Methodology and framework of the study

1.6. Organization of the study
The study is organized as follows:
Chapter 1 provides an introduction including the rationale of the study, the identification of
the problem, the objectives, the scope and limitations as well as the methodology and
framework of the study.
Chapter 2 shows the literature review of the topic being considered. This will encompass the
fundamental ideas on strategy, strategic management, strategy formulation process as well
as the Porter Model for analyzing industry.
Chapter 3 provides an analysis of external factors that help to indicate the company’s
strategic position. The main contents of the chapter will deal with the current situation and
strategic orientation for the Vietnam Plastic Industry in the future. It also mentions about the
structural analysis of the pipe industry, the main area of competition of Binh Minh Plastic
Company.
Chapter 4 deals with the current analysis of the Binh Minh Plastic Company in terms of
organizational structure, production, sales, marketing and finance. The ultimate goal of the
chapter is to identify strengths and weaknesses of the company in order to locate its present
competitive position.
Chapter 5 is devoted to the expected outcome of the study to develop the strategic
alternatives based on the analysis from previous parts, that will help the company achieve
outstanding performance in the next few years.
Finally, Chapter 6 deals with practical recommendations on the implementation of the
selected strategy.
Chapter 2
Literature Review
Strategy is when you are out of
ammunition, but you keep right on firing
so that the enemy won’t know.
Author Unknown.
The chapter mentions major theoretical bases to apply for analyzing practical situation of Binh
Minh Plastic Company and then formulating the development strategy for it in the following
chapters. The section consists of the strategy management process, structural analysis of the
competitive environment and selection of development strategies.
2.1. Strategic Management Process
Strategic management is a fast-developing field of study. It looks at the corporation as a
whole and attempts to explain why some firms develop and thrive while others stagnate and
go bankrupt. Strategic management typically focuses on analyzing the problems and
opportunities faced by people in top management. Before mentioning in detail about the
process of strategic management, specially the strategy formulation stage, firstly, we try to
answer the question: “What is strategy ?”
2.1.1. Definition of strategy
Starting from its military root, strategy, ever considered as “the science of planning and
directing military operations”, is not a new term. However, applications of this concept into
business area is a breakthrough idea took place in the later half of this century. In the
decades of 1960s and 1970s, most management definitions of strategy by many authors was
emphasized on the planning theme as an important component. Alfred Chandler has defined
strategy as “the determination of the basic long-term goals and objectives of a enterprise, and
the adoption of course of action and the allocation of resources necessary for carrying out
these goals”. The main idea in Chandler’s definition is that strategy involves a rational
planning process. The organization is depicted as choosing its goals, identifying courses of
action (or strategy) that best enable it to achieve its goals, and allocating resources
accordingly. Similarly, Quinn defined strategy as “the pattern or plan that integrates an
organization’s major goals, policies and action sequences into a cohesive whole”. Finally,
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)
However, definitions of strategy based on planning have been criticised. Hill and Jones
indicated a new approach based on Henry Mintzberg’s definition of strategy as “a pattern in a
stream of decisions or actions” (Hill / Jones, 1989), the pattern being a product of whatever
intended (planned) strategies are actually realized and of any emergent (unplanned)
strategies. Mintzberg’s concept of strategy suggests that strategy involves more than just
planning a course of action.
In the decades of 1980s and 1990s, “strategy” becomes more and more essencial in
business domain. Thereby, the concept of strategy has received a great attention by various
authors.
By 1991, Hax and Majluf pointed out that strategy can be seen as a multidimensional concept
that involves all of the critical activities of the firm, providing it with a sense of unity, direction,
and purpose, as well as facilitating the necessary change caused by its environment. (Glueck
/ Janch, 1986)
In 1993, Johnson and Schole have stated the nature of corporate strategy by the
characteristics usually associated with the word “strategy” or “strategy decision”.
In summary, according to them, strategy is a unified, comprehensive, and integrated plan that
relates the strategic advantages of the firm to the challenges of the environment and that is
designed to ensure that the basic objectives of the enterprise are achieved through proper
execution by the organization. (Glueck / Janch, 1986)
The concept of strategy has become one of the everyday words of managers during the past
twenty years, and the practice of strategic planning is now widespread among large and
medium-sized companies. This interest in strategy was caused by growing realization that the
company’s environment has become progressively changeable and discontinuous from the
past and that, as a result, objectives alone are insufficient as decisions rules for guiding the
company’s strategic reorientation as it adapts to changing challenges, threats and
opportunities.
Applying corporate strategy concept to Vietnamese business conditions now is extremely
important in order to enhance the building up of a strategic vision for the managers who are
operating all the domestic companies, especially for manager of state companies. Business
environment in Vietnam now is likely different from that of the previous planned-economy
where all of the resources and the output were set up by central government and where the
predetermined yearly plan was merely a subjective compulsory without any environment
considerations. Actually, the managers today are faced with the uncertainty and the fast
change of the business environment as well as with the competitive forces surrounding their
companies.
2.1.2. Process of strategic management
Strategic management is a stream of decisions and actions which leads to the development
of an effective strategy or strategies to help achieve corporate objectives. The strategic
management process is the way in which strategists determine objectives and make strategic
decisions.
However, strategic management is not simply the management of the process of strategic
decision making. According to Chakrvarthy (1986), strategic management is the process
through which managers ensure the long-term adaptation of their firm to its environment. It
should be also emphasized that strategic management process is continuous - it never really
stops within the organization. Certo and Peter (1990) defined strategic management as “a
continuous, integrative process aimed at keeping an organization as a whole appropriately
matched to its environment”.
The process of strategic management involves 3 basic stages: (1) strategy formulation, (2)
strategy implementation, and (3) evaluation and control. Different stages of the strategic
management process at business level are visualized by the Strategic Management Model in
Figure 2.1.
Task
Environment
Societal
Environment
Figure 2.1 Strategic Management Model
Based on the context of this study, the focus will be on the strategy formulation process.
Strategy formulation is often referred to as strategic planning or long-range planning.
Regardless of the term used, the process is primarily analytical, not action-oriented. As
shown in the Strategic Management Model, the formulation process is concerned with
developing a corporation’s mission, objectives, strategy, and policies. In order to do this,
corporate strategy makers must scan both the external and internal environments for needed
information on strategic factors.
The first six steps commonly found in strategy formulation are a series of interrelated
activities:
1. Evaluation of
a. the corporation’s current performance results in terms of return on
investment, profitability, etc., and
b. the corporation’s current mission, objectives, strategies, and policies.
2. Examination and evaluation of the corporation’s strategic managers - board of directors
and top management.
3. Scanning of the external environment to locate strategic opportunities and threats.
External
Environment
Internal
Environment
Structure
Culture
Resources
Strategy Formulation
Objectives
Strategy
Strategy Implementation
Programs
Budgets
Decisions
Actions
Evaluation
& Control
Performance
Mission
4. Scanning of the internal corporate environment to determine strategic strengths and
weaknesses.
5. Analysis of the strategic factors from step 3 and 4 to
a. pinpoint problem areas, and
b. review and revise the corporate mission and objectives as necessary.
6. Generation, evaluation, and selection of the best alternative strategy appropriate to the
analysis conducted in step 5.
(Source: Wheelen / Hunger, 1988)
The above strategy formulation process can be divided into 2 substages, as illustrated in
Figure 2.2:
• The first substage is the situation analysis. Beginning with an evaluation of current
performance and ending with the review and possible revision of mission and objectives,
this substage includes step 1 through 5.
• The second substage is the process of generation, evaluation, and selection of the best
alternative strategy. This substage is step 6.
In order to construct an appropriate competitive strategy, a “picture” of the competitive
environment is always a useful basic. In other words, there is clearly a need for competitive
environment analysis, an industry structure analysis.
2.2. Structural analysis of the competitive environment
Competitive environment analysis or Industry analysis is an important skill related to the
environmental scanning step in the strategic management process. Periodically, managers
need to develop a formal comprehensive analysis - a strategic industry analysis. The analysis
includes an overview of strategic forces affecting a target industry, an analysis of various
companies in the industry, forecasts and recommendations.
A formal strategic industry analysis is useful in management and planning positions. It helps
managers understand their company’ s current strategic position. Specifically, it should define
the scope and direction of competitor actions so that the company could focus and target. It
should pinpoint and analyze the general threats and opportunities facing all the companies in
an industry. This can provide an advantage for managers to respond appropriately, to catch
timely the available opportunities while minimizing or avoiding the threats facing firms in the
industry. The strategic industry analysis aids managers in deciding whether to enter or leave
a particular industry. Finally, it aids managers in understanding the strategies and behavior of
specific competitors.
A useful guide for strategic industry analysis is provided by Porter. He created a model,
calling it the five forces model of competition, as a strategic management technique for
established profit-seeking companies, as shown in Figure 2.3. This is essentially a structural
method of examining an organization or industry in order to provide a clear understanding of
the factors that affect a business. Porter argues that “competition in an industry is rooted in its
underlying economics, and competitive forces exist that go well beyond the established
combatants in a particular industry” (Porter, 1980). He further suggests that to compete
effectively a company should strive to find a position where it is best able to defend itself
against these competitive forces or can influence them in its favour. So, the task of the
strategist is to determine which of these forces are of greatest importance to the organization
and which can be influenced by the strategic decisions of management. Each of these forces
is now considered in greater detail.
1. The Threat of Entry
New entrants to an industry tend to make it more competitive. The additional competitiveness
may be due to a number of factors including: the additional capacity which they bring with
them, their attempts to build market share, or increased costs due to the building up of the
costs of the factors of production.
However, the effects of new entrants materialize, it is frequently in the interests of existing
competitors to deter potential new entrants by making their prospects look as unattractive as
possible. This can be done in two major ways - through the erection of barriers to entry and or
through the threat of severe retaliation.
Clearly, it is in the interests of existing firms to have as high entry barriers as possible. Porter
(McNamee, 1987) lists major barriers to entry which are:
• Economies of scale
• Product differentiation
• Capital requirements
• Switching costs
• Access to distribution channel
• Cost disadvantages independent of scale, for example: proprietary knowledge, etc.
• Government policy.

Figure 2.3 A model for Industry Structural Analysis
(Source: Porter, 1980)
The importance of entry barriers to strategic planning can be illustrated by two contrasting
examples as follows:
The U.K aircraft engine manufacturer Rolls Royce has erected around it substantial entry
barriers in the form of economies of scale, product differentiation, capital requirements,
switching costs, proprietary knowledge, experience advantages and government support. It
seems extremely unlikely that the threat of new entrants pose a threat to this company. The
competitive threat that Rolls Royce faces come from other quarters.
By way of contrast, an “industry” that has grown rapidly in the early 1980s and which faces
continuous threats from new entrants, because of the extremely low entry barriers, is retail
domestic video rental libraries. In this industry, many small independent entrepreneurs with
limited resources have opened such business. They have been able to do so because of the
low entry barriers: low capital requirements, low switching costs, immediate distribution and
no major economies of scale being possible.
(Source: Johnson / Scholes, 1993)
COMPETITIVE
RIVALRY
SUPPLIERS
Bargaining Power
BUYERS
Bargaining Power


SUBSTITUTES
Threat of
Substitutes

POTENTIAL ENTRANTS

Threat of
Entrants
In the Vietnam plastic industry, the majority of plastic companies is small-scale production
with low level of product differentiation. At present, the Vietnam plastic industry is still
characterized with low technology and obsolete equipment and the majority of plastic
products produced in Vietnam is household plastic wares. So, entering the field of producing
plastic products does not require so much capital. In addition, the Vietnam plastic industry still
has been let to develop spontaneously, lack of the management at the macro level.
Therefore, it is possible to say that, in general, entry barriers for the Vietnam plastic industry
are low.
2. The Power of Buyers
Buyers can be viewed as a competitive threat when they force down prices or when they
demand higher quality and better service (which increases operating costs). Whether buyers
are able to make demands on a company depends on their power relative to that of the
company. According to Porter, buyers are most powerful in the following circumstances:
• Buyers are few in number and large relative to sellers
• Buyers purchase in large quantities.
• The supply industry depends on them for a large percentage of its total orders.
• Buyers can switch orders between supply companies at a low costs, thereby playing off
companies against each other to force down prices.
• It is economically feasible for them to purchase the input from several companies at once.
• Buyers have the potential for backward integration.
• The buyers’ product is not strongly affected by the quality of the suppliers’ product
• The buyer has full information.
(Source: Hill / Jones, 1989)
As mentioned earlier, the main product of the Vietnam plastic industry is household plastic
wares. In this field, there are many small producers that compete strongly against each other.
As a result, there is a variety of plastic products in the market and the customers have many
options in choosing plastic products. So, it can be said that the buyers are quite powerful.
3. The Power of Suppliers
Powerful suppliers can have the same adverse effects upon profitability as powerful buyers.
The big difference is the sources of their power - it is really the opposite of the sources of
buyer power. Thus suppliers tend to be powerful when the following conditions obtain:
• There are few of them.
• There are few substitutes.
• The industry supplied is not an important customer
• The suppliers’ product is an important component to the buyer’ s business
• The supplier’s product is differentiated
• Suppliers can integrate forward.
Presently, Vietnam can not produce raw materials for its plastic industry. Thus, the Vietnam
plastic industry depends completely on sources of raw materials from abroad. Therefore, it is
clear that the supplier power is so strong.
4. The Threat of Substitutes
Substitutes, or alternative products that can perform the same function, limit the price that an
industry can charge for its products. Substitutes are not always perceived by an industry to be
present, and indeed may only be noticed when it is too late to arrest their dominance. One
typical example, which illustrates the rise of a substitute product, is the current increasing
proliferation of low cost microcomputers plus low cost easy to use business packages in such
areas as accounting, data base management and word processing. This “product” has
adversely affected the “industry” of specialist programmers and specialist computer bureaux.
It seems likely that this trend will continue.
It is possible to say that we are living in the era of plastic products which can be seen
everywhere and used in various fields: construction, decoration, serving other industries, etc.
Clearly, with regards to plastic products, the threat of substitutes is very low.
5. The Extent of Competitive Rivalry
Competitors will also be concerned with the degree of rivalry between themselves in their
own industry. How intense is this competition? What is it based on? Is it likely to increase or
decrease in intensity? How can it be reduced? All these are questions which need to be
thought about in the process of strategic analysis. The degree of rivalry is likely to be based
on the following:
• The extent to which competitors in the industry are in balance. What ever their number,
where competitors are of roughly equal size there is a danger of intense competition as
one competitor attempts to gain dominance over another. Conversely, the most stable
markets tend to be those with dominant organizations within them.
• A market in slow growth - particularly one which is entering its maturity stage and where
competitors are keen to establish themselves as market leaders - is likely o be high
competitive.
• High fixed costs in an industry, perhaps through high capital intensity or high costs of
storage, are likely to result in competitors cutting prices to obtain the turnover required.
This can result in price wars and very low margin operations.
• If the addition of extra capacity is in large increments then the competitor making such an
addition is likely to create at least short term over-capacity and increased competition.
• Again the importance of differentiation is clear. If a product or service is not differentiated
then there is little to stop customers switching between competitors, which in turn raises
the degree of rivalry between them. This is sometimes referred to as a “commodity
market” situation.
• Where there are high exit barriers to an industry, there is again likely to be the persistence
of excess capacity and consequently increased competition. (Source: McNamee, 1987)
As mentioned, there are a lot of producers in the Vietnam plastic industry at present. Product
produced in Vietnam is not differentiated so much, so customers have many choices for a
certain plastic product. Moreover, the Vietnam plastic industry still develops so spontaneously
resulting in the oversupply of many products such as household plasticwares, PP bags, PET
bottles, etc. Consequently, the competition between competitors in the industry, particularly in

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