Improving the competitive ability of domestic container transporting companies, vinafco shipping company

I HC M TP. H CHÍ MINH
UNIVERSITE OUVERTE DE HCM
L’ UNIVERSITEÙ LIBRE DE BRUXELLES
ECOLE DE COMMERCE SOLVAY



MMVCFB
PROGRAMME DE MAITRIES EN MANAGEMENT VIETNAM COMMUNAUTE
FRANCAISE DE BELGIQUE


TRNH TH M HNH



IMPROVING THE COMPETITIVE ABILITY OF
DOMESTIC CONTAINER TRANSPORTING
COMPANIES, VINAFCO SHIPPING COMPANY


MASTER OF MANAGEMENT THESIS



GUIDANCE COUNSELOR
Ph.D LÊ TN BU

Ho Chi Minh City
2007
1
CONTENTS


CHAPTER 1: INTRODUCTION 5
1.1 Introduction: 7
1.2 Purpose of the research: 8
1.3 Scope and Limitations of the research: 8
1.4 Methodology: 9
1.5 Organization of the Research: 10
CHAPTER 2: LITERATURE REVIEW ABOUT THE CONTAINERIZED TRANSPORTATION 11
2.1 Definition of services 11
2.2 Characteristics of services 12
2.3 Kinds of container 12
2.4 What is Services Marketing 13
2.5 What is transportation marketing 14
2.6 Structural Analysis of Industry 14
2.7 Competitors Analysis 18
2.8 Marketing strategy 22
2.9 Strategic management process: 23
2.10 Selecting development strategies 24
CHAPTER 3: OVERVIEW OF CURRENT SHIPPING MARKET IN VIETNAM AND
ANALYZATION 29
3.1 History of domestics containerized transporting development in Vietnam: 29

3.2 Overview of the domestics containerized transportation fleet: 29
3.3 Comparative advantages of containerized transportation: 32
3.4 Vietnam Economy Review 32
3.4.1 Gross Domestic Product (GDP) 32
3.4.2 Foreign Direct Investment 33
3.5 Political and legal factors 37
3.6 Transportation system supporting the operation of the containerized shipping in HoChiMinh
City 38
3.7 Containerization trend 39
3.8 Competitors analysis 40
3.4.1 Existing competitors analysis 41
3.4.2 Threats of new entrants 42
3.4.3 The bargaining power of customers 43
3.4.4 The bargaining power of suppliers 44
CHAPTER 4: ANALYZING THE INTERNAL OPERATION OF VINAFCO SHIPPING COMPANY46
4.1 Introduction of VINAFCO shipping company 46
4.1.1 Mission and vision of VINAFCO shipping company 46
4.1.2 Terminal System 47
4.1.3 Inland Transport To and From the Khanh Hoi Port 47
4.1.4 Support Facilities 48
4.2 Human Resources 48
4.3 Organizational structure 50
4.4 Analysis of Vinafco’ business 50
4.4.1 Market share 51
4.4.2 Turnover analysis 52
4.4.3 Profit analysis 52
4.5 Price policy 53
4.6 SWOT analysis 54
4.6.1 Strengths 54
4.6.2 Weaknesses 55

4.6.3 Opportunities 55
4.6.4 Threats 56
2
CHAPTER 5: SOME SOLUTIONS FOR IMPROVING THE COMPETITIVE ABILITY OF VINAFCO
SHIPPING COMPANY 57

5.1 Objectives 57
5.2 Solutions 57
5.2.1 Customer focus 57
5.2.2 Setting particular marketing strategy planning and implementation 58
5.2.3 Closer management of sales-staff 59
5.2.4 Cost Leadership Strategy 59
5.2.5 Human resource development 60
5.2.6 Pricing policy adjustment 62
5.2.7 Other solutions 63
CONCLUSIONS 64

3
LIST OF TABLES

Table 1 - Kinds of container 13
Table 2 - The domestics containerized transprotation fleet 30
Table 3 - Market share of the domestics lines 31
Table 4 - GDP growth by year 33
Table 5 - Foreign Direct Investment by country & counted up to 20 December 2005. 34

Table 6 - Rank of Top Commodities domestics transport Y2006 by container with associated
value 36
Table 7 - Forecast on containerized transportation development in Vietnam to 2010 36
Table 8 - Forecast on domestics containerized transportation fleet in Viet to 2010 36
Table 9 - Summary of domestic volume of Bisco in the period of 2003-2006 41
Table 10 - Container facilities at Khanh Hoi Port 48
Table 11 - Personnel structure of Vinafco in 2006 49
Table 12 - General business ratios 51
Table 13 - Vinafco’s turnover in 2005-2006 52
Table 14 - Vinafco’s profit in 2005-2006 53

4
LIST OF FIGURES


Figure 1 - Industry’s Competitive Forces 18
Figure 2 - The Components of a Competitor Analysis 21
Figure 3 - Critical Dimensions of Strategy 22
Figure 4 - Development Strategies 25
Figure 5 - Type of Business-level strategies 26
Figure 6 - GPD growth year 2000 to year 2005 33
Figure 7 - Top Ten Foreign Direct Investment countries with associated value 35
Figure 8 - Organization structure of Vinafco 50
Figure 9 - Vinafco’s market share of container transportating cargo 51
Figure 10 - Vinafco’s turnover in 2005-2006 52

6
ABBREVIATIONS

VINAFCO : Vinafco Shipping Company Ltd.
BISCO : Bien Dong Shipping Company
TEU : Twenty feet Equivalent Unit
FEU : Twenty feet Equivalent Unit
WTO : World Trade Organization
ASEAN : Association of South East Asia Nation
NAFTA : North America Free Trade Area
EU : Europe Union
APEC : Asia Pacifics Economic Co-operation
SWOT : Strengths, Weaknesses, Opportunities, Threats
GDP : Gross Domestic Product
PC : Personal Computer
R&D : Research & Develop
WB : World Bank
FDI : Foreign Direct Investment
AFTA : ASEAN Free Tax Area
GMD : Germadept
B/L : Bill of Lading
CY : Container Yard
D-D : Door to Door

7

CHAPTER 1: INTRODUCTION
1.1 Introduction:
Following the tendency of globalization, Vietnam opened its economy, attracted
foreign investment, joining World Trade Organization (WTO), the North American
Free Trade Agreement (NAFTA). There is also the development of other trading
blocks like the European Union (EU), the Association of South East Asian Nations
(ASEAN), the Asia Pacific Economic Co-operation (APEC), and the growth of
Intra Asian Trade. These trade policy initiatives have a common objective to open
up new trading opportunities and integrate countries into global economy.
Logistics and supply chain management play a vital role in Vietnam’s economic
development. Shipping industry in general and containerized transportation in
particular plays a very important role in the logistics. It is indispensable in the
supply chain management process. With the long history of shipping industry, since
19th century for cargo and passenger transportation and then developed to
containerized transportation in late 1950s, until 1990s was domestics containerized
transportation’s first appearance in Vietnam. Nowadays proves to be the most

economic and safety transportation mode. It now occupies more than 40% of total
cargo volume transported nationwide.
Nowadays, Vietnam becomes a manufacturing and processing place of many
foreign companies due to low labor costs, natural resources and attractive
investment environment. Beside that, in the past ten years, Vietnam’s economy has
achieved its vision of sustainable and high quality growth of GDP which is around
8% yearly. These elements have raised the transportation demands in the country
and this is resulted to fast growth of shipping industry in general and containerized
transportation in particular. Currently, there are only 05 domestics shipping lines in
Vietnam market. However, most of carriers currently don’t have a specific
marketing strategy for the market because:
- Domestics transportation is a new market for containerized transportation,
furthermore majority of domestics producers are selling under ex-work basic which
leave the shipping control to consignee side.
8
- The government is still controlling on maritime transportation, resulted to the
uncompetetive market and some self-constraints in carriers’ investment.
With the prospect of joining WTO, Vietnam market will be fully open for all
service industries including maritime service, carriers will invest heavily in Vietnam
and the market supply will increase significantly over the demand. Therefore, an
improving the competive ability of carrier for Vietnam local market Vietnam local
market is important for carriers’ development.
1.2 Purpose of the research:
The objectives of this research are being stated below:
• Analyzing the development of the domestics containerized transportation in
Vietnam, the situation of the competition between the carrier in order to assess
the opportunities and threats for VINAFCO’s development.
• Analyzing the current situation of VINAFCO shipping company to find out its
strengths and weaknesses, identify its position in the shipping market.
• Based on that analysis of external and internal environment, first of all, is to put

the knowledge acquired in school into a business practice. Specially, by
applying the newest knowledge and methodology in services business, both in
terms of strategy setting and working experience, the research aims at finding a
proper solutions for VINAFCO shipping Co.,
1.3 Scope and Limitations of the research:
Shipping is basic process of transporting goods and cargo. Virtually every product
ever made, bought, or sold has been affected by shipping. Despite the many
variables in shipped products and locations, there are only three basic types of
shipments: land, air and sea.
Most cargo transport is by sea rather than by air transport because sea transport can
be cheaper and less restrictive to size, quantity, weight, and type of freight. Air
transport is usually reserved for products which must be sent within a certain time
frame.
Containerization is an important element of the logistics revolution that changed
freight handling in the 20
th
century. Containerization revolutionized cargo shipping.
9
Today, approximately 90% of cargo moves by containers stacked on transport ships.
As of 2005 some 18 million containers make over 200 million trips per year, there are
ships that can carry over 6,000 TEU, and designers are working on freighters
capable of 13,000 TEU.
This research study focused on the research of VINAFCO shipping company and
proposes some solutions for improving competitive ability to 2020. This research
can be valuable reference to other domestics shipping lines.
This research has the following limitations:
• This research has related to investigating economic situation in the domestics
containerized transportation that is the hinterland of Vinafco, but it mainly
focuses on the containerized transportation in the Southern market.
• In assessing the strengths and weaknesses of VINAFCO lines, the research has

not examined its financial ability due to difficulties in gaining and assessing data
necessary.
• Data about the competitors of VINAFCO mainly collected from secondary data,
not from those lines themselves. Therefore, the information of these competitors
is not sufficient.
1.4 Methodology:
This research is completed from methods of statistics, decription, analysis,
synthetic, etc and practical figures.
Basing on:
- The combination of literature guidance
- Secondary data analysis. Secondary data obtained from company finance
report and shipping line conferences were analyzed in order to have an
overview of shipping industry nationwide.
- Primary data was collected from direct interview with customers and
specialist in this field. Running SPSS program to analyze the data. Transfer
the results into comment and conclusion of the correlation between factors.
- SWOT analyses method.
10
- Finally, based on all the results acquired from previous steps together with
corporation overall solutions for the VINAFCO company is recommended.
1.5 Organization of the Research:
The content of this thesis consists of 5 chapters:
• Chapter 1: Introduction
• Chapter 2: Literature review about the containerized transportation
• Chapter 3: Overview of current shipping market in Vietnam and analyzing
external environment
• Chapter 4: Analyzing the internal operation of VINAFCO shipping
company
• Chapter 5: Some solutions for improving the competitive ability of
VINAFCO shipping company

Conclusions


























11
CHAPTER 2
LITERATURE REVIEW ABOUT THE CONTAINERIZED

TRANSPORTATION
Successfully competing in today’s ever-changing business environment requires
market-driven strategies that respond to customers’ needs and wants. The marketing
organization understands buyers’ needs and wants and effectively combines and
directs the skills and resources of the entire organization to provide high levels of
satisfaction to its customers (Drucker, 1954). Companies must design and
implement strategies that do more than cop; they must capitalize on the rapid
change of business environment. Successful business and marketing strategies
requires (Ulrich and Margarethe, 1989)
- Scanning and understanding customer, supplier, demographic, and
technology trends.
- Establishing more adaptive and flexible organization practices
- Setting a vision that forms a direction for the organization.
- Encouraging a strategic unity between the organization and its external
stakeholders by involving customers and suppliers in organization
practices.
2.1 Definition of services
Business on the containerized transportation is services business.
There are many definitions of what constitutes a service. In the simplest term,
services are deeds, processes and performance. Under the theories of Johnson,
MacMilan & Allen, “compliance services can include everything from compliance
inspections to employee monitoring, process ventilation efficiency studies and
employee training.”
1
Modern definitions of services focus on the fact that a service in itself produces no
tangible output, although it may be instrumental in producing some tangible output.
“A service is any activity or benefit that one party can offer to another which is
essentially tangible and doesn’t result in the ownership of anything. Its production
may or may not be tied to a physical product”
2

1
Valerie A Zeithaml and Mary Jo Bitner, “Services Marketing”, Mc Graw-Hill International; 5
th
edition
2
Andrian Palmer, “Principles of services marketing”, McGraw-Hill International; 3
rd
edition; 2001
12
The modern definition recognizes that most products are a combination of both
goods elements and services elements. In some case, service element will be the
essential element of the services while in other cases the services will simply
support the provision of tangible goods.
Combining simple and modern definitions, we have fairly full definition of services
as follow:
“Services include all economic activities whose output is not a physical products or
construction, is generally consumed at the time it is produces and provides added
value in forms (such as convenience, amusement, timeless, comfort and health) that
are essential intangible concerns of its first purchasers”
3

2.2 Characteristics of services
There are several characteristics that services different from goods. Basically, there
are at least such differences, as follow:
1. Customer does not want to obtain ownership of services
2. Service products are intangible performance.
3. There is greater involvement of customers in the “production” process
4. Other people may be part of the product.

5. There is greater variability in operational input and output.
6. Many services are difficult for customers to evaluate.
7. There is typically absence of inventories.
8. The time factor is relatively more important.
9. Delivery system may involve both electronic and physical channels
2.3 Kinds of container






3
James Brian Quinn, Jordan J Baruch and Penny Cushman Paquette “Technology in Services”, Scientific
American No.257 on 6
th
December 1987; page 50-58
13
Table 1 - Kinds of container
WEIGHT (KG) INTERIOR MEASUREMENT (M) CONTAINER
TYPE
GROSS TARE NET LENGTH WIDTH HEIGHT CUBIC M.
DRY STEEL 24,000 2,370 21,630 5.898 2.352 2.394 33.20
REEFER 24,000 3,050 20,950 5.449 2.290 2.244 26.70
OPEN TOP 24,000 2,580 21,420 5.629 2.212 2.311 32.00
20’
FLAT RACK 30,480 2,900 27,580 5.624 2.236 2.234 27.90
8’6” DRY
STEEL
30,480 4,000 26,480 12.031 2.352 2.394 67.74

8’6” REEFER 30,480 4,520 25,960 11.690 2.250 2.247 57.10
8’6” OPEN
TOP
30,480 4,290 26,190 11.763 2.212 2.311 65.40
8’6” FLAT
RACK
34,000 5,870 28,130 11.786 2.236 1.968 51.90
9’ DRY
STEEL
30,480 4,190 26,290 12.026 2.340 2.538 71.42
9’6” DRY
STEEL
30,480 4,200 26,280 12.031 2.352 2.699 76.40
40’
9’6” REEFER 30,480 4,670 25,810 11.583 2.290 2.524 64.30
2.4 What is Services Marketing
Services marketing is marketing based on relationship and value. It may be used to
market a service or a product.
Marketing a service-base business is different from marketing a product-base
business.
There are several major differences, including:
1. The buyer purchases an intangible
2. The service may be based on the reputation of a single person
3. It's more difficult to compare the quality of similar services
4. The buyer cannot return the service
5. Service Marketing mix adds 3 more P's i.e. People, Physical evidence,
Process.
When one markets a service business, one must keep in mind that reputation,
value, delivery of service and follow-through are keys to a successful venture.
4

4
Levitt, T. "Managing intangible products and product intangibles", Harvard Business Review, May-June,
1981, pp.94-102
14
2.5 What is transportation marketing
Transportation marketing is an effective marketing tool to manage the industry and
to solve the following issues:
- To study the overall market of the transportation services.
- To identify the need of quality and quantity of the transportation.
- To give the transportation plan.
- To identify the satisfaction of the transportation needs.
- To impact actively on the transportation market to increase the need.
- To analyze the activities of each means of transportation.
- To identify the transportation cost, freight, service charges and to set the
revenue and the profit for each enterprise.
- To enhance the service quality, to improve the relationship between the
enterprises and clients.
- To develop the advertising and promotion in the transportation industry.
2.6 Structural Analysis of Industry
Competitive strategy must grow out of a sophisticated understanding of the
structure of the industry and how it is changing. The task facing managers is to
analyze competitive forces in an industry’s environment in order to identify the
opportunities and threats confronting a company. Michael E. Porter of the Harvard
School of Business of Administration has developed a framework that helps
managers in this analysis. Porter’s framework, known as the five-force model,
appears in Figure 1.1. This model focuses on five forces that shape competition
within an industry: the risk of new entry by potential competitors, the degree of
rivalry among established companies within an industry, the bargaining power of

buyers, the bargaining power of suppliers, the threat of substitute products.
Porter argues that the stronger each of these forces is, the more limited is the ability
of established companies to raise prices and earn greater profits. The strength of the
five forces may change through time as industry conditions change. The task facing
managers is to recognize how changes in the five forces give rise to the new
opportunities and threats and formulate appropriate strategic responses. In addition,
15
it is possible for a company, through its choice of strategy, to alter the strengths of
one or more of the five forces to its advantage.
Potential competitors
Potential competitors are companies that are not currently competing in an industry
but have the capability to do so if they choose. Incumbent companies (those already
operating in an industry) try to discourage potential competitors from entering the
industry, since the more companies enter, the more difficult it becomes for
established companies to hold their share of the market and to generate profits.
Thus, a high risk of entry by potential competitors represents the threat to the
profitability of established companies. On the other hand, if the risk of new entry is
low, incumbent companies can take advantage of this opportunity to raise prices and
earn greater returns.
The strength of the competitive force of potential rivals is largely a function of the
height of barriers to entry. Barriers to entry are factors that make costly for
company to enter an industry. The greater the costs that potential competitors must
bear to enter an industry, the greater are the barrier to entry.
Rivalry among established companies
Intense rivalry among established companies constitutes a strong threat to
profitability. The extent of rivalry among established companies within an industry
is largely a function of three factors:
• Competitive structure: refers to the number and size distribution of companies
in an industry. Structures vary from fragmented to consolidated and have
different implications for rivalry. A fragmented industry contains a large number

of small or medium-sized companies, none of which is in a position to dominate
the industry. This is the case of port industry in general. In the shipping industry,
the positioning of means into a hierarchy structure during containerization is to
reflect a new pattern of competition as discussed earlier.
• Demand conditions: Growing demand tends to moderate competition by
providing greater room for expansion. Conversely, declining demand results in
more rivalry as companies fight to maintain revenues and market share. Thus,
16
declining demand constitutes a major threat, for it increases the extent of rivalry
between established companies.
• Exit barriers: Exit barriers are economic, strategic, and emotional factors that
keep companies in an industry even when returns are low. If exit barriers are
high, companies can become locked into an unprofitable industry in which
overall demand is static or declining. In the port industry, specialized facilities
and equipment are the major barrier to exit.
The bargaining power of Buyers:
Buyers can be viewed as a competitive threat when they are in a position to demand
lower prices from the company or when they demand better service (which can
increase operating costs). On the other hand, when buyers are weak, a company can
raise its prices and earn greater profits. Whether buyers are able to make demands
on a company depends on their power relative to that company. According to
Porter, buyers are most powerful in the following circumstance:
• When the supply industry is composed of many small companies and the buyers
are few in number and large.
• When the buyers purchase in large quantities. In such circumstances, buyers can
use their purchasing power as leverage to bargain for price reductions.
• When the supply industry depends on the buyers for a large percentage of its
total orders.
• When the buyers can switch orders between supply companies at a low cost,
thereby playing off companies against each other to force down prices.

• When it is economically feasible for the buyers to purchase the input from
several companies at once
• When the buyers can use the threat to supply their own needs through vertical
integration as a device for forcing down prices.
Another issue is that the relative power of buyers and suppliers tends to change over
time in respond to changing industry conditions.
The bargaining power of suppliers:
The suppliers can be viewed as a threat when they are able to force up the price that
a company must pay for its inputs or reduce the quality of the inputs they supply,
17
thereby depressing the company’s profitability. On the other hand, if suppliers are
weak, this gives a company the opportunity to force down prices and demand higher
input quality. Suppliers are most powerful:
• When the product that they sell has few substitutes and is important to the
company
• When the company’s industry is not an important customer of theirs. The
suppliers’ health does not depend on the company’s industry, and suppliers have
little incentive to reduce prices or improve quality
• When their respective products are differentiated to such an extent that it is
costly for a company to switch from one supplier to another.
• When, to raise prices, they can use the threat of vertically integrating forward
into the industry and competing directly with the company
• When buying companies cannot use the threat of vertically integrating backward
and supplying their own needs as a means to reduce input prices.
The threat of substitute products
Substitute products are those of industries that serve consumers’ needs in a way that
is similar to those being served by the industry being analyzed. The existence of
close substitutes presents a strong competitive threat, limiting the price a company
can charge and thus its profitability. However, if a company’s products have few
close substitutes (that is, if substitutes are a weak competitive force), then, other

things being equal, the company has the opportunity to raise prices and earn
additional profits. Consequently, its strategies should be designed to take advantage
of this fact.
18

Figure 1 - Industry’s Competitive Forces
(Source: Porter, M.E., 1980. Competitive Strategy, the Free Press)
2.7 Competitors Analysis
It was noted by Porter (1980) that competitive strategy involves positioning a
business to maximize the value of the capabilities that distinguish it from its
competitors. It follows that a central aspect of strategy formulation is perceptive
competitor analysis. The objective of a competitor analysis is to develop a profile of
the nature and success of the likely strategy changes each competitor might make,
each competitor’s probable response to the range of feasible strategic moves other
firms could initiate, and each competitor’s probable reaction to the array of industry
changes and broader environmental shifts that might occur. Sophisticated
competitor analysis is needed to answer such questions as “Who should we pick a
fight with in the industry, and with what sequence of move?” “What is the meaning
of that competitor’s strategic move and seriously should we take it?” and “What
Bargaining power
of buyers

SUPPLIERS
Bargaining power of
suppliers
SHIPPING
INDUSTRY
COMPETITORS

Rivalry Among
Existing Shipping

SUBSTITUTES
Threats of
substitute
p
roducts
BUYERS
POTENTIAL
ENTRANTS
Threats of
new entrants
19
areas should we avoid because the competitor’s respond will be emotional or
desperate?. Despite the clear need for sophisticated competitor analysis in strategy
formulation is sometimes not done explicitly or comprehensively in practice. A
further difficulty is that in-depth competitor analysis requires a great deal of data,
much of which is not easy to find without considerable hard work. Many companies
do not collect information about competitors in a systematic fashion, but act on the
basic of informal impression, conjectures, and intuition gained through the tidbits of
information about competitors every manager continually receives. Yet the lack of
good information makes it very hard to do sophisticated competitor analysis.
There are four diagnostic components to a competitor analysis: future goals, current
strategy, assumptions and capabilities. Understanding these four components will
allow an informed prediction of the competitor’s response profile, as articulated in
the key questions posed in Figure 2.

Future goals
The diagnosis of competitors’ goals (and how they will measure themselves against
these goals), the first component of competitor analysis, is important for a variety of
reason. The knowledge of goals will allow predictions about whether or not each
competitor is satisfied with its present position and financial results. Thereby, how
likely that competitor is to change strategy and the vigor with which it will react to
outside events (for instance, the business cycle) or to moves by other firms.
Knowing a competitor’s goals will also aid in predicting its reactions to strategic
changes. Some strategic changes will threaten a competitor more than others, given
its goals and any pressures it may face from a corporate parent. This degree of
threat will affect the probability of retaliation. Finally, a diagnosis of a competitor’s
goals helps interpret the seriousness of initiatives the competitor takes. A strategic
move by a competitor that addresses one of its central goals or seeks to restore
performance against a key target is not a casual matter. Similarly, a diagnosis of its
goals will help determine whether a corporate parent will seriously support an
initiative taken by one of its business units or whether it will back that business
unit’s retaliation against moves of competitors.
20
Although one most often thinks of financial goals, a comprehensive diagnosis of a
competitor’s goals will usually include many more qualitative factors, such as its
target in term of market leadership, technological position, social performance, and
the like. Diagnosis
of goals should also be at multiple management levels, since the goals of higher
levels play a part in, but do not fully determine the goals lower down.
Assumptions
The second crucial component in competitor analysis is identifying each
competitor’s assumptions. These fall into two major categories:
• The competitor’s assumptions about itself
Every firm operates on a set of assumptions about its own situation. For example, it
may see itself as a socially conscious firm, as the industry leader, as the low-cost

producer, and so on. These assumptions about its own situation will guide the way
the firm behaves and the way it reacts to events. This assumption may or may not be
accurate. Where they are not, this provides an intriguing strategic level
• The competitor’s assumptions about the industry and the other companies in it.
Examining assumptions of all types can identify biased or blind spots that may
creep into the way managers perceive their environment. The blind spots are areas
where a competitor will either not see the significant of events (such as a strategic
move) at all, will perceive them incorrectly, or will perceive only very slowly.
Rooting out these blind spots will help the firm identify moves with a lower
probability of immediate retaliation and identify moves where retaliation, once it
comes, is not effective.
Current strategy
The third component of competitor analysis is developing statements of the current
strategy of each competitor. A competitor’s strategy is most usefully thought of as
its key operating policies in each functional area of the business and how it seeks to
interrelate the functions. This strategy may be either explicit or implicit – one
always exits in one form or the other.
Capabilities
21
A realistic appraisal of each competitor’s capabilities is the final diagnostic step in
competitor analysis. Its goals, assumptions, and current strategy will influence the
likelihood, timing, nature, and intensity of a competitor’s reactions. Its strengths and
weaknesses will estimate its ability to initiate or react to strategic moves and to deal
with environmental or industry events that occur.


Figure 2 - The Components of a Competitor Analysis
(Sources: Porter, M.E., 1980. Competitive Strategy, The Free Press)
FUTURE GOALS
At all levels of management

and in multiple dimensions
CURRENT STRATEGY
How the business is
currently competing
Is the competitor satisfied with its current position?
What likely moves or strategy shifts will be the
competitor make?
Where is the competitor vulnerable?
What will provoke the greatest and most effective
retaliation by the competitor?
ASSUMPTIONS
Held about itself
and the industry
CAPABILITIES
Both strengths and
weaknesses
What drives
the competitor
What the competitor
is doing and can do
COMPETITOR’S RESPOND PROFILE
22
2.8 Marketing strategy
Marketing strategy
5
is marketing starts with market research, in which needs and
attitudes and competitors’ products are assessed and continues through into
advertising, promotion, distribution, and, where applicable, customer servicing and
repair, packaging, and sales and distribution.
A marketing strategy

6
serves as the foundation of a marketing plan. A marketing
plan contains a list of specific actions required to successfully implement a specific
marketing strategy. An example of marketing strategy is as follows: "Use a low cost
product to attract consumers. Once our organization, via our low cost product, has
established a relationship with consumers, our organization will sell additional,
higher-margin products and services that enhance the consumer's interaction with
the low-cost product or service."
A good marketing strategy should integrate an organization's marketing goals,
policies, and action sequences (tactics) into a cohesive whole. The objective of a
marketing strategy is to provide a foundation from which a tactical plan is
developed. This allows the organization to carry out its mission effectively and
efficiently.

Figure 3 - Critical Dimensions of Strategy
(Hax & Mailuf, 1991)


5

6
Kotler, P. and Amstron, G., 1999, “Priciples of Marketing”, 8
th
edition, Prentice-Hall.
STRATEGY
Mission and Goals
Pattern of decisions
Business level strategy
External environment
Internal environment

Resources capabilities
Competitive domain
Threats O
pp
ortunities
WeaknessesStren
g
ths
23
2.9 Strategic management process:
Strategic management is a stream of decisions and actions, which leads to the
development of an effective strategy or strategies to help achieve corporate
objectives. The strategic management process is the way in which strategist
determine objectives and make strategic decisions.
• Mission and goals
The first component of the strategic management process is defining the mission
and the major goals of the organization, which normally is stressed by
organization’s mission statement. The mission sets out why the organization exists
and what it should be doing. Major goals specify what the organization hopes to
fulfill in the medium to long term.
Besides, it is necessary to set up the corporate objectives. Formal objectives provide
decision criteria that guide an organization’s business units and employees toward
specific dimensions and levels of performance. Those same objectives provide the
benchmarks for evaluating subsequent outcomes. To be useful as decision criteria
and evaluative benchmarks, corporate objectives must be both specific and
measurable.
• External analysis
The second component of the strategic management process is the analysis of the
organization’s external operating environment. The objective of the external
analysis is to identify strategic opportunities and threats in the organization’s

operating environment. Three interrelated environments should be examined at this
stage: the immediate, or industry, environment in which the organization operating,
the national environment, and the wider macroenvironment.
Analyzing the industry environment requires an assessment of the competitive
structure of the organization’s industry, including the competitive position of the
focal organization and its major rivals, as well as the stage of industry development.
Analyzing the industry environment also means assessing the impact of
globalization upon competition within an industry. Analyzing the national
environment requires an assessment of whether the national context within which a
company operates facilitates the attainment of a competitive advantage in the global
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market place. Analyzing the macroenvironment consists of examining
macroeconomic, social, government, legal, international, and technological factors
that may affect the organization.
• Internal analysis
Internal analysis, the third component of the strategic management process, serves
to pinpoint the strengths and weaknesses of the organization. Building and
maintaining a competitive advantage requires a company to achieve superior
efficiency, quality, innovation, and customer responsiveness. A company’s
strengths lead to superiority in these areas, whereas a company’s weaknesses
translate into inferior performance.
• SWOT analysis
The next component requires generating a series of strategic alternatives, given the
company’s internal strengths and weaknesses, and its external opportunities and
threats. The comparison of strengths, weaknesses, opportunities and threats is
normally referred to as a SWOT analysis. The central purpose of the SWOT
analysis is to identify strategies that align, fit, or match a company’s resources and
capabilities to the demands of the environment in which the company operates. To
put it another way, the purpose of the strategic alternatives generated by a SWOT
analysis should be to build on a company’s strengths in order to exploit

opportunities, counter threats, and correct weaknesses.
2.10 Selecting development strategies
As soon as completing the tasks of identification of the most relevant competitors,
of selection of the critical success factors (from analyzing the external and internal
environment of the organization) and developing a competitive profile, the company
have to select strategies that is most appropriate for their development. Options
about development strategies involve decisions about three elements that the
depicted in Figure 4.
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Figure 4 - Development Strategies
(Source: Johnson/Scholes, 1993)
Generic competitive strategies (Business level strategies)
According to Porter, the competitive strategies will be designed based on the choice
from three competitive approaches: cost leadership, differentiation, and focus. The
generic strategies are shown in figure 5
• Cost leadership strategy
A cost leadership strategy, where “a firm sets out to become the low-cost producer
in its industry. A low-cost producer must find and exploit all sources of cost
advantage. Low-cost producers typically sell a standard product and place
considerable emphasis on reaping scale or absolute cost advantage from all sources.
If a firm can achieve and sustain overall cost leadership, then it will be an above-
average performer in its industry provided it can command prices at or near the
industry average”. The cost leaders are likely to earn above-average return. The
company can achieve a cost leader position by the combination of
product/market/distinctive competence.
DEVELOPMENT
STRATEGIES
GENERIC
COMPETITIVE

STRATEGIES

• Cost leadership
• Differentiation
• Focus
ALTERNATIVE
DIRECTIONS

• Withdrawal
• Consolidation
• Market penetration
• Product development
• Market development
• Diversification
ALTERNATIVE
METHODS


• Internal development
• Acquisition
• Joint-venture
development