valuating & adjusting strategy for construction installation & industrial material company limited

NATIONAL ECONOMICS UNIVERSITY SOLVAY BUSINESS SCHOOL FINAL THESIS Valuating & Adjusting Strategy For Construction Installation & Industrial Material Company Limited Instructor: Associate Prof Ngo Kim Thanh Student: Duong Ngoc Khanh– MBM7 Hanoi, March 2010 Valuating & Adjusting Strategy for Cim Co., Ltd Acknowledgements I would like to express my deepest gratitude to my research supervisor, Mrs Ngo Kim Thanh, for her intensive support, valuable suggestions, guidance and encouragement during the course of my study I would like to express my sincere gratitude to all of my teachers at Solvay Business School and National Economics University for their teaching and guidance during my course I would like to extend my thanks to the CEO of Cim Co., Ltd who trusted me and shared his information and ideas about the company operating I am very thankful to all individuals for providing me with the necessary information and supporting me with advice during the period of my data collection for this research study Last but not least, I would like to express my loving thanks to my parents, my wife and son for their love and encouragement throughout my studying Table of content Acknowledgements .2 Written by Duong Ngoc Khanh MBM7 Valuating & Adjusting Strategy for Cim Co., Ltd Table of content Executive Summary Table 1: Corporate strategy formulation process 11 Table 3: SWOT/ TOWS matrix .17 III.3 Opportunities and Threats .27 Table 4: Strengths and Weaknesses of CIM CO., LTD 34 Table 6: SWOT/TOWS matrix of MSA VN 38 To choose Strategy applied for Cim, the author use pointing method with criteria above The scale point is 03 in which: - Sure; - Maybe; - Not 39 Chapter 6: Conclusion, limitation and further researches 45 Appendix: Finance Report years 2002 - 2008 Business Result year 2002 -2008 List of Figure Figures 1: Revenue of Cim co., Ltd from 2002 to 2009……………………… 08 Figurers 2: Tariff on foil & rebar from 2001 to 2009………………………… 19 Figures 3: Imported quantity 2009…… ……………………………………… 23 Figures 4: Top 20 hot plate importers in 2008……………………… ………….24 Figures 5: Price of Steel in 2007 (Source: Vietnam GSO) …………………… 25 Figures : Revenue structure of Cim Co., Ltd…… ……………………………29 Figures 7: Leverage & liquidity ratios of Cim Co., Ltd……………….…………30 Figures 8: Revenue & liabilities growth of Cim…………………………………34 Figures 9: ROE of Cim from 2002 to 2008…………….……………………… 35 List of table: Table 1: Corporate strategy formulation process… …………………………….11 Table 2: SWOT model…………………………… …….………………………16 Table 3: Opportunities and Threats…………………………………………… 17 Table 4: Strengths and Weaknesses of Cim., Ltd……………………………… 34 Table 5: Threats and Weakness……… …………………………………………35 Table 6: SWOT/TOWS matrix of Cim, Ltd…………………………………… 37 Table 7: Choosing Strategy……………………………………………….…… 38 Table 8: BCG Matrix…… ……………………………………………….…… 39 Written by Duong Ngoc Khanh MBM7 Valuating & Adjusting Strategy for Cim Co., Ltd Executive Summary Steel industry takes a very important part for any economy, especially for Vietnam - a developing country where begin to build its new cities, infrastructure, shipping, heavy industries… According to statistics of Vietnam Steel Association, Vietnam nowadays has discovered & located over 216 iron ore mines in which 13 mines with the capacity over million tons distribute conceptually in the North However, investments focus on easier & more quickly making money field Lacking of planning from Government from the beginning, social resources has dropped foil & iron ore processing industries In many years from 2000 to 2007, domestic foil producers just supply only around 20% of demand This rate rose up to 50% in year 2008 with new factories but they themselves facing the same problems of finished-good factories: lacking of input materia This problem shall be solved by developing iron ore exploiting & processing industry Because of lacking input material, the only solution of Vietnam steel industry is expected to outside supply - exporting countries such as India, Russia, Korea, Japan, Australia, South Africa and China, the biggest producer and consumer in the world Input material depending on foreigner resources, the market strongly affected by outside factors not only international supply-demand but also policies of exporter countries Beside outside factors, Vietnamese market itself affected by internal conflicts between infant policy & monopoly situation With an unstable environment like above, Construction Installation & Industrial Material Company Limited (Cim Co., Ltd) was born in 2002 with only one business line, it was importing to distribute in domestic market Its clients are domestic trading companies, Written by Duong Ngoc Khanh MBM7 Valuating & Adjusting Strategy for Cim Co., Ltd mechanic manufacturers, construction contractors, shipping manufacturers…etc In eight years, the company has amazing growth rate in revenue: 21 times with average growth rate of 140% The source of this hot growth came from dept Until 2005, 100% revenue belonged to trading activities In this very year, Cim Co., Ltd has stood on the edge of bankrupt because of a strongly changing in business environment This hot growth originates from what and why just in 04 operating years the company has faced to such serious problem Did the problem come from external or internal factor? Firstly, this study aims to review company’s business, finance statement and organization, to evaluate suitability of the current strategy in context of unstable & changing environment Secondly, base on technical of Strategy Formulation process including SWOT and BCG analysis this study shall give out the suggestions to adjust CIM Co., Ltd strategy in order to improve Weakness to reduce Threats from changing environment and to take full advantages of Strengths to catch Opportunities Chapter – Introduction I.1 Background I.1.1 Industry overview Steel is a strategic industry in Vietnam economy, which under early construction process Its history started in wartime with the first complex in Thai Nguyen province what had small capacity and few kinds of products In general, steel industry can be described simply as a chain of products as the diagram bellow: Finished - good Mines Rebar End using Construction Sifting Semi-product Iron ore Plates End using Shipping Mechanical Refining Crude material Mild foil Written by Duong Ngoc Khanh MBM7 V-shaped Roll Shipping Electric Pipe transportation Roofing Mechanical Valuating & Adjusting Strategy for Cim Co., Ltd Laminate Diagram1: Steel industry product chain Iron ore in mine, which contains other impurities, after sifting becomes input material for iron refining factories Through cleaning, chemical, heat processing it shall become crude material for mild foil laminating factories This processing requires big investment in fixed assets, equipments & technologies It also takes long time to revoke investment capital than finished-goods processing There are several types of mild foils in different shape or size for each production After heat & shape formed - processing, output products are rebar, plate, roll or v-shaped rod Domestic foil producers just supply 28% of mild foil demand so in many years finishedgoods producers must depends on imported material, which was a factor creating an unstable market This problem shall has been analyzed more detail in Chapter III of this study I.1.2 Current background Although the year of 2009 is regarded as a difficult year for VN economy after crisis but 2010 is really harder time when Government support policies comes to end Especially, the State Bank allows banks to loan in medium and long term with negotiable interest rate The interest rate shall increase from ceiling rate of 12% to 18%-20% This strong change in 2010 surely causes very bad effects to the companies that using much more dept than equity as the case of Cim Co., Ltd Furthermore this year is the first year Vietnam shall export 500.000 tons steel products whose input materials come from iron ore exploited & proceeded in domestic factories (according to the Development Planning of VN Steel Industry in 2007-2015, considering up to 2025 signed by Prime Minister) In five years from now, when huge steel production complex projects come to operating, Vietnam is going to be a steel exporter instead of being importer currently The market share of import companies shall narrow by the time In 2010, CIM Co., Ltd has a strong change in organization from the top The CEO has been instead of his father to be the Chairman of company, who retired in 2009 This has a deeply meaning to the company in changing the decision making process in direction of power concentrated Written by Duong Ngoc Khanh MBM7 Valuating & Adjusting Strategy for Cim Co., Ltd The movements of environment and their influences to the business structure of Cim Co., Ltd shall has been more detail analyzed in the “Problem Statement” I.2 Operational Definitions Here below are some explanations of terms in steel industry that using within this thesis: - Civil steel pipe: Steel pipe used for civil construction with diameter 14 to 100 mm - Pre-fabricated steel structure: This kind of building is fabricated in factory and combined at site, which is used for industrial building - Steel foil: Steel rod with section 100x100 or 120x120 mm were used as input material for many kind of steel product such as: rebar, V-angle rod - Rebar: Steel rod with circle section from 6mm-32mm used in concrete structures - Cutting line: Machine divides bigger steel coin in to smaller steel coins what to be used as input material for pipe production - Sifting: Process exploiting iron ore as input material for iron refining industry - Refining: processing which from iron ore to make crude material for foil laminating process - Laminating: Processing which makes mild foil from crude material - VSA: Vietnam Steel Association I.3 Problems Statement Currently, Cim Co., Ltd has mainly two business lines including Importing & distributing steel product (Trading) & Steel pipe manufacturing (manufacturing) Here under is the revenue of the company from 2002 to 2009: Figures 1: Revenue of Cim Co., Ltd from 2002 to 2009 Trading revenue grew so fast, especially in duration from 2002 to 2004 In three years from establishment, the company revenue increased from 25.9 billions to 513.4 billions, nearly 20 times bigger The chart above shows that how much “hot” growth was through Written by Duong Ngoc Khanh MBM7 Valuating & Adjusting Strategy for Cim Co., Ltd time going Revenue grew with amazing speed while equity contribution increasing was not equivalent In 2004, company equity was 16 billions and the liability was 110 Therefore, dept-equity ratio was 6.8 These figures pointed a thing that revenue grew base on increasing of liabilities In 2005 affected by changing environment, revenue deeply decreased 40% down to 304 billions This year, the company got a negative benefit of 41 billions while its contributed capital was only 16 billions In sort term, depending on dept made the company frequently be in stressful finance statement and faced to solvency losing damages when environment changes in bad trend or a sudden event happens unexpectedly Besides, burden of loan interest took away most profit In long term (over five years), the market share shall has been narrowed by two factors: - Harder competition - Imported goods be instead of domestic products which made by huge projects under construction according Government plan Therefore, Cim Co., Ltd should consider reviewing its business, developing plan under strategy view The targets that company is directed forwarding are worthy in such risky statement as analyzed above? That are the problems this study aims to solve through answering questions raised in part “Research Questions” I.4 Research Objectives Objectives of the study listed as bellow: - Identify current missions, objectives, strategies of Cim Co., Ltd and valuate the suitableness of strategy in new phase of company life in context of changing environment - Analyze external & internal environment for the company - Base on the result of above researches, the study will suggest a suitable corporate strategy for the company in the period 2010-2015 I.5 Research Questions Below are the research questions that the study tries to answer What is the current strategy of Cim Co? Dose the company has clear vision, mission and value? Is the existing strategy suitable for company’s development currently and in the future? Is it necessary to adjust the strategy and if yes how the strategy shall be adjusted? Written by Duong Ngoc Khanh MBM7 Valuating & Adjusting Strategy for Cim Co., Ltd How dose the company implement the new strategy? How is a schedule of the implementation? I.6 The importance of the research Depending deeply on liabilities, the company’s leaders seem to ignore serious problems at the strategy level to flow target of growth as fast as possible Therefore, the outcomes of this study aim to warn them about the future risks as well as to support them to adjust the company’s strategy for more safe & stable statement in a changing environment I.7 Scope of Limitation Because limitation of time and ability to approach update company’s information, this study just focus on business activities of Cim Co., Ltd in the North in duration from 2002 to 2008 Steel is a very wide industry including exploiting, processing crude material, semiproduct manufacturing, finish-goods manufacturing In this study, the concept of industry juts is narrow in fields that the company’s business concerned: crude materials what are inputs for finish-goods manufacturing Concept of market and competitors also are limited in the North of Vietnam I.8 Structure of Thesis Chapter describes background, industry concept definition, statement problems, objectives, research questions and scope of limitation Chapter describes theory framework and model used in the study Chapter describes analysis external environment using PEST and 5-force model to identify Threats and Opportunities which company must to face or could catch at the present and in the future Chapter describes analysis internal factors such as finance resource, human resource, management process, technology, business line, manufacturing effectiveness, investment activities, relationships to identify Strengths and Weakness of company This chapter also analyzes the current strategy of company, point out current vision, mission and value Chapter describes adjusted strategy for the company and implementation plan Chapter Conclusion, further researches and thanks words Appendices and Bibliography/ references are listed at the end of the report Written by Duong Ngoc Khanh MBM7 Valuating & Adjusting Strategy for Cim Co., Ltd Chapter – Theory review II.1 Theoretical framework The concept of strategy is not a new one It appeared from ancient history and strongly adhered to wars, where strategy meant to win over the enemy, to keep the land from invasion, or even to expand the country successfully Later on, strategy has not only become a war terminology but also been well connected to many other fields including economy, politics and society In economy, strategy has become very important to business organizations II.1.1 Corporate strategy & role of corporate strategy in organization - Corporate strategy Corporate strategy is mainly about broad decisions for the total organization's scope and direction When creating corporate strategy, managers should consider what changes should be made in the company’s growth objectives and strategy for achieving those objectives, the lines of business that company plan to involve, and how these lines of business cooperate together Corporate level strategy includes three components: (1) growth or directional strategy (what should be the growth objectives, ranging from retrenchment through stability to varying degrees of growth and how the company accomplish this), (2) portfolio strategy (what should the portfolio of lines of business with regard to how much concentration or diversification we should have), and (3) parenting strategy (how the company allocate its resources – where should the company Written by Duong Ngoc Khanh MBM7 10 Valuating & Adjusting Strategy for Cim Co., Ltd machinery lines cannot reach design capacity and satisfy quality requirements As shown on the table 4, the revenue of steel pipe has been decreased from 57.3 billions in 2006 to 25 billions in 2009 IV.3.5 Strategy relationship resources As described in part IV.2.1, even Cim got a big negative profit in 2005 (41 billions), the company still could keep high finance leverage in 2009 with the high dept-ratio of 7.8 So the question here is: Why the company can have a high leverage ratio like that while its business results negative? Answering this question will show a Cim’s strength which was the background for its developing at the beginning and also in the future That is strategic relationships which brought by the former Chairman - the father of current CEO The former Chairman before 2002 was the General Director of a state owned corporation The corporation has over 20 subsidies companies and branches located along the country He has relationships with Government officers in many levels inside and outside the industry, in which banks are the most important partners The former Chairman had close friendships with many state owned commercial banks leaders CEO who created the company inherited these relationships very efficiently and lastingly Although the Chairman has been retired from 2002, his strategic relationships have been maintained closely by his son For example, 04 electrical installation & construction companies under the corporation still are main clients for steel angle products with thousands ton per year His elder brother who at present is holding two important positions in the corporation: the director of a design subsidy company and the chief of Planning Department of the corporation This man instead of his father to be a VIP in the system and can help Cim to get construction & pre-fabricated steel structure contracts in many projects In 2010, from a cement factory construction project he can bring construction & fabrication works with amount of 4000 tons steel structure equal revenue around 100 billions The CEO himself has relationships with some Government officers who can help him to join and develop in infrastructure market IV.4 Strengths and Weakness Table 4: Strengths and Weaknesses of CIM CO., LTD Strengths Weakness Written by Duong Ngoc Khanh MBM7 34 Valuating & Adjusting Strategy for Cim Co., Ltd Having strong ability to mobilize credit resources Having useful strategic relationships to develop construction market Potential fabrication market Big fund of land Accumulation fixed assets Unbalanced structure in finance resources Solvency losing risk Bad management in human resources Unstable organization Inside conflicts Inventories Bad receivables Backward technology in steel pipe producing Low output capacity Above is the table that collects Cim’s strengths & weakness for easier viewing the company from inside out IV.5 Currently Strategy  Hot growing by liabilities: Year 2002 2003 2004 2005 2006 Revenue 25.9 256.8 513.4 304 382.1 Growth 0% 892% 100% -41% 26% 2007 2008 2009 606 1334.8 2534.2 Liabilities 19 32.0 110.0 222.0 195.0 Growth 0.0% 68.4% 243.8% 101.8% -12.2% 59% 120% 76.30% 238.0 383.0 648.0 22.1% 60.9% 69.2% Figures 8: Revenue & liabilities growth of Cim Revenue growing so fast, after years it increased from 25.9 billions to 2534.2 billions with average growth of 154% per year Liabilities also increased with speed of 79.1% per years The hottest duration, from 2003 to 2005, the average growth on liabilities was 138% After big loss in 2005, the liabilities growth decreased in 2005 and 2006 but from 2007, it again increased Year Equity Return earning ROE The fast growing strategy also 2002 1,800 150 8% was pointed out through business 2003 8,000 177 2% table bellow: results in the 2004 16,000 2,933 18% 2005 16,000 (41,222) -258% 2006 25,000 (38,669) (19,685) -155% (5,349) -21% Written by Duong Ngoc Khanh MBM7 2007 25,000 2008 25,000 35 -79% Valuating & Adjusting Strategy for Cim Co., Ltd Figures 9: ROE of Cim from 2002 to 2008 Although revenue increased very impressively, return earning has shown very bad results The maximum ROE in 2004 was just only 18% and was negative from 2005 to 2008 Cim leaders seemed did not put benefit as targets for the company operating Through trading activities company leaders aimed to create a strong cash flow to finance for all activities including long-term investments Vision, Missions and Value: The Vision concept at the beginning is unclear The company even did not choose a benchmark for their plan of developing although there are many companies in the same field, which were successful and well - known at that time such as: Van Loi, Hoa Phat, Nam Vang There was no survey, research, or listing in rank competitors, no specified target or plan for going forward While Vision and Mission was not clearly, company’s leaders have regarded Value of Trust as the first priority Company always tries to pay back in time every bank loans despite any finance situation Company’s leaders have established the value of trust at the beginning, and this goes along the company life in years after The company developed TRUST concept with not only bank but also supplier, clients & partners In this chapter, the author has pointed out the strengths, weakness as well as current business strategy of the company To answer the question if the strategy suitable for company’s development currently and in the future or not, the author put the weakness in to threats context through external & internal environment analysis Threats Weakness  Unstable environment creates threat  Unbalance structure in finance of big loss (as happened in 2005) resource  Policy forward export narrow  Depend deeply on liability market share of importer  Solvency losing ability  Floating interest rate policy makes  High amount of inventories more burden of dept which  bad irrecoverable receivables financing all activities of Cim  Tendency devaluating VND makes Written by Duong Ngoc Khanh MBM7 36 Valuating & Adjusting Strategy for Cim Co., Ltd company pay more for imported goods and decline competitive ability Depending on debts, unbalance structure of finance resource, high ability of solvency losing, high inventories requirement, and bad irrecoverable debts risk put Cim in serious finance problems, especially while environment will bring threats as listed above The higher finance leverage will be used the more strongly threats affect to the company safety Cim’s leaders should adjust their strategy of fast growing by debts to avoid threats and ability of bankrupt as once happened in 2005 What is a adjusted strategy and how is it implemented? These questions shall be answered in the next Chapter Chapter 5: Adjusting strategy & implementation V.1 SWOT matrix Written by Duong Ngoc Khanh MBM7 37 Valuating & Adjusting Strategy for Cim Co., Ltd In this Chapter, the author will use SWOT/TOWS matrix to choose applied Corporate Strategy for Cim The Strategy chosen must satisfy four criteria: - Avoid/ reduce impact of Threats - Take full advantages of Strengths - Develop Opportunities which environment brought - Overcome Weakness Table 6: SWOT/TOWS matrix of MSA VN Internal Strengths Internal Weakness Strong credit resources Abundant cash flow Having useful strategic relationships to develop construction market Potential fabrication market Big fund of land Accumulation fixed assets External Opportunities SO Strategies (Widen business scope) Opportunity get super Take advantages of profit by strongly strategic relationships to fluctuation in price develop new business Loosening credit policy lines: Construction and help Cim Co., Ltd more steel structure easily approach new loans fabrication Increase Recovering economy, FDI revenue ratio of new increasing create business Create more opportunities in stable & long-term construction field to finance resources develop new business line Written by Duong Ngoc Khanh MBM7 38 Unbalanced structure in finance resources Solvency losing risk Bad management in human resources Unstable organization Inside conflicts Backward technology in steel pipe producing Low output capacity WO Strategies (Overcome weaknesses) Opportunities cannot be used to overcome weakness Valuating & Adjusting Strategy for Cim Co., Ltd External Threats ST Strategies (Avoid threats) WT Strategies (Avoid & Overcome) Unstable environment Market share narrows down Monetary policies caused disadvantages for steel importer Floating exchange rate causes interest burden High power of supplier Low entry for new competitors Inflation & retightening monetary policy Try to increase revenue ratio of new business to lower role of trading Liquidate valuable assets to improve solvency risk Reducing depending on debts as much as possible Develop other trading market (export, domestic distribute) Improve management activities Solve inside conflicts Stabilize organization Use finance professional tool to avoid risk of exchange rate (SWAP, Reserve plan, insurance, hedging) To choose Strategy applied for Cim, the author use pointing method with criteria above The scale point is 03 in which: - Sure; - Maybe; - Not Table 7: Choosing Strategy Valuating criteria Avoid/ reduce impact of Threats Take full advantages of Strengths Strategy ST WO SO WT 2 2 Develop Opportunities 1 Overcome Weakness Total Base on the total point, Strategy SO and WT can be applied for Cim to adjust its strategy V.2 Adjusting Business Strategy Through analysis in Chapter III and Chapter IV, if Cim keeps the strategy of hot growing base on liabilities through trading business, the company could get the risk of solvency losing or lasting loss In sort-term, if Government changes the tax, monetary policies in bad impacts trend to importer or environment suddenly has become strongly unstable Cim shall get the risk of solvency In long-term when market share of imported steel products narrow, Cim shall get the risk of losing lastingly and decreased revenue Written by Duong Ngoc Khanh MBM7 39 Valuating & Adjusting Strategy for Cim Co., Ltd Adjusting strategy from hot growing by liabilities to growing but satisfy these conditions: - Growing firmly in balanced way - Minimizing risks, maximize profit - Fixed asset accumulation V.3 BCG matrix Applying SO strategy, Cim should design a plan to develop two new business lines what it has advantages in market and background on fund of land  Industrial Construction & Installation  Pre-fabricated steel structure manufacturing Implementation this strategy can be understood as to implement diversify business portfolio to reduce role of trading (reduce depending on liabilities), to stabilize business result, to create positive profit for finance reserves To identify roles, which each business takes in the company operating, the author use BCG matrix Table 8: BCG matrix - Industrial & infrastructure construction - Pre-fabricated steel structure manufacturing STAR ? QUESTION 10% COW DOG - Steel trading (import & distribute) - Civil steel pipe manufacturing Mark et Grow th Rate 10 Relative market share 0.1 COW - Trading From establishing in 2002 to 2006, trading was the only business line of Cim The company imported these kinds of products: mill foil, steel plate, hot mill roll, cold mill Written by Duong Ngoc Khanh MBM7 40 Valuating & Adjusting Strategy for Cim Co., Ltd roll and cheap coins In each period, Cim focused on one or two kind of products as the table below: Year 2002- Main product Clients mill foil Viet Italy Steel, Viet Main competitors Hoa Phat Trading, Van Australia Steel, Thai Loi Steel, Nam Vang Nguyen Steel, Vinakasai Steel and other importers 2003 Steel, 2004 (rebar manufacturers) (Other importers) Steel plate, V- Vinashin shipping, Nam Hoa Phat Trading, AN shaped rod Trieu Shipping, Electrical Khanh Steel, Nam Vang Construction Number Steel and other importer (ship building companies, EVN members) coins, Vinapipe, Vietduc pipe, Nam Vang Steel, Dung 2005- Cheap 2006 cold mill roll Hoa Phat pipe Hai Steel and other importers Mill foil is the input material for rebar manufacturers, which counted in the North: Viet Australia Steel, Viet Russia Steel, Nam Do Steel, Thai Nguyen Steel, Hoa Phat Steel, Viet Italy Steel, Vinakansai Steel These factories used around 1.5 millions ton of foil per years To be mill foil importer at that time, Cim supplied to almost manufacturers as listed on the table with output over 50.000 tons per years, equal 3.3% of total consuming number Although steel trading brought high revenue but the profit margin is very low from 1% to 3% To be among biggest supplier in each product was a strategic marketing plan of Cim It matched with target of growing as fast as possible strategy of the company From establishment in 2002 to now Trading always takes the most important business of Cim It contributed almost company’s revenue Profit & cash flow created by trading activities has been used to finance directly for investments in fixed assets & construction projects The cash flow from trading also helped to create corresponding capitals for Written by Duong Ngoc Khanh MBM7 41 Valuating & Adjusting Strategy for Cim Co., Ltd bank loans in producing factories projects Before 2006 all operating activities of Cim have been financed by trading From 2006 to now, besides trading revenue Cim has revenue from other business but trading still keep over 90% of total revenue Cim should apply Hold strategy for this business line in adjusting time but consider reducing its role in company’s overall business to minimize threats brought by environment changing DOG -Steel pipe manufacturing Steel pipe manufacturing took small ratio in total revenue & has negative growing The year 2006 was the first year CIM join the civil pipe market which leading by many big competitors such as Hoa Phat Steel Pipe, Viet Duc Steel Pipe, Vina Steel Pipe, 190 Steel Pipe There are also hundreds small companies which have the same capacity like Cim dose According to VSA, only in February 2009 the member’s total output of steel pipe was 236.8 thousands ton while Cim’s average output was just 53 tons equal 0.02% market total output In 2006, to join the market the company has used the strategy of lower price but in fact, the company could not keep the market share when it stopped down price policy in the next year 2007 Negative growth and no benefit were reasons why the author suggests the company to remove this business line The recommend method is liquidation as quick as possible ? Question- Industrial Construction & Installation Construction was a traditional profession of CEO’s family His father and his elder brother kept high position in a state owned corporation and have many year experiences in this industry Abilities of approaching, joining construction market as well as building up forces are very high & easily That is why just after two years, the company has impressive revenue growth on construction business The labor force in this business and fabrication in 2009 increased up to 31 engineers, which a medium size company in the same industry requires This business above is located in “?” place because of these aspects: - The construction industry has quite high margin rates 15-20% and can grow very fast with advantages what the company has Written by Duong Ngoc Khanh MBM7 42 Valuating & Adjusting Strategy for Cim Co., Ltd - The construction industry in general shall continue develop strongly in Vietnam This industry has been regarded as motive power for GDP growth in 2009 and coming years - In the near future, Cim can increase role of this business to reduce relatively role of trading This business has higher profit margin and requires less capital demand Profit and stable cash flow created by this business will help the company to balance its risky finance statement as before START - Pre-fabricated Steel Structure Although this business line is under set up phase, the author still put it in the START place in the matrix because these reasons: - Developing market: Vietnam is in the beginning of industrialization, the factory demand shall kept increasing stably in long term - Cim has advantages to join this market and develop market share as analyzed in Chapter IV The company has enough fun of land for a factory of over 100.000m2 and has abundant input material resource With normal size and capacity around 15000 tons per year, this business can create revenue of 300 billions with high margin - This manufacturing business has high margin, around 30% This business line shall take full advantages of company’s strengths to catch opportunities brought by environment With very high profit margin, this business shall create strong cash flow to finance other investments instead of liabilities as currently In summary, Cim’s leaders should seriously are aware of threats which company is facing not only from outside but also from internal problems Instead of concentration growing by trading which requires many liabilities, the company should apply a new strategy portfolio and diversify its business Build up a new strategy, Cim’s leaders also should pay attention to clear company’s basic concepts on Strategic Management for long - term development such as Vision, Mission and the Value V.4 Implementation V.4.1 Build up Vision From trading company, the main activities are quite simple: Import and sale product with assistance activities as warehouse, logistic, securities…When diversify business lines, Written by Duong Ngoc Khanh MBM7 43 Valuating & Adjusting Strategy for Cim Co., Ltd the activities are more complicated in three field: Trading, manufacturing, construction engineering Cim is no more a trading company simply, in near future it will be like a group of companies in which each sub-company doing business in a different industry From internal aspect, Cim’s leaders must let their employees to recognized and understand about company to forward a common target From external aspect, the company should position itself in the markets These require the company has clear Vision Vision: CIM - LEADING GROUP IN STEEL INDUSTRY & CONSTRUCTION Mission: To achiever leading position in each business line: - Construction and pre-fabricated manufacturing: ONE solution for WHOLE industrial construction with full services such as design, project management, construction, structure fabrication & installation - Trading: Professional & trusted distributor with various & quality products Value: Develop the traditional VALUE OF TRUST as at the beginning: TRUST with Clients (Banks, customers, and supplier) TRUST with Staff V 4.2 Strategic Business Unit (SBU)  Construction and pre-fabricated steel structure factory should has been organized a sub-company of Cim what initiatively set up marketing plan, business plan, production process, quality policy, human organization Finance resources and finance indicators are planned and controlled by Cim’s finance Department This step should be finished within 2010 to take advantages in market share and fluent environment brought by recovering economy  Set up specific strategic targets for each SBU in accordance with Cim’s targets  Evaluate potential market according to strengths analyzed in Chapter IV From there build up procedure for SBUs increase their roles in whole Cim business V 4.3 Reduce role of Trading Trading currently take the role of financing and create cash flow for whole Cim business activities and investment This means that Cim still be in unstable situation especially in Written by Duong Ngoc Khanh MBM7 44 Valuating & Adjusting Strategy for Cim Co., Ltd finance Cim must prepare the plan of withdraw for in five years future before the market share really impacted by domestic producers V 4.4 Liquidate steel pipe manufacturing business Liquidation this business shall bring to Cim an amount cash of about 16 billions equal 64% its equity in 2008 The cash can be used to construct factory for pre-fabricated steel structure Liquidation also can help Cim saving cost and land fund for other purpose This action should be done as soon as possible in the second quarter 2010 Chapter 6: Conclusion, limitation and further researches This section will address the research’s objective, summarize the findings of this research work and offer conclusions based on the findings More importantly, the contribution of this research to the development of corporate strategy in steel industry will be clarified VI.1 Conclusion This study has answered all research questionnaires in Chapter Current strategy of Cim is that growing as fast as possible through high finance leverage, using liabilities to fund all operating activities The company did not have clear vision and mission In context of environment changing, the Cim’s current strategy is not suitable any more and can cause serious damages to the company so it is necessary to adjust the strategy The strategy should been adjusted in the way to reduce threats and utilize strengths to catch other business opportunities So the author choose the solution: Diversify business portfolio To implement this strategy, Cim must restructure its business lines, liquidate the bad one and develop potential ones This work requires time and carefully preparing so the timing is not mentioned in this study VI.2 Contribution This study aims to help Cim leaders recognize the current strategy not suitable for the future It also warns company leaders about the threats coming from changing environment and the solution to avoid them Through internal analysis with objective view, the study points out weakness inside company organization and in finance structure Written by Duong Ngoc Khanh MBM7 45 Valuating & Adjusting Strategy for Cim Co., Ltd V.3 Further researches Corporate strategy itself is a broad topic, therefore, this research is too broad and may be too general for non-marketer to thoroughly understand and absorb, the future research could be more specific and focused on a particular matter in business strategy or functional strategy The author also has plan to research about implementing and evaluating the corporate, business and functional strategy V.4 Thanks word Finally, the author one more time would like to express his thankful to all the professors in Vietnam-Belgium MBA course who have imparted knowledge as well as experience carefully and full of enthusiasm He also would like to express Prof Ngo Kim Thanh who has given precious instructions so that the author can finish this study in time Because Cim and steel industry case has been subject for Role of State, Management & Organization, Strategic Management assignments of the Group 2, so I would like to say thank you to all member of the Group who has analyzed carefully about the industry and the company Their efforts in working has helped me much to complete this study Reference/Bibliography Written by Duong Ngoc Khanh MBM7 46 Valuating & Adjusting Strategy for Cim Co., Ltd A Book Miles, R.E & Snow, C.C (2003).Organizational Strategy, Structure, and Process California: Stanford University Press Macmillan, H., & Tampoe, M (2001) Strategic management process, Content and Implementation Oxford University Press, USA McGee, J Cooper, C.L Argyris, C & William H (2006) Strategic Management The Blackwell Encyclopedia of Management Second Edition Blackwell publishing MintzBerg, H & Quinn, Brian, J The Strategy process Concepts, contexts Cases Second edition Prentice Hall Mintzberg, H., Ahlstrand, B & Lampel.J (1998) Business Strategy-Strategy Safari- A guide tour through the wilds of strategic management New York: The Free Press Ohmae, K (1982) Mind of the Strategist The Art of Japanese Business McGraw Hill Porter, M E (1985).Competitive Advantages New York: Free Press, 1985 Ranchhod, A (2004) Strategic marketing in practice, Syllabus Richard Draft – Management – the 6th edition 10 Saunders, M., Thornhill.A, Lewis, P (2007) Research Methods for Business Students, Financial Time Press, 4th edition 11 Tirole, J (1994) Strategy The Theory of Industrial organisation, London: MIT Press B Article, Magazine, Journal Anonymous (2002) Harvard Business Review on Advance Strategies (2002)HBR Press\ Anonymous (2000) ‘Corporate Strategy: A Manager's Guide’ Harvard Business Review Anonymous ‘Whose strategies is it?’ 2007 Harvard Business Review Abraham, J., (2003) Strategic Case Studies The Abraham Group, Inc 10 Day, G.S & Wensley, R (1988) ‘Assessing Advantage: A framework for diagnosing competitive superiority’, Journal of Marketing, vol 52, April 1988 p Mintzberg, H (1994) ‘Strategy-The Fall and Rise of Strategic Planning’ (1994) Harvard Business Review Norton, D.P (2002) ‘Managing Strategy is managing change’ Harvard Business school Publishing January-February 2002, p.2-9 Kaplan, R.B., Norton, D.P (2000) ‘Having Trouble with your Strategy Then Map It.’ Harvard Business Review Written by Duong Ngoc Khanh MBM7 47 Valuating & Adjusting Strategy for Cim Co., Ltd Kaplan, R.B., Norton, D.P & Barrow E.A.Jr (2008) ‘Developing the Strategy: Vision, Value Gaps, and Analysis’ Harvard Business School Publishing Jan-Feb 2008 10 Montgomery, C.A ‘Putting Leadership Back into Strategy’ Jan.2008 Harvard Business Review Leadership & Strategy 11 Norton, D.P (2002) ‘Managing Strategies is Managing Change’, Harvard Business School Publishing 12 Porter, M (2001) ‘From competitive advantage to corporate strategy’ Harvard Business Review 13 Porter, M ‘The Five Competitive Forces that shape strategy’ Jan.2008 Harvard Business Review Leadership & Strategy 14 Porter, M & Mintzberg, H (1996) ‘What is strategy?’Harvard Business Review C Website  http://www.vsa.com.vn/ : Website of Vietnam Steel Association Written by Duong Ngoc Khanh MBM7 48 ... Analysis IV.1 Brief Information Written by Duong Ngoc Khanh MBM7 28 Valuating & Adjusting Strategy for Cim Co., Ltd Name: Construction Installation & Industrial Material Company Limited Address: No... Identifying directional strategy (grand strategy) for the company Written by Duong Ngoc Khanh MBM7 11 Valuating & Adjusting Strategy for Cim Co., Ltd Analyze data about external & internal Identifying... Trading & Sealine Tan An Metal & Material Hai Phong JSC Construction materual No 0.05% 0.007% 11.806 Total quantity industry Quantity 652,53 47.062 % 0.001% Valuating & Adjusting Strategy for Cim