Building business strategy for Petro Viet Nam Nghe An construction joint stock company from 2010 to 2015

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GRIGGS UNIVERSITY
GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM




CAPSTONE PROJEC REPORT

BUILIDING BUSINESS STRATEGY FOR PETRO VIET NAM NGHE AN
CONSTRUCTION JOINT STOCK COMPANY
FROM 2010 TO 2015



Group No. 7
Student’s name:
1. Phan Hai Trieu
2. Hoang Trung Hung
3. Le Thanh Cao
4. Cao Thi Thanh Long



VINH 2010

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TABLE OF CONTENT

TABLE OF CONTENT 1
LIST OF ABBREVIATION 5
LIST OF TABLE 6
LIST OF FIGURE 7
INTRODUCTION 8
1. The necessity for research 8
2. Research Objectives 9
3. Objects and Scope of Research 9
4. Research Methodology 9
5. Research Structure 9
CHAPTER I: THEORETICAL FOUNADTION FOR BUILDING BUSINESS
STRATEGY 10
1. General theory of business strategy 10
1.1. Definition 10
1.2. Roles of business strategy 11
2. Procedures for building business strategy 12
2.1. Defining vision, mission, and objectives of business 12
2.2. Assessing external environment 13
2.2.1. Macro environment 13
2.2.2. Sector environments 15
2.3. Internal Analysis 17
2.3.1. Analysis of finance 17
2.3.2. Analysis of human resource 17

2.3.3. Analysis of physical infrastructure and technology 17
2.3.4. Competitor Analysis 17
2.4. Models of strategy Analysis 17
2.4.1. SWOT Matrix 17
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2.4.2. BCG Matrix 18
2.4.3 McKinsey Matrix- GE (General Electric) 19
2.5. Selection of business strategy 21
2.5.1. Business-level Strategy 21
i. Cost leadership strategy 21
ii. Differentiation strategy 22
iii. Focus strategy 23
2.5.2. Corporate-level strategy 24
2.5.2.1. Integration strategy 24
a. Vertical reverse integration link 24
b. Vertical integration link 25
c. Horizontal integration link 25
2.5.2.2. Diversification strategy 25
a. Concentric diversification 25
b. Horizontal diversification 26
c. Integrative diversification 26
CHAPTER II: ANALYSIS OF PVNC’S BUSINESS PERFORMANCE AND
ENVIRONMENT 27
2.1. Introduction to Petro Vietnam Nghe An Construction Joint Stock
Company 27
2.1.1. The Formation and Development of PVNC 27

2.1.2. Functions and Tasks 28
2.1.3. Orientation of modern development 29
2.1.3.1. Vision 29
2.1.3.2. Mission 29
2.1.3.3. Objectives 30
2.1.4. Organisation structure 31
2.2. Analysis of the external environment 33
2.2.1. Legal and political environment 33
2.2.2. Economic environment 33
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2.2.3. Demographic and societal environment 34
2.2.4. Technological environment 34
2.3. Key sector environment 34
2.3.1. Suppliers 34
2.3.2. Clients 35
2.3.3. Joining Barriers 35
2.3.4. Replacement Product 36
2.3.5. Competitions 36
2.4. The internal environment of the enterprise 37
2.4.1. The Analysis of PVNC’s resources 37
2.4.1.1. Human Resource 37
2.4.1.2. Business results and financial situation: 37
a) Installation: 38
b) Real estate business 40
2.4.1.3. Physical infrastructure and technology 44
2.4.2. Analysis of the competitiveness of PVNC 45

2.5. SWOT analysis 46
2.5.1. Strengths 47
2.5.2. Weaknesses 47
2.5.3. Opportunities 48
2.5.4. Threats 48
CHAPTER III: BUSINESS STRATAGY AND INPLEMENTATION
SOLUTIONS FOR PETROVIETNAM NGHE AN CONSTRUCTION JOINT
STOCK COMPAY FROM 2010 TO 2015 50
3.1. Business-level strategy choice 50
3.1.1. The BCG growth-share matrix 50
3.1.2. Assessing levels of attractiveness and competitiveness of each sector by
McKinsey matrix model 52
3.2. Selecting business strategy for each sector 56
3.3. Building functional strategies 58
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3.3.1. Restructuring strategy for establishing Nghe An Oil and Gas
Construction Joint Stock Corporation 60
3.3.2. Management strategy complying with Cooperation model 62
3.3.3. Strategy of innovation management policy 64
3.3.4. Marketing Strategy 65
3.3.5. Human resource development strategy 65
3.3.6. Science and Technology Development Strategy 66
3.4. Implementation solutions 66
3.4.1. Service and Product Solution 66
3.4.2. Human resource and framework of organization development solution.
67

3.4.3. Solution for the investment in the capital construction and
improvement of the machine and equipment operation. 69
3.4.4. Solutions for the technological science 70
3.4.5. Solution for mobilization and effective use of capital 71
3.5. Itinerary plan to execute the selected strategies 71
CONCLUSION 73
REFERENCES 74


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LIST OF ABBREVIATION

Abbreviation
Explaination
PVN
Petrovietnam Oil and Gas Group
PVC
Petrovietnam Construction Joint Stock Corporation
PVNC
Petro Vietnam Nghe An Construction Joint Stock Company
ADMIN
Administration
BCG Matrix
Boston Consulting Group Matrix
BIDV
Bank for Investment and Development of Vietnam

DEPT
Department
HNX
Hanoi Securities and Exchange
SWOT
Strength, Weakness, Opportunity, Threat
McKinsey-GE
Matrix
MC.KINSEY – General Electric Matrix
ROA
Return On Assets
ROE
Return On Equity
SBU
Stratergic Business Unit
VND
Vietnam Dong
HSEQ
Health, Safety, Environment, and Quality



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LIST OF TABLE

Table

Explaination
Table 2.1
Financial figures in the period 2007 – 2009
Table 2.2
Some typical construction work operating by the company
Table 2.3
Financial report in the year 2009 by PVNC
Table 2.4
Table of Machinery capacity of PVNC
Table 2.5
A comparison between the competitive competences of the
large construction companies in the central part of Vietnam
Table 3.2
Attractiveness of the Sector
Table 3.3
Assessment of competition capacity of sectors
Table 3.5
Revenue ratio of key business sectors of PVNC
Table 3.7
List of members of PVNC at the period of September 2010
Table 3.8
List of members of PVNC will planning
Table 3.9
The execution plan for selected strategies

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LIST OF FIGURE

Figure
Explaination
Figure 1.1
BCG Matrix of the market share
Figure 1.2
MC. Kinsey Matrix – GE
Figure 1.3
Diagram of the structure of PVNC
Figure 3.1
BCG growth-share matrix of PVNC
Figure 3.4
Mc Kinsey Matrix of PVNC
Figure 3.6
SWOT Matrix of PVNC

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BUILIDING BUSINESS STRATEGY FOR PETRO VIET NAM NGHE AN
CONSTRUCTION JOINT STOCK COMPANY
FROM 2010 TO 2015
INTRODUCTION
1. The necessity for research
In the world of competitive business, we sometimes wonder why some
companies are successful while others failed? The answer to this question lies
primarily in its capability of building business strategies and maintaining the

competitive strength of enterprises. Business strategy is a special plan that every
business must make a study before going into operation.
Vietnamese enterprises were mainly established in a centralized planning
economy, are being urged to adopt the rules of the global business environment that
is very varied and intensively competitive. They are still looking for the ways of
maintaining and of development. They also must accept a series of tests that are
sometimes at a price equal to the destiny of the business.
Petro Vietnam Nghe An Construction Joint-stock Company (PVNC) is one
of the most experienced construction companies of Nghe An province as well as of
the central region. Since joining Petrovietnam Oil and Gas Group - (PVN) in 2007,
the company has gained its new position and power to dominate the market beyond
the region. With long term vision and strong determination, the board has set out
many promising development directions.
However, reality has proven that although a business has a strong
determination, even with a potential market yet does not have a proper business
strategy will fall in “business traps” causing wastes of resources, lose its core
business capacity of competitiveness and eventually go to decline and even
bankruptcy. Therefore, in order to develop sustainably and to adapt the constantly
changing business environment, PVNC needs to quickly build up an appropriate
business strategy for its own.
After studying the situation of production and business activities of PVNC,
our group decided to choose the topic "Building the business strategy of the Petro
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Vietnam Nghe An Construction Joint-stock Company - period 2010 - 2015" as
our Graduation assignment.
2. Research Objectives

The purpose of the study presented in our graduation assignment is to
specifically analyze the factors affecting the business activities of the Petro Vietnam
Nghe An Construction Joint-stock Company so as to build up a business strategy
for the period 2010 - 2015 as well as to propose the functional strategies and the
specific measures to successfully implement the selected strategy.
3. Objects and Scope of Research
The object of this research is a joint stock company Petro Vietnam Nghe An
Construction Joint-stock Company, which is part of Petro Vietnam Construction
Jointstock Corporation (PVC), whose business activities cover throughout the fields
of construction and installation works, including the high buildings in Central
provinces.
4. Research Methodology
This study used the synthesis of qualitative research methods such as
observation, interview, group discussion from which to synthesize, analyze and
compare the primary and secondary data of business environment and the
operations of the Petro Vietnam Nghe An Construction Joint-stock Company.
Secondary data was collected from various sources such as Petrovietnam
Nghe An Construction Joint-stock Company (PVNC), Petrovietnam Construction
Jointstock Corporation, Petrovietnam Oil and Gas Group (PVN), Ministry of
Construction, Ministry of Industry and Commerce, Ministry of Planning and
Investment, Nghe An Statistics Department, newspapers and the Internet.
Primary data was collected through workshops, seminars, practical working,
and interviews with leading officials in the company for more details about the
content not be presented in annual reports, and also consulted with the Company
managers about several strategic directions of the Company in subsequent years.
5. Research Structure
This assignment includes three chapters
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Chapter 1: The overall rationale of constructing a business strategy
Chapter 2: Analysis of the operation status of Petrovietnam Nghe An
Construction Joint-stock Company.
Chapter 3: Building the diversification strategy of industries for
Petrovietnam Nghe An Construction Joint-stock Company and implement solutions
- period 2010 - 2015.

CHAPTER I: THEORETICAL FOUNADTION FOR BUILDING BUSINESS
STRATEGY
1. General theory of business strategy
1.1. Definition
The term strategy derives from the Greek and was first used in military field
to denote the big, long term plans which were made on the basis of knowing what
the enemy’s capability and incapability. Usually, people understand strategy as
planning and military art.
Today, the term strategy is widely used in many different fields. In business,
there are many approaches to strategy. Under the traditional approach, business
strategy is seen as a long-term overall plan of an organization in achieving long-
term goals.
The management historical researcher Alfred D. Management Chandler said
that "strategy is the identification of the basic long-term goal of a business and the
implement the program works with the allocation of resources necessary to achieve
that goal."
Thus, his ideas clearly define that strategy is a wise planning process, in
which businesses choose their own goals and determine action plans to accomplish
those objectives best and find the ways to allocate resources accordingly.
Traditional approach has the advantage that helps businesses easily imagine
working on strategic planning and to see the benefits of strategy on the aspects of

the long-term plans. However, in the business environment that is always changing
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as today, the limitations of traditional approaches are shown due to its inability to
adapt flexibly to the changes of business environment.
Under current approaches, strategies can be larger than what the business
intends or plans to implement. According to Mintzberg's concept, he said that the
strategy is a pattern in the flow of decisions and action plans. Pattern can be any
type of strategy: designed strategy or strategies from mutation. He introduced the
model:
Modern approach helps the business easily respond flexibly to the changes of
business environment and promote the creativity of the members of the business.
However, it requires qualified leadership and managers who have the ability to
predict the conditions for the implementation of strategies and evaluate the strategic
value of the mutation.
Through the above approach, we can understand that: the business strategy of
a business is an art of building long-term goals and policy direction as well as the
implementation to create competitive advantages of enterprises. Business strategy is
to analyze, understand and give basic route, outlined in the orbital evolution of
production and business activities; that is the comprehensive planning, coordination
and calculated uniformity which was forged thorough sanding to lead the business
unit to ensure the objectives of the business unit. Also, business strategy is to
determine the basic objectives of the business unit, selection means and method of
action and allocate the resources necessary to implement business objectives.
The term "strategy" is often used by three common meanings.
Firstly, strategy means the general operation and deployment programs of
resources in order to achieve key objectives.

Secondly, strategy means the objective programs of the organization, the
resources should be used to achieve this goal, the policies operating income, use and
allocation of resources.
Thirdly, strategy means to determine the long-term goals and choose the way
of activities and to allocate the necessary resources so as to achieve these goals.
1.2. Roles of business strategy
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In terms of market fluctuation than ever now there is only one thing that
businesses can know for sure there is a change. Strategic management shows a way
to help these organizations through the turbulent market, reaching to the future by
their efforts and ability. Business strategy is designed to help the business focuses
on the way to adapt the best to the changes in the long term.
Strategic management enables an organization to be more active instead of
passive in defining their future. It allows an organization to be proactive and
influence in the environment it operates and so, apply all of its ability to control and
adjust to any changes.
Strategic management creates very important awareness in each person. Both
the management board and the employees understand and commit to implement the
objectives of the business. Once people in an enterprise understand what the
enterprise is doing and the reasons why, they would feel like they are part of the
enterprise, they will commit to support all activities of the business.
2. Procedures for building business strategy
A complete business strategy includes all the working steps; however within
this assignment we would like to mention only from the first step to the steps of
analyzing and determining strategy.
2.1. Defining vision, mission, and objectives of business

The vision of a business is its statement on their position in the business
environment in a certain period of time. It is regarded as an action guideline for the
company in all time and circumstances.
The mission reflects the important tasks of the enterprise toward the business
environment and is often expressed through a brief philosophy of the
business. Mission shows the reason of the foundation and the existence of the
business. The businesses can change their strategies to implement the mission, but
rarely change their reasons to exist.
The objective is the final desired result that businesses need to reach. The
objective indicates the direction for all decisions and forms the criteria for
measuring performance in practice.
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 The importance of defining the vision, mission and objectives.
A business is created with an intention. Yet sometimes the tasks are not
understood and the work will be carried out without high efficiency as
expected. Sometimes, because of not understanding the goals and tasks set out, the
business may go down the wrong way, doing things that whatever followed would
become meaningless. Therefore, each enterprise must first know the work that it
should follow.
Identifying tasks and strategic goals of the enterprise is the beginning stage
which is extremely important in implementing business management strategies in
accordance with set. The objectives are clearly defined and specific is very
important to business success.
2.2. Assessing external environment
2.2.1. Macro environment
Analysis of macro environment gives us the fundamental answer to the

questions: Enterprises are under the influence of what factors from the external
environment? There are four main groups of factors of macro environment that
businesses have to deal with: social and political factors (Political), economic
factors (Economic), socio-cultural factors (Social cultural), and scientific
factors technology (Technological). These factors influence the organization
independently and can also affect each other.
 Legal - Political factors: the factors of the political environment - laws
strongly influence the business activities of enterprises. Political stability has been
identified as one important precondition for the operation of the enterprise’s
business. The change of political environment can affect beneficially to a business
group this but inhibit other business development groups and vice versa. A perfect
legal system is one of the premises outside of business economics. The level of
completion and the changes in law enforcement in a certain economy have great
influences on the planning and implementation of business strategies of enterprises.
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The legal - political environment directly impacts the business performance
of an enterprise because it affects on the products, industries and business methods
of the enterprise. Moreover, it also affects the costs: production costs, circulation
costs, transportation costs, tariff levels Especially, import-export business is also
affected by international trade policy, the quota allocated by the State, legal
protection for enterprises engaged in the business.
In short, the legal - political environment has a strong influence on the
improvement of business performance of enterprises by affecting the operation of
enterprises through legal system tools and the methods of adjusting the macro
economics…
 Economic factors: Economic factors have great affects on the businesses.

Because these factors are relatively large, the businesses need to selectively identify
specific effects which are most directly affected. Major influence on the economy
generally, including:
- Interest rates: interest rates may affect the demand for products of the
enterprise. Interest rates are important as consumers often borrow money to pay for
the account of their commodity trading. The interest rate also determines the cost of
capital and therefore investment decisions. This cost is a key factor in deciding the
feasibility of the strategy.
- Exchange rate: exchange rate is a comparison of the value of domestic
currency with the currencies of other countries. Changes in exchange rates directly
affect the competitiveness of products produced by enterprises on the international
market. Changes in exchange rates also affect the price of the import and export
goods of the company.
- Inflation rate: Inflation rate may cause disruption to the economy as
economic growth slows and the fluctuation of currency is becoming
unpredictable. Therefore, investment activities become fully work of chance, the
market will become more difficult to predict.
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- International Exchange Relationships: The changing in international
environment offers opportunities to foreign investors but also enhance competition
in the domestic market.
 Social factors: all enterprises must analyze the social factors to determine
the opportunities and potential threats. The social factors often change or evolve
slowly so their effects are sometimes difficult to recognize. These social factors
include: quality of life, lifestyle, the flexibility of the consumer, professional,
population, population density, religion

 Technological - technical factors: The advanced technical, technology
allow the businesses to proactively improve the quality of goods and labor
productivity. These factors affect almost all aspects of the product such as product
characteristics, product prices, and the competitiveness of the product. So that
businesses can increase their competitiveness, increasing the rotation of working
capital, increase profitability to ensure the expanded reproduction of the business. In
contrast, the low level of technology not only reduces the competitiveness of
enterprises, but also reduces profits, hindering development. In short, technical and
technological factors allow businesses to improve productivity, product quality
thereby increasing competitiveness, increasing the turnover of capital, profits from
that increase business efficiency.
2.2.2. Sector environments
Besides the macro-scale factors, enterprises are directly affected by the
business environment in which it operates. There are five key elements of the
business model; they are the supplier’s power, buyer’s power, substitute products,
competition and the entry barrier.
 Negotiation power of the suppliers: the pressure from the suppliers or
their bargaining ability are shown in the characteristics: the level of concentration of
suppliers, the importance of quantity products for the providers, the difference of
suppliers, the impact of inputs on cost or product differentiation, switching costs of
firms in the industry, the existence availability of alternative suppliers, the risk of
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strengthening the unity of suppliers, supply costs compared with total income of the
sector.
 Negotiation power of the buyers: The pressure from customers is
reflected in the position to bargain, the number of purchasers, the information that

the buyers have, the characteristics of trademarks, the
sensitivity to price, product differentiation, the
level of customers density in the industry,
the availability of substitute goods, the
motivations of our customers.
 Entry barriers: According to
Michael Porter, the potential rival is the
organizations which are not currently
available in the industry but may affect the
industry in the future. The risk of potential
competitors is reflected in the factors: the absolute cost
advantages, government policies, economies of scale, capital requirements,
characteristics of trademarks, the cost of converting industry, access to distribution
channels, the possibility of retaliation, and the exclusive products.
 Competitive pressure from substitute products: substitute products and
services are the products or services which can satisfy the equivalent needs
provided by the other products and services in the same industry. The risk of
substitute products in the conversion cost in using the products, goods is the trend
of using them, the correlation between price and quality of the items substituted.
 Internal competitive pressure in the same company: intensity of
competition from existing competitors is reflected in: the level of concentration of
industry, the difficulty of withdrawal from the sector, fixed costs, value,
status strengthening of the sector, surplus capacity, the difference between the
products, the conversion costs, characteristics of brand goods, the diversity of the
competition.
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2.3. Internal Analysis
2.3.1. Analysis of finance
In order to analyze the financial situation we need to use data from financial
reports of enterprises in a number of years and compare them with each
other. These indicators can be used to analyze such as total capital business,
revenue, profit and general indicator.
2.3.2. Analysis of human resource
It means to consider the quality of human resources in business, predict the
human resources which would be used in the future, arrange the human resources in
enterprises and the measures for human resource management and the current
capacity.
2.3.3. Analysis of physical infrastructure and technology
It means to analyze how efficient the facilities and technologies that
enterprises are using in the market, and if they are sufficient to meet the production
needs of business and strategic development of business in the future.
2.3.4. Competitor Analysis
It means to analyze the competitiveness of enterprises in compare with other
competitors through competitive matrix. The evaluation factors are: market share
growth, competitiveness, financial support from outside, product quality, unit cost,
customer loyalty, ability to cope with changes
2.4. Models of strategy Analysis
2.4.1. SWOT Matrix
This model is a matrix analysis basing on the four factors: Strengths,
Weaknesses with Opportunities and Threats to which these factors combine
together to identify strategies for business Industry:
– Combined S/O: to help businesses take advantage of their strengths to
capture opportunities.
– Combined S/T: to help businesses use strengths to address the threats.
– Combined W/O: to help businesses take advantage of opportunities to
overcome weaknesses

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– Combined W/T: to help businesses overcome or minimize its weaknesses
to avoid the threats.
2.4.2. BCG Matrix
This is a classic model to analyze the portfolio which is represented as a
matrix set up by two parameters: the relative market share and market
growth. Model of BCG (Boston Consulting Group) was developed from the
experience curve theory, to analyze the capacity of each area of operation of a
multi-sector companies compared with other sectors in the organization, which
draws from the War appropriate strategy, also called matrix market share /
growth. Positioning the Strategic Business Unit (SBU) in the matrix helps us make
decisions to allocate resources and review fundamental shift of the SBU in each
period.
The horizontal axis: relative market share of each strategic business unit
(SBU) than the largest competitor (Company sales / turnover of the sector head
unit).
Vertical axis: reflecting annual growth of the market.
Circle: the position expressed growth / market share of that unit, the circle
size proportional to the product sales.

Figure 1.1: BCG Matrix of the market share

High Low
Relative market share








“Question”

“Star”

“Cow”

“Dog”

High

Low
Annual
growth of
the
market
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The position of the circle in each square indicates the following:
The group "Star": the business units which have high growth and market
share and the ability to invest in maintaining or strengthening their position. The
strategy can be vertical integration, horizontal, market penetration, market
development, product development, joint ventures.
Group "Question mark": the business units which have high growth but low
market share, often require more money to maintain and increase market share, the
board decided to invest to become stars, or you can remove. The strategy is to
pursue focused strategies: market penetration, market development, product
development.
Group "Cow": the business units which have low growth but high market
share generating credits to support other business units, especially the "dual
direction situation" and the research and development. Strategy development or
diversification of products are applied when a business unit strength or cut spending
for major business units.
Group "dog": the business units which have very low growth rate and very
little market share, and this product group is not profitable or very little
profitable. Strategies set out are to cut down the costs, liquidation or dissolution.
BCG matrix implies the surplus from dairy box should be used to support
and nurture the development of the group stars. The company should get out of any

industry in the dog box. The worst question marks should be removed to reduce the
resource requirements of the business money.
BCG Matrix is built on the basis of data of past business and has taken on a
number of factors to predict the expected growth in the future. BCG Matrix has
disadvantages such as: not giving specific strategies, not being applicable to new
businesses. If businesses do not have any growth opportunity, the BCG matrix is
completely inappropriate.
2.4.3 McKinsey Matrix- GE (General Electric)
This matrix is built on two aggregate indicators, they are the market
attractiveness and the competitive position, including nine boxes: vertical axis
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represents the level of attractiveness of the market, the horizontal axis
indicates competitiveness of each enterprise or business unit, is divided into three
levels: strong - medium - weak. The factors included in analysis include: market
size, growth rate, profit margin, competitive intensity, seasonal nature, cyclical. The
horizontal axis represents the strength and competitiveness of enterprises, including
the relative market share, competitive pricing, product quality, capability to the
market.
Figure 1.2: MC.KINSEY Matrix- GE

Each circle represents a business unit (in a competitive business sector has
only one circle.) Size of the circle indicates the relative size of the sector, the cross
on each circle is the market share of the strategic business unit (SBU).
+ Pattern : 3 square boxes in the left corner, the business units located in
this position have favorable growth opportunities and relatively attractive strategy
to enhance investment.
+ Pattern : 3 square boxes located in the diagonal, the business units have
average level attractive level, therefore the investing decision should be made
selectively so as to create income, the market should be maintained rather than
increasing or decreasing.


Strong Average Weak
High




Average




Low

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+ Pattern : 3 cells in the lower right corner, the business units strategy
in this area does not occupy attractive positions, they should withdraw from the
industry.
Mc.Kinsey matrix is used to assess the attractiveness of the market and the
current competition as well as future prospects of the business. However, there is
one question is how to evaluate the attractiveness of the market and competitive
advantage of working? To do this, each activity is measured by many different
variables. To assess the two factors competitive position and attractiveness of the
market depends on many factors, the influence of each factor depends on the
perceptions and experiences of leaders of the dynamics of competition.
2.5. Selection of business strategy
After analyzing the external environment and the internal environment,
determining the development trends of the economy, the business sector as well as
strengths, weaknesses, opportunities and threats, enterprises can choose a proper

business strategy and the most appropriate based on the matrix QSPM (Quantitative
Strategic Planning Matrix). This model evaluates the importance of each factor in
groups of four major factors are the opportunities, threats, strengths, weaknesses
and the points of impact of each factor to a specific strategy. After calculating the
total impact of the four groups of factors to each strategy and business strategy will
be selected at the highest level, i.e. the optimal strategy and best suit the specific
conditions of this business.
2.5.1. Business-level Strategy
In general, the strategies are typically formed in one of three levels -
corporate, business unit and functional section – among those, the business unit
level is a major segment where the competition takes place in industry. For the
purposes of resistance in market forces, Michael Porter has identified three general
strategies which can be applied at the business unit level so as to create competitive
advantage.
i. Cost leadership strategy

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This is a series of actions aiming to produce goods or services with features
that the customers can accept at the lowest cost.
This strategy aims to become the low cost producer in the industry with
certain quality standards. Meanwhile, the company will sell the product or the
average price of the entire industry to earn higher profits than competitors, or will
sell for lower than average price to gain more market share.
In case the "price war" took place, companies can still maintain a certain
level of interest, while the competitors have to bear losses. Even when there is no
conflict or contradiction in price, this economic development, expand and prices

drop, then the company has the ability to keep costs the same, the business
can maintain their competitive advantage based on cost-led.
The successful enterprises in the application of cost-led strategy often have
the following characteristics:
– The ability to access capital to invest in better production equipment.
– There is also a barrier that many other companies cannot overcome.
Product design capability to increase production efficiency, for example, created a
small detail with which to shorten the assembly process.
– There are high levels of production.
– Have effective distribution channels.
Any general strategy has the risks hidden, and low-cost strategy is not an
exception. Risks can occur when competitors are also able to lower production
costs. Even with the help of modern technology, competitors may have the
unexpected break in production, removing the competitive advantage of businesses
is leading the cost. In addition, some companies are pursuing strategic re-focus on
narrow market, which is not difficult to achieve lower costs than in traditional
market segments of them, since that they would create a group with control array
control market share many times larger.
ii. Differentiation strategy
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Differentiation strategy is a series of actions needed to produce goods and
services (at a price that is acceptable) with the differences in value for specific
target customers.
This is a strategy of product or service development of a business, by which
the product or service are unique and has its special characteristics, gains the
customer’s appreciation and respect than the products of its

edge competition. Value added by the uniqueness of the product allows this
business to set higher prices without fear of buyers boycott. They hope that higher
prices will not only allow to cover the increased costs in the process of supplying
products, but also more than that: thanks to the different characteristics of the
product, if suppliers increase prices enterprises can move it to the difference for
customers, because customers cannot easily find similar products to replace.
The businesses which are successful with product differentiation strategy
often have the following advantages:
– Ability to research and access to leading scientific achievements.
– The product research and development team (R & D) has the good skills
and creativity.
– The sales team with the ability to actively communicate the strength of
the product to customers successfully.
– Reputation for quality and innovation capability of enterprises.
The risks associated with product differentiation strategy are they likely to be
imitated by the competitors, or major changes in consumer tastes. In addition, many
companies are pursuing strategic focus can achieve higher level in product
differentiation in their market segments.
iii. Focus strategy
Centralized strategy is a series of actions by which the goods and services are
produced in order to focus on serving the needs of a competitive market segments
targeted.
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A business which uses the Centralized strategy tends to well maintain a high
level of customer loyalty and this discourages competition that they did not want or
do not dare confront directly.

Because only a regional narrow market is focused on, the businesses
pursuing Centralized strategy often have lower sales, so they do not constitute an
advantage when bargaining with suppliers. However, the pursuit of strategic
business focus - personalized products can deliver the higher costs that imposed
suppliers to the customers because the customers cannot find replacement products.
The successful business in using the centralized strategy can change the
advantages of developing a more diverse product range that will be more suitable to
the smaller market segments that they have researched and thorough
understanding. It is necessary to mention a risk of this strategy is to focus and
ability to mimic the changes occurred in the target market. Moreover, a leading
manufacturer of low cost in large markets can easily change their product to
compete directly with the application of strategic business focus. The other
companies pursuing other centralized strategies may attack on a number of
objective customers in the target market, causing a loss of a certain amount of
customers in the small market share of our observed business.
2.5.2. Corporate-level strategy
When a company chooses to diversify beyond a single sector and business
operations in many industries, they must use strategy to diversify the company
level. Level diversification strategy allows companies to use its core competencies
to pursue the opportunities from the external environment.
If competitive strategy shows how the business compete, the organization-
level strategies help to identify which business sectors will participate in the
competition and how to create a competitive advantage from the diversity of the
industry.
2.5.2.1. Integration strategy
a. Vertical reverse integration link