Building business strategy for Lachong Investment Joint Stock Company (Lachong) in the period 2012-2016

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GRIGGS UNIVERSITY

‘CG; LOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM

CAPSTONE PROJECT REPORT

BUILDING BUSINESS STRATEGY FOR LACHONG INVESTMENT JOINTSTOCK COMPANY

(LACHONG) IN THE PERIOD 2012-2016

Group number: 04 — Class: GAMBA.M0210 Student’s name:

Phi Van Thinh (Group leader) Dang Thi Thai Ha

Nguyen Thuy Duong Vi Ngoc Duong

HANOL 2012

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CAPSTONE PROJECT REPORT GROUP 4-GaMBA.M0210

CONFIRMATION

LACHONG INVESTMENT JOINTSTOCK COMPANY

Address: No 85 Le Van Luong street, Thanh Xuan district, Ha Noi Tel: (84-04)3557 4652 - Fax: (84-04)3558 6391 Email: lachong@lachong.vn - Website: lachong.vn Date: J2 /.£./2012

To: - Master of business administration program-Griggs-Andrews University

-ETC-Vietnam national university, Hanoi

Subject: Comment of LACHONG INVESTMENT JOINT STOCK COMPANY (LACHONG) about Capstone of Group 4-GaMBA.M0210-

Griggs-Andrews University

- LACHONG has done fully support for Group 4-M0210 when they practiced

and learned in company about the operation status, vision and strategy of company

- Group members have expressed an enthusiastic and creative, have closely

followed up current situation of company and receive a good result in

working time at LACHONG 7 ¢ Sf, % ⁄ CÔNG TY hs Mf Nef ats

LACHONG INVESTME) 'OCK COMPANY

G Global Advanced Master of Business Administration

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Andrews Ö University

GRIGGS GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM Ta ái Website: www.griggs.edu.vn Email: qamba(@griggs.edu.vn

TABLE CONTENTS

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Andrews Q University

GRIGGS GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM verte Website: www.griggs.edu.vn Email: qamba@griggs.edu.vn

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2.3 Necessity for formulating the new business strategy in Lac Hong Investment

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CHAPTER 3: BUILDING BUSINESS STRATEGY FOR LAC HONG

INVESTMENT JOINT STOCK COMPANY scncosssemenenensnenenmnnmanenennvaseansens 62

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GRIGGS GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM

es Website: www.griggs.edu.vn Email: qamba(@griggs.edu.vn

ACKNOWLEDGEMENT

Our Group 4-M0210 would like to show sincere thanks for all officials and employees of the Lac Hong Company to provide materials and data, to arrange meetings for us to interview directly with staff to get more understanding and awareness for completing the task Besides, we would like to send our truly thanks to lecturers who provide knowledge and skill of enterprise management for us in the training course It is such a necessary foundation for studying, practical and useful experiences We would like to show our special thanks for the ETC Center — Hanoi National University and U.S Griggs University in terms of the support of lecturers during the process of research finalization

COMMITMENT

We, Group 4-M0210, would like to commit that the topic research results are the whole team effort All the data and results obtained in the analysis of this topic is

authentic

Once more, we would like to confirm that the analysis in the study is selected carefully from learnt theories and materials provided by Lac Hong Company and this topic are the first research one

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WYER ETT Yo Website: www.griggs.edu.vn Email: gamba@ariggs edu.vn

LIST OF ABBREVIATIONS AS Attractiveness Score

CPM Competitive profile matrix

EFE External Factor Evaluation Matrix IFE Internal Factor Evaluation Matrix ICOR Incremental Capital Output Rate JE Internal-External Matrix

GDP Gross Domestic Product

LACHONG Lac Hong Investment Joint stock Company SWOT — Strengths, Weakness, Opportunities, Threats

PEST Political, Economics, Socio-cultural, Technological QSPM = Quantitative Strategic Planning Matrix

TAS Total Attractiveness Score

LIST OF FIGURES AND TABLES FIGURE

Figure 1.1 — Business Strategy formulation process Figure 1.2 — Factors of macro environment

Figure 1.3 — Five Forces Model by Michael Porter Figure 1.4 — Model of internal corporate environment Figure 1.5- External and internal Matrix - IE

Figure 1.6- SWOT Matrix

Figure 2.1- Process of construction and installation Figure 2.2- Process of real estate investment

Figure 2.3- Images of some key products in Lac Hong

Figure 2.4- Stage of golden population opportunity in Southeast Asia Figure 3.1-Analysis IE-] matrix

Figure 3.2-Analysis IE-2 matrix Figure 3.3-Analysis IE-3 matrix

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TABLES

Table 1.1 — External factor evaluation matrix Table 1.2 — Internal factor evaluation matrix Table 1.3 — SWOT analysis matrix

Table 1.4 —- QSPM Matrix

Table 2.1- Financial targets of Lac Hong investment joint stock Company) Table 2.2- ICOR of Vietnam compared to some countries

Table 2.3- GDP growth speed of Vietnam in periods of 2008 — 2011 Table 2.4- CPM Matrix

Table 2.5- Summary of competitive pressure for Lac Hong Table 2.6- Analysis of EFE Matrix

Table 2.7- Analysis-IFE matrix Table 3.1- Analysis-S WOT matrix Table 3.1- Analysis-QSPM matrix

Table 3.3- Roadmap for strategy implement

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INTRODUCTION

Over the past few years, along with the rapid national economic growth, the construction sector of Vietnam has developed quick both in width and in depth However the process of Vietnamese economy integration into the international economy poses many challenges for the construction industry The rapid increase in construction quantity and the maturity in construction scale and quality of domestic construction businesses are associated with the massive infiltration process of foreign large construction corporations from Japan South Korea and China etc resulting in the level and scope of increasingly fierce competition in the market In the context of severe competition, to overcome challenges and take advantage of opportunities for survival and development, the important and necessary thing for businesses is to find out a correct direction that is consistent with sudden and frequent changes of the business environment, to create high adaptation and ensure the sustainability for businesses To achieve this, businesses must identify clearly their operation targets, to formulate the optimist business strategy as well as to implement a series of strategic measures effectively One optimal strategy will create favorable conditions for enterprises to capture business opportunities, proactively identify and seek solutions to threats, thence take advantage of strengths and overcome weaknesses to exploit effectiveness of opportunities and minimize challenges

Since 2010 up to now, the public debt crisis in Europe has deeply affected on the whole world economy and not little on the economic development in Vietnam The complicate fluctuations in exchange rates, gold prices and interest rates etc have boosted long and high inflation The production business activities of enterprises meet with many difficulties and a series of real estate projects in standstill Shrinking the construction market has a direct impact on all production and business activities in general, real estate and construction businesses in particular In this context, to continue viability and development it requires corporate executives

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GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM Website: www.griggs.edu.vn Email: gamba@griggs.edu.vn

to develop the optimal business strategy, to integrate strengths and opportunities, to limit weaknesses to overcome challenges from the external environment to improve the effectiveness of resources utilization and competitiveness to ensure enterprises for sustainable existence and development

Lac Hong Investment Joint Stock Company was established in September 2003 and operates in terms of construction and real estate trading After nearly 10 operating years, Lac Hong has gained severai certain business achievements Frorn a new enterprise with limited machinery and equipment capacity it now becomes such a strong business in the construction and real estate sector in Vietnam, implementing successfully several construction projects and projects of large-scale real estate investment as well as a lot of experiences in premise leveling, hotel business, cable car service and ecological tourism etc Nevertheless, ten years is not long enough to ensure a future of sustainable development for Lac Hong in the current context of complicate economy fluctuation and integration tendency Lac Hong is still fumble about developing business according to the traditional or modern model of construction and real estate business, becoming a prime bidder and investor of large projects on real estate and tourism resorts etc The company has not formulated itself a business strategy to cope with the era challenges in a pro-active manner Therefore, the necessity of Lac Hong is to have a long-term orientation of development by formulating a right business strategy that is consistent with the external environment, the capacity and resources of enterprise in the market of so many fluctuations and increasingly fierce competition as today As a big shareholder of Lac Hong, participating in several important decisions on the success or failure of enterprise, right after joining the Master training program on International Business Administration of the USA Griggs University with final subject “Strategic management”, one member of Group 4 — M0210 has appreciated the group to select the topic “Building business strategy for Lac Hong Investment Joint Stock Company in the period 2012-2016” for the task of “Strategic

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GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM

GRIGGS Website: www.griggs.edu.vn Email: qamba(@griggs.edu.vn

management » as well as making more significant contributions to the sustainable

existence and development of Lac Hong company

1, Research objectives:

To systematize theoretical issues on strategic management

To analyze the current status of business operation and the necessity to build a new business strategy

To propose one optimal business strategy and measures for the business in periods of 2012 — 2016

2 Research scope and subject:

Subject: The business strategy of Joint Stock Enterprise of Lac Hong

Scope: The construction and real estate industry of the Lac Hong Joint Stock Investment Company in the Vietnamese market in the periods of 2012 - 2016 The reason for choosing these two business areas instead of the main construction business areas is that construction and real estate are two independent activities, however, these closely interact with each other: (1) when performing the construction operation may find out opportunities of

real estate business (as real estate is part of construction product); (2) the real

estate business generates jobs for the construction operation through the investment process of leveling and construction installation

3 Research methods:

To use the following quantitative and qualitative measures:

To use the method of studying available materials (secondary ones) to consider the current situation and movement trend of market

To research and investigate to collect primary data: in the research process, the team conducted some interviews with many economists and reputed business leaders such as Ms Pham Chi Lan (Former Vice president of the Chamber of Commerce and Industry Vietnam), Dr Dinh The Hien (Director Institute of Informatics and Applied Economics) Dr Le Tham Duong (Head

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SAS oe Website: www.griggs.edu.vn Email: qamba@griqgs.edu vn

of Business Administration-Bank University Ho Chi Minh City, Dr Nguyen Chi Hieu (Board member of AN BINH joint-stock commercial Bank, economic experts) through discussions on prospects of the Vietnam business environment in future prospects of real estate market and solutions to boosting the real estate market in economic forums organized by VCCI and stock companies

4 Outline:

The main topic content includes three following chapters in addition to the

introduction and conclusion:

- Chapter 1: General rationale on business strategy

- Chapter 2: Analysis on the current operation status of Lac Hong Investment Joint stock Company

- Chapter 3: Building business strategy and solutions for Lac Hong Investment Joint Stock Company in 2012-2016

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yeas See Website: www.griggs.edu.vn Email: gamba@ariggs.edu.vn

CHAPTER 1:GENERAL RATIONALE ON BUSINESS STRATEGY 1.1 Definition on strategy and strategic management

The strategy of one enterprise is the general action plan towards implementing its goals The strategy is not aimed at specifically outlined how to achieve these goals because it is the duty of a multitude of assistance programs and other functional Strategies It relates to how the enterprise can compete successfully in a specific market (according to Micheal E Porter) and strategic decisions on product selection, meet with customer needs, gain competitive advantages over competitors and create new opportunities etc

Up to now, there are various definitions on strategy subject to different research approaches:

- According to the author Chandler (1962): The strategy is to identify long term, basic goals and purposes, to apply a sequence of actions and allocate necessary resources

- According to the author Quinn (1980): The strategy is the pattern or plan to integrate major goals, policies and action sequences into a closely cohesive system

- According to Fred R.David: The strategy is an artistic science and scientific establishment, implementation and evaluation of decisions relating to many functions that allow one organization to achieve objectives

- According to the authors such as Garry D Smith, Danny R.Arold and Bobby R Bizzell: Strategic planning is the process of researching the future and current environment, deciding the goals of organization; perform and controlling decision implementation to achieve that goal in the future and current environment

Strategic management can be defined as an art and scientific establishment, implementation and evaluation on decisions relating to many functions in order to allow one organization to achieve objectives

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Garry D Smith (1991) says strategic management is the process of studying the future or current environment, planning organizational goals; to implement and test decisions to achieve those goals in the future or current environment

1.2 Process of strategy formulation

The process of strategy formulation includes such three basic steps as strategy establishment, strategy implementation and strategy evaluation Based on the mission and vision, each enterprise sets up different operational goals and purposes Through the process of analyzing the external environment (sector or macro environment) and the internal environment to identify business opportunities, challenges, strengths and weaknesses of the business in order to formulate strategies Strategy assessment is aimed to to measure, identify achievements and make necessary adjustments to develop strategies effectively The strategic planning process is described in Figure 1.1 as follows:

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1.2.1 Vision and Mission

he strategy vision refers to the future business orientation of enterprise — “Where will we go":

The business sector to be penetrated and the market position to be achieved Purchaser's needs and purchaser groups to be served

The output to be achieved by enterprise

Future focus on technologies, products or customers

The enterprise model that the management board tries to conduct

Before a volatile business environment, leaders must have good intuition and deep insight to help enterprises take advantage of business opportunities and limitations, to overcome difficulties affecting on production and business operation of enterprises

Each enterprise has got specific vision and mission even when it has not been officially announced The business founder and leader believe their enterprise will be a good image for clients When the enterprise has developed after an operating period, many business leaders realize to identify the initial target again The mission statement of almost companies focuses on current business activities - "Who we are

and what we do":

- Current products and services of enterprise - Customer needs are being served

- Business and technological capacity of enterprise

1.2.2 Goals and tasks

- To ensure consensus on the purpose within the enterprise

1 To provide a basis or standard for distributing corporate resources To establish a common language or environment of enterprise

- To serve as a focal point for individuals to sympathy with the purpose and orientation of enterprise and to prevent those who are unable to enter the market and the business operation sector

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UNIVERSITY

- Tocreate favorable conditions to set up work targets and structure relating to allocation of tasks for responsible elements within the enterprise

- To identify clearly the enterprise purpose and transferring those purposes into the target by the way that the cost, time and parameters can be evaluated and managed

1.2.3 Analysis of elements in the external environment

The factors in the external environment include those in the general environment and in the sector environment These factors create the business environment through business opportunities and challenges to enterprise The task of building the business strategy for enterprises is to help them take advantage of opportunities and minimize the impact of these challenges to achieve their operational targets

‘ws 2 3 Analysis of the general environment (PEST model)

The general environment is the one in the whole national economy including four main factors: politics, economy, society and technology The changes of macro environment can be directly impacted by any factor or many factors

Figure 1.2: Factors of macro environment Factors mic Factors ultural Factors nological Factors (Source: www.marketingteacher.com)

** Political factors (P): is the factor affecting all business sectors in one territory, institutional and legal factors can decide the viability and development of

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any sector When doing business in an administrative unit, the business will be required to follow legal and institutional factors in that area:

« s

Stability: consider the stability in factors of political conflict, institutional diplomat and laws If any institution has high stability, it will facilitate business operation and vice verse if unstable it will happen conflicts impacting negatively to business operation in its territory

Tax policy: import and export taxes, consumption and income taxes etc will influence on corporate revenues and profits

Relevant laws: investment law, corporate law, labor law anti-exciusive law, anti-dumping law etc

Policies: State policies such as trade policies, policies of tax, economy, sector development, policies of competitive regulation and consumer protection etc will influence on enterprises by way of creating profits or challenges

Economic factors (E): Economic factors in long term, short term and the government intervention have impacts on enterprises The enterprise is usually subject to economic factors to decide investment in industries and areas:

ẲẦ +,

The current economic situation: nature of economic cycles Factors influence on the economy: interest rate, inflation etc

Government’s economic policies: Government’s strategy on economic development, preferential policies for industries, basic salary law etc

Prospect of economy in future: growth speed, Gross Domestic Product

(GDP) growth, GDP ratio in total investment funds etc

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- Life style, education, aesthetic views and living psychology - Living condition etc

s* Psychological factors (T): Yechnological and technical factors decide introduction of new products, forming methods of business and needs satisfaction, impacting on competitive capacity and business effectiveness of enterprise:

- Investment of government and enterprise in research and development

(R&D)

- Technological speed and cycle, backward technology rate

- Information technology and internet effect on business operation

123d Analysis of industry environment

To apply the Michel Porter’s model of five competitive forces to analyze the

structure of business sector:

Figure 1.3: Five Forces Model by Michel Porter Potential Entrants | Threat of new entrants Bargaining power of suppliers Industry

Suppliers Competitors om mayers

Rivalry among Selec owes Bargaining power of od Buyers Threat of substitute products or services Substitutes

(Source: M.E Porter Competitive strategy, Newyork, Free Press 1980)

«+ Pressure from providers: Providers include suppliers of facilities, equipment, raw materials capitals and labors etc

- (Quantity and scale of providers: decide competitive pressure, negotiation

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power of providers in terms of industries and enterprises

- Substitute ability of providers: output substitution from providers and costs of switching suppliers

- Information on providers: more information on providers will get higher ability of negotiating with providers and vice versa

“* Pressure from customers: Customers have demands and solvency on products and services provided by enterprises Stay the same with pressures from providers, there is need to consider competitive pressure from customers on such sectors as : scale, importance, costs of customer shifting and customer information

“* Pressure from potential competitors: According to Micheal E Porter, the potential competitor is enterprises absent in sectors but will effect on industries in future More or less, the pressure of potential competitors on strong or weak sectors will depend on such factors as sector attractiveness and barriers to sector participation (technology, funds, trade factors, special resources etc)

“* Pressure substitute products: substitutes are products and services that can satisfy equally to products and services in the sector Such factors on prices, quality, culture, politics, technology etc also effect on threats from substitutes Analysis of substitute’s influence is aimed at unexpectation and unpredictability of substitute products and switching costs

s* Internal competition pressure in industries: enterprises running in industries will compete directly together to create pressure back for industries:

- Sector situation: needs, growth speed, number of competitors etc - Sector structure: centralized or distributed

Withdrawal barriers: factors that make withdrawal from sectors difficult (technology, investment funds, binding with employees, government and relevant partners etc.)

1.2.4 Analysis of internal corporate environment

The factors in the internal environment reflect internal resources and competitive advantage of enterprises Analysis of internal corporate environment is to review

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and evaluate sections of the business, the relationship among sections, to point out strengths and weaknesses which the business still meets and is a prerequisite for utilization and promotion of the strengths, limitations and overcome existing weaknesses

To evaluate the internal corporate environment, it requires to point out main factors that their presence may represent the current operation situation of enterprise

Figure 1.4: Model of internal corporate environment

(Source: Chen (2005) Strategic management of E Business (John Wley & Sons) * Analysis of management operation and organizational structure

- Decision making: Whether the enterprise has clear operation goals or purposes or not, the competitive strategy in the industry or not, can monitor and predict trends related to the environment, can propose management methods for decision making, has plan to deal with uncertain occurrences, can develop work spirit of staff, can distribute resources based on the

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objectives, there goals, strategies policies support and clear connection with each other or not, etc ?

Organization: whether clear organizational structure or not, similar activities are ordered in one group or not, unified leadership principles, effective authorization, job description table or not, etc.?

Control and Motivation: whether the working morale of staff, the administration morale and work satisfaction level are high or not, they encourage the creative spirit, the absence rate and speed to replace staff are high or low, has a system of two-way information exchange or not, administrators are good leaders, employees have the ability to satisfy personal needs through organization or not?

Monitoring: one system of controlling finance, production activities, supervising management activities and effective quality etc.?

Analysis of sale and marketing activities

Types of products and services of enterprise? Ratio of each kind of product and service? Which is the key product and service of the enterprise?

Possibility of information collection from the market, shares of products and services?

Life cycle of products and services, profit rate compares to revenue? Distribution channel, quantity, scope and control ability?

Understanding level on customer needs and product trademark? Pricing strategy and flexibility in pricing etc

Analysis of finance and accounting operation

Structure of capital resources, capacity of long, medium and short term capital mobilization, rate between debt and equity?

Capital costs compare to total industries and direct competitors? Tax problems?

Relationship with owners and debtors?

Financial size, operation effectiveness of accounting system in accounting,

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costing financial planning and profitability etc Analysis of research and development

Does the enterprise has a research and development system? Does it research R&D activities in the sector?

Does the organization have a system and source of information supply to implement R&D successfully?

The operation effectiveness of R&D for new and existing products, balance between development and renovaticn of new products and production process?

Resources for R&D, product application availability of R&D operation? R&D policies of enterprises in industries, especially competitors?

Analysis of production and operation

Price and level of providing raw materials and relationship with providers? System of checking inventories, level of capital revolving and utilizing facilities?

Process of service and product production?

Scale of economic effectiveness? Technical efficiency of means and taking capacity advantages?

Measures of monitoring operation and efficiency etc Analysis of human resources

Considered as the most important resources of almost enterprises, strong human resources usually bring many advantages for any business Analysis of corporate human resources is usually evaluated as follows:

The manpower supply for businesses, especially the high qualified supply? Capacity of replacing key leaders for enterprises?

Enterprise has a system of employee recruitment and requisition? Quantity and quality of officers and employees?

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- One policy of equal discipline, reward and punishment?

- One system of planning expertise and training program for employees? - Is the work condition safe and clean?

- [Is the work opportunity and promotion equal ?

1.2.5 Strategy establishment

After analysis of the industry and general environment of businesses to get understanding on opportunities and challenges for enterprises al present and in future, analyzing the internal corporate environment to identify strengths and weaknesses of enterprises, the next step in strategic management is strategic establishment

Strategic establishment includes deciding which the new business sector to engage or withdraw, how the resources are distributed, whether to develop or expand or participate in the global market or not, link or form one joint venture and how to prevent from the control of competitors etc

1.2.6 Strategy implementation

After selecting the strategy for enterprises, the next period is to implement the strategy At this stage, the business will formulate annual targets and policies, encourage employees and allocate resources in order for strategies to be implemented

Strategy implementation includes developing one culture to support the strategy, create an effective organizational structure, reorient marketing activities, arrange budget, develop and use an information system and encourage individuals to

operate

1.2.7 Strategy evaluation

Strategy evaluation is the final stage of strategic management and aimed to supervise results of strategy establishment and implementation Three key activities of this period are as follows:

- To reconsider elements those are the base for current strategies

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- To measure achievements - To conduct adjustments

The environment always changes and enterprises have also themselves changed over time The today success does not guarantee for tomorrow success, therefore it is very necessary to evaluate the strategy, helping strategy establishment and implementation to promote optimal effectiveness

1.3 Toois of strategy formulation

1.3.1 The External Factor Evaluation (EFE) Matrix

EFE is the model of evaluating external factors relating to enterprises that helps corporate leaders assess opportunities and challenges in order to make exact decisions

Table 1.1: The external factor evaluation matrix

No Opportunities Weight Rating Weight Score

Threats

Totals 1.00

(Source: Strategic Management — GaMBA Program)

1.3.2 The Internal Factor Evaluation (IFE) Matrix

IFE is the model of measuring and evaluating internal factors by summarizing strengths and weaknesses of each functional section and relationship between these sections, helping corporate leaders maximize strengths, minimize weaknesses and find out measures of dealing with weaknesses to improve business operation

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GRIGGS GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM Website: www.griggs.edu.vn Email: gamba@griggs.edu.vn UNIVERSITY Table 1.2: The Internal factor evaluation matrix =

_ (Source: Strategic Management GaMBA Program) có

1.3.3 Matrix of integrated SWOT evaluation

The model of evaluating Strengths — Weaknesses — Opportunities — Threats (SWOT) is applied popularly in the process of selecting the corporate strategy The basic purpose of SWOT analysis is to identify suitable strategies between resources and capacity of enterprises with external opportunities and challenges

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GRIGGS GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM tìyggmbn màn b, Website: www.griggs.edu.vn Email: gamba@griggs.edu.vn

Strengths (S): what are the enterprise strengths? Which work does the enterprise do better? Which resources are necessary and can be used? Which strength is better than competitors? Etc

- Weaknesses (W): where are the enterprise weaknesses and do they get improved? which work does the enterprise do the worst and can it be prevented ? etc

- Opportunities (QO); What are the enterprise opportunities? and can take advantage of it? In the external environment trends, which trends to affect the most on businesses and can the business take advantage of it? etc

- Threats (T): What are the threats to businesses? The unfavorable trends of external environment? Actions of competitors? Special requirements on change of work, products or services? Influence of technological change? Changes of financial market and possibility of influencing capital structure

and costs of the business? etc

Table 1.3: SWOT analysis matrix

Strengths (S) Weaknesses (W)

SWOT MATRIX (List corporate

(List corporate strengths)

weaknesses)

Opportunities (O) SO Strategies: WO Strategies :

(List opportunities) Use a firm’s internal Aim at improving internal strengths to take weaknesses by taking advantage of external advantage of external

opportunities opportunities Threats (T) ST Strategies: WT Strategies: (List threats) Use a firm’s strengths to Are defensive tactics

avoid or reduce the impact directed at reducing

of external threats internal weakness and avoiding external threats

(Source : Strategic management —Fred R David- MBA Training program of

International Business Administration)

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GRIGGS GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM Website: www.griggs.edu.vn Email: gamba@griggs.edu.vn

UNIVERSITY

1.3.4 QSPM Matrix:

The method of analysis by QSPM Matrix — (The Quantitative Strategic Planning Matrix) supports corporate leaders to select the optimal strategy objectively; priorities focus on implementing which strategy first in a series of established

strategies QSPM also finds out which strategy is the best QSPM uses inputs from

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ae Website: www.griggs.edu.vn Email: gamba@griggs.edu.vn

UNIVER

CHAPTER 2: ANALYSIS OF BUSINESS ENVIRONMENT OF LAC HONG INVESTMENT JOINT STOCK COMPANY

2.1 Overview on Lac Hong Investment Joint Stock Company

2.1.1 Introduction

LAC HONG INVESTMENT JOINT STOCK COMPANY

Address: No.85 Le Van Luong Street, Thanh Xuan District, Hanoi

Tel: (84-04)3557 4652 - Fax: (84-04)3558 6391

Email: lachong(@lachong.vn - Website: lachong.vn

“* History of establishment:

The predecessor is key officials of building team No.1 and No.3 in Construction Company No.4 of Hanoi Construction Corporation Lac Hong Investment Stock Company was officially established on 15 September 2003 with the initial name so- called Lac Hong Construction Joint Stock Company Up to now, Lac Hong is one of the reputation companies on construction, installation and real estate business with a series of construction and investment projects of high quality and high standard of

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technology and aesthetics Despite many challenges and difficulties, the company always efforts to conduct and complete projects in the best manner It is thanks to the close combination among capacity, experiences, determination and persistence of employees in the company

From such a young company after around 10 operation years, the company has had over 500 engineers, specialized bachelors and 3,000 skillful workers With a team of pro-active management, young and responsible engineers and experienced worker forces, over nearly 10 operating years, Lac Hong has constantly developed and created reputation in the construction market It always focuses on the quality of products and services and environmental sustainability in the investment field To believe in the strategy of sustainable business and development of the company, Hanoi Construction Corporation decided to contribute 10% of chartered capitals to Lac Hong Company in 2007 Lac Hong officially becomes the associated company of Hanoi Construction Corporation with the goal of mutual cooperation and strength promotion

With the motto “Altogether developing and keeping faith », Lac Hong company is increasingly developing and always the reliable address of international and domestic investors

** Business industry

Lac Hong Investment Joint Stock Company is granted a certificate of business registration No 0103002861 dated 15 September 2003 by the Hanoi Department of Planning & Investment The company has main industries as construction and real

estate business

2.1.2 Organizational structure:

With initial orientation of building the company to become the one specializing in construction and_ installation, the founding shareholders named Lac Hong Construction Stock Company Nevertheless, along with the quick development in

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terms of scale and quality, Lac Hong expanded more industries and in 2006 it was officially renamed Lac Hong Investment Joint Stock Company with two main operational functions of construction, installation and real estate investment

°, s*

N — US

List of functional divisions: 10 Division of Supplies and Equipment

Division of Housing Sales, Export & Import IT Division

Division of Consultation & Design

Division of Urban and House Development & Investment Project Management Division

Finance & Accounting Division

Division of Organization & Administration Division of Quality Management & Payment Division of Labor Security & Sanitation List of construction teams: 14

Construction & installation team: 9 Water & electricity team

Pored pile construction team Motorbike &equipment team Paving stone construction team An Khanh carpenter team

Vision & mission

To strive to be a leading company in terms of investment and construction To commit to provide clients with real estates, construction works and services of best quality, meeting with client’s requirements

Employees get proud of working in Lac Hong Company where gives better opportunities and future to them

To get responsible and enthusiastic with the community

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2.1.4 Production and business activities

Lac Hong company operates in terms of construction and real estate business The crisis of real estate market in two recent years has pushed the company to cope with the dual impact of domestic market In addition to suffering from the decline of real estate market makes the product consumption difficult, the construction activity is also facing with the risk of not being paid from investors due to capital deficiency The tight monetary policy and high interest rates has affected capital mobilization for production and transfer of company cash flow

budtted Construction Installation activity a Process of instruction and installation

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PANE ISS Website: www.qriggs.edu.vn Email: gamba@griggs edu.vn

b Current situation of construction and installation

Lac Hong company always identifies the construction and installation activity as the key factor of bringing about stable revenues and profits The company has enough capacity for joining national bidding packages of construction and installation with the Lac Hong trademark

In 2010 Lac Hong signed 15 construction contracts worth over 820 billion VND, of which some large works such as high tech house construction for Viet Duc Hospital worth 226 billion VND; senior housing works for Viglacera — Categories of pile and diaphragm wall worth 180 billion USD, the piles work for Ministry of Foreign Affairs worth 67 billion VND; -L2 CT1 works of Ciputra urban areas worth 186 billion VND etc

In 2011 Lac Hong signed construction contracts worth over 1,300 billion VND Such large construction works as: works of Electrical Equipment Corporation Headquarters worth 262 billion VND; Senior Housing Viglacera works - for the body and completion category worth 813 billion VND; works of building foundations and basements for Foreign Affairs Ministry office worth 106 billion VND: works of building 81 ECOPARK villa lots worth 140 billion VND etc

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GRIGGS GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM Ni veReii Website: www.griggs.edu.vn Email: gamba@griggs.edu.vn 2.1.4.2 Investment activities a Process of investment Figure 2.2: Process of real estate investment Unfeasible Unfeasible

(Source: Internal documents of LACHONG)

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GRIGG GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM LAC

b

Website: www.griggs.edu.vn Email: gamba@griggs.edu.vn

Current situation of investment activity

In 2004, nearly one year after establishment, the Lac Hong Investment Stock Company officially expands business to real estate investment with initial project named Investment and construction of Belvedere Ecological Resort in Tam Dao district, Vinh Phuc province Up to now, the company has become the investor of several large projects:

Project of investing and building the Belvedere Ecological Resort in Tam Dao district Vinh Phuc province in the 30-hectare area and has completed the first phase investment worth over 100 billion VND

Project of investing and constructing the urban area of Ha Tien temple in Vinh Yen city, Vinh Phuc province in the 69-hectare area and completed the investment value of over 500 billion VND

Project of investing and constructing the company office with 4,500 m°* of office floors worth total 60 billion VND that completed in operation in September 2011

Project of investing and constructing the Vacvina office in Thanh Xuan

> of office floors worth total estimated 110

district, Hanoi with 9.500 m

billion VND and completed the foundation and one floor worth 25 billion VND

Project of constructing the luxury residential area No.1 in the diplomatic area, Tu Liem district, Hanoi: build two blocks with total 65,000 m’ of flat floors on the area of 5400 m2 worth total estimated 1,170 billion VND and completed compensation, clearance and payment of land use and in progress of conducting geological survey to prepare investment value worth 113,5 billion VND

Project of investing and constructing the luxury residential area in Khai Quang ward, Vinh Yen city, Vinh Phuc province with 7.4 hectare area worth total estimated 300 billion VND and completed compensation, clearance and payment of land use and in progress of conducting geological survey to prepare investment value worth 90 billion VND

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- Project of investing and constructing Pho Noi residential area in Yen My district, Hung Yen province with 30-hectare area worth over estimated 900 billion VND and in progress of compensation, clearance and payment of land use and geological survey to prepare investment value worth nearly 30

billion VND

- Project of investing and constructing the commercial service area in the tourism resort in Cam Ranh Northern Island, Khanh Hoa province: building luxury houses and trade tower with |4-hectare area worth gross estimated

320 billion VND and conducted over 20-billion- VND investment 2.44.3 Typical products: Following is some pictures of typical constructions that the company has been performing: Figure 2.3: Images of some key products in Lac Hong NATIONAL ASSEMBLY URBAN AREA OF HA TIEN PAGODA ~- VINH PHUC Bee ae Tay 50.00 0 AA my af ee pete J =4 = MINISTRY OF JUSTICE THANG LONG SOUTH URBAN AREA RESIDENTIAL re PHO NOI -HUNG ant

SOLDIER HOUSING AREA OF NEW HEAD OFFICE ~ MINISTRY OF

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2.1.5 Financial operation:

Due to influences from difficulties of domestic real estate and financial market,

after several constant years of revenue and profit growth, the profit of Lac Hong Company decreased in the first time in 2011

Table 2.1 ;: Financial targets of Lac Hong investment joint stock company)

CONSOLIDATION OF FINANCIAL TARGETS Periods of 2009 — 2011 TARGETS 2009 2010 _ +/-% 2011 |+/-%

| OPERATING RESULTS Unit: VND

_Net operating revenue 603,584,088,021 | 724,311,761,553 | 20%! 834,383,873,090 | 15% Expenses _ 564.952 355,886 | 678,741,757475| 20% | 783,604,520,244 | 15% Gross profits 38,631,732,135 | 45,570,004,078 | 18%} 50,779352846| 11% Financial revenue 2,010,746, 138 3,941,873,663 | 96% 2,414,962,270 | -39% |Financialexpenses - 11,618,936,259| 14,516,983,748 | 25%} 21,210,702,551 | 46% Management expenses 8,244,239,508 | 11,664,290,526 | 41% 17,158,892,222 | 47% Net operating profits 20,779,302,506 | 23,330,603,467 | 12% 14,824,720,343 | -36% Other profits 0 248,106,172 41,837,740 | -83%

Gross profits before tax 20,779,302,506 | 23,578,709,639 | 13% 14,866,558,083 | -37% Profits after income taxes 15,631,520,503 | 17,627,147,107| 13% 11,131,027,683 | -37%

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Website: www.griggs.edu.vn Email: gamba@griggs.edu.vn TARGETS 2009 2010 +/-% 2011 +/-% Liabilities == 594,226,281,481 | 1,021,294,073,842 | 72% | 1,333,695,343,383 | 31% | Current liabilities _ _ 560,563,235,943 | _895,405,115,894 | 60% | 1,013,886,921,944 | 13%

Short term borrowings _ 67,793,491,044 | _121,360,355,782 | 79% | _105,428,759,367 | -13% Trade account payable _ _—_ 172,914,841,383 239,772,655,868 | 39% 297,065,948,085 | 24%

Other short term liabilities | 319854903516| 534,272,104,244 | 67% | _611,392,214,492 | 14% 154 Longtermliabilius | 33,663,045,5348| 125,888,957,948 | 274% | 319,808/421439| 2© 289 Long term liabilities 29,000,000,000 | 53,000,000,000Ì 83% | 205,925.427455 % 1463 Other long term liabilities _ 4,663,045,538 | 72,888,957,948 % | 113,882,993,984 | 56% |Owner’sequity | 84/248/584088| 97484,732,641| 16% | 95,450,625,432| -2% Legal capital _ 81,000,000,000 | _ 81,000,000,000 | 0%| 81,000.000,000| 0% funds _ 3,248,584,088 | _16,484,732,641 | 407% 14,450,625,432 | -12% Total 678,474,865,569 | 1,118,778,806,483 | 65% | 1,429,145,968,815 | 28% FINANCIAL TARGETS Profitability targets (%) unit: % ROA sees 2.30% 1.58% | -32% 0.78% | -51% ROR 2.59% 2.43% | -6% 1.33% | -45% ROE | 18.55% 18.08% | -3% 11.66% | -36% Operational capacity

| targets Unit: times

Account receivable turnover 5.09 3.38 | -34% 3.53 4% Total asset turnover 0.89 0.65 | -27% 0.58 | -10%

Solvency (times) Unit: times

Current solvency capability 0.97 0.89 | -8% 0.89} 0% Fast solvency capability 0.97 0.89 | -8% 0.89 | 0% Capital structure (%) unit: %

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FINANCIAL TARGETS OF CONSTRUCTION OPERATION Periods of 2009 — 2011 TARGET 2009 2010 +/-% 2011 +/-% OPERATING RESULTS Unit: VND

Net construction revenues 513,046,474,818 | 622,908,114,936 | 21% | 792,664,679,436 | 27% Expenses _ | 485,859,026,062 | 590,505,329,003 | 22% | 744,424,294,232 | 26% Gross profits | 27,187,448,756 | _32,402,785,932 | 19% | _48,240,385,204 | 49%, Financial revenues 2,010,746,138 | 3,941,873,663 | 96% 2,414,962,270 | -39% Financial expenses | 10457042/633| 13,645,964723| 30% | 21,210,702,551 | 55% Management expenses | _7,254,930,767 | _10,497,861,473 | 45% | 16,300,947,611 | 55% Net profits _ " 1,486,221,494 12,200,833,399 6% | 13,143,697,312 8% Other profits 0 248,106,172 41,837,740 | -83% Profits before taxes | 11,486,221,494 12,448,939,571 8% | 13,185,535,052 6% Profits after taxes ¬ 8,640,670,529 9,306,670,827 8% 9,872,396,479 6% FINANCIAL TARGETS Profitability targets (%) Unit: % ROR 1.68% 1.49% | -11% 1.25% | -17% FINANCIAL TARGETS OF REAL ESTATE BUSINESS Periods of 2009 — 2011 OPERATING RESULTS Unit: VND Net revenues 90,537,613,203 101,403,646,617 | 12% | 41,719,193,655 | -59% Expenses | 79,093 329,824 88,236,428,472 | 12% | 39,180,226,012 | -56% Gross profits 11,444,283,379 13,167,218,146 | 15% | 2,538,967,642 | -81% Financial revenues 0 0 0 | Financial expenses 1,161,893 ,626 871,019,025 | -25% 0| -100% Management expenses 989,308,741 1,166,429,053 | 18% 857,944,611 | -26% Net profits _ 9,293,081,012 11,129,770,068 | 20% | 1,681,023,031 | -§5% | Other profits 0 0 0

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Andrews Ñ University

ever: GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM

JINN Website: www.griqgs.edu.vn Email: qamba@griggs.edu.vn

Comments on financial status

Total assets of the company increased by 65% in 2010 and continued up 28% in 2011, reaching 1.429 billion VND The revenue increased by 20% in 2010 and continued to rise 15% in 2011 to reach 834.4 billion VND In_ particular, construction revenue was up 21% in 2010 and 27% in 2011, real estate sales increased 12% in 2010 and fell 59% in 2011 Profits after taxes of the company after rising 13% in 2019, decreased 37% in 2011 at 11.1 billion VND due to Operating profits after taxes of real estate business was down 85% compared with 2010 (operating profits after taxes of construction still rose 6% in 2011) Profits after taxes as reduced dividend rate from 33% to 10% of par value shares, while the dividend rate has been adjusted to increase 15% in 2010

The profit after tax return on assets (ROA) of the company fell by 32% in 2010 and continued to decline by 51% in 2011 due to total assets increasing faster than profit growth rate and the decline of profit target after taxes in 2011 Correspondingly, the profit- after-tax rate of return on equity (ROE) of the company fell 3% in 2010 and continued to drop 36% in 2011 The profit after tax rate on revenue (ROR) was 2.43% in 2010 and down 6% compared to 2009; this index was 1.33% in 2011, down 45% compared to 2010 If ROR of construction activities is relatively stable (1.68% in 2009, 1.49% in 2010 and 1.25% in 2011), the ROR of property business is quite chaotic (7.72% in 2009, 8.21% in 2010 and 3.02% in 2011) The ROR target of property business fell by 63% in 2011 reflecting the reduction in selling prices of the company in 2011 This is quite in line with the change of the real estate market in the country

The company does not lose the capital balance and can still finance one part of the current assets equal to long term capital resources Nevertheless, the owner equity of the company increased quickly year by year: this target is 13.71 times in 2009

and up 19.66 times (43%) in 2010, continued to increase to 24.59 times (25%) in

2011 Indicators of current liquidity and quick solvency Lac Hong are less than 1 which reflects inflexibility in transforming and arranging cash flows for repayment

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GRIGGS GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM PT Website: www.griggs.edu.vn Email: qamba@griqgs.edu.vn

Lac Hong likely to fall into the risk of losing its solvency or not? Carefully reviewed the financial statements of the Company in 2011 and saw Item The Advances of up to 544 billion is actually a money transfer of real estate in new urban projects Ha Tien Temple of the company but company have not yet completed construction completion and separation procedures for the red book the customer, thus it should still be recorded as a debt, but the company has no financial obligation for this debt And in fact the regular operation of the company cash flow is stable, the situation has not yet arisen company lost liquidity, inability to pay debts to suppliers

2.2 Analysis of the operation environment of Lac Hong Investment Joint Stock Company

2.2.1 Analysis of factors from the external environment

2.24.4 Analysis of the general environment in PEST model: ** Political factors (P):

- Stability: Vietnam is considered as one of the countries have stable politics without dispute among parties because and have one only party to lead the country as the Communist Party Regarding the diplomatic policy, Vietnam applies multilateral diplomacy policies, making friends with all countries As one of the key members of the Association of Southeast Asian Nations

(ASEAN), an active member of the Asia - Pacific Economic Cooperation

Forum (APEC), a member of the World Trade Organization (WTO), a non-

permanent member of the Security Council United Nations (UNSC) in terms

of 2008 — 2009 etc., Vietnam is one of the countries where laws are widespread and are strictly implemented at all levels and areas throughout the entire territory Despite having to amend and supplement more in line with the real context but Vietnam is one of the "living and working under the Constitution and Law" country in general Stable politics creates favorable conditions for investors to perform stable and long-term production and

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` x GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM

GRIGG

GROUP No.4-Ga.MBA.M0210 3

Website: www.griggs.edu.vn Email: qamba@griqgs.edu.vn

business Construction and real estate business are among sectors with the long investment time so it needs the stability of political factors

Tax Policy: Vietnam has relatively adequate tax policies for production and business of enterprises The tax policies of exports, imports, consumptions and incomes have been applied popularly for many years Overall, compared to other countries in the region, the Vietnam's tax policy is relatively open, attracting investors; however, some tax policies still overlap double taxation to be modified appropriately For businesses in construction and real estate investment, the tax laws to adjust the business is mainly value added tax, corporate income tax, import tax (in case of imported machinery equipment), land use fees etc The taxes for the construction and real estate business in Vietnam is now evaluated at average level compared to the region and create conditions for enterprises in terms of accumulation, investment and development

The relevant legislation: investment law, corporate law, labor law,

construction law, planning law, land law, housing law, securities law etc has been issued and applied for a quite long time However, many policies in the law which are not suitable with the business practices of enterprises should be amended and supplemented The National Assembly of Vietnam is quite active in promulgation and amendment of laws related to business activities of enterprises Article 2 of Construction Law 2003, Article 2 of the Law on Business Property 2006 and guidelines under the current law require all organizations and individuals operating in the territory of Vietnam to be allowed to involve in development and business of real estates except from those prohibited under the provisions of law For enterprises who want to register the property business license must have legal capital of VND 6 billion

Policies: State policies on adjustment of the operation of businesses such as economic development policies construction development policies, public

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