LUẬN VĂN
PHÁT TRIỂN CHIẾN LƯỢC KINH DOANH CỦA CÔNG
TY VINACONEX - APHANAM
THESIS

DEVELOPING BUSINESS STRATEGY OF VINACONEX
– ALPHANAM INFRASTRUCTURE DEVELOPMENT AND
INVESTMENT JSC”


LIST OF CHARTS, DIAGRAMS AND TABLES
Chart 1.1: Strategic management model
Table 1.1.: Macroeconomic environment factors
Figure 1.2: Strategic group map
Table 1.2: Organizational, technical, human, physical, financial resources
Table 1.3: Summary of choices suitable for each strategy among the three mentioned
strategies
Chart 1.3: Stakeholders
Diagram 2.1: Organizational structure of Vinaconex - Alphanam Corporation
Table 2.1: Balance sheet of VINA – ALPHA year 2008
Table 2.2: Completed projects of VINA – ALPHA Company
Table 2.3: Business operation result of VINA – AlPHA Company in the 2006-2008
period
Diagram 2.2: Revenue and profit growth diagram of VINA – ALPHA Company
Table 2.4: The internal factor assessment matrix
Table 2.5: Revenue and profit of construction enterprises
Diagram 2.3: Comparison of revenue of 4 companies in 2006- 2008
Table 2.6: Comparison of profit per revenue of enterprises
Diagram 2.4: Comparison of profit per revenue of 4 companies in 2006-2008
Table 2.7: Competitive analysis of 4 construction enterprises
Chart 2.5: The role of the Board of Execution in project

Chart 2.6: Two level Board of Management
Table 3.1: SWOT analysis
Table 3.2: Classification of priority strategies in SWOT matrix

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GRATITUDE

Period of time researching and reality studying at Vinaconex – Alphanam
JSC. is helping us to understand a part of company’s business activity, especially
business planning. It also help us to have chance to apply school’s knowledge to
reality. We hope that our solutions might help increasing the effective of
company’s business planning in the near future.
Our team would like to express our gratitude to the Board of Directors,
staff of Sales Dept, Administration, Finance and Accounting, and other
departments at Vinaconex – Alphanam JSC., who were helping us to complete
our thesis.
We also thank teachers, who were providing us valuable knowledge, skills
and experiences with their whole-hearted. Thank to Center for Educational
Technology and Career Development (ETC Center) who give us a chance to
working together, sharing our job experience.
However, due to shortage of studying time and reality knowledge, mistake
and shortcoming is unavoidable. We are looking for our teacher and classmate’s
advise and suggestions to improve our performance.
Thank you very much.

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REFERENCE
Number

Content

Gratitude
Introduction
Chapter I: Theoretical background on strategic managemenr
I.
The definition of strategic management
1.
Definition
2.
Approaches to strategic management
2.1.
The first stage: Internal development
2.2.
The middle stage: Focus on the organization of the industry
3.
Strategy formulation
3.1.
Mission and main objectives
3.2.
External environment analysis
3.2.1.
Macro environment analysis
3.2.2.
Industry and competition analysis
3.2.2.1. The model of 5 competitive forces
3.2.2.2. Strategic groups in an industry

3.3.
Enterprises’ internal analysis
3.3.1.
Analyzing company’s current strategy
3.3.2.
Potential resources and capacities
3.4.
Selecting business strategy
3.4.1.
Cost leadership strategy
3.4.2.
Differentiation strategy
3.4.3.
Focus strategy
II.
Vision, mission, and values of strategic management.
III.
Implementation, monitoring and evaluation
Chapter II: The situation of bisuniess strategy management of
Vinaconex – Alphanam Infrastructure Development and
Investment Joint stock Company
I.
General Information

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1.
2.
3.
3.1.
3.2.

3.3.
4.
4.1.
4.2.
4.3.
II.
1.
1.1.
1.2.
1.3.
2.
2.1.
2.2.
2.2.1.
2.2.2.
2.3.
3.
3.1.
3.2.
3.3.
3.4.
3.5.
III.
1.
1.2.
1.2.
1.3.

Major businesses
Organizational structure of Vinaconex - Alphanam Company

Company Structure
Characteristics of the company
Products
Market
Quality of Human resources
Business operation results
Balance sheet
Completed and ongoing projects
Assessment on business activities
Sector environment assessment and analysis
Formulating and managing strategy
Business Strategy
Strategy formulating
Strategic management
External environment analysis
International environment
National economic market (Macro-economic market)
Impacts of Various Economic factors
Legal factors and state economic management
Industry environment analysis
Analysis on inner industry environment (5 competitive forces)
Threats from new entries
The power of the suppliers
Buyers’ bargaining power
Threats from Substitutes
Intensity of the rivalry in the industry
The business strategy of Vinaconex – Alphanam Company on
the stagr 2010 – 2015
The strategy foundation
Brand:

Ability to control and coordinate input resources for the
enterprise’s main business and production process.
Financial strength

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2.
2.1.
2.2.
1.
2.

I.
II.
III.
1.

1.1.
1.2.
1.3.
2.
2.1.
2.2.
2.3.
3.
3.1.

3.2.
4.
4.1.
4.2.
5.
5.1.
5.2.
6.
6.1
6.1.1.

Building business strategy for VINA-ALPHA:
Long term strategy:
Short-term strategy, period 2010-2015:
Market, market share strategy
Product strategy:
CHAPTER III: Solutions to improve the business stratrgy of
Vinaconex - Alphanam
I. Development orientation of the company
II, Completation of Company’s commitment and strategy
Vina – Alpha company’s strategic solutions
Complete administration system, give prominence to the role of
functional departments, train and improve the quality of human
resource management.
Foundation of the solution
Solution
Implementation approach
Training and improving the quality of human resources
Foundation of the solution
Content of the solution

Implementation approaches
Investing in equipment, improving production and construction
capacity
Foundation of the solution
Content of the solution
Improve the quality monitoring and control system
Foundation of the solution
Content of the solution
Further investing in research and applying science and technology
into practical construction works
5.1. Foundation of the solution
5.2. Content of the solution
6. Solutions for the market
Actively integrating into the process of international business,
seeking for suitable partners
Foundation of the solution

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6.1.2.
6.2.
6.2.1.
6.2.2.
7.
8.
V.

Content of the solution

Investing in equipment, improving management skills
Foundation of the solution
Content of the solution
Building corporate culture
Brand marketing
Impletmentation process
Conclusion
Charts, diagrams

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INTRODUCTION
The globalization and international economic integration process has opened up
considerable opportunities for member countries, including Vietnam. This also brings
about significant chances for Vietnamese enterprises. However, this trend also poses
challenges for Vietnamese enterprises.
Integration is an irreversible trend for development; however, in order to
achieve sustainable development, enterprises need to assess the situation, prevent from
potential risks and threats arising from a rapidly changing business environment. A

specific, practical short-term and long-term strategy is an effective measure for an
enterprise to define its orientation in order to achieve sustainable development. First,
business strategy enables enterprises to define its objectives and orientation, and is
considered the basis guiding all activities of the enterprise. In a rapidly changing
business environment, business strategy helps enterprises to grasp and fully utilize
business opportunities, actively seek measures to overcome potential risks and threats.
In addition, a specific, clear and practical set of strategies is considered the basis for
enterprises to improve effectiveness in resource usage, strengthen its competitiveness
to ensure sustainable and continuous development. Building and implementing
strategies are also solid background for enterprises to make proper and effective
decisions during business operation.
The construction field in recent years has witnessed rapid growth in order to
meet the increasing demand of infrastructure for the national socio-economic
development. Therefore, competition in this sector is relatively harsh. In this context,
strategic planning and management activities play a very important role in the
development of enterprises and are considered decisive factor to improve the
competitiveness of an enterprise. The most important task of civil construction and
transportation construction enterprises is to define a long-term development orientation
through a strategy that is proper and suitable with the external environment as well as
the capacity and position of enterprises in its specific business environment. This is the
reason why I choose the topic “Developing business strategy for the 5-year period
(2010-2015) of Vinaconex – Alphanam Infrastructure Development and Investment
JSC”

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 Research purpose:
The research has the following research puposes:
-


Asses and analyze strengths and weaknesses of the enterprise

-

Analyze the impacts of business environment on the business operation
of the enterprise, analyzing opportunities and threats for the enterprise

-

Analyse the current situation of developing and managing strategies at
the enterprise.
 Propose solutions and recommendations to enhance the effectiveness
of developing and managing strategies at the enterprise.

 Objects and scope of study:
 Objects:
-

The strategic development and management activities of the enterprise.

-

Strengths, weaknesses, opportunities and threats of the enterprise.
 Scope of study:

-

Vinaconex – Alphanam Infrastructure Development and Investment JSC
(Vina – Alpha., JSC)


-

Address: No. 02 Đai Co Viet, Hai Ba Trung Dist., Hanoi

 Research methodology:
 Collecting data:
-

Data from Vina – Alpha Company.

-

Sectoral data and data from enterprises of the same sector.

-

Data from newspapers and the internet
 Analysing data:

-

Applying data compilation and comparison method for mid-term data,
planned data and actual implementation data to draw conclusions.

-

Inductive method: Compiling and drawing conclusions from issues and
phenomena arisen.


-

SWOT analysis

 Structure of the study:
The thesis includes three chapters as follows:

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Chapter 1: Theoretical background on strategic management
Chapter 2: The situation of business strategic management at Vinaconex – Alphanam
Infrastructure Development and Investment JSC
Chapter 3: Measures to improve business strategies of Vina – Alpha Infrastructure
Development and Investment JSC.

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CHAPTER I
THEORETICAL BACKGROUND ON STRATEGIC MANAGEMENT
I. The definition of strategic management
1. Definition
In the competitive business world, each enterprise has its own way to survive
and develop. All enterprises do not necessarily compete with other businesses in the
same manner or act in the same way to react to changes.
Therefore, each company needs to develop its own strategy. The development of
a competitive advantage is required in order for a successful competition. Strategies
can be seen as relevant ideas, plans and supports for an enterprise to successfully
compete against its competitors.

Competitive advantage, in a broader sense, allows a business to outstrip its
competitors. It is the “capacity to differentiate” which includes the capacities, skills,
technologies and special resources for businesses to make a difference among the
competitors and create competitive advantages.
Strategic management is an integrated combination of management decisions and
actions, which determines the long-term efficiency of a company by the continuous revision
of environmental issues, strategy formulation, implementation, assessment and
management.
Research on strategic management is focused on the monitoring and assessment
of the opportunities and external threats in the context of internal strengths and
weaknesses.
2. Approaches to strategic management
The development of strategic management is divided into three stages:
- The first stage: Research on the internal development of strategic management.
- The middle state: Focus on the organization of the industry.
- The current stage: Focus on the enterprises’ resources.
2.1. The first stage: Internal development
The concept of strategic management started in the 1960s with the such
publications as “Strategy and structure” by Chandler in 1962; “Strategy” by Ansoff in
1965 and curriculum “The business policy: lessons and situations" by Harvard
Business School in 1985. Those works had an influence on the development of

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strategic management concept. Primary concepts emphasized the integration of
business activities within the functions of the business. The publications in this period
gave birth to various basic concepts, terminologies and structures which paved the
way for the development of future concepts.
Two schools of thought of the mentioned strategy development were structures

and planning.
Chandler and Ansoff’s studies mainly discussed the way in which large
companies develop new administrative structures to deal with the growth as a result of
changes in strategy. If the structure does not fit the strategy, the outcome will be
inefficient. Chandler thinks of strategy as the identification of long-term goals of a
business, the acceptance of a series of actions, and the allocation of resources needed to
achieve these goals.
Ansoff also focus on planning, transforming the strategy from basic principles
applied in a business to highly formalized theory. His main approach is deviation
analysis. Firstly, he set up a set of objectives, then measured or estimated the deviation
between the current position and desired goals and recommended a series of potential
actions (strategies). Finally, he verified the features to reduce the deviation then
selected the most effective strategy.
During this period, there was also research by Andrews and his associates at the
Harvard Business School published in the curriculum on business policy. Business
policy is the study of functions and responsibilities of management along with general
issues influencing the characteristics and success of an enterprise. In their opinion,
business policy has two separate but related aspects. They include formulation and
implementation. Strategy formulation identifies and regulates four components:
market opportunities; enterprise’s competence and resources; manager’s aspirations
and values; responsibilities for other social groups beside shareholders.
However, the approach using case study methods lacks the generalization which
is the foundation for the development of strategic management. Next, we are going to
consider two important schools: informal design and planning.
a. School of informal design
Schools of design by Andrews and his peers started from the important premise
on the “ability to create differences” and the needs to associate “internal situation” with
“external expectations” as well as the relationship between strategy and structure. This

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model begins with a scanning about internal and external. In the external assessment,
the thoroughly studied of the opportunities an threats pointed out the significant
factors. In the internal evaluation, the strengths and weaknesses of the organization
were considered. Then, the ability to create differences and the strategies to be formed
were discovered on the basis of this platform. The strategy was then evaluated and the
best one was selected. Finally, the strategy was implemented.
As a template for many ideas, SWOT model (S: Strengths; W: Weaknesses; O:
Opportunities; T: Threats) was primarily used with various techniques and
questionnaires. Schools of informal design considerably impacted many other schools
of thought and became very important in the field of strategy.
b. Schools of planning
Schools of planning was seen as being initiated by Ansoff. Strategic planning
was popular in the 1960s and 70s but no longer in use in the early 1980s. Hundreds of
models were developed accordingly this schools of thought, including the following
stages:
- Goals set up stage;
- External assessment stage;
- Internal assessment stage;
- Strategy assessment stage ;
- Strategy concretization stage;
- Planning for the entire process.
The first phase in the model focused more on the quantitative targets. In the
internal and external assessment, SWOT model was used. The strategy assessment
stage was very formal and techniques such as return on investment, risk analysis and
other financial analysis methods were utilized to choose the strategy that created the
maximum value. In the strategy concretization stage, objectives and strategies were
divided into subsections. Finally, all the actions were closely programmed. The whole
planning process would be closely monitored through the

monitoring and
implementation tool including: SWOT matrix; market share growth matrix; attractive
sectors matrix.
2.2. The middle stage: Focus on the organization of the industry

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In the 1970s, there was a popular shift in the focus of the nature of strategic
management theory. Theoretically and methodologically, the shift towards economics
occurred. What caused a change in the vision from internal to external and in the whole
industry? Schools of thought initiated by Porter was prominent during this stage.
Schools of positioning believed that only a few main strategies could be used in
the industry. The use of this strategy in an attempt to position an enterprise in the
market allowed the enterprise to easily compete and gain higher profit.
Tools in the middle stage were fairly common, including: the model of 5
competitive forces, the general strategy and value chain. An important tool was the
general strategy. Businesses could form its range to gain competitive advantages and
have strategies such as cost leadership strategy, differentiation strategy, focus strategy.
During this stage, there were many other environmental factors which led to a
series of technical and technological breakthrough. Porter provided the 5 competitive
forces for analysis, which was a very useful tool. With a more demanding market,
value chain is an important tool to improve the competitiveness of each enterprise.
Globalization and free economy brought about instability that strategic planning did
not take effective in this period.
3. Strategy formulation
Strategy formulation can be divided into five steps:
- Selecting a mission and main objectives of the business
- Analyzing external environment to identify opportunities and threats.
- Analyzing internal environment to identify the strengths and weaknesses of the business

- Selecting the strategies based on the search for resources, capacities and core
competencies and develop them to avoid the risks, take advantage of opportunities
from external environment
- Implementing the strategy

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Mission and
Objectives

External analysis
(opportunities &
threats)

Strategy selection
and formulation
Function strategy

Internal analysis
(resources,
capacities and core
competencies)
( khả năng và năng
lực cốt lõi)

Business strategy
Global strategy
Corporate strategy


Strategy, structure
and monitoring
revision

Organizational
structure

Design & monitor

Change strategy
Chart 1.1: Strategic management model
3.1. Mission and main objectives
This is the first step in the process of strategic management. Mission and main
objectives of the organization are provided in a context for building strategies.

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Mission provides the reasons for the existence of business and what a business
should do. The main objectives determine what business must realize in the medium
and long term such as profit, achievement in remarkable capacity etc.
3.2. External environment analysis
External environment analysis of the enterprise is aimed at figuring out the
opportunities and external risks, particularly in the sector environment, the national
environment and macro environment. External environment analysis studies:
- Macro environment analysis: economic environment, technology environment, socio
- cultural environment, demographic environment, law and political environment, and
globalization environment.
- Industry and industry competition analysis
- Competition changes in the cycle of industry analysis, movement of competitors etc.

- Study the key factors for success
The sector environment analysis needs competitive structure assessment in the
industry, including the competitive position of the centers and main competitors, as
well as the development stages of the industry. The real estate construction and
investment sector has a distinctive feature that their market depends on a large extent
on government policies and the situation of the financial market. Currently, a number
of market sectors have turned into the global markets. As a result, sector environment
analysis also means evaluating the impact of globalization on the industry competition.
National environment analysis studies the context of a country which creates
conditions for enterprises to operate. The enterprise should consider moving part of its
activities to a nation which has more preferential conditions to achieve competitive
advantage. The macro-environment analysis includes the study of macroeconomic
factors, society, government, legal and technology which may or may not affect the
operation of the business.
The techniques for external environment analysis of the business including
scanning, monitoring, forecasting, and assessing.

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-

Scanning environment plays an essential role in competition. In addition,
scanning environment needs appropriately to be oriented as a system designed
for an environment changes will undoubtedly not suit the business activities in a
stable environment. Scanning environment required general study of all external
elements through which companies recognize latent changes in the environment.
The biggest challenge for scanning is the ambiguous, discrete, incomplete data
and information collected.


-

Monitoring means observing the changes of the environment to identify
important trends arising from the scanning process. Enterprises should be aware
of the relations among the stakeholders because they can alter the life cycle of
the business. The key to the success of monitoring is the ability to interpret the
meaning of events and trends of different changes through which business can
be better prepared for timely launching a new product or service, then gain
competitive advantage from the possible opportunities.

-

Forecasting means developing prediction about latent events, and its frequencies
as a result of detected changes and trends from scanning and monitoring.

-

The objective of assessment is to identify the time and the importance of
impacts, which may cause changes in environmental trends on the strategic
management. Through scanning, monitoring and forecasting, analysts can have
an understanding about environment and continue to assess and identify
working ideas for their organization.

At present, Vietnamese real estate and construction markets are bustling,
opportunities as well as threats are abound for enterprises participating in the market.
The number of enterprises in this market significantly improves as a result of increased
attraction of this market. Reviewing and assessing the market carefully, monitoring
changes in the market to make forecasts on changes in the market, the participation or
movement of other enterprises will enable enterprises to adopt proper policies; to
define short-term and long-term objectives.

3.2.1. Macro environment analysis

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In fact, changes in the macro environment can directly affect any forces in an
industry, so it transfers the relative strength from one force to another and finally
change the attractiveness of an industry. The status of a macroeconomic environment
determines an economy’s healthiness and prosperity, which in turn has an effect on the
business and industry. Economic environment indicates the nature and orientation of
the economy. The impacts, which an economy can exercise on an enterprise may alter
its ability to create values and income, include four important factors such as the
growth rate of the economy, interest rate, exchange rate and inflation rate. In addition,
change in the technology factor influences the entry barrier and reform the industry
structure. The change in technology includes creation and destruction, both
opportunities and threats. Political factors and law also affect the level of opportunities
and threats from the environment, mainly in the way business can respond to the
government and vice versa.
Table 1.1: Macroeconomic environment factors

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Demography

Population

Ethnics

Age structure


Income allocation

Geographical distribution
Economy

Inflation rate

Savings rate

Interest

Enterprise savings rate

Trade balance

GDP

Budget balance
Politics - law

Antitrust laws

Labor law

Tax laws

Educational policy and philosophy

Regulatory philosophy

Socio - culture

Technology

Globalization

Female labor force

Environment protection

Labor diversity

Work shift and passion

Working quality attitudes

Change in attitude about product and
service concept

Innovation
Application

The enterprise’s investment and
government support for research and
development

Important political events

NICs


Basic global market

Variations in cultures and institutions

3.2.2. Industry and competition analysis
Each industry varies in its economic features, competitive situations and
prospects for future profitability. Features of each economic sector change depending
on factors such as size and market growth, the pace of technology change, number of
buyers and sellers etc. Competitiveness differs in sectors which show various focus of
competition such as price, quality or features and efficiency.
Current competitive conditions as well as predictions of the industry form an
important basis for forecasting future profit. Differences in industry conditions and

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competition status may perplex some business activities in specific difficulties.
Industry and competition analysis clarifies key issues as follows:
- The prominent economic features of the industry
- Competitive forces in the industry, the nature and strength of each force
- The driving forces causing the change in the industry and their impact
- The strongest and weakest business positioned in the industry
- Which makes the next move in the industry
- The key factors for the success or failure in competition
- The industry attractiveness in term of potential above average profits
3.2.2.1. The model of 5 competitive forces
To figure out competitive orientation in an industry, Michael E. Porter – a
Harvard professor – created the model of 5 competitive forces. According to him, there
are 5 forces orienting competition in an industry, including:
-


Threats of potential new entrants

-

Rivalry among existing competitors

-

Buyer’s bargaining power

-

Supplier’s bargaining power

-

Threats of Substitutes

a. Potential new entrants
This force includes companies who now, are not competitors in the industry but
are able to participate in the industry in the future if they want. Companies always
appreciate identifying new competitors who are able to enter the market, for they are
threats to market share of existing companies. Competitors entering the market always
equip themselves with new productive capacities to achieve large market share.
Therefore, existing companies have certain pressures in their operation to compete and
maintain their market share in the industry market.
Existing companies always try to hinder potential competitors from entering the
market by creating entry barriers. Market entry of potential competitors is threats to


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profitability of existing companies. If threats from market entry is small, existing
companies will take advantage of this opportunity to add value, enlarge their scale and
therefore, enjoy higher income.
Entry barriers are factors that cause difficulties and increase costs for
competitors when they want to enter the market. Higher cost for market entry will keep
potential competitors out even when the income of the industry is high. The main entry
barriers include: brand loyalty; absolute cost advantage; and economies of scale.
Besides, there are such factors as: switch cost, governmental regulations and
retaliation.
- Brand loyalty: Uniqueness, competitive prices, good after-sale services etc. are
elements creating products’ attractiveness to customers.
- Absolute cost advantage: is gained from prominent productive capacity created
by experiences in the past, ability to control inputs for production and management;
access to cheaper financial resources etc.
- Economies of scale: is marginal efficiency improvement thanks to enterprises’
gaining after the expansion of their scales. Factors relevant to the advantages and
disadvantages of entering a large or small scale include flexibility in pricing and market
share; costs relevant to entry and producing economies of scale; competitors’ responding
actions.
- Switch cost: is cost incurred once customers want to switch their purchasing to
another supplier including: cost for purchasing accessories, cost for training staff,
intangible cost of a relationship etc.
- Governmental regulations: By issuing permits, gradually removing special
regulations or requirements, the government can control the entry to an industry.
- Retaliation: Reactions of existing competitors depend on the present position in
the industry of the company (the available business choices)
The construction sector is distinctive in that it requires large capital, the period

for capital recovery is slow compared to other sectors but the number of enterprises in
the sector is considerably large thanks to the attractiveness of the sector. For smallscale enterprises participating in this sector, stretgic management is a very important

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task. Therefore, such enterprises should investigate procedures, thoroughly assessing
their potentials and capacity to fully utilize opportunities.
b. Rivalry among existing competitors
Enterprises in an industry are interdependent. Therefore, actions of one
companies are often followed by responding actions of other companies. Rarely is
there a consistency among enterprises in an industry since they have different
resources, different capacities and they try to differentiate themselves from their rivals.
If the competition in an industry is weak, companies will have opportunity to push up
prices as well as earn more profit. If the competition is strong, price competition can
take place intensely, which will lead to price wars, reducing profitability.
Main factors of competition in an industry include: Structure of competition in an
industry; demand conditions; high exit barriers.
- Structure of competition in an industry represents quantity and scale allocation
of companies in that industry. Structure of an industry varies from dispersal structure to
focus structure and is relevant to competition. Dispersal structure creates a threat rather
than an opportunity because it only includes some small or medium companies. Focus
industry is dominated by several large companies or by only one company in extreme
circumstance (In this case, the industry is considered oligopoly or monopoly).
- Demand conditions: The increase in customers’ demand tends to ease
competition, as all companies can sell more goods without scrambling for other
companies’ market while their profit is maintained. When demand decreases,
competition is pushed up to earn market share.
- Exit barriers: are emotional, strategic and economic factors which can prevent a
company from exiting an industry even when income is low. High exit barriers will

lead to the situation in which companies are held in an unprofitable industry. This can
lead to a redundancy in productive capacity and make price competition more intense.
Through reviewing the activities and analyzing the capacity of enterprise,
enterprises can realize their potentials and define proper strategies. In the construction
field, a large number of small-scale enterprises participate in the market.
c. Buyer’s bargaining power

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Buyer of a company can be either consumer or another company who plays the
role of a distributor of that product to the final consumer. Buyers can be regarded as a
threat to competition when they are at an advantageous position to require lower prices
or better services. In addition, when buyers are at a disadvantageous position,
companies can raise prices and gain more profit. Whether buyers can make a request to
companies or not depends on the comparative power they have towards companies:
power gained when there are many suppliers of the same products; when buyers
purchase product in great quantity; when switch cost is low etc.
d. Supplier’s bargaining power
Suppliers can be considered a threat when they push up the price or reduce
quality of the input they provide to companies, so companies’ profitability decreases.
In contrast, if the suppliers’ power is weak, companies have opportunity to squeeze
price and require better quality. Similar to buyer’s bargaining power, supplier’s
bargaining power depends on comparative power between them and companies in such
situations as: the suppliers’ products are difficult to be substituted; products of
suppliers are so differentiated that it will be costly if companies switch from a supplier
to another one etc.
e. Substitutes
Substitutes are products of industries which serve customers’ demands similar
to which of studied industry. The existence of these close substitutes represents a threat

to competition, reduces high-pricing capacity limitation as well as profitability.
However, if a company’s products has few substitutes and other factors are normal,
this company will have a chance to raise prices and earn more profit. As a result, its
strategy will be designed to gain competitive advantage.
Studying 5 competitive forces helps enterprises understand thoroughly an
industry to identify its attractiveness. The stronger the competitive forces are, the lower
the potential profitability of the industry’s enterprises is. In an industry lacking
attractiveness, entry barriers are low, suppliers as well as buyer have stronger
bargaining power, threats from substitutes is bigger, and high competitive intensity in

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the industry will cause great difficulty to enterprises’ creating values and earning overmedium income.
3.2.2.2. Strategic groups in an industry
Strategic group includes competitors having same conditions and access to
competition in the market. One industry has one strategic group only when companies
pursue strategies alike in general and have similar position.
Companies in one strategic group all pursue similar strategies, customers tend to
regard products of such companies as direct substitutes. So the main threat to a
company’s profitability can come from other companies in its group. Different
strategic groups can have different positions, which depend on each force among
competitive forces. Buyer’s bargaining power, supplier’s bargaining power and
competitive force of substitutes etc. can change the intensity of strategic groups in an
industry.
Mapping strategic groups is a technique used to represent competitive positions
belonging to competitors in an industry. This technique is considered a linkage
between an industry as a whole and individually judging the position of each
enterprise. Steps of building strategic group map include:
- Identifying characteristics distinguishing an industry’s enterprises bases on

pivotal variables, including: price/quality, geographical boundary within which an
enterprise is operating, vertical integration level etc.
- Positioning enterprises on coordinate axes with each pair of differentiation
characteristics.
- Circling strategic groups provided that each circle goes with revenue proportion
of every group.
P
Copyright
group
General
group

Cost

Figure 1.2: Strategicgroup map
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3.3. Enterprises’ internal analysis
External environment analysis to identify the attractiveness of an industry
through the structure of that industry has clearly pointed out the reasons making an
industry more profitable than another. However, structure of an industry is not the only
force affecting a company’s profit. Therefore, a problem to be confronted with is why
in a specific industry a company operates better than another.
Internal environment analysis is used to figure out strengths, weaknesses,
identify potential as well as existing resources creating sustainable competitive
advantage for every enterprise. It also points out the way to gain competitive advantage
of an enterprise, and the role of different forces, resources and ability to build and
maintain sustainable competitive advantage for that enterprise.
3.3.1. Analyzing company’s current strategy

Appraising how a company is carrying out its strategy must begin with the
strategy the company is pursuing. It is required to know which specific strategy the
company is pursuing: cost leadership, differentiation, or focus on best serving a
segmentation etc. Evaluating efficiency of strategy operation or strategy management
is implemented through such signals as:
-

Whether a company’s market share is higher, constant or lower.

- Whether a company’s marginal profit increases or decreases and its comparative
size compared with its competitors
- Tendencies of net profit, return on equity, increased economic values etc. and
correlation with competitors
- Whether company’s current financial strength and credit assessment improve or
reduce
-

Whether company’s revenue growth is faster or slower than that of the market

- Whether company is considered the leader in technology, product improvement,
product quality or satisfying customers’ demand or not

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