DEVELOPING A COMPETITIVE STRATEGY: A CASE STUDY OF THE THANGLONG GARMENT COMPANY IN HANOI, VIETNAM

DEVELOPING A COMPETITIVE STRATEGY: A CASE STUDY OF THE
THANGLONG GARMENT COMPANY IN HANOI, VIETNAM
by
Dang Anh Tuan
A research study submitted in partial fulfillment of the requirement for the degree of Master of
Business Administration
Examination Committee: Prof. N. Ramachandran (Chairman)
Dr. Truong Quang
Dr. Arne Deussen
Nationality Vietnamese
Previous Degree Bachelor in Economics
National Economics University
Hanoi, Vietnam
Scholarship Donor Government of Switzerland
Asian Institute of Technology
School of Management
Bangkok, Thailand
April, 2001
ACKNOWLEDGMENT
I wish to express my deep gratitude to my advisor and Committee Chairman, Professor N.
Ramachandran for his useful guidance, suggestions and encouragement through out the research
work.
I also would like to express my sincere appreciation to Dr. Truong Quang, committee member,
for his sharing and encouragement for the research work.
I also grateful to Dr. Arne Deussen not only for serving as committee member but also for his
enthusiasm sharing, valuable suggestions for my research.
Thanks are also due to the Government of Switzerland, the Government of Vietnam, and the
Asian Institute of Technology for providing the scholarship and opportunity for me to pursuit
my master degree at AIT.
I also would like to extend genuine thanks to Mr. Phuong, Ms. Ha, Mrs. Binh and other staffs at
Thanglong Garment Company for their help and suggestion during the implementation of my

research study. Thanks are also due to my friend, Dung, who had helped me during the
customer survey.
And the most wholehearted gratitude I wish to express to my parents and my brother for their
endless love, cares, encouragement and supporting to me during the course of my study.
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ABSTRACT
This research study aims at developing a competitive strategy for jacket category at the
Thanglong Garment Company (Thaloga) in Vietnamese market. Like other companies in the
textile and garment industry, Thaloga operation depends on orders of customers mostly from
foreign customers. The majority of company’s production is for export. The company had
focused on domestic market in the last three years.
The research examines external environment in which Thaloga operates. Opportunities
identified are government preferred treatment in tax and soft loans, growing economy with
increasing purchasing power, large unexploited domestic market, good customer perception
about domestic ready made garment, and favorable weather condition for jacket category.
Threats include intensive competition from Chinese goods and increasing competition from
existing companies.
For company internal environment, it has strong capability in design and production with large
production capacity. Weakness includes lack of customer understanding and customer oriented
product development. The jacket product category seems to be stuck in the middle with no clear
advantage in terms of price and product variety.
Three competitive strategies are developed and evaluated, in which cost leadership strategy is
recommended to the company to compete in the future.
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TABLE OF CONTENT

Title Page
Title Page ...................................................................................................................................i
Acknowledgement.....................................................................................................................ii
Abstract.....................................................................................................................................iii

Table of Content.......................................................................................................................iv
List of Figure.............................................................................................................................vi
List of Table.............................................................................................................................vii
ACKNOWLEDGMENT.............................................................................................................................................II
TABLE OF CONTENT.............................................................................................................................................IV
1. CHAPTER 1
INTRODUCTION............................................................................................................................................IV
2. CHAPTER 2
LITERATURE REVIEW.......................................................................................................................................VIII
3. CHAPTER 3
EXTERNAL ENVIRONMENT ANALYSIS........................................................................................................XVI
4. CHAPTER 4
INTERNAL ANALYSIS......................................................................................................................................XXIX
5. CHAPTER 5
DEVELOPING COMPETITIVE STRATEGIES FOR THALOGA..........................................................XXXIX
6. CHAPTER 6
CONCLUSION AND RECOMMENDATION..................................................................................................XLIV
BIBLIOGRAPHY..........................................................................................................................................................I
APPENDICES.............................................................................................................................................................III
GUIDING QUESTIONS FOR DIRECT INTERVIEW........................................................................................IV
QUESTIONNAIRE....................................................................................................................................................VI
1. CHAPTER 1
INTRODUCTION
1.1. Rationale of the research study
In profit leaded organizations, net profit margin and return on equity are important measures of
their performance. To achieve high rate of profit, high sales volume is critical. But sales volume
is very much depend on the attractiveness of the products offered in terms of price, quality, and
other dimension that satisfy customer needs. The heart of this attractiveness lies on the
competitive advantage that a product has over other competing alternatives.
The research study aims at exploring current business practice at the Thanglong Garment

Company (Thaloga) and developing competitive strategy for its jacket, a major product
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category of the company, in Vietnamese market. The company’s management can refer to the
analysis and recommendation for formulating strategy and operation practices.
1.2. Problem statement
In the past, under central planned economy, the company under consideration operated in
accordance with the plan from central government. Their work is to manufacture product
without worrying about source of raw material and sales because everything is planned. In the
new business environment when the government had deregulated the economy, company must
struggle for survival itself.
Thaloga currently operates to process order forms from other customers. So the company
business is depend significantly to the outside order. To survive in the long run, company must
develop its own brand name and product capability to compete in the domestic market. The
problem is to manufacture the products that fit domestic market, which is dominated with
imported goods, mostly from China at low price. Having observed slow sales in domestic
market of jackets since the beginning of 2000-2001 winter season from the end of November
2000, which is due to many reasons in which weather condition might be an important one, it is
important to examine the competitive advantage of this product category.
1.3. Research methodology
1.3.1. Specific objective
- Analysis overall, current market and industry condition for garment products, specifically for
jackets in Vietnamese market.
- Examine company overall business strategy
- Analysis company practices in manufacturing and marketing jackets in Vietnamese market
- Develop alternative competitive strategies and recommendations suitable strategy for jacket
in this market.
1.3.2. Conceptual frame work of the study
The analysis of current performance of industry and company is based on the process of
strategic management, which is used to implement SWOT analysis for the company. First
company missions and goals are examined. Then external and internal environments are

analyzed to identify strategic situation that company is facing. Strategies are developed for the
company and evaluated to choose the most suitable one for recommendation. Figure 1.1
illustrates the framework of the research study.
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External Analysis
Mission and Goals
SWOT analysis
Strategic Choice
Internal Analysis
Alternative strategies
Strategy evaluation
Recommended strategy
Recommendation
Figure 1.1 Framework of the research study
1.4. Scope and limitation of the research
The research only focuses on one product category- jackets in Vietnamese market of Thaloga,
since the company under consideration manufacturing variety of products and competitive
strategy for each product type will not be the same. The reason to choose this product is that it
contributes an important proportion in company total revenue and that producing jackets for
domestic market is still new in company operation. In the past, most of jackets manufactured
are exported, company only focused on the domestic in the last three years.
However, the framework and analysis of external environment can be applied in developing
competitive strategy for other product categories or for company as a whole with certain
modification in area of analysis.
1.5. Limitation
The unavailability of information about sales volume of each product categories, timing of sales
of each product, and expenditure on activities such as advertising, promotion, administration
constrains deep analysis on the profitability of jacket category and on marketing mix activities.
Unavailability of current detail accounting information limits the understanding about cost
drivers (cost-causing items) thus limits the specific of recommendation on cost cutting

measures.
Limited information on industry and competitors (competitors’ past strategy and behavior)
places certain barrier to detail analysis about the competitive situation that is happening.
In addition, the convenience sampling method in customer survey might introduce bias due to it
may not incorporate a representative sample of the whole jacket clientele. However with large
enough for statistical significant of cases in the sample, it still somehow represents customer’s
requirement and perception about jacket.
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1.6. Data collection method
Secondary data on textile and garment industry, Thaloga’s competitors, their capability, their
operation is gathered from Business and Industry journals, Internet web sites, Vietnam
statistical year book, and other sources. This information gives board view about the market for
the garment product and competition level within the industry.
Primary data is collected mostly through in-depth interview with company’s managers,
designers, and retailers (guiding questions for direct interview is collected in Appendix 1).
Information about company’s business and operation is gathered from company’s annual
reports, company’s brochure, other relevant documents and field visit and used to analysis
company current performance. Field investigation is also to be conducted to gather information
about competitive price between companies and marketing information. A customer survey is
conducted to identify customer requirements on jackets and their perception about Thaloga’s
jackets compared with other competitors.
The data collected is consolidated in the company a whole scenario, which will be to suggest
alternative and action plan for the company.
1.7. Presentation of the research study
Chapter 1. Introduction
Chapter 2. Literature review
Literature on competitive advantage and competitive strategy as well as the strategic
management process are reviewed as the basis for analysis in following chapters.
Chapter 3. External analysis
External factors including legal, economic, weather condition and technological factors are

analyzed. Customer analysis and industry analysis including competitor analysis is discussed
extensively in this section as well.
Chapter 4. Internal analysis
Company organization, business performance, operation, manufacturing process, and other
related activities are analyzed to identify strength and weakness.
Chapter 5. Developing competitive strategies for Thaloga
Three competitive strategies are developed including cost leadership strategy, differentiation
strategy, and focus strategy and evaluated. Cost leadership strategy is recommended to the
company to compete in the future.
Chapter 6. Conclusion and recommendation
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2. CHAPTER 2
LITERATURE REVIEW
2.1. Competitive advantage
2.1.1. Definition
There is not many clear definitions of competitive advantage in textbooks of strategic
management.
Hill and Jones (1998) say a company has a competitive advantage when its profit rate is higher
than the average for its industry and it can sustain this advantage to maintain high profit rate
over a number of years.
This definition uses profit rate as a measurement to rate the competitive advantage. In other
view, we can say that a product has competitive advantage when it was chosen by a customer
after his or her comparing among several similar products. This definition is constructed in a
competition context. It can give us better idea about competitive advantage in a competitive
environment.
The heart of competitive advantage lies in the concept of value creation. The value of a product
to a consumer may be V, the price that company can charge under competitive pressure may be
P, and the cost of producing that product is C. the company profit is equal to P-C while the
consumer benefit equal to V-P. For two similar products with the same price P1=P2, product 1
has competitive advantage if V1>V2. In other words, product 1 has competitive advantage

because it brings greater value to customer. This will be the focal point for us to formulate
strategy and implementation plan. The following section will discuss the source of value
creation and then competitive advantage for a product.
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Customer’s benefit
Producer’s benefit
V P C
Figure 2.1 Value to customer and producer
Source: Hill and Jones (1998)
2.1.2. Generic building blocks of competitive advantage
Many factors contribute to competitive advantage of a company. But in general, they can be
classified into four generic categories:
- Efficiency: is the ratio between a company’s output to its input. The more efficient the
company, the more outputs it can produce from certain units of input or in other words, it can
produce the same amount of outputs from less inputs thus efficiency help company to achieve
low cost competitive advantage. The most important component of efficiency for a company is
employees’ productivity. With other factors hold constant, the company with its highest
employee productivity typically have the lowest cost of production.
- Quality: high quality of a product or service has strong contribution to company’s competitive
advantage. First, high product quality give positive perception of customer about product,
increase customer preference thus company can charge higher price for higher quality. Second,
high quality comes from greater efficiency and lower defective rate. Low defective rate requires
less time to fix substandard product and reduce the labor cost for fixing it. These two effects
combined bring company higher profit rate.
- Innovation: innovation can be defined as new way company produce froduct or product its
self. Innovation can be in the form of process, product design, management system,
organization structure or even in the business practice of the company. According to Hill
andJones, innovation can be the most important component of competitive advantage. It is the
single most important to the differentiation of product or process that the competitors do not
have. Uniqueness can allow company to charge higher price for its products. Example of

product innovation is Sony for Walkman, Hewllet Packard for lazer printer. They are the
poineer company in each kind of product. When competitor immitate the product, Sony and HP
have extablished leader position in the market and strong customer loyalty which is hard for
competitors to attack.
- Customer responsiveness: to be viable, any company must find their customer and satisfy their
needs. The process of adjusting, tailoring product features to market will be crucial to company
competitiveness. Another aspect of customer responsiveness is customer respond-time, which is
the time require company to bring a product to customer hand. For manufacturing company,
customer responseveness is the time needed to fill an order, for a band, it is the time to process
the loan, and for a supermerket, it is the time customer have to wait in check out line.
Besides, the quality of aftersales service and support also affect customer satisfaction and
consequently company competitiveness.
2.2. Competitive strategy and competitive advantage
A strategy is a specific parttern of decisions and actions managers take to achieve the
organization’s goals. Any firm can consider three level of strategy: corporate strategy, business
or competitive strategy, and functional strategy.
2.2.1. Three level of strategy
* Corporate strategy: corporate strategy is primarily about the strtegic choice of direction for the
company as a whole. It raise three key issues facing the corporation: (1) the firm’s overall
strategy toward growth, stabality or retrenchment (directional strategy); (2) The industries or
market in which the firm competes through its products and business unit (portfolio strategy);
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and (3) The maner in which management coordinates activities and transfer resource and
cultivate capabilities among product lines and business units.
* Business strategy: Business strategy or competitive strategy refers to the plan of actions that
management adopt to use a company’s resource and its distintive ability to gain a competitive
advantage over its rivals in a market or industry. Porter (1985) proposed three generic
strategies company can pursuit to outperform its competitors in the market:
- Low cost strategy: strategy to design, produce and market a comparable product more
efficiently and thus cheaper than its competitors do. Cost leadership strategy aims at the mass

market and require aggressive construction of low cost structure including efficient scale
facilities, vigorous pursuit of cost reduction, tight control of overhead cost and cost
miniminezation in areas like R&D, service, salesforce, advertising and so on. Low cost
structure allows company to charge lower price and thus allow company to compete when
fierce competition exist with a quite reasonable good profit.
- Differentiation strategy refers to strategy to deliver uniqueness and superior value to buyers in
terms of product quality, special feature, or after sales services. Differentiation forcus also at the
broad market and involves the creation of a product or service that is perceived through the
industry as unique. Uquine product enables firms to charge higher price for its product. The
specialty can come from brand image, technology, features, dealers or dealer network.
Differentiation is viable for above-average profit. The research of Caves and Ghemawat
(Whelen and Hunger pp.131-136, 2000) shows that differentiation generate higher profit than
low cost strategy because it creates higher entry barrier.
- Focus strategy: focus strategy can be cost focus or differentiation focus. This strategy focuses
to serve only specific needs of a market segment. Usually, this strategy is pursued by small
company to a market niche, while mass market has been well dominated by other larger
companies.
* Functional strategy: of the three levels, functional strategy is the lowest level and it is clearly
must comply to business strategy. Functional strategy is taken by a functional area to archive
corporate and business objective and strategy by maximizing resource utilization. It is concern
with developing and nurturing distinctive competency. From distinctive competency, firm can
transform them to any of four building blocks of competitive advantage e.g quality, innovation,
customer responsiveness and efficiency and then to low cost advantage or differentiation.
2.3. Strategy formulation process
Strategy formulation process refers to the process by which managers choose a set of strategies
for a enterprise. This process can be broken down into five major steps: (1) Selection
enterprise’s mission and goals; (2) analysis of external environment to identify opportunities
and threats; (3) analysis of organization’s strength and weakness; (4) selection of strategies built
on organization’s strength and other external factors and correct its weakness in order to take
advantage of opportunities and counter threats; and (5) strategy implementation.

2.3.1. Mission and goals
The beginning point of strategic management process is to review and/or selecting new
organization’s mission and major goals. This statement will be the foundation for strategy
formulation and implementation in later steps.
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The mission sets out the reason why the organization exist, whose benefit it serve and what it
should do. For example, the mission of an airline is to provide convenience and safety flight to
its customers.
Major goals are the targets that an organization wants to fulfil in long or medium term. Most
profit-seeking organizations place maximization of profit near the top of their goals. Other
possible goals are to get the largest share in the market that a company currently competes in
two years for example, or to get annual sale growth of 17% etc. Goals should be specific and
measurable within a time frame.
2.3.2. External analysis
Aaker (1995) presented a comprehensive framework for analysis external and internal
environment for an organization.
External analysis focuses on examination of relevant external elements to organization. The
object of this analysis is to identify threats and opportunities facing organization both present
and potential. An opportunity is a trend or event tat could lead to significant upward change in
sales and profit pattern- given appropriate response. A threat is a trend or event that will result
in the absence of strategic move, in a significant reduction in sales and profit figures. External
analysis including the following analysis:
* Customer analysis includes identifying the organization’s customer segments and each
customer’s motivations and unmet needs. Segment identification defines alternative product
markets and thus structure the strategic investment decision (what investment levels assigned to
each market segment). The analysis of customer motivation provides information needed to
decide whether the firm can and should attempt to gain or maintain sustainable competitive
advantage. An unmet needs- the need that currently not being met by existing products- can be
strategically important because it may represent a way that entrenched competitors can be
dislodged.

* Industry analysis, firstly introduced by Porter (1980) with the five-force model, identifies the
important impact of five elements to the performance of an enterprise. The five forces are:
threat of new entrants, rivalry among existing firms, threat of substitute product, bargaining
power of buyers, and bargaining power of suppliers.
- Threat of new entrants: New entrants to an industry typically bring to it new capacity, a
desire to gain market share and substantial resource. New entrants thus are a threat to
established corporation. The threat of entry depends on the entry barrier of the existing
companies in the industry. An entry barrier is an obstruction that makes it difficult for new
entrants to enter and compete in an industry. Entry barrier can be economic of scale, product
differentiation, capital requirement, switching cost, assess to distribution channel, and
government policy.
- Rivalry among existing firms: firms operating in competing market are mutual dependent to
each other. One firm’s move can have impact on it competitor thus lead to retaliation and
counter effect. According to Porter (1980) intense rivalry resulted from several factors
including: number of firms, rate of industry growth, product or service characteristic, amount of
fixed cost, capacity, height of exit barrier.
When developing strategy, Aaker (1995) suggested what we need to understand about the
competitors includes:
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• Performance: sales, sales growth, and profitability signal how healthy and formidable a
competitor is
• Image and personality: how is the competitor positioned and perceived?
• Objectives: what does competitor commit resources to, for high growth or differentiation
strategy?
• Current and past strategies, what are the implications for future strategic move?
• Culture: what is the most important to the organization- cost control, entrepreneurship, or
the customers?
• Cost structure: does the competitor have cost advantage?
• Strength and weakness: is the brand image, distribution or R&D a strength or weakness?
- Threat of substitute products or service: substitute products are those products that appear

to be different but can satisfy the same needs as another product. Tea can be considered a
substitute for coffee. To the extend that switching cost are low, substitute product can have
strong effect on an industry. Substitute products can put a ceiling price that firm within the
industry can profitable charge.
- Bargaining power of buyers: Buyers in an industry can affect firm’s profitability through
their ability to force price down, bargain for higher quality or more services, and play
competitor against each other. A buyer or group of buyers is powerful if some of following
factors hold true:
• A buyer purchase a large proportion of seller’s product or service,
• A buyer has the potential to integrate backward by producing the product itself,
• Product is standard and there are plentiful of supplier,
• Buyer is sensitive to price and service difference, or
• The purchased product represents high percentage of buyer’s cost so it is worth to shop
around for a lower price.
- Bargaining power of suppliers: suppliers can affect industry through ability to raise price or
reduce the quality of goods or services purchased. A supplier or group of suppliers is powerful
if some of the following hold true:
• the supplier industry is dominated by a few companies but sell to many,
• Its product or service is unique or it has built up high switching cost,
• Substitute products are not readily available,
• Supplier can go forward and compete directly with current customers (like Intel company
can produce computers), or
• The purchasing industry buys only a small proportion of the supplier group’s goods and
services thus unimportant to the supplier.
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- Societal environment: the strategists must also be aware of societal factors that do not have
short-run impact in firm'’ performance but they usually influence firm's long run decision. Four
important categories of societal are:
• economic forces that regulate the exchange of material, money, energy and information
• technological forces that generate problem solving inventions

• political forces that allocate power and provide constraining and protecting law and
regulation
• socio-cultural forces regulate values, custom of society
Hill and Jones (1998) urge that the five-force model has its own limitation. The model (1)
presents a static picture of competition that slights role of innovation and (2) de-emphasizes the
significant of individual company differences while over emphasize the important of industry
structure as determinant of company profit rates. They argue that innovation and company
differences play a vital role in competitive position of a company and then its profit rate.
A more interactive analysis of competitive environment is proposed by Day and Reibstein
(1997). They recommended that while developing competitive strategy, managers must
understand the advantage in a dynamic changing competitive environment and anticipating
competitors’ actions before formulating and implementing competitive strategy.
2.3.3. Internal analysis
The third step in strategic management process involves finding out firm’s strength and
weakness. Sales, sales growth and profitability are major measurements of business
performance and past strategy. The analysis covers resources, capability that is vital to build
and sustain competitive advantage. Resource and capability are distinctive competencies lying
in different functional departments like marketing, manufacturing, manager or employee’s skills
etc. Company strength leads to superior performance in quality, efficiency, innovation and
customer responsiveness while weakness leads to inferior performance.
2.3.4. Strategy formulation and strategic choice
The next step involves generating a series of strategy alternatives given company internal
strength and weakness and its external opportunities and threats. The comparison of strength,
weakness, opportunities, threats (SWOT analysis) is to identify strategy that align, fit a
company’s resource and capabilities to the demand of the market in which the company
operates. Within the specified alternatives, managers should choose the best one to follow.
For business strategy, each of three generic strategies can be pursued given certain resource and
capability as described in the following table:
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Table 2.1 Generic competitive strategy and required competencies

Strategy Cost leadership Differentiation Focus
Commonly
required
skills and
resources
Substantial capital
investment and access to
capital
Process engineering skills
Intensive supervision of
labor
Products designed for
ease in manufacture
Low cost distribution
system
Strong marketing abilities
Product engineering
Creative flair
Strong capability in basic
research
Corporate reputation for
quality or technological
leadership
Long tradition in the
industry or unique
combination of skills drawn
from other businesses
Strong cooperation from
channels
Combination of

common skills
directed at the
particular
strategic market
Common
Organization
requirement
Tight cost control
Frequent, detailed control
reports
Structure organization
and responsibilities
Incentives based on
meeting strict quantitative
targets
Strong coordination among
functions in R&D, product
development, and marketing
Subjective measurement and
incentives instead of
quantitative measure
Amenities to attract highly
skilled labor, scientists, or
creative people
Combination of
the common
organizational
requirement
directed at the
particular

strategic market
Source: Adapt from Porter, Michael E., 1980. Competitive Strategy: Techniques for Analyzing
Industries and Competitors. 1998 Ed. with new introduction, NewYork, The Free Press, pp. 40-
41.
Strategy evaluation: having developed alternative strategies, we need to evaluate their
suitability and feasibility. A strategy can be valued through three criteria dimensions:
- Criteria of suitability which attempt to measure how far the proposed strategy fit the
situation in strategic analysis. Does strategy capitalize on company’s strength, overcome its
weakness and counter environment threats?
- Criteria of feasibility that assess how a strategy might work in practice. For example,
whether strategy is achievable in resource term.
- Criteria of acceptability that assess whether the consequences of proceeding with a strategy
are acceptable. For example, will it be sufficiently generate profit or growth expected by
management or the risk involved in every strategy.
2.3.5. Strategy implementation
Having chosen a strategy, the next step is to put strategy into practice. Managers should choose
an appropriate organizational structure and control system to implement selected strategy.
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Organizational structure defines role and responsibility of each manager and personnel within a
business unit as well as reporting relationships. If the old organizational structure is unfitted,
managers should develop a new one. The control system is designed to measure the
performance and control the actions of the sub-units. Measures like sales, market share, margin,
profit can be used to monitor and control performance. In addition, manager should also decide
when to review and revise strategy. This will be the feedback loop for the whole process of
strategic management.
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3. CHAPTER 3
EXTERNAL ENVIRONMENT ANALYSIS
3.1. Societal environment
3.1.1. Government and legal factors

Since 1987, Vietnam had experienced through a reform process called “doi moi”. The reform
has changed the face of the economy. It allows an open door policy that encourages investment
from foreign countries and all economic sectors in the country. The strategic direction for the
economy is the free market mechanism with state regulation toward socialist orientation.
After fifteen years of reform process, the legal system is continuously built up and updated to
help business activities go smoothly. First, Vietnam has a stable government to manage the
country. Second, the legal system has built general rules of the game for business activities. The
civil code passed by the National Assembly regulates civil relationship in every day life and
business transactions. The code also includes articles regarding protecting intellectual property
and copyright. These regulations assure companies that invest in new products or technology
will be protected by law to recover their development costs. Laws encouraging foreign
investment, domestic investment are gradually passed to mobilize more capital and resources to
business activities.
The enterprise law, which came into affect one year ago, has brought about significant,
encouraging outcome beyond expectation in terms of economic development and administrative
reform. About 13,500 new businesses were established until the end of last year, triple the
figure for 1999. They could begin operations immediately after establishment as the
Government scrapped 150 licenses. Thanks to the Government's abolishment of licenses for a
number of trades and its permission for enterprises of all economic sectors to engage in the
import and export of goods and services not banned by the law, many businesses can operate in
new fields such as shipbuilding, and agro-product and handicraft export. The number of
businesses engaged in production, processing and export has soared and the business forms are
more diverse. New joint stock companies numbered 440, higher than the combined figure for
the previous nine years. The Government will provide support through investment in
infrastructure development including improvements to the transportation, telecommunications
and IT industries.
In 1990-1991, the Government has a policy to establish general state-owned corporations in
major industries to create synergy from existing state-owned companies in each industry. The
goal of this policy is to create big and strong general corporations with huge operation capacity
to increase the competitiveness of each industry in local and international market. Complying

this policy, the Vietnam Textile and Garment Corporation (VINATEX) was established in 1995
in textile and garment industry. The role and mission of VINATEX is discussed in Section 3.2.
The textile and garment industry is an important one in Vietnam economy. In 1998, this
industry scored the highest export turnover among exporting goods, about $1.35 billion, and
textile and garment products is always one of top three export goods (the others are crude oil
and rice). As a result, this industry will continue to receive high priority in development policy
of the government. During period of 2001-2005, the government plans to invest in the industry
VND 35,000 billion including VND 12,000 billion for VINATEX. By 2005, the target export
turnover of the industry is $4 billion and create two million jobs. Till 2010, the total soft loan
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the government tend to release amount to VND 65,000 billion and the VAT tax for the industry
will be cut a half to 5% during this period (Vietnam Economics Times, 12/10/00).
On the other hand, Vietnam plans to enter WTO in 2004 and comply with AFTA requirements
in 2006. This will represent a critical challenge to textile and garment industry since its products
must compete directly with imported goods without government support in terms of tax and
non-tariff measures.
3.1.2. Economic factors
During the last decade, the Vietnam economy has been growing with the average growth rate of
7.76%. However, after several year of high growth rate in 1992-1997, in 1998, the are some
signals to show the economy was slowing down. In that year 1998, GDP grew only 6.1% (Table
3.1). Especially in 1999, due to the affect of Asia crisis, GDP grew only 4.7%. In 2000, the
economy overcame the hard time and show its grow trend again its GDP growth raise to 6.7%.
Table 3.1 GDP growth rate in 1992-2000 period
Year 1992 1993 1994 1995 1996 1997 1998 1999 2000
GDP (%) 8.65 8.07 8.84 9.54 9.34 8.8 6.1 4.7 6.7
Source: General Statistical Service, Statistical Year Book 1998, 1999 and other sources.
Although the economy has been growing, it has its own weakness. The quality and efficiency of
the economy is low, represented in high manufacturing cost and this cost is increasing.
Manufacturing cost in the economy as a whole account for 48% in 1996 and increased to 50.5%
in 1999 of total goods value. Of which, manufacturing cost for industrial goods increased from

57% to 58.5%, for service industry increased from 28% to 35%. Therefore, the incremental
value (GDP) of manufacturing and service is below the manufacturing value of these industries.
The purchasing power in the economy is still weak. Although the GDP per capita in 2000 is
estimated to reach $400 this year (Table 3.2)(SaiGonTimesWeekly 23/12/00) an increase of
13.8% over the previous year but the purchasing power in the society is not increased at the
same level. In 1999, the total sales of retail goods increase 2-3% compared with the previous
year. The retail trade volume representing high value in service industry, grew at only 2%. If we
take into account the inflation factor, the retail trade volume did not grow over the previous
year.
But retail consumption gives positive signals in 2000 when the retail trade volume stand higher.
The Ministry of Trade estimates total sales of retail trade and services in 2000 at VND215,000
billion, up 13.2% from 1999. Per capita spending of retail goods and services was VND2.74
million, up 7.8% on 1999. The total sales of retail trade and services this year are expected to
increase to VND235,000-240,000 billion. This will be good news for consumer-goods
producers and service providers since people are willing to spend money and they can increase
their turnover.
xvii
Table 3.2 GDP per capita in 1996 to 2000 period (Unit 1,000)
Year 1996 1997 1998 1999 2000
GDP per capita 3,610 4,089 4,770 5,079 5,780
Growth rate (%) - 13.2 16.6 6.4 13.8
Source: SaiGonTimes (30/12/99), Saigontimesweekly (23/12/00)
In conclusion, Vietnam economy has overcome tough time and the economy is entering a
booming period again with increasing purchasing power. This is a good trend for garment
industry.
3.1.3. Social, cultural and demographic factors
Vietnam has young population and it rank 13
th
in the world in terms of population. With the
population of 76.3 million, this is a large potential market. However, 77% of the population

living in rural area have lower income compared with people living in urban area. This income
gap leads to the differences in buying pattern, product requirement, and consuming style. Urban
people are more sophisticated when buying goods, they require new design, color, quality, and
brand-name. Rural people emphasize more on price and durability.
Vietnamese people used to prefer imported goods due to their high quality. Although imported
goods are more expensive, people are willing to pay the premium to choose the good products
in their perception. However in the past several years, domestic goods emerged as favorite
choice for local citizen thanks to their good and stable quality. Domestic manufacturers in many
industries like Vinamilk dairy products, Thien Long ball-point pens, Biti's footwear, Vinh Tien
notebooks, Casumina tires and tubes etc., has gained big market share and defeat imported
goods in the market. Local consumers are changing to buy domestic goods since they have
comparable quality with imported goods but at substantial lower price.
3.1.4. Climate and weather factors
The weather condition in Vietnam differ substantially between two regions North and South. In
the South, there are two seasons: dry and rainy with the average temperature ranging from 21
o
C
to 34
o
C in the whole year.
In the North, there are four distinctive seasons with the temperature conditions differ
significantly among four seasons. In summer, it is hot with the daily temperature varies between
25 to 37
o
C. But in winter, the cold weather with temperature ranging from 9 to 15
o
C during
winter monsoon (Northeastern seasonal wind flows). The temperature in winter is affected by
winter monsoon (wind flow) compliment with light rain. The weather changes to cold during
wind flows coming from the north blowing through the area that drive the temperature down.

The average temperature in Hanoi during these wind flows varies between 10 to 14
o
C. The
temperature can be lower when strong wind-flow hit the region. Each wind-flow will have
effect to weather conditions from 3-6 days (3 to 6 days the weather is cold) but sometimes
several wind-lows hit the region consecutively and the cold weather can prolong for several
weeks. But when the wind flow is over, the weather is warmer with temperature during daytime
ranging from 16-21
o
C (Appendix 3.1 presents temperature condition in 1999-2000 winter
season).
xviii
The winter usually begins at the end of November every year with 2-3 winter wind-flows
driving down temperature, after that it is warm time. Winter winds hit the North more
frequently from the second part of January till the end of February. Winter often ends in April
of the next year. This complicated weather condition in the North lead to the need for jackets
and/or other substitute products that become the must-be clothes in winter, especially our habit
in travelling to use motorbike or motorcycle. But frequent changes in weather condition during
winter lead to sophisticated requirements for jackets that will be discussed in the data analysis
section. Experience show that the weather condition has strong effect on jacket sales’ revenue
in domestic market, specifically in the North. The weather condition in Southern region does
not require clothes like jackets therefore the market for jacket in domestic market is only in the
Northern area.
3.1.5. Technological factors
Technology is important in garment industry. Technology includes machines, manufacturing
technique and management. In the last decade, Vietnam textile and garment industry has
opportunities to modernize its technology through its own effort and through joint venture and
foreign direct investment. Until December 1997, there are 145 foreign and joint-venture project
invested $1.6 billion in the textile and garment sector. Of which 84 project are in garment sector
with the capital invested worth $197.7 million. Domestic firms also invest in new equipment

and technology. About $200 million is being invested every year in new factory and/or
replacement of old equipment in existing factories. Ducgiang, Garment 10, and Viettien
companies are those invested most heavily in new equipment in 1997, in which Garment 10
invested VND 8 billion. New technology and equipment increase quality, productivity thus
allows companies to increase their product competitiveness.
Machinery in garment industry is diversified with automation and computerized equipment can
be applied to any stage of sewing process. There are many kinds of machine such as spreading,
drawing, cutting, sewing, embroidery, pocket welting machine etc. Machines used in garment
industry are mostly imported from Japan, Germany, and the United State.
3.2. Customer analysis
To collect data on customers’ requirement on jacket and their perception toward jackets made
by Thaloga, a survey was conducted during late December 2000 and early January 2001.
First, a pilot survey was conducted by interviewing 12 customers for deep understanding about
their requirement and their understanding about vague concept like product quality, color, and
design of the product.
Second, a questionnaire survey was conducted to collect data. A convenience sampling method
was applied. Questionnaire are delivered at Thaloga fashion shop 250 Minh Khai street, at 39
Ngo Quyen street where six garment company’s sales representative offices are around, and at
the new year fair at Giang Vo International Exhibition and Fair Center. Targeted respondents
are adults who can use and buy jackets. One hundred eighty questionnaires were delivered and
one hundred fifty two were returned. Of which one hundred thirty two are considered valid and
used for analysis. Questionnaire sample is included in Appendix 3.2.
3.2.1. Sample characteristics
The survey intended to identify adult customers’ requirement for jacket and their perception
toward Thaloga’s jackets. Therefore, all respondents in the sample are above 20 year old. Group
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age of 20-30 is dominant in the sample. They account for 75.8% of the sample. Respondents
within 30-40 represent second population in the sample with 19% (Appendix 3.3 Table 1).
Women represent the majority in the sample with 62% (Table 2). A third of respondents are
married. They can be important customers as they can purchase clothes for them and for other

family members. (Table 3). In other aspect 59% of respondent say that they buy clothes for both
themselves and for family members (Table 4). There is statistical relationship between marital
status and buying pattern. 77% of married people buy clothes for themselves and for other
family members while the percentage of single respondents buy clothes for themselves or buy
for both is nearly balance (Table 5).
Respondents from average income class presents for large proportion. 47% of respondents have
average monthly income in the range of VND0.5-1 million. Other 32% of respondents have
average monthly income between VND1-2 million. Respondents with monthly income higher
than VND2 million only represent around 17% in the sample (Table 6).
Kind of work may have impact on requirements of customers toward jackets. Roughly 50% of
people in sample surveyed work in office. People working outside or work require travelling
account for nearly 20% of sample (26 people) (Table 7).
3.2.2. Customers buying pattern
Nearly 90% of the respondents replied that they buy less than two jackets per year. More
specifically, about half of sample quoted that they buy from one to two jackets per year, the
other nearly 35% of respondents answered that they buy one jacket within two years. Only
about 10% of sample buy more than three jackets per year. This represents the upper limit for
jacket usage of customers (Table 8).
When buying jackets, two possible actions can occur, they can buy immediately when they find
a suitable clothes or they can consider several alternatives then choose. Surprisingly, nearly
60% of customers in sample will buy right after they choose a suitable jackets. Customers with
careful buying decision only account for 40% of the sample (Table 9). This phenomenon can
be explained as when customers going into a close shop or retail store, they have already have
certain perception about price and quality level of clothes in that shop and they are confident to
purchase.
For the place where customers usually buy jackets, companies’ retail stores and sales agent are
the most frequent place to buy. Approximately 50% of respondents buy jacket through this
distribution channel. The next two other common places are in trade fair or in fashion (clothes)
shop (Table 10). This buying habit can be important for company to channel its products to
different distribution channels and design distribution network.

3.2.3. Customers needs on the products
• Product itself: customers need following benefit from the product:
 It can bear light rain
 It must give sufficient warm level
 Customers prefer a jacket that they can use to go to various places and it can fit many
contexts. For example, they can use at work, going to picnics, funeral, or other
activities. Five layer jackets are least preferred. Two or three layer jackets are liked
more due to its tightness and convenience.
xx
 Jacket should fit the body form of customers
 For fabric materials, the respondents roughly agree that fabric material is of non-dust
catching type. To a lower degree, they want fabric material resistance to fire from
cigarette or match.
• Product color: Respondents agree that they like elegance and simple color. Jacket with
colorful color mix, too bright or heavy dark colors are considered unattractive in customer
perception (Item with score near 3 up can be considered unattractive).
• Design: again, simplicity in design for jackets is preferred. However, fashionable design
with few stylized features is also preferred with lower degree and opinion of respondent
upon the issue is more diverse than for simple design.
If there is a hat accompanied with the jacket, respondents agree that it can be flexible to
attach or unbind from the jacket (Table 11).
Among four dimensions of a jacket, price are the most important element that customers
consider in making their buying decisions (Table 12). 40% of respondents placed price in the
first priority. Quality is ranked second in important level after price that is followed by color
ranked third in the important ladder. Consider simple versus fashionable design, we can see that
simple design is more important. The implication of important levels is that it suggests a hint
for companies to compete in these important dimensions of jacket. If quality is relatively similar
among competitive products, and it is difficult and costly to significantly increase quality level,
we can choose to compete on price or product appearance (color, design). It is critical to note
that respondents’ opinion about the important level of four dimensions of jacket is not affected

by sex, age, or income level of respondents. People in different sex or age or income level
group have consensus assessment on the importance of four dimensions of jacket.
Men and women have different requirement about color and material of jacket. Men like jacket
with simple and plain (single or one) color, while women do not have clear idea about they like
or dislike jacket with plain color. Women do not like simple color as men, they have rather
diverse opinion on this character. That means jacket designed for women should have more
variety in color than designed for men. Women are more cautious when selecting fabric
attribute. They require fabric material resistance to flame, while men do not consider this aspect
important (Table 13).
Respondents in different age group have different requirement on following jacket’s characters:
color mix, design pattern, edge line, special feature, and fashionable design (Table 14 and 15).
Three big age groups are identified: 20-30 year old group (group1), 31-35 year old group
(group2), and 36 year old up group (group 3).
Group 1 considers color mix and edge line in jacket important, they require simple, fashionable
design with special featured style (Table 16).
Group 2 sees simple design as normal attractive, but they do not like edge line in the jacket.
Two to three color jacket, fashionable design, design feature are not preferred either (Table 16).
Respondents of group 3 have diverse judgement upon these five attributes, but there are only 19
people in these groups, detail analysis of their judgement may be not statistically significant.
When examining the relationship between kind of work and respondents requirement for jacket,
people in different work environment differ only on the requirement on fashion design. Office
xxi
respondents agree that they like fashion, but respondents working outside or travel while
working do not consider this issue important (Table 17, 18).
Because the distribution of respondents among income groups is not balanced, the comparison
of requirements among income group to jacket’s attributes will not give reliable result so the
relationship between income and customers’ requirement about various jacket’s attributes is not
discussed further.
3.2.4. Customer perception about Thaloga’s jackets
When examining the frequency of customers in sample have bought and used products of

different companies, it is revealed that Thaloga’s jackets has the most frequent use besides
imported goods (Table 19). Thaloga is the second most frequent bought and used by
respondents in the sample (43%) after imported jackets including Chinese jackets (49%). Two
companies follow Thaloga are Garment 10 and Nha Be companies with frequent use of 32%
and 20% respectively. The information in Table 19 does not indicate market share of each
company in the table, but we can understand that Thaloga might have a large market share of
jacket in domestic market, company can be the first or second position in market share in this
market.
On the other hand, of 132 valid respondents, 89 people know and give their assessment about
Thaloga’s jackets. The most positive point that respondents have about Thaloga’s jacket is good
quality and their assessment is most consensus among other issues of jacket (mean 2.31 and
standard deviation 0.82). For price issue, respondents score half point between agree and
neutral point for two question about price appropriateness and relative price level. This fact
shows that the price of company’s jacket is not more attractive than other companies.
Respondents’ perception about color and design variety is nearly neutral. Number of color and
design pattern is not more diversified than other companies. That means the company’s jackets
do not big competitive advantage over other companies’. In other words, little difference in
term of price or differentiation can be a threat to Thaloga’s jackets and its competitive
advantage.
3.3. Textile and garment industry analysis
3.3.1. Industry overview
The textile and garment industry (the industry) is heavily fragmented including about 600
enterprises engage in textile and garment business. Their main business or garment companies
are manufacturing for orders from foreign customer (FOB business) and subcontracting for
commission fee for foreign garment companies (CMP business). Only small percentage of total
revenue of this garment companies come from domestic sales.
The total employee in the industry is 800,000 labors. Of the 600 firms, there are about 130
state-owned enterprises of which the Vietnam National Textile and Garment Corporation
(VINATEX) is the largest state corporation. Half of total firms are belong to private sector
(Table 3.3). Foreign and joint-venture firms account for small percent in the industry, 88 firms

of 13%, but they are large companies with more than 200 labors and they possess large
proportion capacity of the industry (Table 3.4). Furthermore, there are about 80,000 household
tailors engaged in garment making throughout the country.
Table 3.3 Number of firms in the garment industry as of 1998
Number of The whole Private Cooperatives State Foreign, joint-
xxii
employee industry sector companies venture firms
Over 200 50% 40% 20% 50% 90%
200 or less 50% 60% 80% 50% 10%
Total 602 firms 348 firms 36 firms 130 firms 88 firms
Source: The study of Japan International Cooperation Agency and Ministry of Investment,
October 1999
Table 3.4 Production capacity of textile and garment industry of Vietnam as of 1998
Product Local sector % FDI sector % Total
Yarn (ton) 72,000 44.44 90,000 55.56 162,000
Fabric (mil. sqm) 380 47.5 420 52.5 800
Knit (mil. pcs) 31 79.48 8 20.52 39
Garment (mil. pcs) 280 70.0 120 30.0 400
Source:VINATEX (www.vinatex.com/statistics)
The textile and garment industry is one of the three leading export goods of Vietnam. The
export turnover of the industry increased over the years (Table 3.5). The export turnover
increased gradually from 1994 to 1997. In 1998, it did not increase due to the Asia crisis. More
than 50% of Vietnam export come to Asia countries. But in 1999 and 2000, the industry‘s
export turnover raise again and the recovery of regional economies promises a higher export in
the years to come.
Table 3.5 Export turnover of textile and garment product in 1994 to 2000 (in $ million)
Year 1994 1995 1996 1997 1998 1999 2000 2001(Target)
Export 554 850 1,150 1,349 1,351 1,682 1,815 2,300
Growth (%) - 53.4 35.3 17.3 0.1 24.5 7.9 26.7
Import * - - 829 1,173 717 - - -

Import/Export ** 72 86.95 53
* Import of material and accessories for textile and garment
** Percent of import material to export turnover
Source: Vietnam Economics Times, Vietnam and World Economy 1998-1999
Note that 80% export turnover of garment industry is through commission business mainly with
Hong Kong, Taiwan, South Korea, and Japan. 50% of commission contract is export to Japan.
The remaining 50% of commissioning business is with Hong Kong, Taiwan, and South Korea
partners selling finished goods to EU market.
There are two market categories for Vietnam’s export garment: quota and non-quota market.
The quota market includes EU, Canada, And US. Non-quota markets are Japan, Taiwan, South
Korea, and Hong Kong. These two market categories share the same proportion (50%) of total
export value.
Despite Vietnamese garment products have appeared in many sophisticated markets, domestic
sales of local garment companies account for small proportion. Garment companies had not
xxiii
paid attention to domestic demand. There are about dozen large garment companies that serve
the domestic market. The proportion sales in domestic market account around 7,5-10% total
sales value of garment firms. Garment 10 has the highest domestic sales ratio of 17.1%.
Thaloga domestic sales account for 11% of company total’s revenue. This fact represents a
great potential for garment enterprise to capture domestic market share.
Although the industry has experienced growth in export turnover, there are some problems
inside. First, the textile sector does not grow as fast as garment sector, textile companies can
satisfy only 20-30% of fabric needs of garment sector. A large quantity of high quality fabric
and accessories are imported (300-400 million square meters per year). The export value in
some years is also given in table 3.5. Therefore in finished garment product for FOB and
commissioning business, local material amount to merely 10-15%. For many contracts,
customers supply all fabric and accessories, domestic companies only do the processing part. In
other words, high export turnover is accompanied with high import value of material and
accessories. In 1997, the textile and garment industry reported a increase 16% in revenue and
14% in manufacturing goods. There is not profitability data but an overview of export turnover

compare with imported material (Table 3.5), we can see the profitability of the industry is
limited.
Second, Vietnam garment companies lack experience in market research, marketing, and
assessing to new markets. This is the major obstruction for the industry to export or sell its
product under its own brand name. In practice, garment companies have to sign contracts with
middleman in Taiwan, Hong Kong, or South Korea to export their products under foreign brand
names.
Third, management capability in many textile and garment companies is limited. The decision
making process is slow. For example, when a company has a investment project of more than
VND500 million, the regulation requires a bidding to select a vendor, a process that can prolong
several months to complete. Moreover, they are also required to get approval of government of
correspondent ministry of corporation headquarter.
In textile and garment industry, the Vietnam National Textile and Garment Corporation
(VINATEX) is the largest state-owned enterprise group. Established in 1995, VINATEX
operates simultaneously as manufacturer, exporter, importer, and distributor (both wholesale
and retail). Main responsibilities of VINATEX are:
• To carry out investment, production, supply, distribution, export, import activities in respect
of the textile and garment business activities
• To enter into joint venture or business cooperation arrangements with Vietnamese and
foreign economic organizations;
• To target, develop and expand local and oversea markets to provide guidance to and assign
various member enterprises to relevant markets.
• To conduct research and application of advanced technology; to renovate technology and
equipment in conformity with the general development strategy;
• To provide training and refreshing courses to management and technical staff and skilled
workers.
At present, VINATEX manages forty-seven member enterprises engaging in yarn spinning,
fabrics, weaving and garment making; one financial company; three mechanical repair and
xxiv
spare parts manufacturing enterprises; one textile and garment economic and technical research

institute; one model and fashion research institute and three workers training schools.
VINATEX also establishes its branch offices in Haiphong and Danang and two trading service
companies in Hanoi and Ho Chi Minh City. VINATEX has trading relationship with more than
200 companies in 40 countries and regions. As an important organization in garment industry
whose one function is to help the State Government in orientation and development of local
textile and garment sectors VINATEX is an important force in the environment of the industry.
3.3.2. Industry attractiveness and competitor analysis
Vietnamese garment market is supplied by garment companies, household tailors, and imported
clothes. The household tailors account for 60% of the domestic market, according to a study by
SECO Sector Consulting (JICA, 1999). The remaining of the market is supplied by legal import
clothes (5%), illegal import primarily from China (15%), used clothes supplied through aid
program or smuggled through border of Cambodia or China (10%) and diversion of exports
product to domestic market (10%).
The household tailors gain some advantage over other companies in domestic market.
Vietnamese prefer tailor-made clothes because ready-made garment usually made with standard
size of foreigners to export so they are of large size. Tailor-made clothes can be built to fit
customer body and they can be customized. However, for a specific product like jacket,
household tailors can not compete in large scale because making jacket requires several
specialized equipment and large investment that very few single household can afford. Thus the
competitive forces in the market only comprises imported goods (legal or illegal) and domestic
firms producing jackets. The next section will apply the five-force model of Michael Porter to
analyze the competitive force in the industry.
• Threat of new entrant
Technology and equipment in garment industry is available and easy to assess. For a small to
medium firm employing from 60-150 workers, and 40-60 sewing machines, an initial
investment of VND600-1,000 million is needed to start a business. The recruitment of workers
is easy. For setting up a new business, such an investment is not difficult to get for an
organization, so money will not a big entry barrier for this business. The main entry barrier is
the established market for existing jackets from several big companies like Garment 10,
Ducgiang or Nhabe companies. These companies had set up strong customer bases thank to

their good product quality and acceptable price. Moreover, cheap price of Chinese jacket also a
big fence for new comer to overcome. As a result, threat of brand new players to jacket market
is not high. But there is great potential that existing garment firm those have not introduced
jackets to domestic market yet, now they begin to launch new jacket product and compete
directly with existing firms. Of forty-seven member companies of VINATEX engaging in
production of textile and garment goods, twenty-five are in garment making sector and all
twenty-five companies have jacket in their product portfolio. But at present, not more than ten
companies are selling jackets in domestic market. In the future, it is expected that more
companies will come and compete in this product category and make the competition tougher.
• Threat of substitute products
Substitute products can be coat, sweater, leather jacket, and fur-coat. Fur-coat used to be
popular about a decade ago when jackets are not introduced to market yet. Fur-coat from
Germany is most favorite and dominated the domestic market. The product can bring highly
warm level but presented with monotonous color and design. At present this product had
withdrawn from the market.
xxv