VALUE CHAIN OF INDUSTRY IN

A case study of in Vietnam

Bachelor's thesis Valkeakoski Campus, International Business Spring Semester 2021 Quang Nguyen Minh

International Business Abstract

Author Quang Nguyen Minh Year 2021 Subject Value chain of the motorcycle industry in Vietnam Supervisors Sajal Kabiraj

This thesis aims to provide an overview of the motorcycle industry in Vietnam and the correlation between the value chain and competitive advantage. The theoretical framework describes concepts related to strategy in business and Michael Porter's theory of competitive advantage.

The main objective is to gain practical knowledge by looking into a case company in : Royal Enfield, choosing a suitable strategy in the Vietnamese market.

The author implemented a qualitative research method through primary and secondary data to answer the research question. The secondary data is collected through the theoretical framework and scholarly publications, while data collected from interviews are primary data.

The result shows that competitive advantage, if not exploited correctly, may lead to failure.

Keywords Strategy, value chain, competitive advantage, management, motorcycle Pages 45 pages and appendices 0 pages

Contents

1 Introduction ...... 1 1.1 Research purpose ...... 1 1.2 Current situation of the motorcycle industry in Vietnam ...... 2 1.3 Research question ...... 4 1.3.1 Research method ...... 4 1.3.2 Limitation ...... 5 2 Theoretical framework ...... 6 2.1 Definition of strategy in business ...... 6 2.2 Definition of strategic management ...... 7 2.2.1 Stages of strategic management...... 9 2.2.2 The benefit of strategic management ...... 10 2.3 Definition of competitive advantage ...... 11 2.3.1 Competitive advantage from a resource-based view ...... 12 2.4 Generic strategies ...... 13 2.4.1 Cost leadership ...... 14 2.4.2 Differentiation ...... 14 2.4.3 Focus ...... 14 2.5 Value chain definition ...... 15 2.6 Value chain analysis ...... 16 2.6.1 Activities ...... 17 2.6.2 Linkages ...... 18 2.7 Porter's five force model...... 18 2.7.1 Rivalry among existing competitors ...... 20 2.7.2 The threat of new entrants ...... 21 2.7.3 Bargaining power of suppliers ...... 22 2.7.4 Bargaining power of customers...... 22 2.7.5 Threat of substitute ...... 23 3 Case study: Royal Enfield in Vietnam ...... 23 3.1 Porter's Five Forces in Vietnam’s motorcycle industry ...... 24 3.1.1 Rivalry ...... 24 3.1.2 Market entry ...... 25 3.1.3 Threat of Substitute ...... 26 3.1.4 Bargaining power of buyers ...... 26

3.1.5 Bargaining power of suppliers ...... 27 3.2 Porter Value chain analysis Royal Enfield ...... 27 3.2.1 Primary activities ...... 27 3.2.2 Support activities...... 29 3.3 VRIO analysis resourced-based view of Royal Enfield ...... 30 4 Data Collection ...... 31 4.1 Validity and reliability ...... 33 4.2 Interview Summary ...... 33 4.2.1 Royal Enfield's customers interview ...... 33 4.2.2 Competitor's customers interview ...... 35 4.2.3 Royal Enfield's distributor manager in Vietnam interview ...... 36 5 Findings and analysis ...... 38 5.1 Customer demand ...... 38 5.2 Royal Enfield’s products and services ...... 39 5.3 Competitors’ products and services ...... 39 6 Conclusion ...... 40 6.1 Royal Enfield from different views ...... 40 6.2 Key success factors assessment for Royal Enfield in Vietnam ...... 41 6.3 Royal Enfield’s competitive strategy in Vietnam ...... 43 7 Discussion ...... 43

Figures

Figure 1: Percentage of people in Vietnam owning a motorbike in 2017, 2018 (Statista, 2021)

Figure 2: Motorcycle industry gross domestic product contribution in Vietnam from 2015 to 2020. (Statista, 2021)

Figure 3: Type of generic strategies (Porter, 1985)

Figure 4: Porter's value chain analysis framework (Porter 1985)

Figure 5: Porter's five force framework (Porter 1979)

Figure 6: Raw material input process (author's work)

Figure 7: Outbound logistics process in Vietnam 2017 – 2021 (author’s work)

Figure 8: VRIO analysis Royal Enfield 2020 (author’s work)

Figure 9: Key success factors identification of Royal Enfield to successfully operate in Vietnam (author’s work)

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1 Introduction

In recent years, the motorcycle industry's development is under the influence of different factors, resulting in a severe revenue decline of almost US$ 45,000 Mn in 2020 (Statista 2021). The customer segment is concentrated mainly in countries with lower income per capita as the vehicle is cheaper than an automobile, easy to use, and convenient in high population density areas.

Despite the global sale fluctuation, the motorcycle industry in Vietnam continues to evolve as demand continues to increase. (Nguyen, 2019)

To survive, a company must be well-prepared for changes and challenges with the correct strategy and systematic analysis. According to Porter (1985), business is a series of sports games where everyone can achieve victory through the prepared thinking of surpassing opponents. By putting efforts into value formation, the company can assure final winning. In simple words, the company which generate value can overcome challenges from competitors with the capability of solely delivering value (Porter 1985)

1.1 Research purpose

The author of this research study aims to gain insight into the operation of the motorcycle industry in Vietnam through a company case study. Furthermore, the thesis focuses on the connection between value chain and competitive advantage from different perspectives. Royal Enfield – An Indian motorcycle brand that has already entered the Vietnamese market for several years is the company to be discussed in this thesis.

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1.2 Current situation of the motorcycle industry in Vietnam

With an area of 331,212 square kilometers and a population of nearly 98 million people, Vietnam has a very high population density (Danso, 2021). In Vietnam, the motorcycle industry is one of the top industries taking the lead in supporting Vietnam's economy (Lim, 2017). Figure 1 has shown the percentage of people who own a motorcycle in Vietnam. In 2018, 94% of the participants held a bike, which is 2% higher than the previous year. This number is exceptionally high concerning the general use of mobility vehicles globally.

Figure 1: Percentage of people in Vietnam owning a motorbike in 2017, 2018 (Statista, 2021)

Though most Vietnamese have owned a mobility vehicle for themselves, the demand kept rising due to the expectation of a better and suitable motorcycle model. Vietnam's motorcycle marginal production from 1995 of 62,000 units until 2015 became the fourth largest motorcycle producer globally, only behind India, China, and Indonesia (Fujita, 2013). The component suppliers during the time have adapted well and provided quality service accordingly. The contribution from the domestic company, along with the multinational motorbike organizations: , , Yamaha, SYM, and the foreign direct investment suppliers, consolidated the position of Vietnam in the motorcycle market, as well as an export center in Southeast Asia. The position Vietnam gained is remarkable due to the fact of being

3 one of the latecomer economies compare to India or China. Within the attempt to support domestic companies to learn and develop, the multinational company was in the challenge of overcoming government restriction towards domestic firms. (Lim, 2017)

Only after policy changes, to further develop the overall economy, the Vietnamese government has allowed a more open engagement and cooperation between companies. In 2006, more than half of the assembling company has deserted their primary operation, positioned themselves to the initial stage in the value chain, and step by step has become the direct suppliers in . (Fujita, 2013)

However, as previously reaching the peak of the sale in 2011 (Lim, 2017), facing demand saturation, awareness towards the environmental issue, and new policies, the industry started to decline. In 2015, the motorcycle industry began to recover, yet not as significant as the

Figure 2: Motorcycle industry gross domestic product contribution in Vietnam from 2015 to 2020. (Statista, 2021) previous years. Addressing the increase in the gross domestic product (GDP) contribution (figure 2), the motorcycle industry remains the core factor to the fast-developing pace of

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Vietnam. The GDP share rate from 2015 to 2020 has witnessed a surge of 1.51% of the total GDP share, which means the sector is highly prominent. (Lim, 2017)

Currently, the motorcycle industry has already acquired the core fundamentals in Vietnam. Its development from the past decades has promoted a massive number of component suppliers. Therefore, the multinational cooperation and smaller firm within the industry gain a competitive advantage and prove the chance for new entrants. (Lim, 2017)

1.3 Research question

With the intensity of demand in the Vietnamese market, in order to sustain, motorcycle brands must realize the first and foremost attribution: competitive advantage. Based on this, the author has designed the research question: Would implementing value chain in the motorcycle industry in Vietnam result in competitive advantage?

1.3.1 Research method

The research methodologies are often divided into quantitative or qualitative research methods (Hakim, 2000; Bernard, 2001). The process can also be combined by qualitative and quantitative if needed (Saunders, Lewis & Thornhill, 2009). The quantitative research method specifies systematic data collecting and provides statistical and numerical analysis through surveys or polls (Nardi, 2018). The form hypothesizes the data collected through systemic analysis among the adopted group. The quantitative research method assesses if the examined individual variable links or correlated to others within the case. Therefore, the practice primarily processes numerical and statistical data. Data collected from quantitative research must be studied as the numerical data varies from simple to complicated (Saunders & Lewis & Thornhill, 2000, p.326). On the other hand, the qualitative research method focuses on responding to the questions implemented within the data collection. The method processes the answers by applying theories and information to solve the issue raised throughout the research. The qualitative research method is a non-numerical analysis that can exploit further into opinions and questions. (Family Health Nation 2012) There are several approaches to collect accurate data. The most common way is by conducting a research interview to provide an insight into individual opinion. It is essential to understand that the

5 interview is semi-structured, which there are specific questions prepared, and the interviewer can adjust additional information to the topic if needed. (Robert Wood Johnson Foundation, 2008).

The author chose to conduct the qualitative research method for the thesis as the case study requires specific personal opinions. On top of that, data collection consists of primary data and secondary data. Cooper and Schindler (2008) indicated secondary data as data from secondary sources. The data is collected by others, integrated through different details to important information towards the structured form. The data is authorized as being kept under journals, articles, or reports from researchers or companies. The secondary data can provide efficient and straightforward assistance to data collection. (Cooper et al., 2008)

1.3.2 Limitation

A few limitations and constraints need to be pointed out in doing this research paper.

First of all, it should be mentioned that the overall time for conducting the thesis was somewhat limited. In terms of primary data, the time for gathering company-related information and preparing for research interviews is relatively short. Regarding secondary data, the information is used primarily via the theoretical framework. The time to accumulate material for this process is ample. However, the limitation of accessing the key sources prevents the author from expanding into further studies.

Second, unresponsive contact with the Royal Enfield brand, leading to a lack of information in research and digging deeper into the roots of management problems. The data collected is mainly from a client-side, which led to the overall view's limitation. The situation of the corona pandemic also slightly affected the working process because the author could not meet the interviewees directly or contact the company.

Finally, the lack of research studies on the motorcycle industry makes it difficult for processing because studies about or other commercial means of transport are more concentrated due to their high economic benefits.

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2 Theoretical framework

2.1 Definition of strategy in business

Strategy originally comes from the Greek word "Strategos," which conveys the art of the general. Alternatively stated, the origin of strategy comes from the art of war, particularly the role of the general in a fight. In the art of war, the goal is to win (Genderen, 2013). The general oversees multiple units that work unitedly to conquer the battle and the war. The general contribution to the fight is by providing exceptional arrangement and vision. Great generals think about the big picture, and they work to coordinate all the necessary pieces, even giving up on some parts when necessary, to ensure the overall goal. We sometimes think of businesses, modern-day war (Richards, 2004). The challenge of the executive is similar to the challenge of the ancient general. The modern-day executive needs to develop complex tactics and activities that lead to a victory (Cohen, 2005).

Depending on different circumstances and approaches, the term "strategy" has various definitions and complexities. Consequently, there is no general explanation for this phrase. (Dess, Lumpkin & Eisner) According to Drucker (1954), strategy depicts the process of observing and evaluating the current situation, hence modifying if necessary. At the same time, it is needed to determine available and required resources for the business. Whereas Michael Porter (1985) described strategy as a set of activities taken to secure the firm's position in the industry and the purpose of adapting to potential competencies. Another unique perspective is from Minztberg & Quinn (1991), who identified this term as a purposeful pursuit of an appropriate plan for developing and adjusting the competitive advantage, which acts as the basis of the company's value.

To clarify, Minztberg (1987) explained the concept through respective recognition. Strategy is a plan and a chain of arranging designed actions to handle problems. This indicates that strategy is intentionally created before taking steps rather than the contrary. Secondly, strategy is a tactic in distracting and surpassing opponents. However, the previous definitions are still inadequate. The primary reason the explanations can turn into a behavioral series with constant repetition of attained plans and ploys, which then creates strategy as a pattern. Additionally, strategy is used to situate the establishment's position in a specific environment

7 and context. Strategy is a perspective when taking position, patterns, and ploys into internal consideration and defining the perception. Consequently, the final factor has suggested the nature of strategy, which is a concept perceived by people whether it is an intention before the actions or a pattern in demonstrating occurred events. (Minztberg, 1987)

2.2 Definition of strategic management

The concept of strategic management is relatively new in the business. Strategic management was recognized in the 1950s and included in books and publications in the 1960s. This concept has been built, matured, and applied in almost every business management today. (Guerras- Martín, Ángel, Madhok, Montoro-Sánchez, 2014)

Strategic management is the quality process of decision-making allowing an organization to achieve its goal. This concept grasps and develops all aspects of the company from management, finance, accounting, production and operation, research and development, and marketing. In business, strategic management is more commonly used and mentioned as strategic planning, while in the academic environment, the term strategic management will be seen more often. In simple terms, a strategic plan can be described as the company's game plan through tough decisions to prepare for a particular market and process assurance. To be successful in market competition, organizations need to have a consolidated strategic plan which will be highly accurate, as only a tiny miscalculation in the process can contribute to the company's failure, the profit margin in most companies are unable to compensate for the loss. Instead of dealing with problems that will arise by looking at current trends, Strategic management aims for a more general perspective and long-term planning by finding and reconsidering potentials that may benefit in the future. (David & David, 2017).

There are four main reasons for the evolution of this term. First, strategic management research has opened many areas for academics and businesses to pay attention to, such as internationalization; cooperation between firms; strategies and competition for products, services, and related factors; strategic leadership, and more (Hoskisson, Hitt, Wan & Yiu, 1999). Furthermore, the research expanded and, at the same time, became more in-depth, meticulous, and complex (Hoskisson et al., 1999; Ketchen et al., 2008). The application of quantitative tools can be seen more often in studies as they can provide accurate calculations

8 and on-demand analysis from macro to micro analyzing. The hybrid method was also applied, which allows a combination of quantitative and qualitative assessing with each analysis can yield a specific function to the situation (Molina-Azorín, 2012). Besides, the concept of strategic management has, over time, become broader and viewed from unique perspectives (Ronda-Pupo & Guerras-Martín, 2012). Certain values had gradually become an essential part of shaping the current discipline. Finally, the academic community is slowly expanding and growing in research and applications (Ronda-Pupo & Guerras-Martín, 2010; Guerras-Martín & Ronda-Pupo, 2013). Collaborations for research and inquiry occur more frequently and collective access to information. An example of this can be Strategic Management Journal, where experts and researchers from international organizations work together more frequently. (Guerras-Martín et al., 2014)

Due to the increasing amount of knowledge and the application method over the development process, strategic management must be constantly redefined and tested (Guerras-Martín et al., 2014). In less than a decade, the amount of knowledge and research on the terminology through books and articles is exceedingly vast. Besides, people who work and study in the field, through the issues raised in the journal, are constantly exploring and developing the theory and creating a connection among the collected data (Guerras-Martín & Ronda-Pupo, 2013). Moreover, researchers and experts are applying the scientific method to reassess and discover the structure and evolution of the art of strategy. These scientific methods' purpose is to integrate strategic management better, not to replace or reshape other intellectual work (Guerras-Martín et al., 2014).

Despite being a fundamental concern and discussion among scholars, the progress to adopt strategic management is still ambiguous (Guerras-Martín et al., 2014). Due to the comprehensiveness of topics that strategic management covers, the specialized researchers in different areas with a common purpose of studying the discipline have caused the differences in perspectives and directions altogether (Hoskisson et al., 1999). Furthermore, strategic management played a crucial role, which causes each company to create its specific tools. (Pettigrew, Thomas & Wittington, 2002) Consequently, the key to having a thorough finding into strategic management was unable to achieve. Mintzberg (1990) has recalled an old parable of blind men trying to describe the elephant. Each person could touch a part of the animal and convey their findings. Though having described the details correctly, no one

9 could give the whole picture of the elephant. The tools and the approaches to strategic management have not yet been fully completed and need to be further analyzed.

2.2.1 Stages of strategic management

Fred David & Forest David (2017) indicated three central procedures in strategic management: strategy formulation, strategy implementation, and strategy evaluation.

In strategic formulation, five fundamental protocols will be established when applying to business: identifying vision, mission, and goals, assessing the internal capabilities of a business organization, assessing the external condition, addressing long-term target, alternative strategies formulation, and specifying the prior strategy. (David et al., 2017)

Within the formulation of strategy, businesses must appraise which business area to engage in and which area to leave. If the company has to expand operations or develop diversification, it is necessary to internationalize how to avoid dominant and operational risks. These elements will require the decision-maker to evaluate based on the company's capability to point out the most appropriate strategy. (David et al., 2017)

According to Hrebniak (2013), the stage of strategy implementation is the key to an organization's accomplishment. In this process, businesses need to work out measures to establish general principles to distinct details: Short-term goals need to be set, policy adjusting, employees' motivation assisting, and resource distribution to bring a strategy formulation into action. Hrebniak (2013) stated that strategy execution is the most challenging step in the implementation process. Given having a well-prepared executing plan, there will always be risks. Even if there is a plan or well-planned plan to execute, risks and uncertainty always exist. (Hrebniak, 2013, p.4-7)

Subsequently, the organization's strategy implementation requires a systematic set of activities and mutual decision-making skills. The execution phase concerns the executives and the managers, and employees in the company; they need to work with the utmost effort and motivation to achieve the strategy target; this is the critical challenge in strategy implementation. (David et al., 2017)

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Concerning the last step of strategic management, strategy evaluation identifies the error in the strategies. The strategy in a company should always be adjusted to accommodate the constant changes in the organization's resources and indirect conditions. To perform the evaluation, the organization needs to revise the external and internal factors, evaluate the performance accordingly. (David et al., 2017)

2.2.2 The benefit of strategic management

Strategic management is the main factor that results in the organization's success. (Rumelt, 1994) Engaging in the practice provides a more flexible and active approach to the firm's future planning, enabling the company to navigate activities with risk managing capability. In addition to the fundamental management benefits in operation with better-organized preparation and detailed calculations, allowing a more interactive environment. Hence, staff will become more dedicated and enthusiastic in contribution (David et al., 2017).

An increase in profit will generally be recognized, and improved sales and efficiency regarding the financial benefit. A big company with more responsibility will constantly be well-prepared by analyzing, assessing, and planning to react to the possibility of change and sustaining the profit generation. The decision made by these company usually be well-advised and thoroughly analyzed for future consequences. (David et al., 2017)

Moreover, with the nonfinancial benefit, the discipline provides a better understanding of the external environment, captures, evaluates competitors' capability, motivates employees, and enhances the company's adaptability. These benefits are that strategic management requires continual communication and information exchange. The communication is not limited to the top employers and associates with employees from all divisions, allows the organization's mutual understanding, and strengthens employees' capability in cooperation. Strategic management has become an inseparable part of business operating. Times, the work cannot be done carelessly with paperwork but emphasizes the source of power: the employees. (David et al., 2017)

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2.3 Definition of competitive advantage

Competitive advantage is when a company achieves higher profits than the average competitors in the product market. Consider two companies with similar revenue and similar costs and, therefore, similar profits. The company can achieve a competitive advantage in one of two ways. Firstly, this company can drop costs while keeping revenues constant. In this case, the company now achieves a competitive advantage due to lower costs. Secondly, the company can raise revenues while holding prices steady. In this case, the company now achieves a competitive advantage due to higher revenues. A company can realize an even more significant advantage if it can do both altogether. Nevertheless, that is exceedingly difficult to do in practice. (Porter, 1985)

Barney (1991) demonstrated that having a competitive advantage means the company's strategy is unique in the market that present and future competition companies cannot imitate. Having a sustainable competitive advantage means the company's strategy and its benefit are unique in the market that current and prospective competition companies cannot copy. This idea of defining competitive advantage and sustainable competitive advantage targets not solely the present but also future competition (Baumol, Panzar, & Willig, 1982).

Jacobsen (1988) and Porter (1985) indicated sustainable competitive advantage is a competitive advantage that can last longer concerning time factors. What differs Barney's definition from others is that during the application of sustainable competitive advantage, the assessment of its value is not based on time but on duplicating the company's competitive advantage by competitors. After competitors stop trying to copy the original competitive remains, its value is considered sustainable. This understanding provides convenience in negating the concerning time specification requirements for competitive advantages to be realized as sustainable. The definition also indicates the ability to overcome difficulties com repetition from competitors. One factor that may affect this approach is the unforeseen changes in economic structure (Schumpeter, 1934). The attribution to sustainable competitive advantage may lose its value, resulted in the change in the current competitive advantage itself. (Barney 1986)

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2.3.1 Competitive advantage from a resource-based view

A company's resources consist of all the tangible and intangible assets that can be allocated, allowing the company to engage in strategy and enhance productivity (Daft 1983). In other words, company resources are the power of the firm used for strategic engagement (Learned, Chistensen, Andrew, & Guth, 1969). There are three types of resources in the company: physical capital resources (Williamson, 1975), human capital resources (Becker, 1964), and organizational capital resources (Tomer, 1987). Infrastructure, technology, and access to supply are physical capital resources. Process related to staff among the firm, including staff and the managers themselves, are human capital resources. Organizational capital resources are the decision-making, management processes, and mutual people connection within the company. However, considering the strategy aspect, all the resources factor may not contribute to the benefit. Whether these factors can prevent slowing the company process from engaging in strategy, or the resources have no use for the process. As a result, the firm needs to understand what resources can contribute to the company's competitive advantage (Barney 1991).

Barney (1991) emphasized the importance of a firm's resources to develop a competitive advantage. To further describe the relationship between the concept, Barney has published the VRIS theoretical model with a hypothesis of an organization's resources as diverse and stationary. To bring a competitive advantage to the company, its resource needs to fit several requirements.

The resources have to be valuable, providing opportunities and solutions to threats for internal factors. On the other hand, it must be distinctive in dealing with the present and future competitors. Consider helpful resources. If many companies can own it, they can, without a doubt, capable of utilizing the resources accordingly, resulting in a general strategy that no one can gain a competitive advantage. The resources must as well be improperly imitable. It is of utmost importance for competitors who do not own the particular resources unable to acquire the available assets. Barney depicted three factors that contribute to the limitation of resources imitation: The company can receive value directly from the exceptional historical situations, the resources and the competitive advantage consist of a vague

13 connection, and the complexity in the society of the creation of the company's help is high (Dierickx & Cool, 1989).

Lastly, resources cannot have a duplication equal in value considering the strategic aspect without being rare or imitable (Barney 1991). The VRIS framework was later developed into the VRIO framework (Barney & Griffin, 1992). 'O' stands for the organization's capability to establish the strategies from the view of valuable, rare, imitability of resources. Barney (1997) implied that the resources themself do not provide any advantage for a company if it was not organized to capture the value from them. A company must organize its management systems, processes, policies, organizational structure, and culture to fully recognize the potential of its valuable, rare, and costly to imitate resources. (Barney 1997)

2.4 Generic strategies

Porter (1985) emphasized the importance of a company's position in the industry through Generic Strategies. Based on the combination of competitive advantage and the company's scope, there are three types of generic strategies: cost leadership, differentiation, and focus.

Figure 3: Type of generic strategies (Porter, 1985)

Figure 3 describes the two main types of competitive advantage: cost leadership and differentiation. Within the company's effort to deal with competition among the industry, the source of its strength or weakness is how the firm can influence the comparative cost or distinction. These are three separate directions that a company can follow during the decision-

14 making process. The most crucial factor about these strategies is that it is challenging for companies to tackle more than one generic strategy aspect. As the company does not stay in one position and tries to cope with another aspect, it usually fails to attain a competitive advantage. It cannot cope with the industry's competition. (Porter 1985)

2.4.1 Cost leadership

Cost leadership is the strategy of having a cost advantage whereby the company will aim for a cost-effective process and a more comprehensive operation. Having a successful cost leadership generic strategy, the company can control the prices close to the available price in the market, hence generating better profit. Nevertheless, the differentiation factor cannot be neglected. If implemented incorrectly, cost advantage can result in poor product quality, which does not meet the demand's requirements. The company then must reduce the prices to have buyers and may lose its cost leadership position. There can only be one company apply cost leadership within the industry. In the case of multiple firms trying to be the cost leader, the risk of negatively affecting the whole industry is exceptionally high. (Porter 1985)

2.4.2 Differentiation

Differentiation is the strategy of being different apart from competitors. These differences contribute to attracting many consumers to the market. By aiming at a specific aspect that customers consider crucial, the company utilizes a unique way to provide the customer those features. The company in this position will seek the higher price in the market, surpassing the additional expense from generating uniqueness. Differentiation strategy also requires cost consideration, as the meager price from competitors can influence the higher price created by uniqueness. It can be applied by different firms within the industry as there are many aspects of consumers' needs that can be in use. (Porter 1985)

2.4.3 Focus

Engaging in focus strategy is, opposite to cost leadership and differentiation, targeting a specific group of customers to adapt better value. The benefit of this strategy is allowing the company to generate competitive advantages among a particular group of customers. There

15 are two types of focus strategy: Cost focus and differentiation focus. The cost advantage and differentiation focus aims to focus on the uniqueness within the chosen customer group. The company must use the unique consumer's demand or differences in operation, which creates a better consumer experience. (Porter 1985)

2.5 Value chain definition

Kaplinski (2000) described a value chain as a movement where a product, from a concept, will reach the customers and disposal after use through a chain of specific procedures. The movement contributes value to the procedures to maximize the product potential according to the customer's needs (Kaplinski & Morris, 2001).

UNIDO (2009) indicated the value chain as the complete set of activities follows the stages of raw-material handling to the last stage of product disposal. Value chain activities should access the first stage of extracting raw material, usually held away from a metropolitan area to all the stages relevant to the product. The value chain is several sectors within a firm or industry and the series of activities tackling complete processes of product creation to the end-users (Miller and Silva, 2007).

While Porter, the father of the value chain, defined it as a concept that resulted from the need to create competitive advantage. Thereby, a company is not seen as entirely one unit but in various divisions to thoroughly comprehend the pattern of cost and possibility for differences. The company, then, can gain overall result with lower-cost and enhanced performance (Porter 1985)

According to Jacoby (2005), the value chain can be seen as a complete set of activities. The product goes through different stages to reach the customers and contribute to the value of the outcome. In simple words, the value chain in all the activities performed in the company to create a valuable product for customers. (Hill & Jones, 2001)

The value chain in a company is only a part of the value system. In the value system, there are different components, such as the supplier's value chain or buyer's value chain. These components are interdependent. It is essential to assess the system instead of its value chain

16 to achieve competitive advantage (Porter 1985). Esuh (2012) supplemented the idea that a company dealing with a product or service while implementing a value chain can be considered production chains, value chains, marketing chains, supply chains, or distribution chains.

2.6 Value chain analysis

Value chain analysis aims to help a company evaluate the current value chain and know when, where, and how to engage in competition to generate better profit. Scholars have widely used the model due to its effectiveness in strategic formulation.

Figure 4: Porter's value chain analysis framework (Porter 1985)

In the 1980s, the systemic approach was recognized and considered an essential factor in business development. With the introduction of the concept of just-in-time and core competence, the direction of supply chain and production has become highly complicated. Porter has provided value chain analysis to understand systemic competitiveness better by adopting the systemic approach. With the tool, the company can locate the part that lower in capability, therefore eliminating the problem. Only when the company's efficiency is maximized will there be a possibility to evolve.

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2.6.1 Activities

The related degree to value chain development is the activities of an enterprise in a particular industry. To build a value chain, the company should focus on its activities in the industry. It should be noted that, in the same sector, the range of activities' structure might be equivalent to a competitor, the value chain, however, must be different. As the differs from competitors can create competitive advantage. The value chain can have parts in common, but it can be different in certain activities. Primary and support activities are the main elements of activities in the value chain. These activities enable the details regarding all the procedures to be further analyzed. (Porter, 1985)

By conscientiously assessing the primary activities, the company can ensure cost-efficiency. Inbound logistics contain action for collecting, storing, and administering inventory. Operations consist of a different process to bring product from raw material to completed product. Outbound logistics are the procedures of delivering the product to the customers. Marketing and sales include attracting customers through the value of the product. Service is supporting customers to ensure the product quality and customer experience. According to its name and functions, primary activities might be considered important factors in competition. (Porter, 1985)

Support activity's role is to contribute to the primary activity's efficiency. Procurement is the whole process of acquiring the fundamental requirements for processing output. A basic need usually happens throughout the value chain activities, whether from the staff, the divisions, or the top leaders. The term has some standard features with the purchase though procurement covers a more extensive meaning within the business field. These activities' cost takes up a tiny percent in the whole production process but can strongly affect the final cost and differs from competitors. (Porter 1985)

Technology Development comprises different actions that allow the better development of the product and the activities. The term covers more than the technology which is applied to the product. It enhances and provides technology to the production process, distribution, and services. It is considered one of the core activities leading to competitive advantage. (Porter 1985)

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Human resource management involves the processes of recruitment, at the same time covering the matter of compensation, well-being, training, development. Aside from that, the activity has to cover workplace relationships, healthcare, and policy-related issues. Human resource management is essential to the company's competitive advantage. A company to maximize its efficiency is to completely exploit each employee's potential. (Porter 1985)

The firm infrastructure consists of the company structure and its management. The activity role is to help the company with the general view from top to bottom. The firm infrastructure supports the decision-making process and corporate relations and negotiation, significantly contributing to competitive advantage. (Porter 1985)

2.6.2 Linkages

The activities within the value chain do not function separately. They associate and influence each other through linkages. The linkages can be among all the activities, whether they are primary activities, support activities, or primary and support activities altogether. The connection between the course that the activity carried out and the cost of the next activity is a linkage. Linkages contribute to competitive advantage through optimization and alignment. It can set the balance between procedures through contemplation to acquire a better outcome. There are many linkages, which are often visible and depicted in figure 4 through the dashed line describing the correlation of primary and support activities. To be assessed as more challenging to recognize and used than activities, linkage plays a vital role in sustain the competitive advantage. (Porter 1985)

2.7 Porter's five force model

Michael Porter introduced the Five Forces framework in 1979. Despite the five forces framework's uncomplicatedness, it plays an essential role in business analysis. The model influences different studies and applications supporting the assessment of strength within a company through the view of outside-in (Johnson, Scholes & Whittington, 2008). According to the model, five specific aspects in the surroundings are the reason for competition and threats in the firm's market. With the engaging in industrial economics, the Five Forces model developed based on the assumption that the market structure decides its appeal and general

19 profitability (Slater & Olson, 2002). Therefore, it affects the company's strategy, hence generate the company success indirectly. Raible (2013) augmented the idea by indicating Porter's Five Forces theories' components based on the engagement in industrial organization theory, which suggested that the market structure defines the industry's attractiveness as market structure affects the behavior patterns of players in the market.

Grasping the five forces allows the company to well-located itself to minimize its weakness and ensure the best performance. The requirement for profoundly understand the industry for strategic planning is significantly essential. Hence, the company is not restricted within the market structure. By orienting the organization structure, the company may positively or negatively alter the industry's attractiveness. (Porter 1979). Multiple facets within the industry can contribute to the challenges of the company. Porter has combined these factors based on the highly competitive environment into the five forces: Intensity of rivalry, bargaining power of supplier, bargaining power of buyer, the threat of new entrants, and the threat of substitutes. The five forces constantly connect, creating risks for company operation. (Porter, 1979)

Figure 5: Porter's five force framework (Porter 1979)

Porter's Five Forces helps the company recognize the field profitability and appeal. (Johnson et al., 2008) It supports the decision-making process, identifies advantages and disadvantages,

20 and allows overall strategic planning development. The framework systematically enhances the assessment of the complicatedness of cooperation among threats (Porter, 1979). Grundy (2014) emphasized the benefit of Porter's Five Force in identifying the industry's attractiveness, providing insight in assessing harms. Aside from recognizing industry profitability and attractiveness, Porter's Five Forces can solve the core to rivalry and the reason to be profitable (Porter, 2008).

2.7.1 Rivalry among existing competitors

Rivalry among existing companies is commonly considered the most crucial competitive force. The company can complete its strategies only when its competitive advantages surpass competitors'. The intensity of rivalry can impact industry profitability (Porter, 2008). Several factors from the industry that might affect the intensity are:

- The number of competitors: The number of competitors varies depending on the industry. In some markets, there can be multiple participants. Thus one company may not be detected when making an action. Conversely, the small number of participants may lead to high competition; every action one company makes may be well concerned by others (Porter, 2008). - The development pace of industry: Industry with a slow development pace may yield the company's operation expansion. On the other hand, companies tend to focus on developing the technology and consolidate the activities and decisions in the fast- developing industry (Porter, 2008). - Lack of differentiation: Within a market, customers can make the purchase depend on the product price or additional service if the competitors provide equivalent output (Porter, 2008). - Various competition: The competition can sometimes be somewhat difficult to assess. As companies can have their distinct ways of operating. (Porter, 2008) - High exit barriers: Exiting from an industry requires different processes and related to social, cooperation, financial, and policies that provoke significant pressure on the company. Consequently, in most cases, companies attempt their best to try even with unwanted losses. (Porter, 2008)

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2.7.2 The threat of new entrants

The second competitive force is the threat of new entrants. Whereas the risk of a new market entry in the business causes the growth in competition, may take substantial market share from existing business. It also impacts the competitive advantages of other companies. The supplementary product provided by the new entry for the exact customer needs reduces the proceeds of all companies in the industry. Therefore, there are entry barriers to minimize or prevent market entrants (Johnson et al., 2008). If the entry barriers are high, it will decrease the chance of new entry and vice versa (Rothaermel, 2008, p.215). Sometimes, under the effect of barriers to entry, companies can still manage to enter the market with better output. Therefore, companies within the industry must tackle the risk of having new entry, providing solutions, and plan accordingly. The significant barriers to entry are:

- Economies of scale: to gain economies of scale, the new entry company must focus on gaining higher production, reducing costs, and acquiring a competitive advantage. (Porter 2008) - Product differentiation: production, marketing, and customer support must be different from competitors. Sometimes, a current company has loyal customers, only attracted to its product. The entrant must adapt and spend much more to surpass this situation (Porter, 2008). - Capital requirements: A sufficient amount of capital is usually needed to ensure economies of scale. To overcome losses, the company can invest in a different sector to be profitable. Aside from this, the customer usually trusts the company with a consolidated fund (Porter 2008). - Cost advantages: Accessing to the input process; acquiring better price; better technology implementation can influence the final cost resulting in competitive advantage (Porter, 2008). - Access to distribution channels: Suppliers for raw material are limited and vary depending on the industry. The more limited suppliers are, the more complex the barrier entrant (Porter, 2008). - Government policy: The business highly considers government policies and regulations within the country. These policies can restrict the market entries. Policies concerning

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sustainable and environmental issues sometimes prevent a company from operating in a specific industry (Porter 2008).

2.7.3 Bargaining power of suppliers

The bargaining power of suppliers directly impacts the volume of competition (David et al., 2017). The industry's intensity of competition can be affected by the bargaining power of suppliers. Certain risks come from suppliers with high power to control the input prices based on the industry. To sustain the profit, suppliers, and producers often cooperate given higher performance. Certain factors influence this competitive Force: - The number of suppliers: There can be a considerably small number of suppliers in a particular industry. This condition led to powerful suppliers who can influence the business and further control the selling price. (Porter 2008) - Product differentiation: the product's distinction can slowly alter the power of the raw material provider. - Ability to substitute: The power can be influenced through the ability to replace as the leading supplier have to consider the substitute product supplier. - Switching cost: To change the supplier, the company must consider the cost for the decision. Low cost can lower the power of suppliers as the company can consider other choices.

2.7.4 Bargaining power of customers.

Customers on the other end of business also influence the product's prices and features (Porter, 2008). Companies to adapt, sometimes, must upgrade their operation based on it. Three main factors determine the power of customers: - Concentrated in number: if the customers buy in volume, the position of power is higher, influencing competition within the industry. - Product differentiation and switching cost: If the product is standard and comparable in prices, it can be pretty simple for the customer to consider another provider (Porter 2008).

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- Pricing: the price can be altered based on the customer's need. If the product plays an integral part in the operation process, the bargaining power of the customer can be lower.

2.7.5 Threat of substitute

Competitors from different industries are factors that affect the firm product's price. The product price from the company is limited due to the ceiling price created by substitute products. This means the possibility for return on investment in the market is restricted (Porter 2008). With a low cost, substitutes can cause the whole industry's profit to go downward.

3 Case study: Royal Enfield in Vietnam

Royal Enfield is the oldest motorcycle brand globally, founded in 1891 as a bicycle manufacturing company by the entrepreneur Bob Walker-Smith and Albert Eadie in Redditch, United Kingdom. In 1893, due to their success in having a contract of supplying components for Royal Small Arms Factory in Enfield, Middlesex, the company had set their ambition in manufacturing product with the label of "Made like A Gun." (Royal Enfield, 2021)

Since their first introduction of a small motorcycle in 1898, Royal Enfield evolved to manufacturing the vehicle instead of the bicycle. Throughout the years, the company kept evolving to deliver its best innovation and design for the product. Under the impact of the great depression of the 30s, the company suffered from a shortage in demand. Despite the situation, Royal Enfield continued to thrive and delivered its iconic model: "Bullet" motorcycle with three versions 250, 350, and 500cc shaped like a pistol. Royal Enfield also produced military during the First and Second World War as there were demands from multiple countries for conventional vehicles. (Royal Enfield, 2021)

Royal Enfield created a joint venture with Madras Motors in India in 1955. Later the original company in the UK declared bankruptcy due to competition from Japan. In 1994 the Enfield company in India was sold to Eicher Motor Group. Since then, focusing on the mid-sized motorcycle segment (250-750cc), the company has expanded its market to 60 countries in

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Europe, South American, Middle East, and South East Asia with a total of 697,582 units. (Royal Enfield, 2021)

In recent years, Royal Enfield is targeting to further operate in Southeast Asia as it is the most prominent region for motorcycles with a large volume of demand. (annual report 2017) Followed by entering the Vietnamese motorcycle market in 2017. Rudratej Singh – President of Royal Enfield, implies Vietnam as a potential market with a high population of young motorcycle customers; and the mountainous and variable terrains are suitable for experiences. (ETAuto, 2017)

In 2021, Royal Enfield announces the suspension of business in Vietnam. After four years of striving for a position in the market, the brand could not continue its operation mainly due to poor sales. (Linh, 2021)

The thesis will look into details for Royal Enfield's failure in the Vietnamese motorcycle industry and suggest solutions to the problems by giving an insightful analysis into the internal and external environment and systematically assessing the situation.

3.1 Porter's Five Forces in Vietnam’s motorcycle industry

The Five Forces framework is a specific paradigm to assess a firm's operation's external environment in industrial competitiveness. Porter's five forces model analyzes the motorcycle industry in Vietnam to understand better the risks and potentials that Royal Enfield can exploit. (Porter, 1979)

3.1.1 Rivalry

Royal Enfield confronts itself with intense competition (Huy, 2013). Due to the small number of companies in the market, the competition is constantly under high pressure. Each activity of Royal Enfield, therefore, will be noticed and analyzed. This will make all the mistakes made by a company to be extremely dangerous as others can take advantage of it. Strong competitors have taken most of the market. For instance, The Vietnam Association of Motorcycle Manufacturers consists of Honda, Piaggio, Suzuki, SYM, Yamaha, which rules the

25 sector and step by step taking over on/off-road motorcycle sector; Triumph and Harley Davidson are dominating the high-end classic motorcycle. Aside from the quality of their product, these companies constantly use aggressive tactics like marketing, advertising, differentiation, and more. (Vnexpress, 2019)

The industry development speed is relatively low. Therefore, companies must continue to expand the operation instead of focusing only on technology. It is undeniable to dictate that technology development and activity consolidation are essential for maintaining competitive advantage. However, the pace of the market allows companies to have more room for operation expansion. One of Honda and Yamaha's strategies was to open more maintenance centers all over the country with high density. (Tiep, 2007)

Moreover, concerning the differentiation, products are manufactured with similar standardization (quality, engine, safety), which immensely drives up the competitive forces. Several competitors are roughly at the same size and power, leading to customer concerns about the overall price and the service and promotion provided by the brand.

Furthermore, the exit barrier is also high due to the high fixed cost if the company has already established facilities and other covering expenses. The situation varies whether the brand arranges the business in Vietnam as a dealer or joint venture. The bigger the operation, the higher the fixed cost.

3.1.2 Market entry

The fixed costs driven up by the factory, property, and equipment have led to the market entry comparatively high. In most cases, differentiation is significant, considering tangible and intangible aspects. Regarding intangible factors, it is an issue for the newcomers to understand customer habits and behavior in the market, which is essential to the business. The market in Vietnam can be divided into two segments: scooter and on/off-road motorcycle. The scooter segments are more accessible to enter due to their low cost, while the on/off-road bike is tough to penetrate. In 2000 and 2001, a significant impact on the industry was seen due to the penetration of motorcycle components from China with low quality and much lower price which resulted in the rise of more than local companies focusing on motorcycle assembling,

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Japanese companies – one of the main participants in Vietnamese market were heavily affected by this situation. (Fujita 2008) Royal Enfield entered the latter segment, resulting in many challenges with adaptation and positioning itself in the market. The government policy is also one of the main barriers due to the import tax and other vehicle regulations. Two of the brand's product was unable to sell due to the vehicle emission standard in Vietnam were not met.

3.1.3 Threat of Substitute

The usage of motorcycles in Vietnam had integrated into daily life to the extent that it would prove to be insurmountable to live without because of the interconnection of the national economy. The need for motorbike is driven more by the development of infrastructure and booming evolution of business. Thus the concern of the environment and global warming has posed a threat to the current state of the motorcycle industry. The future perspective of circular economy and sustainability is continuously raised among customers, which may lower the demand for gas vehicles, specifically motorcycles. Therefore, the substitution for the motorcycle industry could be determined as high. A new competitor in the market has exploited the carbon footprint issue: Vinfast is taking the lead in electric scooters and cars, yielding a specific problem to the existing brands. (Boudreau & Giang., 2020)

3.1.4 Bargaining power of buyers

Witnessing the high competition in the motorcycle market (Huy, 2013), customers were provided with a wide array of choices. This has resulted in increased bargaining power. The situation before 2019 can be considered close to a perfect competition market where the companies are the price-taker. This is contributed by three main reasons, first due to the similar standard in production which made the competition more balanced. Second, many players in the market are matched with numerous buyers. Third, the information provided by manufacturers is proportional, reducing the possibility of adverse options or moral hazards. Despite the high GDP contribution to the motorcycle market as aforementioned, motorcycle sales have dropped dramatically since 2019. According to VAMM, the sales suffer mainly due to the effect of COVID-19. The reason may also be that the market is approaching a saturation phase where people are not much in need of the vehicle. (Trung, 2021) Furthermore, the

27 switching cost is now considerably low, making it easier for customers to change the option. To stimulate sales, brands are offering different price promotions and new models.

3.1.5 Bargaining power of suppliers

Like the , the bargaining power of suppliers in the two-wheeler industry is relatively low (Ngan, 2019). There is a large number of suppliers domestically and internationally, which provides in large quantity as well as options. In some cases, the distinct design and model of a brand may cause more time and cost to receive the material from the supplier. During its operation in Vietnam, Royal Enfield was constantly facing a low supply of components and parts, making it more challenging to maintain its value.

3.2 Porter Value chain analysis Royal Enfield

3.2.1 Primary activities

Inbound logistics

Royal Enfield input stage collected material from the supplier who processes the raw material from the raw material supplier. Thus, to administer the competitive price, the company discusses the price in a quarter or half a year with the first stage material supplier. Based on the negotiated price, the component supplier will then sell the processed material to the company (figure 6).

Figure 6: Raw material input process (author's work)

The quality is also certified beforehand to comply with the standard of Royal Enfield. Commodity Price Fluctuation impact is managed by value analysis and value engineering initiatives, cost minimization, and stage development initiatives. The company operates multi- currency payments through the Exchange Earners' Foreign Currency Account to maintain low foreign exchange exposure. (Eicher Motor Limited, 2020)

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Operation

Royal Enfield's main operation is in India, with three manufacturing factories in . After acquiring a phase-2 manufacturing facility at Vallam Vadagal factory, the overall maximum capacity can be up to 1.2 million units per year. This ensures the company meets the continuously driven demand from international customers. The newly established headquarter in Chennai provides better general management in different activities and integration of sustainability. The two technology centers in the United Kingdom and India play essential roles in increasing the standard in design, development, and production. The company also approaches the various cost management to obtain simultaneously cost- effective status. (Eicher Motor Limited, 2020)

Outbound Logistics

Royal Enfield is actively expanding its distribution network by cooperating with top retail chains to reach more customers. The brand has 921 stores domestically. Internationally, the operation has grown into over 60 countries; three wholly-owned subordinate branches are located in North America, Brazil, and Thailand. Compare with two years previously with around 50 countries; the brand has successfully pursued the expansion. Furthermore, establishing a "studio store," which is much smaller than a typical store, enables Royal Enfield to reach smaller cities and decrease the break-even threshold. (Eicher Motor Limited, 2020)

Regarding the outbound logistics in Vietnam, the motorcycles are imported in completely built-up condition, which means the vehicle is pre-assembled and ready to use (Hai, 2017). Through the intermediary distributor in Vietnam, Royal Enfield India sells the product to customers (figure 7) (Al Naboodah, 2021).

Figure 7: Outbound logistics process in Vietnam 2017 – 2021 (author’s work)

Due to the fully built-up condition import, the listed price became much higher, up to three times the original price. This is due to the high import taxes and different fixed costs such as packaging, warehousing, and transportation.

Marketing and sales

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Marketing is an essential factor in generating more sales for the company. Aside from Royal Enfield's background, reasonable pricing is advantageous for marketing. The company has established secondary marketing centers in North America, Thailand, and Brazil. Royal Enfield also encourages the brand's relatively strong community by promoting and supporting traveling trips for clubs and enthusiasts. Moreover, different customer segments are engaged with different activities, events, and programs. (Eicher Motor Limited, 2020)

Service

Royal Enfield is aiming at gaining the highest customer satisfaction. First, motorcycle maintenance is reduced due to the development in the quality and the introduction to a new type of oil for prolonging the oil replacement period. The changes have cut down the maintenance cost to 40% in three years. Secondly, warranty duration is increased, and warranty extension has been enabled. Finally, Royal Enfield has altered its approach to usual component marketing by providing online verification to guarantee authenticity. (Eicher Motor Limited, 2020)

3.2.2 Support activities

Procurement

Procurement complies with sustainable growth objectives for environmental and community responsibility. Product quality augmentation "Shoki Ryodo Kanri" is utilized to concentrate on precise quality maintenance for the future and present products. This fabricates the powerful quality management in the input stage, subsequent stages until delivery also go through specific qualification steps. Additionally, Integrated Management System is applied to certify the environmental situation and security. (Eicher Motor Limited, 2020)

Technology

By fully integration, the United Kingdom and India technology centers facilitated product innovation and creation: New models with better design are steadily introduced. Older models are transitioned to comply with Euro 4 emission standards. Infrastructure and machinery are also continuously upgraded to lessen the influences of third-party agents. (Eicher Motor Limited, 2020)

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Human Resource Management

Royal Enfield has 4899 employees all over the world. Setting out the "Annual work plans," the company strives to aid its staff's inspiration and encourage organizational interaction and engagement. The company is gearing towards empowering the first line units to equip them with flexibility and adaptability in exact resolution when dealing with customers. (Eicher Motor Limited, 2020)

Company's Infrastructure

Royal Enfield focuses on the motorcycle business, hence providing the equivalent product as well as the accessories and apparel with the view to consolidate customer experiences. The company is consistently developing and innovating products to expand its product portfolio. (Eicher Motor Limited, 2020)

CEO Vinod Dasari leads royal Enfield, approaching the functional structure with five main directors: Chief financial officer following by sourcing and logistics sector, the chief operating officer following by Asia Pacific sector, the chief commercial officer following by retailing, sales, and marketing industries, the chief human resource officer and chief informational officer. This structure provides the CEO with involvement in every activity. The management system is as well be simplified. Besides, the duties are apparent compared to other structures. Nonetheless, there can be an overwhelming of repetitive problems within the company. Moreover, the strategic issues might be neglected due to the rigid feature of the structure, causing the hindrance in coping with diversity. (Eicher Motor Limited, 2020)

3.3 VRIO analysis resourced-based view of Royal Enfield

To conduct the VRIO resource-based analysis, the author has determined the most discussed resources within the annual report. The purpose of this analytic is to assess the competitive advantage of a company's resources by identifying the four factors value, rarity, imitability, and organization. These attributes to resources are compared with competitors in the motorcycle industry.

Figure 8 indicated that the brand's competitive advantages are, for the most part, temporary. Two resources yield a sustainable competitive advantage. With its historical background of

31 over a century, the company maintained the production and retained its core value in the brand image. The iconic slogan "made like a gun, goes like a bullet" is passed on through generations and model design, attracting many customers who enjoy the classic experience. Moreover, the affordable price in the mid-sized motor segment has created a chance to reach more potential customers globally. ( Limited, 2020)

Figure 8: VRIO analysis Royal Enfield 2020 (author’s work)

4 Data Collection

Primary and Secondary data was implemented to conduct the research paper. The primary data is collected through interviews, while secondary information is gathered throughout the theoretical framework and company case analysis. The data will, therefore, used to answer the question: does the implementation of the value chain in the motorcycle industry in Vietnam result in a competitive advantage?

The interview is the most common and possible way for data collection in qualitative research. It allows insight into interviewees' opinions and experiences, in this case, motorcycle customers and Royal Enfield retailer. As aforementioned, the interview brings flexibility to both interviewer and interviewees, whether the questions or answers should be changed to match the ongoing discussion. The response is preferable with quality and in-depth information than a survey or mailed questions. Along with this, the interviewer can have the chance to interpret the idea clearly if the question is difficult to understand, which may lead to unrelated or inaccurate answers. Thus, there are some difficulties in conducting the interviews. The demand for interviews usually is high as it may be time-consuming for

32 respondents, and bias responses may occur. During the invitation, the interviewer must be persuasive and prepared with sufficient understanding to assess the response. To ensure the interview's success, it is crucial to create a friendly atmosphere to let the respondent be oriented with the topic and willing to share. (Alshenqeeti, 2014)

As the research study focuses on understanding the competitive advantage of motorcycle companies in Vietnam, the need for specific answers is substantially vital. The customer's opinion was also not being heard by the company, which is crucial to emphasize and further analyze. The questions were formed as open-ended allowing respondents to give informative data. Acquiring the response can contribute to identifying the strategy for the sustainable competitive advantage of Royal Enfield in Vietnam's motorcycle industry.

The target interviewees are divided into three sectors: The seller – Royal Enfield representative and two customer groups. Two persons were invited for the interview: Royal Enfield South East Asia branch manager and the distributor manager of Royal Enfield in Vietnam. There was no response from the South East Asia branch manager resulted in collecting the information regarding the seller side solely from the distributor manager. Next are two loyal customers of Royal Enfield who purchased since the company entry, and part of the Royal Enfield Club Hanoi to describe the experience of products and services. Two other customers from other brands were randomly picked from the Motorcycle community in Vietnam group to give opinions from an outside perspective. These three groups can provide an overview of Royal Enfield's performance compared to competitors during its operation in Vietnam.

The average length of the interview was approximately 30 minutes via video call. The questions were generalized in two different aspects: from the customer point of view and the company point of view. The main question for the customers was, "What are the reasons for choosing the brand over others." Two support questions were asked to expand further the idea and opinion: "Your expectation and disappointment of the brand?" and "Your suggestion for development?". The questions for the company manager were: "How was the performance of Royal Enfield in a highly competitive market?". The support question was: "What are the difficulties in operation internally and externally?". The process was conducted

33 on 28.4.2021 in Vietnamese as the language is respondents and the interviewer's mother tongue.

4.1 Validity and reliability

Validity in the research process refers to the accuracy of the method and information provided. The research process must be ensured for the validity of data and tools. At the same time, reliability in the research process refers to the consideration of a particular subject with the data gathered. The procedure of delivering the information should include the limitation to ensure the research's authenticity. (Krishnaswami 2010). The author has followed the general process of thesis formation to ensure the reliability and validity within the information and method by collecting helpful scholarly articles, journals, and books. At the same time, communication was thoroughly checked and ensured for validity.

4.2 Interview Summary

4.2.1 Royal Enfield's customers interview

Interviewees’ information

- Brand: Royal Enfield

- Experience: 4 years of using Royal Enfield motorcycle

The customers of Royal Enfield have specified the two main reasons for purchasing the brand's motorcycle. The price is comparatively low among other motorcycles in the segments. The price of 500cc in Vietnam was around $4800 US dollars, half the other motorcycles with 500cc. Moreover, Royal Enfield's classic design is considered timeless as it resembles the years from the 1930s to the 1950s. This has blown a new breeze into the market, which correspondingly fit customers' needs.

The customers’ expectation for the brand's product and service was that the motorcycle quality should match the price. As long as the quality is proven to fit the basic needs, the price

34 is acceptable. The company should also ensure the constant component supply and warranty. In the first few months, everything works correctly in general. After this period, however, the overall quality of the motorcycle dropped quickly from small details, including the screws, wires, buttons, to the overall product as the body structure and engine.

Along with this issue, component supplies and delivery have also been slowed down before and especially during the pandemic. The problem persists until the present causing negative evaluation from customers. On top of this, despite the high cost, the brand's component supplies were limited and of poor quality. Due to the distinct and old-fashioned design, the components do not synchronize as other brands in the same segment; the customers, hence, met many difficulties in searching for a quality service.

The most important factor contributing to the RE motorcycle's value is the stylish design with acceptable cost. By effective marketing and simple logistic, the company has acquired many customers. However, its customers have been gradually exiting the brand due to some problems. The inferior quality resulted in more frequent maintenance than motorcycles in the same segment, which raised customers' demand for fixing and maintaining. Royal Enfield then was unable to provide the service and expand the operation of repair centers nationwide instead of only two places. The components which others cannot substitute caused a significant limitation for users; it also affects the communication of brands within the sector.

On the other hand, RE motorcycle in India plays the role of functionality. The bike can cover different tasks in supporting the workers or farmers, such as transferring goods or traveling in the countryside efficiently. Still, in Vietnam, RE has changed its approach into a fashionable motorcycle. The price increased four times higher with the similar product quality as in India. This means the value that customers received from the bike in Vietnam only worth one-fourth of the money they paid.

To fix this, Royal Enfield should enter the market more actively and earnestly, taking control of price position instead of relying on a third party. Assembling factory and maintenance facilities should be established to ensure the minimum price offered to the customers and convenient product technical support. The product price and maintaining expenses must be balanced as these are the most critical concerns from the customers. Though having many

35 drawbacks, the motorcycle still meets the need of a specific customer segment with its low price and excellent classic design.

4.2.2 Competitor's customers interview

Interviewee's information

- Brand: Yamaha

- Experience: 5-10 years of using motorcycle

The interviewees provided the perspective as users from another brand. There are three categories to consider when purchasing a motorcycle, its price, its performance, and its durability, not to mention the brand's service. Comparing between Japanese and European brands and durability, it is crucial to understand that the weather factor can highly influence the quality of the motorcycle. Japanese motorcycles are designed to endure tropical weather with heat, high humidity, and rain. In contrast, European motorcycles are not intended for a specific condition, which leads to lower demand for European motorbike. This has minimized the time concerning the maintenance of Japanese motorcycles. The bikes can function for an extended period without being repaired. Besides being the pioneer in the motorcycle industry in Vietnam, Japanese brands have also tailored and developed specific products to meet the market demand. Due to the well-established factory, facilities, and long-term oriented with the market, Japanese brands were able to deliver low-cost motorcycles with suitable quality and performance.

There are four leading Japanese motorcycle brands in Vietnam: Honda, Yamaha, Kawasaki, and Suzuki. Honda, the strongest competitor, accounts for 80% of the market share, focusing on the fair price with a smooth and stable experience. Yamaha instead concentrates on product quality by adding technologies. Kawasaki is in the middle and personalizes the product through its brand theme; the weakest is Suzuki despite the lower price. It does not attract a significant market share due to poor design and more inefficient engines.

Yamaha is the chosen brand due to certain factors. The interviewee is impressed by the simple and convenient maintenance service that the brand delivered and the wide distribution of

36 repair centers worldwide. With a little higher cost, Yamaha's motorcycle excels in quality comparing with others in the same segment. Finally, the engine's potential is often maximized to offer a powerful performance that can be suitable for consumer's demand of quality over cost.

Certain customer expectations require high-end services and fewer product details problems. Generally, the support can provide essential components and basic maintenance. However, repair or constant motorcycle care is not sufficient due to the lack of experience in brand support centers, and the specific parts can sometimes also be limited.

The essential attributes to the brand are the genuine price and its differentiation. When analyzing Honda, considered the top in the market, it can be seen that the actual costs in retail shops are higher than the prices stated on the company website, which is affected by market demand. This demand pricing strategy has influenced many customers to change their choices to other brands. On the other hand, Yamaha provides transparent prices, in which customers have no worries about price changes. This helps establish trust from customers and acquire significant benefits in the long term. Furthermore, the differentiation in performance by including technology to empower the engine and internal components has attracted customers with the need for quality.

Regarding the Royal Enfield from an observer perspective, some specific matters need to be mentioned. The prices of the motorcycles are acceptable; thus, the component supplies are incredibly high. The customer service is insufficient due to the employees' lack of experience and the unavailability of repair centers overall, compared to the wide-distributed of Honda and Yamaha. This can be a big challenge for new customers. The essential value – quality is also inadequate comparing with Japanese motorcycles. The brand's strengths are the classic design, historical value, and, most important – price. Hence, the price has been raised much higher, significantly decreasing customer volume.

4.2.3 Royal Enfield's distributor manager in Vietnam interview

Interviewee Information

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- Position: General Manager at Al Naboodah International Hanoi (Royal Enfield's distributor)

Regarding the general opinion, the interviewee depicted that Royal Enfield is not a strong brand in Vietnam. Though it consists of different strengths as the bike of entry-level for bikers, providing the lowest price in the Modern Classic bike in the market, and outstanding appearance, Royal Enfield met different challenges before and during its operation in Vietnam. First, the brand was unknown to the Vietnamese audience before entering the country. Compared with Triumph brand, which also entered Vietnam in the same year, the market was well-familiar with its name and products. Second, even though Royal Enfield is a UK brand, it is being manufactured in India, which caused customers to raise awareness about its quality and reliability. Finally, customer's assumption became true when they experienced the low quality and engine capacity, which influenced the shortage in demand.

Sales during the period from 2017 to 2019 were meager, with around 40 units per month nationwide, and strongly dropped in 2020 with only 20 units per month. Due to the demand being constantly more inferior than the supply, almost no problem appeared in terms of distribution.

There are four reasons for the termination of operation in Vietnam. As of having Al Naboodah as the exclusive distributor of Royal Enfield in Vietnam, Royal Enfield was not satisfied with the agreement. Royal Enfield India wanted to monitor the retail price and distributor's standard margin. With only 20% margin landed cost, the distributor can only get around 10% margin, which is very low for motorbike business with the standard rate of at least 15% net margin. Furthermore, the impact of Covid-19 on the sales was significant; the profit from sales was insufficient to cover operating expenses. Aside from the product sales, the service was also gained meager yield due to the much lower prices of spare parts in the "grey market”. On top of that, Royal Enfield was tremendously weak in branding due to low-quality products and short investment in marketing. Despite having Royal Enfield communities in Hanoi and Ho Chi Minh city as the key channel for branding and word of mouth sales, the brand provided minimal support. The company can exploit all these issues for better strategy formulation and implementation.

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5 Findings and analysis

Through interview conducting, the view of Royal Enfield is broadened in different perspectives yet interlinked to each other. The points can be generalized into three parts.

5.1 Customer demand

Customer demands may vary based on age, economic situation, and culture. However, considering most of the population, the need can be generalized into four specific points: Price, quality, design, experience.

Price is one of the core factors customers consider before making the purchase, especially for the vehicle that may be a part of their daily life. Therefore, the market in Vietnam is extremely demanding at the price, especially when Chinese brands are always famous for the lower prices.

Quality is the next vital factor to consider from the user's perspective. Quality represents the brand name as it also stands for the motorcycle's value. If the brand is attached with the low tag quality, it is rather difficult for the company to regain customer trust, especially for an intense market in Vietnam. The quality also affects the maintenance intervals, which influence the general cost for the vehicle and the customer's experience.

The quality must also go along with the design regarding a motorcycle; the preferences may be based on individual opinion. If the quality and cost meet the customer's demand, the customer usually makes their choices, where motorcycles are divided according to their style and design. If the modeling is not sufficient, no matter how good the vehicle is, there are few chances for the customer to concern about buying it.

Customer experience can be divided into two parts, products and services. In the motorcycle industry, service contributes to the well-being of customer and the development provide the customer with direct driving experience. It is vital for experts or experienced drivers with feelings and details while driving, which is the opposite of new drivers. Service is the final key to acquiring customer satisfaction; the attribute can be convenient or inconvenient for the

39 customer. The living pace in Vietnam is quite intense, especially in the city; companies within the industry are trying to adapt to constantly changing situations.

5.2 Royal Enfield’s products and services

Royal Enfield in Vietnam provides two main advantages. The low price compares to motorcycles in the same segments and their excellent design. The product price was highly competitive, attracting different customers.

Thus, the lack of quality in product and service led to an adverse change in customer attitude. Despite having a terrific design and historical background, the company did not focus on promoting its brand; even the community is not receiving much specific attention, involvement in marketing is relatively scarce. Its competitive advantage did not overcome the drawback with all the issues mentioned above.

5.3 Competitors’ products and services

The competitors in Vietnam's motorcycle industry can be divided mainly into two main groups: the Japanese brands and European brands. The Japanese brands have constantly raised the product's standard quality due to their domination and technology development. As having plants and facilities for , these companies have acquired mass production, which can provide low price products that fit with practical needs. Honda is the best one in the cost leadership strategy. These companies also established the service center nationwide with experienced support teams.

On the other hand, Harley, Triumph, Ducati are differentiation focus. Their brand name and quality product have attracted a large segment of customers. With their product design and particular features, these companies have provided excellent services even with smaller segments through third-party distributors.

40

6 Conclusion

6.1 Royal Enfield from different views

The motorcycle industry of Vietnam continually has intense competition among existed brands in most segments. The low development speed allows the broader market expansion; thus, product quality is of high standard provided mainly by the Japanese firms. Royal Enfield must choose between a complete approach or third-party contractors to consider risk aspects to re-enter the market. Despite the high entry, Vietnam's market behavior is considerably distinct from the constant threat from the Chinese "grey market" with high product imitation capability. In addition, the concern of environment and pollution yields a threat to the industry; nonetheless, motorcycles presence is exceedingly crucial to the country's economy. Besides, Covid-19 and the saturation in customer demand has made the sales decrease considerably. The component supply for standard motorcycles is abundant, thus, scarce for uncommon products, particularly from Royal Enfield.

As located and operate in India, Royal Enfield has proved its success in operation. The high- volume production with cost optimization due to low-cost material and manufacturing allows the company to gain economies of scale. On top of that, the expansion into global has proved its capability and broad vision. The Royal Enfield community has also been focused and satisfied with branding campaigns and projects. On the other hand, its service offers more beneficial service with the warranty period and warranty extension. More importantly, the infrastructure with a large workforce is highly prominent and on the fast pace of development in technology and facilities. Lastly, the Royal Enfield name is a famous brand in India that locals highly appreciate.

In contempt of its well-organized operation in India, its performance in Vietnam was relatively poor. With Royal Enfield's expansion, the company was not prepared carefully enough to function in Vietnam. The product output quality is moderately low, accounting for the material or the manufacturing process. India's outbound logistics has raised its motorcycles’ price four times, which might be inappropriate for the market's difficult demand. Furthermore, instead of proactively concerned customer matters and activities, the company relied primarily on its brand name. The inadequate services with high costs of Royal Enfield have made many

41 customers disappointed, change to another substitute bike components, or even sell their bike.

Royal Enfield's failure is primarily caused by low sales with different aspects altogether. Several points contribute to the reason. First, the quality value of the motorcycle was not corresponding with the price. Spending a considerable sum of money on the motorcycles, the customer expects to have proper function motorcycle with durable parts. However, these components wear off only after a brief period of usages. The company also fails in marketing and branding, making a low reputation in the brand name. The consequence aside from potential sales loss was that existing customers were also disappointed. Observing the decrease in sales but unable to act correspondingly, the company failed to understand market trends and customer behavior.

Royal Enfield's primary competitive advantage in India is the affordable mid-sized motorcycle. However, when entering Vietnam, the price has gone up significantly; Royal Enfield seems to focus more on the power of its image brand while not paying attention to branding and marketing. The approach intention was wrong since the market has not been studied carefully. The product has no longer as affordable as in India, which made Royal Enfield suffered from the loss in market share and eventually made an exit from the industry in Vietnam.

6.2 Key success factors assessment for Royal Enfield in Vietnam

First introduced by D. Ronald Daniel (1961), later developed by John Rockart (1979), key success factors are defined as the distinct attributes that their fulfillment will deliver a successful competitive advantage for the company. These limited numbers of points must be kept on the course to prosper. In the case of insufficiently maintaining the attributes, the company's outcome will be diminished. The decision-maker can identify the areas that need to pay specific attention through the assessment.

To combine all the analysis and findings from the primary and secondary data, the author implemented the critical success factors assessment. The general process was to find the company's objectives and determine the core factors to achieve them. The author based on Royal Enfield's aforementioned issues to indicate the objectives for the solution. At first, eight

42 factors were noted; six objectives were combined after the evaluation and comparison due to their similar goal. The ranking of the factors is from most important to least important for the brand. (figure 9)

Figure 9: Key success factors identification of Royal Enfield to successfully operate in Vietnam (author’s work)

Royal Enfield is at a high developing speed which made the company look forward to expanding into Vietnam even though experiencing a setback (Harper, 2020). The success of this expansion relies on its main competitive advantage, which is the lower price. Royal Enfield should take advantage of this and find any other way possible for reducing the outbound logistics costs to provide cheaper product prices for the customer.

On the other hand, the brand needs to have a better mutual connection with customers and actively approach new customers. Vietnam is a country of marketing where all the companies strive for better marketing to gain customer's notice. A company can witness its failure easily if not act flexible enough. Moreover, existed customers should also be considered as part of the company. Harley Davidson is well-known for its highly tailored concerns for customer benefit. Addressing the attention of Royal Enfield on customers, the company has only focus domestically but neglected Vietnamese customers. This should be fixed by investing more into marketing and branding activities to provide information and value for customers.

The existence of substitutes is perpetually in the Vietnam market with the Chinese "grey market". A suitable way to solve this is to minimize substitutes by providing products and services that reach the quality standard from customers' perspectives. Furthermore, the company can manage under intense competition to understand market behavior. This

43 requires correct analysis of the industry, customer behavior, and uncertainties. By doing this, Royal Enfield will strengthen its position from risks and threats. Finally, the aim for the benefit of the environment is essential in the long run. This can help the company with its preparation influences from other industries such as the oil and gas sectors. More critically, reducing industrial waste will benefit the economy globally.

6.3 Royal Enfield’s competitive strategy in Vietnam

It is the most significant importance for Royal Enfield to utilize one strategy among the three generic strategies and not tackle more than one due to the risk of having no competitive advantage. By deciding the strategy, the company can focus on the specific competitive strategy, therefore, expand the market share. (Porter 1985)

Regarding the competitive scope, Royal Enfield products are the mid-sized on/off-road motorcycle, which means a small segment in Vietnam's market due to the dominance of scooters; this means the company is targeting the narrow segment. Regarding the competitive advantage, the VRIO analysis has designated the two fundamental sustained competitive advantages of Royal Enfield: image brand and lower cost; the value chain analysis has specified that the company's main competitive advantage is lower cost.

Altogether, the cost focus strategy would be the adequate competitive advantage strategy for Royal Enfield in Vietnam as there is vigorous competition. The service is a commodity available from many vendors. Therefore, it is not easy to achieve differentiation.

7 Discussion

With the continuous development of technology, it is not long before electric vehicles become the leading type of transportation globally. Aside from the significant benefit for the environment, the consumption cost of electric vehicles is cheaper than a gas vehicle. At the same time, the maintenance fee is much lower due to the simplicity of electric vehicles engine. However, the price for electric vehicles might be higher than ordinary vehicles due to the high lithium battery price. (Eberle & Von Helmolt, 2010)

44

The air pollution in Vietnam's two biggest cities, Hanoi and Ho Chi Minh is constantly in the dangerous warning notice, threatening the locals' health dramatically. The main contribution to this situation is from the gas vehicles. Vietnam is seeking a solution to replacing all the gas vehicles in the country with electric vehicles. With the geographical feature of a busy city, motorcycles deliver high convenience for the users. Nevertheless, under severe air pollution, electric motorcycles can be a choice for replacement. (P.L, 2020)

Even though it consists of different benefits, electric vehicles are not very commonly preferred in Vietnam for some reasons. Many opinions depict that gas vehicles provide better power, better engine, and convenience to refill the gas, despite knowing that electric vehicles have a higher performance from the past and fast charging. Concerning existing traditional motorcycle companies that rule the market, these companies' competition remains comparatively high. The local components and parts suppliers will also be affected heavily if electric vehicles became the main transportation. The resistance from the industry is very high, making it challenging to adopt electric vehicles. Without the interference of the government's policies, it will take more than ten years for motorcycles to change into electric vehicles. (P.L, 2020)

The transition into the is inevitable, which raises a common question among the traditional motorcycle industry: How to maintain the competitive advantage under the global shift into sustainability?

45

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