MỤC LỤC
Theoretical background on competitive advantage Chapter II. Analysis on current situation of CAVICOEC
In fact, failures of many companies result from their lack of capacity to translate competitive strategies into concrete actions to improve the competitive advantage of the Company. It roots from traditional business when an enterprise tries his best to excel his competitors in direct and indirect ways in order to attain long-term stable and sustainable profit. In modern business practice, managers of a company take into consideration all activities of the company such as marketing, production, finance, human resources, renovation, organization etc.
Specific measures may include: Adopting better policies for price and costs; attract customers through enhancing customer satisfaction; providing unique and distinct products. Another noticeable definition is that “competitive advantage is the advantage over competitors through bringing values to customers or providing products at lower prices or providing more benefits for expensive products”. In 1980, Michael Porter clarified that competitive advantage is “how a company can really translate its theoretical strategies into reality in order to fundamentally bring.
Strategy implementation method as a linkage between the company and its external environment – a background for competitive advantage analysis which has been modified from the Mintzberg model, as illustrated in Graph 1.1. Michael Porter has clearly showed that competitive strategy is the search for favorable competitive advantage in the industry, in the market where competition focuses on 2 main issues: first, the attraction of long-term profit and its factors; and second, determinants to competitive advantage in the industry. In the case of less attractive companies, investors will not commit to long-term investment as they concern about “opportunity cost”, for example: they will compare investment in this company with that in other companies.
Michael Porter points out that “competitive strategies are actions of attack pt defense in order to create a position in the industry, to successfully solve 5 competitive powers”, thus enhancing the returns on investment. Michael Porter said that given the strengths and weaknesses of a company over its rivals, managers should choose a strategy based on 2 basic competitive advantages such as low price and differentiation in order to perform the 5 forces of competitive advantage better than its rivals. For companies pursuing the leading position in the market, these two basic competitive advantages should be combined with the operation scale of companies in order to achieve 3 successful overall strategies for attaining over-average profit: Low costs, differentiation and focus (Please refer to Graph 1.4).
The concentration on prices take advantage of differences in costs, while concentration on differentiation exploits special customers’ needs in specific aspects. Stagnation in the middle stage: Another aspect that managers should pay attention when developing corporate strategy is to avoid “stagnation in the middle stage, when a company fails to perform at least one of the 3 overall strategies. Lack of capital, market share, and playing the “low price” game, a company is stagnant in competition due to high costs, differences or concentration are placed at the higher position in order to compete in any market share.
Stagnant companies in the middle stage may suffer from a vague cultural mix and conflicts from the organizational structure and the supporting system. Companies stagnant in the middle stage have to make fundamental strategic decisions which usually include mass investment to modernize the company, buying market share, defining objectives and orientation or adopting differentiation strategy. Michael Porter starts from the individual corporate activities to strategic and continuous activities to understand the potential sources of differentiation.
The value chain can be used as a strategic instrument to analyze related costs, differentiation and the role of competition scale in order to gain competitive advantage. In order to achieve and sustain competitive advantage, companies need to understand the value chain of the company as well as to master the whole value system. An important difference is that the value chain of a company can be different from the scope of competition of its rivals, which is a potential source of competitive advantage.
The value chain of a company in a specific industry may differ from others in some elements of the production line, location of customers or the distribution channel. Each value chain of a company is created from the 9 categories of activities connected in specific ways, including initial activities and supporting activities as illustrated in Graph 1.6. Initial activities include such activities as production of physical products, turnover from those products, provision to buyers and after sales services.
The dotted lines in the above graph reflect that the search for and development of technology, human resource management can connect with initial activities as a chain.
Identify
Internal
Some issues need to be taken into consideration in investment capital analysis based on BCG matrix: (1) BCG matrix acknowledges the existence of accumulated experience, therefore the accumulated number of products is disproportionate to unit cost for producing that product; (2) high investment in stars has both advantages and disadvantages – stars can turn to cash cows when market grows and turnover growth declines; (3) the company needs to be cautious in making decision on shifting question marks into stars as this is risky decision; (4) dogs should be eliminated as soon as possible as they have no strategic roles. The electricity development master plan for 2001-2010 with prospects to 2020 (the Prime Minister’s Decision No. With regards to investment capital:. a) Vietnam Electricity Corporation (EVN) is allowed to mobilize all funding sources to invest in the construction of electricity source and network through the self-borrowing and self-returning mechanism (borrowing from ODA, national and international credit, export credit provided by suppliers;. borrowing equipments and returning commodities, issuing bonds and shares). EVN continues to develop rural electric network through close cooperation and joint efforts between central and local authorities, between the State and the people. b) The Government encourages local and foreign investors to invest in the construction of electric source and network through various investment forms such as Independent Power Plant (IPP), Build-Operation-Transfer (BOT), joint-venture, Joint stock company. Encourage local and foreign investors to participate in hydro-electric projects in different ways: IPP, Build-Transfer (B-T), Build-Operation-Transfer (B-O-T), Joint- stock companies or joint-ventures to mobilize other sources of capital.
CAVICOEC was established on March 4th 2005 as a joint stock companies between Habubank, one of the leading financial institutions in Vietnam and CAVICO Vietnam, a prestigious hydro-electric investment and construction company. Industry growth speed: is promoted through Government commitments, actions and policies in order to develop a competitive hydro-electric market in Vietnam, to gradually phase out the monopoly in the electricity and hydro-electricity market, and to enable the hydro-electric industry to grow rapidly in 2015. In summary, in a quickly growing market like the electricity industry in general and the hydro-electric industry in particular, which gives few opportunities for new comers, the competition level between existing companies is not intense.
Moreover, Government has taken different measures to encourage the establishment of local hydro-electric companies, who can play important part in large projects, while only the complicated works are implemented by foreign bidders. Corporate analysis, based on the supervision of the whole operation, resources and interactions between different activities in the company, is necessary for defining the strengths, weaknesses and the source of competitive advantage of the company. From SWOT analysis, the company can realize key factors influencing its competitive advantage, from which it can find suitable ways to improve its competitive advantage to successfully bring the overall strategies into effects.
The manager of the company should carry out this comparison in relation to rivals in the same industry with the aim that SWOT analysis will enable the company to define its core operational capacity – special strengths resulting in competitive advantage both internally and externally. Based on the analysis and assessment mentioned in details in Chapters I and II, this Chapter will concentrate on evaluating the competitive advantage of CAVICOEC towards the overall competitive strategy of the company, then it will analyze factors which have impacts on competitive advantages defined in Chapter II, and finally it will propose measures to improve competitive advantage of the company. The biggest rival of CAVICOEC in the hydro-electric field is Song Da 9 hydro- electric construction company, as both CAVICOEC and Song Da 9 are affiliated to 2 big corporations (CAVICO.VN and Song Da), and are parts of the value chain of alliances in low market share business field while both are operating in high profitability market (Refer to the table on next page).
Despite this role, whether CAVICOEC can sustain competitive advantage as the differentiated focus point for long-term business depends on the question of whether CAVICOEC pays attention to the costs and sustainability of the differentiation it achieves. To analyze the defined competitive advantage of CAVICOEC, we start with the motives for uniqueness of CAVICOEC, including policy options and linkages, to identify the reasons why the hydro-electric construction field creates favourable conditions for shareholders’ investment activities. Lowering the costs of activities which are not related to the main business of the company – the hydro-electric construction field and replacing costly activities with less costly activities, carry out restructure to add more value to activities in the value chain, as proposed in Chapter II.
Due to the meaning of this new concept and the complicated process through which it was developed, the authors have focused on analyzing the process to improve the sustainable competitive advantage for CAVICOEC, a newly established company in the construction field while this is also a newly emerging industry with high growth and many risks. The analysis based on Michael Porter’s theory on the five competitive forces, the value chain, the SWOT analysis, the BCG matrix have explained why the company brings value to its customers, and how to sustain and improve competitive advantage to create more customer values.