Building business strategy for Hoa Binh PETRO Construction Investment Joint Stock Company in the period of 2013-2017

GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM CAPSTONE PROJECT REPORT BUILDING BUSINESS STRATEGY FOR HOA BINH PETRO CONSTRUCTION INVESTMENT JOIN STOCK CO

GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM

CAPSTONE PROJECT REPORT

BUILDING BUSINESS STRATEGY FOR HOA BINH PETRO CONSTRUCTION INVESTMENT JOIN STOCK COMPANY

IN THE PERIOD OF 2013-2017

Group Number: 04 Student’s name: Nguyen Phuong Thao

Pham Ngoc Tuan Nguyen Huu Tuan

Vu Khanh Vinh

HANOI: 2013

Hoa Binh Petro Construction Investment Join Stock Company

‘Address: 14" floor, HH3 building, My Dinh urban area, Me Tri,

Tu Liem, Ha Noi

http://www pvchoabinh.vn

To Vhom It May Concern:

We, loa Binh Petro Construction Investment Join Stock Company confirm that we agree

the research group including the members mentioned below to be allowed to get access to

the isternal documents, data as well as contact with the operation fact to study about the

Stratgic orientations of Hoa Binh Petro Construction Investment Joint Stock Company

serviig the research purpose of the group to complete the MBA course:

1 Nguyen Phuong Thao

2 Pham Ngoc Tuan

3 Nguyen Huu Tuan

ACKNOWLEDGEMENT

his Capstone Project is the last and most important request of our MBA program

in finance This project focuses on the business strategy management which is integrated with others such as marketing management, human resource management and corporation finance management This project helped us having an occasion to match the knowledge and skills of modern business management from MBA program with the practical situations of the medium firm in Vietnam

To fulfill this project, we would like to express our deep gratitude for the favor Support of Griggs University, Center for Educational Technology and Career Development (ETC) of Hanoi National University and especially to the lecturers who have enthusiastically taught, guided and provided us with the valuable knowledge We sincere thank also to the support and assistance of the leaders and staffs of Hoa Binh Petro Construction Investment Join Stock Company (PVCS) They have spent highly valuable time on organizing surveys, providing data and discussing with us about the relation between the project contents and practical

Situations at the Company; from that, helping to create a close connection between

theory and practice and resulting in a high feasibility in the future

We, Group No 4, would like to receive the continual support of the lectures to help

us completing the course with the highest results Particularly, the support of all PVCS5’s leaders and staffs will be an indispensable motivation for this project coming into the Company’s practice

TABLE OF CONTENT ACKNOWL IEI)GI.MENIT 2222222222 na ""~Tˆ 2

TABLE OF CONTIENT 2222222020 212 121 HH HH HH rung 3

LIST OF FIGURES AND TABL,ES 1 1 112111111111 11 1 1 nha 7

EN TROD GIG THOU nannsbsot nh A H1 4óc sàoee event ng TS 009020990 2041950750861 2894 501000331005 cu se § CHAPTER |: THEORY OF BUILDING BUSINESS STRATEGY FOR

ĐàNbĐ.901S0 5 .Ầ 11 1.1 Definition of strategy and role of strategy building .cccccccceseseeeseeeseees 1] 1.1.1 Definition of strategy ccc cccccccccsccscsccsvsescstsnscatscsevsvavssscsesseescsssevevaveveveees 1] 1.1.2 Role of business strategy .0 cccccccccccccscssescscsestesscecseseeesavatscsesaesceasseveseevsceses 1] 1.2 Process to build business strategy .0 ccccccscsscesssssesesessssssescseaceceesesssesevees 12 1.2.1 External environment analysis .0 0cccccccccecssssssecscsesceseacscsesecsssevsssesevevevevees 12 1.2.2 Internal environment analySis 0 ccccccccscsessesescsessscssscsescsecscsesssesesevevesevees 13 1.3 Support tools for strategy building .0.c.ccccccecccsescsesescsesesesssesevaecssscsescevsveees 14 1.3.1 External Factors Environment matrix (EFE) 0 0 cccccccccscssscssscscsceesseesecesesevees 14 1.3.2 Internal Factors Environment matrix (IFE) c.c cccccccscssssssssssseeessescseseeccseeceess 15 1.3.3 Competitive Profile matrix .0 c.ccccccccscscsssssssesssevssssssstsseststereesstseseavsceseeeeees 16 1.3.4 SWOT mattix oo ec ccececcssesssesscscssessscscscscsussessversesecacarsasararsssssatasstasessveveees 17 1.3.5 QSPM matrix cccecccccccccccsccscsccseevsvevsssessvsvevsusssavscssssassesessussevsvstessasesesevesevees 18 1.4 Key business strategy .ccccccccccccssescssesssscecsesseecscscevssusacscavavsssesecesescsvevevees 20 1.4.1 LOW COSỂ SITA{€BY 2 2 S1 221 n1 HE n1 11 1 1 1 su 20 1.4.2 Product specification strategy - St tt Hx 1 11111211111111 0111011511 E xen rre 20 1.4.3 Centralization strat€gy - -Scc TT 1E E11 1111112111111 112E E12 20 1.4.4 Integrating development strategy .0 c.cccccscccsscsssscscecsestssesesessseseveveseseseevevees 21 1.4.5 Mix€d S(rat€gy S2 HH HH HH HH HH re 21 CHAPTER 2: ANALYSIS BUSINESS ENVIRONMENT OF HOA BINH PETRO

2.1 Introduction of Hoa Binh Petro Construction Investment Join Stock Company 22

2.1.1 Gencral information öE DVCS cu 2 21 HH reo 22 2.1.2 Establishment and developm€IN c1 12111 1 1n 1n Ho 22 2.1.3 Business range and companyˆs orpanizatÏONi cc ca a3 2.1.4 Vision and MiSSion oo cccccccccccccccscscscsesvsvecsevsvevavsvsssesassevavsssevevevesvsvesesececeeees 24 2.2 Analysis external business environment of PVCS s2 Tnhh nhe 24 2.2.1 MacrO €nVITONIIIL 252 2 2 121111111 211111 011111111 TE E1 tt nho 24 2.2.1.1 Political and legal system Ía€tOr - Sàn n n3 1211211111511 neo 24 2.2.1.2 ECOMOMIC fACCOP eee ecccccccsecssesesesesvsvevevssseatesstsessvaasseseserssessvaveeesevevecees 26 2.2.1.3 Technological factor .cccccccccccccccssesesescscsssvevsssesesevssstsevavecesesevsssvevscevevecees 28 2.2.1.4 Social fACtON eee eeecececccccsssssesessescsesvevsvevsvsvetssesstssesssssvevavavesesevsseveveseseseeees 29 2.2.2 Micro environment analySis c.c.ccccccccssseesesssssssescsessessesssesevscevececeveceeees 30 2.2.2.1 Density Of rivals oo ccccccccccssssesssscsessssescsvsussssversesatssstuessssssasstesscsessevssessesees 30 2.2.2.2 Threat of new entrances ccccccccccccessessssessvssesvesessesesssssesessssseevseseeseeveseeee 34 2.2.2.3 Bargaining power Of CUStOMET .cccccccsssseesesssseseescsescecsesssssesacsteesevecesee 35 2.2.2.4 Bargaining power of suppliers ccccccsssesssssssssescssscsssesesesceevereeesecececee 35 2.2.2.5 Threats of subsititute 0 ccccccccscccsssscscscseecsescsescscacsevsvaassvscavscsssssveceereveves 36 2.2.3 Summary opportunities and threats from external evironment to PVCS 37 2.2.4 External Factors evaluation matrix of PVC5 v.cccccccccccssssssssssstssesescscesvecseesevees 38 2.3 Internal environment analysis .0 c.ccccccccsssssscsesesseseeseevecsseseseecssscsseseveseveees 39

2.3.1 PVCS’s valuable Chain .c.ccccccccccccsscsssscsscsesvsseesesessasasssacsestessstesscassseesseseeves 39

2.3.1.2 Supporting aCtiVity cá tt HE 1111112111 10101 1 tre reroo 42 2.3.2 Ability and potentiality of financial factor 2: ¿s22 SsSE2E5 15555555 5E Ee 45 2.3.3 Summary strengths and weaknesses of PVCS5 5.22 2c2Ss S221 E2 ren, 48 2.3.4 Internal Factors Evaluation matrix of PVCS§ 2.2 St St 21221115511 nen 48 CHAPTER 3: CHOOSING BUSINESS STRATEGY AND SOLUTIONS TO

APPLY STRATEGY UNTIIL, 2017 - St E1 1E E513 E51511111552521155 125125511 re 5I 3.1PVCS development objective until 2017 5á s 21212111 515511251 E51 nen 5I 3.2 Choosing business strategy for PVCS 1c S211 1211111121 na 5]

3.3 Solutions to apply business strategy for PVCS cu, 2 22c ng 58 3.3.1 Production SỌUHOH 2222222512121 1n nh HH HH rrrte 58

3.3.2 Human resource strategy oo ccccccccecceccececccececscevevsesevavavassevsescieseseeseveveveeseseeese, 58

3.3.3 Financial SỌULON c1 1 1 1 1 1121 11111111 t HH HH nha 60 3.3.4 Marketing sOlutiOn 2 2c 1 111 1211111811111 trung 61 3.4 Roadmap to apply strategy for PVCS until 2017 s2 2 S25 5 E2 Hee 62 CONCLUSION 2 2022222121212 HH HH HH HH HH HH r tre 64 RIEFERENCES Q.2 2.20221212112212 111101 HH Hee 65

LIST OF ABBREVIATIONS

1 [ADB | Asia Development Bank —ˆ

2 |CM ~=————s Company profile matrix SS

3 |CDM |CleanDevelopment -

13 | QSPM Quantitative Strategic Plan Matrix

| 18 | WTO World Trade Organization

LIST OF FIGURES AND TABLES List of figure

igure 1.1 PETS Model .cccccccccccccccccsssescscssesessessessessavsteesstsavsesavavevssisiesusasesevevevees 12 Figure: 2.2 Michael Porter’s five forces MOdeIS v c.c.ccccescscesecescsesecececececsseseeceveveees 13 Figure 2.1: Organization structure of PVC S 2.22222222222222 2222 nhe neete 23 Figure 2.2: Average GDP of Vietnam from 2005-2012 c.ccccccccscscscscssescssesecceseceeees 27 Figure 2.3: Urbanization trend of Vietnam until 2020 .ccccccccccsecececsecceseevesesvevecees 29 Figure 2.4: Market share for construction of Petro companies .ccccccccsscesceseesesee 3] Figure 3.1 PVCS training process .c.cccccccsscscsssssesesessessssescseseesseseseseseseevssveveveeeeces 59

List of table

Table 1.1: External factor matrix c.c.cccccccccscccsssssescsessssesssecsssesessssssssscaveseeveveeeeeees 15 Table 1.2: Internal factor evaluation matrix (IFE) .cccccccccccccssceccecececececscececececesceees 16 Table 1.3: SWOT' Matrix 5c 2S HT HH TT HH HH He reo 18 Table 1.4: QSPM matrix 2-5 S291 1 E1 1111181111115 55 E21 HH re 19 Table 2.1: Ration of industries to total GDP of Vietnam .cccccccceccscssecsecceceseeeee 26 Table 2.2: Some main business criteria of PVC5 in compare with direct competitors I0 30

Table 2.3: The CPM matrix of PVC5, PVC-MT, PVC-Vinaconex and PVC-HN 33

Table 2.4: Opportunities and threats for PVCS .c.ccccccccssssssecssseseesssesesesessesveveseesees 37 Table 2.5: PVCS External Factors Evaluation Matrix .ccccccccsscscsesssseesesseseesesees 38 Table 2.6: Labor structure of PVCK from 2009-2011 c.ccccccccscsscscsesesessesecseesesseseeees 43 Table 2.7: PVCS’s business operation result in the period of 2009-201 1 45 Table 2.8: Financial ability index Of PVCS .ccccccccccccssscscscsecsesssevevsvsseveveseececevecees 46 Table 2.9: Strengths and weaknesses Of PVCS 0 ccccccescscececesssceccssscssstsesesceveveveeceees 48 Table 2.9: Internal Factors Evaluation matrix of PVCS .ccccccccsccssesescececescssceveccesees 49 Table 3.2: SWOT matrix Of PVCS woocccccccccccceccscsssssesesesestecessevseavscssstsssesesseiteverseveces 53 Table 3.2: QSPM matrix of PVCS Q0 0 220 121 1n HH HH Heo 56 [able 3.3: Financial indexes improvement target from 2013-2017 nh, 61 lable 3.4: Summary of road map to implement business strategies until FY2017 63

INTRODUCTION

1 Necessity of project

In the period of integration, enterprises are facing to not only many big Opportunities to grow and expand their own business but also great deal of challenges To exist and develop enterprise has to build clear orientation and business strategy on the basic of analyzing external environment and internal factors Business strategy will help the company to exploit market’s opportunities

as well as minimize challenges from external environment and limit company’s weaknesses

Deriving from above situation, building business strategy becomes the most crucial to a company Business strategy creates a clear business orientation and guides all departments, employees to company’s general goal then avoids localization and decentralization Business environment change quickly, international competition require company always be active and creative to adapt these changes

In the process of industrialization and modernization, heavy industry in general and metallurgical industry in particular plays an important role in deciding the success of this process PVCS is the biggest company in metallurgical industry and the company has created huge contribution to this process As all other companies, PVCS is also facing to many opportunities and challenges So building business strategy for a particular period becomes the determining factor to company’s expansion and country’s industrialization

Realizing the importance of building business strategy for metal companies

in particular and the whole industry in general, there are many significant projects and studies of domestic and international researchers on this topic Some significant projects are:

Topic: “Vietnamese Construction industry in 2010”, Pham Chi Cuong,

achievements and limitations From these identifications, Vietnamese Construction

industry can limit its weaknesses and promote strengths in production and business

Topic: “Vietnamese Construction industry - A period of develop and converse new policy”, Nozomu Kawabata, Tohoku University, Japan The topic raised out general conclusion about business situation of Vietnamese Construction industry in the context of industrialization, modernization and integration

Both of above topics have significant practical meaning to development of Construction industry, but they are macro research, it needs a more specific and profound project to apply these conclusions to activity of a particular company From above reasons, researchers choose the topic: “Building business strategy for Hoa Binh Petro Construction Investment Join Stock Company” in the period of

2013 to 2017” with the objective of giving out a more specific and profound for building business strategy for the biggest Construction company in Vietnam

2 Purposes of project

Base on practical understanding about Construction industry in general and production and business of PVC5 in particular and knowledge of strategic management subject, the project shown out a comprehensive and clear picture about Strategic building and business of PVCS in Vietnam market Throughout practical analysis of production and business of PVCS in integration, the project affirmed explicitly the role of building business strategy for Vietnamese company in modern time

The project not only stopped at practical analysis but also gave out specific solution for each section in each period for PVCS In chapter 3 the project will show out forecast of Construction market till 2016 These solutions and forecast will also

be guideline for other companies in Construction industry

3 Scope and objective of project

The project analyzes production and business of PVC5 in Vietnam market From this analysis the project concludes suitable strategies to expand business scale

as well as company profit in both short term and long term

Data and information in this capstone project were collected from actual production and business of PVCS in these 5 years The project also gave out some forecasts about Construction market to 2017 and business orientation for PVCS in the period of 2013 to 2017

4 Methodologies

The project is the combination of a great theory “strategic management” on practical business strategy building of a big corporation To be successful in applying this theory on production and business of PVC5, researchers used both qualitative and quantitative method in studying These methods are:

- Collecting and analyzing method

- Comparative analysis method

- Specialist analysis method

- Economic statistic method

The project also uses kinds of models for analyze such as: SWOT matrix,

QSPM matrix, etc

A wide variety of academic researches, market reports, journals are utilized

to bring out the best understanding of the subject The sources of data are listed Clearly in the reference

5 Project’s structure

Besides forewords, conclusion and list of table and abbreviation the capstone

project includes three chapters as following:

Chapter 1: Theory of strategic planning and strategic management

Chapter 2: Analyzing business environment for PVC5

Chapter 3: Choosing business strategy and solution to apply strategy for

PVCS in the period of 2013-2017

CHAPTER 1: THEORY OF BUILDING BUSINESS STRATEGY FOR

to obtain long-term goals; Johnson and Scholes re-defined the strategy in the conditions of the environment with a lot of speedy changes: “Strategy is the direction and scope of an organization over the long-term: which achieves advantages for the organization through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholders expectations” Similarly, there are many more definitions

In short, strategy is the planning of orientation and ways to obtain the

planned targets

Business strategy: Bruce Henderson, a strategist cum the founder of Boston Consulting Groups said that “strategy is a deliberate search for a plan of action that will develop a business competitive advantage and compound it However, the difference between the competitors and you is the foundation of your advantages” Professor Alfred Chandler, Harvard University, said: “Business is the determination

of the basic, long-term goals and objectives of an enterprise; and the adoption of courses of action and the allocation of resources necessary for those goals”

In today’s competitive environment, it can be said that business strategy is create Competitive advantages for the purpose of obtaining business targets in the best ways

1.1.2 Role of business strategy

The strategy management process helps organizations identify their purposes

and directions;

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Strategy management enables administrators to capture and make good use

of the opportunities and minimize the risks involved in the business environment which is always full of changes;

Thanks to the process of strategy management, business will stick to decisions set forth with related environmental conditions

1.2 Process to build business strategy

1.2.1 External environment analysis

Every enterprise exists in a certain environment Its existence and development are much affected by external environment And these effects can be positive or negative Enterprise which wants to exist and develop has to realize the movement of these factors and adjust to be suitable with these factors

Business environment includes economics conditions or macro conditions and industry conditions or demonstration conditions Industry conditions affect to everyday activities of enterprise and economic conditions affect do not affect directly to enterprise’s but this affection is in long run and it can create crossroad in development process of enterprise External conditions which affect to control

strategic management include: micro conditions and macro conditions

Macro environment: When analyzing affection of macro conditions to enterprise’s activities we use P.E.S.T model PEST model studies affection of 4 main factors which affect to enterprise’s activities These factors are: Political, Economic, Social and technological

Source: Strategic Management: Concepts and Cases (12th Edition) Fred R David

Figure 1.1 PETS Model

Microenvironment: They are conditions that tightly concern to enterprise’s

activities Factors of micro conditions will decide investment condition, competitive level, and industry's profit According to Professor Michael Porter micro conditions are affected by five competitive forces it called “Michael Porter’s Five Forces” model Five forces are: The threat of substitute products or services, the threat of the entry of new competitors, the intensity of competitive rivalry, the bargaining power of customers, the bargaining power of suppliers

Threats of New Entrants

Threats of Substitutes

Figure: 2.2 Michael Porter’s five forces models 1.2.2 Internal environment analysis

Enterprise’s ability is one of the most important factors which decide what it can do and whether it can be successful or not To ensure the feasibility of a strategy

we have to evaluate enterprise’s current situation, realize strong points and weak points by that way we can find out its comparative advantages Internal analysis is implemented in these following sides:

Value chain analysis

Valuable chain is the sum of enterprise’s activities which can improve its value Organization’s valuable chain includes these components:

- Primary activities: they are activities which closely connect with company’s products and services For example: purchase and control materials, marketing and after sale services These activities are evaluated to know whether

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they are save cost, increase products’ and services’ quality and satisfy customers’

needs or not The more these activities are highly evaluated, the higher company’s valuable chain is and the company wili have comparative advantage

- Supporting activities: Besides main activities, supporting activities will indirectly influence to company’s products and services Supporting activities will help main activities to be implemented better and more efficient These supporting activities are: human resource management, technology improvement, etc

Financial analysis:

Financial situation and financial indexes are the reflection of efficiency and company’s financial ability Company’s financial situation is not only reflects company’s current ability but also indicates its development ability in future Some indexes which frequently used in financial analysis include: liquidity (current assets/current debt), leverage factors, quick ratio ((current assets -

inventory)/current debt), turnover rate of current assets, indexes indicate profit

ability, etc

1.3 Support tools for strategy building

1.3.1 External Factors Environment matrix (EFE)

External evaluation factor matrix (EFE) helps us summarize and quantify influences of environment to enterprise In order to analyze EFE we also follow five

steps:

Step 1: Making a list of crucial factors to the competitiveness of enterprises

in an industry (usually from 10 to 20 factors)

Step 2: Assigning weight from 0.0 (not important) to 1.0 (most important) for each factor It should be noted, the weight assigned to the factors show relative importance of those for the success of the enterprises in industry Total importance

of factors listed is 1

Step 3: Assigning a rating from | to 4 for each factor (actually point to a wider range) Mark the biggest weakness when sorting by 1, the smallest weakness when sorting by 2, the minimum strength as classified by 3 and biggest strengths When sorting by 4 So, this is the point of reflecting the adaption of enterprise to

threats and opportunities from environment

Step 4: Calculating weighted score for each factor by multiplying the importance of that factor with the corresponding classification scores

Step 5: The total weighted score for all factors in the matrix is given by summing the number of relevant factors of each enterprise

Accordingly, if the total weighted scores of all factors to be included in the IF; matrix are 4, the enterprise’s competitiveness is absolute If it is between 2.50 and above, it shall be absolutely competitive on average In contrast, the total

number of points in the IFE matrix is smaller than 2.50, the absolute

competitiveness of enterprises is lower than average

Table 1.1: External factor matrix

Step 1: Making a list of crucial factors to the competitiveness of enterprises

in an industry (usually from 10 to 20 factors)

Step 2: Assigning weight from 0.0 (not important) to 1.0 (most important) for each factor It should be noted, the weight assigned to the factors show relative importance of those for the success of the enterprises in industry Thus, for enterprises in the industry, the importance of factors listed in step | is the same

Step 3: Assigning a rating from | to 4 to each factor (actually point to a

wider range) Marking the biggest weakness when sorting by 1, the smallest weakness when sorting by 2, the minimum strength as classified by 3 and biggest strengths when sorting by 4 So, this is the point of reflecting competitiveness of each factor in enterprise against rivals’

Step 4: Calculating weighted score for each factor by multiplying the weight

of that factor with the corresponding rating

Step 5: The total weighted score for all factors in the matrix is given by summing the number of relevant factors of each enterprise The total score shows that, this is the absolute competitiveness of enterprises

Accordingly, if the total weighted scores of all factors to be included in the IFE matrix are 4, the enterprise’s competitiveness is absolute If it is between 2.50 and above, it shall be absolutely competitive on average In contrast, the total number of points in the IFE matrix is smaller than 2.50, the absolute competitiveness of enterprises is lower than average

Table 1.2: Internal factor evaluation matrix (IFE)

~ Source: Strategic Management: Concepts and Cases (12th Edition) Fred R David

1.3.3 Competitive Profile matrix

The formulation of this matrix aims at introducing evaluation and comparison between the enterprise and its major competitors in the same industry; the comparison relies on factors that influence on the competitive ability of the

enterprises in the same industry Thanks to that the Managers can understand the

strengths and weaknesses of the enterprises over its competitors, and determine its competitive advantages and make good weaknesses To formulate a competitive profile matrix, we need to implement 05 steps:

Step 1: Set up a list of 10 main factors that have important influences on the competitive abilities of the enterprise in the industry

Step 2: Classify the importance from 0.0 (not important) to 1.0 (very important) for each factor The importance of each factor depends on the influence

of that factor on the competitive ability of the enterprise in the industry Total important score of all factors is equal to 1.0

Step 3: Determine weighted number from | to 4 for each factor; the weight

of each factor depends on the reaction of each enterprise to each factor; in which 4

is the best reaction, 3 is above-medium, 2 is medium and 1 is weak

Step 4: Multiply the importance of each factor with by its weight to

determine the score of each factor

Step 5: Plus the scores of all factors to determine the total score of the matrix

Evaluation: Compare the total score of the enterprise with that of its major competitors in the same industry to evaluate the competitive ability of the enterprise

1.3.4 SWOT matrix

SWOT matrix is a strategic planning method used to evaluate the Strengths, Weaknesses, Opportunities, and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective The technique is credited to Albert Humphrey, who led a convention at Stanford University in the 1960s and 1970s using data from Fortune

500 companies SWOT matrix usually gives out four basic strategies: (1) SO (strength — opportunity): strategies which base on company’s strengths to deploy market’s opportunities (2) WO (weaknesses - opportunities): strategies which base

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on ability of getting through company’s weaknesses — to deploy market’s opportunities.(3) ST (strengths - threats): company’s strategies to avoid market’s threats, (4) WIT (weaknesses- threats): company’s strategies to get through weaknesses and avoid market’s threats

Table 1.3: SWOT Matrix

Strength — Threat (T- S): Prove the strengths to avoid threats

Weakness — Opportunity (O — W): Make good weaknesses to take advantages of opportunities

Weakness — Threat (T — W): Make good weaknesses to avoid threats

1.3.5 QSPM matrix

QSPM matrix is the tool used to re-quantify the information analyzed in the initial stages, allowing managers to select the optimal strategy According to Fred R

David, QSPM matrix includes six basic steps as follows:

Step 1: Listing = major cxternal opportunities/threats and major weaknesses/strengths of the enterprise

Step 2: Assigning weight to each critical internal and external success factor The rating is similar to EFE and IFE matrices

Step 3: Determining strategic alternatives that enterprises should consider implementing

Step 4: Calculating the attractiveness score for each strategy The attractiveness score shows the relative attractiveness of each strategy compared to other strategies The rating ranges from | to 4 (1: not attractive; 2: somewhat attractive, 3: reasonably attractive, and 4: highly attractive)

Step 5: Calculating the total attractiveness score Total attractiveness scores are defined as the product of multiplying the weights (step 2) by the attractiveness scores (step 4) in each row The higher the total attractiveness score, the more

attractive the strategic alternative is

Step 6: Calculating the sum total attractiveness score by adding all total attractiveness scores in each strategy column of the QSPM The higher difference between the sum total attractiveness score in a group of strategy, the more attractive the strategies are

Table 1.4: QSPM matrix

score Strategy Strategy Strategy 3

1.4 Key business strategy

1.4.1 Low cost strategy

low cost strategy aims at the target to become the lowest cost producers with certain quality standard In which, the company will sell its products with industry average’s price to obtain bigger profit and share than competitors

In the case of a “price war” happens, the company still can achieve a certain profit Meanwhile, competitors are all lost Even when there’s a confliction in prices, industry is expanded and price’s down, companies with low production cost still can achieve profit in a long term This strategy is always applied for wide

market

Enterprise can base on some main method to obtain advantage in reducing cost such as: improve productivity, search for big material source with low price, utilize comparative advantages between countries or reduce unnecessary expense If the competitors cannot cut expense at the same level, the company can keep its comparative advantage by leading in cost reduction

1.4.2 Product specification strategy

This is the strategy in which the company aims at developing products and Services with special and unique characteristic These characteristics are highly appreciated by customers, added value of the product specification allow the company set a higher price level than competitors When applying this strategy, the company must evaluate suitable price so that this price gap can cover additional cost

arise in production and distribution Moreover, this additional cost can be

transferred to customers because they cannot find the same product to replace

1.4.3 Centralization strategy

Centralization strategy aims at a narrow market, in which, enterprise tries to

achieve competitive advantage in low cost or product specification by using theory

“the group demand can be better serve by totally focus on this group” Enterprise using this strategy can keep customers’ loyalty This loyalty makes others competitors discouraged and they also do not want to compete directly

Because of focusing on a narrow market, enterprises apply this strategy have lower turnover Then it makes them hard in negotiating with suppliers Anyway, the company can transfer this advantage to customers by setting them a higher price level

Enterprises in centralization strategy can change their advantage in product development so that it is suitable for the market segment that they investigate thoroughly and know clearly One of major risk that created by this strategy is the imitation technology of competitors Moreover, producers with leading cost in a major market can easily compete directly to company using centralization strategy Other company with the same strategy also can attach this market segment to take out a number of customers in this narrow market

1.4.4 Integrating development strategy

Company follows this strategy can find the way to produce material or distribute its products internally Applying integrating development the company can use reverse integration or positive integration, partly or total integration, internal or external integration

Integrating development strategy can help the company reduce its expense and market cost, better quality controlling and utilizing business opportunities and

be active in set up production plan This strategy can be applied for companies which have ability to catch up with opportunities which are suitable for company’s vision

1.4.5 Mixed strategy

A company can apply many different strategies in a period The company can pay much attention to development in this area while cut down in others Those activities aim at implementing successfully the company’s general objective during the strategy implementation period

The strategic choice out of strategies above depends on the company’s capability and related environment factors From the result of analysis of SWOT matrix, the company will choose for itself the best business strategy

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CHAPTER 2: ANALYSIS BUSINESS ENVIRONMENT OF HOA BINH PETRO CONSTRUCTION INVESTMENT JOIN STOCK COMPANY 2.1 Introduction of Hoa Binh Petro Construction Investment Join Stock Company

Charted capital: 105 billion dong

Share holder ration: PVC: 30%, others: 70%

2.1.2 Establishment and development

In 2007, as the Vietnamese economy was in the boom of economic development achievements, especially in the areas of investment, finance,

construction and installation At that time, Song Da Global investment company

(SDG) was established The favorable conditions of this newly established company were financial capacity and the support thoroughly from Song Da Corporation and Petrovietnam Construction Company (PVC), who are the leading companies in the sector After 3 years of operation, Song Da Global investment company renamed to

“Hoa Binh Petro Construction investment join stock company”

From originally only 25 staff members, up to now, the company has more than 300 officers and staffs, who are the managers, architects, engineers, laywers, economic bachlors, skilled workers They directly manage, monitor, executive, work in large investment projects such as: 60 ha ecological and urban Cuu Long ,

50 ha new urban project in Gia Loc, Hai Duong,Province, polyester plant in Dinh

Vu, Hai Phong City, Thai Binh 2 thermal power plant, Petrovietnam college In the engineering, PVCS has support from number of foreign experts, who are well experienced through cooperation or consortium with foreign companies

2.1.3 Business range and company's organization

» Main business activity of PVCS are:

- Construction of technical infrastructure

- Construction of civil and industry

- Production of construction material

” Organization structure

To organize these above business activities, the company has a suitable organization structure to ensure smooth operation The organization is simple but scientific to ensure the cooperation of sections in the company but still ensure the independence and responsibility of each section

Source: Administration section, PVCS

Figure 2.1: Organization structure of PVC5 With above organization structure the company can ensure obtain the management's target and the improvement in living standard of employees

2.1.4 Vision and mission

Vision: PVCS’s vision is becoming the leading business unit of PVC group, dynamic, creative and stable development The company is ready to globalize and catch up with the development demand of market

For shareholders: Ensure the development, create the added profit in investment for stable income of shareholders

For society: Contribute to social welfare and protecting environment to help

to complete the target of building Vietnam to become a developed country

2.2 Analysis external business environment of PVCS

2.2.1 Macro environment

2.2.1.1 Political and legal system factor

Stable political condition is the attractiveness to foreign investors and for development of companies located in Vietnam After 6 years of becoming official

member of WTO, Vietnam is partly applying commitments with WTO’s members

and step by step improving the county’s competitive position in the world market Government also has many policies for improvements of business environment for the target to become modern developed industrial country in 2020 Due to the financial crisis, the Government has some policy to reorganize operation of construction sector and the legal policies which have relationship to operation of PVCS are:

From 08/08/2010 the effectiveness of 71st Edict limits the attendance of speculators to real estate market This decision has two main effects to the operation

of this market In short-term, due to the lack of contribution of these members to

this market, the quick recovery of construction sector is difficult, and the demand of PVCS’s product is not high However, in long-term, the market will have a clear

and explicit environment for operation of inside members, include PVCS

The real estate credit also faced difficulty when Decision No.13 came to effect on 1/10/2010 This Decision mentioned that the risk ration for real estate credit will be 250% This is considered to be new challenge for enterprise in this sector Besides, the rules of State Bank allow Commercial Bank to provide only 30% its capital for long and middle term credit This factor leads to the difficulty in attracting capital from banks for PVCS and company’s customers to invest on construction of infrastructure

Applying the Government Resolution No.11/NQ-CP on 24/2/2011 and the action plan No.1893/Ctr-DKVN in order to get inflation reduction and ensure the stable macro-economic condition, companies in PVC group (include PVCS) has to check and rearrange the investment items to focus on core business activity Projects which were not in priority would be cancelled or delayed in 2011-2012 This Resolution is the chance for PVCS to look through company’s operation but it

is also the challenge when investment for company will face some difficulty

Other laws such as Investment Law, Construction Law and Housing Law

have not much change and they are not much impact to operation of PVCS

The political environment of Vietnam is stable in comparison with others country but the fluctuation of crisis has lead to some adjustment these years and they has some impacts to PVC’s operation The main impacts are:

Opportunities: Vietnamese political condition is stable then the company has suitable environment for development The legal system is improving to have explicit and stable condition for long-term development of PVC5 as well as all company in same sector

Threats: Fluctuation of the world economic lead to some adjustment in state investment in construction and real estate sector then the demand for construction will meet some difficulties and the ability of attract capital for expansion of business will much more strictly in the future

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2.2.1.2 Economic factor

Financial crisis is the remarkable issue in this economic situation From

2007 the financial crisis has impacted to all sectors of economy GDP growth rate decreased from over 8% in 2008 to average 6% from 2009-2011 In 2012 the economy growth rate is forecasted to recover but the rate is still low with estimation number of 6.3%

In 2010, the country economy has recovered, it is more important when the Share of industrial sector has increased to become leading sector of economy In industrial sector, power water oil and construction has high share portion The slow growth rate of construction sector from 9.3% in 2007 to 9.5% in 2010 reflected the slow development speed of PVCS also

Table 2.1: Ratio of industries to total GDP of Vietnam

Unit: USD

835

639

Staustic year book from 2005-2011, forecast for 2012 by Vietnam Economic Study Center

Figure 2.2: GDP per capita of Vietnam from 2005-2012 The increasing of GDP per capita showed the improvement in Vietnamese living standard, then demand for construction of civil as well as industry will increase This is the chance for PVC5 to expand production amount in these years

Beside the recovering trend of the whole economy there is still some major adverse effect such as:

Inflation rate was very high these years, in 2007, inflation rate was 12.75%,

in 2008 was 19.87% and in 2009 this rate was down to 6.52% but it increased to 11.75% in 2010 and to 18.13% in 2011 There are some reasons for this situation such as: Natural disaster, increase in Gold and oil price One of other reason is the inconsistent of macro-economic policy such as monetary policy These factors have much affect to enterprises operation in these years

Lost value of Vietnam Dong and increase of interest rate: in 10 months from 11/2009 to 8/2010, Vietnam State Bank has adjusted the exchange rate between USD and VND three times with total increasing rate 11.17% Interest rate is also increase, in 2010 and 2011 the credit portion from 22-24% for enterprises The race

of interest rate has caused many difficulties for companies in both production operation and management

Summary the impacts of the economic condition to operation of PVCS are:

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Opportunities: The recovering trend of economy and the development of

consumption as well as enterprise is the bright signal for PVC5 to expand its market share and sale in next period Besides the growth of GDP per capita indicated the growth of living standard then the demand for improvement of infrastructure such

as civil and industrial construction will increase in the near future

Threats: The economic crisis and its consequences to economic growth, inflation, and many adjustment policies of Government caused adverse effect to development of all enterprises in Vietnam in general and PVCS in particular The

high rate of inflation leads to reduction of consumption power and lost control in

inventory, cash flow of enterprises Besides, the fluctuation of interest rate also

leads to difficulty in financial control of PVCS

2.2.1.3 Technological factor

Production technology: heavy industry sector has opportunity to expand the investment of both state and private entities, especially the interfering of technology among WTO members help to improve production method The development of technology is the key factor to improve capacity and quality of PVCS products

Information technology: according to the survey in 30 countries (including Vietnam), the report of " Impact of Internet to developing country" showed that: In Vietnam, the development of internet helps small and medium enterprises increase 19% business operation capacity Internet also contributes 0.9% in total GDP and 1.6% in 14.4% GDP growth rate of Vietnam in 2 years The impact of information technology development and investment of Government to this sector helps to improve PVCS improvement and expansion strategy in future

The impact of technological factor to PVCS operation can be seen as below: Opportunities: Development of production technology and information technology help to improve quality of construction work and construction material produced by PVCS The information technology will help to reduce cost of management and increase the efficiency of this activity

Threats) The production technology changes very quickly the company need to update timely to avoid lost the competitive advantage in production and

construction

2.2.1.4 Social factor

Together with the development of country economy, the purchasing power of the whole society 1s also expanded Besides, the urbanization ration is continuously Increasing it means that demand for construction in both public and private sectors increase And the urbanization is predicted to keep its growth rate reaches to nearly 40% in 2020 It is big chance for construction companies in expanding market size The forecast of urbanization ration of Vietnam until 2025 is forecasted as below figure:

40.5%

Source: Ministry of Industrial and Trading report, 2010

Figure 2.3: Urbanization trend of Vietnam until 2020 With the development trend of urbanization and the society mechanism about industrialization and modernization the demand for construction and heavy industry 1s also increase

The second opportunity for PVCS is the trend of industrialization and modernization Vietnamese Government set the target to become developed country

in industry in 2020 then the whole trend of society to upgrading infrastructure for

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both civil and industrial sector is increasing This trend helps to boot up demand for construction and construction material until 2020

2.2.2 Micro environment analysis

2.2.2.1 Density of rivals

With the current characteristics of the construction industry to dominate the market it is involved in the bidding projects that the investor is the State owned and olier organizations and businesses Thus the competitiveness of the construction erterprises in general and PVCS in particular is of finance, equipment and human resource that enterprise can use to create competitive advantage with other enterprises Currently, there are many domestic and foreign enterprises participate

in the construction industry The competition between enterprises in the industry is fiercer and fiercer to meet social needs

For direct competitions, there are some main companies inside and outside

petro sector has common business of petro construction and industrial construction

to be the competitor to PVCS The main direct competitors are:

- Hanoi Petro Construction Development Join Stock company

- Vinaconex PVC Construction Investment Join Stock company

- The Middle Petro Construction Development Join Stock Company

Besides these below companies the direct competitors are also some other outside industry:

The study of operation condition of direct competition, especially the group

of main competitions inside Petro industry is a necessary activity to keep the competition position of PVCS

Table 2.2: Some main business criteria of PVCS in compare with direct

MB ‘Total assets 227.87| 1,106.11 166.47 1,393.48

3 Total revenue 151.95| 764.01 926.22 710.06

4 | Profit | I2 0.14 22 53 3.03

Source: Income report of companies in 2011

From the result of above table we can evaluate the market share for construction of petro construction works and industrial construction for these companies as the following figure:

Source: Income report of companies in 2011

Figure 2.4: Market share for construction of Petro companies

To compare with construction companies in Petro group, PVCS has a very small market share (about 6%), the remain part belongs to other big companies in PVC group The reason for this situation is other companies have longer development history, they passed though many difficulties in market fluctuation and have well awareness about market opportunities and threats This is the chance for PVCS to realize company’s market position and has clear objective in building business strategy

Despite of smaller scale and short historical of development the company’s operation efficiency is quite higher than competitors, it indicated by the ration of profit To compete with competitors the advantages of PVCS are:

» Major construction projects

Besides industrial construction and petro construction works implemented by PVCS to set up market position and prestige PVCS also implemented some other

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big projects such as: Ecological urban area Cuu Long in Luong Son, HOa Binh with the total area 60ha approved by Hoa Binh People’s committee, investment of 1.404 billion dong This is a very big construction work with comprehensive investment for social technical infrastructure to become a new urban area This is a competitive advantage which other companies with same scale is difficult to reach

> Power of human resource

Human resource is the key factor for development of PVCS Company's engineering team are people who graduated from major of construction with long experience on this sector, hard working and correct attitude on daily job and have

desire to attach with the long-term development of PVCS to get through business

challenges and build a powerful PVCS This is the comparative advantage of PVC5

in compare with competitors in same business range Besides, PVCS also has suitable policy to train and improve quality of human resource as company's asset

> Financial ability

Although the company has just established but the company's financial ability is strong with the profit 1.1 billion dong in 2011 This is a high amount in compare with other companies in the industry Besides, PVC5 chose some prestige banks to provide capital for construction works implemented by PVCS such as BIDV, MB These banks can keep the schedule on providing capital for company's construction projects PVCS always makes on time payment for contractors with the active in financial ability as contract Then the investors can believe to invest on PVCS