CAPSTONE PROJECT REPORT BUILDING BUSINESS STRATEGY FOR PETROVIETNAM PETROCHEMICAL AND TEXTILE FIBER JOINT STOCK COMPANY - PVTEX 2012 – 2016 GROUP 2 PHAM THI HUONG GIANG BUI QUANG HANH HO TRI DUNG BUI VAN SAO INTRODUCTION CHAPTER 1: THEORITICAL BACKGROUND FOR CORPORATE BUSINESS STRATEGY 1. Overview of strategic management and corporate business strategy 1. Definition and role of strategy 1. Types of strategies 1.
Strategic management process 1. Mission and strategic objectives 1. Business environment analysis 1. External environment analysis 1.
General environment analysis 1. Industry environment analysis 1.2 Internal environment analysis 1. Business strategy selection 1. Listing possible strategies 1.
Selecting optimal strategy 1. Roadmap for implementation CHAPTER 2: ANALYSIS OF PVTEX’S BUSINESS STRATEGY 2. Introduction of the Company 2. Establishment and development process of PVTEX 2.
PVTEX’s business environment analysis 2. External environment analysis 2. General environment analysis 2. Industry environment analysis 2.
Internal environment analysis 2. SWOT analysis CHAPTER 3: SUGGESTED BUSINESS STRATEGY FOR PVTEX IN 2012 – 2016 PERIOD 3. Development orientation of the Company 3. Vision, mission and core value 3.
Strategies and selecting optimal business strategy for 2012 – 2016 period 3. Selecting optimal strategy 3. Solutions on technology and product 3. Solutions on human resources 3.
Solutions on marketing 2 3. Implementation CONCLUSION REFERENCES APPENDIX CHAPTER 1: THEORITICAL BACKGROUND FOR CORPORATE BUSINESS STRATEGY 1. Concepts of strategy 1. Definition and role of strategy: There are many different definitions of strategy, but we can define strategy as follows: strategy is a coordinated series of actions which involve the deployment of resources to which one has access for the achievement of a given purpose.
Role of strategy - Creating the relation between strengths and weaknesses of an enterprise and the reciprocal relation between external opportunities and threats of the enterprise so as to form its competitive advantage. - Helping managers see the opportunities and threats that may happen in current and future business in order to make analysis and forecast on the future market conditions, take full advantage of opportunities, reduce threats, improve the competitiveness of the enterprise, and achieve great success. - Helping the enterprise to create better business strategy by using systematic approach, creating the base to enhance the connection and coherence among members in realizing the enterprise’s objectives. Types of strategies - Classification by strategy level 3 +/ Corporate strategy (General strategy) is a development strategy for the enterprise in all lines of businesses that it involves in.
The objective of this strategy is to set the targets that the enterprise wants to achieve; it is a general view on the entire fields that the enterprise is operating. +/ Business strategy (sector): is built for a specific business sector. If the enterprise has only one line of the business then this strategy is also considered corporate strategy. +/ Functional Strategy: This strategy is considered for separate functions (finance, personnel, marketing, etc.
- Classification by the strategy content Regarding the strategy content, the managers can define strategy in different types: +/ Marketing, commercial strategy +/ Financial strategy +/ Human resource strategy +/ Technological strategy 1. Strategic management process The business strategic planning is a regular task which requires the involvement of all enterprise’s members. It includes following steps: 4 Table 1: Strategic management process (Source: Strategic Management Textbook from Griggs University) 1. Mission and strategic objective: - Mission: is to create the foundation for the entire planning of the organization to transfer strategic vision into concrete results that the enterprise has to achieve.
- Strategic Objective: indicates the orientation of the targets that the enterprise wants to achieve, which can be inferred directly from the functions, but is more specific and clearer, and can be quantified in number: the growth rate, profitability, sales, market share, etc. Business environment analysis: 1. External environment analysis External environment includes factors that may affect the implementation of business objectives that enterprise wants to achieve. The objective of external environment analysis is to recognize external opportunities and threats to the organization.
General Environment Analysis: 5 In fact, general environment consists of six groups: Demographic, Economic, Political/legal, Socio-cultural, Technological and Global. The changes in the general environment can directly impact any of that force in the industry; therefore, alter the relative strength to other forces and with itself, ultimately alter the attractiveness of an industry. Demographic segment: With this factor, we must analyze such criteria as population size, age structure, geographic distribution, ethnic mix, income distribution, etc. which can influence the industry or the enterprise.
Economic segment: While analyzing the economic factors, we need to consider GDP, inflation rate, interest rate, trade deficit or surplus, budget deficit or surplus, personal saving rate, and business saving rate. The variation of these factors will affect the enterprise. Political - Legal Economic Threat from new entrants Global Supplier power Rivalry Buyer power Threats of substitutes Cultural Technological Social Demographical 6 Figure: External environment (Source: Strategic Management Textbook from Griggs University) Political/legal segment: Legal and political factors can influence the development strategies of the enterprise in different directions. They may be opportunities for this enterprise but can be also the threat for other enterprise.
When considering political/legal factors, we need to consider antitrust laws, taxation laws, decentralization regulations, labor training law, the influence of education policies and trends to enterprises’ operation. Socio-cultural segment: For strategic management, socio-cultural factors are sensitive and easy to change. Lifestyles themselves rapidly change by following trends of new ways of life, leading to changes in consumer attitudes. The educational level is high, resulting in higher requirements on product quality and diversity.
This is a challenge for manufacturers. When analyzing social factors, we need to study issues such as women in the workforce, workforce diversity, attitudes about the quality of work, concerns about the environment, changes in work and career preferences, shifts in product preference regarding the characteristics of products and services. Technological segment: Technological factors have much influence on business strategies of enterprises as well as industries. It’s the time for technologic development; therefore, the prediction on technological trend is very important for enterprises’ development.
Changes in technology affect the life cycle of products and services. In terms of technological segment, some factors such as product innovation, application of knowledge, focus of private and government – supported R&D expenditures, new communication technologies, etc. need to be considered carefully. Global segment: Important political events, critical global markets, newly industrialized countries, different cultural and institutional attributes.
Industry environment analysis The industry environment analysis needs to take into consideration factors directly affecting the enterprise, competitive actions and competitiveness reactions of the enterprise. These factors are threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products, and rivalry among competing firms. From the analysis of those five factors, the enterprise will identify business opportunities or threats from industry environment to the organization. Figure 3: The Five Forces of Competition Model (Source: Strategic Management Textbook from Griggs University) Threat of new entrants: New entrants include enterprises with the ability to become competitive forces in the future.
The competitiveness of the new entrants is directly related to the entry barriers to the industry. Barriers to entry are follows: + Economies of scale: That is marginal improvement in efficiency that a firm experiences as it incrementally increases its size. Factors (advantages and disadvantages) related to large- and small-scale entry that is: Flexibility in pricing and market share, costs related to scale economies and competitor retaliation. + Product differentiation: Unique products, customer loyalty, products at competitive prices 8 + Capital Requirements: Physical facilities, inventories, marketing activities and availability of capital.
+ Switching Costs: the first time cost that customers have to pay when they buy products from a different supplier. Switching costs includes the costs for new equipment, labor retraining and psychological cost of ending a relationship. + Access to distribution channels: space for stocking goods, price breaks and cooperative advertising allowances. + Cost disadvantages independent of scale: proprietary product technology, favorable access to raw materials and desirable locations.
+ Government policy: Licensing and permit requirements and deregulation of industries. + Expected retaliation: Responses by existing competitors may depend on a firm’s present stake in the industry (available business options). Threat of new entrants will increase to existing enterprises if they cannot be able to create big enough entry barriers. Bargaining power of suppliers To implement production process, the enterprise often set up business relationships with suppliers of materials and equipment, labor supply, finance, etc.
These forces also have positive or negative impact on the business strategy. The enterprise should pay attention to the negative impact from the suppliers. However, these forces can only put pressure on the enterprise in the following cases: + Suppliers are large in scale and few in number. + Suitable substitute products are not available.
+ Buyers are small and scattered; and there are many of them. + Suppliers’ goods are critical to the buyers’ success in the market. + Suppliers’ products create high switching costs. + Suppliers pose a threat to integrate forward into buyers’ industry.
Bargaining power of buyers 9 Buyers (customers) are common noun to designate the people or organizations using products or services of the enterprise. In terms of competition, customers often put pressure on the seller when there are favorable conditions. The higher the ability of buyers to put pressure, the higher threat the enterprise will face. Buyers often put pressure on the enterprise in the following cases + Buyers are large in size and few in number.
+ Buyers purchase a large portion of an industry’s total output. + Buyers’ purchases are a significant portion of a supplier’s annual revenues. + Buyers’ switching costs are low. + Buyers can pose threat to integrate backward into the sellers’ industry.
+ Buyers have full information. Threat of substitute products Substitutes are the products of the competitors in the same industry or the products of other industries, but having the same ability to meet the alike needs of customers. With the explosion of new technologies, alternative products are increasingly diversified, creating the risk of price competition which will reduce the profit of the enterprise. The threat of substitute products increases when: + Buyers face few switching costs.
+ The substitute product’s price is lower. + Substitute product’s quality and performance are equal to or greater than the existing product. Differentiated products that are appreciated by customers will less likely face this threat. Rivalry among competing firms Industry rivalry increases when: + There are numerous or equally powerful competitors.
+ Industry growth slows or declines. + There are high fixed costs or high storage costs. + There is a lack of differentiation opportunities or low switching costs. 10 + When the strategic stakes are high.
+ When high exit barriers prevent competitors from leaving the industry. The tasks set for the managers are to be aware of the opportunities and threats brought about by the changes of these five forces to develop adaptation strategies. Moreover, it is also the ability of an enterprise through strategic choices, to transfer the power of one or more competitive forces into their advantage. The results of the external environment analysis (general and industry environment analyses) included in EFE Matrix (External Factor Evaluation Matrix) will help managers synthesize business opportunities and threats to their enterprises.
Internal environment analysis Internal environment analysis is to identify the basis of competitive advantage to determine why some enterprises perform better than other enterprises in an industry. To analyze the internal environment, the enterprise must analyze both tangible and intangible resources so as to realize which resource can be converted into the power of the enterprise. From good resources, competitive advantages will be formed to determine the potential profitability of the enterprise above the industry average so that the enterprise will have appropriate strategies. Resources are a firm’s assets, including human resources and brand value.
Resources are the inputs of a firm’s production process. They consist of finance, resources, management capacity, brand, organization and people.