Formulating business strategy for a securities firm the case of Kim Long securities joint-stock company

V IETNAM N A T IO N A L UN IV E R SIT Y , H A N O I
SCH O O L OF BU SINESS
M
— H s B —
IK A P K K & M tr U l H IJ v o ,
N guyen T hu Thuy
FOR M ULATING BU SINESS ST R A T E G Y F O R A SE C U R IT IE S FIRM
TH E C A SE OF KIM LONG SE C U R IT IES JO INT - STO C K
C O M P A N Y
M ajor: Business A d m ỉnistration
Code: 60 34 05
M A ST ER O F BU SIN E SS A D M IN IST R A T IO N T H E SIS
Supervisors: Dr. Chu Thanh
ĐAI c o u o e G'A r- •
TRUNG '■■■■>M uiỏNG 1IN THU VÉN

_ Â = í ữ h
■0

,
H anoi - 2010
TA BLE O F C O N T E N T S
ACKNONVLEDGEMENTS i
TABLE OF CONTENTS V
LIST OF ABBREVIATIONS viii
LIST OF TABLE X
LIST OF FIGURE X
INTRODUCTION 1
NECESSARY OF T HESIS 1
SCOPE OF W ORK S 3
METHODOLOGY 3

CONTRIBUTION OF THESIS
3
CHAPTER 1: THEORY ON FORM ULATING BUSINESS STRATEGY 5
1. Strategy defínitỉon and classiíícation 5
1.1. Deíĩnition ofstrategy 5
1.2. The ĩeatures and roles of strategies
6
1.3. Classiiìcation o f strategy 7
1.3.1 C o rpo rate stra teg ie s 8
1.3.2. B usiness s tra te g ie s
8
1.3.3. F u n ctional s tra te g ie s 8
2. Formulatỉon strategy process 9
2.1. What is mission of the firm 9
2.1.1. M iss io n 9
2.1.2. O b je c tiv e 9
2.2. E x te rn a l ía c t o r s 10
2.2.1. M acro a n a ly s is 10
2.2.2. In d u stry a n a ly s is 13
2.2 .3 F in d in g o f o p p o rtunities an d th re a ts

20
2.3 Internal environment 21
2.3.1 V alue Chain an a ly sis 21
2.3.2. P ro cess to iden tiíy su stain able c o m petitiv e ad v a n ta g e s 22
2.4 Formulatỉon and choice of appropriate strategy

23
2.4.1 SW O T M o d e l 23
2.4.3 F o rm u latin g s tra te g y 24

CHAPTER 2: KIM LONG SECURITIES JOINT-STOCK COMPANY. .27
1. In tr o d u c tio n 27
1.1. Securities industry in Vietnam 27
1.1.1. S e c u ritie s 27
1.1.2. S ecu rities C o m p a n ie s 27
1.1.3. S ecu rities m ark et developm ent and the ío u n d a tio n o f securities
com panies 28
1.2. Kim Long Securities Corporation 30
2. External analysis 31
2.1. Macro environment analysis: 31
2.1.1. Social fa c to rs 31
2.1.2. L egal ía c to rs 31
2.1.3. E c o n o m ics fa c to rs 32
2.1.4. P o litic f a c to rs 34
2.1.5. T echno lo g y ía c to rs
35
2.2. I n d u s try a n a ly s is 35
2.2.1. In d ustry e n v iro n m e n t
35
2.2.2. F ive forces m o d e l 39
2.3. Find out opportunities and threats 45
3. Internal analysis 46
3.1. Vision, Mission, motto and objectives of K L S 46
3.2. Value Chain analysis of KLS 47
3.2.1 F in a nce p ersp e c tiv e
47
3.2.2. H u m an reso urce p ers p e c tiv e 55
3.2.3 . PR and M a rk e tin g 56
3.3. Id e n tiíy su s ta in a b le c o m p e titiv e a d v a n ta g e s

57
CHAPTER 3: FORMULATION OF BUSINESS STRATEG Y 60
1. F o rm ula tio n b u s in e s s s tr a te g y 60
1.1 Vietnam Securities market outlook 2 012 60
1.2. SWOT analysis 61
2. R e c o m m e n d a tio n s 65
2.1 M a rk e tin g s tra te g y 65
2.2. In v est in T e c h n o lo g y
69
2.3. Diíĩerentiation services and products 69
2.4. E n la rg e a g e n t n e tv v o rk 71
CONCLUSION 72
vii
LIST OF ABBREVIATIONS
s s c State Securities Commission
K L S K im L o n g S e c u rities C o m p any
SW O T S trength s, W eakness, O p p o rtu n ities, T h reats
H A S T C H a N o i S ecurities tra d in g cen te r
H O S E H o C hi M inh S to ck E x c h an g e
G D P G ross D o m e stic P ro d u ct
SM E s Sm all and m ed ium e n terp rise s
LIST OF FIGURE
Figu re 1 -1: H ierarchy o f Strategy 8
Figure 1-2: SL E P T M odel 11
Figure 1-3: Five ío rces M odel 13
Figu re 1-4: The industry life cycle 17
Figu re 1-5: V alue Chain 21
Figu re 1-6: Process to identiíy su stainab le c om petitiv e a dv antag es 22
Figure 1-7: SW O T M o d el 24
Figu re 1-8: P rocess to íorm ulate strateg y 25

Figu re 2-1: V nlndex in 2008 40
Figu re 2-2: T op 10 securities com p anies
in
term o f charter
Capital
41
Figu re 2-3: T he n u m ber o f listed com p anies 46
Figure 2-4: D em o n sừ ation o f K L S share prices in 200 8 56
Figure 2-5: K L S share price íluctuation over the H A S T C In dex 57
Figu re 2-6: W orkforce b y experlise as o f Jan ’2 010 59
ix
LIST OF TABLE
T able 2-1: A n Overvievv o f securities m arket 29
Table 2- 2: Securities indices o f diíĩerent countries in period 2007 - 2008 33
T able 2- 3: S cale o f V ietnam stock m arket 36
T able 2-4: C om pariso n o f broker m arket share in 2008 o f som e com panies 42
Table 2-5: T he num ber o f K L S ’s cu stom ers from the end o f 2008 44
T able 2- 6: R ank ed opportunities and threats 45
T able 2-7: B usiness períòrm an ce results o f the m ost recent three years 48
T able 2-8: K ey fm ancial indicators o f the m ost recent three years 50
T able 2-9: K L S ’s 2008 S taíĩìng 55
T able 2-10: Sum m ary o f ranked strengths and w eaknesses 57
T able 2-11: O verview com paring to com petitors 58
Table 2-12: T able o f sustainable com petitive advan tag es 58
T able 3 -1 : SW O T m atrix 65
T able 3 -2: P roposed com position o f K L S sales tow ards 2015 70
X
INTRODUCTION
NECESSARY OF THESIS
To 2009, V ietnam secu rities has o p erated fo r nine years. D urin g recen t tim e, foreign

and local investors exp erience a b o o m o f th e stock m ark et in V ietnam . T h e m arket
capitalized value, that
is
included
the
value o f State
bonds,
represented over
50%
of
the country 's G D P 1. O ver U SD 1 00 m illio n is the n u m ber o f daily transaction v alue
o f the registered exchang es. A t the b eginn in g o f m arket, th ere are only 4 securities
on the m arket, but th is n u m b er h as in creased 20 tim es in 200 7. A nd up to O cto b er
2009, this n u m b er is 179 securities on H O S E and 230 secu rities on H aS T C . Such
increm e n t in the nu m ber o f securities c o m p a n ies at th e tim e w as a catalyst to m ake
the local b ourses m ore active and sturdy, thus cre ating nu m erous cho ices for
investors.
T h e em ergence o f n ew securities com p anies, hovvever, the ope rations o f existing
securities busin esses as it caused sh rin k a g e in th eir m ark et shares. In addition, the
rem oval o f the p ro te ctiv e barriers to th e local íĩn ancial serv ices as a con sequence o f
the country's in creasin g regional and global integ ration p ro cess p o sed enorm o u s
challeng es to d om estic securities íìrm s. M any o f th ese b u sin esses w ere e x p o sed to
b ein g taken over. m erged or backin g o u t from the m ark et unless they b ecam e m ore
com p e titiv e to ch alleng e th eir nevv ío reign rivals.2
A t the tum o f 2008, th e w hole vvorld w as shock ed by the global íĩn ancial crisis.
A fter a series o f íĩn ancial scandals in th e
us
and the rest o f the w orld, o n
S ep tem b e r 15, 200 8 L ehm an B ro th ers - an o ld -aged A m eric an b an k w ith a 158
y ears' o perational histo ry collap sed, w hich m ark ed the b ig g e st ban kru p tcy ever in

the
ưs3.
T he c atastro p h e o f n u m ero u s tak e-o v er, m ergers and o ther b ankru p tcies
th ro u g h ou t the w orld due to m o rtg ag e-related losses w as loom ing. T hese
d ev elo p m en ts cast do u b t on global íinan cial adm inistrators, institutions, researchers
and p o lic y -m a k ers o f w hat h ad b een con sid e red in th e p ast few decades as the
p o sitiv e side o f the nevv íìn ancial m an ag em ent and c o n trol th eories and ap p ro ach es.
T h e situatio n also caused them skep tical a b o u t the g ro w th o f the fínan cial m arkets,
1
the interactio n am o n g d iíĩere n t m ark et seg m ents, and th e in tergration o f reg ional
and glob al eco no m ies and stock m arkets.
T h e year 2008 e n d ed leaving the d evelopm ents o f the global íin ancial crisis in the
stage so-called “the en d o f a start Stock m ark ets w o rlđ w id e w ere all tum bling,
w hich caused h u n d red s o f peo ple to lose th eir jo b s and be destitute.
T h e U n ited States and global íìn ancial crisis also ad v ersely affected the econom y o f
V ietnam , and particularly its sto ck m arket. The V n-In dex su íĩe re d a deep
consecutive íầll o f 6 5 % 4 in its value from th e b eg in n in g o f 2008. A great m any
dom estic and foreign investors backed o u t from the m ark et, and m ad e it a lm ost
illiqu id.
R o u g h statistics by th e end o f 2008 sh o w ed th at m ost o f local securities firm s w ere
in sev ere losses. T h o se b u sin esses form ed in 2006 and 2 007 w ere in stagn ant
o p e rations d u e to the gloom y d o m estic bourse. T h eir key serv ices such as securities
pro p rietary d ealin g , and u nderw riting w ere less p ro fita b le due to the large drop in
the price o f the m ạịority o f listed shares o v er the initial value o f the investing
com pany and b o o k ed valu e o f the listed com p anies.
In th is con text, th e re íò re, the d e v e lo p m en t o f a sustain able and strategic instru m ent
to pro m o te b usin ess operatio ns o f sm all an d m ed iu m , and new ly-establish ed
securitie s com p a n ies is essential.
E fficient busin ess strateg ies con trib u te to stable and su stain able develo pm ent o f a
securitie s co m p any w hile acting as e ffective in stru m ents to stabilize and boost the

g ro w th o f stock m ark ets given th e p rev ailin g g lobal íĩn ancial crisis.
In su m m ary , all o f th e above stan d s w ell ju stiíy th e choice o f the thesis titled
’'F o rm ula tin g b u siness strategy fo r a sec u rities fir m - The ca se o f K im L on g
se cu ritie s jo in t - sto ck c o m pa ny
”, w hich is sig n iíĩc a n t to the perform ance o f the
C o m p any an d the d o m estic stock m ark et as a w h ole.
2
SCOPE OF WORKS
D esp ite th e m any lesso ns on b u siness p erío rm an c e o f securities com panies d raw n
from the 2008 g lobal íinancial crisis, m y rese arch w o rk, due to certain constraints
and
o b stacles, concentrates only
on
K L S ’s busin ess strateg ies, vvhich are
in Central
interest o f its B oard o f M anag em ent and o th e r securities firm s. S u bsequ ently, the
thesis co n tent is adhered to stu dying th e facto rs th at a íĩe c t K L S 's sustainab le grow th
from strateg ic p oin ts o f view .
METHODOLOGY
T h is research used d eductive m eth od to g o th rou g h from literature to fact analysis.
C ase study is used to illustrate theory on ío rm u la tin g b usin ess strategy.
In an alyzin g the co m p a n y 's íìn ancial p erío rm ance, cro ss-section al and tim e-series
tech n iq u es, trend analy sis, com m o n -size statem ents and fínancial ratio analy sis are
tap p ed.
In o th er analyses, fiv e íorces, SW O T m od els, and several o th er th eoretical m odels
are to be p resented in C h apter I and other chapters.
CONTRIBUTION OF THESIS
T h is rese arch is a sig n iíỉcant w o rk in term o f know ledge and p ractice o f securities
com panies. It d epicts com prehensiv e in sight o f K L S ’s o p erations and dev elopm ent
trenđs in the c o n text o f the prevailin g global íĩnan cial crisis and severe com p etition

am o n g securities com pan ies. The th esis is targ e ted to se curities co m panies, and
p articip atin g o rg an iz atio n s and individuals on the secu rities m arket - a grovving
sector th ai is
Central
interest o f local and íoreig n investors.
T h e th esis p ro v id es K L S w ith a full p icture o f its b u sin ess p erío rm ance in rece n t
y ears, an analysis o f its busin ess strateg ies and pro p o sed m easures tovvards a
d o w n size d ad m inistrative structu re and stream lin ed in v estm ent. A ỉl o f th ese efforts
are steered tow ard s th e ultim ate goal o f m itigated risks, in creased co rporate value
and stre n g th e n e d re sourc es for K L S in the contex t o f o ngoing global adverse
d evelopm ents.
3
B eyond th ese. th e p a p e r can be u sed as a reíe ren c e fo r o th e r studies or researc h
vvork on the a d m in istratio n o f m ark et bu ild ers, an d K L S 'S bu sin ess e ffìcie n c y in the
past period. M o reo v e r, th e study is th e o re tically v alu ab le and giv es insig h t o f th e
new business stra te g ie s and o p e ra tio n al m a n ag em ent m o d alities o f securities
com pan ies, w hich are in g reat d ifference from th e ir tra d itio n al strategic analysis and
ap p ro ach es.
4
CHAPTER 1. THEORY ON FORMULATING BUSINESS STRATEGY
1. Strategy defínition and cIassification
1.1. Definition of strategy
T h e term “ stra teg y ” used in scope o f th is thesis ju st m entions about strategy in
b o u n d ary o f eco nom ics.
A sim ple vvay. strateg y is an action that a fìrm tak es to obtain su p erio r p e río rm a n ce.
It is o bviously that to ach ieving a superio r perío rm ance, the fírm m u st not only
spen d com p letely its reso u rces b u t also it lasts in a long perio d. The w ay th at the
firm plans to get its long -run objectives is called strategy.
F rom the point o f v iew o f M ich ael P o rter5, a strateg y can be deíìned as “the study to
id en tiíy the m o st suitable com p etitive p o sition for an industry, and m ajor scope o f

activ ities w here com petition is p re sent” . S trateg y , accord in g to him , em p hasizes on
com p etitio n . In an o th e r w ord, as M ich ael P o rte r “S trategy is a cho ice on h o w to
co m pete” .
A lfrc d C h an d ler - a pro fessor from H arv ard U n iv ersity 6 has a n o th e r idea.
“ S trategy", in his v iew , "is to d e íĩn e lo n g -term key goals o f a co m p any, action
p ro g ram s and allo cation o f n ecessary reso u rc es to ach iev e those g o als” .
A ccord in g to W illiam F. G lu ek 7, “S trateg y is a u niíĩed , co m prehensiv e and
integrated p lan d esig n ed to ensu re a firm 's a ch iev em en t o f its b u sin ess targ e ts” .
A lth o u g h th ere exists m any w ay s to d efm e strateg y , b ut all o f them are great m inds
think alike.
In co n clusio n , strateg y can be d e íìn ed as the determ in a tio n and assessm ent o f
alte m ativ e s a v ailab le to an o rg anization in achiev in g its o bịectives and m issio n and
ch o o sing an a p p ro p riate altem ativ e to b e p u rsu ed.
5
1.2. The ĩeatures and roles of strategies
It can be seen that th e concepts o f a strateg y are varied. Y et, a strategy, from any
angles and at any tim e, has som e m ost typical íeatures th at reílect the natu re o f the
b u sin ess strateg ies o f an enterp rise sp eciíĩed b elow :
❖ A strategy m ust clearly d efin e the key goals to be achieved in speciíled
perio ds and m u st grasp at all asp ects and levels o f the pro d u ction and
busin ess activities o f an en terprise.
❖ B usiness strateg ies m u st be reílected in a continued p ro cess from
d evelo p m ent to ach ievem ent, a ssessm en t and rev iew , and ad ju stm ent o f the
set goals.
❖ A strateg y m u st ensure o p tim aỉ m o b iliz atio n and full exploitatio n o f the
íĩrrrTs resources like labor, Capital, technique and technology; and ensure
that the fírm 's advantag es are p ro m oted and o p p o rtu n ities are g rasp ed to g ain
com p arative a d v an tages in the m arket.
❖ A strateg y is an instrum en t th at sets o u t long-term objectives o f an
enterprise; and

❖ A
strategy
d e íìn e s the clear scope o f com p etitio n o f an en terprise.
T he essence o f this characteristic is to id e n tiíy clearly the busin ess scope o f an
enterprise. Th is is an im portant step o f an en te rp rise in reílectin g b u siness
env iro n m e n t, po sition in g strategies, allocating reso u rc es and ad m inisterin g its
inv estm en t p o rtío lio . T w o basic q u e stio n s raised are:
W ho w e are in com parison to our com p etito rs? H o w to g et o ur o bjectiv es?
T h is is a relatively com p lex p ro b lem since th e m a rk et segm entatio n has a g reat
im pact on id en tiíic a tio n o f org anizatio n al stru cture o f a com p any.
❖ A strateg y reílects the intersection betw een o p p o rtu n ities and th reats o f a
com p any, and b etw een its strength s an d vveaknesses, from w h ich its
com p e titiv eness is built. In o th er w ord s, it is sh o w h o w the firm c atches its
opportu nities, avoid th reats from extem a l enviro n m ent, take its strengths and
ov erco m e its w eak n esses.
6
T h is feature reveals a key aspect o f strategy - the long -term susta in able c o m p etitive
advan tag e o f a fìrm o v e r its m ajo r c o m petitors in the in vo lving business sector.
Facing w ith com p etitiv eness, the successíìil corp o rate strategist is th e p erso n w ho
can find out exactly íim v s p osition on the m ark et w h ere the ílrm can w ell p erío rm
its ca p ab ilities and defend against o th e r com petitors, b oth existing com p etito rs and
p otential com petitors.
S trategy plays very im p o rtant roles. In the corp o rate level, it pro vides the d irection
to ensu re the firm g oes on the right w ay to achiev e its objectives. L o oking dovvn to
individual b u sin ess o f the firm , strateg y p e río rm s the roles th at are m ore
detail.
It
sho w s how the firm can co m pete to o th e r com p etito rs in th e sam e b u sin ess on the
m arket. A í functio nal activities, su ch as h u m an reso u rces, íĩnan ce, m ark eting, and
Service operation etc strategy

is
coherence between these íunctional activities. It
also allovvs day - to - day p ro cesses to be designed and im p lem en ted.
1.3. Classiíìcation of strategies
T he m ost p o p u lar w ay to classify strateg y is b asin g o n d iffe ren t bu sin ess level in the
o rg an ization.
A ll stra tegy m ust o rigin from o rg an iz atio n ’s sp e cifíe d long-run objectiv es that
address the resu lts d esired in pursu in g th e o rg a n iz atio n ’s m ission and norm ally it
lasts o v e r on e íìscal year.
T he c la ssiíìc a tio n o f strateg y is the starting point to determ ine the appro p riate
strateg y.
In the fact, in all o f o rgan izatio n s, strateg y can be d iv id ed into three types th at are
correspo n d in g to its level operation s.
F ig u re 1-1 sh o w s cleare r abo ut each level.
7
Figure 1-1: Hierarchy of Strategy
Source: S trategic M anag em ent, L .L .B y ars
1.3.1. C o rp o rate strategies
V isio n and m issio n are íìindam ental d irectio n s th at th e firm m ust con cem w hen
setting its e lf lo n g -run objectiv es, o rg anization al cu ltu re, p olicies, sh o rt-run
objectives.
C orporate strategies address w hich b u sin esses the fírm w ill ju m p in and how its
reso u rces vvill be allocated am ong th ese b u sinesses.
D eterm in in g corp o rate strateg ies are one-step to m ake th e
Vision
and m ission o f the
firm is clearer and sho w the w ay to ach ieve its o b jectiv es.
1.3.2. B u sin ess strategies
B usiness strategy often com es along w ith a b u siness unit. N orm ally, íĩm r s
activities can be seg m en te d into busin ess u nits. A b u siness u n it is a sm all operatin g

unit o f the fĩrm vvhere it p ro vides a set o f sp e ciíìe d p ro d u ct, it has itse lf custo m er
seg m en t, an d it can dete rm in e its o w n com petito rs.
T h erefore, b usin ess strategy íb cu ses on h o w to c o m p ete in a g iv en business.
1.3.3. Fu n ctio nal sư ategies
F u nctio nal strateg ies are to ols to realize co rp o ra te strateg y an d busin ess strateg y.
P u nctio nal strategies đ eal w ith the a ctivities o f the íu n c tio n a l areas o f a b u sin ess
such as m ark eting, pro d u ctio n , R & D , íĩn ance , personnel, e tc
8
2. Strategy íbrmulation process
2.1. Mỉssion and objectives
2.1.1. M ission
M ission o f an o rg an ization is an o v erall goal o f the organization. W ithout a clear
m ission . an o rg a n ization can m iss lead in g and cannot d evelo p its o b jectiv es and
strateg ies. O rg anizatio n al m ission should d eíĩn e w h ich busin ess it w ill p u rsue, w hat
kind o f Products and Service will be provideđ to the market.
A ll
o f these must be
id en tiíle d v ery clea r in the org an ization al m issio n . A n effective m ission sho uld be
challeng ed to the organ izatio n but also should be ach ievab le.
In w ritin g the m issio n statem en t, it is necessary to take into account noí o nly the
w ish e s o f the o w n er, th e leaders, b ut also the in tem al and e x tem al factors o f the
com pany.
2.1.2. O bjective
A co m pany's ob je ctiv es p resent c lear o rien tations that it p ursues, and inA uences its
b u siness p e rfo rm ance. F o r exam ple, the increase o f 15% in the co m pan y ’s m arket
sh are requires vario u s action s to enh ance its productiv ity. C orporate o b jectives are
also goo d in centiv es. F or instance, to achiev e the revenue o f o ne billion in the next
y ear can b e a c h a llen g e to an enterprise. Finally, a com p any 's objectives are used as
an in stru m ent fo r assessm ent and control. It allovvs the com pany to check w h ether
the plan n e d b u sin ess outco m e is c o n sistent w ith its re q u irem ents like vvhether the

d eliv e ry o f the com m o d ity can be contracted w ithin tw o vveeks. T his allow s the firm
to ta k e ratio n al a ctio n s to get the d esired o utcom e such as im p ro ved p ro d u ction and
sto rage and re d u ced o rd er and d eliv ery tim e, and raised sense responsib ilities at
vvork.
T arget h as a lso
Central
role thai is the resu lt o f com parison . For each en terprise,
targ e t can b e lo n g -term , m edium o r short-te rm . E con om ists assum ed th at an
enterp rise íĩx es its ta rg e ts in eight m ain sectors as follow s:
9
M arket position; Renovatỉon; Capacity; Financial and logistics source; Profìts;
Personneỉ development and efficiencies; Em pỉoyee attitudes and effìcìencies; Social
responsibilities;
T he a bsence o f o ne o f th e eight íb regoin g sectors shall ỉead to serious consequenc es
to the vvhole en terp rise. In o rd er to fix short-term targ ets and n ot to h arm long-term
ones, a balance b etw een these targ ets is required .
2.2. External íactors
E x tem al environ m ent includ es íầctors th at m ay aíTect the p erform ance o f targets o f
an en terprise. T h e an alysis o f th e ex tem al en v iron m ent com prises o f m acro
env iro n m en t and in d u stry enviro n m ent. T h e analysis o f such íactors shall h elp an
enterp rise identiíy its position and environ m ental pro p erties, the existence age,
determ in e in ílu e n ces o f the extem al enviro n m ent and its targ ets, then be able to
m ak e d ecisio n s in p lanning o f strateg y.
2.2 .1. M acro an alysis
M a cro environ m ent includes vario u s factors th at h ave in d irect im pacts on activ itie s
o f an enterprise th rou gh its in ílu ences on factors o f the secto r enviro n m ent, o f
w hich th ere are 5 facto rs considered b y adm inistraters as th o se that in ílu ence m o st
stro ngly, th at is: e conom ic, politic, leg al, techno lo g y, social factors.
10
Figure 1-2: SLEPT Model

ỉconoinic j
'MÊÌ,
P o litical
Ị
w
Macro
Factors
i ®
L
So cial
ầ
1
Legal
i
if p
r
• E conom ic factors: hav e g reat in ílu e n c es on enterp rises and th e m ost
ữ eq u e n tly m o v ab le factor, the m o st d ifficult factor to fo recast am ong m acro
ones. Its m o v em ent alw ays c o n tain s both o p p ortu nities and c h a lle n g ies for
enterp rises, o f w hich the fo llo w in g m o v in g tre nds are th e m ost p rom in ent:
G D P and G N P trend: directly a ffects the g ro w th rate o f the eco nom y, the
g ro w th o f d isp o sable inco m e o f the po p u lation. It shall m ake changes in
consum ers, needs, consumption market scale, affecting demanđ-suppỉy
balance o f p ro d u cts.
In terest: is a facto r that hav e im p acts on co n su m p tio n sav in g and investm ent
trends; m ak e consu m p tion needs rise up o r slide dow n, stipulate o r lim it
in v e stm e n t in pro d u ction exp ansion.
In ílatio n rate: affects p re d ic tio n p o ssib ilities o f in vestors, high inílation rate
sh all m ak e prediction m o re d ifficult, investm en t m o re risky, brin g in g about
reduced in v estm ent, p ro d u ction and hav in g im pacts o n secto r com petition .

B alan ce o f p aym e nt, exchan g e rate: affect the m ark et and e x tem al econom ic
11
relations o f an enterprise; som etim es result in the change in econom ic State
in general.
T he íluctuation s o f lo cal, n ational and w o rld econ o m ies a re relate d in m an y w ays,
but it is im portant to m ake sep erate assessm e n ts b ased o n o rg anization al sco p e. T h e
an alysist m ust lin k b etw een th e c h a n g in g o f e c o n o m ic factors and find o u t th e effe c t
on w age rates. disp o sable in com e, u n e m p lo y m en t
• Politic.
T he p olitical orie n tatio n h av e an im p o rta n t inílu e n ce on stra tegic p la n n in g
decisions. O nce p o litic e n v iron m e n t is n o t stab le , the e c o n o m ies e n v iro n m e n t cou ld
not o perate in peace.
• T ech n o lo g y factor
T echnology refers to m ean s that th e íĩrm choo se to apply fo r its u seíìil w ork .
T echnology factor in clud es no t only g la m oro u s in v e n tio n th at revo lu tio n iz es o u r
lives but also the g ra d u al im p rov e m en ts in m eth o d s, in m aterials, in d esign, in
application,
T he effects o f tech n o lo g ic al changes can be as follow s:
- N ew p ro d u cts o r serv ices.
- Altemate Processing methods, raw materials, and Service delivery.
- C han g e in c o m plem en ta ry Pro d u cts or serv ices.
• Social íacto rs
T hese are related to v alu es, a ttitu te, an d d e m og ra p h ic ch a rate ristics o f c u stom ers. A
d y n am ic society can sig n iíĩc a tio n im pact on th e d e m an d o f org an iz a tio n ,s P ro d u cts
o r serv ices and can a lte r its strateg ic d ecisio n . B eh a v io r p atte m s o f indiv id u als and
g ro u p s reílect th e ir a ttitu d e s, b e liefs and v a lu es. T h e social en v iro n m en t in clu d e s
th e attitu des and v a lu es o f society as w ell as th e b eh av io r. T h o se are íiind erm en tal
íầcto rs that create co n su m p tio n ’s trend s. A nd o b v io u sly th a t w ill sig n ific an tly
in ílu en ce o rg a n iz atio n ’s operatio n .
• L egal factor.

12
The last factor is legal. B u t this is the m o st im portant facto r w hich w ill effe ct on
ever activities o f the organ ization.
L aw s in ílu en ce th e h irin g a n f firing o f em p lo y ees, c om p ensation, w ork in g hours
and w ork in g co n d itio n s. L aw s also in ílu en ce advertisin g ex p enses, the p ricing o f
p ro d u cts and c o rp o rate g row th by m erges and acquisitio n s. G overnm ent tax p olicies
also a ffe ct the íĩnan cial structu re and inve stm en t decision.
2.2 .2. In d u stry analysis
Industry en v iro n m en t closely attach es activities o f an en terprise, factors o f the
operatio n env iro n m e n t shall decide the in v estm e n t environm ent, co m petition
strength and p ro íits in th e sector. A cco rd in g to p ro fessor M ichael P o rter, the contex t
o f the o p eration enviro n m ent is sub ject to in ílu n ences o f five com p etitive forces:
threats o f entry, com p etitive rivalry w ith in the in sd u stry , barg ain in g pow er o f
custo m ers, b arg a in in g pow er o f su p p liers, threats o f substitutes.
Bargaỉning
power of
suppliers
Bargaining
power of
Threats of
substitutes
m B Ê m
Source: S trategic M anag em ent, L .L .B yars
13
Threat of Entry by potential competitors:
Potential co m petito rs are com panies that are cu rrently no t p articipatin g in
com p etitiv e riv alry w ith in b u t are likely to p enetrate into the industry. T h eir
appea rance shall increase co m p etitiv e in ten sity , d ecrease p ro íĩts w ithin the indu stry.
T he p enetration cap acity o f potential e n trants w ill depen d on the extent to w hich
there are b arriers to entry. T h e h ig h er p enetratio n b arriers are, the m ore d ifficult it is

for o th er com panies to enter th is in d u stry and v ice versa.
T h ere are several v ariables can reduce entry into the indu stry. They m ay in clud e
econoinies
o f
scale, product differentiation, Capital requirement, access
to
d istribution chan n els, and reg u latory ío rces. Entry barriers also include the
reputation and goodvvill o f existin g com panies. Finally, sw itching costs can also
d eter com petiíio n.
E n try b arriers also affect the existin g co m p a n ies’ resp o n se to entry. F or instant, an
industry w h e re the econo m ies o f scale p lays an im portant role, an existing com p any
m ay reduce its p rice signiíĩcantly to p reven t a n ew co m er’s entry.
Rivalry among existing fírms:
R ivalries are regu lar pressu re and direct th reat to com pan ies. T he m ore agg ressive
the com p etitio n o f existin g p lay ers w ithin th e industry is the m ore p ro fit-m akin g
capacity. T h eir existence an d d evelop m e n t are th reatened . It is such latent
com p etitio n that e x isting com panies w ith in th e industry k eep enhan cing investm ent
co sts w ith an aim to differe n tiatin g th eir m ark et-access Produ cts, services or
reducing th e ir p rices. T h e com petition intensity w ithin th e industry often depends
on the follo w in g facto rs:
s The num ber and capability o f companies within the industry:
T he n u m b er and capability o f com p anies w ith in th e industry decides com petition
natu re and inten sity w ith in the industry . In the industry w ith b ig com panies o f
eq u iv alent capab ilities, th e com p etitio n tends to be íĩe rce and m uch m ore inclines to
a price w ar to survive. In the even t o f only a few in ílu enced co m panies prevail; they
14
tend to have con n ections w ith each o ther to con trol the m arket, w hich m ak es less
iníluen ced ones relu ctantly follow p lay in g rules set out by the p revailin g.
The co m petition in tensity also m uch dep ends on th e a llocatio n o f com petitors in
geography.

■S
Size o f com p anies in the industry:
C om petitio n is likely to increase w hen com p anies are sim ila r to each o ther in size.
In th is situ ation, th ere is no industry leader and com pa n ies w ill com p ete to
distin guish them selv es from their rivals.
s
D iversity o f com petitors in tensifies com p etition.
In th e industries, if th e com p anies o rig in from differe n t natio n s, cu lture, and g oals,
the com p etitio n vvill be high.
s
Industry g ro w th ’s rate is slow .
In this situatio n , co m p a n ie s m ust w o rk hard to m aintain th eir m arket share.
s
H igh íĩxed costs w ill p re ssure co m p anies to pro d u ce n ear its cap acity. In
tu m , this m ay lead to aggressiv e m ark etin g and price-cu tting.
Bargaining power of buyers
In so m e in d u stries, bu y ers have con siderab le in ílu en c e on produ cers. It m ay h appen
und er the fo llow in g c onđitions:
s
B u yers are few and they buy in large v o lu m e relativ e to the to tal industry
sales.
s
The p ro d u ct represents a m ajor com p o n e n t o f the b u y e r’s cost.
s
T h e p ro d u c t is not d ifferentiated and easily to sub stitu table.
•/
T h e b u y er e a m s low p ro íits and is p ressu re d to reduce costs.
s
T h e b u y er has little sw itch in g costs.
s

T h e b u y er can integ rate back w ard and p ro d u ce its e ỉíp a rts in tem ally.
Bargaỉning power of suppliers
S u ppliers can exert consid e rab le inílu en ce on co m p anies in an industry w hen :
s
T here a re v ery few su p plier
s
There are v ery few substitu te P roducts
15
s
T h e P roducts are diíTerentiated and h ave built-in sig n iíic an t sw itchin g costs.
s
Sup pliers can integ rate forw ard.
Threat of substitutes
S u b stitutes are
Products
that accom p lish th e sam e purpose or serv e the sam e needs.
A part from the ío reg o in g íacto rs, the co m petition intensity a lso d epen d s on others
such as the d ifferentiatio n o f P roducts, serv ices am o n g com p anies w ithin the
industry , the grow th rate o f the in dustry, en try b etting , and íìxed costs, etc.
U n d erstanding th e dynam ics o f com petition is a cru cial step in an alyzin g the
industry .
2.2.2.2. Ind ustry life cycle
In d u stries chan g e o vertim e. M an agers need to u n d erstand the chan g es that o ccu r in
the industry vvhere th ey are vvorking in. T h ese ch anges affect th e inten sity and bases
o f co m p etitio n . T h e con cept o f the in dustry life cycle is a u se íu l tool to co n d u ct this
analy sis. A n in d u stry ’s p ro g ress o ften ex p eriences 4 phases: em ergence, g ro w th ,
m aturity and decline. These phases are sim ila r to pro d u ct life cycle. D epen din g on
the characte ristics o f the industry life cycle, th e fư m can đeterm in e the
correspo n d in g strateg ies, w h ich can lead to íĩrn ^ s su ccess in th e future.
E m e rg in g sta g e : at th is stage,

industry
b o u n d aries are vag ue. A t this startin g point,
the ru le o f the gam e is u n d eíĩn ed; P roducts are not stan d ard ized; the entry b arrier or
w ith d raw in g from the m ark et is also easy o r very low . T h is stage also im plicits a
h ig h poíential co m petition. In the earlier perio d o f em erging stage, the
com p etitiv e n e ss in tensity is Iow b u t the pro fitability o f ind u stry is high. It id entiíĩes
th at th e m ore the firm ju m ps in the m ark et in th is p h ase, th e m o re b en eíĩt the firm
can e am . A bove all, in this situatio n , the fírm can sustain a stro ng positio n w ith in
the in d u stry. O f co u rse, belong in g vvith th e success, the ía ilu re o r risk y o f new
in d u stries is also v ery high.
16
Figure 1-4: The industrv life cycle
Source: S trategic M anagem ent, L .L .B yars
G ro w th sta g e : T h is m ay be the m ost excitin g phase o f the industry life cycle.
C om pan ies th at surv iv e the em e rg in g phase look forw ard to b uilding th eir bran d
nam e, recognition , acqu irin g m arket share and achievin g p ro íìtability . C o m p anies
achieve these goals as industry sales e xp and, th u s allow in g th em to b e n e íìt from
produ ct d iffere n tia tio n and a g g ressive m ark etin g cam p aign. W ith the tech no lo g y
dom inant, com p a n ies can n ow stan d ard iz e th e ir operations and ach ieve econom ies
o f scale. T he su ccess one in this stage is not alw ays go to the p ioneer. S o m etim es,
late com ers can be succe ssíu l because it n o t on ly can av oid som e challe n g es o f
em erging phase, but it also leam s experiences from the pioneers.
A n im portan t sig nal th a t the industry enters a d iíĩe re n t stage is the em erg e n ce o f a
dom inan t d esig n, w h ic h reílect c u sto m er’s taste s, and p re íe ren c e o f products. T hen
this design will become
the
Standard in
the
industry.
T his

will cause
radical
changes
in the industry. In ad d itio n , it often lead s to a sh a k e o u t th at cause s m any com p anies
to exit becau se th ey fail to adapt to the n ew d esig n.
Shakeout phase:
a íte r g row th period, an industry m ay ex p erience a m assive
shakeout. T h ere are a num b er o f factors th at con trib u te to these sh akeou ts:
J
S aturation o f th e industry as resu lt o f n u m ber o f com petitors or com p e tin g
brands;
ĐẠ! HỌC QUOC GIA HA MOI
TRUNG TÀM T‘ (ỎNG TIN THƯ VIỆN
17
A - Lo/ìo '
J
In d u s tĩỳ s gro w th rate d e clin e s. T he reaso n s m ay be: sh iftin g in dem and,
substitute p ro d u c ts, or th e in d u stry h as re ached its natural grow th lim its;
S
A rad ical ch a n g e in fo rce o f co m petitio n su ch as the re m o v in g o f reg u latio n
or po licy, em e rgin g o f altem ativ e tech n o lo g y .
S u rviving in the stakeou t stage, th ere is no d o u b t th at th e firm can c o n tin u e step on
a new ph ase o f the in dustry: m atu rity phase.
Maturity phase: In
this phase ,
competition
in crease s, buy ers b e c o m e m o re
sophisticated. C o m panies e m p h a size d ifferentiatio n , u sin g ag g re ssiv e m ark etin g and
advertising cam paign. C o n v ersely, in d u stry gro w th is slo w e r and o ften leads to
reduce industry p ro fíta b ility. A fle r shakeou t p erio d , new p ro d u ct an d ap p lic atio n s

are harder to co m e b y vvhile in tem a tio n a l com petitio n in creases. F acing to th is
situ ation , th e key issu es in d e te rm in in g stra tegy are:
s
Stak ing out a susta in ab le co m p e titiv e ad v a n ta g e th at w ill p ro v ide a basis for
com peting a g ain st o th e r íìrm s;
S
F o cusin g g reater attentio n on costs th ro u g h stra te g ic co st analysis;
s
D eveloping o rg an iz atio n al stru c tu re s and sy stem s th at can facilitate the
transition;
s
C o n íĩg u rin g the p ro d u c t lin e;
s
P ro d u ct and g e o g ra p h ic d iv e rsiíìc a tio n ;
A s result, som e com p an ies m ay exp lo re g ro w th o p p o rtu n itie s in related o r un related
industries th rough m erg e rs an d acq u isitio n . S o m e e v en a tte m pt to rese rv e the
m aturity o f th e industry by in v e stm e n t in cre a tin g an d ado p tin g inno v a tiv e
techno lo g ie s. H o w ever, in m ature ind u strie s, th e re is no m uch ro o m to im p ro v e
tech no lo g y. H o w ever, th ere are also o ccasio n s w h e re an in d u stry m o v e s in to
decline.
Decline phase:
the p ro o fs sh o w th a t an indu stry starts đ e c lin e are:
s
D eclin in g
dem and for Products
S
S h rin k in g p ro fit m arg in s
S
Pru n ing o f p ro d u ct lin es
18