Buiding the business strategy of Hoàng Anh Gia lai joint - stock company

Rate of using fixed assets = Sales Revenue / Fixed assets - Rate of using total assets : indicates how much revenue is created if 1VND is invested in business and production.. It is calc

GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM

CAPSTONE PROJECT REPORT

BUIDING THE BUSINESS STRATEGY OF

HOANG ANH GIA LAI JOINT-STOCK COMPANY

Group No.: 7

Student’s name:

1 Cuong Nguyen Quang (C)

2 Khanh Phan Doan

3 Phuong Nguyen Van

4 Quyen Le Ba

HO CHI MINH CITY, 2009

THANKS AND PLEDGES

First of all, we, all members of group 7, class GeMBA01.E04 have an honour to give our gratitudeS for:

- PhD John Vong and PhD Hoang Lam Tinh who have provided knowledge of strategic management for us

- Lecturers of subject Strategic Management – University of Griggs in Vietnam who have guided and advised us for completing te contents of our project

- All Lectures of Global advanced Master of Business Administration Programme - University of Griggs have enthusiastically transmitted necessary knowledges for us, which creates a base for us to complete our project

- Board of Leaders, functional offices and subsidiaries of Hoang Anh Gia Lai stock Company who have helped and advised us during the time of researching for project completion

Joint Managing cadres of class GeMBA01.E04 who have enthusiastically supported for

us during the time of studying and researching for project

- Electric Power College of Hochiminh City who has supported us with the studying place and related equippments, and fully served us during the time of studying

Secondly, we pledge that this project has been researched and written by group 7, subject Strategic Management In this projects, we have used some projects as references which are indicated in References at the back

Your faithfully,

Group 7, Subject Strategic Management

CLASS GEMBA01.E04

CONTENTS IN FULL

CONTENTS IN FULL 2

LIST OF DATA TABLES 4

GENERAL INTRODUCTION 5

1 General situation of the project 5

2 The necessity and significance of the research: 5

3 Researching Aims: 7

4 Implementing Methods: 8

5 Structure of the project: 9

Chapter I: PHYLOSOPHY BASE 10

1.1 AN OVERVIEW OF THE BUSINESS STRATEGY 10

1.1.1 Conceptions of business strategy: 10

1.1.2 Classification of business strategy 10

1.1.2.1 Pursuance to strategic scope 10

1.1.2.2 Pursuance to nature of trategy 11

1.1.2.3 Pursuance to level of strategy 11

1.1.3 Strategies of business units 11

1.2 PROCESS OF STRATEGY PLANNING 12

1.2.1 Defination of a goal 13

1.2.2 Analysis of external environment and internal situation 13

1.2.2.1 Macro-environment 14

1.2.2.2 Micro-environment 14

1.2.2.3 Matrix of external factor assessment 16

1.2.3 Internal Environment 17

1.2.3.1 Input supply activities 19

1.2.3.2 Producing Operation 19

1.2.3.3 Output activities 19

1.2.3.4 Marketing and sale 19

1.2.3.5 Post buying service 19

1.2.3.6 Enterprise‟s infrastructure 20

1.2.3.7 Human resource management 20

1.2.3.8 Research and Development (R&D) 20

1.2.3.9 Finance 21

+ Indexes of payment ability: 21

+ Assessment of operating effectiveness of assets 21

+ Coefficient of Financial Lever 22

+ Return Ratio : 24

+ Growth Rates 24

+ Market value Coefficients 25

1.2.3.10 Framework of The enterprise‟s value chain 2 29

1.2.3.11 Matrix of internal factor assession 29

1.2.4 Matrix of competitive image 30

1.2.5 Matrix SWOT 31

Chapter 2: ANALYSIS OF ACTUAL SITUATION OF CORPORATION’S COMPETITIVE CAPACITY 33

2.1 AN OVERVIEW OF HOANG ANH GIA LAI CORPORATION 33

2.1.1 General information 33

2.1.2 Operating fields of the company including: 34

2.1.3 Summary of establishment and development process 34

2.1.4 Organizational structure of the company 35

2.2 ANALYSIS OF CURRENT SITUATION AND OPERATING RESULTS 35

2.2.1 Products, goods and services provided: 35

2.2.2 Operation: 40

2.2.3 Financial situation and operating activity results in 2006, 2007, 2008 and the first 9 months of 2009 of the company 42

2.2.4 Core capacity of HAGL: 63

2.3 BUSINESS ENVIRONMENT ANALYSIS: 64

2.3.1 Macro-environment: 64

2.3.2 Micro-environment: 67

2.3.2.1 Power of suppliers: 68

2.3.2.2 Customer Power: 69

2.3.2.3 Hidden competitors: 70

2.3.2.4 Replicable products: 70

2.3.2.5 Current Competitors: 70

2.3.2.6 Matrix EFE: 71

2.3.3 Internal environment: 73

2.3.3.1 Activities supplying inputs: 73

2.3.3.2 Producing operation: 73

2.3.3.3 Output activities: 75

2.3.3.4 Marketing and sales: 76

2.3.3.5 Post-selling service: 78

2.3.3.6 Infrastructure of the company: 78

2.3.3.7 Human resource management: 80

2.3.3.8 Research and Development (R&D): 83

2.3.3.9 Finance: 83

2.3.3.10 Matrix IFE: 86

2.3.4 Matrix of competitive image 88

2.3.5 Matrix SWOT 89

2.4 LIMITATIONS - CAUSES 91

Chapter III: SOLUTIONS AND SUGGESTIONS 94

3.1 SUMMARY ON ACTUAL SITUATION OF THE COMPANY 94

3.1.1 Point of view of company‟s development 94

3.1.2 Business philosophy 94

3.1.3 Vision of HAGL 94

3.1.4 Mission of HAGL 94

3.1.5 Some dominant operating results and threats 95

3.2 SOLUTIONS AND RECOMMENDATIONS 96

3.2.1 General solutions: 96

3.2.2 Real Estate business 100

3.2.3 Wooden products and Granite Investment and Trading Business 102

3.2.4 Hydroelectric Investment & Operation Section 104

3.2.5 Field of rubber investment 104

3.2.6 Field of hotel, resort investment 105

3.2.7 Field of football 107

3.2.8 Some functional solutions: 107

 Combined Marketing Strategy 107

 Financial Management: 109

 Human resource management: 110

CONCLUSION 115

REFERENCES 118

APPENDIX 120

Appendix 1: Organizational Structure of HAGL Joint-stock Company 120

Appendix 2: Organizational structure of managing machine of the company 121

Appendix 3: List of great shareholders possessing over 5% of share capital 121

Appendix 4: List of founded shareholders until August 31st, 2008 122

Appendix 5: List of child companies of HAGL 122

Appendix 6: List of Jointed companies of HAGL 123

Appendix 7: Real Estate Projects in construction and going to start in 2010 124

Appendix 8: Revenue and Profit Plan for Wooden and Granite production for 2009 -2013 125

Appendix 9: Construction Glide Path For Hydroelectric Projects 127

Appendix 10: Rubber Plantation Plan By Unit and Site 128

Appendix 11: Revenue And Profit plan For Four Rubber Projects Year 2013 -2043 129

Appendix 12: Revenue And Profit Plan In Hotel & Resort (2009-2013) 129

LIST OF DATA TABLES Table 1: Sample Matrix of external factors 17

Table 2: Sample Matrix of internal factors 30

Table 3: Sample Matrix of competitive image 31

Table 4: Sample Matrix SWOT 31

Table 5: Regulatory Capital Increase Process of HAGL 42

Table 6: Annual Balance Sheet from 2006 to December 30th, 2009 44

Table 7: Company‟s bbusiness and production activity result from 2006 to 30/9/2009 47

Table 8: Income statement according to trend 48

Table 9: Income Statement comparing to Scale from 2006 to 30/9/2009 48

Table 10: Cashflow statement from 2006 to 30/9/2009 50

Table 11: Short-term payment ability of the company 52

Table 12: Effectiveness of using assets of company 52

Table 13: Criteria related to financial lever of the company 55

Table 14: Criteria related to company‟s profitability 56

Table 15: Criteria related to growth rate of the company 57

Table 16: Criteria related to market price coefficient of the company 59

Table 17: Revenue, costs and gross profit of all business fields 60

Table18: Comparison as scale, revenue, cost of goods sold and gross profit 61

Table 19: Matrix assessing external factors EFE of HAGL 72

Table 20: Revenue and profit of HAGL from 2006 to 9/2009 76

Table 21: Business Results of HAGL from 2006 to December 2009 84

Table 22: Matrix assessing internal factors IFE of HAGL 87

Table 23: Matrix of competitive image 88

Table 24: Matrix SWOT 89

Table 25: Matrix of reactive strategies 96

GENERAL INTRODUCTION

1 General situation of the project

Competition in business is an attribute of market economy, an objective

indispensability and a vital requirement of any corporation The aim of making profits has pushed up a corporation to compete through methods of enhancing capacity, quality and effect of business activities In the competitive environment, the strength of a corporation is measured by not only its internal energy but also the correlation of many factors and competative advantages in the market

The competitive advantages of a corporation always change together with the development and improvement of science, technology and consuming needs Competitive capacity of a corporation is displayed by operating management ability, technological potential, human resource quality, financial capacity and marketing strategy In order to effectively operate and stablely develop, the corporation has to build up a long term, suitable production and business strategy, and consider the brand name as the most valuable asset of the corporation

Our country is still poor and in the innovating process Hence, it is extremely essential and necessary to find out a right and suitable way to push up economic growth Becauce the developing potential of a nation comes from corporation‟s strengths, Vietnamese enterprises should actively discover and exploit all comparative advantages, and enhance competition for firmly positioning in market and affirming its position in the international integration process

2 The necessity and significance of the research:

Competition is, for any corporation, not only a motive to find out all optimum solutions which include creating products suitable for consumer‟s needs with costs socially accepted but also a race in which the rank of the corporation is expressed Moreover, competition is considered as a challenge which puts great pressures on a corporation If the corporation does not have enough power to overcome, it has to burden consequences such as market loss, stagnated goods, loss, capital loss and

even bankruptcy In a condition of “flat world” together with fast development of informative technology and global commercialization nowadays, competitive advantages in market play a decisive role in assuring the existence and development

of a corporation The practical requirement for a corporation is finding out the way

to increase labour capacity and labour‟s income, and at the same time, decrease costs and reduce product‟s price in order to make profit increased Especially, the corporation should build a strategy of attracting and using talent labours, form up the hard working, faithful, dynamic and high capacity managing force to maintain and strengthen its competitive advantages

The reality that small, scattered productive economy, long-lasting budget subsidized regime and weak, inadequate micro and macro management has raised many problems needed to be solved by Vietnamese enterprises However, as a country of young market economy development, Vietnamese enterprises obtain opportunities

of learning from successful or lost experiences of other country‟s enterprises in order to limit mistakes and losses as the guideline “know yourselves to know others”

The country prospering cause has required Vietnamese enterprises to establish development strategy based on potentialities and advantages comparing to the world market scale and suitable for their specific characteristics Most of our enterprises are small, use backward technology and the managing capacity is still inferior comparing to the top enterprises in the world Moreover, they have not completely exploited their potentialities and invested in searching information of market and competitors yet to figure out correct investment decision from which they can win

in competition

Thus, there is no way to develop an enterprise except building the business strategy

it Considering the correlation in market, an enterprise which has stronger growth will occupy the owned market share or the future one of other enterprise The ones which know how to renovate and effectively manage can set up their position in

market; the others which slowly renovate will gradually leave market This process makes the economy continuously move to the more effective target

Structuring enterprises in the economy is carried out through building business strategy which, however, basically depends on the strategy of each enterprise Learning from experiences of successful enterprises in the world, no enterprise has enough power to cover all of advantages of an industry except joint-venturing, cooperating and reasonably using human potentiality to create cooperative energy and competitive power

Hoang Anh Gia Lai Corporation (abbreviated HAGL) was securitized since 2006

from a private enterprise With strategic vision and relevant evolution, it has actively joint-ventured, cooperated to many domestic and foreign enterprises As a result, it has concentrated a powerful capacity and expanded the productive scale to become a great capitalized corporation with multi-industry business which enables

to rank itself and affirm its brand name in market It is remarkable that Hoang Anh Gia Lai Corporation has marked daring steps in jointing social activities and careers

to advertise its image, stimulate creation, hence, it has received all organizational and legal support in different business environments

Researching and building business strategy of Hoang Anh Gia Lai Corporation has practical significance for the corporation, and at the same time, it creates opportunities to reinforce and complete the enterprise management theory relevant

to realistic characteristics and conditions in the process of integration and development process in Vietnam

3 Researching Aims:

The project is deep reseach, analysis and assessment about actual situation of competitive capacity in business strategy of Hoang Anh Gia Lai through its operating managing tools, marketing strategy, human resource management and financial management From that, it can figure out the weak points and suggest the most fearsible solutions which are able to joint all resources to create the synthetic

energy in order to perfectly build business strategy for Hoang Anh Gia Lai Corporation

The project is a practical value reference for Hoang Anh Gia Lai Corporation It concurently contributes to provide a methodology to solve the practical competition problems in Hoang Anh Gia Lai Corporation By suitable solutions, Hoang Anh Gia Lai Corporation can perfect organizational structure and operating regimes and further upgrade the key values of brandname, which enable to create progressive strength assuring for its rapid and stable development

In the project scope, the key methods are flexibly and mutually used, concluding:

+ The systematic theory method

+ The comparative and statistic method

+ The projective method

+ The synthetic analysis method (qualitative and quantitative )

+ The survey, experimental method

5 Structure of the project:

Besides the openning and conclusion parts, the main contents of the project are organized into three chapters as following:

Chapter 1: Phylosophy Base

Chapter 2: Actual situation analysis and assessment

Chapter 3: Solutions and suggestions

This research is implemented based on business management theory Due to the large amount of information needed to process while the allowed time is limited, mistakes cannot be avoided, the assessment may be subjective or the suggested solutions may not as very practical as they should be in the corporation, which may decrease scientific content and confidential rate of the project However, with accumulated knowledge and experiences, careful guide of lecturers and the help of the Board of leaders, functional departments and subsidiaries of Hoang Anh Gia Lai Corporation, our group can meet the requirement and expectation of those who are interested in this project

Chapter I: PHYLOSOPHY BASE 1.1 AN OVERVIEW OF THE BUSINESS STRATEGY

1.1.1 Conceptions of business strategy:

Strategy is a terminology appearing for long time ago It was used in military field at first and is considered as means for long term goals

Business strategy closely relates to economic field and it is understood in variety ways among which the following ones are popular:

- According to Fred David, strategy is means to reach long term goals

- According to Alfred Chadler, strategy is defining of basic and long term goals of

an enterprise and planning an acting process and distributing necessary resources

to reach those targets

Thus, people can say that business strategy provides “a vision” of an expected development process and consistency in implemeting methods A strategy can be a foundation for short and medium term overall development plan, or an overview recognition without a dependence on concerned people at that time about prospects, challenges and an expected supply

Generally, it consists variety differences in definitions of business strategy, however, its definition basically includes following contents:

 Defining short term and long term goals of an organization

 Planning out and selecting solutions to reach goals

 Carrying out nad distributing resources to implement targets

In competitive environment nowadays,people can say that business strategy is defining business target, planning out and distributing resources of an enterprise

to create competitive advantages in order to reach business target in the best way

1.1.2 Classification of business strategy

1.1.2.1 Pursuance to strategic scope

 An overview strategy: mentions long term and corest problems which play a vital role to an enterprise

 Partial strategy: are product strategy, price strategy, marketing strategy,

post-selling strategy, etc

These two strategies closely relate together and paralelly exist to solve important targets of an enterprise

1.1.2.2 Pursuance to nature of trategy

- Product strategy

- Market strategy

- Investment strategy

- Competitive strategy

1.1.2.3 Pursuance to level of strategy

 Strategy at company level: relates to overall target and scale of an enterprise to

meet the expectation of shareholders This is an important level because it is effected by investors in an enterprise and simultaneously, it guides the process

of giving strategic decisions in the whole enterprise The business strategy is usually displayed clearly in “missionary declaration”

 Strategy at business unit level: severely relates to how an enterprise can

sucessfully compete in a specific market Moreover, it also relates to strategic decisions of product selection, customer need meeting, obtaining competitive advantage comparing to other competitors, new opportunity exploitation and creation, etc

 Strategy at functional level: relates to organization of each department in an

enterprise to implement strategic plan at company level and department level Thus, acting strategic concentrates on problems of resources, processing and people, etc

1.1.3 Strategies of business units

Competitive strategies of Michael Porter:

 Cost Leadership: is a competition by creating products or services with possibly lowest cost At that time, an enterprise can sell large amount of goods with average price and earn great profits

 Differentiation: is a competition by creating differentiation which other enterprise

is difficult to compete This differentiation can be product quality, delivery time, brand name recognition, wide distribution system

 Concentration: is a competition by concentration of resources and energy to a product, a segment or a special customer group

Michael Porter has stressed that if an enterprise does not choose one of strategies above, it will not have competitive advantage

1.2 PROCESS OF STRATEGY PLANNING

Process of strategy planning consists of following periods:

- Period of shaping strategy

- Period of implementing strategy

- Period of assessing strategy

Each period has different work, however these period closely relate and supply together

According to the business handbook of Harvard, the process of strategy planning is shown as below diagram:

Diagram 1.1: Diagram of process of business strategy planning

A strategis plan is usually started from business mission which is defined clearly Mintzberg defined of mission as following: “A mission indicates basic functions of

an organization in society basing on the field of goods and services produced by

that organization to meet the need of its customers

1.2.1 Defination of a goal

A goal is an expected result of an organization after a defined time A strategic goal includes following characteristics:

 A goal must be qualified

 A goal must be fearsible: operating result of an enterprise has to implement and complete in practice

 Goals must be consistent They must have a relative relationship Completion of this goal does not effect the others Moreover, they must have an interrelation to create an united block in an organization in order to get common target of the enterprises

 A goal must be reasonable Human is an important factor It is the subject as well as the object Hence, it has to ensure reasonability

 A goal must have flexibility which indicates adjustability to changes of environment

 A goal must be specific This is a special characteristic of a goal Hence, a goal has to attach to an organization and have private characteristics Each unit has its private goal to endevour

1.2.2 Analysis of external environment and internal situation

Enterprise is an open system existing and tightly relating to the environment and being effected by it An external environment analysis helps enterprise managers have an overall view of objective conditions which can bring advantages or disadvantages for business activities of an enterprise All enterprise‟s business strategies are built up in a specific environment condition basing on maximally taking use of advantages and minimizing disadvantages that may have An enterprise‟s external environment is divided into two types depending on characters and influent level to the enterprise:

1.2.2.1 Macro-environment

Macro-environment indirectly influences to many fields, industries and enterprises Clearly understanding it will help an enterprise know current facing problems, opportunities and challenges in the future

Factors belonging to the macro-environment that enterprise should concern as planning relevant competitive strategies:

+ Economic factors: An overview of economy, growth rate, growing trend; Monetary policy, credit, foreign exchange rate, import-export, tax; Price control policy, salary policy, income

+ Legal and political factors: Political situation, stability of political system, regimes, diplomatic policy; Legal system in general and laws related to business activities, environment protection, copyright law

+ Cultural and social factors: Inhabitant‟s living quality, cultural tradition, social habits, moral standards and lifestyle; Situation of human resource quality and quantity, population growth rate and inhabitant structure

+ Natural condition factors: Climate and land condition, water resource, mineral resource, forestry resource, ecological environment protection, material resources + Technological factors: Development investing policy, applied science and technology, mind right protecting policy

1.2.2.2 Micro-environment 1

Micro-environment consists of external factors affecting directly to an enterprise and deciding characters and competitive rate in that business and production industry According to model of five competitive forces of Michael Porter, intensity

of competition in market in a industry is affected by five competitive forces: (1) Power

of a supplier; (2) Power of a customer; (3) Threat of coming of potential competitors; (4) Threat of replicable products; (5) Rate of competition among companies in a industry This relationship is displayed in following diagram:

1 Michael E Porter, Youth Publishing House ( 2009) Competitive strategy

 Competitive Pressure of suppliers:

It consists of quantity and scale of suppliers, product replaceable ability of suppliers and information about suppliers Because suppliers provide raw materials and input equipments for a company, they can threat of forcing to rise price or reduce input requirement We only have opportunity as we can force to reduce price or require higher quality

 Competitive Pressure from customers:

Customer is a competitive pressure which can directly affect to all business and production activity in a industry They usually put a pressure of price, product quality, attached service on a company They are the ones who control competition

in an industry through decision of buying

 Competitive Pressure from hidden competitors:

Hidden competitors are enterprise which have currently entranced in a industry yet, however, it may affect to a industry in the future The fact that hidden competitors are more or less, their pressure put on a industry strong or weak depends on following factors:

+ Attractiveness of an industry: This factor is shown through criteria such as: Rate

Hidden competitors

Internal industry competition

Competiton among enterprises already appeared in market

Customer, Distributor Supplier

Replacable product

Threat from hidden competitors

Negotiated Power

Threat of replacable service

of earnings, quantity of customers, number of companies in an industry

+ Entrance Barriers

 Competitive Pressure from replaceable products

Replaceable products and services are things which can satisfy the need equivalent

to that of products and services in a industry Appearances of replaceable products are diversified and complex, which can create threat of tough competition of price

to the former products The factor which strongly urges replaceable products is renovation of science and technology

Competitive Pressure in a industry

Companies which are operating in a industry will directly compete together and create a pressure on an industry, which leads to competition becoming tougher In

an industry, following factors will increase competitive pressure on competitors: + Actual situation of an industry: needs, growth rate, number of competitors, etc + Structure of an industry: concentrative or scattering

+ Exit Barriers: they are similar to entrance barriers They are factors which makes exit of an enterprise difficult

1.2.2.3 Matrix of external factor assessment

Matrix of external factors allow strategic planners to summary and assess economic, social, cultural, inhabitant, geographical, political, governmental, legal technological and competitive information

There are 5 steps to develop a matrix of external factor assessment:

 Step 1 – Set up the list of external factors which play decisive role to enterprise‟s

success including opportunities and threats for the company and its business industries

 Step 2 – Classify important level from 0.0 (not important) to 1.0 (very

important) for each factor This classification expresses a relative important role

to the success of enterprise‟s business industry

Opportunities usually have higher classified level than threats Hence, threats can gain high classified level if they are severely dangerous to the company

Total classified levels are set for these factors must be equal 1.0

 Step 3 – Classify from 1 to 4 for each factor of successful decision to show the

method that current strategy of the company reacts to it Among that, 4 expresses the best reaction, similarly, 3 for higher than average reaction, 2 for average reaction and 1 for the least reaction These levels are based on the effectiveness of enterprise‟s strategy Thus, this classification relies on the enterprise

 Step 4 – Multiply important level of each variation with its class to get the score of

importance

 Step 5 – Add total scores of importance for each variation to get total scores of

importance for an organization

Not taking any notice of key opportunities and threats including in matrix of external factor assessment, total of the highest score of importance, which an organization may have, is 4.0 and lowest one is 1.0 and medium is 2.5

 Assession: Total score of importance of 4 means that the organization is very

well reacting to current opportunities and threats in their environment Total score of importance of 4 means that the enterprise‟s applying strategy cannot make use of the opportunities of avoid outside threats

Table 1: Sample Matrix of external factors External

environment factors

Level of Importance (weight)

Strong point is the fact that the company is effectively implementing or the characters that helps the company enhance competitive capacity The strong point can exist in following forms:

- A skill or an important experience – a secret production with low costs, a secret technology and non-mistake production, an experience of excellent customer service provision, a product renovating skill, product commercialized skills in large scale and special buying encouraging advertisement

- Valuable material assets – modern factories, attractive location, natural resource reserve and global subsidiaries system

- Valuable human resource assets – a quality control system, technological possession, copyright, exploiting right, customer‟s faith, credit value, etc

- Valuable intangible assets – image, brand name, fame, high faith of customers, etc

- Competitive capacity – product development and commercialization in short time, creative capacity, agency system, power suppliers, etc

- Achievement or effect which put the company in beneficial position in market – Low costs, leading position in market, owning better products

- Ally or cooperation – participating in allies or joint-ventures of experienced and able counterparties

A weak point is something that the company have a shortage or a not good one or a condition that put the company in disadvantage condition Internal weak points of a company may include:

- A shortage of important competitive skills and experiences

- A shortage of competitive vital intangible assets, material assets, organizations, human resources

- A shortage or a weakness of competitive capacity in key fields

- Internal weak points are shortcomings of enterprise‟s resources A weak point can or cannot hurt the company that depends on effected level in market and that weather the company can overcome it with its power and strength or not

In order to define strong and weak points of the company, a ring of its values, which are all related activities of the company that increases values for customers, needs to

be analyzed It consists of:

1.2.3.1 Input supply activities

- The soundness of the control system of goods in stocks and materials

- Effectiveness of raw material stocking activities

1.2.3.2 Producing Operation

- Capacity of equipments comparing to that of main competitors

- Relevance of producing automaticalized process

- Effectiveness of the control system to upgrading quality and reducing costs

- Effectiveness of production place arrangement and working step design

1.2.3.3 Output activities

- Timeliness and effectiveness of product and service distribution

- Effectiveness of finished product stocking activities

1.2.3.4 Marketing and sale

- Effectiveness of market research in identification of needs and customer segmentation

- Estimating the price for different distributing channels

- Encouraging and capacity level of sale labor forces

- Renovation in buying encouraging activities and advertisement

- Development of image, quality and fame

- The faith level to brand name of customers

- Market reining level in a market segment or in the whole market

1.2.3.5 Post buying service

- Means attracting customer‟s contribution to perfect products

- Readiness and rapidness for notice of customers‟ complaints

- Relevance of insurance and assurance policy

- Capacity in supply of replaceable parts and repairing services

1.2.3.6 Enterprise’s infrastructure

- Capacity of identification of new product business opportunities and potential threats of environment

- Quality of strategy planning system to meet the company‟s target

- Co-ordination and integration of all activities related to the value chain among department of the organization

- Capacity to reach capital sources with low price

- Level of the information system supporting to make daily and strategic decisions

- Information is exact and on time for general and competitive environment management

- Relation to the policy makers and beneficial groups

- Image in community and attachment to the company

1.2.3.7 Human resource management

- The compatibility of organizational structure and human resource strategy with strategy of SBU and the general strategy of the company

- Effectiveness of procedures of recruitment, training and promotion to all levels

of labors

- Relevance of bonus system for encouraging and challenging workers

- Working environment to minimize absence and keep moving rate at expected rate

- Relations to the Trade Union

- Enthusiastic participation of professional persons

- Level of encouragement and satisfaction of labors

1.2.3.8 Research and Development (R&D)

- Success of research and development activities (in renovation of process and products)

- Quality and working relation between staffs of research and development department and other departments

- Timeliness of technology developing activities in meeting the core deadline

- Quality of laboratory of scientists and technicians

- Capacity of working environment in creative and renovating encouragement

1.2.3.9 Finance

Researching financial situation is one of the most important consideration about enterprise‟s competitive position Financial indexes provide us an overview look of power and competitive capacity of an enterprise

- Development of various input resources is to minimize the dependence on a suppliers

- Purchasing raw materials based on the exact time, the lowest costs or an excellent quality level

- Procedures for purchasing factories and building machines

- Development of criteria for leasing or purchasing decisions

- Good and long-lasting relations to good suppliers

Assessment of enterprise‟s competitive capacity through some key financial criteria

as following:

+ Indexes of payment ability:

- Current payment coefficient = Short-term assets / short-term debts

This index shows payment ability for short term debts by money transferable assets during the period of time before the due date of debts

- Fast payment coefficient = (short-term assets – inventories) / Short-term

borrowings

This criteria shows the ability of paying short-term debts without waiting until selling up inventories

+ Assessment of operating effectiveness of assets

- Ratio of receivable turnover: indicates the transferring rate of receivables of the company into cash

Ratio of receivable turnover = Sales Revenue/ Average receivables

-Average days receivables: indicates if the company can be paid for debts quickly or not

Average days receivables = Receivables * 360 / Sales Revenue

- Ratio of inventories turnover: indicates how effective the company use inventories

Ratio of inventories turnover = Cost of goods sold / Average inventories

- Average days inventories:

Average days inventories =( Inventories * 360)/ Cost of goods sold

Rate of using fixed assets: indicates how much revenue that 1VND of fixed asset can bring for the company The higher is this rate, the higher the effectiveness of fixed assets

Rate of using fixed assets = Sales Revenue / Fixed assets

- Rate of using total assets : indicates how much revenue is created if 1VND is invested in business and production The company is highly deficient due to low total assets turnover

Rate of using total assets = Sales Revenue / Total assets

- Mobile Capital on Revenue: indicates the rate of transferation of short term working capital

Mobile Capital on Revenue = (Short term assets – Short term debts)/ Sales Revenue

- Payable Debts on Revenue : indicates how much payable debts that a company uses to create 1VND of revenue

Payable Debts on Revenue = Payable Debts / Sales Revenue

- Rate of using shareholders capital: This is an useful criteria to analize financial aspects of the company It measures a relation of revenue and shareholders capital Rate of using shareholders capital = Sales Revenue / Shareholders capital

+ Coefficient of Financial Lever

- Coefficient of bankruptcy threat (Zscore):

It indicates rate of risks in operation of the company It is calculated formation written by Professor Altman (School of Business Management, University of New York):

Z score = 1.2xA1+1.4xA2+3.3xA3+0.6xA4+1.0xA5

When:

A1 = Mobile capital ( Short term assets - Short term liabilities)/Total Assets

A2 = Undistributed Profit / Total Assets

A3 = EBIT (Earning before Interest and Tax)/ Total Assets

A4 = (Market value of a share*Number of shares)/Total Liabilities

A5 = Rate of using assets = Revenue/ Total Assets

Defination of actual financial situation of a company as following:

2.99<Z : A company has a healthy finance

1.81<Z<2.99 : A company has no problems in short term However, it needs to carefully consider financial condition

Z<=1.81: A company has serious problems of finance and it may be bankrupt

However, this comparison can only implement if these criteraa are annually calculated

- Ratio of debts on assets: indicates the percentage of debt used to finance company assets

Ratio of debts on assets = Total Liabilities / Total Assets

- Ratio of debts on shareholders capital:

Ratio of debts on shareholders capital = Total Liabilities / Shareholders capital

- Ratio of long term debts on shareholders capital:

Ratio of long term debts on shareholders capital = Long term debt / shareholders capital

- Ratio of total assets on shareholders capital: is used for calculating the rate of borrowing (financial risky) endured by the company

Ratio of total assets on shareholders capital = Total assets / Shareholders capital

- Ability for interest payment: is used for measuring the rate of earning due to using capital to pay annual interest

Ability for interest payment = Earning Before Interest and Tax (EBIT) / Interests

+ Return Ratio :

- Ratio of Return on Revenue: indicates how much earning is created from 1VND

of revenue

Ratio of Return on Revenue = Earnings / Sales Revenue

- Ratio of Return on Total assets (ROA) : is used for measuring earning ability on 1VND of capital investing in the company

Ratio of Return on Total assets = Profit after Tax / Total assets

- Ratio of Return on Equity (ROE): This is a criteria essensially concerned by investors because it indicates earning ability of a capital unit put in a company Ratio of Return on Equity = Profit after Tax / Shareholders capital

- Rate of Return on long term capital (ROCE): indicates profitability of long tern capital

Rate of Return on long term capital (ROCE) = EBIT/(Total Liabilities – Short term Debts)

Ratios of Return above are criterias generally indicating financial situation and effectiveness of business and production activities of a company The higher these ratios are, the more effective is company‟s operation and vice versa In the case of low ratios, the company needs to have solutions for difficulties

+ Growth Rates

The growth rates indicate the growth and expansion of scale of a company They shows annual growth of revenue and profit of a company The ideal case is that the growth of revenue parallelly goes with growth of profit

- Rate of Revenue Growth :

Rate of Revenue Growth = (Revenue of later year / Revernue of former year) – 100%

When: Revenue = Revenue from sales and services provision + Revenue from financial activites + Other income

- Rate of revenue growth from main business activities :

Rate of revenue growth from main business activities = (Revenue from bisuness, production activities of later year / Revernue from bisuness, production activities of former year)-100%

When : Revenue from bisuness, production activities = Revenue from sales and services provision + Revenue from financial activites

This is an important criteria indicating growth rate of revenue There are necessary comparisons:

+ Comparing to Inflation rate: If Rate of revenue growth increases while Inflation rate reduces or does not increase, Rate of revenue growth has rise in convenient trend, consumption of goods increases and vice versa

+ Comparing to the rate of market growth : If Rate of revenue growth is lower than the rate of market growth, the company is getting difficulties of competitive ability and market share

- Rate of Profit Growth :

Rate of Profit Growth = (Total Profit in later year / Total Profit in former year) 100%

Net Rate of Profit Growth from from main business activities :

Net Rate of Profit Growth from from main business activities =(Total net profit in later year / Total net profit in former year)-100%

This is a criteras to assess growth rate of profit of a company If growth of revenue

is considered as quantity growth, this createria is considered as expansion of quality

+ Market value Coefficients

- Earning per share (EPS): Earning per share decides value of share because it measures earning ability containing in each share This index is specially concerned

by investors because it expresses income per share This index is as high as possible

EPS = Net income of common shareholders / Number of common shares

- Rate of Market Price and Earning (P/E): This is an index specially concerned by investors because it expresses if price of share is expensive or not comparing to earnings

P/E = Market price per share / Earning per share

Method assessing financial indexes:

- Comparison Method : Comparing to enterprise operating in the same field and analyzing trend Using trend ratios or the ratios which stress the changes happened from one period to another and are used to compare data through many periods of time Using ratios comparing in common scale dominates effectiveness and less effectiveness that is difficult to recognize with other method Hence, comparing ratios in a common scale are assessed as a managing tool In the report comparing

in a common scale, each item is displayed as a ratio of original level It means that the items are expressed basing on numbers having common scale, ratios of 100% In the balance sheet in a common scale, total assets are 100% In income report in a common scale, net revenue is 100% After that, each item in the report is reflected

by the net revenue rate Report of revenue in the common scale is a tool with high informative character and usefulness If considering that 100% presents for VND1

of revenue, the last items, after that, explain that VND1 of revenue is distributed to how much for cost of goods sold, how much for costs and how much for profits Comparing criteria: Method analyzing financial indexes: After calculating indexes,

it is necessary to consider results above weather thaey are good, average or bad In the case of Hoang Anh Gia Lai Corporation, we only use a table of financial price indexes of constructive industry with code 43 built up by Tan Viet Securities and Audition Company to compare financial indexes in 2006, 2007 and 2008, except that of the first 9 months of 2009 which are compared to the financial indexes of Vietnam import-export and construction Company General (VCG) This company

is chosen because it also operates in construction field and has equivalent scale to Hoang Anh Gia Lai Corporation

It is also used to analyze cash flows from business activities, investment cativities and financial activities Through recognizing cash flows, we can clarify if enterprise‟s financial situation is good Cash is considered as blood, fuel for enterprise‟s existence Without cash, staffs and suppliers cannot be paid, debts are not paid and shareholders cannot receive dividends Thus, the enterprise has to obtain a relevant amount of money for operation Information of cashflows can affect to decision makers by many ways For example, if usual activities of an enterprise bring for it more cash than that is used, the investor will appreciate more highly than that the company has to sell its real estate, machines and equippments to support for its activities Information of cash flows is also used to assess an ability

of obtaining advantages in new business opportunities of the company

If the cash flow from business activities is positive, it expressed that the company can itself pay for activity needs by its cash If the cash flow from business activities

is negative, the company needs a further cash source from outside to maintain its production and business activities as usual This negative cash flow warns that business situation of the comlany is getting difficulties When the cash flow from financial activities is positive, this means that the company is lacking money and it has to mobilize capital from outside such as: short-term borrowing, long-term borrowing or issuing shares to compensate the shortage from business and investment activities If this cash flow is negative, this means that the company is possessing too much money and it starts paying loans

We can remark cases which can occur for following cases:

Cash flows

Cash flows related to

activities Financial activities

Cash flow 2: As the cash flow from business activities and investment activities is positive, the cash flow from financial activities is negative, it means that the company has used the positive cash flow from business activities and the sales of assets to pay loan debts and/ or pay dividends for shareholders

Cash flow 3: As the cash flow from business activities is positive, the cash flow from financial activities and investment activities is negative, it means that the company has used the cash flow from business activities to expand its business and pay some loan debts and/or pay dividends for shareholders

Cash flow 4: As the cash flow from business activities and investment activities is negative, the cash flow from financial activities is positive, it means that the company is meeting difficulties in business and it is solving them by borrowing more money or issuing more shares to have an aid fund for business and investment activities

1.2.3.10 Framework of The enterprise’s value chain 2

1.2.3.11 Matrix of internal factor assession

Matrix of internal factors assesses internal factors affected to enterprise‟s operation including weak and strong points of the company

Method of matrix establishment:

Making a table listing all internal environment factors affected to the company‟s operation and assessing affected or important level of each factor by grading weight, total of weight scores of all factors equal 1 or 100%

Assessing reactive level of the company to those factors by classifying the factors from 1 to 4, among that level 4 expresses the best reaction and similarly, level 1 for the lowest reaction of the company After that, we calculate score of importance by multiplying weight with relative classified scores, then adding scores of importance

to obtain the score of importance of the company The highest total score of importance is 4, the lowest is 1 and average is 2.5

Assession: In case the total score of importance is 4, the company is obtaining

many strong points and it can well overcome the weak points If the total score of importance is 1, the company is possessing no strong point and it cannot overcome its weak points

Table 2: Sample Matrix of internal factors Internal environment

factors

Important Level ( weight)

Classific ation

Score of importance

environment factors

1.2.4 Matrix of competitive image

Forming up this matrix aims to give out comparative assessions of the company and main competitors in the same industry The comparison is based on affected factors

to enterprise‟s competitive capacity in the same industry Through that, the managers can identify the strong and weak points of the company comparing to the competitors‟ and define the competitive advantages for the company and weak points needed to be overcomed To set up a matrix of competitive images, it is necessary to carry out 5 steps:

 Step 1: Making a list of 10 key factors vitally affected to competitive capacity of

the company in the same industry

 Step 2: Classifying important level from 0.0 (not important) to 1.0 (very

important) for every factor The importance of each factor depends on its influent level to competitive ability of the company in the industry Total scores

of importance of all factors equal 1.0

 Step 3: Defining classified level from 1 to 4 for each factor Classified level for

each factor depends on the ability of enterprise to that factor Among that, level

4 is good, 3 is quite good, 2 is average and 1 is bad

 Step 4: Multiplying the important level of each factor to classified level of the

company to get scores of the factors

 Step 5: Adding the scores of all factors to have total score

Assession: Comparing total the enterprise‟s score to the main compatitors in the

industry to assess competitive ability of the enterprise

Table 3: Sample Matrix of competitive image

Assessing

factors

Important Level

Sample company Competitor 1 Competitor 2 Classifi-

cation

Score of importance

cation

Classifi-Score of importance

cation

Classifi-Score of importance

Listing

factors

Total

1.2.5 Matrix SWOT

SWOT analysis is analyzing external environment factors which the company has to

face (opportunities and challenges) as well as factors belonged to internal

environment of the company This is a hard work which requires much time, costs,

human energy, income ability, analysis and information effective procession The

strong and weak points usually derive from the internal organization The

opportunities and challenges usually relate to external factors

Table 4: Sample Matrix SWOT

environment factors

WEAK POINT: W COMBINATION

W - O :

Overcoming the weak point to making use of opportunity

- threat (WT) The combination of important internal and external factors is the most difficult responsibility in developing a matrix SWOT It requires to have an excellent prediction There is not the best combination

To form a Matrix SWOT, it is obliged to carry out 8 following steps:

 Step 1- Listing key strong points of the company

 Step 2 – Listing key weak points inside the company

 Step 3 – Listing great opportunities out side the company

 Step 4 – Listing key threats out side the company

 Step 5 – Combining internal strong points with external opportunities and writing

out the result of the strategy SO in relevant cell

 Step 6 - Combining internal weak points with external opportunities and writing

out the result of the strategy WO

 Step 7 - Combining internal strong points with external threats and writing out the

result of the strategy ST

 Step 8 - Combining internal weak points with external threats and writing out the

result of the strategy WT

SWOT model analysis is a short and useful technique to summarise the key problems derived from assession of internal environment and affection of external

environment to the company

Chapter 2: ANALYSIS OF ACTUAL SITUATION OF CORPORATION’S COMPETITIVE CAPACITY

2.1 AN OVERVIEW OF HOANG ANH GIA LAI CORPORATION 2

2.1.1 General information

- Full name: Hoàng Anh Gia Lai Joint Stock Company

- Foreign name: HAGL Joint Stock Company

- Abbreviated name: HAGL

- Address: 15 Truong Chinh St., Phu Dong Ward, Pleiku City, Gia Lai Province

- Tax File number: 5900377720

2,704,654,580,000 (Two thousand seven hundred and four billion, six hundred fifty

four million and five hundred eighty thousand Vietnam dong)

- The company‟s Logo:

2

Information of HAGL announced in Hochiminh Securities Exchange and website: http://www.hagl.com.vn

Picture 1: The company’s Logo 2.1.2 Operating fields of the company including:

 Building and doing business of luxurious flats

 Producing and distributing wooden furniture

 Producing and distributing granite

 Building and doing business of hotels and resorts

 Cultivating and processing products from rubber trees

 Investing and exploiting hydro-electricity

 Other industries not legally banned

2.1.3 Summary of establishment and development process

Starting from 1990, its former was a small workshop making tables and chairs for pupils

In 1993, Hoang Anh private enterprise was established, and the interior and outside

wooden processed factory was operated in Gia Lai

In 2002, the granite factory was established The interior wooded processed was

expanded in Gia Lai After that, Hoang Anh Gia Lai Football club was formed as The People‟s committee Of Gia Lai province decided to official transfer football team for Hoang Anh private enterprise

In 2004: HAGL Resort Quy Nhon was operated

In 2005: HAGL Resort Da Lat was operated

In 2006: HAGL Hotel Pleiku was operated

The enterprise changed operating form into joint stock company and the name of Hoang Anh Gia Lai Joint-stock Company with the regulatory capital at first of 296 billion dong The first Shareholders meeting was successfully held in HAGL Hotel Pleiku

In 2007: High Building Office HAGL SAFOMEC was operated

Integrating Hoang Anh Quy Nhon Company, Hoang Anh Sai Gon and Hoang Anh house business joint-stock Company into Hoang Anh Gia Lai Joint-stock Company HAGL Hotel Plaza Da Nang was operated

HAGL Arsenal JMG Football Institution was operated

In 2008: Listing date

2.1.4 Organizational structure of the company

HAGL is organized as the model of parents –child company Its organizational structure consists of:

 11 branches, 01 Football club và 01 Representative Office (depending on the company)

 18 children companies of which HAGL possesses decisive shares of over 50%

 07 cooperative companies of which HAGL possesses decisive shares of from 20% to 50%

2.2 ANALYSIS OF CURRENT SITUATION AND OPERATING RESULTS 32.2.1 Products, goods and services provided:

a Wooden and granite products: The company produces list of fundamental

wooden products:

 Wooden interior funiture such as tables, chairs, beds, make-up tables, shelves, etc which are mainly made of oil wood, cam xe wood, kempas wood,

eucalyptus, rubber, MDF pasting with margose veneer Wooden interior products have high quality and are attached the leading trademark of Vietnam domestic market

Picture 2: Some of wooden interior products

 The key export products are wooden exterior things such as tables, chairs, benches, sofas, wheeling wine tables, etc which are made of oil wood, cam xe wood, kempas wood, eucalyptus, rubber, margose, kempas, jarah

 Wooden products for work such as floor, kitchen, kitchen shelf, hand-rail made of

oil wood, cam xe wood served for luxurious flat work These products are produced by the combination of wood and granite with Hoang Anh Gia Lai style

Picture 3: Some granite products

HAGL joint-stock company has experiences in real estate business and investment

of housing projects, luxurious flats, offices, civil works, commercial centers, etc Simultaneously, it also has a great financial potentiality to implement many projects and essential works at the same time Real estate business and investment is

considered as the main business activity in short-run and medium run of the company

Picture 4: The Luxurious flats project - Hoàng Anh River View

Development of hydro-electricity is in the long term strategy of the company With the advantage of location in Gia Lai, HAGL has surveyed and has been assigned to implement 8 medium hydro-electricity projects with capacity of 191MW and investment of VND3,985 billions by the People‟s Committee of Gia Lai and Thanh Hoa Provinces With the company‟s projection that price of electricity will increase

in coming time, hyrdo-electricity works of Đăk Srông 2 và Đăk Srông 2A with the capacity of 42MW has been started building and it will integrate in the national electricity web soon It is estimated that these projects will be complete and start producing electricity in 2010 Profit of these projects will be contributed in total profit of the company after 2010 HAGL possessed 70% investment capital of these projects Plan of implementing hydro electricity projects of the company is expressed in Appendix 9

Picture 5: The Hydro power plant project

Rubber business considerately contributes to revenue and foreign currency revenue

of the company in 2007 The main income of the company is from natural rubber in Cambodia The sales of natural rubber products experimentally produced by the company are not much The essential customers are Chinese productive and commercial companies Natural rubber products from rubber tree cultivation projects will contributes to company‟s revenue since 2013

Plan for cultivation, revenue, profit of rubber projects from 2013 to 2043 (Appendix

10, 11 attached)

Until October 31, 2009, the area of finished rubber plantation is 8,622,87ha with investment value up to VND 413 billions The rest area for coming plantation is 22,377ha This is a very large area that the Company should focus resources to complete the plan According to Company‟s assessment, natural rubber is a potential product About two third of natural rubber volume in the world is used in production of tires for car and planes Rubber can be produced from latex of rubber trees or from petroleum (called synthetic rubber) However, natural rubber has special features that cannot find in synthetic rubber like heat absorbility and dissolution (for example, heat from friction of plane tires during taking off and landing), endure in low temperature while still maintain softness and functionality,

and higher elasticity versus synthetic rubber With such inherent features, the use of natural rubber in some products is impossible to substitute Natural rubber price is now in sharp increasing trend due to petroleum price up as well as strong growth of car and motorbikes use in Asia, while supply is limited

e Services of HAGL Hotels & Resorts

The revenue of HAGL Hotel & Resort system comes from 4-5 star services as following:

Services of HAGL Hotels & Resorts: Presently, HAGL Hotels & Resorts system

+ In Quy Nhon City, Binh dinh Province: a luxurious sea resort in the center of

130 four-star bedrooms

+ In Danang City: a five-star modern Plaza Hotel of 188 bedrooms, 3,000 m2 of leasing office, a luxurious congress center in the most convenient lication of the city With 23 storeys, this is the highest building in the Middle and Western Highland

Possession of HAGL Football Team since 2002, HAGL led the club from the first rank to the champion in V-League in two years later This football activity is marketing activity to advertise image and brand name of HAGL thoughout domestic and foreign foreign countries

In 2007, HAGL cooperated with Arsenal Football Club to HAGL Arsenal JMG football Institute This institute has started official operation since October 10th

2007 Products of this institute are domestic and foreign under eighteen-year footballers These are special products which are people with professional skills