The study analyzed in general the present competitive situation in Vietnam Machinery
Industry. The case taken of Hanoi Mechanical Company was able to explain the up-downs in
the industry and strategy the company had used to become successful. The study basically
depended on the in-depth level of information that was supplied by the company and targeted
groups. Moreover, the study mainly considered that portion of overall effort, for strategy
development, in which the author remained in touch with the investigated company. The
unresponded portion was not be discussed in detail.
The major products are machine tools and industrial machines and equipment using in
almost industries, especially in Chemical and Foodstuff Industry.
The limitation of the study is that it depends partly on how supportive the company was
and its related departments. The data concerning to industrial financial ratios and indices is
not available in Vietnam. Thus, it is difficult to make the exact and clear comparison with other
companies within machinery industry.
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Chapter 2
Literature Review
2.1. Strategy: An Introduction
2.1.1. The Definition of Strategy
What is strategy? There is no single, universally accepted definition. Different authors
and managers use the term differently; for example, some include goals and objectives as part
of strategy while others make firm distinction between them.
Reflecting the military roots of strategy, the American Heritage Dictionary defines
strategy as “the science and art of military command as applied to the prevail planning and
conduct of large-scale combat operations”. The planning theme remains an important
component of most management definitions of strategy. Strategy is “the determination of the
basic long-term goals and objectives of an enterprises, and the adoption of courses of action
and the allocation of resources necessary for carrying out these goals”. (Chandler,1989).
There is also the another definition of strategy as “the pattern or plan that integrates an
organization’s major goals, policies, and action sequences into a cohesive whole.” (Quinn,
1988). Along the same lines, Glueck defined strategy as “a unified, comprehensive, and
integrated plan designed to ensure that the basic objectives of the enterprise are achieved”.
(Hill/Jones, 1989)
According to Mintzberg, definitions of strategy that stress the role of planning ignore the
fact that strategies can emerge from within an organization without any formal plan. That is to
say, even in the absence of intent, strategies can emerge from the grassroots of an
organization. Mintzberg’s point is that strategy is more than what a company intends or plans
to do; it is also what it actually does. With this in mind, Mintzberg has defined strategy as “a
pattern in a stream of decisions or actions”, the pattern being a product of whatever intended
strategies.
Marketing has its 4P’s (product, price, place and promotion). So why can’t strategy do
likewise, even go one better? But these 4P’s pertain not to components of the field so much as
to its most central concept, that of the nature of strategy itself. Mintzberg defines strategy as
an plan, ploy, pattern, position and perspective. (Quin et al, 1988)
2.1.2. The Nature of Corporate Strategy
Definition
Corporate strategy is the pattern of decisions in a company that determines and reveals
its objectives, purposes, or goals, produces the principal policies and plans for achieving those
goals, and defines the range of business the company is to pursue, the kind of economic and
human organization it is or intends to be, and the nature of the economic and non-economic
contribution it intends to make to its shareholders, employees, customers and communities
(Kenneth/Andrews, 1980)
Corporate Competitive Strategy
52
Companies compete in three ways. One is building core competencies that imbue
products and services with unique functionality. Secondly, they compete to build a worldwide
distribution and brand infrastructure, i.e. an ability to access and serve global market. An
important part of this competition for global market access is the race to build global corporate
brands and thereby capture economies of scope in creating the share of mind necessary to
ensure that customers have a pre-disposition to buy and that competitors are preempted. a
pre-disposition to buy and that competitors are preempted in the quest for global market
share. Thirdly, they compete to create product integrity disciplines-quality, time to market and
customer service, all the things that allow a company to do things faster, more cheaply and
more consistently.
Nowadays, every company of any size that is to have a chance of surviving in an
industry must have a global market-servicing capability. So more and more, competition is
shifting towards functionality-based competencies. Functionality competencies are about
giving the customers something unique, some unique benefit.
The thinking of corporate strategy has been focus on competition for competence, to
recognize that competence has these three different dimension, functionality, market access
and product integrity, and to understand that a core competence can be contained in any one
of these dimensions, though, distribution may become less ‘core’ in some industries.
(European Management Journal, Vol. 11 No. 2 June 1993)
Levels of strategy
Strategies will exist at a number of levels in an organization. An individual may say he
has a strategy-to do with his career, for example. This may be relevant when considering
influences on strategies adopted by organizations but it is not what is meant by corporate
strategy. There is the corporate level: here the strategy is concerned with what types of
business the company, as a whole, should be in and is therefore concerned with decisions of
scope.
The second level can be thought of more in terms of competitive or business strategy.
Here strategy is about how to compete in a particular market. So, whereas corporate strategy
involves decisions about the organization as a whole, competitive strategy is more likely to be
related to a unit within a whole.
The third level of strategy is at the operating end of the organization. Here there are
operational strategies which are concerned with how the different functions of the enterprise -
marketing, finance, manufacturing and so on - contribute to the other levels of strategy. Such
contributions will certainly be important in terms of how an organization seeks to be
competitive. Competitive strategy may depend to a large extent on, for example, decisions
about market entry, price, product offer, financing, manpower and investment in plant. In
themselves these are decisions of strategic importance but are male, or at least strongly
influenced, at operational levels. (Johnson/Scholes, 1988)
Formulation of strategy
The principal subactivities of strategy formulation as a logical activity include identifying
opportunities and threats in the company’s environment and attaching some estimate or risk
to the discernible alternative. Before a choice can be made, the company’s strengths and
weaknesses should be appraised together with the resources on hand and available. Its actual
or potential capacity to take advantage of perceived market needs or to cope with attendant
53
risks should be estimated as objectively as possible. The strategic alternative which results
from matching opportunity and corporate capability at an acceptable level of risk is what we
may call an economic strategy.
The determination of strategy also requires consideration of what alternatives are
preferred by chief executive and perhaps by is or her immediate associate as well, quite apart
from economic considerations. Personal values, aspirations, and ideals do, and in our
judgment quite properly should, influence the final choice of purposes. Thus what the
executives of a company want to do must be brought into the strategic decision.
(Quinn/Mintzberg/James, 1988)
The implementation of strategy
Since effective implementation can make a sound strategic decision ineffective or a
debatable choice successful, it is as an important to examine the processes of implementation
as to weigh the advantages of available strategic alternatives. The implementation of strategy
is comprised of a series if subactivities which are primarily administrative. If purpose is
determined, ten the resources of a company can be mobilized to accomplish it. An
organizational structure appropriate for the efficient performance of the required tasks must be
made effective by information systems and relationships permitting coordination of subdivided
activities. The organizational processes of performance measurement, compensation,
management development - all of them enmeshed in systems of incentives and controls -
must be directed toward the kind of behavior required by organizational purpose. The role of
personal leadership is important and sometimes decisive in the accomplishment of strategy.
(Quinn et al, 1988)
Implementation problems
Difficult as it may be to make good plans, the effort of making them is nothing compared
to what is necessary to actually implement them, implementation requires patience, tact,
perseverance and determination. The lack of people that can make plans come true cannot be
the only explanation for the fact that a large number of plans stay exactly what they are;
merely plans. One has to realize that some plans are just of no use anymore after some time.
The environment in which a company operates may have changed drastically since the plan
necessary. It needs no further argument that in such cases it is wise not to implement the
original plan. Not implementing a designed strategy may also have its roots in badly executed
design phase. Normally, strategies tend to be worded in more or less abstract terms.
Sometime they have not been formulated at all. In the case of turbulent and dynamic
environment the management of a company will have to be very careful when trying to make
the company’s strategic explicit. Management will have to see to it that a large enough degree
of freedom remains. Thus, making it possible to change the company’s course in case the
changes in the environment so demand. Putting the strategy into writing and communicating it
to the employees may be a risky undertaking. There is nothing so difficult as having to explain
that the circumstances have changed and that, therefore, the strategy has to be revised (once
more). (European Management Journal, Vol. 11, No 1., pp. 122-131, 1993)
Figure 2.1 may be useful in understanding the analysis of strategy as a pattern of
interrelated decisions:
54
FORMULATION
(Deciding what to do)
IMPLEMENTATION
(Achieving results)
1. Identification of
opportunity and risk
2. Determining the
company’s material,
technical, financial,
and mangerial
resources
3. Personal values and
aspirations of senior
management
4. Acknowledgement of
noneconomic
responsibility to
society
CORPORATE
STRATEGY:
Pattern of
purposes and
policies
defining the
company and
its business
1. Organisation structure and
relationships
Division of labor
Coordination of divided
responsibility
Information systems
2. Organisational process and
behavior
Standards and
measurement
Motivation and
incentive systems
Control systems
Recruitment and
development of
managers
3. Top leqadership
Strategic
Organisational
Personal
Figure 2.1: Analysis of Strategy as A Pattern of Interrelated Decisions
(Source: Quinn/Mintzberg/James, 1988)
2.1.3. Strategic Management Process
The easy answer is the management of the process of strategic decision making.
Strategic management is concerned with deciding on strategy and planning how that strategy
is to be put into effect. There is strategic analysis in which the strategist seeks to understand
the strategic position of the organization. There is strategic choice which is to do with the
formulation of possible courses of action, their evaluation and the choice between them.
Finally there is strategy implementation which is concerned with planning how the choice of
strategy can be put into effect. This three-part approach is summarized in figure 2.2
55
Strategic analysis
Strategic choice
Strategy
implementation
Expectation
objectives
& power
The
environment
Resources
Generation
of options
Evaluation
of options
Selection of
strategy
Resource
planning
Organisation
structure
People &
systems
Figure 2.2: A Summary Model of the Elements of Strategic Management
(Source: Johnson/Scholes, 1988)
2.2. Strategy Analysis
Analysis of industry and competitive conditions is the starting point in evaluating a
company's strategic situation and market position.
2.2.1. Identifying The Industry's Dominant Economic Characteristics
As a working definition, we use the word industry to mean a group of firms whose
products have so many of the same attributes that they compete for the same buyers. The
factors to consider in profiling an industry's economic features are fairly standard:
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• Market size.
• Scope of competitive rivalry (local, regional, or global).
• Market growth rate and where the industry is in the growth cycle (early development, rapid
growth and takeoff, early maturity, late maturity and saturation, stagnant and aging,
decline and decay).
• Number of rivals and their relative sizes-is the industry fragmented with many small
companies or concentrated and dominated by a few large companies?
• The number of buyers and their relative sizes.
• The prevalence of backward and forward integration.
• Ease of entry and exit.
• The pace of technological change in both production processes and new product
introductions.
• Whether the product(s)/service(s) of rival firms are highly differentiated, weakly
differentiated, or essentially identical.
• Whether there are economies of scale in manufacturing, transportation, or mass
marketing.
• Whether high rates of capacity utilization are crucial to achieving low cost production
efficiency.
• Whether the industry has strong learning and experience curve such that average unit
cost declines as cumulative output (and thus the experience of "learning by doing") builds
up.
• Capital requirements.
• Whether industry profitability is above/below par.
(Source: Thompson/Strickland, 1992)
2.2.2. The Concept of Driving Forces: Why Industry Change?
Industry conditions change because important forces are driving industry participants
(competitors, customers, suppliers) to alter their actions; the driving forces in an industry are
the major underlying causes of changing industry and competitive conditions.
Most common driving forces:
• Changes in the long-term Industry Growth rate: Shifts in industry growth up or down are
force for industry change because they affect the balance between industry supplier and
buyer demand, entry and exit, and how hard it will be for a firm to capture additional sales.
• Changes in Who buys the Product and How They Use It: Shifts in buyer demographics and
the emergencies of new ways to use the product can force adjustments in customer
service offerings (credit, technical assistance, maintenance and repair), open the way to
market the industry's product through a different mix of dealers and retail outlets, prompt
producers to broaden/narrow their product lines, increase/decrease capital requirements,
and change sales and promotion approaches.
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• Product Innovation: Product innovation can broaden an industry's customer base,
rejuvenate industry growth, and widen the degree of product differentiation among rival
sellers. Successful new product introductions strengthen a company's position, usually at
the expense of companies who stick with their old products or are slow to follow with their
own versions of the new product.
• Technological Change: Advances in technology can dramatically alter an industry’s
landscape, making it possible to produce new and/or better products at lower cost and
opening up whole new industry frontiers. Technological change can also change in capital
requirements, minimum efficient plant sizes, and desirability of vertical integration, and
learning or experience curve effects.
• Marketing Innovation: When firms are successful in introducing new ways to market their
products, they can spark a burst of buyer interest, widen industry demand, increase
product differentiation, and/or lower unit costs-any or all of which can alter the competitive
positions of rival firms and force strategy revisions.
• Entry or Exit of Major Firms: The entry of one or more foreign companies into a market
once dominated by domestic firms nearly always produces a big shakeup in industry
conditions. Likewise, when an established domestic firm in another industry attempts entry
either by acquisition or by launching its own start up venture, it usually intends to apply its
skills and resources, in some innovative fashion. Entry by a major firm often produces a
“new ballgame” not only with new key players but also with new rules for competing.
• Diffusion of Technical know-how: Diffusion of technical know-how occurs through scientific
journals, trade publications, on-site plant tours, word-of-mouth among suppliers and
customers, and the hiring away of knowledgeable employees. It can also occur when the
processors of technological know-how license others to use it for a fee or team up with a
company interested in turning the technology into a new business venture.
• Increasing Globalization of the Industry: Global competition usually changes patterns of
competitive advantage among key players. Globalization is most likely to be a driving force
in industries (a) based on natural resources, (b) where low-cost production is a critical
consideration (making it imperative to locate plant facilities in countries where the lowest
costs can be achieved), and (c) where one or more growth-oriented, market-seeking
companies are pushing hard to gain a significant competitive position in as many attractive
country market as they can.
• Changes in Costs and Efficiency: In industries where significant economies of scale are
emerging or strong learning curve effects are allowing firms with the most production
experience to undercut rivals’ prices, large market share becomes such a distinct
advantage that all firms are pressured to adopt volume-building strategies. Likewise,
sharply rising costs for a key input (either raw materials or labor) can cause a scramble to
either (a) line up reliable suppliers at affordable prices or (b) search out lower-cost
substitutes. Any time important changes in cost or efficiency take place, firms’ positions
can change radically concerning who has how big a cost advantage.
• Emerging Buyer Preferences for a Differentiated instead of a Commodity Product (or for a
more standardized product instead of strongly differentiated products): Sometimes growing
numbers of buyers decide that a standard product at a bargain price meets their needs as
effectively as premium priced brands offering ore features and options. These wings in
buyer demand can drive industry change by shifting patronage to sellers of cheaper
commodity products and creating a price-competitive market environment.
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• Regulatory Influences and Government Policy Changes: Regulatory and governmental
actions can often force significant changes in industry practices and strategic approaches.
In international markets, newly-enacted regulations of host governments to open up their
domestic markets to foreign participation or to close off foreign participation to protect
domestic companies are major factor in shaping whether the competitive struggle between
foreign and domestic companies occurs on a level playing field or whether it is one-sided
(owing to government favoritism).
• Changing Societal Concerns, Attitudes, and Lifestyles: Emerging social issues and
changing attitudes and lifestyles can be powerful instigators of industry change.
• Reductions in Uncertainty and Business Risk: Overtime, however, if pioneering firms
succeed and uncertainty about the industry’s viability fades, more conservative firms are
usually enticed to enter the industry.
(Source: Thompson/Strickland, 1992)
2.2.3. Competition Analysis
Competitive strategy is the part of business strategy that deals with management’s plan
for competing successfully - how to build sustainable competitive advantage, how to
outmaneuver rivals, how to defend against competitive pressures, and how to strengthen the
firm’s market position.
As a rule, competition in an industry is a composite of five competitive forces:
The Rivalry among Competing Sellers:
The most powerful of the five competitive forces is usually the competitive battle among
rival firms. How vigorously sellers use the competitive weapons at their disposal to jockey for
a stronger market position and win a competitive edge over rivals shows the strength of this
competitive force. The big complication is that the success of any one firm’s strategy hinges
on what strategies its rivals employ and the resources rivals are willing and able to put behind
their strategies. Competitive battles among rival sellers can assume many forms and degrees
of intensity. The weapons used for competing include price, quality, features, services,
warranties and guarantees, advertising, better networks of wholesale distributors and retail
dealers, innovation, and so on. There are several factors that industry after industry, influence
the strength of rivalry among competing sellers:
a. Rivalry tends to intensify as the number of competitors increases and as they become
more equal in size and capability.
b. Rivalry is usually stronger when demand for the product is growing slowly.
c. Rivalry is more intense when industry conditions tempt competitors to use price cuts of
other competitive weapons to boost unit volume.
d. Rivalry is stronger when the costs incurred by customers to switch their purchases from
one brand to another are low.
e. Rivalry is stronger when one or more competitors is dissatisfied with its market position
and launches moves to bolster its standing at the expense of rivals.
f. Rivalry increases in proportion to the size of the payoff from a successful strategic move.
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g. Rivalry tends to be more vigorous when it costs more to get out of a business than to stay
in and compete.
h. Rivalry becomes more volatile and unpredictable the more diverse competition are in
terms of their strategies, personalities, corporate priorities, resources, and countries of
origin.
i. Rivalry increases when strong companies outside the industry acquire weak firms in the
industry and launch aggressive, wee-funded moves to transform their newly-acquired firms
into market contenders.
(Source: Thompson/Strickland, 1992)
Regarding to Vietnam’s Machinery Industry, the competition among domestic
manufacturers is not fierce. Most of domestic mechanical companies possess the very poor
production system with obsolete technology and equipment. Thus, in general, domestic
products could not attract customers while foreign products overwhelm the domestic market.
The Competitive Force of Potential Entry:
How serious the threat of entry is in a particular market depends on two factors: barriers
to entry and the expected reaction of incumbent firms to new entry. A barrier to entry exists
whenever it is hard for a newcomer to break into a market and/or economic factors put a
potential entrant at a disadvantage relative to its competitors. There are several types of entry
barriers:
• Economies of scale
• Inability to gain access technology and specialized know-how
• Learning and experience curve effects
• Brand preferences and customer loyalty
• Capital requirements
• Cost disadvantages independent of size
• Access to distribution channels
• Regulatory policies
• Tariffs and international trade restrictions
(Source: Thomlson/Strickland, 1992)
Machinery Industry is a industry needs a lot of capital to invest but slow in bringing
benefits. Therefore, threat of potential entry is not so strong because they are not sure for the
success in the future, afraid of taking risk. There are very few in number of foreign countries
invest as well as enter the Vietnam’s machinery industry’s market.
The Competitive Force of Substitute Products:
The competitive threat posed by substitute products is strong when prices of substitutes
are attractive, buyers’ switching costs are low, and buyers believe substitutes have equal or
better features
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