Formulation of business strategy for Vietnam - Italy steel joint stock company by 2017

FORMULATION OF BUSINESS STRATEGY FOR VIETNAM – ITALY STEEL JOINT STOCK COMPANY BY 2017 CAPSTONE PROJECT REPORT Hoang Xuan Anh Vu Huy Quang Le Chien Thang Nguyen Duc Vinh Class:

FORMULATION OF BUSINESS STRATEGY FOR

VIETNAM – ITALY STEEL JOINT STOCK

COMPANY BY 2017 CAPSTONE PROJECT REPORT

Hoang Xuan Anh

Vu Huy Quang

Le Chien Thang Nguyen Duc Vinh

Class: GaMBA M0210

GRIGGS UNIVERSITY

GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM

CAPSTONE PROJECT REPORT

GRIGGS UNIVERSITY 2

GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM 2

CAPSTONE PROJECT REPORT 2

HANOI 2012 2

1 Significance of the research 9

2 Objective of the research 10

3 Scope of the research 10

4 Research methodology 10

5 Expected results 11

6 Structure of the research: 11

CHAPTER 1 THEORETICAL BACKGROUND OF BUSINESS STRATEGY FORMULATION 12

1.1 Concept and role of business strategy 12

1.1.1 Concept of business strategy 12

1.1.2 Basic characteristics of business strategy 12

1.1.3 Role of business strategy 13

1.2 Business strategy formulation process 13

1.2.1 Step 1: Determine visibility and its mission 14

1.2.2 Step 2: Business environment analysis of the enterprise 15

1.2.2.1 External environment analysis 15

1.2.2.2 Internal environment (inter-company environment) analysis 18

1.2.3 Step 3: Defining long-term goal and formulating the enterprise’s development strategy 18

1.3 Tools used to evaluate and select business strategy 19

1.3.1 External Factor Evaluation (EFE) Matrix 19

1.3.2 Internal Factor Evaluation (IFE) Matrix 20

1.3.3 Competitive Profile Matrix (CPM) 20

1.3.4 SWOT Matrix (Strengths, Weaknesses, Opportunities, Threats): 21

1.3.5 Quantitative Strategic Planning Matrix (QSPM) 23

CHAPTER 2 ANALYSIS OF BUSINESS ENVIRONMENT OF VIETNAM – ITALY STEEL JOINT STOCK COMPANY 25

2.1 Overview of Vietnam-Italy Steel Joint Stock Company 25

2.1.1 History of establishment and development 25

2.1.2 Organizational structure of Vietnam-Italy Steel Joint Stock Company 27

2.1.3 Major business lines 28

2.1.4 Vision and mission 29

2.2 Macro-environment analysis of VISCO 30

To analyze the macro-environment of VISCO, we use analysis tool PEST +++

(Political- Economics- Socio-cultural- Technological) 30

2.2.1 Political segment 30

2.2.2 Economic segment 33

2.2.3 Social segment 35

2.2.4 Technological segment 35

2.3 Industry environment analysis of VISCO 36

2.3.1 Forecast on the market demand 36

2.3.2 Five Force Model analysis of VISCO 41

2.3.2.1 Rivalry and direct competitors of VISCO 41

2.3.2.2 Bargaining power of buyers 46

2.3.2.3 Bargaining power of suppliers 47

2.3.2.4 Threat of substitute products 49

2.3.2.5 Threat of new entrants 49

2.3.3 External environment evaluation of VISCO 50

2.3.3.1 Opportunities and threats of VISCO 50

2.3.3.2 External Factor Evaluation (EFE) Matrix 51

2.4 Internal environment analysis of VISCO 52

2.4.1 Production capacity 53

2.4.2 Marketing capacity 55

2.4.3 Financial capacity 60

2.4.4 Technological capacity 61

2.4.5 Human resources 63

2.4.6 Summary of VISCO’s internal environment evaluation 63

2.4.6.1 Strengths and weaknesses of VISCO 63

2.4.6.2 Internal Factor Evaluation (IFE) Matrix 64

2.5 SWOT Matrix of VISCO 66

CHAPTER 3 FORMULATION OF BUSINESS STRATEGY BY 2017 FOR VIETNAM-ITALY STEEL JOIN STOCK COMPANY - SOLUTIONS FOR STRATEGY IMPLEMENTATION-RECOMMENDATIONS 70

3.1 Development orientation of VISCO by 2017 70

3.2 Business strategy selection for VISCO by 2017 70

3.2.1 Strategic alternatives formulated from SWOT Matrix 70

3.2.2 Strategy selection for VISCO to 2017 71

3.2.2.1 Market penetration strategy 71

3.2.2.3 Product Development Strategy: 72

3.3 Strategic solutions of VISCO by 2017 76

3.3.1 Solution on organization (Song Da merging Steel Joint Stock Company SDS into VISCO) 76

3.3.2 Solution on human resources 77

3.3.3 Solution on production 78

3.3.4 Solution on marketing 79

3.3.5 Solution on the market 80

3.3.6 Solution on distribution 80

3.3.7 Solution on finance 81

3.3.8 Solution on improving product quality 82

CONCLUSION 84

REFERENCES 85

LIST OF DIAGRAM

Diagram 1.1: Strategy formulation process 14

Diagram 1.2: SWOT Matrix 22

Diagram 2.1: Organizational structure of VISCO 28

Diagram 2.2: Product distribution diagram of Vietnam – Italy Steel Joint Stock Company 59

LIST OF FIGURE Figure 1.1: Five Force Model by Michael E.Porter 17

Figure 2.1 : Logo of Vietnam – Italy Steel Joint Stock Company (VISCO) 26

Figure 2.2 Signboard of VISCO 27

Figure 2.3: GDP growth rate of Vietnam in 2001-2011 period 34

Figure 2.4: Global steel output, April 2010 – September 2011 39

Figure 2.5: Growth rate of Vietnam’s steel industry 2007-2011 39

Figure 2.6: Market share of Vietnam’s steel industry in 2011 40

LIST OF TABLE Table 2.1 Comparison of some basic criteria of VISCO’s competitors 42

Table 2.2 Competitive Profile Matrix (CPM) 45

Table 2.3 Opportunities and threats of VISCO 50

Table 2.4 External Factor Evaluation (EFE) Matrix 51

Table 2.5 Business and production results, 2008 –2011……… 52

Table 2.6: Budget allocated for advertising on the media 576

Table 2.7 Strengths and weaknesses of VISCO 633

Table 2.8 Internal Factor Evaluation (IFE) Matrix 64

Table 2.9 SWOT Matrix and combined strategies of VISCO 66

Table 3.1 Quantitative Strategic Planning Matrix (QSPM) 73

Table 3.2 Some targets for VISCO by 2017 83

COMMITMENT

Group 8-M0210 would like to commit that the content of this capstone project report has not been submitted to any MBA program as well as other courses

Our effort has been shown in the content of the capstone project report

We have applied the learned knowledge from the program logically and combined with referential data to create a capstone project report with th e best quality

ACKNOWLEGEMENT

At first, we would like to express our sincere thanks to the University Management Board, professors, doctors, lecturers and staff at the Center for Educational Technology and Career Development (ETC) – Vietnam National University, Hanoi and Griggs University (USA) for their conscientious support during our studying process

This course provides us with an access to a modern education with advanced and practical teaching method and applicable information to our work

Regarding this capstone project report, we are grateful to Ass.Prf.Dr Ngo Kim Thanh for instructing and helping us complete the report – Global Advanced Master of Business Administration Program 2012

Thank you very much!

INTRODUCTION

1 Significance of the research

Over the past 10 years, Vietnam‟s economy always achieved high and stable growth rates Vietnam‟s accession to the World Trade Organization (WTO) has opened up many opportunities for Vietnamese enterprises to expand the market, raise production capacity and promote their brands in the region and the world, but also brought in a lot of threats These factors have great influence on the sustainable development of enterprises Steel is a key industry of Vietnam‟s economy, making considerable contribution to GDP growth However, the planning of the government, industry and locality has pushed steel industry into a hot period of growth without carefully considering the real purchasing power in the market, leading to a supply-demand imbalance and fierce competition within domestic steel industry At the same time, it also creates conditions for steel imported from China and ASEAN to penetrate into Vietnamese market, creating the chaos in steel market Therefore, to succeed, each steel manufacturing enterprise must have new thinking and measures; and can utilize supporting means to grasp and process information quickly and decisively to create competitive advantages Understanding the market regulations is the main basis to help enterprises control the game and be proactively in all of their actions and decisions In addition, if enterprises cannot control the external information, internal problems, its core values and position, they will fail right in domestic markets Therefore, the strategy formulation for each enterprise in the integration process is vital for the enterprise‟s survival and development

Under the market economy and the integration roadmap committed by Vietnam, the competitive pressure will be more severe; and many enterprises (including those have been established for a long time) will be lagged behind because they only depend on experience to make decision, formulate simple plans and under-evaluate the enterprises‟ management This makes the enterprises be unable to formulate

strategies and position themselves In the face of those urgent issues, applying our learned knowledge from the Global Advanced Master of Business Administration Program, group 8-M0210 including four members in which a member is working at

Vietnam – Italy Steel Joint Stock Company (VISCO) has selected the topic:

“Formulation of business strategy for Vietnam - Italy Steel Joint Stock Company

By 2017” The group expects that the research results will bring in practical

implications to suggest to the Company‟s board of leaders new orientations to sustain and enhance the position of VISCO in Vietnam‟s construction steel market

2 Objective of the research

The topic “Formulation of business strategy for Vietnam - Italy Steel Joint Stock Company By 2017” aims at following objectives:

 Recognizing major opportunities and threats to the field of trading construction steel, as well as strengths and weaknesses of VISCO

 Formulating a suitable business strategy for VISCO by 2017 by overcoming weaknesses and promoting existing strengths to make full use of business opportunities in order to maintain a stable and sustainable development

3 Scope of the research

- Place of the research: Vietnam – Italy Steel Joint Stock Company and Vietnam‟s steel market

- Time of the research: bases on the business and production situation of Vietnam – Italy Steel Joint Stock Company over the past four years (2008 † 2011)

Steel Association (VSA) and some reliable websites

of business environment, internal potential of the enterprise, strengths, weaknesses, opportunities and threats affecting VISCO‟s operation, we provide the enterprise with strategic alternatives and solutions to implement them in the general context of the market

The research results are the bases for VISCO to select appropriate business plans

to survive and develop with its own capacity

6 Structure of the research:

Apart from the introduction and conclusion, the research includes three chapters:

Chapter 1: Theoretical background of business strategy formulation

Chapter 2: Analysis of business environment of Vietnam – Italy Steel Joint

Stock Company

Chapter 3: Selecting business strategy for Vietnam – Italy Steel Joint Stock

by 2017

CHAPTER 1 THEORETICAL BACKGROUND OF BUSINESS STRATEGY

FORMULATION 1.1 Concept and role of business strategy

1.1.1 Concept of business strategy

The concept “strategy” has appeared for a long time and originated from the field of military At present, there are many concepts of strategy:

According to Pred R David: “Business strategy is a mean to achieve long term objectives”

“Strategy indicates the determination of the basic long-term goals and the objectives of an enterprise and the adoption of courses of action and the allocation

of resources necessary for carrying out these goals”, according to Alfred Chandler Strategic management is the process of:

- Investigating internal and external of the enterprise at present as well as in the future;

- Defining missions and objectives to pursue;

- Deploying and checking the strategy implementation to help the enterprise effectively utilize its resources and capacities to achieve expected goals

1.1.2 Basic characteristics of business strategy

Long-term goals show the expected results from pursuing certain strategies Strategies represent the methods to achieve long-term objectives The time for realizing objectives and strategies must be suitable (normally from 2 to 5 years)

Business strategies only draft long-term orientation, while there must be a combination of strategic goals with situational goals in the real business

All important decisions in the process of formulating, determining, organizing, checking and revising strategies must be paid attention by the top leader

based on the comparative advantages of the enterprise This requires the enterprise to correctly evaluate its business and production situation when formulating strategy

1.1.3 Role of business strategy

Business strategy is often the basis to determine specific business and production targets and measure those business and production results Generally, a business strategy includes three groups of factors:

- Factors related to business environment of the enterprise

- Factors related to the reality and measures of the enterprise‟s strategy implementation

- Factors related to the operation of the enterprise‟s management apparatus

It can be said that business strategy has a decisive role to the success or failure of the enterprise, specifically:

- Providing the enterprise‟s manager with a long-term vision

- Being the basis for the enterprise‟s manager to make correct and timely decisions

- Helping the enterprise to make use of existing strengths and future opportunities to cope with threats; overcome weaknesses; sustain and improve its position

1.2 Business strategy formulation process

There are many methods to formulate suitable business strategies with the enterprise‟s conditions such as scale, market share, financial capacity, etc Our group would like to select the strategy formulation method presented in diagram 1.1 This process will be the core in the topic development of the group

Diagram 1.1: Strategy formulation process

1.2.1 Step 1: Determine visibility and its mission

Determine visibility and its mission

External analysis Internal analysis

Selection strategy

Strategy formulation:

- Corporate level strategy

- Business level strategy

- Functional level strategy

- Global strategy

Planning and allocating resources

Putting strategy into implementation and reaching integration

Organizing and controlling

between strategists and participants in strategy implementation process to help:

+ Strategists understand more about the feasibility of the strategies formulated and facilitate the implementation of those strategies

+ Participants in strategy implementation process will understand more about the strategies when implementing them

+ Raising the feasibility of the formulated strategies

- Defining mission of the enterprise: Mission is perceived as the reason for

existence and implication of the enterprise‟s establishment and existence Mission

of the enterprise is its declaration to the society Normally, mission includes some contents such as customers, products or services, market, technology, philosophy, interest to the community, employees, etc The mission shows the enterprise‟s future prospect Mission is an important basis for the wise selection of objectives and development strategies of the enterprise

- Defining objective of the enterprise: Objective is the specification of

contents and the means to successfully implement the enterprise‟s mission statement

1.2.2 Step 2: Business environment analysis of the enterprise

Business environment of the enterprise includes internal and external environment having direct or indirect influence on its existence and development Therefore, the analysis of internal and external environment of the enterprise is very necessary to the enterprise‟s strategy formulation

1.2.2.1 External environment analysis

 Macro-environment analysis (using PEST +++ Model Political- Economics- Socio-cultural- Technological…)

The external environment analysis helps us recognize opportunities and threats to map out appropriate strategies for the enterprise The external environment analysis is carried out with environments related to the existence and

development of the enterprise, including:

- Economic segment: The economic segment analysis is to determine the

trend of product consumption demand and the capacity to supply materials, human resources, etc for production and the enterprise management The segment includes some major factors such as gross domestic product, income per capita, monetary policy, import-export tariff of commodities and services, international economic integration, population growth (decrease) rate, etc There must be clear understanding and evaluation on the socio-economic development planning of the government and localities

- Political and legal segment: Enterprises need to grasp political trend,

internal & external relation policies, guidelines and policies of the Party and laws of the State on the enterprise‟s development

- Technical-technological segment: The appearance of an increasing

number of new technologies creates opportunities as well as threats for enterprises New technologies help produce new products with lower prices and shorten products‟ lifespan

- Socio-cultural segment: The consumption characteristics, custom, lifestyle

or culture of each locality and ethnic groups will have influence on the demand and taste of consumers who consume enterprises‟ products

- Demographic segment: The scale, growth rate and structure of the

population will have influence on consumption demand and human resource supplies

 Micro-environment (industry environment) analysis

Figure 1.1: Five Force Model by Michael E.Porter

- New entrants: When new competitors penetrate in the industry, the market

share and profit of the enterprise will decrease To protect its competitive position, the enterprise needs to reinforce entry barriers by some measures such as diversifying products, exploiting the existing advantages in terms of production scale, market share, geographical location, brand, etc to raise the initial investment capital, slow capital recovery, reduce competitiveness of the new entrants, so they will have to withdraw from the market

- Substitute products: The quick development of science and technology is

the conditions for the appearance of substitute products Substitute products will threaten the market share and limit potential profit of the enterprise Therefore, the enterprise needs to non-stop apply science and technology to raise labor productivity so as to lower prices of products and services, and heighten quality & functions of services to enhance its competitiveness

New entrants

Industry competitors

Rivalry among existing

firms

Buyers Suppliers

Substitutes

Threat of new entrants

Bargaining power of buyers

Threat of substitute products and service

Bargaining power of suppliers

- Buyers: The trust of customers is very meaningful to an enterprise

However, when buyers have advantages, they will put pressure on the enterprise; for example, they will force prices down or require deferred payment, etc

- Suppliers: include enterprises providing inputs such as materials, machine,

equipment, finance, human resources, etc When suppliers have advantages, they will cause disadvantageous pressure on the enterprise such as setting high selling prices, shortening the deadline of payment, etc

- Competitors: This is a regular pressure which directly threatens the

enterprise When the competitive pressure among enterprises increases, it will threaten the position and existence of the enterprise

1.2.2.2 Internal environment (inter-company environment) analysis

Internal environment of an enterprise includes factors that the enterprise can control firmly such as management, production, finance, accounting, material

supply, marketing, public relations (PR), human resources, information system, etc The internal environment analysis helps the enterprise identify its strengths and weaknesses to formulate suitable strategies which can be implemented in the near future

1.2.3 Step 3: Defining long-term goal and formulating the enterprise’s development strategy

- Long-term objective is the enterprise‟s expected results set out in quite a long period The time for implementing a long-term goal or a strategy is often over two years In the strategy implementation process, to achieve the long-term goal, the enterprise can divide it into many short-term objectives in accordance with shorter periods

- Goal setting is a process of judgment combined with the forecast on demand for the products, the sales, total costs and resources of the enterprise The

products or services that they need to produce and supply in the future Through the forecast on demand, managers can decide the production scale and operation of the enterprise to set the basis for making projection on the finance and human resources

- When the objective is formulated rationally, it will be the motivation and measure for the strategy implementation process Normally, the objective must ensure feasibility, flexibility, specification, consistency and time of implementation

1.3 Tools used to evaluate and select business strategy

To formulate a business strategy, many methods and tools of planning can be employed This topic only selects some tools introduced below because we believe that they will facilitate the development strategy formulation of Vietnam – Italy Steel Joint Stock Company

1.3.1 External Factor Evaluation (EFE) Matrix

External Factor Evaluation (EFE) Matrix allows evaluating major influence

of the external environment on the enterprise EFE Matrix is deployed through five steps:

Step 1: Listing key external factors affecting the enterprise‟s operation Step 2: Assigning a weight from 0.0 (indirect, least important) to 1.0 (direct,

most important) for each factor The classification shows the corresponding importance of factors to the success of the enterprise in the industry

Step 3: Assigning a rating from 1 (weak response and influence) to 4 (strong

response and influence) for each critical success factor to show the response of the

enterprise‟s current strategy to these factors

Step 4: Multiplying the weight of each factor with respective rating to

determine the total weighted score

Step 5: Adding the total weighted score of factors with the sector of the

enterprise The average score is 2.5 If the total weighted score is lower than 2.5, it shows a weak response If it is above 2.5, it will show a strong and positive response to the enterprise

Advantage: Forming an overall picture about external factors affecting the

enterprise‟s competitiveness

Disadvantage: The rating of each factor as well as determination of the importance

of each factor remains subjective

1.3.2 Internal Factor Evaluation (IFE) Matrix

With similar steps of implementation and method of calculating weighted score of External Factor Evaluation Matrix, Internal Factor Evaluation Matrix is a tool to evaluate the strengths, weaknesses and available resources of the enterprise

Advantages: Forming an overview about the internal of the enterprise with

specific strengths and weaknesses having influence on the competitiveness of the enterprise

Disadvantages: Similar to EFE Matrix

1.3.3 Competitive Profile Matrix (CPM)

Competitive Profile Matrix is formed to give out comparison between an enterprise with its major competitors in the industry The comparison is based on factors affecting the competitiveness of enterprises in the industry It helps managers recognize the strengths and weaknesses of the enterprise compared to its competitors, define its competitive advantages and weaknesses needing to be overcome There are five steps to form a Competitive Profile Matrix:

 Step 1: Listing about 10 key factors having strong influence on the competitiveness of enterprises in the industry

 Step 2: Assigning a weight from 0.0 (not important) to 1.0 (very important) for each factor The weight of each factor depends on its influence on the competitiveness of enterprises in the industry The total weighted score of all factors must be equal to 1.0

 Step 3: Assigning a rating from 1 to 4 for each factor The rating of each factor depends on the enterprise‟s response to each factor, in which 4 is superior, 3: above average, 2: average, 1: poor

 Step 4: Multiplying the weight of each factor with its rating to find out the weighted score of each factor

 Step 5: Adding the weighted score of all factors to find out the total weighted score of the matrix

Evaluation: Comparing the total weighted score of the enterprise with its major competitors in the industry to evaluate its competitiveness

1.3.4 SWOT Matrix (Strengths, Weaknesses, Opportunities, Threats):

- SWOT Matrix evaluates strengths, weaknesses, opportunities and threats The objective of environment analysis to recognize opportunities, threats as well as strengths and weaknesses that the enterprise has been facing in its operational process to set the basis for the enterprise‟s strategy formulation SWOT analysis is a tool for summarizing the results of environment analysis and formulating strategy

- Major opportunities: are factors which product between the influence on the enterprise when they are utilized and the probability that the enterprise can take advantage of those opportunities is very high

- Major threats: are factors which product between influence when the threats occur to the enterprise and the probability of those threats has the highest value

- Defining key strengths and weaknesses: the process of evaluating and analyzing internal environment of the enterprise points out many factors, but it is

important to figure out key factors affecting the competitive position and implementation of the enterprise‟s strategy Here, we need to consider factors as activities in the system and compare with general standards of the industry and major competitors

- Combining internal and external factors: after defining basic internal and external factors, applying a process with following steps to analyze and suggest strategies:

Step 1: Listing key internal and external factors on the cells of SWOT

Matrix

Step 2: Combining each pair logically Formulating strategies by combining

S/O, S/T, W/O, W/T

+ S/O: Using which strengths to best exploit external opportunities?

+ S/T: Using which strengths to cope with external threats?

+ W/O: Overcoming which weaknesses to create good conditions for the utilization of external opportunities Which opportunities need to be exploited to overcome the current weaknesses?

+ W/T: Which weaknesses need to be overcome to reduce the current threats?

Step 3: Combining four factors S+W+O+T to form a strategy which helps the

enterprise use strengths to exploit opportunities, and overcome weaknesses to reduce threats

Step 4: Summarizing and reconsidering strategies Grouping strategies and

coordinating strategies into a system with mutual support

SWOT Opportunities Threats

Weaknesses WO strategies WT strategies

Diagram 1.2: SWOT Matrix

Disadvantages: SWOT Matrix helps map out feasible strategic alternatives

rather than selecting and deciding which strategy is the best Therefore, the selection

of which strategy to develop the enterprise has not been solved in the matrix

1.3.5 Quantitative Strategic Planning Matrix (QSPM)

According to Fred R.David, QSPM Matrix uses input information from IFE Matrix, EFE Matrix, Competitive Profile Matrix, SWOT Matrix and Grand Strategy Matrix to objectively evaluate which is the best strategic alternative Six steps to develop a QSPM Matrix:

Step 1: Listing important external opportunities/threats and internal

strengths/weaknesses of the enterprise

Step 2: Assigning a weight to each internal and external critical success

factor This step is similar to IFE and EFE matrices

Step 3: Listing strategic alternatives that the enterprise should consider to

implement Gathering strategies into separate group if it is possible

Step 4: Finding out the attractiveness score (AS) of each strategy The

attractiveness score is rated as follows: 1- not acceptable; 2- possibly acceptable; 3- probably acceptable; 4- most acceptable If the success factors do not have influence

on the strategy selection, do not mark them

Step 5: Calculating the total attractiveness score (TAS) by multiplying the

weight (step 2) with the attractiveness score (step 4) in each row

Step 6: Calculating the sum total attractiveness score by adding all total

attractiveness scores in each strategy column of the QSPM Higher scores point at a more attractive strategy

Each of the above-mentioned tools of strategy formulation has their own advantages and disadvantages Therefore, there must be flexible selection of strategy to suit each specific situation and condition

CHAPTER 2 ANALYSIS OF BUSINESS ENVIRONMENT OF VIETNAM – ITALY

STEEL JOINT STOCK COMPANY 2.1 Overview of Vietnam-Italy Steel Joint Stock Company

2.1.1 History of establishment and development

Implementing the strategy of becoming a strong economic group of the country and aiming at multi-fields, multi-businesses and product diversification, on January 2, 2002m SongDa Holdings decided to invest in a new and synchronous steel milling line with the capacity of 250,000 tons per year This is a modern steel milling line with the total investment of VND 276 billion, supplied and transferred

by Danieli-Italy – the world‟s no.1 group in terms of steel manufacturing technology With the effort of the master investor and contractors, the plant officially came into operation on June 14, 2003 Pursuant to the Decision No 1748/QD-BXD dated December 26, 2003 of the Minister of Construction on converting a number of State-owned enterprises into joint stock companies, on February 11, 2004, Vietnam – Italy Steel Joint Stock Company organized its first shareholders‟ meeting and was officially operated as a joint stock company from

February 20, 2004 with the abbreviated English name - VISCO

The plant is situated in an area of about 8ha next to the National Road no 5, connecting Hanoi with Hai Phong (Km 24+500, Pho Noi A Industrial Park – Giai Pham – Yen My – Hung Yen)

On December 23, 2006, Vietnam – Italy Steel Joint Stock Company was officially listed on Ho Chi Minh City Stock Exchange (HOSE) with stock code –

VIS With high annual growth rates of business results and dividend, VIS has

become a prestigious stock code of both domestic and foreign investors on HOSE

After nearly 10 years of establishment and development, VISCO has affirmed its position in domestic steel market by supplying diverse products: from wire rod Φ5,5-Φ8 to deformed bar with diameter D10 † D40, manufactured in

accordance with high standards such as Vietnam Standard TCVN 1651 - 1985 (CII, CIII), TCVN 1651-2008 (CB300V, CB400V); Japan Standard JISG 3112 (SD295A, SD390, SD490); U.S Standard (Gr60); Britain Standard BS 4449-1997 (Gr460),

etc With modern technology, VIS-branded steel products have stable

physio-mechanical property, accurate diameter, good bending property, stable weight, meeting the highest technical standards of construction steel and becoming one of the strong steel brands of Vietnam

Production capacity of the plant: every day, the plant can produce 1,000 tons

of steel of all types with the capacity of up to 250,000 tons per year

The Company has 431 staffs who are masters, engineers and skillful workers who are trained full-time at domestic and foreign universities with some major such

as mechanic, steel milling, metallurgy, industrial automation, factory electrification, economics, commerce, foreign trade, construction, etc

Vietnam-Italy Steel trade mark which is currently used and protected is:

CARRYING VIS BRAND

Figure 2.1: Logo of Vietnam – Italy Steel Joint Stock Company (VISCO)

Figure 2.2 Signboard of VISCO

2.1.2 Organizational structure of Vietnam-Italy Steel Joint Stock Company

The Board of Directors includes 05 members The Inspection Unit consists

of 03 members The management apparatus includes 01 General Director, 04 Vice General Director and 01 Chief Accountant The Company has 07 functional boards and departments, 01 Project Management Unit, 01 Milling Mill, 01 Electric Mill, 01 Coal Gas Station, 02 Branches in (Da Nang and Tay Bac) and 01 Representative Office in Hanoi

Diagram 2.1: Organizational structure of VISCO

2.1.3 Major business lines

- Producing and trading construction steel: including from the stage of importing input materials (billets) to manufacturing finished construction steel products to

Shareholders’ Meeting

Board of Directors

General Director Inspection Unit

Vice General Director

Milling - Mill

Electric - Mill

Public Relations Dept Coal Gas Station

PMU

- Importing-exporting materials and spare parts serving steel industry: exporting billets and equipment serving production and selling to partners in the industry

importing Providing logistic services: including a team of trucks transporting billets and finished steel products to projects, works, etc as requested by customers

2.1.4 Vision and mission

Vision

Vietnam Italy Steel JSC., aspires to become a reputable construction steel manufacturing and trading company within region and over the world

 Developing industrial production be VISCO‟s key target

 Maintaining the leading enterprise's competitiveness position

 Promoting inter-branch investment projects

 Training and educating human resource meeting with global standards and qualifications

 Strongly exploiting oversea market

 Ensuring competitiveness ability within the country and the region

Mission

Absorbed the experiences from SongDa Holdings with 50 years in construction industry Vietnam Italy Steel Joint Stock Company‟s guideline is always for the interest of customers, shareholders, employees, steel industry and the country

 For the customers: Vietnam Italy Steel Joint Stock Company commits to

maximize the customer‟s interest by consulting and supplying perfect quality

products, professional services at competitive prices

 For the employees: Vietnam Italy Steel Joint Stock Company always takes care to their material and spiritual lives The Company guarantees to provide stable income for the employees and highly appreciates their loyalty and contribution The Company also ensures that

employees are trained regularly to improve their professional competence, skills, political & cultural interests, etc

 For the Shareholder: Vietnam Italy Steel Joint Stock Company attaches special importance to increase share value and dividend

 For the industry and country: Vietnam Italy Steel Joint Stock Company

guarantees to pay government‟s financial duty, comply with the rules and policies

of the steel industry and Vietnam government, contribute to stabilize the steel prices and share with community in the hard time

Core value

To become a reputable construction steel manufacturing and trading company within region and over the world, right from its establishment, Vietnam-Italy Steel Joint Stock Company always takes the lead in thinking, responsibility and determination Each individual in VISCO always performs as an intelligent staff, experiencing in action, adhering customers and group, reaching common goals and maintaining ethics standards

Business ethics

To keep "prestige - conscience", Vietnam Italy Steel JSC., always considers business ethics as a clear prestige and a core factor for the survival of the Company VISCO is aiming to establish business ethics among each staff, in relationship with partners, etc bringing business ethics to be culture base of Company

2.2 Macro-environment analysis of VISCO

To analyze the macro-environment of VISCO, we use analysis tool PEST+++

(Political- Economics- Socio-cultural- Technological)

2.2.1 Political segment

- Political stability, a significant advantage of Vietnam, is a decisive factor in

the development of the country with the top priority of reforming the government‟s administrative procedures (Project 30 of the government) To date, the Project has

situational reform strategy This strategy will make contribution to attracting crucial investment for the infrastructure development, creating conditions for the establishment and development of enterprises and quality of public administration which is essential factors for the development of Vietnam, generating employment, raising income for laborers and boosting consumption of the society This also has positive influence on the increase in investment and stimulates the participation of Vietnamese enterprises in general and VISCO in particular in the country‟s development

- The draft of the Socio-economic Development Strategy 2011 – 2020 of Vietnam mentions three strategic breakthroughs, namely institution, infrastructure and human resources in the next 10 years Of which, many enterprises expect that institution will be given top priority The bases of the above-mentioned draft bring

in great expectation and opportunity for the increase in production and consumption

in the coming time

- In the integration into the regional and global economy, the National Assembly has promulgated and continued to complete some codes such as Commercial Law, Enterprise Law, Investment Law, Tax Law, etc to accelerate the economic reform in Vietnam

- Tax policy: Tax policies on import, export, consumption, income, etc will have influence on revenue and profit of enterprises Steel industry has been given certain preferences which are clearly shown in land-leasing preferential policy, income tax preferential policies, etc Especially, the government is implementing protection policy for domestic steel industry to encourage steel manufacturing enterprises to produce sources of materials such as epurating billets from blast furnaces, electric furnaces, etc to be proactive in the sources of billets for steel milling Therefore, the current import tariff for billets (the main material for steel production) is 7% for non-ASEAN countries and 3†4% for ASEAN countries In addition, the import tariff of finished steel is 15% Thus, it can be seen that the

government is implementing a strong protection policy for domestic steel industry; however, it also has to prepare a tariff reduction roadmap in accordance with AFTA commitment to 2015

- However, if the government‟s planning for steel industry is not managed well, there will be unexpected consequences such as backward technology, environment pollution, unsatisfied economic and technical standards, or fierce competition among steel enterprises VISCO is also seriously affected by competition, especially in price from steel enterprises which do not belong to this planning program

- As Vietnam‟s steel industry mainly imports major input materials such as billets and oil, so it is also severely affected by unstable financial policies such as interest rate, exchange rate, etc because steel enterprises have strong demand for finance and foreign currencies to import billets to sustain production VISCO also enjoyed special incentives in the government‟s stimulus package in 2009 (enjoying

an interest rate of 4% per year); therefore, the steel industry had a successful year Nonetheless, when the world and Vietnam‟s economies fell into a recession in

2011, inflation rate surged (double-digit), economic growth rate slumped, so the government had policy to reduce public spending, tighten monetary policy and raise interest rate, causing difficulties for enterprises Some enterprises even faced threat

of going bankruptcy VISCO was also dramatically impacted by this context, specifically, the Company‟s inventories by the end of 2011 was the highest over the past years with about 20,000 tons of products

- Legal document for steel industry mainly relates to product quality measuring standards and protection of consumers‟ interests From its date of establishment to date, VISCO always considers quality as the core value of enterprises in the tough competition in the market and the high requirements of customers

laws and policies of other countries in the world As a result, the enhancement of awareness, professional competence and skill of staff is a very significant and urgent requirement

2.2.2 Economic segment

+ Factors affecting the economy:

The increased interest rates cause a lot of difficulties for enterprises At present, the lending interest rate is about 15%, but it is difficult to access loans The double-digit inflation rate weakens purchasing power, resulting in high inventories and affecting consumption habit of consumers or organizations The government‟s Resolution No 11/NQ-CP dated February 24, 2011 on major solutions to curb inflation, stabilize the macro-economy, ensure the social security has great influence on the supply and demand for commodities Especially monetary policy greatly affects domestic steel production in general and VISCO in particular as steel manufacturing enterprises mainly import billets VISCO has taken practical actions followed the Resolution No 11/NQ-CP in practicing thrift and cutting investment (specifically, stopping the project on raising production capacity to 400,000 tons of products per year), causing VISCO to miss opportunities to expand production and reduce competitiveness in the medium and long term compared to its rivals

+ Economic policies of the government:

Minimum wage is also revised by the government to suit the average living standard in the non-business sector Income per capita is also increased by GDP/person/year The government has also set target to become an industrial country by 2020 with the proportion of industry of about 40-41% The global economic recession happened at the end of 2008 By 2009, facing the threat of the economic recession, the government issued a 9-billion-dollar stimulus package: supporting interest rate for enterprises, including steel manufacturers and VISCO, exempting and extending tax; extending corporate income tax; standing surety for enterprises to borrow money from commercial banks; stimulating consumption to

ensure social security, etc Thanks to this stimulus package, 2009 was a successful year of Vietnamese enterprises However, the monetary tightening policy of the government in 2011-2012 has caused many difficulties for enterprises VISCO was also significantly impacted by this policy, resulting in weakened purchasing power

and increased inventories

+ Economic growth rate

Economic growth rate of Vietnam from 2001 to date has been quite stable The growth rates of GDP and GDP per capita are about 5†8% per year This factor has good influence on Vietnamese enterprises in general and Vietnam-Italy Steel Joint Stock Company in particular, and is a basis for enterprises to formulate medium and long-term strategies

Figure 2.3: GDP growth rate of Vietnam in 2001-2011 period

Source: Asian Development Bank – ADB)

- Tang truong GDP cua Vietnam 2001 – 2011: GDP growth rate of Vietnam in 2001-2011 period

Foreign Direct Investment (FDI) also influences the demand for steel because when the economy grows sharply or attracts more FDI, it is required that Vietnam‟s infrastructure, especially the electricity and water, traffic, port, technical infrastructure systems, etc must be invested more to meet the requirement of investors and enterprises The demand for steel of these projects is also very substantial

2.2.3 Social segment

- Vietnamese culture has great influence on consumers‟ behavior and psychology Vietnamese people are very economical They save money for the future and have firm conception “having house, then establishing career” Therefore, this factor also has good influence on steel consumption of VISCO

- The shift from agriculture into industry and service, migration, urbanization, increased demand for houses, as well as the psychology of having to own real estate also have positive effect on the steel sales of VISCO in the long-term

- The income and living standard of the people have been improved and shown in the steady increase in GDP per capita, showing potential demand in the market When the living standard is improved, the demand for houses also increases and infrastructure of the society is also improved and has positive influence on construction industry which mainly consumes steel of VISCO

2.2.4 Technological segment

- Regarding metallurgy technology in general and steel milling technology in

particular, the application of science and technology has become more and more perfect New-generation production lines are automated to save production cost and rise productivity Well-known steel milling line manufacturers in the world such as Danieli, Pomini, Simac, etc always appreciate research & development activities to develop the most modern and preeminent steel milling technologies Consequently,

the lifespan of steel milling technologies is also shortened, creating severe competition in terms of steel milling technology

- In addition, the current deep international integration is an opportunity for VISCO to quickly access advanced technologies, modern equipments; and upgrade new versions of production lines in the world to meet the increasingly high requirements on quality of products

- However, at present, most Vietnamese steel enterprises can only afford to invest in production lines with small and medium capacities (about 250,000†500,000 tons per year), so the automation is also at average level compared to developed countries Some enterprises even invest in old and backward technologies, resulting in high production cost and low competitiveness Most companies are in the stage of fixed asset appreciation as they have just invested in these production lines, so the global economic integration and removal of barriers will be a great challenge of Vietnam‟s steel industry as well as VISCO

- Most domestic steel manufacturing companies have to import billets, mainly from China, so they are strongly affected by policies of Chinese government Besides, the strong competition from steel imported ASEAN countries under the tariff-cut roadmap may become the main cause for the failure of steel enterprises right in domestic market

2.3 Industry environment analysis of VISCO

2.3.1 Forecast on the market demand

Vietnam’s steel market:

- According to the Vietnam Steel Association (VSA), revenue of steel industry decreased by about 5% in 2008 (owing to the global economic crisis, changes in interest rate and exchange rate); increased by 32% in 2009 compared

to 2008 thanks to the government‟s stimulus policies such as supporting interest rate 4%, loosened fiscal policies, etc; and dropped 14% in 2012 compared to

unpredictable material prices

- The strong development of steel manufacturing enterprises over the past time is a good signal, but as forecast by the Vietnam Steel Association, the aggressive investment will lead to the oversupply of steel in domestic market In the future, steel manufacturing enterprises will have to face tough competition to gain market share in domestic market According to Mr Pham Chi Cuong, Chairman of the VSA, steel production of Vietnam by the end of March 2011 was estimated at 8.99 million tons, while the total volume of steel consumed in 2010 was only about 6.32 million tons, meaning an oversupply of more than 3 million tons per year Over the past five years (2005-2010), steel consumption only accounts for 50-60% of the construction steel production of enterprises Noticeably, many enterprises which are not specialized in manufacturing steel also invest in some steel projects The investment efficiency of many enterprises is low as they import outdated technologies or overproduce steel It proves the fierce competition in steel industry

At present, VISCO has to compete in terms of cost with domestic steel production plants that already have billet production lines such as TISCO, Hoa Phat, Vietnam-Australia, VPS, etc

- The sources of input materials (wasted steel, ore, coal, etc.) of Vietnam depend on the world market, so some macro-economic policies such as import-export tariffs of billets, steel and USD/VND exchange rate will have direct influence on the operation of steel manufacturing enterprises In addition, the changes in lending interest rate also affect steel price as steel production require high investment It can be said that steel production in Vietnam is skimming only and has not been able to control the root

- The integration of Vietnam in AFTA, WTO and globalization trend will intensify competitive pressure on domestic steel production According to the roadmap of WTO accession, by 2012, some steel products will not be allowed to enjoy preference and high protection in terms of import tariff Therefore, the

volume of steel imported from ASEAN countries, China and Russia will increase owing to the tariff reduction under WTO commitment (at least 1% for each item) Domestic steel industry will encounter more difficulties because they will not receive much protection from the government

- Steel imports from China in 2008 only accounted for up to 64.5% of the total volume of steel imports, while steel imports from ASEAN countries only made

up about 11.7% From July 2009, market share of steel imports from China decreased to 3.8%, while steel imports from ASEAN represented 44%

- In 2010, the global economy continued to recover, the world‟s steel demand inched up and prices of steel fluctuated owing to the prices of input materials such as iron ores and coal, resulting in an increase in prices of billets

- According to a report from the World Steel Association (WSA), steel output of Asia in the first 9 months of 2011 was 728.3 million tons, EU: 137.5 million tons and North America: 89.3 million tons Also according to the report, steel output of Asian in the first 9 months of 2011 increased by 9.5% year on year, while the steel output of 64 countries in September 2011 reported to the Association were 124 million tons, up 9.7% year on year

In America, steel output of the U.S in September 2011 was 7.2 million tons,

up 8.9% year on year, and steel output of Brazil was 2.8 million tons, up 3.8% WSA also forecast steel consumption in 2011 and 2012 at 1.398 billion tons and 1.46 million tons, respectively, up 6.5 % and 5.4% year on year

Figure 2.4: Global steel output, April 2010 – September 2011 (Source: World Steel

Association)

Furthermore, that the global and domestic billet and steel markets are forecast to change complicatedly in the coming years will have direct influence on the business and production of steel companies in general and VISCO in particular

Consequently, it can be seen that Vietnam‟s steel industry tends to growth, but unstable and will be seriously affected by the macro-economy and the world economic situation

Growth rate of Vietnam’s steel industry 2007-2011

Figure 2.5: Growth rate of Vietnam‟s steel industry 2007-2011

(Source: Vietnam Steel Association)

There are 11 steel suppliers in Vietnam‟s construction steel market with the respective market shares as follows: Pomina Steel Company: 15.60%, Thai Nguyen Iron and Steel Joint Stock Corporation (TISCO): 12.30%, Hoa Phat: 13.20%, Southern Steel Company (VNS): 8.20%, Vietnam – Italy Steel Joint Stock Company: 5.40%, VSC - POSCO Steel Corporation (VPS): 4.20%, Vietnam-Australia Steel Joint Venture (Vinaustel): 4.10%, Vietnam – Japan Steel Company (HPS): 2.60%, Vietnam-Germany Steel Pipe Joint Stock Company (VGS): 4.00%, SSE: 5.90%, Vinakyoei: 7.80%, the remaining16.70% belongs to small domestic enterprises and trade villages

Figure 2.6: Market share of Vietnam’s steel industry in 2011

(Source: Vietnam Steel Association)

The correct evaluation on the market size is a very important task because it

is the basis for formulating business strategies As forecast by the Ministry of Industry and Trade, the demand for finished steel products of Vietnam are 11-12

Market share of Vietnam’s steel industry in 2011