DEVELOPING A COMPETITIVE STRATEGY: A CASE STUDY OF THE THANGLONG GARMENT COMPANY IN HANOI, VIETNAM

by

Dang Anh Tuan

A research study submitted in partial fulfillment of the requirement for the degree of Master of Business Administration

Examination Committee: Prof. N. Ramachandran (Chairman)

Dr. Truong Quang

Dr. Arne Deussen

Nationality Vietnamese

Previous Degree Bachelor in Economics

National Economics University

Hanoi, Vietnam

Scholarship Donor Government of Switzerland

Asian Institute of Technology

School of Management

Bangkok, Thailand

April, 2001

ACKNOWLEDGMENT

I wish to express my deep gratitude to my advisor and Committee Chairman, Professor N. Ramachandran for his useful guidance, suggestions and encouragement through out the research work.

I also would like to express my sincere appreciation to Dr. Truong Quang, committee member, for his sharing and encouragement for the research work.

I also grateful to Dr. Arne Deussen not only for serving as committee member but also for his enthusiasm sharing, valuable suggestions for my research.

Thanks are also due to the Government of Switzerland, the Government of Vietnam, and the Asian Institute of Technology for providing the scholarship and opportunity for me to pursuit my master degree at AIT.

I also would like to extend genuine thanks to Mr. Phuong, Ms. Ha, Mrs. Binh and other staffs at Thanglong Garment Company for their help and suggestion during the implementation of my research study. Thanks are also due to my friend, Dung, who had helped me during the customer survey.

And the most wholehearted gratitude I wish to express to my parents and my brother for their endless love, cares, encouragement and supporting to me during the course of my study.

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ABSTRACT

This research study aims at developing a competitive strategy for jacket category at the Thanglong Garment Company (Thaloga) in Vietnamese market. Like other companies in the textile and garment industry, Thaloga operation depends on orders of customers mostly from foreign customers. The majority of company’s production is for export. The company had focused on domestic market in the last three years.

The research examines external environment in which Thaloga operates. Opportunities identified are government preferred treatment in tax and soft loans, growing economy with increasing purchasing power, large unexploited domestic market, good customer perception about domestic ready made garment, and favorable weather condition for jacket category. Threats include intensive competition from Chinese goods and increasing competition from existing companies.

For company internal environment, it has strong capability in design and production with large production capacity. Weakness includes lack of customer understanding and customer oriented product development. The jacket product category seems to be stuck in the middle with no clear advantage in terms of price and product variety.

Three competitive strategies are developed and evaluated, in which cost leadership strategy is recommended to the company to compete in the future.

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TABLE OF CONTENT

Title Page

Title Page ...............................................................................................................................iAcknowledgement.................................................................................................................iiAbstract................................................................................................................................iiiTable of Content...................................................................................................................ivList of Figure........................................................................................................................viList of Table........................................................................................................................vii

1. CHAPTER 1 INTRODUCTION.......................................................................................................1

1.1. Rationale of the research study 11.2. Problem statement...........................................................................................................11.3. Research methodology....................................................................................................1

1.3.1. Specific objective....................................................................................................11.3.2. Conceptual frame work of the study.......................................................................1

1.4. Scope and limitation of the research...............................................................................21.5. Data collection method...................................................................................................31.6. Presentation of the research study...................................................................................3

2. CHAPTER 2 LITERATURE REVIEW....................................................................................................5

2.1. Competitive advantage....................................................................................................52.1.1. Definition................................................................................................................52.1.2. Generic building blocks of competitive advantage.................................................6

2.2. Competitive strategy and competitive advantage...........................................................62.2.1. Three level of strategy.............................................................................................6

2.3. Strategy formulation process..........................................................................................72.3.1. Mission and goals...................................................................................................72.3.2. External analysis.....................................................................................................82.3.3. Internal analysis....................................................................................................102.3.4. Strategy formulation and strategic choice............................................................102.3.5. Strategy implementation.......................................................................................12

3. CHAPTER 3 EXTERNAL ENVIRONMENT ANALYSIS...................................................................13

3.1. Societal environment....................................................................................................133.1.1. Government and legal factors...............................................................................133.1.2. Economic factors..................................................................................................143.1.3. Social, cultural and demographic factors.............................................................153.1.4. Climate and weather factors.................................................................................153.1.5. Technological factors............................................................................................16

3.2. Customer analysis.........................................................................................................163.2.1. Sample characteristics..........................................................................................173.2.2. Customers buying pattern.....................................................................................173.2.3. Customers needs on the products.........................................................................173.2.4. Customer perception about Thaloga’s jackets.....................................................19

3.3. Textile and garment industry analysis..........................................................................193.3.1. Industry overview 19

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3.3.2. Industry attractiveness and competitor analysis...................................................223.4. Summary of external opportunities and threats for Thaloga........................................25

4. CHAPTER 4 INTERNAL ANALYSIS....................................................................................................26

4.1. Company profile...........................................................................................................264.2. Organizational structure................................................................................................264.3. Business operation and goals........................................................................................28

4.3.1. Business activities.................................................................................................284.3.2. Company goals......................................................................................................28

4.4. Business performance and sales....................................................................................294.4.1. Manufacturing process, quality control and technology......................................294.4.2. Sales performance and profitability......................................................................30

4.5. Marketing......................................................................................................................314.5.1. Market segmentation and targeted market...........................................................314.5.2. Product positioning...............................................................................................314.5.3. Pricing...................................................................................................................324.5.4. Promotion.............................................................................................................324.5.5. Distribution...........................................................................................................324.5.6. Design and new product development..................................................................344.5.7. Human resource management..............................................................................344.5.8. Information system................................................................................................34

4.6. Summary of Thaloga’s strength and weakness.............................................................35

5. CHAPTER 5 DEVELOPING COMPETITIVE STRATEGIES FOR THALOGA............................36

5.1. SWOT analysis.............................................................................................................365.1.1. Summary of strategic situation for the company..................................................365.1.2. SWOT strategies....................................................................................................36

5.2. Alternatives competitive strategies for Thaloga...........................................................375.2.1. Cost leadership strategy.......................................................................................375.2.2. Differentiate strategy............................................................................................385.2.3. Focus strategy.......................................................................................................39

5.3. Strategy evaluation........................................................................................................395.3.1. Cost leadership strategy:......................................................................................395.3.2. Differentiation strategy:........................................................................................405.3.3. Focus strategy:......................................................................................................40

6. CHAPTER 6 CONCLUSION AND RECOMMENDATION................................................................41

6.1. Conclusion....................................................................................................................416.2. Recommendation..........................................................................................................41

BIBLIOGRAPHY....................................................................................................................................................I

APPENDICES.......................................................................................................................................................III

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LIST OF FIGURE

Figure 1.1 Conceptual framework of the research study 2

Figure 2.1 Value to customer and producer 5

Figure 4.1 Production process 29

Figure 4.2 Company distribution channel 33

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LIST OF TABLE

Table 2.1 Competitive strategy and required competencies 11

Table 3.1 GDP growth rate in 1992-2000 period 14

Table 3.2 GDP per capita in 1996-2000 period 15

Table 3.3 Number of firms in the garment industry as of 1998 20

Table 3.4 Production capacity of Vietnam Textile and Garment industry as of 1998 20

Table 3.5 Export turnover of textile and garment industry in 1994-2000 period 29

Table 5.1 Summary of strategic factors 36

Table 5.2 Summary of strategy valuation 40

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1. CHAPTER 1

INTRODUCTION

1.1. Rationale of the research study

In profit leaded organizations, net profit margin and return on equity are important measures of their performance. To achieve high rate of profit, high sales volume is critical. But sales volume is very much depend on the attractiveness of the products offered in terms of price, quality, and other dimension that satisfy customer needs. The heart of this attractiveness lies on the competitive advantage that a product has over other competing alternatives.

The research study aims at exploring current business practice at the Thanglong Garment Company (Thaloga) and developing competitive strategy for its jacket, a major product category of the company, in Vietnamese market. The company’s management can refer to the analysis and recommendation for formulating strategy and operation practices.

1.2. Problem statement

In the past, under central planned economy, the company under consideration operated in accordance with the plan from central government. Their work is to manufacture product without worrying about source of raw material and sales because everything is planned. In the new business environment when the government had deregulated the economy, company must struggle for survival itself.

Thaloga currently operates to process order forms from other customers. So the company business is depend significantly to the outside order. To survive in the long run, company must develop its own brand name and product capability to compete in the domestic market. The problem is to manufacture the products that fit domestic market, which is dominated with imported goods, mostly from China at low price. Having observed slow sales in domestic market of jackets since the beginning of 2000-2001 winter season from the end of November 2000, which is due to many reasons in which weather condition might be an important one, it is important to examine the competitive advantage of this product category.

1.3. Research methodology

1.3.1. Specific objective

- Analysis overall, current market and industry condition for garment products, specifically for jackets in Vietnamese market.

- Examine company overall business strategy

- Analysis company practices in manufacturing and marketing jackets in Vietnamese market

- Develop alternative competitive strategies and recommendations suitable strategy for jacket in this market.

1.3.2. Conceptual frame work of the study

The analysis of current performance of industry and company is based on the process of strategic management, which is used to implement SWOT analysis for the company. First

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company missions and goals are examined. Then external and internal environments are analyzed to identify strategic situation that company is facing. Strategies are developed for the company and evaluated to choose the most suitable one for recommendation. Figure 1.1 illustrates the framework of the research study.

Figure 1.1 Framework of the research study

1.4. Scope and limitation of the research

The research only focuses on one product category- jackets in Vietnamese market of Thaloga, since the company under consideration manufacturing variety of products and competitive strategy for each product type will not be the same. The reason to choose this product is that it contributes an important proportion in company total revenue and that producing jackets for domestic market is still new in company operation. In the past, most of jackets manufactured are exported, company only focused on the domestic in the last three years.

However, the framework and analysis of external environment can be applied in developing competitive strategy for other product categories or for company as a whole with certain modification in area of analysis.

External Analysis

Mission and Goals

SWOT analysis

Strategic ChoiceInternal Analysis

Alternative strategies

Strategy evaluation

Recommended strategy

Recommendation

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1.5. Limitation

The unavailability of information about sales volume of each product categories, timing of sales of each product, and expenditure on activities such as advertising, promotion, administration constrains deep analysis on the profitability of jacket category and on marketing mix activities. Unavailability of current detail accounting information limits the understanding about cost drivers (cost-causing items) thus limits the specific of recommendation on cost cutting measures.

Limited information on industry and competitors (competitors’ past strategy and behavior) places certain barrier to detail analysis about the competitive situation that is happening.

In addition, the convenience sampling method in customer survey might introduce bias due to it may not incorporate a representative sample of the whole jacket clientele. However with large enough for statistical significant of cases in the sample, it still somehow represents customer’s requirement and perception about jacket.

1.6. Data collection method

Secondary data on textile and garment industry, Thaloga’s competitors, their capability, their operation is gathered from Business and Industry journals, Internet web sites, Vietnam statistical year book, and other sources. This information gives board view about the market for the garment product and competition level within the industry.

Primary data is collected mostly through in-depth interview with company’s managers, designers, and retailers (guiding questions for direct interview is collected in Appendix 1). Information about company’s business and operation is gathered from company’s annual reports, company’s brochure, other relevant documents and field visit and used to analysis company current performance. Field investigation is also to be conducted to gather information about competitive price between companies and marketing information. A customer survey is conducted to identify customer requirements on jackets and their perception about Thaloga’s jackets compared with other competitors.

The data collected is consolidated in the company a whole scenario, which will be to suggest alternative and action plan for the company.

1.7. Presentation of the research study

Chapter 1. Introduction

Chapter 2. Literature review

Literature on competitive advantage and competitive strategy as well as the strategic management process are reviewed as the basis for analysis in following chapters.

Chapter 3. External analysis

External factors including legal, economic, weather condition and technological factors are analyzed. Customer analysis and industry analysis including competitor analysis is discussed extensively in this section as well.

Chapter 4. Internal analysis

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Company organization, business performance, operation, manufacturing process, and other related activities are analyzed to identify strength and weakness.

Chapter 5. Developing competitive strategies for Thaloga

Three competitive strategies are developed including cost leadership strategy, differentiation strategy, and focus strategy and evaluated. Cost leadership strategy is recommended to the company to compete in the future.

Chapter 6. Conclusion and recommendation

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2. CHAPTER 2

LITERATURE REVIEW

2.1. Competitive advantage

2.1.1. Definition

There is not many clear definitions of competitive advantage in textbooks of strategic management.

Hill and Jones (1998) say a company has a competitive advantage when its profit rate is higher than the average for its industry and it can sustain this advantage to maintain high profit rate over a number of years.

This definition uses profit rate as a measurement to rate the competitive advantage. In other view, we can say that a product has competitive advantage when it was chosen by a customer after his or her comparing among several similar products. This definition is constructed in a competition context. It can give us better idea about competitive advantage in a competitive environment.

The heart of competitive advantage lies in the concept of value creation. The value of a product to a consumer may be V, the price that company can charge under competitive pressure may be P, and the cost of producing that product is C. the company profit is equal to P-C while the consumer benefit equal to V-P. For two similar products with the same price P1=P2, product 1 has competitive advantage if V1>V2. In other words, product 1 has competitive advantage because it brings greater value to customer. This will be the focal point for us to formulate strategy and implementation plan. The following section will discuss the source of value creation and then competitive advantage for a product.

Customer’s benefit

Producer’s benefit

V P C

Figure 2.1 Value to customer and producerSource: Hill and Jones (1998)

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2.1.2. Generic building blocks of competitive advantage

Many factors contribute to competitive advantage of a company. But in general, they can be classified into four generic categories:

- Efficiency: is the ratio between a company’s output to its input. The more efficient the company, the more outputs it can produce from certain units of input or in other words, it can produce the same amount of outputs from less inputs thus efficiency help company to achieve low cost competitive advantage. The most important component of efficiency for a company is employees’ productivity. With other factors hold constant, the company with its highest employee productivity typically have the lowest cost of production.

- Quality: high quality of a product or service has strong contribution to company’s competitive advantage. First, high product quality give positive perception of customer about product, increase customer preference thus company can charge higher price for higher quality. Second, high quality comes from greater efficiency and lower defective rate. Low defective rate requires less time to fix substandard product and reduce the labor cost for fixing it. These two effects combined bring company higher profit rate.

- Innovation: innovation can be defined as new way company produce froduct or product its self. Innovation can be in the form of process, product design, management system, organization structure or even in the business practice of the company. According to Hill andJones, innovation can be the most important component of competitive advantage. It is the single most important to the differentiation of product or process that the competitors do not have. Uniqueness can allow company to charge higher price for its products. Example of product innovation is Sony for Walkman, Hewllet Packard for lazer printer. They are the poineer company in each kind of product. When competitor immitate the product, Sony and HP have extablished leader position in the market and strong customer loyalty which is hard for competitors to attack.

- Customer responsiveness: to be viable, any company must find their customer and satisfy their needs. The process of adjusting, tailoring product features to market will be crucial to company competitiveness. Another aspect of customer responsiveness is customer respond-time, which is the time require company to bring a product to customer hand. For manufacturing company, customer responseveness is the time needed to fill an order, for a band, it is the time to process the loan, and for a supermerket, it is the time customer have to wait in check out line.

Besides, the quality of aftersales service and support also affect customer satisfaction and consequently company competitiveness.

2.2. Competitive strategy and competitive advantage

A strategy is a specific parttern of decisions and actions managers take to achieve the organization’s goals. Any firm can consider three level of strategy: corporate strategy, business or competitive strategy, and functional strategy.

2.2.1. Three level of strategy

* Corporate strategy: corporate strategy is primarily about the strtegic choice of direction for the company as a whole. It raise three key issues facing the corporation: (1) the firm’s overall strategy toward growth, stabality or retrenchment (directional strategy); (2) The industries or market in which the firm competes through its products and business unit (portfolio strategy);

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and (3) The maner in which management coordinates activities and transfer resource and cultivate capabilities among product lines and business units.

* Business strategy: Business strategy or competitive strategy refers to the plan of actions that management adopt to use a company’s resource and its distintive ability to gain a competitive advantage over its rivals in a market or industry. Porter (1985) proposed three generic strategies company can pursuit to outperform its competitors in the market:

- Low cost strategy: strategy to design, produce and market a comparable product more efficiently and thus cheaper than its competitors do. Cost leadership strategy aims at the mass market and require aggressive construction of low cost structure including efficient scale facilities, vigorous pursuit of cost reduction, tight control of overhead cost and cost miniminezation in areas like R&D, service, salesforce, advertising and so on. Low cost structure allows company to charge lower price and thus allow company to compete when fierce competition exist with a quite reasonable good profit.

- Differentiation strategy refers to strategy to deliver uniqueness and superior value to buyers in terms of product quality, special feature, or after sales services. Differentiation forcus also at the broad market and involves the creation of a product or service that is perceived through the industry as unique. Uquine product enables firms to charge higher price for its product. The specialty can come from brand image, technology, features, dealers or dealer network. Differentiation is viable for above-average profit. The research of Caves and Ghemawat (Whelen and Hunger pp.131-136, 2000) shows that differentiation generate higher profit than low cost strategy because it creates higher entry barrier.

- Focus strategy: focus strategy can be cost focus or differentiation focus. This strategy focuses to serve only specific needs of a market segment. Usually, this strategy is pursued by small company to a market niche, while mass market has been well dominated by other larger companies.

* Functional strategy: of the three levels, functional strategy is the lowest level and it is clearly must comply to business strategy. Functional strategy is taken by a functional area to archive corporate and business objective and strategy by maximizing resource utilization. It is concern with developing and nurturing distinctive competency. From distinctive competency, firm can transform them to any of four building blocks of competitive advantage e.g quality, innovation, customer responsiveness and efficiency and then to low cost advantage or differentiation.

2.3. Strategy formulation process

Strategy formulation process refers to the process by which managers choose a set of strategies for a enterprise. This process can be broken down into five major steps: (1) Selection enterprise’s mission and goals; (2) analysis of external environment to identify opportunities and threats; (3) analysis of organization’s strength and weakness; (4) selection of strategies built on organization’s strength and other external factors and correct its weakness in order to take advantage of opportunities and counter threats; and (5) strategy implementation.

2.3.1. Mission and goals

The beginning point of strategic management process is to review and/or selecting new organization’s mission and major goals. This statement will be the foundation for strategy formulation and implementation in later steps.

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The mission sets out the reason why the organization exist, whose benefit it serve and what it should do. For example, the mission of an airline is to provide convenience and safety flight to its customers.

Major goals are the targets that an organization wants to fulfil in long or medium term. Most profit-seeking organizations place maximization of profit near the top of their goals. Other possible goals are to get the largest share in the market that a company currently competes in two years for example, or to get annual sale growth of 17% etc. Goals should be specific and measurable within a time frame.

2.3.2. External analysis

Aaker (1995) presented a comprehensive framework for analysis external and internal environment for an organization.

External analysis focuses on examination of relevant external elements to organization. The object of this analysis is to identify threats and opportunities facing organization both present and potential. An opportunity is a trend or event tat could lead to significant upward change in sales and profit pattern- given appropriate response. A threat is a trend or event that will result in the absence of strategic move, in a significant reduction in sales and profit figures. External analysis including the following analysis:

* Customer analysis includes identifying the organization’s customer segments and each customer’s motivations and unmet needs. Segment identification defines alternative product markets and thus structure the strategic investment decision (what investment levels assigned to each market segment). The analysis of customer motivation provides information needed to decide whether the firm can and should attempt to gain or maintain sustainable competitive advantage. An unmet needs- the need that currently not being met by existing products- can be strategically important because it may represent a way that entrenched competitors can be dislodged.

* Industry analysis, firstly introduced by Porter (1980) with the five-force model, identifies the important impact of five elements to the performance of an enterprise. The five forces are: threat of new entrants, rivalry among existing firms, threat of substitute product, bargaining power of buyers, and bargaining power of suppliers.

- Threat of new entrants: New entrants to an industry typically bring to it new capacity, a desire to gain market share and substantial resource. New entrants thus are a threat to established corporation. The threat of entry depends on the entry barrier of the existing companies in the industry. An entry barrier is an obstruction that makes it difficult for new entrants to enter and compete in an industry. Entry barrier can be economic of scale, product differentiation, capital requirement, switching cost, assess to distribution channel, and government policy.

- Rivalry among existing firms: firms operating in competing market are mutual dependent to each other. One firm’s move can have impact on it competitor thus lead to retaliation and counter effect. According to Porter (1980) intense rivalry resulted from several factors including: number of firms, rate of industry growth, product or service characteristic, amount of fixed cost, capacity, height of exit barrier.

When developing strategy, Aaker (1995) suggested what we need to understand about the competitors includes:

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Performance: sales, sales growth, and profitability signal how healthy and formidable a competitor is

Image and personality: how is the competitor positioned and perceived?

Objectives: what does competitor commit resources to, for high growth or differentiation strategy?

Current and past strategies, what are the implications for future strategic move?

Culture: what is the most important to the organization- cost control, entrepreneurship, or the customers?

Cost structure: does the competitor have cost advantage?

Strength and weakness: is the brand image, distribution or R&D a strength or weakness?

- Threat of substitute products or service: substitute products are those products that appear to be different but can satisfy the same needs as another product. Tea can be considered a substitute for coffee. To the extend that switching cost are low, substitute product can have strong effect on an industry. Substitute products can put a ceiling price that firm within the industry can profitable charge.

- Bargaining power of buyers: Buyers in an industry can affect firm’s profitability through their ability to force price down, bargain for higher quality or more services, and play competitor against each other. A buyer or group of buyers is powerful if some of following factors hold true:

A buyer purchase a large proportion of seller’s product or service,

A buyer has the potential to integrate backward by producing the product itself,

Product is standard and there are plentiful of supplier,

Buyer is sensitive to price and service difference, or

The purchased product represents high percentage of buyer’s cost so it is worth to shop around for a lower price.

- Bargaining power of suppliers: suppliers can affect industry through ability to raise price or reduce the quality of goods or services purchased. A supplier or group of suppliers is powerful if some of the following hold true:

the supplier industry is dominated by a few companies but sell to many,

Its product or service is unique or it has built up high switching cost,

Substitute products are not readily available,

Supplier can go forward and compete directly with current customers (like Intel company can produce computers), or

The purchasing industry buys only a small proportion of the supplier group’s goods and services thus unimportant to the supplier.

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- Societal environment: the strategists must also be aware of societal factors that do not have short-run impact in firm'’ performance but they usually influence firm's long run decision. Four important categories of societal are:

economic forces that regulate the exchange of material, money, energy and information

technological forces that generate problem solving inventions

political forces that allocate power and provide constraining and protecting law and regulation

socio-cultural forces regulate values, custom of society

Hill and Jones (1998) urge that the five-force model has its own limitation. The model (1) presents a static picture of competition that slights role of innovation and (2) de-emphasizes the significant of individual company differences while over emphasize the important of industry structure as determinant of company profit rates. They argue that innovation and company differences play a vital role in competitive position of a company and then its profit rate.

A more interactive analysis of competitive environment is proposed by Day and Reibstein (1997). They recommended that while developing competitive strategy, managers must understand the advantage in a dynamic changing competitive environment and anticipating competitors’ actions before formulating and implementing competitive strategy.

2.3.3. Internal analysis

The third step in strategic management process involves finding out firm’s strength and weakness. Sales, sales growth and profitability are major measurements of business performance and past strategy. The analysis covers resources, capability that is vital to build and sustain competitive advantage. Resource and capability are distinctive competencies lying in different functional departments like marketing, manufacturing, manager or employee’s skills etc. Company strength leads to superior performance in quality, efficiency, innovation and customer responsiveness while weakness leads to inferior performance.

2.3.4. Strategy formulation and strategic choice

The next step involves generating a series of strategy alternatives given company internal strength and weakness and its external opportunities and threats. The comparison of strength, weakness, opportunities, threats (SWOT analysis) is to identify strategy that align, fit a company’s resource and capabilities to the demand of the market in which the company operates. Within the specified alternatives, managers should choose the best one to follow.

For business strategy, each of three generic strategies can be pursued given certain resource and capability as described in the following table:

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Table 2.1 Generic competitive strategy and required competencies

Strategy Cost leadership Differentiation Focus

Commonly required skills and resources

Substantial capital investment and access to capital

Process engineering skills

Intensive supervision of labor

Products designed for ease in manufacture

Low cost distribution system

Strong marketing abilities

Product engineering

Creative flair

Strong capability in basic research

Corporate reputation for quality or technological leadership

Long tradition in the industry or unique combination of skills drawn from other businesses

Strong cooperation from channels

Combination of common skills directed at the particular strategic market

Common Organization requirement

Tight cost control

Frequent, detailed control reports

Structure organization and responsibilities

Incentives based on meeting strict quantitative targets

Strong coordination among functions in R&D, product development, and marketing

Subjective measurement and incentives instead of quantitative measure

Amenities to attract highly skilled labor, scientists, or creative people

Combination of the common organizational requirement directed at the particular strategic market

Source: Adapt from Porter, Michael E., 1980. Competitive Strategy: Techniques for Analyzing Industries and Competitors. 1998 Ed. with new introduction, NewYork, The Free Press, pp. 40-41.

Strategy evaluation: having developed alternative strategies, we need to evaluate their suitability and feasibility. A strategy can be valued through three criteria dimensions:

- Criteria of suitability which attempt to measure how far the proposed strategy fit the situation in strategic analysis. Does strategy capitalize on company’s strength, overcome its weakness and counter environment threats?

- Criteria of feasibility that assess how a strategy might work in practice. For example, whether strategy is achievable in resource term.

- Criteria of acceptability that assess whether the consequences of proceeding with a strategy are acceptable. For example, will it be sufficiently generate profit or growth expected by management or the risk involved in every strategy.

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2.3.5. Strategy implementation

Having chosen a strategy, the next step is to put strategy into practice. Managers should choose an appropriate organizational structure and control system to implement selected strategy. Organizational structure defines role and responsibility of each manager and personnel within a business unit as well as reporting relationships. If the old organizational structure is unfitted, managers should develop a new one. The control system is designed to measure the performance and control the actions of the sub-units. Measures like sales, market share, margin, profit can be used to monitor and control performance. In addition, manager should also decide when to review and revise strategy. This will be the feedback loop for the whole process of strategic management.

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3. CHAPTER 3

EXTERNAL ENVIRONMENT ANALYSIS

3.1. Societal environment

3.1.1. Government and legal factors

Since 1987, Vietnam had experienced through a reform process called “doi moi”. The reform has changed the face of the economy. It allows an open door policy that encourages investment from foreign countries and all economic sectors in the country. The strategic direction for the economy is the free market mechanism with state regulation toward socialist orientation.

After fifteen years of reform process, the legal system is continuously built up and updated to help business activities go smoothly. First, Vietnam has a stable government to manage the country. Second, the legal system has built general rules of the game for business activities. The civil code passed by the National Assembly regulates civil relationship in every day life and business transactions. The code also includes articles regarding protecting intellectual property and copyright. These regulations assure companies that invest in new products or technology will be protected by law to recover their development costs. Laws encouraging foreign investment, domestic investment are gradually passed to mobilize more capital and resources to business activities.

The enterprise law, which came into affect one year ago, has brought about significant, encouraging outcome beyond expectation in terms of economic development and administrative reform. About 13,500 new businesses were established until the end of last year, triple the figure for 1999. They could begin operations immediately after establishment as the Government scrapped 150 licenses. Thanks to the Government's abolishment of licenses for a number of trades and its permission for enterprises of all economic sectors to engage in the import and export of goods and services not banned by the law, many businesses can operate in new fields such as shipbuilding, and agro-product and handicraft export. The number of businesses engaged in production, processing and export has soared and the business forms are more diverse. New joint stock companies numbered 440, higher than the combined figure for the previous nine years. The Government will provide support through investment in infrastructure development including improvements to the transportation, telecommunications and IT industries.

In 1990-1991, the Government has a policy to establish general state-owned corporations in major industries to create synergy from existing state-owned companies in each industry. The goal of this policy is to create big and strong general corporations with huge operation capacity to increase the competitiveness of each industry in local and international market. Complying this policy, the Vietnam Textile and Garment Corporation (VINATEX) was established in 1995 in textile and garment industry. The role and mission of VINATEX is discussed in Section 3.2.

The textile and garment industry is an important one in Vietnam economy. In 1998, this industry scored the highest export turnover among exporting goods, about $1.35 billion, and textile and garment products is always one of top three export goods (the others are crude oil and rice). As a result, this industry will continue to receive high priority in development policy of the government. During period of 2001-2005, the government plans to invest in the industry VND 35,000 billion including VND 12,000 billion for VINATEX. By 2005, the

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target export turnover of the industry is $4 billion and create two million jobs. Till 2010, the total soft loan the government tend to release amount to VND 65,000 billion and the VAT tax for the industry will be cut a half to 5% during this period (Vietnam Economics Times, 12/10/00).

On the other hand, Vietnam plans to enter WTO in 2004 and comply with AFTA requirements in 2006. This will represent a critical challenge to textile and garment industry since its products must compete directly with imported goods without government support in terms of tax and non-tariff measures.

3.1.2. Economic factors

During the last decade, the Vietnam economy has been growing with the average growth rate of 7.76%. However, after several year of high growth rate in 1992-1997, in 1998, the are some signals to show the economy was slowing down. In that year 1998, GDP grew only 6.1% (Table 3.1). Especially in 1999, due to the affect of Asia crisis, GDP grew only 4.7%. In 2000, the economy overcame the hard time and show its grow trend again its GDP growth raise to 6.7%.

Table 3.1 GDP growth rate in 1992-2000 period

Year 1992 1993 1994 1995 1996 1997 1998 1999 2000

GDP (%) 8.65 8.07 8.84 9.54 9.34 8.8 6.1 4.7 6.7

Source: General Statistical Service, Statistical Year Book 1998, 1999 and other sources.

Although the economy has been growing, it has its own weakness. The quality and efficiency of the economy is low, represented in high manufacturing cost and this cost is increasing. Manufacturing cost in the economy as a whole account for 48% in 1996 and increased to 50.5% in 1999 of total goods value. Of which, manufacturing cost for industrial goods increased from 57% to 58.5%, for service industry increased from 28% to 35%. Therefore, the incremental value (GDP) of manufacturing and service is below the manufacturing value of these industries.

The purchasing power in the economy is still weak. Although the GDP per capita in 2000 is estimated to reach $400 this year (Table 3.2)(SaiGonTimesWeekly 23/12/00) an increase of 13.8% over the previous year but the purchasing power in the society is not increased at the same level. In 1999, the total sales of retail goods increase 2-3% compared with the previous year. The retail trade volume representing high value in service industry, grew at only 2%. If we take into account the inflation factor, the retail trade volume did not grow over the previous year.

But retail consumption gives positive signals in 2000 when the retail trade volume stand higher. The Ministry of Trade estimates total sales of retail trade and services in 2000 at VND215,000 billion, up 13.2% from 1999. Per capita spending of retail goods and services was VND2.74 million, up 7.8% on 1999. The total sales of retail trade and services this year are expected to increase to VND235,000-240,000 billion. This will be good news for consumer-goods producers and service providers since people are willing to spend money and they can increase their turnover.

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Table 3.2 GDP per capita in 1996 to 2000 period (Unit 1,000)

Year 1996 1997 1998 1999 2000

GDP per capita 3,610 4,089 4,770 5,079 5,780

Growth rate (%) - 13.2 16.6 6.4 13.8

Source: SaiGonTimes (30/12/99), Saigontimesweekly (23/12/00)

In conclusion, Vietnam economy has overcome tough time and the economy is entering a booming period again with increasing purchasing power. This is a good trend for garment industry.

3.1.3. Social, cultural and demographic factors

Vietnam has young population and it rank 13th in the world in terms of population. With the population of 76.3 million, this is a large potential market. However, 77% of the population living in rural area have lower income compared with people living in urban area. This income gap leads to the differences in buying pattern, product requirement, and consuming style. Urban people are more sophisticated when buying goods, they require new design, color, quality, and brand-name. Rural people emphasize more on price and durability.

Vietnamese people used to prefer imported goods due to their high quality. Although imported goods are more expensive, people are willing to pay the premium to choose the good products in their perception. However in the past several years, domestic goods emerged as favorite choice for local citizen thanks to their good and stable quality. Domestic manufacturers in many industries like Vinamilk dairy products, Thien Long ball-point pens, Biti's footwear, Vinh Tien notebooks, Casumina tires and tubes etc., has gained big market share and defeat imported goods in the market. Local consumers are changing to buy domestic goods since they have comparable quality with imported goods but at substantial lower price.

3.1.4. Climate and weather factors

The weather condition in Vietnam differ substantially between two regions North and South. In the South, there are two seasons: dry and rainy with the average temperature ranging from 21oC to 34oC in the whole year.

In the North, there are four distinctive seasons with the temperature conditions differ significantly among four seasons. In summer, it is hot with the daily temperature varies between 25 to 37oC. But in winter, the cold weather with temperature ranging from 9 to 15oC during winter monsoon (Northeastern seasonal wind flows). The temperature in winter is affected by winter monsoon (wind flow) compliment with light rain. The weather changes to cold during wind flows coming from the north blowing through the area that drive the temperature down.

The average temperature in Hanoi during these wind flows varies between 10 to 14oC. The temperature can be lower when strong wind-flow hit the region. Each wind-flow will have effect to weather conditions from 3-6 days (3 to 6 days the weather is cold) but sometimes several wind-lows hit the region consecutively and the cold weather can prolong for several weeks. But when the wind flow is over, the weather is warmer with temperature during

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daytime ranging from 16-21oC (Appendix 3.1 presents temperature condition in 1999-2000 winter season).

The winter usually begins at the end of November every year with 2-3 winter wind-flows driving down temperature, after that it is warm time. Winter winds hit the North more frequently from the second part of January till the end of February. Winter often ends in April of the next year. This complicated weather condition in the North lead to the need for jackets and/or other substitute products that become the must-be clothes in winter, especially our habit in travelling to use motorbike or motorcycle. But frequent changes in weather condition during winter lead to sophisticated requirements for jackets that will be discussed in the data analysis section. Experience show that the weather condition has strong effect on jacket sales’ revenue in domestic market, specifically in the North. The weather condition in Southern region does not require clothes like jackets therefore the market for jacket in domestic market is only in the Northern area.

3.1.5. Technological factors

Technology is important in garment industry. Technology includes machines, manufacturing technique and management. In the last decade, Vietnam textile and garment industry has opportunities to modernize its technology through its own effort and through joint venture and foreign direct investment. Until December 1997, there are 145 foreign and joint-venture project invested $1.6 billion in the textile and garment sector. Of which 84 project are in garment sector with the capital invested worth $197.7 million. Domestic firms also invest in new equipment and technology. About $200 million is being invested every year in new factory and/or replacement of old equipment in existing factories. Ducgiang, Garment 10, and Viettien companies are those invested most heavily in new equipment in 1997, in which Garment 10 invested VND 8 billion. New technology and equipment increase quality, productivity thus allows companies to increase their product competitiveness.

Machinery in garment industry is diversified with automation and computerized equipment can be applied to any stage of sewing process. There are many kinds of machine such as spreading, drawing, cutting, sewing, embroidery, pocket welting machine etc. Machines used in garment industry are mostly imported from Japan, Germany, and the United State.

3.2. Customer analysis

To collect data on customers’ requirement on jacket and their perception toward jackets made by Thaloga, a survey was conducted during late December 2000 and early January 2001.

First, a pilot survey was conducted by interviewing 12 customers for deep understanding about their requirement and their understanding about vague concept like product quality, color, and design of the product.

Second, a questionnaire survey was conducted to collect data. A convenience sampling method was applied. Questionnaire are delivered at Thaloga fashion shop 250 Minh Khai street, at 39 Ngo Quyen street where six garment company’s sales representative offices are around, and at the new year fair at Giang Vo International Exhibition and Fair Center. Targeted respondents are adults who can use and buy jackets. One hundred eighty questionnaires were delivered and one hundred fifty two were returned. Of which one hundred thirty two are considered valid and used for analysis. Questionnaire sample is included in Appendix 3.2.

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3.2.1. Sample characteristics

The survey intended to identify adult customers’ requirement for jacket and their perception toward Thaloga’s jackets. Therefore, all respondents in the sample are above 20 year old. Group age of 20-30 is dominant in the sample. They account for 75.8% of the sample. Respondents within 30-40 represent second population in the sample with 19% (Appendix 3.3 Table 1).

Women represent the majority in the sample with 62% (Table 2). A third of respondents are married. They can be important customers as they can purchase clothes for them and for other family members. (Table 3). In other aspect 59% of respondent say that they buy clothes for both themselves and for family members (Table 4). There is statistical relationship between marital status and buying pattern. 77% of married people buy clothes for themselves and for other family members while the percentage of single respondents buy clothes for themselves or buy for both is nearly balance (Table 5).

Respondents from average income class presents for large proportion. 47% of respondents have average monthly income in the range of VND0.5-1 million. Other 32% of respondents have average monthly income between VND1-2 million. Respondents with monthly income higher than VND2 million only represent around 17% in the sample (Table 6).

Kind of work may have impact on requirements of customers toward jackets. Roughly 50% of people in sample surveyed work in office. People working outside or work require travelling account for nearly 20% of sample (26 people) (Table 7).

3.2.2. Customers buying pattern

Nearly 90% of the respondents replied that they buy less than two jackets per year. More specifically, about half of sample quoted that they buy from one to two jackets per year, the other nearly 35% of respondents answered that they buy one jacket within two years. Only about 10% of sample buy more than three jackets per year. This represents the upper limit for jacket usage of customers (Table 8).

When buying jackets, two possible actions can occur, they can buy immediately when they find a suitable clothes or they can consider several alternatives then choose. Surprisingly, nearly 60% of customers in sample will buy right after they choose a suitable jackets. Customers with careful buying decision only account for 40% of the sample (Table 9). This phenomenon can be explained as when customers going into a close shop or retail store, they have already have certain perception about price and quality level of clothes in that shop and they are confident to purchase.

For the place where customers usually buy jackets, companies’ retail stores and sales agent are the most frequent place to buy. Approximately 50% of respondents buy jacket through this distribution channel. The next two other common places are in trade fair or in fashion (clothes) shop (Table 10). This buying habit can be important for company to channel its products to different distribution channels and design distribution network.

3.2.3. Customers needs on the products

Product itself: customers need following benefit from the product:

It can bear light rain

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It must give sufficient warm level

Customers prefer a jacket that they can use to go to various places and it can fit many contexts. For example, they can use at work, going to picnics, funeral, or other activities. Five layer jackets are least preferred. Two or three layer jackets are liked more due to its tightness and convenience.

Jacket should fit the body form of customers

For fabric materials, the respondents roughly agree that fabric material is of non-dust catching type. To a lower degree, they want fabric material resistance to fire from cigarette or match.

Product color: Respondents agree that they like elegance and simple color. Jacket with colorful color mix, too bright or heavy dark colors are considered unattractive in customer perception (Item with score near 3 up can be considered unattractive).

Design: again, simplicity in design for jackets is preferred. However, fashionable design with few stylized features is also preferred with lower degree and opinion of respondent upon the issue is more diverse than for simple design.

If there is a hat accompanied with the jacket, respondents agree that it can be flexible to attach or unbind from the jacket (Table 11).

Among four dimensions of a jacket, price are the most important element that customers consider in making their buying decisions (Table 12). 40% of respondents placed price in the first priority. Quality is ranked second in important level after price that is followed by color ranked third in the important ladder. Consider simple versus fashionable design, we can see that simple design is more important. The implication of important levels is that it suggests a hint for companies to compete in these important dimensions of jacket. If quality is relatively similar among competitive products, and it is difficult and costly to significantly increase quality level, we can choose to compete on price or product appearance (color, design). It is critical to note that respondents’ opinion about the important level of four dimensions of jacket is not affected by sex, age, or income level of respondents. People in different sex or age or income level group have consensus assessment on the importance of four dimensions of jacket.

Men and women have different requirement about color and material of jacket. Men like jacket with simple and plain (single or one) color, while women do not have clear idea about they like or dislike jacket with plain color. Women do not like simple color as men, they have rather diverse opinion on this character. That means jacket designed for women should have more variety in color than designed for men. Women are more cautious when selecting fabric attribute. They require fabric material resistance to flame, while men do not consider this aspect important (Table 13).

Respondents in different age group have different requirement on following jacket’s characters: color mix, design pattern, edge line, special feature, and fashionable design (Table 14 and 15). Three big age groups are identified: 20-30 year old group (group1), 31-35 year old group (group2), and 36 year old up group (group 3).

Group 1 considers color mix and edge line in jacket important, they require simple, fashionable design with special featured style (Table 16).

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Group 2 sees simple design as normal attractive, but they do not like edge line in the jacket. Two to three color jacket, fashionable design, design feature are not preferred either (Table 16).

Respondents of group 3 have diverse judgement upon these five attributes, but there are only 19 people in these groups, detail analysis of their judgement may be not statistically significant.

When examining the relationship between kind of work and respondents requirement for jacket, people in different work environment differ only on the requirement on fashion design. Office respondents agree that they like fashion, but respondents working outside or travel while working do not consider this issue important (Table 17, 18).

Because the distribution of respondents among income groups is not balanced, the comparison of requirements among income group to jacket’s attributes will not give reliable result so the relationship between income and customers’ requirement about various jacket’s attributes is not discussed further.

3.2.4. Customer perception about Thaloga’s jackets

When examining the frequency of customers in sample have bought and used products of different companies, it is revealed that Thaloga’s jackets has the most frequent use besides imported goods (Table 19). Thaloga is the second most frequent bought and used by respondents in the sample (43%) after imported jackets including Chinese jackets (49%). Two companies follow Thaloga are Garment 10 and Nha Be companies with frequent use of 32% and 20% respectively. The information in Table 19 does not indicate market share of each company in the table, but we can understand that Thaloga might have a large market share of jacket in domestic market, company can be the first or second position in market share in this market.

On the other hand, of 132 valid respondents, 89 people know and give their assessment about Thaloga’s jackets. The most positive point that respondents have about Thaloga’s jacket is good quality and their assessment is most consensus among other issues of jacket (mean 2.31 and standard deviation 0.82). For price issue, respondents score half point between agree and neutral point for two question about price appropriateness and relative price level. This fact shows that the price of company’s jacket is not more attractive than other companies. Respondents’ perception about color and design variety is nearly neutral. Number of color and design pattern is not more diversified than other companies. That means the company’s jackets do not big competitive advantage over other companies’. In other words, little difference in term of price or differentiation can be a threat to Thaloga’s jackets and its competitive advantage.

3.3. Textile and garment industry analysis

3.3.1. Industry overview

The textile and garment industry (the industry) is heavily fragmented including about 600 enterprises engage in textile and garment business. Their main business or garment companies are manufacturing for orders from foreign customer (FOB business) and subcontracting for commission fee for foreign garment companies (CMP business). Only small percentage of total revenue of this garment companies come from domestic sales.

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The total employee in the industry is 800,000 labors. Of the 600 firms, there are about 130 state-owned enterprises of which the Vietnam National Textile and Garment Corporation (VINATEX) is the largest state corporation. Half of total firms are belong to private sector (Table 3.3). Foreign and joint-venture firms account for small percent in the industry, 88 firms of 13%, but they are large companies with more than 200 labors and they possess large proportion capacity of the industry (Table 3.4). Furthermore, there are about 80,000 household tailors engaged in garment making throughout the country.

Table 3.3 Number of firms in the garment industry as of 1998

Number of employee

The whole industry

Private sector

Cooperatives State companies

Foreign, joint-venture firms

Over 200 50% 40% 20% 50% 90%

200 or less 50% 60% 80% 50% 10%

Total 602 firms 348 firms 36 firms 130 firms 88 firms

Source: The study of Japan International Cooperation Agency and Ministry of Investment, October 1999

Table 3.4 Production capacity of textile and garment industry of Vietnam as of 1998

Product Local sector % FDI sector % Total

Yarn (ton) 72,000 44.44 90,000 55.56 162,000

Fabric (mil. sqm) 380 47.5 420 52.5 800

Knit (mil. pcs) 31 79.48 8 20.52 39

Garment (mil. pcs) 280 70.0 120 30.0 400

Source:VINATEX (www.vinatex.com/statistics)

The textile and garment industry is one of the three leading export goods of Vietnam. The export turnover of the industry increased over the years (Table 3.5). The export turnover increased gradually from 1994 to 1997. In 1998, it did not increase due to the Asia crisis. More than 50% of Vietnam export come to Asia countries. But in 1999 and 2000, the industry‘s export turnover raise again and the recovery of regional economies promises a higher export in the years to come.

Table 3.5 Export turnover of textile and garment product in 1994 to 2000 (in $ million)

Year 1994 1995 1996 1997 1998 1999 2000 2001(Target)

Export 554 850 1,150 1,349 1,351 1,682 1,815 2,300

Growth (%) - 53.4 35.3 17.3 0.1 24.5 7.9 26.7

Import * - - 829 1,173 717 - - -

Import/Export ** 72 86.95 53

* Import of material and accessories for textile and garment

** Percent of import material to export turnover

Source: Vietnam Economics Times, Vietnam and World Economy 1998-1999

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Note that 80% export turnover of garment industry is through commission business mainly with Hong Kong, Taiwan, South Korea, and Japan. 50% of commission contract is export to Japan. The remaining 50% of commissioning business is with Hong Kong, Taiwan, and South Korea partners selling finished goods to EU market.

There are two market categories for Vietnam’s export garment: quota and non-quota market. The quota market includes EU, Canada, And US. Non-quota markets are Japan, Taiwan, South Korea, and Hong Kong. These two market categories share the same proportion (50%) of total export value.

Despite Vietnamese garment products have appeared in many sophisticated markets, domestic sales of local garment companies account for small proportion. Garment companies had not paid attention to domestic demand. There are about dozen large garment companies that serve the domestic market. The proportion sales in domestic market account around 7,5-10% total sales value of garment firms. Garment 10 has the highest domestic sales ratio of 17.1%. Thaloga domestic sales account for 11% of company total’s revenue. This fact represents a great potential for garment enterprise to capture domestic market share.

Although the industry has experienced growth in export turnover, there are some problems inside. First, the textile sector does not grow as fast as garment sector, textile companies can satisfy only 20-30% of fabric needs of garment sector. A large quantity of high quality fabric and accessories are imported (300-400 million square meters per year). The export value in some years is also given in table 3.5. Therefore in finished garment product for FOB and commissioning business, local material amount to merely 10-15%. For many contracts, customers supply all fabric and accessories, domestic companies only do the processing part. In other words, high export turnover is accompanied with high import value of material and accessories. In 1997, the textile and garment industry reported a increase 16% in revenue and 14% in manufacturing goods. There is not profitability data but an overview of export turnover compare with imported material (Table 3.5), we can see the profitability of the industry is limited.

Second, Vietnam garment companies lack experience in market research, marketing, and assessing to new markets. This is the major obstruction for the industry to export or sell its product under its own brand name. In practice, garment companies have to sign contracts with middleman in Taiwan, Hong Kong, or South Korea to export their products under foreign brand names.

Third, management capability in many textile and garment companies is limited. The decision making process is slow. For example, when a company has a investment project of more than VND500 million, the regulation requires a bidding to select a vendor, a process that can prolong several months to complete. Moreover, they are also required to get approval of government of correspondent ministry of corporation headquarter.

In textile and garment industry, the Vietnam National Textile and Garment Corporation (VINATEX) is the largest state-owned enterprise group. Established in 1995, VINATEX operates simultaneously as manufacturer, exporter, importer, and distributor (both wholesale and retail). Main responsibilities of VINATEX are:

To carry out investment, production, supply, distribution, export, import activities in respect of the textile and garment business activities

To enter into joint venture or business cooperation arrangements with Vietnamese and foreign economic organizations;

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To target, develop and expand local and oversea markets to provide guidance to and assign various member enterprises to relevant markets.

To conduct research and application of advanced technology; to renovate technology and equipment in conformity with the general development strategy;

To provide training and refreshing courses to management and technical staff and skilled workers.

At present, VINATEX manages forty-seven member enterprises engaging in yarn spinning, fabrics, weaving and garment making; one financial company; three mechanical repair and spare parts manufacturing enterprises; one textile and garment economic and technical research institute; one model and fashion research institute and three workers training schools. VINATEX also establishes its branch offices in Haiphong and Danang and two trading service companies in Hanoi and Ho Chi Minh City. VINATEX has trading relationship with more than 200 companies in 40 countries and regions. As an important organization in garment industry whose one function is to help the State Government in orientation and development of local textile and garment sectors VINATEX is an important force in the environment of the industry.

3.3.2. Industry attractiveness and competitor analysis

Vietnamese garment market is supplied by garment companies, household tailors, and imported clothes. The household tailors account for 60% of the domestic market, according to a study by SECO Sector Consulting (JICA, 1999). The remaining of the market is supplied by legal import clothes (5%), illegal import primarily from China (15%), used clothes supplied through aid program or smuggled through border of Cambodia or China (10%) and diversion of exports product to domestic market (10%).

The household tailors gain some advantage over other companies in domestic market. Vietnamese prefer tailor-made clothes because ready-made garment usually made with standard size of foreigners to export so they are of large size. Tailor-made clothes can be built to fit customer body and they can be customized. However, for a specific product like jacket, household tailors can not compete in large scale because making jacket requires several specialized equipment and large investment that very few single household can afford. Thus the competitive forces in the market only comprises imported goods (legal or illegal) and domestic firms producing jackets. The next section will apply the five-force model of Michael Porter to analyze the competitive force in the industry.

Threat of new entrant

Technology and equipment in garment industry is available and easy to assess. For a small to medium firm employing from 60-150 workers, and 40-60 sewing machines, an initial investment of VND600-1,000 million is needed to start a business. The recruitment of workers is easy. For setting up a new business, such an investment is not difficult to get for an organization, so money will not a big entry barrier for this business. The main entry barrier is the established market for existing jackets from several big companies like Garment 10, Ducgiang or Nhabe companies. These companies had set up strong customer bases thank to their good product quality and acceptable price. Moreover, cheap price of Chinese jacket also a big fence for new comer to overcome. As a result, threat of brand new players to jacket market is not high. But there is great potential that existing garment firm those have not introduced jackets to domestic market yet, now they begin to launch new jacket product and compete directly with existing firms. Of forty-seven member companies of VINATEX

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engaging in production of textile and garment goods, twenty-five are in garment making sector and all twenty-five companies have jacket in their product portfolio. But at present, not more than ten companies are selling jackets in domestic market. In the future, it is expected that more companies will come and compete in this product category and make the competition tougher.

Threat of substitute products

Substitute products can be coat, sweater, leather jacket, and fur-coat. Fur-coat used to be popular about a decade ago when jackets are not introduced to market yet. Fur-coat from Germany is most favorite and dominated the domestic market. The product can bring highly warm level but presented with monotonous color and design. At present this product had withdrawn from the market.

Leather jacket is premium product with high price, usually more than VND1 million. It serves only high-income customers so this product will not be a major threat for ordinary jackets.

Sweater can keep the body warm, but it can not bear light rain or prevent wind while user travelling by motorbike in cold weather condition. Thus sweater can not replace jacket when the temperature falling down with strong wind and light rain. This weather condition happens frequently during the mid-winter.

Coat is a new product that introduced one or two years ago. For travelling and keeping warm purpose, coat can bring the same benefit as jacket, but coat is more bulky and more expensive than jacket. Hence jacket still has advantage over coat.

In general, jackets still surpass the group of substitute products in respect of convenience, comfortable and price. For every substitute product, ordinary jacket has clear advantage in some extend. Therefore the threat of substitute product for jacket in mass market is not significant.

Bargaining power of buyers

Buyers do have bargaining power over domestic jacket producers. For company like Thaloga, there are three main types of buyers: foreign and partners in FOB or commission business, and local consumers. Foreign partners can have power because they can choose a company in Vietnam or in other countries have the same low cost advantage like Vietnam or they can choose among many domestic garment companies having making jacket capability. Domestic partners also have power because they can choose a company charging lower cost to place order too. For end consumers, they can also have right to between imported products or among jackets produced by many domestic like Garment 10, Ducgiang etc. Customers are price sensitive and the distribution network of other companies are wide spread. And customers can switch among companies easily when they notify a more attractive price.

Bargaining power will be an importance force in the external environment of Thaloga and must be considered carefully in the process of formulating and implementing strategy.

Bargaining power of suppliers

Suppliers do not have significant influence upon Thaloga business. The company has long term contract to provide fabric with March 3 Textile Company. Import of other fabric and accessories that are not available domestically will be conducted by company itself or through VINATEX or other suppliers mainly in Korea, Taiwan or Thailand. These suppliers can be

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approached easily. For commission business in many contracts, the contractors also provide material and accessories. In conclusion, suppliers do not have power over Thaloga.

Rivalry among existing firms

Jacket has been tradition export product in Vietnam garment industry. Many firms in the industry have the capability to make jacket. All companies in garment sector of VINATEX (twenty-five firms) have capability to produce jacket. Besides export business as their main operation, many companies are changing their direction toward domestic market. This trend will make the competition in the industry more intensified.

Jackets of Thaloga have to compete with jackets from imported goods mostly from China and with jackets of other domestic producers like Garment 10, Ducgiang.

For Chinese jacket, it has strong advantage of low price. For example, three layer jackets of Thaloga are priced from VND170,000-250,000, while the same kind of Chinese jackets are sold at from half to two third of Thaloga price (VND90,000-140,000). Chinese goods sold at these prices often have clear lower quality in term of fabric quality, faded color, and thinner than Thaloga jackets. Chinese jackets are sold in small retail outlets, small shop in local markets, or even on street’s pavement usually with title “grand sales”. However the low cost advantage of Chinese products will be eroded as the Chinese Government announce that they will no longer subsidize price for textile and garment products.

Domestic firms’ jackets compete with each other in some extend price, quality, color, and variety of design. Major companies competing head on head in Hanoi area are Thaloga, Garment 10, Nhabe, Ducgiang, and Legamex company.

Garment 10 company is one among the five largest garment companies in Vietnam in term of scale, revenue, profit, productivity and growth. It has 4,000 labors. Company main products are shirt, jacket and other product. Jackets account for 20% of total garment output. The company has advantage in technology, productivity and quality. The shirt product of Garment 10 has leading position in market with its high quality and reasonable price. The company has wide distribution network with more than 60 sales offices and sales agent in Hanoi and other provinces including southern provinces. Domestic revenue of Garment 10 in 1999 was VND24 billion. The company has strong brand image of high quality products and competitive price. Jackets of Garment 10 have good quality and they are priced a little higher than Thaloga products. Garment 10 has ambitious expansion plan to capture more market share in all product categories. Till 2010, company’s goals are to produce all garment products and market them under company’s own brand-name for export and domestic market. To achieve these goals, the company plans to invest $20 million to 2010 in new equipment, a new trading center for design, fashion show, and product introduction activities (Quang, 2000).

DucGiang Garment Company is a strong competitor with high potential. In 1998, it invested VND6.5 billion to upgrade equipment and warehouse and increase its capacity to 2 million pieces of ready made clothes a year. Jackets are company’s major products. The company offer variety of designs and styles for jackets. Price of DucGiang’s jackets is a little higher than that of Thaloga for the same product types. DucGiang only has three sales representative office in Hanoi and several agents in other provinces.

NhaBe Garment company has its plant and headquarter in Hochiminh City in the south of Vietnam. Jacket is company’s product for export. In 1998, export turnover of this company amounted to $13.5 million. NhaBe focuses on product quality especially fabric and

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accessories quality and elegant design. Thus its price for jacket is higher than similar products of Thaloga from VND30,000 –50,000. NhaBe has 3 retail stores in Hanoi.

Another competitor coming from the south is Leather and Garment Company (Legamex). Legamex produces and sells simple but comfortable and fashionable clothes including shirt, trouser, dress, and jacket. Its production capacity is 7.5 million pieces of garment and 3.5 million shoes annually. The company markets its product by selecting good sales agent with convenient location in big cities. The main customers of Legamex are relatively high-income youth who want to seek clothes similar to imported goods with price not so high as those sold in other fashion shops. Jackets of Legamex has high quality with fashionable designs and relative high price. Company has twenty-seven retail stores in Hochiminh City, Hanoi, Cantho.

The analysis of Thaloga strength and weakness as well as competitiveness will be discussed in the next chapter.

3.4. Summary of external opportunities and threats for Thaloga

Opportunities

- Textile and garment industry is important export earning and will continue to be received preference treatment of the government with soft loans and low VAT rate. Thaloga can take this opportunity to upgrade and expand its facilities to increase quality and productivity.

- Vietnam still has low labor cost advantage to exploit

- The growing economy and purchasing power enables manufacturing and service firm to increase their sales revenue

- Garment products of domestic firms have gained good image in customer perception and they are focusing more on buying domestic clothes

- A large market in urban and rural area is being under exploited by domestic firm but filled by cheap price good from China

- The development of textile sector will help to increase percent of domestic material in finished goods thus reduce manufacturing cost

Threats

- Vietnam plans to enter WTO and to comply with AFTA agreement, the will be no more restriction of tariff and non-tariff on imported goods, and Thaloga product will compete directly with imported clothes which are either cheaper or better quality

- Bargaining power of buyers is significant, it does not allow company to charge high commission fee or high price that limit the profitability

- Tougher competition with other domestic companies is expected due to they are changing direction toward domestic consumer and seeking to capture more market share.

- Company’s jackets have no clear advantage in terms of price, design, color over its competitors.

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4. CHAPTER 4

INTERNAL ANALYSIS

4.1. Company profile

Thanglong Garment Company (Thaloga) is a state owned company belonging to Vietnam Textile and Garment Corporation (VINATEX). The company was founded in 1958. Thaloga has the right to import and export directly, producing high quality garment product for both domestic and foreign customers’ orders.

Thaloga’s main products consist of men and women’ shirt, trousers, suits, various kind of jacket, overcoat, uniform, knitted wear, sport wear, and children clothes. Company has production capacity of 5 million equivalent shirts per year. It has exported products to customers in more than 30 countries such as France, United State, Taiwan, Hong Kong, South Korea, and Japan. At present, company possesses relatively modern system of equipment with different automation level such as automatic pocket welting machine, electronic embroidery machine, automatic sewing machine, jeans washing system, and computer aided design.

In production aspect, company has six enterprises at headquarter in Hanoi, three garment affiliates in Haiphong, Quangninh and Namha province. In addition, company has a bonded warehouse with responsibility of keeping equipment, spare parts, material and accessories and finished product for garment and textile industry while waiting for export or import. Company also has plastic plants located in Haiphong producing garment accessories, packaging, and different kinds of plastic pipes for electric wires.

4.2. Organizational structure

The organizational structure of the company is typically functional with total 250 staffs and around 2,000 workers. Appendix 4.1 illustrates the organization chart of company.

Board of Director

Thaloga has a General Director and three Deputy Director.

- The General Director is responsible for company overall activities and performance. He is in charge of company’s development direction, investment strategy, and labor. He manages directly the operation of Domestic and Export Department, Technical Department, Administration Department, and Finance and Accounting Department.

- The Technical Director is responsible for managing company equipment and facilities system in enterprises. His responsibility is to assure that all equipment running smoothly and they are maintained properly.

- The Interior Director manages supporting activities in the company including the operation of company’s cafeteria, security, office equipment and facilities.

- The Production Director is in charge of directing the operation of Production Planning Department, Warehouse Department, and the operation of 6 enterprises.

Functional Department

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Administration Department

Its responsibility is to manage the workforce and related activities including training and recruitment, calculating worker’s wage, manage worker’s social insurance and other welfare, organizing and managing emulation events in company.

Export Department

The operation of this department is to market and receive orders of foreign customers in FOB or commission business. This Department in cooperation with Technical Department manage to acquire material and accessories itself to fulfil customer order in case of they do not supply material or they supply only part of require materials and then export finished goods to customers. Revenue of export goods under the management and coordination of the Department accounts 82% of company total revenue in 2000.

Domestic Department

Domestic Department deals with products, customers and marketing activities in domestic market. Since time when company focused more on domestic market and tried to capture more share in this market, domestic Department was established with a group of executives and staffs from Export Department specialized in domestic market in late 1998. The function of this Department is the same as Export Department with additional task is to develop and manage distribution channels of the company within the country. Domestic sales is small in total revenue but it has been increasing during the last three consecutive years.

Technical Department

Technical Department does not deal with equipment and machinery but with product design and specification. The Department can design a new product for domestic market, or it can design product according to sample customers provide, or it can design products within style and specification already provided. There are cases the Department only responsible for instructing production in technical aspect when all design work has been done by the contractors. This Department also prepares material requirement plan for each code (product) and informs Export or Domestic Department to acquire enough material for production. The Department also works out costing plan for each code as a basis to determine price or commission fee for that code.

Production Planning Department

This Department is in charge of determining which product is produced where and in how long duration is. Base on the availability of materials, equipment and production capacity of each enterprise, and the delivery date, the Department assigns works to each enterprise and each team within one enterprise. Several kinds of planning are made by the Department. Yearly plan is made base of standard productivity valued in USD assigned for workers in each enterprise. Monthly plan will deploy how many product ordered are produced in that month in each production enterprise. And daily plan to determine what day to produce a specific product. Daily plans are used to keep track of the production progress to ensure that the orders will be delivered on time.

Quality Control Department

Its responsibility is to monitor the quality through production process and quality of finished product. There are four quality control staffs in each enterprise. It informs relevant

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Department about problems affecting quality and suggestion for solutions. Quality problems often arise for products requiring washing and/or stone-washing and material is of low quality level or sewing line is not complied with standard.

Production Enterprises

Thaloga has six enterprises making garment and knitting wears at company headquarter in Hanoi, each enterprise specialized in some product categories. For example, enterprise one and two produces men and women shirt, enterprise three and four produces trouser, jacket, and jeans. Enterprise five and six produces knitting wears. Each enterprise includes five to six sewing lines, one cutting team, ironing section and quality control and packaging staffs.

In addition, Thaloga has 2 affiliate plants in Namha and Haiphong province with total labor of 820 workers producing jacket and trouser and a joint-venture plant in Quangninh province with Vietnam Coal Corporation.

4.3. Business operation and goals

4.3.1. Business activities

Company’s main operation is garment making. Like common practice in garment industry, there are two kinds of business: FOB and commission. FOB business is manufacturing activities to complete orders of foreign or local companies. Thaloga manages to acquire material and accessories, processes according to product’s specification given by customers, and sells directly to them. For commission business, company only does the sewing work with all or part of materials provided by customers. Usually, revenue from FOB contract is twice as much as that of revenue from commission business.

Foreign customers are very important to Thaloga. Their orders’ value account for 82% of company total revenue in 2000. This leads to operation of company depending seriously on external customers. The value of goods that company can sell itself to customers in domestic market is only part of VND20 billion of domestic sales.

4.3.2. Company goals

Overall goals: to entrench existing markets and to enter new market; company tries to enter US and other markets with product under company’s brand-name and capture more domestic market share.

Specific goals in 2001:

Total revenue increase 19%, in which FOB and domestic sales accounts for over 70%

Export increase 15%

Average income of workers reaches VND1.1 million

the whole company is certified with ISO9002 qualification

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4.4. Business performance and sales

4.4.1. Manufacturing process, quality control and technology

The manufacturing process for each order and/or product is prepared, monitored and implemented in close cooperation among different Department and enterprises including Export or Domestic Department, Technical Department, Production Planning Department, and manufacturing enterprises.

The production process goes through following stages:

* Preparing stage

Export of domestic Department receive orders including product information and specification such as real or paper sample, technical specification, sewing line style and standard and forward these information to technical Department.

Technical Department will study product design and calculate material and accessories required for each product and for the whole order and produce material balance

Technical Department will make two standard samples for each order for approval of customers, after that it will use computer to generate specification of different sizes. These specifications are passed to production enterprise.

At relevant enterprise, a technical team will again make one sample for inspection of technical Department, if there is no fault exist, this technical team will prepare sample paper for cutting and assign specific task (part of a product) for sewing line workers.

* Production deployment stage

Production Planning Department accesses the availability of material and accessories and releases production order to enterprises. Every day this Department will send staff to enterprise to monitor production progress to ensure that the order will be finished and delivered to customer on time.

At the enterprise, after receiving production order, work is initiated. Fabric is cut according to sample to minimize cloth waste. Multiple fabric layers are cut together, number of layers depends on fabric thickness and characteristic. Cut pieces for one code (a product) will be numbered and group together and transferred to sewing line. Figure 4.1 depicts the flowchart of production process for a code.

Material and design preparation

Sewing of Parts

Finished Product

Quality inspectionIroningInventory

Fabric cutting

Figure 4.1 Production Process29

The sewing lines usually consist of 35 machines, 22 of them are sewing machines and other functional machines like button-stick machine, buttonhole, hole sewing machine. Each worker (machine) will complete simple part of the product. After preparing all parts, several (6-8) workers will assembly them to finished product. Trimming is the last step to eliminate redundant thread or material from finished product. After being checked and ironed, product is packaged in nylon bag and/or carton box and transferred to warehouse.

Quality Control

Product quality is monitored throughout the production process until finished products are transferred to inventory. Quality checkpoints in the process are:

Checking fabric quality while spreading and cutting, after cutting, there is a check for the completeness of parts of one code.

Quality is checked gradually in sewing process by line manager for the complying of stitching style to specification

At the end of sewing line, finished product is check by quality control inspector. Redo work will be done on unsatisfactory parts if mistake is identified. If there is no fault in the product, it will be passed to ironing section.

A final check is conducted after ironing and before product is packaged.

Technology

Machinery in garment industry is mainly sewing machines. In addition, other specialized equipment also used such as boiler-vacuum ironing, stem ironing, embroidery, spreading, cutting, welting, buttonhole, button sewing, fusing presser etc. Garment equipment can be multi-function, automatic or semi automatic machines.

At present, Thaloga has 1,500 machines of various kinds, 70% of them are new that had been installed in the last three years. Equipment in enterprise one and six producing shirt and knitwear are new since they are new production line of company since 1999. Equipment in other enterprises has been modernized with new sewing and other machines. In 1998, 1999, company spent VND14.35 billion in buying new equipment and upgrading plants in which investment in upgrading plants is small. In 2000, company intended to invest VND7 billion in new equipment.

In general, with current equipment and manufacturing techniques, company can satisfy customer’s order in large quantity and high standard quality.

4.4.2. Sales performance and profitability

The company total revenue has been growing since 1998 (Appendix 4.2 Table 1) and it is expected to grow in 2001 to total revenue of VND133 billion. However, the average sales growth in 1998-2000 period is not stable. Sales in 1999 soured 28.72% while sales in 2000 increases only 12.62% over the previous year figures respectively. This fact indicates the unstable in company operations that is mainly due to the dependence on orders of foreign customers. If they order large quantity, company has enough work to do, otherwise company will face difficult to find addition work for its workers. At present, the capacity of company reaches 5 million standard shirts per year. The fact is more clearly proved when we see the

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percentage of export revenue in company total sales. Export revenue accounted for 85% and 82% of total revenue in 1999 and 2000 respectively.

In domestic market, company revenue increase with promising trend. In 1998, domestic stood at VND12 billion. In 2000, the figure increased to VND20 billion an increase of 42% over the previous year.

One important aspect that affects the profitability of the company is revenue from FOB business and domestic sales. As discuss earlier, revenue from FOB business is twice as much as that of from commission business. FOB and domestic sales represents very high percentage in company total revenue and highest in the industry, 73% in 2000.

However, if we consider the profitability of the company, we can see that the company is at low profitability level. Income from operation accounts for tiny percent of total revenue, which is only 1.3% of total revenue in 1998 (Table 2). Table 3 presents information on company balance sheet in 1998. Return on equity ratio (ROE) in 2 year 1998 and 1999 are 5.047% and 6.032% (estimated) respectively (Table 4). This ROE is lower than the interest rate in the beginning of 1998 (1.05%-1.1% per month annually). Other profitability ratios are low too. Especially the net profit margin is low, 1.12% and 1.08% in 1998 and 1999. Table 4 provides ratios of Apparel and Accessories Industry in United State as an example of profitability benchmark in this industry. This low profitability is resulted from basic characteristic of company operation. The value added is mainly come from sewing activity, other materials company must buy from outside suppliers thus the profit is low.

4.5. Marketing

4.5.1. Market segmentation and targeted market

Thaloga does not use many sophisticated criteria to segment the market. Only two broadest attributes used are sex and age. For age, company only has children and adult clothes. Children clothes are divided further to several ages but for adult there is no distinction between clothes for young or middle age people. Customers will choose products color and style fitting their age and body-build.

Thaloga focuses on mass market as their target market. Customers in this market are featured with average income and average living standard. Geographically, the market of the company is in Hanoi and vicinity area due to the limited coverage of the distribution network. Company also has customers in other provinces, most of them live in urban area. Sales in Hanoi and vicinity account for 70-75% of total domestic sales.

4.5.2. Product positioning

To match with the target market and company competitive position in the market, Thaloga positions its products as high quality product at relatively cheap price. The product quality level is in the same grade as that of other companies. The survey result indicate that customer has positive perception over quality of company’s product. To achieve relatively cheap price in the market, company is trying to lower the cost of material and accessories. The company has built long term contract with March 8 Textile Company, Namdinh Textile Company to by sufficient quality fabric from these companies. For other accessories, company has searched in domestic market for high quality accessories but cheaper than imported goods such as Nhatrang zipper, Phongphu thread, button, nylon bag, and carton box.

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Thaloga has wide product portfolio as mentioned in previous section (Section 4.1). Jacket is tradition product categories that company has been making since its beginning export business with foreign customers. Jacket production volume often accounts for 70-80% of total product export. Jacket can be classified into sub-categories including 2, 3, 5 layer jacket, quilting jacket, and children jacket. Companies producing jacket usually combine jackets attributes like number of layer (2, 3,or 5), fabric quality, fabric color, design pattern to differentiate their offerings. Thus we will hardly find two exactly similar products produced from two different companies. This phenomenon leads to the comparison of price between competing jackets somehow difficult. Company sells its products under its own brand name. Customers are well educated with the products therefore use foreign brand for jackets may not give payoff.

4.5.3. Pricing

Thaloga sets competitive price for all of its products and use one price for each product at all of its sales points. Although the comparison for price of similar products from different producers can be difficult, we can compare based on product sub-categories. For example, for two-layer jacket, Thaloga sells at VND80,000-120.000 depending on fabric and material quality. Garment 10 company sells similar products at VND90,000-140,000. For every other jacket subcategories, Thaloga usually sets price little lower or at least equal to price of competitive products.

The price of product is set based on production cost and common price level in the market. The company has price committee whose members come from different departments. For each product, the Technical Department will prepare a costing plan to list all cost item of that product added with company profit rate (10-13%), tax rate (10%), sales agent margin (10%) to get initial price for that product. The price committee will decide product price after considering this plan and the price level as well as the sales power of that product. Product final price can be higher or lower to costing plan.

In general, comparing the price of Thaloga's product with price of other head on head competitor like Garment 10, Dapcau, Ducgiang company, company's products are to certain extend is little bit cheaper. When a customer choose a clothe made by Thaloga, they can be assured that price they pay is not higher than other similar product.

4.5.4. Promotion

The company promotes its product in domestic market through television, journal, fashion show, newspaper, and leaflet. Advertising in newspaper is not conventional. No any intensive advertising campaigns has been implemented. The content of advertisements is simple with company profile, product categories, production capacity and company address.

Company participates frequently in trade fairs, which are organized frequently over the course of a year, especially in fashion fair and new year fair. Thaloga also organizes fashion shows during these fairs. Company in cooperation with Fashion Design Institute (Fadin) produces fashion programs to broadcast on National Television (VTV1, VTV3), and Hanoi Television to enhance the brand identity in domestic market.

4.5.5. Distribution

Thaloga has second largest distribution network among garment companies in northern region after Garment 10. This is one big advantage and strength of the company. Company sells its

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products through several rather short channels. Figure 4.2 illustrate distribution channels of Thaloga.

In Hanoi, company has three fashion shops, two retail stores and twenty-three sales agents (retailers). There are other twenty-four agents in other provinces in which seventeen are in the northern region (Appendix 4.2 Table 5 lists detail number of agents in each province). Company is continuing to expand its retail network in Hanoi and other Provinces. Domestic Department personnel will scan the geographical area to find and choose a suitable location to open a retail store. At present, revenue from Hanoi and vicinity retail stores account for 70-75% of domestic sales.

Company's fashion shops and retail stores are responsible for introducing and selling all new products made by company. Other sales agents can choose which products they want to sell and they can return unsold goods to company with full credit back. Retail agent receive 10% margin on the goods sold but they are require to pay 100% of the good they take from company (They have to buy company products and resell to consumers). This policy is too conservative and it could hinder the expansion of distribution network. Garment 10 only requires sales agent to deposit 30% of total goods value that they receive from Garment 10. For retailers outside Hanoi and vicinity, they can get subsidiary from company in transportation cost (50%).

However, the deployment of company’s retail stores is not optimal. For example, company has two retail stores at 29 Ngoquyen Street in Hanoi. These two shops stand next to each other and they sell the same product categories. These lead to the non-necessary competition between two stores to attract customers and waste the space and personnel. In other case, the concentration of three retail stores at company’s head quarter and several stall shop of individual nearby to sell company products is also considered waste of space and personnel.

Another problem of some retail stores is their presentation of clothes inside the stores. It seems that salespersons try to hang all clothes they have in inventory to shelves as many as possible. They explain their action is that for times when customers come too crowdedly, they do not have enough staff to serve, and hence it is better to show all clothes that the store has and customers can choose themselves. This argument is not very persuasive because the frequency that too many customers come at once is not high, usually in late afternoon after office hour or in weekend and this frequency will not justify for this argument. The shortcoming of this presentation is that it makes difficult for customers to choose a cloth from

Com

pany

Retail stores

Sales representative office

Sales Agents

Sales Agents

Cus

tom

ers

Figure 4.2 The company distribution channels

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tight selves. In the future, company will have to invest time and resource to correct these shortcoming to increase the efficiency of distribution channels.

4.5.6. Design and new product development

Company has strong capability in designing. The Technical Department is responsible for all technical and specification of all products. Besides designing products for customers’ orders, the Department designs and develops new products too. The concept of new products comes from many sources: foreign catalogs, customers’ samples, fashion journals, or competitors’ products. After a product’s style, color-mix has been formulated, the Department will prepare detail specification on material, accessories, sewing line style, cutting and assembling plan for finished product and material requirement for the product. Samples of new product are made by Technical Department and these samples are tested with models. If the new product is approved by the Board of Director, the production will be deployed with the Production Planning Department.

In one year company can handle with more than one thousand products designs. For jackets, each winter season company can introduce 20-30 new products to domestic market. In spite of strong design capability, company is still not very much customer-oriented in their new product development. Some color mixed patterns do not get customers’ preference and the heavily dark color in some jackets does not get preferred either. Moreover, the variety of jacket design pattern is limited and this dissatisfies customers, according to the result of the customer survey.

4.5.7. Human resource management

The garment industry is labor intensive. The skill of worker and stability of the workforce is important to company’ operation. Thaloga has 2000 workers in which 85% of the workforce are women. Company recruits new workers through skill examination to test their skill and productivity. Most workers graduate from vocational high school. After graduating, they usually obtain third skill level in five-scale skill level. Company has policy to send workers for further training and to organize examination to upgrade skill level of workers. Three hundred fifty workers are examined and increased wage for their skill improvement in the year of 2000.

Worker’ wages are paid based on standard productivity calculated and assigned to each worker in each enterprise. For example, each worker in Enterprise 3, Enterprise specialized in making jacket and trousers, is required to sew a number of product equivalent to USD6.3 per day to receive standard salary of VND1.1 million per month. In order to finish this standard productivity, each sewing line consist of 35 workers will make 110 jackets per day with the sewing price of USD2 per jacket. Those workers who work overtime are paid 20% more in standard salary for urgent order or to complete before delivery date. To conclude, company labor force and its stability represent strength of it.

4.5.8. Information system

Information technology is applied in the company in limitation. Computers are used only in composing documents, reports, or preparing contracts with customers. Managerial information is exchanged between functional department through paper documents. The local computer network is not installed yet at the company and company has not planned to upgrade its information system in near future. This situation is common in the industry.

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4.6. Summary of Thaloga’s strength and weakness

Strength

- Modern equipment and large production capacity

- Good quality in customers’ perception

- Strong capability in product design

- Rather large distribution network

- Skillful labor force familiar with garment making, especially jackets is tradition product

Weakness

- weakness in marketing activities, market research for customer need

- lack of information system, including marketing information system and material management system

- weak in understanding customer requirement and satisfaction

- weak in customer oriented when design new product, low product variety and color of jackets is not attractive

- no clear cut in market segmentation

- weak in promotion and advertising activities

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5. CHAPTER 5

DEVELOPING COMPETITIVE STRATEGIES FOR THALOGA

5.1. SWOT analysis

5.1.1. Summary of strategic situation for the company

From analysis and discussion from two previous chapters, table 5.1 summaries the strategic scenario that Thaloga is facing. In the following section, SWOT strategies will be discussed to cope with this strategic situation.

Table 5.1 Summary of strategic factors

Opportunities Strength

- garment industry enjoy preferred treatment from government

- low labor cost

- growing economy and purchasing power

- domestic garment has gained good quality image from domestic consumers

- large urban market remain under exploited

- the development of textile sector allows using cheaper fabric material and accessories thus reduce product cost

- modern equipment and large production capacity

- good quality in customer’s perception

- strong design capability

- large distribution network

- skillful workforce

Threats Weakness

- Tough competition with imported goods (Chinese goods)

- More intensive competition is expected from domestic firms

- Significant bargaining power of buyers

- Company’s jackets have no clearly advantage over competitors’

- Production heavily rely on orders of customers

- Lack of information system, production coordination take time and resource

- No market research activities, lack understanding of customer’s requirement and satisfaction

- Low product variety and unattractive color

- Market segmentation is too broad

- Weak in promotion and advertising

5.1.2. SWOT strategies

SO strategy (use strength to take advantage of opportunities)

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- use local material to produce low cost jackets

- expand distribution network and attempt to gain more market share

- increase productivity

- screen for lower price material in domestic market with acceptable quality

- develop related product beside jacket like coat to tap new market segment

WO strategy (Strategy to take advantage of opportunities to overcome weakness)

- Invest in information system to manage material, customers and marketing information.

- Strengthen and consolidate marketing activities

- Expand market to urban area in other provinces

ST strategy (strategy to use strength to avoid threats)

- develop simple and easy to manufacture jackets to reduce cost and increase productivity

- increase the variety of product line and width

WT strategy (strategy to minimize weakness and counter threats)

- re-segment the market in some more dimension such as customer income, product usage, or geographical area

- improve the effectiveness of promotion and advertising activities

5.2. Alternatives competitive strategies for Thaloga

Given SWOT strategies generated in the previous section, three alternatives are developed for Thaloga in order to increase the competitiveness of its jackets including cost leadership, differentiation, and focus strategy.

5.2.1. Cost leadership strategy

Cost leadership strategy aims at mass market with low price offers to customers. The price reduction to level of Chinese price or a little bit lower is the target of this strategy.

In general, fabric and labor cost represent high proportion in manufacturing cost of a product, about 50-60% (Appendix 5, Table 1 and 2). Thus finding cheap material suppliers with acceptable quality can be critical to reduce production cost of products. On the other hand, company can increase productivity to reduce labor cost per product unit. With skillful labor-force familiar with making jacket, increase productivity, take advantage of economy of scales to drive cost down can be feasible.

In term of design and product variety, low cost strategy requires simple design for easy manufacturing and limited number of product lines to restrict design and development cost. With current customers’ preference of simple design, company can take advantage of this opportunity.

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An inaccurate method to calculate selling price for a product is identified when examining the costing plan for a two-layer jacket (Appendix 5, Table 2). After calculating manufacturing cost, 10% of profit rate is added then 10% of VAT (value-added tax) and another 10% retail margin for sales agent. According to this calculation method, selling price is more than 30% higher than manufacturing cost. This is unreasonable because it lifts selling price too high compared with manufacturing cost. VAT calculation on manufacturing cost is not accurate because the value added by company is labor cost. So the base of labor cost should be use to calculate VAT. The change in calculating tax alone can reduce selling price by 5% of current price. Therefore, addition cost reduction can be achieved through utilizing sales force and/or lower profit rate by 2-3%.

Possible advantage:

- sales volume increase and offset the profit given up due to lower profit rate

- company can capture more market share

- utilize production capacity and increase the proactiveness in company operation

Possible disadvantage:

- risk of not catch with change in customers’ preference

- risk of deterioration in quality due to extremely focus on cost reduction by utilizing cheap material lead to lose brand equity

- risk of unattractive offers due to few product variety and design for customers to choose

- Price reduction to Chinese jacket level can be difficult to achieve

5.2.2. Differentiate strategy

It is easy to differentiate a ready-made garment product like jacket. A combination of fabric type, color mix, or design pattern of style, pockets organize and design can make a jacket unique in the market. However, this simple or arbitrary kind of differentiation based only on the combination of these attributes is not critical enough to create competitive advantage for the products. The competitive advantage of them depends on how well they can satisfy customers’ need about price, quality, usage, and convenience of that product.

Company can follow a differentiate strategy in product development for different geographic market or for different usage purpose. This is due to different needs of customers in urban or rural area. Urban customers will require elegant, fashionable and comfortable clothes. For rural customers, price, quality and usage are more important. Therefore, company can launch premium products in urban area and low cost and pragmatic product in rural area.

Product can be also designed for specific usage. For example, different jackets used at work, going to picnic, or travelling can be developed. Company can launch other related product line like overcoat to tap new market segment to existing customers.

Possible advantage:

- well satisfy the need and requirement of each customer segment

- company can charge good price and reduce purchasing power of customers

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Possible disadvantage:

- require careful market segmentation and well understanding customers in market segment that company sells it products to

- require strong marketing capability but company is not very strong at this activities

- increase the design work load since many product lines are maintained, cost may increase

- company can not take advantage of scale economy and learning effect

5.2.3. Focus strategy

Focus strategy aims at specific market segments or geographic segments. Leather and Garment Company (Legamex) focuses on young high income customers who seek import-like products with comparable quality but at cheaper price. Nha Be Garment Company focuses on above average income customer segment. Its product stresses on fabric quality, elegant design and sells at higher price.

Thaloga can focus on average income customer segment in which customers can be blue- or white-collar workers in urban and rural area. The average income of consumers in this segment is between VND0.5-1.5 million. For this segment, company can launch four jacket lines (2,3,5 layer jackets and children jackets) and increase lines’ depth.

Possible advantage:

- this segment can represent large proportion of consumers in the whole market, and company gets used to serve customers in this segment

- market share of company can grow to other provinces outside Hanoi and vicinity

Possible disadvantage:

- company may lose some segment, especially high income segment with high purchasing power.

- Needs between market segment may narrow down, and this segment can be well served by broadly marketed competitors.

- Market segment can be redefined as competition get tougher and company market become obsolete

5.3. Strategy evaluation

5.3.1. Cost leadership strategy:

Cost leadership strategy can well fit with the situation identified earlier that company is facing. Survey result reveals that price is the most important criteria that consumers consider when buy a jacket. Low cost can bring vital advantage and be suitable to compete with products of other competitors, especially with low price jacket from China.

In terms of feasibility, company has enough capability to pursuit this strategy. It has design capability, skillful workforce, large production capacity. Large production lots allow company to take advantage of scale economy and learning effect.

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Cost leadership if achievable could be acceptable in terms of possible outcome it can bring. Low cost leads to growth of sales and market share that meet company’s goals. The risk involved is that competitors imitate but company can counter by gaining first mover advantage and establishing more retail agents to increase the coverage.

5.3.2. Differentiation strategy:

Differentiation strategy can be suitable to compete in a market with strong rivalry among existing competitors and when company products are not much differed from that of competitors. Differentiation can be good direction to compete.

The strategy can be moderately feasible. The basic idea of this strategy is product diversification and localization. Company has strong design ability but lack competence in market research. So designing products to fit customers in various segments can be problematic.

This strategy confronts high risk. Product diversification can be justified not necessary by customers. Price and realistic benefit can be more important. Production cost can be high due to diversification and economy of scale is not realized. Moreover, unique products can satisfy only small market segment with affordable income. Thus this strategy might lead to market contraction which is opposite to company objective. To conclude this strategy is not acceptable.

5.3.3. Focus strategy:

Focus strategy is suitable and feasibility for company with its current situation and capability. Since jacket is only one product category, a moderate cost cutting requires not much significant change in company operation (organizational structure, production process) and could be achievable within its capability. In term of acceptability, if conducted successfully, this strategy could bring more market share and sales volume, which is conformed with company’s goals. Table 5.2 summaries the valuation of alternative strategies.

Table 5.2 Summaries of strategy valuation

Dimension Cost leadership Differentiation Focus strategy

Suitability High High Low

Feasibility High Moderate Moderate

Acceptability High Low Low

Given above analysis, cost leadership strategy for Thaloga to pursuit right now should be cost leadership strategy.

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6. CHAPTER 6

CONCLUSION AND RECOMMENDATION

6.1. Conclusion

Vietnamese garment and textile industry has been growing thanks to the export revenue they generate. Our competitive advantage is low processing cost mostly based on low labor cost and good product quality. However, sustainable growth and profitability can not be achieved by relying heavily on orders of foreign customers. Companies must develop and sell its products under its own effort and brand name and be proactive in business activities. Thaloga is not an exceptional case.

Company has been a subcontractor for foreign customers for long time. It has strong capability in product design, quality and production capacity. Although company enjoys growth in sales in the last several years, its domestic business represents minority part in total sales. The business is conducted in strong influence of experience with limited understanding about customers. Market research and customer needs survey is conducted informally and simply. This fact can deteriorate the competitive advantage of company products.

This research study aims at developing competitive strategy for jackets of Thaloga. This is major and tradition product category of the company. Customer survey finding shows that factors contributing to competitive advantage of a jacket are price, quality and color. Price and quality can be measured easily. But elegant or bright color is illusive concepts.

Due to seasonal use of jacket (only use in winter), time to introduce new jackets to market is important. Sales of jackets are realized only in three to four month period during winter. In addition, the Tet (new lunar year) holiday often takes place in mid winter and consumer’s habit to spend much before Tet but little after this occasion for clothes so sales of jackets will be strong before Tet holiday. Moreover, the weather condition has strong effect on jackets sales. Experience shows that sales revenue increases significantly during strongly cold days in the beginning of winter season.

All of these facts plus tough competition from Chinese goods and other companies represents a serious challenge to the success of Thaloga’s jacket in the future. The product is at stake if no critical move is taken. Cost leadership strategy is suggested for the company to cope with the current situation. Although this strategy can be difficult to obtain in short time period, it will be crucial for the company as a whole for both domestic and foreign market and for other product categories.

The five-force model of Porter (1980) is very useful in analyzing competitive forces and competitors within garment industry. However, the three strategies he called generic strategies are very broad. In practice, specifically in this case, pursuing a single strategy can require several integral steps to obtain the ultimate objective of the generic strategy. In addition, contingency plans should be developed to cope with possible responses of competitors.

The next section will discuss recommendation to implement cost leadership strategy.

6.2. Recommendation

Since the proposed strategy is cost leadership, this section will suggest measures to reduce cost by increasing productivity and cost reduction and other related issues

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Organizational Structure

Basically, no significant change in organization structure is necessary but each functional department should improve their productivity and the interaction between department like Technical – Domestic – planning department. Making sample at the enterprise is not necessary in the production process (Section 4.4.1). Technical Department should take responsibility to prepare enough sample for cutting personnel, to instruments engineering feature of the product to line manager and line workers, and he will monitor the initial work on the product until the operation goes smoothly with the standard quality.

The interaction between Technical and other departments like Domestic or Export Department is important because orders are received or placed by these two Departments, Technical will design, prepare materials requirements and give this information back to two departments to buy materials if they are not available in warehouse. So the service speed of Technical should be improved to be better of interaction among these Departments.

Financial and Accounting Department should take part in examining the accuracy of costing plan and suggest for accurate price.

Product:

Company should follow the sample design pattern in developing new jackets and also consider limited product variety to exploit scale economy.

Refer to survey, for five layers jackets, two types each style has two products with popular colors will be sufficient for customer to choose.

For two or three layers jackets, number of style can increase to three or four, and each style two or three products with popular colors will be sufficient. Product designed for men can be fewer than for woman.

Company should also focus on the children jacket segment. Most of direct competitors in the market do not have this category in their offer.

Price

To achieve low price position, the company can apply target-costing method. For each product line, a target price is determined and be subtract to get manufacturing cost. Technical Department will design and choose material class to fit the predetermined price.

Promotion

Company should exploit the participation in trade and fashion fair as a chance to introduce new products and test new products. These can be good time to understand customer new taste and preference.

Distribution

Expanding new sale agent is important to support the cost leadership strategy. Company should support new retailer in store opening, demonstrating products shop sign. Sales person should be trained in store decoration. It is not necessary to put all clothes on the shelves, but the presentation should be easy for customer selecting and eye catching for each product only samples in several colors or sizes. When customers want to see more choices, additional clothes will be retrieved from the inventory to show.

42

Company should also ease restriction on liquidation for sales agent. 100% deposit of good value can hinder number of the new sales agents to be opened and the capacity of existing agents. For trusted agents, the company can reduce this rate to 30%.

The retail margin of 10% can be high for a low cost strategy. A reduction by 2%-3% is recommended with the consideration that the reduction will not decrease retailers’ revenue.

The company can consider to give up 2%-3% profit rate (7%-8% of manufacturing cost) in order to keep price down with the expectation that the increase in sales revenues will offset the profit given up.

Material management

Besides searching for cheap materials, the company can enter into strategic alliance with textile company to secure high quality material sources.

Information system

A new information system is needed to keep track of material, production progress and production planning. A computer network will need to be installed with technical computers in department and a management software is also needed.

Besides, marketing information system software is also needed to monitor and restore sales figure overtime. This information can be used again in future planning and developing competitive advantage strategy.

Recommendation for further study

Due to this research study suggest cost leadership strategy, further study on improving company operation including increase productivity is strongly recommended. The main point of cost leadership is cost cutting, the study for measures to cut cost will be applicable here. Another study to apply ABC method to calculate the product cost and help eliminate unnecessary activities to reduce cost is also recommended.

43

BIBLIOGRAPHY

Aaker, David A., 1995. Developing Business Strategy. 4th Ed., John Wiley & Sons Inc.

Day, George S., and Reibstein Davis., 1997. Wharton on Dynamic Competitive Strategy. John Wiley & Sons Inc.

Doanh, Le Dang, 2001. New Hope on Reform. Saigon Times Weekly 3

Garment 10 Company, 1999. Domestic Business Annual Report.

Giam, Truong Dinh, and Tung, Trinh Hai, 1998. 1997 Business Performance of Textile and Garment Industry. Industrial Review 14.

Giam, Truong Dinh, and Tung, Trinh Hai, 1998. Thanglong Garment Company Strongly Focus on Export. Industrial Review 15

Ha, Nghiem Thu, 2000. The Asia Textile and Garment Market, Industrial Review 16.

Hill, Charles W. L., and Jones, Gareth R., 1998. Strategic management theory: an integrated approach. 4th ed., Boston, Mass., Houghton Miflin Company

JICA, October 1999. Study on the promotion of small and medium scale industrial enterprise. Japan International Cooperation Agency and Ministry of Planning and Investment.

Johnson, Gerry, and Schiles, Kevan, 1988. Exploring Corporate Strategy. 2th Ed. Prentice Hall International (UK) Ltd.

Porter, Michael E., 1985. Competitive advantage: creating and sustaining superior performance. New York, The Free Press.

Porter, Michael E., 1998. Competitive strategy: techniques for analyzing industries and competitors : with a new introduction. New York, The Free Press.

Wheelen, Thomas L., and Hunger, J. David, 2000. Strategic management and business policy: entering 21st century global society. 7th ed., Upper Saddle River, N. J., Prentice-Hall.

Quang, Nguyen Vu, 2000. Strategic Marketing Implementation- A case study of The Viet Tien Company in Hochiminh City, Vietnam. Research Study, AIT Publication.

Result of Survey on Industry 1998, 1999. Hanoi, Statistical Publishing House.

SaiGonTimes and Saigontimesweekly, Various issues.

Salmon Kurt Associates, Inc, 1979. Garment Manufacturing in Hawaii. Honolulu, Dept. of Planning and Economic Development.

Thanglong Garment Company, 1999, 2000. Company Annual Reports.

The study of Japan International Cooperation Agency and Ministry of Investment, October 1999

Trung, Minh, 1998. Vietnam Garment and Textile Industry: Bright Prospect Signals. Industrial Review 16.

i

Trung, Minh, 1998. Garment 10 Company solidly to Enter 21th Century. Industrial Review 16.

Vietnam Economics Times, 1999. Vietnam and World Economy 1998-1999. VET Publications

Vietnam Textile and Garment Corporation web site. http:// www.vinatex.com

Vietnam Network. 02/02/2001, http:// www.vnn.vn/gov/action

Vietnam News. 02/02/2001, http://vietnamnews.vnagency.com.vn

Vietnam Statistical Year Book 1998, 1999. Hanoi, Statistical Publishing House.

ii

APPENDICES

Appendix 1Guiding questions for direct interview

Appendix 3.1 Temperature behavior in winter season 1999-2000

Appendix 3.2 Questionnaire

Appendix 3.3 Customer survey result

Appendix 4.1 Thaloga organizational chart

Appendix 4.2 Table on business result, balance sheet, income statement, profitability ratio, and detail of distribution channel in Vietnamese market.

Appendix 5 Example of two costing of two jackets

iii

Appendix 1

GUIDING QUESTIONS FOR DIRECT INTERVIEW

1. What are company’s main product categories?

2. Where does company sell its products? Which market is most important?

3. What is company long term and short term goals and direction for development?

4. What does company intend to invest to?

5. What are measures that company takes to achieve these goals?

6. What is the most important competence company has in its business? What aspect company should strengthen at?

7. What external factors affect company business?

8. What are the difficulties that company is confronting now?

9. How does company monitor its competitors? Who is the strongest competitor? What measures company use to compete?

10. How does company segment the market? What are the criteria used in market segmentation? Which market segment is most important to company?

11. How does company position its product and its self in the market? What is positioning strategy?

12. How does company launch new products (time, coverage, and place)?

13. What are the criteria used to price a product? How new products are priced? What is company’s pricing strategy?

14. Does company implement market research? How this activity is conducted? How does company analyze and use research result?

15. How does company design new products? How long does it take to bring new product to market? How many new products are introduced per year on the average?

16. How does company manage production? How production plan is made?

17. How fabric is cut? What measures are used to minimize waste fabric?

18. How are company product differentiated from other competitors? What are distinctive characters that products of company have?

19. What are steps in production process? How does company control quality of products?

20. What are company’s competencies in production?

iv

Appendix 3.1 Temperature behavior in winter season 1999-2000

Month Temperature Langson Hanoi Donghoi

Sep., 1999 Average 25.4 28.4 27.3

Low average 22.1 25.7 24.2

Lowest 16.5 23.6 22

Nov., 1999 Average 22.8 25.4 25.7

Low average 20.3 23.1 23.2

Lowest 14 17.4 18.2

Oct., 1999 Average 18.8 22 22.7

Low average 16.1 19.8 21

Lowest 10.4 14.8 15.8

Dec., 1999 Average 12.6 16.3 17.3

Low average 8.9 13.5 15.5

Lowest 0.2 7.6 10.7

Jan., 2000 Average 15.3 18.4 19.7

Low average 12.9 16.6 17.9

Lowest 5.8 10.6 12

Feb., 2000 Average 12.8 16.2 18.6

Low average 10.3 14.3 16.8

Lowest 2.8 9.1 11.2

Mar., 2000 Average 17.4 20.3 20.9

Low average 15 18.3 19.2

Lowest 7.4 9.3 13.1

Apr., 2000 Average 23.2 25.2 25.7

Low average 20.4 22.9 23.1

Lowest 17.2 20 18.8

Source: Hydro-Meteorological Service of Vietnam

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Appendix 3.2

QUESTIONNAIRE

Hello! The purpose of this questionnaire is to understanding customer requirement and need for jacket. The survey result will be used for academic purpose. And your cooperation can help the producer to serve you better in the future.

1) How many jackets do you buy a year on the average? (Please tick x to one box appropriate to you)

one in two year 1-2 per year 3-4 per year more than four

2) To whom do you buy jacket for?

yourself your family member for both

3) Where do you usually buy jackets? (Tick x in boxes you buy, you can tick in more than one boxes)

Company store or sales agents Trade fair

Supermarket Fashion (Clothes) Shop

Stalls in local market Other place (Please specify) .

4) When buying a jacket, you often:

Buy immediately when you find a suitable jacket

Compare between several alternatives then buy one.

5) Please indicate how much you agree or disagree to following statements about jackets. (1. Strongly agree 2. Agree 3. Normal 4. Disagree 5. Strongly disagree)

For example: Jacket should give highly warmlevel (Agree) 1 2 3 4 5

Strongly agree Strongly disagree

Jacket should give highly warmlevel and can be used in moderate and strong cold weather

1 2 3 4 5

Jacket can bear light rain 1 2 3 4 5

Fabric should be of non dust-catching material 1 2 3 4 5

Fabric should be of resistance to flame 1 2 3 4 5

You need 5-layer jacket and adjustable thickness to use with moderate and strong cold weather

1 2 3 4 5

vi

You need several 2-3 layer jackets 1 2 3 4 5

Jacket can be used in many occasions 1 2 3 4 5

Color should be simple, not colorful 1 2 3 4 5

Jacket has plain color 1 2 3 4 5

Jacket with fashionable color 1 2 3 4 5

Jacket can have 1-2 mix color 1 2 3 4 5

Color should be bright and sharp 1 2 3 4 5

Color should be elegance 1 2 3 4 5

Jacket with simple design 1 2 3 4 5

Jacket is accompanied with hat 1 2 3 4 5

Hat is flexible, can be assembled or unbinded 1 2 3 4 5

Jacket is design with edge line 1 2 3 4 5

There are some special design features in jacket 1 2 3 4 5

The design should be fashionable 1 2 3 4 5

Jacket should fir your body form 1 2 3 4 5

6) Please rank the following items in descending level of importance of jacket in your opinion. (1. Most important 2. Second most important.. .. .. .. 5. Least important)

For example:

Price 1 .

Quality 3 .

Color 2 .

Simple design pattern 4 .

Fashionable design pattern 5 .

Indicate your ranking here

Price .

Quality .

Color .

Simple design pattern .

Fashionable design pattern .

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7) Which of following companies you have buy jacket from? (Tick to companies you have used its products. You can tick more than one companies)

Thanglong Garment 10 Ducgiang Company

Nha Be company other companies Imported jackets

8) Please indicate your opinion about Thanglong jacket in following dimensions. (You can let it blank if do not know about the product).

Strongly agree Strongly disagree

Company’ products have reasonable price 1 2 3 4 5

Company’ products is not more expensive than other companies 1 2 3 4 5

Quality of product is good 1 2 3 4 5

Company’ products have beautiful color 1 2 3 4 5

Products are offered with various designs 1 2 3 4 5

9) You are Male Female

Married Single

10) Please indicate your age

20-25 26-30 31-35 36-45 45 up

11) What is your average income per month?

500,000-1,000,000 1 -1.5 million 1.5-2 million 2-2.5 million 2.5 million up

12) What is the kind of your work?

Office Outside work, work requires travelling

Student Engineer, worker working inside

other kind of work

Thank you for your cooperation.

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Appendix 3.3

Table 1 Age or respondents

Frequency Percent

20-25 52.00 39.39

26-30 48.00 36.36

31-35 13.00 9.85

36-40 12.00 9.09

41 up 7.00 5.30

Total 132.00 100.00

Table 2 Sex of respondents

Frequency Percent

Female 82.00 62.12

Male 50.00 37.88

Total 132.00 100.00

Table 3 Marital status

Frequency Percent

Single 88.00 66.67

Married 44.00 33.33

Total 132.00 100.00

Table 4 End usage for jacket

Frequency Percent

for oneself 45.00 34.09

for family member 5.00 3.79

for both 78.00 59.09

Missing 4.00 3.03

Total 132.00 100.00

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Table 5 User and Marital status Cross-tab

Marital status Total

single married

for oneself Count 39.00 10.00 49.00

% within user 79.59 20.41 100.00

% within Marital status

44.32 22.73 37.12

for both Count 49.00 34.00 83.00

% within user 59.04 40.96 100.00

% within Marital status

55.68 77.27 62.88

Chi-Square Tests

Value df Sig. (2-sided)

Pearson Chi-Square 5.86 1.00 0.02

Table 6 Income of respondents

Frequency Percent

500,000-1 million 62.00 46.97

1mil to 1.5 mil 30.00 22.73

1.5 mil - 2 mil 13.00 9.85

2.5 mil - 3 mil 11.00 8.33

3 mil up 12.00 9.09

Missing 4.00 3.03

Total 132.00 100.00

Table 7 Respondents type of work

Frequency Percent Valid Percent

Office 66.00 50.00 50.00

Student 8.00 6.06 6.06

other kind of work 24.00 18.18 18.18

Outside, travelling 26.00 19.70 19.70

Worker, engineer 8.00 6.06 6.06

Total 132.00 100.00 100.00

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Table 8 Number of jacket respondents buy per year

Frequency Percent

1 in 2 years 46.00 34.85

1-2 per year 71.00 53.79

3-4 per year 4.00 3.03

more than 4 per year 9.00 6.82

Missing 2.00 1.52

Total 132.00 100.00

Table 9 Buying pattern

Frequency Percent

buy immediately 79.00 59.85

compare among some then buy 52.00 39.39

Missing 1.00 0.76

Total 132.00 100.00

Table 10 Place to buy jacket

Place Buy(%) Don't buy(%)

Company's retail store and sales agent 49.20 50.80

Supper market 8.30 91.70

Stalls in market 18.90 81.10

Trade fair 31.10 68.90

Fashion shop 31.80 68.20

Other places 9.10 90.90

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Table 11 Means of customer requirement of jacket

N Mean Std. Deviation

Warm level 132.00 2.17 1.13

fashionable color 132.00 2.47 1.29

2-3 color mix 132.00 2.66 1.13

bright color 132.00 2.70 1.15

elegant color 132.00 2.16 0.90

simple design pattern 132.00 2.14 0.97

with hat 132.00 2.60 1.20

flexible hat 132.00 2.28 1.04

Edge line 132.00 2.50 1.12

special feature design 132.00 2.28 1.02

fashionable design 132.00 2.26 1.07

light rain 132.00 2.09 1.04

fit body form 132.00 1.79 0.87

non dust catching 132.00 1.97 1.00

non flammable 132.00 2.38 1.15

5 layers jacket 132.00 3.21 1.44

2-3 layer jacket 132.00 2.42 1.11

multi-purpose use 132.00 2.21 1.13

simple color 132.00 2.27 1.27

plain color 132.00 2.83 1.31

1- Strongly agree 5- Strongly disagree

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Table 12 Important level of four dimension of a jacket (% of sample)

Dimension 1# importance 2# importance 3# importance 4# importance 5# importance

Price 40.2 22.7 14.4 12.1 6.8

Quality 32.6 28.8 17.4 14.4 3

Color 7.6 23.5 38.6 20.5 5.3

Simple design 4.5 5.3 16.7 30.3 38.6

Fashionable design 11.4 15.2 8.3 18.2 42.4

Table 13 T-test for difference of men and women on requirement for jacket (only differences are presented)

Sex N Mean Std. Deviation

non flammable female 82 2.22 1.17

male 50 2.64 1.08

simple color female 82 2.43 1.38

male 50 2.02 1.02

plain color female 82 3.04 1.45

male 50 2.50 0.97

Levene's Test for Equality of Variances

t-test for Equality of Means

F Sig. t df Sig. (2-tailed)

Mean Difference

non flammable Equal variances assumed

0.01 0.92 -2.06 130.00 0.04 -0.42

Equal variances

not assumed

-2.10 109.56 0.04 -0.42

simple color Equal variances assumed

10.95 0.00 1.81 130.00 0.07 0.41

Equal variances 1.94 125.10 0.05 0.41

xiii

not assumed

plain color Equal variances assumed

7.74 0.01 2.31 130.00 0.02 0.54

Equal variances

not assumed

2.54 128.76 0.01 0.54

Table 14 ANOVA test for difference in means of different age group (only differences are presented)

Sum of Squares df Mean Square F Sig.

2-3 color mix Between Groups 11.58 4.00 2.89 2.36 0.06

Within Groups 156.08 127.00 1.23

Total 167.66 131.00

simple design Between Groups 9.20 4.00 2.30 2.54 0.04

Within Groups 115.07 127.00 0.91

Total 124.27 131.00

Edge line Between Groups 11.23 4.00 2.81 2.32 0.06

Within Groups 153.77 127.00 1.21

Total 165.00 131.00

special feature Between Groups 22.15 4.00 5.54 6.14 0.00

Within Groups 114.48 127.00 0.90

Total 136.63 131.00

Fashionable design Between Groups 16.96 4.00 4.24 4.01 0.00

Within Groups 134.29 127.00 1.06

xiv

Table 15 Post hoc LSD test for ANOVA

Mean Difference (I-J) Std. Error Sig.

Dependent Variable (I) Age (J) Age

simple design 31-35 20-25 0.79 0.30 0.01

26-30 0.80 0.30 0.01

36-40 0.93 0.38 0.02

41 up 0.27 0.45 0.54

Edge line 20-25 26-30 0.01 0.22 0.98

31-35 -0.81 0.34 0.02

36-40 -0.33 0.35 0.36

41 up 0.57 0.44 0.20

31-35 20-25 0.81 0.34 0.02

26-30 0.81 0.34 0.02

36-40 0.48 0.44 0.28

41 up 1.37 0.52 0.01

special feature 20-25 26-30 0.07 0.19 0.70

31-35 -1.33 0.29 0.00

36-40 -0.20 0.30 0.51

41 up -0.44 0.38 0.26

31-35 20-25 1.33 0.29 0.00

26-30 1.40 0.30 0.00

36-40 1.13 0.38 0.00

41 up 0.89 0.45 0.05

Fashionable design 20-25 26-30 0.15 0.21 0.47

31-35 -1.12 0.32 0.00

36-40 -0.14 0.33 0.67

xv

31-35 20-25 1.12 0.32 0.00

26-30 1.27 0.32 0.00

36-40 0.97 0.41 0.02

41 up 1.16 0.48 0.02

2-3 color mix 20-25 26-30 0.19 0.22 0.39

31-35 -0.77 0.34 0.03

36-40 0.11 0.36 0.76

31-35 20-25 0.77 0.34 0.03

26-30 0.96 0.35 0.01

36-40 0.88 0.44 0.05

41 up 1.32 0.52 0.01

Table 16 Mean within age group

20-25 26-30 31-35 36-40 41 up

Mean Mean Mean Mean Mean

2-3 color mix N=2.69 N=2.50 N=3.46 N=2.58 N=2.14

simple design pattern N=2.06 N=2.04 N=2.85 N=1.92 N=2.57

Edge line N=2.42 N=2.42 N=3.23 N=2.75 N=1.86

special feature design N=2.13 N=2.06 N=3.46 N=2.33 N=2.57

Fashionable design N=2.19 N=2.04 N=3.31 N=2.33 N=2.14

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Table 17 ANOVA test for difference in kind of work to jacket

Sum of Squares df

Fashionable design Between Groups 14.91 4.00

Within Groups 136.33 127.00

Mean Difference (I-J)

Std. Error Sig.

Dependent Variable

(I) Kind of work

(J) Kind of work

Fashionable design Office student 0.14 0.39 0.72

other kind of work

-0.86 0.25 0.00

outside, travelling

-0.41 0.24 0.09

worker, engineer -0.23 0.39 0.55

Table 18 Mean of kind of work for fashionable design

office student other kind of work

outside, travelling

worker, engineer

Mean Mean Mean Mean Mean

fashionable design

N=2.02 N=1.88 N=2.88 N=2.42 N=2.25

Table 19 Frequency of customers have used products from companies in domestic market

Company % of respondents used % of respondents not use

Thaloga 43.2 56.8

Nha Be 20.5 79.5

Garment 10 32.6 67.4

Duc Giang 10.6 89.4

Other companies 31.8 68.2

Imported goods 49.2 50.8

xvii

Table 20 Customer’s perception about Thaloga jackets

N Mean Std. Deviation

Appropriate price 89.00 2.53 1.12

Not more expensive than other product

89.00 2.55 0.93

Good quality 89.00 2.31 0.82

Nice color 89.00 2.62 0.90

Variety designs 89.00 2.71 0.88

Valid N (listwise) 89.00

xviii

General Director

Interior DirectorProduction DirectorTechnical Director

Quality Control Dept.

Administration Dept.

Technical Dept.

Production Dept.

Finance &Accounting Dept.

Warehouse Dept.

Domestic Dept.

Export Dept.

Production Enterprises 1-6

Bonded WarehousePlastic Manufacturing Plant

Namhai Garment FactoryHaiphong Garment Factory

Appendix 4.1 Company Organizational Structure

Managerial relation

Interactive relation

xix

Appendix 4.2

Table 1 Key sales figures

Unit VND million

Item Unit 1998 % sales 1999 % sales 2000 % sales 2001* % sales

Manufacturing value

VND bil. 34 44 42 42 47 42 55 41

Total sales VND bil. 78 100 100.4 100 113.07 100 133 100

Growth rate % 28.72 12.62 17.63

Export revenue VND bil. 66 85 86.4 86 92.8 82 107 80

In which FOB VND bil. 51 65 58 58 62.3 55 73 55

Domestic revenue VND bil. 12 15 14 14 20.2 18 24 18

FOB+ Domestic VND bil. 63 81 72 72 82.5 73 97 73

Garment produced (stand.)

1000 piece

4,600 5,000 5,200 6,100

Garment produced (real)

1000 piece

1,600 2,500 3,200 3,700

Tax VND bil. 1.6 2.691 2.941

Investment VND bil. 9.85 4.5 7

Source: Company annual report 1999, 2000

* Targeted

Table 2 Income statement

Unit VND million

Item 1998 % sales 1999* % sales

Sales 78,000 100 100,400.0 100

Cost of good sold 63,519.4 81.4 77,367.8 77.1

Gross margin 14,480.6 18.6 23,030.7 22.9

Sales expenditure 5,627.3 7.2 8,779.7 8.7

Administration expenditure

7,863.6 10.1 12,653.8 12.6

Operation income 989.7 1.3 1,595.6 1.6

Other income 292.5 0.4 0.00 0.0

Income before tax 1,283.1 1.6 1,598.5 1.6

* Estimate

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Table 3 Company balance sheet

Unit VND million

Assets 1/1/1998 1/1/1999 Liability and Equity 1/1/1998 1/1/1999

Current assets 23,472 34,317 Liability 31354 51630

Cash 598 507 Short-term debt 25,991 36,378

Receivables 6,481 16,685 Long-term debt 5,363 15,252

Inventories 15,518 17,884

Other current assets 874 1,239

Fixed assets 24,916 34,869 Owner's equity 17,034 17,556

Plant, equipment 41,602 55,370

Less acc. depreciation -18,894 -22,070

In process fixed assets 2,208 1,569

Total assets 48,388 69,186 48,388 69,186

Table 4 Summary of key profitability ratios

Unit VND million

Ratio 1998 1999 Apparel Industry

Total asset turnover 1.32 1.4 1.62

Net fixed asset turnover 2.78 2.82

Equity turnover 4.51 5.54

Gross profit margin 18.6% 22.9% 36.48%

Operating profit margin 1.3% 1.6% 9.97%

Net profit margin 1.12% 1.08% 5.91%

Return on equity 5.047% 6.032% 18.5%

Source: Calculating from Appendix 4 Table 1, 2, 3

US apparel and accessories industry (http://www.marketguide.com)

xxi

Table 5 Number of retail stores or sales agent in provinces

Region Province Number or retail stores

Northern area Hanoi and vicinity 28

Lang Son 1

Hai Phong 5

Thanh Hoa 2

Ha Tay 2

Phu Tho 2

Viet Tri 2

Tuyen Quang 1

Ha Tinh 1

Hue 1

Southern area Ho Chi Minh City 5

Nha Trang 1

Da Nang 1

xxii

Appendix 5

Table 1 Example of costing plan for a children jacket for a foreign customer

Unit: USD

Fabric item Unit Norm Price Cost % of production cost

Shell No.1 m 0.90 1.35 1.22 15.48

Lining W=58” m 1.30 0.80 1.04 13.20

Lining m 0.83 0.64 0.53 6.73

Padding Yd 0.25 0.63 0.16 2.03

Down Yd 0.20 7.50 1.50 19.04

Main thread roll 0.07 1.83 0.13 1.65

Front zipper pc 1.03 0.50 0.52 6.60

Button pc 6.20 0.04 0.25 3.17

Elastic band Yd 0.50 0.11 0.06 0.76

Main label pc 1.03 0.04 0.04 0.51

Size label pc 1.03 0.03 0.03 0.38

Care label pc 1.03 0.02 0.02 0.25

Hang tag pc 2.00 0.03 0.06 0.76

P.E bag pc 1.03 0.03 0.03 0.38

Tissue paper pc 1.00 0.01 0.01 0.13

Carton box pc 1.03 0.08 0.08 1.02

Embroidery pc 1.03 0.20 0.21 2.66

C.M.P pc 1.03 1.80 1.85 23.48

Test, inspector, sample pc 1.03 0.15 0.15 1.90

Production Cost 7.88 100.00

Profit, bank charge 13% 1.02 12.94

Quota charge 0.2 2.54

Offer Price 9.3 118.02

xxiii

Table 2 Example of costing plan for 2-layer jacket offer to domestic customer

Unit VND

Item of fabric Unit Norm Price Cost % of production cost

Main fabric W=58" m 1.75 15,000 26,250 37.48

Lining m 1.50 7,000 10,500 14.99

Thread m 450.00 1 450 0.64

Snap pc 1.01 3,000 3,030 4.33

Drawstring m 2.50 200 500 0.71

2-side sticking plaster m 0.03 3,000 90 0.13

Stopper, ring pc 4.04 1,500 6,060 8.65

Label pc 1.01 600 606 0.87

Carton box, PE bag pc 1.01 800 808 1.15

Labor cost pc 1.50 14,500 21,750 31.05

Production cost pc 70,044 100.00

Plus profit 10% pc 77,048 110.00

Plus retail margin 10% pc 84,753 121.00

Plus VAT 10% pc 93,228 133.10

Offer price pc 93,500 133.49

xxiv