LITERATURE REVIEW ABOUT DESIGNING BUSINESS
Concept and classification of business strategy
Business strategy is viewed through various lenses by different scholars Michael Porter (1996), a renowned strategist from Harvard University, defines it as the art of achieving competitive advantages in market competition and development, stating, “Business strategy refers to the art of developing reliable competitive advantages for defense.” From a management perspective, G Arlleret describes business strategy as a structured plan, asserting that “Strategy refers to determination of paths and vehicles to fulfill the pre-determined objectives via policies.”
In today's business landscape, the concept of strategy plays a crucial role in guiding operations, especially as barter systems continue to evolve Businesses are increasingly adopting strategic frameworks to enhance their effectiveness and navigate the complexities of the marketplace.
(Source: Strategy management - Statistical Publishing House, 2009)
In the MBA course materials at Griggs University, business strategy is defined as a series of actions and initiatives aimed at achieving a competitive advantage by leveraging core competencies within a specific market.
There are three key levels of business strategy: Corporate level strategy, which focuses on the organization's overall purpose and direction; Business unit level strategy, which involves leveraging core competencies to gain competitive advantages in specific product markets; and Functional strategies, which support the successful implementation of both corporate and business unit strategies through effective resource management, processes, and skills within various departments.
A well-defined business strategy enables an enterprise to identify its goals and directions, serving as a crucial framework for all production and operational activities This strategic approach empowers the business to seize opportunities and proactively address challenges and threats in the marketplace, ensuring long-term success and adaptability.
A well-defined business strategy optimizes resource performance, strengthens an enterprise's competitive edge, and promotes sustainable development It establishes a solid foundation for crafting production and business policies that adapt to market fluctuations.
1.1.3 Basic characteristics of business strategy
Generality in business strategy encompasses three key aspects: alignment with the enterprise's overall development trends, compatibility with national socio-economic and technical advancements during a specific period, and adherence to global economic integration trends A successful business strategy is rooted in these overarching viewpoints, ensuring it meets both internal and external demands.
- Far seeing: Previously, success was not obtained by many enterprises because no strategic plan was made; work was randomly conducted and flown to the movement
To effectively design a business strategy, it is crucial to surpass societal eco-techno forecasts, as many enterprises have struggled to accurately capture development trends A successful strategy relies on a solid and reliable forecast.
Competitiveness is a fundamental aspect of business strategy, as every enterprise operates in a competitive market To achieve a competitive edge and emerge as a market leader, it is essential for businesses to develop strategies that enhance their advantages over rivals.
Business strategy serves as a blueprint for an enterprise's future development, but the environment in which it operates is often unpredictable As the timeline for a strategy extends, the uncertainty surrounding external factors increases, leading to a higher risk of non-feasibility To mitigate this risk, entrepreneurs must adopt a long-term perspective, carefully observing their surroundings to craft sound strategies Given the significant changes in the macro environment, it is crucial for business strategies to remain flexible and practical, avoiding overly lengthy timeframes.
To achieve success and prosperity, enterprises must leverage their intrinsic strengths to choose a business line that aligns with their capabilities, thereby avoiding industries dominated by larger competitors Continuous technical advancement and specialization are crucial for survival in an ever-evolving market This approach is a key component of the business strategy for small and medium-sized enterprises (SMEs), enabling them to innovate and adapt in a competitive landscape.
For a business strategy to be effective, it must maintain relative stability over time while adapting to the ever-changing objective environment and practical activities of the enterprise This means that while the strategy should not be static, it needs to self-adjust to align with current circumstances, ensuring it remains relevant and effective in guiding the organization.
ANALYZE AND SELECT THE BUSINESS STRATEGY FOR
Overview about the Company
2.1.1 History of development, organizational structure
Former a Utility Team under Thac Ba Hydropower Corporation, Song Da No
The 11 Joint Stock Company was established on June 1, 1961, and was renamed the "Power and Water Assembly Enterprise" in 1976, operating under the Song Da Hydropower Construction Corporation as per the Ministry of Construction's decision.
In 1989, the Power and Water Assembly Enterprise was upgraded to a Power and Water Construction Company following Decision No 03/TCT-TCLĐ from Song Da Corporation on December 12, 1989 Subsequently, in 1993, it was renamed "Energy Construction Company" by the Ministry of Construction under Song Da Corporation.
2002, the Ministry of Construction promulgated the Decision No 285/QD to rename as Song Da 11 Company
In response to Resolution TW3 regarding the renovation and restructuring of State-owned enterprises, the Ministry of Construction issued Decision No 1332/QĐ-BXD on August 17, 2004, to facilitate the transformation of Song Da 11 Company into a new entity.
Da 11 Joint Stock Company On 14 th December 2006, Song Da No 11 Joint Stock Company’s shares were officially traded in HNX with ticker of SJE Transaction name in English: SONGDA 11 JOINT STOCK COMPANY; Abbreviated name: SJE Registered office address: 7 th floor, Song Da Complex Building, Km10, Tran Phu, Ha Dong, Hanoi Currently, the Company’s chartered capital is: VND 115,531,050,000 (One hundred and fifteen billion, five hundred and thirty one million, zero hundred and fifty thousand Vietnam dongs)
The Company's development history is closely linked to significant projects in Vietnam, including the Thac Ba, Hoa Binh, Yaly, Son La, and Lai Chau Hydropower Plants.
During the renovation period, the Company encountered significant opportunities and challenges, prompting a swift management overhaul By embracing a lean and dynamic production organization, the Company successfully adapted to the competitive market landscape, ensuring its survival and growth.
INVESTM ENT PROJECT DEPARTM ENT
MECHANI CAL ENGINEER ING DEPARTM ENT
2.1.2 Business performance in the period of 2015 – 2017
According to the Certificate of Business Registration, some key business lines of the Company are described as follows:
- Construction of Hydropower plant, irrigation, traffic and post office works, etc
- Construction and installation of electric wire lines and transformer stations up to 500kV; construction and installation of urban and industrial park’s water supply and drainage system;
- Trading in construction of urban area, hi-rise buildings and industrial parks;
- Construction and installation of clean water treatment plants and wastewater treatment plants; Construction of hydropower plants;
Our services encompass the management, operation, and distribution of water and power across various projects, including small and medium-sized hydropower plants, industrial parks, and municipal water facilities We specialize in the management and operation of electric sales, as well as the production and trading of commercial electricity, ensuring efficient energy solutions for our clients.
- Installation of electro-acousto mechanical system, lighting electric, ventilation, communication, air conditioning and control systems of hi-rise buildings, urban areas and industrial parks;
- Exploitation of sand, gravel and stone to build road and works;
- Supply, sales and installation of firefighting equipment and fire safety system;
- Trading in real estates and land use rights under the owner
Song Da Corporation specializes in the construction, installation, management, and operation of hydropower projects, serving as the Project Owner The company is also involved in the construction and installation of nationally significant water supply works, such as the Thac project.
Ba Hydropower Plant, Hoa Binh Hydropower Plant, Yaly Hydropower Plant, Son
La Hydropower Plant, Lai Chau Hydropower Plant, Sesan 3 Hydropower Plant, Sesan 3A Hydropower Plant, Sesan 4 Hydropower Plant, Pleikrong Hydropower
Plant, Sekaman 3 & Xekaman 1 Hydropower Plants in Laos, Bien Ho - Pleiku water supply system and Nha Trang water supply system, etc
The Company has successfully participated in bidding for major projects and emerged as the winner for significant works under the National key projects managed by EVN These projects include the Mong Duong Water System, the 500kV Pleiku - My Phuoc - Cau Bong wireline, and several other critical infrastructure developments like the 500kV Son La - Hoa Binh and Son La - Lai Chau wirelines, as well as transformer stations in Thach My and Quang Ninh As of now, the Company ranks among the top five construction contractors for power transmission works in Vietnam, demonstrating its commitment to meeting progress and quality requirements.
The company has leveraged its expertise in hydropower construction and electrical system management to invest significantly in several projects, including the Thac Trang, To Buong, Dong Khua, and Dak Glei Hydropower Plants Additionally, investments have been made in the Luong Son-Hoa Binh stone mine and solar power initiatives, showcasing a commitment to diverse energy solutions and resource development.
Table 2.1: SJE’s business performance in the period of 2015 – 2017 Unit: VND million
5 Payment to the State budget 62,150 40,673 46,440
6 Average income per capita/month 8.709 8.130 8.910
(Source: Song Da No 11 Joint Stock Company)
In 2016, the company's revenue and other incomes totaled VND 791,956 million, reflecting a decrease of VND 152,816 million or 16.17% compared to 2015, which had revenues of VND 944,772 million This decline was primarily due to the completion of several projects initiated in 2015, resulting in fewer works in 2016 as the number of bids awarded was limited Furthermore, in 2017, revenue and other incomes dropped significantly to VND 510,615 million, a reduction of VND 281,341 million or 35.52% from 2016, largely attributed to public debts affecting financial performance.
In 2017, state investment in power and water infrastructure construction decreased, leading to a surge in new competitors entering the market This intensified competition resulted in a reduced market share and negatively impacted the awarding of bids for key projects.
In 2016, the company's profit after tax decreased to VND 51,572 million, a decline of VND 34,154 million or 39.38% compared to 2015's profit of VND 85,726 million However, in 2017, the profit after tax rose to VND 60,185 million, reflecting an increase of VND 8,613 million, or 16.7% from the previous year This improvement was attributed to reduced revenues and effective management cost savings.
In recent years, the profit after tax percentage against total income and other incomes stood at 9.07%, 6.51%, and 11.79%, respectively, indicating a strong performance compared to similar construction and installation enterprises This success can be attributed to effective price management strategies that utilized well-crafted method statements, resulting in significant economic value.
Between 2015 and 2017, the Company experienced effective yet unstable business performance, characterized by a gradual decline in revenue and fluctuations in after-tax profit relative to total revenue and other income This instability highlights the need for a comprehensive reevaluation of the Company's business strategy to align better with current market conditions By doing so, the Company can enhance its competitiveness, ensure stable growth, improve economic performance, elevate employee living standards, and optimize capital utilization.
Analysis of external and internal environment
With over 55 years of experience in wireline and transformer station construction, as well as water supply and drainage systems, the Company has established a strong brand and reputation in the industry, enhancing its competitiveness in bidding for projects Significant investments have been directed towards hydropower initiatives, culminating in a total capacity of 44MW by 2017 Notably, the Company is currently investing in a 42MW Solar Power Plant in Binh Thuan, which is expected to create jobs and deliver high returns through future dividends.
SJE aims to achieve annual sales targets of over VND 1 billion and VND 1,500 billion by 2030, based on customer contracts and significant efforts However, the company's success heavily relies on market conditions Without a thorough analysis of current circumstances and market influences to develop a clear business strategy, SJE risks being overshadowed by its competitors.
Over the past five years, Vietnam has experienced an average GDP growth of approximately 6.22%, with the General Statistics Office reporting a GDP of US$220 billion in 2017 and a GDP per capita of US$2,385 The economic development plan for 2011-2015, outlined in the 12th National Congress of the Communist Party of Vietnam, aims for an average GDP growth rate of 6.5-7% per year, targeting a GDP per capita of US$3,200-3,500 by 2020, alongside a total average social investment capital of 32-24% of GDP over five years To achieve these ambitious goals, there is a pressing need to enhance the quality of socio-economic structures, particularly in transportation, electricity, water supply, irrigation, education, and healthcare This demand for infrastructure development presents abundant job opportunities for Vietnam's construction industry, including companies like SJE.
Over the past five years, Vietnam has experienced stable loan interest rates ranging from 8% to 11% per year, providing a significant opportunity for local enterprises to access favorable credit sources This environment has enabled many businesses to secure loans for production investments and successfully implement various projects Among them, SJE capitalized on these conditions to expand its production capabilities, particularly by investing in high-capital projects such as Hydropower and Solar Power Plants, which align with the government's top priority initiatives.
In 2017, Vietnam recorded an inflation rate of 3.53%, while the National Assembly set the 2018 inflation target at 4% This goal presents a significant challenge for the Government, necessitating a series of measures to manage inflation effectively A stable inflation rate is crucial as it leads to stable input costs, which in turn reduces fluctuations in construction expenses Consequently, the factors contributing to price increases will be less of a concern during the tendering process or when contracts are signed for construction projects.
The rapid advancement of science and technology presents a significant opportunity for dynamic enterprises to innovate and keep pace with technological developments, while posing a threat to partners resistant to change Currently, the national electric system utilizes SCADA remote control technology for efficient dispatching The National Grid is equipped with state-of-the-art digital devices in power plants and substations, enabling semi-automatic and automatic control for enhanced protection Additionally, in power construction, advanced technological equipment streamlines river-crossing cabling and non-grounding wiring, showcasing remarkable capabilities that surpass historical standards.
Electric construction enterprises face challenges in effectively utilizing plants and equipment while meeting technical, quality, and scheduling demands By innovating construction technology, SJE can achieve significant improvements in quality and reduce costs for complex projects.
The 2014 Law on Enterprises and related legislation, such as the Law on Investment and the Law on Corporate Income, represent a significant shift towards promoting fairness and autonomy in business operations in Vietnam The country boasts a stable political climate and national defense security, fostering a conducive investment environment as its legal framework continues to evolve, particularly in areas like finance, land, labor, and administrative procedures However, changes to laws governing investment and basic construction management, as well as land regulations, have notably impacted both domestic and international investors.
SJE demonstrates its reliability as a partner to local authorities and state agencies by effectively managing site clearance operations, ensuring compliance with local regulations, and providing appropriate compensation for the work conducted in the area.
The international economic integration trend in the coming time of 2018-
In 2023, the exchange of goods and services between Vietnam and its neighboring countries is thriving, leading to an increased demand for high-tech utilities This trend emphasizes the need for electric construction and installation equipment that excels in quality, aesthetics, and advanced technology, particularly digital innovations As a result, this presents a significant opportunity for construction companies, especially SJE, to capitalize on these developments.
Society has evolved significantly, embracing international integration and transforming human-centered social values to meet the growing demand for spiritual well-being This cultural exchange between Vietnam and other countries is reshaping the social environment, leading to increased spending and enhanced cultural and physical lifestyles Consequently, there is a sharp rise in power consumption during peak hours, yet the supply of electricity remains critically insufficient to meet consumer needs.
Recent job trends in Vietnam indicate a significant transformation in the labor market, shifting from low-productivity agricultural jobs to higher-value industries and services that are increasingly supported by advanced technology and financial investment.
In the power and water construction and installation sectors, SJE places immense importance on attracting and retaining skilled professionals with expertise in electrical work To achieve this, SJE must seize opportunities to motivate and elevate its existing human resources, ensuring a team of talented experts is in place to drive success.
Vietnam's accession to the WTO has created significant opportunities for foreign construction companies to enter the Vietnamese market, leading to intense competition This competitive landscape poses risks for local enterprises, including SJE, which must adopt smart strategies to thrive However, this WTO membership also presents a valuable opportunity for investors, attracting increased foreign investment and interest in Vietnam's construction sector.
2.2.1.2 Industry environment and competition (5-force model) a) Business environment and prospects of the Company
For electric construction and installation fields:
On 18 th March 2016, the Prime Minister promulgated the Decision No 428/2016/QĐ-TTg on approving the National master plan for power development for the 2011-2020 period with vision to 2030 (hereinafter referred to as 7 th Power Plan) to fully satisfy the domestic power demand, produced and imported power and 572-632 billion kWh, respectively, strengthening development of solar power and wind power, etc Accordingly, the Rural, Mountainous Area and Island Enegerization Program is continued launching to ensure that by 2020 most of rural households access to electricity
Select business strategy for SJE
The analysis indicates that SJE is poised for growth and prosperous development, yet its current business strategy reveals several shortcomings that hinder high performance Key issues include limited financial strength compared to industry giants, management experience that does not align with integration trends, and an inconsistent branding approach To address these challenges, strategic tools were utilized to assess SJE's operations, identifying strengths, weaknesses, threats, and external risks, as detailed in the accompanying table.
- O1: Vietnam economy development with high growth rate and stable politics:
- O2: Encouragement of developing small and medium hydropower plant, power industry infrastructure and urban infrastructure
- T2: Every-changing input material supply and price
- O3: Sharply developed science and technology qualification
- T3: Increasingly high and complicated requirements on workmanship
- O4: Low capacity of many power and - T4: Low and non-professional water construction companies training quality in Vietnam
- T5: Bank loan procedure and interest rate
- O6: Powerful globalization - T6: The State’s reduced investment capital of fundamental construction meanwhile the Project Owner’s poor financial potential
- O7: Population density and consumption culture of Vietnamese persons
Government agencies, local authorities and customers
- S2: Human resources - W2: Low chartered capital
- S3: Prestige of enterprise - W3: Ineffective application of procedures and regulations
- S4: Good strategic vision, long term corporate development strategy
- S5: Capacity of plants and equipment
2.3.1 Develop matrix to select business strategy
Table 2.9: SWOT Matrix of SJE
- O1: Vietnam economy development with high growth rate and stable politics
- O2: Encouragement of developing small and medium hydropower plant, power industry infrastructure and urban infrastructure
- O3: Sharply developed qualification of science and technology, especially in the construction fields
- O4: Low capacity of many power and water construction companies
- O7: High population, high population density, consumption culture
- T2: Every-changing input material supply and price
- T3: Increasingly high and complicated requirements on workmanship
- T4: Low training quality in Vietnam
- T5: Bank loan procedure and interest rate
- S1: Good relationship with the Government agencies, clients, suppliers, credit
- S3: Good strategic vision, feasible business development strategy
Market expansion strategy, increase revenue and profit Particularly, expand the market with the competitive strengths,
- Combine S1, S2, S5, S6, S7, S8 with T1, T2: Low cost competition strategy based on human resources, equipment, procedure and development scale
Internal factors well matched with the industry development trends
- S5: Capacity of plants and equipment
Company's chartered capital is not high, the profitability against owner's equity is relatively attractive
- S9: High corporate social responsibility especially in the rural areas
S7 with O3, O6: S&T investment strategy, develop the product with high quality, ensuring the progress, offer good customer service to create the product difference, create the competitive advantages
- Combine S8 with O2, O4, O6, O7: Good financial strategy, mobilize to improve the Company’s financial capacity to ensure the stable and sustainable development
- Combine S1, S2, S3, S4, S6, S7 with T1, T3: Difference-based competition strategy in terms of quality, progress and service
- Combine S1, S4 with T2: Supply source management strategy
- Combine S2 with T1, T3: Design an increasingly developed human resources management strategy
- W3: Ineffective application of procedures and regulations
O1, O2, O3: Avoid price competition, specially focusing on S&T investment strategy to avoid loss on human resources and create the product differences
- Combine W1, W4 with O2, O4: Market expansion strategy to the remote areas where less competition is available
- Combine W1, W4 with T1, T2, T3: Difference-based competition strategy
The SWOT Matrix analysis identifies SJE's strengths, weaknesses, threats, and external risks, guiding the development of effective strategies By leveraging strengths to capitalize on opportunities and addressing weaknesses to mitigate external challenges, the company can enhance its resilience The author recommends a strategic approach that combines strengths with opportunities, strengths with threats, weaknesses with opportunities, and weaknesses with threats to optimize SJE's overall performance and competitiveness.
The market expansion strategy combines strengths such as strong government relationships, high-quality human resources, and a solid reputation in the construction industry with opportunities in high-growth urban areas By addressing weaknesses in financial management and production control, the company can capitalize on market expansion opportunities to boost revenue and profits The strategy focuses on intensively targeting segments where the company excels, particularly in cities with significant socio-economic growth Additionally, by enhancing job prospects in regions with underdeveloped infrastructure, the company can leverage its skilled workforce alongside local talent to effectively tap into these areas' potential, thereby contributing to their development in line with the overarching master plan.
The difference-based competition strategy, formed by combining W1, W4 with T1, T2, and T3, enables the company to establish competitive advantages through superior product quality, efficient implementation, enhanced utility, user performance, and exceptional customer service Currently, many construction companies in Vietnam face challenges such as frequent project delays and subpar workmanship To address these issues, SJE plans to invest in advanced construction techniques, such as balloon-based wiring technology for aerial lines in challenging terrains, ensuring timely delivery, high quality, and aesthetically pleasing technical features, along with excellent customer support Additionally, integrating S1, S3, S5, S6, S7, S8 with T1, T2 or W1, W2 with O1, O2, O3 further reinforces the strategy to differentiate its products in the market.
The low-cost competition strategy, achieved by integrating strengths such as human resources, equipment, and effective management with tactics T1 and T2, allows the company to generate cost savings in response to competitive challenges However, it is important to note that this approach is not SJE's primary strategy, as the company does not aim to engage in low-cost competition with its rivals in the future.
- Supply source management strategy: It is formed from the group combining S1, S4 with T2: Such combination enables the Company to successfully improve the relatively restricted business accounting like now
The human resources management strategy prioritizes the integration of skilled personnel, combining S2 with T1 and T3, to strengthen the Company's foundation for growth By focusing on qualified human resources, the Company aims to address financial and operational limitations while investing in ongoing professional training and development The "Source Personnel Selection" program will identify dedicated individuals who align with the Company's development goals, ensuring that these talented resources emerge as effective managers, thereby enhancing the success of production and business activities across all divisions.
Utilizing SWOT analysis alongside internal and external factors allows for the selection of effective strategic solutions, including target market expansion, differentiation-based competition, low-cost competition, and production development strategies that focus on supply chain management and human resources management.
The selection of strategies begins with the use of the Quantitative Strategic Planning Matrix (QSPM), which enables strategists to assess potential strategies based on established internal and external critical success factors For SJE, the QSPM Matrix is specifically utilized to identify the most effective strategic solutions for the period from 2018 to 2023.
Market expansion Differentiation Low cost
AS TAS AS TAS AS TAS AS TAS
Integrated, stable and developed politics and socio-economics of
Demand of electric construction and installation market
The State policy on developing energy industry
Development of science and technology and technology application in the world
Pressure on increasingly cut-throat competition 0.15 2 0.3 2 0.3 3 0.45 3 0.45 Every-changing input material supply and price
The customer’s increasing high demand on product quality
Change in financial market interest rate 0.03 2 0.06 2 0.06 2 0.06 2 0.06
Production technology, plants and equipment 0.1 3 0.3 3 0.3 3 0.3 3 0.3
Capital mobilization from the stock market 0.05 2 0.1 2 0.1 2 0.1 2 0.1
(AS- Attractive score, TAS- Total attractive score)
QSPM Matrix unveiled that Market Expansion Strategy is given with the highest attractive scores, proving that such business strategy is feasible and deserved to be selected
The market expansion strategy, scoring 6.15, has proven to be the most effective approach for SJE in the current context This strategy was chosen based on its alignment with SJE's objectives and the favorable conditions present in the market today.
- Development potentials of the business fields:
In the construction and installation sectors of power grid and transmission systems, establishing a synchronous infrastructure is crucial for ensuring energy and social security This focus is essential for fostering economic development, particularly within the construction industry and electric installation sector, which has been a longstanding priority for the Party and Government.
The rising power demand leading up to 2023 presents significant opportunities for construction companies, especially SJE, as outlined in the 7th Power Development Plan, which emphasizes the need for substantial investments in power source development and transmission infrastructure.
The power construction sector in industrial parks and urban areas is experiencing significant growth, driven by the development of synchronous technical infrastructure in major provinces and cities across Vietnam With a population nearing 100 million, there is a rising demand for electric construction and installation services to support high-rise buildings and modern apartments This demand is fueled by increasing living standards and the need for high-quality utilities and services in these urban environments.
+ For the construction fields, management and operation of power and water system for constructing the hydropower works and irrigation works: From now to
In 2023, numerous small and medium hydraulic projects are being funded, indicating a submerged demand in the market filled with opportunities for growth As Vietnam transitions from an agriculture-based economy, the Communist Party and Government have prioritized agriculture and rural development for many years This focus has led to increased investment in hydraulic systems, creating significant opportunities for established and experienced enterprises in the sector.
The construction of water supply and drainage systems in industrial parks, urban areas, and high-rise buildings is essential for developing modern urban environments that meet local residents' needs As the demand for improved infrastructure continues to rise, the trend toward synchronized urban development presents significant opportunities for businesses to invest in advanced water supply and drainage solutions.
The industrial production and power sectors are prioritizing investments to ensure stable revenue and cash flow The government has introduced favorable investment policies to encourage enterprises to invest in small and medium hydropower plants, as well as renewable energy sources like solar and wind power These investments are expected to be highly profitable and yield significant economic benefits.