Competitiveness in trading activities of Trading Scientific Technological Materials Co.,Ltd (Tramat Co.,Ltd)

. The amount of goods and products on the consumer markets also increases multifold. Thus, competition in the market is becoming fiercer and fiercer. Therefore, improving competitiveness for enterprises of Vietnam is a content that should be greatly considered. Vietnam's businesses have many advantages, but there are still many limitations and weaknesses. Being interested in the competitiveness of companies, I have decided to do some research on the competitiveness of a company, as my thesis entitled “Competitiveness in trading activities of Trading Scientific Technological Materials Co.,Ltd (Tramat Co.,Ltd) “ The Assignment is arranged as follows: Introduction Chapter I: Theoretical and practical background of competitiveness Chapter II: The situation and competitiveness of Tramat Co., LTD Chapter III: Suggestions & Solutions to improve the competitiveness of Tramat Co., LTD Conclusion I hope that it will provide the reader with some overviews about Vietnam’s business in general and TramatCo., Ltd in particular, opportunities, challenges and solutions to boosting its competitiveness in the trading sector. Due to lack of references and experiences, my Graduation Assignment is certainly with mistakes here and there. So I am very happy and appreciate any constructive comments from anyone who are concerned. TABLE OF CONTENTS Abbreviations and Acronyms WTO World Trade Organization ASEAN Association of Southeast Asian Nations APEC Asian Pacific Economic Conference GDP Gross Domestic Production TramatCo.,Ltd Trading Scientific Technological Materials Co.,Ltd VFA Vietnam Food Association ICOR Incremental Capital-Output Rate Chapter I: Theoretical and practical background of competitiveness. 1.1. Theoretical background Among the most economists, who do research about” competitive advantage”, Michael E.Porter stands out as professor in this field. In his book entitled “Competitive advantage” (1985), Michael E.Porter shows two elements that play a key role in competitive strategy. That is differentiation and cost advantages. 1.1.1. What is competitiveness? For the company, competitiveness is the ability to provide products and services as or more effectively and efficiently than the relevant competitors. In the traded sector, this means sustained success in international markets without protection or subsidies. Although transportation costs might allow firms from a nation to compete successfully in their home market or in adjacent markets, competitiveness usually refers to advantage obtained through superior productivity. Measures of competitiveness in the traded sector include firm profitability, the firm's export quotient (exports or foreign sales divided by output), and regional or global market share. In the traded sector, performance in the international marketplace provides a direct measure of the firm's competitiveness. In the non-traded sector, competitiveness is the ability to match or beat the world's best firms in cost and quality of goods or services. Measuring competitiveness in the non-traded sector is often difficult, since there is no direct market performance test. Measures of competitiveness in this part of the economy include firm profitability and measures of cost and quality. In industries characterized by foreign direct investment, the firm's percentage of foreign sales (foreign sales divided by total sales) and its share of regional or global markets provide measures of firm competitiveness. At the industry level, competitiveness is the ability of the nation's firms to achieve sustained success against (or compared to) foreign competitors, again without protection or subsidies. Measures of competitiveness at the industry level include overall profitability of the nation's firms in the industry, the nation's trade balance in the industry, the balance of outbound and inbound foreign direct investment, and direct measures of cost and quality at the industry level. Competitiveness at the industry level is often a better indicator of the economic health of the nation than competitiveness at the firm level. The success of a single firm from the nation might be due to company-specific factors that are difficult or impossible to reproduce. The success of several firms from the nation in an industry, on the other hand, is often evidence of nation-specific factors that might be extended and improved. Assessing the competitiveness of an industry in which there is only one important firm requires an assessment of whether its success is due to monopoly rents, government support, or true efficiency. It is also important to note that the competitiveness of a single firm does not necessarily imply the competitiveness of an industry. For the nation, competitiveness means the ability of the nation's citizens to achieve a high and rising standard of living. In most nations, the standard of living is determined by the productivity with which the nation's resources are deployed, the output of the economy per unit of labor and/or capital employed. A high and rising standard of living for all the nation's citizens can be sustained only by continual improvements in productivity, either through achieving higher productivity in existing businesses or through successful entry into higher productivity businesses. The level and growth of the nation’s standard of living, the level and growth of aggregate productivity and the ability of the nation’s firms to increase their penetration of world markets through exports or foreign direct investment measure competitiveness at the national level. Although it is tempting to equate a nation's competitiveness in certain industries or sets of industries with competitiveness at the national level, or with a positive balance of trade, this temptation should be avoided. Comparative advantage dictates that any nation will be competitive in some industries and uncompetitive in others. A positive balance of trade has as much to do with the balance of domestic savings and investment as it does with the intrinsic capabilities of the nation's firms. Why is competitiveness important? A nation's standard of living is increasingly dependent on the competitiveness of its firms. Competitiveness is vital if the nation's firms are to take advantage of the opportunities presented by the international economy. World trade and foreign investment have grown faster in the last several decades than world output. Competitiveness in industries subject to international trade and foreign direct investment can therefore provide substantial advantage for economic growth. This is especially true for small nations, where competitiveness can allow firms to overcome the limitations of their small home markets in order to achieve their maximum potential. Competitiveness is also vital if a nation's firms are to guard against the threats posed by the international economy. International competition has become fiercer than ever before. Lower costs for transportation and communication, reduced trade barriers, and the spread of technology have combined to sharpen international competition. This competition has put unprecedented pressure on all a nation's economic actors, including management, labor, and government. In an environment in which the nation's firms must continually improve in order to meet the threat from an ever-wider array of competitors, the failure of management, labor, or government to meet the challenge can spell disaster for the nation’s firms. Competitiveness in the non-traded sector is also vital to the nation's economic health. The non-traded sector is a large portion of each economy. At a time when economic prosperity remains only a dream for most of the world's population, inefficiencies in the non-traded sector should be reduced to the greatest extent possible. In addition, the competitiveness of the non-traded sector has a substantial impact on the competitiveness of the traded sector, which relies on it for a wide range of goods and services. An inefficient, bloated non-traded sector can drag down the nation's productivity directly and indirectly through its impact on other non-traded and traded industries. There is a growing realization that nations cannot avoid the rigors of international competition. No nation is very self-sufficient. Nations are linked to the international economy through trade in goods and services, through international capital flows, and through commodity prices. The experience of developing nations in the 1980s has indicated that attempts to isolate an economy can have lasting detrimental effects. In the modern world, nations can try to run from the world economy, but they cannot hide. This is particularly true for small nations, in which the costs generated by economic isolation in terms of rent seeking and losses in efficiency can be substantial, and for developing nations, in which any loss of efficiency often means higher levels of poverty. 1.1.2. Competitive strategy: The core concepts The Structural Analysis of Industries: The first fundamental determinant of a firm’s profitability is industry attractiveness. Competitive strategy is to cope with and, ideally, to change those rules in the firm is favored. In any industry, whether it is domestic or international or produces a product or a service, the rules of competition, the threat of substitutes, the bargaining power of buyers, the bargaining power of suppliers, and the rivalry among the exiting competitors. The collective strength of these five competitive forces determines the ability of firms in an industry to earn, on average, rates of return on investment in excess of the cost of capital .The strength of the five forces varies from industry to industry, and can change as an industry evolves. The result is that not all industries are alike from the standpoint of inherent profitability. In industries where the five forces are favorable, such as pharmaceuticals, soft drinks, and database publishing, many competitors earn attractive returns. But in industries where pressure from one or more of the forces is intensive, such as rubber ,steel ,and video games, few firms command attractive return despite the best efforts of management. Industry profitability is not a function of what the product looks like or whether it embodies high or low technology, but of industry structure .Some very mundane industries such as postage meters and grain trading is extremely profitable, while some more glamorous, high-technology industries such as personal computers and cable television are not profitable for many participants. The five forces determine industry profitability because they influence the prices, costs, and required investment .Buyer power influences the prices that firms can charge, for example ,as does the threat of substitution. The power of buyer can also influence cost and investment, because powerful buyers demand costly service. The barging power of suppliers determines the cost of raw materials and other inputs. The intensity of rivalry influences prices as well as the costs of competing in areas such as plant, product development, advertising, and sales force. The threat of entry places a limit on prices, and shapes the investment required to deter entrants. Chart 1: Five Forces Mode l Industry Competitors Rivalry among Exiting Firms Potential Entrants Substitutes Suppliers Buyer Source: A framework for Marketing Management, Philip Kothler, 2003 1.1.3. Industry Concepts of Competition An industry is a group of firms that offer a product or class of products that are close substitutes for each other .Industries are classified according to number of sellers; degree of product differentiation; presence or absence of entry ,mobility, and exit barriers; cost structure; degree of vertical integration and degree of globalization. Number of Sellers and Degree of Differentiation: The starting point for describing an industry is to specify the number of sellers and determine whether the product is homogeneous or highly differentiated. These characteristics give rise to four industry structure types. In a pure monopoly, only one firm provides a certain product or service in a certain country or area (such as a local gas company).An unregulated monopolist might charge a high price, do little or no advertising, and offer minimal service. If partial substitutes are available and there is some danger of competition the monopolist might invest in more service and technology .A regulated monopolist is required to charge a lower price and provide more service as a matter of public interest. In an oligopoly, a small number of large firms produce products that range from highly differentiated to standardize. In pre oligopoly, a few companies produce essentially the same commodity (such as oil), so all have difficulty charging more than the going price. It competitors match services, the only way to gain a competitive advantage is through lower costs. In differentiated oligopoly, a few companies’ services. Each competitor may seek leadership in one attribute, attract customers seeking that attribute, and charge a premium for that attribute. Monopolistic competition means that many competitors able to differentiate their offers in whole or part. Competitors focus on market segments where they can better meet customer needs and charge more. In pure competition, many competitors offer the same product and services, without differentiation, all prices will be the same. No competitor will advertise unless advertising can create psychological differentiation, in which case the industry is actually monopolistically competitive. Entry, Mobility, and Exit Barriers: Industry differ greatly in ease of entry .It is easy to open a new restaurant but difficult to enter the aircraft industry. Major entry barriers include high capital requirements; economics of scale; patents and licensing requirements, scarce a firm enters an industry, it may face mobility barriers in trying to enter more attractive market segments. Firms often face exit barriers, such as legal or moral obligations to customers, creditors, and employees, government’s restrictions, low asset salvage value; lack of alternative opportunities; high vertical integration; and emotional barriers. Many firms stay in an industry as long as they cover tier variable costs and some or all of their fixed costs; their continued presence, however, dampens profits for everyone. Degree of Vertical Integration: Many companies benefit from integrating back-ward or forward (vertical integration).Vertical integration often lower costs in different parts of the value chain to earn profits where taxes are lowest .On the other hand, vertical integration may cause high costs in certain parts of the value chain and restrict a firm‘s strategic flexibility .This is why firms are increasingly outsourcing activities that can be done better and more cheaply by specialists. 1.1.4. Differentiation in competitive strategy A firm differentiates itself from its competitors if it can be unique at something that is valuable to buyers. Differentiation is one of the two types of competitive advantage a firm may possess. The extent to which competitors in an industry can differentiate themselves from each other is also an important element of industry structure. Despite the importance of differentiation, its sources are often not well understood. Firms view the potential sources of differentiation too narrowly. They see differentiation in terms of he physical product or marketing practices, rather than potentially arising anywhere in the value chain .Firms are also often different but not differentiated, because they purpose forms of uniqueness that buyers do not value .Differentiators also frequently pay insufficient attention to the cost of differentiation ,or to the sustainability of differentiation once achieved. Sources of differentiation: A firm differentiates itself from its competitors when it provides something unique that is value to buyers beyond simply offering a low price .Differentiation allows the firms to command a premium price, to sell more of its product at a given price, on the other hand, to gain equivalent benefits such as greater buyer loyalty during cyclical or seasonal downturns. Differentiation leads to superior performance if the price premium achieved exceeds any added costs of being unique. A firm’s differentiation may appeal to a board group of buyers in an industry or only to subset of buyers wanting traditional clothing; for example, through many buyer view Brooks Brother clothing as too conservative. Differentiation and the Value Chain: Differentiation cannot be understood by viewing the firm in aggregate, but stems from the specific activities a firm performs and how they affect the buyer. Differentiation grows out of the firm’s value chain. Virtually any value activity is a potential source of uniqueness. The procurement of raw materials and other inputs can affect the performance of the end product and hence differentiation .For example, Heineken pays particular attention to the quality and purity of the ingredients for its beer and uses a constant strain of yeast .Similarity, Steinway uses skilled technicians to choose the finest materials for its pianos, and Michelin is more selective than its competitors about the grades of rubber it uses in its tires. Value activities representing only a small percentage of total cost can nevertheless have a major on differentiation .For example, inspection may represent only one percent of cost ,but shipping even one defective package of drugs to a buyer can have majors negative repercussions for a pharmaceutical firm’s perceived differentiation .Value chain developed for purpose s of strategic cost analysis, therefore ,may not isolate all activities that are important for differentiation .Differentiation analysis requires a finer division of some value activities, while others may be aggregated if they have little differentiation impact. A firm may also differentiate itself through the breadth of its activities, or its competitive scope. Crown Cork and Seal offers crowns (bottle caps) and filling machinery plus cans. It thus offers a full line of packaging services to its buyers, and its expertise in packaging machinery gives its more credibility and access in selling cans .Citicorp’s breadth of activities in financial services enhances its reputation as well as allowing its sales channels to offer a broader product range. A number of other differentiating factors can result from broad competitive scope: Ability to serve buyer needs anywhere Simplified maintenance for the buyer if spare parts and design philosophies are common for a wide line Single point at which the buyer can purchase Single point for customer service Superior compatibility among products Most of these benefits require consistency or coordination among activities if a firm is to achieve them. Differentiation can also stem from downstream. Firm’s channels can be potent source of uniqueness, and may enhance its reputation, service, customer training, and many other factors. Firms can enhance the role of channels in differentiation through actions such as the following: Channel selection to achieve consistency in facilities, capabilities or image Establishing standards and policies for how channel must operate Provision of advertising and training materials for use by channels Providing funding so that channels can offer credit Firms often confuse the concept of quality with that of differentiation .While differentiation encompasses quality, it is much broader concept. Quality is typically associated with physical product. Differentiation strategies attempt to create value for the buyer throughout the value chain. 1.1.5 Cost Advantage in Competitive strategy Cost advantage is one of the two types of competitive advantage a firm may possess. Cost is also of vital importance to differentiation strategies because a differentiator must maintain cost proximity to competitors. Less the resulting price premium exceeds the cost of differentiating, a differentiator will fail to achieve superior performance .The behavior of cost exerts a strong influence on overall industry structure. The behavior of a firm’s costs and its relative cost position stem from the value activities the firm performs in competing in an industry .A meaningful cost analysis, therefore, examines costs within these activities and not the costs of the firm as a whole .Each value activity has its own cost structure and the behavior of its cost may be affected by linkages and interrelationships with other activities both within and outside the firm, Cost advantage results if the firm achieves a lower cumulative cost of performing value activities than its competitors. Defining the Value Chain for Cost Analysis The starting point for cost analysis is to define a firm’s value chain and to assign operating costs and assets to value activities .Each activity in the value chain involves both operating costs and assets in the form of fixed and working capital .Purchased inputs make up part of the cost of every value activity, and can contribute to both operating costs and assets. The need to assign assets to value activities reflects the fact that the amount of assets in an activity and the efficiency of asset utilization are frequently important to the activity is cost. For purposes of cost analysis, the desegregation of the generic value chain into individual value activities should reflect three principles that are not mutually exclusive: - The size and growth of the cost represented by the activity - The cost behavior of the activity - Competitor differences in performing the activity Activities should be separated for cost analysis if they represent a significant or rapidly growing percentage of operating costs or assets .While most firms can easily identify the large components of their cost, they frequently overlook smaller but growing value activities that can eventually change their cost structure. Activities that represent a small and stagnant percentage of costs or assets can be grouped together into broader categories. Activities must also be separated if they have different cost drivers, to be defined in more detail below .Activities with similar cost drivers can be safely grouped together. For example, advertising and promotion usually belong in separate value activities because advertising cost is sensitive to scale while promotional costs are largely variable .Any activity a business unit shares with others should also be treated as a separate value activity since conditions in other business units will affect its cost behavior .The same logic applies to any activity that has important linkages with other activities .In practice ,one does not always know the drivers of cost behavior at the beginning of an analysis ,hence the identification of the value activities tends to require several interactions .The initial breakdown of the value chain into activities will inevitably represent a best guess of important differences in cost behavior .Value activities can then be aggregated or disaggregated as further analysis exposes differences or similarities in cost behavior .Usually an aggregated value chain is analyzed first ,and then particular value activities that prove to be important are investigated in greater detail. 1.2. Practical Background Competitiveness of Vietnam 1.2.1. An overview of industry competitiveness in Vietnam Table 1: The Global Competitiveness Index 2008 – 2009 Country Rank Score Singapore 5 5.53 China 30 4.70 Thailand 34 4.60 India 50 4.33 Indonesia 55 4.25 Turkey 63 4.15 Vietnam 70 4.10 Cambodia 109 3.53 Source: The Global Competitiveness Report 2008 - 2009 After more than 20 years from 1986 to date, the competitive power of Viet Nam has improved. Now we set trade with more than 120 countries in the world. We have joined trade some economic organizations such as ASEAN, APEC, and WTO...GDP of Viet Nam has increased more than eight times from 2000 to 2009 (GDP in 2000 was US $31.35 billion and GDP in 2009 was US $277.700 billion). We are improving Vietnam industry competitiveness and Vietnam company competitiveness in both domestic market and international market. Many industries of Viet Nam are not only meeting the needs of domestic market but also play an important role in foreign market. Example: Vinamilk with high quality Products for domestic consumption and exports. Company’s turnover had increased to VND 10,613,771 million last year, 4.6 percent higher as compared to 2008. Industry of Vietnam is now facing with many disadvantages. Industry competitiveness is decreasing. Most of key exports from industries (such as Computer, cafe, rice, and sugar, paper....) are higher than those from the similar industries of the other countries in ASEAN from 20% to 30 %.However, some elements such as quality, sale, after sale services of Viet Nam industry are worse than those of other countries. Vietnam is also known as rice basket in Asia. In 2008 Vietnam signed a contract to export 5.1 tonnes, with 4.65 million tons; delivered at US $ 2.9 billion, more than double compared to 2007. Rice output in 2009 reached 38.9 million tons, up 116 thousand tons compared to 2008. In 2009 a "record year" for rice, but with rice price fluctuations making the value lower than that last year. Rice exports reached 5.8 million tons, turnover revenue of 2.6 billion, 22.6% higher in volume, but decreased 10, 34% in value. According to the Vietnam Food Association (VFA), the volume of our country's rice exports this year is 6 million tons the same as the record one in 2009, but turnover has increased, to the century record at 3 to US $3.2 billion. This means that rice prices will range between 500-533 dollars per ton, up by US $ 94.58 to US $ 127.58 per ton (23.33 to 31.47% as compared with that of the year 2009 is US $ 405.42 per ton .) Vietnam’s largest foreign exchange earners were garments and textiles, (US$1.2 billion, up by 32.9 per cent a year), footwear (US$290 million), and wooden products (US$27 million). Vietnam also faces a huge trade deficit with the US, US$1.967 billion in the first quarter this year. According to Customs statistics, exports in 2009 of the country's aquatic products reached 1.216 thousand tons, worth 4.25 billion dollars, down by 1.6% in volume and 5.7% in value as compared with the year 2008, the first decline after 13 years. However, this is still considered a positive outcome for the export business, in the context of the difficulties in raw materials, markets, technical barriers and tariffs of the importing country. In 2009, Vietnam exported 85 types of fish products to 163 markets.The number of export products and markets all increased as compared with 2008, thanks to the flexibility of diversifying products and markets of the exporting enterprises. In particular, frozen shrimp volume accounts for the highest proportion (39.4%), catfish, squid (31.6%), octopus (6.45%), tuna (4.26%), dry goods (3.77%) sea fish and other marine products accounting for 14.5%. 1.2.2. An overview of company competitiveness in Vietnam Obviously, the quality and competitiveness in terms of management is still poor. Team managers and company managers are still short of knowledge and management skills. The number of companies with good directors, high professional level and management capacity is not many. A large proportion of business owners have not been trained in business and management in lack of economic knowledge - social and business management skills, particularly the weak capability in international business. As a result they are mainly engaged in common business operations according to their management experience, with short strategic vision, poor knowledge on such aspects as organizational management, competitive strategy, brand development and use of computer and information technology. A number of businesses open only because the company is available and interested in business and capital, without knowledge and skills in business. Consequently they have all kinds of risks leading to failure. Secondly, it is low labor productivity, and high in production costs weakening the competitiveness of companies. Comparisons of the cost of products made in other countries such as China, Thailand, Malaysia, Philippines, ... the products produced by companies of Vietnam at the cost 1.58 to 9.25 times higher although the price of labor is lower as compared to that in other countries in the region. Thirdly, the competitiveness in financially is still weak. The scale of capital and financial capability (including the owner's capital and total capital) of many businesses are small, and with poor performances, without sustainability. The number of small companies is extremely high. Vietnam has more than 72. 000 companies which are operating, but the number has increased mainly on a very small scale. The number of companies with capital of less than VND 1 billion has accounted for 44.1%, of the total number of companies, employing less than ten workers accounting for 46.6% of the total number of workers employed. Fourthly, weakness of brand has contributed to weak competitiveness. Most of companies in Vietnam have not built strong brands, its prestige and competitiveness has not been confirmed in the domestic, regional and international market. Many companies in Vietnam still do not have strategy of brand-building, creating a reputation for quality products and services, so competitiveness is weak. According to survey data of VCCI, only 10% of businesses has often explored foreign markets and it is done mainly by large companies, state – owned companies and companies engaged in import an._.