Chapter 1

Introduction
1.1 Rationale
In the near past, we have seen so many changes in the global economy and context. Especially, the world economy and society have been strongly impacted by the currency crisis and then financial crisis at the whole world level, which began by the Thai currency crisis at the end of the year 1997. It requires every nation and company to revise the ways they look the future. Certainly, nobody can predict 100% right what will happen in the future and/or program for it but at least people can have some proactive actions to prevent these kind of crisis and its effects in our businesses. Textile and apparel industries are important in the human life. The employment created by these industries account for large portion in any economies. For many developing countries or also in developed countries these industries were paid close attention to because they contribute much benefit for national economy and social welfare. Vietnam is a developing economy and is assessed as one of the fastest growing countries in the world with the average annual growth rate from 1990 to 1999 at 7%. In fact, it is still in the transition process from central economy to more market oriented economy. For the long time, companies do not need strategic planing, marketing And now they are facing challenging situation from no competition to hard competition, being survive or not, not only between domestic companies but also global giants. Recently, the economy has realized some signals of its unstable development. The growth rate in 1999 is less than some previous years. Textile and garment industries are playing important role in the economy. They are accounted for 25.7% of employment in total employment of all industries. But now the competition climate is changing and getting tenser. Hanosimex is not out of the situation. What the company can do is to develop fit strategies, which can help them to come over the current situation and also to climb as a dominant player in the domestic market.

1.2 Problem Statement

To identify the alternative strategies for development of Hanoi Textile Company (Hanosimex) in the challenging economic situation

1.3 Objectives
Overall Objectives: To analyze overall domestic business environment and analyze Hanosimex businesses, and then develop strategy for Hanosimex to give right way to become the leader in the industry. To examine global market and build suitable expansion strategy in potential abroad markets.

Specific Objectives:

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To get full understanding of the current business environment situation: what are threats and opportunities for Hanosimex, both domestically and globally? What are the main trends of the industry? To identify strengths and weaknesses of Hanosimex. To clarify competitive situation of the company in domestic market. To identify possibility to expand the market activities globally of Hanosimex

1.4 Research Study Framework

Review Mission and Goals

External Analysis Global Economy Textile and Apparel Trends Economy Politic Technology Society Market Bargaining Power of Suppliers Bargaining Power of Buyers Threats of New Entrants Rivalry Among Competitors Threats of Substitutes Opportunities and Threats

Internal Analysis Finance Operation Decision making process Human Resources Information System Physical Distribution Logistic Quality Cost Structure

Strengths and Weaknesses

SWOT ANALYSIS (Position Determination)

ALTERNATIVE STRATEGIES

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1.4 Scope of the Research

The scope of this research is limited to developing corporate alternative strategies for HANOSIMEX to strengthen competitiveness mainly in domestic market, and global market to some extent.

1.5 Data Collection Methodology

Both quantitative and qualitative analyses are done on the basis of available secondary and primary data for this research. a) Primary data: In-depth interview and discussion with the Vinatexs officials to get their opinions on the business environment in general as well as the textile and apparel industries environment; Interview with some other industries Managing Directors and functional managers. In-depth interview and discussion with the Managing Director and some functional managers of Hanosimex to obtain information on the firms current situation and their assessment about the current industrys environment. Discussion with shop floor managers and supervisors of Hanosimex. Annual Statistical Reports on the social, economical aspects from the Bureau of Statistics to get general information on the macro environment; Textile and garment industrys reports to get information on the industrys structure. Annual balance sheets and income statements from the selected company to get information on the operating situations in the past and at present. Newspapers, magazines, journals, book. Information from Internet

b) Secondary data:

1.6 Presentation of the Research Report Chapter 1 provides and introduction including background, problem statement, objectives, scope of the research study, study framework. Chapter 2 presents the literature review of the study and summarizes the work of previous studies It relates to the fundamental ideas on designing corporate strategy: business environment scanning (both external and internal environment factors), corporate strategy formulation Chapter 3 deeply involves in scanning business environment of textile and apparel industries in global, then identifying major trends in these industries globally. Chapter 4 presents the analysis of Vietnamese Textile and Garment Industries, identifications on the market and industries trends. And then determines what are the

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major threats, opportunities for the industries, what are weaknesses and strengths of the industries. Chapter 5 covers the assessment of the current business situation of Hanosimex, and then identifications of some main opportunities, threats, strength and weaknesses (SWOT analysis). Chapter 6 presents the alternative strategies for company Chapter 7 gives conclusions and recommendations for Hanosimex

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Chapter 2

Literature Review

Economic panorama is changing time by time. This creates not only opportunities but also threats to all corporations. In order to cope with this forever change and to successfully achieve competitive advantage, company has to design suitable strategy, which builds on its existing resources and capabilities or on future build-up resources and capabilities. But at first, we must well understand about strategy.

2.1 Strategy
Literature review available on strategy discussed many aspects about the concept of strategy. There are some definitions of strategy given below: Harvards Alfred Chandler (1962) defined strategy as the determination of the basic long term goals and objectives of an enterprise and the adoption of courses of action and allocation of resources necessary for carrying out these goals. Chandler points out that corporate strategies of firm in US follow single business, geographical expansion, vertical integration and diversification. Strategy is about positioning a business in a given industry structure (porter, 1980, 1985) William F. Glueck (1980) defined strategy as a unified, comprehensive, and integrated plan designed to ensure that the basic objectives of the enterprise are achieved Andrew (1980) defines corporate strategy as a pattern of decisions in a company that determines and reveals its objectives, purposes or goals, and defines the range of business of the company..... to make to its shareholders, employees, customers and communities ... The interdependence of purpose, policies, organization action is crucial to individual strategy. For the purpose of analysis, he divided strategy into formulation and implementation stage. Mintzberg ( 1987) defined strategy as plan, policy, pattern, position, perspective according to new approach. As plan, strategy deals how leaders establish direction for organization, to set predetermined action plan. As policy, strategy takes us into the real of direct competition, where threats and trick and various schemes are employed to gain advantage. As pattern, strategy focuses on action. As position, strategy encourages us to look at organizations in their competitive environment. As perspective, strategy referred as strategic intent. Henderson in 1989, defined strategy as a deliberate search for a plan action that will develop a business competitive advantage and compound it. From the above discussion, the strategy concept covers the overall purpose of an organization, which means the concept is multi-dimensional. Hax and Majluf in 1991, thereafter defined the concept of strategy to have the following aspects: Coherent, unifying, and integrative pattern of decisions; Determines and reveals the organizational purpose in terms of long term objectives, action programs, and resource allocation priorities;

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Selects the businesses the organization is in or is to be in; Attempts to achieve a long - term sustainable advantage in each of its businesses, by responding properly to the opportunities and threats in the firms environment, and the strengths and weaknesses of the organization; Engages all the hierarchical levels of the firm (corporate, business and functional); and Defines the nature of the economic and non-economic contributions it intends to make to its stakeholders.

2.2 Traditional Approaches for Strategic Management

A comprehensive review of literature on strategic management suggests various approaches that can be broadly viewed as: strategic fit, stretch and leverage approaches. In very simple terms they mean: matching capability with opportunity; upgrading capability for better performance; and getting the most out of the existing advantages. Three types of factors are generally considered: position, process, and path. The role of positioning is to identify current status and making investment decisions that will lead to growth and diversification. The process is for collective organizational learning, especially in coordinating diverse skills and integrating multiple streams of activities. And the path is intended to leapfrog towards opportunities. Special focuses of some of the traditional strategic management approaches are given below. (1) Product and process life cycle based approach is discussed by Aberanthy, Townsend (1975) Hayes, WheelWright (1979, 84) and Levitt (1965) This is one of the basic and perhaps the oldest approach which considers life cycle stages (introduction, growth, maturity, and decline) and related description of market and other characteristics of products, and processes over time. These characteristics are useful to understand complex interactions and thus can be used as a guide to formulate strategies. (2) Firm posture topology based approach Miller (1988), Chakrabarti (1989) argued that the linkages between activity and strategy are complex, multivariate and non-recursive; hence difficult to model. However, they think that topologies can provide an understanding of the complex relationships. The six topologies, as per Freeman, are: the offensive firm; the imitative firm; the dependent firm; the traditional firm; and the opportunist firm. Miles and Snow identified four popular strategies reflecting firms posture as: defenders; prospectors; analyzers; and reactors. (3) Resource based view approach Bartmess (1993), Peteraf (1993), Grant (1991) explained that the origins of competitive advantage are the resources of a firm. Resources are considered to be the primary constants upon which a firm can establish competitive position and earn profits. The strategic objective of the firm is to marshal a set of complementary and specialized resources which are scarce, durable, not easily traded and difficult to imitate. Any asset is strategic only if it can be directed to a user need and difficult to imitate. (4) Coordinated functional optimization approach According to Adler et al. (1992), Lewis and Linden (1990), any business enterprise can be viewed as a set of activities. The organization of these activities can be grouped into functional areas such as: engineering design; research and development; manufacturing;

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marketing; personnel; etc.). The strategies to organize these areas are considered as the essence of strategic management. The competitive advantage in each functional area is based on thing, it is how to fit the resource or unique capability with opportunity. (5) Core competence and intent based approach Hamel and Prahalad (1989, 1990, 1994) discussed in their different articles that strategic intent encompasses: focusing the organizations attention on the essence of winning; motivating people by communicating the value of the target; leaving room for individual and team contributions; and using intent consistently to guide resource allocation. The strategies are built on three planes -- end product; core product; and core competence. Here, the core competence is defined as collective learning of an organization, reflected in the skills to coordinate diverse production skills and integrate multiple streams of activities. Hamel and Prahalad advocated five basic ways to leverage a firms resources; concentrating on key strategic goals; accumulating resources more effectively; complementing resources to create higher order value; conserving resources whenever possible; and recovering resources from the market place soonest. (6) Commitment based approach Ghemawat (1985) argued that strategic decisions are made in two steps. The first one is understanding commitment and the second one is analyzing the scenario. Once the commitment intensive decisions are identified, they are next analyzed by: positioning analysis; sustain ability analysis; and flexibility analysis. Commitment with a particular strategy are due to : lock-in; lock-out; time-lag; organizational-inertia. These factors are similar to sunk cost, opportunity cost, lead time and symbolism. Commitment model basically means history matters. (7) Game theory based approach This approach utilizes the tools of game theory to analyze the nature of competitive interaction between rival firms. The main thrust is to reveal how a firm can influence the behavior and action of other firms. The central concern is to understand the conditions leading to mutually consistent equilibrium. Game theory is based on a decision framework for making choices in hostile situation and under extreme uncertainty, using the minimax principle-- that is, selecting best of the worst possible outcomes. Competitive outcomes are functions of reaction on investment, pricing and advertising. (8) Portfolio management approach Boston Consulting Group -- market share versus market growth matrix; Arther D. Little, Inc. -market life cycle versus competitive strength matrix; and Mckinsey and Company -- industry attractiveness versus business matrix. Portfolio management approach attempts to take advantages of experience curve effect and the economies of scale for the strategic business unit (SBU). It includes the techniques that essentially locate a business, its product lines or activities on a matrix, which has on one axis a measure of industry attractiveness and on the other axis a measure of competitive position. Positions are generally considered with respect to desired business conditions. (9) Market structure and value chain based approach According to Porter (1990), market analysis strategies are selected, such as: first to the market; follow the leader; application engineer; and me too focused. Also enterprises can be classified on the basis of research and development efforts and emphasis: researchintensive or development-intensive.

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(10) Dynamic capabilities based approach Pavitt (1990) mentioned that the term dynamic highlights the shifting characteristics of capabilities which needs to be appropriately managed, adapted, integrated and reconfigured in the ever changing conditions. Three types of considerations are very important: assumptions regarding the surroundings; missions of the organization; and competencies needed to accomplish the mission.

2.3 Business Strategy

There are two concepts for business strategy, which are important. One is strategic business unit (SBU) and another is choice of competitive business strategy The management consulting firm Arthur D. Little, Inc. (ADL) offers five clues to define a SBU. They are competitors - the business unit should have a single set of competitors, prices - all products belonging to a business unit should be affected by price changes, customersbusiness unit should have a single set of well defined customers, quality/style - in a properly defined business unit, changes in quality and style effects in products simultaneously, substitutability - all products in a business unit should be relatively close substitutes, and divestment or liquidation - all products belonging to a given business unit should be able to stand alone as an autonomous viable economic entity if divested. Choice of competitive business strategy has two sets of factors in deciding how to position the business within its competitive environment. They are environmental scanning - external analysis, which gives the ideas for threats and opportunities, and internal scrutiny internal analysis, which provides the position of strengths and weaknesses.

2.3.1 External Analysis

The five forces model of Michael Porter (Figure 2. ) is widely used and accepted in analyzing industrial environment. According to Porter, the competition in the industry is defined by five factors: (1) Potential competitors; (2) Bargaining power of suppliers; (3) Rivalry among established firms; (4) Bargaining power of customers; (5) Threat of substitute products.

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Figure 2.1: The five forces model

Risk of Entry Risk of Entry by Potential by Potential Competitor Competitor Bargaining Bargaining Power of Power of Suppliers Suppliers Rivalry Rivalry Among Among Established Established Firms Firms Bargaining Bargaining Power of Power of Customers Customers

Threat of Threat of Substitute Substitute Products Products

Source: Adapted from Michael E. Porter, Competitive Advantage, New York: The Free Press, 1985. A Division of Macmillan, Inc. Reprinted by permission Porter argues that the stronger each of these forces is, the more limited is the ability of established companies to raise prices and earn greater profit. Potential Competitors: They are companies that are not currently involved in the competition in an industry but have the capability to do so if they choose. More companies enter in an industry means more difficulties for incumbent companies to hold their share of the market and to generate profit. The strength of the competitive force of potential rivals is largely a function of the height of entry barriers, which are measured by: (1) brand loyalty of existing companies, (2) absolute cost advantages, (3) economies of scale, and (4) Government regulation. Rivalry Among Established Companies: The level of competition in an industry will contribute the opportunities or, in contrast, the threat. The competition will be presented by (1) competitive structure of the industry, (2) demand condition, and (3) the height of exit barriers in the industry. The Bargaining Power of Buyers: Buyers can be viewed as competitive threat when they are in a position to demand lower prices from the company or when they demand better service. Buyers are most powerful in the following circumstances: (1) the supply industry is fragmented by many small companies with few large customers, (2) buyers purchase large quantities, (3) buyers can easily switch orders between suppliers, (4) economically feasible for the buyers to purchase the input from several companies at once, (5) threat of vertical integration from customers, and (6) the supply industry depends on the buyers for a large percentage of its total orders. The Bargaining Power of Suppliers: Suppliers can be considered as threat when they are able to force up the price or reduce the quality of input they supplied, thereby depressing companys profitability. Suppliers is extremely important when: (1) few substitutes of their products, (2) the industry is not their important customer, (3) their respective products are differentiated to such an extent that it is costly for company to switch from one supplier to

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another, (4) they can use the threat of vertically integrating forward into the industry, and (5) the buying companies can not use threat of backward integration. Threat of Substitute Products: Substitute products are those of industries that serve consumers needs in a way that is similar to those being served by the industry being analyzed.

However, when a company analyses its business environment, they will never underscore the role of macroenvironment. That is because they are embedded in a broader economic, technological, social, demographic, and political environment.

2.3.2 Internal Analysis

Porter has suggested an approach to achieve this objective. This approach is most aptly known as Value chain analysis. The term value chain refers to the idea that a company is a chain of activities for transforming inputs into outputs that customers value. The process of transforming inputs into outputs in composed of a number of primary activities and support activities. Figure 2.2: The Value Chain

Company Infrastructure Support Activities Human Resource Materials Management

Input

Research and Development

Production

Marketing and Sales

Service

Output

Primary Activities

2.4 Vision and Mission Statements

A vision is an attempt to articulate, as clearly and vividly as possible, the desired future state of the organization. A good vision is realistic and feasible. It is formulated by explicitly identifying a domain for competitive behavior, a set of sources of competitive strength, and a profile for resource capability. It implies a capability construct. This capability construct is determined by many factors including the managerial competence and capacity, the logistic and technological profile, as well as the financial resource access of the firm. It provides a challenge for the whole organization and mirrors the goals of the constituents. The role of vision in the strategic management process and the possible relationship between vision and creativity, leadership, and entrepreneurship are important. However, analysis has not been

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uniform in defining the core issues or in positioning vision within the overall strategic management construct. Developing a strategic vision may be either an individual exercise or a collective process. The strategic vision process includes these stages: (1) the development of a conceptual image, (2) the analysis of the companys future environment, resources, and capabilities, (3) a clarification of management values, (4) the development of a mission statement, (5) identification of objectives and goals, and (6) the selection of strategic options leading to the development of the vision statement. Successful visions share 5 characteristics: clarity, coherence, communications power, consistency, and flexibility. Hax and Majluf (1988) define statement of mission as a definition of current and future expected business scope that is expressed as a broad description of the products, markets and geographical coverage of the business. Following is the typical format for the same as suggested in literature. Type of scope Product Scope Market Scope Geographic Scope Ways to Achieve Competitive Advantage Cambell (1991) explained that the nature and importance of mission statement is misunderstood by many managers. While some define it in terms of business strategy, others prefer to speak in terms of philosophy and ethics. Researchers are of the opinion that a mission statement should include four elements namely: purpose, strategy, behavior standards and values. The advantage envisaged of this approach is in the potential to enthuse employees and to make company a success. Current Future

2.5 Core Competencies

Defining and identifying core competence has been a matter of hectic debate today. Strategic planners and formulators have looked at the subject with great deal of interest and have come out with varied opinions on the subject. While some of them look at competencies in terms of value chain, others have declined the same on the pretext of lack of customer focus. Some of the approaches are discussed briefly to illustrate the significance of Core competencies in strategic planning. Harris (1994) mentioned in his article that because of the global nature of the apparel industry and the fundamental changes that are occurring within it in the critical areas of quality, cost, service, marketing and branding, bench marking on a global level is more important than ever. The successful soft-goods company of the future must be the best in at least one of 4 interdependent core competencies: 1. Product design, 2. Product development, 3. Product distribution, and 4. Retail display. As a result, apparel companies must stress 4 initiatives: 1. Implementation of Quick Response, 2. Core competency focus, 3. Customer focus, and 4. Breaking out of old paradigms.

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Prahalad, and Hamel (1990) in their article on core competency define the concept as that of collective learning in the organization. The core competence of any organization is believed to have following characteristics. (1). It provides potential to access a wide variety of markets (2). It results into a significant contribution to the perceived customer benefits of the end products (3). It is difficult for competitors to imitate. Correct identification of Core competency of the organization helps it in pursuing attractive opportunities and avoiding risks of going in for the poor ones. Failure to do so has resulted in many losses making ventures by many big corporations all over the world. This perspective provides a linkage between the opportunities existing and the ones that an organization can use for its advantage. Researchers have developed matrices for determining industry attractiveness that combine the various capabilities of the organization to the potential opportunities. While encountering competition most of the organizations tend to determine competitors profile as a combination of product and market, Anonymous said that. This approach although useful tends to neglect a detailed assessment of competitors and thus their anticipated moves. Determining competitors profile on the basis of core competencies helps organization to position its business that can enhance its competitive position.

2.6 Marketing
In an era of transformation conventional marketing paradigms are being replaced by new concepts. New organizational forms, including strategic partnerships and networks are replacing simple market based approaches. Some of the concepts involved in this vital function of organization are discussed below. Customer Danny Lee, CEO of Steel Jeans, says the jeans market has been in a fashion slump with retailers buying for price first and fashion 2nd, and peoples margins have been pressured by that. Jeff Paul, president of Sierra Pacific Apparel, says that the basic Jean has softened, while specialty jeans are becoming more popular with consumers. Eric Rothfeld, president of Sun Apparel, says the market has become more diversified. It is not an issue of indigo denim any more. Now it involves treatments, colors, over dyeing, washing with softeners, and other techniques to achieve a different look and feel. The most significant trend in denim in 1994 has been the introduction of wrinkle-resistant fabric finishes. The resinated treatment is applied at the piece goods level or on the finished garment. In either case, the treated garment must be cured in a finishing oven after pressing. Consumer response has been so strong that Mike Cowan of Levi Strauss & Co. expects wrinkle-free garments will constitute the majority of the Dockets line of pants by the end of 1994. Organizational Issues New organizational forms, including strategic partnerships and networks, are replacing simple market based transformations and traditional bureaucratic organizations. Micro economic maximization paradigm is being critically examined for its relevance to marketing theory and practice. The role of specialists is being questioned and marketing is being considered as the responsibility of everyone in the organization.

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Navigational Marketing

Increasing need is being felt to integrate marketing strategies with the corporate strategies so as to derive advantages of corporate commitment. Under the new paradigm, marketing strategies of a business are also taking into account aspects like firm size, corporate staff competence and extent of diversification. Marketing Planning and Strategy Researchers have suggested several approaches for planning. Prominent among them are Market Vs Industry based Boston Consultant Matrix and McKinsey matrix; Profitability Vs Market scope based Porters Matrix and Product Vs Market based Matrix.

2.7 Branding
According to Rudelius et al. (1989), branding refers to the process of using a name, phrase, design, symbols or combination of these to identify firms products and to distinguish them from competitors. In todays competitive market place, where an increasing number of products are being viewed as commodities, brand image becomes a key differentiation / selling effort for the organization. According to Weels (1989) the key to building brand equity is the special meaning that brand carries in a persons mind. Successful brands have differential advantages and are thus able to fetch higher prices than less successful ones. On account of high quality, service, innovation and differentiation the brands are able to achieve high customer loyalty as well. According to a 1994 survey conducted by Kurt Salmon Associates and The NPD Group of 2,000 consumers across the US on brand loyalty, consumers rely on brand names when shopping for apparel products they purchase regularly or when fit is important. Brand Positioning According to Dade (1992), brand positioning refers to a brand targeted to a specific segment of customers. The rapid growth of new segments and their origin in changing social values would mean that companies would have to reposition their brands. Co - Branding In this form of branding more than one company team up to promote the brand jointly. Tight restrictions with regard to brand are kept in the interest of the business and the companies involved.

2.8 Promotion
Stanton defines promotion as the process of designing and managing the marketing mix element to inform, persuade, and remind current and potential customers of firms product(s). Certain conventional methods are Personal Selling, Advertising, Sales Promotion, Public Relations and Publicity. While advertising has been considered as a major weapon for branding, few researchers have cautioned against certain pitfall like look- alike advertisements, undistinctive products and the demand of retailers for fewer and better products.

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2.9 Pricing
Considerable confusion exists with regard to the meaning of price. Stanton defines price as the amount of money and / or other items with utility needed to acquire a product. Pricing done by organizations can have either profit objective or sales objective or maintaining status quo objectives. The types of pricing approaches found are Cost Plus, Competitive, Opportunistic and Psychological. A company may consider using a short term pricing strategy to stabilize cash flows or to retain customers while developing a long term pricing strategy to increase both market share and profits. In case of opportunistic pricing short term profits are maximized by raising the prices of goods in short supply. Another technique of psychological pricing involves making the price sound right to the customer. Fine Tuning helps to ensure the continued effectiveness of pricing decisions.

2.10 Technology
Technology is changing very fast. New technology revitalizes the garment sector. Some implications of technologies are explained below those are suggested by Elissa (1994) and Mckenna (1994). Cygne Design Inc. design and communications systems flexibility have allowed the company to hold no inventory, source much of its fabric from Italy, design in New York, cut in Miami, sew in Guatemala and ship directly to customers within 60 days of fabric selection. Cygne credits much of its success and flexibility to timely investments in technology, like the continuous upgrading of its computer-aided design system. The companys EDI network enables it to print bar-coded bundle tickets, which are scanned to follow orders through the plant, track worker productivity, eliminate handwritten forms from its quality auditing and to download J. C. Penney purchase orders from an electronic mailbox, saving time and preventing miscommunication. The advanced technology in the plant is matched by its advanced management, which involves a team-focused, empowered work force. When applied to the apparel industry, or any other manufacturing pursuit, the concept of agility pertains to a manufacturers being able to make information-driven decisions at the last possible moment and prior to the need to execute the decisions by a flexible, empowered work force. Three major drivers form the foundation of agile manufacturing: (1) An information network, (2) A flexible technology, and (3) A knowledgeable, skilled, flexible, and empowered work force. A major part of the new communications and information world will be the radio frequency (RF) tag that will a unique customer. The future for the apparel industry is communications systems tied to cutters, printing systems, design stations, distribution centers, and transportation systems. All of these want at that moment. Technology Capability Technological capabilities are one of the created factor value based advantage i.e., competitive advantage. Distinctive technological competence leverage oriented factors achieved through capability accumulation (such as: flexible production for achieving "economies of scope" in total system) greatly reduced new product concept-to commercialization time and timeliness. To measure the complexity of the transformation process (particularly in the context of developing countries) includes the comparison of technology components utilized and

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technological capabilities accumulated with that of the best practice elsewhere (or relative to the current state-of-the-art). For formulating the firm's over all strategy it requires to assess the relative capabilities in important technologies. Strategy formulation calls for matching capability with opportunity. Technological capabilities, which are critical for strategies, are given below. Extender strategy: Utilizing and vending capabilities are most critical; Exploiter strategy: Acquisition and vending capabilities are most critical; Follower strategy: Acquisition and modifying capabilities are most critical; Leader strategy: Designing and generating capabilities are most critical.

So the company which produce and sell more than one products they have mixed strategies and need efforts for building critical capabilities to achieve competitive advantage. The components of technology and the six types of technology capabilities are interrelated in a systematic way. Productivity can be improved by increasing the sophistication of technological resources-- better physical facilities; upgraded human abilities; updated documented facts; and re-structured organizational frameworks; and increasing core competencies through capability accumulation -- maximum utilization capability; better acquiring capability; enhanced modified capability; effective vending capability; creative designing capability; and state-of-the-art generating capability. For competitive development of an enterprise, it is necessary to achieve higher degree of sophistication in terms of the technology components and also to ensure cumulative advancement in terms of the technology capabilities.

2.11 Developing Strategic Alternatives

According to Peter Lorange (1980). There are five stages of planning for identifying environmental opportunities and threats, for narrowing down our strategic options to recognize our own strengths and weaknesses, for monitoring progress toward the chosen options, and for providing management with incentives for contributing toward the strategic direction. Strategic planning involves these five stages that are objectives setting, strategic programming, budgeting and linking to managerial incentives. (1) Objectives setting This stage serves primarily to identify relevant strategic alternatives, where or in what strategic direction of the firm as a whole as well as its organizational sub units. This is an extremely critical phase of planning process in that it should set the innovative and creative tone that is a characteristic of good planning. In this stage, the planning process should facilitate a clearer look at environmental opportunities and threats facing the firm. The objectives setting stage serves as a very important purpose in planning in that it facilitates a creative, imaginative, adaptive, focus on environmental opportunities and threats. (2) Strategic Programming It relates to the development of strategic programs for achieving the chosen objectives. During the objective setting step, that is where we intended to go, and in these step that is how to get there.

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The first aspect of strategic programming at the functional levels of a firms business should be intellectual challenge, calling for imagination, skill, and professionalism. Strategic programs can not be heavily based on past experience; they are unique, and the challenge is to attack unstructured problems in a novel and imaginative way. Typically, strategic programs are inter-functional in their nature, requiring coordinated inputs from different functions, such as R&D, manufacturing, distribution, and marketing. The second aspect of the strategic programming process relates to the need, to evaluate strategic programs, to determine how well a particular program seems to contribute toward a particular goal. There is a natural tendency for each function to develop standards for judging the success and appropriateness of a strategic program that tends to be based largely on criteria associated with each function and not on cross functional success criteria. A successful strategic programming effort is of course critical for the development of a useful overall planning approach even the most brilliant perceptions about strategic direction are useless unless they are followed up by an imaginative implementation effort. (3) Budgeting Budgeting stage is also called the operating plan or the action programming stage. After a set of strategic programs has been chosen, a more detailed set of action programs will have to be established for the next year. The purpose of the budgeting stage then is above all to establish a pattern of activities for the near term execution of the strategic programs, assigning specific tasks to various organizational units and group of management and appropriating necessary financial resources. Above all, it facilitates coordination and integration of the strategy implementation activities. (4) Monitoring Monitoring stage is intended for measurement of progress; toward fulfillment of the strategies chosen during the three previous stages. Monitoring should play a critical role in facilitating self-corrective improvements of strategies and systematic learning. The measurement of progress should take place for the output of each of the three previous stages, that is, progress toward objectives fulfillment, toward strategic programs fulfillment, and toward the fulfillment of the operating budgeting. At this stage, the types of monitoring tasks we might face, the types of measurements we might employ, and what types of corrective actions might result are mentioned. (5) Managerial incentives Managerial incentives, the concept of corporate planning rest upon the premise that managers are motivated and willing to work together in a shared direction toward a long-term strategic position advantageous to the firm. For this to be possible there must be at least some degree of congruence between the personal goals of each individual key manager and the corporations goals. Clearly given that the key managers themselves are instrumental in the formulation of objectives and goals as well as strategic programs, the personnel beliefs and business judgments of the management team will to an extent be congruent with the firms. (6) Feedback and Control Implementing strategy requires following up continuously and controlling on the part of management. It is quite often expressed that implementing strategy is much more difficult than designing it.

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This concludes the different stages of planning process. The major purpose of emphasizing a set of distinct stages has been to strengthen the focus on the various planning activities. This focus on five specific stages for setting strategic direction constitutes the second major dimension of conceptual scheme for corporate planning.

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Chapter III

Global trends in textile and apprel industries

3.1 Global Economy at Glance
Financial crisis in the world in the end of 1997 and the beginning of 1998 has left serious consequences and created many difficulties for all countries. But at the end of 1998 and in 1999, international economy has seen the recovery of many national economies. In all developed countries such as U.S., Japan, U.K. economic indicators may be better than some years before crisis time. In some NIC countries and some developing countries, who were strongly affected by the crisis like Thailand, Malaysia, Indonesia, and South Korea, the economies are gradually recovered and catching up with the development speed in previous crisis time. One thing is easily realized is that globalization process is getting faster and becoming mustbe element in the modern economy. World Trade Organization (WTO), the important factor catalysts the globalization process, is having more members. The organization has achieved many successful results in its effort of building single international trading system with unique regulations, rules. Last year, 1999, it is the year record of merging events of many huge international firms. Merge is not only happened between companies in the same countries, in same industries but also in different countries, in different industries (mostly in related industries). These kinds of merge led to the appearance of super conglomerates, which can have hundreds of billion US$. And it will create a new page of international competitive environment when strong companies are getting stronger, weak are getting weaker.

3.2 Global Context of Textile and Apparel Industry

Textile and apparel are two strongly related industries. In some countries, it is considered as a single industry. It is easily understandable because almost textile products are the input of apparel industry. Generally, the trends in apparel industry determine the trends in textile industry. But sometimes, innovations derived in textile industry have created the revolution in the apparel industry. Textile Industry: Textile industry is present in every country. This industrys products mainly are for apparel industry. But other buyers such as auto industry, chemical industry are also important for the industry. International trade between countries on all kinds of textile products is increasing. Textiles and clothing account for about 9.1 per cent of world manufactured goods exports or of 6.5 per cent of all merchandise exports. The material inputs of the industry is facing down in the price, especially in the cotton the decrease is about 5 percent annually from 1998 to 2000 (World Bank Commodity Price Report in 2000) The industry goes in the way of new improvement and innovations. According to William C. Smith in High Performance Fibers Protect, Improve Lives (in www.textileworld.com),

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customer needs urge producers to produce their good faster, stronger, lighter, safer. And These are demands constantly being pushed upon today's researchers and manufacturers. Things need to be done, products and techniques need improving, and better life-protecting materials are needed. Fortunately, high-performance and high-temperature resistant fibers have been developed to aid in allowing products to meet these challenges. Apparel Industry: Apparel is manufactured in virtually every country in the world. On a global basis, the apparel industry together with the textile industry are the largest source of industrial employment in the world. Apparel industries account for roughly half of that employment. Apparel production is laborintensive and requires only a limited number of special skills. Set-up costs are low, barriers to entry are few and rates of return on investment can be high. Therefore, many low-wage developing economies with abundant labor supply have attracted heavy investment in the apparel industry. This has resulted in consistent growth in apparel production levels among low-wage supplier countries with a focus on selling to the world, particularly to developed economies. The apparel industry also contributes significantly to the economies of the industrialized countries. In 1993, total production in the member countries of the Organization for Economic Co-operation and Development (OECD) was estimated at about $250 billion. On average, production levels of the individual members apparel industries represented about 2 percent of the total manufacturing sector in each country. Apparel manufacturing in the OECD countries provided employment for nearly three million individuals in 1993. Employment levels, as a percentage of totals manufacturing employment, averaged 4 percent. World trade in apparel, as measured by the value of exports, was about $190 billion in 1994, Canada's share being less than 1 percent. The major exporting countries were China, Hong Kong, Italy, Germany and the Republic of Korea. Based on 1992 figures, about 34 percent of trade flows between developed countries (including flows within the European Union), while over 50 percent is between developing and developed economies. As a result of regional trading blocs and globalization, apparel firms operate in an environment that involves an increasing interdependence between countries supplying inputs, other factors of production or finished products. Linkages among firms can be complex, embracing both developed and developing economies in a network of trade relationships. For example, offshore processing, to take advantage of lower labor costs, is a common strategy of American and western European apparel manufacturers but is used only to a limited extent in Canada. The United States, the world's largest single market, accounts for about 28 percent of world imports, followed by Germany and Japan.

3.3 Textile and Apparel Industries in Some Countries

(Sources: Internet: www.corporateinformation.com, www.textileworld.com, www.tradeport.org, www.worldbank.org, www.wto.org.) euromonitor,

3.3.1 United State of America

a) Textile:

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The US market for textiles has grown by 3.5% since 1996 to reach a value of US$61 billion. Since 1993 the market has grown by 14%, with a large proportion of this growth coming from exports. From 1996 the industry entered a more positive period of growth due partly to public acceptance of product innovations, and generally stronger consumer confidence. In the year 1995 and early part of 1996 has shown weak performance. The implementation of the NAFTA and GATT agreements has led to reduce tariffs on textile imports and spurred greater competition in the market. US manufacturers have been investing heavily in labor saving technology in response to this threat. In the textile market, broadwoven fabric was the biggest sector in 1997, accounting for 33% of industry sales, this sector consists of cotton, man-made and wool broad woven fabric. This sector has grown by over 13% over the five-year period to 1997, with the majority of growth coming from cotton and man-made broadwoven fabrics. Man-made fibers accounted for 19% of sales in 1997, with the sector growing by over 9% in real terms over the five-year period. The carpet and rugs sector has grown by 11% over the five-year period, this is due to increases in residential construction, increased demand for larger sizes and different shapes and economic prosperity meaning that consumers are redecorating their homes more often. Weft, lace and warp knit fabrics has been the fastest growing sector of the market growing by 24% over the five year period to reach a value of US$9 billion, this is largely due to a strong market for the sector end use applications, such as automobiles, furniture, toys and apparel. The textile industry is highly dependent for growths on performance in other industries such as apparel who are end users of the textile market. The textiles market in the states is extremely fragmented with a large number of small and medium producers operating in the market. For example, in the carpet sector alone there are over 200 companies engaged in the manufacture and sale of these products. Companies tend to operate in only one sector of the textile market as opposed to manufacturing a large number of different textile types. The yarn sector is dominated by a large number of small yarn spinners, the majority of which are privately owned Today's U.S. textile industry is recognized as a world leader; as a manufacturer of top-quality products; as a capable competitor in any market; and as an industrial segment eager to invest in new technology and better ways of doing things. b) Apparel: The American apparel industry is well established. The U.S. apparel industry comprises about 18,000 establishments, most of them small. Just over 60 percent of the establishments have fewer than 20 workers; only 10 percent employ 100 or more. In general, the small establishments make a few garment styles for niche markets, while the larger firms tend to produce a wider range of goods for different market segments. The apparel industry is a highly fragmented sector in which concentration is relatively low overall. Concentration is significant in several major segments, however. Generally, entry barriers in the apparel industry are minimal, given the limited capital requirements, broad availability of raw materials, and ready access to production equipment. Moreover, the large and fragmented structure of the U.S. retail sector provides opportunities for new and smaller producers to develop niche markets. However, entry costs can be relatively high in market segments where import penetration is significant and where U.S. apparel firms have forged close working relationships with major retailers and adopted new technologies and flexible manufacturing systems to reduce costs and respond quickly to retailer needs and changing fashions.

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The production of most garments remains labor-intensive, largely because of the difficulty in automating most sewing functions. The American industry is undergoing significant restructuring with reductions in domestic employment levels due to a continued shift in production from domestically based manufacturing to production in Mexico and in the Caribbean countries, where the U.S. has unique outward processing arrangements. In August 1996, U.S. apparel industry employment stood at 835 000, down about 10 percent from the level of the previous year, and represented the lowest employment level since 1939, when recording began. With this increased concentration of production in Mexico and the Caribbean, the U.S. has reduced its dependence on other particularly Asian sources of supply.

3.3.2 United Kingdom

a) Textile: The UK market for textiles increased by 3.4% from 1996, to reach a value of 11.3 billion (US$18.5 billion) in 1997. Over the period 1993 to 1997, the market increased by 14%. In real terms the market has remained fairly static after the affect of the recession in the earlier part of the review period. The fortunes of the textile industry are closely linked to those of the clothing industry, which has increased in recent years on the back of higher disposable incomes in the UK. The UK, like many other European countries, is a net importer of textiles. In the light of the Asian financial crisis, the markets value will be constrained with the influx of cheap textile imports looking set to continue. In the textile market, the broadwoven and knit fabrics sector is the largest sector accounting for 60% of sales in 1997. Incorporated into this sector are textiles used for clothing, car interiors and household textiles. Textile flooring is the fastest growing sector with a 21% increase in sales over the review period as the general economy improves as well as the residential and commercial property markets. The proportionate share of each of the sectors in the UK textile market has remained constant over the review period. The percentage of world production of synthetic filaments manufactured in Europe has declined over the past decades; from over one-fifth in the late 1970s to the current share of around one-tenth. In general, the market is fragmented. Only one company has a market share exceeding 5%. b) Apparel: U.K. apparel industry sales have grown on average 17% each year since 1990, and are now valued at almost $40 billion. At 25% growth, the specialized womenswear sector shows the highest increase in sales over the same period. Consumer spending on clothing as a proportion of disposable income has dropped from 7.5% in 1986 to 5.9% in 1997, competing with other consumer goods and services, such as computers, education, entertainment, and leisure pursuits.

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Table 3.1: U.K market data of apparel industry Market Data ($ billion) Total Market Size Total Local Production Total Export Total Import Source: US National Trade Data Bank The largest growth in the UK apparel industry has been in womenswear, which has witnessed a 40 percent increase in sales from 1992 - 1996. Expenditure on women's apparel reached an estimated $14.6 billion in 1996. Womenswear was expected to continue to be the best performer. The total market size was estimated to grow to $15.6 billion in 1997, with imports accounting for $6.6 billion. US products is preferred thank to strong brand recognition. Key growth areas are in maternity apparel, both casual and work; corporate wear, especially in career separates; branded sportswear; eveningwear and casual wear. Local producers are particularly strong and are currently growing very rapidly in knitwear and hosiery markets. Low-wage suppliers (Hong Kong, China, Turkey) have their own positions in the market. The menswear market was valued at $8.32 billion in 1995, up from $8.16 billion in 1994, and was predicted to grow between .5 percent and 1.4 percent annually during the next five years. Menswear is now the second largest component of clothing and footwear sales with 23% of total expenditure. Underwear, socks, boxers and nightwear, as a group, has recently experienced the largest amount of import growth. The demand for leisurewear has grown considerably. Jeans are one of the most resilient sectors and promise continued success. As with other clothing sectors, the challenge to menswear exporters is to wedge themselves between the fashion kings of Europe and the inexpensive wares of the third world. The "Quick Response" format has become an important business practice in the UK. The British market shows a healthy demand for children's clothing. Expenditure on childrenswear grew by 23% between 1989-1994 to reach $4.2 billion and was expected to grow by 13% during the years 1994 to 1998. The population of children ages 5 - 15 was predicted to grow by over 10% between 1991 - 2001 to 7.9 million. Consumer spending on sports clothing and footwear in the UK totalled $2.1 billion in 1993, a 6% increase on the 1992 total. Clothing claims the largest share of the sports market at 61%. Retail sportswear sales alone account for 9.1% of the entire apparel market. Between 1989 and 1994, the value of the sports clothing market grew by 12.4%. Most of the sports clothing and footwear supplied to the U.K. market comes from overseas, with a small amount of U.K. production largely based around a number of small suppliers. Most of the leading suppliers have production facilities in the Far East. Overall, imports account for 63% of U.K. sales of sports clothing. 1997 36.8 33.3 5.15 9.35 1998 38.3 33.9 5.35 9.75 1999(est) 40.0 34.3 6.0 10.3

3.3.3 Australia
a) Textile: Australia's yarn producers do not cover all the needs of the fabrics sector, so a significant proportion of total yarn usage is imported (particularly of the polyester/viscose and

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polyester/cotton types). The majority of Australia's requirements of knitted fabrics and woven woolen and worsted fabrics are available from the local industry, but not woven cotton and manmade fiber types. Measured in square meters, only about 10 percent of cotton and 25 percent of manmade fiber woven fabric consumption are made locally. The majority of woven fabrics for shirts/blouses and ladies' dresses and summer skirts are imported without duty or restriction. In some cases these imports are in the grey state, and the dyeing and/or printing operations are undertaken locally. The total Australian market for furnishing fabric is estimated to be approximately A$60. The market is small and very competitive. There are several local manufacturers, but the market is dominated by imports. Climatic variations over the Australian continent play a part in choice of fabrics and colors. The large population centers of Melbourne and Sydney account for the bulk of sales. The local manufacturing base is small, with a few state-of-the-art mills. With the reduction in import duty, the local industry is now facing strong competition from imports. Furnishing fabrics are imported from many countries including Europe, Asia, South Africa and the U.S. In terms of total volume, Asia is the largest supplier. Industry estimates of the U.S. market position vary from about ten to fifty percent. U.S. furnishing fabrics tend to be in the mid-to-upper end of the market, while more expensive, have lower volume sales. Australia has a diverse range of locally manufactured products including wool scouring and top making, leather tanning, spinning, weaving, knitting and the design and fabrication of clothing, shoes and leather goods, and textiles such as towels, blankets, sheets and curtains. Most of the cotton and wool used in Australian is locally produced, although finer types of cotton and coarser types of wool are generally imported. By the early to mid-1990s the textile industry had become a modern, well-equipped sector that was fairly highly specialized, with particular firms concentrating on particular market segments. b) Apparel: Unlike the textiles industry in Australia, one of the early responses of clothing and footwear manufacturers to the announced lower tariff regime was towards more offshore sourcing, especially by firms with strong brand names. Over the 10 years previous to 1995-96 apparel imports have risen by over 150 percent in real terms, and as of March 1997 showed no signs of abating. Some of the biggest gains in import penetration have been made in relatively basic products, including jumpers and cardigans, underpants, men's shorts, shirts and cotton trousers. In each of these cases the majority of imports come from China. The three main product areas that have retained predominantly local sourcing are: men's and boys' workwear; socks, hosiery, especially pantyhose, and women's and girls' outerwear, such as dresses and skirts. The latest statistics indicated that imports of dresses and skirts are accelerating rapidly, with China and India being the main sources. Brand identification and image are important factors. Brand is most significant in buyer choice when the fashion content of the garment is low. For fashion items, it is the design which determines choice, rather than the brand. Another factor determining competitiveness is product variety. Where great variety is required, such as in ladies' dresses, barriers to entry tend to be lower. By contrast, the barriers to entry of products such as apparel for industrial workers and pantyhose are high. Because of the power of the two main brands, and the excellent stock service provided, other local manufacturers and imports tend to be kept at bay. To supply the market, potential competitors would require investments in advertising, warehousing and stock. The ability of the supplier to respond quickly to customer needs is

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becoming increasingly important. Also important are quality control, delivery and service standards, which allow a competitive edge.

3.3.4 Canada
a) Textile: The textile industry is one of the oldest manufacturing industries in Canada. Established over 150 years ago, the textile industry commenced with the production of natural fibre yarns and fabrics. The industry has evolved from its early beginnings to a highly modernized and capital-intensive industry selling to over 150 industrial sectors in Canada and worldwide. Canada's textile industry comprises manufacturers of many kinds of products of primary textiles, textile products In 1997, the textile industry accounted for some 2.2 percent of Canada's manufacturing Gross Domestic Product (GDP) and some 2.7 percent of total manufacturing employment. The textile industry in 1997 consisted of some 759 establishments, employed about 42,500 persons, and shipped $6.9 billion worth of textiles and textile products, of which 43 percent ($3.0 billion) was exported mainly to the U.S.A (78.0 percent of total textiles exports). While the majority of establishments in the textile industry have fewer than 50 employees, establishments producing primary textiles tend to be larger and have greater economies of scale than those producing textile products. Production in a number of product areas is highly concentrated, e.g., manmade fibres, filaments and fabrics; carpets, mats and rugs; bedsheets and pillowcases; and towels. Between 1992 and 1997, total textiles industry shipments increased from $5.7 billion to $6.9 billion. Total shipments of primary textiles are estimated to have increased from $2.7 billion to $3.7 billion, while total shipments of textile products are estimated to have increased from $3.0 billion to $3.2 billion. The industry annually invests about $350 million in state-of-the-art textile machinery, business equipment and buildings. This investment tends to be concentrated among a small number of larger textile companies. Historically, the Canadian textile industry has attracted a significant volume of foreign investment in the primary textiles sectors, and more limited investment in textile products sectors. Similar differences occur among specific sub-sectors in the percentage share of total shipments by foreign-controlled companies. As an example, foreign-controlled companies producing man-made fibres, filaments and fabrics accounted for some 60 percent of aggregate primary textiles shipments, whereas companies producing carpets, rugs and mats accounted for a lower 30 percent of aggregate carpet shipments. Conversely, at least five Canadian companies control foreign manufacturing facilities whose combined shipments (of foreign-produced textiles) represent, in value, about 18 percent of total shipments of textiles produced in Canada. The Canadian textile market rose by 27 percent between 1992 and 1997, increasing from $7.8 billion in 1992 to $9.9 billion in 1997. From the previous year, the market increased by 3.1 percent, rising from $9.6 billion in 1996 to $9.9 billion in 1997. Over time, Canadian manufacturers have been losing market share consistently to imports. Thus, domestic market share fell to 40 percent in 1997, some 17 percentage points lower than the 1992 level. The continuing loss of domestic market share has been offset somewhat by an emphasis by producers on export market development. In 1997, exports totaled $3.0 billion. Between 1992 to 1997, textile industry exports increased from $1.3 billion to $3.0 billion. Exports of primary textiles rose from $0.8 billion in 1992 to $1.9 billion in 1997, while exports of textile products increased from $0.5 billion to $1.1 billion over the same period. Meanwhile,

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textile industry imports increased by 76.5 percent between 1992 and 1997, rising from $3.4 billion to $6.0 billion. Imports of primary textiles rose at a slightly higher rate over the same period, increasing by 83.3 percent from $1.8 billion to $3.3 billion. Imports of textile products increased by 80 percent, rising from $1.5 billion in 1992 to $2.7 billion in 1997. b) Apparel: Mass production of apparel in Canada began in the mid-19th century in urban centers, which supplied pools of semi-skilled labor and were the major consumer markets. While apparel is manufactured in all provinces and territories, Quebec continues to account for the majority of the industry's shipments, and Ontario, Manitoba and British Columbia continue to be major apparel producers. Also, more recently, there has been a trend toward firms establishing operations in rural areas and smaller communities in Canada. Like the textiles industry, the Canadian apparel industry has grown from its modest beginnings to become the supplier of a wide range of apparel to domestic consumers and, increasingly, to foreign markets. The apparel industry, which produces retail, industrial and institutional apparel, comprises manufacturers of many type of men and boys' clothing, women's clothing, children's clothing, other clothing and apparel. In 1997, the apparel industry contributed 2.2 percent of Canada's total manufacturing gross domestic product (GDP) and accounted for 5.3 percent of total manufacturing employment. The relatively high contribution of the apparel industry to total manufacturing employment as compared to its contribution to manufacturing GDP reflects the industry's continuing high degree of labor intensity and this despite the adoption of computer-aided technology in the early stages of the production process. As of 1996, the Canadian apparel industry comprised close to 1 800 firms. The industry is one of generally low barriers to entry, still fragmented and very entrepreneurial. Approximately 75 percent of firms have fewer than 50 employees and account for about 33 percent of total industry shipments. Firms that specialize in cutting and sewing apparel as contractors are more pronounced in women's wear than in men's wear and account for about 25 percent of the total number of establishments in the industry. Total employment in the industry, including contracting out and part-time employment, is estimated to exceed 100 000 persons. Apparel industry total shipments are estimated to have grown from $5.8 billion in 1992 to $6.9 billion in 1997, an increase of 19 percent. The vast majority of apparel companies are owned by Canadians. Foreign-owned firms account for about 2 percent of the total and most are controlled by U.S.-based multi-national corporations. They tend to be among the larger firms in the industry and concentrate on manufacturing large-volume staple products such as jeans, underwear and foundation garments. As is the case with inward foreign direct investment, outward foreign direct investment is not a major factor for the Canadian apparel industry. The Canadian Market for apparel had been falling steadily since 1989, but stabilized between 1992 and 1997. It totaled $9 billion in 1997, up from $8.3 billion in 1992. Canadian manufacturers have continued to lose market share to imports. Domestic market share was 55 percent in 1997, 8 points lower than the 1992 level. The Canadian apparel retail market was particularly hard hit by the 1990-91 recession and has yet to recover to pre-recession levels. In 1995, the Canadian apparel retail market was valued at $15.2 billion, a 4 percent increase over the 1994 level. The market is still down from the $16.3 billion level it reached in 1990. In addition to the recession, longer-term changes in demographics, incomes and prices have exerted a negative effect on consumer demand for apparel. Canada continues to have a substantial trade deficit in apparel, mainly due to trade with lowwage countries. In 1997, the deficit stood at $2 billion. Apparel exports rose from $0.6 billion

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in 1992 to $2 billion in 1997. Imports of apparel increased from $3 billion in 1992 to $4 billion in 1997. Over the past quarter-century, the Canadian textiles and apparel industries benefited from significant import protection and adjustment assistance. In the late 1980s, protectionism gave way to trade liberalization, and Canada entered into the Canada-U.S. Free Trade Agreement (FTA) in 1989 and, in 1994, the North American Free Trade Agreement (NAFTA). More recently, agreements were concluded with Chile and Israel. In addition to the phase-out of tariffs under NAFTA, the industries are also facing tariff reductions as a result of the Uruguay Round of multilateral trade negotiations under the GATT, concluded in 1994. These reductions, which began on January 1, 1995, are occurring in annual increments over a 10-year period, and will reduce the average tariff for apparel from 25 percent to 18 percent. The Uruguay Round Agreement on Textiles and Clothing also provided for the gradual phase-out of quotas on apparel and textiles over a 10-year period beginning January 1, 1995. Products are being removed from the quantitative restraint system in four steps over the phase-out period, with the second phase having taken effect on January 1, 1998. At the same time, the annual quota growth rates of those products remaining under restraint are being increased according to a set schedule. The phase-out applies only to Canada's agreements with member countries of the World Trade Organization (WTO), which comprise 32 of the 43 existing bilateral restraint agreements. Public policy in the textile and apparel industries has also included duty remission programs, which currently cover outerwear greige fabrics, shirting fabrics, outerwear apparel, blouses, shirts and co-ordinates, outerwear fabrics. These programs, which aim at assisting the most vulnerable sub-sectors of the apparel industry adjust to increased competition, primarily from low-wage sources will expire on December 31, 2004. Producers who received benefits under the five existing duty remissions would be allowed to import certain quantities of apparel or fabrics duty-free to complement products that they make in Canada. Annual remission benefits for each individual recipient will be restricted to amounts it received in 1995. These remission orders will help Canadian apparel and fabric manufacturers face the pressures of increased import competition as quotas are liberalized and eventually eliminated in 2005 under the WTO. In early June 1999, funding for an International Fashion Technology Center in Manitoba was announced by the three levels of government. The center will consist of distance and multimedia training facilities, a manufacturing pilot plant, research laboratories, demonstration and evaluation platforms for manufacturing equipment and systems, an on-line library and resource center and leading edge computer and technology systems. Students and fashion industry employees will receive training in high technology areas including e-commerce and the use of high technology machinery and equipment. The industry has established Apparel Human Resources Council as a national labormanagement organization, is dedicated to serving the industry's training and human resource development needs. The Council's goals include ensuring that industry has the skilled workers it requires, supporting effective training services for employees at all levels, and providing a one-stop information service to help companies and employees deal more effectively with technological change and/or restructuring.

3.3.5 China
(Source: U. S. Department of Commerce - National Trade Data Bank, December 22, 1999)

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a) Textile: The textile industry plays a vital role in china's positive trade balance, accounting for onefourth of its total exports worldwide. Despite impact of the Asian financial crisis on exports to Japan and South Korea, China's textile exports have grown 5.95% over the first seven months of 1998. However, five consecutive years of losses and continuing industry domination by cumbersome, inefficient state-owned textile enterprises (40% of which are estimated to be on the brink of bankruptcy) have led to a major government effort to restructure the sector through mergers, closures, bureaucratic restructuring and industry incentives. Concern about social instability and the lack of a social safety net have inhibited greater restructuring efforts, which would result in massive layoffs. Ironically, the recent floods, which have destroyed many textile factories in South China may have inadvertently helped to reinvigorate the depressed textile industry by necessitating the purchase of new machinery and furthering management streamlining. The floods have also helped focus attention on the potential for non-woven geotextiles used in dam and roadway fortification as a means of stimulating sector growth. Most recently, Zhu Ron Gji stressed the importance of using geotextiles in post-flood reconstruction projects. Entry barriers has been strongly built up by tariff or non-tariff factors (such as import licensing, Quotas, Administrative Control, Anti-Competitive Practices), which creates difficulties for foreign companies in penetrating Chinese markets of all kind of products. b) Apparel: China is the world largest textile and apparel national producer due to variety number of companies, its local resources such as labor, raw material, and supportive industries. Only from 1992 to 1996, Chinas apparel exports grew by 50 percent to $25 billion and its share of the world total rose from 12.8 to 16.2 percent. Chinas apparel exports in 1997 reportedly rose by 27 percent to $31.8 billion. The largest markets for Chinese apparel exports in 1996 were Japan ($7.9 billion), the United States ($6.6 billion), and the EU ($6.1 billion).

3.4 Corporate Strategy Examples 3.4.1 Hermann Buhler AG (BH)

Hermann Buhler AG has a long history in the yarn producing industry. It is the medium sized company in the yarn producing industry. The company has two main production factories, one in its headquarter in Switzerland, and one subsidiary in U.S. named Buhler Quality Yarn Company. Company employs 145 employees in Switzerland and 92 employees in U.S with total capacity is 7.200 tones per year. Annual sales of headquarter is CHF 42 million while it is US$ 25 million in the U.S factory. Products in Switzerland are mainly for export, about 80% of production. In U.S., it is 20% of production. The firm commits to provide best quality products to its customers. To follow this commitment, company has launched total quality management program in all factories, combined with innovation in product development and continuous investment in state of art equipment. HB has installed some of first spinning machines with COM4 spinning technology by Rieter. This production technology has improved not only quality of products like perfect yarn structure, very low hairiness but also in reducing cost in subsequent processing such as no wax required in knitting, outstanding production efficiency in weaving and wrap knitting Quality leadership

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Product choices: five groups of products with wide range of technical characteristics. Production: moving to more flexibility, more advance. Marketing: providing best service to clients

3.4.2 Burlington Industries, Inc.

Burlington Industries, Inc. is named for Burlington, North Carolina, where the company was founded in 1923 and the first small plant was completed in 1924. Founder J. Spencer Love, a 27-year old returning home from World War I, received strong support from the Burlington Chamber of Commerce and chartered "Burlington Mills" on November 6, 1923. Today Burlington employs almost 20,000 people and operates plants in six states, Mexico and India. Constantly changing, continually growing, Burlington is one of leading companies and an innovator in the global market. In recent years Burlington has sharpened its focus on its core businesses and improved its financial strength. It has invested in its U.S. facilities to better serve the U.S. market and international markets. Exports doubled in 5 years. Burlington is now aggressively pursuing a worldwide growth plan in apparel. Features of Burlington strategy can be shown in company mission and goal statement, also represented through company actions as follows: Customer responsiveness: We must emphasize responsiveness and total customer satisfaction, striving daily not simply to meet our customers needs but to exceed their expectation. Open company: Encouraging the sharing of ideas and information, welcoming discussion and involvement at all levels, providing opportunities for advancement and betterment to everyone. Continuing global activity and market expansion Marketing: Focus on high quality segments. R&D: Invest heavily in R&D activities to become the most innovative and continuous improvement company. Technology: Continuously investing in building the modern production equipment and plant ($US 458 million was invested over last four years). Integrating forward in apparel products: developing new core competency: garmentmaking.

3.4.3 Jong Pattana Co. (JPC)

Jong Pattana Co. was established in 1983 with only 30 weaving machines in operation. JPC makes dyed fabrics for apparel (65% of operations) and non-apparel (35% of operations) manufacturers. The company acquires cotton yarn locally, then weaves the fabric, dyes, finishes and prints it. Forty percent of the companys clients then export their products to MFA markets.

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By the year 1998, annual turnover was 548 million baht (about $US 14 million), up from 318 mil. baht in 1990. The Gulf War (in 1990) has affected Thai economy. The Thai economy showed signs of a slow down. JPC had to seek ways to raise productivity in order to supply quality products to apparel and non-apparel industries, which could compete in the MFA market. Company had decided to move to high-end products and secured contracts to supply cotton fabrics to clothing factories producing brand name products. That helped to increase the value-added share of output of the company products to 30%-35%. On the other hand, JPC has decided to renovate its equipment. To date, 80% of its original plant has been replaced. However, due to the Thai financial crisis and the growing requirement of purchasing power of clients has intensified the need for the firm to diversify its product base. Conclusions on JPC strategy are: Product choices: Diversifying products to meet demand of different segments, by adjusting material usage, treatment of products in dyeing and printing. Marketing: Paying more attention to foreign clients, by visiting them, or participating in the international trade fairs. Exploring possibilities of marketing products under the companys own brand name or international brand names. Product differentiation: Utilizing flexible production management in making products according to the need of customers. Pricing: Adjusting prices and term of payments, according to the classified group of customers. Staff training: Concentrating on technical staff, select on the basic of their technical background and loyalty to the firm, then dispatch them to the training courses. Cost management: Seeking business alliances in sub-contracting works, like dyeing and printing, in order to save time and cost. Technology: Continuing modernization of company equipment.

3.4.4 ADETEX Textile Company

ADETEX is a 20-year old, privately held textile manufacturer that employs 10,000. The company has five plants, four of which are in Bandung (Indonesias fourth largest city with a population of 2 million, is the provincial capital of West Java and a center of the Indonesian textile industry). Despite a 10-20% decline in annual turnover from two years ago, ADETEX still reports annual sales of $70 million. This company has weathered the krismon (the Indonesian economic crisis that began in mid-1997) on the strength of a well-defined corporate strategy that focuses on the mid-to high quality segment of the textile market. ADETEX has the distinguishing characteristic of relatively small, quite balanced output from all the companys divisions that stretch vertically from yarn to ready-to-wear garments and horizontally from cotton to synthetics. Rather than focusing on a single product line or relying on high volume of low-end products, ADETEX has concentrated on constantly improving quality across its product lines.

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ADETEX did not export until 1985 when the Indonesia market opened up and the rupiah was devalued by 30%. Now, the company exports 70% of its overall production, 90% of its synthetic printed line. The companys major export markets are Japan and Europe for its cotton products and Europe, the U.S., and Asia for its synthetics. Constrained by the U.S. textile quota, ADETEX estimates that 5% of its filament products are exported to the American market but that an additional 20% finds its way there indirectly through sales of inputs to other Indonesian companies with their own share of the 7,000,000 sq meter Category 619 quota available to all of Indonesia. ADETEX imports cotton from the U.S. and exports heavily to Japan. Consequently, U.S. banks willingness to accept Indonesian bank-issued letters of credit (L/Cs) and the strength of the yen are two cross-border factors that strongly affect the companys fortunes. ADETEXs banks have reportedly resolved the L/C issue by making back-to-back arrangements with correspondent or affiliated banks in the region. As long as the yen trades in the 110-120 range, the companys products are price competitive in the Japanese market. The current credit crunch has not affected ADETEX as adversely as it has some of the companys competitors, some of whom have ceased operations during krismon. Citing the companys focus on improving quality rather than adding plant capacity to increase low-end volume output, ADETEX is consequently less leveraged than some of its competitors. The fact that the company has not relied heavily on foreign investment for its growth has also spared ADETEX from the consequences of the sudden and precipitate rupiah devaluation. Looking down the road, ADETEX sees steadily increasing competition in the textile industry. Consequently, the company views a disciplined commitment to a well-defined corporate strategy as a key to surviving and prospering. A Company contact predicts, however, that as political and economic stability increase, the Indonesian textile sector will recover quickly because of its comparative advantages in a large labor supply, a large domestic market, and export competitiveness. Against these future prospects, a company officials observation that U.S. exporters generally seem less aware of Indonesia than their European, Japanese, and other regional players could mean missed opportunities down the road for U.S. businesses.

3.4.5 Phiphatanakit Textile Co. Ltd.(PTC)

PTC is a medium sized firm in the spinning and weaving industry. It was established 52 year ago. That is because of using second- hand shuttle loom weaving machinery installed more than 20 years earlier, PTC experienced increasing cost. It led to less competitiveness in the domestic market. Company decided to change its old machines by new ones, and to export products to MFA markets (US, EU) in 1988. Since 1995, PTC gradually replaces its old machinery (more than 50 percent of spinning machinery and one-third of weaving machinery). The firm goals now are to improve its production efficiency to increase value added in its products and raise its margin, to gain ISO 9002 in the year 2000. Competitive strategies recently adopted by PTC are outlined as below: Product choices: Concentrate on a small range of products (Grey fabrics) and fabric yarns, to avoid any loss that might arise from the changes in the production line. Marketing: Use both direct sales and sales agents (50% each)

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Make contact more frequently with the clients in order to learn more about customer tastes and behavior. Production differentiation: Concentrate more on the technical knowledge of the mixing process of yarn and the adaptation of machinery utilization to ensure high quality products. Staff training: Concentrate on improving of technical skill for operating and maintaining the machinery. Cost management: As the key strategy adopted to maintain competitiveness, the company will introduce a price monitoring system.

3.4.6 Amornthep Knitting Factory Co. Ltd. (AKF)

The company is a small firm in the garment industry of Thailand. Turnover is about 80 million bath ($US 2.2 million). AKF is export-oriented company. Its export fluctuated due to cycles in the Thai textile and garment business, In 1991, sales peaked to 55 million baht but this figures is only 39.5 million in 1993-1994. The firm started exporting low quality knitwear products to the US market in 1973. Although the price range was as low as $US 1.80 2.00, the margin on sales was in 25-30 percent. The products were made under the wholesaler brand name. Just because sales dropped in 1994, company reduced its number of workers and explored opportunities for product improvement. AKF was carrying out policy of purchasing new machinery, improving the skills of the remaining workers, setting up new factory in urban areas. Competitive strategy of AKF can be summarized as follows: Product choices: Replace the low quality products with high quality products with a higher sales margin. Marketing: Seek out niche markets. Product differentiation: Promote quality assurance. Promote experienced and highly motivated workers in the production process. Pricing: Charge higher prices at the high end of the market. Staff training: Provide machinery operators with training courses in Europe. Modernization of production capacity: Company has a policy to modernize its machinery by replacing the old every 3-5 years. Cooperation: Seek support from Thai Garment Support Foundation in proving training courses.

3.4.7 Thanh Cong Textile Company (T.CITEX)

T.CTEX has been one of the most successful companies in renewing technology and expanding production. It has increased textile production eight-fold from 1976 to 1996. Since 1990, it has expanded production to garments and produced over 5.4 million garment units. In 1995, it started to introduce yarn production, beginning with over 1,000 tons. Recently, it

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has replaced about 90 percent of its technology with international equipment. It now has a capacity of 3,700 tons of yarn, 36 millions meters of textiles, and 7 million garment units per year. The reasons for its success stem from its business strategies. These can be broken down into three main branches: Its mission Statement is, we develop ourselves to be alive, and if we want to be alive we must develop ourselves. The business priority of the company is to replace its technology in order to improve quality and expand production. Constant renewal: During the transition, T.CTEX has led the way in management reform and exploring new approaches to market entry. For example, during the period of stateowned company reorganization in the 1980s, it needed scarce foreign currencies to renew technology. To get foreign currencies, it discovered triangular exports. It joined with agricultural export-licensed companies to exchange its products for foreign currencies. Agricultural export-licensed companies bought agricultural products for export and earned foreign currencies from exporting agricultural products. They then bought T.CITEX products and sold them to farmers in exchange for agricultural products. All parties were able to benefit. Thank to this procedure, T.CITEX had enough foreign currency to import necessities for production and to renew production lines. Human resources are another import factor. By focusing on abilities and not on personal history like other state-owned companies, it attracted a skilled and qualified labor force. In addition, it established its own school and organized many training courses to improve both professional and basic knowledge of its employees. It encouraged employees to be involved in training-on-the-job and organized many professional contests. T.CITEX is well known for having the best compensation packages in the industry.

3.5 Concluding on the global trends in the industries and its implications
From above analysis, we can see some main points in international environment: The industries are moving from labor intensive to capital intensive industries, but at different speeds in different countries. In developed countries, due to high labor cost and competitive price offered from emerging countries, if companies want to compete well in the international market, they must less depend on its manual force in production line and exploit the technological advance. This trend urges company in the industry have close eyes in the technological development. In order to reduce production cost, mainly avoiding high labor cost in some developed countries, many companies have tried to move and/or expand its production sites to other countries where they can have some preferential. Therefore, in the global arena, the competition has been getting tenser due to the appearance of new competitive force with lower price but higher quality. China is the strongest national producer, commercial in the world due to the low production cost advantages. Chinese product has flooded global market. However, they mainly compete in the low and medium quality segment. For companies in emerging countries like Vietnam, Thailand, Bangladesh, and Indonesia they have to pay close attention in the giant action because Chinese companies and those countries companies compete in the same segment.

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The flows of material, production technologies, management knowledge is getting easier and faster. Companies should be aware of opportunities of acquiring new technologies, adapting new managerial skills. Technological innovation: According to the fast development in some industries like in information technology, biographic industry, etc., the innovation in the industries has been being improved dramatically, for examples, computer aided in design, in production, new technologies in micro fiber manufacturing, new man-made materials Incumbent companies will face of the born of new substitutes, which can compete or may be replace some of their existing business. The trade system of the industries products getting faster and more comfortable in the global environment. This is achieved by the appreciated coordination efforts of many countries, many international organizations in lowering the entry barriers. That is great for companies want to penetrate overseas markets, where they can not enter before. However, it will create troubles for small companies in less developed and developing countries, whose competitiveness is unable to fight against imported products. Customers all over the world ask for better and better quality product but not at higher price. Companies, who want to be alive, have to continuously improve its quality of service, of product as well as renew their technologies, and equipment.

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Chapter IV

Vietnamese textile and garment industries analysis

4.1 Vietnamese Economic and Political Environment
Vietnam has been engaged in a process of market reform since 1986-87 that is well known in the Vietnamese phrase -Doi Moi (renewal). The Doi Moi process is aimed at restructuring Vietnam's regulatory, legal, administrative, business, investment, and foreign trade apparatus and policies to produce a market economy "with socialist characteristics" under state management. The reforms have achieved impressive results. Until the effects of the Asian financial crisis began to be felt, Vietnam's economic growth had averaged 8-9 percent a year since the early 1990's. It grew 8.9 percent in 1997, and 6 percent in 1998, but many economic analysts have predicted 1999&2000 growth in the 5-6 percent range. Industry and construction have slowed to around 11 percent a year, down from 15-16 percent per year. Foreign investment -- which stood at zero just a few years ago -- now exceeds $33 billion in commitments and $8 billion in actual inflows. But investment bookings have slowed; 1997 totals were 40 percent lower than the previous year. Vietnam's foreign trade levels, while growing quickly, have been hampered by the difficulties of its Asian trading partners. In 1997 Vietnam's exports ($8.9 billion) expanded 22 percent over 1996 ($7.3 billion), while 1997 imports ($11.2 billion) barely increased over 1996 figures ($11.1 billion). As a result, Vietnam's trade deficit ($2.4 billion) -- around 10 percent of GDP ($24-25 billion) -- was 40 percent lower than the 1996 deficit. But by early 1998, foreign reserves had fallen to a worrisome 7-8 weeks of imports. Export earnings began to slow appreciably in 1997-98, as Vietnam's markets in East Asia, such as Japan and Korea, were hit by the effects of the Asian financial crisis. Vietnam exports significant amounts of coal, textiles, footwear, coffee, rice, seafood, and petroleum. After rapidly expanding since 1994, 1997 bilateral trade with the United States, at almost $1 billion a year, was virtually unchanged from 1996 levels. Overseas Development Assistance (ODA) also plays an important role in Vietnam, with capital commitments by the end of 1997 totaling around $10.8 billion and actual cash disbursements of $3.6 billion. With per capita incomes in the range of $350 per year (several times higher in "purchasing power parity" terms), Vietnam still is an extremely poor country. Although urban residents may enjoy incomes two-to-three times higher than average, three-quarters of Vietnam's population is engaged in subsistence farming (mostly wet rice production) and the overwhelming majority of Vietnamese live in villages, not cities. The agricultural sector is contributing an ever-shrinking proportion of national economic output, however, amounting to 25 percent for 1997. Industry and construction now contribute 32 percent of the economic pie, while services account for 43 percent. Agricultural output is growing 4-5 percent yearly. Rural schools, hospitals, and roads are in poor condition. In general, rural infrastructure continues to lag behind urban infrastructure, primarily because so much new investment has been directed toward the cities. Government quotas on rice exports and strict regulation of the internal rice trade have kept farm incomes and rural investment rates much lower than free market conditions would warrant. These policies also reduce incentives to invest in the rice marketing chain, including, drying, storage, and port facilities. The GVN is beginning to implement measures to redress this problem, mainly by increasing the rice quota and allowing more private firms to export rice.

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Foreign investment in Vietnam is the main strategic choice to boost up its economy, which has shown signs of faltering. To keep GDP growth rates in the 9-10 percent range for the five-year period 1996-2000, the government calculates that Vietnam's economy will need to attract $42 billion of investment. Fully half that figure ($21 billion) must come from foreign sources: two-thirds ($14 billion) from foreign direct investment (FDI) and one-third ($7 billion) from ODA. The remaining $21 billion will come from domestic sources. The heavily focused and favor granted of the Government's strategy on SOEs to lead national economy, which are mostly inefficient, has unfortunately affected of crowding out private investment and stifling competition. State-owned firms have been reorganized into "general corporations" -- essentially monopoly cartels -- in 16-18 economic sectors the government has deemed "strategic -- such as cement, petroleum products, steel, sugar, fertilizer, rice, telecommunications, aviation, financial services, importing, distribution, and others. SOEs tend to be capital intensive, geared toward import substitution, and produce almost no new jobs. Vietnam's fledgling private sector has created virtually 100 percent of new employment in recent years. With few exceptions, the private sector consists of small scale, family firms or single proprietorships with a handful of employees. By joining the ASEAN Free Trade Area (AFTA) in 1995, Vietnam committed itself to reducing tariffs along with other AFTA member countries (Malaysia, Indonesia, Brunei, Singapore, Thailand, and Philippines) to 0-5 percent by 2006, and is taking steps to comply with this agreement. Vietnam also has submitted an official application to join the World Trade Organization (WTO) and the Asia-Pacific Economic Cooperation Forum (APEC). The country is engaged in negotiations with the United States to conclude a comprehensive bilateral trade agreement that will include provisions on tariffs, intellectual property, services, investment, and trading rules, and which will eventually lead to Most-Favored Nation (MFN) status for Vietnam. Vietnamese officials have stated many times that the country is committed to adopting international trading and business practices and to integrating itself into the world economy.

4.2 The Role of Vietnam Textile and Garment Corporation (VINATEX)

Whenever people talk about Vietnamese textile and apparel industries, they will never underscore the important roles of VINATEX. The corporation was founded by the Decision No 253/TTg of the Prime Minister, which is based on the administrative merging, restructuring of whole SOE in the industries. It is under direct management of Ministry of Industry. Vinatex has so far 64 member companies, comprising more than 50 production and trading units, 1 financial company, 1 textile research institute, 1 fashion design institute, several training schools and branches in Danang, Hai Phong, Hochiminh City. Total labor force is over 100,000. Besides, the corporation still has joint ventures with 57 local companies and 22 joint ventures with foreign companies. Main functions, which are stated by Vinatex, are as following: To carry out investment, production, supply, distribution, export, import activities in respect of the textile and garment business activities in accordance with the laws of Vietnam. 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 overseas 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.

In fact, almost every members of Vinatex do business independently or still report directly to the local government. Hanosimex is one of them. However, in important decision making process, every company needs to consult its higher control level, Vinatex. Currently, in its Directions to the year 2000 document, VINATEX plants to further in depth and extensive investment with following key measures: To rehabilitate and renovate old and outdated machinery at the existing workshops in order to increase productivity and to improve the product quality, which should meet regional and international standards; To build yarn spinning mills, fabrics weaving mills and to provide them with new equipment in complete sets; To create local sources of raw materials and to quickly implement projects to build synthetic fibre and yarn producing factories; To expand international cooperation through joint venture with foreign investors, cooperation for export, business cooperation; to call on reputable international companies and trade partners to invest in this industry on a long term basic, thus developing big and stable markets.

4.3 Industries situation

In Vietnam, textiles and garments are considered part of a single industry. It is an important industry, because: (1) it is labor-intensive, employing workers who do not require extensive training, and (2) it has contributed considerably to the export revenue of Vietnam in recent years. Low labor cost is now still an advantage of many domestic companies to acquire cheap production cost. From the table 4.1, we can see that developed countries have much higher hourly wages to pay for their employees in comparison to Vietnam, Bangladesh or China. Therefore, these countries can have much competitive advantage in term of price in labor intensive industries like garment. Table 4.1: Comparative average hourly wages in ready made garment industry Name Germany USA South Korea Amount in $ 25 16 5

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Hong Kong Turkey Mexico Brazil Poland Malaysia Thailand Egypt India Sri-Lanka Pakistan Indonesia Vietnam China Bangladesh

3.9 3.5 2.4 1.50 1.40 1.20 1.00 0.60 0.60 0.45 0.40 0.40 0.40 0.35 0.20

Sources: The Economist, October 1-7, 1994 and ITC: Textiles and Clothing: An introduction to quality requirements in selected markets, ITC/ UNCTAD /GATT, Geneva, 1994. The industry is generally divided into three main components, spinning and fibres, weaving, and garments. A more elaborate classification might distinguish between spinning and fibres and include separately smaller or ancillary activities such as knitting and dyeing, but the essential story remains basically the same.

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Table 4.2: Key Features of the Textile and Garment Industry in Vietnam

Feature History Factor Intensity Scale Economies Owners (*) Vertical Integration Size Market

Spinning-Fibre very recent capital-intensive (especially fibres) significant mainly G, some F

Weaving mostly recent quite laborintensive moderate mainly G, some F and P

Garments very recent (as factories) very labor-intensive less important (except in internat. marketing) mainly G and P present but less common medium-small firms dominate mainly export

common in spinning-fibre (especially) and weaving large firms 95+% domestic large-medium firms mainly domestic very small export

Distribution dominate

Location: national distribution, but heavy concentration in the south (*) G, F, P refer to government, foreign, and domestic private firms respectively. In the period of transition, the Vietnamese textile industry faced a difficult situation: its traditional markets in Eastern Europe and the USSR collapsed. It requires efforts to seeking new export market for the industry and also forces the industry to compete in the higher quality market segment. In 1997, garments and textiles was Vietnams second largest and fastest growing export market. However, in 1999, by the latest information from Vinatex and Ministry of Industry, the industries stand in first place, following by footwear and raw oil export. Ho Chi Minh City alone accounted for nearly 37 percent of Vietnams total garment exports. This market is quite extensive including a vast variety of finished and partly finished sewn goods from jeans, jackets, pants and sportswear to carpets and soft luggage. According to official 1997 figures, Vietnams garments generated over US$ 1.3 billion in exports. Japan and South Korea, the two biggest export markets for Vietnamese garments and textiles, have recently scaled back demand for such goods, reflecting the serious economic crisis in that part of the world. The regional financial crisis has also caused many of Vietnams garment and textile joint-venture contracts with regional partners to collapse. According to industry experts, Japan and Korean garment and textile demand from Vietnam has decreased by an estimated 30%. In 1997 Asia represented 40% of Vietnams garment export market.

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In contrast to a declining demand in Asia for Vietnamese garment and textile exports, the European Union and Vietnam recently signed a new trade deal, in September 1998, which will allow Vietnam to export one third more textiles and clothes than previously to Europe. This is a significant boost for Vietnamese manufacturers because the European market is quite large and a significant amount of its exports go to this market. In the first months of 1998, textile and clothing related exports to the European Union grew by 25%. Industry experts estimate the Europe Union accounts for over 50% of all Vietnams garment export market and now have guaranteed import quotas. After the first quarter of 1998, Vietnams garment and textile exports to quota-free markets stood at US$ 140 million. The Vietnamese Government has outlined a plan to spend US$ 60 million upgrading state controlled garment factories, through the purchasing of more sophisticated equipment and machinery. Deputy Minister of Industry Nguyen Xuan Chuan noted that the Government has "a big program for modernization of factories" that they plan to execute in the coming year. This modernization plan is widely expected to return slowing growth back to more optimistic levels. The greatest dilemma facing this sector today are the strict regulations regarding target and contract liquidation. Target liquidation involves processing all imported materials into a new exported item such as a shirt. Most enterprises over-import raw materials. Previously enterprises had a time-line of 90 days to finish the goods and not have duty rates applied on imported materials. Given the difficulties faced by most enterprises the government has extended the time-line to 180 days. Another major constraint facing this sector is financing. Many local garment companies have a shortage of capital and insufficient financing form local banks for importing raw materials necessary for production. There are some factors and events, which has encouraged the development of the industries: New technology was and being brought by foreign competitors into Vietnam due to the open of the economy Vietnamese companies have also imported technologies to compete and adopt international competitive standards. The industry is rapidly transforming from ineffective collectives to more effective individual enterprises. Vietnam has established foreign diplomatic and trade relationships with a remarkable number of countries. Of special importance is the recent normalization of relations with the US. Vietnam has been an official member of ASEAN since July 1995, AFTA since January 1996, and will join APEC in 1998. The Vietnamese Government signed a Textile-Garment trading agreement with European Union (EU) on 16 July 1996. The Vietnam Textile and garment industry is a member of the Asian Federation of Textile industries (AFTEX). Although the regional countries have been seriously impacted by financial crisis, Vietnam economy has still shown favorable growth (as state above in sub sector 4.1). The economic situation will increase the demand for the industries products.

Because of having to compete with many foreign competitors in higher product quality, wider product range with lower prices, it has not a gained large market share even though the textile industry has had many opportunities and has undergone significant reform. Moreover, between the textiles and garments, textile production has grown more slowly (at 6.7 percent

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per year in recent years), significantly lower than garment production (while the average production growth rate of both textiles and garments was about 10.7 percent per year).

Table 4.3: Industries exports, imports, market size. 1996 ($mm) Imports Local Production Exports Total Market 394.3 298.5 407.5 285.3 1997 ($mm) 426.5 339.8 493.7 272.6 1998 ($mm) 572.8 387.7 525 435.5 1999-2000(%) (estimated) 21 14 20 18.5

The foreign investment is still continuing, the number of joint venture or foreign owned companies increases from year to year (data is shown in the Table 4.4).

Table 4.4: Foreign Investment In Textiles And Garments, 1988-97 (Total = $1,431.1 million; % of cumulative approved total unless otherwise indicated) (A) Major Foreign Investors South Korea 47.3 Malaysia 33.3 Taiwan 9.6 Canada 3.3 80.1 8.0 12.0 Hong Kong 3.0 Russia 1.5 Others 2.0 Total 100.0%

(B) Forms Of Foreign Investment 100% foreign-owned Joint venture Contract (C) Annual Investment, 1988-97 ($ million) 1988 170 1989 5.5 1990 10 Dong Nai 26.3 1991 27.6 Vinh Phu 6.5 1992 27.2 1993 1994 1995 1996 1997 518.9 120 Tay Ninh 3.5 299.1 138.9 114.3 Song Be 3.1 Ba Ria Vung Tau 2.4 Others 1.6 Total 100%

(D) Major Locations HCM City 50.6 Long An 6.0

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Source: Vietnam Economic News, No. 8, 1998, p. 8, citing Ministry of Planning and Investment data.

4.3 SWOT analysis 4.3.1 Strengths

Labor cost: As shown in the Table 4.1, Vietnam is one of the countries has lowest labor salary. This advantage will be exploited by local companies to produce cheaper products, which can compete well in the global market by its competitive price. Linkages between companies in the industries under Vinatex: Vinatex appearance is considered the good shelter for the domestic companies. Members of Vinatex will share their benefit by building up strong relationship among them, between supplying companies and buying companies. Though many of them do business independently, the long time relationship of them will be the strength for them in competing globally. Obsolete, backward production equipment and technology: Though Vietnamese producers are not long history companies, the equipment and technologies owned by these companies are almost out of date. The incapability of management level: Management ability is not concerned much by companies for long time before the renewal process. Either now in many state owned enterprises, management person are not educated professionally, they lack of knowledge in their field because they are regularly promoted from technical engineers. AFTA factor: According to the content of AFTA, Vietnamese companies will enter with no tax in year 2006 to the ASEAN markets, especially Singapore, where the market demand is high, and Vietnamese garment products have price competitive advantage. US Vietnam Trade Agreement: U.S. market is still being closed for Vietnamese producer. In near future, when the agreement was signed, it will create good opportunities for garment companies to export cheap products to this market. The extension of the quota for Vietnamese apparel product in EEC: EEC is one of main export markets of Vietnamese producers. But the trading capability is limited by the quota from EEC. Therefore, the extension will provide more chance to increase export sales for those companies. AFTA factor: AFTA appears to be the very challenge thing that Vietnamese companies have to come over in near future. The deduction in import tax will open the market for the competitor in the neighbor countries, who are local or international based companies. Illegal trade problems: In recent years, due to the inability in controlling the smuggling situation, clothes and fabric from China, Thailand are brought into Vietnam without bearing tax. It is not fair to the domestic companies in competing.

4.3.2 Weaknesses

4.3.3 Opportunities

4.3.4 Threats

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4.4 Industry Attractiveness Analysis

In this section, I will focus in 3 different sub-sectors in Vietnamese Textile and Garment Industry: Yarn, Towel and Knitwear. These three sub-sectors cover all businesses of Hanosimex at this moment. Because Vietnamese Stock Market is not running yet, so the threat from taking over by other companies is not mentioned.

4.4.1 Bargaining power of suppliers

(a) Yarn Material necessary for producing yarn mostly imported from other country. There are two main types that company in this sub-sector use: (1) Buying material through Vinatex; (2) Getting material from various international suppliers, who are mainly intermediaries. These wholesalers also are the buyers of garment companies in Vietnam. Companies rarely buy directly from material producers. The competition between suppliers very tough because two major reasons: Many countries are trying to build up their own material production industry to less depend on imported material, especially for natural material like cotton, silk. Yarn producing companies now try to set direct contacts with the sources of materials. The excuse is to reduce added cost from intermediaries.

The other pressure that suppliers are facing is that the price of both manmade and natural material is in the decrease. The yarn producers can have many choices in deciding who are their suppliers. (b) Knitwear The fabric market, the input material for producing knitwear, is fragmented with the participation of so many domestic producers, import companies, international commercial. Right after opening economy, the market was flooded by Chinese various products, which are much cheaper in comparison to domestic products. (c) Towel Towel producers are the buyers of yarn producers. In the yarn market, there are many producers, who are facing much threat from international competition, and China factor is never ignored either. Chinese yarn products competitive advantages are cheap price, wide range of product. There is also large amount of smuggled products from China with much cheaper price but the quality is questioned.

4.4.2 Bargaining power of buyers

(a) Yarn: Yarn is an industrial product. Its buyers are companies producing fabric. As analyzing previously, yarn domestic market is facing heavy pressure, not only many domestic but also international competitors. It become more and more seriously in next 4 years, the year Vietnam has to commit all requirements of AFTA. Yarn producers from South East Asia country will move easily to Vietnam market with competitive price because of no tax paid. But it is also an opportunity for local companies to sell its products in regional markets. (b) Knitwear

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End-user of knitwear is individual customers. However, in Vietnam or in the global, most of knitwear producing company sells their product through the intermediaries, which have much power on the producer because Vietnamese producers are mainly export oriented. They do not have much information in the international market. The other practice many garment companies used is that foreign wholesalers, or garment producers make contracts of producing part or finished products. Buyers will be responsible for products design, selling product, and/or sometime providing materials for production. (c) Towel The situation of towel sector is familiar with knitwear. Its end users are individual customers. However, in many towel producers, direct distribution channel is accounted for as much as 30%. The other channels, through intermediaries such as wholesalers, and retailer (shops, agents), are most likely used. In export, product almost goes through the hand of wholesalers. At right now, no companies set up its own shops abroad. Therefore, this kind of buyers, whose order quantity holds large amount of production of producers, has much power again producers in price bargaining. The blind of the international market is also considered as a reason of weak bargaining power of domestic producers. But the more attractive of profitability from export products, the more wholesalers come. This situation is undergoing in the industries. Domestic companies will have chances to increase its power in discussing with the buyers.

4.4.3 Threats from new entrants

In the globalization age, the threat of new entrants into the market, especially from foreign companies into domestic market, is unavoidable. It must be marked as constant factor in the international economy. Vietnam is pursuing an opening policy. This leads to the change in some investment regulations, which will provide favor toward the foreign investment. But the threat varies from sectors. (a) Yarn This threat in yarn sector is less than other sector, much less than this in ready made garment industry. Yarn producing depends much on the production technology, not on labor factor, the most important thing that some companies in developed countries want to have. But one new wave in the Vietnamese textile industry is that some companies has not up-todate technologies but better than local companies are setting up its production plants in Vietnam under 100% foreign owned, or under joint-venture. For the domestic new entrant, it is almost impossible to invest in this sector due to the large initial capital needed to invest in equipment. It is the main barrier to entry for domestic companies. (b) Knitwear Knitwear belongs to ready made garment sector, where production bases much on labor factor. This is so attractive for companies in developed countries. However, to invest all process of producing knitwear from yarn to fiber to finished product is required a lot of money. (c) Towel One same point with yarn sector is that the production is not relied on manual work but on machine. However, the initial required capital is not much to invest into this sector.

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All these three sectors are coping with the substitutability by its close sub-product family. (a) Yarn For yarn, there are many sub-product families of yarn, which are able to substitute the other. But the use of yarn type is depended on the current production technology and equipment of the buyers. It is not easy of changing from using one to another. (b) Knitwear Knitwear is exchangeable by other type of cloth. Customer can switch from using knitwear to using other kind of cloths if the price is considerably higher in term of related quality. But the substitutability is limited by the term of fashion. Each sub-family in the cloth product range represents for one kind of customer needs, favor. (c) Towel The close substitute of towel is paper tissues. But the appearance of paper tissue in recent history, the born of new technology, has conquered some market share of towel. But the advantage of fabric towel is that they can use for long time while it is one time use for tissue.

4.4.5 Rivalry in the industries

According to many interviewed managers and officers, the two key competitive factors are quality and price. The textile and fabric industry in Vietnam was a priority in the past. It was predominately under the control of State-owned enterprises and was heavily subsidized. The strategy for the industry was to build large-scale plants and factories using large amounts of labor. This caused problems for replacing out-dated technologies. These large investments were burdened by poor maintenance policies and a lack of capital for replacing backward technologies. As a result, domestic firms suffered from low quality and high prices. In spite of providing new blood of high technologies, and new managerial skills, foreign companies certainly will put stronger pressure on competition in the industries. Vietnam is attracting foreign investors to pour their fund in garment and textile industry. During the transition period, the textile industry has been one of the few industries still subsidized by the Government. Nevertheless, many foreign competitors have been able to compete with domestic firms. Market demand for domestic products has fallen dramatically. Most materials are imported and capital is needed to renew current technologies. Many foreign competitors have been successful in the Vietnamese market either because their product quality is much better or their product prices are lower despite the tariffs.

4.4.6 Government Related Policies

Because of the important role of the state owned factors in the transition process, like the past, the industries are still protected and supported strongly by government regulations from foreign competitors. The Government helps to reorganize them by providing low-rate loans, and priority in areas such as taxation and capital investment. The Government encourages smaller companies by capitalizing stock or encouraging workers to put their shares of capital in the firms with the priority for the first period of operation until the firms can make positive profits. Unfortunately, this program works very slowly due to the lack of a stock market.

4.4.7 Conclusions on Industrial Attractiveness

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At present, all those sectors are having mildly attractiveness for existing companies. Government actions seem to be attractive for sectors at present but not in the future when they have to reduce the restriction in many sectors of the economy, and favor foreign investors. Rivalry in the market right now is more than acceptable for existing companies but it getting tougher in the future too. The role of buyers in these sectors is very important. In the other word, they have much power in the negotiation process with supplying companies, both in current time and in the future. In overall, that is mildly attractive currently but showing neutral situation in the future. Towel industry shares same manner. For knitwear industry, it is still attractive to do business in this sector in the future. Table 4.4: Industrial Attractiveness of Yarn, Knitwear and Towel Yarn Current Entry Barriers Barriers to Exit Rivalry Among Competitors Power of Buyers Power of Suppliers Availability of Substitutes Government Actions Overall Mildly Attractive Neutral Mildly Attractive Neutral Mildly Attractive Mildly Unattr. Highly Attractive Mildly Attractive (*) See Appendix 4 for more detail. Neutral Mildly Unattr. Mildly Attractive Mildly Unattr. Neutral Highly Attractive Mildly Attractive Mildly Attractive Neutral Neutral Neutral Future Neutral Knitwear Current Mildly Attractive Mildly Attractive Mildly Attractive Mildly Unattr. Mildly Attractive Neutral Highly Attractive Neutral Mildly Attractive Mildly Attractive Highly Attractive Mildly Attractive Neutral Neutral Highly Attractive Neutral Future Mildly Attractive Mildly Attractive Mildly Attractive Neutral Neutral Neutral Neutral Neutral Mildly Attractive Neutral Towel Current Future Mildly Attractive Neutral

4.5 Conclusion Emerging Trends in Vietnamese Textile Industry and its Implications
An inevitable trend is heavily investment to renovate old technology by more modern one in the industry in order to develop the competitiveness in the international market. The competition in the domestic arena would have competition not only in low-end segment but in both higher strategic segment and low-end segment.

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However, every companies in the industries is still exploiting competitive advantage of cheap labor cost but skillful in Vietnam. This advantage will not last long when international competitors with more modernized technologies achieved competitive price because of exploiting economies of large scale of automated production. Competition between companies will be getting tenser because of the appearance of potential international competitors. All companies in the domestic has to think of restructuring their organization, establishing effective cost management program, carrying proactive marketing activities, and more important seeking strategic partner to become bigger and stronger. The competition will be at global extent. Globalization option is one of choices for strategy makers. The protection from government will be lowered. That is the definitely outcome of more open economy policies and the consequence of the wave of globalization. Vietnamese companies strategies should no longer be built based much on the present regulations. They should be aware of The wave of establishing joint ventures will be continued, and may be much stronger. The domestic companies can build up its competitiveness by exploiting the new technology and new style of management. Linkages between related sectors in the industries would be stronger to build mutual benefit in international competition. This type of linkages would be between companies in same sectors or in related sectors.

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Chapter 5

Strategic profile of Hanoi Textile company (HNOSIMEX)

5.1 Company Introduction
Hanosimex is a big state run company in textile and garment industry of Vietnam. The process of development of the company can be viewed with these following benchmarks: The company officially started operation in 21st, November 1984 with the initial name Hanoi Yarn Company. Company had only produced three main types of yarn such as Cotton, PE, and PECO with variety technical characteristics. The first knitting production line was set up in January of 1990. Foreign Ministry (the former of Trade Ministry) has given the direct import/export license for the company at April of 1990. Trading name of the company was Hanosimex since then. The second knitting production line was installed, and started producing product at March of 1994. Vinh Yarn Company (Nghe An province) was merged to Hanosimex under the decision of Ministry of Light Industry (one former of Ministry of Industry). The Vinh Yarn Factory now is also only producing some kind of yarns. Ha Dong Textile Company was merged to Hanosimex at March of 1995 under the decision of Ministry of Light Industry. This company is specialized in towel manufacturing only. Total designed capacity is 10.000 units/year. Dong My Sew-Embroider Factory was built and finished at September of 1995. The factory is used in the finishing process of knitwear manufacturing. At June of 1995, Ministry of Light Industry has changed the name to Hanoi Textile Company. The trading name is still being Hanosimex. Yarn: Cotton, PE, Peco. Total capacity is 10,000 tones per year. Knit Fabric: Rib, Interlook, Single. Capacity is 4,000 tones per year Knitwear: Polo Shirt, Sportswear, and Pullover with the total capacity is 8,000,000 pieces per year. Towels: Many kinds and sizes of towels with the capacity about 10,000,000 pieces per year.

Hanosimex is now producing these following products: -

Like some other companies in the industries, yarn is used in fabric manufacturing. Then Fabric is use to produce knitwear. So company is self-supplying material for making knitwear. But the quality of yarn is not high. Therefore company doesnt use much to produce export knitwear. Much of yarn production is supplied to other domestic fabric making companies. In some contracts, thank to the requirements of foreign buyers, the material is bought from supplier, mainly foreign supplier, with high quality. Fabric is sometime exported and/or sold to knitwear producers. But large portion is for its own needs for producing knitwear. Knitwear product is for export. 80% of total knitwear product is

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exported every year to Japan, Korea, Taiwan, and EU. Towels products are mainly for domestic market.

5.2 Review Mission and Goal statements

Like many Vietnamese companies, Hanosimex has no officially mission statement. For the goal statement, they can be summarized in some main points: Becoming the leader in yarn supplying market. Reconstructing the exporting capability of knitwear market. Continuing the reorganization process to become more effectiveness, more flexibility in production. Continuing renovation production equipment.

5.3 Overall Business Performance Analysis

The performance of Hanosimex has shown some stagnant in doing its businesses. There is no growth in the gross sales from 1995 to 1998, it even showed the decrease in comparison to 1995. The business year 1995 has marked a recorded, memorable performance of Hanosimex from its foundation date, 1984. The gross sales increased by 100,9 billion VND (about by 34,3%) from 1994, while export increased 61,5 billion VND to 151,7 billion (Table 5. ). The main contribution to this growth is from knitwear business, where the second knitting production line was equipped in the beginning of 1995. And its also the year knitwear business has gained many contracts from wholesalers and has exported large amount through Vinatex under payment agreement between Vietnam and its creditors, former Soviet Union and Eastern Countries. The second factor is the sales generated from towel products. Because 1995 is the year Ha Dong Textile Company merged to Hanosimex as a factory member (as stated in the introduction of the company) Table 5.1: Export and total sales from 1994 to 1998 Year 1994 1995 1996 1997 1998 Total sales (billion VN Dong) 294,0 394,9 365,0 375,0 376,0 Export (billion VN Dong)* 90,2 151,7 124,9 173,0 182,0 Export/Total Sales (% ) 30,70 38,41 34,22 46,13 48,40

(*) This number was calculated based on the business year exchange rate.

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Table 5.2: Export of yarn, knitwear, and towel from 1995 to 1998 (in USD) Year 1995 1996 1997 1998 Yarn 164,526 669,609 354,784 200,154 Knitwear 12,085,971 9, 418,606 11,480,658 11,723,331 Towel 2,538,145 1.165.647 1,154,324 1,079,004 Total 14,788,642 11,351,064 12,989,766 13,002,489

Knitwear is now main product family for export market. More than 80% of its production is exported every year. The export in items increased by 42% in 1995. In 1996, due to the decreasing demand of its regular market like Russia, Eastern Countries, especially the payment contract was expired, company has coped with the decline in its main export item: knitwear. However, company has gradually expanded to new markets like Western countries, Japan, Taiwan, South Korea. The companys products have sold well in these markets. Table 5.3: Sales volume of knitwear from 1994 to 1998 Year 1994 1995 1996 1997 1998 Export (pieces) 2.886.928 4.092.814 3.965.552 3.978.106 3.987.012 Domestic (pieces) 1.060.922 656.402 750.214 1.024.000 1.112.000 Export/Total (% ) 73,12 86,18 84,09 79,53 78,19

But for the yarn producing, the business profile is quite different. A little portion of yarn products is exported. And its export amount is not stable from year to year. The total production in 1995, 8928 tones, also reached its peak production record. Two year later showed the little decrease both in production and in sales. But Hanosimex still is the biggest supplier in Vietnamese Textile Industry (Table 5.5).

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Table 5.4: Yarn production, and its export & domestic from 1994 to 1998 Year 1994 1995 1996 1997 1998 Production (tones) 6.756 8.928 8.577 8.612 8.608 Domestic (tones) 3.147 4.560 4.340 4.456 4.520 Export (tones) 200 53 210 105 70 Export/Total (% ) 2,96 0,59 2,45 1,22 0,81

Although Hanosimex is the biggest producer in the industry, its market share is not large. The yarn market is fragmented by many suppliers, both domestic and foreign suppliers, especially domestic market is strongly shared by the products from Chinese producers. However, the competitive power from Chinese and international suppliers will not be ignored but the data is not available, so the author can only describe the competitiveness of Vietnamese suppliers. Table 5.5: Sales in tones of some major yarn producers of Vietnam Name of Company Vinh Phu Textile Company Nam Dinh Textile Company 8/3 Textile Company Hue Yarn Company Hoa Tho Textile Company Nha Trang Textile Company Dong Nam Textile Company Thang Loi Textile Company Thanh Cong Textile Company Viet Thang Textile Company Phuoc Long Textile Company Hanoi Textile Company Source: Vinatex annual reports from 1995 to 1998 Towel also plays a role in the Hanosimex business, but of course, it is less important than the other businesses. While knitwear is mainly for export, yarn is for domestic needs, towel situation is both showing the export ability and domestic sales. Total production of towel was not showing any positive change from 1995 to 1998. Average of sales per year from 1995 to 1998. 500 2000 2000 3000 1500 4000 1000 3000 1000 1000 1000 4500

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Table 5.6: Sales volume of Towel from 1995 to 1998 Year 1995 1996 1997 1998 Export (pieces) 4,092,814 2,965,552 2,568,106 2,487,120 Domestic (pieces) 3,555,402 4,250,214 4,924,108 5,012,988 Export/Total (% ) 53.51% 41.10% 34.28% 33.16%

5.4 Overall Strategic Profile Auditing 5.4.1 Organizational Structure

Hanosimexs organizational structure is organized along with straight-line controlling with low level of the management team. General Director is responsible for the whole development of the company. The current organizational structure of the group is based on functions. Under General Director, three Vice Directors are responsible each main function. There are three departments in its head office. They are Production, Accounts & Finance, and Administration. The factory is under production department. Hanosimex has 6 production units. They are Yarn Factory I, Yarn Factory II, Knit Factory (three factories are in headquarter in Hanoi), Ha Dong Textile Factory, Dong My Sew-Embroider Factory (in Ha Tay province), and Vinh Yarn Factory (base in Nghe An province). All four units are horizontally integrated. Each production unit has its own production manager. They directly reported to the general manager production at head office. Department heads take responsibilities for coordination among themselves and lead the department. Administration and Human Resource Department: The department is responsible for recruitment, for participating in the development of salary system, reward policy for staff, promotion for employee and etc. Accounting & Finance Department: The department is responsible for accounting and financial matters. Now the company has data base finance accounting. Production department: Under this department, there are four sub-sectors including Operation Management, Quality Control, and Commercial. Operation Management is in charge of production planning, production monitoring, and store controlling in all factories. The commercial department is responsible for the commercial purposes like import, export, insurance, sub-contracting, custom, quota allocation, negotiation with buyers, etc.

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D ir e c to r V ic e D id e c to r 1 O p e r a t io n M a n a g e m e n t D e p a r t m e n t S to re D e p a rtm e n t E x p o rt & Im p o rt D e p a rtm e n t Q u a lity C o n tro l D e p a rtm e n t Y a rn F a c to ry I Y a rn F a c to ry II K n it F a c to ry D o n g M y S e w -E m b ro id e r F a c to ry V in h Y a rn F a c to ry H a D o n g T e x tile F a c to ry

Figure 5.1: The Organizational Chart of Hanosimex

V ic e D ir e c to r 2 A c c o u n ttin g & F in a n c e D e p a rtm e n t

V ic e D ir e c to r 3 In te rn a l S e rv ic e D e p a rtm e n t H e a lth C a re D e p a rtm e n t S e c u rity O ffic c e A d m in itra tio n D e p a rtm e n t H u m a n R e so u rc e D e p a rtm e n t

5.4.2 Organization Culture

Culture is defined as shared values, beliefs, expectations, and norms. Hanosimex's employees are in same culture, same race and same language. The relationship is very close among the employees. The company is practicing, centralized authority but decentralized decision making process in limited area; reward system for good attendance; information sharing in limited area; pay links to performance. The sharing information between levels is very limited, between frontline people and managers are more seriously.

5.4.3 Managerial Capability

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There is a big question on the managerial capability of companys managers. That is because people are promoted to the management level mostly from technical personnel. They may understand technical matters but not well in economic, management matters.

5.4.4 Decision making process

General Director is the sole authority for taking decisions, and the solely responsibility to the company performance. Existing common practice is top-down manner. But in giving the important decision, there are some alternatives like for inter-departmental problem solving, a monitoring cell. General Director discusses with his management team constituted by general manager production, general manager commercial, manager accounts, manager finance, manager administration before taking any decision to launch a new product, for buying new machine, for entering a new market as well for changing supplier. Apparently, there is no involvement of front line employees in decision making process. Between high manager and front line people, there is still a wide gap. In Hanosimex, same to other state run enterprises, they are independent in doing business. However, in important decisions, they have to consult higher management level in the industry, in Hanosimex, it is Vinatex.

5.5 Resources Analysis 5.5.1 Financial Situation

The ratio analysis can show us the Hanosimexs not good financial situation. So for this purpose, brief analyses are done for the various ratios (Appendix 3). Liquidity Ratio {working capital, current ratio and quick ratio}: The company has enough working capital and it is liquid. However it is volatile in nature. So the company should improve its cash flow. Activity Ratio {inventory turnover, operating ratio, account receivable, accounts payable turnover, average collection period, fixed assets turnover, total asset turnover}: Company has not much cash on hand or in banks. Much of current assets is located in the inventory. Debt Ratio {debt ratio, debt-equity ratio, leverages ratio}: Hanosimex is bearing no longterm debt but huge amount of short-term debt, from banks, from budget late payment, and from customer prepayment. The outside liability is nearly equal to total ownerships equity. Profitability Ratio {gross profit margin, operating profit margin, net profit margin, return on equity}: From the business performance of Hanosimex, the company has achieved very huge sales figure in compare to the other local companies. But the gross profit margin is very small, 0.136% in 1996, 0.4% in 1998. However company has gained the big improvement from 1996 to 1998.

5.5.2 Equipment Situation

Machinery using in yarn producing is about 20 years old. In Yarn Factory I and II, machinery was bought from some famous brands such as Mazoli, Toyoda, Murata, Autoconer, Schlafforst. Most of machinery was produced between 1975 to 1980, only machinery branded Schlafforst and Murata just installed was produced in 1992 and 1995.

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In Vinh Yarn Factory, equipment is only sourced from Eastern Germany, which was produced in the years of 1970s. In brief, the manufacturing equipment of yarn producing business is old, obsolete, and not synchronous. There are some renovation activities but it doesnt have any strategies. The total production capacity now is about 15% lower than designed capacity. For knitwear production, the situation is much better. That is because the knitwear manufacturing lines was newly built and it just starts producing in 1991. In general, the equipment is more synchronous, and more modern. It can produce medium to high quality products. Towel production is not much concerned. Its all equipment is imported from Czech-Slovakia, but it was produced in 1970. Because of having no or bad maintenance during the years in closed economy time, the machinery is quickly downgraded. The present capacity is only 75% of designed capacity, and the product quality is not good. In sum, company has no clear strategy on technology. Company production is based on mostly out of date machinery and technology.

5.5.3 Marketing
Company has no separated marketing department. The commercial department somehow responsible for doing marketing activities but it is not paid much attention in the company. (a) Product Company is now producing medium range of yarn, some type of knitwear, and towels. The main yarn products are Cotton and PECO. PECO is spun from the mixture of cotton wool and PE wool. Different rate of cotton or PE will have one type of PECO. Yarn is produced based mostly on the customers orders. Expanding the product range is very difficult because one technology and one type of equipment can only produce fixed number of yarn types. In knitwear, there are four main sorts: Menwear, Womenwear, Childenwear, and Sportswear. But in each sort, they contain limited number of type, fashion, and size. Because of mainly for export, the domestic market is not well concern. The design is only copied from export product, which is not suitable with Vietnamese needs in term of size, fashion, and color Towel is not so diversified. Company focuses on producing two sorts of towel one big size for using in bathing, one small size for face cleaning. But in each sort, there are numerous color, and different quality with different price, which will match the need of certain market segments. (b) Price The simple method used in the company in computing price is cost plus method. It is not active method when the competitive factor is not concerned. This computation is applied for yarn, export knitwear, and export towel, which are sold under contracts. But when selling knitwear and towel in domestic market, company uses a softer method. It is mixture between cost plus method and competitive price method. The price, at first, must compensate the production cost and a certain accepted premium, and then consider competitors prices in reconciling to choose optimal option. Of course, this method will not solve the root of the problem of bad competition in the domestic market, where companys knitwear and towel are not sold well. The prices seem to be higher than accepted prices of customer. (c) Promotion No noticed promotion activities were carried out in recent years, only participating in some industries exhibitions.

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(d) Distribution Distribution network is used differently in each companys product family. But it the same in selling in abroad markets. For the yarn products, which is mainly for domestic buyers, number one distribution channel used is that Company sells directly to its big, well-known clients. The use of intermediaries is accounted for very small portion in total sales of yarn. But it is very effective when company want to approach to the small fabric producers, mainly private companies. Towel and knitwear product families are using the same distribution network. There are two types of distribution channels of towel and knitwear. The first one is setting up companys shops in the areas near to the firm production sites in Hanoi, Vinh, and Ha Tay. In some big cities like HCM City, and Hai Phong City, company set up its sales representatives. Their responsibilities include selling products directly to end-user and distributed to the agents in the cities and neighbor region. The second is using agents and retailer shop. In the areas near Hanosimex, agent and retailer come directly to place orders and make contracts. For the areas far from company, agent and retailer can contact through the firm sales representatives.

5.5.4 Research and Development

The company has its own chemical laboratory. Its functions are: Examining the chemical, technical characteristics of finished yarn products. Giving new method in producing yarns. Involving in finding formula of new type of yarns.

In fact, its activities are not concerned by the company for years. The equipment is out of date, technology is from the years of 1970s. The two main functions now are examining the quality of finished yarn products, and helping production line to reduce or fix defectives. In knitwear producing, company has no design sector for its products. The designs are mainly provided by the wholesalers. Towel producing is not out of the situation, when the company only copies design of style, of decoration from other producers.

5.5.5 Human Resources

The number of employees in the company is decreasing. It is resulted from the reorganization process. Labor situation in the company from 1995 to 1996 is described in the Table 5.7. But the income of employee is increasing from year to year. This helps to build employees loyalty because they believe in their future in the company.

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Table 5.7: Number of employees and average income from 1995 to 1998 of Hanosimex. 1995 Areas Hanoi Vinh Ha Dong Dong My Total Averag e No. of labors 4.317 929 984 299 6.529 Incom e (*) 688 422 359 300 583 1996 No. of labors 3.998 933 922 269 6.122 Incom e (*) 650 390 320 380 548 1997 No. of labors 3,488 870 850 230 5.438 Incom e (*) 770 550 600 500 696 1998 No. of labors 3,424 835 840 230 5.329 Incom e (*) 770 580 600 520 702

(*) Income in thousand VND/person/month Sources: Annual Reports of Hanosimex form 1995 to 1998. Direct production labor force: Workers are locally hired and around 85% are female. They acquire their knowledge and skills on the job. In yarn, knitwear, and towel manufacturing, labor dont need much training. Most of the works are hand made in sewing process in knitwear making. Experience curve in the works is sharply down slope. The longer they work the higher their performance. And the time for achieve high level is not long. The work is as in line as a whole. There are no incentives for individual performance. The line is organized by mixing the workers from lower level skills to higher level skills to balance the work performance and to maintain the quality. The floor can divide into 6 to 8 members group as whole for complete production of a product. Then the high performers can make a group and show their ability. And if company introduces the unit price system for sewing, cutting, and finishing, the best performer can earn more. By this way it is easy to increase the productivity of the workers. Young, Active labor force: Hanosimex has young, energetic and active work force. They are devoted to their work. Most of them are loyal to the company. For productivity improvement, the technology is a very crucial factor. For the garment factory, the technology is very easy, and lower levels in complexity. So, it is very easy to understand and learn the technique. The work force can easily be trained to maintain the quality of the products as per the developed country customers. It may be possible to train them formally.

5.5.6 Information system

Because of locating in wide geographic areas, internal communication is very difficult. Company used to use three main communication types: face to face meeting, through telephone network, and through post service. Face to face meeting is time consuming but it

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the only way to transmit not only data but also other things. Due to development of Internet service in Vietnam, it now getting easier. Company has no department in charge of collecting, analyzing, or making survey for getting sufficient information in the market, seriously in foreign markets. At the present, company sells its product through wholesalers, not directly to end user in overseas market. In knitwear product, company is passive in designing its product. Especially for export, company has depended on the design provided by the wholesaler. In the planning process, decisions were made based on previous performance figures and on predictions of managers.

5.6 Overall Assessment of Hanosimex

Broadly statement, Hanosimex has many rooms for being improved. Although they have achieved good past results in expanding market shares and still being a profit-making company, Hanosimex is facing with the threat of losing its market share by competitors. The ROI is very low in compare to other competitor like Phong Phu Textile Company and Thanh Cong Textile Company. The internal capabilities are showing so many problems, which have limited the strategic choices of the company and they must be well resolved. The Table 5.7 summarized all internal resource, capabilities and its impact on the strategic development. Table 5.7: Overall assessment of Hanosimexs environment. (Strategic Audit Heading: (+) positive, (-) negative, (0) neutral, (*) Comment 0 Return on investment 0 Profitability trend + Market share * Market share is large but facing the threat of losing market + Yarn producing + Knitwear manufacturing 0 Towels manufacturing 0 Yarn quality + Knitwear quality - Towel quality - Product development (for all) - Design development of Knitwear, Towel - Encourage reward - Market diversification - Strategy is not mentioned at all

1. Company business Performance

2. Strategic Posture, Mission, Objectives, Strategies, and Policies

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Internal Factors 1. Board of Directors 0 Knowledge + Background about the Industries + Coordination + Communication - Responsible for company performance + Well interactive between middle level manager and board of directors - Interaction with line supervisors and top management - Formulation, implementation, evaluation and control strategy + Functional organization + Straight line controlling + Same culture - Centralized Authority + Good attendance bonus + Pay links to performance + Limited decentralized decision making - Promotion 0 Distribution 0 Product 0 Price (*) For all product families 0 ROI, + Profit (very low) 0 Assets + Sales volume (for all products) (*) Neutral position in overall No R & D

2. Management Level

3. Company Structure

4. Corporate culture

5. Marketing

6. Finance

7. Research and Development 8. Operation

9. Human Resources

10. Information system

- High level of inventory + Young, energetic, active frontline employees - Lack of formal training 0 Commitment 0 Loyal to the company - Faith on top management 0 Inside communication - Lack of information of foreign markets, foreign competitors

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5.4 SWOT Analysis 5.4.1 Threats

T1) Rising competitions due to free trade agreements The penetration of products with no tax will create pressure on less developed domestic industry, which includes Hanosimex. Because of lower price thank to no import tax, foreign firms can raise price competition with Hanosimex and other domestic manufacturers. Price competition forces the company to implement scrutiny cost control system as well as improving customer responsiveness. T2) Entrants of third countries products: Their products compete strongly with domestic product in term of comparative price, and higher quality. Company should not only using flexible competitive price policy but also aggressive marketing campaign to defend its domestic market share. T3) The substitutability by close products of yarn and knitwear Due to the fast rate of the technological innovation and the transferability of technology, there are various types of yarn (man-made or natural, high-tech or low-tech.), so many families of ready made garment (Jackets, Shirt, Jean). They are close substitutes of yarn and knitwear. Customers somehow can switch between them and the companys products. In order to eliminate the impact of this factor,

5.4.2 Opportunities
O1) The bigger chance to enter U.S. market Once the bilateral agreement signed, the U.S market for Vietnamese products is opened. It is the real opportunity for Hanosimex to jump in where it never appear before because U.S is very big market with very high consumption capacity. O2) Setting up the linkages with international retail chain entities Strategic alliance with international retail chains entities will create good opportunities for domestic company. They will share knowledge and information in market, management. Penetration into new market needs knowledge from these entities. O3) E-commerce evolution The evolution of information industry has creates faster and more reliable ways of doing business. And Internet is a solution for many companies to do business internationally. Ecommerce provides active function in getting closer to customers and suppliers and in setting global linkages. O3) Growing market in global extent and in domestic market. Both domestic and global markets have been showing great positive signals with fast and stable growing demand. Market expansion will be more appropriate for Hanosimex to increase its sales value and extent its market share. O4) New technology from outer companies Many companies with high-tech want to expand or move its production plants to some areas where they can have low labor cost and favorable market. Burlington is an example. This company also purchases a large portion of its joint venture or some time all. That is very good chance for domestic partner to boost up its capability as well as globalization its products.

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5.4.3 Weaknesses
W1) Weak marketing capability (no promotion) The company has not carried out any marketing campaign, advertisements, promotions or something like that. W2) Weak financial situation Hanosimex is a medium-size company but it has not good financial condition with very low ROI, high debt, and high inventory level. W3) Old technologies used in yarn and towel businesses Old technology is really big question for Hanosimex when it is not a giant. This limits the ability of product diversification and quality improvement. W4) Managerial capability Hanosimex is in the situation of having very weal managerial capability. That is represented by the facts that the firm is having no clear mission statement, no feasible strategic development. This matter has strong impact in implementing strategic management inside the company. W5) Management culture They dont have the open communication between management level and the W6) Inability of R&D no R&D at all inside the company

5.4.4 Strengths
W1) Market share of yarn in domestic Hanosimexs yarn business is the biggest supplier in the domestic market. W2) Knitwear in export Knitwear is for export. It has a good reputation with international wholesalers. The ability to expand its market shares its very high both in the domestic and global market. W3) Customer relationship in yarn business Relationship has built in long time. Although now Vietnamese economy is market economy and buyer can freely choose its suppliers, the long relationship and reputation help company keep its customers. W4) Sales performance The sales figure was increasing from year to year, although in a slow speed. The company is in the third rank among Vinatexs members in term of sales from 1995 to 1998. W5) Big company in the domestic industries Hanosimex can have competitive power in competition with domestic companies, who are mainly small size. The company can impose its strategy on these competitors. W6) Skill labor force with low cost In comparison to foreign competitor, Hanosimex as well as domestic companies has skill but with low cost labor force. The company is a major one in the North with high competitive salary, therefore many talent and skill people come and work for Hanosimex. W7) Linkage between yarn and knitwear & towel

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Producing related product is an advantage of Hanosimex. They can supply yarn by themselves for their needs in producing knitwear and towel, so least dependent on suppliers.

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Chapter 6

Proposed alternative strategies for HANOSIMEX

6.1 Hanosimexs Strategy

As described in the previous chapter, Hanosimex is a major company in the domestic industry but at international level, it is only a medium size company. However from the industry analysis, the situation is moderate attractive for the company to do business in as well as expand its corporate businesses. Therefore, the suitable strategic point of view here for Hanosimex it is to concentrate in and to defend strongly its existing businesses. Strengthening in its current business is the only way to defend its short-term profitability that will contribute to the longer-term competitiveness of the company in the future both in new businesses (if they diversify to more businesses) as well as existing businesses Improving productivity, building higher competitiveness, what can be competitive factors of the company for future, in the short period is impossible.

But the company has to be ready for a major changing process to build core competencies to successfully compete in the long future such as marketing ability, technological ability, financial ability (the company should acquire financial support from Vinatex), and management capability. It means that they have to change many things in their organization. The future market segment will be higher quality product with competitive prices in all business. There are some strategic options for the long-term proposed for the company: Related Diversification: Company can develop to related businesses such as in readymade-garment industry where it can have some advantage already in knitwear manufacturing. These business can share some part of production line in knitwear manufacturing, can use the same marketing activities and distribution channels and thus they will achieve economies of scale. The yarn business is still positive in both short-term and long-term. Nevertheless if the company is satisfied with its yarn business, they will lose their competitiveness due to the changes in the product requirement pattern, where end-buyers want high quality, new types of yarn thank to the new needs of consumers. Hanosimex needs to move to higher quality strategic group in the yarn sector such as producing micro fiber, synthesis fiber, which have bright future in Vietnamese market and global market. At present, the company only produces fabric for its need, but it should invest in fabric manufacturing, where its customers (Vietnamese garment companies) are numerous with ever growing demand. The company can choose between two options in related diversification: Expand by its internal source: This mode requires huge of money to invest in new technological equipment, and in training its employees. According to the company financial situation, it is very difficult to develop its own new business with its current ability. Or/and make joint venture with some huge international firm like Burlington Industries: This mode is more feasible but the company has to be aware of risk of dependent on its partner, or risk of using obsolete technology.

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Vertical Integration: Backward integration is out of list in the yarn industry where producing input material is far different from the companys businesses, and it is not feasible when the company can buy input with cheaper and cheaper price from many source in the world. But the company can have opportunities of achieving benefit if they get closer to its consumers, providing fast and reliable responsiveness to its customers. It is very importance in knitwear business. Reducing number of intermediaries but of course it will accumulate costs means company can increase its profit portion from profit margin. There are three solutions for this option: Direct linkage with some retailing chains in global market like Wal-Mart. Contact to overseas Vietnamese in order to set up agents for the company. Linkages though Internet with its customers In the longer term, Hanosimex should set up it stores in some potential markets such as Japan, U.S.

Global Diversification: The current mode of serving global market of Hanosimex is exporting. The rationales of this option are that the company can use other modes to more globalize its activities and businesses like licensing or franchising. Therefore Hanosimex can exploit the benefit from reducing number of intermediaries, getting closer to their end-users, close control over its service to customers.

6.2 Alternative strategies for yarn business

In comparison to other countries yarn products price, quality, Vietnamese yarn producers can not compete with other national exporters like China, South Korea in low quality segment, and U.S, Germany in high quality segment. And Hanosimex is not an exception. In the domestic, the company is the dominator. Although, yarn sector is becoming a mature industry but the Vietnamese market is now showing favorable signals for yarn producers. In overall, main strategy for yarn business now is to develop and/or at least maintain its competitive advantage in the domestic market, its main market, and more specific in medium quality market segment. Hanosimexs yarn business is still active based good result in domestic market, where customers are well known, close relationship in the Vinatex umbrella. However, Hanosimex has the bad practice of not regularly contact with buyers, only waits them call to. It has to be change to more active way that is the company should communicate directly to customers by setting customer file management, regular visits, regular calls, improving the performance of direct sales force, and enhancing the after sales service activities. The expansion can be done by fulfilling some niches that company can meet. Low quality product can sell at very cheap price to some private enterprise, where produces low cost but low quality fabrics and then garment products. This niche asks suppliers with products with very cheap but low quality.

6.3 Alternative strategies for knitwear business

Two aspects have to be taken care in this business: knitwear quality is really in medium to high in comparison to its domestic competitors but is in low to medium in the global market. The main competitive advantage in the global extent is its cheap price or company uses low production cost as main competitive weapon in the international market. As knitwear is mainly

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for export, so the main philosophy in this businesss strategy is to become cost leadership. Nevertheless, company should differentiate its products and services in the domestic market, where their products are favored. In order to pursue this option, Hanosimex has to develop its strong marketing capabilities and a reputation for its products quality. And the firm has to seek ways to enhance its R&D capabilities, coordination among R&D, marketing and manufacturing functions There are some business strategic alternatives for knitwear business: Domestic market expansion The company domestic sale is not stable. It is resulted from strategic point of view of leaders in Hanosimex. Domestic is not main market for the company. In fact, the growing demand in Vietnamese market presents an opportunity to expand its activities in domestic. To pursue this alternative, company has to establish its more own shop in some main city and then expand to the neighbor region. For the product range, it must be design based on the favored features of the domestic needs. It needs to expand to other potential customer group, which has medium volume per one contract such as uniform for school, for firms. This market segment is very big but not concerned yet. That can help to improve economies of scale for the company. Existing export market expansion Set up close linkages with foreign partners in export markets At least this alternative will reduce much of intermediaries that mean more profit for company. Company can choose direct sales policy or under contract with some super market corporations. There are some steps that must be followed from selecting appropriate partner to finishing the signing of contract. The other way that company can access to the Vietnamese communities in potential markets. They are familiar with the local situation, full understand economic and social environment. And they are also represent for not small group of potential customers in overseas markets. Settings up agent contracts or/and franchising are preferred methods to enter these markets through this group. Sharing stores with Vinatex in some countries This strategic alternative will help the company to improve its profitability due to the reduction number of intermediaries in the distribution channels. If Hanosimex wants to have owned stores, the initial activities will ask for huge amount of money in carrying out research in market, selecting location, establishment fees, recruiting employees, and etc. Thus, they should coordinate with Vinatex to build up their alliance in setting shops in these markets. One obstacle here is the brand name issue. Hanosimex can use its own brand name or using Vinatex brand name with strong marketing campaign, but first target customers is low-end market segment and then expand gradually to higher segment. This strategic alternative is more feasible in far future. Diversify product range to meet demands of foreign customers Hanosimex should proactively benchmark from international fashion, coordinate with some fashion institutions like FADIN to have more attractive designs, which can meet needs of foreign customers and help to less depend on the design from wholesaler and of course increase profit. Enter to new markets

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Target market is U.S, where has highest demand in the world all type of ready made garment items. The chance will be clear for every company if two governments sign bilateral trade agreement. The other potential market is Australia. The first simple step is export. Hanosimex can export directly to some retail chains but in the beginning, it should need wholesalers. It no needs to have much information about the market. In the other words, no need to carry out market research in these markets. The company can use wholesalers brands. In longer term, the company should change the mode of commercial to using local agents or/and franchising.

6.4 Alternative Strategies for Towel Business

The main market of towel business is domestic. The market is having very strong competition from many private and state run companies as well as from imported Chinese, Thailands products. Therefore, to have a position in the market, the company should implement cost management program to control and help to reduce its cost in all stages from acquiring input to selling out product. There are two major alternatives for towel business: Domestic expansion strategy Towels main market should be in the domestic, where it can compete well because customers do not require high quality item, the important factor is price. The company products have competitive price and more than reasonable quality, which are accepted by its local resident. The company should close communicate with some big potential customer like hotels, restaurants. This option needs to have very effective direct sales force who manages well each customer account and the regular visits or contacts. It should expand its distribution channel to more effective with more own shops sharing with other businesss products. Product range should be wider for contributing more choices for its customers. Existing market expansion strategy in global extent Hanosimex also should consider the expansion of towel in existing overseas markets. The role of global market is also important for the business though current quality of product somehow can not compete in term of quality in international market. However, the higher quality can be achieved if company invested in new production equipment. Towel can share distribution channels with knitwear business.

6.5 Hanosimex capabilities and implementation

In order to achieve successfully the proposed strategies, some long-term and short-term functional objectives and suggested methods for Hanosimex are proposed in the Table 6.1.

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Table 6.1: Area basis major findings and short and long term recommendations Area Major findings Short-term Long-term No promotion Give ads through the Set up a liaison office work international industrial at abroad journals No own product Conduct a research to Design and introduce in knitwear launch its own product an own branded product (may involve high investments) Less bargaining Increase quality of Introduce own power to set up work; branded product the price internationally, Maintain healthy contract famous brand environment situation name in shop floor Limited market Expand the market to -U.S. and Australia Reliability to the Increase the reliability -buyers is not up to the buyers through to the mark quality assurance Less flexible Recruit better quality Recruit engineer to production managers develop skill for future organization Rearrange shop floor No design Setting up close Recruit qualified section relationship with design people design association Train them for own (like FADIN) products design Less productivity Introduce formal Develop the workforce training through phase wise training No formal Introduce formal Set up an effective training training program training program Keep budget for training Less cohesion Frequent meeting with Set a strategic among the all level employees decision making employees process Poor employee Introduce a formal Produce a standard evaluation evaluation system format for employee system evaluation

Marketing

Production and Operation

Human Resources

135

 Very low ROI Finance

Organization structure

Culture

Evaluate at the end of each year of its operations on the basis of concrete financial ratios Control the operation expenses Functional Give more decision centrally control making power to the middle level managers Employees are in Inform all level dark about employees to know corporation them what are going change. inside the company. Motivate the employee towards corporate transformation Most machine Replace old machine are old by new one Conduct a research to introduce state-of-art technology

---

Establish or add design and information section Increase the information sharing culture Develop a strategic planning and decision making process Introduce state-of-art technology

Technology

Poor information Introduce Local Area Conduct a research system Network (LAN) system for introducing CIM (CAD + MIS) system Keep close contact for manufacturing high with VINATEX quality product with Try to keep internet less cost connection as early as possible Less capability Set a program to develop the workforce for running state-of-art technology

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Chapter 7

Conclusions and Recommendations

7.1 Conclusion
This research reviews strategic alternatives for Hanoi Textile Company. The final choice is on the Hanosimex side. Conclusions drawn are: 1. The global economic situation has been recovered from financial crisis. It will lead to the increase in the demand for goods or meaning opportunities for all companies. 2. Textile and apparel industries play important role in all economies and social welfare. Industries product accounted for large portion in the international trade. 3. The development in the textile and apparel is remarkable. This is represented in the fast speed in technological change in finding new material, new technologies of the industries in over the world. 4. The competition for small companies is getting more difficult due to the strengthening of the big companies but in general the market is still fragmented. However, from findings in global environment, small companies still have chances to compete in its market niches. 5. Vietnamese Textile and Garment Industries is late mover in the international competition. The market also is impacted by the opening of the economy and in the regulation favoring foreign companies. 6. In general, Hanosimex is a major company in the Vietnamese Textile and Garment Industries but still a small one in the international market. Its advantage is in supplying yarn in the domestic market, where it is the biggest supplier, and they have long time relationships with their buyers. Knitwear business has an advantage in the international market with very low price and medium level of quality. 7. It is still profitable if they continue their existing businesses. One strategic alternative is to concentrate in and to defend strongly its current businesses. However, in order to build long time development, Hanosimex should think of following options: Expanding its global activities by using more proactive mode of serving global market, moving from simple mode, export, to more complicate modes like franchising. Forward integration by internally develop and manage its own stores and/or reduce the number of middle entities in the distribution channels, so getting closer to its end customers with better quality and services. Expanding to related business that the company can exploit advantages in present businesses. Investing in fabric production like Jean, Denim, manufacturing new and higher quality of yarn, which can be for export like micro fibers, synthesis fibers, jumping in other ready made garment sector like uniform for worker, for schoolboy are options for the company.

7.2 Recommendations
The strategy development is not a one-stop process. It is a non-stop process. This task requires the continuous attention from all responsible person in the company in updating market information, revising the past missions and goals, formulating right strategies in

137

coping with ever changing environment, and improving its capabilities in order to step by step enhance its competitiveness. The right strategy must have clear & feasible objectives, applicable implementation plans that take full advantages of strengths and improve weaknesses, easy to understand and communicate, and create synergy among all sectors of company. Some recommendations was given below for the company: The company should have clear mission and goal statement, which then is communicated well to all people, from high management level to frontline people. It helps to build their awareness and feeling of their responsibility in company results. Hanosimex should have a new direction and more dynamic organizational culture. It needs to recruit dynamic, active, and experienced managers who have much knowledge both in the technical matter and economic matter to break the status quo. In its organizations structure, it needs to have a separate marketing department. It will be responsible for carrying out market research, providing service and participating in launching new product. The use of e-commerce is one critical factor in the near future global trade. E-commerce is powerful instrument in the world now. It help to get customers and suppliers closer, to reduce time consumption in traditional trade, to eliminate paperwork. Nevertheless, applying e-commerce into its business needs the upgrade in the information infrastructure as well as in banking system, regulation system. Hanosimex should organize regular training courses for its employees for improving their skill and knowledge. Sometime the company can do by themselves, but it is better if they set up relationship with industrial institutions and training centers. A production plan needs to be built more useful with the participation from many departments like Marketing, Finance, Commercial not only the job of Production Management Department. Achieving ISO 9001 certificate is one of important keys to enter developed countries markets. Actions should start right now. It needs a compact plan and enthusiastic implementation, not words.

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HAYES, R. H., WHEELWRIGHT, S. C., "Restoring Our Competitive Edge: Competing Through Manufacturing", Wiley, New York, 1984. LEI, DAVID; JOHN, W.JR.; SLOCUM; Global Strategy: Competence Building and Strategic Alliances, California Management Review, Vol.: 35, Iss 1, Fall 1992, p:8187 LE VAN TOAN Successes and Difficulties of VN Economy in 1997 - Figures & Event No. 1+2/1998, page 6-9. LEVITT, T., "Exploit the Product Life Cycle ", Harvard Business Review, NovemberDecember, 1965, pp. 81-94. LEWIS, W. W, and LINDEN, L. H. " A new mission for corporate technology", Sloan Management Review, Summer, 1990, page. 57-67. L.J. BOURGEOIS III, IRENE M. DUHAIME, and J.L. STIMPERT Strategic Management Concepts for Managers, Second edition, 1999, page 229-235. McCRARY ELISSA, Flexible by design, Apparel Industry Magazine, Vol.: 55 Iss: 7 Date: Jul. 1994 p: 20-24 MILLER, A., "A taxonomy of technological settings, with related strategies and performance levels", Strategic Management Journal, Vol. 9, 1988, pp. 239-254. PAVITT, K., "What we know about the Strategic Management of Technology", California Management Review, Spring, 1990, pp. 17-26. PETERAF, M. A., "The corner stones of competitive advantage: A resource based view", Strategic Management Journal, Vol. 14, 1993, pp. 179-191. PHUONG DUNG Need an out-way for a labor-intensive industry - Vietnam Textile and Garment Journal No. 131, 10/1997, page 1. PORTER, MICHAEL E., "Competitive Advantage of Nations", Free Press, 1990. PORTER, MICHAEL E., From Competitive Advantage to Corporate Strategy , Harvard Business Review, May-June, 1987. R, HAYES, Strategic Planning Toward Reverse , Harvard Business Review, NovDec, 1985 SUPHAT SUPHACHALASAI, The Impact of Liberalization: Communicating with APEC Communities -Textiles Industry in Thailand, November 1998, page 15-19. TOMPKINS, NEVVILLE C, The fit of chemical protective clothing remains flexible for evolving standards, Occupational Health & Safety, Vol.: 63 Iss: 1 Date: Jan 1994 p: 46-49 WELLS, B.; Branding: Order out of chaos , Marketing and Media Decisions, Vol.: 24, Jun. 1989, P: 99-100 YEUNG, S.; CAMPBELL, A.; Creating a sense of Mission, Long Range Planning, Vol.:24, Aug. 1991, P:10-20 VINATEXs Annual Report, 1998/1999 and 1999/2000.

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APPENDICES Appendix 1: Balance Sheet 1996 Assets A. Current assets & short term investment I. Cash II. Short term investment III. Accounts receivable IV. Inventories B. Fixed Assets & Long term Investments I. Fixed assets 1. Tangible fixed assets Accumulate depreciation (*) Total Assets Resources A. Liabilities I. Current liabilities B. Owner's Equity I. Capital sources and funds II. Budget resources Total Resources 162 162 160 32 128 322 147 147 160 32 128 307 183 183 161 33 128 344 217 15 0 30 172 105 115 10 322 1997 207 16 0 29 162 100 111 11 307 1998 242 15 0 60 167 102 114 12 344

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Appendix 2: Income Statement ITEM Gross Sales Including Export Less deductions 1. Net Sale 2. Cost of Good Sold 3. Gross margin 4. Selling expenses 5. General & administration expenses 6. Operating Income 7. Net profit before tax 8. Profit tax 9. Net profit after taxes Appendix 3: Key Ratios
Groups

1996 265 124.9 3 386.9 328.865 58.035 5 39.88677 13.14823 13.14823 12.84823 0.3

1997 375 173 4 544 462.4 81.6 7 38.3625 36.2375 36.2375 35.3375 0.9

1998 376 182 5.5 552.5 469.625 82.875 8 38.4648 36.4102 36.4102 34.9102 1.5

Item

96

97

98

142

Liquidity

Activity ratio

Net working capital Current ration Quick Ration Net working capital Quick assets Asset turnover ratio(Cost of good sold/Total Asset) Fix asset turnover(COGS/Fixed Assets) Current assets turnover(COGS/Current Assets) Turnover Ratio (COGS/average inventory) Debt-Equity Ratio(Total debt/Shareholder Equity) Debt to Total Assets Ratio

55 60 59 1.339506 1.408163 1.322404 0.092593 0.108844 0.081967 55 60 59 15 16 15 1.02132 1.506189 1.365189 3.132048 4.624 4.604167

1.515507 2.233816 1.940599 2.768862 2.854863 1.0125 0.91875 1.136646

Debt Ratio

0.503106 0.478827 0.531977 0.15654 0.156204 0.158378 0.148846 0.148905 0.148522 0.000932 0.002932 0.00436 0.002857 0.009 0.014706

Profitability ratio Gross Profit Margin(Sale - cost of good sold)/(sale) Gross Margin(gross margin/sale) ROA(Net Profit after tax/total Assets) ROA(Net Profit after tax/total Fixed Assets) Return on shareholder's Equity =NPAT/Equity

0.001875 0.005625 0.009317

143

Yarn sector attractiveness

(C - Current; F - Future)

Highly Unattractive

Mildly Unattractive F

Neutral C

Mildly Attractive

Highly Attractive Large

Economies of scale Product differentiation Brand identification Switching costs

Entry Barriers

Small Little Low Low Ample Low Ample Ample Nonexistence Unimportant High High High High High Large Slow High Commodity Little High High Few Many Low High Low

C/F F F C/F C/F C/F C/F F F C/F C/F C F C/F C/F F F C/F C/F F F C C/F C/F C/F F C F C C C C C C C C

Big High High Restricted High Restricted Restricted High Very Important Low Low Low Low Low Small Fast Low Specialty Big Low Low Many Few High Low High

Access to distribution channels Capital requirements Access to latest technology Access to raw materials Government protection Experience effect Assets specialization

Barriers to Exit Rivalry Among Competitor Power of Buyers

One time cost of exit Strategic interrelationship Emotional barriers Government and social restrictions Numbers of equally balanced competitors Ind. Growth relative to metals industry Fixed or storage cost Product features Capacity increases Diversify of competitors Numbers of important buyers Availability of substitutes Buyer switching costs Buyers threat of backward integration Industry threat of forward integration Contribution to quality or service of buyers product Total buyers cost contributed by the industry Buyers profitability

Large

Small

Large fraction Low

C F C

Small fraction High

75

Highly Unattractive

Mildly Unattractive

Neutral

Mildly Attractive

Highly Attractive Many

Power of Suppliers

Government Actions SubstitutesAvailability of

Numbers of important suppliers Availability of substitutes for the suppliers products Differentiation or switching cost of suppliers products Suppliers threat of forward integration Industry threat of backward integration Suppliers contribution to quality or service of the industry products Importance of the industry to suppliers profit Availability of close substitutes User switching costs Substitute producers profitability and aggressiveness Substitute price/value Industry protection Industry regulation Consistency of policies Capital movement among countries Custom duties Foreign exchange Foreign ownership Assistance provided to competitors

Few

Low

High

High C/F Low High C

Low

High Low

Large fraction

C/F

Small fraction

Small

Large

Large Low High C/F C/F

C/F

Small High Low

High Unfavorable Unfavorable Low Restricted Restricted Restricted Limited Substantial

C/F F F F F F F C C C C C F F C C C

Low Favorable Favorable High Unrestricted Unrestricted Unrestricted Unlimited None

76

Knitwear sector attractiveness

(C Current; F Future)

Highly Unattractive

Mildly Unattractive

Neutral

Mildly Attractive C/F C/F

Highly Attractive Large Big High

Economies of scale Product differentiation Brand identification Switching costs

Entry Barriers

Small Little Low Low Ample Low Ample Ample Nonexistence Unimportant High High High High High Large Slow High Commodity Little High High Few Many Low High Low C/F F C C C F C/F C F C F

F C C/F C C F C/F C F

High Restricted High Restricted Restricted High Very Important Low

Access to distribution channels Capital requirements Access to latest technology Access to raw materials Government protection Experience effect Assets specialization

Barriers to Exit

One time cost of exit Strategic interrelationship Emotional barriers Government and social restrictions Numbers of equally balanced competitors Ind. Growth relative to metals industry Fixed or storage cost Product features Capacity increases Diversify of competitors Numbers of important buyers Availability of substitutes Buyer switching costs Buyers threat of backward integration Industry threat of forward integration Contribution to quality or service of buyers product Total buyers cost contributed by the industry Buyers profitability

F C F C/F C/F C C C/F C C C/F F F F F C

Low Low Low Low Small Fast Low Specialty Big Low Low Many Few High

Power of Buyers

Rivalry Among Competitor

F F

Low High

Large

C/F

Small

Large fraction Low

C/F F C

Small fraction High

77

Highly Unattractive

Mildly Unattractive

Neutral

Mildly Attractive C

Highly Attractive F Many

Power of Suppliers

Government Actions SubstitutesAvailability of

Numbers of important suppliers Availability of substitutes for the suppliers products Differentiation or switching cost of suppliers products Suppliers threat of forward integration Industry threat of backward integration Suppliers contribution to quality or service of the industry products Importance of the industry to suppliers profit Availability of close substitutes User switching costs Substitute producers profitability and aggressiveness Substitute price/value Industry protection Industry regulation Consistency of policies Capital movement among countries Custom duties Foreign exchange Foreign ownership Assistance provided to competitors

Few

Low

High

High

Low

Low High

C C

F F

High Low

Large fraction

Small fraction

Small

Large

Large Low High F C

C/F C F

Small High Low

High Unfavorable Unfavorable Low Restricted Restricted Restricted Limited Substantial C C

C F

F C F C C F

Low Favorable Favorable High Unrestricted Unrestricted Unrestricted F Unlimited None

F F

C C

78

Towel sector attractiveness

(C Current; F Future)

Highly Unattractive

Mildly Unattractive

Neutral

Mildly Attractive C/F

Highly Attractive Large Big F High High

Economies of scale Product differentiation Brand identification Switching costs

Entry Barriers

Small Little Low Low Ample Low Ample Ample Nonexistence Unimportant High High High High High Large Slow High Commodity Little High High Few Many Low High Low C/F C/F F C C C/F F C C C C F C/F C/F C/F C F C/F C

F C

Access to distribution channels Capital requirements Access to latest technology Access to raw materials Government protection Experience effect Assets specialization

F C/F F C C/F

Restricted High Restricted Restricted High Very Important Low

Barriers to Exit

One time cost of exit Strategic interrelationship Emotional barriers Government and social restrictions Numbers of equally balanced competitors Ind. Growth relative to metals industry Fixed or storage cost Product features Capacity increases Diversify of competitors Numbers of important buyers Availability of substitutes Buyer switching costs Buyers threat of backward integration Industry threat of forward integration Contribution to quality or service of buyers product Total buyers cost contributed by the industry Buyers profitability

Low Low

F F F C F C/F C/F F

Low Low Small Fast Low Specialty Big Low Low Many Few

Rivalry Among Competitor

High Low High

Power of Buyers

Large

Small

Large fraction Low

F F

C C

Small fraction High

79

Highly Unattractive

Mildly Unattractive

Neutral

Mildly Attractive C

Highly Attractive F Many

Power of Suppliers

Government Actions SubstitutesAvailability of

Numbers of important suppliers Availability of substitutes for the suppliers products Differentiation or switching cost of suppliers products Suppliers threat of forward integration Industry threat of backward integration Suppliers contribution to quality or service of the industry products Importance of the industry to suppliers profit Availability of close substitutes User switching costs Substitute producers profitability and aggressiveness Substitute price/value Industry protection Industry regulation Consistency of policies Capital movement among countries Custom duties Foreign exchange Foreign ownership Assistance provided to competitors

Few

Low

High

High

Low

Low High

F F

C C

High Low

Large fraction

Small fraction

Small

Large

Large Low High F

F C

Small High

Low

High Unfavorable Unfavorable Low Restricted Restricted Restricted Limited Substantial F F

F F

C C C

Low Favorable Favorable High Unrestricted Unrestricted Unrestricted Unlimited C/F None

F C F C F F C C

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APPENDIX 5 - INTERVIEW GUIDE A. Organization Structure 1.1 What is the organization structure of your business? 1.2 Which are the main departments in this structure? 1.3 How many supervisors and workers are in each department? 1.4 What are the main activities of each department? 1.5 What are some of the major problems in each department? i) Machines ii) Workers iii) Supervisors/ Managers iv) Raw material v) Service output of the department B. Business process 2.1 What is the business process from purchase to sale? 2.2 How do you control each activity? 2.3 What are the criteria used for assessing the output at each level? 2.4 What are some of the activities where actual output is less than planned output? C. Decision making 3.1 What is the process of decision making? a) For launching new product b) For buy a new machine c) For changing a supplier d) For entering a new marketing D. Products and Export 4.1 Products exported to different markets? 4.2 Total export from Vietnam textile and garment last two years? Market sales? 4.3 What are some of the emerging products and markets in which your company is going to enter? 4.4 What are the specific product -materials in which your company is weak? 4.5 What are the specific product-materials in which your company is strong?

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E. Analysis of the Cost Structure 5.1 Cost structure? What factors are important? 5.2 How does the company manage its products cost? F. Purchasing and material management 6.1 Design information: a) Does your firm have a written system for incorporating customer changes into shop drawing. b) Does your firm have a reliability department? c) Does your company have a sample or prototype department? d) Do drawings and specifications accompany purchase orders to suppliers? e) How well is the control of design and manufacturing information applied to the procurement activity? 6.2 Procurement - control of purchased material. a) Do your firm have incoming inspection department? b) Are purchase orders made available to incoming inspection? c) Are written inspection instructions available? d) Is sample inspection used? e) Is gauging equipment calibrated periodically? f) Are suppliers test records used for acceptance? g) Are records kept to show acceptance or rejection of incoming material? h) Does your company have a supplier rating system? i) Is the supplier notified of nonconforming material? j) Does your company survey supplier facilities? 6.3 Material control a) What are the procedures for storage, release, and movement of material? b) What is the procedure to prevent the finished goods damages? 6.4 Manufacturing control a) Does your company have a process inspection function? b) Are shop drawings and specifications available to inspection? c) Are there any written inspection instruction? d) Is there a system for reviewing and updating inspection instructions? e) Are inspection records kept on file? 6.5 Quality management

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a) What is your firms quality assurance policies and procedures? b) Is there any written responsibility and authority for quality assurance? c) Is there any training program for quality employee? d) Does the quality department have a quality audit function? 6.6 General a) Who are the potential suppliers of raw materials? b) Have you any choice for competitive bidding? c) Do your firm have any inventory control system? d) What is the lead-time to delivery? e) What are the major problems for inventory control? f) What is your step by step procedure for integrating transportation for buying process? g) What are major types of carriers? h) What is the negotiation process for purchasing materials? i) Is there any seasonally discount for foreign made materials? G. Logistics and Distribution 7.1 General i) Does your firm have a distribution department? ii) How is it organized? iii) Who are the potential customers / distributors of your products? iv) What is the lead-time from receiving the order to delivery the product? v) What are the major problems in for on time distribution? vi) What is your step by step procedure for integrating transportation for selling /exporting (distribution) process? vii) Did your firm face any problems for late delivery? viii) What are the major types of carriers you use for transportation? ix) How would you control the finished goods inventory? x) What are the procedure for handling and movement of finished goods? xi) How do you control the traffic and transportation system for finished goods? xii) What are the major facilitating organizations and services available to export your products? xiii) What are the concepts of your logistic system? 7.2 Internal transportation 83

i) Does your firm have own transportation facilities? ii) Are they using for carrying finished goods for shipment? iii) How you select the transportation mode for the shipment? iv) Have you followed any standard format? v) Who is liable for demurrage? vii) Who is liable for delay? 7.3 International Shipment i) Do you control the warehousing facilities? ii) Who pays for warehouse facilities domestic port as well as international port? iii) How does your firm resolve the rejection problem (if any) international market? iv) Who pays for loading and unloading charges? v) How many documents you need for exporting apparel goods? vi) Is it easy to handle the documentation work? vii) Have you faced any problems to handle the documents? viii) What are major problems? 7.4 Packaging i) What is your firms packaging system for exportation? ii) On what basis the firm prepares the package? iii) Is there different standard for different carriers? 7.5 Order processing i) How is your firms policy to take order? ii) Does your firm have any standard system for order processing? iii) How long is the firms order response cycle time? iv) Do you check the inventory system before taking order?

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