Strategy business of PV oil Tay Ninh in period 2011-2020

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TRAINING PROGRAM

Global Advanced Master of Business Administration

CAPSTONE PROJECT PROPOSAL STRATEGY BUSINESS OF | PV OIL TAY NINH IN PERIOD

| 2014 — 2020

Group No.: 2

HOANG THI DUYEN NGO VAN NHIEM NONG HUU DUC

HOANG SONG TUY DIEM TRAN VAN DUONG

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Capstone Project Report — Business Strategy for PV Oil Tay Ninh in period 2011-2020

ACKNOWLEDGEMENTS

With the accomplishment of this capstone project report, first of all, We would like to say may thanks to all teachers at ETC who had allowed me to attend their classes so that We could get valuable knowledge used as a good background in our capstone project report Moreover, they also gave an enthusiastic performance during our attention, a good symbol for teaching career and source of encouragement for ours to fulfil our report in time

Secondly, We would like to send our deep gratitude to Mr Trinh Kim Nhac, Chairman; Mr Nguyen Ngoc Anh, General Director and all of our other superiors and colleagues at PV OIL Tay Ninh have instructed ours everything related to distributing petroleum both in marketplace and in the company and have also shared with ours much of knowledge and experience during our research time, for which We are greatly indebted

Finally, We would particularly like to acknowledge with grateful thanks the generous helps from our considerate classmates as well as our other closed friends

Ho Chi Minh City, Juny 5", 2011

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TABLE OF CONTENTS

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Capstone Project Report — Business Strategv for PV Oil Tay Ninh in period 2011-2020

2.1.2 Micro external analysis 0.0.0.0 n(.(( 30 2.1.3 Michael Porter`s fTV€ ÍOTC€S nghe 43 2 KHƯẾYHBÍ 8HẠVSÏS Ki Sa SH a S152 150 sim oue B4 4điÊu G⁄N E 250580 bi 45 Pidiod, CHOU HWWW THÊ HOT Y táooa cái bá 64 02 0ãk.Aã gia GI5330ï 8L108 0IS8 104405 34608 SBILSiOLS848 310012016 28001845 3807R 45 Zo CONTA WESSTOM socnoeh Ban g6 G105 2807.10AA NH-ILHI TRNNLE08G0I BANN 28806 85.0001 ĐH) VEEHN0H0U0WA ĐỢC 45 Zmn: TUIẾHEESS BOUIN TES cn sone osc nmawmenms seonamsieasemanrs 2H0G5.183/G0% 1T88.30300/0898E0ĐIG137038.DEH098020500/108 45 nu sờ: DI THẾ [NI YTET caanneannuogroiunhSUf0016649/01003008.0081820HGE7H-GH000874 S0E01010MU0ØME.HS00)20809/800102g101908:003/0718 2/8 46 2.2.5 Personnel c-c cv v12 TT TH nọ TH HH 46 2.2.6 COMPANY StTUCCUTE oo 47 "Ni 47 2D SUPVEY TESUIS ANALYSIS .-.0-nrieccrrevesererencereverrorsenneessverosnsnenseeesunsenhenavenallans omnes 51 2.3.1 Interview results from the Board of Management - -+- 5] 2.1.7 NUIY€V TESUHIS TRO GIỀCHSS sáu c2 001218115284 Ÿ6521400021a1245es40inaa Sen oh ama 52 253,5 interview with petroleum OXperts « cosinccesszensccinescavacaseavaneassnieastcacessvenseereseavce 56 mg TH DET TT tt attendee ele emetic gt Vad cane ee al blbixipnstleglsselbielremi 56 Ki SOI TU ĐSÏS seeisieiiesspsreesiaLindddiebixeesnvvsiamsopdkdvone blesbstsilpssinksdesezrreolliv4viEEcsxirvraesilk 57 2.4.1 Forecast of petroleum demand in Viet Nam and the region to 2020 57 2.4.2 Forecast of petroleum products consumed in Tay Ninh province to 2015 58 2.4.3 Plan 2011-2015 consumption of PV Oil eee eee Ăn site 59 2.4.4 Business result expected in 2011 - 2015 oo eee c1 1S như 60 Chapter 3 CONSTRUCTION AND SELECTION STRATEGY 62 3.1 Stratèy FGTTRHAHGH Son me HH2 se 20A sản Bê i63 4k5 a Aa KARST TS 62 1,1,1 VNNGH .eSSssxsesasrnrsree semssreeedrnsminasniEiiseii.liolsE2556:53804.801-1.N010N14883I810 405/48 886 62

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9 2 CITING ws monn ghế gugn0HgtGiH0G08.300098008010000913108'H2E30005H07/3887'00i HOSUNR GHI-HDEIHVS TH VHPJEP2'0H./298 2B de san 62 t9 I6 d4(LđŒ5,5 62 3.2 General strategy pÏannIng - cc nknnn nh HH Hà Hà He 63 3.3 Specific stratèy pÏannIng - - c1 S122 HH Hà hà hà 64 E06 7 ereyeevenmnniennemerenemnen enemas ann onasannccn nw stvichah iis 55S 608 64 3.32 SPACE Mattt® serieveneceyenemeserecnnenvannins comuseauenaenannnnannnwmnnisdinn nĩi 130 52/3 8 378 Asie ta TA 68 5.4 OpHofi SIEBOP -rereennvenvernermnenetaunnannennennenewiannnnnsina inna ih Sih NORIVERERE Hh I SR aRRI 70 RECOMMENDATION AND CONCLUSION 0 si inissts casscsscncssssonesvesssnsmnncasensnenecanee 73 L, Recommendation for marketing activites ssc vn cesses tmrermmcenwereomnennmmrass ames 73 2 Recommendation for Claim settlement sis sis siasosvcmsaneansessrmteniearmasssnacnesceinennes 74 3 Recommendation for Human Resource managemenI - -‹ - 74 Ä Oifier TecơimineridRHGT oi se sebsserennisernassesamlveskbltll46011n1irrikrsgEsrrdesdesiesrDsiek 75 KD te 0011G) pstadkoeairdlresetzdobdel lnnltregesplonnlanrnkrlnEisibjxBlserrdelansI.Htrs2rdeibrragcrbioleoagbksaglkcsak 76 TÚ KH 0 co seekie-eelkideeekadDesessbxasciesekl 101.66 Gl2 nll 2webzentstiiriliÀ se 78 APPENDIX - 222222222 S-ccnhh sàska c4 Liáang biibsiÄigperorleeilinetalknicRlisha meetidysidiiskotaerdirmrib 80

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LIST OF TABLE, FIGURES

Figure l-l: Research Fratiework ina csisamasccansemse mero meme ce one 13 Piguite 142 "The Strategy HIGrare hy 1.00 sscassnsenaosssenmoescmneananeceeameeannn ves voce cores 16 Figure l=32 Porter's Five Forges si0:.1s vessvenconamasein san asceeer meee wn me renee 20 Figure 2-1: GDP Growth Of VICtiaim, sscsnscseessoss comune mameres aeeromrencenrameererensonemns 25 Figure 2-2: Petroleum used in Vietnam (thousand CBM) e 26 Figure: 2-33 Ta tiation Of Veta ence sserosarrari not torunntrtirtrtietgtgnt tsasetreasare eereoeeeieererreae 27 Figure 2-4: Petroleum distribution channe - c2 s‡ssttsrreerrrrrrre 31 Figure 2-5 - Vietnamese petroleuin market SHALE « csssssncvasnascenosesscsecnemmanransnemnsaveseenecnenss 32 Figure 2-6: Market share of PV OIL Tay Ninh in TayNinh market 42 Figure 2-7: PV OIL Tay Ninh organizational chart .-: - -:- :++-+>+c>+cs>+ 47 Figuré 2-8: Sales in voluie in 2002-2009 Deri0ỎS.c.ceooeenieiieiriiiriesririrerriee 48 Eipuire 2-9: S5les ïn value in 2002-2009 DEHOỦS eeesaseeeieenirrriiiioiiiieirrrreerre 48 Figure 2-10: Forecast of petroleum demand in Viet Nam to 2020 58 Figure 2-ll: Forecast of petroleum demand of the region to 2020 58

Figure 3-1 Bo thị hình thành từ ma trận SPACE

Table 1; External Factor Evaluation MÍQfFIX (cà +seEieerereeeerrrees 30

Table 2 —PV O1FL storage SYSICM aia ca saree ocmermmadnemmmemmmarmcmensermmaaviecccenrenes 25

Table 3 : PV OIL sharing or renting storà€ sySfem - se 37 IS 1/49) 00 i21) 38 Table 5: GDP Growth of Tay Ninh province c cece eee eee eee cee ceeeeeeeseeenseenes 40 Table 6: Picture compete matrix of PV Oil Tay Ninh : -: +: 44 Table 7: Internal Factor Evaluation Matrix ofPV Ơil Tây Ninh 50

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Capstone Project Report ~ Business Strategy for PV Oil Tay Ninh in period 2011-2020

Table 8: Forecast of petroleum products consumed in Tay Ninh province to

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Table 10: Dự kiến doanh thu giai đoạn 201 1-2015 ¿ ¿55¿ ++s<+zvzeszve 61

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GLOSSARY

CBM

The cubic metre (US spelling: cubic meter, symbol: m3) is the international system of units derived unit of volume It is the volume of a cube with edges one metre in length An alternative name, which allowed a different usage with metric prefixes, was the steres Another alternative name, not widely used any more, is the kilolitre PETROLEUM PRODUCTS

Petroleum products are useful materials derived from crude oil (petroleum) as it 1s processed in oil refineries Major products of oil refinery are diesel, fuel oil, gasoline and kerosene

DIESEL

Diesel fuel in general is any liquid fuel used in diesel engines FUEL OIL

Fuel oil is a fraction obtained from petroleum distillation, either as a distillate or a

residue Broadly speaking, fuel oil is any liquid petroleum product that is burned in a furnace or boiler for the generation of heat or used in an engine for the generation of power

GASOLINE

Gasoline is a petroleum-derived liquid mixture which is primarily used as a fuel in internal combustion engines It is also used as a solvent, mainly known for its ability to dilute paints

OCTANE RATING

The octane rating is a measure of the resistance of gasoline and other fuels to auto- ignition in spark-ignition internal combustion engines

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The octane number of a fuel is measured in a test engine, and is defined by comparison with the mixture of 2,2,4-trimethylpentane (iso-octane) and heptanes which would have the same anti-knocking capacity as the fuel under test: the percentage, by volume, of 2,2,4-trimethylpentane in that mixture is the octane number of the fuel For example, gasoline with the same knocking characteristics as a mixture of 92% iso-octane and 8% heptanes would have an octane rating of 92 This does not mean that the petrol contains just iso-octane and heptanes in these proportions, but that it has the same detonation resistance properties Because some

fuels are more knock-resistant than iso-octane, the definition has been extended to

allow for octane numbers higher than 100

Octane rating does not relate to the energy content of the fuel It is only a measure of the fuel's tendency to burn in a controlled manner, rather than exploding in an uncontrolled manner Where octane is raised by blending in ethanol, energy content per volume is reduced

RESEARCH OCTANE NUMBER (RON)

The most common type of octane rating worldwide is the Research Octane Number (RON) RON is determined by running the fuel in a test engine with a variable compression ratio under controlled conditions, and comparing the results with those for mixtures of iso-octane and n-heptanes

KEROSENE

Kerosene, sometimes spelled kerosine in scientific and industrial usage Kerosene is widely used to power jet-engine aircraft (jet fuel) and some rockets, but is also commonly used as a heating fuel and for fire toys In parts of Asia, where the price of kerosene is subsidized, it fuels outboard motors rigged on small fishing craft

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INTRODUCTION

1 Problem statement

Gasoline is a strategic commodity, It meets an economy sectors requirements from industry, agriculture, forestry, fishery to transportation Nowadays there is no alternative fuels for this one so that Vietnam State and consumers also have had an hourly watch on this market

Vietnam gasoline systems currently has 11 enterprise hubs There are 9 state companies allowed to import and export gasoline Consumers get it over via general agents or distributor system consisting of about 10,000 dealers and retail filling

stations

Tay Ninh is a Southeast province of Vietnam It has the frontier with Kingdom of Cambodia in the West and the North, Binh Duong and Binh Phuoc provinces in the Est, Ho Chi Minh City and Long An province in the South It has an important and strategic position also with a long border with Cambodia, extensive forests, high mountains, conveniently sea transportation And it is the gateway to Ho Chi Minh city and other provinces

Gasoline market in Tay Ninh is growing well Till March 2011, it had 329 gasoline retailers in which PV Oil has 8 stores under, 3 outlets and 71 agents

In 2009, sales in volume of PV OIL Tay Ninh were 72,000 CBM that increased

11 percent in comparison with the implementation of 2008 However, deeply analysis that figure, there were 65,000 CBM distributed in Tay Ninh market and 7,000 CBM distributed in Ho Chi Minh City Thus, in Tay Ninh market, PV OIL Tay Ninh ranked the second position with 39 percent of market share after Petrolimex Tay Ninh who sold 69,000 CBM accounting for 42 percent of market

share

From 2010, PV OIL Tay Ninh have transformed to a join stock company from a

dependent accounting branch of PV OIL Corporation Moreover, in 2010, PV OIL

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Tay Ninh have finished upgrading capacity of petroleum storage to 8,500 CBM increasing 5,000 CBM, more than twice times in comparison with old capacity These changes have given PV OIL Tay Ninh more opportunities in positively managing business and managing inventory On the other hand, PV OIL Tay Ninh has the requirement of increasing sales and market share and becoming the best petroleum distributor in Tay Ninh and vicinity to effectively operate new storage and meet the expectation of PV OIL Corporation

With the above issues and our team members are working at Tay Ninh PV Oil, group 2 decided to select PV Oil Tay Ninh to be our research topics for assignments as “business strategy of Tay Ninh PV Oil from 2011 to 2020” Having limited experience and business strategy understanding, we have a strong disire to receive comments from lectures and other groups to order to improve our research

2 Research objective

The main objectives of this study are as follow:

- Systematic of the theoretical basis of the stragety, business stragety

- To process as SWOT analysis (Strength — Weakness — Opportunity — Threat) of PV OIL Tay Ninh with special reference to petroleum trading activity based on the consideration to external and internal environment - To identify the key success factors of trading petroleum activity in Tay

Ninh and vicinity market and find out PV OIL Tay Ninh’s core

competences

- To test the client’s satisfaction with the PV OIL Tay Ninh’s service to have better understanding about the company’s competences and weaknesses - To propose suitable strategies in an effort to improve PV OIL Tay Ninh’s

competitive advantages

3 Related studies and researchs

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The company was newly created, and there was no research on development strategy formerly

4 The relevance of the research

This research mainly discusses how Tay Ninh Petrovietnam Oil Company could have its competitive advantages to develop market share in Tay Ninh province and vicinity Thus, the author shall aim to help the company’s Board of Directors to make strategic decisions, by analyzing its internal and external forces, in different phases and to propose detailed and practical recommendations in order that the company gets its objectives

5 Research Methodology

The purpose of this chapter is to give readers a better understanding of major means, tools and techniques used in this research to help the author obtain applicable data, gain valuable knowledge and reach useful conclusions related directly to the problem investigated Basically, these resources include:

5.1 Theoretical framework

This capstone project report shall begin with a brief literature review with the examination of some business models of Michael Porter in line with SWOT analysis The purpose of these studies is to better understand the enterprise business environment and competition capability as well as development pathways On the basis of comprehensive knowledge of these theories, the author will further explore the company’s inner forces and flaws and outer opportunities and challenges so as to propose effective recommendations to the management board

5.2 Primary data

Primary data are collected through in-depth and open-ended interviews with the company management and discussions with major business partners being customers and market experts The results are deemed an integral part of the paper as It gives a guideline on to which extent the research should aim at, 1.e short-term

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or long-term strategies; which fields of business focus should rest on, etc Basically, there are three questionnaires designed, implemented, analyzed and followed up as follows:

Questionnaire No 1:

Interviewing PV OIL Tay Ninh’s board of management is necessary to learn about the followings:

- The external environment of the company

- The background of company from the establishment up to now - | The SWOT of the company

- The situation of the company, especially sales and market share in recent years

- The strategic development fields of company

- The core competences and competitive advantages of company

In general, the face to face interview is carried out with the aim of gaining essential information on the petroleum market in Vietnam and also on the internal environment of PV OIL Tay Ninh All the interviewees were asked the same questions, which covered both the external and internal environments in order to

obtain their views and evaluation on the current business

A qualitative and exploratory analysis was done with a view to discovering the strengths and weaknesses of PV OIL Tay Ninh in relation to the opportunities and threats the company is facing In general, comments from the interviewees were complied and categorized to deepen all important information related to the company

The interviewees are five key persons at PV OIL Tay ninh who have major impacts on the company’s development pathways These include: Chairman,

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General Director, Director of Trading Department, Director of Operation Department and Chief Accountant

Questionnaire No 2:

Face to face interview with some experts in trading petroleum will be held to clearly point out external environment of the company and the key success factor of the industry in Tay Ninh and vicinities market These experts are five people who have long time experience and knowledge in trading petroleum in South of Vietnam They are Petroleum Director of PV OIL Corporation, Former Deputy Director of Petrolimex Sai gon, Trading Manager of Petrolimex Tay ninh, Trading Director of Petec Company and Trading Director of Saigon Petro Company

Questionnaire No 3:

In line with the above questionnaire, this similar survey seeks responses from the company’s key groups of clients who are wholesalers, retailers Below are all aspects the author is trying to seek an answer from the questionnaire:

e Customer satisfaction in each service criteria

e Service quality of PV OIL Tay Ninh in comparison with that of the current competitors

Upon designing this questionnaire, the author essentially lays a crucial focus on larger customers of the company only and expects to obtain feedbacks from key persons of:

e 05 wholesalers e 60 retailers

After that, appropriate strategies and recommendations are proposed in line with PV OIL Tay Ninh business objectives

5.3 Secondary data

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Capstone Project Report Business Strategy for PV Oil Tay Ninh in period 2011-2020

With secondary data, the author shall utilize different sources, internal and external, of PV OIL TAY NINH such as the company’s annual and periodical reports and business plans, brochure and other publications; the Internet; reference books; newspapers and magazines, etc

5.4 Research framework Primary data Clients’ response interview In-depth

Literature review Secondary data

Survey results and discussion

analysis Internal analysis External

Pe

Figure 1-1: Research Framework

(Source: Strategy management, Alex Miller)

recommendation formulation &

Strategy Conclusions

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CHAPTER I LITERATURE REVIEW

1.1 Understanding ‘strategy’

1.1.1 Definition of ‘strategy’ and ‘business strategy’

To begin with, it is essential to understand the term ‘strategy’ alone Along with history, it seems that people had practiced strategy since the beginning of time The term was well recognized by the great Chinese strategist and military theorist Sun Tzu who described his principles of war as early as 500 BCE From Sun Tzu’s work, many businessmen learned the tactical side of military strategy and specific tactical prescriptions Later on, many authors have developed new strategy concepts in relation to business performance and until now there is no unique and universal

definition for the term Below could be one of the most useful:

“A strategy is the pattern or plan that integrates an organization’s major

goals, policies, and action sequences into a cohesive whole A well-formulated

strategy helps to marshal and allocate an organization’s resources into a unique and viable posture based on its relative internal competencies and shortcomings, anticipated changes in the environment, and contingent moves by intelligent opponents.” (The strategy process, Henry Mintzberg & James Brian Quinn, p 5)

In simple term, ‘strategy’ refers to how a given objective will be achieved and is the art of outperforming competitors without necessarily having superior

resources

Business strategy is a long-term approach to implementing a firm's business plans to achieve its business objectives Business Strategy is a term used in business planning that implies a careful selection and application of resources to obtain a competitive advantage in anticipation of future events or trends Business strategy relates to making strategic decisions about products, price, meeting customer needs, gaining advantage over competitors that help a business competing successfully in a particular market

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According to Henry Mintzberg, in his 1994 book namely “The Rise and Fall of Strategic Planning”, the term generally falls into one of the four categories as follows:

— A plan, a "how," a means of getting from here to there

— A pattern in actions over time; for example, a company that regularly markets very expensive products is using a "high end" strategy

— A position; that is, it reflects decisions to offer particular products or services in particular markets

— A perspective, that is, vision and direction

In conclusion, “strategy” is all of a plan, a pattern, a position and a perspective that define the markets and the businesses in which a company will

operate and thus, is crucial to the firm’s survival and success

1.1.2 ‘Corporate strategy’, ‘business strategy’ and ‘functional strategy’

As discussed earlier, a strategy can be considered as a comprehensive master plan to indicate how the firm will achieve its mission and objectives It helps the firm to become successful and stay successful even under severe competition But the question is whether a unique corporate strategy can be applicable to all levels in the firm The answer is certainly ‘No’ now that almost all business firms, especially large ones, usually adopt three types of strategy simultaneously which include:

Corporate strategy (or companywide strategy): a description of the firm’s overall direction in terms of its general attitude toward growth and the management of its various businesses and product lines or services Corporate strategy concerns two different questions: What businesses the firm should be in and how the corporate office should manage the array of business units

Business strategy (or competitive strategy): a strategy occurring at the business unit or product level which focuses on the enhancement of the competitive

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position of a firm’s products or services in the specific industry or market segment by that business unit Business strategy concerns how to create competitive advantage in each of the businesses in which a firm competes

Functional strategy: a strategy implemented by a functional area to achieve corporate and business unit objectives and strategies by maximizing resource productivity Functional strategy has to do with developing and nurturing a distinctive competence to provide a firm and business unit with a competitive advantage

With regard to this issue, one usually recognizes the ‘hierarchy of strategy’ or the grouping of all the said strategy types by level in the firm More or less, this hierarchy is a nesting of one strategy within another so that they complement and Support one another Functional strategies support business strategies, which then Support the corporate strategies This capstone project report, as the title suggests, shall the firm’s internal and external conditions so as to develop important strategies at corporate level

Figure 1-2: The Strategy Hierarchy

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1.2 Understanding ‘competitive advantages’ 1.2.1 Definition of ‘competitive advantages’

History has proved that successful companies — small, medium or large — tend to one thing in common: they all have specific significant competitive advantage For long, ‘competitive advantage’ has been the focal point of strategy and can be described, in simple terms, as a position a firm occupies against its competitors

Another well-known ‘competitive advantage’ theory has to do with resources and capabilities The resource-based view states that in order to develop a competitive advantage, the firm must have resources and capabilities that are superior to those of its competitors Resources are the firm-specific assets useful for creating a cost or differentiation advantage and that few competitors can acquire easily Some examples of such resources are:

e Patents and trademarks e Proprietary know-how e Installed customer base e Company reputation

Capabilities are the abilities of the company to effectively utilize its resources Such capabilities are not easily presented as documents They are the routines of the company Thus, the competitors have difficulties to imitate

Resources and capabilities of the company together form its distinctive competencies These competencies enable efficiency, quality, and customer responsiveness, which can be leveraged to create a cost advantage or a differentiation advantage The firm then will position itself in its industry by choosing either the differentiation or cost leadership strategy to create value

1.2.2 The importance of ‘competitive advantages’

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Competitive advantage is believed to play a central role fostering sustainable growth of an organization by ensuring that a company earns excess returns for a longer period of time Competitive advantage 1s proven, through researches, to be an effective tool in achieving higher-than-normal levels of profitability

1.2.3 How companies achieve competitive advantage

In this section, let us take a look at the financial aspects of a firm to comprehend why they contribute to its economic success

Miller states that one of the most central goa!s that any business firm has 1s to maximize shareholders’ returns, the ultimate objective which pulls the rest of other elements in the framework Under this heading, four elements are discussed as a mean to measure financial capability of the firm which are Economic Value Added (EVA), profitability, growth and financial risks To be financially healthy, a firm then needs to build a competitive advantage among differentiation, low cost, and/or quick response as mentioned above What constitutes a firm’s competitive environment and position within it are two important elements being structural position (the firm’s position with regard to rivalry, entrants, substitutes, customers and suppliers) and process execution (how well the firm executes certain core processes) Competitive advantage, in this connection, can be considered as the product of both the industry’s structure and the firm’s ability to operate within that

Structure

To this extent, all the concepts have been examined in view of a single business unit, i.e a particular product/service and market that a firm focuses on However, Miller explains that a firm, usually multinational, operates under many different business units to seek benefits or synergies Therefore he proposes five types of ‘enterprise synergies’ which a firm pursues to strengthen competitive advantage across the international operations either through an enhanced structural position or through improved process execution These include core competencies,

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market power, shared infrastructure, balanced cash flows and_ transnational advantages

Organizational capacity is the last but not least element in the framework which refers to the so-called soft issues such as leadership, levers for organizational change, and organizational learning Resting on the bottom of the framework yet this important element, however, needs to be enhanced to allow managers to take advantage of enterprise synergies and develop more favorable structural position and/or to improve process execution

In conclusion, the Architecture of Strategy is “a framework for linking a series of means and ends to support superior financial performance through building strong competitive advantages” The analysis of this framework is important to understand what elements should focus rest on in order that a firm succeeds in building winning strategies

1.3 Understanding several major business models

So far, we have discussed ‘business strategy’ and ‘competitive advantage’, basic concepts in this research This section shall continue with the examination of several business models the author tends to utilize to attain this capstone purposes 1.3.1 SWOT analysis

Of all the four instruments, SWOT analysis (or SWOT matrix) is probably the most common to access a firm’s situation This technique was developed by Albert Humphrey who led a research project at Stanford University in the 1960s and

1970s using data from Fortune 500 companies

SWOT is an acronym used to describe particular Strengths, Weaknesses, Opportunities, and Threats that are strategic factors for a project or a specific business venture SWOT analysis is deemed a strategic planning method which typically starts with the definition of a desirable end state or objective Once such end state or objective is clearly defined, the analysis shall be implemented to help a

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firm identify the key internal factors (strengths and weaknesses) and external factors (opportunities and threats) that are important to achieving the goal

1.3.2 Michael Porter’s five forces

Michael Eugene Porter (born 1947) is a University Professor at Harvard

Business School who pays academic interests in management and economics So far, Porter has proposed many useful economic concepts such as competitive advantage (of a firm), diamond model (of a nation), value chain, generic strategies, cluster development, etc but ‘the five-force competition model’ is probably one of the most important notions

Potential Entrants Threat of New Entrants Industry

Bargaining Power] Competitors | Bargaining Power of Suppliers of Buyers Suppliers [Ƒ TT * 4———— Buyers Rivalry among existing firms Threat of Substitute Products or Service Substitutes

Figure 1-3: Porter’s Five Forces

Porter's five-force model is a framework for the industry analysis and business strategy development The model provides a simple perspective for assessing and analyzing the competitive strength and position of a corporation or business organization In other words, the model is used to analyze the attractiveness and likely-profitability of an industry Porter suggests that five main forces create competition at the level of strategic business units and that a systematic analysis of

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each force shall help managers identify the keys to competitiveness within their particular industry These five forces include:

Threat of new entrants: When a new player enters an industry, it can raise the level of competition, which consequently reduces its attractiveness Such threat of new entrants, Porter explains, depends very much on the barriers to entry In many countries, high entry barriers exist in some industries (ex: shipbuilding), while it is contrary to some other industries (ex: hotel and restaurant) Some sources of major entry barriers include economies of scale, capital/investment requirements, incumbent resistance, customer switching costs, geographical factors, etc

Threat of substitutes: Most industries all have substitutes The presence of such substitute products/services tend to lower industry attractiveness and profitability since they compete with existing ones, mostly in terms of price The threat of such substitutes should depend on buyers’ loyalty (or willing toward substitutes), relative price and performance of substitutes, costs of switching to

substitutes

Bargaining Power of Suppliers: This is to indicate that a supplier may have power over a company because it supplies materials and other products into the industry Therefore, a company's profitability can be significantly affected by the cost of items bought from suppliers (e.g raw materials, components) The suppliers will have high bargaining power when:

e There are not differentiated but highly valued products

e The industry is threatened to integrate forward by the suppliers e There are few dominant suppliers and many buyers

e The company does not threaten to integrate backwards into supply e The industry is not a key customer group

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Bargaining Power of Buyers: At the other end of the rope, companies create demand in an industry and thus, can possibly exert some type of power over the suppliers Basically the buyers will have greater bargaining power when:

e There are standardized products

e There are many sellers in the industry while few dominant buyers e The industry is threatened to integrate backward by the Buyers e The buyer’s industry is not threatened to integrate forward by

supplier

e The industry is not a key supplying group

Competitive rivalry within an industry: What is important here is the number and capability of a firm’s competitors If the firm has many competitors who offer equally attractive products and services, then it is likely that the firm has more competition and less power in the situation Therefore, suppliers and buyers are supposed to have a good deal from the firm or otherwise they will go to your competitors’ On the other hand, if the firm provides such products or services that no other firm does, it often has tremendous strength Porter believes that the intensity of rivalry between these competitors within an industry depend on several factors such as the structure of competition, the structure of industry costs,

degree of differentiation, etc

Porter’s five-force model is not only used for commercial organizations but also for public organizations and non-profit sectors to better understand their customers, suppliers and other relevant organization with whom they may be competing for support

1.3.3 Construction tools and option strategy

As mentioned above, construction tools and option strategy used in the article

include:

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- Internal Factor Evaluation Matrix (IFE) - External Factor Evaluation Matrix (EFE)

- Internal - External Matrix ( IE) - SPACE Matrix

- QSPM Matrix

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CHAPTER II - SITUATION ANALYSIS

2.1 External analysis

2.1.1 Macro external analysis

External factors can either limit or expand Petroleum Company to achieve its designed objectives in sales, profit and client needs These conditions include economic conditions, government control and regulations, social factors and technological factors

2.1.1.1 Economic conditions

Ever since Vietnamese government launched a reform program to move toward market-oriented economy that operates under private as well as collective and state control, Vietnam entered a period of rapid developments as a result Also, many significant events, both in politics and economics, such as being member of ASEAN (Association of South East Asian Nations) and APEC (Asian Pacific Economic Countries) and WTO (World Trade Organization) help Vietnam open the door to the whole world and join the global market Vietnamese economy has gradually escaped from the stagnant situation A lot of industries have emerged and developed as a result, creating many business opportunities for all kind of enterprises Economic growth, then, has been raised as a result, becoming a key to the development of petroleum market In other words, economic development, which can be mainly expressed through GDP (Gross Domestic Products) growth, FDI (Foreign Direct Investment) and inflation, is an important factor for the growth of Petroleum Company

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Capstone Project Report — Business Strategy for PV Oil Tay Ninh in period 2011-2020 GDP Growth of Vietnam 9 8 @ 87 c B a 5 4 2002 2003 2004 2005 2006 2007 2008 2009 2010 est

Figure 2-1: GDP Growth of Vietnam

(Source: IMF)

Vietnam had a constant increase in GDP until 2007 From 2008, with the

effect of world economic recession, GDP growth of Vietnam decreased to 6.2% in 2008 and 5.3% in 2009, the lowest one within 10 years Although there were

decrease in GDP Growth, those results were impressive in comparison with the

general situation of world economic recession

Usually, when economy develops, facilitating business activities of all enterprises and also bettering people’s life Factory will need more fuel for their dusiness development People tend to spend more on new transportation mean to serve their work and enjoy their life Briefly, there is a direct correlation between GDP and petroleum spending in which petroleum acts as an input material for dusiness activities, thereby boosting economy The GDP growth, in its turn, speeds 1p petroleum industry The below graph is an impressive evidence for the 2orrelation between GDP growth and petroleum demand In other words, when GDP of Vietnam increases, demand of petroleum rises accordingly

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Capstone Project Report — Business Strategy for PV Oil Tay Ninh in period 2011-2020 Petroleum used 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2,000 2004 2005 2006 2007 2008 2009 2010est

Figure 2-2: Petroleum used in Vietnam (thousand CBM)

(Source: Ministry of Industry and Trade)

Foreign Direct Investment (FDI)

Since Vietnam joined WTO (World Trade Organization), there were more international companies looking at Vietnam as an alternative investment and Operation location through FDI which can be considered an important source of clients for Vietnamese petroleum suppliers Licensed FDI in Vietnam posted at US$ 21.48 billion in 2009, approximate 30% of 2008

Same as GDP growth, the correlation of FDI with petroleum demand can also be felt clearly FDI brings clients to petroleum companies Furthermore, FDI concentrates mostly on industrial sectors, benefiting for petroleum suppliers

Inflation

Inflation has impact on petroleum trading activities It affects price of petroleum, which makes it difficult for petroleum suppliers to achieve their sales objectives due to the decreasing petroleum demand during periods of rapid inflation In 2008, when inflation of Vietnam reached to more than 20%, despite being subsidizing by government, petroleum price still be very high, many industrial clients forced to try other cheaper material rather than petroleum According to some

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petroleum importers, petroleum demand decreased about 30% in the third quarter of 2008

The below graph shows inflation rate of Vietnam, which is rather high in recent years: Inflation of Vietnam 2004 2005 2006 2007 2008 2009 2010est

Figure 2-3: Inflation of Vietnam

(Source: General Statistic Office)

2.1.1.2 Government control and regulations

The petroleum industry is one of the most closely regulated businesses in Vietnam obeying, the Decree number 84/2009/CP-ND dated 15/10/2009 of Prime Minister about managing trading petroleum activity

The Ministry of Industry and Trade (MOIT) and The Ministry of Finance are responsible for the supervision of the petroleum industry MOIT considers all new license applications, and maintains a watching brief over the petroleum industry from a far although they may visit companies once or twice a year to discuss activities MOF offers import tax and controls the retail selling price of importers Hereinafter some main government regulations that any player in petroleum sector is obliged to follow, including business model, infrastructure requirement, distribution system, retail price and quality control

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Capstone Project Report — Business Strategy for PV Oil Tay Ninh in period 2011-2020 Business model

Follow the Decree number 84/2009/CP-NĐ, all kind of enterprises established follow Vietnamese Enterprises Law could import and distribute petroleum after fully matching the condition of above Decree Before the validity time of that Decree, only state owned enterprises had been granted to import petroleum

Infrastructure requirement

Petroleum importers have to organize their infrastructure for distributing petroleum including storage with at least 15.000 cubic meter capacity and terminal with ability to receive petroleum from ship with at least 7.000 dead weights Petroleum importer also has at least 10 own petrol stations

Petroleum wholesalers have to organize own infrastructure including storage at least 5.000 cubic meter capacity and 5 own petrol stations

Distribution system

Besides distributing petroleum through own station, petroleum importers have to have at least 40 agent contracts with the wholesaler or retailer Petroleum wholesalers also have to set up distribution system with at least 20 retailers

Retail price

Petroleum importers will not be allowed increasing retail price without permission of MOF In case importing price increase 7% higher than retail price, petroleum importers can correlatively increase their retail price If importing price increase more than 7% but fewer than 12% higher than retail price, petroleum importers can increase their retail price by 7% and 60% of value between importing price and 7% On the other hand, if importing price decrease fewer than 12%, petroleum importers have to decrease their retail price correlatively The time between two increasing retail price events is 30 days

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All wholesalers and retailers in the distribution system of one petroleum importer will not be allowed selling higher than retail price posted by that petroleum importer

Quality control

Quality of petroleum imported are controlled and approved by National Quality Testing Center obeying to Vietnamese quality standard

2.1.1.3 Socia! factors

Petroleum products are the essential material for many industrial and people life An increase in petroleum price will affect to price of many other commodities, therefore, affect to the health of economy and people income Thus, a stable price Strategy will help petroleum importers getting good image in people perception 2.1.1.4 Technological factors

In PV OIL Tay Ninh, technology is applying in data management process with two database systems available The first one was built to monitor its stocks, including cargo’s profile and record of product in and out store The second is used in sales management and accounting system with a certain software to follow order

and cash inflow and outflow

Additionally, new technology in processing petroleum will create more products which are more suitable for customer need and friendly with environment

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Table 1: External Factor Evaluation Matrix

Main External factors Ratio Point Important Point

GDP 0,40 4 1,6

FDI 0,13 3 0,39

Inflate 0,17 3 0,51

| Substitutes 0,02 1 0,02

Loan rate 0,05 1 0,05

Law and government's policy 0,05 2 0,1

Social factors 0,03 1 0,03

Technical factors 8,18 2 0,3

Total 4,00 3,00

From outside the matrix elements shows that the level of the company's response to factors outside the business environment is quite In other words, the strategy of the company can take advantage of good opportunities and avoid threats

from the outside environment

The researchers say the external conditions in the future will tend to grow well, very convenient for market entry strategies

2.1.2 Micro External analysis

2.1.2.1Overview of trading Petroleum in Vietnam

Distribution channel

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Sales branches are established at many provinces to manage the wholesalers and retailers in its location Sales branches also can use its sales force to sell directly to industrial customers and directly to household through its own petrol station

Wholesaler is an intermediary who buy product from importer then sell to

retailers and end users

Retailer contacts directly to end user In petroleum business, retailer appears as petrol station Retailers are final seller distributing product of importer

IMPORTER

Sale branch or not

ett Importer's station Retailer

Wholesaler Petrol station

er we Wholesaler's Retailer

Petrol station station

fas Le OT ag mm Ni End user Vehicles/ship/factory

Figure 2-4: Petroleum distribution channe

(Source: General Statistic Office)

Vietnamese petroleum market share

Petroleum products include gasoline, gasoil, kerosene and fuel which are made through straight distillation of crude oil For the purpose of developing country, Vietnam needs about 13 million cubic meter petroleum products every year

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with the annual increase of 8% From the year 2008 back, Vietnam had to import 98% of total demand of petroleum product

From the year 2009, Dung Quat Refinery, the first Refinery of Vietnam, has produced and supplicd to Vietnamese market the first Victnamese petroleum products which has been distributed through the PV Oil distribution system The capacity of Dung Quat Refinery is 1.6 million cubic meters in 2009 and increasing to 6.5 million cubic meters per year from 2010

Figure 2-5 - Vietnamese petroleum market share

(Source: PV OIL Tav Ninh)

Petrolimex @ PV OIL 54% 17% @ Petec 10% @ SaigonPetro 2 @ 4% T% 4%

There are 8 petroleum importers in Vietnam They are all state owned enterprises They have different way to distribute their petroleum in Vietnam

Depend on differences strategy, importer can setup own system of petrol station to sell directly to end user Or it can sell to wholesaler or retailer or industrial distributors who sell to the customers Or it can sell through manufacturer’s representatives or its own sales branches directly to industrial customers, or indirectly to industrial customers through industrial distributors

Vietnam National Petroleum Corporation (Petrolimex)

Recent year, the best performance in trading petroleum in Vietnam has been Vietnam National Petroleum Corporation (Petrolimex) who taken 54 percentages of

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market shares Difference with PV Oil, importing and distributing petroleum products is main activity of Petrolimex They have long history trading petroleum Their storage and station spread all over 64 provinces of Vietnam

They implement corporate vertical marketing system Their ideal in business is direct marketing They organize their own sales force including sales branches, storage, and station and transportation fleet at every province to sell directly to end users Their sales via their own sales branches and own stations accounted for 70 percentages of total sales

They do not have many wholesalers In some provinces, their sales branches even consider wholesalers as competitors They prefer sell product directly to retailers or industrial customers rather than wholesalers Their sales of selling to retailers account for 30 percentages of their total sales

Other importers

Because of lack of infrastructure such as storage and station, other importers almost distribute their product through wholesalers They import petroleum products to their storages or hiring storages and then sell to distributors at their storage Distributors have to organize their own distribution system to distribute products After buying petroleum products at importer storage, distributors use their mean of transportation to bring petroleum products from importer storage to distributor’s storage and to retailers’ petrol station

Some importers distribute their product within a location Saigon Petro Company distributes their product within Southern of Vietnam, who is holding 7% of total market demand Dong Thap Petroleum Trading Company (Petimex) is supplying petroleum in South West of Vietnam They serve 4% of total market demand Thanh Le Export Import Company, who is holding 2% market shares, distributes their products within Binh Duong and Binh Phuoc Provinces Dong Thap Petroleum Trading Company also has own sales branches in several provinces, own

a 2

G2

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transportation fleets but they still almost distribute their product through wholesalers distribution system

Another importer is Petroleum Maritime Trading Company (PMT) They import petroleum product and sell within Vietnamese Marine industry Their market share is approximately | percentage

Another importer is Petec Trading Technology and Investment Company They have 10% of market shares They have long time experience in importing and distributing petroleum products They have sales branches and storages at Hai Phong City, Da nang City and Ho Chi Minh City

2.1.2.2 Introduction of Petrovietnam Oil Corporation, mother company

PetroVietnam Oil Corporation (PV Oil) is established upon the basis of the integration of Petrovietnam Oil Processing and Distribution Company Limited (PDC) and Petrovietnam Trading Corperation (PETECHIM), which wholly-owned by PetroVietnam from 6th June 2008 under the Parent — Subsidiary model to generate synergetic strength and enhance the competitive advantages in domestic

and international market

After the merger, PV Oil has concentrated on developing infrastructure serving for distribution petroleum products activity Eight projects in building, expanding and modernizing storage from Northern to Southern of Vietnam was started and pushed faster The Corporation has taken 17 percentages of market

shares

PV Oil has a widespread sales force with 25 sales branches in many provinces in Vietnam They will help PV Oil with tightly managing the retailers at their location If these sales branches had been reorganized effectively, they would have become real distributors and could compete with wholesalers at their location

PV OIL has been granted to export, import and trading crude oil, develop downstream of Vietnamese oil industry, distribute petroleum products of

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Capstone Project Report Business Strategy for PV Oil Tay Ninh in period 2011-2020

Petrovietnam’ refineries Recent year, PV OIL has steady growth and become one of big petroleum importers, producers and traders in Vietnam PV OIL is permitted to perform the following business activities:

o Exporting, importing and trading crude oil in domestic and oversea; o Exporting, importing and trading petroleum products, chemical products; o Producing petroleum;

o Building infrastructure for storing, distributing and trading petroleum products.;

o Organize and joint venture with other inbound or outbound partners to producing and trading petroleum products;

o Exporting, importing and trading petromaterial, petrochemical and service in oil industry;

Infrastructure for trading petroleum of PV OIL

o PV OIL has own storage spread over the country with total capacity of

560,000 cubic meter:

Table 2 — PV OIL storage system

(Source: PV OIL Corp)

Capacity | Terminal TT | Name of store Province Type

(CBM) (DWT) Northern 81.500

1 | Dinh vu Hai phong city Main store 75.500 10.000 2 | Thai Binh Thai Binh Prov Local store 6.000 1.000 3 | Nam Dinh Nam Dinh Prov Local store 3.500 500

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TT | Name of store Province Type Se a (CBM) (DWT) Middle 7.000

4 | Chan may Hue Local store 7.000 3.000 5 | Lien Chieu Da nang Local store 7.000 3.000

Southern 460.500

Total 559.500

o Storage that PV OIL has major share or sign longterm renting contract with total capacity of nearly 200,000 CBM:

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Table 3 : PV OIL sharing or renting storage system

TT Name of store Province Type Capacity | Terminal (CBM) (DWT) Northern 12.000

| | PDC Shinco Quang Ninh Local store 10.000 1000 2 | Ninh Binh JSC Ninh Binh Local store 2.000 1000

Middle 67.000

3 | Vung Ang JSC Ha Tinh Main store 60.000 15.000 Southern 115.265

4 | Petromekong Can Tho Main store 72.000 15.000 S | Nam Viét JSC Can Tho Main store 29.000

II | Kho K38-QK9 Tien Giang Local store 740

12 | Vinh Long JSC Vinh Long Local store 2.000 1.000

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TT Name of store Province Type Capacity | Terminal (CBM) (DWT) Total 194.265

Business result in trading petroleum:

o PV OIL has set up a petroleum distributed network spread from Northern to Southern of Vietnam and become one of two biggest players in importing and distributing petroleum in Vietnam Distributed network including main store, local store, and sale branch has been organized in Ho Chi Minh City, Vung Tau City, Hai Phong City, Nghe an Province, Ha noi capital and other provinces of Vietnam With more than 3,000 clients as petrol station and industrial consumers, PV OIL has build its good band name and prestige as the first class and trustworthy Corporation in importing and trading high quality petroleum products o Market share of PV OIL in trading petroleum in Vietnam increased

steady:

Table 4: PV OIL market share

Year Market share of PV OIL 2001 8,8% 2002 9,3% 2003 12,7% 2004 13,0% 2005 12,3% 2006 11,2%

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