Lựa chọn chiến lược kinh doanh cho công ty cổ phần may sông hồng

.
LUẬN VĂN

Lựa chọn chiến lược kinh doanh cho công ty cổ phần
may Sông Hồng
BUSINESS STRATEGY SELECTION FOR SONG HONG
GARMENT JOINT STOCK COMPANY

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TABLE OF CONTENTS

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LIST OF PHOTOS, LIST
Chapter 1
Figure 1.1: Steps in planning strategy
Figure 1.2: Companies and other factors affecting business
Figure 1.3: Model of five competitive forces of M. Porter
(Source: Le The Gioi ..., 2009, Strategic Management, five forces model of
competition Porter, tr.106)
Table 1.4: SWOT Framework Analysis minimalist
Table 1.5: The general strategy by Michael Porter
(Source: Nguyen Thanh Thao, "Brand Strategy by Michael Porter theory)
Chapter 2
Figure 2.1: Information logo of the Song Hong Garment Joint Stock Company
(Source: The Song Hong Garment Joint Stock Company)
Figure 2.2: Diagram the organizational structure of the company.
(Source: The Song Hong Garment Joint Stock Company)

Table 2.3. Proportion of products through the year on total revenue
(Source: The Song Hong Garment Joint Stock Company)
Schedule 2.4: The proportion of products through the years
(Source: The Song Hong Garment Joint Stock Company)
Table 2.5: List of contracts by supplier
(Source: The Song Hong Garment Joint Stock Company)
Table 2.6: Summary of business activity indicators
(Source: The Song Hong Garment Joint Stock Company)
Table 2 July: The key financial indicators
(Source: The Song Hong Garment Joint Stock Company)

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Table 2.8: Profit Planning and organization 2008 - 2009.
(Source: The Song Hong Garment Joint Stock Company)
September 2 Import table textile materials 2002-2007
Figure 2:10 Map of cotton price fluctuations, fabrics
Source GSO VN
Figure 2:11: Market share
(Source: According to statistics of the General Department of Statistics)
Figure 2:12 The number of industrial enterprises garment business (2000-2007)
Source GSO, in the Yearbook 2008)
Figure 2:13 Competitiveness of Vietnam and some countries
Source: WEF, The Global Competiveness Report (2007)
Figure 2:14 Competitiveness of Vietnam with some countries
(Number of ratings 2006: 125, 2005: 116, 2004: 104)
(Source: WEF, The Global Competiveness Report (2007)
Figure 2.15. Price index for domestic consumption
(Source GSO U.S.)

Figure 2:16: SXCN value and density of industrial GDP
(Source: Ministry of Industry and Trade)
Chapter 3
Table 3.1 Location map bedding products buffer the Red River in the market.
Table 3.2: Structure of employees by level of labor
(Source: The Song Hong Garment Joint Stock Company)
Figure: 3.3: Structure of the company’s human
(Source Song Hong Garment Joint Stock Company)

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FOREWORD
1. Reason for topic choice:
The Vietnam’s economy is gradually intergrating with economies of the
region and the world, and the business environment for enterprises is also expanded.
However, the competition is becoming more fierce. This creates both business
opportunies and potential risks threatening the development of enterprises. At
present, the Vietnam garment industry plays a role as a principal industry in the
process of integration and economic development in the World. In the changeable
market, ignoring the random element, the main issue affecting the success of the
enterprise is selecting a right direction, defining a timely and reasonable business
strategy.
the Song Hong Garment Joint Stock Company is a young enterprise which
continuously applies strategic management methods in the real business process in
the enterprise and that brough good results.
Being aware of the importance of planning business strategies which play the
pivotal role in the production process of the enterprise; Group 9 of GaMBA01.02
chose the topic: “The business strategy of the Song Hong Garment Joint Stock
Company” in order to put the knowledge after studying and research into the

business practice.
2. Purpose of this topic research is:
To clarify some primary theories and methodology on building and
implementing the business strategy the Song Hong Garment Joint Stock Company
on basis of analyzing and evaluating the situation of production and business as
well as the business environment of the Company during the past time.
3. Methods and scope of research:

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Researching the business and production activities of the Song Hong
Garment Joint Stock Company during the past time and the business strategy for the
enterprise in the period of 2010-2012.
3.1. Data gathering method:
Primary data gathering: by studying, observing the actual operation of the
company, personal interviews (with staffs and officers in the company), sending
emails, etc.
Secondary data gathering: from reports, documents, Statistical Yearbooks,
information on newspapers, on televisions, internet and previous researches.
3.2. Comparison and synthesis method: comparing one figure with the
original figure applied to figures of business results, market parameters, average
figures, and other comparable figures. Comparison conditions are that figures must
fit the space, time, economic contents, measurement unit, calculation method, scale
and business conditions.
3.3. Statistical method in tables: to find out the trend or common
characteristics of the analyzed elements.
3.4. SWOT method: to find out strengths and weaknesses inside the
enterprise, opportunies and threats outside the enterprise. This is the key method in
strategy planning.

4. Research scope:
Researching the business and production activities of the Song Hong
Garment Joint Stock Company during the past time; building business and
production development strategy of the Company in the period of 2010-2012.
5. Contents and structure of topic:
Structure of this topic includes three parts:
Chapter 1: Basic theories on the business and production development
strategy.
Chapter 2: Real situation of the business and production development
strategy of the Song Hong Garment Joint Stock Company.

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Chapter 3: Business strategy of the Song Hong Garment Joint Stock
Company till 2012 and solutions.
We would like to express our sincere thanks to ...............................for wholehearted help during implementing this topic.

CHAPTER 1
BASIC THEORIES ON THE BUSINESS AND PRODUCTION
DEVELOPMENT STRATEGY.
1.1. CON CEPT AND ROLE OF STRATEGY
1.1.1 Concept:
According to Micheal Porter. “Strategy is the study to find out a suitable
competitive position in an industry, a scope of main activities where
competitiveness occurs.”According to William F.Gluek: “Strategy is an united, overall and
coordinated plan and designed to ensure that basic targets of the enterprise are
achieved successfully”.
The term “strategy” is often used with three common meanings:
The first: being general operation programs and deploying principal

resources to achieve targets.
The second: being targets of the organization, resources used to achieve such
targets, operating policies for collection, use and arrangement of such resources.

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The third: determining long-term targets and selecting ways for operation
and allocating necessary resources to achieve such targets.
Strategic management: is the science and art of the strategy in order to build
the direction and business targets, deploying and implementing short-term and longterm plan based on available resources to help each organization to achieve its longterm targets.
Due to different approaches to the strategy, then there are also different concepts
about the strategy. Thus, so far there has not been a united and general concept about the
strateg. Here are some concepts:
- M.Porter said: “Strategyis the art of building strong competitive
advantages for defence”.
- Alain Threatart said in the “Strategy of the Company” that: “Strategy is the
art of the enterprise to fight against competitiveness and to win the victory”.
- “Strategy is to sketches long-term and sold development orbits, of which
decisions and exact actions of the enterprise can be arranged”. It is the concept of
Alain Charles Martinet, the author of the “Strategy”, who won the prize of Havard
L’expandsion in 1983.
…
In general, the above mentioned concepts about the term “Strategy” includes
and reflects the following issues:
+ Target of Strategy.
+ Implementation duration.
+ Process for making the Strategy.
+ Competitive environment.
+ Advantages and weaknesses of the enterprise in general and for each

activity in particular.
+ Measures and the way to achieve the target.
Thus, we can see that the Strategy of the enterprise is a “product” combining
what the environment has? What the enterprise can? And what the enterprise want?

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1.1.2 The role of the business strategy in the enterprise’s operation.
Strategic management is a direction to help these organizations overcome
challenges in the market, reach the future by their efforts and ability. It is really a
management science, because if organizations develop a good management process,
they will have a good base to go forward.
Strategic management helps an organization be more active instead of being
passive in planning its future. It allows an organization to be proactive and to
influence the environment in which it works, and thus it makes use of its ability to
control variables.
Strategic management creates important awareness for each person. Both the
directorate and employees understand and are committed to implementing the
targets of the enterprise. Once everyone in the enterprise understands what and why
the enterprise is doing, then they feel that they are a part in the enterprise and they
will commit to supporting all activities of the enterprise.
1.1.3 Strategy levels:
In any organizations, strategies have existed in several different levels –
expanding from the entire enterprise (or a group of enterprises) to each individual
working in it.
+ Enterprise strategy : is a company-level strategy serving the purpose and overall
scope of the organization to meet expectations of capital contributers.
+ Business strategy – More related to how an enterprise can compete successfully
on a specific market.

+ Function strategy – are strategies supporting the business-level strategy to be
implemented effectively thanks to components in the aspects of resources,
processess, human resources and necessary skills.
+ Global strategy (international business) – is the choice to face with international
business issues when the enterprise diversifies its operation beyond the national
border.
1.2. Building the business strategy of the enterprise.
Process of building the business strategy

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The process of building the business strategy is also the process of planning
the business strategy, summarized in the following diagram:
Figure 1.2 : Steps in planning the Strategy

* Identify functions and tasks of the enterprise
The first step is to indentify functions and tasks of the enterprise. In fact, it is
to define the mission, vision and strategic targets of the enterprise.
Mission: Mission of the enterprise is a concept to define purposes of the
enterprise, reasons for the establishment of the enterprise and basis for its existence
and development. Mission of the enterprise is the manifesto of the enterprise for the
society. It proves the usefulness and significiance in the existence of the enterprise
for the society.
Vision: Vision is the main purposes which the enterprise wants to achieve in
the long-term period ( usually from 1- 5 years).
Strategic targets: Targets are understood as the goal which should be
achieve. Each enterprise as well as its parts has its own target. The target of the
enterprise can be defined for the whole process of existence and development but
can only add to each stage of development. The system of strategic targets are goals

which the enterprise defines in a certain period.

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-

On the basis of clearly defining the mission of the enterprise, we
overview the issues related to the enterprise and separate each issue
through the following diagram:
Figure 1.3: The enterprise and affecting factors
Economy

Politic
s

Sciencetechnique
productio
n

Natural
conditio
ns

we

Law

Huma
n

resources

ENTER
PRISE

Manage
ment

R&
D

Mark
e ting

Cultur
eSociety

Fianc
e

Thus,
can

Internati
onal

Popu
latio
n

separate factors affecting the enterprise into two groups: External environment
group and internal environment group.
* Evaluating and analysing the external environment:
The second part in the process of building the Strategy is to analyse the
external environment affecting the enterprise. This analysis’s purpose is to be aware
of opportunies and threats from the environment outside the organization. It
includes the analysis of the macro environment, the micro environment and the
industry environment in which the enterprise takes part in operating.
* Evaluating and analysing the internal environment:
The third part in the process of building the Strategy is to analyse the internal
environment affecting the enterprise, to find out strengths and weaknessess of the
enterprise. We determine how the company reached a competitive advantage, the

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role of different capacities, resources and ability to create and maintain the
competitive advantage for the company. Since then, the company is requested to
achieve a superior performance, quality, innovation and responsibility towards its
customers.
* Analysing and selecting the Strategy:
The last is to determine Strategic plans respectively with identified strengths,
weaknessess, opportunities and threats of the enterprise. Analysis and selection of
the Strategy is conducted through SWOT analysis, the company understands the
strategic direction, is aware of the nature of the competitive position on the basis of
the analysis to find out resources, capacities and core competence for developing
strategy selections.
1.3 Analysing the entrnal and internal enveronment affecting the
enterprise
1.3.1 External environment:

1.3.1.1 Analysing the macro environment
Changes in the macro environment can have direct impact on any force in the
industry, altering the relative strength between the force and changing the
attractiveness of a industry. The macro environment consists of six segments:
economy, technology, culture and society, demography, politics and law, and the
global.
* Economy environment
Status of the macroeconomic environment determines the healthiness and
prosperity of the economy, it always makes impacts on enterprises and the industry.
The economy environment shows the nature and direction of the economy, in which
the enterprise works. Impact of the economy on a company can change the ability to
create its value and income. Four important factors in the macroeconomics are: the
growth rate of the economy, interest rate, exchange rate and inflation.
* Science and technology environment
Technological changes impact on many parts of the society, mainly through
products of the technology process. The change of technology environment brings
both opportunity and threat. The opportunity is to improve the ability to create new

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products of high competitiveness; the threat is to make the life cycle of products
depressed directly or indirectly. The most important impact of technological change
is to affect the height of accession barriers and to re-structure the industry.
* Culture and society environment
This environment includes social attitudes and cultural values, social changes also
create the opportunities and threats. An enterprise wants to exist together with time,
with partners and be accepted by the society, then it must highly appreciate business
culture. Cultural and social values create the foundation of the society, thus it often
lead to changes in technology conditions, politics and law, economy and

demography.
* Demography environment
This environment includes issues relating to the population, age structure,
geographic distribution, community of peoples and income distribution. The
viewpoint about consumption of goods and services of inhabitants in areas, and the
viewpoint about consumption of the sex, age, occupation affecting the formation of
the markets and the business strategy. The lifestyle affects the demand for goods
and services including: types, quality, style and design. Population growth rate
makes a great impact on contents of the business and production development
strategy of the enterprise.
* Politics and law environment
The change of politics and law environment will much affect the process of
implementing the business strategy of the enterprise. The fact shows that
enterprises, which invest in an area in or out of the country, pay much attention to
the political environment, their influences to the Government and the Government’s
influences to them. When analysing this environment, these factors should be taken
care of: economic reform, administrative reform, policy changes related to the
industry, tax policies, environment protection and safety, promulgation and
amendment of regulations.
* Global environment
Trends of integration, globalization in the world and in Vietnam make
enterprises consider international factors when planning a strategy, which is longterm, highly integrated and able to reach out of the geographic and political scope.

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Global segments include concerned global markets, current makets in changing,
important

international

political

events,

basic

institutional

and

cultural

characteristics on global markets.
1.3.1.2 Analysing industry environment (micro)
An industry is group of enterprises providing products or services that can
replace each other closely. Close replacement means that products or services meet
customers’ needs in the similar ways.
Industry analysis and competitiveness is a set of concepts and techniques to
clarify the key issues of:
+ Remarkable economic features of the industry.
+ Competitive forces operating in the industry, the nature and strength of
each force.
+ Driving forces causing the change in the industry and their impacts.
+ Who is the person to make next movement in the industry.
+ Critical factors for success and failure in competition.
+ Attractiveness of the industry on the aspect of gaining profits exceeding
the average.
Industry environment is mainly affected by the following factors:
According to M. Porter, there are five forces of competitive orientation in the

industry such as: (1) in the risk of appearing new companies; (2) competitiveness
level between existing companies in the industry; (3) negotiation strength of
purchasers; (4) negotiation strength of sellers; (5) threats from substitute products.
M. Porter pointed out that the stronger this force is, the more limited in
raising price and gaining higher profits the existing companies are. Thus, managers
must be aware of opportunities and threats brought by change of these five forces
and then build suitable strategies to turn the power of one or many competitive
forces into advantages.
Figure 1.4 : Model of five competitive forces of M. Porter

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(Source: World, …, 2009, Strategic management, Model of five competitive forces
of M. Porter, page 106)
* Potential competitors :
Potential competitors are enterprises not existing in the industry but able to
jump in the business operation of that industry. New competitors in the industry can
be the factors reducing the profitability of the enterprise. How much such impact on
the business operation is depending on the competitiveness power of the enterprise (
scale, technology, etc.). The apperance of these competitors also change the
competitiveness picture of the industry, increase the competitiveness level of the
industry. Thus, existing companies try their best to prevent potential competitors
from jumping into their business fields.
However, according to M.Poster, there are some obstacles for enterprises not
in the same industry when they want to jump into:
- The customers’ love with old products thanks to advertisement, brands,
product quality and after-sale services.
- Difficulity in lowering costs when jumping into the other industry.
- Effectiveness of large-scaled business and production.

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* Substitute products
Subsitute products are products of current competitors. It is regular pressure
that directly threaten the enterprise. Substitues are products of enterprises in the
same industry or in others but together meet customers’ needs.
Thus,

the

existence

of

substitute

products

form

an

enormous

competitiveness, which limits the determined price level and thus limits the
profitability of the enterprise. In contrast, if the product of an enterprise has few
substitutes, the enterprise may have chance to increase the price and get greater
profit. Especially, subsitutes may appear inside the enterprise.

* Price pressure caused by customers.
Customers become competitive threats when they require cheap price but
better quality of products and services that lead the increase of operation costs of
the Company. Conversely, if customers are in disadvantageous positions, the
company has the opportunity to increase the price and earn higher profit.
Pressure caused by customers based on following criteria:
- Customers focus or not.
- Whether the enterprise is the main supplier or not.
- Level of customers’ faithfulness.
- Customers’ ability in finding substitute products.
- Costs for conversion.
- Ability of integration.
* Price pressure caused by suppliers
Suppliers become threats for the enterprise when they push up price of goods
supplied for the enterprise or reduce the goods quality, change payment terms, and
delivery conditions, etc affecting the price and product quality that affect the
profitability of the enterprise. Enterprises must have relationships with suppliers of
goods and other inputs such as labor forces, materials and equipment, and finance.
Elements increasing pressure caused by suppliers are similar to those caused by
customers:

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- Small quantity of suppliers that make difficulty for the enterprise to select
the supplier.
- The product, which the company needs to buy, has a few substitutes.
- The enterprise có phải là khách hàng chính của nhà cung cấp hay không.
- Whether suppliers focus or not. It means that if suppliers focus, then the
pressure caused by them will be higher and the enterprise will be in

disadvantageous position.
1.4. Buidung the selecting the business strategy
1.4.1 Optimal strategy according to SWOT matrix
1.4.1.1 SWOT Matrix and selection of optimal strategy
SWOT is the abbreviation collection of first letters in English: Strengths;
Weaknesses; Opportunities; Threats. This is an extremely useful tool to help us
understand the problem or make decision in organization, management and
business.
1.4.1.2 SWOT analysis
Albert Humphrey concretized SWOT into the 6 following items:
1. Product (What will we sell?)
2. Process (How will we sell?)
3. Customers (Who will we sell for?)
4. Distribution (How will we approach our customers?)
5. Finance (How much is price, cost and investment?)
6. Management (How will we manage all activities?)
Based on the specific context, a model of SWOT analysis may make one or
several items in the list of the above six steps. In any cases, SWOT will basically
tell you the good and bad things in your current business or a new proposal for the
future.
If business is the object of SWOT analysis, and analysis purpose is to
improve the enterprise, then SWOT will be understood as follows:
•

S: strengths (Maintaining, building and being a lever)

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•

W: opportunities (an optimistic evaluation)

•

O: weaknesses (solutions to overcome weaknesses)

•

T: threats (obstacles)

If SWOT analysis is used to assess an idea or proposal, it could indicate that
such idea or proposal is too weak (especially when comparing with analysis for
other proposals, thus we should not invest in. In this case, there is no need to make
the next action plan.
1.4.1.3 SWOT analysis framework
SWOT analysis framework can be described shortly as in the following
diagram:
Table 1.1: Irreducible SWOT analysis framework
External environment
O opportunities
T threats
S- strengths
S-O: promoting strengths S-T: promoting strengths to
to take advantages of limit and avoid threats
opportunities,
business
orientation
WW-O:
Overcoming W-T: Overcoming inside

weaknesses
weaknesses
to
take difficulties and carefully
advantages
of preparing
to
overcome
opportunities
outside challenges
SO Strategy- “Development” Strategy: combining opportunities and

Environment analysis
Intern
al
enviro
nment

*

strengths of the company to expand and develop. The enterprise needs to use its
strengths and opportunities to compete with other enterprises, and to continuously
expand the market.
* WO Strategy: there are much more weaknesses than strengths but
are also many opportunities outside, corresponding with the name
“competitiveness”. This combination may help the enterprise overcome weaknesses
by taking advantages of opportunities.

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* ST Strategy: This is the situation that the company has strong conditions inside
to fight against outside obstacles. This Strategy is called “opposition” Strategy.
* WT Strategy- “Defence” Strategy: The company no longer copes with the
outside threats, deprived of development ability. In this situation, the company is
either bankrupt or associated with other companies. This association requires the
enterprise to take measures to reduce weaknesses and avoid threats by defence
strategy.
Thus, purpose of using SWOT matrix to analyse environment factors aiming
at creating ways of combining factors inside the enterprise with corresponding ones
outside the environment and orienting reaction solutions which are scientific,
practical and feasible, etc. This is one of the important basis for the enterprise to
select effective competitive strategies.
1.4.2 Analysing 3 basic competitive strategies:
Each company self-defines the position in the operating field by utilizing
available advantages. Michael Porter said that advantages of any enterprises are
always in one of the two aspects: cost advantage and product differentiation. By
applying these advantages, companies will pursue three common strategies: cost
leadership strategy, product differentiation strategy and focus strategy. They are
called common strategies because they do not depend on any enterprises or any
industries.
Table 1.3: Common strategies of Micheal Porter
Competitive Advantage

Competitive
Scope

Cost

Uniqueness

Broad
Target

Cost Leadership

Differenation

Narrow
Target

Focused Cost
Leadership

Focused
Differentiation

(Source: Nguyen Thanh Thao, “Brand Strategy by Michael Porter theory)

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1.4.2.1 Cost leadership Strategy
* Features:
The purpose of the company to pursue the cost leadership strategy or low
cost strategy is to perform better (have more advantages) than competitors by trying
its best to produce goods or services at a lower cost than that of competitors.
This Strategy has two fundamental advantages. Firstly, with lower cost, the
cost leader can set the lower price than competitors but still get as much profit as
competitors. If companies in the industry put the same value for their products, then

the cost leader can gain higher profit because its cost is lower. Secondly, if
competitiveness in the industry is increasing and companies compete their price
with each other, then the cost leader may stand in the competition better than other
companies because of its lower cost.
*Strategic solutions:
The cost leader selects the low differentiation level. The cost leader also
overlook different market segments. They are often interested in the market in the
large extent. In fact, companies give out lower price than that of competitors to
attract customers’ attention to their products.
When developing special ability, the most important purpose of the cost
leader is to develop abilities which may increase the efficiency and reduce costs
lower than competitors.
The cost leader makes all selections of strategies of products/ market/ special
capacities for an unique target of minimizing costs to create competitive advantages
for the company.
Solutions to gain cost advantages varies by each industry and its structure.
The advantages may be derived from large-scale production, exclusive technology,
strong points regarding sources of raw materials, product structure, level of services
and technical process.
* Advantages and disadvantages of applying cost leadership strategy

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Advantages of each basic strategy is best described in the model of five
forces of M.Porter. Five forces include threats from competitors, pressure from
customers, substitute products and new participants. The cost leader can fight
against attack of competitors in the industry, thanks to cost advantages. Its low cost
also means that it will be less affected than its competitors from increasing price of
inputs if there is pressure from suppliers and less affected by the discount which it

sets for its products if there is pressure from customers.
Moreover, with the cost leadership, most of cost leaders buy a large amount
of inputs then they can directly bargain with suppliers. If substitute products
participate in the market, the cost leader can reduce its price to compete with such
products and remain its market shares.
Finally, cost advantages of the cost leader is to create participation barriers
because other companies can not participate in the industry and can not fit costs and
price of the cost leader. The cost leader is still safe as long as it can maintain its cost
advantage- and price is the key factor for most customers.
The main threat of the cost leadership strategy can be that competitors try to
produce products with lower cost and fight against the strong point itself of the cost
leader. Another threat is that competitors can easily imitate methods of the cost
leader.
The last threat of the cost leadership strategy is that the cost leader only think
about cost reduction, not follow changes in the customers’ tastes. Thus, the
company may take much care in investing and improving the internal environment
and ignore the improvement of its product market.
Pursuing the cost leadership strategy does not exclude the specialization. The
importance is that the products must be accepted by customers when comparing
with other competitive products. Thus, the low cost has competitive advantage only
when the company ensures the differentiation which is recognized and accepted by
customers.

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1.4.2.2 Product differentiation strategy
* Features:
The purpose of product differentiation strategy is to achieve competitive
advantages by making products – goods or services which customers consider as the

most unique.
The product differentiation of a company is to meet the demand of customers
in the way which its competitors can not meet. It allows the company to set a higher
price than the average level of the industry. The differentiation increases the
turnover by setting a higher price (not by reducing cost as of the cost leader) and it
helps the company operates better than competitors and get the higher profit than
the average level. Customers agree to pay higher price because they believe that the
product quality correspond to the price difference.
* Strategic solutions
The company of differentiation selects the high differentiation level to
achieve competitive advantages. The differentiation can be achieved with three
main ways: quality, renovation and adaptation with customers. Renovation is
important to complicated technology products, of which new features are from the
differentiation. When the differentiation bases on the adaptation with customers,
producers and sellers must ensure the supply of comprehensive after-sale services.
The attraction of the products to spiritual expectations of customers can
become the source of differentiation. The attraction may be factors going with the
position and pride of customers. The differentiation can be suitable with groups of
age and socioeconomic groups.
In fact, the basis of differentiation are endless. A company pursuing the
differentiation strategy will try to differentiate its products as much as possible. The
less it imitates its competitors, the more it can protect its competitiveness and
market attraction.
The company of differentiation divides the market into many segments. The
product supply section is designed for each segment. The company may operate in

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the large scale of market but also select to serve some market segments where have

special differentiation advantage.
When deciding to pursue any differentiation ability, the company of
differentiation needs to focus on organization and supply of resources creating
differentiation advantage for its products.
Differentiation strategy requires the company to create competitive
advantages by selecting products / market / unique capacities to increase the value
of goods and services according to customers’ viewpoints.
However, the company of differentiation must focus much on media and
communication activities to provide information on the uniques and differences in
its products in comparison with products of its competitors.
* advantages and disadvantages of applying differentiation strategy
Differentiation protects the company from competitors at the level that
customers are faithful with the brands of the Company. Faithfulness with brands is a
valuable property because it protects the company in all aspects.
Differentiation and faithfulness with the brand can create participation
barriers against companies trying to participate in the industry. New companies
must create their own abilities to compete with existing companies and this is very
expensive.
Finally, threats from substitute products may be less because of depending on
products of competitors meeting the same customers’ demands with the company of
differentiation and ability to defeat the failfulness of customers with the brand of
the company.
Differentiation strategy also have many disadvantages. For example,
competitors can easily imitate products of the company of differentiation and it is
difficult to maintain high price. When differentiation is derived from designs or
physical features of products, then the company of differentiation has many risks
because it is esasy to imitate.

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Differentiation does not let the company overlook costs. The price difference
must be greater than additional cost to create differentiation. If that principle is
ignored, the company will lose competitive advantage. Moreover, when the
company is finding the way for product differentiation, then the purpose is to gain
the cost which is equivalent to or nearly equivalent to that of competitors. Thus,
costs for parts which do not affect the product differentiation must be reduced.
Recently, there have been changes in technoloy for manufacturing products
such as the development of new flexible technology causes difficulty for selecting
one of two strategies being the cost leadership strategy and product differentiation
strategy. Thanks to technology development, companies can see benefits from two
strategies. New flexible technology helps companies pursue the product
differentiation strategy at low cost, it means these companies will be the leader of
both cost and product differentiation.
Traditionally, product differentiation can be only achieved at high cost
because different product designs will be made for different market segments. It
means the production cycle is short that increases costs for products. In addition, the
company of differentiation must bear the higher cost for marketing than the cost
leader because it serves many market segments. Thus, companies pursuing product
differentiation strategy have higher costs than cost leaders because of
manufacturing large quantity of standardized products. However, manufacturing
products in a flexible way may allow the company to implement the product
differentiation to manufacture many products at a cost level which is competitive
with the cost leader.
Another way for the company of product differentiation to achieve the
production-scale advantage is to conduct standardization for many components used
in its end products.
A company can reduce both cost for products and marketing if it limits
designs in products by selling a package of products instead of letting customers
decide which products they need.

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Just-in-time storage system (JIT) can also help reduce cost, improve the
quality and reliability towards the Company’s products. This is important to
differentiated products where the quality and reliability are basic components of the
product attraction. Taking advantage of development of new products and
marketing measures, some companies are reaping benefits both from cost leadership
strategy and product differentiation strategy. And they can set higher price for their
products than that of companies which only apply the cost leadership strategy, but
they also have lower cost than companies which only apply the product
differentiation strategy. Thus, the above mentioned companies can get profits at
least equal to or higher than companies pursue only one strategy.
Combining strategies is the most profitable way and companies promptly
take advantage of new products, management of materials sources and marketing
measures.
1.4.2.3 Focal Strategy.
* Features
Different from the two above strategies, the third competitive strategy is the
focal strategy, serving the demand of limited group of customers or a market
segment, aiming at utilizing competitive advantages of the small Company to
compete with great competitors.
The company pursuing focal strategy concentrates on serving a specific
market segment. The potential market segment may be defined according to
geographic criteria, kinds of customers or a branch of product lines.
A company of focal strategy, which has many opportunies to develop its own
activities and compete with enterprises of low cost and product differentiation, is
increasing.
Focal strategy creates an opportunity for businessmen who are finding the

way to fulfill the gap of necessary demands of customers. The company focus on
competing with the other company of product differentiation only in one or a few
market segments. Companies pursuing focal strategy surely develop the quality of

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