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GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM CAPSTONE PROJECT REPORT BUILDING BUSINESS STRATEGY PERIOD OF 2010 - 2020 CAVICO BRIGDE & TUNNEL CONSTRUCTION JOINT STOCK COMPANY Group Number: 08 Class: GaMBA X0309 Prepared by: HANOI 2010 Ha Son Kim Ngoc Nhan Pham Duc Tu Nguyen Trung Thanh DECLARATION We, the undersigned, hereby declare that this capstone is our own original study, all information and data herein are accuracy sourced and acknowledged We also, would declare that, the analysis herein are summarised and mutual concluded by all group members The analysis and statement provided herein are not by any person individually as a staff who is being served for his organisation Kim Ngoc Nhan Nguyen Trung Thanh Pham Duc Tu Ha Son Page of 54 ACKNOWLEDGEMENTS Firstly, we would like to express our thanks to the lecturers who have been guiding us over the past year studying in the GaMBA program jointed organized by Hanoi National University and Griggs University Secondly, we would like to thank Dr Nguyen Kim Thanh, Dr Nguyen Thi Tuyet Mai who give us valuable comments to help us complete our this capstone Thirdly, we would like to thank our company/organisation managers who give us a chance, time and money maybe to assist us going through the course Finally, we would like to thank CAVICO Bridge & Tunnel has given us a access approaching company business data and kind cooperation in the view of business strategy building Page of 54 TABLE OF CONTENTS ABSTRACT ABBRIVATION .9 CHAPTER 1: THEORETICAL BASIS OF STRATEGY BUILDING 10 CHAPTER 2: STRATEGIC ANALYSIS 20 In order to have a basis to select strategy for company, the attractiveness of market in each segment and competitiveness of company are defined by rating in following tables 2.8 and 2.9 .44 The following figure illustrates the position of company in GE matrix of competitive position in each segment of market tunnel construction as hydropower plant, expressways, city metro underground and mining: 45 Hydropower plant Underground metro 46 Expressways Mining 46 CHAPTER 3: STRATEGIC SELECTION .47 Page of 54 LIST OF FIGURES Figure 1.1 - Strategic Management Procedure Model Figure 1.2 - Macro Analysis PEST Model Figure 1.3 - M Porter Five Forces Model Figure 1.4 - Michael Porter Value Chain Figure 1.5 - SWOT Model Figure 2.1 - CAVICOBT Organisation Chart Figure 2.2 - GE Matrix Page of 54 LIST OF TABLES Table 2.1 - Company Statement of Income Table 2.2 - Impacts by Environmental Macro Economy Table 2.3 - Prediction of Tunnel Construction Market to 2020 Table 2.4 - Comparison of Manpower, Equipment Resource Table 2.5 - Financial Ratios Comparison Table 2.6 - Construction Aspect Comparison Table 2.7 - Internal Resources Competitiveness Page of 54 ABSTRACT The reason of the study: Following the economic growth rate rapidly in recent years, the infrastructural facilities such as transportation systems, energies, etc are special considerate development and improvement And this is still a big demand to continuously promote in the coming years In response to country development, beside the long historical stated construction enterprises, the company holdings which are equitised from stated owned enterprises, also a series of construction companies are established Although, having the similar business operations, however some companies have their own business strategy with different model; some of them have almost the same business scope It therefore, was experienced there were very intensive competition in construction sector CAVICO Bridge & Tunnel is a construction company having business focusing in infrastructures such as construction of bridges and underground works, begin operating since 2002 and has significant remarkably as so far However, company faces up with challenges due to the change of construction market With a desire of practically application of strategic models, the group of authors propose herein the study of strategic building with a topic of: “Building business strategy in period of 2011 – 2020 for CAVICO Bridge & Tunnel” The purpose of study: The study is focus in systemizing business strategy at corporate level, select the effective models Applying strategic modeling analysis in order to select and propose to CAVICO Bridge & Tunnel for above aforementioned period The study outline: Page of 54 It can be seen that since establishment, the company name showing founder’s desires about major business scope which are the construction of bridge & tunnel Under the limitation of time and resources, we would continue study and propose business strategy for company in above scope in period til 2020 The study methodology: The discussion is to be focusing analysis under the secondary data, which is obtained from company and other sources The other data is obtained via interview the relevant persons The report structure The report is organised including the parts as follows: Abstract Chapter 1: Theoretical basis of strategy building Chapter 2: Strategic Analysis Chapter 3: Strategy Selection References Appendices Page of 54 ABBRIVATION CAVICOBT CAVICO Bridge & Tunnel Construction Joint Stock Company SONG DA 10 Song Da 10 Joint Stock Company VINAVICO Underground Construction Joint Stock Company LUNG LO Lung Lo Construction Company MoT Ministry of Transportation BOM Board of Management BOD Board of General Director CEO General Director (Chief Executive Officer) CFO Vice General Director (Chief Financial Officer) in charge of finance PMB Project Management Board GAET Military Industrial Explosives Company MICO Mining Industrial Chemical Corporation Page of 54 CHAPTER 1: THEORETICAL BASIS OF STRATEGY BUILDING In this chapter, research group will deliver theoretical basis of the corporate strategies, the models of the company internal and the external analysis and the analysis techniques which to be used in the below chapter 1.1 Theory of Business Level Strategy Business strategy of the enterprise is all what the enterprises commit and act to help them obtain competitive advantages by exploiting core competencies in the market of specific products Thence, enterprises will provide the customers with corresponding products and services; how to create the products or services and how to provide the products or services to the customers In other words: the targets of the enterprises are customers through whom the enterprises can seek for profits 1.2 The Procedure of Strategy Building In order to create the business strategy, the much information need to be acquired The information need to fulfill the following questions:     What is the current strategy of the company? Is this strategy implicit or explicit? What are theories to maintain the company current strategies? What are happening in terms of environment, society, policy, technology, finance, etc?  What is company size, growth, profitability?  What business activities shall company use to complete in the market?  Which market shall the company complete?  Where shall the company business? and many more relevant questions might be As above mentioned, the company business objectives aiming to customers, particularly the target customers: Who shall buy products? What does customer buy? What is product differentially? In which there are four (04) ways to hold the Page 10 of 54 capital and resource companies, which are entering the this industry to implement the requirements of investors for small water tunnels - The limited financial capability of some Clients causes an significant amount outstanding payment in projects - The exclusive suppliers raise prices without notice and this makes costly to company new sector of transportation, city subways, etc - Use joint reputation to expand market out of Vietnam to Lao, Cambodia, Myanmar Because, the information given recently showing those countries similar with Vietnam in culture, geography and they are in needs to building up their country with developing infrastructures - Negotiate with small size companies and may invest into them and may use them as satellite companies for conduct the minor items in large project - Joint cooperation with smaller size companies to participate in the market segment of small dimension tunnel 2.3.7 GE Matrix In order to have a basis to select strategy for company, the attractiveness of market in each segment and competitiveness of company are defined by rating in following tables 2.8 and 2.9 Table 2.8 The Market Attractiveness Matrix FACTORS Market size Market growth Profit Competitors Capital Suppliers Preferential policies Weight 0.15 0.10 0.15 0.10 0.15 0.05 0.10 HYDRO Rate Score EXPRESSWAYS Rate Score METRO Rate Score MINING Rate Score 0.30 0.30 0.30 3.5 0.53 0.20 0.20 0.20 0.30 0.30 0.30 0.45 0.45 0.20 0.30 0.30 0.30 0.30 0.30 0.30 0.60 0.15 0.15 0.10 0.15 0.30 0.30 0.30 0.20 Page 44 of 54 FACTORS Weight Industrial technology development 0.10 Periodicaly demand 0.10 HYDRO Rate Score EXPRESSWAYS Rate Score METRO Rate Score MINING Rate Score 0.30 0.30 0.30 0.20 0.30 0.30 0.20 0.30 Total 2.35 2.45 2.45 3.03 Where: Importance factor: Attractive point: -1 0-5 Table 2.8 The Competitiveness Position Matrix FACTORS Weight Market share Product quality Trade mark reputation Product price Production technology Production size Marketing ability Customer truth Internal finance ability Total 0.10 0.15 HYDRO Rate Score 0.20 0.45 EXPRESSWAYS Rate Score 1.5 0.15 0.45 METRO Rate Score 1.5 0.15 0.45 MINING Rate Score 0.20 0.45 0.15 0.45 0.30 0.45 0.45 0.10 0.20 0.20 0.20 0.30 0.10 0.20 0.20 0.30 0.40 0.05 0.10 0.15 3 0.15 0.30 0.45 2 0.10 0.20 0.30 3 0.15 0.30 0.45 3 0.15 0.30 0.30 0.10 0.30 0.30 0.30 0.30 1.00 2.70 2.20 2.75 2.85 Where: Importance factor: Competitive point: -1 0-5 The following figure illustrates the position of company in GE matrix of competitive position in each segment of market tunnel construction as hydropower plant, expressways, city metro underground and mining: Strong 5.0 COMPETITIVE POSITION Medium 3.0 Page 45 of 54 Low 1.0 Strong Medium Low MARKET ATTRACTIVENESS 1.0 Figure 2.2 - GE Matrix Hydropower plant Underground metro Expressways Mining Page 46 of 54 CHAPTER 3: STRATEGIC SELECTION 3.1 Strategic Plan 3.1.1 Suggestion of Strategic Plan By analysis the factors: strength, weakness, opportunities, threats, which is summarised in above SWOT matrix, there are some combined strategies proposed as follows: 3.1.1.1 Strategy (WO): Take advantage of opportunities, overcome weakness - Strengthen human resource by recruiting more experienced persons, maybe keep the role as Project Adviser Recruit spare personnel as fresh graduated and keep them onjob training gradually Speed up the execution of current projects, - which would last to 2015 Seeking the chances to cooperate with state owned companies in order to improve financial force and widening the market The cooperation could be in - form of business cooperation, subcontractors, utilising each other capabilities Seeking additional financial sources, maybe can by issuing more shares Since company as public recognised, so that need to speed up procedure of stock listing then share issuance could be done in the stock exchange market 3.1.1.2 Strategy (SO): Use strength and opportunities - Organise the introduction company capabilities: human resource, technology knowledge, etc to new potential Clients from transportation sector, mining - sector for expanding market Looking for the chance to cooperation with state owned company, especially in transportation or mining sectors to create premises to involve in the above said market 3.1.1.3 Strategy (ST): Use strength avoidance of threats - Negotiate with a foreign partners, show them company capabilities, convince them to invest into company in order to utilise their capability of financial, technologies forces Use their trade mark to marketing to new sector of - transportation, city subways, etc Use joint reputation to expand market out of Vietnam to Lao, Cambodia, Myanmar Because, the information given recently showing those countries Page 47 of 54 similar with Vietnam in culture, geography and they are in needs to building up - their country with developing infrastructures Negotiate with small size companies and may invest into them and may use them as satellite companies for conduct the minor items in large project 3.1.1.4 Strategy (WT): - Invite a fame partners, who is international construction company and interest in the developing transportation system in Vietnam such as subways, - transportation mountain pass tunnel to become shareholder of company Joint cooperation with smaller size companies to participate in the market segment of small dimension tunnel 3.1.2 Strategy Choice From above research, considering the strategy in short term to 2015, market still has demands on water tunnel construction for hydroelectric plants Nevertheless, demands on big size tunnels reduce and it can run out of in 2015, some small hydroelectric plants will end during 05 years to 2020 Therefore, the group proposes CAVICOBT should consider applying Strategy (WO) in short term to 2015 and following Strategy (ST) for long term to 2020 Short term period 2011 - 2015: It is visual to realize that the market segment of recent tunnel construction of hydropower plant shall be exhausted while the need of tunnel for mining especially in coal mine of Quang Ninh province is still very huge for the years later as earlier mentioned Company also recorgnises that the current competitors neither have not put their eyes on this market So that, this market of tunnel for mining should be concentrated as target customer Utilise the competitive advantage of experience of NATM (New Austrian Tunneling Method) method in tunnel construction, with strategy of differentiated product, propose to client (VINACUMIN) applying for mine construction in order to obtain the purpose of quality, progress and life of product This is also a client desire, what their recent contractors have not shown up yet Tunnel construction in coalmine is a job what requires a method of strictly technical and safety aspect; it needs a significant investment to technical transfer, technology and saving experience It’s an advantage of thick experience and reputation companies So that, this also a barrier to new entrants Thus, it actually is proven no Page 48 of 54 any company other than affiliates of VINACUMIN involving in this market as so far This market still places on foot of VINACUMIN recently However, due to the pressure of increasing production for nation energy plan, VINACUMIN has to focus almost their effort for production and the construction of mine internal transport tunnel, they wish to outsource With above regard, company has to hold this opportunity, put more investment to expand this market, what is still modest showing in GE matrix above while revenue and profit is bright prospect promised Long term period 2015 - 2020: Analyses in the GE matrix above showing the new market of tunnel for expressways and underground metro is medium attractive due to large capital required It is an easily to recorgnise due to financial source for those projects in such market then the market of tunnel in expressways shall be a play ground of Song Da 10, a company experienced in this job early while underground metro project shall be a cake to foreign contractors who comes from countries funded With advantage of experience in tunnel construction technology of TBM (Tunnel Boring Method), is a only company has utilised this method in Vietnam as so far However, due to barrier of legally, capitally, etc the possibility for company is contracted from owner likely nil So that, company should use strategy of satisfactory of client demand advance In which, company should focus to the potential contractors who comes from funded countries for said projects to show them advantage point of technology application in order to cooperation with them and fulfill them what they need when enter into contract for such above mentioned metro projects In cooperation, company may take incharge of simple items or supply of manpower, material, etc The partners shall be the experienced contractors from Japan, Germany, France, etc It is also known that the market of tunnel construction for hydropower plant in Laos and Cambodia is still potential and developing Song Da 10 is a major competitors in a project which is invested by Vietnam Investors However, the other projects funded by International sources, which are usually contracted to foreign companies coming from funded countries So that, this also a market should consider while cooperation with International contractors Page 49 of 54 To create the difference in supplying services for customers in period after 2015, the company should focus on increasing standard of laborers, reinforcing financial capacity, selecting prestigious foreign partners to meet the conversion of market segment to metro subways construction and potential customers as urban traffic management boards of two big cities Hanoi and Ho Chi Minh Additionally, in order to maintain and grow financial criteria and production scale, the company should cooperate with new companies in line to penetrate small size tunnels 3.2 Strategy Solution In order to achieve the chosen Strategy, company need to execute the following solutions: 3.2.1 Marketing - Looking for the potential project of small dimension tunnel of small - hydropower plant, which normally located in northern and central provinces Marketing company capacities to mining companies, who need the mine development by tunnel - exploitation, such as the companies under VINACOMIN Marketing capabilities to the PMB of the subways projects of Hanoi and Ho Chi Minh city 3.2.2 Human resource - Recruit some young personnel with prosperity to be trained in current projects - of the company Negotiate with some traditional international partners of the company to - appoint personnel study in their projects Train the workmanship of current workers by supplementing knowledge with - reality Enhance the production management work in projects to find out management model for increasing labor productivity 3.2.3 Technology - Study the required technology for new market of subways metro and skytrain 3.2.4 Equipment - Restructure the equipment fleet of the company, so as to matching to requirements of new market Sell out some unused equipment, which is not suitable to requirement of small tunnel size and hire more suitable ones if necessary Page 50 of 54 - Studying the equipment, shall be used in subways metro construction, because this is not any experienced in Vietnam so far 3.2.5 Finance - Increase the charter capital of the company; negotiate with credit organisations - to find more new financial sources for new projects Listing company in stock exchange market Negotiate the investment in a small size company, who is new participating in the tunneling construction 3.2.6 Suppliers, Subcontractors - Seeking new suppliers of products, which may be used later in subways - construction Negotiate with current suppliers in order to reschedule the company debt and ensure supplies quality and timely 3.3 Implementation procedures 3.3.1 Market study - This to be carried out until end of Q1 of 2011 3.3.2 Human resource - Additional recruitment is subject to actual requirement, this to be done in Q1 - yearly Negotiate with foreign partners to send employees to be trained onjob in partner’s job site This is subject to condition of partner’s project, however shall focus on the item is newly with existing projects in Vietnam - Onjob training to be performed from March to April yearly 3.3.3 Technology - Establishment group study tunneling technology in mines, study a specific mine - of VINACOMIN, reports in Q1 of 2011 Establishment of group study construction of subways metro in Hanoi & Ho Chi Minh city, participate in the technical discussion with Clients, this will follow up in 2011 3.3.4 Equipment - Sell out unused equipment and mobilise new suitable ones to be carried out in Q1 & Q2 of 2011 3.3.5 Finance Increase company charter capitals to 120 billion VND, to be ended in Q1 of 2011 Based on roughly estimation, company need about 50 billion more for cover the shortage of financial source due to late payment of Clients for workdone in recent project and new project in 2011 So that, company need to find a new fund from Page 51 of 54 bank in Q3 of 2011 Note: this is just roughly estimation, which could be clearly calculation prior to decision 3.3.6 Suppliers Company need to engage with supplier in the mine industry and metro construction, which could be completed in Q1 & Q2 of 2011 3.4 Suggestion 3.4.1 Suggestions Tunnel construction is a difficult one in construction industry It requires the big investment in technology, equipment and experience That is barriers for new companies having desire to participate in line Therefore, it is considered as advantages of some companies in this area namely SONG DA 10, CAVICOBT, and LUNG LO However, in current period, demands on water tunnels for hydroelectric plants have been gradually narrowed and the needs of subways construction as well as underground mines construction are opening a large market for tunneling From the analysis of competitive advantages, strengths, weaknesses of the company, the group proposes business strategies for the company in section 3.1.2 above Besides, the group also has suggestions as: Some countries in region have potential in hydroelectric as Lao, Myanmar, Cambodia, etc With the thick experience of international relation, CAVICOBT should expand market to above countries The company is operating in tunnel construction Nevertheless, they have not had the engineering for such task This is weakness when participating in lump sum contracts Therefore, the company has to establish a engineering department or have strategic cooperation with profession engineering for this task Taking of advantages of parent company listing in NASDAQ stock market, CAVICOBT should have property internationalisation for foreign companies to enhance the management capacity, technology and market as well as participate in bigger national and international projects 3.4.2 Report Limitations Within context of this capstone, we only focus on studying business operations of the company as tunnel construction Due to the limitation of time, data collected, the report had not shown up the potential business scope as well as potential Page 52 of 54 customer other than in tunneling Therefore, business strategy suggestion is just pointed to the tunnel construction til to 2020, but is not clearly mentioned to others 3.4.2 Proposed Further Research Under the limitation mentioned in above 3.4.2, we would like to suggest BOM, BOD of CAVICOBT should pay investment to study suggestions above with the expanding or changing business area to others and put company to International multi ownership for long term strategy Page 53 of 54 REFERENCES Dr Le The Gioi, Dr Nguyen Thanh Liem, MA Tran Huu Hai, 2009, Strategic Management, 01st edn, Statistics Publishing House, Hanoi Donald E Sexton, 2010, Trump University Marketing 101, Vietnamese 01st edn, Labor Publishing, Hanoi Alexander H, Charles.D.S, 2007, Portable MBA in Marketing, Vietnamese 01st edn, Youth Press, Ho Chi Minh city Approval of National Electric Power Plant 2006 - 2015, consideration to 2020: www.evn.com.vn/Default.aspx?tabid=78&language=vi-VN CAVICOBT, annual report 2009, 2010, financial statement 2008, 2009, 2010 (half year) & company prospectus 2010: www.cavicobt.com VINAVICO, annual report 2009, 2010; financial statement 2008, 2009 & half year 2010; company prospectus 2008: www.vinavico.com/Default.aspx?Tab=72 SONG DA 10, annual report 2009, 2010; financial statement 2008, 2009, half year 2010 & company prospectus 2008: www.songda10.com.vn/? modul=news&lg=1&list=86 Vietnam National Coal Mineral Industries Holding Corporation Limited: www.vinacomin.vn/htx/Vietnamese/default.asp?Newid=8525&tabid=3 PESTLE analysis of the macro environment: www.oup.com/uk/orc/bin/9780199296378/01student/additional/page_12.htm 10 The socio-economic indicators: www.gso.gov.vn 11 City train project of Hanoi: www.thudo.gov.vn/Default.aspx? tabid=443&catid=21&itemid=519 Page 54 of 54 ... express our thanks to the lecturers who have been guiding us over the past year studying in the GaMBA program jointed organized by Hanoi National University and Griggs University Secondly, we would... described as in figure 1.3 Figure 1.3 - M Porter Five Forces Model Page 14 of 54 Source: The Portable MBA in Marketing, Charrles D Schewe & Alexander Hiam 1.3.2.1 Competition of current competitors