CAPSTONE PROJECT REPORT
BUILDING BUSINESS STRATEGY FOR THE INOX WATER TANK
BUSINESS OF SONHA
INTERNATIONAL JOINT STOCK
COMPANY FOR PERIOD OF 2013-2017 Chu Duc Hien
Nguyen Tu Cap
Tran Thi Huyen Thanh
GaMBA X0111
Trang 2Email: support@sonha.com.vn; Website: www.sonha.com.vn
Hanoi, 24" February 2013
CONFIRMATION LETTER
To: Master of Business Administration program
Center for Education Technology and Career Development - Hanoi
National University
Subject: Comments of Son Ha International Corporation on Capstone of Group 4 GaMBA.X0111, Griggs University
- Son Ha International Corporation has fully done to support for Group 4 — GaMBA X0111 when they conducted the capstone “Building business strategy for the stainless steel water tank of Son Ha International Joint Stock Company for period of 2013 — 2017”
- Members of group has expressed their enthusiastic working attitude, has Closely followed up current situation of company and received a good result at Son Ha International Corporation
Let */ CONG TY \A\\ Q \OII _ | af CO PHAN
Trang 3ACKNOWLEDGEMENTS
We are also grateful for professors and doctors for equipping us with
knowledge and skills on corporate management during the course These are necessary for research as well as useful experiences for practice
We also would like to express our special gratitude to ETC Center — Vietnam
National University, Hanoi and Griggs University for their support during the completion of this study
We would like to express our sincere thanks to staffs at Son Ha International Joint Stock Company for having enthusiastically supported, supplying information data, as well as arranging meetings to discuss about business strategy of company
[GS Global Advanced Master of Business Administration Program
Trang 4TABLE OF CONTENT ACKNOWLEDGEMENTS 222.2 Hee 2 IV.1/)09/9)00609)009 005 3 LLIST OE TA B.LES - 5-5 <0 0000909885885005895895.08 5ø 6 LLIST OE EFIGURLEVS 2 5-5 5< << 9 9.9 9.9.9.0 1.09 009804.088841895888958s 5ø 7 INTRODUCTTOÌN .o- G- (G s HH .00010888855085005085885.0580 8 1 Significance of (he res€aarrCH s- << se 9996989589585 8950588505085080g se 8
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CGS Global Advanced Master of Business Administration
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2.1.6 Business results of Sonha Jsc and in 2010-2012 -.- 5-2 5< <<+s 29
2.2 ANALYSIS OF EXTERNAL ENVIRONMENT 5 << «<< 32
2.2.1 Macro-environment analysis (PEST model) 5-5 <<: 32
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2.3.6 Internal Factor Evaluation (IFE) Mtr ix cccccccccccccsccssssssssssssssesssssenceeee 56
CHAPTER III: STRATEGY SELECTION AND SOLUTIONS TO
IMPLEMENT SELECTED STRATEGY FOR SON HA- INOX WATER TANK BUSINESS DURING THE PERIOD OF 2013-2017 60
3.1 LONG-TERM OB.JECTIV ES << << s1 S9989850565.5E5 5065 2e 60 K5 J CV) 2t j)00)00 09) 61 3.3 SOLUTIONS TO IMPLEMENT SELECTED STRATEGIES 71
3.3.1.Market Development business straf€gy 5-5 c5 cs sec csecs 7]
3.3.2.The National Target Program for Rural Water Supply and Sanitation (RWSS) for period 2012-20 Ï . 6 + 6 5241611 1 111 11 1 111g ng ng re, 72 3.3.3 Some features of Rural area in Vietnam -s- «<< << c<sesczsczx 73
3.3 4 Solutions for Rural Market Development strategy - - - 74 3.3.5 Solutions for Cost Leadership strat€gy . 2-55 ccs se cscs sex 81
3.3.6 Strategy implementation schedule cccccsesessessesesseseesesssecescsssscseeees 84
[GS Global Advanced Master of Business Administration
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Trang 6CONCLUSION ccccsssssssssssscssssscsecsssscssssesescscsssessacessacsneseasessecseasessecsesseassssesssesees 86 2333.420020 8 87
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Trang 7LIST OF TABLES
Table 1.1 Example of a blank EFE Matrix Table 1.2 Example of a blank CPM Matrix
Table 2.1 Income statement of INOX water tank in 2010-2012 Table 2.2 Forecast of global economic growth
Table 2.3 Population in rural in Vietnam, 2009-2020 Table 2.4 EFE Matrix
Table 2.5 CPM Matrix
Table 2.6 Structure of Assets and Equity of Son Ha
Table 2.7 Some financial ratios of Son Ha INOX water tank in 2011-2012
Table 2.8: Table 2.8 IFE Matrix Table 3.1 SWOT Matrix
Table 3.2 QSPM Matrix 1
Table 3.3 QSPM matrix 2
Table 3.4 Forecast revenue after implementing selected business
strategy
Table 3.5 Roadmap of implementation
G Global Advanced Master of Business Administration Program
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| Figure 1.1 Five forces model of M.Porter
Figure 1.2: PEST model in macro-environment analysis Figure 1.3 Strategy selection
Figure 2.1 Orgnization structure
Figure 2.2 Revenue structure by products in 2012
Figure 2.3 Vietnam Gross Domestic Product Figure 2 4: Inflation in 2001-2012
Figure 2 5 Market share of INOX water tank in 2012 Figure 2.6 Human resource by Age
Figure 2.7: Human resource by qualification
G Global Advanced Master of Business Administration Program
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1 Significance of the research
Son Ha International Joint Stock Company, established in 1998, is a
manufacturer of stainless steel products in Vietnam Son Ha-branded products have built its strong position in the Vietnamese consumer’s heart and a trusted friend of many international partners The two main product lines which bring in revenue and profit for the company are a stainless steel tube in industrial and construction applications, stainless steel water tank for construction projects and households
Steel industry in general and stainless steel in particular are clearly affected
by the global economic recession in 2008 In Vietnam, due to the freezing of real estate market, construction projects stopped or delayed, many steel enterprises that
trapped with large inventory must adjust steel output Although there are not many
steel companies declared bankruptcy, but as calculated by the Vietnam Steel Association (VSA), the end of 2012, there will be about 20% of bankrupt steel
companies Enterprises not only have difficulties for the sale of products, bank loans,
increase of electricity prices but also face with steel imported from China Despite
the overall impact of the economy, but Son Ha’s revenue and profit increased due to export market development policy However, the profit margin rose unevenly, from
6% in 2010, down 1% in 2011, up to 3% in 2012 due to significant growth of interest expense and investment in the retail sector
The world economy is recovering slowly, the product demand has not yet reached pre-recession levels In that context, the main export market of stainless steel tubes, the United States, Canada and Brazil, is still in a prettily good growth, the company has strategically developed this product to the South American market, great promising market Although stainless steel water tank products is currently leading in the North market but potential competitors can be overwhelmed at any time if there is no new business strategy Basing on the domestic economy and business situation of Son Ha, our group choose the topic: “Building Businessstrategy
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Company for period of 2013 — 2017”
2 Research Objectives:
- Understanding the value of strategic management theory applied to Son Ha
International Joint Stock Company
- Conceiving the inside and outside factors that impact on business operations and
the company's production
- Proposing solutions to overcome the weaknesses and take advantage of opportunities to plan long-term and sustainable development for Son Ha International Joint Stock Company
3 Scope of research
- Objective: Son Ha International Joint Stock Company has various business areas such as stainless steel water tank, (INOX water tank), stainless steel tubes,
Solar energy heater, retail, etc However, this report focuses on business strategies
for INOX water tank products - this area is considered to be one SBU (Strategic Business Unit) of the company, because it meets the needs of a particular client group, with its own technology, own separate finance and separated management
from the company's other business segments
- Scope: In the scope of the stainless steel market period 2010 — 2012, based
on the report on the business of INOX water tank of Son Ha International Joint Stock Company in the three years (2010 + 2012)
4, Research Methodology:
- Method of analysis: Analysis method: PEST + + +, five forces of Michael Porter, SWOT, EFE, IFE, CPM, QSPM
- Methods of data collection: in the internal report of Son Ha International Joint Stock Company from the departments and website and reliable websites
- Using the available documents as stainless steel industry reports, articles,
magazines, to review the status and trends of the market
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5 Structure of the research
INTRODUCTION
Chapter 1: Basis of Literature
Chapter 2: Analysis on stainless steel water tank business of Son Ha Int JSC
Chapter 3: Building business strategy for the stainless steel water tank business of Son Ha International Joint Stock Company for period of 2013 — 2017
CONCLUSION
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Trang 12CHAPTER I: BASIS OFLITERATURE 1.1 The basic concept of business strategy
1.1.1 Definitions
According to traditional viewpoint, “Strategy is studying and finding out a
suitable competitive position in an industry, a major scope of operation in which
there are competitive activities” — Michael Porter According to this definition, strategy stresses on the aspect of competition
James Quinn, at Dar mouth University defined “a strategy is the pattern or plan that integrates an organization's major goals, policies, and action sequences into a cohesive whole.”
Meanwhile, as defined by Willam F.Gluck “Strategy is a consistent,
comprehensive and coordinative plan designed to ensure that the basic objectives of the enterprises are successfully implemented” The development trend of strategy based on planning has been no longer popular The reality has proved that well-
established plans are sometime ineffective, while random plans are sometime
essential some operations of enterprises In short, traditional viewpoints have
exposed their weaknesses
Nowadays, modern viewpoints on strategy have gradually replaced traditional ones These viewpoints do not stress on the calculation, planning, but on the
selection of suitable strategy with the objectives set by the organization In general, modern viewpoints on strategy have tried to return to the nature of the term
“strategy”, at the same time, ensure the adaptation of this term to the changing
business environment
It is not easy to give out clear and accurate definition on strategy This issue can
be solved if we care about factors of strategies that have significant implication to
every organization Under any circumstance and context, these factors much depend
on current situation of enterprises, members in the organization as well as
organizational structure Therefore, we must separate the definition of strategy and
CS Global Advanced Master of Business Administration
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Trang 13strategy formulation process to have a united definition with the supposition that we
have already had a consistent strategy to objectives, orientation and can face changes in the volatile environment
In short, strategy is the process of determining actions and allocation of necessary resources to establish long-terms objective in order to enhance the enterprise’s competitive position in the market Under MBA Griggs program:
Strategy is a series of commitments and actions to mobilize all resources of an organization or individuals in order to achieve a certain goal
1.1.2 Roles of business strategy
- Business strategy helps the enterprise realize its objective and orientation to set the base and guideline for all business and production activities
- Business strategy helps the enterprise to catch and utilize business strategy; at the same time have solutions to proactively overcome threats from competitive environment
- Business strategy helps raise efficiency of resource use, enhance competitive
position and ensure the sustainable development for the enterprise
- Business strategy creates firm bases for mapping out appropriate policies and decisions on business and production with the market changes
1.1.3 Level of business strategy - Classification by level of strategy:
+ Corporate-level strategy: is strategy formulated for the whole company on its
entire field of operation The objective of this strategy is show the destination that the company wants to achieve and an overview on all fields that the company is operated in
+ Business-level strategy: is formulated for a specific business sector If the company only participates in a field, business-level strategy is also considered as corporate-level strategy
+ Functional-level strategy: is considered as strategy for each specific function in a
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- By content of strategy:
Based on the content of strategies, managers can classified them into:Commercial strategy; Financial strategy;Human resource strategy; Technological strategy
- Classification by strategic process:
By this method of classification, business strategies include
+ Oriented strategy: mentions large orientation on the enterprise’s objectives, direction and measures to realize these objectives Oriented strategy helps guide the basic strategic alternatives of the enterprise It is built based on the work performance of internal enterprise analysis
+ Action strategy: is the action plan of the enterprise in each specific situation and projected revisions of strategy Action strategy can be selected from strategies formulated while building oriented strategy or implementing the oriented strategy
1.2 PORTER’S FIVE GENERIC COMPETITIVE STRATEGIES
Figure 1 1.— Five forces model of M.Porter(Source: ME Porter,
Competitive Strategy - New York, Free Press, 1980)
CS Global Advanced Master of Business Administration
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competitive position, the enterprises have to increase barriers through measures such as product diversification, exploiting the inherent advantages of scale, market share, geographic location , the brand, etc to make new entrants who wish join the sector requires the large initial investment cost, slow capital recovery, less competition, etc leading to withdrawal from the market
- Threat of substitutes: Because the science and technology are rapidly developing, it will be the conditions for the introduction of substitute products The substitute products would threaten the market share and limit the profit potential of the enterprise Therefore, the enterprises must continually apply the scientific and
technological applications to improve labor productivity to the lower cost of the products and services, while improving quality and usability of the product to increase the competitive capacity
- Customers: The trust of customers is significant for the enterprises However, when customers get the advantages, they will put pressure and affect the enterprise, for example, they will squeeze the prices, request long-term payment, etc
- Suppliers: Including units providing inputs such as raw materials,
machinery, finance, human resources, etc When the suppliers have the advantages,
they will cause adverse pressure on enterprises such as selling at high price, short-
term payment, etc
- Competitors:Competitive structure is the number and scale of enterprises competing in the same industry If the number of small and scattered enterprises is high and there is no leading enterprise, there will be scattered competitive structure Regarding the market situation, if the scale of demand is high and increases, competitive pressure
will decrease; in contrast, if scale of the market is small and decreases, competition will
become tougher Regarding exit barriers, when business conditions in the industry become worse and business is difficult, enterprises will force to think about exiting from the industry The exit from the industry will cause losses for enterprises The higher these
CGS Global Advanced Master of Business Administration
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Trang 16losses are, the fiercer competition is In addition, there are also barriers in terms of technology, invested capital and tie with laborers
1.3 STRATEGIC MANAGEMENT PROCESS 1.3.1 Analysis of business environment
1.3.1.1 PEST++ model
Figure 1.2 - PEST model in macro-environment analysis (Source: Strategic management — Statistical Publishing house 2009) ° Economic environment
Economic environment has a very significant influence on enterprises This is also the most regularly changing and difficult-to-anticipate factor among macro factors Its movement always contains both opportunities and threats to enterprises Economic factors have following outstanding movement trend as follows:
- Economic growth rate
- Interest rate
- Exchange rate - Inflation rate
® Legal and political environment
Legal and political factors also significantly affect the levels of opportunities and FS Global Advanced Master of Business Administration
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that enterprises can impact the government and the ways that the government affects them
- Taxation policy: Import-export tariff policy, consumption policy and income tax
will affect revenue and profit of enterprises
- Related laws: Labor Code, Enterprise Law, Investment Law, Anti - monopoly Law
and Anti-dumping Law
- Policies: Policies of the State will have influence on enterprises They can create profit or challenges for enterprises There are some types of policy such as commercial policies, industry development policies, economic development policies,
tax policy, competition regulating policy, consumer production policy, etc
e Technological environment
Technological factors remarkably influence business strategy of enterprises as well
as industries The changes of technologies have great influence on lifespan of products and services
The changes in technologies can be opportunities for enterprises that have capacity
to mobilize invested capital, but also threats to enterprises with backward technologies
¬ Socio-cultural environment
Socio-cultural factors are very sensitive or most changeable The sharp changing
lifestyle of the people in the direction of adopting new lifestyle leads to changes in
consumption attitude Higher people’s awareness results in consumers’ increasingly high requirements on product quality and diversification This is a new challenge to
manufacturers
1.3.1.2 The External Factor Evaluation (EFE)
The External Factor Evaluation (EFE) Matrix is a strategic management tool used to
evaluate the conditions of the external business environment of enterprises This is a
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- List the key external factors that include a total of 15 to 20 factors of both
opportunities and threats
- Assign to each factors a weight that range from 0.0 (not important) to 1.0 (very important) The sum of all weights assigned to the factors must equal 1.0
- Assign a rating between | and 4 to each key external factor to indicate how
effectively the firm’s current strategies respond to the factor (where 4 = the response is superior, 3= the response is above average, 2= response is average, 1= response is
poor)
- Multiply each factor’s weight by its rating to determine a weighted score
- The highest possible total weighted score for an organization is 4.0 and the lowest
possible total weighted score is 1.0 The average total weighted score is 2.5 Table 1.1 Example of a blank EFE Matrix
Weight Score Weighted score
Poor (1), below average (2), above average (3), superior (4 1
Source: Adapted fromFred R David, Strategic Management Concepts & Cases
[p112]
1.3.1.3 The Competitive Profile Matrix (CPM)
The Competitive Profile Matrix (CPM) identifies a firm’s major competitors
and its particular strengths and weaknesses in relation to a sample firm’s strategic position The weights and total weighted scores in boin a CPM and EFE have the same meaning However, critical success factors in a CPM include both internal and
external issues; therefore, the ratings refer to strengths and weaknesses, where 4 =
major strength, 3= minor strength, 2= minor weakness, 1= major weakness The critical success factors in a CPM are not grouped into opportunities and threats as
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can be compared to the sample firm
The formulations of External Factor Evaluation (EFE) and Competitive Profile Matrix (CPM) are similar
Table 1.2 Example of a blank CPM Matrix
Critical Weighted Weighted Weighted
success score score score
factors
Total
Source: Adapted fromFred R David, Strategic Management Concepts & Cases
[p112]
1.3.2 Analysis on internal resources 1.3.2.1 Company capacity
Human resources capacity
Human resource plays a very important role to the success of the enterprise
People supply input data for targeted plan, analyze environmental context, select, implement and check strategies of enterprise Only people working effectively can create efficiency for the enterprise The factors of human resources include management apparatus; professional qualification and leadership experience; suitable organizational structure and management; professional qualification; ethics
of cadres and staffs, flexible and effective human resource policy
Research & development
Research & development activities of the enterprise can help it sustains the
leading position in the industry and vice versa Factors related to research &development include experience, scientific capacity, acquiring capacity, application of scientific and technological achievements and manufacturing to meet the increasing requirement of the market
Production and technology
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Trang 20Production activity associates with the creation of products It has influence on
the success of the enterprise and includes issues related to production technique, technology, productivity, and capacity to control production cost, inventories and
material supply Production and technology show the capacity of meeting requirement
on quality and quantity as required by the market The management of production cost is very important and relates to product price
Finance capacity
Functions of finance-accounting department include analyzing, making plan
and checking the implementation of general financial activities of the Company,
making financial statement and reflecting financial situation timely Financial- accounting department has direct influence on all other fields; has major responsibility related to financial resources, short-term capital mobilization capacity for investment projects of the Company; controls financial spending, interest expense, capacity to control price; makes plan on price, financial expense and profit
Marketing capacity
Marketing Department of the enterprise has a very significant implication to the consumption of goods and implementation of customer analysis It studies demand of the market to set out policies on products, prices, distribution channels; renovate new products to launch in the market; supply goods in large scale; and collect market information to give out suitable policies for the enterprise
The investigation of consumption policy and marketing strategy often pays
attention to the diversification of products, structure of products, quality and lifespan of product; operation of distribution channel, capacity to supply products in a large scale; price policy, sale promotion, product labels; post-sale and customer care
services
1.3.2.2 The Internal Factor Evaluation Matrix (IFE)
IFE Matrix summarizes and evaluates the major strengths and weaknesses in the functional areas of a enterprise, identifies core competencies to develop competitive advantages for enterprises
CF Global Advanced Master of Business Administration
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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 Strategy analysis and selection
In order to come to a final strategy or strategies to achieve mission and
objectives a company must complete internal and external assessments and match
them with objectives and mission to achieve to generate and evaluate feasible
includes 3 stages from inputstage to
alternative strategies This process matchingstage and finally decision stage
The input stage
External Factor Evaluation Matrix \ Competitive
Profile Evaluation Matrix Internal Factor
The matching stage
Strengths- Boston Consulting External — Grand Weaknesses- Group Matrix Internal Matrix Strategy
Opportunities- (BCG) (IE) Matrix
Thenantn
The decision stage
Quantitative Strategic Planning Matrix (QSPM) /
`
(Source: Fred R David, Strategic Management Concepts and Cases, Figure 6-2, P.222)
The input stage: In this stage EFE Matrix, IFE Matrix and CPM are
Figure 1 3: Strategy selection
developed to provide basic input information for the matching and decision stages The matching stage: In this stage, different tools are used to match external and internal critical success factors to generate feasible alternative strategies These
tools can be SWOT matrix, BCG matrix and/or IE matrix and/or SPACE matrix
1G Global Advanced Master of Business Administration
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1.3.3.1 Long —term objectives
Based on the situation analysis, what should our new business be, in term of what products it will sell, where it will sell them, and how its products or services
will differ from its competitors? Long-term objectives represent the results expected
from pursuing certain strategies The time frame for objectives and strategies should be consistent, usually from two to five years
1.3.3.2 SWOT Matrix
SWOT is a key tool to formulate strategic plans Each letter in the word
SWOT represents one strong word: S=strengths, |W = weaknesses, O = opportunities, T = threats
SWOT model analyzes both external and internal factors of the company
Strengths and weaknesses in the SWOT matrix are those internal factors from IFE
Matrix Opportunities and threats are those external factors from EFE Matrix After identifying all strengths, weaknesses, opportunities, and threats, there should be strategies to match them together
1.3.3.3 Quantitative Strategic Planning Matrix (QSPM):
QSPM is a tool for strategists to objectively evaluate the best alternative strategy This matrix uses the input elements based on the analysis in phase 1 and the result in the coupling phase (phase 2) of the formulating analytical strategic
framework to decide the suitable strategy among the alternatives
- Take from EFE Matrix 10 major Opportunities and Threats (external factors) - Take from IFE Matrix 10 major Strengths and Weaknesses (internal factors) - Assign rating for internal and external factors
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- Attractiveness Score (AS) of 1, 2, 3, or 4 is used to reveal each strategy’s
attractiveness given the respective external or internal factor, where | is the least
attractive, 2 is less attractive, 3 is quite attractive and 4 is attractive
- The total score for each alternative is a basis for strategic choices
1.4 Strategy implementation
Strategy implementation implies making the strategy work as intended or putting the organization’s chosen strategy into action Strategy implementation includes designing the organization’s structure, distributing resources, developing decision making process, and managing human resources
CGS Global Advanced Master of Business Administration
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Trang 24CHAPTER II.ANALYSIS ON THE INOX WATER TANK BUSINESS OF SONHA INTERNATIONAL JOINT STOCK COMPANY
2.1 OVERVIEW OF SONHA INTERNATIONAL JOINT STOCK COMPANY
2.1.1 General Information
Name: Son Ha International Joint Stock Company Abbreviation: Son Ha Jsc
Stock code: SHI
Charter capital: 250.000.000.000 VND
Head quarter: Lot 2 CN1 Tu Liem, Minh Khai, Tu Liem, Ha noi
Tel: 04.3765.4419 Fax: 043.7658084
Website: http://www.sonha.com.vn
Logo:
3 SONHA
2.1.2 History and development
1998: Established as Son Ha Metal and Mechanical Engineering Ltd.,Co Charter
capital of VND 600,000,000
2004: Increase charter capital to VND 30 billion Achieved the ISO 9001 — 2000 Standard
2007: Son Ha Metal and Mechanical Engineering Ltd was transformed into Son Ha International Joint Stock Company
CS Global Advanced (Master of Business Administration
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cooperation to become a public company Listed at HOSE
2010: Successfully issued bonds for 2 times and raised VND 163 billion via issuing
10 million shares for investment in production expansion
2011: Purchased 75.8% stocks of Vinaconex Plaza Jsc., from Vinaconex
Corporation, officially participated in retail market Received top 100 ‘Gold Star’ Award
Expanded market for exporting steel tubes to South Africa, Middle-East besides
conventional markets
Officially decided to withdraw capital from real estate field
2.1.3.Organizational structure and Human resources
CS Global Advanced Master of Business Administration
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Figure 2.1 Orgnization structure (Source: Son Ha Jsc)
2.1.4 Business lines
Industry: main kinds of products: water tank, sink, pipe, solar energy water heater
Real estate: the project Kien Hung urban, Ha Dong, Hanoi; the Paradise Garden project, Huynh Thuc Khang Office building; Red River Office building; Kim Giang residential zone
Retail: Hiway supermarket system 2.1.5 Primary products
a INOX water tank
Stainless steel water tanks are Son Ha’s traditional product group In 2012,
total revenues generated from stainless steel water tanks is estimated VND 625.2
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Water tank is a necessary product for most households, especially those who live in villas and apartments Due to the water pressure in the public is not stable, so the household must equip themselves with pump and water tank to serve for the daily
needs
These products are manufactured with Japanese technology and meet the ISO 9001:2008 standard for quality assurance Current capacity is 1.300.000 set per year Son Ha uses SUS 304 stainless steel for all its stainless steel products to help ensure the strength and durability of its products
The product water tank with a capacity of 1,000 liters and 1,500 liters - in line with the needs of households’ usage accounts for over 80% of consumption volume
[GS Global Advanced Master of Business Administration
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Trang 28b Stainless steel pipes
Son Ha stainless steel pipes, mainly industrial pipes, in which 70% of the
production output is exported to the U.S market Son Ha accounts for more than
85% domestic market share
Stainless steel pipes include industrial steel pipes and decorative steel pipes Industrial steel pipes are used in oil refineries, gas, brewery, food, etc This new
product is first put into production in Son Ha in Vietnam since the end of 2005 70% of Son Ha of industrial steel pipe exports to the U.S and Europe, 30% for the domestic market Decorative stainless steel pipe is applied in the construction industry, civil industry, medical equipment, interior and exterior In 2012, with favorable U.S market, steel pipe products of Son Ha revenue grew over 70% and reached 1.120 billion, contributing 43% to total revenue
In Vietnam, currently only three companies are producing industrial stainless steel tube, Son Ha, Hoa Binh and Hoan Vu In which, Son Ha dominates the
domestic market with 85% market share
Son Ha's strength compared to other companies is the product quality, as it is the only company in Vietnam with German TUV quality certificate for the industrial stainless steel pipe
c Solar-energy water heater
Solar-energy water heater was exploited and developed in 2007 It is
accounting a market share of 50% across the country and are increasingly popular
with households
With a market share of 50%, Son Ha solar-energy water heater ranked No 1
in the North and No 2 in the South (This product has sold in the South since 2004)
d Stainless steel sink
Son Ha’s sinks are largely made from inox 201 and 202 with high quality, durability, wide range of designs, models and consists of 30 different brands to meet
CS Global Advanced Master of Business Administration
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Trang 29the demand of customers Altogether with the revenue of VND 78 billions in 2012,
the total benefit reached VND 20 billions More than 200,000 sinks are sold this
year Son Ha stainless steel sinks accounted for 30%, Son Ha’s traditional Northern market particularly held more than 40%
Son Ha stainless steel sinks, especially the brand of common sinks, are intended for customers with average and low income Besides maintaining the
market share of common products, Son Ha has targeted at developing the brand of
high class products with international standard, meeting the demand of not only domestic market but also foreign ones
e Son Ha INOX water tank, a strategic business unit of Son ha International Joint Stock Company
Most corporations organize their businesses into appropriate Strategic
Business Units (SBUs) in modern times And in their internal appraisal they carry out an assessment of their SBUs Son Ha International Joint Stock Company is considered as a multi — Business Corporation The SBU concept helps Son Ha
Corporation in scientifically grouping its businesses into a few distinct business
units Such a grouping would in its turn, help the corporation carry out its strategic management endeavor better The concept provides the right direction to strategic planning by removing the vagueness and confusion often experienced in Son Ha
Corporation in the matter of grouping of the businesses
The attributes of an SBU and the benefits of Son Ha may derive by using the SBU
idea
wk A scientific method of grouping the businesses, which helps the firm in strategic planning
`" Grouping the businesses on SBU lines helps the firm in strategic planning by removing the vagueness and confusion generally seen in grouping businesses; it also facilitates the right setting for correct strategic planning and facilitates correct relative priorities and resources to the various businesses
CS Global Advanced Master of Business Administration
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Trang 30te Each SBU is a separate business from the strategic planning standpoint In the basic factors, viz., mission, objectives, competition and strategy-one SBU will be distinct from another
™& Each SBU will have its own distinct set of competitors and its own distinct
Strategy
se Eaci, SBU will have a CEO He will be responsible for strategic planning for the SBU and its profit performance; he will also have control over most of the factors affecting the profit of the SBU
The most important characteristics of INOX water tank in considering as a SBU are:
Me It is a single business or a collection of related businesses which offer
scope for independent planning and which might feasibly stand-alone
from the rest of the organization This feature was recognized by its human structure, financial statement and market share
me Has its own set of competitors as Tan My, Toan M, Tan A Dai Thanh and another INOX water tank suppliers
te Has a manager, the Vice CEO, Mr le Van Thuan who has responsibility for strategic planning and profit performance, and who has control of profit-influencing factors
st Has its own potential developing market to contribute the growth of corporation
Hereby, all information below is considered as factors that affect directly to INOX
water tanks only, with analysis on its financial resource, human resource, marketing
and production capacity
2.1.6 Business results of Sonha Jsc and in 2010-2012
Stainless steel sinks are the traditional sector of Son Ha In 2012, total
product sales tank is estimated at 625.5 billion, an increase of 153.3 billion compared with 2011 Gross profit reached 73.2 billion (up 1.2%) compared with 2011
CS Global Advanced Master of Business Administration
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Trang 31consumption market is strongest north with a total revenue of 420 billion, followed
by the South with 205.5 billion Compared with 2011, the production sale of water tanks of Son Ha 10.4% Market shares tank 35% of the market, particularly in the
North Son Ha accounts for about 65%
Table 2.1 Income statement of INOX water tank in 2010-2012
(Source: Finence department, Son Ha) (Unit: billion dong)
N Items 2010 | 2011 | 2012*e | 2011/ | 2012/2 | 2011/2 | 2012/20 0 2010 | 111 010 11 1 | Sales 265.3 47] 625.5 | 145.7} 153.3 55% 32.5% 2 | Net Sales 260 470 625| 210 155 81% 33% 3 | Cost of goods 2433| 405 551.8 | 161.7] 146.8 66% 36% sold 4 | Gross profit 12.3 8.2| 1,03% 1,2% 52.7 65 73.2 5 | Financial income 5.1 7.1 2.1 6 | Financial expense 123] 192 14.3 69 49 7 | Sal aes SXPERSE 13.5} 18.8 Zed 53 2"
§ | Opcrating
expense 137| 14.4 16.5 02 1
9 | Net profit P 18.3} 19.7 23] 44 33 0.08% ° 1.7% °
10 | Profit before tax
18.3 | 19.7 23
11 | Profit after tax 13.7) 148] 173] 10s 247
G
Looking at these figures we can see, despite the economic downturn, many steel companies stopped production or closed, but Son Ha stainless steel water tank has achieved good revenue growth In 2012, revenue increased 153.3 billion,
equivalent to 33% compared to 2011 Cost of sales in 2012 increased by 161 billion
30
Global Advanced Master of Business Administration
Trang 32due to the rise and fall of the price fluctuations of raw materials of the world's nickel Feature of stainless steel is 70% of the raw material imported so company has to bear the expense of the relatively large influence of the changes in exchange rates With set target to reduce borrowing expense , in 2012 the company has been successful in reducing the financial expense to 12.3 billion
Sales and operationg expenses in 2012 increased by 2.7 and 2.1 compared to 2011 and the absolute value is still high Thus, although net revenue in 2012 increased 33% compared with 2011, but net profit rose 0.2% These are the general characteristics of the stainless steel water tank industry, due to high input costs and operating expenses Overall, thanks to the strength of the brand, and the consumer’s relief, annual growth of stainless steel water tank is still pretty good With the aim of expanding the company both in terms of production lines and facilities, this growth is not equipvalent with the potential of the company In term of the finance, Son Ha need to use the loan effectively, reduce finance and operating expenses, cost of sales, increase revenue, to be able to compete successfully with competitors, especially Tan A Dai Thanh
Revenue structure
a Steel pipes
« INOX Water tank
« Solar energy water heater « sink « Other
Figure 2.2 Revenue structure by products in 2012
CS Global Advanced Master of Business Administration Program
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Through the structure, we find that stainless steel pipes are key products
accounted for 43% of total revenue, and then INOX water tank accounting for 24%
Structure
2.2 ANALYSIS OF EX™ERNAL ENVIRONMENT 2.2.1 Macro-environment analysis (PEST model) 2.2.1.1 Political, legal environment:
- Vietnam joined ASEAN in 1995 and AFTA (ASEAN Free Trade Area) in
2003 AFTA is a free trade zone in Southeast Asia where member countries include
Malaysia, Singapore, Thailand, Philippines, Indonesia, Vietnam, Laos, Myanmar,
Cambodia and Brunei The AFTA agreement supports the effort to relax trade
barriers amongst member countries in order to achieve direct trade benefits
Decision No: 366/QD-TTg, issued in March 31th 2012, on approval on the
National Target Program for Rural Water Supply and Sanitation (RWSS) for period
2012-2015 By the end of 2015, it is expected to reach the following targets: In term of water supply, 85% of rural population have access to hygienic water, 45% of which have access to clean water according to Standard QCVN 02-BYT of MoH with provision of at least 60 liters/person/day In term of environment sanitation: 65% of rural households have hygienic latrines; 45% households have hygienic livestock pens; 100% kindergartens, schools, clinics in rural areas have hygienic
latrines Total budget: VND 19,7 billion
Prime Minister issued Decree 60/2012/ND-CP detailing the implementation of the Resolutisn No 29/2012/QH13 on a number of tax policy in order to remove difficulties for organizations and individuals The amount of enterprise income tax being reduced is amount of tax calculated on income of operation in manufacturing, processing of: Agricultural products, forestry products, fishery products, textile and garment, leather and footwear, electronic components, operations in building socio-
JF Global Advanced Master of Business Administration
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Trang 34economic infrastructure
Ministry of Finance is expected to increase the tax rate to 7% According to this, the domestic price of cold rolled stainless steel for type 430 is $ 1,504 / ton,
type 304 is $ 2,770 / ton, while the import price of steel of the same type as $ 1,400 / ton and $ 2,650 / ton
2.2.1.2.Economic environment
Global economy
The global economy remains unstable, global financial markets are still
potential risks from the unresolved debt crisis the Europe area; many regional banks
in Europe were lower level of confidence According to the International Monetary Fund (IMF), the world economy is still at a high level of risk and may be extended to 2017 (bottom of this crisis is 2015)
Due to tightening expenditure measures, high unemployment rate and low economic growth in weak developing countries, the World Bank (WB) forecasted
the declining global economic growth in 2013 from a previous forecast of 3% to
2.4%
Table2.2: Forecast of global economic growth (Source: World bank)
2012 2013 (%) 2015 (%) (%) (%) Global economy 2,3 | 2,4 3,1 3,3
Developed countries 1,3 (a previous forecast of 1,9%)
Developing countries 5,5 (a previous forecast of 5,9%)
Gross domestic product (GDP)
As announced by the General Statistics Office on 24 December 2012, the gross domestic product (GDP) in 2012 was estimated to increase by 5.03%
CS Global Advanced Master of Business Administration
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Trang 35compared with 2011 According to the General Statistics Office, the growth rate this
year is lower than the 5.89% in 2011, but "reasonable" "In difficult economic
context, the country focused on the implementation of priority objectives to reduce inflation, stabilize the macro economy Therefore, its increase is reasonable and can tend to improve over each quarter" , the report said Specifically, the first and second quarter, GDP grew by 4.64% and 4.8%, the third quarter and the fourth quarter increased by 5.05% and 5.44%
VIETNAM'S GROSS DOMESTTIC PRODUCT
gw Arrual growth rate (Se)
8.48
6.78
6.23 89 57
3.32 md 5.1 3
2007 2008 2009 2010 2011 2012) — 2013) Figure 2.3 Vietnam Gross Domestic Product
(Source: Asian Development Bank, 2012) Inflation
Inflation this year declined to "a number" as the target of 6.81% Thus, inflation in 2012 is much lower than the targets of 8% This result is very positive compared with an increase of 11.75% in 2010 and 18.13% in 2011
CS Global Advanced Master of Business Administration
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Trang 3630% 25% 20% 18% 10% S% 0% Real Inflation oo em «s Inflation Forecast Figure 2.4 Inflation in 2001-2012 (Source: Vietcom Bank Securities)
Interest rate
Lending rate in 2011 which remained at 18% -20% / year, even up to 23% / year made the capital expense of investors and enterprises is very high, the profits fell Directive 01/CT-NHNN by the State Bank dated 1/3/2011 also required to reduce the proportion of credit loans in the non-manufacturing sector (securities, real estate, etc.) The above factors create pressure to investors, causing a shortage of money in the short term
According to the report on the 18" October 2012 of the State Bank of Vietnam (SBV), the business loan interest rates was popular in banks from 12 - 15% / year However, for medium-and long-term interest rates in the banking is still quite high, ranging from 16 to 17.5% / year Common interest rate for agriculture and rural development, export, small and medium enterprises, supporting industry at 10-13% / year
Roadmap of bad debts solution and restructured banks will be promoted in the quarter I/2013 and is considered to be the right direction, long-term, to address the
[CS Global Advanced Master of Business Administration
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Trang 37root problems of inadequate banking difficulties , securities, real estate in close
contact with each other and can bring a positive psychological impact on the stock market With the positive developments in the settlement of bad debts and restructure the banking system, reducing risk system associated with inflation in 2013 is forecast at 7%, the interest rate based on supply and demand will continue to reduce the level of 7-8% by the end of 2013 - this is entirely feasible
2.2.1.3 Social environment:
Demographic:
Vietnam is in the period of golden population structure A trend with many
opportunities and challenges: the realization of the potentials during the golden population structure will accelerate economic growth, improve income per capita,
bat will also be a challenge if creating jobs for young people and social security for
the elderly is not done well
According to the United Nations (UN), Vietnam picture of the rural population in the first five decades of the 21st century, over 60% of Vietnam's population still lives in rural areas, this rate will be reduced by the speed of
urbanization
Table 2.3 Population in rural in Vietnam, 2009-2020 (Source: GSO)
Year Country Urban Rural Proportion of
rural (%) 2009 85,847 25,437 60,410 70% 2010 86,722 26,251 60,471 70% 2011 87,642 27,099 60,543 69% 2012 88,604 27,961 60,623 68% 2013 88,609 28,890 60,719 69% 2014 90,654 29,834 60,820 67% 2015 91,583 30,763 60,820 66% 2016 92,513 31,704 60,809 66% 2017 93,449 32,670 60,779 65% 2020 96,179 35,654 60,525 63% Urbanization rate
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Trang 38"Vietnam is urbanizing rapidly," Victoria Kwakwa, World Bank Country Director in Vietnam said "The process of urbanization is an important part of
Vietnam's future and ensure a livable city and competitiveness in the region and around the worl will be a necessary part of the development strategy Vietnam's economy "According to the report, Vietnam's urbanization rate of 3.4% / year, most of them concentrated in and around Ho Chi Mink City and Hanoi
In 2015 the urban population of is forecast about 35 million people, 38% urbanization rate In 2020, the urban population will reach about 44 million people, the urbanization rate of 45% and In 2025, the urban population of about 52 million people, the urbanization rate of 50%
GDP per capita
According to Ministry of Industry and Trade, in 2012 many of Vietnam's macro indicators are significantly better, with an estimated total GDP of $ 136
billion GDP per capita reached $ 1,540 / person / year
2.2.1.4 Technology Environment:
According to Pham Chi Cuong, Chairman of the Vietnam Steel Association, steel intensive investment to improve the current equipment and the application of
advanced technical measures and organizational restructuring production to reduce energy consumption and increase efficiency in production By using the continuous
drying technology and steel, steel plants just use 450-500 kWh / ton of steel This technology has helped plants to take advantage of exhaust gas at a temperature of 300-400 C in an oven to dry the waste before putting it into practice Thus, reducing
power consumption for steelmaking process to 30%, production costs were reduced
to less than 10 USD / ton The process of producing steel from hot billet which is loaded directly from the smelter has reduced 30% of heating costs in the process of rolling steel products This technology of the steel industry should be studied and
expanded in the future In addition, the use of liquid iron in the coordinate materials,
remove all power reactors with a capacity of less than 10 tons, inspection and
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Trang 39maintenance of equipment and raw material preparation also contribute to reduced
fuel consumption about nearly 20%
For plants with old equipment and outdated technology investment needed to renovate and upgrade in order to increase the rate of sinter and, instead of direct ore
loaded into the furnace, reduce the consumption of coke for iron, scrap processing
before loaded into the electric arc furnace Last time, by introd*cing new investment
on dust filtration system, the steel industry has reduced dust emissions, which is released into the environment in the process of iron and steel production, greenhouse
gas emissions
2.2.1.5.Natural environment
Vietnam's infrastructure in recent years, as a factor to leverage economic
development, is more interested in investment As predicted by the state Department
of Finance, in the period from now to 2020, each year Vietnam needs $ 15-16 billion investment in infrastructure, focusing on eight areas of concern: the road, road
bridges, tunnels, ferries, roads; railway, railway bridge, railway tunnels; urban traffic; aviation, seaports, river ports; clean water supply system; plants; hospitals; waste treatment plant The State will invest 30% and private partners are 70%
For the national highway system, from now to 2020, it will put into operation
about 2.400km (other than the National Road No.1), build to replace the 407 bridges on the national 1 The Ministry of Transport has prepared 107 investment projects to
upgrade and renovate some highways, build to replace bridges at a cost of about
163,833 billion Particularly the National Road No.1, from now until 2016, will
complete expansion for 1.050km from Hanoi to Can Tho with a budget of 91,000 billion, divided into 18 projects under BOT
From the fact that, that infrastructure is improving and expanding enhances
trade for the economic sectors nationwide
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2.2.2.1.Stainless steel price in the world and Vietnam market
In 2011 world production got 32 million tons Two of the world's largest steel
manufacturers, Chinese stainless steel manufacturers including Shanxi Taigang
Stainless Steel and Baosteel has raised the export price for stainless steel products 304 to 50 USD / ton and $ 100 / ton delivered November 2012 After adjustmeut, the
export price of hot rolled steel HRC 304 3mm of Taigang will be raised to $ 2,670 /
tonne fob, and CRC cold rolled steel 2mm to $ 2,800 / ton fob Baosteel, the export
price 3mm HRC , 304 products type will be $ 2,550 / ton fob and 2mm CRC is $
2,750 / ton fob
Since January 2012, although import tariffs of stainless steel increased from
0% to 5%, but in the first five months of 2012, the volume of imported cold rolled
steel in Vietnam was 45,773 tons, down 11.62 percent over the same period last year According to the Vietnam Steel Association, the total capacity of cold rolled
stainless steel in Vietnam will exceed 300,000 tons / year, while total demand for
cold-rolled stainless steel in the country is expected just under 250,000 tonnes
Posco VST Company - the largest cold-rolled stainless steel plant in Vietnam has increased total production to meet 70% of domestic market demand
Stainless steel products in future
Demand for all types of stainless steel, nickel and nickel free will continue to grow As the world's population increases and incomes rise, people will buy high- quality, long lasting and easy to maintain goods In the food and beverage industry, the public and the government wants to ensure high standards bacteria, do not contaminate the food supply This will increase the demand for stainless steel
Hygiene standards in drinking water and wastewater industry are also high
Besides, desalination plants, brackish water or seawater treatment need to have
stainless steel, used equipment mainly include 304L and 316 types High-rise buildings are popularly using of stainless steel for decoration A growing number of stainless steel will be used in the manufacture of vehicles, reflecting the demand for
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