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the framework and analysis of external environment can be applied in developing competitive strategy for other product categories or for company as a whole with certain modification in area of analysis
DEVELOPING A COMPETITIVE STRATEGY: A CASE STUDY OF THE THANGLONG GARMENT COMPANY IN HANOI, VIETNAM by Dang Anh Tuan A research study submitted in partial fulfillment of the requirement for the degree of Master of Business Administration Examination Committee: Prof N Ramachandran (Chairman) Dr Truong Quang Dr Arne Deussen Nationality Vietnamese Previous Degree Bachelor in Economics National Economics University Hanoi, Vietnam Scholarship Donor Government of Switzerland Asian Institute of Technology School of Management Bangkok, Thailand April, 2001 ACKNOWLEDGMENT I wish to express my deep gratitude to my advisor and Committee Chairman, Professor N Ramachandran for his useful guidance, suggestions and encouragement through out the research work I also would like to express my sincere appreciation to Dr Truong Quang, committee member, for his sharing and encouragement for the research work I also grateful to Dr Arne Deussen not only for serving as committee member but also for his enthusiasm sharing, valuable suggestions for my research Thanks are also due to the Government of Switzerland, the Government of Vietnam, and the Asian Institute of Technology for providing the scholarship and opportunity for me to pursuit my master degree at AIT I also would like to extend genuine thanks to Mr Phuong, Ms Ha, Mrs Binh and other staffs at Thanglong Garment Company for their help and suggestion during the implementation of my research study Thanks are also due to my friend, Dung, who had helped me during the customer survey And the most wholehearted gratitude I wish to express to my parents and my brother for their endless love, cares, encouragement and supporting to me during the course of my study ii ABSTRACT This research study aims at developing a competitive strategy for jacket category at the Thanglong Garment Company (Thaloga) in Vietnamese market Like other companies in the textile and garment industry, Thaloga operation depends on orders of customers mostly from foreign customers The majority of company’s production is for export The company had focused on domestic market in the last three years The research examines external environment in which Thaloga operates Opportunities identified are government preferred treatment in tax and soft loans, growing economy with increasing purchasing power, large unexploited domestic market, good customer perception about domestic ready made garment, and favorable weather condition for jacket category Threats include intensive competition from Chinese goods and increasing competition from existing companies For company internal environment, it has strong capability in design and production with large production capacity Weakness includes lack of customer understanding and customer oriented product development The jacket product category seems to be stuck in the middle with no clear advantage in terms of price and product variety Three competitive strategies are developed and evaluated, in which cost leadership strategy is recommended to the company to compete in the future iii TABLE OF CONTENT Title Page Title Page .i Acknowledgement .ii Abstract iii Table of Content iv List of Figure vi List of Table vii CHAPTER INTRODUCTION .1 1.1 Rationale of the research study 1.2 Problem statement 1.3 Research methodology 1.3.1 Specific objective 1.3.2 Conceptual frame work of the study .1 1.4 Scope and limitation of the research .2 1.5 Data collection method 1.6 Presentation of the research study CHAPTER LITERATURE REVIEW 2.1 Competitive advantage 2.1.1 Definition 2.1.2 Generic building blocks of competitive advantage 2.2 Competitive strategy and competitive advantage 2.2.1 Three level of strategy 2.3 Strategy formulation process 2.3.1 Mission and goals 2.3.2 External analysis 2.3.3 Internal analysis 10 2.3.4 Strategy formulation and strategic choice 10 2.3.5 Strategy implementation .12 CHAPTER EXTERNAL ENVIRONMENT ANALYSIS 13 3.1 Societal environment 13 3.1.1 Government and legal factors 13 3.1.2 Economic factors 14 3.1.3 Social, cultural and demographic factors 15 3.1.4 Climate and weather factors 15 3.1.5 Technological factors 16 3.2 Customer analysis .16 3.2.1 Sample characteristics 17 3.2.2 Customers buying pattern 17 iv 3.2.3 Customers needs on the products .17 3.2.4 Customer perception about Thaloga’s jackets 19 3.3 Textile and garment industry analysis 19 3.3.1 Industry overview 19 3.3.2 Industry attractiveness and competitor analysis 22 3.4 Summary of external opportunities and threats for Thaloga 25 CHAPTER INTERNAL ANALYSIS 26 4.1 Company profile 26 4.2 Organizational structure 26 4.3 Business operation and goals 28 4.3.1 Business activities .28 4.3.2 Company goals 28 4.4 Business performance and sales 29 4.4.1 Manufacturing process, quality control and technology 29 4.4.2 Sales performance and profitability 30 4.5 Marketing 31 4.5.1 Market segmentation and targeted market 31 4.5.2 Product positioning 31 4.5.3 Pricing 32 4.5.4 Promotion 32 4.5.5 Distribution 32 4.5.6 Design and new product development 34 4.5.7 Human resource management 34 4.5.8 Information system .34 4.6 Summary of Thaloga’s strength and weakness 35 CHAPTER DEVELOPING COMPETITIVE STRATEGIES FOR THALOGA 36 5.1 SWOT analysis 36 5.1.1 Summary of strategic situation for the company 36 5.1.2 SWOT strategies 36 5.2 Alternatives competitive strategies for Thaloga 37 5.2.1 Cost leadership strategy .37 5.2.2 Differentiate strategy 38 5.2.3 Focus strategy 39 5.3 Strategy evaluation 39 5.3.1 Cost leadership strategy: 39 5.3.2 Differentiation strategy: .40 5.3.3 Focus strategy: 40 CHAPTER CONCLUSION AND RECOMMENDATION 41 6.1 Conclusion 41 v 6.2 Recommendation 41 BIBLIOGRAPHY I APPENDICES .III vi LIST OF FIGURE Figure 1.1 Conceptual framework of the research study Figure 2.1 Value to customer and producer Figure 4.1 Production process 29 Figure 4.2 Company distribution channel 33 vii LIST OF TABLE Table 2.1 Competitive strategy and required competencies 11 Table 3.1 GDP growth rate in 1992-2000 period 14 Table 3.2 GDP per capita in 1996-2000 period 15 Table 3.3 Number of firms in the garment industry as of 1998 20 Table 3.4 Production capacity of Vietnam Textile and Garment industry as of 1998 20 Table 3.5 Export turnover of textile and garment industry in 1994-2000 period 29 Table 5.1 Summary of strategic factors 36 Table 5.2 Summary of strategy valuation 40 viii CHAPTER INTRODUCTION 1.1 Rationale of the research study In profit leaded organizations, net profit margin and return on equity are important measures of their performance To achieve high rate of profit, high sales volume is critical But sales volume is very much depend on the attractiveness of the products offered in terms of price, quality, and other dimension that satisfy customer needs The heart of this attractiveness lies on the competitive advantage that a product has over other competing alternatives The research study aims at exploring current business practice at the Thanglong Garment Company (Thaloga) and developing competitive strategy for its jacket, a major product category of the company, in Vietnamese market The company’s management can refer to the analysis and recommendation for formulating strategy and operation practices 1.2 Problem statement In the past, under central planned economy, the company under consideration operated in accordance with the plan from central government Their work is to manufacture product without worrying about source of raw material and sales because everything is planned In the new business environment when the government had deregulated the economy, company must struggle for survival itself Thaloga currently operates to process order forms from other customers So the company business is depend significantly to the outside order To survive in the long run, company must develop its own brand name and product capability to compete in the domestic market The problem is to manufacture the products that fit domestic market, which is dominated with imported goods, mostly from China at low price Having observed slow sales in domestic market of jackets since the beginning of 2000-2001 winter season from the end of November 2000, which is due to many reasons in which weather condition might be an important one, it is important to examine the competitive advantage of this product category 1.3 Research methodology 1.3.1 Specific objective - Analysis overall, current market and industry condition for garment products, specifically for jackets in Vietnamese market - Examine company overall business strategy - Analysis company practices in manufacturing and marketing jackets in Vietnamese market - Develop alternative competitive strategies and recommendations suitable strategy for jacket in this market 1.3.2 Conceptual frame work of the study The analysis of current performance of industry and company is based on the process of strategic management, which is used to implement SWOT analysis for the company First company missions and goals are examined Then external and internal environments are analyzed to identify strategic situation that company is facing Strategies are developed for the company and evaluated to choose the most suitable one for recommendation Figure 1.1 illustrates the framework of the research study Mission and Goals External Analysis SWOT analysis Strategic Choice Internal Analysis Alternative strategies Strategy evaluation Recommended strategy Recommendation Figure 1.1 Framework of the research study 1.4 Scope and limitation of the research The research only focuses on one product category- jackets in Vietnamese market of Thaloga, since the company under consideration manufacturing variety of products and competitive strategy for each product type will not be the same The reason to choose this product is that it contributes an important proportion in company total revenue and that producing jackets for domestic market is still new in company operation In the past, most of jackets manufactured are exported, company only focused on the domestic in the last three years ... research study aims at developing a competitive strategy for jacket category at the Thanglong Garment Company (Thaloga) in Vietnamese market Like other companies in the textile and garment industry,... or for company as a whole with certain modification in area of analysis 1.5 Limitation The unavailability of information about sales volume of each product categories, timing of sales of each product,... strategic management Hill and Jones (1998) say a company has a competitive advantage when its profit rate is higher than the average for its industry and it can sustain this advantage to maintain high