Capabilities for sustaining quality performance a study of processed fruit industry in vietnam

VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM JAPAN UNIVERSITY MAI DINH PHUONG CAPABILITIES FOR SUSTAINING QUALITY PERFORMANCE: A STUDY OF PROCESSED FRUIT INDUSTRY IN VIETNAM MASTER'S THESIS BUSINESS ADMINISTRATION Hanoi, 2018 VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM JAPAN UNIVERSITY MAI DINH PHUONG CAPABILITIES FOR SUSTAINING QUALITY PERFORMANCE: A STUDY OF PROCESSED FRUIT INDUSTRY IN VIETNAM MAJOR: BUSINESS ADMINISTRATION CODE: 60340102 RESEARCH SUPERVISORS: ASSOC PROF DR VU ANH DUNG PROF DR YOSHIKI MATSUI Hanoi, 2018 TABLE OF CONTENT LIST OF TABLES LIST OF FIGURES ABBREVIATIONS CHAPTER : INTRODUCTION 1.1 Introduction .1 1.2 Research objective 1.3 Research questions 1.4 Research scope 1.5 Thesis structure CHAPTER : LITERATURE REVIEW 2.1 Definitions 2.2 Literature review .6 2.2.1 Competitive advantages .6 2.2.2 Dynamic capability 2.2.3 Organizational Resilience 2.2.4 Quality management 11 2.2.5 Supply chain integration 12 2.3 Food processing as a field of application 14 2.4 Research Gap .16 CHAPTER : RESEARCH METHODOLOGY 17 3.1 Framework construction 17 3.2 Research methods 18 3.3 Data collection and Case selection 18 3.3.1 Alpha 19 3.3.2 Beta 20 3.4 Interview form 20 3.5 Case analysis method 21 CHAPTER : DATA PRESENTATION AND FINDINGS 23 4.1 Case presentation 23 4.1.1 Alpha 23 4.1.2 Beta 29 4.2 Findings 32 CHAPTER : DISCUSSION AND CONCLUSIONS 36 5.1 Discussion of findings and Implications 36 5.2 Limitations and future research .38 REFERENCES 39 APPENDIX 43 LIST OF TABLES Table 3.1: The overview of two Vietnamese manufacturers 19 LIST OF FIGURES Figure 2.1: Patterns of sustaining quality performance Figure 2.2: Typical supply chain from the perspective of the entity 12 Figure 3.1: Conceptual framework of capabilities for sustaining quality from the literature review 18 Figure 3.2: Research process 22 Figure 4.1: The revised framework of capabilities for sustaining quality based on interview results 35 ABBREVIATIONS SCI Supply chain integration RBV Resources based view CHAPTER 1: INTRODUCTION 1.1 Introduction “Quality is one of the four key objectives of operations, along with cost, flexibility, and delivery” (Schroeder and Goldstein, 2016) Achieving competitive advantage in quality is considered as the important factor for firms by scholars (Su, Libderman, Schroeder and Ven, 2014) Managing quality is crucial for every firm The most significant threat to firms can come from inside such as quality issue The “sand cone” model discuss that quality is the primary construct for other competitive advantages such as speed, cost efficiency (Ferdows & De Meyer, 1990) It takes companies many years to reach high-quality performance, but in today’s complicated, fast-changing environment and complicated supply chain, it could be tough to sustain high-quality performance (Su and Linderman, 2016) Recently in automobile filed, due to airbag issue supplied by Japanese air-bag maker Takata it has experienced the most massive and most complicated recall regarding quality in its history Cars that are produced by 19 different automakers including long time quality leaders such as Toyota, Honda, Audi have to be recalled to replace frontal airbags This mistake could hurt or even kills car drivers and passengers Samsung, a globally reputed company on quality, recently also suffered a big scandal with the battery issue in 2016 A vast amount of product recall due to the quality problem from many industries like toy, electronic product, drugs has been recorded, even in the food industry where the quality is a survival point These have shown the challenge of sustaining quality performance The quality practices such as total quality management, six sigma lead to competitive advantage have been studied and explained by many scholars (Flynn et al., 1994) The resource-based view explores that what help firms to achieve sustained competitive advantage are the sources that are valuable, rare, non- substitutable and hard to replicate (Barney, 1991) Relational view (Dyer, 1998) points out four potential sources of interorganizational competitive advantage: “specific assets of relation, routines of knowledge-sharing, complementary resources capabilities, and effective governance” and mechanisms that preserve profits is dyadic/network barriers to imitation However, they also noticed that it would be tough to sustain competitive advantages The fierce competition will trigger rival learning effort, and the resources that are hard to copy or imitate gradually are replicated Recently there is a debate on that Apple and Samsung, two of the most prominent players in the smartphone, are coping each other ‘s innovations In another side, world population is predicted to reach more than ten billion by the end of 21st century (UN DESA report, 2015) Such increase is putting massive pressure on the food supply Together with the high pressure on food supply, consumers are more and more health conscious than ever before Moreover, in that context, Vietnam, the tropical country with a long history of the agricultural industry, emerges as a reliable source for supplying food, especially in fruit and vegetable Vietnam is a country in which agriculture makes up a high proportion and vegetables and fruits are poised to emerge as the key growth driver of Vietnam’s agriculture in the future Basing on data from the Ministry of Agriculture and Rural Development (MARD) released on November 21, 2017, in Hanoi, Vietnam at the seminar on Vietnam's fruit processing market and technology, Vietnamese fruit production, and export value has been continuously increasing in recent years The value increases from USD 1.07 billion in 2013 and to the record level of USD 2.458 billion in 2016 And with the level in 2016, this is the first time, value export for fruit exceeds rice exports (USD billion) More interestingly, it is reported by CBI (the Centre for the Promotion of Imports from developing countries) that Vietnam grows the most diversified types of fruit over other countries even compared with Thailand, however, Vietnamese export value is less than percent of the world market in which fresh fruit export accounts for a major percentage Exporting fresh fruit meet many problems such as lower added value, sticky phytosanitary requirements from some countries such as Japan, United State, too short expiration dates, so processed fruit filed currently is the considered as the most suitable way to enhance exports It leads to the fact that exporting processed fruit is receiving a lot of interest both in government and private sectors Many factories with advanced technology have been established over the past few years However, many Vietnamese processors also meeting the challenge of sustaining quality performance which is the critical factor to be in food industry 1.2 Research objective This research intends to give a light on sustaining quality for manufacturers in general and for Vietnamese fruit processors in particular by exploring capabilities that help them on doing it 1.3 Research questions Basing on the objective, the research aims to answer the questions: “what are the capabilities help Vietnamese manufacturers to sustain quality performance as a competitive advantage and how does these capabilities affect it" 1.4 Research scope The research focuses on the relationship of firms’ capabilities and sustaining quality performance Two manufacturers in Vietnam are involved in depth-interview to get insight information They are experienced and big processors Relevant information relating production and management of these two companies are collected in the period of five years, 2013, 2014, 2015, 2016 and 2017 1.5 Thesis structure The thesis consists of chapters as the following: Chapter 1: Introduction Chapter 2: Literature Review Chapter 3: Research Methodology Chapter 4: Finding Chapter 5: Discussion and Conclusions CHAPTER 2: LITERATURE REVIEW The literature review includes four sections In each section concepts and related research will be discussed and will provide general view an important insight for understanding sustaining high-quality performance as a competitive advantage The first section gives the definition of terms that cover the main topic of this research The second section focuses on the theories relating to competitive advantage and sustaining firm performance which comes from a distinct literature stream under the view of resource base view and relational view which are two key views in the literature of competitive advantage Under capability perspective, these theories introduce unique capabilities on how to sustain quality The third will focus on concerning issues in the food industry in general and fruit processing in particular And finally, the last section brings out the research gap 2.1 Definitions Capability: In the context of this study, the thesis adopts the definition of capability that was proposed by Peng, Schroeder, and Shah (2007) A capability is considered as “the proficiency of a bunch of routines that relate each other for doing specific tasks” (Peng, Schroeder and Shah, 2007) Regarding routines, they are defined as regular and foreseeable patterns of behaviors (Grant, 1991) Quality: There is a broad unanimity that quality has an objective and a subjective approach In objective approach, quality is defined as the physical characteristics built into the product Subjective approach, quality is defined as the things perceived by consumers In this research, the author follows subjective approach According to that, quality is defined as "meeting, or exceeding, customer requirements now and in the future (Schroeder and Goldstein, 2016) Sustaining quality performance: Su, Libderman, Schroeder, and Ven (2014) point out that sustaining quality means that organizations not only reach the level of quality performance at a particular time but also reach it consistently (consistency) That indicates that sustaining quality performance has two separate constructs: high level of quality performance and high consistency of quality performance The firm with high-level of quality performance implies that to continue to be competitive by offering better quality, they need to continually adapt to the changes, expectations of their customers (Nelson & Winter, 1982) However, adapting to customers'expectation for a period does not refer that firms will keep it consistently High consistency of quality performance is the component to differentiate between getting and sustaining quality performance Firms could not expect to sustain quality performance over time Issues that suddenly occur are likely to affect quality performance negatively For example, internal and external occurrences like distribution at too high temperature for frozen food, using too high level of clean chemical while producing can all result in variations in quality performance Firms that handle these undesirable occurrences well can detect these potential issues and prevent them from happening, could achieve high consistency in their quality performance (Su and Linderman, 2016) On the basis of level and consistency elements, four different patterns of sustaining quality performance are shown and explained in Figure 2.1 (Su and Linderman, 2016) Figure 2.1: Patterns of sustaining quality performance (Source: Su and Linderman, 2016) Improvement capability help firm better meet existing customer's requirements by a better product, and it also helps firms to respond with quality issue when it happens fastly "Taking calamansi puree as an example From the beginning, we produce frozen calamansi puree After some shipments, the customers claims that after defrosting, the heterogeneous issue appears Oil and some fiber floated in the surface of the product We have checked and note that this phenomenon is a natural issue of calamansi puree Because of defrosting process, oil and fiber will be separated We informed the customer, and they accept it However, we found that way to solve this issue by producing aseptic calamansi puree To produce aseptic calamansi, we have to use very high temperature at pasteurization step It affects seriously color and taste of the product However, we have tried to adjust to the temperature at this step as low as possible Moreover, the customer has accepted the quality of aseptic calamansi puree Moreover, for the aseptic product, we not have to freeze, and customer does not have to defrost when they produce Customers are delighted and they have bought more than 2000 tons in the last two years." Innovation Yes No Explanations and Examples Innovation capability help firms to meet changes in customer'expectation in the future " Over the past five years, I think we have not applied any innovation idea, but I think innovation help processors to meet customer expectation in the future Maybe we can consider the using aseptic production line As advised, for the aseptic product, we not have to keep it frozen, and the customer can store, produce and use it much more easily." Customer Integration Yes Yes 30 Explanations and Examples Thanks to sharing information with customer, firm could better meet customer'requirement and fastly respond with quality issue Sensing of weak No Yes signals Explanations and Examples This capability helps firm to avoid quality issue, so it has a positive impact on the consistency of quality performance Responding No Yes Explanations and Examples This capability helps firm to solve quality issue fastly, so it has positive impact on consistency of quality performance "Take an example of the handling of customer complaints For the loads shipped to the Chinese market with specifications of packing in the carton That is frozen product, so it is tough and sharp Whiling transporting, the product impact with its own carton box and bag The box and bag are torn It leads to the phenomenon that when defrosting product to produce, the product is leaked out, without the agreement of the general director, the QA and sales department have committed compensating for customers to satisfy and continue to order After that, they have meeting the general director to ask for the approval." Supplier integration No Yes Explanations and Examples Thanks for sharing information with supplier, firm could detect potential issue, produce goods with stable quality, fastly respond with quality issue 31 4.2 Findings Improvement capability and high level of quality performance and high consistency of quality As the review, improvement capability is defined as the ability to refine existing products and processes (He and Wong, 2004; Peng et al., 2008; Zhang et al., 2012) Thanks to this capability, the quality of product will be better That results in better meeting existing customer requirement Improvement also helps focal firms to have more knowledge of products and processes Moreover, it supports them in responding (finding the cause and proposing correction and prevention plan) faster The interviewees (Alpha and Beta) give examples of producing frozen banana slice and calamansi puree In summary, the author suggests that improvement capability has a positive influence on both level and consistency of quality performance Innovation capability and high level of quality performance Innovation capability is defined as the ability to develop new products and processes, provides such a capacity to adapt to customers’ changing expectations (Sitkin et al., 1994; He and Wong, 2004; Wu, Melnyk, and Flynn, 2010) With new products and processes, focal firms will can meet changes in customer’expectation Interviewees give the example High-Pressure Pasteurization and aseptic production line With this evidence, that innovation capability has a positive influence on high level of quality is reconfirmed Customer integration capability and high level of quality performance and high consistency of quality Customer integration capability is a dynamic capability that includes processes to achieve efficient information sharing (Vanpoucke, Vereecke, and Wetzels, 2014) 32 Considering the level of quality performance, as stated by Swink et al (2007) customer integration help focal firm to have a deeper understanding of market expectations, trend These things are the expectation of customer in the future Following Knight (2004), sharing information includes not only information about market trend, requirement but also information about the stock situation of focal and customer, production plan, selling situation This kind of this information will help focal adjust production plan, deliver goods to meet customer's requirement of delivery time Moreover, it helps focal to see the customer’expectation in the future by using information about market trends Considering to high consistency elements, when a problem occurs, thanks to effective information sharing, focal will able to get information from customers faster such as information about details of the issue, pictures, what they think about the reason, Moreover, then focal could use it to investigate cause faster, provide corrective and preventing action shortly It means the problems are resolved quickly, and focal firms recover in the short time The interviewees take examples of frozen ice mango bar and gac puree In summary, the author suggests that customer integration capability has a positive influence on both level and consistency of quality performance Sensing of weak signals capability and high consistency of quality performance The capability of sensing weak signals is defined as the ability to be aware of the undesirable situations earlier through careful attention to internal and external changes and adjust to avoid It is clear that capability of predicting weak signal and proposing the preventing plan match with the first element of high consistency of quality performance Alpha takes regulation of United States on allergens as an example With this evidence, That sensing of weak signal capability has a positive impact on the high consistency of quality is reconfirmed 33 Responding capability and high consistency of quality performance Prior studies suggest that the capability to respond comes from a commitment to core values and accessibility to social capital resources (Schulman, 1993; Lengnick-Hall, Beck, & Lengnick- Hall et al., 2011) Knight (2004) proposed that responding capability is based on the behaviors: strong commitment to solving any quality issues, valuing expertise and experience over the hierarchical position The interviewees take the issue of packing in carton and black dot in gac puree as examples The relationship between responding capability and high consistency of quality is confirmed Supplier integration capability and high level of quality performance and high consistency of quality Supplier integration capability is defined as a dynamic capability that contains processes to achieve efficient product and information flows between focal and suppliers, as well as the ability to adapt these processes to environmental change (Vanpoucke, Vereecke, and Wetzels, 2014) Following Knight (2004) sharing information includes information about production schedule, capacity, inventory levels, demand forecast, raw material supply forecast, new product development, advices to improve after auditing, discussion This information help focal firms to understand more clearly on their input and they could have enough information to improve as well as to keep quality stable Moreover, also thanks to effective and efficient information, when issues occur, it will be faster and more comfortable for focal firms to find the causes The interviewee (Alpha) takes requirement of acid level as an example That supplier integration capability has a positive influence on consistency of quality performance is reconfirmed Figure 4.1 shows the framework that drew from interview data 34 Figure 4.1: The revised framework of capabilities for sustaining quality based on interview results 35 CHAPTER 5: DISCUSSION AND CONCLUSIONS Case data helps to reconfirm the positively impacting of the capabilities of improvement, innovation, customer integration, sensing of weak signal, responding, supplier integration on elements of sustaining quality performance that draws from literature streams More interestingly, case data points out the new relationship between these capabilities and elements of sustaining quality performance To sustain quality performance, focal firms not only have to achieve high level quality performance by better meet existing and future customer’expectation at a point of time but also have to it consistently by avoiding quality issue and fastly recover well after quality problem occurs Improvement capability help firms to refine their process to produce better product and services That supports focal firms to meet existing customer’s requirement better More interestingly, while firms refine the process to improve their products, they could find the potential issue and more indepth understanding on the process With more in-depth understanding on the process, firms could propose solution faster when issue happens as well Innovation capability helps firms to explore new processes, products to meet customer expectation changes in the future Customer integration capability helps firms to have fruitful information from customer side to faster, better response to customer expectation Moreover, when a problem occurs, with full and fast feedback from the customer, firms can find causes faster, and they can work together to present the best solution Sensing weak signal capability help firms to detect potential problem and preventing actions to avoid it Responding capability helps firms to better cope with quality issue when it happens Supplier integration capability with fruitful information shared by each other helps firms to detect and avoid the potential issue in their supply chain 5.1 Discussion of findings and Implications Figure 4.1 presents the revised framework based on the case data That reveals some 36 surprising observation from exciting opinions and examples of interviewees First of all, differentiating to the author expectations and the empirical result of Su and Linderman (2016), improvement capability has positive influences on both elements of sustaining quality performance Su and Linderman (2016) argue that better meeting existing customer requirement may not affect to level of quality performance perceived by customers and improvement capability by refining processes could reduce the variation of existing processes Reliable and refined processes with low variation will positively impact to consistency of quality performance Su and Linderman (2016) On the other hand, Su et al., 2014 point out that first order learning including improvement process help sustain high level of quality performance However, case data in this research shows combining result Improvement capability in these cases indeed have clearly, positively impact on high level of quality performance by better meet existing customer ‘s requirement with better product It also helps firms to have more in-depth knowledge to cope better with quality issues, and this means that it has a positive impact on consistency element of sustaining quality performance An explanation for this is because of typical characteristics of different industries of research subjects In this research, the research subjects are food manufacturers with the customers who are the experienced companies in this field This is business to business market, not business to consumer So the perception and evaluation of customers may be different In general improvement capability has a significant effect on sustaining quality performance of firm Firms should focus and spend capital and human resources on improving this capability continually Second, as expected, the result show that innovation capability supports high level of quality performance and sensing of weak signal and supplier capability support high consistency of quality performance Firms should recognize the importance of these capabilities to keep pace with competitors To develop innovation capability should attend an international workshop to keep updated with new technology, encourage the employee to propose a new idea, invest a suitable financial amount on innovation activities Moreover, to develop sensing of weak signal, firms should spend a significant effort on collecting data, put high attention on every small detail and 37 processes Third, regarding responding capability, case data show that it has the significant effect on high consistency of quality performance However, `reveal that responding capabilty help firms to solve the issue quickly and customers may perceive high responsiveness to quality problem as high level of quality performance This difference as discussed likely start difference in characteristic of customers Finally, more than expected, customer integration capability of focal firms have the positive impact on both elements of sustaining quality performance The explanation may be that the research is conducted in the context of 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If it is fine, please show me the annual evaluation result of your customers Over the past five years, what are capabilities that help firm to sustain quality over the past five years? 43 Based on your experience and knowledge, please let me know your opinion on that if these following capabilities have the positive impact on sustaining quality performance and how Please provide samples, reports for your answer as well For each capability, you can choose it positively affect both elements of sustaining quality performance Capability Sustaining quality High level of High consistency quality of quality performance performance Improvement Innovation Customer Integration Sensing of weak signals Responding Supplier integration 44 Explanation with samples .. .VIETNAM NATIONAL UNIVERSITY, HANOI VIETNAM JAPAN UNIVERSITY MAI DINH PHUONG CAPABILITIES FOR SUSTAINING QUALITY PERFORMANCE: A STUDY OF PROCESSED FRUIT INDUSTRY IN VIETNAM MAJOR:... management, Six Sigma and their effect on firm performance and competitive advantage including quality performance and they all agreed on firm performance including quality performance (Kaynak,... competitive a quality advantage advantage) Comparing the two elements of Model construction on the capabilities influence sustaining quality with capabilities sustaining quality step three Interviewing