence main operation of the business The final step requires the firm to make detailed plan of how to perform the option that has been chosen Included in this plan may be some questions being which enterprise that Nam A Company rent their machines or capacity to, which preparation that they need to to have sufficient ability for the new job and which level of price the company should set for these activities 3.2.5 Cost leadership by gaining access to lower-cost materials Because a number of uPVC door and window companies have leave the market making some suppliers loss their purchasers plus the fact that bargaining power of these suppliers has decreased as analyzed in previous chapter, Nam A Company has the chance to approach more material suppliers for a fresh negotiation to achieve better price of their inputs The firm can obtain this goal by completing bargaining process like below The company should get quotes from other suppliers in order to compare their prices If there are one or more suppliers with lower price than the one of current provider contracting with Nam A Company, the firm should negotiate with this current supplier with the objective of gaining a price that is even lower than the price of others In case this company does not agree, Nam A Company can switch to a different supplier On the contrary, if there is no provider having lower price than current one’s price, the company should bargain with as many suppliers as they can in order to offer them the deal that Nam A Company will buy their goods if they reduce their prices to be lower than the price borne by the firm right now When a supplier accepts this offer, then the firm should come back to the current provider to negotiate with them again for even better price This may fail, but it is worth trying If the result cannot 71 reach the company expectation, then switch to the suppliers who accept the company’s offer earlier This process may take time and effort, but it is possible for the company to achieve their goal in current situation of the market if they are patient enough 3.2.6 Cost leadership by maintaining low warehousing and marketing costs Nam A Company has the advantages of having low warehousing and marketing costs, which gives them the foundation to be cost leadership Hence, they should maintain these strong points At the same time, they need to make a method to improve the effectiveness of their marketing without creating additional costs The best choice for this is that they try to develop their Internet advertisements of which potentiality has not been salvaged at this time This method will help the firm improve their marketing ability while still keeping its expenses at current level If it is well implemented, the reputation for Nam A Company will also be increased as the result of effective advertising In other words, it will support the firm to overcome the weaknesses of non-famous brand name and limited marketing as well as to salvage the opportunity created by the wide use of the Internet in the society in order to produce more competitiveness over other uPVC door and window firms In order to that, the company should review all the channels they are using for Internet marketing Then, they can improve the information in these channels as well as access new sources of Internet advertising Their advertisements should be redesigned to be more attractive and informative For example, the company can put the pictures of their products altogether with the prices attached In the description of the firm and their product, Nam A Company should focus on their strengths that make them distinct from their competitors 72 CONCLUSION Because of the maturity and stagnation of Vietnamese uPVC door and window industry, Nam A Company is in a threatened situation With the objective of providing a feasible strategy for the firm to overcome this difficult period, a careful analysis of both external and internal factors has been carried out to realize the position of the company in the whole market as the foundation for further suggestions PESTLE and Five-force model investigation has showed that the biggest threats for the firm right now is limited level of job available in the market next years However, it also implies that current demand in this industry has not been satisfied but only being temporarily held back at the moment The digging in Nam A Company characteristics also provides information on their strengths and weaknesses which directly influence their choices of development By recapitulating these factors altogether, a recommendation for general business strategy for Nam A Company has been formed The firm should improve their operation to be cost leadership in the market To achieve this objective, six functional strategies have been further suggested, namely cost leadership by cutting organization structure, cost leadership by improving material using efficiency, cost leadership by improving stage transfer efficiency, cost leadership by improving asset utilization, cost leadership by gaining access to lower-cost materials, and cost leadership by maintaining low warehousing and marketing costs These options are developed to exploit the company advantages and overcome their disadvantages as well as to catch the opportunity and avoid threats in the industry 73 REFERENCE Hunger, D and Wheelen, T L (2001) Essentials of Strategic Management Porter, M (1985) Competitive 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Industry analysis – Five 2.2 Internal analysis 2.2.1 Nam A Company profile 2.2.2 Value chain analysis 2.3 External and internal analysis summary – SWOT analy CHAPTER 3: STRATEGY RECOMMENDATION... BUSINESS STRATEGY – THE CASE OF NAM A COMPANY Trinh Lan Huong MBA candidate Vietnam National University, Hanoi School of Business Supervisors: Tran Doan Kim, PhD Ha Nguyen, MBA December 2012, 86 pages... Nam A Company? ??s directors and employees All the information related to company operations has been achieved through these interviews These data has been analyzed and compared with the data of