A study on the impact of cost reduction measures in achieving the competitive
advantages in footwear industry By

Pham Thuy Phuong

not been previously or concurrently submitted for any other course/degree at HELP
University College or other institutions. The word count is 10,399____ words.
_____________________

Date:
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ACKNOWLEDGEMENTS

In order to complete this project, I must be grateful to the following people for
guiding me.
1. Ms. Sumathi: a teacher of HELP University College. She helps me understand
how to prepare a graduation project and what I should do and should not do in a
graduation project. She gives me many various sample topics to help me choose
and understand aspects and issues can be exited in accounting topics.
2. Ms. Shenbak: a teacher of HELP University College. She helps me find the way
to choose a topic of a graduation project. After I can choose some topics, she also
shows me what topic is easier for me to do and what issues I should consider in
this topic.


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ABSTRACT

A study on the impact of cost reduction measures in achieving the competitive
advantages in footwear industry
By
Pham Thuy Phuong
April 2011
Supervisor : Nowadays, the world trends to globalize, organization not only considers the way
to maximize profit, but also cares its competitive advantage in the market. Because of
this, many companies find way to improve their competitive advantages in the opened
market as today. There are many methods to help company improve their competitive
advantages but the best way company can use is to reduce cost. Reducing cost can create
many opportunities for company to compete with other companies. In the market, one of
the most elements can attract customers most is price. The lower price is, the more
attractive company can gain. Especially, in Vietnam, the footwear industry become more
and more developed day by day. Thuong Dinh Shoes company is one of the most

2.3.2.2. Sustaining Competitive Advantage 12
2.3.2.4. Types of competitive advantage strategic 14

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2.4. The factors that can affect to the competitive advantage 15
2.4.1. The suitable strategic to gain competitive advantage in the new environment
15
2.4.1.1. Porter’s five forces 15
2.4.1.2. Low cost strategy 17
Chapter 3 : METHODOLOGY 19
3.1. Characteristics in organization production and business activities of Thuong Dinh
Shoes Company Ltd 19
3.2. The method to implement this project 23
Chapter 4 : ANALYSIS 25
4.1. Analysis of the financial situation of the Thuong Dinh Company Ltd. in 2010: 25
4.1.1. Assessment of general financial situation of the Thuong Dinh Company Ltd.
in 2010 through the balance sheet accounts: 26
4.1.2. Analysis to capital for business operations situation: 29
4.1.3 Analysis of the relationship and the fluctuation of the items in the balance
sheet accounts: 31
4.1.4. Analysis of the relationship and the changing situation of indicators in the
profit and loss statement: 34
4.1.5 Analysis of the situation of solvency of Thuong Dinh Company Ltd in 2010:
36
4.1.6. Analyze the effective and efficient of business performance of Thuong Dinh
Company Ltd 39
4.2. Analyze the use of materials Thuong Dinh Company Ltd in 201 42

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4.2.1. Analysis of the major materials supply condition: 43

Figure 4.2: Analysis to capital for business operations situation in year 2010 30
Figure 4.3 : Analysis of the relationship and the fluctuation of the items in the balance
sheet accounts: 31
Figure 4.4 : The income statement of Thuong Dinh Shoes Company Ltd in 2010 35
Figure 4.5 : Analysis of the situation of solvency of Thuong Dinh Company Ltd in 2010
37
Figure 4.6 : The analysis the using synthetic efficiency costs 39
Figure 4.7 : The analysis of the effective business performance 40
Figure 4.8: Analysis of the major materials supply condition 43
Figure 4.9 : Analysis of the major used material in 2010 45
Figure 4.10 : Analysis of the primarily reserve of material situation in 2010 of Thuong
Dinh Company Ltd. 46 ix
LIST OF ABBREVIATIONS ASEAN Association of South - East Asian Nation
APEC Asia - Pacific Economic Co-operation
WTO World Trade Organization
AFTA ASEAN Free Trade Area

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Chapter 1 : INTRODUCTION
In the economy, the ultimate aim that each organization always cares most is how
to maximize the profit. But nowadays, when the world trends to globalize, organization

the organization to produce a product. Cost accounting is often used in the following
organization: manufacturing, merchandising, and service companies, governments,
universities, and not-for-profit and profit-making enterprise. But cost accounting is
considered as the best method when using in manufacturing. Besides, the role of cost
management helps an organization remain a competitive advantage to compete with other
competitors by creating more value at a lower cost. In order to create value at a lower
cost, cost accounting creates efficiently managing in an organization’s value chain of
activities, processes, and functions. Furthermore, the information that cost accounting
bring to organization is helpful for managers. So, if each manger know how to perform
functions of cost accounting in the new manufacturing accounting, manger can succeed
in running a new organization in new manufacturing environment. It also means
organization can create higher competitive advantage than other competitors.
Currently, Vietnam is in the progress of modernization. Recently, our economy is
opened and gets many innovative achievements. Vietnam is now a member of ASEAN,
APEC, WTO. Besides, Vietnam also signed a trade agreement with America and

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Vietnam also joined AFTA in 2006. Thank to opened and integrative conditions,
Vietnam’s economy has developed fast. The more developing Vietnamese economy is,
the more improved Vietnamese society get. Besides, this also helps Vietnamese economy
can catch up with other country’s economy. However, everything always has two sides.
Although the integration of Vietnamese economy can bring many benefits, Vietnamese
economy also faces to many competitions from internal competitors as well as external
competitors. Day by day, these competitions become more and more severe. So, in order
to exit in this market today, the improvement of competitive advantage of each company
plays an vital role. To put it in other way, the ability to improve organization’ s
competitive advantage not only has a strong influence to the survival and development of
enterprises in particular, it but also has impacted on the economic growth of the country
in general. Therefore, I think the competitive advantage of organization in market should
be considered carefully because organization not only manufacture and sell products and

The first part : Introduction
The second part : Literature review
The third part : Methodology
The fourth part : Analysis
The final part : Conclusion

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Chapter 2 : LITERATURE REVIEW
2.1. Definition of accounting and its functions :
Before examining what cost accounting is and its function, we should understand
definition as well as functions of accounting clearly first.
2.1.1. Definition of accounting
In general, accounting is a process of collecting, recording, reporting information.
To go into details, accounting is also considered as a set of practice and body of
knowledge that its primary tasks are recording transaction, keeping financial record,
reporting and analyzing financial information to managers, and sometimes it give some
advices on taxation matters. It can be identified profit or loss for a pass and current
period, and it also show the value and nature of a firm's assets, liabilities and owners'
equity. Besides, accounting provides information for managers about the available
resources in a firm, the means resources, and the results company can achieve when they
use accounting information. Furthermore, it helps organization create important
decisions. It also helps managers, investors, regulators, lenders and public know whether
should invest in this organization or not because accounting information can give them
account can show the current condition of this organization. Account can identify to help
them see that operation of organization is good or bad. It also reports to them the ability
of organization in creating profit. To put it in other way, accounting can show clearly
whether this company is making profit or suffers heavy loss. Furthermore, accounting
system has an strong impact on management across organizations, manufactures,
department or even economic society of many countries over the world because
accounting information help manager realize and find way to earn profit which is

government requires. So, accountings is considered as a basic of information to help
managers prepare these statements. Finally, the most important function of accounting is
to communicate the results of firms because accounting is considered as a language to
communicate between people inside company and people outside company. In a firm, it
has many parties who care the final operating result of a firm, are owners, creditors,
government, employees. They always want to know that after a long time company
operates, whether its operation is good or not. Then, they can decide to make decision for
company and for theirs own interest.
2.2. Definition of cost accounting and its function and objectives
2.2.1. Definition of cost accounting:
“Cost accounting is considered as an expanded phase of the general financial
accounting of a business concern which provides management promptly with the cost of
producing or selling each product or of rendering a particular service". To put it in other
way, cost accounting is a step further of financial accounting. in which cost of
manufacturing is identified, not at the time of accounting period but at the time when the
product is manufactured. In simple words, costing is a systematic procedure for
determining the unit cost of output produced or services rendered. It provides for
organization an analysis of the consumption which enables the managers to know total
cost. In summary, cost accounting is “the process of accounting for cost, which begins
with regarding and classifying of incomes and expenditures and ends with the preparation

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of periodical statements and reports for ascertaining and controlling costs”. And cost
accounting can be determined as the process of measuring, analyzing, computing, and
reporting the cost, profitability and performance of operations.
To see it in other aspect, cost accounting is considered as one of the best method to
provide information for management accounting and financial accounting. Cost
accounting is used to measure, analyzes and report financial as well as non-financial
information that concern to the costs acquiring or using resources in an organization.
Normally, cost accounting specializes in controlling and calculating cost of product.

because it provides statements at such short intervals as the management may require. In
order to operate business at high level of efficiency it is essential on the part of the
management to have a frequent review of products, sales and operating result. Cost
accounting produces daily weekly and monthly volumes of units produced, accumulated
cost together with appropriate analysis.
Nowadays, cost accounting is fully developed cost accounting system that
provides ready information regarding stock of raw material, work-in-progress and
finished goods, facilitates the preparation of financial and other statements. And it also
provides basis for operating policy. Cost accounting helps manager manage the

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formulating operative policies. As a result, cost accounting provides useful information
for organizations or manufactures.
2.3. The nature of competition and competitive advantage
2.3.1. The nature of competition
The concept of competition that has come from dominate economics, is static.
Competition is considered as affairs. It is not as a process. Competition does not deal
with qualitative change. The difference between outputs of firm creates a distortion with
respect to the model of perfect competition.
During the history of economic, many shortcomings have already been showed
and discussed by a number of authors. In the economics literature, there are two
shortcomings which have been addressed separately, while they can be both be jointly
surmounted by means of a generalized definition of competition. In general, competition
occurs between firms that produce similar outputs, such as products or services. Even
when these outputs are material goods, they are sold for the services they supply to their
users. Thus, competition will exist whenever firms produce either similar services, or
products supplying similar services. To make it simple, a market simply defined is an
area within which a group of seller compete against other group seller to gain a common
group of buyers. In some sense, all products are in the same market as all compete for a
common pool of money held by consumers.

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from external sources around changing customer demands, prices and technological
change. Any change in the external environment creates an opportunity for profit and
entrepreneurship is the ability to determine and respond to that opportunity. With the
markets are becoming increasingly turbulent, this ability to respond can be said to be a
competitive advantage in itself, if it is a better ability in relation to other companies that
is. It also means that each organization foresees future changes and therefore this firm
needs information and flexibility to respond. This changes organizational structure,
decision-making systems, job design, and culture to the center of an organizations
capabilities. The faster the organization can respond, the less organization needs to rely
on forecasts.
Innovation is not only a competitive advantage but also a capability that allows to
overturn the competitive advantage of other firms. According to Gary Hamel, he argues
that “ business concept innovation is the foundation for value creation in the new
economy”. These new business concepts will often relate a reconfiguration of the value
chain of the industry in question.
2.3.2.2. Sustaining Competitive Advantage
Assuming that the greatest threat here is imitation, so barriers of imitation must be
found. To become successful, a firm needs to identify the advantage and has to find an
incentive to imitate it. After that it needs to be able to identify the advantage and gain the
needs of resources.
Normally, a company is trying to set up barriers that can use to limit pricing in
order to have such low prices so as not to attract new entrants. The against incentives is
deterrence. It normally is threat of retaliation, can be used but must be credible. If

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organization threat is aggressive price cuts, the organization needs to have excess
capacity or inventories. For example, preemption is another option. It means that a
company takes up all available, current and potential niches, is helped with capacity in
order to build up in advance of growth or patents . Preemption depends on a small

firm’s peers. It uses to control relationships throughout the entire value chain. Secondly,
differentiation is used to create products and services that are unique and valued. It is a
non price attribution for consumers only pay a premium. Finally, the focus strategic is
used to reduce product line, buyer segment, or targeted geographic markets. It can be
gained advantages either through differentiation or cost leadership.

Figure 2.1 : Types of competitive advantage strategies

COMPETITIVE ADVANTAGE
COMPETITIVE
SCOPE
Lower Cost Differentiation
Broad
Target
Narrow
Target
1. Cost Leadership 2. Differentiation
3A. Cost Focus 3B. Differentiation
Focus15
2.4. The factors that can affect to the competitive advantage
At the most fundamental level, firms create competitive advantage by perceiving
or finding out new and better ways to compete in an industry and bringing them to
market, which is ultimately an act of innovation. Innovations change competitive
advantage when rivals either fail to perceive the new way of competing or are unwilling
or unable to feedback. There can be significant advantages to early movers responding to
innovations, particularly in industries with significant economies of scale or when
customers are more interested in switching suppliers. The most significant causes of