Building business - level strategies in automobile industry the case of Huyndai Vietnam

V IETN A M NATIO N A L UNIV ER SITY , H AN OI
SC H O O L O F BUSINESS
lfậ
— H s B —
I U C M 1 -r vrt
Nguyen H ai Ha
BU ILD ING B USIN ESS - L E V EL ST R A TE G IES
IN A U T O M O B IL E IN DU STRY
T H E C A SE O F HYU ND AI V IETN AM
M a jor: Business A dm inistration
C ode: 603405
M A S TER O F B USIN ESS A D M IN ISTRA TIO N THE SIS
Superv isor: 1. Dr. T a Ngoe C au
2. E d w ard M cA lvanah, M BA
ĐẠI HỌC QUOC GIA HA NOI
TRUNG TÂM ĨHQNG TlN THỰ VIỆN
A r l o / ĩ£
________
I
Hanoi - 2010
A C K N O W L E D G EM E N T i
A B STRA C T ii
TÓ M T Ẩ T iii
TA BLE OF C O N TEN TS

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LIST O F FIG URES AND T A B L E S
vii
Introduction 1
1. R ationale 1
2. Research O bjective 1

3. Research scope 2
4. R esearch m ethod 2
5. Data sou rces 2
6. L im itation 2
7. Expected íind ing 2
8. The thesis stru cture 3
Chapter 1: Literature R eview 4
1.1 Strategy and Business-Level Strategies 4
1.1.1 Strategy deíìnition 4
1.1.2 B usiness-level strategies 4
1.1.3 The importance o f B usiness-level stra teg ies 5
1.2 Business-Level Strategies F orm ulation 6
1.2.1 V ision and M ission 6
1.2.2 Extem al an alysis 6
1.2.2.1 M acro A nalysis: 7
1.2.2.2 M icro A nalysis: Five Forces M o d el 12
1.2.3 Intem al an alysis: 19
1.2.3.1 V alue Chain m odel
19
1.2.3.2 C om petitive advantages 21
1.3. Form ulation and C hoice 23
1.3.1 S W O T A naly sis.
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1.3.2 G REA T m od el




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1.3.3 Strategy Im plem entation 25
1.3.4 M atching Strategy 26
Chapter 2: Case study o f H yundai V ietnam
27
2.1 O verview o f Cars m arket 27
2.1.1 O verall market grovvth 27
2.2 Introduction o f H yundai V ietnam 30
2.2.1 D evelopm ental history 30
2.2.2 C om pany V isio n 31
2.2.3 P ro ducts 31
2.2.4 C om petitive position 31

2.3 Strategic analysis 31
2.3.1 Extem al analy sis 31
2.3.1.1 P E S T

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2.3.1.2 5 Forces
39
2.3.2 Intem al a nalysis 44
2.3.2.1 Value cha in 44
TABLE OF CONTENTS
2.3.2.2 Com petitive advantages 49
2.3.3 Formuỉation and choice
50
2.3 3.1 SWOT cmaỉysis

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2 3 3 2
G R EA T m od el
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54
C hapter 3: R ecom m endation 54
3.1 O bjectives 55
3.3 R ecom m endations to Hyundai V ietnam 61
C O N C L U SIO N


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R E F E R E N C E S

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6
7
12
19

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24
25
25
28
29
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32
32
34
35
36
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LIST OF FIGƯRES AND TABLES
B u siness level strategies
PEST m odel
Five F o rce s M odel
V alue Chain m odel
C o m p etitiv e A d vanta ge
SW O T analysis
SW O T M atrix
G R E A T m odel
M arket segm en tation
N um b er o f reg istered cars in V ietnam
'T o tal new registered ca r in V ietnam
Im port tax chan ges for n ew v eh icỉes
sp ec ial consu m ption tax
G D P G ro w th Rate
A n nu al In ílatio n
T ech com b ank supp ort ch art

V ietnam popu latio n
vii
IntroductioD
1. Rationale
V ietn am is n ow lo ok ing forw ard to ủ irth e r d ev elo pm ent and g lobalizatio n by
jo in in g W T O in 2007 and a dịu sting op en policies to m u lti-n atio nal com p anies vvho
h av e stro ng p ositio n in th e g lobal m ark et. V ietn am co m pa nie s hav e to suíTer high
co m p etitio n and p re ssu re from those ío reig n co m pan ies. In a no ther han d, consum er
in terests con stan tly c hang ing an d in du stry com petitio n increasin g, m ass p ro du ction
sy ste m s o ften do n ot align an o rg an izatio n vvith its custom ers. A d op ting m ass
cu sto m iz atio n is in creasin g as a m eth od fo r c op in g w ith these changes. H ovvever, in
o rd er to ad o pt m ass custo m iz atio n, b usin ess functions m ust im pro ve
H yund ai V ietnam sp ecializes in auto m otive in du stry an d it has to face h igh
co m p etitio n as w ell vvhich o th er V ietnam en terp rises are facin g. H yundai V ietnam
is y oun g to auto m o tiv e industry o r A utom o b ile in dustry and th e current strateg y o f
H yundai V ietnam d o e srrt w o rk w ell to m eet c usto m er n eeds. T h a t’s w hy I decid ed
to bu ild up a bu sin ess level strateg y for H yundai V ietnam usin g com p an y’s core
com pete ncie s to gain c om p etitiv e a dv an tag es ove r o th er com p etito rs
2. R esearch O bjective
T h e o bjec tiv e o f th is th esis is to fínd out an app ro priate busin ess-level
strateg y for H y un dai V ietnam to g et th ro ugh th e rece ssio n tim e and loo kin g forw ard
d ev elo p m ent
1
3. R esearch scope
T he re se arch íb cuses o nly on H yun dai V ie tn am in V ietna m m ark et
4. R esearch m ethod
M eth od to bu ild up a b u sin ess strateg y for H y u nda i V ie tna m b ase on
a. S trateg ic m an ag em e nt th eo ries to fo cus on íĩn d in g ap p ro p ria te ap pro ach es to
b usin ess strateg y fo rm ulatio n , and in d en tiíy a com m o n p ro ce ss to b u ild
busin ess strateg ies.

b. Facto rs can be affec ted to the bu sin ess
c. C ase a naly sis an d reco m m enda tio n s to b u sin ess
5. D ata sources
L ite ratures revievv p art has b een tak en from b o oks, new spaper, intern et
so urces. A n d p rim ary d ate h as been taken from H yun d ai V ie tn am lo cally.
6. L im itation
T h e seco n d ary in fo rm atio n som ehovv is not u pda ted; the sta tistic o f im port
c ar w as n ot cov ere d co rre ctly and fu lly by c usto m s d epartm en t b ecau se o f d ifferent
reaso ns. A nd th e p rim a ry d ata fro m H y u nda i V ie tn am , so m e in íb rm atio n is
co nfid en tial a nd n o t allo w ed to p ublic.
7. Expected íĩnding
T o fínd o u t th e rig h t b u sin ess-le v el stra tegie s fo r H y und ai V ietnam du rin g
th e rece ssio n tim e and it w ill get g o od resu lt in a p plyin g th is stra teg y into H yun dai
V ietna m
2
8. The thesis structure
T he th esis is d iviđ ed in to 3 cha pters:
C h ap te r 1 íò cu ses on literature re v iew w ith th e ílin dam en tal th eo ry o f strateg ies.
b usin ess-level strateg ies. an d the im p o rta nc e o f b usin ess-level stra tegies
C h ap te r 2 w ill g iv e y ou th e overvievv o f V ietnam a uto m o b ile in d ustry an d the case
o f H y und ai V ie tnam w ith bac k g ro u n d , extem al an d in te m al a na ly sis o f H yundai
V ietn am to fín d so m e key fac to rs o f streng th s an d w eakne sses o f H y und ai.
C h ap ter 3 id entifíe s th reats and o p p o rtu n itie s b ase on a naly sis in c h apter 2 to b uild
up app ro p riate strateg y fo r H y u ndai V ietnam
T h e last p art vvill be co n clu sio n o f th e th esis
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Chapter 1: Literature Review
1.1 Strategy and Business-Level Strategies
1.1.1 S trategy deíinition
Strategy A ccording to G eorge S teiner

G eo rg e S te iner, a p ro íe sso r o f m ana g em en t and on e o f th e foun ders o f T he
C aliíb m ia M a n ag em ent R e view , is g en erally co n sid ered a key fíg u re in th e orig ins
and dev elopm en t o f stra tegic p la nnin g . H is boo k, S trateg ic P lan n in g is clo se to
being a bib le on th e su bjec t. Y et, S te in er d o es not b o th er to d e íĩn e strateg y excep t in
the no tes at th e e nd o f h is bo ok. T h ere , he no tes that stra teg y entered the
m anag em en t lite ra tu re as a w ay o f re íe rrin g to w h at o n e d id to co u n te r a
co m p etito r’s actual o r p redicted m ov es. S tein er also p o in ts o u t in his notes th at
there is very little a gre em en t as to th e m e an in g o f strateg y in th e b u sin ess w orld.
Som e o f the d e íĩn itio n s in use to w h ich S te in er p o in ted in clu d e the fo llow in g:
• Strategy is th at w h ich to p m an a gem en t do es th at is o f g re at im po rtance to the
o rg an iz atio n .
• S trategy re fe rs to b asic dire ctio nal decisio n s, th at is, to p u rp o ses and
m issio ns.
• Strategy con sists o f th e im p o rtant a ctio n s n ec essa ry to realize these
directio ns.
• Strategy an sw e rs th e qu estio n: W h at sho u ld th e o rg aniza tio n b e d o in g ?
• S trategy answ e rs the q u estio n : W h at are th e end s w e see k and h ow sh o uld
w e a ch iev e th em ?
1.1.2 B usiness-level strateg ies
T h e b usin ess-le v el stra tegy refe rs to th e plan o f actio n th at strateg ic
m an agers ad opt to use a co m p a n y ’s reso u rces an d d istin ctiv e com p ete n cies to g ain a
co m petitiv e ad v an ta ge o v e r its riv als in a m ark e t o r in dustry .
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P ro cess o f b usin ess d eíĩn itio n entails d ecisio ns ab out (1) cu sto m e rs' need. o r
w hat is to be sa tisíìe d; (2 ) custo m e r g ro up , or w ho is to be satisíìed; an d (3)
d istin ctiv e co m p etenc ies, o r hovv cu sto m e r n ee ds are to be satisíied. T h ese th ree
d ecisio ns are th e basis o f the cho ice o f a b usiness-lev el strategy because th ey
d eterm in e how a c om pan y w ill co m p ete in a b usin ess or industry.
Customers’ needs and product diíĩerentiation:
C u sto m e rs' n eeds are desires, w an ts, or c rav ings th at can be sa tisíĩe d by

means o f the characteristics o f a product or Service.
P ro duct d iffere ntiatio n is th e p rocess o f creatin g a co m petitiv e ad vantag e by
d esig ning p ro d u cts-g o ods o r serv ices to satislỳ cu sto m e rs' need. A ll com p an ies
m ust diffe re n tia te th eir pro ducts to a certain deg ree in o rd er to attract custo m e rs an d
satisíỳ som e m in im al level o f need. H o w ev er, som e co m pan ies d iffere ntiate th eir
Products to
a
much greater degree than others, and this difference can give them a
co m p etitiv e edg e.
Customer groups and M arket segmentation:
M ark et segm e ntatio n is th e w ay a c om p any d ecides to gro up cu sto m ers,
based on im porta nt d iíĩe re n c e s in th eir n ee ds o r preferen ces, in o rd er to g ain a
co m p etitiv e adv an tage.
Distinctive Competencies:
T h e th ird issu e in bu sin ess-le ve l strateg y is to d ecid e w h ich distin ctiv e
co m p ete nc ies to p u rsu e to satisíy c u sto m ers’ n eeds and c ustom er groups
1.1.3 T he im po rtance of Business-level strategies
B u sin ess-Iev el strategie s exa m in e h ow a c om pa ny can co m pete eíĩe ctiv ely in a
b usin ess or in dustry and scru tin ize the v ario us strateg ies that it can ad o pt to
m axim ize co m p etitiv e ad v an tage and pro íìtab ility . W hen a co m pa ny pursu es
b usin ess-level stra te g ies th ey can gain co m p etitiv e ad van tag es th at allo w th em to
o u tp eríb rm riv als and a ch ieve ab o ve -a verage retu m s. T hey can ch oose íío m th ree
basic gen eric c om p e titiv e a ppro ac he s: cost leadersh ip, d ifferentia tio n, and focus.
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1.2 Business-Level Strategies FormuIation
F igu re 1.1 Business level strategies
V ision and
M ission
___________
_________________

SW OT
Strategic choice
Business Level Strategy
1. Product diíĩerentiation
2. M arket segm ent
3. D istinctive com petencies
Strategy Im plem entation
(so urce: S trategic m a n a gem e n t a n inte g rated a p p roach by C h a rles W .L H ill an d Garethr. Jones)
1.2.1 Vision an d M ỉssion
T h e m issio n sets out w h y th e o rg an izatio n exists an d w h at it sh ou ld be do ing
V isio n : d e íìn e s and describ es th e íìiture situ atio n th at a co m pan y w ish es to
hav e, the inten tion o f th e V ision is to guid e, to con trol and to enc ou rage the
o rg an iz atio n as a w h o le to reac h the d esirable State o f the o rg an izatio n
1.2.2 E x ternal analysis:
to id en tiíy stra teg ic opp ortu n ities and threats in
th e o rg a n iz atio n 's o p era tin g en viro nm ent. T h ree in terre lated e nv iro nm e nts sh ould
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be ex am in ed at th is stag e: the im m ed iate , or in dustry, e nv iro nm en t in vvhich the
o rg an izatio n op erates; the natio nal env iro nm ent; and the w id er m acro -en vironm en t.
A naly zin g the industry en viro nm en t requ ires an a ssessm en t o f the
co m petitiv e stru ctu re o f the o re an izatio n ’s ind ustry, inclu dine the com petitive
position o f the focal o rg an izatio n and its m ajo r riv als, as w ell as the stag e o f
indu stry d ev elo p m ent. S ince m any m arkets are n ow glob al m ark ets, analy zin g the
indu stry e n v iro n m e n t also m ean s asse ssin g the im pact o f g lobalizatio n upon
co m pe titio n vvithin an in du stry . A n aly zin g th e n ational en viro nm en t req uires an
asse ssm ent o f w h eth e r the national con tex t w ith in w h ich a c om p any op erates
facilitates the attain m e nt o f a com petitiv e ad vantage in the glob al m arket place.
1.2.2.1 M acro A nalysis:
Figure 1.2 P EST M odel
/ \

Political Factors
> <
Economic Factors
>

<
Socio-cultural
Factors
> <
Technology
Factors
V
_______
_
_________
J
P E S T ana ly sis stand s for
"Political, Economic, Socio-cuỉturaỉ, and
Technological anaỉysis"
and d escrib es a fram e w o rk o f m acro -e nv ironm e ntal
facto rs used in th e e nv iro n m ental scan n in g com po n en t o f strateg ic m an ag em en t. It
is a p art o f th e e x te m al a nalysis w hen con d uctin g a strategic analysis o r d oing
m ark et rese arch an d g iv es a certain overview o f the d iíĩe re n t m acro -e nv iro nm en tal
facto rs th at the com pan y h as to take into con sid eratio n. It is a u seíul strateg ic tool
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fo r u n d e rs ta n d ing m a rk e t grovvth o r de clin e , business p o sitio n . p o te n tia l and
d ire c tio n fo r o p e ra tion s
Political Factors
The íìrs t elem e n t o f a P E S T a n a ly s is is a stud y o f p o litic a l factors. P o litic a l
ĩa c tors in ílu e n c e o rg a niza tio n s in m a n y w a ys . P o litic a l fac to rs can create

advantages and o p p o rtu n itie s fo r org a n iza tio n s. C o n v e rs e ly the y can place
o b lig a tio ns and du tie s o n o rg a n iza tion s . P o litica l íactors inc lu d e the fo llo w in g types
o f in stru m e n t
3 L e g isla tio n such as the m in im u m w ag e o r an ti d is c rim in a tio n la w s
4 V o lu n ta ry codes and p ra c tice s
5 M a rk e t re g ula tio n s
6 Trad e a g ree m ents, ta r iffs o r re s triction s
7 T a x lev ies a n d ta x brea ks
8 T y p e o f g o ve m m e n t re g im e (e x a m p le: co m m u n ist, d e m oc ra tic , d ic ta to rsh ip )
Economỉcal Factors
Th e se con d elem e n t o f a PE S T a na lysis in vo lv e s a stud y o f eco n o m ic íactors.
A ll businesses are a ffec te d b y n a tion a l and g lo b al e co n o m ic íactors. N a tio n al and
g lo b al interest rate and íĩs c a l p o lic y w ill be set a rou n d e c o n o m ic co n d itio ns . Th e
c lim a te o f th e e c o n o m y d icta tes h ow co n su m ers, su p p lie rs and o th e r org a n iza tion a l
stake ho lde rs such as s u p p lie rs and c re d itors behave w ith in so ciety.
A n e c o n o m y u n d e rg o in g recession vvill have h ig h u n e m p lo y m e n t, lo w
sp en d ing p o w e r and lo w s ta k e h o ld e r c o n íĩd e n ce . C o n ve rs e ly a “ b o o m in g '’ or
g ro w in g e c o no m y w il l h a ve lo w u n e m p lo y m en t, h ig h s p en ding p o w er and hig h
stak e h o lde r c o n íìde n c e .
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A succe s síul o rg a n iza tion w ill res p o n d to e co n o m ic c o n d itio n s and
stak e h o lde r b e h a v ior. F urth e im ore o rg a n iz a tion s w ill need to re v ie w the im p a c t
e co n o m ic c o n d itio n s are h av in g on th e ir c o m p etito rs and re sp o nd a c c o rd in g ly .
In this g lob a l business w o rld o rg a n iz a tio n s are a ffe c te d b y ec o n o m ies
th ro u gh o ut the w o rld and not ju s t the c o u n trie s in w h ic h th e y are based o r ope rate
from.
C he a p er lab o r in d e ve lo p in g c o un trie s a ffe c ts th e c o m p e titiv e ne s s o f
Products from developed countries.
A tru ly g lo b a l p la y e r has to be a w are o f e c o n om ic c o n d itio n s across a ll
b o rde rs and needs to ensure tha t it e m p loy s s trategies tha t p ro te ct and p ro m o te its

business th ro u g h eco n o m ic co n d itio n s th ro u g h o u t the w o rld .
Socio-cultural Factors
T h e th ird aspect o f P E S T focuses its a tte n tio n on force s w ith in s o c ie ty such
as fa m ily , frie nd s, colle ag u es, ne igh b o rs a nd the m ed ia. S o c ial íbrc e s a ffe ct o u r
a ttitud es , inte re s t s and o p inion s . These íòrc e s shape w h o w e are as p eo p le, th e vvay
w e behave and u ltim a te ly w h a t w e p u rch a se. F o r e x a m ple w ith in the Ư K p e o p le ’ s
a ttitu d e s are ch a n ging tovvards th e ir d iet and h e a lth . A s a re s u lt the Ư K is se e ing an
increase in the n u m b e r o f p e o p le jo in in g íĩtne s s c lu b s and a m assiv e g ro w th fo r the
dem an d o f o rg an ic foo d .
P o p ula tion changes a lso have a d ire c t im p a c t on o rg an iza tio n s. C han g es in
the stru cture o f a p o pu la tio n w ill affe c t the s u p p ly and d em a n d o f g oo ds and
se rvice s w ith in an e co n o m y. F a llin g b irth rates w i l l re su lt in decreased de m a n d and
g re a ter c o m p e titio n as the n u m b e r o f con s u m e rs fa ll. C o n ve rse ly an in crease in the
g lo b a l p o p u la tion and vvo rld foo d shortage p re d ic tio n s are c u rre n tly le a d in g to ca lls
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fo r greater in v e s tm e n t in ío o d p ro d u ctio n . D ue to foo d shortages A íric a n cou n trie s
such as U ga n da are n ow rec o n s id e rin g th e ir re je c tion o f g e n e tica lly m o d ifie d foods.
In su m m a ry org a n iz a tion s m ust be able to oíTer P roducts and services th a t
a im to c o m p le m en t and b e n e ĩit pe o p le ’ s life s tyle and be h a v ior. I f org a n izatio n s do
n ot respond to chang es in so c iety th e y w ill lose m a rk e t share and dem and fo r th e ir
product or Service
Technological Factors
U n s u rp ris in g ly the íb u rth elem ent o f P E S T is tec h n o log y , as yo u are p ro b a b ly
aw are te ch no lo g ic a l adva nces have g re atly changed the m an n er in w h ich businesses
operate. O rg a niza tio n s use tec h n olo g y in m a n y w ays, th e y have
1. T e c h n o lo g y inử a s tru ctu re such as the in tern e t and o the r in fo rm a tio n
e xchan g e system s in c lu d in g te lep h o n e
2. T e c h n o lo g y system s in co rp o ra ting a m u ltitu d e o f so ftw a re w h ic h he lp them
m anage th e ir business.
3. T e c hn o lo g y hardvvare such as m o b ile phones, B lac k b e rrys , laptop s, desktops,

B lu e to o th d evice s , p h o to c o p iers and fa x m a ch ines w h ic h tra n s m it and rec o rd
in íb rm a tio n .
T ec h no lo gy has cre a ted a so c ie ty w h ich e xpects insta n t resu lts. T h is
te c h n o lo g ic a l re v o lu tio n has increased the rate at w h ic h in fo rm a tio n is e xchanged
betvveen s tak e h o lde rs . A fa ster excha n ge o f in ío rm a tio n can b e n efít businesses as
the y are ab le to rea ct q u ic k ly to changes w ith in th e ir o p e ra tin g e n v iron m e n t.
H ovvever an a b ility to rea c t q u ic k ly a lso creates e x tra pressure as businesses are
expe cted to d e liv e r o n th e ir p ro m ise s vv ithin e ver decrea sing tim esca les
F o r e x a m p le th e In te rn e t is h a vin g a p ro fo u n d im p a c t on the m a rk e tin g m ix
strateg y o f o rg a n iz a tio ns . C on sum e rs can n o w shop 24 h o urs a day fro m th e ir
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hom es. w o rk . and Inte rn et c a fé ’ s and v ia 3 G ph o ne s and 3 G cards. Som e e m p loye e s
have in stan t access to e -m a ils thro u g h B la c k B e r r y ^ b u t th is can be a d o u b le edged
sw ord . as stud ies have sh o w n tha t th is access ca n cause w o rk to encroach on th e ir
person a l tim e o u tside w o rk .
T h e pace o f te c h n o lo g ica l change is so fast th a t the a verag e life o f a Computer
c h ip is a p p ro xim a te ly 6 m o n ths. T ec h n o lo g y is u tiliz e d b y a ll age gro u ps, ch ild re n
are exposed to te c h n o lo g y fro m b irth and a ne w g e n e ra tion o f te ch n olog y sa vvy
p e n sion e rs k n o w n as “ s ilv e r s u rfers ” has e m erge d. T e c h n o lo g y w ill c o n tin u e to
e v o lv e and im p ac t on c o n s u m e r ha b its and ex p e c ta tion s, o rg a n iza tion s tha t ign o re
this fa c t face e x tin c tio n
In th e tab le b e lo w y o u fin d e x a m ple o f each o f these íầctors
Political Factors
Economic Factors
Socio-cultural
Factors
Technological
Factors
Environmental
re g u la tio n s a n d

p ro te c tio n
Economic grovvth
In c o m e d is trib u tio n
In d u stry fo c u s on
te c h n o lo g ic a l
effort
Tax p o licies
Interest rate and
monetary policies
D e m o g ra p h ic , age
distribution,
p o p u la tio n g ro w th
rate
new invention and
d e v e lo p m e n t
International trade
re g u la tio n an d
re s tric tio n s
G o ve rn m e n t
spending
social mobility
ra te o f te ch n o lo g y
transfer
Contract
e n fo rc e m e n t law
U n e m p lo y m e n t
policies
life style changes
Change in
lnformation

te c h n o lo g y
ỉỉ
Employment lavv
Taxation Education
change in internet
Government
attitude
Exchange rate
Health consciousness
change in mobile
technology
Competition
regulation
lnflation
living condition
political stability
Consumer
confidence
safety regulation
1.2.2.2 M icro Analysis: Five Forces Model
T h e task fa c in g m anage rs is to a na lyze c o m p e titiv e forces in an in d u s tiỳ s
e n viro n m e nt in o rde r to id e n tiíy the o p p o rtun itie s and threats c o n lro n tin g a
co m p a n y . M ich a e l E. P o rte r has de v e lop ed a fra m e w o rk th a t he lps m anag ers in th is
an a lysis. T h is m od e l íocuses on fíve forces tha t shape c o m p e titio n w ith in an
ind u stry .
Figure 1.3 Five Forces Model
T h e F iv e F o rc e s T h a t S h a p e In d u s tr y C o m p e tit io n
T h r w t
o f N e w
Entrant*

ị
T hrtat o f
Su bctỉtute
Prod uc ts or
S e r v ic e s
(source: S traíegic m a n a g em e n t a n inte g ra ted app roach by C harles w . L. H ill a n d G arethr. Jones)
12
F iv e force s a n a lysis lo o ks at five key areas n a m ely the threa t o f e n try. the po w e r o f
bu ye rs. the p ow e r o f su p p lie rs , the threat o f sub stitutes, and c o m p etitiv e riv a lry
Rivalry vvithin the industry
T h is is m ost lik e ly to be h igh w h e re e n try is lik e ly ; there is the threa t o f
su b s titu te P rod u cts, and su p p lie rs and bu y e rs in the m arke t a ttem p t to co n tro l
I f riv a lry a m o n g firm s in an in d us try is w ea k, com pa n ies h ave an o p p o rtu n ity
to raise p ric e s and eam g rea ter p ro fits . P rice c o m p e titio n lim its p r o ĩita b ility b y
re d uc in g the m a rg in s tha t can be e am ed on sales. T h u s , intense riv a lry a m on g
e s tablis h e d co m p a n ies co n stitutes a s tron g th re a t to p ro íĩta b ility . T h e exten t o f
riv a lry am o n g estab lishe d com pan ie s vv ith in an in d u stry is la rg e ly íu n c tio n o f three
fac to rs : (1 ) T h e n u m be r o f co m p etito rs . (2 ) the in d u s try ’ s co m p e titiv e ca p a city , and
(3 ) the h eig h t o f e x it b arrie r in the in d u stry
1. Th e n um b e r o f c o m p e titors : N u m b er o f c o m p e tito rs relates to b a rrier to
e n try o r e xit. I t w il l be m o re c o m p e titiv e i f b a rrie r to e ntry is lo w and hard to ex it.
A n d its ad vantage fo r e x is tin g co m pa n ies i f b a ư ie r to en try gets harde r and lo w
b a rrie r to e x it.
2. C o m p e titiv e ca p a city: c o m p e titive ca p a c ity re fers to the size d is trib u tio n
o f c o m p an ie s in an ind us try . A fra g m e n ted in d us try co ntains a la rge nu m b e r o f
sm a ll o r m e diu m sized co m pa nies, none o f w h ic h is in a p o s ition to d o m ina te the
in d u stry . A C o nso lidated ind us try m a y be do m ina te d b y a sm a ll nu m b e r o f large
co m pa n ies . Fra g m e nted ind u s trie s range fro m a g ricu ltu re , vid e o ren tal, and hea lth
club s , to real estate b ro ke rs and sun tan nin g pa rlors . M a n y írag m e n te d ind u s trie s are
ch a rac te rize d b y lo w b a rriers to en try and c o m m o d ity typ e pro d u c ts tha t are hard to

d iíĩe re n tia te . Th e c o m b in a tio n o f these tra its tends to re s u lt in b o o m and b ust cycles
as in d u s try p ro íits ris e and fa ll. L o w ba rrie rs to e n try im p ly th at w h e n e ve r dem and
is stron g and p ro íĩts are h ig h , the re w ill be a ílo o d o f ne w e ntra nts h o p in g to cash in
o n the b o o m . A íra g m e n te d ind us try struc tu re co n s titu tes a th re a t rathe r than an
o p p o rtu n ity. M o st b o o m s w il l be re la tive s h o rt liv e d because o f the ease o f ne w
e n try and w ill be fo llo w e d by p ric e w ars and ba n kru p tcies. Since it is o ften d iffic u lt
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to d iffe re n tia te p ro d u c ts in these in d u s trie s . the best stra teg y fo r a c o m p a n y to
pursue m ay be cost m in im iz a tio n . T h is strateg y a llo w s a co m p a n y to rack up h igh
re tum s in a b oo m to su rv ive a ny subseque nt bust
3. E x it b a rrie rs: are e c o n o m ic , strate g ic, and e m o tio n a l factors th a t keep
co m pa n ies in an in d u s try even w he n re tu m s are lo w . I f e x it ba rrie rs are h ig h ,
companies can become unprofítable in which o ve rall demand is static or declining.
Excess p ro d u c tiv e ca pa c ity can resu lt. In tu m , excess price s in an atte m pt to o b tain
the o rders needed to u tiliz e th e ir id le ca p a c ity . C om m o n e x it b arrie r inc lud e the
fo lIo w in g .
• In ve stm en ts in p la n t and e q u ip m e n t that h ave no a lte m a tive uses and
ca n n o t be sold o ff. I f the c o m p a n y vvishes to leave the ind us try , it has to
w rite o f f th e b o o k v a lue o f these assets.
• H ig h íìx e d costs o f e x it, such as severance pay to w ork e rs w h o are b e ing
m ade red un d a n í
• E m o tion a l attach m ents to an inđ u stry , as w h e n a co m p a n y is u n w illin g to
e x it fro m its o rig in a l ind us try fo r s e n tim e n tal reasons
• E c o n o m ic depend ence o n the in du s try , as vvhen a c o m p a n y is no t
d iv e rs iíìe d and so re lie s on the in d us try fo r its in co m e
Threats of substitutes
In M ich e l P o rte r s m o d e Ị s u b s titu te Products re fe r to those o f in d us trie s that
serve c o ns u m e rs’ needs in a w a y th a t is s im ila r to those b e ing served b y the in d us try
b e in g an a lyze d . T o the e c o n o m ist, a thre a t o f Products exists w he n a p ro d u ct
de m a n d a ffec ted b y the p rice cha n g e o f a su bstitutes. T h e c o m p e tition engendered

b y thre at o f su b s titu te com es fro m Products o u tside the in du s try. A n d thre a t o f
su bstitutes is d e te rm ine d b y fo llo w in g fa c to rs
• B ra n d lo y a lty o f cu stom ers,
• C lo s e c u sto m e r re la tio n s h ip s .
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• S w itch in g costs fo r cu stom ers,
• T he re la tiv e p rice fo r p e ríbrm a n c e o f su b stitutes,
• C u rre nt trends.
Suppliers Power
S up p lie rs can be v ie w e d as a threat w he n the y are able to forc e u p the price th a t
a c o m p a n y m ust p a y to its in p u ts o r re d uce the q u a lity o f the inp u ts th e y s u p p ly,
the re b y dep ressin g the c o m p a n y’ s p r o íita b ility . O n the o th e r hand. i f su p p lie rs are
w ea k , th is g ive s a c o m p a n y the o p p o rtu n ity to force đ ow n price s and d em and h ig h er
inp ut q u a lity . A s w ith b uye rs, the a b ility o f su p p lie rs to m ake dem ands o n a
c o m p a ny depends on th e ir p o w e r re la tiv e to th a t o f the co m p a n y . The term
's u p plie rs ' c om p rise s a ll sources fo r inp u ts th a t are needed in ord e r to p ro v id e goods
o r se rvice s. S u p plie r ba rg ain ing p o w e r is p o w e rfu l w h e n :
• T he m arke t is d om ina te d b y a fe w large s u p p lie rs ra the r th a n a írag m en ted
source o f s u p p ly,
• T h e re are no su b s titutes fo r the p a rticu la r inp u t,
• Th e su p p lie rs cu s tom ers are írag m en ted , so th e ir b a rg ain in g p o w er is lo w ,
• T h e svvitch in g costs fro m one s u pp lier to a n o the r are h igh ,
• T he re is the p o s s ib ility o f the su pp lie r in te g ra ting fo rw a rd s in o rde r to o b tain
h ig h e r p rice s and m a rg ins .
• Th e b uy in g in d us try has a h ig h e r p ro íĩta b ility tha n the su p p ly in g ind u stry ,
• F o rw a rd in te g ra tion p ro v id e s eco no m ie s o f scale fo r th e s u p p lie r,
• T h e b u y in g ind us try hind e rs the s u p p ly in g in d u s try in th e ir d e v e lop m e n í
(e.g. reluc ta n c e to accept nevv releases o f P rodu cts),
• T h e b u y in g in d us try has lo w b a rriers to e n try.
15

In such s itua tio n s , the b u y in g in d u stry o fte n faces a h ig h pressure on m argins
fro m th e ir s u p pliers. Th e re la tio n sh ip to p o \ve rfu l s u p p lie rs can p o te n tia lly red uce
strateg ic o p tio n s fo r the o rg an iza tion .
Customers Power
S im ila rly , the b a rg a in in g po w e r o f cu stom ers de term in e s h o w m u ch custom ers
can im po s e pressure on m a rg ins and vo lum e s. C u stom ers b a rg a in in g p ow e r is
p o w e rfu l vvhen
• T h e y b u y la rg e v o lum e s , there is a c o nc e ntra tion o f bu ye rs,
• T he s u p p ly in g ind u stry c o m p rises a large n u m b e r o f sm a ll o p erators
• T h e s u p p ly in g in d u s try ope rates w ith h ig h fix e d costs,
• T he p rod u ct is u n d iíĩe re ntia te d and can be replaces b y sub s titutes ,
• S w itc h in g to an a ltem a tive p ro d uc t is re la tiv e ly sim p le and is n o t related to
high costs,
• C ustom ers have lo w m a rg ins and are price -s e n s itiv e ,
• C u stom e rs c o u ld p rodu ce the p ro d uc t the m se lves ,
• T he p ro du ct is n o t o f strateg ic im p o rta n c e fo r th e cu stom e r,
• T he c u s tom e r knovvs a b o u t th e p ro d u c tio n costs o f the p ro d uc t
• T h e re is the p o s s ib ility fo r the cu s to m e r in te g ra tin g ba c kw ard s.
Threat o f New Entrants
P ote n tia l c o m p e titors are co m p a n ies th a t are n o t c u rre n tly c o m p e tin g in an
in d u stry b ut have the c a p a b ility to do so i f th e y choose. So try to d is c o urag e
p o te n tia l c o m p e tito rs fro m e nte ring th e in du stry , sin ce the m o re co m pa n ies enter,
the m o re đ if fic u lt it beco m es fo r es tab lish e d co m pa nies to h o ld th e ir share o f the
m a rk e t an d to generate p ro íỉts. Th u s , a h ig h r is k o f e n try b y p ote n tia l c o m p e titors
represents a th rea t to the p ro íita b ility o f e stab lish e d com panies. O n the o th e r hand.
16
i f the ris k o f n ew e n try is lo w , in c u m b e nt co m pa n ies can take adva n tage o f this
o p p o rtu n ity to raise p ric e s and eam g re a ter re tum s .
T h e stre ng th o f the c o m p etitiv e force o f p o te n tial riv a ls is la rg ely a íu n ctio n
o f the h e ig h t o f b a rrie rs to en try. B a rriers to en trv are ía ctors tha t m ake it c o s tly fo r

co m pa n ies to e nter an in du s try . Th e g reater the costs th a t p o te n tial c o m p etitors m u s t
bear to e nter an ind u s try, the g reater are the ba rriers to en try. H ig h b a rrie rs to en try
keep po te n tia l co m p e titors o u t o f ind u stry , even w h e n in d us try re tum s are h igh . T h e
classic w o rk on b a rriers to en try w as don e b y e c o n o m ist Joe B ain, w h o id e n tifíe d
th ree m a in sources o f ba rrie rs to n e w e ntry ; b ran d lo ya lty , abso lute co st advantages,
and econ om ie s o f scale. T o B a in ’ s lis t w e can add a íb u rth e n try b a rrie r o f
co n s ide ra b le s ig n ifíc a nc e in m an y c o u n trie s ; g o v e m m e n ta l re g u la tio n.
Brand ỉoyaỉty is b u y e rs’ pre feren ce fo r the Products on incu m b e n t
co m pan ie s. A c c o m p a n y can create brand lo y a lty th ro u g h co ntinu o u s a dv e rtisin g o f
brand and co m p a n y nam es, p atent p ro te c tion o f P rod u cts, p ro d uc t in n ov a tio n
a c h ieve d th ro u g h its research and d ev e lo p m e n t p ro g ra m , an em phasis on h ig h
p ro d uc t q u a lity , and g o o d a fte r sales Service. S ig n iíĩca n t brand lo y a lty m ake s it
d iffic u lt fo r n e w entrants to take m a rke t share a w ay fro m estab lished com panies.
T h u s b ran d lo y a lty reduces the thre a t o f en try b y p ote n tial c o m p etitors sin ce the y
m ay see the task o f b rea k ing d o w n w e ll establish e d co n s u m e r preferences as to o
c o stly
Absoỉute cost advantages som etim es incumbent co m pa n ies have an abso lute
cost advan tag e re la tiv e to p o te n tial e n trants. A b s o lu te co st advantages can arise
fro m three m a in sou rces: (1 ) s u p e rio r p ro d u c tio n o p e ra tio ns , due to past e xp e rie n c e ,
pa ten t, o r secret processes; (2 ) c o ntro l o f p a rticu la r n p uts re q u ired fo r p rod u c tio n ,
such as la b o r m a terials e q u ip m e n t o r m an a ge m e n t s k ills ; and (3 ) access to che a p e r
fun d s because e x istin g co m pa n ie s represent lo w e r risk s than co m p a n ies tha t are no t
ĐAI HỌC q Ũ Õ Õ g i a h a n o i
TRUNG TAtv' THÕ N G t in thư v iệ n
ye t establish ed. I f inc u m b e n t co m pan ie s have an absolute cost a dva n tage, the threat
o f e n try decreases
Economies of scale are the cost advantages associated vvith large c o m pa n y
size. S ources o f scale e con om ie s inc lud e cost re d u c tio n s ga ine d th ro u g h m ass
p ro du cin g a s tan d ardized o u tp u t, d isc o un ts on b u lk purchases o f ra w m a te rial in p uts
and co m p o n e n t p arts the adva n tages g aine d by sp re a d ing íĩx e d costs o v e r a large

p ro d u c tio n v o lu m e , and eco n om ie s o f scaỉe in a d ve rtis in g i f these cost advantages
are sig n iíĩc a n t, a n e w en trant faces the d ilem m a o f e ith e r e n tering on a sm a ll scale
and s u ffe rin g a s ig n iíĩc a n t cost d isadvan tag es o r e nte rin g o f large scale and b e a ring
a large risk o f signiíĩcant Capital costs. A further risk o f large scale entry is that the
increased s u p p ly o f P rod u cts v v ill depress p rice s and re s u lt in v ig o ro u s re ta lia tio n by
estab lish e d co m pan ies. Th us w he n estab lishe d c o m p a n ies have econ o m ie s o f scale
the thre a t o f e ntry is red uce d .
Government regulaíion has c o n s titu te đ a m ạ ịo r e n try b a ư ie r in to m an y
in d u strie s. F o r e xa m p le, u n til rec e n tly in the u s g o ve m m e n t re g u la tio n p ro h ib ite d
p ro v id e r a lon g d istance teleph on e Service such as A T & T , M C I and S print fro m
c o m p e tin g fo r lo ca l telep ho ne Service w ith the re g io n a l B e ll O pe ra tio n C om p a n y
such as ư s W est and B e ll A tla n tic M o re o v e r, the R B IC s w e re p ro h ib ite d fro m the
lo n g d ista nce telep h on e m a rke t. O th e r p o te n tia l pro v id e rs o f teleph on e Service
in c lu d in g ca b le te le vis io n Service c o m p a n ies such as T C Ư C o m m u n ic a tio n and
V ia c o m w e re p ro h ib ite d íío m e n te ring the m a rke t alto g e the r. T hese re g u la tory
b a rriers to e n try s ig n iíic a n tly reduce d the le v e l o f c o m p etitio n in b oth the loca l and
lon g distan c e telep h o n e m arkets, en a blin g telep h o n e com pa n ies to eam h igh e r
p ro íìts tha n m ig h t o th e n v ise have been the case
Barriers to Entry and Competition i f estab lish e d c o m pa n ies have b u ilt bran d
lo y a lty fo r th e ir P roducts, have an a b so lute co st adva n tage w ith re sp ect to p o te n tial
c o m p etito rs have s ig n iíĩc a n t e co no m ie s o f scale o r en jo y re g u la to ry p ro te ction th en
18
the ris k o f e n try b y p o te n tia l c o m p e tito rs is g re a tly d im in is h e d . W h e n th is ris k is
ỉow . e s tab lish e d c o m p a n ies can c ha rg e h ig h e r p rice s and e am g re a te r p ro íìts than
w o u ld be p o s s ible othervvise. C le a rly, it is in the inte re s t o f c o m p a n ies to pu rsu e
stra tegies co n s isten t w ith ra isin g b a ư ie rs to e n try . In d e e d e m p iric a l e v ide n c e
suggest tha t th e h e ig h t o f b a rriers to e n try is th e m o st im p o rta n t d e te rm ina nt o f
p ro fit rates in an in d us try
1.2.3 Internal analysis:
1.2.3.1 Value Chain model

V a lu e ch a in m o d el o f M ic h a e l P o rte r is m o d el th a t he lps to an a lyz e sp e c iíĩc
a c tiv itie s th ro ug h w h ic h íirm s can create va lu e a n d c o m p e titiv e a d va ntag e
Figure 1.4 Value Chain model
(source: s tra teg ic m ana g e m e n t b y C h a r les W.L H ilỉ a n d Garethr. J o n e s)
Primary Activities
P rim a ry a c tiv itie s h a v e to d o w ith the de s ign , c re a tio n , and d e liv e ry o f the
p ro d u ct as w e ll as its m a rk e tin g and its su p p o rt and after-sa les Service.
Inbound iogistics:
19
Inb o u n d lo g is tics is co nce m ed vvith re c e iv in g , s torin g , in v e n to ry c o ntro l.
tra n sp o rta tion sc h e d u lin g .
Operating:
O pe ra tion s are v a lue cre a tin g a c tiv itie s th a t tra n s íb rm inp u ts in to the íìn al
p ro d u c t
Outbound iogistics
O u tb o un d lo g istics is co nce m ed w ith th e a c tivitie s re q u ired to get the
íln ish ed P roducts to cu stom ers, w a re h o u sing , ord er f iilf illm e n t, tran s p o rta tion , and
d is trib u tio n m a n ag e m e nt. O u tb o u n d lo g is tics is the process o f tra n s p orting v e h icles
fro m the a s sem bly p la nt to the d e a lersh ip o r íin a l cu stom e r w ith large Aeets. T h e
o u tb o u n d d is trib u tio n lo g is tic s is a lw a ys done v ia tra in , tru c k, and sh ip fro m the
p la n t to m ark e t c o m p o u n d s o r d is trib u tio n centers, and the n to d ea le rsh ip s o r
cu stom ers. The ro u tes fro m assem bly p la n t to re g ion a l d is trib u tio n c e nter and
n a tion al c o m p o u n d s a c c o un t fo r a pp ro xim a te ly 9 0 % , vvh ile the v e hicles b e ing
d ire c tly tra n s fe rre d to lo c a l d e alersh ip acco un t fo r ju s t 1 % . C u s tom ers c o m in g to
p ick -u p the ve h ic le at the de a lersh ip ac c o u n t fo r 65 % , v vhile d is trib u tio n centers
d e liv e rin g the v e hic le d ire c tly to end users a c cou n ts fo r 2 5 %
Marketing and sales
M a rk e tin g and sales fu n c tion s o f a c o m p a n y can help to create value .
T h ro u gh bran d p o s itio n in g and a d v e rtisin g , th e m a rke tin g fu n ctio n can increase the
v a lu e tha t consu m ers p e rce ive to be co n taine d in a co m p a ny 's p ro d u ct. In s o ía r as

these h e lp to create a fav o ra b le im pres s ion o f the c o m p a n y’ s p ro d u ct in the m in d o f
cu s tom e rs, th e y increase va lue. M a rk e tin g and sales can also crea te v a lue by
d is c o v e rin g c o n su m e r needs and c o m m u nic a tin g the m ba c k to the R & D íìin c tio n o f
the com pany, which can then design Products that better m atch those needs
Service
T he ro le o f the Service íìin c tio n o f an e n terpris e is to p ro vid e after-sales
Service and support. T h is âinction can create a perception of superior value in the
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m ind s o f con su m ers bv s o lvin g cu s to m e r's p ro b le m and s u p po rting custom ers after
the y ha ve p u rch ase d the p ro d u ct.
Support Activities
T h e su p p o rt a ctiv itie s o f the va lue Chain p ro v id e in p u ts tha t allovv the
p rim a ry a ctiv itie s to take pla ce. T h e pro c u re m e nt fu n c tio n is to pro c u re ra w
m a terials, spare p a rt, and b u ild in g . m achines. Th e eíYĩciency w ith w h ich this is
ca rried o u t can s ig n iíĩc a n tly lo w e r co st, the re b y cre a ting m ore va lue . S im ila rity ,
there are a n u m b e r o f w ay s in w h ic h the hu m a n reso u rce íiin c tio n can h e lp an
e n terprise create m o re va lue . T h e hu m an resource íu n c tio n ensures th a t the
c o m p a n y has th e rig h t m ix o f sk ille d p e o p le to p e río rm its va lue cre a tio n a c tivitie s
e íĩe c tiv e ly . I t is also the jo b o f the hum an resource íun ctio n to ensure that peop le
are ad e q u a tely tra ine d , m o tiva te d . and com pen sa ted to p e rĩorm th e ir v a lue cre a tion
tasks. T h e íĩn a l s u p p o rt a c tiv ity is the co m p a n y in íra s tru c tu re has a somevvhat
d iffe re n t ch aracter fro m the o th e r su p p o rt a ctivitie s. In íra s tru c tu re has to d o w ith the
c o m p an y w id e co nte x t w ith in w h ic h a ll th e o th e r va lue cre a tion a c tivitie s take pla ce.
T h e in ĩra s tru c tu re in c lud e s the o rg an iza tion al struc ture , c o n tro l system s, and c u ltu re
o f the c o m p a n y. S ince to p m an ag e m ent can ex e rt c o n side ra b le in ílu en ce in sha p ing
these aspects o f a co m p a n y, top m an ag e m en t sh o u ld also be v ie w e d as part o f the
in íra stru c tu re o f a co m p a n y . Ind ee d , th ro u gh stron g le a d e rsh ip to p m anag e m ent can
c o ns c io u sly shape the iníra stru ctu re o f a c o m p a n y , and thro u gh tha t the
p e rfo rm an c e o f a il o th er va lue c re a tion a ctiv itie s tha t take place w ith in it
1.2.3.2 Com petitive advantages

A c c o rd in g to M ich a e l P o rter: "
Competitive advantage grows out o f value

that a firm is abỉe to create fo r it ’s buyers that exceeds thefìrm 's cost o f creating it.

Value is what bưyers are w illin g to pay, and superior value stems from offering

lower prices than competitors fo r equivaỉent benefits or providing
u n iq u e
benefìts

that more than offset a higher price.
”
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