TO BUILD UP THE BUSINESS STRATEGY of MECO JSC IN PERIOD 2009 2015

THESIS
TO BUILD UP THE BUSINESS STRATEGY of MECO
JSC IN PERIOD 2009 - 2015


TABLE OF CONTENTS
PREFACE..............................................................................................................................4
CHAPTER I. BASIS FOR ARGUMENT............................................................................12
1.1. Business strategy:..........................................................................................................12
1.1.1. Definition of strategy, business strategy:...................................................................12
a) Definition of strategy: .....................................................................................................12
b) Definition of business strategy:.......................................................................................13
1.1.2. Basic matters in building up business strategy:.........................................................14
1.1.3. Target of business strategy:........................................................................................16
1.1.4. Basic business strategies:...........................................................................................18
1.1.5. Relationship between business strategy and other strategies:....................................22
a) Corporate Strategy ..........................................................................................................23
b) Business Strategy (competitive strategy).........................................................................25
c) Functional Strategy (or Operational Strategy).................................................................26
1.2. Procedure for building up business strategy:................................................................26
1.2.1. To analyse external environment...............................................................................28
a) Macro environment: ........................................................................................................28
b) Analysis of job trade environment ..................................................................................28
c) Model of five competitive forces:....................................................................................29
1.2.2. Selection of business strategy ...................................................................................41
CHAPTER II.
ANALYSIS OF ACTUAL SITUATION OF THE ENTERPRISE.....................................43
2.1.Overview on the Enterprise............................................................................................43
2.1.1.Summary of establishment and development process.................................................43
2.1.1.1.General introduction ................................................................................................43
2.1.1.2.Summary of establishment and development process..............................................43

Summary of establishment and development process:.......................................................43
2.1.2.The Company Organization Structure.........................................................................45
2.1.2.1.Organization Structure Chart...................................................................................45
2.1.2.2.Function & Task.......................................................................................................47
2.1.3.The Company Management Structure.........................................................................48
Management Board..............................................................................................................48
2.1.4.Main business activities..............................................................................................49
2.1.5.Posted Securities.........................................................................................................51
2.1.5.1.Securities type : Common share............................................................................51
2.1.5.2.Nominal Value : 10,000 VND/ share....................................................................51
2.1.5.3.Total posted securities : 13,200,000 shares.............................................................51
2.1.5.4.Restriction on the holding ratio to the foreigner......................................................51
2.2.Analysis of status and result of production and business activities in the years 2006,
2007, 2008............................................................................................................................52
2.2.1.Main business activities..............................................................................................52
2.2.1.1.Construction and installation activity.......................................................................52
2.2.1.2.In regard to the industrial – mechanical production activities.................................54
2.2.1.3.Trading – Export & Import activities.......................................................................55
2.2.2.The turnover and profit structure of production and trading activities through the
years of 2006, 2007, 2008....................................................................................................56
a) Net turnover structure of production and trading.............................................................56

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.........................................................................................................................................57
b) The gross profit structure of production and trading activities .......................................58
2.2.3.Result of business activities........................................................................................59
2.3.1.Assessment on condition of building up strategy of enterprise:.................................60
2.3.2.Analysis of business environment of enterprise..........................................................63

Analysis of competitive forces in the job trade:...................................................................64
2.3.3.Company’s position in comparison with other enterprises operating in job trade .....71
2.3.4.Analysis of internal company: ....................................................................................73
a) Analysis of value chain: ..................................................................................................73
b) Analysis of core capability...............................................................................................76
2.3.5.SWOT Analysis ..........................................................................................................78
CHAPTER III : BUILDING UP BUSINESS STRATEGY FOR COMPANY,
PERFORMANCE SOLUTION, RECOMMENDATIONS.................................................82
3.1. Building up business strategy for company..................................................................82
3.1.1. Statement of mission..................................................................................................82
3.1.2. Determination of task.................................................................................................82
3.1.3. Determination of target..............................................................................................82
3.1.4 Selection of solution for business strategy :................................................................84
Cost – Leadership Strategy ( governing strategy )..............................................................86
Differentiation Strategy ( strategy in combination with cost – leadership ).......................89
Strategy of close relation with customers ( strategy in combination with cost – leadership
strategy and differentiation strategy )...................................................................................90
3.2. Some solutions for strategy performance : ...................................................................92
3.2.1. Company Administration :.........................................................................................92
3.2.2 Culture and Leadership for strategy : .......................................................................98
3.3. Action plans: ................................................................................................................98
3.4. Quality Control: ..........................................................................................................100
3.5. Recommendations: .....................................................................................................101
CONCLUSION..................................................................................................................103
REFERENCES...................................................................................................................104

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TO BUILD UP THE BUSINESS STRATEGY of MECO

JSC IN PERIOD 2009 - 2015
Enterprise: Vietnam Mechanization Electrification & Construction
Joint Stock Company (MECO JSC)

PREFACE
1. General context:
At present, majority of enterprises over the world pays so much attention and
highly treasures the building-up of business strategy, they determine this is a topranking task for the each enterprise. The directors of big-sized enterprises often
spend a big part of their time for studying the business strategies (according to the
data given by some articles it takes about 40% of annual time).
In 1947, there was only 20% of American enterprises having business
strategy; in 1970 this amount had reached 100%. Many American enterprises
assume that the business strategy building-up is the job occupying the most of time.
As mentioned by Mr. Wilson, the Chairman of General Electric (GE) of America,
having said: Every day I can do just a few jobs, however there is a job that never
finished, it is to build up the future planning.
( Source: www.royal.vn/index2.php?option )
There are quite a lot of examples actually proving that even the most
successful strategies still can not be forever long-lasted. We may should be vigilant
with the signs showing it is time to change or to adjust and modify the existing
strategies.
Tens of years ago, the Japanese Canon company was just a small company, in
which the American and Japanese big-sized enterprises were not much interested.
However, right that time, the company had already their strategy for developing to
an international leading big company in the field of production of small-sized
camera, cinecamera and had intention to defeat the American Xerox company in the
field of producing photocopier, printer and other various office machines. From

4

holding 13% market of photocopier in America in 1998, until now Canon has
gained 36,6%; and the market share of Xerox from 38,3% has been reduced to
14,2% remaining at the same time. Canon has also overtaken Xeroc in the market of
fast-speeded laser printer. Not only so, the Canon also has become a fearful
competitor to Lexmark specializing in production of sprayed printer, to Eastman
Kodak in the field of digital camera, and also to GE right in the trade on which this
group has gained success, i.e. the superior photo-taker used in the health care job.
Kodak had led in trade of producing film used for taking photos in the years of
1970th, however in the early years of 21st century Kodak was faced to strong
attacks by the strong competitors in digital technology such as Fuji, Sony, Canon…
forcing them to reduce 72% dividend of shareholders to increase investment with
13 billions USD for business of digital trading with hope of enabling to increase
profit from 13 billions USD to 16 billions USD in 2006 and according to statement
given by Managing Director of Dan Carp, only doing so can help Kodak to
maintain

and

develop

further.

(

Source

:

www.igo-doanhnhan.bl

ogspot.com/2007/08)
Epson was a typical example of profit decrease fue to loss of market share
when presenting a strategy of producing low priced laser printer in 1989 with
expectation of hastening market decrease of needle printer and assumming that the
loyal customers of Epson might should buy their laser printer. However, they have
failed to Hewlett-Packed, a leading company in field of laser printer having entered
into market with product of laser printer with price lower than the laser printer
produced by Epson.
For Vietnamese enterprises, according to the assessment by Mr. Jago Penrose,
a financial policy analysis expert of United Nations Development Programme
(UNDP) in 2007, it was said that “the enterprises having been considered as biggest
in Vietnam are only almost equivalent to the small and medium-sized enterprises
over the world”.

5


Previously, the building-up of business strategy was not treasured yet by the
enterprises, however in order to adapt themselves to the international integration, it
is required Vietnamese enterprises to change their strategic policies accordingly.
The Biti’s company has proved their coping capability with competition from
the 1990th years when pioneering in building up Vietnamese trademark, soon
penetrating into Cambodia market and Laos market to get a high turnover.
The garment making company No. 10 has a fairly daring decision to
concentrate on producing highly qualitative shirt and complete jacket, using
advanced technology with highly skilled labour. This has helped company to
overtake foreign competitors having many products which are easy to be
produceable.
The Vietnamese milk products company of Vinamilk has highly treasured the

strategy of developing national distribution network and trademark right from
1990th years.
The Vietnam National Oil & Gas Group (PetroVietnam) is an example for
penetrating into new market such as the marine transport market, which is naturally
considered as trade job done by Vietnam National Shipping Lines Corporation.
The Vietnam Machinery Erection Corporation (LILAMA) from position of
being a pure machinery erection enterprise only, has treasured strategy of becoming
a first strong EPC Contractor in Vietnam. At present, most of big industrial
buildings in the country all require the experiences, man-force of managers, staffs
and workers of LILAMA.
However, at present the matter of establishing a business strategy which is
methodical and scientific right at beginning of trade is still a barrier not easy to
overcome for the Vietnamese enterprises.

2. The necessity for building up a business strategy. The application
meaning of the studied theme for the enterprise:
From the 60th years of the 20th century, starting from some big sized
enterprises in America, Japan, then largely spreading in the countries having trend

6


of shifting from long-term planning for determination of specific annual tasks,
criteria to building up a business strategy with guidance policies and mottos for
activities of the enterprises. The reason for this change is originated from context of
business environment having been continuously changed in regard to technology,
political environment, customers, competitors,… causing the tasks, targets
determined in long-term plans 5-7 years to be regularly reviewed and re-calculated.
In order to enable maintaining and developing, the enterprises must reply to the
questions: which types of business may should be performed? If it is required to

change the business activities or not? Which competitors are penetrating into the
market? How the existing customers are changing now? Which developing
technologies may impact to the enterprise?...
The Vietnam Mechanization Electrification & Construction Joint

Stock

Company (MECO JSC) has the orientation of developing trademark, leading
MECOJSC to become a strong trademark in the market by the policy of firm and
sustainable development and growth in business activities – as being the topranking target in long-term development strategy of company. At present, the
company has a plan for establishing business strategy in period 2010 – 2012,
developed until 2015. Therefore, our study group selects the theme “To build up the
business strategy in period 2010 to 2015 of the MECOJSC”.
The group members are also much expected to help the Company Leadership
to apply this theme in building up business strategy for the enterprise in the coming
period.

3. Purpose of study:
The theme has been studied with purpose of getting general and overall
knowledge about building up a business strategy for an enterprise generally and for
the MECOJSC Company particularly in period 2010 – 2015.

4. Scope and object of study, restriction of theme:
The theme concentrates on studying circumstances of MECOJSC Company in
period 2009 -2015, with:

7


-

The study data from years of 2006, 2007, 2008 and early year of 2009.

-

The investigation time at the Company is from June to early July 2009.

Object of study: MECOJSC Company.
Restriction of theme:
-

The business strategy is only applicable for a definite period, from 2009
– 2015.

-

It is applicable for MECOJSC Company solely.

5. Method for performing study, data source:
The MECOJSC is a Joint Stock Company having posted their securities on the
joint stock transaction place so it is possible to exploit the data about company in a
legal, easy manner with high reliability. This is an enterprise related to field of
construction and mechanical and electrical works, therefore it is possible to analyse,
compare with many other enterprises operating in the same trade job as in the study
group there are 2 members having knowledge and understanding in this field. We
have approached Mr. Nguyen Binh Duong - General Director and have been
exchanged and discussed in very expansive manner, ready to provide the
information and data related to the enterprise serving this theme. Currently, there
are available many documents in form of printed books, written articles in the
Internet relating to the theme. Therefore, the selected method for performance of

study is included:
-

To directly collect the information at Company;

-

To refer to the data having been filed previously at the Company;

-

To get an interview with the Company General Director;

-

To refer to the documents, printed books, written articles in the Internet;

-

To refer to the textbooks of Training Program for International Business
Administration Master, the instructional documents for main task of the
program;

-

To investigate, analyse, summarize for getting reliable conclusions;

-

To analyse with SWOT.

8


Data source:
-

Secondary source:

+ Company Statement given in 2007, 2008, quarter 1 of 2009 posting
securities at Hanoi Joint Stock Transaction Center.

+ Company financial reports in 2007, 2008 taken at the company.
+ Documents in printed books, Internet, learning textbooks.
-

Primary source:

+ Analysis data based on the references and comments given by experts.
6. Structure of main task:
Besides the preface, conclusion, reference list and appendixes, the main
content of main task is divided into 03 chapters:
Chapter I. Basis for argument
It is the chapter introducing argument basis of theme of building up business
strategy, as the foundation for developing next chapters.
1.1. Business strategy:
1.1.1. Definition of strategy; business strategy
1.1.2. Basic matters in business strategy
1.1.3. Target of business strategy
1.1.4. Description of business strategies

1.1.5. Relationship between business strategy and other strategies
1.2. Procedure for building up business strategy:
1.2.1. Analysis of external environment:
-

General environment: opportunity and challenge

-

Environment in relevant professional job trades:

+

Specific features of the professional job trade

+

Competitive forces; Customers; suppliers; replaceable products;
potential competitors; direct competitors

-

Environment of competitive rivals: Analysis of future orientations,
present strategy, assumptions and capability of competitors.

9


1.2.2. Analysis of internal environment of enterprise:
-

Competitive advantages

-

Internal analysis:

+

Analysis of value series of enterprise: major activities and auxiliary
activities.

+

Analysis of SWOT: strong points, weak points, opportunity,
challenge.

1.2.3. Building up strategy: Company (Corporate) - graded strategy;
international strategy
-

Cost – Leadership Strategy

-

Differentiation Strategy

-

Focus Strategy on a specifically competitive market

Chapter II. Analysis of actual status of Enterprise
2.1. Enterprise overview:
2.1.1. Summary of formation and development process
2.1.2. Company organization structure: organization chart; function and task
2.1.3. Management structure
2.1.4. Main business activities
2.1.5. Posted securities
2.1.6. Some main features of enterprise impacting to building-up of business
strategy for company:
-

Features in organization

-

Features in business activities

-

Features in capital sources

2.2. Analysis of situation and Result of production and trading operations in
the years of 2006, 2007, 2008
2.3. Analysis of strategic matters and administration of the enterprise:
2.3.1. Evaluation on existing status of strategy building up for the enterprise
2.3.2. Analysis of environment of job trade for the enterprise
-

The competitive forces in the professional job trade

10


-

Customers

-

Suppliers

-

Replaceable products

-

Potential competitors

-

Direct competitive rivals

2.3.3. The company’s position in comparison with other enterprises operating
in the professional job trade
2.3.4. Internal analysis of company:
-

Analysis of value series

+

For the auxiliary activities:

+ For the major activities:
- Analysis of the core capability
2.3.5.

Analysis of SWOT: strong points, weak points, opportunity and

challenge to the company
2.4. The outstanding matters of the enterprise, the causes
Chương III.

To build up business strategy for the enterprise, the

performance solutions and recommendations for the enterprise
3.1. Statement of mission, task and strategic target of business of the company
3.1.1. Statement of mission
3.1.2. Determination of task
3.1.3. Establishment of target
3.1.4. Selection of solution for business strategy:
-

Cost – Leadership Strategy

-

Differentiation Strategy

-

Focus Strategy concentrating on a specific unit

-

Customers

3.2. Some methods for strategy performance:
3.2.1. Administration of company
3.2.2. Leadership strategy

11


3.2.3. Control strategy

CHAPTER I. BASIS FOR ARGUMENT
1.1. Business strategy:
1.1.1. Definition of strategy, business strategy:
a) Definition of strategy:
There are many definitions about strategy, and each definition has more or less
different points depending on the viewpoint of author.
The strategy is related to the definition of competitive advantage and control
of organization sources such as human, property, finance,… aiming to develop and
ensure its own essential interests. Kenneth Andrews is the man who first time gave
these prominent concepts in the classic book The Concept of Corporate Strategy.
Following him, the strategy is what the organization may should do based on its
own strong and weak points in a context having both opportunities and threatening
challenges.

In 1962, the strategy was defined by Chandler as being “determination of
basic long-term targets, purposes for the enterprise and determination of series of
actions as well as distribution of sources required for performance of this target”
(Chandler,A.(1962); Strategy and Structure. Cambrige, Massacchusettes. MIT
Press).
According to Bruce Henderson, the strategist and concurrently founder of
Boston Consultancy Group: “Strategy is a careful search of action plan for
developing and combining the competitive advantages of the organization. The
differentiations between you and competitive rival are the bases for your
advantage”.
(Source: Effective business strategy, Harvard Business Essentials, Publisher
of Generals, Ho Chi Minh City, page 10)
According to Michael E. Porter, the top-ranking strategy professor of Havard:

12


- “Strategy is creation of an unique and valuable position, including a series
of various groups.”;
- “Strategy is to perform balancing various factors aiming to gain a best
combination in competition. The strategy nature is to decide what should
not do.”;
- “Strategy is to create a harmony among activities by the company.”
(Source: Micheal E. Porter, “What is Strategy?” Harvard Business Review,
November, December, 1996, pages 68, 70, 75).
So, what is the strategy ? Strategy is a plan aiming to bring to the organization
a competitive advantage in comparison with the competitors. Strategy means having
understood the target in business under current performance by the enterprise,
concentrating to plan how to reach such target. « Strategy is a series of compound
actions aiming to mobilize the sources that an organization can get in order to reach

a determined purpose».
Strategy has a strongest impact when its essence as being values of enterprise
has been clearly understood: where are the priority criteria in aspect of products,
customers, supplier, investor, shareholders and business environment. Strategy is
not a single management procedure, but it is a process including from commitments
to decisions and actions of enterprise aiming to reach competitive advantage, firm
and sustainable competitive advantage, profit above the medium level.
b) Definition of business strategy:
According to Boston Consultancy Group: "Business strategy is the
determinations of distribution of available sources with purpose of changing the
competition balance and shifting advantage to your side’’.
According to Michael E. Porter: "Business strategy for coping with
competition is combination between targets to be reached and means that
enterprise should seek to reach the targets’’.
Definition of Business Strategy according to textbook of Strategic
Administration of Griggs is a series of commitments and actions which are used by

13


a company to gain a competitive advantage by means of exploitation of essential
capabilities in a determined market.
In other words, strategy is:
-

Business strategy: where the enterprise attempts to reach in long term
duration (direction).

-

Business strategy: In which market the enterprise has to compete and which
activities the enterprise should perform in that market (scaled market) ?

-

How the enterprise shall do in order to operate better in comparison with the
competitive rivals in that market (advantages) ?

-

Which sources (skill, property, finance, relationships, technical capability,
equipments) required to enable competition (sources) ?

-

How the factors from external environment can impact to competitive
capability of enterprise (environment) ?

-

Which and what values and expectations that powerful persons inside and
outside enterprise are needed (capital contributors) ?
(Source: www.Saga.vn).

1.1.2. Basic matters in building up business strategy:
There are greatly numerous matters requiring the enterprises to care when building
up business strategy for themselves, we however are so much favourite with the speech
given by Professor Michael E. Porter at seminar conference “global competition and

Vietnam advantage” - 1/12/2008, when building up the business strategy, enterprise

should conform to the 5 following principles:
-

To clearly determine a group of typical values which shall be given to
customers having the unique in comparison with competitive rivals,

-

To determine a series of differential values and to adjust them in accordance
with expectations of customers,

-

To determine the balance and clear exchange (to select what should not do),

-

To ensure the activites in series of values to be fit, matched and
supplementary to each other,

14


-

To ensure the continuity in strategy with regular improvements in strategy
performance.
The continuity of strategy is mainly aimed to get a firm and sustainable

competitive advantage. This continuity helps enterprise to throughly understand

their own business strategy, to build up their unique skills, to build up recognition
features clearly for customers as well as to distribution channels and other
enterprises outside, strengthening the suitability – match going through series of
values. The regular change of orientation in business does not only cause cost but
also makes customers confused and mistaken, therefore, in order to get successful
the enterprise has to maintain continuity in regard to group of typical values. It is
the continuous improvement that is the manner for enterprise to perform their own
group of typical values. The continuity in strategy shall allow enterprise to learn
and change faster, more effectively. (Source: Saigon Businessman Newspapers).
The first important step in process of building up a mission declaration is to
determine the business activities of organization. The essential matter in this
determination is to answer to questions: ‘What is our business activities’, ‘What is
it’ and ‘What should be it’. For answering to the question ‘What is our business
activities ?’ - Derek F. Abell has suggested company should determine business
activities on three aspects:
- Who will be satisfied (which group of customers ?)
- For what they shall be satisfied (what do the customers need ?)
- The manner and way for satisfying demands of customers (by the skills or
what particular capability ?).
Customers: The search and attraction of customers are constantly a most
important target for each enterprise. If there are not customers, all the works such as
product development, production scale extension, goods distribution,... shall
become meaningless. Therefore, the analysis of external factors is normally started
with study of customers. The customers normally are divided into groups having
common features. Market segmentation (including consumption market and job

15


trade market) is the method of dividing a large and unhomogeneous market into

smaller segments having many homogeneous features.
To determine demands to be satisfied from customers: The customers’
demand is normally related to interest and characters of products; as being their
expectations to characters and effective abilities of products. The customers demand
in many cases is neither correct nor wrong, also neither bad nor good.
To determine the essential capabilities required to satisfy customers
demands: the essential capabilities are foundation for all new strategies or strategy
corrections and adjustments. The companies use essential capabilities to perform
strategies of value creation aiming to satisfy customers demands and only the
companies capable to incessantly improve, renovate and develop their own potential
can expect to satisfy or exceed the expectations of customers through the time
passing. However, the essential capabilities must be can not be transcribed, long
lasted, able to suit, firm and sustainable, having competitive advantages.
1.1.3. Target of business strategy:
Target is the future status that company attempts to perform or the final result
of planned activities. For example, if being patient with mission of maintaining
position of being the number one company over the world in job trade of universal
space, the commercial universal space group of Boeing company by themselves has
determined some targets in the year of 1992. The top-ranking target is to maintain a
minimum market share of 60% in job trade of big-sized commercial jet-plane. The
second target is to reduce half of time for manufacturing a big-sized commercial jetplane engine in 1997, and the third target is to reduce 30% cost for producing
airplane engine in that year.
( Source : The "Strategic Management" by PGS.TS.Le The Gioi; TS. Nguyen
Thanh Liem; Th.S. Tran Huu Hai - Publisher of Statistics, 2007).
The companies, because of profit may have various targets. An important
target above all others for most companies is to maximize income for shareholders.

16

And, in order to gain this target, the companies normally give the decisions on long
term and short term targets of business.
- Target of long term business strategy: It is the expected result which is
proposed in a relatively long time duration. According to Peter F. Drucker, the long
term targets of enterprise are related to the following 7 fields: Profit rate;
productivity; competition position; job development; relation among staffs and
workers; leading position in regard to technology; responsibility to community.
- Target of short term business strategy: It is the specific results that enterprise
intends gaining in a short time duration.
So, what is a correct target ?
The target of business strategy is supposed to be correct when it is proposed
for all administration levels of company requiring to ensure the particularities:
- Particularity of accuracy and measurability. If the target is not exactly
determined and measurable, the company can not review the process towards
reaching this target. Target should be measurable, so the administrators have criteria
for reviewing their own performance.
- Target must direct towards important matters. In order to maintain
concentration, the company may should operate with some targets. Therefore, the
selected targets only should be important targets. With the above example of
Boeing, the targets about reducing cost and shortening time have concentrated
administrators’ attention on 2 basically important things enabling company to
establish a competitive advantage, i.e. cost and responsibility to customers.
- The target is challengeable however can be performed. Target challenges
administrators to a motive in finding measures to improve activities of organization.
But, if target is not realistic, can not be practicable, the staffs shall refuse. And on
the contrary, if target is too easy, it shall not encourage the administrators. In the
case of Boeing example, the setting of target to reduce 30% cost for the unit, this
means requiring a remarkable improvement of operation efficiency of Boeing and
this is a challengeable target. Furthermore, experiences in other companies have

17


shown that it is possible to gain reduction 30% cost for unit in a period of 6 years,
therefore, the given target is not an unpractical one.
- Target should be determined with a reachable time duration. The time
binding is important because it points out that the success must ensure timing but
not thereafter.
- Target bears the consistency. The consistency means targets must be
suitable to each other, be united with each other and the completion of a target shall
not obstruct the performance of other target. However, the unity is not imperative to
be fully compatible to each other. Actually, there is always contradiction between a
target with the other one. Therefore, in order to minimize the potential
contradictions among targets, it is required to determine the priority order, to
present the selections among contradictory solutions and to try to harmonize them.
It is possible to refer to some options:

+ The immediate profit is contradictory with the long term growth;
+ Profit of business activities/ net turnover are contradictory with competition
position;

+ Endeavour in direct selling is contradictory with endeavour of developing
market;

+ Penetration into existing market is contradictory with development of new
markets;

+ Profitable purpose is contradictory with non-profitable purpose;
+ Growth is contradictory with stability.
1.1.4. Basic business strategies:

The business strategy is built up aiming to form differentiation between a
company position in an inter-relationship with its rivals. Basically, companies
operating for profit all are aiming to the same purpose, i.e. to determine and pursue
a strategy helping them to protect themselves and to get profit in a some market
segment. According to viewpoint given by Harvad, mostly any business strategies

18


all belong to one of some form of variation from one among the following four
types of basic strategy:
-

Strategy of leading by low cost and application manner.

-

To create differentiation for a product or service by creating real value for
customers.

-

Strategy about relationship with customers and 6 methods for making
strategy become valuable to customers.

-

Strategy of network effectiveness: the winner will get everything.

Professor Michael E. Porter gave three solutions of comprehensive strategy

used in competitive environment:
-

Strategy of dominating in regard to cost,

-

Strategy of differentiation,

-

Strategy of focusing.

Strategy of leading in regard to cost is the generalization of actions aiming to
produce goods or services having particularities acceptable to customers with a
lowest cost in relationship with all competitive rivals. In other words, costleadership strategy is based on the capability of enterprise supplying product or
service with a cost rate lower than competitive rivals.
With the cost-leadership strategy, enterprise has two competitive advantages:
Products shall have a lower price in comparison with the competitive rivals and
enterprise can stay more firmly than competitive rivals when the rivals are increased
in job trade. By both these reasons, the cost-leadership strategy seemingly creates
enterprise to have profit higher than average. In the context of world economic
crisis as nowadays, many enterprises are forced to adjust their strategy, to improve
their activities in order to reduce the cost and expense. In regard to enterprises
working in construction job trade, in order to get the construction contracts they do
not have other way than presenting a possible lowest price, but still can satisfy
requirements of technique, quality and time schedule.
To gain a position in regard to low cost, companies can control cost factors
and restructure the series of value if required.
19

The cost factors are included:
-

Change of production procedure,

-

Change in automation,

-

Establishment of new distribution channel,

-

Direct selling instead of indirect selling.

Restructure of series of values such as:
-

Technical application for management of raw materials,

-

In-advance integration,

-

Post integration

-

Change position as conformable to suppliers.

In order to become the leading in cost, many administrators direct all strategic
selections towards product, market, or capability of creating differentiation which is
created by itself aiming to gain competitive advantage of low cost. Regarding the
advantage of each common strategy it had best according to model of five
competitive forces given by Michael E. Porter: with the competitive rivals in the
same job trade, with the negotiation ability of suppliers, with the negotiation ability
of customers, with the product replacement, with the potential threatening from new
companies.
However,

companies

having

selected

cost-leadership

strategy

have

disadvantages, because:
-

The competitive rivals, by using their basic potentials, can imitate the
strategy of company leading in cost.

-

The procedures having been used for production and distribution of goods
and services may become outdated due to the renewal of competitive
rivals.

-

Concentration on reducing cost can be exchangeable with the awareness of
customers in creation of differentiation.

Differentiation Strategy is series of necessary actions for producing service
goods (with an acceptable price) on which customers suppose such products are
differential and such differentiations are important to them.
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In order to create differentiation, administrators normally perform restructuring
series of value aiming to maximize capability through control of cost factors if
required, such as:
-

To reduce the cost,

-

To increase the usability of products or services,

-

To create the strength and firmness through customers awareness about
the unique.

The strategies selected when particularizing are normally supply of after-sale
and comprehensive repair service; creation of products attractive to customers.
As the cost-leadership strategy, differentiation strategy also has advantages
and disadvantages. When reviewing advantages, we review too in context of model
of five competitive forces. Such are the in-advance advantages ensuring the
company to resist rivals by the loyalty of customers to trademark of differential
products in comparison with competition of price (competition with rivals); it is
possible to reduce the negotiation power of buyer because the really differential
products shall make reduced sensitiveness to price increase (bargain power of
buyer); it is possible to reduce the negotiation power of supplier; it is possible to
resist new companies having intention of penetrating into market; have a good
position in comparison with the replaceable products.
Disadvantages of differentiation strategy are located in:
-

Differentiation in regard to price between products of company having
differential products and a company leading in cost may be too big.

-

Until some time, the differential product shall can not create values for
which customers are ready to pay.

-

The rivals may imitate, copy and fake.

Focus Strategy (including strategy of concentration on cost and concentration
on differentiation) is a series of actions needed to do for producing goods and
services aiming to serve demand in a specifically competitive market segment.
To perform a focus strategy, companies need to perform a series of basic and
auxiliary actions in accordance with superiority manner aiming to build up and
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maintain the competitive advantage with a profit rate above medium. The focus
strategy allows companies to orient sources towards some activities of series of
value and to build up the competitive advantage.
However, this strategy also has a danger of getting competition, such as:
-

A company following focus strategy may be made “lost concentrated” by
the rivals,

-

A big competitive rival may keep a keen eye on the focused market of a
company,

-

The like and preference given by customers in a focused market may be
shifted towards similar products of bigger market.

1.1.5. Relationship between business strategy and other strategies:
In any organization, strategies all exist under some various grades – spreading
from the whole enterprise (or a group of enterprises) to each individual agent
working there.
Corporate strategy – related to overall target and size of enterprise aiming to
meet the expectations from capital contributors. This is an important grade as it is
largely impacted from investors in enterprise and concurrently it also guides the
process of issuing strategic decision in the whole enterprise. Normally, the
corporate strategy is clearly described in the “mission declaration”.
Business strategy – more related to how an enterprise can successfully
compete in a specific market. It is related to strategic decisions on selection of
products, meeting customers demands, gaining competitive advantage in
comparison with rivals, exploiting and creating new opportunities.
Operational strategy (or functional strategy) – related to how each part of
enterprise shall be organized for successfully performing the strategic direction at
company grade and at every part in enterprise. Thus, the operational strategy
concentrates on matters of sources, treatment process and human.
To further clarify about the relation among strategies, we will more
specifically analyze the above mentioned strategies.

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a) Corporate Strategy
The corporation graded strategy answers key questions, i.e., company is
including what business activities and how company shall manage such business
activities. So, the corporate strategy determines actions

to be performed by

company aiming to gain competitive advantage by means of selecting, managing a
group of various business activities competitive in some job trades and product
markets. An effective corporate strategy makes the business units overall gained
comprehensive income exceeding what they can do if having no strategy,
contributing to strategic competitive capability of company, and bringing to
company the capability of gaining income above medium.
The corporate strategy is shown in the forms: concentration on a single
business field, vertical integration, diversification, restructuring and buying
enterprise, international strategy, joint-venture strategy.
- Strategy of concentration on a single business field helps the company to
enable

concentrating

sources

of

material,

technology,

finance,

general

administration and its own competitive capabilities aiming to succeed in a field. The
advantage of this strategy is to make companies to attach more to their own works.
But it also has disadvantage, i.e. to miss opportunity for creating value and yielding

higher profit thanks to moving the sources and capability of company to other
activities.
- Strategy of vertical integration: means the company is producing input for
itself (backward integration, or up stream integration) or dispersing its own outputs
(forward integration, or down stream integration). The strategy of vertical
integration is normally originated from expectation of increasing competitive
position of the core business activities. Companies pursue this strategy with aim of
allowing to create barriers for new competitive rivals, fostering investment in
specialized properties to raise effectiveness, to protect quality and to make planning
improved.
However, it also has disadvantage in regard to cost, disadvantage arisen when
technology is fast changing and disadvantage when demands are not unforeseen.
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- Strategy of diversification: Generally speaking, the strategy of diversification
is normally directed to purpose of increasing value. A successful strategy of
diversification shall create value for company thanks to creation of conditions
allowing the company business conditions to apply business-graded strategies for
increasing income and reducing cost. Simultaneously, it also makes the market
strength increased relatively in comparison with the rivals. Numerous
administrators use the diversification strategy to increase the size of company, and
accordingly, can make increased fees for administrators.
When the diversification is considered as to create value for a company, there
are still numerous opinions given by experts (among that including study of
Michael E. Porter) assuming that diversification strategy has a trend of making
reduced rather than improving possibility of producing interest. This has been
already tested and experienced in some Vietnamese enterprises, who make trading
with many job trades, with many various types of product, not conforming to the
core capability of enterprise, resulting in less effectiveness in capital using and less

effectiveness of economy.
- Strategy of restructuring and buying enterprise: Companies using strategy of
buying enterprise has benefits of increasing market strength, overcoming barriers
when entering, creating favourable conditions for development of new business,
strengthening diversification, re-orienting the company competitive scope, learning
and developing new capability.
Restructuring is a strategy through which company changes the complex of
business units or its financial structure. It is used when the company has excessively
diversified, being attacked by competitive rivals to the core fields of company, the
advantage of vertical integration strategy and diversification strategy has been
decreased.
- International strategy: The enterprises use this strategy when:

+ International markets bring about newly potential opportunities
+ New market expanding helps to prolong the life cycle of products

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+ Potential needs for product are bigger
+ Necessary sources can be ensured.
Beneficially international strategy: To make increased market scale, increased
income through investment, increased advantage of scale (or experiences curve),
having advantage of position.
For MECOJSC Company, with the orientation of developing trademark,
leading MECO to become a strong trademark in the market by the policy of firm
and sustainable development and growth in business activities, the Company is
carrying out many strategic selections at company grade such as diversification
strategy, international strategy, vertical integration strategy. However, according to
the group’s viewpoint based on acquired theories, the MECOJSC Company may

should not develop further the diversification strategy as the Company does not
have numerous competitive advantages in comparison with some other big-sized
enterprises operating in the same job trade. This issues shall be analyzed in the next
Chapter II.
With 50 years of experiences operating in the fields of mechanical
manufacture, repair, installation of mechanical equipments and accessories serving
agriculture, forestry and water resource job trades, it may have to say it is the core
capability of company, however, through the results of business activities in years
of 2006, 2007, 2008 and beginning of 2009, the turnover value mainly is trading
and construction and installation. At present, company is bravely investing in fields
of construction, trading real properties, commerce in domestic and foreign markets.
With a management model almost concentrated at company grade as presently, with
about 24 branches and projects located over the country, the Leadership needs
determine if it is required to restructure the company or not in order to make
conformable to target of expanding enterprise size
b) Business Strategy (competitive strategy)
Business Strategy is a determination on how an enterprise can compete in a
previously defined job trade or a specific field. In order to firmly develop in some

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