Porters Diamond Model of Vinatex and Arvind Mills - Essay Example

? VINATEX AND ARVIND MILLS School: Introduction Porters diamond model is an economical systems outlook developed by Michael Porter, and published in his book, “the competitive advantage of Nations.” The model explains why certain industries become highly competitive at some locations and not others (Rugman & D'Cruz, 1993). ‘Porters diamond model’ (Rugman and D'Cruz 1993) The model reviews clusters of industry players, particularly a group of small industries, where the competitiveness of one of the corporations is influenced by that of other companies and the factors that are related to its value-added chain – within the regional and local market or when reference is made to customer-client relationships (Rugman and D'Cruz, 1993). The model is divided into two steps, where in the first phase, the group of successful industry players are plotted for ten important trading countries. At the second stage, the historical competition of certain industries is reviewed, towards exposing the dynamic processes involved in the creation of competitive advantage (Rugman and D'Cruz, 1993). The review entails the historical analysis of the industry and the industry players. SWOT analysis is a structured planning model used during the evaluation of the environment of a business – both internal and external (Hill and Westbrook 1997). The areas reviewed include the internal strengths of the entity and the internal weaknesses of the entity. The other two aspects reviewed are the external surroundings of the entity, particularly, the opportunities available to the business and the threats that face it (Hill and Westbrook 1997). Vinatex Textile Company is a textile company based at Vietnam, and it is one of the largest companies in the country. It covers 50 joint stock corporations and 40 joint venture corporations in its productive sector – mainly in the manufacture of textiles. Other company sectors include fashion design, fashion magazines, vocational learning institutions, real estate, universities and supermarket chains (Do 2008). The company operates different import-export corporations, trading its different product lines, including garments and textiles. Arvind Mills is among the leading textile manufacturers in India. The company manufactures different fabrics, and is the fourth-largest manufacturer and exporter of denim. The company runs a mega-art and a value retail chain, all of which stock the brands of the company. Porter’s Diamond Model of Vinatex Textile Company The factor conditions of Vinatex Textile Company include the wide employee base of more than 120,000, which is about 5% of the total employee count for the entire industry. Factor conditions also comprise of diverse company’s production sector, across the 50 joint stock and the 40 joint venture corporations (Do 2008). The diversity of its production sectors enables the company to increase and expand its production to different product lines. The factor conditions in favour of the success of the company include its diverse sectors, including fashion design, fashion magazine, universities, vocational schools, supermarkets, and real estate. These different sectors improve the company’s competitiveness locally and internationally. Examples of the competency areas created from the different sectors include that the company uses the fashion magazine to market its fabrics and other product lines. In addition, it uses the university and the vocational training centres to develop the talent required to recruit high-potential talents, which can increase its productivity (Do, 2008). The company uses its supermarket outlet to market its products and fabrics, which enable it to offset the threat of its competitors. The demand conditions are favourable for Vinatex, as Vietnam’s full membership into the world trade organization (WTO), in 2007, opened the production of the company and the country in general, to the world. Following the acquisition of the membership, all restrictions on the trade of textiles were abolished, which resulted in a major increment in the consumption of Vinatex’s products. Due to the changes, the company is now operating in a market environment, where the manufacture of apparels is favoured by the expanding market at developed nations. This indicates that the company has benefited from the increasing inflow of corporate customers. Furthermore, the Vietnamese economy grew by 7.8 percent annually, between the years 1991 and 2000, which shows that the economic growth reflected an increase in the domestic market’s consumption of the company’s products (Vinatex 2008). Vinatex has a range of related and supporting industries, which support its production of textile products and its levels of competitiveness. These supporting industries include the 50 joint stock and 40 joint venture companies, which expand the manufacturing capacity of the company (Do 2008). The company’s other sectors offer services and resources to the company at a cheaper price, which increases its competitive advantage levels (Vinatex 2008). These include the company’s available advertising platform in the fashion magazine, the fashion design institute engages in innovation for the company and the university and the vocational schools provide the company with talented workforce. The supermarket outlets are used as sales outlets for the products of the company, and all these increase its competitiveness in the industry. Vinatex’s strategy is evident from its efforts to integrate itself into the global economy since the company has implemented different operational expansion strategies. It has also employed strategy in the areas of developing all its business profit earnings and profits in a comprehensive manner, and towards the expansion of the company’s business and coverage. Some of the strategies that have worked very effectively for the company, especially after Vietnam’s admission into the WTO, include equitization (Kotter and Cohen 2002). This strategy of equitization entails the reduction of the capital held by the government, which they anticipate to reduce to 30 percent. The second strategy is entering into joint ventures, where Vinatex has joint-ventured with many companies and organizations related to textile and garment production. Other joint ventures are those associated with critical areas of the business of Vinatex, including financial service, importation, exportation, and construction. The organizations partnered by the company are both local and foreign (Vinatex 2008). The exporting strategy has been successful, as it has yielded million of dollars, adding to the overall turnover of the entire industry. Due to this strategy, the company is one the top ten textile and garment companies of the world. The strategy of diversification has helped the company to diversify its exposure to risk, and it has also helped it increase its revenues. The company’s different areas of business include the textile and garment production, import and exportation, supermarket chains, financial investments, real estate, flight agency operations drink and food packaging, service delivery and construction (Do 2008). The company’s formation of strategic alliances has been an effective strategy. In this case, the strategy helped the company increase its market dominance at foreign markets (Vinatex 2008). The strategic alliances include those entered into, with dealers and investors such as the Teachang Group of South Korea, which increased its processing of denim dyeing fabrics. The company has developed overseas representative offices at different areas like EU, US and Japan. The company’s business is guided by cooperatively engaging in research and development. These driving strategies drive the success of the company to the current level, where its export turnover is about $1.5 billion and is making profit levels of more than VND 556 million (Vinatex 2008). The structure of the Vinatex is among the major determinants of its success locally and globally. The company is headed by a management board, which is advised by the board of directors on company business. However, the affairs of the board of directors can be intervened by the supervision department in instances where it feels that they are not running the company effectively. The functional departments of the company administrate the five diverse subsidiary groups. The groups include the dependent and independent corporations, non-productive sector, joint ventures and join-stock ventures (Vinatex 2008). The non-productive sector is responsible for training and education, where the aim is to develop the upcoming age of management and technical staff. ‘The organizational structure of Vinatex’ (Vinatex 2008) The main rivals of Vinatex in the domestic and the global market includes the major textile and garments companies from India, China, Bangladesh and Indonesia. Among these rivals, Chinese companies are the principle rivals of Vinatex’s sustainability in the control of technology, materials and human researches (Vinatex 2008). The competition from these rivals heightened after Vietnam joined the WTO, which entailed the elimination of the state subsidies in stages. For example, Chinese companies supplied $ 32.2 billion, worth of garments and textiles to the US in 2007, which marked more than one third of the total garment and textile imports for the year (Paul 2008). The Vietnam government – despite the withdrawal of the subsidies it offered to exports – supports the company and the industry indirectly through the provision of cheap credit. For example, state banks offer credit to support the company (Kotter and Cohen 2002). The government supports VITAS, by offering it with land, towards meeting the needs of garment companies. The government offers tax incentives, which increases the company’s capacity to invest. Other areas where the government enhances the productivity of the company include its adjustment of policies on foreign investment, and through the elimination of administrative procedures in order to speed up the company’s processes (Do 2008). Porters Diamond Model of Arvind Mills In the area of structure, strategy, and rivalry, Arvind Mills is a highly competitive industry player, and its operations are considerably fragmented. This segmentation is evident from the company’s diversification in different business areas that include telecoms, textiles, and the garments division (Moon 1994). The company’s strategy favours its status in the industry since it has adopted business expansion measures like modernization to triple its production of denim fabric in 1987. In 1993, the company expanded its denim production, and in 1995, the company extended to the production of ready to stitch jeans. Later, it introduced the franchise system to increase its market coverage. Furthermore, the company’s business was favoured by the entry of foreign consumers, regardless of the fact that the sector is highly unorganized, which favours the competitiveness of the business. The factor conditions that foster the competitiveness of the company include that it enjoys an abundance of raw materials, skilled labour is highly available, and labour costs are comparatively low. The company’s flexibility level is high since it has engaged in the production of customized apparel. The company’s business is favoured by government policy and regulations, and it has – historically – supported the upgrade of technology towards increasing its competitive advantage (Moon 1994). One government policy that supports the company is that the government reimburses 5 percent of interest rates, besides that it offers a capital subsidy credit of 10 percent – towards supporting the business of processing facility modernization (ARVIND 2011). The company has continually engaged in the improvement of the quality of its products. The industries that are related and which support the competitiveness of the company include the availability of cheap raw materials, which are readily available to the company for the expansion of fabric and government production (Gomez-Mejia, Balkin and Cardy 2008). The company enjoys the input of the well established product design and product development resource that supports its product development business, especially when the remodelling of the company’s products is needed (Kotter and Cohen 2002). The country’s textile and machinery industry is highly developed. Therefore, the company enjoys the availability of the technology to improve its technology standards and the machinery required for expansion. The company enjoys the input of the well-developed IT industry, which offers solutions to its IT needs and the incorporation of modern work systems into the company’s business. The demand conditions at India favour the company’s competitive advantage, as the company enjoys expansion into the large domestic market, where the demographics favour its business expansion. India’s population is high, and is characterized by a high level of consumption of the fabrics and the garments produced by the company. The economy of India is continually improving, which is influencing the purchasing power and the income levels of the larger population (ARVIND 2011). Due to the increasing market power of the country, the domestic market is increasing. Therefore, it presents the company with a higher market share. The Indian market is characterized by an increase in the emergence of organization retailing markets, which are increasing the potential of the Indian garments and fabrics market. SWOT analysis of Arvind Mills The strengths of Arvind mills include that it has a strong range of fabric and garment brands, which are traded locally and internationally. These brands include its real estate, agriculture, mega mart, engineering, and fabric portfolios (Gomez-Mejia, Balkin and Cardy 2008). The second strength of the company is that it enjoys the economies of scale due to its full integration of the operations of the company (ARVIND 2011). The company enjoys the strength that it uses highly up to date manufacturing tools at the different plants. The company enjoys the wide market presence, both locally and internationally, which provides the company the potential to expand its market. The weaknesses of the company include its use of less productive machines in many of its production areas and plant centres. The limited capacity of the company’s machines is likely to reduce the potential of the company to grow at the domestic and the international market – it limits the company’s productivity (Kotter and Cohen 2002). The company’s market coverage is weak since the company dominates city areas and not other potential markets at rural and marginal areas. The company’s weakness is evident from its limited promotion of the brand, which has not increased the company’s development of established brand equity (ARVIND 2011). The opportunities available to the company include the retail scenario of fabrics and garments is changing, signifying an increase in the consumption of these products locally and internationally. The company enjoys another opportunity area in that the global demand of one of its major lines of production – denim fabric – is continually increase. This opportunity area offers the company a huge opportunity for expansion towards meeting the rising demand of the fabric market (Moon 1994). The threats facing the company include that the company’s leadership in the garment and the fabric industry is continually threatened by the competition from other players, especially global industry players (Gomez-Mejia, Balkin and Cardy 2008). The major rivals of the company include Vinatex of Vietnam, Bombay dyeing, Raymond, and Madura Garments. The company is faced by the threat that it will be affected by the decline in the country’s exports, which is particularly severely affecting the exports of fabric and garment industry (Kotter and Cohen 2002). The company is facing a major threat from the importation of cheap importation from other countries that include Bangladesh, China, and Thailand. The cheap substitutes of the products of Arvind Mills are threatened in domestic as well as the international market. The company is faced by the threat that the prices of raw materials are increasing, which is increasing the costs of production (Moon 1994). Competitive advantage of Arvind Mills The competitive advantage of Arvind Mills in the textile industry is grounded on different factors and competency areas. These include the production processes of the company reliance on high technology levels and capital intensive production plants. As a result, the company enjoys dominance in the industry, since the high amount of resources required by new entrants into the industry limits the number of competitors (Moon 1994). The company’s major holding in technology and the capital-intensive production is a fundamental source of its competitive advantage. The competitive advantage of the company also draws from the fact that its product segments are comparatively less reliant on the changes that take place in the fashion industry (Gomez-Mejia, Balkin and Cardy 2008). The company’s competitive advantage draws from its shift of focus towards the trade of its commodities in the international market, from the earlier outlook of a purely domestic orientation. The company relies on the trading of its products at a premium price, especially at the domestic market, as a strategy to eliminate the threat of product imitation. The company enjoys the brand awareness of its products across the globe, which increases its market dominance over time. Conclusion Porter’s diamond model is an economical model that explains the competiveness of different companies at different locations. SWOT analysis reviews the strengths, the weaknesses, opportunities and the threats facing an organization – towards determining which entities are more competitive. Vinatex is a Vietnam-based textile company while Arvind Mills is Indian-based. From a review of the two companies using porter’s diamond model and the SWOT analysis of Arvind mills, Vinatex has a higher competitive advantage. This is evident, from the fact that Vinatex’s business strategy is highly developed than that of Arvind mills, which is evident from the company’s reliance on a more diverse range of supporting industries, its integration into the global economy, business expansion, equitization, and entering into joint ventures. Furthermore, the company’s competitive advantage, compared to that of Arvind mills, is more developed, due to its strategy of exportation, strategic alliances and the organizational structure that encourages innovativeness since the board of director’s authority can be challenged in instances where it does not serve the interests of the company. Reference List ARVIND. 2011. ARVIND: Annual Report 2010-2011. [Online] Available at: [Accessed 27 April 2013]. Do, T. 2008. Analysis of the Strategic Management of VINATEX In the WTO Integration (Masters Dissertation). [Online] University of Lugano, Switzerland. Available at: [Accessed27 April 2013]. Gomez-Mejia, L., Balkin, D. and Cardy, R. 2008. Management: People, Performance, Change, 3rd ed. New York: McGraw-Hill. Hill, T. and Westbrook, R. 1997. SWOT Analysis: It’s Time for a Product Recall. Long Range Planning, 30 (1): 46–52. Kotter, J. and Cohen, D. 2002. The Heart of Change. Boston: Harvard Business School Publishing. Moon, H., 1994. A revised framework of global strategy: Extending the coordination configuration framework. The International Executive, 36(5), 557–574. Paul, G., 2008. Vietnam poses threat to Indian’s garment exports. [Online] Accessed at: [Accessed27 April 2013] Rugman, A. and D'Cruz, J. 1993. The double diamond model of international competitiveness: Canada's experience. Management International Review, 33(2), 17–39. Vinatex., 2008. Report on implementation of production and exportation in 2007 and planning for the year 2008, Technical report. Internal Report. Read More