Les 02 21.05.2016

Chapter Two
Analyzing the ExternalAnalyzing the External
Environment of the Firm(EE)Environment of the Firm(EE)

Learning
Objectives
• The importance of developing forecasts of the business environment.
Why environmental scanning, monitoring, and collecting
competitive intelligence are critical inputs to ForecastingForecasting.
 Why scenario planningscenario planning is a useful technique for firms competing in industries
characterized by unpredictability and change.
• The impact of the general environmentThe impact of the general environment on a firm’s strategies andstrategies and
performance.performance.
• How forces in the competitive environmentcompetitive environment can affect profitabilityprofitability
 How a firm can improve its competitive position by increasing its power vis-à-vispower vis-à-vis
forcesforces in the competitive environment.
 The concept of strategic groups and their strategy and
performance implications._ the basis of similarities in their
resources and strategies (!)
How trends and events in the general environment and forces in the
competitive environment are interrelated and affect performance.
After studying this chapter, you should have
a good understanding of:
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• The concept ofThe concept of strategic groupsstrategic groups is also very important tois also very important to
thethe external environment of a firm.. E.g.,Two organizations are
completely different nor are they exactly the same. The question
is How to group firms (see into slide#6-7) in an industry on the basis
of similarities in their resources and strategies:
 The strategic groups concept is valuable for determining mobility
barriers across groups that represents the greatest opportunity. (e.g.,
increase its market share… , see into footnote)
 Identifying groups with marginal competitive advantage {strategic
position :C or D } :Identify factors that prevent firms in one groups from
competing with companies in other groups ; Identify the strategic group that
represents the greatest opportunity & Recognize group’s strengths and
weaknesses).
 Charting the future directions of firm strategies (Merge,
Join venture or alliance)_overall goals(see into footnote & slide #6)
 And assessing the consequences of industry trends for the strategic
group as a whole(Evaluate the degree of rivalry between groups) . e.g.,
Starcell ,Smart& Hello group._ expandingexpanding a firm’s product-market scope.
Dr. Phea Vanna 2015
Chapter Summary (Cont.)

EnvironmentalEnvironmental
ScanningScanning
EnvironmentalEnvironmental
MonitoringMonitoring
CompetitiveCompetitive
IntelligenceIntelligence
ForecastForecast
ss
The importance of developing forecasts of the business environment
Howdomanagersbecomeenvironmentallyaware?

Scanning( Theoretical )
Surveillance of environment conclusion:
– Anticipate (expected)future changes(Predict thePredict the events&
trends ) and detect (notice) changes under way
– Recognize patterns ( Strategy & Structures _ strengths and weaknesses ) before
competition
– Act before changes occur (proactive) rather than
responding afterwards (reactive)
– General top of the mind awarenessmind awareness of societal
behaviors and businessbusiness practices : specific Trend &
Event changes in socio-cultural segment.
e.g., Cambodian Business climate "The price
sensitive Cambodian Consumers "
Dr. Phea Vanna 2012

Environmental Scanning(Practice)
e.g., Cambodian poverty : "The price sensitive Cambodian Consumers "
•Data Profession(WB_ lower & upper line poverty in 2011(relist
2013)=11,1mln persons(85%_ income=$1.25 to $2.3/per day))
•Data Providers(producers and distributors_ Camgov-t statistic,2013) _
wealth ranking lower & upper line poverty=51.2%/100persons
•Educational Sector_ According to UNESCO, only 1.6% of Cambodia’s
GDP is spent on education – ranking around 170th in the world. Education statistics
are improving but still low according to world standards.
•Research Community
 ASEAN (2011-2012)_less than $2 (57.8%) (ASEAN =lower P=100m & upper P =200m persons)
 Camgov-t statistic(2010)_Nutrition= 55%( 5> 40% )
 Cam-ladies (age 15 to 49 year old)= 44%() &57.1%`()
 Camgov-t statistic_child(6 to 14 year old)=45% (contribute economic activity) &(16%_child
labour )
 Poverty rate between 24.6%rural & 19.3% other urban areas in Cambodia(12.8% PP),2013
•External Factors (larger societal issues _ Source UNFPA (2013)_
Cam-immigrant to Thai =81%(95% illegal immigrant)

Business Environment Indicators, 2014
Country Cost to
Export
Ease of Doing
Legal Rights
Index
Labor Tax Total Tax RateBusiness Rank (0 = weak to
($ per container) (1 = business-friendly) 11 = strong) (% of comm. profits) (% of comm. profits)
Brunei
Darussalam 705 101 4 7.9 15.8
Cambodia 795 135 11 0.5 21
Indonesia 572 114 4 11.3 31.4
Lao PDR 1,950 148 4 5.6 25.8
Malaysia 525 18 7 16.4 39.2
Myanmar 620 177 2 0 47.7
Philippines 755 95 3 8 42.5
Singapore 460 1 8 15.1 18.4
Thailand 595 26 3 4.3 26.9
Viet Nam 610 78 7 23.7 40.8
Sources: World Bank. 2014. Cambodia: Doing Business 2015. Washington, DC.; and World Bank, World Development Indicators, accessed September 2015.

Monitoring
• Tracking movement or changes in specific
trends, sequences of events, or streams of activities
• Watching specific formal and informal
indicators of future events:
Index of economic indicators(Consumer price Index, Interest
rates(credit & loan)& Exchange rate(PPP) , Unemployment(Cam-
labour flow into Cam-market 300000 person /year: only 50000
had Job vacancies(JV) and 250000 person have no JV=83%) ,
Trends in GDP(sectors contribute to GDP) & Changes in stock
market valuations (involves the inclusion of multiple stakeholders in
decision making): Economic factors affect the purchasingEconomic factors affect the purchasing
power of potential customers and the firm's cost ofpower of potential customers and the firm's cost of
capital.capital. (see into Economic segment).
Dr. Phea Vanna 2015

Summary(CI)
 Competitive intelligence should be critical to business planning
(Understanding the process is critical _the need ,idea, solution &result):
 The Need(number of competitors, market prices and Win rate)
 The Idea(Strategic planning)
 The Solution(alternatives) with CBA
 The Result( Balancing ,preparing and strategic actions )
 Sometimes you can get support to build an organization that
does this regularly scanning and monitoring for useful information
(So, CI Unit need to takes time, patience, and thought)
 It uses many of the skills involved in other information-
hunting activities.
 Historically, the problem has been that the people who do it
are “strategic planners” and not called “librarians”.
So, CI _ information hunting that helps managers determine how to compete better.

Environmental
Scanning
Environmental
Monitoring
( Macro-
environment )
Competitive
Intelligence
(Micro-
environment& IA)
Forecasts
Exhibit 2.0
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surveillancesurveillance of firm’sof firm’s
external & Internal factor s ,external & Internal factor s ,
research community,research community,
educational sector,educational sector,
technology , data providerstechnology , data providers
(producers& distributors)&(producers& distributors)&
data professiondata profession __ trends &trends &
events toevents to predictpredict env-tenv-t
changes andchanges and findfind changeschanges
already under way.already under way.
Tracking movement orTracking movement or
changes inchanges in specificspecific
trends & sequences oftrends & sequences of
events or streams ofevents or streams of
activities_ (activities_ (PEST& IAPEST& IA))
 CICI should be critical toshould be critical to
corporate strategiccorporate strategic
planning (theplanning (the NeedNeed
,Idea, Solution &Result):,Idea, Solution &Result):
 Finding out informationFinding out information
for business planningfor business planning
 InformationInformation
asymmetry(see intoasymmetry(see into
footnoted)footnoted)
Chapter 2.Dr. Phea Vanna 2016
EF_ Scenario development describes aEF_ Scenario development describes a
particular set of future conditionsparticular set of future conditions::
 Best(15%) ,Worst(5%) & Base(10%)-case scenarios
Involved human judgment (experts assessment)
combined with quantitative analysis(STEP&I A )
to get the information needed to forecast future
issues(OT).
Help managers develop contingency plans_ methods
for predicting how variables will change in the future.
The importance of developing forecasts of the
business environment.

The general environment(GE)
• External factors have profound influence on
firm outcomes and entireoutcomes and entire industries
– Macro-affectsMacro-affects different industries differently
{P, N & neutral impact :e.g., Global economic crisis,2008_ China (GDP=
9%, 2009) & Laos(Inflation_4-5%),but Cam, Thai & VN _(Inf_25 to 30%),
USA (Unem-t_10%, = 4.4mln ,2010) ,Japan & South Korea (BOP_ deficit
= - 3% ,1quarter, 2009),…}
The technique requirement of GE are six segment
(OT, see into footnote): Demographic, Socio-cultural,
Political/legal, Technological, Economic and
Global. So, those segments analysis may reveal certain new
opportunities for profit and growth and also may present threats
to the firm.
Dr. Phea Vanna 2013

G E_ Key trends and eventsG E_ Key trends and events may impact on a firm’s strategies andmay impact on a firm’s strategies and
tactical performancetactical performance..
Exhibit 2.2
DemographicDemographic
– Changes in ethnic composition
– Geographic distribution of population
– Greater disparities in income levels
Socio-cultural factorsSocio-cultural factors include the demographic and culturaldemographic and cultural
aspectsaspects . These factors affect customer needs and the size of potential marketsThese factors affect customer needs and the size of potential markets.
Some social factors include: Health consciousness, population growth rate , ageHealth consciousness, population growth rate , age
distribution, career attitudes and emphasis on safetydistribution, career attitudes and emphasis on safety
Political/LegalPolitical/Legal factors include government regulations and
legal issues and define both formal and informal rules under which
the firm must operate. Some examples include_ Industryndustry
Development Policy in Cambodia 2015 to 2025:Development Policy in Cambodia 2015 to 2025:
• tax policytax policy
• employment lawsemployment laws
• environmental regulationsenvironmental regulations
• trade restrictions and tariffstrade restrictions and tariffs
• political stability ( e.g., China policy )political stability ( e.g., China policy )
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GE continueGE continueExhibit 2.2
• Economic factorsEconomic factors affect the purchasing power of potential customers andffect the purchasing power of potential customers and
the firm's cost of capital.the firm's cost of capital. The following are examples of factors in the macro-
economy: economic growth, interest rates ,exchange rates, and inflation
rate.
 CPI (Cam-Inflation: 3.5 in 2014-2015) see into next slide 37
 Interest rates (Cambodia:loan_12%& deposit_9.75%)
Unemployment{(Cam-labour flow into Cam-market 300000
person /year: only 50000 had Job vacancies(JV) and 250000 person
have no JV=83%)}.Cam-immigrant to Thai =81%(95% illegal
immigrant _ UNFPA (2013). see into next slide 38
Trends in CamGDP,2013_7.2%: 24% Industry sector contributed to
GDP,( during 1998 to 2013 increased at an average 12.4%,
compared to agriculture sector4.7% and services sector8.5%) and
GDP_2014&2015: 7% &7.3%}.See : Slides 38 to 42 for detail.
 Changes in stock market valuations(stock market is the best
choice for long term gather financial investment).
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•Technological factorsTechnological factors can lower barriers to entry, reduce minimum
efficient production levels, and influence outsourcing decisions. SomeSome
technological factors includetechnological factors include:(R&D activity , automation, technology incentive andR&D activity , automation, technology incentive and
rate of technological changerate of technological change):
– Genetic engineering(Toyota’s Hybrid technologies)
– Emergence of Internet technology(e.g., Face book, Skype.)
– Computer Aided Design/Computer-Aided man-ring Sys.
– Pollution/Global warming( Petroleum & solar green house)
TRANSPARENCY-124
•Global factorsGlobal factors (( Standardization leads to higher economies of scale, which
lowers costs , but limited ability to adapt to local markets):
– Increasing Global trade(Strong integration across various bus-es);
– Currency Exchange Rates(Trade off : Cambodia & Thai )
– Emergence of the BRICS_ Brazil, Russia, India,China &South
Africa _ the most important emerging economies with large potential
markets.
– Trade Agreements among regional blocs (e.g. WTO, EU &
ASIAN _ leading to decreasing costume tariffs)

Demographic segment
• Numerical measurement of characteristics of a population:
Rising affluence(.e.g., Cambodia's natural & traditional resources ) & Changes in
ethnic composition.(e.g., Cam_ Khmer 90%, and aboriginal and other :Vietnamese 5%,
Chinese 1%, other 4%)
• Literally(really)description of people: (development)
 aging population(e.g. Cam,0-14 years: 32% ;15-64 years:64% ;65 years and
over : 3.9%)_July 2012 est.); Life expectancy at birth total population:68.9 years:See into
Next slide#29 (NIS,2012).Cam: More than 50% of the population is less than 25 years old
(15-64 years labor force participation rate : Urban 73.2% & Rural 84.8%)
 geographic distribution of population(see into next slide#26 _ urban
population: Cambodia has experienced rapid urbanization over the last two decades
when the urban population grewurban population grew from 15.7%15.7% in 1998 toin 1998 to 21.4%21.4% in 2013in 2013.( From
2,614,027 (19.5%) of the total population in 2008, the urban population rose to
3,146,212 (21.4%) in 2013 (NIS, 2012, 2013a). In 2011, out of 1,633 (2000)communes or
Sangkats in Cambodia,). By 2013, about 25%(3,705,253 people ) of the Cambodian
population had migrated andmigrated and 85% of the urban85% of the urban migrantsmigrants came fromcame from rural areasrural areas..
 greater disparities in income levels (e.g., Poverty rate between 24.6%rural & 19.3%
other urban areas in Cam (12.8% PP): Approximately 4 million people live on less
than $1.25 per day, and ASEAN(2011-2012)_less than $2 (57.8%=8.7mln).Next slide#27
Dr. Phea Vanna 2015

Cambodian Poverty Measures
Source: World Bank, World Development Indicators, accessed September 2015.
Poverty Measure
Cambodian Poverty
Measures, 2004 and
2007–2012 (%)
2004 2007 2008 2009 2010 2011 2012
Poverty headcount ratio at $1.25 a day
(PPP)
32.8 30.8 20.9 12.9 11.3 10.1 ...
Poverty headcount ratio at $2 a day
(PPP)
64.4 59.4 51.1 40.7 40.9 41.3 ...
Poverty headcount ratio at national
poverty lines (PPP)
50.2 45 34 23.9 22.1 20.5 17.7
Rural poverty headcount ratio at
national poverty lines (PPP)
54.2 51.4 38.5 27.5 25.3 23.6 20.8
Urban poverty headcount ratio at
national poverty lines (PPP)
28.5 18.3 15.1 8 8.5 8.7 6.4

Table 1: Urban Population 1998-2013 (NIS)
Household size Growth rate(%) Annual growth rate(%)
1998 2008 2013 1998-2008 2008-2013 1998-2008 2008-2013
2,095,074 2,614,027 3,146,213 24.8 20.4 2.2 3.7
Dr. Phea Vanna 2015

Urban-rural areas- key demographic data
Description National
average
Urban areas Rural areas
Household size 4.6 4.8 4.6
% of HH using electricity as main source of light 48 94 36
% of HH accessible to improved sources of% of HH accessible to improved sources of
water (water (see into next slides _30-31see into next slides _30-31))
5757 81.881.8 5050
% of HH having toilet facility with premises 48.7 87.5 38.5
Adult literacy rate (aged 15+) 79.7 90.3 76.5
Labor force participation rate (aged 15-64yrs) 82.2 73.2 84.8
Unemployment rate (aged 15-64yrs) 2.3 4.4 1.8
% of migrant by place of last residence 28.9 49.4 23.3
Total fertility rate per 1,000 live births 2.8 2.1 3.1
Infant mortality rate per 1,000 live births 33 9 38
Under-5 mortality rate per 1,000 live births 53 15 60
Life expectancy at birth 68.9 76.8 67.6
Dr. Phea Vanna 2015

Main sources of drinking water in Cambodia (wet and dry
season)
Source: NIS and www.rdic.org
HH accessible to improved/unimproved sources of water :
In 2014, about 51 percent of the households in Cambodia had a “safe/improved water
source” in the wet season and about 58 percent in dry season. One of the differences
between wet (49% ) and dry season (42% ) is that a higher share of the households have
access to unimproved rainwater in wet season.

Drinking water source for the Urban-rural
areas
average
PP Urban
areas
Rural areas
Number of households 3,261,000 369,000 366,000 2,526,000
HH accessible to improved sources of
water (%)
57 93.3 81.8 50
Treatment of drinking water(%) 70.8 90 75.8 67.2
Source: Cambodia Socio-economic Survey, NIS, 2014
 The HH accessible to improved sources shows that improved drinking water source for the
urban areas had increased from 78 percent of households in 2009 to 81 percent in 2014. For
rural areas, improved drinking water source had increased from 42 percent of households in
2009 to 47 percent in 2014.
 As observed, Treatment of drinking water shows that the tendency was towards increased
from 53 percent of households in 2004 to 60 percent in 2009 and 71 percent(in 2014.) of the
Cambodian households said that they always treat water for drinking :
 10 percent of households said that they sometimes treated water for drinking
 and 19 percent of households never treated their drinking water. However, the households
that had always treated drinking water over two five-year periods in Cambodia.

Conclusion: Urbanization is strongly associated with progress and development
Urban spaces are gateway to global and regional economic networks that facilitate as well
as promote transnational trade and investment:
Well-planned and inclusive urbanization processes produce many socio-economic and
environmental benefits (Opportunity): reduced infant and maternal mortality rate, increased
literacy rate(80%) and overall welfare of the population, better service delivery, minimizing
environmental degradation, and above all reducing poverty from 47.8% in 2007 to 19.8% in
2011).See into footnoted
 Urbanization necessarily involves social, economic, and environmental changes(Threats).
Depending on the quality of their management, these changes can be beneficial or
detrimental. Rapid but unplanned urbanization strains the capacity of national and sub-
national governments to provide even the most basic services (i.e., health care, education,
clean water, electricity, sanitation facilities, sewerage.
 Reliable data on current urbanization processes and problems are
essential to inform the development of urbanization projects and regulatory
framework and is essential for the formulation of national policies,
strategies, and programs responsive to the diverse needs of and addressing
challenges faced by the target population.).
Dr. Phea Vanna 2015

Socio-cultural segment• Distinct from(individual of social nations ), but related to demographics
 Values, beliefs, attitudes of a social behavior(slide#36):
– Increase in temporary workers _ ValuesValues ((Cam labor force_ 7.9m (82%)
,2011-13 est.): agriculture_55.8%, industry _16.9% ,services _27.3%.
 In 1993, 72% agriculture sector and only 5% industry sector. Industry sector is the main
fundamental of creating jobs: 2008 census founded rose to 8.6%(600000 workers) of totally workers and 2012
in this sector increase to18.6%(1.4 million workers), but in hot season rose to 25.2%(1.8 million
workers): Industries labor force participation rate (Garment _50%, 25% construction, 10% food
processing industries & beverage, and 13% some other manufactories, socio-
economic2007-2012 )
 Scale of manufactory:( location:PP:68%, Candal :13% & other provinces :12%)
 Micro- factory (1to 10 workers): 97% (69,851 factories), labor force: 29.3%(162,335 workers) and
capital investment:12%(396mln).(99% local investment)
 Small factory (11to 50 workers): 1.9% (5,861 factories), labor force: 5.2%(28,706 workers) and
capital investment: 9.1%(300mln). (94% local investment)
 Medium factory (51to 100 workers): 0.2% (530 factories), labor force: 2.2%(11,949 workers) and
capital investment:2.9%(94.4mln). (37.14% foreign investment)
 Large factory (100+ workers): 0.6% (609 factories), labor force: 63.3%(350,260 workers) and
capital investment:76%(2,500mln).(63% foreign investment)
 Conclusion: Industry structure depend on entire big factories, if uncertainty envi-t easily impact
to labor market ,economic growth and down competitive power(no support from SME: change operating cost).
Dr. Phea Vanna 2015

ASEAN Social Indicators
36
Country
Total Land
Area (km2)
Total Pop
(thousands)
Poverty
$1.25$1.25(
%) 2012
Poverty
$2(%)
2012
Rural
Pop(%)
Life Exp
2013
Literacy
(%)
2012
Employm
ent(%)
2013
Labor
force(%)
(2013)
Age
dep(%)201
4
Brunei 5,270 423 …. .… 23.1 78.6 95.4 61.6 64 38.3
Cambodia 176,520 15,408
10.1
(2011)
41.3
(2011)
79.5 71.7
73.9
(2009)
82.3 82.5 55.8
Indonesia 1,811,570 252,812
16.2
(2011)
43.3
(2011)
47 70.8
92.8
(2011)
63.5 67.7 49.5
Lao PDR 230,800 6,894 30.3 62 62.4 68.2
72.7
(2005)
76.6 77.7 63.6
Malaysia 328,550 30,188 0.0 (2009) 2.3 (2009) 26 75
93.1
(2010)
57.5 59.4 44.2
Myanmar 653,290 53,719 .… .… 66.4 65.1 92.6 75.9 78.6 49.9
Philippines 298,170 100,096 19 41.7 55.5 68.7
95.4
(2008)
60.6 65.2 58
Singapore 700 5,470 .… .… .… 82.3 96.4 65.9 67.8 36.9
Thailand 510,890 67,223 0.3 (2011) 3.5 (2010) 50.8 74.4
96.4
(2010)
71.7 72.3 39
Viet Nam 310,070 90,730 2.4 12.5 67 75.8
93.5
(2009)
75.9 77.5 42.3
ASEAN 4,325,830 622,964
Age dependency is the proportion of dependents (people younger than 15 or older than 64) per 100 working-age population (those ages 15–64).
Source: World Bank, World Development Indicators, accessed September 2015.Note_ Poverty $3(70%) ,2014

Why Do Business in Cambodia? Cambodian Investment Board 37
Efficient Infrastructure/Strategic Location
37
.
Phnom Penh
The Philippines
Singapore
Indonesia
Myanmar
Southern China
Manila
Bangkok
Kunming
Yangon
Brunei
Jakarta
Begawan
Hanoi
Laos
o Vientiane
CAMBODIA(15mln: 9.6mln(82.5%) workers )
Malaysia
Kuala Lumpur
Thailand
Vietnam
37
StrategiclocationinSouth-EastAsia
Socio-culturall include the demographic
and cultural aspects .(623mln): More
women(58.5%) in the workforce(e.g., career
attitudes in Cam: 32.2% Garment,
23.4%small business, 11.1% domestic work
&10.3% service/entertainment) & Increase in
temporary workers (ASIAN _280mln):
examples of such opportunitiesexamples of such opportunities
include:
an unfulfilled customer need
Some examples of such threatsSome examples of such threats
include:
shifts in consumer tastes away from
the firm's products
emergence of substitute products
 Some social factors include: Health consciousness, population growth
rate , age distribution, career attitudes and emphasis on safety. These
factors affect customer needs and the size of potential markets.

G E: Key trends and eventsG E: Key trends and events may impact on a firm’smay impact on a firm’s
strategies and tactical performancestrategies and tactical performance..
Exhibit 2.2
Political/LegalPolitical/Legal factors include government regulations and legal
issues and define both formal and informal rules under which the firm
must operate. Some examples include_ Industry DevelopmentIndustry Development
PPolicy(IDP) in Cambodia 2015 to 2025(olicy(IDP) in Cambodia 2015 to 2025( see into footnoted):):
• Tax policyTax policy is improving procedure taxes obligation_ slide#39is improving procedure taxes obligation_ slide#39
• Employment laws(National employment policy2015-2025)Employment laws(National employment policy2015-2025) areare
very importance and necessary for implementation whenvery importance and necessary for implementation when
Cambodia step up to AEC: to promote & attract Inves-t_slide#40Cambodia step up to AEC: to promote & attract Inves-t_slide#40
• Environmental regulationsEnvironmental regulations are improving competitivenessare improving competitiveness
through comforting investment climate & transnational trade,through comforting investment climate & transnational trade,
providing market information and cutting down business'sproviding market information and cutting down business's
operating cost_operating cost_ slide#41slide#41
• Trade restrictionsTrade restrictions and tariffsand tariffs ((e.g.,e.g.,CLV restriction of trade in AEC ,CLV restriction of trade in AEC ,2015-20182015-2018))
• Political stability ( e.g., China policy )_Political stability ( e.g., China policy )_ slide#43-46slide#43-46
TRANSPARENCY-138

Employment Laws are very importance and
necessary for implementation when Cambodia step up
to AEC:
 Promote investment through effectiveness labor
flow management and guarantee national
competitive advantages of labor market (mechanism
regulation for implementation _llabor straighteningabor straightening
requirement before jobs, employee & employer rightrequirement before jobs, employee & employer right
&duties and strikebreaker..&duties and strikebreaker..),
 Investment attraction basics are considering on
the work place condition, high labor efficiency andwork place condition, high labor efficiency and
labor force weighlabor force weigh (depend on regulation issue to supportdepend on regulation issue to support
to Social investment for decreasing pressure labor weigh andto Social investment for decreasing pressure labor weigh and
keep a basic of competitiveness economykeep a basic of competitiveness economy). 40

 Environmental regulationsEnvironmental regulations ObjectiveObjective isis improving competitivenessimproving competitiveness
through comforting investment climate & transnational trade,through comforting investment climate & transnational trade,
providing market information and cutting down business'sproviding market information and cutting down business's
operating costoperating cost::
 Commercial comforting measure & export promotionCommercial comforting measure & export promotion(e.g.,(e.g.,
custom clearance_ slide#42): Min Fin& CDCcustom clearance_ slide#42): Min Fin& CDC
 Improving industry standard and industry propertyImproving industry standard and industry property((e.g., qualitye.g., quality
management of scale &standard)management of scale &standard)
 Improving procedure taxes obligation(Improving procedure taxes obligation(slide#42)slide#42)
 Preparing labor market and Industry connections(Preparing labor market and Industry connections(e.g.,e.g., improvingimproving
triangle mechanism interrelationships includetriangle mechanism interrelationships include Government,Government,
employee and employeremployee and employer through labor adviser committee forthrough labor adviser committee for
regulatingregulating minimum weighminimum weigh that consistently tothat consistently to workerworker
efficiency and socio-economic condition and guarantee theefficiency and socio-economic condition and guarantee the
entire industry developmententire industry development.))
41

• Economic factorsEconomic factors affect the purchasing power of potential customers andffect the purchasing power of potential customers and
the firm's cost of capital.the firm's cost of capital. The following are examples of factors in the macro-
economy: economic growth, interest rates ,exchange rates, and inflation
rate.
 CPI (Cam-Inflation: 3.5 in 2014-2015) see into next slide 48-49
 Interest rates (Cambodia:loan_12%& deposit_9.75%)
Exchange rates (NBC policy _3800 to 4200. Dollarization remained high, with
foreign currency deposits accounting for 82% of total liquidity.).slide#48
Unemployment{(Cam-labour flow into Cam-market 300000
person /year: only 50000 had Job vacancies(JV) and 250000 person
have no JV=83%)}:Cam-immigrant to Thai =81%(95% illegal immigrant _
UNFPA (2013). see into next slide 48 &50-53
Trends in CamGDP,2013_7.2%: 24% Industry sector contributed to
GDP,( during 1998 to 2013 increased at an average 12.4%, compared to
agriculture sector4.7% and services sector8.5%) and GDP_2014&2015: 7%
&7.3% [ind_11.7%,Agr_1.6% & Serv_7.1%]}.See : Slides54 to 58 for detail.
 Changes in stock market valuations(stock market is the best choice for
long term gather financial investment).
TRANSPARENCY-147

ASEAN Macroeconomic Indicators
Country
GDP GDP per Capita GDP Growth Unemployment Inflation
$ million $ $ PPP (%) (%) (%)
2014 (%) 2014 2014 2013 2014
Brunei
Darussalam
17,257 0.7 40,776 75,700 5.3 3.8 –0.2
Cambodia 16,709 0.7 1,084 3,242 7 0.3 3.9
Indonesia 888,538 35.9 3,515 10,585 5 6.3 6.4
Lao PDR 11,772 0.5 1,708 5,162 7.5 1.4 4.1
Malaysia 326,933 13.2 10,830 24,715 6 3.2 3.1
Myanmar 64,330 2.6 1,198 .… 8.5 3.4 5.5
Philippines 284,582 11.5 2,843 6,916 6.1 7.1 4.1
Singapore 307,872 12.4 56,287 82,763 2.9 2.8 1
Thailand 373,804 15.1 5,561 14,661 0.7 0.7 1.9
Viet Nam 186,205 7.5 2,052 5,629 6 2 4.1
Dr. Phea Vanna 2016
Source: World Bank, World Development Indicators, accessed September 2015.
Cam-GDP(7.3%), 2015: Industry_ 11.7%(Export_14,1%{8.5b} & Textile_10.2% ), Agriculture_1.6% and
Service_7.6%(Bank, trade & transport, telecommunications =8% , and Tourist _6.1%)

 Employment & Unemployment :
– Increase in temporary workers [[Cam labor force from 2011-15( 7.9m to
9.6m ] : agriculture_55.8%, industry_16.9%,services_27.3%.
• Labor force participation rate (aged 15-64yrs: 64%) :ØN=82%, U=73% &
R=85%
 Industry sectorIndustry sector is the main fundamental of creating jobs: 1993, 72% agriculture sector and only 5%
industry sector. 2008 census founded rose to 8.6%(600000 workers) of totally workers and 2012 in this sector
increase to18.6%(1.4 million workers), but in hot season rose to 25.2%(1.8 million workers): Industries
labor force participation rate( Garment _50%, 25% construction, 10% food
processing industries & beverage, and 13% some other manufactories, socio-
economic2007-2012 )
 Scale of manufactory:( location:PP:68%, Candal :13% & other provinces :12%)
 Micro- factory (1to 10 workers): 97% (69,851 factories), labor force: 29.3%(162,335 workers) and capital
investment:12%(396mln).(99% local investment)
 Small factory (11to 50 workers): 1.9% (5,861 factories), labor force: 5.2%(28,706 workers) and capital
investment: 9.1%(300mln). (94% local investment)
 Medium factory (51to 100 workers): 0.2% (530 factories), labor force: 2.2%(11,949 workers) and capital
investment:2.9%(94.4mln). (37.14% foreign investment)
 Large factory (100+ workers): 0.6% (609 factories), labor force: 63.3%(350,260 workers) and capital
investment:76%(2,500mln).(63% foreign investment)
 Conclusion: Industry structure depend on entire big factories, if uncertainty envi-t easily impact to labor
market ,economic growth and down competitive power(IDP support SME).
• Unemployment rate (aged 15-64yrs) : ØN =2.3%,U=4.4% & R=1.8%
Dr. Phea Vanna 2015

51
1993-
2012
1993-
1999
1999-
2008
2008-
2009
2009-
2012
2012-
2015
1.7 3.9 0.1 8.1 0.4 8.2
10.7 10.2 12.8 3.8 7.8 16.1
5 -0.4 8.6 -3.3 8.8 14.3
3.5 3.3 3.3 4.2 3.9 11.5
(%), -
Hyeok-Jeong (2013), Skills Need Assessment of Cambodia Labor Market in Policy Agenda for Cambodia in
Developing Industrial Skills, Industrial Complex, and Agro-processing Industry, Korean Development Institute,
2013

52
1993-2003 2004-2008 2009
2010-
2012
2013p-
2018p
(GDP) 7.5% 10.3% 0.1% 6.8% 7.1%
3.8% 6.2% 5.4% 5.4% 4.1%
15.3% 12.0% -9.5% -9.5% 9.1%
7.4% 11.1% 2.3% 2.3% 7.4%
GDP (%), -p
តតតតតតតតតតតតតតតតតតតតតត

Employment by sectorEmployment by sector as a share of total
employment under the baseline and AEC scenarios
(percent)
Cambodia
2010 Baseline 2025 Baseline 2025 AEC II-I
scenario scenario (I) scenario (II) (percentage points)
Agriculture 55 50 48.3 -1.7
Industry 14.914.9 18.118.1 19.419.4 1.31.3
Mining 0.2 0.3 0.3 0
Food processing 1.5 1.3 0.7 -0.6
Textiles 1.4 1.4 1.7 0.3
Apparel 5.1 4.8 4.7 -0.1
Wood products 0.3 0.3 0.4 0.1
Chemicals 0.5 0.8 1 0.2
Metals 0.4 0.5 0.5 0
Electrical equipment 0.1 0.2 0.2 0
Vehicles 0.2 0.3 0.5 0.2
Machinery 0.1 0.1 0.2 0
Other manufacturing 0.2 0.3 0.4 0.1
Utilities 0.2 0.2 0.3 0
Construction 4.7 7.6 8.5 0.9
Services 30.1 31.9 32.3 0.4
Trade and transportation 15.9 17.5 19.1 1.5
Private services 5.2 5.3 5 -0.3
Government services 9 9.1 8.2 -0.8
Total 100 100 100 0
Source : ASEAN Community 2015: Managing integration for better jobs and shared prosperity

GDP contribution Growth rate 2001-2025
57
Sectors(%) 2008 2013 2015 2020 2025
Agriculture 32.8 31.6 29.0 25 23
Industry 22.4 24.1 26.2 28 30
- Factory 15.3 15.5 16 18 20
Service 38.8 38.5 39.4 40 40
Subsidiary& Taxation 6 5.8 5.4 7 7
Conclusion: 24% Industry sector contributed to GDP,2013(during 1998 to 2013 increased at an average
12.4%(11.7%,2015),compared to 4.7%(1.6%,2015)agriculture sector and 8.5% (7.1% ,2015 )
services sector )

58
As a whole, ASEAN’s recent economic
performance has been remarkable. In 2013,
ASEAN’s gross domestic product (GDP)
stood at $2.4 trillion, accounting for 3.3
percent of the world’s economy.
Country
GDP
$ million
2014 (%)
Brunei
Darussalam
17,257 0.7
Cambodia 16,709 0.7
Indonesia 888,538 35.9
Lao PDR 11,772 0.5
Malaysia 326,933 13.2
Myanmar 64,330 2.6
Philippines 284,582 11.5
Singapore 307,872 12.4
Thailand 373,804 15.1
Viet Nam 186,205 7.5

GE continueGE continue Technological factorsTechnological factors can lower barriers to entry, reduce minimum
efficient production levels(ESc), and influence outsourcing
decisions. Some technological factors includeSome technological factors include:(R&D activity , automation,R&D activity , automation,
technology incentive and rate of technological changetechnology incentive and rate of technological change) :
– Price comparison sites : “Automated price comparison services will be developed,
allowing people to see prices across multiple websites, making it effortless to find the
cheapest product for all industries. E,g., Sites like NexTag and PriceGrabber are built
specifically for price comparisons.
– Mobile devices: “People will carry around small devices that allow them to constantly stay in
touch and do electronic business from wherever they are.
– Instant payments and financing online, better healthcare through the web
– Online home-monitoring: E.g., Dropcam sells home surveillance cameras that
make home-monitoring easy. Google bought the company for $555 million in 2014.
– Automated promotional offers.eg., Google and Facebook ads can offer
promotional ads based on the user’s location and interests.(It suggests activities,
discounts, offers, and cheaper prices for all the things that you want to take part in.”). Global (Global ( Standardization leads to higher economies of scale, which lowers
costs , but limited ability to adapt to local markets):
– Increasing Global trade(Strong integration across various bus-es);
– Currency Exchange Rates(Trade off :Cambodia & Thai )
– Emergence of the Indian ,Chinese &Russian Economies
– Trade Agreements among regional blocs (e.g. WTO, EU &
ASIAN _ leading to decreasing tariffs)

Access to World Market
 Access to The U.S. Market in 1996
 Access to The E.U. Market in 1996
 Member of Association of South-East Asian Nations
(ASEAN) in 1999
Cambodia stands to gain plenty(abundant benefits) if ASEAN economic integration continues
on course. The country already receives tax favors from the EU for using fabric from
ASEAN members for its clothing, and elimination of most tariffs between ASEAN
countries in 2010 should reduce the cost of fabric imports.
 Member of the World Trade Organization (WTO) in
2004( Min of Comercial,2011_65% contributed GDP :
agriculture(33.4%),Industry(30%) & ….)
 Member of Various Regional Trade Agreements
(MFN/GSP Market Access).see into slide#47

MFN/GSP Market Access
 Australia
 Austria
 Belarus
 Belgium
 Bulgaria
 Canada
 China
 Czech
Republic
 Denmark
 Finland
 Poland
 Portugal
 ROK
 Russian
Federation
 Slovakia
 Spain
 Sweden
 Switzerland
 UK
 USA
 France
 Germany
 Hungary
 Ireland
 Italy
 Korea
 Luxemburg
 Japan
 Netherlands
 New Zealand
 Norway
….and the ASEAN Integration System
of Preferences (AISP) from the ASEAN 6
MFN: Most Favored Nation
GSP: Generalized System
of Preferences

76
.
Phnom Penh
The Philippines
Singapore
Indonesia
Myanmar
Southern China
Manila
Bangkok
Kunming
Yangon
Brunei
Jakarta
Begawan
Hanoi
Laos
o Vientiane
CAMBODIA
Malaysia
Kuala Lumpur
Thailand
Vietnam
1h:30 on average
Invest in Cambodia and you have 15 million
customers and you have 622 million customers at
your doorstep
76

Michael E. Porter, PhD in Business Economics
from Harvard University in 1973
The Complete Porter Strategic Models
1. Porter’s Five Forces Analysis
2. Value Chain, See into Ch.3
3. Generic Strategies, See into
Ch.5

The Objectives of Competitive
Analysis
The Objectives of Competitive
Analysis
 To understand how industry structure drives competition, which
determines the level of industry profitability:
 To assess industry attractiveness of market (Maximize overall industry profitability)
 To formulate strategies to change industry structure and improving industry
profitability
 To use evidence on changes in industry structure to forecast future
profitability (To assess how a firm can improve its competitive position
& the average expected profitability levels)
 To identify Key Success Factors(OT)_Exhibit 2.2

Porter’s five forces model of industry competition
Dr. Phea Vanna 2010
Exhibit 2.2
Barriers to Entry
Proprietary learning curve
Absolute cost advantages
Access to inputs
Access to distribution
Economies of scale_ i.e., the most cost
efficient level of production are at minimum
Government policy
Capital requirements
Brand identity
Switching costs
Expected retaliation(repayment)
Proprietary(owner) products
 Switching costs
 Buyer inclination(наклонение) to
substitute(e.g., shifts in consumer tastes away from the
firm's products or more alternatives)
 Price-performance trade-off of substitutes
 Changing prices - raising or lowering prices to gain a
temporary advantage
 Supplier concentration*(percentage of market share
owned by the firms. e.g.,)
 Importance of volume to supplier(e.g.,Rus gas sold to
China)
 Differentiation of inputs(e.g.,Q or P for identification)
 Impact of inputs on cost or differentiation
 Switching costs of firms in the industry
 Presence of substitute inputs
 Threat of forward integration
 Cost relative to total purchases in industry
 Bargaining leverage
 Buyer volume
 Buyer information
 Brand identity
 Price sensitivity
 Threat of backward integration
 Product differentiation
 Buyer concentration vs. industry
 Substitutes available
 Buyers' incentives

Porter's Five Forces Analysis
( Voda international Co.Ltd)

(e.g., Voda international Co.Ltd)
• Barriers to Entry
 Government regulations_ The lack of government
standards (basic quality standards) that are being
imposed by government agencies to water bottlers to
ensure health and safety for consumers(Ministry of
Industry , MRD ,MWRM and PPWSA) and presents a
low barrier of entry for a potential new entrant.
There is no need for new entrant to secure license and / or to
have their products analyze by independent body.
Dr. Phea Vanna 2016

• Barriers to Entry
Unsophisticated market_ the Cambodian bottled
water industry is still at its infancy stage, and it is
composed of relatively unsophisticated consumers
[Source: World Bank, September 2015. Poverty $3(70%)] and
small locational manufacturers.
Our research indicates that they are more than 35 brands of
bottled water available in Cambodian market: Local &
Imported brands
Dr. Phea Vanna 2016

1) Local bottled water manufactures have 25 companies
and only the producer of brands Eau de Vie, New Day,Uy
Mey ,Sin Fu Food product Co.Ltd(OR), and Cambodia New
Era(ALO)….can be considered as large scale operation
(60workers) and are owned by Chinese investors.
 In term of geographic locations, only a few companies[(Clare
Fontaine( spring water) and Alpine Sprint(distilled) come from
Sihanouk Ville] and the other 23 small family business companies
(10 workers) are from Phnom Penh): They can easily become a
manufacturer even if they only invest in unsophisticated
machineries. The lack of standard and regulatory body allows these
operators to continue producing bottled water even if their products
are substandard.
Dr. Phea Vanna 2016

2) Bottled water importers_ They are numerous importers of
bottled water brands in Cambodia Markets _ namely:
Evian(France/Thai) is one of the widely available and most
expensive brands in Cambodia.it is imported an authorized
distributor by ANCO brothers Co.Ltd),Volvic (France/Thai)
,Aquafina(Pepsi-VN), Spritzer(Malaysia) and Fuji…. are present
in almost all stores and directly supplies supermarkets,
restaurant and five-star hotels.
The others, Mont Fleur, Minere (NesleThai), Aix Les Bains
(France/Thai), Luchon (France/Thai), Ondine and Eau de
Source (France/Thai),… can't be found in all stores (availability
is sporadic).
Dr. Phea Vanna 2016

 Distribution networks are the points of sales either intermediate or
direct to the consumers.
local companies with small scale bottled water distribute
the products themselves to local shops, super markets,
factories, hotels, and restaurants.
Imported bottled water such as Evian, sprizer, Volvic…are
distributed through the distribution operations of their
respective importers, which directly supply the super
markets, luxury hotels, and restaurants.
Street vendors are an alternative distribution means. They
buy bottled water and resell them to tourist. They are highly
visible in tourist spots in the country. They are no brand
loyalty for vendor since they buy the brands that is available
and that would offer them better margins.
Dr. Phea Vanna 2016

Bargaining Power of Supplier
Supplier to local bottled water producers in Cambodia
provide the following inputs:
Water is estimated that 80% of local companies use water
sourced from the PPWSA. Water can be bought at $0.30 per
cubic meter. Other producers use water sourced from rivers,
lakes and deep well(see into slide#89). So, the bargaining power
of water supplier is high if the water bottler sources its water
from the PPWSA. if water comes from a natural source, the
bargaining power is practically non-existent.
Dr. Phea Vanna 2016

Country Overview
Main sources of drinking water in Cambodia (wet and dry
season)
Source: NIS and www.rdic.org
In 2014, about 51 percent of the households in Cambodia had a “safe/improved water
source” in the wet season and about 58 percent in dry season. One of the differences
between wet (49% ) and dry season (42% )is that a higher share of the households have
access to unimproved rainwater in wet season.

Bottles and Labels_ they are more than 35 brands
identified in Cambodian market use blow molded plastic
(Suppliers: Sumatra plastic & packaging is owned by
Malaysia, Asia plastic manufacturing is owned by Cambodian ,
and Sandy Co.Ltd is owned by Cambodian ). All expect 4
brands come in bottle size of 0.5L, 18 out of the 35brands
have bottle size of 1.5L and odds size of 250,330 &350ml.
 In terms of packaging, the bargaining power of the PET and
resin suppliers is high because there are only few of them in
Cambodia. All brands are packaged in blow molded
bottles(no price difference between water in plastic and
blow molded bottles _ Average cost of Bottles, slide#10 ).
The bottles can be ordered from manufacturers in Malaysia ,
Thailand and VN. Dr. Phea Vanna 2016

Average cost of Bottles
Dr. Phea Vanna 2016
Bottle
size
Type of Bottle
Wholesale
price
(package only)
Wholesale price
(bottle water) %
Per 200
bottles
Per
bottle
Per bottle
350ml Blow molded $6 $0.03 $0.15 20
500ml Blow molded $8.5 $0.04 $0.12 34
1 L Plastic $10 $0.05 $0.10 50
1.5L Blow molded $0.10 $0.33 30

Technology and Equipment .For technology, the
bargaining power for top of the line technology is high
since training and support is needed from the supplier in
order to ensure the correct operation and maintenance of
the water treatment and bottling system. as for lower
technology system , bargaining power is low since the
system is fairly simple and consumables such as filters and
parts can be easily sourced. So, this kind of production
system have limited market due to quality concerns.
E.g., Some local brands such as Eurotech boast of
technology sourced from Enviro Ltd from UK.
Dr. Phea Vanna 2016

Bargaining Power of Buyers
• They are basically 2-groups of consumers of bottle water_ local
(the price sensitive Cambodian consumers)and non-local(the quality
(Brand), which consist of foreigners visiting for tourism or business.
 Market Situation
Brands_ there are more than 30 local brands(only a few brand
of spring water, two mineral water, and two deionized water) and 9 imported
brands from Malaysia, VN and Thailand(a few of which are
mineral water and the most popular in the market is Evian).
Origin(whether local or imported)
Type of water
the bottle size_ All expect 4 brands come in bottle size of 0.5L, 18 out of
the 35brands have bottle size of 1.5L and odds size of 250,330 &350ml.
the type of packaging _ blow molded bottle Dr. Phea Vanna 2016

Prices _ the bottle water can be grouped into Premium
and non-premium segment:
1.The premium segment includes the brands import
from France such as EVian, Volvic, AIX, and Luchon.
The bottled sizes of 0.5Liters averages between $0.75-
0.9 in supermarket(Evian is the market leader in all
supermarkets, restaurants and hotels)
2.The non-premium brands range from $ 0.11-0.35 for a
0.5Liters( local brand for $0.125 and Evian for $0.7
in supermarket, but in five star hotels and restaurants
is sold for $3-3.5 )
Dr. Phea Vanna 2010

 Local consumes inferior local and Asian brands and their main decision making factors
are availability and price. Only the upper segment of local population (Urban_ 20%, Rural
_80%) can afford higher quality bottled water and may thus be not too price sensitive(GDP
per Capita in 2015,Tab…). The key to sustainable patronage would be price
competitiveness at higher quality and constant availability market.
Dr. Phea Vanna 2010
Country
GDP per Capita GDP Growth
$ $ PPP (%)
2014 2014
Brunei Darussalam 40,776 75,700 5.3
Cambodia 1,084 3,242 7
Indonesia 3,515 10,585 5
Lao PDR 1,708 5,162 7.5
Malaysia 10,830 24,715 6
Myanmar 1,198 .… 8.5
Philippines 2,843 6,916 6.1
Singapore 56,287 82,763 2.9
Thailand 5,561 14,661 0.7
Viet Nam 2,052 5,629 6

Urban-rural areas- key demographic data
average
PP Urban
areas
Rural areas
Number of households 3,261,000 369,000 366,000 2,526,000
HH accessible to improved sources of
water (%)
57 93.3 81.8 50
Treatment of drinking water(%) 70.8 90 75.8 67.2
Source: Cambodia Socio-economic Survey, NIS, 2014
 The HH accessible to improved sources shows that improved drinking water source for the
urban areas had increased from 78 percent of households in 2009 to 81 percent in 2014. For
rural areas, improved drinking water source had increased from 42 percent of households in
2009 to 47 percent in 2014.
 Treatment of drinking water shows that 71 percent of the Cambodian households said that
they always treat water for drinking, 10 percent of households said that they sometimes treated
water for drinking and 19 percent of households never treated their drinking water. However, the
households that had always treated drinking water over two five-year periods in Cambodia.
As observed, the tendency was towards increased treatment of drinking water was, from 53
percent of households in 2004 to 60 percent in 2009 and 71 percent in 2014.

Hotels and restaurants grew at an average annual rate of 25
to 30% over 1995-2010: Hotel_292, guesthouse_551and
restaurant_...
PP: Hotel_126 , guesthouse_123 and restaurant_.....
Siem Reap: Hotel_100 , guesthouse_200 and restaurant_.....
Market and supermarkets .They are market in each town
and district. Bottled water is either delivered by
manufacturer's own transports or bought by distributors
and sent to the markets to individual stalls.
Supermarkets(10 mayor supermarkets in PP and largest is
the Lucky group with 4 branches and other provinces) buy
from the manufacturers and stock up on bottled water,
which is consumed by both locals and tourists. Dr. Phea Vanna 2016

 Foreign visitors are normally health conscious, having
been aware of the potential health hazards of the
unpredictability of quality water in places they visit. given
the level of development of Cambodia , it is surely
perceived as risky place for water consumption. As tourists
are consumers who mainly comprise the upscale market for
bottled water, their the main decision making factor is
water quality established through brand recognition and
manufacturer's guarantees . There are many brands
available in the market competing for the increasing
demand of this consumer group. So, the key to sustainable
patronage would be product credibility and constant
availability. Dr. Phea Vanna 2016

Substitutes Substitutes for bottled water include tap water(is general
consumable without having been boiled for considerable
amount of time), water run through water filters or
purifiers, any available beverage. Home water purifying
systems cost around $600 [VN,$25 with 3 months of water
filter($4/per unit)] but their effectiveness remains doubtful
as contamination can occur even after filtration have been
performed.
 In contrast, bottled water assures consumers of clean water
from filtration to packaging.
 Other substitutes such as other non-alcoholic beverages like
soft drinks and juice drinks are more expensive(therefor
not for price sensitive local consumers) or viewed
unhealthy, if there are artificial additives, or fattening, if not
Dr. Phea Vanna 2016

Inter-firm Rivalry
Competition is intense in the bottled water business. Actual
fact that there are 35 brands in the market attests the
profitability and potential of the industry.
Demand still far exceeds supply and id growing "pic _ only
8% of bottled water of Cam-market".e.g., Ozone, Hi-Tech,
Vital& Oral are mayor plyer in the market, supply of good
quality bottled water decreased..
With the industry as its infancy stage and dominated by low
volume producers.
So, the key to dealing with intense competition is the
knowledge of the existing and potential markets and the
establishment of brand presence through constant
availability "Socio -economic segment" Dr. Phea Vanna 2016

Key Success Factors
the following cites the strategies on how to become a
significant player in Cambodia's bottled water industry:
A reputation of producing quality products/ beverages.
Since water is delicate product, the credibility and reputation of
the manufacturer and brand is important.
The reliable water purification, technology and water sources, as
well as hygienic manufacturing processes are critical in building
a credible image for the brand and the company.
Advertising and trade marketing is essential in building image
especially for a new entrant and new brand
Dr. Phea Vanna 2016

Key Success Factors
Source of water and ownership of source
The water source is an important aspect of the business.
1. it defines the type(which is a source of differentiation) of water
will be sold , and
2. it dictates the type of technology to be used for water processing
e.g., The sources that have less exposure to pollution and other
contaminants may require less sophisticate purification
technology.
Dr. Phea Vanna 2016

Key Success Factors
Source of water and ownership of source
In the same note, Ownership of water source(e.g., the spring or
the distilling equipment) is equally important. if facilitates factual
claims about quality, reduce costs and increases margins.
Evaluation of prospective factors:
 Proximity to mayor markets
 Quality of water
 Flow rate and reserves
 Security from contamination
 Cost of the property and its development
Dr. Phea Vanna 2016

Key Success Factors
Transport costs_ Given the lack of transportation
infrastructure in Cambodia, transportation cost
consideration is a mayor determinant in the success of
the venture. So, if the water source and the production
plant are closer to the market and mayor transport
connected points, transportation costs can be minimized
or at least scaled down.
Dr. Phea Vanna 2016

Distribution Channels
There are 3 manners of distributing bottled water:
1.Off trade segment_ consist of supermarkets and retailer outlets
where consumption does not take place at the point of purchase.
2. on trade seg-t_ represented by all those retailer outlets where
consumtion is at the point of purchase" hotels,guesthouses,
restaurants bars, street vendors…"
3. Direct delivery and Institutional seg-t"homes and offices of the 20
liter bottles".
1&2 are sold by Both local& foreign brands. The Key to effective
distribution is high visible and placement in all types of retail outlets .To
aid in distribution effectiveness , some companies have their own
vehicles(from Korea, cost $3000 to 6000 depend on the model year)
and panel van (cost between $300 to 400)for delivery to retail outlets .
Promotion and advertising are combination of TV ads, Social
networks" Facebook or…" Newspaper magazines, billboarda and travel
maps.
Key Success Factors

Key Success Factors
Extensive distribution network
Two essential contributors to market penetration and market
share retention are distribution(which translates to the market
reach ) and availability(which translates to market share since
brand differentiation is weak and many consumers purchase
the bottled water that is available in the outlet accessible to
them)
Building a strong and extensive network requires a lot of
time and investment( Study areas: geographic locations or
points of sales). Thus, it is best way that can be prioritized in
the immediate, short and medium terms in order to accelerate
market penetration and establish brand recognition the
fastest(for new entrant to make itself a significant player in
shortest possible time).
Dr. Phea Vanna 2016

Key Success Factors
Economies of scale(ESc)
To the extent(improve the industry's competitive position) that
there are economies of scale, it will be difficult for a new firm to
come in and compete with existing plyers.
ESc is the most cost efficient level of production are at minimum
cost efficient scale(MES) and can derive cost advantage through
high volumes of production: So industries players with high MES
deter entry of small for start-up businesses. The contrast, at less
than MES there must be a consideration that permits the firm to
sell at a premium price(Diff-tion strategy reflects Value actually
delivered to the buyer).
The lower cost provide leeway the company has to price its
products competitively in order to gain market share from existing
plyers.
The potential market for bottled water is scope thus providing
advantages of ESc in bottling, advertising and distribution.
Dr. Phea Vanna 2016

Key Success Factors
 Advertising and promotion
Effective advertising is required to differentiate a new
product.
 in addition, trade and consumer promos will be needed
to win strategic store location, shelf space and shopping
carts.
Providing the retail outlets with chillers(with their logo)
would ensure shelf space and increase the visibility of
one's products. For a new entrant, visibility through
mass advertising is essential to introduce and trade
promos are convinced the retailers to carry its
products(providing some benefit to distributor).
Dr. Phea Vanna 2016

Implication to New Entrant
• Based on the structure analysis of bottled water industry in
Cambodia, there is huge opportunity for a new entrant in the
market. The analysis players shows that there are numerous
competing firms, a great majority(with exception of the Eau de Vie,
New day, and Uy Mey group) are small companies with backyard
operations that have neither the resources nor technology to be
significant players. The closure of Voda Co. (Jasmin and Malisa
brands) has created opportunities for a competent producer to
be a major market shareholder.
• While the lack of industry regulation and quality standard don't
deter firms with substandard production processes to enter into the
industry, such as situation could also present an opportunity for a
competent new entrant.
Dr. Phea Vanna 2010

Implication to New Entrant
• In term of success factors in the industry, a new entrant can't do
without investing in building a distribution network and
capturing space(this means a new entrant don't only need to work
internally on its organization but also externally to win the favour
of different types of bottle water retailers).
Dr. Phea Vanna 2010

Threat of new entrants(objectives)
• Expands industry capacity(improve firm's
competitive position) and increases competition
for market share( attractive market)
 Renault-Nissan alliance _ collective market
capitalization from 20.4B to 84.9B in 2006.
• May include start up as well as existing firms
expanding into new business(Capital requirements )
 Phillip Morris’ purchase of Miller Brewing
Dr. Phea Vanna 2016

New Entrants: Barriers to Entry
From a strategic perspective, barriers can be created or exploited to enhance a
firm's competitive advantage from several sources:
•Economies of Scale
– To the extent(improve the industry's competitive position) that there are
economies of scale, it will be difficult for a new firm to come in and
compete with established firms.
 the most cost efficient level of production are at minimum cost efficient
scale(MES) for business: So industries with high MES deter entry of
small for start-up businesses. To operate at less than MES there must be a
consideration that permits the firm to sell at a premium price ( Differe-tion
strategy reflects Value actually delivered to the buyer). See into footnote.
•Product Differentiation(core competencies )
– To the extent that the firm’s products are distinctive competency and non-
copies, new firms won’t be able to come in and take away customers.
•Brand Identification(customer loyalty through advertising, customer service..)
– To the extent that there is brand identification, customers will remember
the firm’s product and will resist switching.
•Switching Cost: it is costly for customer to switch, new entrants won’t be
able to convince them to do so.(Low switching costs(MES) increases
rivalry).see into Next slide#76

New Entrants: Barriers to Entry
• Access to Distribution Channels
– If the firm has preferential or monopolistic access to distribution
channels, it is more resistant to competition.(e.g., Cam-petroleum….)
• Capital Requirements
– If capital requirements are high, new under-capitalized firms won’t be
able to enter the industry.(e.g., advertising of International Co.)
• Access to Latest Technology
– If technology is important in the industry, new firms are less likely to
have access to them, which is good for established firms.
• Experience and Learning Effects(or Proprietary learning curve)
– If experience is necessary for a firm to figure out how to operate
efficiently, established firms have a distinct advantages(cost & D).
 e.g., firms acquire cost advantages are improving process
efficiencies( through skill in designing products & high level of expertise
in manufacturing process engineering…), gaining unique access to a
large source of lower cost materials, making optimal outsourcing and
vertical integration decisions .

Easy to Enter if there are:
Common technology
Little brand franchise
Access to distribution channels
( loosening of regulations)
High MESHigh MES scale threshold(нижняя граница)
Difficult to Enter if there are:
Patented or proprietary knowhow
Difficulty in brand switching
Restricted distribution channels (e.g.,
firm has preferential or monopolistic access to
distribution channels)
Lower MESLower MES scale threshold(Esc)
Easy to Exit if there are:
Salable assets(популярность)
Low exit costs
Independent businesses
Difficult to Exit if there are:
Specialized assets
High exit costs( initial Capital investment
Interrelated businesses
 Exit barriers limit the ability of a firm to leave the market and can exacerbate (difficult) rivalry - or
unable to leave the industry, So, firm must compete: e.g., Regulatory restrictions; brand names ;
patents and unique know-how(technologies)

Supplier power – high when buyers have few choices and low when
choices are many
The opposite of buyer power
122
Bargaining power of suppliers : factors
Supplier power involved some criteria are Powerful/Weak :
 Determine pricing and qualitypricing and quality
 Differentiation or Switching costsDifferentiation or Switching costs(e.g., Time & system testing, employee retraining..
 Number of available suppliers
 ForwardForward integration(Control aspect considering on the access to distribution channels: can
impact barriers to entry and which can assure cooperation of key value adding
players)

• Number of Important Suppliers
– The fewer number of important suppliers,
the more power they have over the firm.
• Availability of Substitutes for the Suppliers’
Products(weak Supplier)
– This would reduce supplier power(choices are many)
• Differentiation or Switching Costs of Suppliers’
Products& services(Q&P?):
– Improving product differentiation - improving features, implementing
innovations in the manufacturing process and in the product itself.
– If it’s difficult for the firm to switch to other suppliers, the
current suppliers can charge more on products& services.

• Suppliers’ Threat of Forward Integration
– To the extent that suppliers might potentially
themselves become competitors, they are less
reliable and need to be looked at strategically(his
output goods, himself. Control aspect considering!)
• Suppliers’ Contribution to Quality or Service
of the Industry Products
– Product quality is maintained quality and additional features
and support services may be added. this will increase
supplier power.
• Importance of Industry to Suppliers’ Profits

Bargaining power of suppliers
Dr. Phea Vanna 2013
Suppliers are PowerfulPowerful if: Example
Credible forward integration threat by
suppliers
manufacturer of hospital supplies ,
acquired American Hospital Supply, a
distributor
Suppliers concentrated Drug industry's relationship to hospitals
Significant cost to switch suppliers Microsoft's relationship with PC
manufacturers
Customers Powerful Boycott of grocery stores selling non-
union picked grapes

Bargaining power of suppliers
Dr. Phea Vanna 2013
Suppliers are WeakWeak if: Example
Many competitive suppliers - product is
standardized
Tire industry relationship to automobile
manufacturers
Purchase commodity products Grocery store brand label products
Credible backward integration threat by
purchasers
Timber producers relationship to paper
companies
Concentrated purchasers Garment industry relationship to major
department stores
Customers Weak Travel agents' relationship to airlines

Bargaining power of buyers
Bargaining power of buyers of industry output ( final
consumers(Home buyer & Government buyers _ purchase products in
their final form ) & intermediate consumers (Business buyer _buy raw
materials or wholesale products before selling them to final consumers)
Motivated to negotiate for lower prices, quality,
more services, etc.
Bargaining power of buyer groups a function
of:
– Market situation
– Relative importance of purchases from the
industry compared to its overall business activity
(large volume, lower, medium and high levels).Next slide
Dr. Phea Vanna 2013

• Number of Important Buyers(Cam-Garment: EU& USA)
– The greater the number of important buyers, the less
power does the firm have to manipulate prices()
• Availability of Substitutes for the Industry
Products( base on core competency)
– The impact of this on price elasticity of demand for the
industry’s products is obvious(заметный). (e.g.,
Permanent or temporary price change policy)
• Buyer’s Switching Costs(firm has access to Cost advantage)
– This is relevant both in terms of switching to competitors’
products and switching to products manufactured by other
industries.
• Buyer’s Threat of Backward Integration
– The buyer might choose to integrate backward and
manufacture his input goods, himself. This means that
buyers have to be looked at strategically(Cost aspect
considering!). e.g., Large auto manufacturers' purchases of tires

Substitutes matter when customers
are attracted to the products of firms in
other industries
 Smartphone(see into next slide)
 Eyeglasses and contact lens v. laser surgery
 Sugar v. artificial sweeteners
 Newspapers v. TV v. Internet
Examples

Threat of substitutes : Smartphone market
share

TraditionalTraditional
MarketMarket
SubstitutesSubstitutes
New marketNew market
ServicesServices ProductsProducts
Topic: The five competitive force and corporate strategic analysis
•E.g., New product development
•Where is the substitute product located
on the Price/Value dimensions?(e.g.,
Mobile phone in manufacturing process:
IPhone vs Samsung) see into slide#102-
103
e.g., Service differentiation
New market involve Brand Identification_ Advertising, Customer service and Promoting a
product or service (firm's programs: discount, provide the reward to buyers & distributors
and other options.).
Traditional marketing refers to considering Product, Price, Promotion before
offering a products& service to buyers. e.g., Sales in locals and face to face
 a threat of substitutes exists when a product's demand is affected by the price change of a substitute product. A
product's price elasticity is affected by substitute products - as more substitutes become available, the demand
becomes more elastic since customers have more alternatives. A close substitute product constrains the ability
of firms in an industry to raise prices.

Threat of substitutes depend on:
– Availability of Close Substitutes(e.g., Mobile phone:
when a product's price elasticity of demand is affected by substitute products - as more
substitutes become available, the demand becomes more elastic since customers have
more alternatives. A close substitute product constrains the ability of firms in an
industry to raise prices.)
– User’s Switching Costs(Low switching costs increases rivalry.
When a customer can freely switch from one product to another there is a
greater struggle to capture customers. So, this is relevant both in terms of
switching to competitors’ products and switching to products manufactured by
other industries.)
– Substitute Producer’s Profitability and
Aggressiveness
– Where is the substitute product located on the
Price/Value dimensions?(e.g., Mobile phone in
manufacturing process IPhone) see next slide #95-96

Price of production: Cost per unite
iPhone

Value of production _ scope of manufacturing production and revenue.
iPhone sale
0
20000
40000
60000
80000
100000
120000
140000
160000
180000
200000
iPhone in thousands Revenue in millions
In Q4 2014 Apple took 93% of smartphone industry profit

Industry Competition:
Rivalry Among Competitors
• Industry Growth(the firm seeks to build brand preference and
increase market share: Product quality, Pricing , Distribution
channel , and promotion)
– If the industry is growing, there’s more room for
everybody; less pressure on the firm
– In a growing market, firms are able to improve
revenues simply because of the expanding market share.
• Product Differentiation(e.g., innovation(provide access to a
wide variety of markets), efficiency(superior benefits to the buyers& firm),
quality, and customer responsiveness(difficulty to compete with
substitute of products).
– If products are differentiated, markets are in a sense, segmented. Brand
identification, on the other hand, tends to constrain rivalry.

In pursuing an advantage over its rivals, a firm can
choose from several competitive moves:
Changing prices - raising or lowering prices to gain
a temporary advantage.(e.g.,Industry life circle )
Improving product differentiation - improving
features, implementing innovations in the
manufacturing process and in the product itself.
Creatively using channels of distribution - using
vertical integrationvertical integration or using a distribution channel
that is novel to the industry.
Exploiting relationships with suppliers - for example,
Microsoft's relationship with PC manufacturers. So, Microsoft
set high quality standards and required suppliers to meet its
demands for product specifications and price.
Dr. Phea Vanna 2014

Limitations of five forces model
• Industry often difficult to identify.
• Does not account for the role of strategic
alliances/partnerships( unsuccessful )
• Some firms, most notably large ones, can often
take steps to modify the industry structure
• Firms compete in many industries and markets
and must be concerned with multiple industry
structures.
• Assumes industry factors, not firm resources,
comprise the primary determinants of firm profit.
Dr. Phea Vanna 2010

Porter’s five forces model of industry competition
Dr. Phea Vanna 2010
Exhibit 2.2
Barriers to Entry
Proprietary learning curve
Absolute cost advantages
Access to inputs
Access to distribution
Economies of scale_ i.e., the most cost
efficient level of production are at minimum
Government policy
Capital requirements
Brand identity
Switching costs
Expected retaliation(repayment)
Proprietary(owner) products
 Switching costs
 Buyer inclination(наклонение) to
substitute(e.g., shifts in consumer tastes away from the
firm's products or more alternatives)
 Price-performance trade-off of substitutes
 Changing prices - raising or lowering prices to gain a
temporary advantage
 Supplier concentration*(percentage of market share
owned by the firms. e.g.,)
 Importance of volume to supplier(e.g.,Rus gas sold to
China)
 Differentiation of inputs(e.g.,Brand identification)
 Impact of inputs on cost or differentiation
 Switching costs of firms in the industry
 Presence of substitute inputs
 Threat of forward integration
 Cost relative to total purchases in industry
 Bargaining leverage
 Buyer volume
 Buyer information
 Brand identity
 Price sensitivity
 Threat of backward integration
 Product differentiation
 Buyer concentration vs. industry
 Substitutes available
 Buyers' incentives

Summary
• Environmental analysis a necessary
component of strategic planning
• Environmental awareness occurs through
scanning, monitoring, competitive
intelligence, environmental forecasting
• Two major components of environment
– General environment
– Competitive environment
Dr. Phea Vanna 2010

Les 02 21.05.2016

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