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Tiêu đề Strategy Formulation for the Integration of Phumy Thermal Power Plant into Vietnam Competitive Power Market
Tác giả Phan Thi Minh Loan, Nguyen Lan Huong, Nguyen Thi Thu Ha, Hoang Huu Dong
Trường học Griggs University
Chuyên ngành Global Advanced Master of Business Administration
Thể loại capstone project
Năm xuất bản 2009
Thành phố Hanoi
Định dạng
Số trang 145
Dung lượng 1,41 MB

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CAPSTONE PROJECT REPORT STATEGY FORMULATION FOR THE INTEGRATION OF PHUMY THERMAL POWER PLANT INTO VIETNAM COMPETITIVE POWER MARKET GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM CAPSTONE PROJECT REPORT STRATEGY FORMULATION FOR THE INTEGRATION OF PHUMY THERMAL POWER PLANT INTO VIETNAM COMPETITIVE POWER MARKET Group No: Student’s name: Phan Thi Minh Loan Nguyen Lan Huong Nguyen Thi Thu Ha Hoang Huu Dong HANOI, 2009 Acknowledgement We would like to express our deep gratitude and sincere thanks to Center for Educational Technology and Career and all of professors here for all their instructions, valuable guidance and comments We also would like to thank our friends of GEMBA E01 for their help and boundless inspiration We are particular grateful to the Leaders of Electricity of Vietnam for granting scholarship and for support in providing time, information and advice for fulfillment of this study we also wish to thank the Leaders and Colleagues of Power Generation Department and Phumy Power Plant people who have provided with support during conducting this Milestones We also wish to thank all the Lecturers and Administrative staff of Grigg University, Global Advanced Master of Business Administration Program for assistance and kindness throughout the process of MBA program Abstract Previously, power sector in Vietnam is know as monopoly sector and there is no competition All of enterprises operating in this field received the subsidiary and assignment from the Government The growth in power sector is major for purpose of fulfillment of the assignment, but not is driven by the market incentives Recently, in order to expand the power output to meet the increasingly demand of the economy and society, the Government has introduced the power market into the power sector This is regulated by the Law on Electricity 2005 and provided details in the Decision No 26 dated 26 January 2006 (“Decision No 26”) It is actually considered as a restructuring process in power sector, from the state monopoly and vertically integrated model to the competitive market model According to the Decision No 26, in the period from 2009-2015, the single buyer model shall be introduced in which the power generation plants shall compete to each other to supply the energy output to the market This is actually a challenge for EVN’s power plants, who fall in a habit of monopoly mechanism with the whole subsidization from EVN Phu My Thermal Power Plant (“PMTPP”) is not an exception In order to exist and be successful in the power market, it is advisable for PMTPP to carefully prepare an intensive business strategy for the competition This study is intended to provide the recommendations for the formulation of PMTPP’s business strategy for its integration into power market as the road map drawn by the Government By way of applying the theoretical framework on strategy formulation, this study analyzed the situation of PMTPP in transition to power market and made recommendations for its business strategy on integration The suggested strategy for PMTPP is growth strategy with the horizontal integration for core business and related diversification for non-core business It also recommended the cost leadership for integration and cost focus for diversification Table of Contents Strategy Formulation for the integration of Phumy Thermal Power Plant into Vietnam Competitive Power Market .1 Acknowledgement Abstract List of Abbreviations .8 Chapter 1: Introduction 12 1.1 Rationale of the Research Study .12 1.2 Objectives 13 1.3 Methodology .13 1.3.1 Research approach 13 1.3.2 Research Strategy 14 1.3.3 Data Collection 15 1.4 Structure 16 Chapter Theoretical Framework 18 2.1 Strategy and Strategy Management 18 2.2 Strategy Formulation 19 2.3 Diagnoses 20 2.3.1 External environment analysis 20 2.3.1.2 Industrial environment analysis .23 2.3.1.3 Competitor analysis: Strategic Group Mapping 27 2.3.2 Internal environment analysis 28 2.3.2.1 Analysis on sustainable competitive advantages 29 2.3.2.2 Strategic Implementation Analysis 32 2.3.3 Combination of external analysis and internal analysis : 34 2.4 Recommendations 35 2.4.1 Corporate Level Strategy 37 2.4.1.1 Growth Objective and Strategies 37 2.4.1.2 Portfolio Strategy .42 2.4.1.3 Parenting Strategy 43 2.4.2 Business Level Strategy 43 2.4.2.1 Cost leadership 44 2.4.2.2 Differentiation 44 2.4.2.3 Cost Focus .45 2.4.2.4 Differentiation Focus .45 2.4.3 Functional Strategy 46 2.4.4 2.5 Choosing the best strategy alternative 47 Implementation plan 47 2.6 Summary on Strategic Formulation Theory Framework 48 Chapter Analysis Of PMTPP’s Situation In Transition To Power Market .50 3.1 Introduction .50 3.2 The Context of the Power Sector Restructuring Process 53 3.2.1 History of Power Sector Restructuring in the world .54 3.2.1.1 The trend of power sector reform in the world 54 3.2.1.2 The goal of power sector restructuring 57 3.2.1.3 Prerequisites for effective competition 57 3.2.1.4 The specific features of electricity commodity 58 3.2.1.5 Range of market restructuring models .58 3.2.2 The Characteristics of Vietnam Power Market 63 3.2.2.1 The existing structure 63 3.2.2.2 The problems 64 3.2.2.3 Single Buyer Model for 1st phase of power market in Vietnam 68 3.3 Diagnoses and Finding on PMTPP in the context of transition 74 3.3.1 PMTPP’s External Environ ment Analysis 74 3.3.1.1 PMTPP’s Macro Environ ment analysis .75 2.3.2 PMTPP’s Industrial environment analysis 79 3.3.1.3 PMTPP’s Competitors analysis .84 3.3.2 Internal Environment Analysis 87 3.3.2.1 Analysis on sustainable competitive advantages of PMTPP 87 3.2.2.3 Above that enable us to formulate strategy for concretion of PMTPP’s competitive position in the power market 88 3.3.2.2 PMTPP’s Strategic Implementation Analysis 98 3.3.2.2.1 Vision and mission 98 3.3.2.2.2 Corporate, business and functional strategies 98 3.3.2.2.3 Analysis on PMTPP’s Business Performance 99 3.3.3 Combination of Internal and External analysis: SWOT Analysis 105 3.3.3.1 Power Market – Rather Opportunity Than Threat 105 3.3.3.2 Increasingly demand for power – opportunity and liability 106 3.3.3.3 Other gas turbine power plants – Threats but also opportunity 106 3.3.3.4 The Strong Bargaining Power Of Supplier–A Threat Hardly To Mitigate 107 3.3.3.5 ODA Loan-Low Cost But High Risk Of Foreign Exchange Rates 107 3.3.3.6 Gas Turbine Technology – Advantages and Disadvantages .108 3.3.3.7 Salary Policy – Weakening the Competitive Advantage of PMTPP 108 3.3.3.8 Price Determination Mechanism – Possibility of Unfair Competition 109 3.4 Chapter findings 110 Chapter 4: Recommendations on formulation of business strategy for integration of PMTPP into Vietnam Competitive Power Market 111 Chapter 4: Recommendations on formulation of business strategy for integration of PMTPP into Vietnam Competitive Power Market 111 4.1 Vision and Mission Statement 111 4.1.1 Vision .111 4.1.2 Mission 111 4.2 Corporate Level Strategy .111 4.2.1 What should be our growth objectives and strategies? 111 4.2.2 What should be our portfolio strategy? 112 4.3 Business Level Strategy 122 4.3.1 Cost Leadership is selection for Core-Business Strategy 122 4.3.1.1 Technical Solutions 123 4.3.1.2 Financial and Commercial Solutions .125 4.3.2 4.4 Cost Focus Is Selection For Non-Core Business Strategy 129 Functional Strategy 131 4.4.1 Organization Department .131 4.4.2 Planning and Marketing Department: 132 4.4.3 Financial Department 132 4.4.4 Technical Department 133 4.4.5 Human Resource Department 133 4.5 Implementation plan 134 4.5.1 Business objectives of PMTPP 134 4.5.2 Assignments to functional departments in charge and time scale 135 Chapter Conclusion 141 References .143 List of Abbreviations BOT Built- Operation-Transfer ICGM Internal Competitive Generation Market IPP Independent Power Plant SO System Operator JV Joint Venture EOH Equivalent Operation Hour EPC Engineering Procurement Construction EVN Electricity of Vietnam ERAV Electricity Regulation Administration of Vietnam Genco Genenration Company IPP Independent Power Plant MOIT Ministry of Industry and Trade NLDC National Load Dispatch Center ODA Official Development Assistance OEM Original Equipment Manufacturer O&M Operation and Maintenance GSA Gas Supply Agreement PPA Power Purchase Agreement PMTPP Phumy Power Plant SOE State Owned Enterprise WB WorldBank List of Tables Table 1: Relevant situation for different research strategies (Source: Yin, 2003) .14 Table 2: Technial Charactericstics of PMTPP – Source PMTPP .52 Table 3: Indicators of Vietnam electricity upon changing into power market 67 Table 4: Comparison of tarriff by areas in Southest Asian Countries 80 Table 5: Comparison between the power tariff between the Southeast country 80 Table 6: Electricity Production of PMPP vs Total Production of Vietnam (in thousand kWh) .91 Table 7: Production Data of PMTPP during recent three years 99 Table 8: Financial Performance Data over recent three year 100 Table 9: Financial Performance Ratio over recent three year – Own calculation 101 Table 10: Adjustment of the capacity charge in 2008 .104 Table 11: Summary of financial analysis for power augmentation by fogging inlet air 115 Table 12: Estimated cost for maintenance of gas turbine power plan annually 119 Table 13: Estimated cost for maintenance of gas turbine power plan annually .121 Table 14: Demand for foreign currency of PMTPP (unit USD) - Source:PMTPP 125 Table 15: Below is summary for suggestion in business level strategy .130 10 maintenance functionality helps maximize the efficiency of operations and minimize the cost of maintenance 4.3.2 Cost Focus Is Selection For Non-Core Business Strategy Why we choose the cost focus strategy? We choose the strategy because we focus on a small segment of the market, that is several gas turbine power plants in the area If PMTPP not come into this market to provide operation and maintenance service, these power plants shall have the following options, in which, the power plants shall face with particular difficulties: - To engage the arrangement with foreign service provider with the high price and may be higher quality; or - To the service themselves However, this option may cause them some difficulties: one is the quality of the service is not good because lack of experience, the others is the price may not be low because lack of experience, also PMTPP shall be success in the market if it can resolve the said about difficulties, i.e it shall provide the operation and maintenance service with high quality but low price, even lower than local provider This is the reason why we chose the cost focus strategy PMTPP may take the following advantages to implement the cost focus strategy: - Low labor cost in Vietnam; - Existing experienced labor forces of PMTPP; - Low training cost through on-job training; - Quality of management of PMTPP 131 Business Level Strategy Solutions Measures Operation Regime Fuel Type Technical Solutions On-time Maintenance Good Quality of Maintenance Cost Leadership Optimizing Operation Regime for Core-Business Hedging Strategy Financial And Commercial Solutions Gas Supply Agreement Contracts Power Purchase Agreement Long Term Service Agreement Management Technology Low labor cost Cost Focus for Non-Core Business Strategy Existing experienced labor forces of PMTPP Low training cost through on-job training Quality of management of PMTPP Table 15: Below is summary for suggestion in business level strategy 4.4 Functional Strategy The proposed above strategies shall be assigned to different department of PMTPP for implementation The assignment is as follows: 4.4.1 Organization Department In order to integration into power market, the organization of PMTPP need changed Organization department shall be in charge of this assignment with the following tasks: 132 (i) Changing from dependent to independent autonomy: - Policy and Legal Framework Analysis - Proposal preparation - Proposal submission to EVN - Following up the appraisal procedures, any lobbying activity if necessary (ii) Integration into power market: - Policy and Legal Framework Analysis; - Adaptation plan preparation to (i) ensuring production of 90% designed capacity of power plants with highest availability and lowest cost and (ii) to bid the remaining 10% capacity at the maximum output and highest price - Adaptation plant appraised and approved by PMTPP management level; - Plan implementation (iii) Establishment of Maintenance and Operation Center - Feasibility Study and Plan - Appraisal and approval by PMTPP level - Implementation 4.4.2 Planning and Marketing Department: (i) PPA: - Analysis of existing PPA signed by EVN with non-EVN - Design of long-term PPA with two parts: fixed and variable parts TOP mechanism - Submission of PPA for re-negotiation - Lobby activities if necessary 133 (ii) LTSA: - Review all of existing maintenance service agreement - List of long term maintenance activities and the activities need arranged with OEM (iii) - Promotion of signing LTSA with the predetermined price GSA To take analysis on long term solution for the shortage of gas supply 4.4.3 Financial Department (i) Hedging arrangement: - Assessment on demand for foreign currency annually - Looking for the appropriate hedging arrangement available in the financial market (ii) Policy arrangement Capital mobilization - Assessment on capital demand for strategy implementation - Plan for capital mobilization preparation: equitization in accordance with road map approved by the government, debt borrowing from banks - Appraisal and approval of capital mobilization plan by PMTPP management level - Plan implementation (iii) Capital Contribution - Analysis of offer from EVN - Assessment of demand for capital 134 - Plan for contribution preparation - Appraisal and approval by management level - Plan implementation 4.4.4 Technical Department - To carry out the feasibility study on the proposed technical solutions: (i) To ensure the availability of the power plants; (ii) To increase the capacity by technology upgrading and fogging and (iii) To increase the efficiency of power plants - Appraisal and Approval by PMTPP management level - Implementation 4.4.5 Human Resource Department - Appraisal of need for human resource to implement strategy - Plan for employment, training and education, salary and welfare improvement - Appraisal and approval of human resource plan by PMTPP management level 4.5 Plan implementation Implementation plan 4.5.1 Business objectives of PMTPP The strategy as recommended above cannot be implemented in a short term It require the time as well as resources to bring the strategy come to the life Based on the analysis of the resources stated above, we can set below the business objectives to implement the strategy during the year 2009 and 2010 The order of objectives are arranged based on the 135 resources as well as the authority of PMTPP The objectives which is in control of PMTPP shall be implemented first Following are the objective that need to obtain the permissions from the higher authority as well as the availability of the resources The business objective for PMTPP in the year 2009 and 2010: (i) To complete the increase the capacity and the efficiency of the power plants (ii) To compete the hedging arrangement for demand of foreign currencies (ii) To complete the plan for integration into power market (iii) To complete the transformation from dependent to independent (iv) To establish the Operation and Maintenance Center 4.5.2 Assignments to functional departments in charge and time scale (i) To complete the increase the capacity and the efficiency of the power plants No Actions Fogging 1.1 Air FS preparation Dept in charge Supervised by Participated by Time for completion Inlet 1.2 FS 1.3 and approval Implementation Technical Dept appraisal Technical Dept Technical Dept O&M Vice Planning Dept Director Financial Dept Director Operation Dept O&M Director O&M Director 136 Financial Director Vice Operation Dept Financial Dept Feb – 2010 Mar - 2010 Sep – 2010 Upgrading of 2.1 Technology FS preparation Technical Dept 2.2 FS appraisal Technical Dept 2.3 and approval Implementation External Technical Dept O&M Vice Planning Dept Director Financial Dept Director Operation Dept O&M Director O&M 3.2 Report Financial Dept Financial Dept on Financial Dept Financial Vice Planning Dept No Dec – 2009 Director Organization Dept Director Technical Dept Financial and feasibility study (ii) Sep – 2010 of Capacity Analysis offer 3.1 Mar - 2010 Financial Director Vice Operation Dept Director Increase Feb – 2010 Feb - 2010 O&M V- Director To compete the hedging arrangement for demand of foreign currencies Actions Dept in charge Supervised by Participated by Time for completion Assessment of Financial Dept Demand for foreign Financial V- Planning Dept Dec - 2009 Financial Dept Dec - 2009 Director currencies Presentation from the Banks introducing about Director Financial O&M hedging Implementation Approval Vice Technical Dept Director Financial Dept Plan and Planning Dept Financial V- Planning Dept Jan - 2010 Director for Financial Dept Director 137 Financial and Jan – 2010 implementation O&M Vice Director (iii) No To complete the plan for integration into power market Actions Dept in charge Supervised Participated by by Policy and Legal Organization Dept Director Framework Time for completion Financial V-Director Dec - 2009 O&M V- Director Analysis Planning Dept Financial Dept Operation Dept Technical Dept Legal Dept Preparation of Organization Dept Director Adaptation Plan Financial V-Director O&M V- Director 138 Mar - 2010 Planning Dept Financial Dept Operation Dept Technical Dept Legal Dept Reviewed by EVN Organization Dept Director Planning Dept May- 2010 Revision (if neccs.) Organization Dept Director Financial V-Director May– 2010 O&M V- Director Planning Dept Financial Dept Operation Dept Technical Dept Legal Dept Approval for Organization Dept Director implementation Financial V-Director O&M V- Director Planning Dept Financial Dept Operation Dept Technical Dept Legal Dept 139 June– 2010 (iv) To complete the transformation from dependent to independent No Actions Dept in charge Policy and Legal Organization Dept Supervised by Director Participated by Time for Financial V-Director completion Dec - 2009 Framework O&M V- Director Analysis Planning Dept Financial Dept Operation Dept Technical Dept Preparation of Organization Dept Director Proposal to EVN Legal Dept Financial V-Director Mar - 2010 O&M V- Director Planning Dept Financial Dept Operation Dept Technical Dept Reviewed by EVN Organization Dept Director Legal Dept Planning Dept May- 2010 Following up Organization Dept Director Financial Dept May– 2010 Revision of neccs Organization Dept Director Planning Dept July– 2010 Financial Dept Approval for Director EVN implementation Legal Dept O&M Director Financial Director Organization Dept Planning Dept Financial Dept 140 (v) No To establish the Operation and Maintenance Center Actions Feasibility Dept in charge Study Organization Dept Preparation Supervised Participated by Time for by O&M Financial V-Director completion Feb - 2010 Director Planning Dept Financial Dept Operation Dept Technical Dept Legal Dept FS Appraisal and Organization Dept Director Approval HR Dept O&M V-Director Mar - 2010 Financial V-Director O&M V- Director Planning Dept Financial Dept Operation Dept Technical Dept Implementation Organization Dept Plan Preparation O&M Legal Dept O&M V-Director Director Financial V-Director May- 2010 O&M V- Director Planning Dept Financial Dept Operation Dept Technical Dept Approval for Organization Dept Director implementation Chapter Legal Dept Financial V-Director O&M V- Director Conclusion 141 June– 2010 By way of applying the theoretical framework on strategy formulation, we have analyzed the situation of PMTPP in transition to power market and made recommendations for business strategy on integration We have conducted external and internal environment analysis of PMTPP, finding the opportunities and threats as well as the strengths and weaknesses of the company From the diagnoses we attain the following finding: - The power market of Vietnam is very potential However, its competitive rivalry is very strong The competitive features of the market requires that the power plant should have the low production cost and low energy charge to be accepted and to become profitable - PMTPP owns a lot of competitive advantages that suit to the competitive features of the market However, over the years, those competitive advantage of PMTPP are not decisive factors to its profit, in stead, its profit is allocated from its parent company, EVN - Integration into power market is opportunity for PMTPP to get actual profit from its competitive advantages In order to be profitable, the strategy way is to reduce the production cost and energy charge In addition, increase output is also the way to increase its profit Based on such findings, we have developed the business strategy as well as implementation plan for integration of PMTPP to power market We have recommended on the selection of growth strategy as corporate level strategy, cost leadership as business level strategy for core-business and cost focus for business level strategy for non-core business of the company In parallel, we draft the assignment for each functional department of PMTPP for implementation of PMTPP 142 Integration into the competitive power market is actually challenge for all of power plants in Vietnam in general and for PMTPP in particular This is due to the reason that it have to give up the habit of being subsidized by its parent company, EVN This is also due to the fact that the conditions for establishment and operation of competitive power market in Vietnam is not sufficient There is a gap between the policy of Vietnam Government and the practice While the Government desires to introduce the power market with the aim of attraction more investment in power sector as well as of transparency in power tariff, the actual conditions for establishment of competitive power market are not matured Therefore, the business strategy for PMTPP is not only the competitive strategy but more importantly, also the adaptable strategy to the very specific circumstance The power market is recently in the policy, but not in operation actually, our study on the competitive conditions is based in policy drafted by the competent authorities, but not on the actual market survey Accordingly, some of our recommendations should be reviewed carefully and adjusted if necessary when the power market come into operation References 143 Barney, J (1991) Firm Resources and Sustained Competitive Advantage Journal of Management, 17 (1), 99-120 Campbell, D & Craig, T (2005) Organizations and the Business Environment (2nd ed.) Oxford: Downward, P (2003) ‘Applied economics and the critical realist critique.’ Routledge Friend, G & Zehle, S (2004) Guide to Business Planning London: Profile Books Limited Johnson, G., Scholes, K & Whittington, R (2005) Exploring Corporate Strategy (7th ed.) Hunt, M (1972) "Competition in the Major Home Appliance Industry", doctoral dissertation, Harvard University, 1972 Kema Consultant, Vietnam Power Market Design, 2007 Mintzberg, H., Ahlstrand, B & Lampel, J (1998) Strategy Safari Hemel Hemstead: Prentice- Hall Porter, M (1980) Competitive Strategy, Free Press, New York, 1980 Sally Hunt and Graham Shuttleworth, “Market operations in Electric Power Systems”, The Institute of Electrics Engineers, In., New York, 2001 Yin, R (2003) Case study Research Sage Publications EVN Annual Report, 2006, 2007, 2008 PMTPP Annual Report, 2006, 2007, 2008 Monthly reports from NLDC Law on Electricity, 2005, Decision No 26/QD-TTg dated 26 January 2006 144 145 ... their instructions, valuable guidance and comments We also would like to thank our friends of GEMBA E01 for their help and boundless inspiration We are particular grateful to the Leaders of Electricity... Master of Business Administration Program for assistance and kindness throughout the process of MBA program Abstract Previously, power sector in Vietnam is know as monopoly sector and there is... thinking, corporate strategy and competitive advantage 1.4 Structure The study comprises of five (5) chapters as follows: (i) Chapter 1: Introduction In this chapter, we present our rationale of

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