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CAPSTONE PROJECT REPORT IMPROVING THE BUSINESS STRATEGY OF MECHANICAL EXECUTION CONSTRUCTION JOINT STOCK COMPANY, PERIOD 2020-2025 GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM CAPSTONE PROJECT REPORT IMPROVING THE BUSINESS STRATEGY OF MECHANICAL EXECUTION CONSTRUCTION JOINT STOCK COMPANY, PERIOD 2010-2015 Group No.11: Hoang Hai Chau-Leader Le Van Quan Ngo Vu Thang Nguyen Van Dung Hanoi, 2009 TABLE OF CONTENTS TABLE OF CONTENTS LIST OF TABLES/FIGURES EXECUTIVE SUMMARY PREFACE CHAPTER 1: THEORETICAL BACKGROUND ON COMPETITIVE STRATEGY 1.1 Business strategy overview 1.1.1.Definition of business strategy 1.1.2 Role of business strategy 1.1.3 Strategy hierarchy 1.1.3.1 Corporate Strategy 1.1.3.2 Business Unit Strategy: 1.1.3.3 Operational Strategy: 1.1.4 Strategic planning process 1.2 Environmental Analysis 1.2.1 Macro environmental analysis 1.2.2 Industry environment Analysis 1.2.3 Internal environment Analysis 1.2.4 The synthesis of business environment of enterprise 1.3 Types of competitive strategies 1.3.1 Cost Leadership strategy 1.3.2 Differentiation strategy 13.3 Focus or Niche strategy 1.3.4 A Combination of Generic Strategies 1.3.5 Selecting the optimum strategy 1.4 Strategy formulation and evaluation 1.4.1 Strategy formulation 9 10 11 11 11 11 12 12 14 16 20 27 28 29 30 30 31 31 33 33 34 1.4.2 Strategy evaluation and control CHAPTER II: CURRENT SITUATION OF THE BUSINESS PERFORMANCE OF THE MECHANIZED CONSTRUCTION JOINT STOCK COMPANY 2.1 Company Overview 2.1.1 Historical background 2.1.2 Company name 2.1.3 Head office 2.1.4 Key business domain 2.1.5 Operation model 2.1.6 Quality Control 2.1.7 General Capacity 36 36 36 36 37 37 37 38 38 38 2.1.8 Some economic ratios on business performance 2.1.9 Experience profile 2.2 Current business performance of the Mechanized & Construction Company 2.2.1 The business performance in recent years 2.2.2 Business management 2.2.3 Corporate finance 2.3 External environment analysis 2.3.1 Macro environment analysis 2.3.2 Industry environment analysis 2.4 Internal environment analysis 2.4.1 Strengths 2.4.2 Weaknesses CHAPTER III: IMPROVING THE BUSINESS STRATEGY OF THE MECHANIZED AND CONSTRUCTION JOINT STOCK COMPANY, PERIOD 2010-2015 41 41 42 42 46 49 50 50 55 64 64 65 69 3.1 The mission in period of 2009 - 2015 3.2 Strategic objectives in key business operation to 2015 3.2.1 Construction: 3.2.2 Land and Property: 3.3 Business strategy 3.3.1 Two key business fields 3.3.2 Other business fields: 3.4 Restructuring the company 3.4.1 Changing managagement structure of the mothe company: 3.4.2 Forming of core companies 3.4.3 Role of the mechanized and construction joint stock company 3.5 Building an efficient and transparent management model 3.5.1.Improving the management model and innovating the management and administration style 3.5.2 Building a modern business financial management strategy 3.6 Detailed action plan for development strategy implementation 69 74 74 74 75 75 78 78 78 79 81 82 CONCLUSION 85 87 REFERENCES 82 82 LIST OF TABLES Table 1.1: Marco environmental factors Table 1.2: Simplified SWOT analysis Frame\ Table 1.3: Synthesis of business environment Table 1.4: GREAT Quantitative Matrix Table 2.1: Number of employees by specialization Table 2.2: Key economic ratios Table 2.3: Years of experience by operation Table 2.4: List of investment project Table 2.5: List of some contracts completed in the last years Table 2.6: Structure of revenue by business sectors during 2005 - 2007 and first months of 2008 Table 2.7: Structure of profit before tax during 2005- 2007 LIST OF FIGURES Figure 1.1 Process of Strategic formulation and implementation Figure 1.2: The business environmental factors Figure 1.3: Micheal Porter’s force model Figure 1.4 Competitor analysis Figure 1.5: Resources for business operation Figure 1.6: SWOT Analysis Model Figure 1.7: Micheal Porter’s generic strategies Figure 2.1: The organizational chart of the Mechanized Construction JSC Figure 2.2: Structure of assets Figure 2.3: Structure of Revenue Figure 2.4: Structure of profit Figure 2.5: GDP Growth 2002-2007 Figure 3.1: Organizational chart of the mechanized and construction joint stock company (proposed) EXECUTIVE SUMMARY Mechanized and Construction Joint Stock Company, which initially was the mechanical execution unit founded since 1959 On February 2, 1961, the company was honorably given the "3rd Labor Medal" by President Ho Chi Minh – President of the Democratic Republic of Vietnam Mechanized and Construction Company was found in accordance with the decision No 147A/BXD-TCLĐ dated March 26, 1993 and on December 28,2007 the company was transformed into Mechanized and Construction Joint Stock Company following the Decision No 2075/QĐ-BXD by the Ministry of Construction Together with the development and integration of the country, the Mechanized and Construction Joint Stock Company became one of the biggest companies in the execution of ground and base, industrial and transportation construction, especially constructions which require consolidated base and ground ranging from simple methods such as steel sheet piling, concrete piling to modern methods such as sandy piling, cement piling, With a staffs of managers and engineers with good qualification and experience, equipped with a system of modern execution machineries made in developed countries such as Germany, Japan, Italy… the company has executed many constructions all over the countries and gained the credit of many investors Recently, in the light of market potential and business opportunities, the company has expanded and diversified its business operation, involving in construction projects of infrastructure and urban areas such as 54 Ha Dinh apartment and office building, Que Vo sustainable ecology resort, constructions of urban areas in Xuan Dinh, Tu Liem, Ha Noi, Hon Ro Resort in Nha Trang… In the last few years, Mechanized and Construction Joint Stock Company was proud to be a construction unit which is able to take over big and significant constructions in terms of social, economic and technical features all over the country In order to adapt to the market changes, continue to remain its growth speed and bring into play all its strengths to enhance the company’s development to a new level in the future, the company worked out a strategic vision to 2015 To realize that vision, Mechanized and Construction Joint Stock Company need a suitable business strategy to restructure the company organization, focus on the two spearing business operation which are construction and property trading in an aim to head for a new development level and better business performance At the same time, the company will keep innovating its management style, improving its business administration and developing a long term financial strategy In this study, our group conducted an analysis on the external and internal environment of the company and based on that to formulate a detailed business strategy for the company to 2015 PREFACE Rationale Mechanized and Construction Joint Stock Company, a member company of Hanoi Construction Corporation, was found in 1959 in accordance with the foundation decision No 147A/BXD-TCLĐ dated 26/03/1993 It was transformed from a Mechanized and Construction state enterprise into Mechanized and Construction Joint Stock Company following the decision No 2075/QĐ-BXD dated 28/12/2004 by Ministry of Construction Despite it’s the companying status, Mechanical Execution and Construction Joint Stock Company has become a strong company in construction and execution of ground and base for industrial, civil and transportation constructions In such an economic integration context, the company needs a suitable strategy and development road map, which will improve the management model, restructure the business organization and innovate the management style in order to adapt to the new business environment Research objective The development strategy will aim at achieving the development objectives to 2015 for the company, for which, the strategic planning process should cover following main issues: - Analysis of the current business performance model of the company; - Analysis of Strengths, weaknesses, opportunities and challenges of the company - Analysis of the market and industrial tendencies of the business domain of the company - Proposal of a detailed development strategy for the company in the period of 2010 -2015; 3.Research scope This research is limited to the key business operation of Mechanized and Construction Joint Stock Company and an analysis of industrial trends, a comparison with some typical enterprises in the same industry, which will serve as premises to define a suitable strategy for the Mechanized and Construction Joint Stock Company Research significance This research will give a description on the overall situation of the company, the market development trends, which will help to build a vision and strategic orientation for the company’s development in coming years We hope the research outcomes will be applied in the company’s operation, help to define a good vision with a suitable strategy to be of helpful in practice Research methodology This research will be conducted by following methods: Step 1: Data collection - Documents provided by the Mechanized and Construction Joint Stock Company - Relating references - Practical observation at the company - Direct interview with managers of the company Step 2: Data Analysis - Synthesis and Comparison method : Compare the date of different years for conclusion - Method of induction: Go from small issues to the general conclusion - SWAT analysis: Used to analyze and process the study on business environment, enabling a scientific strategic planning Research structure Chapter 1: Chapter 2: Chapter 3: Theoretical background on competitive strategy Current situation of the business performance of the mechanized construction joint stock company Improving the business strategy of the mechanized and construction joint stock company, period 2010-2015  Serving as the leverage to develop other business field as requested by the Group  Making the right decision and focusing on the key businesses  Reducing usage of capital in investment, increasing the flexibility in realizing new project with high profitability  Strengthening the economy of scales  Attracting domestic and foreign investors who wish to invest in these two business fields of the company  Limiting the investment on non professional fields Strengthen its ownership in company at specialization fields and facilitating the financial flexibility to catch up with important opportunities in specialization businesses 3.3.1.1 Construction The Corporation directly involve in the construction business and plan to transform strong member unit into mother company specializing in construction in order to concentrate the management and consolidate the leading position of the company in Vietnam and reach to regional scale The company have to remain leading position in construction, by which:  Focusing on construction project with large scale and high profitability  Executing construction of all type, among which focusing on two main types which are: civil construction and industrial construction, infrastructure, transportation system, drainage system, bridge and constructions  Installing concrete and steel structure for constructions 75 roads, underground 3.3.1.2 Property business : The company continue to focus on property project and develop infrastructure which bring about higher profit than the construction In medium and long term, the company will push forward its investment in property and infrastructure management to get higher profit, such as:  Investment in urban areas, housing areas, civil areas,  Investment in commercial areas  Investment in entertainment place  Property management  Property services In the property field, the company diretly involves in this field, at the same time, the company also build up strong member companies into mother companies in the corporation which specialized in property to ensure the management concentration and consolidate the company position in Vietnam, and then reach to regional level 3.3.2 Other business fields: Some other business fields of the mechanized and construction joint stock company need to restructure as followed:  The company not involve directly in this fields but invest capital in those as a dominating shareholder or business partner in companies with a key specialization (Ex Industrial production, raw materials, commerce ) to strenthen the core competence of those company and reduce the capital usage 76  Withdraw the dominating stocks from business fields in which the mechanized and construction joint stock company don’t have the comparative advantage  Building the partnership with leading enterprises in retating fields  Withdraw from business field which the mechanized and construction joint stock company have no comparative advantage  Limiting on the capital usage of the mechanized and construction joint stock company, in stead investing in specialization fields 3.4 Restructuring the company Restructuring the company to ensure transparency, efficiency, which help mechanized and construction joint stock company to proactively develop in the future as its innitial ambition Restructuring the company nowadays will be conducted as followed : 3.4.1 Changing managagement structure of the mothe company:  After being successful restructured, the mechanized and construction joint stock company will become a mother company focusing mainly on management and administration function as typical strategic investment companies  The mother company focus on specialization and conduct other management functions such as: Corporate strategy, finance, budget, tax, legal, HR  The Board of director fof different sections (construction, development, investment/management and other fields) will give futher guidlines on the strategy implementation of every individual business sections 77 3.4.2 Forming of core companies Under the mother company, there will be 02 core member companies which specialize in the two main business sectors: construction and property By which, the company will build up corporate structure which is based on business and operation areas Select experienced core enterprises with good business performance in construction, property and other business fields to develop them in to member companies specialize in the certain business or geographic areas By which, the company will continue to keep its dominating stock at these core comanies The mother company confirm and transfer to core companies the technology, assets, brand owned by the company in construction and property and other responding business sectors These transfered capital and production chain can be considered as the captial constribution of the mechanized and construction joint stock company in core companies In details:  Establish 02 main business sections that will be converted in to separate mother companies later on : (i) Construction company (ii) Property company  Restructuring member units so that each unit will focus mainly on a ceritain business and/or remove othe existing businesses or transfer it to other specialization companies  Combining the ownership at member units specializing in construction and designing  In construction company, it will include different divisions which will focus on housing, commercial constructions, civil constructions, infrastructure and urban areas v.v  Using property compnay as a mean to create fund of land  Transfering current construction assets at the mother company to subordinate relating companies specializing in construction or property 78 its After restructuring, the mechanized and construction joint stock company will have new organizational chart as followed: Figure 3.1: Organizational chart of the mechanized and construction joint stock company (proposed) Mechanized and construction joint stock company (Holdings) Construction Member Company Consulting Housing Property Member Company Infrastructure Commerce Investment & fund maagement Trading Urban area development Civil areas 3.4.3 Role of the mechanized and construction joint stock company Becoming mother company of member companies operating in construcion and property The organizational charts, HR structure are simple an flexible The role of the mechanized and construction joint stock company in member companies in business operation including:  Playing general direction role to concentrate on the brand development of the group 79 79  Remaining the tight control, the mother company hold the dominating stock to ensure the strategic orientation of the company is complied and there are no other enterprise outside the busienss is assigned differently from the strategy  Expanding market and business cooperation with domestic and foreign partners  Using prestige, brand, financial potential in searching for big projects of construction and property Some projects are executed directly by the mechanized and construction joint stock company while some others are assigned to the core companies  Providing information on business opportunities, guarantee the companies engagement in projects so that ember companies will directly conduct business operation  Supporting finance for member companies via financial investment or capital lending in accordance with legal regulations The direct investment in projects of which it member companies are investors  Allowing member companies to use the mother company’s brand to participate in business opportunities such as: project investment, products and services provision … 3.5 Building an efficient and transparent management model 3.5.1 Improving the management model and innovating the management and administration style The company improve the management model and innovate the management style as followed: 80 - Developing relationships with member units on the basis of benenfit via concrete contracts, the usage of company brand and the financial regime of both sides - Building small divisions belonging to the management board in order to ensure efficiency of this body - Clearly defining the responsibility and coordination among management board, board of directors, board of supervisory in managing all the company’s activities - Building a system of standards, conditions for member of management board, board of directors, board of supervisory, finanical director, functional directors of the company There are evaluation criteria to evaluate the performance efficiency of the key managing staffs - Establishing, maintaining and developing communication channels among member units and shareholders - Building a transparent management system by digitalizing all the activities of the company - Documentarize all the management activities in all business operations 3.5.2 Building a modern business financial management strategy The company apply a modern business financial management strategy which meet well the new operation model to achieve the strategy as following: - Separate the financial management system and accounting system Setting up the title “Chief Financial Officier” (CFO) of the company who specialize in financial management - Pushing the operation of the company financial management system by following tasks : 81  Analyzing, planning ad forecasting the financial situation of the company  Balancing and arranging capital for all activities of the company  Building the financial policies including long term and yearly plans  Building the constrol system, financial risk management in the whole company  Building the information and reporting system from the mother company to member companies on finance and accounting  Setting up debt control system to manage the debt collection, risk management and re-finance, which are fulfilled via following up the economic contracts, credit contract of the company;  Building the documentary system for accounting and finance in the company  Defining the relationship between the mother companies and members units in terms of accounting and finance  Building internal control policies, risk management by enhancing the role of economic supervisory board  Building a general accounting system for the whole company 3.6 Detailed action plan for development strategy implementation of the company The detailed action plan for development strategy implementation of the machanized and construction joint stock company to 2015 is proposed in following table: Content 2009 2010 2011 82 2012 2012- 2015 Expanding scale Business model Financial strategy Expected revenue structure Strategic cooperation with domestic and foreign partners Strategic cooperation with domestic and foreign partners Expand investment ASEAN countries Expand investment to Asian countries Expand investment to Asian countries Restructuring the company as the strategic development orientation of the company Highly concentrating on construction and property, business specialization Highly concentration Develop strongly construction and property, businesses specialization Minimize number of member units according to the business field Contribute capital in member units Fund mobilizing over the stock market, issuing bonds and other commercial papers Open other mode of fund mobilization in property projects Listing on international market Construction: 37% Property: 55% Financial investment: 8% Fund mobilizing over the stock market, issuing bonds and other commercial papers Open other mode of fund mobilization in property projects Listing on international market Improving the business model, enhancing the professionalism, concentrate resources on key business domains with high profitability Fund mobilizing over the stock market, issuing bonds and other commercial papers Open other mode of fund mobilization in property projects Listing on international market Strategic investors High credit ranking, issuing international bonds and stocks / borrowings Fund mobilizing over the stock market, issuing bonds and other commercial papers Prepare necessities for listing on international market Construction: 62 % Property: 30 %/ Others: 8% Construction: 45% Property: 50% Financial investment: 5% 83 to Construction: 30% Property: 60% Financial investment: 10% Construction: 25% Property: 60% Others: 15% CONCLUSION The development strategy help to define the development orientation and fundamental business objectives of an enterprise, at the same time it proposes implementation solutions including allocation of limited resource of the company in order to achieve those objectives A successful strategy need to go along with both internal and external conditions and context of the company, create a sustainable competitive advantage and improve all the company’s activities The report on “improving the business strategy of the mechanized and construction joint stock company in period 2009-2015” was conducted in an aim to build up a successful business strategy for the mechanized and construction joint stock company in order to realize its vision to 2015 that it will become a strong brand in Vietnam’s construction and property The report include an analysis on business performance of the company over the past and a SWOT analysis on the external and internal business environment of the company and based on that to build up a suitable business strategy for the mechanized and construction joint stock company The report focused on the period of 2009-2015 On the theoretical background and the current development and situation of the mechanized and construction joint stock company, together with the development forecast of the Vietnam’s economy in the future, the project proposed some practical solution for the development orientation of the mechanized and construction joint stock company as followed: 84 - Focusing on specialization business to realize the company vision to become leading company in the region on developing, investing and managing constructions and property - Restructuring the enterprise to make it suitable with the structure model of other construction companies, enabling the tight control over the key business and concentration of resources management to achieve the economy by scale, building a transparent and efficient management which can avoid better risks This restructuring effort will help the mechanized and construction joint stock company to be proactive in future development as initial plan - Building a long term financial management strategy which ensures the sustainable development of the company The report on “improving the business strategy of the mechanized and construction joint stock company in 2009-2015” is an applicable scientific study, which will partly help the management board of the company to have an overview and right thinking in building and selecting a suitable business strategy The research outcomes worked out a clear strategic orientation for the company, which match well with the circumstances of the company The application of this study will help the company to:  Have a clear organizational chart, focusing on key business domain, creating leverage for their development  Control and manage better by increasing the responsibility for each business operation of every member units  Increase the transparency in business management, leading to better awareness by the investors  Have a central financial management and planning system, which enables 85 efficient capital allocation, the conditions for fund allocation and financial management at member unit level is better So, this report proposed a strategic orientation which is suitable for the company according to the research team The application of this study in to practice will ensure the successful development of the company in the future Due to the limitation of time and research conditions and the constraint of our ability, this report will surely have some shortcomings We hope to receive the recommendations and feedbacks from the jury, professors and friends 86 REFERENCES Financial statement of the Mechanized and construction joint stock company, 2005, 2006, 2007 and first months of 2008 The financial statement of the Mechanized and construction joint stock company Duong Ngoc Dung (2008), “Competitive strategy by M Potter’s theory”, General publishing house of HCMC Operation charter of the Mechanized and construction joint stock company Fred R David (2001), “Principles of strategic management”, Statistical Publishing House Garry D Smith et al (1999), “Business Strategy and tactic”, Statistical publishing house; Text book on Competition and Strategy of CMU Regulations on performance of the board of management of the Mechanized and construction joint stock company Regulations on performance of the Board of Director of the Mechanized and construction joint stock company 10 Regulations on the functions and obligations of functional departments in the Mechanized and construction joint stock company 11 References on Internet 87 ... activities aiming at the mobilization of all the possible resources to achieve a defined purpose” (GaMBA, 2009, Text book on strategic management, Strategy Definition, p 1) - “Strategy includes ideas,