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CAPSTONE PROJECT REPORT BUILDING BUSINESS STRATEGY FOR PETROVIETNAM PETROCHEMICAL AND TEXTILE FIBER JOINT STOCK COMPANY - PVTEX 2012 – 2016 GROUP PHAM THI HUONG GIANG BUI QUANG HANH HO TRI DUNG BUI VAN SAO INTRODUCTION CHAPTER 1: THEORITICAL BACKGROUND FOR CORPORATE BUSINESS STRATEGY 1.1 Overview of strategic management and corporate business strategy 1.1.1 Definition and role of strategy 1.1.2 Types of strategies 1.1.3 Strategic management process 1.2 Mission and strategic objectives 1.3 Business environment analysis 1.3.1 External environment analysis 1.3.1.1 General environment analysis 1.3.1.2 Industry environment analysis 1.3.2 Internal environment analysis 1.3.3 SWOT analysis 1.4 Business strategy selection 1.4.1 Listing possible strategies 1.4.2 Selecting optimal strategy 1.5 Implementation 1.5.1 Organizational structure 1.5.2 Roadmap for implementation CHAPTER 2: ANALYSIS OF PVTEX’S BUSINESS STRATEGY 2.1 Introduction of the Company 2.1.1 Establishment and development process of PVTEX 2.1.2 Organizational structure 2.2 PVTEX’s business environment analysis 2.2.1 External environment analysis 2.2.1.1 General environment analysis 2.2.1.2 Industry environment analysis 2.2.2 Internal environment analysis 2.3 SWOT analysis CHAPTER 3: SUGGESTED BUSINESS STRATEGY FOR PVTEX IN 2012 – 2016 PERIOD 3.1 Development orientation of the Company 3.1.1 Vision, mission and core value 3.1.2 Development orientation 3.2 Strategies and selecting optimal business strategy for 2012 – 2016 period 3.2.1 Possible strategies 3.2.2 Selecting optimal strategy 3.3 Strategic solutions 3.3.1 Solutions on technology and product 3.3.2 Solutions on human resources 3.3.3 Solutions on marketing 3.4 Implementation CONCLUSION REFERENCES APPENDIX CHAPTER 1: THEORITICAL BACKGROUND FOR CORPORATE BUSINESS STRATEGY 1.1 Concepts of strategy 1.1.1 Definition and role of strategy: There are many different definitions of strategy, but we can define strategy as follows: strategy is a coordinated series of actions which involve the deployment of resources to which one has access for the achievement of a given purpose Role of strategy - Creating the relation between strengths and weaknesses of an enterprise and the reciprocal relation between external opportunities and threats of the enterprise so as to form its competitive advantage - Helping managers see the opportunities and threats that may happen in current and future business in order to make analysis and forecast on the future market conditions, take full advantage of opportunities, reduce threats, improve the competitiveness of the enterprise, and achieve great success - Helping the enterprise to create better business strategy by using systematic approach, creating the base to enhance the connection and coherence among members in realizing the enterprise’s objectives 1.1.2 Types of strategies - Classification by strategy level +/ Corporate strategy (General strategy) is a development strategy for the enterprise in all lines of businesses that it involves in The objective of this strategy is to set the targets that the enterprise wants to achieve; it is a general view on the entire fields that the enterprise is operating +/ Business strategy (sector): is built for a specific business sector If the enterprise has only one line of the business then this strategy is also considered corporate strategy +/ Functional Strategy: This strategy is considered for separate functions (finance, personnel, marketing, etc.) - Classification by the strategy content Regarding the strategy content, the managers can define strategy in different types: +/ Marketing, commercial strategy +/ Financial strategy +/ Human resource strategy +/ Technological strategy 1.1.3 Strategic management process The business strategic planning is a regular task which requires the involvement of all enterprise’s members It includes following steps: Table 1: Strategic management process (Source: Strategic Management Textbook from Griggs University) 1.2 Mission and strategic objective: - Mission: is to create the foundation for the entire planning of the organization to transfer strategic vision into concrete results that the enterprise has to achieve - Strategic Objective: indicates the orientation of the targets that the enterprise wants to achieve, which can be inferred directly from the functions, but is more specific and clearer, and can be quantified in number: the growth rate, profitability, sales, market share, etc 1.3 Business environment analysis: 1.3.1 External environment analysis External environment includes factors that may affect the implementation of business objectives that enterprise wants to achieve The objective of external environment analysis is to recognize external opportunities and threats to the organization 1.3.1.1 General Environment Analysis: In fact, general environment consists of six groups: Demographic, Economic, Political/legal, Socio-cultural, Technological and Global The changes in the general environment can directly impact any of that force in the industry; therefore, alter the relative strength to other forces and with itself, ultimately alter the attractiveness of an industry Demographic segment: With this factor, we must analyze such criteria as population size, age structure, geographic distribution, ethnic mix, income distribution, etc which can influence the industry or the enterprise Economic segment: While analyzing the economic factors, we need to consider GDP, inflation rate, interest rate, trade deficit or surplus, budget deficit or surplus, personal saving rate, and business saving rate The variation of these factors will affect the enterprise Economic Political - Legal Threat from new entrants Global Supplier power Rivalry Buyer power Threats of substitutes Cultural Social Technological Demographical Figure: External environment (Source: Strategic Management Textbook from Griggs University) Political/legal segment: Legal and political factors can influence the development strategies of the enterprise in different directions They may be opportunities for this enterprise but can be also the threat for other enterprise When considering political/legal factors, we need to consider antitrust laws, taxation laws, decentralization regulations, labor training law, the influence of education policies and trends to enterprises’ operation Socio-cultural segment: For strategic management, socio-cultural factors are sensitive and easy to change Lifestyles themselves rapidly change by following trends of new ways of life, leading to changes in consumer attitudes The educational level is high, resulting in higher requirements on product quality and diversity This is a challenge for manufacturers When analyzing social factors, we need to study issues such as women in the workforce, workforce diversity, attitudes about the quality of work, concerns about the environment, changes in work and career preferences, shifts in product preference regarding the characteristics of products and services Technological segment: Technological factors have much influence on business strategies of enterprises as well as industries It’s the time for technologic development; therefore, the prediction on technological trend is very important for enterprises’ development Changes in technology affect the life cycle of products and services In terms of technological segment, some factors such as product innovation, application of knowledge, focus of private and government – supported R&D expenditures, new communication technologies, etc need to be considered carefully Global segment: Important political events, critical global markets, newly industrialized countries, different cultural and institutional attributes 1.3.1.2 Industry environment analysis The industry environment analysis needs to take into consideration factors directly affecting the enterprise, competitive actions and competitiveness reactions of the enterprise These factors are threat of new entrants, bargaining power of suppliers, bargaining power of buyers, threat of substitute products, and rivalry among competing firms From the analysis of those five factors, the enterprise will identify business opportunities or threats from industry environment to the organization Figure 3: The Five Forces of Competition Model (Source: Strategic Management Textbook from Griggs University) Threat of new entrants: New entrants include enterprises with the ability to become competitive forces in the future The competitiveness of the new entrants is directly related to the entry barriers to the industry Barriers to entry are follows: + Economies of scale: That is marginal improvement in efficiency that a firm experiences as it incrementally increases its size Factors (advantages and disadvantages) related to large- and small-scale entry that is: Flexibility in pricing and market share, costs related to scale economies and competitor retaliation + Product differentiation: Unique products, customer loyalty, products at competitive prices + Capital Requirements: Physical facilities, inventories, marketing activities and availability of capital + Switching Costs: the first time cost that customers have to pay when they buy products from a different supplier Switching costs includes the costs for new equipment, labor retraining and psychological cost of ending a relationship + Access to distribution channels: space for stocking goods, price breaks and cooperative advertising allowances + Cost disadvantages independent of scale: proprietary product technology, favorable access to raw materials and desirable locations + Government policy: Licensing and permit requirements and deregulation of industries + Expected retaliation: Responses by existing competitors may depend on a firm’s present stake in the industry (available business options) Threat of new entrants will increase to existing enterprises if they cannot be able to create big enough entry barriers Bargaining power of suppliers To implement production process, the enterprise often set up business relationships with suppliers of materials and equipment, labor supply, finance, etc These forces also have positive or negative impact on the business strategy The enterprise should pay attention to the negative impact from the suppliers However, these forces can only put pressure on the enterprise in the following cases: + Suppliers are large in scale and few in number + Suitable substitute products are not available + Buyers are small and scattered; and there are many of them + Suppliers’ goods are critical to the buyers’ success in the market + Suppliers’ products create high switching costs + Suppliers pose a threat to integrate forward into buyers’ industry Bargaining power of buyers Buyers (customers) are common noun to designate the people or organizations using products or services of the enterprise In terms of competition, customers often put pressure on the seller when there are favorable conditions The higher the ability of buyers to put pressure, the higher threat the enterprise will face Buyers often put pressure on the enterprise in the following cases + Buyers are large in size and few in number + Buyers purchase a large portion of an industry’s total output + Buyers’ purchases are a significant portion of a supplier’s annual revenues + Buyers’ switching costs are low + Buyers can pose threat to integrate backward into the sellers’ industry + Buyers have full information Threat of substitute products Substitutes are the products of the competitors in the same industry or the products of other industries, but having the same ability to meet the alike needs of customers With the explosion of new technologies, alternative products are increasingly diversified, creating the risk of price competition which will reduce the profit of the enterprise The threat of substitute products increases when: + Buyers face few switching costs + The substitute product’s price is lower + Substitute product’s quality and performance are equal to or greater than the existing product Differentiated products that are appreciated by customers will less likely face this threat Rivalry among competing firms Industry rivalry increases when: + There are numerous or equally powerful competitors + Industry growth slows or declines + There are high fixed costs or high storage costs + There is a lack of differentiation opportunities or low switching costs + When the strategic stakes are high + When high exit barriers prevent competitors from leaving the industry The tasks set for the managers are to be aware of the opportunities and threats brought about by the changes of these five forces to develop adaptation strategies Moreover, it is also the ability of an enterprise through strategic choices, to transfer the power of one or more competitive forces into their advantage 10 requirements on product quality 18 Being favorable when 0.035 0.105 0.14 0.07 0.035 having many suppliers 19 Long-term penetration of 0.04 2 0.08 0.12 0.025 0.075 0.075 0.05 0.025 coming three years 21 Having no substitute and 0.015 0.03 0.03 0.03 0.03 competing products Internal factors 22 Highest invested capital 0.03 0.12 0.09 0.06 0.03 in Vietnam as of 2011 23 Being proactive in 0.03 0.12 0.09 0.06 0.03 0.06 0.06 0.12 0.18 0.24 depreciation 25 Synchronous and modern 0.02 0.06 0.06 0.04 0.02 facilities 26 High value of total assets 0.025 0.1 0.025 0.05 0.08 0.04 foreign suppliers into Vietnam market via the imports of domestic commercial companies 20 Having no project on constructing fiber manufacturing plant in the working capital and preferential conditions for three big banks of Vietnam 24 High expenses for importing raw materials and 0.075 0.075 0.025 2 (land, factories, machine, etc.) 27 Good qualification of 0.05 0.05 0.05 cadres – good foreign language use 53 28 High expense and time 0.02 0.02 0.02 0.02 0.02 for training 29 Great support from 0.01 0.02 0.02 0.02 0.01 0.075 0.015 0.3 0.045 0.225 0.045 0.15 0.045 0.075 0.03 0.015 0.03 2 enterprise 33 Unprofessional marketing 0.075 0.3 0.225 0.225 0.075 staff 34 Dependence on major 0.05 0.2 0.15 0.15 0.1 and marketing 35 Exclusive technology in 0.025 0.1 0.1 0.05 0.05 Vietnam 36 Having no alternative 0.015 0.015 0.045 0.03 0.015 0.01 0.02 technology supply - UIF on training 30 Weak brand 31 Managers have experienced many equivalent positions 32 Suitable management 0.03 0.03 0.03 style to the operation of the agencies in developing brand technology within 4-5 coming years 37 Trend of integrating 0.01 0.03 0.01 industries in petro-chemistry after the five coming years to self manufacture input materials (PTA, MEG) Total 2.675 2.76 2.34 1.895 From QSPM Matrix, it can be seen that: + S/O strategy: market development strategy by joint-venturing with big agencies to penetrate into the market has the total attractiveness score of 2.675 54 + S/T strategy: Product differentiation strategy in concentrated market (differentiation by quality and in Northern market) has the total attractiveness score of 2.76 + W/O strategy: Backward integration strategy has total attractiveness score of 2.34 + W/T strategy: Defensive strategy (only manufacturing when there are orders to minimize general & administrative expenses) has the total attractiveness score of 1.895 From the above results, we select S/T strategy: Product differentiation strategy in concentrated market (differentiation by quality and in Northern market) 3.3 Solutions for strategy implementation 3.3.1 Solutions on technology and product Focusing on two major types of products, namely PSF and POY/DTY By applying the most current modern technology in manufacturing polyester fiber, the plant’s fiber products will have equivalent quality to imported goods of the same type and can change flexibly in terms of patterns, characteristics of each type of product in accordance with customers’ demand The method for packing products according to the technological design standard of the plant is similar to the current prevalent packing standard for imported polyester fiber products, facilitating transportation, preservation and direct use of the plant’s polyester fiber products Using trademark and logo in accordance with the regulations for subsidiaries of Vietnam National Oil and Gas Group to generate customers’ confidence in a prestigious and high-quality trademark 3.3.2 Solutions on human resource management: • Human resource development plan for management division To cadres and staffs of management division, to meet the requirements of current period, PVTEX is establishing a competency model with major criteria as follows: - Scope, responsibility and level of complication of the job title - Professional qualification, competence and skills of the job title 55 - Requirement on experience in the field overtaken by the job title Competency model is an important basis not only in terms of management, but also boosting positive factors in laborers, motivating them to try, take responsibility, be conscientious to the work, observe labor discipline; thus, gradually forming a highqualified staff of engineers who understand the law and be equipped with integration skills Regarding human resource management, the Company has established a recruitment process and revised it year by year based on the reality of project deployment and real demand Based on human resource development plan by year and real demand on human resources of each field, functional departments will cooperate with human resource department to recruit in accordance with the Company’s recruitment process to select the most suitable personnel for the positions • Human resource development plan for Dinh Vu Polyester Fiber Plant - Determining human resource as the center of all aspects – construction, manufacturing and trading Apart from completing regulation on training and recruiting to select the best candidates, the formation of a detailed policy for trainees in training process is also paid attention Specifically, apart from paying appropriate learning allowance with the living standard and commend and reward to trainees with high achievements in learning process, the Company also pays attention to the life and health of trainees by organizing commodities and vehicles; - Polyester fiber manufacturing technology is one of the specific technologies in the world with different copyrights from equipment makers Therefore, to establish a qualified staff to meet requirement on managing, operating and maintaining the plant, PVTEX has paid attention to cooperating with contractor and training institute to establish an overall training program with basic and specific modules for each major with the view to equipping trainees with theoretical background, real operating skills, forming method of thinking, training foreign language and arranging the time of each module in the most appropriate way to help the training progress catch up with the overall progress of the project 56 - Apart from training on theory and practicing operation and maintenance at plants with similar structure, the Company has made plan to invite experienced experts in the field of fiber from universities and polyester manufacturing and trading companies in Vietnam to participating in training The above method has been used to supplement knowledge for trainees on narrower fields and the incidents that may occur in working process at the plant - Attaching importance to on-the-job training to improve actual knowledge for trainees Building internal training process in installing and trying process in which trainees who are engineers, apart from self-learning via the work process with foreign experts, also have the responsibility of guiding and training direct workers at divisions of the plant - Establishing a staff of cadres in charge of training and developing human resources to sufficiently and properly meet the requirement on operating staff having management, evaluation skill and understanding technological processes in the plant; as well as timely giving consultancy for leaders on training and developing human resources in order to form a staff of management, operation and maintenance being capable of meeting high requirements in the Company’s development strategy 3.3.3 Solutions on marketing: Price policy: Selling price of products will base on principle of polyester fiber products with outstanding quality, a prestigious and high-quality trademark and competitive price in domestic market Ensuring competitiveness with imported products and domesticallymanufactured products, while still ensuring expected profit for the Company On principle, forming a suitable price policy for each type of customer in corresponding market segment by geographical distance and transportation expense Proportion of profit and commission for distribution channel and agencies follows the principle of volume of goods sold during a month, polyester fiber consuming season in the year; and has suitable regulations for agencies in the regions 57 for promoting products and expanding the market Policy on discount rate and commission will be determined at each specific period Marketing strategy Market positioning The market positioning of Dinh Vu Polyester Fiber Plant’s products are carried out in accordance with following principles: - Sustaining and developing relation with Vinatex and its member units (Vinatex holds dominating stake); deploying contracts previously signed with PVTEX to consume about 20% - 30% products of Dinh Vu Polyester Fiber Plant (about 35,000 – 50,000 tons/year This group of customers mainly concentrates in the North and the Central - Building and developing a distribution network to supply customers (apart from Vinatex) having direct and indirect demand for PSF short fiber and POY, DTY yarns This group of customers includes weaving, dying, cloth manufacturing, spinning, wool manufacturing, carpet, non-woven cloth companies etc and agencies, private, joint-venture companies, foreign-invested companies, small and mediumsized companies trading polyester fiber This if the biggest group of customers, accounting for about 65 – 80% domestic consumption market This group of customers mainly concentrates in the South - Building and developing a distribution network to supply products to foreign customers who have demand for consuming polyester fiber in the region and in the world - Joint-venturing or investing in 01 or 02 fiber spinning plants to raise Dinh Vu Polyester Fiber Plant’s product value – the basis for proving quality of PSF product and building prestige with customers In the process of conducting trial and operation in 2012, products of the plant are not many with unstable quality; and newly penetrate into the market Therefore, PVTEX only concentrates on selling products in Northern market – the first step for it to participate in domestic market As surveyed, the consumption volume of polyester 58 fiber and yarn in the North is about 23% and polyester fiber and yarn is currently 100% imported However, customers in the North are scattered, non-concentrated and have low capacity Most of them are private enterprises and the number of enterprises under Vinatex only accounts for about 43% In addition, the Company will step by step approach the Central and Southern markets Stage of launching products in the market: In this stage, products access the market and consumption is just trial; therefore, profit is often negative or low because of low consumption and huge distribution and promotion costs Promotion expenses account for the highest proportion in sales because there must be intensive promotion to provide information to potential consumers about the news products and stimulate trial use of products and ensure distribution to end-users As a result, PVTEX will focus on distributing products to agencies that are most willing to purchase products These agencies often have sufficient capacities in the aspects of storage facilities, distribution channels, professional sale staffs, and other bounded relations When new products are launched in the market, the Company can set high or low expenses for each variable of marketing such as price, promotion, distribution and product quality Development stage PVTEX will use some strategies to prolong the sharp growth of the market + Improving quality of products, services; supplementing new features for products; and improving patterns + Supplementing patterns and other supporting products + Penetrating in new market segments + Expanding distribution scale and participating in new distribution channels + Turning from advertising for knowing about products to preferring products + Lowering price to attract buyers who are sensitive following prices Method of distribution: 59 Using mixed distribution channel in the trial operation and commercial operation in 2012 Owing to specific characteristics of consumption market and product quality, PVTEX will build a distribution network and select proper method of distribution to introduce products to customers in the most reasonable method Specifically, PVTEX will establish a distribution network with about - first-class agencies nationwide to launch products to the market in the quickest way via agencies’ capacities such as relation with customers, available distribution channels, storage facilities, professional sale staffs, etc with the purpose of being able to consume about 70-80% products of the plant Besides, PVTEX will directly sell about 5% of products to direct consumers and about 10 -15% for export Domestic customers PVTE X First-class agent Exporter Foreign customers Regarding method of transportation, there are two alternatives: - Products will be transported directly from warehouse of the plant to those of consumers 60 - Products will be gathered to a transitional warehouse of first-class agencies in each region and then distributed to consumers in the region Regarding mode of transportation, there are two alternatives: - Using car-way to directly distribute products of Dinh Vu Polyester Fiber Plant to customers in the North within a short distance of about 50 – 200 km, such as Nam Din, Thai Binh, Hung Yen, Hai Duong, Hanoi, etc - Utilizing favorable conditions in terms of sea port, railway and domestic waterway at Hai Phong to distribute products to the Central, the South and International markets Communication strategy: Communication and promotion strategy covers following contents: - Product promotion strategy: + Advertising and sale promotion: Sending letters of offers/making phone calls to introduce products/services to customers; meeting customers directly to make sale offers Carrying out workshops to introduce products/services to first-class agencies and direct customers + Joining and attending associations or organizations that customers often participate in At present, PVTEX is the vice chairman of the Vietnam Cotton and Spinning Association (VCOSA) Attending trade fairs and workshops with the participation of customers to draw attention and interest of customers to PVTEX’s products + Public relations (PR): Joining events organized by local department of commerce and industry Proactively accessing organizations having relation with the Company Spending time and a certain proportion of budget for social activities + Advertising on the mass media: television, radio, printed newspaper, online newspaper, means of communication using the internet and other public means of communication on the basis of already-made advertising products (films on 61 introducing the enterprise, advertisements of the Company, marketing advertisements, printed newspapers, and e-newspaper) + Direct marketing: promoting the Company’s brand to every direct consuming household by sale and promotion programs, etc - Advertising on the company’s website - Establishing strategic partnership, promotion and market expansion 3.4 Implementation: 3.4.1 Organizational structure: Manufacturing organization structure of the plant is formed under online functional management with two divisions: Management division and manufacturing division The organizational structure is as follows: 62 ORGANIZATIONAL STRUCTURE OF PETROVIETNAM PETROCHEMICAL AND TEXTILE FIBER JOINT STOCK COMPANY SHAREHOLDERS’ MEETING BOARD OF CONTROLLERS BOARD OF MANAGEMENT Board of General Directors GENERAL DIRECTOR Vice General Director in charge of economics planning Planning investme nt Dept Financial accountin g Dept Vice General Director in charge of construction Vice General Director in charge of commerce Business Dept Material supply Dept Office Functional division Human resource & training Dept Constru ction Dept Vice General Director in charge of technology Technol ogical Dept Quality control & HSE Dept Vice general director in charge of production Productio n regulatin g and operating Dept Logistics Dept Maintain ing & repairing Dept Manufacturing division 63 3.4.2 Roadmap for implementation No Strategy Market penetration Product development Market development 2012 2013 2014 2015 2016 CONCLUSION Any business strategies need to be put in specific business environment Each enterprise should improve its own strengths, restrain Weaknesses and at the same time surveys and forecast business environment to make business strategy (long term and short term) No matter how business environment changes, enterprise’s planed strategy can be magnificently affected For stable development, any enterprises in any economic sections have to review their policy to revise the strategies to make it in line with the changes of the market PVTEX also must identify clearly the plans to penetrate in to the integration, cooperation and rival competition world We are sure PVTEX is now in a right direction for moving forward Basing on the theory of strategic management and the analysis from PVTEX, the research shows some strategic proposal for PVTEX up to 2016 Much effort has been taken in the capstone project; however it is unable to avoid the shortcomings Therefore we hope to receive the supporting comment from lecturers, PVTEX top leaders as well as the readers for more practical value of the project We would like to express our sincerely thanks to the lectures, PVTEX top leaders and related departments in PVTEX who give us the knowledge background about business management for us to built this final project Sincerely yours 64 REFERENCES Liam Fahay & Robert M.Randall, “Portable MBA – Strategic Management”, 2009 Fred R David, “Principal of Strategic Management”, HCMC Statistical Publishing House, 2003 Le The Gioi, Nguyen Thanh Liem and Tran Huu Hai, “Strategic Management”, Statistical Publishing House, 2009 Global Advance Textbook of Griggs University “Strategic Management: Concepts and Cases: Competitiveness and Globalization”, Michael Hitt and all, 2010 ; Competitive Strategy: Techniques for Analyzing industries and Competitors, Michael E.Porter, Free Press, 1998 The Five Competitive Forces That Shape Strategy, Michael E.Porter, HBR, 2006 “Business Tactic and Strategy”, D Smith and all, Social and Technical publishing house, 2008 PVTEX’s annual reports 10 PVTEX’s Competitor analysis document 11 Information on social and economic situation of Vietnam on Internet 65