Building business level strategies in automobile industry the case of huyndai vietnam

V IE T N A M N A T IO N A L U N IV E R S IT Y , H A N O I
S C H O O L O F B U SIN E SS

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B U IL D IN G B U S IN E S S - L E V E L S T R A T E G IE S
IN A U T O M O B IL E IN D U ST R Y
T H E C A S E O F H Y U N D A I V IE T N A M

M a jo r: B usiness A d m in istra tio n
C o d e : 603405

M A S T E R O F B U S IN E S S A D M IN IS T R A T IO N T H E S IS

S u p e rv iso r: 1. D r. T a Ngoe C au
2. E d w a rd M cA lv an ah , M B A
ĐẠI HỌC QUOC GIA HA NOI
TRUNG TÂM ĨHQNG TlN THỰVIỆN

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Hanoi - 2010


TABLE OF CONTENTS
A C K N O W L E D G E M E N T .................................................................................................. i
A B S T R A C T ......................................................................................................................ii
T Ó M T Ẩ T ........................................................................................................................iii
T A B L E O F C O N T E N T S ................. ................................................................................. V
L IS T O F F IG U R E S A N D T A B L E S ............................................................................... vii
In tro d u ctio n ........................................................................................................................1
1. R a tio n a le ........................................................................................................................ 1
2. R esearch O b je c tiv e ........................................................................................................ 1
3. R esearch sc o p e .............................................................................................................. 2
4. R esearch m e th o d ............................................................................................................2
5. D ata so u rc e s.................................................................................................................. 2
6. L im itatio n ...................................................................................................................... 2
7. E x pected íin d in g ........................................................................................................... 2
8. T he th esis s tru c tu re ........................................................................................................ 3
C h ap ter 1: L iterature R e v ie w ............................................................................................. 4
1.1 S trategy and B usiness-L evel S tra te g ie s........................................................................ 4
1.1.1 Strategy d e íìn itio n ..................................................................................................... 4
1.1.2 B usiness-level stra te g ie s........................................................................................... 4
1.1.3 T he im portance o f B usiness-level s tra te g ie s .............................................................. 5

1.2 B usiness-L ev el S trategies F o rm u la tio n ........................................................................ 6
1.2.1 V ision and M iss io n ................................................................................................... 6
1.2.2 E x tem al a n a ly s is ....................................................................................................... 6
1.2.2.1 M acro A n a ly sis:...................................................................................................... 7
1.2.2.2 M icro A nalysis: F ive Forces M o d e l...................................................................... 12
1.2.3 Intem al a n a ly s is :..................................................................................................... 19
1.2.3.1 V alue Chain m o d e l............................................................................................... 19
1.2.3.2 C o m p etitiv e a d v an tag es........................................................................................ 21
1.3. F o rm ulatio n and C h o ice..........................................................................................23
1.3.1 S W O T A n a ly s is ............. ...... ................... ....... ................... ........ .................. .....23
1.3.2 G R E A T m o d e l.... .................... ..... ......... . ....... ........ ......... .......... ......................... 25
1.3.3 S trategy Im p le m en tatio n ..........................................................................................25
1.3.4 M atch in g S trate g y ................................................................................................... 26
C h ap ter 2: C ase study o f H yundai V ie tn a m ..................................................................... 27
2.1 O verview o f C ars m a rk e t........................................................................................... 27
2.1.1 O verall m arket grovvth............................................................................................ 27
2.2 Introd uction o f H yundai V ie tn a m ............................................................................... 30
2.2.1 D evelop m ental h is to ry ............................................................................................ 30
2 .2.2 C o m p an y V is io n ..................................................................................................... 31
2.2.3 P ro d u c ts .................................................................................................................. 31
2.2 .4 C o m p etitiv e p o sitio n ................................................................................................31
2.3 S trategic a n a ly s is ....................................................................................................... 31
2.3.1 E x tem al a n a ly s is ..................................................................................................... 31
2.3.1.1 P E S T .......................... ....... ......................... ............................. . ................ ...... 31
2.3.1.2 5 Forces...............................................................................................................39
2 .3 .2 Intem al a n a ly s is .................................................................................................... 44
2.3.2.1 V alue c h a in ....................................................................................................... 44


2.3 .2.2 C o m p etitiv e a d v an tag es........................................................................................ 49

2.3.3 Formuỉation and choice.......................................................................................... 50
2.3 3.1 SWOT cmaỉysis ..... . .............. .................. ........................ .......................... 50
2 3 3 2 G R E A T m o d e l......... .............. ............................................. ............................54
C h ap ter 3: R e c o m m e n d a tio n ........................................................................................... 54
3.1 O b je c tiv e s ................................................................................................................. 55
3.3 R eco m m end atio ns to H yundai V ie tn a m ......................................................................61
C O N C L U S IO N .... ..... ...... .. ......................................................................... ..................62
R E F E R E N C E S .................... .................................................................... ................... 63

vi


LIST OF FIGƯRES AND TABLES
B u sin e s s le v e l s tra te g ie s

6

PE S T m odel

7

F iv e F o rc e s M o d e l

12

V a lu e C hain m o d e l

19

C o m p e titiv e A d v a n ta g e

22

S W O T a n a ly s is

24

S W O T M a trix

25

G R E A T m odel

25

M a rk e t s e g m e n ta tio n

28

N u m b e r o f re g is te re d c a rs in V ie tn a m

29

'T o ta l n e w re g is te re d c a r in V ie tn a m

30

Im p o rt ta x c h a n g e s fo r n e w v e h ic ỉe s

32

s p e c ia l c o n s u m p tio n ta x

32

G D P G ro w th R a te

34

A n n u a l In íla tio n

35

T e c h c o m b a n k s u p p o rt c h a rt

36

V ie tn a m p o p u la tio n

39

vii


IntroductioD

1. R atio n ale

V ie tn a m is n o w lo o k in g fo rw a rd to ủ ir th e r d e v e lo p m e n t a n d g lo b a liz a tio n by
jo in in g W T O in 2 0 0 7 a n d a d ịu s tin g o p e n p o lic ie s to m u lti-n a tio n a l c o m p a n ie s vvho

h a v e s tro n g p o s itio n in th e g lo b a l m a rk e t. V ie tn a m c o m p a n ie s h a v e to suíT er h ig h
c o m p e titio n a n d p re s s u re fro m th o s e ío re ig n c o m p a n ie s . In a n o th e r h a n d , c o n su m e r
in te re s ts c o n s ta n tly c h a n g in g a n d in d u s try c o m p e titio n in c re a s in g , m a s s p ro d u c tio n
s y s te m s o fte n d o n o t a lig n an o rg a n iz a tio n vvith its c u s to m e rs . A d o p tin g m a ss
c u s to m iz a tio n is in c re a s in g a s a m e th o d fo r c o p in g w ith th e s e c h a n g e s . H ov vever, in
o rd e r to a d o p t m a ss c u s to m iz a tio n , b u s in e s s fu n c tio n s m u s t im p ro v e

H y u n d a i V ie tn a m s p e c ia liz e s in a u to m o tiv e in d u s try a n d it h a s to fac e h ig h
c o m p e titio n a s w e ll vvhich o th e r V ie tn a m e n te rp ris e s a re fa c in g . H y u n d a i V ie tn a m
is y o u n g to a u to m o tiv e in d u s try o r A u to m o b ile in d u s try a n d th e c u rre n t s tra te g y o f
H y u n d a i V ie tn a m d o e s r r t w o rk w e ll to m e e t c u s to m e r n e e d s . T h a t’s w h y I d e c id e d
to b u ild u p a b u s in e s s le v e l s tra te g y fo r H y u n d a i V ie tn a m u s in g c o m p a n y ’s c o re
c o m p e te n c ie s to g a in c o m p e titiv e a d v a n ta g e s o v e r o th e r c o m p e tito rs

2. R e se a rc h O b jectiv e

T h e o b je c tiv e o f th is th e s is is to fín d o u t a n a p p ro p ria te b u s in e s s -le v e l
s tra te g y fo r H y u n d a i V ie tn a m to g e t th ro u g h th e re c e s s io n tim e a n d lo o k in g fo rw a rd
d e v e lo p m e n t

1


3. R esearch scope

T h e re s e a rc h íb c u s e s o n ly o n H y u n d a i V ie tn a m in V ie tn a m m a rk e t
4. R esearch m eth o d

M e th o d to b u ild u p a b u s in e s s s tra te g y fo r H y u n d a i V ie tn a m b a s e o n
a. S tra te g ic m a n a g e m e n t th e o rie s to fo c u s o n íĩn d in g a p p ro p r ia te a p p ro a c h e s to

b u s in e s s s tra te g y fo rm u la tio n , a n d in d e n tiíy a c o m m o n p ro c e s s to b u ild
b u s in e s s s tra te g ie s .
b. F a c to rs c a n b e a ffe c te d to th e b u s in e s s
c. C a s e a n a ly s is a n d re c o m m e n d a tio n s to b u s in e s s
5. D ata so u rces

L ite ra tu re s revievv p a rt h a s b e e n ta k e n fro m b o o k s , n e w s p a p e r, in te rn e t
s o u rc e s . A n d p rim a ry d a te h a s b e e n ta k e n fro m H y u n d a i V ie tn a m lo c a lly .
6. L im ita tio n

T h e s e c o n d a r y in fo rm a tio n so m e h o v v is n o t u p d a te d ; th e s ta tis tic o f im p o rt
c a r w a s n o t c o v e re d c o rre c tly a n d fu lly b y c u s to m s d e p a r tm e n t b e c a u s e o f d iffe re n t
re a s o n s . A n d th e p rim a ry d a ta fro m H y u n d a i V ie tn a m , s o m e in íb r m a tio n is
c o n fid e n tia l a n d n o t a llo w e d to p u b lic .
7. E x p ected íĩn d in g

T o fín d o u t th e rig h t b u s in e s s -le v e l s tr a te g ie s f o r H y u n d a i V ie tn a m d u rin g
th e re c e s s io n tim e a n d it w ill g e t g o o d re s u lt in a p p ly in g th is s tra te g y in to H y u n d a i
V ie tn a m

2


8. T h e thesis str u c tu r e

T h e th e s is is d iv iđ e d in to 3 c h a p te rs :
C h a p te r 1 íị c u s e s o n lite ra tu re re v ie w w ith th e ílin d a m e n ta l th e o ry o f s tra te g ie s .
b u s in e s s -le v e l s tra te g ie s . a n d th e im p o rta n c e o f b u s in e s s -le v e l s tra te g ie s
C h a p te r 2 w ill g iv e y o u th e o v e rv ie v v o f V ie tn a m a u to m o b ile in d u s try a n d th e c a s e
o f H y u n d a i V ie tn a m w ith b a c k g ro u n d , e x te m a l a n d in te m a l a n a ly s is o f H y u n d a i

V ie tn a m to fín d s o m e k e y fa c to rs o f s tr e n g th s a n d w e a k n e s s e s o f H y u n d a i.
C h a p te r 3 id e n tifíe s th r e a ts a n d o p p o r tu n itie s b a s e o n a n a ly s is in c h a p te r 2 to b u ild
u p a p p ro p ria te s tra te g y fo r H y u n d a i V ie tn a m
T h e la st p a rt vvill b e c o n c lu s io n o f th e th e s is

3


Chapter 1: Literature Review
1.1 Strategy and Business-Level Strategies
1.1.1 S tra te g y d e íin itio n
S tra te g y A c c o rd in g to G e o rg e S te in e r

G e o rg e S te in e r, a p r o íe s s o r o f m a n a g e m e n t a n d o n e o f th e fo u n d e rs o f T h e
C a liíb m ia M a n a g e m e n t R e v ie w , is g e n e ra lly c o n s id e r e d a k e y fíg u re in th e o rig in s
an d d e v e lo p m e n t o f s tra te g ic p la n n in g . H is b o o k , S tra te g ic P la n n in g is c lo s e to
b e in g a b ib le o n th e s u b je c t. Y e t, S te in e r d o e s n o t b o th e r to d e íĩn e s tra te g y e x c e p t in
th e n o te s a t th e e n d o f h is b o o k . T h e re , h e n o te s th a t s tra te g y e n te re d th e
m a n a g e m e n t lite ra tu re a s a w a y o f r e íe r r in g to w h a t o n e d id to c o u n te r a
c o m p e tito r’s a c tu a l o r p re d ic te d m o v e s . S te in e r a ls o p o in ts o u t in h is n o te s th a t
th e re is v e ry little a g r e e m e n t a s to th e m e a n in g o f s tra te g y in th e b u s in e s s w o rld .
S o m e o f th e d e íĩn itio n s in u s e to w h ic h S te in e r p o in te d in c lu d e th e fo llo w in g :
•

S tra te g y is th a t w h ic h to p m a n a g e m e n t d o e s th a t is o f g re a t im p o rta n c e to th e
o rg a n iz a tio n .

•

S tra te g y re fe r s to b a s ic d ire c tio n a l d e c is io n s , th a t is, to p u rp o s e s a n d

m is s io n s .

•

S tra te g y c o n s is ts o f th e im p o rta n t a c tio n s n e c e s s a ry to re a liz e th e s e
d ire c tio n s .

•

S tra te g y a n s w e rs th e q u e s tio n : W h a t s h o u ld th e o rg a n iz a tio n b e d o in g ?

•

S tra te g y a n s w e rs th e q u e s tio n : W h a t a re th e e n d s w e s e e k a n d h o w s h o u ld
w e a c h ie v e th e m ?
1.1.2 B usiness-level s tra te g ie s
T h e b u s in e s s - le v e l s tra te g y r e fe rs to th e p la n o f a c tio n th a t s tra te g ic

m a n a g e rs a d o p t to u s e a c o m p a n y ’s r e s o u r c e s a n d d is tin c tiv e c o m p e te n c ie s to g a in a
c o m p e titiv e a d v a n ta g e o v e r its r iv a ls in a m a r k e t o r in d u s try .

4


P ro c e s s o f b u s in e s s d e íĩn itio n e n ta ils d e c is io n s a b o u t (1 ) c u s to m e rs ' n e e d . o r
w h a t is to b e s a tis íìe d ; (2 ) c u s to m e r g ro u p , o r w h o is to b e s a tis íìe d ; a n d (3 )
d is tin c tiv e c o m p e te n c ie s , o r hovv c u s to m e r n e e d s a re to b e s a tis íie d . T h e s e th re e
d e c is io n s a re th e b a s is o f th e c h o ic e o f a b u s in e s s -le v e l stra te g y b e c a u s e th e y
d e te rm in e h o w a c o m p a n y w ill c o m p e te in a b u s in e s s o r in d u stry .
C ustom ers’ needs and product diíĩerentiation:

C u s to m e r s ' n e e d s a re d e s ire s , w a n ts , o r c ra v in g s th a t c a n b e s a tis íĩe d b y
m eans o f the characteristics o f a product or Service.

P ro d u c t d if f e r e n tia tio n is th e p ro c e s s o f c re a tin g a c o m p e titiv e a d v a n ta g e b y
d e s ig n in g p ro d u c ts -g o o d s o r s e rv ic e s to s a tis lỳ c u s to m e r s ' n e e d . A ll c o m p a n ie s
m u s t d if fe re n tia te th e ir p ro d u c ts to a c e rta in d e g re e in o rd e r to a ttra c t c u s to m e rs a n d
s a tis íỳ s o m e m in im a l le v e l o f n e e d . H o w e v e r, s o m e c o m p a n ie s d iffe re n tia te th e ir
Products to a m uch greater degree than others, and this difference can give them a

c o m p e titiv e e d g e .
C ustom er groups and M ark et segm entation:

M a rk e t s e g m e n ta tio n is th e w a y a c o m p a n y d e c id e s to g ro u p c u s to m e rs ,
b a s e d o n im p o rta n t d iíĩe r e n c e s in th e ir n e e d s o r p re fe re n c e s , in o rd e r to g a in a
c o m p e titiv e a d v a n ta g e .
Distinctive Com petencies:

T h e th ird is s u e in b u s in e s s -le v e l s tra te g y is to d e c id e w h ic h d is tin c tiv e
c o m p e te n c ie s to p u rs u e to s a tis íy c u s to m e r s ’ n e e d s a n d c u s to m e r g ro u p s
1.1.3 T h e im p o rta n c e o f B usiness-level stra te g ie s
B u s in e s s -Ie v e l s tra te g ie s e x a m in e h o w a c o m p a n y c a n c o m p e te e íĩe c tiv e ly in a

b u s in e s s o r in d u s try a n d s c ru tin iz e th e v a rio u s s tra te g ie s th a t it c a n a d o p t to
m a x im iz e c o m p e titiv e a d v a n ta g e a n d p ro íìta b ility . W h e n a c o m p a n y p u r s u e s
b u s in e s s -le v e l s tr a te g ie s th e y c a n g a in c o m p e titiv e a d v a n ta g e s th a t a llo w th e m to
o u tp e ríb rm r iv a ls a n d a c h ie v e a b o v e -a v e ra g e re tu m s . T h e y c a n c h o o s e íío m th re e
b a s ic g e n e ric c o m p e titiv e a p p ro a c h e s : c o s t le a d e rs h ip , d iffe re n tia tio n , a n d fo c u s.

5

1.2 Business-Level Strategies FormuIation
F ig u re 1.1 B usiness level stra te g ie s

V ision and
M ission

___________ _________________

SW O T
Strategic choice

B usiness Level Strategy
1. P ro du ct d iíĩeren tiatio n
2. M arket segm ent
3. D istin ctive com petencies

S trategy Im plem en tation
(source: S tra te g ic m a n a g em en t a n in te g ra te d a p p ro a ch b y C h a rles W .L H ill a n d G arethr. Jo n es)

1.2.1 V ision a n d M ỉssion
T h e m is s io n se ts o u t w h y th e o rg a n iz a tio n e x is ts a n d w h a t it s h o u ld b e d o in g

V is io n : d e íìn e s a n d d e s c rib e s th e íìitu re s itu a tio n th a t a c o m p a n y w is h e s to
h a v e , th e in te n tio n o f th e V ision is to g u id e , to c o n tro l a n d to e n c o u ra g e th e
o rg a n iz a tio n a s a w h o le to re a c h th e d e s ira b le State o f th e o rg a n iz a tio n

1.2.2

E x te rn a l an aly sis: to id e n tiíy s tra te g ic o p p o rtu n itie s a n d th re a ts in

th e o r g a n iz a tio n 's o p e ra tin g e n v iro n m e n t. T h re e in te rre la te d e n v iro n m e n ts sh o u ld

6


b e e x a m in e d a t th is s ta g e : th e im m e d ia te , o r in d u s try , e n v iro n m e n t in vvhich th e
o rg a n iz a tio n o p e ra te s ; th e n a tio n a l e n v iro n m e n t; a n d th e w id e r m a c ro -e n v iro n m e n t.
A n a ly z in g

th e

in d u s try

e n v iro n m e n t re q u ire s

an

a s s e s s m e n t o f th e

c o m p e titiv e s tru c tu re o f th e o re a n iz a tio n ’s in d u s try , in c lu d in e th e c o m p e titiv e
p o s itio n o f th e fo c a l o rg a n iz a tio n a n d its m a jo r riv a ls , a s w e ll as th e s ta g e o f
in d u s try d e v e lo p m e n t. S in c e m a n y m a rk e ts a re n o w g lo b a l m a rk e ts , a n a ly z in g th e
in d u s try e n v ir o n m e n t a ls o m e a n s a s s e s s in g th e im p a c t o f g lo b a liz a tio n u p o n
c o m p e titio n vvithin a n in d u s try . A n a ly z in g th e n a tio n a l e n v iro n m e n t re q u ire s an
a s s e s s m e n t o f w h e th e r th e n a tio n a l c o n te x t w ith in w h ic h a c o m p a n y o p e ra te s
fa c ilita te s th e a tta in m e n t o f a c o m p e titiv e a d v a n ta g e in th e g lo b a l m a rk e t p la c e .
1.2.2.1 M a c ro A nalysis:
F ig u re 1.2 P E S T M odel

/ --------------------------- \
Political Factors

>

<
Economic Factors

>-------------------------- <
Socio-cultural
Factors

>-------------------------- <
T e ch n o lo g y
Factors
V_______ __ _ _ _ _ _ _ _ _ J
PEST

a n a ly s is s ta n d s fo r "Political, Economic, Socio-cuỉturaỉ, and

Technological anaỉysis" a n d d e s c rib e s a fra m e w o rk o f m a c ro -e n v iro n m e n ta l
fa c to rs u se d in th e e n v iro n m e n ta l s c a n n in g c o m p o n e n t o f s tra te g ic m a n a g e m e n t. It
is a p a rt o f th e e x te m a l a n a ly s is w h e n c o n d u c tin g a s tra te g ic a n a ly s is o r d o in g
m a rk e t re s e a rc h a n d g iv e s a c e rta in o v e rv ie w o f th e d iíĩe r e n t m a c ro -e n v iro n m e n ta l
fa c to rs th a t th e c o m p a n y h a s to ta k e in to c o n s id e ra tio n . It is a u s e íu l s tra te g ic to o l

7

fo r

u n d e rs ta n d in g

m a rk e t

g ro v v th

o r d e c lin e ,

b u sin e ss

p o s itio n .

p o te n tia l

and

d ire c tio n f o r o p e ra tio n s

Political Factors
T h e íìrs t e le m e n t o f a P E S T a n a ly s is is a s tu d y o f p o lit ic a l fa c to rs . P o litic a l
ĩa c to rs

in ílu e n c e

a d v a n ta g e s

and

o r g a n iz a tio n s
o p p o r tu n itie s

in
fo r

m any

w ays.

o rg a n iz a tio n s .

P o litic a l

fa c to rs

C o n v e rs e ly

th e y

can

cre a te

ca n

p la c e

o b lig a tio n s a n d d u tie s o n o rg a n iz a tio n s . P o litic a l ía c to rs in c lu d e th e f o llo w in g ty p e s
o f in s tru m e n t

3

L e g is la tio n s u c h as th e m in im u m w a g e o r a n ti d is c r im in a tio n la w s

4

V o lu n ta r y co d e s a n d p ra c tic e s

5

M a r k e t re g u la tio n s

6

T ra d e a g re e m e n ts , t a r if f s o r re s tric tio n s

7

T a x le v ie s a n d ta x b re a k s

8

T y p e o f g o v e m m e n t re g im e (e x a m p le : c o m m u n is t, d e m o c ra tic , d ic ta to rs h ip )

Economỉcal Factors
T h e se c o n d e le m e n t o f a P E S T a n a ly s is in v o lv e s a s tu d y o f e c o n o m ic ía c to rs .
A l l b u sin e sse s are a ffe c te d b y n a tio n a l a n d g lo b a l e c o n o m ic ía c to rs . N a tio n a l and
g lo b a l in te re s t ra te a n d íĩs c a l p o lic y w i l l be set a ro u n d e c o n o m ic c o n d itio n s . T h e
c lim a te o f th e e c o n o m y d ic ta te s h o w c o n s u m e rs , s u p p lie rs a nd o th e r o rg a n iz a tio n a l
s ta k e h o ld e rs su ch as s u p p lie rs a n d c re d ito rs b e h a v e w it h in s o c ie ty .

An
s p e n d in g

econom y
p o w e r and

u n d e rg o in g
lo w

re c e s s io n

v v ill

have

s ta k e h o ld e r c o n íĩd e n c e .

h ig h

u n e m p lo y m e n t,

C o n v e rs e ly

lo w

a “ b o o m in g '’ o r

g r o w in g e c o n o m y w i l l h a v e lo w u n e m p lo y m e n t, h ig h s p e n d in g p o w e r a n d h ig h
s ta k e h o ld e r c o n íìd e n c e .

8


A

s u c c e s s íu l

o rg a n iz a tio n

w ill

re s p o n d

to

e c o n o m ic

c o n d itio n s

a nd

s ta k e h o ld e r b e h a v io r. F u rth e im o r e o rg a n iz a tio n s w i l l n e e d to r e v ie w th e im p a c t
e c o n o m ic c o n d itio n s are h a v in g on th e ir c o m p e tito r s a n d re s p o n d a c c o r d in g ly .

In

th is

g lo b a l

b u sin e ss

w o r ld

o rg a n iz a tio n s

are

a ffe c te d

by

e c o n o m ie s

th r o u g h o u t th e w o r ld and n o t ju s t th e c o u n trie s in w h ic h th e y are b a se d o r o p e ra te

from.

Cheaper

la b o r

in

d e v e lo p in g

c o u n trie s

a ffe c ts

th e

c o m p e titiv e n e s s

of

Products from developed countries.
A

t r u ly g lo b a l p la y e r has to be a w a re o f e c o n o m ic c o n d itio n s a cro s s a ll

b o rd e rs a n d n ee d s to e n su re th a t it e m p lo y s s tra te g ie s th a t p ro te c t a n d p ro m o te its
b u s in e s s th r o u g h e c o n o m ic c o n d itio n s th r o u g h o u t th e w o r ld .

Socio-cultural Factors
T h e t h ir d a sp e ct o f P E S T fo cu se s its a tte n tio n o n fo rc e s w it h in s o c ie ty su c h
as f a m ily , frie n d s , c o lle a g u e s , n e ig h b o rs a n d th e m e d ia . S o c ia l íb rc e s a ffe c t o u r
a ttitu d e s , in te re s t s and o p in io n s . T h e se íị rc e s sh a p e w h o w e are as p e o p le , th e vvay
w e b e h a v e a n d u ltim a te ly w h a t w e p u rc h a s e . F o r e x a m p le w it h in th e Ư K p e o p le ’ s
a ttitu d e s are c h a n g in g tovva rd s th e ir d ie t a n d h e a lth . A s a re s u lt th e Ư K is s e e in g an
in c re a s e in th e n u m b e r o f p e o p le jo in in g íĩtn e s s c lu b s a n d a m a s s iv e g r o w th f o r th e
d e m a n d o f o rg a n ic fo o d .

P o p u la tio n ch a n g e s a ls o h a v e a d ir e c t im p a c t o n o rg a n iz a tio n s . C h a n g e s in
th e s tru c tu re o f a p o p u la tio n w i l l a ffe c t th e s u p p ly a n d d e m a n d o f g o o d s and
s e rv ic e s w it h in an e c o n o m y . F a llin g b ir th ra te s w i l l r e s u lt in d e c re a s e d d e m a n d a n d
g re a te r c o m p e titio n as th e n u m b e r o f c o n s u m e rs f a ll. C o n v e rs e ly an in c re a s e in th e
g lo b a l p o p u la tio n a n d v v o rld fo o d s h o rta g e p r e d ic tio n s are c u r r e n tly le a d in g to c a lls

9


f o r g re a te r in v e s tm e n t in ío o d p ro d u c tio n . D u e to fo o d sh o rta g e s A í r ic a n c o u n trie s
such as U g a n d a are n o w re c o n s id e rin g th e ir re je c tio n o f g e n e tic a lly m o d ifie d fo o d s .

In s u m m a ry o rg a n iz a tio n s m u s t be a b le to o íT e r P ro d u c ts a n d s e rv ic e s th a t
a im to c o m p le m e n t a n d b e n e ĩit p e o p le ’ s life s ty le and b e h a v io r. I f o rg a n iz a tio n s d o
n o t re s p o n d to ch a n g e s in s o c ie ty th e y w i l l lo se m a rk e t share a n d d e m a n d fo r th e ir

product or Service

Technological Factors
U n s u r p r is in g ly th e íb u r th e le m e n t o f P E S T is te c h n o lo g y , as y o u are p ro b a b ly
a w a re te c h n o lo g ic a l a d v a n c e s h a ve g re a tly ch a n g e d th e m a n n e r in w h ic h b usinesses
o p e ra te . O r g a n iz a tio n s use te c h n o lo g y in m a n y w a y s , th e y h a ve

1.

T e c h n o lo g y

in ử a s tr u c tu r e

su ch

as

th e

in te rn e t

and

o th e r

in fo r m a tio n

e x c h a n g e s y s te m s in c lu d in g te le p h o n e
2.

T e c h n o lo g y s y s te m s in c o rp o ra tin g a m u ltitu d e o f s o ftw a re w h ic h h e lp th e m
m a n a g e th e ir b u s in e s s .

3.

T e c h n o lo g y h a rd vva re su ch as m o b ile p h o n e s, B la c k b e rry s , la p to p s , d e skto p s ,
B lu e to o th d e v ic e s , p h o to c o p ie rs a n d fa x m a c h in e s w h ic h tra n s m it and re c o rd
in íb r m a tio n .

T e c h n o lo g y

has

c re a te d

a

s o c ie ty

w h ic h

e x p e c ts

in s ta n t

re s u lts .

T h is

te c h n o lo g ic a l r e v o lu t io n has in c re a s e d th e ra te at w h ic h in fo r m a tio n is e x c h a n g e d
betvveen s ta k e h o ld e rs . A fa s te r e x c h a n g e o f in ío r m a tio n ca n b e n e fít busine sse s as
th e y are a b le to re a c t q u ic k ly to ch a n g e s w it h in th e ir o p e ra tin g e n v iro n m e n t.

H o v v e v e r an a b ilit y to re a c t q u ic k ly a ls o cre a te s e x tra p re ssu re as busine sse s are
e x p e c te d to d e liv e r o n th e ir p ro m is e s v v ith in e v e r d e c re a s in g tim e s c a le s ..

F o r e x a m p le th e In te r n e t is h a v in g a p ro fo u n d im p a c t o n th e m a rk e tin g m ix
s tra te g y o f o r g a n iz a tio n s . C o n s u m e rs ca n n o w sh o p 24 h o u rs a d a y fro m th e ir

10


h o m e s . w o r k . a n d In te rn e t c a fé ’ s and v ia 3 G p h o n e s a n d 3 G ca rd s. S o m e e m p lo y e e s
h a ve in s ta n t access to e -m a ils th ro u g h B la c k B e r r y ^ b u t th is ca n be a d o u b le e d g e d
s w o rd . as s tu d ie s h a v e s h o w n th a t th is access c a n ca use w o r k to e n c ro a c h o n t h e ir
p e rs o n a l tim e o u ts id e w o r k .

T h e p ace o f te c h n o lo g ic a l c h a n g e is so fa s t th a t th e a v e ra g e lif e o f a

Computer

c h ip is a p p r o x im a te ly 6 m o n th s . T e c h n o lo g y is u tiliz e d b y a ll age g ro u p s , c h ild r e n
are e x p o s e d to te c h n o lo g y fr o m b ir th a n d a n e w g e n e ra tio n o f te c h n o lo g y s a v v y
p e n s io n e rs k n o w n as “ s ilv e r s u rfe rs ” has e m e rg e d . T e c h n o lo g y w i l l c o n tin u e to
e v o lv e a n d im p a c t o n c o n s u m e r h a b its a n d e x p e c ta tio n s , o rg a n iz a tio n s th a t ig n o re
th is fa c t fa ce e x tin c tio n

In th e ta b le b e lo w y o u fin d e x a m p le o f e a ch o f the se íầ c to rs

Political Factors

Socio-cultural

Technological

Factors

Factors

Economic Factors

Environmental
r e g u la tio n s a n d

In d u s try fo c u s o n

Economic grovvth

In c o m e d is t r ib u t io n

te c h n o lo g ic a l

effo rt

p r o te c t io n
D e m o g r a p h ic , age

Interest rate and

distribution,

new invention and

m onetary policies

p o p u la tio n g r o w t h

d e v e lo p m e n t

Tax p o lic ie s

rate
International trade
G o v e rn m e n t

ra te o f te c h n o lo g y

social m obility

r e g u la tio n a n d

transfer

spending
re s tr ic tio n s

Change in
Contract

U n e m p lo y m e n t

e n fo r c e m e n t la w

policies

life style changes

lnform ation
te c h n o lo g y

ỉỉ


change in internet

Taxation

Education

Exchange rate

Health consciousness

Employment lavv
Government

change in mobile
technology

attitude
Competition
lnflation

living condition

regulation
Consumer
political stability
confidence
safety regulation

1.2.2.2 M icro A nalysis: Five Forces M odel
T h e ta s k fa c in g m a n a g e rs is to a n a ly z e c o m p e titiv e fo rc e s in an in d u s t iỳ s
e n v iro n m e n t

in

o rd e r to

id e n t ií y

th e

o p p o rtu n itie s

and

th re a ts

c o n lr o n tin g

a

c o m p a n y . M ic h a e l E . P o rte r has d e v e lo p e d a fra m e w o rk th a t h e lp s m a n a g e rs in th is
a n a ly s is . T h is m o d e l ío c u s e s o n

fív e

fo rc e s th a t shape c o m p e titio n

w it h in

an

in d u s try .

Figure 1.3 Five Forces M odel
T h e F iv e F o r c e s T h a t S h a p e I n d u s t r y C o m p e t i t i o n

T h rw t

o f N ew
Entrant*

ị

Th rtat o f

S u b c tỉtu te
P ro d u c ts or
S e r v ic e s

(source: S tra íe g ic m a n a g em en t a n in te g ra te d a p p ro a ch b y C h a rles w. L. H ill a n d G arethr. Jo nes)

12


F iv e fo rc e s a n a ly s is lo o k s at f iv e k e y areas n a m e ly th e th re a t o f e n try . th e p o w e r o f
b u y e rs . th e p o w e r o f s u p p lie rs , th e th re a t o f s u b s titu te s , and c o m p e titiv e r iv a lr y

R ivalry vvithin the industry
T h is is m o s t lik e ly to be h ig h w h e re e n try is lik e ly ; th e re is th e th re a t o f
s u b s titu te P ro d u c ts , a n d s u p p lie rs and b u y e rs in th e m a rk e t a tte m p t to c o n tro l
I f r iv a lr y a m o n g fir m s in an in d u s try is w e a k , c o m p a n ie s h a ve an o p p o r tu n ity
t o ra is e p ric e s a n d e a m g re a te r p r o fits . P ric e c o m p e titio n lim it s p r o ĩit a b ilit y b y
r e d u c in g th e m a rg in s th a t can be e a m e d o n sales. T h u s , in te n se r iv a lr y a m o n g
e s ta b lis h e d c o m p a n ie s c o n s titu te s a s tro n g th re a t to p r o í ĩt a b ilit y . T h e e x te n t o f
r iv a lr y a m o n g e s ta b lis h e d c o m p a n ie s v v ith in an in d u s try is la rg e ly íu n c tio n o f th re e
fa c to rs : ( 1 ) T h e n u m b e r o f c o m p e tito rs . ( 2 ) th e in d u s tr y ’ s c o m p e titiv e c a p a c ity , and
( 3 ) the h e ig h t o f e x it b a r r ie r in th e in d u s try
1. T h e n u m b e r o f c o m p e tito rs : N u m b e r o f c o m p e tito rs re la te s to b a r rie r to

e n try o r e x it. I t w i l l be m o re c o m p e titiv e i f b a r r ie r to e n try is lo w a n d h a rd to e x it.
A n d its a d v a n ta g e f o r e x is tin g c o m p a n ie s i f b a ư ie r to e n try gets h a rd e r and lo w
b a r r ie r to e x it.
2 . C o m p e titiv e c a p a c ity : c o m p e titiv e c a p a c ity re fe rs to th e size d is tr ib u tio n
o f c o m p a n ie s in an in d u s try . A

fra g m e n te d in d u s try c o n ta in s a la rg e n u m b e r o f

s m a ll o r m e d iu m s iz e d c o m p a n ie s , n o n e o f w h ic h is in a p o s itio n to d o m in a te the
in d u s try . A C o n s o lid a te d in d u s try m a y be d o m in a te d b y a s m a ll n u m b e r o f la rg e
c o m p a n ie s . F ra g m e n te d in d u s trie s ra n g e fr o m a g ric u ltu re , v id e o re n ta l, a nd h e a lth
c lu b s , to re a l estate b ro k e rs and su n ta n n in g p a rlo rs . M a n y íra g m e n te d in d u s trie s are
c h a ra c te riz e d b y lo w b a rrie rs to e n try a n d c o m m o d ity ty p e p ro d u c ts th a t are h a rd to
d iíĩe r e n tia te . T h e c o m b in a tio n o f these tra its te n d s to re s u lt in b o o m a n d b u s t c y c le s
as in d u s try p r o íits ris e a n d fa ll. L o w b a rrie rs to e n try im p ly th a t w h e n e v e r d e m a n d
is s tro n g and p r o íĩts are h ig h , th e re w i l l be a ílo o d o f n e w e n tra n ts h o p in g to cash in
o n th e b o o m . A

íra g m e n te d in d u s try s tru c tu re c o n s titu te s a th re a t ra th e r th a n an

o p p o r tu n ity . M o s t b o o m s w i l l be re la tiv e s h o rt liv e d b ecause o f th e ease o f n e w
e n try a n d w i l l be f o llo w e d b y p ric e w a rs a n d b a n k ru p tc ie s . S in c e it is o fte n d if f i c u l t

13


to d iffe r e n tia te p ro d u c ts in these in d u s trie s . th e best s tra te g y fo r a c o m p a n y to
p u rs u e m a y be c o s t m in im iz a tio n . T h is s tra te g y a llo w s a c o m p a n y to ra c k u p h ig h
re tu m s in a b o o m to s u rv iv e a n y su b s e q u e n t b u s t
3.

E x it b a rrie rs : are e c o n o m ic , s tra te g ic , and e m o tio n a l fa c to rs th a t ke ep

c o m p a n ie s in an in d u s try e v e n w h e n re tu m s are lo w . I f e x it b a rrie rs are h ig h ,

com panies can becom e unprofítable in w hich o v e ra ll dem and is static or declining.
E x ce ss p ro d u c tiv e c a p a c ity ca n re s u lt. In tu m , excess p ric e s in an a tte m p t to o b ta in
th e o rd e rs nee d ed to u tiliz e t h e ir id le c a p a c ity . C o m m o n e x it b a r rie r in c lu d e th e
f o lIo w in g .
•

In v e s tm e n ts in p la n t a nd e q u ip m e n t th a t h a v e n o a lte m a tiv e uses and
c a n n o t be s o ld o f f . I f th e c o m p a n y vvishes to le a ve th e in d u s try , it has to
w r ite o f f th e b o o k v a lu e o f these assets.

•

H ig h íìx e d co sts o f e x it, su ch as se ve ra n ce p a y to w o rk e rs w h o are b e in g
m a d e re d u n d a n í

•

E m o tio n a l a tta c h m e n ts to an in đ u s try , as w h e n a c o m p a n y is u n w illin g to
e x it fr o m its o r ig in a l in d u s try f o r s e n tim e n ta l reasons

•

E c o n o m ic

dependence

on

th e

in d u s try ,

as vvhen

a com pany

is

not

d iv e r s iíìe d a nd so re lie s o n th e in d u s try f o r its in c o m e

T hreats o f substitutes
In M ic h e l P o r t e r s m o d e Ị s u b s titu te

Products

r e fe r to th o s e o f in d u s trie s th a t

s e rv e c o n s u m e rs ’ n ee d s in a w a y th a t is s im ila r to tho se b e in g s e rv e d b y th e in d u s try
b e in g a n a ly z e d . T o th e e c o n o m is t, a th re a t o f P ro d u c ts e x is ts w h e n a p ro d u c t
d e m a n d a ffe c te d b y th e p ric e c h a n g e o f a s u b s titu te s . T h e c o m p e titio n e n g e n d e re d
b y th re a t o f s u b s titu te co m e s fr o m

Products

s u b s titu te s is d e te rm in e d b y f o llo w in g fa c to rs

•

B ra n d lo y a lt y o f c u s to m e rs ,

•

C lo s e c u s to m e r re la tio n s h ip s .

14

o u ts id e th e in d u s try . A n d th re a t o f


•

S w itc h in g co sts f o r c u s to m e rs ,

•

T h e re la tiv e p ric e f o r p e ríb rm a n c e o f s u b s titu te s ,

•

C u rre n t tre n d s .

Suppliers Power
S u p p lie rs ca n be v ie w e d as a th re a t w h e n th e y are a b le to fo rc e u p th e p ric e th a t

a c o m p a n y m u s t p a y to its in p u ts o r re d u c e th e q u a lity o f th e in p u ts th e y s u p p ly ,
th e re b y d e p re s s in g th e c o m p a n y ’ s p r o í it a b ilit y . O n th e o th e r h a n d . i f s u p p lie rs are
w e a k , th is g iv e s a c o m p a n y th e o p p o r tu n ity to fo rc e đ o w n p ric e s a n d d e m a n d h ig h e r
in p u t q u a lity . A s w it h
com pany

d ep e nd s

on

b u y e rs , th e a b ilit y o f s u p p lie rs to m a k e d e m a n d s o n a
th e ir p o w e r re la tiv e

to

th a t o f th e c o m p a n y . T h e

te rm

's u p p lie rs ' c o m p ris e s a ll so urces f o r in p u ts th a t are n e e d ed in o rd e r to p ro v id e g o o d s
o r s e rv ic e s . S u p p lie r b a r g a in in g p o w e r is p o w e r fu l w h e n :

•

T h e m a rk e t is d o m in a te d b y a fe w la rg e s u p p lie rs ra th e r th a n a íra g m e n te d
s o u rc e o f s u p p ly ,

•

T h e re are n o s u b s titu te s f o r th e p a r tic u la r in p u t,

•

T h e s u p p lie rs c u s to m e rs are íra g m e n te d , so t h e ir b a r g a in in g p o w e r is lo w ,

•

T h e s v v itc h in g co sts fr o m o n e s u p p lie r to a n o th e r are h ig h ,

•

T h e re is th e p o s s ib ilit y o f th e s u p p lie r in te g ra tin g fo r w a rd s in o rd e r to o b ta in
h ig h e r p ric e s a n d m a rg in s .

•

T h e b u y in g in d u s try h a s a h ig h e r p r o í ĩt a b ilit y th a n th e s u p p ly in g in d u s try ,

•

F o rw a rd in te g ra tio n p ro v id e s e c o n o m ie s o f sca le f o r th e s u p p lie r,

•

T h e b u y in g in d u s try h in d e rs th e s u p p ly in g in d u s try in th e ir d e v e lo p m e n í
(e .g . re lu c ta n c e to a c c e p t nevv releases o f P ro d u c ts ),

•

T h e b u y in g in d u s tr y has lo w b a rrie rs to e n try .

15


In s u c h s itu a tio n s , th e b u y in g in d u s try o fte n faces a h ig h p re ssu re o n m a rg in s
fro m th e ir s u p p lie rs . T h e re la tio n s h ip to p o \v e r fu l s u p p lie rs can p o te n tia lly re d u c e
s tra te g ic o p tio n s f o r th e o rg a n iz a tio n .

C ustom ers Power
S im ila r ly , the b a r g a in in g p o w e r o f c u s to m e rs d e te rm in e s h o w m u c h c u s to m e rs
can im p o s e p re ssu re on m a rg in s a n d v o lu m e s . C u s to m e rs b a r g a in in g p o w e r is
p o w e r fu l vvhen

•

T h e y b u y la rg e v o lu m e s , th e re is a c o n c e n tra tio n o f b u y e rs ,

•

T h e s u p p ly in g in d u s try c o m p ris e s a la rg e n u m b e r o f s m a ll o p e ra to rs

•

T h e s u p p ly in g in d u s try o p e ra te s w it h h ig h fix e d costs,

•

T h e p ro d u c t is u n d iíĩe r e n tia te d a n d can be re p la c e s b y s u b s titu te s ,

•

S w itc h in g to an a lte m a tiv e p ro d u c t is r e la tiv e ly s im p le and is n o t re la te d to

high costs,
•

C u s to m e rs h a v e lo w m a rg in s a n d are p ric e -s e n s itiv e ,

•

C u s to m e rs c o u ld p ro d u c e th e p ro d u c t th e m s e lv e s ,

•

T h e p ro d u c t is n o t o f s tra te g ic im p o rta n c e fo r th e c u s to m e r,

•

T h e c u s to m e r knovvs a b o u t th e p ro d u c tio n co sts o f th e p ro d u c t

•

T h e re is th e p o s s ib ilit y f o r th e c u s to m e r in te g ra tin g b a c k w a rd s .

T hreat o f New Entrants
P o te n tia l c o m p e tito rs are c o m p a n ie s th a t are n o t c u r r e n tly c o m p e tin g in an
in d u s try b u t h a ve th e c a p a b ility to d o so i f th e y ch o o se . S o t r y to d is c o u ra g e
p o te n tia l c o m p e tito rs fr o m e n te rin g th e in d u s try , s in c e th e m o re c o m p a n ie s e n te r,
th e m o re đ if f i c u l t it b e co m e s f o r e s ta b lis h e d c o m p a n ie s to h o ld th e ir share o f th e
m a rk e t a n d to g e n e ra te p ro íỉts . T h u s , a h ig h r is k o f e n try b y p o te n tia l c o m p e tito rs

re p re s e n ts a th re a t to th e p r o í it a b ilit y o f e s ta b lis h e d c o m p a n ie s . O n th e o th e r h a n d .

16


i f th e r is k o f n e w e n try is lo w , in c u m b e n t c o m p a n ie s ca n ta k e a d v a n ta g e o f th is
o p p o r tu n ity to ra is e p ric e s a n d e a m g re a te r re tu m s .

T h e s tre n g th o f th e c o m p e titiv e fo rc e o f p o te n tia l r iv a ls is la rg e ly a íu n c tio n
o f th e h e ig h t o f b a rrie rs to e n try . B a rrie rs to e n trv are ía c to rs th a t m a k e it c o s tly fo r
c o m p a n ie s to e n te r an in d u s try . T h e g re a te r th e co sts th a t p o te n tia l c o m p e tito rs m u s t
b e a r to e n te r an in d u s try , th e g re a te r are th e b a rrie rs to e n try . H ig h b a rrie rs to e n try
k e e p p o te n tia l c o m p e tito rs o u t o f in d u s try , e ve n w h e n in d u s try re tu m s are h ig h . T h e
c la s s ic w o r k on b a rrie rs to e n try w a s d o n e b y e c o n o m is t Joe B a in , w h o id e n tifíe d
th re e m a in so u rce s o f b a rrie rs to n e w e n try ; b ra n d lo y a lty , a b s o lu te c o s t a d va n ta g e s ,
a n d e c o n o m ie s o f sca le . T o B a in ’ s lis t w e

can a d d a íb u rth

e n try b a r rie r o f

c o n s id e ra b le s ig n ifíc a n c e in m a n y c o u n trie s ; g o v e m m e n ta l re g u la tio n .

Brand ỉoyaỉty

is

b u y e rs ’

p re fe re n c e

fo r

th e

Products

on

in c u m b e n t

c o m p a n ie s . A c c o m p a n y ca n cre a te b ra n d lo y a lt y th ro u g h c o n tin u o u s a d v e rtis in g o f
b ra n d

and

com pany

n am es, p a te n t p r o te c tio n

o f P ro d u c ts , p ro d u c t in n o v a tio n

a c h ie v e d th ro u g h its re se a rch a n d d e v e lo p m e n t p ro g ra m , an e m p h a s is o n h ig h
p ro d u c t q u a lity , a n d g o o d a fte r sales

Service.

S ig n iíĩc a n t b ra n d lo y a lty m a k e s it

d if f i c u l t f o r n e w e n tra n ts to ta k e m a rk e t share a w a y fro m e s ta b lis h e d c o m p a n ie s .

T h u s b ra n d lo y a lty re d u c e s th e th re a t o f e n try b y p o te n tia l c o m p e tito rs s in c e th e y
m a y see th e ta s k o f b re a k in g d o w n w e ll e s ta b lis h e d c o n s u m e r p re fe re n c e s as to o
c o s tly

Absoỉutecost advantages

s o m e tim e s

incum bent c o m p a n ie s h a v e an a b s o lu te

c o s t a d v a n ta g e re la tiv e to p o te n tia l e n tra n ts . A b s o lu te c o s t a d va n ta g e s ca n a rise
fr o m th re e m a in s o u rc e s : ( 1 ) s u p e rio r p ro d u c tio n o p e ra tio n s , d ue to p ast e x p e rie n c e ,
p a te n t, o r se cre t p ro ce sse s; ( 2 ) c o n tro l o f p a r tic u la r n p u ts re q u ire d f o r p ro d u c tio n ,
such as la b o r m a te ria ls e q u ip m e n t o r m a n a g e m e n t s k ills ; a n d (3 ) access to c h e a p e r
fu n d s b eca u se e x is tin g c o m p a n ie s re p re s e n t lo w e r r is k s th a n c o m p a n ie s th a t are n o t

ĐAI H Ọ C q Ũ Õ Õ g i a
TRUNG TAtv' THÕNG tin

ha no i
thư v iệ n


y e t e s ta b lis h e d . I f in c u m b e n t c o m p a n ie s h a v e an a b s o lu te c o s t a d v a n ta g e , the th re a t
o f e n try decreases

Economies ofscale

are th e c o s t a d v a n ta g e s a sso cia te d vvith la rg e c o m p a n y

s iz e . S o u rce s o f sca le e c o n o m ie s in c lu d e c o s t re d u c tio n s g a in e d th ro u g h m ass
p ro d u c in g a s ta n d a rd iz e d o u tp u t, d is c o u n ts o n b u lk p u rch a se s o f ra w m a te ria l in p u ts
a n d c o m p o n e n t p a rts th e a d v a n ta g e s g a in e d b y s p re a d in g íĩx e d co sts o v e r a la rg e
p ro d u c tio n v o lu m e , a n d e c o n o m ie s o f scaỉe in a d v e rtis in g i f the se co st a d va n ta g es
are s ig n iíĩc a n t, a n e w e n tra n t faces th e d ile m m a o f e ith e r e n te rin g o n a s m a ll scale
a n d s u ffe r in g a s ig n iíĩc a n t c o s t d is a d v a n ta g e s o r e n te rin g o f la rg e sca le a n d b e a rin g

a large risk o f signiíĩcant Capital costs. A further risk o f large scale entry is that the
in c re a s e d s u p p ly o f P ro d u c ts v v ill d e p re ss p ric e s and re s u lt in v ig o ro u s re ta lia tio n b y
e s ta b lis h e d c o m p a n ie s . T h u s w h e n e s ta b lis h e d c o m p a n ie s h a ve e c o n o m ie s o f scale
th e th re a t o f e n try is re d u c e d .

Government regulaíion

has c o n s titu te đ a m ạ ịo r e n try b a ư ie r in to m a n y

in d u s trie s . F o r e x a m p le , u n t il re c e n tly in th e u s g o v e m m e n t r e g u la tio n p r o h ib ite d
p r o v id e r a lo n g d is ta n c e te le p h o n e
c o m p e tin g f o r lo c a l te le p h o n e

Service

su ch as A T & T , M C I a n d S p rin t fro m

Service w it h th e re g io n a l B e ll O p e ra tio n C o m p a n y

s u c h as ư s W e s t a n d B e ll A t la n t ic M o r e o v e r, the R B IC s w e re p r o h ib ite d fro m the
lo n g d is ta n c e te le p h o n e m a rk e t. O th e r p o te n tia l p ro v id e rs o f te le p h o n e
in c lu d in g c a b le te le v is io n
V ia c o m

w e re p r o h ib ite d

Service

Service c o m p a n ie s su ch as T C Ư C o m m u n ic a tio n and
í ío m

e n te rin g th e m a rk e t a lto g e th e r. T h e se re g u la to ry

b a rrie rs to e n try s ig n ií ic a n tly re d u c e d th e le v e l o f c o m p e titio n in b o th th e lo c a l and
lo n g d is ta n c e te le p h o n e m a rk e ts , e n a b lin g te le p h o n e c o m p a n ie s to e a m h ig h e r
p r o íìts th a n m ig h t o th e n v is e h a ve b een th e case

BarrierstoEntryandCompetition

i f e s ta b lis h e d c o m p a n ie s h a v e b u ilt b ra n d

lo y a lt y f o r t h e ir P ro d u c ts , h a v e an a b s o lu te c o s t a d v a n ta g e w it h re s p e c t to p o te n tia l
c o m p e tito rs h a v e s ig n iíĩc a n t e c o n o m ie s o f scale o r e n jo y re g u la to ry p ro te c tio n th e n

18


th e r is k o f e n try b y p o te n tia l c o m p e tito r s is g r e a tly d im in is h e d . W h e n th is r is k is
ỉo w . e s ta b lis h e d c o m p a n ie s ca n c h a rg e h ig h e r p ric e s a n d e a m g re a te r p r o íìts th a n
w o u ld be p o s s ib le o th e rv v is e . C le a r ly , it is in th e in te re s t o f c o m p a n ie s to p u rs u e
s tra te g ie s

c o n s is te n t w it h

r a is in g

b a ư ie rs

to

e n try .

In d e e d

e m p ir ic a l

e v id e n c e

su g g e st th a t th e h e ig h t o f b a rrie rs to e n try is th e m o s t im p o r ta n t d e te rm in a n t o f
p r o fit ra te s in an in d u s tr y

1.2.3 Internal analysis:
1.2.3.1 V alue Chain m odel
V a lu e c h a in m o d e l o f M ic h a e l P o rte r is m o d e l th a t h e lp s to a n a ly z e s p e c iíĩc
a c tiv itie s th r o u g h w h ic h íir m s ca n c re a te v a lu e a n d c o m p e titiv e a d v a n ta g e

Figure 1.4 V alue Chain m odel

(source: s tr a te g ic m a n a g e m e n t b y C h a rle s W .L H ilỉ a n d G arethr. Jo n e s)

Primary Activities
P r im a r y a c tiv itie s h a v e to d o w it h th e d e s ig n , c re a tio n , a n d d e liv e r y o f th e
p ro d u c t as w e ll as its m a r k e tin g a n d its s u p p o rt a n d a fte r-s a le s

Inbound iogistics:

19

Service.


In b o u n d lo g is tic s is c o n c e m e d vvith re c e iv in g , s to rin g , in v e n to r y c o n tro l.
tra n s p o rta tio n s c h e d u lin g .

Operating:
O p e ra tio n s are v a lu e c re a tin g a c tiv itie s th a t tra n s íb rm in p u ts in to th e íìn a l
p ro d u c t

Outbound iogistics
O u tb o u n d

lo g is tic s

is c o n c e m e d

w it h

th e

a c tiv itie s

re q u ire d

to

g e t th e

íln is h e d P ro d u c ts to c u s to m e rs , w a re h o u s in g , o rd e r f iilf illm e n t , tra n s p o rta tio n , a nd
d is t r ib u t io n m a n a g e m e n t. O u tb o u n d lo g is tic s is th e p ro ce ss o f tra n s p o rtin g v e h ic le s
fr o m th e a s s e m b ly p la n t to th e d e a le rs h ip o r í in a l c u s to m e r w it h la rg e Aeets. T h e
o u tb o u n d d is tr ib u tio n lo g is tic s is a lw a y s d o n e v ia tra in , tru c k , a n d s h ip fro m th e
p la n t to

m a rk e t c o m p o u n d s o r d is tr ib u tio n

c u s to m e rs . T h e ro u te s

fro m

ce n te rs, a n d th e n to d e a le rs h ip s o r

a s s e m b ly p la n t to re g io n a l d is tr ib u tio n c e n te r a n d

n a tio n a l c o m p o u n d s a c c o u n t f o r a p p ro x im a te ly 9 0 % , v v h ile th e v e h ic le s b e in g
d ir e c tly tra n s fe rre d to lo c a l d e a le rs h ip a c c o u n t f o r ju s t 1 % . C u s to m e rs c o m in g to
p ic k - u p th e v e h ic le a t th e d e a le rs h ip a c c o u n t f o r 6 5 % , v v h ile d is tr ib u tio n ce n te rs
d e liv e r in g th e v e h ic le d ir e c tly to e n d users a c c o u n ts f o r 2 5 %

Marketing and sales
M a r k e tin g a n d sales fu n c tio n s o f a c o m p a n y can h e lp to

cre a te v a lu e .

T h ro u g h b ra n d p o s itio n in g and a d v e rtis in g , th e m a rk e tin g fu n c tio n can in cre a se th e
v a lu e th a t c o n s u m e rs p e rc e iv e to be c o n ta in e d in a c o m p a n y 's p ro d u c t. In s o ía r as
these h e lp to cre a te a fa v o ra b le im p re s s io n o f th e c o m p a n y ’ s p ro d u c t in th e m in d o f
c u s to m e rs , th e y

in cre a se v a lu e . M a r k e tin g

and sales ca n a ls o cre a te v a lu e b y

d is c o v e r in g c o n s u m e r needs and c o m m u n ic a tin g th e m b a c k to th e R & D íìin c tio n o f

the com pany, w hich can then design Products that better m a tc h those needs

Service
T h e ro le o f th e

Service

íì in c tio n o f an e n te rp ris e is to p ro v id e a fte r-s a le s

Service and support. T h is âinction can create a perception o f superior value in the

20


m in d s o f c o n s u m e rs b v s o lv in g c u s to m e r's p ro b le m a n d s u p p o rtin g c u s to m e rs a fte r
th e y h a ve p u rc h a s e d th e p ro d u c t.

Support Activities
T h e s u p p o rt a c tiv itie s o f the v a lu e C hain p ro v id e

p r im a r y

a c tiv itie s to

ta k e

in p u ts th a t a llo vv th e

p la c e . T h e p ro c u re m e n t fu n c tio n

is to p ro c u re

ra w

m a te ria ls , spare p a rt, a nd b u ild in g . m a c h in e s . T h e e íY ĩc ie n c y w it h w h ic h th is is
c a rrie d o u t can s ig n ií ĩc a n t ly lo w e r c o s t, th e re b y c re a tin g m o re v a lu e . S im ila r ity ,
th e re are a n u m b e r o f w a y s in w h ic h th e h u m a n re s o u rc e íiin c t io n ca n h e lp an
e n te rp ris e

cre a te

m o re

v a lu e .

The

hum an

re s o u rc e

íu n c tio n

ensures

th a t th e

c o m p a n y has th e r ig h t m ix o f s k ille d p e o p le to p e r ío rm its v a lu e c re a tio n a c tiv itie s
e íĩe c t iv e ly . I t is a ls o th e jo b o f th e h u m a n re s o u rc e íu n c tio n to e n su re th a t p e o p le
are a d e q u a te ly tra in e d , m o tiv a te d . a n d c o m p e n s a te d to p e r ĩo r m th e ir v a lu e c re a tio n
tasks. T h e í ĩn a l s u p p o rt a c tiv it y

is th e c o m p a n y in íra s tr u c tu re has a som evvhat

d if fe r e n t c h a ra c te r fro m th e o th e r s u p p o rt a c tiv itie s . In ír a s tru c tu r e has to d o w it h the
c o m p a n y w id e c o n te x t w it h in w h ic h a ll th e o th e r v a lu e c re a tio n a c tiv itie s ta k e p la c e .
T h e in ĩr a s tr u c tu r e in c lu d e s th e o rg a n iz a tio n a l s tru c tu re , c o n tr o l syste m s, a nd c u ltu re
o f th e c o m p a n y . S in c e to p m a n a g e m e n t can e x e rt c o n s id e ra b le in ílu e n c e in s h a p in g
these a spe cts o f a c o m p a n y , to p m a n a g e m e n t s h o u ld a ls o be v ie w e d as p a rt o f th e
in íra s tr u c tu re o f a c o m p a n y . In d e e d , th ro u g h s tro n g le a d e rs h ip to p m a n a g e m e n t can
c o n s c io u s ly

shape

th e

in íra s tr u c tu re

of

a

com pany,

a nd

th ro u g h

th a t

th e

p e rfo rm a n c e o f a il o th e r v a lu e c re a tio n a c tiv itie s th a t ta k e p la c e w it h in it

1.2.3.2 C om petitive advantages
A c c o r d in g to M ic h a e l P o rte r: "

Competitive advantage grows out o f value

that a firm is abỉe to create fo r it ’s buyers that exceeds thefìrm 's cost o f creating it.
Value is what bưyers are w illing to pay, and superior value stems from offering
lower prices than competitors fo r equivaỉent benefits or providing u n iq u e benefìts
that more than offset a higher price.

”

21