Luận văn Chiến lược phát triển công ty Cổ phần Vật liệu SECOIN

LUẬN VĂN CHIẾN LƯỢC PHÁT TRIỂN CÔNG TY CỔ PHẦN VẬT LIỆU
SECOIN
DEVELOPMENT STRATEGIES OF
SECOIN BUILDING MATERIAL CORPORATION DURING THE PERIOD
OF 2010-2020

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PREFACE
GENERAL INTRODUCTION
A. The importance of making Development Strategies
The modern business environment is changing day by day. Vietnam by far has
been considered one of the fastest growing economy, not just in Asia but the
entire world. Opening the economy in 1986, Vietnam has undergone almost 30
years toward a real market economy. An important milestone in the way of
global integration for Vietnam was marked when Vietnam joined WTO. A lot
of changes have been made and are expected to be made in the years to come,
especially the period of 2010-2020.
The question is: Will those fast changes have any influence Vietnamese
companies? Of course the answer is YES. All leaders of Vietnamese companies
can easily answer YES without need to think. But it will be a much harder
question for them to answer: How will their companies cope with those
changes? Will they be able to grow sustainably in the road ahead? How they
expect their companies to become in ten years time?
So, we have come to the point of strategic thinking! The German people has a
proverb: “What's the use of running if you are not on the right road?”. Strategic
thinking will help leader of a company decide where his organization has to go,
and whether they are going on the right road or not. A leader with a good

strategy will make the company grow by grasping the opportunities that the
outside world bringing to them. By all these thoughts, our team can see the
importance of strategic thinking in the mind of leaders of companies who are
operating in a fast changing business environment.
A strategic thinking in the mind of leader shouldn’t be confidential information.
Strategy defines the future goals of a company and they should be known by all
company members. The whole staff should have a clear understanding of the

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direction of further development of the company, otherwise the company is
doomed to failure.
We are now in the second half of 2009. The year 2008 and the first half of 2009
has witnessed so much turbulence in the global economy. It is expected that the
recovery will start from early 2010. Then, the period of 2010 to 2020 may be the
time for economic growth. Vietnam will be in that growing trend, and
Vietnamese companies are driving force of an economic booming. Start
making a business strategy for 2010-2020 right from today - it is the first
thing a company leader needs to do if he has not done it yet.
Realizing the importance of working out a development strategy for the coming
10 years, the leader of Secoin Building Material Corporation can draw a picture
of the future prospect for his company. What to be put in the picture? It should
be a panorama showing in details the environment Secoin is in, how Secoin
looks like, and where Secoin needs to go. Developing an extensive and
comprehensive development strategy is therefore the most important task for
Secoin.
Now, let’s us go together into more details and help Secoin Building Material

Corporation work out a perfect “DEVELOPMENT STRATEGIES OF
SECOIN BUILDING MATERIAL CORPORATION DURING THE
PERIOD OF 2010-2020".
B. The purpose of researched topic
The purpose of conducting this research is to identify strategy and business
development to the year 2020 for Secoin Building Material Corporation. From
there, Secoin can take appropriate action to expand the scale, reduce business
costs, use capital effectively, bring profits to enterprise as well as increase
efficiency in competition for business.

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In this research, we also suggested some solutions to Secoin in order to
implement the corporate strategy and business strategy during the period of
2010-2020.
C. Research methods:
For conducting this project, we have used the methods of single complication,
statistics, survey, synthesis and analysis.
Scope of research:
This project focuses on reviewing the current strategy of Secoin Building
Material Corporation and the existing achievements and the limitations. In
addition, research on strategic planning and business development of Secoin
Building Material Corporation during the period 2010-2020.
D. Capstone project structure:
Our project includes three chapters as follows:
Chapter 1: Fundamental theories of management strategy
Chapter 2: Actual situation of business management in Secoin Building Material

Corporation during recent time
Chapter 3: Solutions to strategic management of Secoin Building Material
Corporation during the period 2010-2020

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CHAPTER 1
FUNDAMENTAL THEORIES OF MANAGEMENT STRATEGY
1.1. Overall management strategy:
1.1.1. The concept of strategy and management strategy:
The concept of strategy:
Strategies are means to ends. All organizations, large and small, profitseeking and not-for- profit, private and public sector, have a purpose,
which may or may not be articulated in the form of a mission and/or
vision statement.
“The flame of competition has changed from smoky yellow to intense
white heat. For companies to survive and prosper they will have to have a
vision, a mission and strategy. They will pursue the action arising from
that strategy with entrepreneurial skill and total dedication and
commitment to win.”
(Peter B Ellwood, Chief Executive, Lloyds TSB Group )
“Far too many companies either have no goals at all, other than cost
reduction, or their boss hides them in his head. There’s no hope for
companies in Britain unless more top managements accept the need for a
widely communicated set of clear objectives.”
Peter Beck, ex-Chairman, The Strategic Planning Society, 1987
At their simplest, strategies help to explain the things that managers and
organizations do. These actions or activities are designed and carried out

in order to fulfill certain designated purposes, some of them short term in
nature, others longer term. The organization has a direction and broad
purpose, which should always be clear, articulated and understood, and
which sometimes will be summarized in the form of a mission statement.
More specific milestones and targets (objectives) can help to guide
specific actions and measure progress.
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Strategies, then, are means to ends.
They are relevant for the organization as a whole, and for the individual
businesses and/or functions that comprise the organization. They are
created and changed in a variety of ways. They have, however, one
common feature: they all have life cycles and need changing, either
marginally or dramatically, at certain times.
While strategic management incorporates major changes of direction for
the whole business, such as diversification and growth overseas, it also
involves smaller changes in strategies for individual products and services
and in particular functions such as marketing and operations. Decisions by
managers in relation to their particular areas of product or functional
responsibility have a strategic impact and contribute to strategic change.
To some extent, all managers are strategy-makers.
Strategic management is a complex and fascinating subject with
straightforward underlying principles but no ‘right answers’. Strategy is
about issues and perspectives on problems - there is no single, prescriptive
doctrine which satisfies everyone’s views.
Companies succeed if their strategies are appropriate for the circumstances
they face, feasible in respect of their resources, skills and capabilities, and

desirable to their important stakeholders - those individuals and groups,
both internal and external, who have a stake in and an influence over the
business. Simply, strategy is fundamentally about a fit between the
organization’s resources and the markets it targets - plus, of course, the
ability to sustain fit over time and in changing circumstances.
Morrison and Lee (1979) concluded that successful companies seem to be
distinguished from their less successful competitors by a common pattern
of management practices:
■ First, they identify more effectively than their competitors the key
success factors inherent in the economics of each business. For example in
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the airline industry, with its high fixed costs and relatively inflexible route
allocations, a high load factor is critical to success. It is important, though,
that high load factors are not at the expense of healthy sales of more
expensive seats, and this requires skilful marketing.
■ Second, they segment their markets so as to gain decisive competitive
advantage, basing the segmentation on competitive analysis and often
separating segments according to the strengths and weaknesses of
different competitors. This enables them to concentrate on segments
where they can both maximize their competitive advantage and avoid
head-on competition with stronger competitors.
■ Third, they carefully measure and analyze any competitive advantage.
This requires a sound basis for assessing a company’s advantages relative
to its competitors.
■ Fourth, they anticipate their competitors’ responses. Good strategic
thinking also implies an understanding of how situations will change over

time. Business strategy, like military strategy, is a matter of maneuvering
for superior position and anticipating how competitors will respond, and
with what measure of success.
■ Fifth, they exploit more, or different, degrees of freedom than their
competitors. Specifically, they seek to stay ahead of their rivals by looking
for new competitive opportunities. Whilst innovation and constant
improvement are essential, there are also potentially huge rewards for
organizations which are first to reach the new competitive high ground by
changing the currently practiced rules of competition.
■ Finally, they give investment priority to businesses or areas that promise
a competitive advantage. Because there are many views on strategy and
strategic management and no single, universally accepted, approach, a
study of strategic changes in a variety of different organizations is
valuable. An examination of outcomes, followed by an analysis of the
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decisions which led to these relative successes and failures, is rich in
learning potential. Examples should not be confined to just one sector.
Manufacturing and service businesses, the private and public sectors and
not-for-profit organizations are all relevant. Everyone who can make or
influence decisions which impact on the strategic effectiveness of the
business should have at least a basic understanding of the concepts and
processes of strategy. The processes will often be informal, and the
outcomes not documented clearly, but they still exist, and managing the
processes effectively determines the organization’s future. Without this
understanding people often fail to appreciate the impact of their decisions
and actions for other people within the business. They are less likely to be

able to learn from observing and reflecting upon the actions of others.
They are also more likely to miss or misjudge new opportunities and
growing threats in the organization’s environment.
Overall Definition:
Johnson and Scholes (Exploring Corporate Strategy) define strategy as
follows:
"Strategy is the direction and scope of an organization over the longterm: which achieves advantage for the organization through its
configuration of resources within a challenging environment, to meet the
needs of markets and to fulfill stakeholder expectations".
In other words, strategy is about:
* Where is the business trying to get to in the long-term (direction)
* Which markets should a business compete in and what kind of activities
are involved in such markets? (markets; scope)
* How can the business perform better than the competition in those
markets? (advantage)?

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* What resources (skills, assets, finance, relationships, technical
competence, facilities) are required in order to be able to compete?
(resources)?
* What external, environmental factors affect the businesses' ability to
compete? (environment)?
* What are the values and expectations of those who have power in and
around the business? (stakeholders)
Strategy at Different Levels of a Business
Strategies exist at several levels in any organization - ranging from the

overall business (or group of businesses) through to individuals working
in it.
Corporate Strategy - is concerned with the overall purpose and scope of
the business to meet stakeholder expectations. This is a crucial level since
it is heavily influenced by investors in the business and acts to guide
strategic decision-making throughout the business. Corporate strategy is
often stated explicitly in a "mission statement".
Business Unit Strategy - is concerned more with how a business competes
successfully in a particular market. It concerns strategic decisions about
choice of products, meeting needs of customers, gaining advantage over
competitors, exploiting or creating new opportunities etc.
Operational Strategy - is concerned with how each part of the business is
organized to deliver the corporate and business-unit level strategic
direction. Operational strategy therefore focuses on issues of resources,
processes, people etc.
The concept of management strategy
There are a number of aspects to strategic management.
First, the strategy itself. This is concerned with the establishment of a
clear direction for the organization and for every business, product and
service, and a means for getting there which requires the creation of strong
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competitive positions.
The second requirement is excellence in the implementation of strategies
in order to yield effective performance.
Third, creativity and innovation are needed to ensure that the organization
is responsive to pressures for change and that strategies are improved and

renewed.
Fourth is the ability to manage strategic change, both continuous, gradual,
incremental changes and more dramatic, discontinuous changes.
Innovation and change concern the strategy process in an organization.
Sound implementation and innovation should enable an organization to
thrive and prosper in a dynamic, global environment, but in turn they
depend

on

competencies

in

strategic

awareness

and

learning.

Organizations must understand the strategic value of the resources that
they employ and deploy, and how they can be used to satisfy the needs
and expectations of customers and other stakeholders while outperforming
competitors.
Strategy is about actions, not plans - specifically the commitment of
resources to achieving strategic ends … concrete steps that immediately
affect people’s lives, not abstract intentions.
Andrew S Grove, CEO, Intel

In its broadest sense, strategic management is about taking "strategic
decisions" - decisions that answer the questions above.
In practice, a thorough strategic management process has three main
components, shown in the figure below:

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Figure 1.1 – Strategy
Strategic Analysis
This is all about analyzing the strength of businesses' position and
understanding the important external factors that may influence that
position. The process of Strategic Analysis can be assisted by a number of
tools, including:
PEST Analysis - a technique for understanding the "environment" in
which a business operates
Scenario Planning - a technique that builds various plausible views of
possible futures for a business
Five Forces Analysis - a technique for identifying the forces which affect
the level of competition in an industry
Market Segmentation - a technique which seeks to identify similarities
and differences between groups of customers or users
Directional Policy Matrix - a technique which summarizes the
competitive strength of a business operations in specific markets
Competitor Analysis - a wide range of techniques and analysis that seeks
to summarize a businesses' overall competitive position
Critical Success Factor Analysis - a technique to identify those areas in
which a business must outperform the competition in order to succeed

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SWOT Analysis - a useful summary technique for summarizing the key
issues arising from an assessment of a business "internal" position and
"external" environmental influences.
Strategic Choice
This process

involves understanding the

nature of stakeholder

expectations (the "ground rules"), identifying strategic options, and then
evaluating and selecting strategic options.
Strategy Implementation
Often the hardest part. When a strategy has been analyzed and selected,
the task is then to translate it into organizational action.
Beginning in the 1950's, research on organizations emphasized the
importance of understanding the macro-economic environment in which
organizations operate. An organization on its own cannot affect
environmental factors, nor can environmental factors affect the
profitability of an industry or an organization. Conducting a strategic
analysis entails scanning the general or macro-economic environment to
detect and understand the broad, long -term trends.
1.1.2. Tasks of management strategies:
Management strategy includes five tasks inter-communicating with each other:

Create a strategic scenario describes the future image of the company, if
the companies want to first become a company like? Government to
provide long-term orientation, specify the image the company to become,
for media companies feel about the actions of purpose
Setting goals - to transform scenario strategy into the implementation of
that company must achieve.
Develop strategies to achieve the desired goals
Implementation and administration of the strategy has been selected in an
effective and efficient
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Rating of the implementation and conduct of the scenario, long-term
direction, goals, strategies or implementation on the basis of experience,
the conditions change, ideas and opportunities new.
1.1.3. Benefits of management strategy
Studies show that if applied management strategies organizations will perform
better than organizations do not perform this process. Achieved if appropriate
between environmental organization's strategy, structure and process will
generate positive effects on the performance of the organization. Benefits of
management strategy has been tested in many different fields, can be short
with the three most basic are:
Develop clear strategic scenario for the company
Focusing more precisely on the important strategy
Improve awareness of the rapidly changing environment
However, to achieve effective management strategies always need a formal
process, and it can start with questions:
Where is the organization?

If no changes are be made after 1 year, 2 years, 3 years, 5 years, 10 years,
will it be acceptable or not ?
If the answer is not acceptable, is it necessary to implement specific
management actions? What should be considered as risks and interests?
1.2. Process of development strategy formation
1.2.1. Vision
Statement to open a mission for the plan and strategy is the foundation for a
vision of the company. Statement of mission or may be a motivating
employees when transmit the purpose and value of the company to customers
and communities.
A statement of vision is a report about a company where you hope to achieve.
Universal Declaration vision needed for strategic planning because it outlines
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the future of your company as you achieve goals and your goals. The
statement of vision may be different between different length, can be a short,
can be a paragraph long, but must identify the final destination of you.
Vision of your company is an important statement to guide the process of
planning strategies. A statement of vision will determine the best results for
the current initiatives and your potential.
1.2.2. Mission:
Mission is to answer the question why? Mission will be the business and will
lose the business no longer exists or switch to a business other.
Statement of mission is a documentation purposes inform the existence of your
company. A mission statement identifies the values and rules governed by
your company and is a dominant part in the planning strategy. The mission
may be different in length, can be from 1 to 1 of questions and should talk

about business, purpose and values. Mission of the company which is why the
company exists on the market, who you are and you will bring to customers
and communities in these types of products and services do. Decisions in the
process of planning and strategy of the dominant company must always
harmonious with the statement of mission.
A strategic plan starts with a clearly defined business mission. Mintzberg
defines a mission as follows: “A mission describes the organization’s basic
function in society, in terms of the products and services it produces for its
customers”.
A clear business mission should have each of the following elements

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Figure 1.2 – Element of Mission
Taking each element of the above diagram in turn, what should a good mission
contain?
A Purpose:
Why does the business exist? Is it to create wealth for shareholders? Does
it exist to satisfy the needs of all stakeholders (including employees, and
society at large?)
A Strategy and Strategic Scope:
A mission statement provides the commercial logic for the business and so
defines two things:
- The products or services it offers (and therefore its competitive
position)
- The competences through which it tries to succeed and its method of
competing

A business’ strategic scope defines the boundaries of its operations. These
are set by management.
For example, these boundaries may be set in terms of geography, market,
business method, product etc. The decisions management make about
strategic scope define the nature of the business.
Policies and Standards of Behavior
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A mission needs to be translated into everyday actions. For example, if the
business mission includes delivering “outstanding customer service”, then
policies and standards should be created and monitored that test delivery.
These might include monitoring the speed with which telephone calls are
answered in the sales call centre, the number of complaints received from
customers, or the extent of positive customer feedback via questionnaires.
Values and Culture:
The values of a business are the basic, often un-stated, beliefs of the
people who work in the business. These would include:
- Business principles (e.g. social policy, commitments to customers)
- Loyalty and commitment (e.g. are employees inspired to sacrifice their
personal goals for the good of the business as a whole? And does the
business demonstrate a high level of commitment and loyalty to its
staff?)
- Guidance on expected behavior – a strong sense of mission helps create
a work environment where there is a common purpose
What role does the mission statement play in marketing planning?
In practice, a strong mission statement can help in three main ways:
- It provides an outline of how the marketing plan should seek to fulfill

the mission
- It provides a means of evaluating and screening the marketing plan; are
marketing decisions consistent with the mission?
- It provides an incentive to implement the marketing plan
1.2.3. Objective:
Objective is specific, clear, feasible, in a shorter time. Objective is regarded as
a specific vision of the enterprise.
Main goal is the future status of the company trying to implement or final
results of the actions planned.
To that, the objective must have four characteristics:
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-

First, a target is considered to be well established if it accurate and can
measure

-

Second, a target is set to be the critical issues

-

Third, a goal was set up well to the challenges and can make

-

Fourth, a goal is built so well identified with a period of time can be
achieved.

-

Finally, the objectives to provide good tools to evaluate the
implementation of management

Objectives can be set at two levels:
-

Corporate level: These are objectives that concern the business or
organization as a whole

-

Functional level

Both corporate and functional objectives need to conform to the commonly
used SMART criteria.
The SMART criteria (an important concept which you should try to remember
and apply in exams) are summarized below:
-

Specific - the objective should state exactly what is to be achieved.

-

Measurable - an objective should be capable of measurement – so that it
is possible to determine whether (or how far) it has been achieved

-

Achievable - the objective should be realistic given the circumstances in
which it is set and the resources available to the business.

-

Relevant - objectives should be relevant to the people responsible for
achieving them

-

Time Bound - objectives should be set with a time-frame in mind. These
deadlines also need to be realistic.

1.3. Strategy Analysis:
We found that, how the organization is typically one of a number of
competitors in an industry; and to a greater or lesser degree these competitors
will be affected by the decisions, competitive strategies and innovation of the
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others. These interdependencies are crucial, and consequently strategic
decisions should always involve some assessment of their impact on other
companies, and their likely reaction. Equally, a company should seek to be
fully aware of what competitors are doing at any time.
Furthermore, this industry will be linked to, and dependent on, other

industries: industries from which it buys supplies, and industries to which it
markets products and services. Essentially this relates to Porter’s model of the
forces that determine industry profitability, the subject of the next section in
this chapter.
The relationships between a firm and its buyers and suppliers are again crucial
for a number of reasons. Suppliers might be performing badly and as a result
future supplies might be threatened; equally they might be working on
innovations that will impact on organizations to which they supply. Buyers
might be under pressure from competitors to switch suppliers. It is important
to be strategically aware, and to seek to exert influence over organizations
where there are dependencies.
These industries and the firms that comprise them are additionally part of a
wider environment. This environment is composed of forces that influence the
organizations, and which in turn can be influenced by them. Particular forces
will be more or less important for individual organizations and in certain
circumstances. It is important that managers appreciate the existence of these
forces, how they might influence the organization, and how they might be
influenced.
Mintzberg (1987) has used the term ‘crafting strategy’ to explain how
managers learn by experience and by doing and adapting strategies to
environmental needs. He sees the process as being analogous to a potter
molding clay and creating a finished object. If an organization embarks upon a
determined change of strategy, certain aspects of implementation will be
changed as it becomes increasingly clear with experience how best to manage
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the environmental forces. Equally, managers adapt existing competitive and

functional strategies as they see opportunities and threats and gradually change
things. In each case the aim is to ensure that the organization’s resources and
values are matched with the changing environment.
1.3.1. Macro Environment (PEST model)
A PEST analysis is merely a framework that categorizes environmental
influences as political, economic, social and technological forces. Sometimes
two additional factors, environmental and legal, will be added to make a
PESTEL analysis, but these themes can easily be subsumed in the others.
PEST analysis is concerned with the environmental influences on a business.
The acronym stands for the Political, Economic, Social and Technological
issues that could affect the strategic development of a business.

Figure 1.3 – PEST model
Identifying PEST influences is a useful way of summarizing the external
environment in which a business operates. However, it must be followed up by
consideration of how a business should respond to these influences.
The table below lists some possible factors that could indicate important
environmental influences for a business under the PEST headings:

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Political /

Economic
Social
Technological
Legal

Environmental Economic growth (overall; Income distribution Government
regulation and by industry sector)

(change in

spending on

protection

distribution of

research

Taxation

disposable income;
Monetary policy (interest Demographics (age

Government and

(corporate;

rates)

structure of the

industry focus on

population; gender;

technological

family size and

effort

consumer)

composition;
changing nature of
International

Government spending

occupations)
Labor / social

trade

(overall level; specific

mobility

and development

regulation
Consumer

spending priorities)
Policy towards

Lifestyle changes

Speed of

protection

unemployment (minimum (e.g. Home working, technology

New discoveries

wage, unemployment

single households)

Employment

benefits, grants)
Taxation (impact on

Attitudes to work and Rates of

law

consumer disposable

leisure

income, incentives to

transfer

technological
obsolescence

invest in capital
equipment, corporation tax
Government

rates)
Exchange rates (effects on Education

organization / demand by overseas
attitude

Energy use and
costs

customers; effect on cost
of imported components)
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Political /

Economic

Social

Technological

Legal
Competition

Inflation (effect on costs

Fashions and fads

Changes in

regulation

and selling prices)

Health & welfare

material sciences

Stage of the business cycle Living conditions

Impact of changes

(effect on short-term

(housing, amenities, in Information

business performance)

pollution)

Economic "mood" -

technology
Internet!

consumer confidence
1.3.2. Michael Porter's Five Forces Model
Porter (1980) argues that five forces determine the profitability of an industry.
They are featured in Figure 1.4. At the heart of the industry are rivals and their
competitive strategies linked to, say, pricing or advertising; but, he contends, it
is important to look beyond one’s immediate competitors as there are other
determinants of profitability. Specifically there might be competition from
substitute products or services. These alternatives may be perceived as
substitutes by buyers even though they are part of a different industry. There
may also be a potential threat of new entrants, although some competitors will
see this as an opportunity to strengthen their position in the market by
ensuring, as far as they can, customer loyalty. Finally it is important to
appreciate that companies purchase from suppliers and sell to buyers. If they
are powerful they are in a position to bargain profits away through reduced
margins, by forcing either cost increases or price decreases. This relates to the
strategic option of vertical integration which will be considered in detail later
in the book. Vertical integration occurs where a company acquires, or merges
with, a supplier or customer and thereby gains greater control over the chain of
activities which leads from basic materials through to final consumption.
Any company must seek to understand the nature of its competitive
environment if it is to be successful in achieving its objectives and in
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establishing appropriate strategies. If a company fully understands the nature
of the five forces, and particularly appreciates which one is the most important,
it will be in a stronger position to defend itself against any threats and to
influence the forces with its strategy. The situation, of course, is fluid, and the
nature and relative power of the forces will change. Consequently, the need to
monitor and stay aware is continuous.
An industry is a group of firms that market products which are close
substitutes for each other (e.g. the car industry, the travel industry).
Some industries are more profitable than others. Why? The answer lies in
understanding the dynamics of competitive structure in an industry.
The most influential analytical model for assessing the nature of competition
in an industry is Michael Porter's Five Forces Model, which is described
below:

Figure 1.4 - Michael Porter's Five Forces Model
Porter explains that there are five forces that determine industry attractiveness
and long-run industry profitability. These five "competitive forces" are:
- The threat of entry of new competitors (new entrants)
- The threat of substitutes
- The bargaining power of buyers
- The bargaining power of suppliers
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- The degree of rivalry between existing competitors

Threat of New Entrants
New entrants to an industry can raise the level of competition, thereby
reducing its attractiveness. The threat of new entrants largely depends on the
barriers to entry. High entry barriers exist in some industries (e.g.
shipbuilding) whereas other industries are very easy to enter (e.g. estate
agency, restaurants). Key barriers to entry include
- Economies of scale
- Capital / investment requirements
- Customer switching costs
- Access to industry distribution channels
- The likelihood of retaliation from existing industry players.
Threat of Substitutes
The presence of substitute products can lower industry attractiveness and
profitability because they limit price levels. The threat of substitute products
depends on:
- Buyers' willingness to substitute
- The relative price and performance of substitutes
- The costs of switching to substitutes
Bargaining Power of Suppliers
Suppliers are the businesses that supply materials & other products into the
industry.
The cost of items bought from suppliers (e.g. raw materials, components) can
have a significant impact on a company's profitability. If suppliers have high
bargaining power over a company, then in theory the company's industry is
less attractive. The bargaining power of suppliers will be high when:
- There are many buyers and few dominant suppliers
- There are undifferentiated, highly valued products
- Suppliers threaten to integrate forward into the industry (e.g. brand
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manufacturers threatening to set up their own retail outlets)
- Buyers do not threaten to integrate backwards into supply
- The industry is not a key customer group to the suppliers
Bargaining Power of Buyers
Buyers are the people / organizations who create demand in an industry
The bargaining power of buyers is greater when
- There are few dominant buyers and many sellers in the industry
- Products are standardized
- Buyers threaten to integrate backward into the industry
- Suppliers do not threaten to integrate forward into the buyer's industry
- The industry is not a key supplying group for buyers
Intensity of Rivalry
The intensity of rivalry between competitors in an industry will depend on:
-

The structure of competition - for example, rivalry is more intense
where there are many small or equally sized competitors; rivalry is less
when an industry has a clear market leader

-

The structure of industry costs - for example, industries with high fixed
costs encourage competitors to fill unused capacity by price cutting

-

Degree of differentiation - industries where products are commodities

(e.g. steel, coal) have greater rivalry; industries where competitors can
differentiate their products have less rivalry

-

Switching costs - rivalry is reduced where buyers have high switching
costs - i.e. there is a significant cost associated with the decision to buy a
product from an alternative supplier

-

Strategic objectives - when competitors are pursuing aggressive growth
strategies, rivalry is more intense. Where competitors are "milking" profits
in a mature industry, the degree of rivalry is less

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-

Exit barriers - when barriers to leaving an industry are high (e.g. the cost
of closing down factories) - then competitors tend to exhibit greater
rivalry.

1.3.3. Value chain:
The value chain is a systematic approach to examining the development of
competitive advantage. It was created by M. E. Porter in his book, Competitive
Advantage (1980). The chain consists of a series of activities that create and

build value. They culminate in the total value delivered by an organization.
The 'margin' depicted in the diagram is the same as added value. The
organization is split into 'primary activities' and 'support activities.'

Figure 1.5 – Value Chain Model
Primary Activities.
Inbound Logistics.
Here goods are received from a company's suppliers. They are stored until they
are needed on the production/assembly line. Goods are moved around the
organization.
Operations.
This is where goods are manufactured or assembled. Individual operations
could include room service in an hotel, packing of books/videos/games by an
online retailer, or the final tune for a new car's engine.
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