COMPETITIVE ADVANTAGES IN OFFICE FURNITURE INDUSTRY IN VIETNAM: A CASE STUDY OF SON THUY COMPANY

COMPETITIVE ADVANTAGES IN OFFICE FURNITURE INDUSTRY IN VIETNAM:
A CASE STUDY OF SON THUY COMPANY
by
Duong Thi Ngan
A research study submitted in partial fulfillment of the requirements for the degree of Master
in Business Administration.
Examination Committee Dr. Do Ba Khang (Chairman)
Prof. Dr. John C. S. Tang
Dr. Fredric W. Swierczek
Nationality Vietnamese
Previous degree Diploma of Business Administration
Ho Chi Minh University of Technology, Vietnam
Scholarship donor The Government of Switzerland/Swiss
Development Corporation (SAV)
Asian Institute of Technology
School of Management
Bangkok, Thailand
April 2000
i
Acknowledgement
I would like to express my deepest gratitude to my advisor of research study, Dr. Do Ba
Khang, for his guidance and suggestion.
I also would like to express my profound gratitude to Dr. Fredric W. Swierczek and Dr. Prf.
John C. S. Tang for being members of Examination Committee and for providing comments
and advises that help me complete my research.
My deepest thanks to the Government of Switzerland – the sponsor who creates
opportunities for me to pursue MBA study at Swiss AIT Vietnam management program and
the Asian Institute of Technology.
Also, I would like to thank the entire SAV and School of Management faculty and staff for
helping me during my studying MBA program.
Special thanks are due to my close friend – Miss. Pham Thi Hong Van – manager of Material

Supply and Planning department in Son Thuy office furniture company who help me a lots on
supporting me information that I need for my research.
I am grateful to my beloved parents, my younger sisters and my uncle – Mr. Ta Huong,
whose love and support always encourage me to further study.

ii
Abstract
Small and Medium Enterprises play an important role in Vietnamese economic development.
It creates jobs, incomes and value to society. Therefore, the government has supported the
development of this business since the economic renovation. Most of the investors interested
in some sectors: textile & garment, metallic products, wooden & office furniture processing
etc. which utilize manual work and use many employees.
Office furniture industry is rather attractive for investors. This research is carried out in order
to understand more about medium business in office furniture industry. Firstly, the research
will examine the current development of SMEs with the support of government. Secondly,
Son Thuy Company, a private and medium enterprise, in office furniture industry will be
selected to analyze the success and competitive advantages.
Currently, office furniture industry is rather attractive for investor who interested in due to the
low barrier to entry, less government interference, low bargaining power of suppliers. Also,
private and medium enterprise would take opportunities from supporting activities of
government to develop. Moreover, to success in the market, it is important for company to
create and sustain its competitive advantages.
This research will strategically analyze the company and determine its competitive
advantages. Also, the author tries to suggest the activities for company to sustain its current
leading position in the market.

iii
Table of contents
Chapter Title Page
Title page.........................................................................................................i

Acknowledgment............................................................................................ii
Abstract.......................................................................................................... iii
Table of contents...........................................................................................iv
List of figures.................................................................................................v
List of tables..................................................................................................vi
Acknowledgement..........................................................................................................................ii
Small and Medium Enterprises play an important role in Vietnamese economic
development. It creates jobs, incomes and value to society. Therefore, the government has
supported the development of this business since the economic renovation. Most of the
investors interested in some sectors: textile & garment, metallic products, wooden & office
furniture processing etc. which utilize manual work and use many employees....................iii
List of figures vii
PAGE.....................................................................................................................................VII
List of Tables viii
PAGE....................................................................................................................................VIII
Chapter 1 1
Introduction 1
1. RATIONALE.........................................................................................................................1
2. PROBLEM STATEMENT.........................................................................................................1
3. OBJECTIVES OF THE STUDY.................................................................................................2
4. METHODOLOGY...................................................................................................................2
5. SCOPE OF THE RESEARCH....................................................................................................3
6. LIMITATION.........................................................................................................................3
7. ORGANIZATION OF THE RESEARCH......................................................................................3
Chapter 2 5
Literature review............................................................................................................................5
2.1 DEFINITION OF SMES......................................................................................................5
2.2. COMPETITIVE ADVANTAGES.............................................................................................6
2.2.1. Low Cost ......................................................................................................................8
2.2.2. Differentiation .............................................................................................................9

2.3. SOURCE OF COMPETITIVE ADVANTAGES...........................................................................9
2.4. TOOLS FOR ANALYZING COMPETITIVE ADVANTAGE ......................................................10
2.4.1.Value chain .................................................................................................................10
2.4.2. Five forces model and macroeconomic environment..................................................11
2.4.3. Strengths – Weaknesses - Opportunities - Threats analysis........................................13
2.5. COMPETITOR ANALYSIS..................................................................................................13
2.6. POSITION OF COMPANY IN THE MARKET.........................................................................14
iv
Chapter 3 16
Overview of Small and Medium Enterprise in Vietnam..........................................................16
3.1. SMES BUSINESS IN VIETNAM.........................................................................................16
3.2. SMES’ ROLE IN THE ECONOMY AND ADVANTAGES OF SME DEVELOPMENT IN VIETNAM
..............................................................................................................................................16
3.3. WHY SMES ARE SMALL IN NUMBERS............................................................................17
3.4. CHARACTERISTICS OF SMES IN VIETNAM.....................................................................18
3.5. PROBLEMS FACING SMES..............................................................................................18
3.6. SUPPORTING ACTIVITIES FOR SMES DEVELOPMENT IN VIETNAM..................................20
Chapter 4 21
Son Thuy Office Furniture company and SWOT analysis......................................................21
4.1. SON THUY BACKGROUND...............................................................................................21
4.1.1 Introduction.................................................................................................................21
4.1.2 Owners profile ............................................................................................................21
4.1.3 Organization structure.................................................................................................22
4.1.4 Son Thuy’s business progress .....................................................................................22
4.2. SWOT ANALYSIS...........................................................................................................25
4.2.1 Internal scanning.........................................................................................................25
4.2.2. Findings......................................................................................................................29
4.3. EXTERNAL SCANNING....................................................................................................29
4.3.1. Macro environment.....................................................................................................29
4.3.2. Legal environment......................................................................................................31

4.3.3 Demographic environment..........................................................................................32
4.3.4. Social environment.....................................................................................................33
4.4. OFFICE FURNITURE INDUSTRY ANALYSIS.......................................................................34
4.4.1. Barrier to entry the Office Furniture market..............................................................34
4.4.2. Bargaining power of suppliers....................................................................................34
4.4.3. Bargaining power of customers..................................................................................35
4.4.4. Rivalry among competitors.........................................................................................35
4.5. FINDINGS........................................................................................................................35
4.5.1. Opportunities..............................................................................................................35
4.5.2. Threats........................................................................................................................36
Chapter 5 38
Competitor analysis, findings and discussion............................................................................38
5. 1. COMPETITOR ANALYSIS.................................................................................................38
5.1.1. Son Thuy position in office furniture market..............................................................38
5.2. COMPETITOR ANALYSIS..................................................................................................39
5.2.1 Competitors profile......................................................................................................39
5.3. FINDINGS AND DISCUSSION ...........................................................................................42
5.4. BENCHMARKING STRENGTHS AND WEAKNESSES OF SON THUY WITH COMPETITORS.....43
5.5. COMPETITIVE ADVANTAGES AND VULNERABILITY OF COMPETITIVE ADVANTAGE.........47
5.5.1. Competitive advantages..............................................................................................47
5.5.2. Vulnerability of competitive advantage.......................................................................47
5.6. SON THUY ACTIVITIES AGAINST COMPETITORS..............................................................47
Chapter 6 50
Conclusions and recommendations............................................................................................50
v
6.2. RECOMMENDATIONS......................................................................................................51
6.2.1. Create higher entry barrier........................................................................................51
6.2.2. Defending its current market share.............................................................................51
6.2.3. Employee satisfaction.................................................................................................52
References 53

Table A: Comparison strengths and weakness between Son Thuy and Moc Dong A
(wooden office furniture).............................................................................................................54
COMPANY.............................................................................................................................56
Company background..................................................................................................................57
1.When did the company start to run business in office furniture?.......................................57
2.Why did managers interest in the field?.................................................................................57
3.What is the company’s history?...............................................................................................57
Product 57
8.Which products do the company produce?............................................................................57
9.What are the characteristic of company’s products”............................................................57
10.How long does the company invest in changing the design of products...........................57
PRODUCTION.........................................................................................................................57
Customers.............................................................................................................................57
Selling...................................................................................................................................57
Marketing activities..............................................................................................................57
vi
LIST OF FIGURES
Figure Title
Page
Figure 1.1: Research frame work 3
Figure 2.1: Generic Building Blocks of Competitive advantages 7
Figure 2.2: Impact of quality on company’s profit 8
Figure 2.3: The root of competitive advantages 10
Figure 2.4: Generic Value Chain 10
Figure 2.5: Managerial capability checklist 11
Figure 2.6: Five forces model – Element of industry structure 12
Figure 2.7: The role of Macroeconomic Environment 13
Figure 4.1: Company’s organization 22
Figure 5.1: Son Thuy market share for each product line 40
Figure 5.2: New product with low cost 49

vii
List of Tables
Table Title
Page
Table 2.1: Small and Medium Enterprise criteria 5
Table 2.2: Definition of SMEs according to Department of Science, Industry and
Environment
6
Table 2.3: Definition of SMEs as Division of Trading and Industry 6
Table 2.4: Hypothetical Market Strategies 15
Table 3.1: SMEs share of production volume 18
Table 4.1: Compensation policy for wooden office products according to selling
volume (for wooden table 1.2 m x 0.75 m x 0.75 m)
28
Table 4.2: Index of Gross Domestic Product by ownership and by kind of
economic activities
31
Table 4.3: Foreign direct investment 31
Table 4.4: Numbers of Industrial Establishments 32
Table 4.5: Population in working age 34
Table 5.1: Market share of office furniture products in Hanoi market 39
Table 5.2: Benchmarking Son Thuy with its competitors 47
Table 5.3: Company product innovation against the imitation of competitors 49
viii
Chapter 1
Introduction
1. Rationale
Small and Medium Enterprises (SMEs) are the current attractive issue to be discussed in the
Vietnamese economy. There are many organizations in Vietnam that support the
development of the SMEs. Currently, SMEs play significant role in the country’s

industrialization and modernization process due to its big contribution to economic
development and by solving the unemployment situation in Vietnam.
The process of economic reform in Vietnam during the last few year had direct impact on the
development SMEs and has promoted the comprehensive development and diversification of
trade, organization form and business areas. This development however, is still limited in
many aspects, especially market constraints and the SMEs' internal physical limitations such
as capital shortage, old and slowly renewed equipment, outdated technology, poor
diversification of product sample, and lack of good skills and management experience. SMEs
have not reached their full potential. In addition, the lack of specific policies and strategies for
SMEs also restricts their development.
However, SMEs in Vietnam could take advantage of the labor force, and raw material
resources. Vietnam has been implementing a large number of measures to further encourage
and support the development of SMEs. Those measures include creating a favorable legal
environment to ensure all the business activities are effective; providing favorites and
promotion policies for SMEs in sectors such as textile and clothing, shoe and leather,
consumer goods and export production, parts and spare parts manufacturing, food and
foodstuff processing, electrical and electronics and information technology; receiving and
implementing a number of technical assistance projects of international organizations and
countries to develop SMEs; establishing centers for consulting and supporting SMEs in
sectors, cities and provinces; and looking for and expanding internal and external markets.
In Vietnam, Son Thuy Furniture Ltd. is taken for illustration in this research study. Generally,
Son Thuy is a private company with about 500 employees and specializes in manufacturing
and trading office furniture products (fabric office chairs, steel cabinets, steel pipe chairs and
safe boxes) in Hanoi market with a large distribution network throughout the whole country.
The results of this paper would benefit the management board of Son Thuy Ltd. to improve its
business, sustain its development and understand its competitors.
2. Problem statement
SMEs in Vietnam have been less developed in comparison with those in other countries in
South East Asian. Awareness of the importance of improving the situation for SMEs has lead
the Vietnamese government to gradually support the development of SMEs in the market

economy in order to improve development. To understand the motivation for development, it
is necessary to understand the real situation of the companies and the trends of development
of those companies in the industry.
1
This paper will examine the current situation related to SMEs in Vietnam and the actual
situation of Son Thuy and other competitors (Bach Khoa Ltd., Moc Dong A Ltd., Xuan Hoa
Company) in order to determine the movement for developing the SMEs sector. As result of
the discussion, it is very interesting to understand the current situation and help managers
build the opportunities for developing their company.
3. Objectives of the study
In general, the research is undertaken in order to determine the elements that support the
development of the small and medium company and try to dig deeply in the real business of
companies in the office furniture market.
The objective of the study is broken down into secondary objectives as follows:
1. Examining the current situation of SMEs’ operation in Vietnam,
2. Examining the external factors that affect on SMEs development,
3. Analyzing Son Thuy’s business to find the strengths and weaknesses,
4. Benchmarking Son Thuy strengths and weaknesses against competitors to determine the
competitive advantages.
5. Recommending for Son Thuy to sustain its competitive advantages.
4. Methodology
To carry out the research, primary and secondary data are collected. Secondary data is used
to examine the whole picture of SMEs in Vietnam, to find the opportunities and threats that
affect directly on the development of the company. Secondary data is collected from report
from supporting organization and projects for developing SMEs in Vietnam and other related
book on SMEs.
To understand the external environment that affects positively or threats to the development
of company, some information is needed. Firstly, input and output market information
(characteristic of input and output market). Secondly, information describes customers profile.
Thirdly, it is office furniture market information such as customers, demand, price. Information

concentrates on company’s competitors’ characteristics, government policy for manufacturing
SMEs and company’s relationship with their material suppliers etc.
Primary data concentrates mostly on the company information that will help analyze the real
situation of Son Thuy and writing strengths and weaknesses of the company. Also, primary
data will include competitors’ information that helps analyze their strengths and weaknesses.
Drawing the comparison between strengths and weaknesses among Son Thuy and its
competitors is necessary to analyze the competitive advantages.
Primary data is collected through in - depth interview with managers and other officials in Son
Thuy Company Interviewing the information of company’s history, company’s performance,
company’s organization and function of departments (operating, managers, marketing,
human resource and so on), manufacturing strategy and capacity, company’s current
business strategy and how it contribute to company’s success, management and employees’
characteristic, company’s ability to access information about foreign markets and domestic
markets, and distribution network.
2
To examine the market, field - work activities also were done with the purpose of finding the
substitution products, demand and supply trends of using safe boxes, office chair (to analyze
the opportunities or threats). Field - work had been carried out through visiting the office
furniture shops around Hanoi. Fifteen wholesalers’ shops in Hanoi were interviewed to get
information about Son Thuy and its competitors on selling, products service and
compensation policy for their own shops. Also, visiting four company’s factories in GiaLam
(18 km far from Hanoi) in order to learn the manufacturing organization and operation
management.
Figure 1.1 Research framework
I.
5. Scope of the research
Son Thuy has large distribution network in Vietnamese market. However, in this paper, to
analyzing the competitive advantages of SMEs, especially in case of Son Thuy office
Furniture Company, Hanoi office furniture market is concentrated to narrow down the scope
of analysis. Also, all competitors selected to analyze here are in Hanoi market only.

6. Limitation
Firstly, information on Son Thuy’s competitors might be bias due to interviewing with
wholesalers and sometime from Son Thuy’s staff. Secondly, data on office furniture industry
is lacked.
7. Organization of the research
The research will concentrate on two main parts based on two main sources of data
collection. The first part of the research is based on secondary data for analysis. In chapter 1,
Son Thuy analysis:
Business functions
Competitive
advantages
Competitors
analysis
Suppliers
analysis
Buyers
analysis
Entry
barrier
Substitution
Law and
political
Economic
Environment
Demographic
Technology
Social
environment
3
the rationale and objectives of the research will be presented. Chapter 2 will summarize the

theories concerning competitive advantages of the company and tools using for analyzing
relevant information. Chapter three reviews the current situation of SMEs in Vietnam.
The second part mainly concentrates on the company and environmental affects directly
relevant to the operation of the company. This part includes chapter four describes
background of Son Thuy company, using SWOT analysis tools to analyze internal and
external issues related to the company. Chapter five concentrates on company’s competitor
analysis, findings and discussion. Last chapter presents the findings and provides the
recommendation for company.
4
Chapter 2
Literature review
2.1 Definition of SMEs
To understand which company is defined as an SME, an understanding of the definition of a
SME is important.
Table 2.1: SME’s criteria
Countries SMALL ENTERPRISE MEDIUM ENTERPRISE
Employees
(Person)
Capital Employees
(Person)
Capital
Thailand < 50 < 20 mill baht 50 – 200 20 – 100 mill
baht
Philippine 10 – 99 1.5 – 15
thousand
peso
100 – 199 15 – 60
thousand
peso
Indonesia < 0.6 bill Rupiahs

Singapore <100 (employees) with around <499 ml S$
Source: on – line at />The definition of an SME is rather different from country to country. However, all the countries
define SME according to capital and employee numbers. Some countries define according to
turnover. Table 2.1 lists the definition of four countries in the region with two categories: labor
and capital. For example, a Thai’ SME should have less than 50 people and capital less than
20 million baht, a medium enterprise would have less than 200 employees with less than 100
million baht. However, Singapore has just considered both small and medium with employees
less than 100 and capital of lass than 499 million Singapore USD.
The definition of SMEs varies according to the nations. In Vietnam, different Ministries or
Offices have different definition of SMEs. Firstly, the Institute of Science and Labour defines a
small enterprise as one with less than 50 employees. Other definitions are based on the
criteria: number of employees and registered capital; they also regard to the industries in
which the establishments operate (Table 2.2).
Table 2.2. Definition of SMEs according to Department of Science, Industry and Environment
Industry Employees (People) Capital
Construction and Industrial
manufacturing
<200 < 5 billion VND
Light industries < 100 < 2 billion
Trading, tourism < 300 < 1 billion
Source: Report from Department of Science, Industry and Environment
The Department of Science, Industry and Environment concentrates mostly on manufacturing
company and manufacturing companies should have around 200 employees with capital less
5
than 5 billion VND. However, for light or trading and tourism industry, it required more
employees and lower capital.
Table 2.3. Definition of SMEs according to Division of Trading and Industry
Industry Employees Capital (VND)
Manufacturing,
Construction

< 500 < 10 billion
Trading, services < 200 < 5 billion
Source: Division of Trading and Industry
Definition of SMEs according to the Division of Trading and Industry defines an SME as one
with no more than 500 employees, less than VND10 billion (Table 2.3). Moreover, definition
of SMEs according to Small and Medium Enterprise Development Fund (SMEDF-VN-EU
program) defined that those enterprises holding from 10-500 employees and legal capital
from US$ 50,000 to US$ 300,000 are supported by the program.
Therefore, number of employees and capitals for one SME depend on what type of company
(manufacturing or service in heavy or light industry)
In short, there are many different definitions of SMEs in Vietnam. Recently, the government
has been recognized the issue and has granted a Curricula number 681/CP-KTN, dated the
20 of June 1998, which stimulates that “ An SME is the enterprise with no more than 200
annually full-time employees and have registered capital less than VND5 billion”. The
Curricula also states that in execution, government agencies can base on the specific local
economic and social situation to apply both criteria of number of employees or/and registered
capital to classify SMEs.
Base on the definition of Division of Trading and Industry, Son Thuy manufacturing company
with around 500 full time employees is defined as medium - size company.
2.2. Competitive advantages
Competitive advantage is at the heart of a firm’s performance in a competitive market. After
several decades of vigorous expansion and prosperity, however, many firms lost sight of
competitive advantage in their scramble for growth and pursuit of diversification.
Firms always try to find methods to build competitive strategy in order to establish a profitable
and sustainable position against competitors. Selecting competitive strategy depends on two
factors: attractiveness of the industry and determinants of relative competitive position within
an industry. Both factors are shaped by a firm and this is what makes the choice of a
competitive strategy both challenging and exciting.
Competitive advantage can not be understood by looking at a firm as a whole. It results from
many discrete activities a firm performs in designing, producing, marketing, and supporting its

product. Each of these activities can contribute to a firm’s relative cost position and creates
basic for differentiation. Therefore, a systematic way of examining all activities a firm performs
and how they interact is necessary to analyze the sources of competitive advantage.
6
According to Hills and Jones [4], competitive advantage is developed based on four main
factors: efficiency, quality, innovation and customer responsiveness. These factors are
interrelated to each other. For example, superior quality could lead to superior efficiency,
innovation enhances efficiency, quality and customer responsiveness (Figure 2.1)
Figure 2.1: Generic Building Blocks of competitive advantage
Source: Hills and Jones, 1998, Strategic Management: an integrated approach
Efficiency in the firm is measured by the outputs/inputs. The more efficient a company, the
fewer the inputs required to produce a given output.
The quality of products is good and service that are reliable in the sense they do the job that
they are designed for and do it well. The impact of high quality according to Porter to
competitive advantage of the company is two folds. Firstly, it provides increasing value in the
eye of consumers. In turn, this enhanced perception of value allows the company to charge
higher prices for its products that directly affect to business results. Secondly, the impact of
high quality on competitive advantage comes from greater efficiency and the lower unit cost it
brings (Figure 2.2).
Competitive
advantage:
Low cost
Differentiation
Superior
quality
Superior
customer
responsiveness
Superior
innovation

Superior
efficiency
7
Figure 2.2: Impact of quality on company’s profit
Source: Hills and Jones, 1998, Strategic Management: an integrated approach
Innovation is defined as the single most important building block of competitive advantage. In
the long run, competition could be viewed as a process driven by innovation. Innovation may
give a company’s product a unique characteristic. As a result, uniqueness can allow a
company either to differentiate itself from its rivals and charge premium price for its product or
reduce unit costs far below their competitors.
Customer responsiveness is achieved if a company is able to do a better job than its
competitors of identifying and satisfying the needs of its customers. Consumers would then
place more value on its products, creating differentiation based on competitive advantage.
Improving the quality of a company’s product offering is consistent with achieving customer
responsiveness as is developing new products with features that existing products lack.
2.2.1. Low Cost
Cost leadership is one of two types of competitive advantages that a firm may process. Cost
is also of vital importance to differentiation strategy because a differentiator must maintain
cost proximity to competitors. Unless the resulting price premium exceeds the cost of
differentiating a differentiator will fail to achieve superior performance. Managers recognize
the importance of cost and many strategic plans establish ‘cost leadership’ or cost ‘reduction’
as goals. However, the behavior of cost is rarely well understood. While disagreement often
exists among managers about a firm’s relative cost position and reasons underlying it. Cost
studies tend to concentrate on manufacturing cost and overlook the impact of the other
activities such as marketing, service, and infrastructure on relative cost position. Moreover,
the cost of individual activities is analyzed sequentially without recognize the linkages among
activities that can affect on cost. Finally, firm has great difficulty assessing the cost position of
competitors an essential step in assessing their own relative position.
Improving the theory of firm’s competitive advantage, Porter [8] discuss the importance and
the imprecise of cost management. To analyze the cost, there needs to be a consensus

about why cost information is important and what type of cost information is useful for public
policy decision maker and how to package the results in way that is credible for all interested
parties. However, relative cost analysis is critical to strategy formulation for firms, industry
associations and nations.
Increased
quality
Higher priceIncreased
reliability
Increased
productivity
Lower cost
Higher profit
8
2.2.2. Differentiation
Following Porter [8] theory, a firm differentiates itself from its competitors if it can be unique at
something that is valuable to buyers. Differentiation is one of two types of competitive
advantage a firm may possess. Differentiation allows firm to command a premium price, to
sell more of its product at given price or to gain equivalent benefits. Hereafter is the checklist
of differentiating factor resulted from broad competitive scope:
• Ability to serve buyer needs anywhere
• Simplified maintenance for the buyer if spare parts and design philosophy are
common for a wide line.
• Single point at which buyer could purchase.
• Single point for customer service
• Superior compatibility among products
• Product features and performance offered
• Services provided
• Intensity of an activity adopted
• Contents of an activity
• Technology employed in performing activity

• Quality of input procured for activities
• Procedure governing the actions of personnel in an activity
• Skill and experience level of personnel employed in an activity and training skill
provided
• Information employed to control an activity
2.3. Source of competitive advantages
Distinctive competency is a unique strength that allows a company to achieve superior
efficiency, quality, innovation, or customer responsiveness, thereby to create superior values
and to attain a competitive advantage. A firm with a distinctive competency can differentiate
its product or achieve substantially lower cost than its competitors. These distinctive
competencies of an organization come from two complementary sources: resources and
capabilities (Figure 2.3).
Figure 2.3: The root of competitive advantage
Resources
Distinctive
competencies
Capabilities
Superior
- Efficiency
- Quality
- Innovation
- Customer
responsiveness
Differentiation
Low cost
Value creation
H
i
g
h

e
r

p
r
o
f
i
t
9
Source: Hills and Jones, 1998, Strategic management: an integrated approach
Porter [8] makes clear that a company’s resources include tangible (land, buildings, plant and
equipment) and intangible (brand, reputations, marketing know – how). Company’s capability
refers to the skills at coordinating resources and putting them to productive use (Figure 2.3).
2.4. Tools for analyzing competitive advantage
2.4.1.Value chain
To analyze competitive advantage, Michael Porter had introduced several tools to apply to an
actual company including value chain tool (Figure 2.4).
Figure 2.4: Generic Value Chain
FIRM INFRACSTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
PROCUREMENT
Inbound
logistic
Operation Outbound
logistic
Marketing
and sale
Service

Source: Michael Porter, 1985, Competitive advantage: create and sustain superior
performance
Value chain displays total value and consists of value activities and a margin. Value activities
are the physical and technologically distinct activities a firm performs. Value activities can be
divided into two big categories: primary activities and support activities. Primary activities are
the activities involved in physical creation of the product and its sale and transfer to the buyer
as well as after sale assistance. In detail, primary activities consist of inbound logistics,
operations, outbound logistics, marketing and sale, and service. Supporting activities support
primary activity and each other by providing purchased inputs, technology, human resource
and various firms’ functions (Figure 2.4).
Greenley’s [3] theory is rather similar to Porter and suggested that, to apply value chain tools,
a company has to audit its internal environment. Resource capabilities that are employed
range from capital through plant and machinery, people and distribution channels to various
types of intangible assets. Resources are divided into financial structure, physical resources,
human resources, administrative systems and intangible resources. Operational capabilities
include marketing, research and development, production, Finance, and personnel.
Managerial capability is illustrated in Figure 2.5.
10
Figure 2.5: Managerial capability checklist
Managerial attributes
• Mentality
• Power
• Competence
• Capacity
Climatic attributes
• Culture
• Power
Procedural attributes:
• Information systems
• Problem solving procedures

• Reward and incentive schemes
Source: Adaptation of Ansoff’s management capability profile (H. I. Ansoff, Implanting
Strategic management)
2.4.2. Five forces model and macroeconomic environment
A major role of external audits is to provide an understanding that, the organization objectives
may be achieved as well as allowing for company to recognize opportunities for setting
additional objectives, and threats that a company copes with in their business. However,
knowledge about trends in the external environment is required for all the subsequent stages
of strategic management.
The Five forces model is a tool for analyzing industry. According to Hill and Jones [4],
industry is defined as group of companies offering products or services that are close
substitutes for each other. Two of the authors emphasized the important task of managers is
to analyze the competitive force in an industry environment. They adopt Porter’s five forces
model as a model that includes elements, which shape competition among the industry. The
model includes the risk of new entry by potential competitors, degree of rivalry among
established companies within an industry, bargaining power of buyers, bargaining power of
suppliers, and the threat of substitute products (Figure 2.6).
11
Figure 2.6: Five forces mode – Element of Industry structure
Source: Michael E. Porter, 1985, Competitive advantage: creating and sustain superior
performance
Porter [8] also argued that stronger each of this factor is, the more limited is the ability of
established companies to raise the price and earn greater benefits. The strength of this model
determines the ability of firms in an industry to earn, and determine industry profitability.
Industries in practice are surrounded by macroeconomic environment – the broader
economic, technological, social, demographic and political environment as shown in Figure
2.7.
Rivalry among
established firm
Risk of

entry by
potential
competitor
Bargaining
power of
buyers
Threat of
substitute
products
Bargaining
power of
suppliers
Entry barrier
Economies of scale
Proprietary product differences
Brand identity
Switching cost
Capital requirement
Assess to distribution
Assess to necessary input
Government policy
Rivalry determinant
Industry growth
Fixed cost
Intermittent overcapacity
Product differentiation
Brand identity
Switching cost
Information complexity
Diversity of competitor

Exist barrier
Determinant power of buyer
Buyer volume
Buyer switching cost
Buyer information
Ability to backward integrate
Brand identity
Buyer profit
…………
Determinant of supplier power
Determinant of input
Switching cost of suppliers and
firms in the industry
Supplier concentration
Important of volume to supplier
Cost relative to total purchase in
the industry
Threat of forward integration
relative to threat of backward
integration by firms
Determinant of substitution
threats:
Relative price performance of
substitutes
Switching cost
Buyer propensity to substitute
12
Figure 2.7. The role of Macroeconomic environment

Source: Hill and Jones, 1998, Strategic Management, pp. 84.
From the viewpoint of a company’s external environment (macroeconomics environment), all
the authors Porter [8, 9], Hill and Jones [4], and David [2] refer to similar elements of each
category. Firstly, the macroeconomic environment analysis includes interest rate, currency
exchange rate, and economic growth rate and inflation rate which are related directly to the
economy. Secondly, the technological environment consists of technological trends, which
may directly affect on the height of barriers to entry and may reshape the structure of an
industry. Thirdly, the social environment includes social movement, consumers’ interest or
trends of the fashion etc. Fourthly, the demographic environment may affect the increase or
reduction of consuming trends. Lastly, components of the political and legal environment refer
to government regulations, circulation, decree, or instructions and how certainty degree is of
each kind that directly affect on the company’s business.
2.4.3. Strengths – Weaknesses - Opportunities - Threats analysis
This tool is applied in order to analyze the internal and external environment that affects on
the company business. For internal environment, all business function (marketing, human
resource, financial, sale, board of managers, production etc) are analyzed in order to find the
company’s strong points and weaknesses point. Base on these strengths and weaknesses,
company has clear picture to build strategy for improving current business.
For external environment, company has found external factors that support or hinder
company’s business. External environment analysis should also includes industry analysis,
macroeconomic environment (legal, politic, demographic, economic and technology
environment etc.)
2.5. Competitor analysis
Identifying and analyzing competitors in the industry is very important for company to
understand its position in the market as well as plan the strategy to compete effectively. To
Potential
competitors
Potential
competitors

Potential
competitors
Potential
competitors
Potential
competitors
Political and
legal
environment
Technological
environment
Demographic
Environment
Macroeconomic
environment
Social economic
environment
13
analyze competitors, it is necessary to acquire knowledge about its competitors which are
quite similar to its own internal knowledge as following, as Greenley [3] at a company
suggested:
• Size, growth and profitability
• Objectives, assumption
• Current and past performance
• Organization and culture
• Cost - structure and exist barriers.
• Strengths and weaknesses
Greeley also clearly explained the results getting from those sources. For example, knowing
objective of the company serve two purpose as identifying and aspiration that are to be
pursued following recent growth and profitability trends, identifying strategy follows from

objectives that competitors design.
Greenley [3] suggested a number of important analytical steps:
• Identify ability of firms to be able to move into another strategy group or new firms to enter
any group, which can be avoided by mobility barriers such as economies of scale,
product differentiation, technology and capital.
• Identification of firms that are marginal participants of specific group
• Use the map as a basic for charting changes to firms’ strategies as an input for
forecasting potential changes to competitors’ strategies.
However, Porter [8] concluded that to analyze competitors, it is not only necessary to collect
data but also analyze different options that exist with relation to competitors: taking offensive,
deterring and defending against competitors or allying with one competitor against the other.
Also, it is necessary for benchmarking with competitors on strategy and capabilities.
Additionally, he suggested that when analyzing capabilities, it is better to develop an
operation profile of competitor (plant, equipment, and saleforce configuration) then, the
purpose of the activity serves the process of comparison among companies based on their
strengths or weaknesses.
2.6. Position of company in the market
Market position of the company has been divided into four positions: market leader, market
challenger, market follower and market nicher as given in the Table 2.1.
Table 2.4. Hypothetical Market Strategies
Market leader Market challenger Market follower Market Nicher
40 % 30 % 20 % 10 %
Source: Kotler, P – S,H Ang …, 1996, Marketing management.
14
According to the Kotler, Ang [7], the market leader has the largest market share in the
relevant product market. Market leader may lead to other firms in price change, new product
introduction, distribution coverage and promotion intensity. The leader is the orientation point
for competitors. Unless a dominant firm enjoys a legal monopoly, its life is not all together
easy. It must maintain constant vigilance. Other firms keep challenging its strength or trying to
take advantage of its weaknesses. The market leader could easily miss a turn in the road and

plunge into second or third position. A product innovation may come along and hurt the
leader. The dominant firm might look old – fashioned against newer and peppier rivals.
Dominants firm’s cost might rise excessively and hurt its profit. Kotler and other authors in
their books give the guidelines for dominant firms to sustain the number one position in the
market. Firstly, a firm must find the ways to expand total market demand. Secondly, firms
must protect its current market share through good defensive and offensive actions. Thirdly, a
firm could try to increase its market share further even if market size remain constant.
15
Chapter 3
Overview of Small and Medium Enterprise in Vietnam
This chapter will examine the current situation of Small Medium Enterprises in Vietnam.
3.1. SMEs business in Vietnam
At present in Vietnam, SMEs exist and develop in all economic fields and areas, under
various forms of enterprise such as state-owned enterprise, private enterprise, corporate
enterprise, joint stock company, limited company, foreign-owned company, joint venture
company. These forms differ from that in the past when under a prevailing command
economy, SMEs mainly existed in two forms: state owned enterprise and co-operative. The
Vietnamese government encourages internal and external companies, as well as persons, to
invest capital and technology in building, developing, co-operating and setting up joint
ventures with SMEs in any economic sector on the basis of observance of its laws, equality
and mutual benefits.
3.2. SMEs’ role in the economy and advantages of SME development in Vietnam
SMEs have contributed significantly to the economic development of the country and have
resolved many social problems during the last 10 years of economic renovation. In industry,
trade, service and construction sectors, SMEs have employed approximately 4.5 million
employees (representing 13 percent of labor force in Vietnam). Total industrial output value
by SMEs account for 28 percent of the total national industrial output value. SMEs have
produced large portions of necessary consumer goods, made some 35 percent of total export
volume, provided input and output services and implemented sub-contracts for large and
domestic enterprises (1999. On – line. Available at: />Advantages of SMEs of Vietnam SMEs can be found mainly in the labor sectors or sectors

with high labor contents per product unit. Low capital shortage and labor redundancy in
Vietnam have led to a comparison of the advantages of the development and improvement of
competitiveness between domestically produced goods and imported goods. SMEs are highly
active, and are able to react quickly and appropriately to market fluctuations. This enables
them to quickly change in terms of kind, sample and form of products without large
requirements of investment capital.
Although the positive factors above indicate the potential for the development of SMEs in the
future, there are a number of constraints that need to be overcome. Firstly, capital scale is
small, limited and not allocated equally among sectors, areas and localities. Secondly, the
ability to access information on markets, techniques and technology is lacking and the
shortage of information on technical standards and the demand of external markets are
especially poor. Thirdly, most of the equipment is old and outdated. Fourthly, management
and the executive levels of the companies are still weak. Many of the directors and
entrepreneurs are still poor in the knowledge of market economies, laws and policies of the
State and many lack enterprise management skills. Fifthly, the skill levels of the workers are
also not high. In order to meet the requirements of development, training and re-training is
16
necessary. The ability to enter and access international markets is restricted. As the SMEs
effectively overcome these constraints and take full advantage of their strengths and exploit
their full potential, they will create a higher growth rate. They will hence further contribute to
the economy, focusing on the task at hand in the industrialization and modernization of the
country.
3.3. Why SMEs are small in numbers
Although SMEs are developed and contribute large to the development of the country, in
Vietnam, SMEs still need many concerns from the government. And investors are worried to
invest their money in this business. The situation is the result of some problems facing in the
business environment [14].
One of the reasons is that, Vietnamese environment is high - risk environment. Investors in
Vietnam facing numerous risks at starting point. Firstly, they have to cope with the uncertainty
in the market due to the fluctuation of the demand, consumer power and fluctuation of the

price. Secondly, political uncertainty has threatened managers. Managers have very low
expectations of their government, and all keep watchful eye on the business process.
Confidence in the government commitment to private enterprise is regularly undermined by
contradictory government statement and policy. Government offers this business little
protection from corrupt officials and critical propaganda. Thirdly, managers took for granted
the great numbers of regulations that pertain to nearly all aspects of their business as well as
the fact that many are hard to find, vaguely formulated and variously interpreted, frequently
changing and poorly communicated. Fourthly, limited access to useful information is also the
problem of SMEs managers. Risks for managers were much heightened by shortages of key
information about products, markets, technologies, trends etc. There are few sources of up to
date, high quality information within Vietnam (Survey on 95 Large Manufacturing Enterprise,
1999).
Second reason is the resource – poor business environment. Managers in the field had
access few of the business resources normally used in great quantities and considered
essential by companies in market economy. One of the poor business environments is the
ambivalence among public cause difficulty in creating consumers for company. Public is
negatively thinking of private sector. Also, there still under – develop of support institutions as
courts, university, public information agencies and lack of stock markets, currency markets
etc that support the development of SMEs in Vietnam. Managers of SMEs in Vietnam also
have less habit of using those supporting institutions. Moreover, under – developed business
services cause difficulty. Business service in Vietnam includes mainly seven sectors:
accounting, training, design and packaging services, market research, computer service, and
distribution logistics. However, business service in Vietnam is in the negative position. Firstly,
there is a striking disconnect between government’s perception of the role of business
services in the economy and current economic realities. Secondly, in the eyes of consumers,
business services in Vietnam are more expensive than the other economic sectors. Thirdly,
average quality of the business services is only adequate to poor, which would result in
business economy at a competitive disadvantage. Fourthly, business sectors are lack of
specialized capabilities and a strong customer orientation. Lastly, public sectors dominate the
provision of business services normally provided in the private sector. Furthermore, business

sectors have little experience from which to draw. There is little experience nationally with
light manufacturing. Limited sources of appropriate skills training are also the problems that
hinder the development of SMEs. Training in Vietnam even though from universities or other
17