Improving the competitive ability of domestic container transporting companies, vinafco shipping company

I HC M TP. H CHÍ MINH UNIVERSITE OUVERTE DE HCM L’ UNIVERSITEÙ LIBRE DE BRUXELLES ECOLE DE COMMERCE SOLVAY MMVCFB PROGRAMME DE MAITRIES EN MANAGEMENT VIETNAM COMMUNAUTE FRANCAISE DE BELGIQUE TRNH TH M HNH IMPROVING THE COMPETITIVE ABILITY OF DOMESTIC CONTAINER TRANSPORTING COMPANIES, VINAFCO SHIPPING COMPANY MASTER OF MANAGEMENT THESIS GUIDANCE COUNSELOR Ph.D LÊ TN BU Ho Chi Minh City 2007 1 CONTENTS CHAPTER 1: INTRODUCTION 5 1.1 Introduction: 7 1.2 Purpose of the research: 8 1.3 Scope and Limitations of the research: 8 1.4 Methodology: 9 1.5 Organization of the Research: 10 CHAPTER 2: LITERATURE REVIEW ABOUT THE CONTAINERIZED TRANSPORTATION 11 2.1 Definition of services 11 2.2 Characteristics of services 12 2.3 Kinds of container 12 2.4 What is Services Marketing 13 2.5 What is transportation marketing 14 2.6 Structural Analysis of Industry 14 2.7 Competitors Analysis 18 2.8 Marketing strategy 22 2.9 Strategic management process: 23 2.10 Selecting development strategies 24 CHAPTER 3: OVERVIEW OF CURRENT SHIPPING MARKET IN VIETNAM AND ANALYZATION 29 3.1 History of domestics containerized transporting development in Vietnam: 29 3.2 Overview of the domestics containerized transportation fleet: 29 3.3 Comparative advantages of containerized transportation: 32 3.4 Vietnam Economy Review 32 3.4.1 Gross Domestic Product (GDP) 32 3.4.2 Foreign Direct Investment 33 3.5 Political and legal factors 37 3.6 Transportation system supporting the operation of the containerized shipping in HoChiMinh City 38 3.7 Containerization trend 39 3.8 Competitors analysis 40 3.4.1 Existing competitors analysis 41 3.4.2 Threats of new entrants 42 3.4.3 The bargaining power of customers 43 3.4.4 The bargaining power of suppliers 44 CHAPTER 4: ANALYZING THE INTERNAL OPERATION OF VINAFCO SHIPPING COMPANY46 4.1 Introduction of VINAFCO shipping company 46 4.1.1 Mission and vision of VINAFCO shipping company 46 4.1.2 Terminal System 47 4.1.3 Inland Transport To and From the Khanh Hoi Port 47 4.1.4 Support Facilities 48 4.2 Human Resources 48 4.3 Organizational structure 50 4.4 Analysis of Vinafco’ business 50 4.4.1 Market share 51 4.4.2 Turnover analysis 52 4.4.3 Profit analysis 52 4.5 Price policy 53 4.6 SWOT analysis 54 4.6.1 Strengths 54 4.6.2 Weaknesses 55 4.6.3 Opportunities 55 4.6.4 Threats 56 2 CHAPTER 5: SOME SOLUTIONS FOR IMPROVING THE COMPETITIVE ABILITY OF VINAFCO SHIPPING COMPANY 57 5.1 Objectives 57 5.2 Solutions 57 5.2.1 Customer focus 57 5.2.2 Setting particular marketing strategy planning and implementation 58 5.2.3 Closer management of sales-staff 59 5.2.4 Cost Leadership Strategy 59 5.2.5 Human resource development 60 5.2.6 Pricing policy adjustment 62 5.2.7 Other solutions 63 CONCLUSIONS 64 3 LIST OF TABLES Table 1 - Kinds of container 13 Table 2 - The domestics containerized transprotation fleet 30 Table 3 - Market share of the domestics lines 31 Table 4 - GDP growth by year 33 Table 5 - Foreign Direct Investment by country & counted up to 20 December 2005. 34 Table 6 - Rank of Top Commodities domestics transport Y2006 by container with associated value 36 Table 7 - Forecast on containerized transportation development in Vietnam to 2010 36 Table 8 - Forecast on domestics containerized transportation fleet in Viet to 2010 36 Table 9 - Summary of domestic volume of Bisco in the period of 2003-2006 41 Table 10 - Container facilities at Khanh Hoi Port 48 Table 11 - Personnel structure of Vinafco in 2006 49 Table 12 - General business ratios 51 Table 13 - Vinafco’s turnover in 2005-2006 52 Table 14 - Vinafco’s profit in 2005-2006 53 4 LIST OF FIGURES Figure 1 - Industry’s Competitive Forces 18 Figure 2 - The Components of a Competitor Analysis 21 Figure 3 - Critical Dimensions of Strategy 22 Figure 4 - Development Strategies 25 Figure 5 - Type of Business-level strategies 26 Figure 6 - GPD growth year 2000 to year 2005 33 Figure 7 - Top Ten Foreign Direct Investment countries with associated value 35 Figure 8 - Organization structure of Vinafco 50 Figure 9 - Vinafco’s market share of container transportating cargo 51 Figure 10 - Vinafco’s turnover in 2005-2006 52 6 ABBREVIATIONS VINAFCO : Vinafco Shipping Company Ltd. BISCO : Bien Dong Shipping Company TEU : Twenty feet Equivalent Unit FEU : Twenty feet Equivalent Unit WTO : World Trade Organization ASEAN : Association of South East Asia Nation NAFTA : North America Free Trade Area EU : Europe Union APEC : Asia Pacifics Economic Co-operation SWOT : Strengths, Weaknesses, Opportunities, Threats GDP : Gross Domestic Product PC : Personal Computer R&D : Research & Develop WB : World Bank FDI : Foreign Direct Investment AFTA : ASEAN Free Tax Area GMD : Germadept B/L : Bill of Lading CY : Container Yard D-D : Door to Door 7 CHAPTER 1: INTRODUCTION 1.1 Introduction: Following the tendency of globalization, Vietnam opened its economy, attracted foreign investment, joining World Trade Organization (WTO), the North American Free Trade Agreement (NAFTA). There is also the development of other trading blocks like the European Union (EU), the Association of South East Asian Nations (ASEAN), the Asia Pacific Economic Co-operation (APEC), and the growth of Intra Asian Trade. These trade policy initiatives have a common objective to open up new trading opportunities and integrate countries into global economy. Logistics and supply chain management play a vital role in Vietnam’s economic development. Shipping industry in general and containerized transportation in particular plays a very important role in the logistics. It is indispensable in the supply chain management process. With the long history of shipping industry, since 19th century for cargo and passenger transportation and then developed to containerized transportation in late 1950s, until 1990s was domestics containerized transportation’s first appearance in Vietnam. Nowadays proves to be the most economic and safety transportation mode. It now occupies more than 40% of total cargo volume transported nationwide. Nowadays, Vietnam becomes a manufacturing and processing place of many foreign companies due to low labor costs, natural resources and attractive investment environment. Beside that, in the past ten years, Vietnam’s economy has achieved its vision of sustainable and high quality growth of GDP which is around 8% yearly. These elements have raised the transportation demands in the country and this is resulted to fast growth of shipping industry in general and containerized transportation in particular. Currently, there are only 05 domestics shipping lines in Vietnam market. However, most of carriers currently don’t have a specific marketing strategy for the market because: - Domestics transportation is a new market for containerized transportation, furthermore majority of domestics producers are selling under ex-work basic which leave the shipping control to consignee side. 8 - The government is still controlling on maritime transportation, resulted to the uncompetetive market and some self-constraints in carriers’ investment. With the prospect of joining WTO, Vietnam market will be fully open for all service industries including maritime service, carriers will invest heavily in Vietnam and the market supply will increase significantly over the demand. Therefore, an improving the competive ability of carrier for Vietnam local market Vietnam local market is important for carriers’ development. 1.2 Purpose of the research: The objectives of this research are being stated below: • Analyzing the development of the domestics containerized transportation in Vietnam, the situation of the competition between the carrier in order to assess the opportunities and threats for VINAFCO’s development. • Analyzing the current situation of VINAFCO shipping company to find out its strengths and weaknesses, identify its position in the shipping market. • Based on that analysis of external and internal environment, first of all, is to put the knowledge acquired in school into a business practice. Specially, by applying the newest knowledge and methodology in services business, both in terms of strategy setting and working experience, the research aims at finding a proper solutions for VINAFCO shipping Co., 1.3 Scope and Limitations of the research: Shipping is basic process of transporting goods and cargo. Virtually every product ever made, bought, or sold has been affected by shipping. Despite the many variables in shipped products and locations, there are only three basic types of shipments: land, air and sea. Most cargo transport is by sea rather than by air transport because sea transport can be cheaper and less restrictive to size, quantity, weight, and type of freight. Air transport is usually reserved for products which must be sent within a certain time frame. Containerization is an important element of the logistics revolution that changed freight handling in the 20 th century. Containerization revolutionized cargo shipping. 9 Today, approximately 90% of cargo moves by containers stacked on transport ships. As of 2005 some 18 million containers make over 200 million trips per year, there are ships that can carry over 6,000 TEU, and designers are working on freighters capable of 13,000 TEU. This research study focused on the research of VINAFCO shipping company and proposes some solutions for improving competitive ability to 2020. This research can be valuable reference to other domestics shipping lines. This research has the following limitations: • This research has related to investigating economic situation in the domestics containerized transportation that is the hinterland of Vinafco, but it mainly focuses on the containerized transportation in the Southern market. • In assessing the strengths and weaknesses of VINAFCO lines, the research has not examined its financial ability due to difficulties in gaining and assessing data necessary. • Data about the competitors of VINAFCO mainly collected from secondary data, not from those lines themselves. Therefore, the information of these competitors is not sufficient. 1.4 Methodology: This research is completed from methods of statistics, decription, analysis, synthetic, etc and practical figures. Basing on: - The combination of literature guidance - Secondary data analysis. Secondary data obtained from company finance report and shipping line conferences were analyzed in order to have an overview of shipping industry nationwide. - Primary data was collected from direct interview with customers and specialist in this field. Running SPSS program to analyze the data. Transfer the results into comment and conclusion of the correlation between factors. - SWOT analyses method. 10 - Finally, based on all the results acquired from previous steps together with corporation overall solutions for the VINAFCO company is recommended. 1.5 Organization of the Research: The content of this thesis consists of 5 chapters: • Chapter 1: Introduction • Chapter 2: Literature review about the containerized transportation • Chapter 3: Overview of current shipping market in Vietnam and analyzing external environment • Chapter 4: Analyzing the internal operation of VINAFCO shipping company • Chapter 5: Some solutions for improving the competitive ability of VINAFCO shipping company Conclusions [...]... industry, the bargaining power of buyers, the bargaining power of suppliers, the threat of substitute products Porter argues that the stronger each of these forces is, the more limited is the ability of established companies to raise prices and earn greater profits The strength of the five forces may change through time as industry conditions change The task facing managers is to recognize how changes in the. .. issue is that the relative power of buyers and suppliers tends to change over time in respond to changing industry conditions The bargaining power of suppliers: The suppliers can be viewed as a threat when they are able to force up the price that a company must pay for its inputs or reduce the quality of the inputs they supply, 16 thereby depressing the company s profitability On the other hand, if... competitors from entering the industry, since the more companies enter, the more difficult it becomes for established companies to hold their share of the market and to generate profits Thus, a high risk of entry by potential competitors represents the threat to the profitability of established companies On the other hand, if the risk of new entry is low, incumbent companies can take advantage of this opportunity... modernization, specialization the fleet match with the economic development - Shortage of the unified combination in domestics shipping industry - The technical conditions of the fleet are rather fragile, the average of age is high (about 15 years old; only 2 vessels are under 5 years old - The customers are still feel unsafe on the quality of the fleet, specially on the storm season and the North-East monsoon... organization operating, the national environment, and the wider macroenvironment Analyzing the industry environment requires an assessment of the competitive structure of the organization’s industry, including the competitive position of the focal organization and its major rivals, as well as the stage of industry development Analyzing the industry environment also means assessing the impact of globalization... To identify the need of quality and quantity of the transportation - To give the transportation plan - To identify the satisfaction of the transportation needs - To impact actively on the transportation market to increase the need - To analyze the activities of each means of transportation - To identify the transportation cost, freight, service charges and to set the revenue and the profit for each... sole domestics lines, special on the time it separated two domestic containerized transportation company as Van Lang and GMD They operated container vessel on combined between domestic transportation and aboard routes The domestic containerized transportation was not their main business 31 Among smaller carriers, MARINA lines was built from a domestics forwarder In 2006, they operated the domestics containerized... served by the industry being analyzed The existence of close substitutes presents a strong competitive threat, limiting the price a company can charge and thus its profitability However, if a company s products have few close substitutes (that is, if substitutes are a weak competitive force), then, other things being equal, the company has the opportunity to raise prices and earn additional profits Consequently,... they decided to operate the containerized transportation combination with oversea route by 4 vessels were Van Xuan, Van Lang, Phong Chau, Vinaprum Up to now, having 05 domestics lines with approximate 10 vessels Besides the containerized transportation by sea, there is the containerized transportation by land and by rail in the domestics route With containerization, the most common type of marine container. .. will allow an informed prediction of the competitor’s response profile, as articulated in the key questions posed in Figure 2 Future goals The diagnosis of competitors’ goals (and how they will measure themselves against these goals), the first component of competitor analysis, is important for a variety of reason The knowledge of goals will allow predictions about whether or not each competitor is satisfied . TRNH TH M HNH IMPROVING THE COMPETITIVE ABILITY OF DOMESTIC CONTAINER TRANSPORTING COMPANIES, VINAFCO SHIPPING COMPANY MASTER OF MANAGEMENT THESIS GUIDANCE COUNSELOR. 3.4.3 The bargaining power of customers 43 3.4.4 The bargaining power of suppliers 44 CHAPTER 4: ANALYZING THE INTERNAL OPERATION OF VINAFCO SHIPPING COMPANY4 6 4.1 Introduction of VINAFCO shipping. Purpose of the research: The objectives of this research are being stated below: • Analyzing the development of the domestics containerized transportation in Vietnam, the situation of the competition