Developing the management strategies for financing activities for water supply sector at the Vietnam development bank (VDB) to 2015 and vision to 2020

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GRIGGS UNIVERSITY — HANOEL NATIONAL UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS

ADMINISTRATION PROGRAM

CAPSTONE PROJECT REPORT

DEVELOPING THE MANAGEMENT STRATEGIES FOR FINANCING ACTIVITIES FOR WATER SUPPLY SECTOR AT

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CG Global Advanced Master of Business Administration f Ha

CONFIRMATION OF ENTERPRISE

Hanoi, 28" August, 2012

Attention: Relevant Parties

Content: Comments of the Vietnam Development Bank on the topic of Group 3 - GaMBA.M0310 - The Global Advanced Master of Business Administration Program, University of Griggs, United States

1 Students have closely stuck to the current situation in all aspects of operation and management activities for water supply programs at Vietnam Development Bank to the capstone project;

2 The topic content: "Developing the management strategies for water supply programs at the Vietnam Development Bank (VDB) to 2015 and vision to 2020” refers to objectives relating to operation and management of loan scheme for water sector that VDB is making great effort to achieve, and is highly feasible;

3 Presentation and content of the topic are scientific Aw

Nguyen Thi Thuy Lan

Director of Department

VIETNAM DEVELOPMENT BANK

Address: 25A Cat Linh — Dong Da Distric - Hanoi - Vietnam Tel: +84 37368000: Facimile: +84 37368001

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7 Global Advanced Master of Business Administration

CONFIRMATION OF ENTERPRISE

Hanoi, 28" August, 2012

Attention: Relevant Parties

Conteat: Comments of the Vietnam Development Bank on the topic of

Group 3) - GaMBA.M0310 - The Global Advanced Master of Business

Administration Program, University of Griggs United States

1 Students have closely stuck to the current situation in all aspects of operation and management activities for water supply programs at Vietnam Development Bank to the capstone project:

2 The topic content: "Developing the management strategies for finacing

activities in the water supply sector at the Vietnam Development Bank (VDB) to

2015 and vision to 2020” refers to objectives relating to operation and management of loan scheme for water sector that VDB is making great effort to achieve, and is highly feasible:

3 Presentation and content of the topic are scientific

Nguyen Thi Thuy Lan

Director of Foreign Capital Management Department VIETNAM DEVELOPMENT BANK

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Global Advanced Master of Business Administration

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DECLARATION

We members of Group 3 commit that content of this assignment has not

been submitted to any Master courses as well as any degree-awarded training programs

We also commit that this assignment is the effort of our group Results of the analysis and conclusions in this assignment(except quoted parts) are the brain child

of our group and not copied from any other documents

The members of Group 3 sign hereunder:

Ngo Truong Giang (Team leader) Nguyen Minh Phuong

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G Global Advanced Master of Business Administration Prograrr TABLE OF CONTENTS Page

“DEVELOPING MANAGEMENT STRATEGIES FOR WATER SUPPLY PROGRAMS IN VIETNAM DEVELOPMENT BANK TO 2015 AND VISION TO 2020”

COVER PAGE i

CONFIRMATION OF ENTERPRISE i

DECLARATION ii

LIST OF SIGNS AND ABBREVIATIONS Vil

LIST OF TABLES Vill

LIST OF DIAGRAMS Vill

PREFACE 01

INTRODUCTION 03

1 General context the necessity and implication of the research project 03

2 Objective and scope of the study 04

3 Methodology of the study 04

4 Structure of the capstone project 04

Chapter 1 BASIC RATIONALE OF THE REAEARCH PROJECT 06

1.1 Concept and classification of business strategy 06

1.1.1 Concept of business strategy 06

1.1.2 Role of business strategy 07

1.1.3 Basic characteristics of business strategy 08

1.2 Process of developing business strategy 09

1.2.1 Analyze internal and external environment 09

1.2.1.1 Analyze internal environment ()0

1.2.1.2 Analyze external environment I]

1.2.2 Building matrix to select business strategy 19

1.2.2.1 SWOT Matrix 19

1.2.2.2 External Factor Evaluation Matrix 2] 1.2.2.3 Internal Factor Evaluation Matrix oe

1.2.2.4 Internal External Matrix 22

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Load QOSPM Mairix 24

Chapter 2, ANALYZING REAL SISTUATION IN MANAGING THE 28

WATER SUPPLY PROGRAMS IN VDB

2.1 GENERAL INTRODUCTION OF THE VDB 28

2.1.1 The process of establishment organizational structure and 28 apparatus

2.1.2 Situation and performance in managing water supply 30 programs in VDB up to June 2012

2.2 ANALYZING SITUATION IN MANAGING OF INVESTMENT 31

ACTIVITIES FOR WATER SUPPLY PROGRAMS IN VDB

2.2.1 Analyze external environment 31

2.2.1.1 Macro environment 3]

2.2.1.2 Sectorial and competitive environment 36

2.2.1.3 Determine the opportunities and threats

2.2.2 Analyze internal environment 53

2.2.2.1 For the whole of Vietnam Development Bank 53

2.2.2.2 Regarding the ODA program financing for the 3S water supply activities

2.2.2.3 Evaluate the financial performance 3# 2.2.2.4 Determine the strengths and weaknesses 69

2.2.3 Analyze and select the strategies Tế

2.2.3.1 Analyze and orientate the strategies ce

2.2.3.2 External-Internal factor evaluation matrix 79

2.2.3.3 QSPM matrix 79

Chapter 3 RECOMMENDATIONS, SOLUTIONS 84

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(C1 Global Advanced Master of Business Administration

3.2.1 Bases for selecting 85

3.2.2 Determining management strategy 85

3.3 SOME SOLUTIONS FOR IMPLEMENTATION 85

5301 Solutions to mobilize the capital for the fund 85

3.3.2 Solutions to human resource management 86

3.3.3 Solutions to Credit Management 94

3.3.4 — Solutions to beneficiaries 94

3.4 SOME RECOMMENDATIONS TO THE GORVERNMENT 96

MINISTRIES AND DONORS

3.4.1 — For the government 96

3.4.2 — For relevant ministries 96 3.4.3 — For donors 97 3.4.4 — For VDB's leaders oF CONCLUSION 99 REFERENCES 100 APPENDIX

Appendix | - FINANCIAL DATA OF VDB

Appendix 2 - AUDITED FINANCIAL REPORT OF THE WORLD BANK WATER SUPPLY PROGRAM

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LIST OF SIGNS AND ABBREVIATIONS

VDB Vietnam Development Bank

BIDV Debt/Asset

WB World Bank

ADB Asia Development Bank

AFD Agency of French Development kfW Kreditanstalt fir Wiederautbau Bank ODA Official Developent Assistant

GDP Gross Domestic Product GNP Gross National Product

SWOT Strengths - Weaknesses - Opportunities - Threats EFE External Factors Evaluation

IFE Internal Factors Evaluation

QSPM Quantitative Strategic Planning Matrix

CPM Competitive Profile Matrix

TOWS Threats - Opportunities - Weaknesses - Strengths BCG Boston Consulting Group Matrix

AS Attractive score

PAS Total attractive score

FDI Foreign direct investment

BOT Built - Operation - Transfer

BT Built - Transfer

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€2 Proqgram Global Advanced Master of Business Administration LIST OF TABLES

No Sign’ ‘Name oftable ~

| 01 | Table 1.1 | Comparison of classical and modern standpoint on

h strategy |

| 02 | Table 1.2 SWOT Analysis

| | ODA investment particularly and water supply generally |

05 | Table 2.3 ‘The external factors evaluation matrix 06 | Table 2.4 | Finacial indicators of VDB

07 |Table 2.5 |

08 | Table 2.6 Calstila8on for chanagenienn fee of VDB ae all ODA-

funded water supply projects

09 | Table 2.7 The IFE Matrix SAU v28 pe Reich ener eke

10 | Table 2.8 SWOT matrix for ODA fund financing far water supply

| activities in VDB

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- 04 | Diagram 1.4 | Business strategy procedure

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i Global Advanced Master of Business Administration

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PREFACE

After the fall of the Berlin wall in 1990 the world economy moved to a new staze of globalization and extensive integration, Globalization brings new opportunities to expand the market and production and business activities to improve position for countries in general and manufacturing enterprises 1m particular Globalization is about many rivers flowing into the big sea and integrating together so that activities of one business can have strong impact on the whole economy Indeed, Vietnam is a quite open economy, approximately at 170%,

which shows that slight fluctuation of the economy may affect the whole market of

the country In addition, many Vietnamese enterprises do not have enough capacity and capability to reach out to the world after integration into the world economy

Many of them are even in danger of being defeated at home market before the intrusion of powerful foreign businesses which have advantage in capital,

experience and high-quality personnel

Businesses are faced with both opportunities and challenges with forecasts

and prediction of changes in the world economy First of all, businesses need to have an overview to cover its opportunities, challenges strengths and weaknesses of the business, from which further analyze in order to build specific strategies for

their businesses Respectively, the main focus is placed on the role of management

and leadership positions

MBA program at Griggs University like many other MBA programs, is also

aimed at providing students, managers at present or in the future with an overview of this task by a range of subjects to go insight into each profession, such as financial accounting, marketing, business administration human resource

management All aims to equip students with knowledge and skills needed in corporate governance in general and building business strategy in particular in the context of the changing diverse and unpredictable economy

At the end of the program we are required to perform a group assignement

with content of building production and business strategies for our businesses The goal is to apply the knowledge received in the course into business practices In

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addition to building skills and vision for students in management the program contributes to the specific strategic plans for businesses based on scientific and

logical basis

The characteristic of our group is that most members are working in the banking sector such as Agricultural and Rural Development Bank, Joint stock Commercial Bank for Foreign Trade of Vietnam or the Vietnam Development Bank While commercial banks are gradually reaching those of other countries in the region and the world State-owned bank such as the Vietnam Development Bank with many features related to the State mechanism and policies has different characteristics and object of business activities, where we can find many weaknesses Based on that, our group decided to choose the scope of the assginment

is to build strategies for the Vietnam Development Bank until 2015 and vision to 2020 and focus on credit management of water supply programs This is also the department where a member of the group is working at Hence, our group would

have a more objective view of the analysis

However, due to a number of objective and subjective factors such as limited preparation time, large volume of information required for analysis and evaluation of relatively large while lack of access to information sources, especially limited experience of members in planning and vision, there may be unscientific points and

analysis in the assignment that are not suitable with the actual implementation So our group looks forward to receiving comments and evaluation of the Board and lecturers in the program to bring practicality for strategic plans and also help

students develop necessary skills in planning As a result, strategies applied in

business practices of each member will be sound and suitable

Finally, our group would like to sincerely thank the MBA Program at Griggs University for giving us a course that is much improved not only in knowledge but also in method, experience and skills Hopefully in the future the program will continue to be expanded to help improve management and administration ability for many students to enhance contribution to their enterprises

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' Global Advanced Master of Business Administration

INTRODUCTION

is General context, the necessity and implication of the research project

Clean water has been an issue that is concerned by all humanity In the vlobal scale generally and in developing countries such as Vietnam particularly, the demand for using and supplying clean water has been an urgent issue, affecting directly to the quality of citizens Beside the social economic goal of government, the clean water supplying activity is a part of other governmental programs about

climate change From then, a lot of donators are concerning and supporting Vietnam

in the program of developing water supply This aid includes credit source as well as technical supporting activities in order to improve the ability of all related party

in the process of implementing the water supply program

Vietnam Development Bank has a specific financial institution, which is

considered to be the tool of government in constructing infrastructure and key investing industries in the whole country For the area of water supply because of

some characteristics about social security, long capital loaning time, especially the price for water is regulated by Provincial People’s Committees, based on the accepting idea of People’s Assembly Therefore efficiency element, especially about financial aspect as well as investing capital of projects are always an issue

that creates challenges for not only the water supplying company who directly invests builds and runs the project but also to the credit units such as VDB, BIDV, even to the Central Water Supplying Management Department Difficulty also comes from the ability of investors, managing units, credit units, and the scale of capital source and there are so many sources that manage one sector which makes it complicated especially the resources cannot be concentrated

Then for national scale, government are orienting to build a national fund of Water industry in order to concentrate all the fund and related technical supporting

activities Into one, creating convenience for management and allocation of investing

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Global Advanced Master of Business Administration rogra

capitals meeting the demand of constructing water supply projects finishing the

national objective of clean water,

In respond to this demand related organizations as mention im the

constructing, running and managing process of water supplying project all have responsibilities to build a complete process, maximizing the activity of the unit completing ihe strategic frame Gt water supplying activity in national wide This

task would be one of the key issue in navigating the activity strategy in short

medium and long term at Vietnam Development Bank oe Objective and scope of the study

At recent time, Vietnam Development Bank itself is managing a lot of water

supplying project from both domestic capital and ODA capital of donators, these

programs is also separated and not really connected to create a general process

Since then, the analysis of actual managing activity of credit program for water industry, evaluating the strength weakness as well as formulating solutions to particularize into action are the important steps and need to be carried out soon

From this demand, applying the reality of water supplying programs which

has been managed by Vietnam Development Bank, policy frames orientations of

government and ministries, recommendations from future donators, Group 3 —

M.0310 orients to build particular strategy of management, selecting a optimal strategy and give the comments of teachers and evaluating committees in the

program, we desire to have a scientific and realistic recommendation applying in

implementing in the future

3 Methodology of the study

During the process of carrying out the big assignment, the group used the

method of data collection from actual managing and running the water supplying

programs in the unit, analyzing and evaluation information, data, combining and

diagnosing and from then suggesting efficient recommendation for the process of implementing water supplying programs next time

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Program

With the exception of appendix tables diagrams enclosing images the structure of the research include main parts as follows:

- Introduction

- Chapter 1: {heoretical foundation of planning strategy for company - Chapter 2 Analysis of the actual management of water supplying

prograins at Vietnam Development Bann

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CHAPTER I BASIC RATIONALE OF THE CAPSTONE PROJECT

Ll, CONCEPT AND CLASSIFICATION OF BUSINESS STRATEGY

1.1.1 Concept of business strategs

Johnson and Scholes (Exploring Corporate Strategy) define strategy as follows: "Strategy is the direction and scope of an organization over the long-term: which achieves advantage for the organization through its configuration of resources within a challenging environment, to meet the needs of markets and to fulfill stakeholder expectations" In other words, strategy is:

e Where is the place that enterprises are trying to achieve in the long-term? (direction)

e Where is the market that an enterprise has to compete and type of activity involved in these markets? (market, scope)

e How can companies perform better than their competitors in these markets?

(advantage)

e What kinds of resources (skills assets, finance, relationships technical

competence and facilities) are needed to be able to compete? (resources )

e What are environmental and external factors that influence the ability of enterprises to compete? (Environment)

e What are values and expectations of those who have internal power and around the company? (Stakeholders)

Table 1.1 Comparison of classical and modern standpoint on strategy

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Source: Michael E Porter (1996) "What is strategy" Harvard Business

Review November December 1996 1.1.2 Role of business strategy

Studies showed that if applied strategic management, a company will achieve higher efficiency than companies that do not perform this process If achieved

conformity among the environment of the company, strategy, structure and its

processes, strategy will create a positive effect on the efficiency of the company Benefits of strategic management, which has been tested in many different fields, in

many companies with different sizes can be summed up with 03 main points, namely:

- Make strategic vision clearer for the company: - Focus more precisely on the significance of strategy: - Improve awareness of rapid changes of environment

However, to achieve efficiency strategic management always needs an official process, and it can start with following questions:

- Where is the company”

- If nothing changes where will the company go after O1 years, 02 years, 03 years OS years or 10 years’? Can your answer be accepted or not?

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Global Advanced Master of Business Administration Pragratr

- If the answers are not accepted what do we need to perform managerial acuvities? What are risks and considerations that need to be concerned?

* Risks of strategic management:

Administrators must be trained to prevent three negative un-estimated consequences related to designing strateg c yi

Firstly, me that administrators spend on strategie management process can have a negative impact on operating responsibilities Administrators musi be trained to minimize that impact by scheduling their tasks to have enough time for their strategies

Secondly if the strategy is not deeply involved in the implementation of

strategies, they can evade personal responsibility for reached decisions Thus, strategic administrators must be trained to limit their promise for the implementation that decision makers and their subordinates can do

Thirdly, strategic administrators must be trained to anticipate and deal with the disappointment of subordinates when expectations are not achieved

Subordinates may think that they are related to small phase of the overall strategy which result in acceptance of their proposals and increase in bonus for them Or they can argue that getting their input on chosen issues is to expand into other areas of decision making

Making administrators sensitive to negative consequences and adjusting them by effective means to minimize such consequences will promote the potential

of strategic planning

1.1.3 Basic characteristics of business strategy

In general, a business strategy has the following characteristics:

(i) It is generally long range in nature though it is valid for short-range

situations

(11) It is action oriented and is more specific than objectives

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(iv) It is formulated at the top management level though middle and lower level managers are associated in their formulation and in designing sub-strategies

(v) Tt is generally meant to cope with a competitive and complex environment

(v1) It flows out of the goals and objectives of the enterprise and is meant to

translaie them into realities

(vu) It is Concerned with pereeiving opportunities and threats and seizing initiatives to cope with them

(vill) It is concerned with the deployment of limited organisational resources in the best possible manner

(ix) It provides unified criteria to managers in the function of decision making

(x) It is intended to handle complexity and reduce uncertainty of the environment

(xi) It is meant to fill in the need of organisations for a sense of dynamic

direction, focus and cohesiveness

(xii) It is formulated at the corporate, divisional and functional level

(xii) It includes the determination of business lines, expansion and growth,

vertical and horizontal integration diversification, takeovers and mergers, new

investment and divestment areas R&D projects, and so on

1.2 PROCESS OF DEVELOPING BUSINESS STRATEGY

bạ hs

to .1 Analyze the business environment

to s chu Analyze external environment

The analysis of the external environment helps us identify opportunities and threats which enables companies to work out appropriate strategy Analyzing the external environment through following environments:

a) Analysis of the general environment (macro):

+ Macroeconomic environment: [his is a very important factor attracting

much attention of all business administrators The fact is that the impact of this

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environment may be an opportunity but also a threat to each company which can

affect potential of company strategies Basic elements of the macroeconomic

environment are:

e Gross Domestic Product (GDP), Gross National Product (GNP): Data on annual GDP, GNP growth rate shows the growth rates of the economy and income per capita which enables enterprises to predict the market size in each industry and

their market share

e Inierest rates and interest rate trends: impact on the trend of savings, consumption and investment in people and enterprises Increased interest rates will

reduce demand for loans to invest in expanding the business, affecting the

profitability of enterprises Besides, rising interest rates will also encourage people

to deposit more money in commercial banks, which makes demand for consumption dropped

e Exchange rate policy: Changes in exchange rate policies directly affect

import and export activities When the exchange rate between powerful foreign currency and local currency increases it will encourage enterprises to increase exports of goods because then these goods will be relatively less expensive when

exporting to foreign markets However, importing companies then will be

disadvantaged by having to buy more expensive imported goods

e Inflation rate: High or low inflation rate will affect the level of investment and consumption High inflation will discourage savings, generate greater risks for

company investment, reduce the purchasing power of the society and make the economy stagnated By contrast deflation also creates stagnation of the economy

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e Monetary policy, volatility in the stock market also affects Investment and consumption in society

+ Political and legal environment: includes a system of view points directions, policies of the government the current legal system political diplomatic

tendency of the government and domestic political developments Elements of the

political legal environment include:

e /cnvs: release the rules to allow or disallow or requirements that enterprises have to comply Enterprises have to research and analyze carefully law regulations of host countries such as labor law, tax law, and the option to adjust or prioritize

e the government: plays an important role in regulating macroeconomic

through its fiscal, monetary policies and spending programs In relations with

enterprises the government not only plays a role as a controller but also an important customer of enterprises providing public services for enterprises Thus, to take advantage of opportunities and minimize threats, companies have to capture viewpoints, rules, priorities, and government spending and build good relationship with government agencies to create a favorable environment for business activities

+ Technological environmental: This is one of flexible elements, containing many opportunities and threats for enterprises Opportunities and threats

from technological environmental technologies can be:

e New technology to help companies produce more new products with cheaper price better quality and more features which makes the product more competitive

e Introduction of new technologies to strengthen competitive advantage of alternative products, threatening traditional products of existing industries

e Explosion of new technologies to make existing technology obsolete and to pressure companies to innovate technologies and to improve competitiveness

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e Introduction of new technologies to create favorable conditions for new companies penetrating into the industry which increase pressure on existing

companies in the market

Social and cultural environment: [Elements of social and cultural environment will affect demand consumer tastes such as notions of ethics aesthetics lifestvle, professional ethics customs traditions, concerns and priorities of society level of awareness and education of society Nevertheless corporate governors must also be aware that sometimes effects of elements of social and cultural environment are long-term sophisticated and even difficult to recognize

Therefore, understanding of society and culture is important for administrators in

the strategic planning process

+ Population environment: Changes in population environment such as total population size, population growth, population structure in age, gender, and occupation, the population shift between areas life expectancy and natural birth

rate will impact business strategy of enterprises Information from this environment will provide important data for administrators in planning strategies

such as product strategy marketing strategy distribution strategy pricing strategy

which results in better satisfying the needs and tastes of consumers

+ Natural environment: Natural conditions, including geography, climate, landscape, land and natural resources are significant inputs for agriculture,

mining industry, tourism, transport In many cases, natural conditions themselves

become a key element to build a competitive advantage

b) Analysis of competitive environment (micro):

+ Researching and analyzing competitive environment is one of main

contents in the process of controlling the external environment This environment is

directly related to each company where majority of activities and competition of enterprise directly occur

+ Michael FE Porter built a model of five forces Forming the context of

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suppliers; (3) Bargaining power of buvers, (4) Threat of substitutes, (5) Degree of rivalry among existing competitors in the industry (Diagram 1.1)

Diagram 1.1: Five Forces Model

Source: Michael E Porter (1985), "Competitive strategy," New York: Free Press SUPPLIER POWER Supplier concentration Importance of volume to supplier Differentiation of inputs

Impact of inputs on cost or differentiation

Switching costs of firms in the industry Presence of substitute inputs Threat of forward integration Cost relative to total purchases in industry RIVALRY ~—— eA|-Lxit barriers q|-Fixed costs/Value added {|-Intermittent overcapacity 4|-Brand identity DEGREE OF RIVALRY -Industry concentration -Industry growth -Product differences -Switching costs -Diversity of rivals -Corporate stakes

- Pressure from entry of potential rivals: New competitors entering the industry will reduce the market share profit of enterprises To protect their

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competitive position, enterprises must build barriers to entry According to Joe Bain there are three main barriers preventing the entry are: (/) Customer loyalty to company products, (2) Absolute advantage in cost, (3) Economies of scales

According to Michael : Porter there are six main barriers to entry:

e Economies of scales: are available due to cost reduction for mass production

of standardized products, discounts for large amounts of commodities raw

materials and inputs Or public advertisement helps lower advertising costs per unit of product These advantages prevent the entry of new competitors, causing only

new competitors with equal or larger scale to be competitive in price

e Product differentiation: emphasize customer loyalty to the company products This factor comes from product differentiation such as dissimilarities in design quality service style, marketing strategy or the company was a pioneer in the industry Distinctness creates barriers to entry, which forces new competitors to

do a lot to overcome customer loyalty This is often very difficult for new entrants in the industry

e Capital requirements: Yhe industry that requires high initial capital

investment will have high barriers to entry Only potential rivals who have strong

financial resources, can enter the industry and compete with existing companies

e Switching costs: The costs appear once when customers want to switch their

purchases to other suppliers The switching cost can be related to the cost of

procurement of equipment or staff training costs If switching costs are high,

customers are holding down on the existing company’s products even if products newcomers are better

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aa

All these factors are barriers to entry of potential competitors causing them to build a completely new distribution system This is costly in expenses time and

human resources

e Cost disadvantages not related to the scale: includes (1) Existing market

players already have their own technological secret (2) Existing companies have access to favorable raw material sources (3) As a pioneer, they have a favorable business location, (4) The government's priority for existing competitors, (5) Experience curve effects (production cost per unit tends to reduce in accordance with accumulated experience)

e Nature of the entry barriers: These barriers can be changed if conditions in reality change For example expiration of patents or variety of input sources significantly reduces barriers to entry

- Pressure from existing competitors in the industry: This is constant pressure, directly threateningenterprises Growing pressure of competition among enterprises increasingly threatens the position and survival of enterprises

If the industry rivalry is weak, companies will have the opportunity to raise prices and get higher profits On the other hand, if competition is intense price competition can occur, which can lead to price war Competition limits profitability by reducing the profit margin on sales Therefore degree of rivalry among firms in the industry is a threat to profitability In general, level of rivalry among companies

in the sector is considered as a function of four main factors: (/) Industry's competitive structure, (2) Industry growth rate, (3) Product differentiation, (4)

Barriers to exit

© Competitive structure: refers to distribution of number and size of companies in the industry Normally dispersed industry structure brings more threats than opportunities In this case it is difficult to make a difference Hence the best strategy for companies to pursue Is to minimize the cost Meanwhile, a concentrated

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industry is overwhelmed by a small number of large companies Phen competition among companies focuses on product differentiation

e Industry growth rate: Industries with low growth rate will make the competition the battle for expanding market share and then a company can only

vrow by gaining market share of other companies Meanwhile in industries with

nigh growth rate the competition is not intense because companies have more opportunities to meet the growing demand

e Product differentiation: If products and services in the industry do not differ

from others customer's choice will be mainly based on the price and service style An inevitable result is to create fierce competition in prices and service style By

contrast high level of product differentiation and services will make buyers have

interests and confidence in certain products

e Barriers to exit: \f the barrier is high, the company may be held down on a non-profitable industry where demand does not change or even decline This can cause redundant production capacity, which in turn tends to make price competition more intense, as companies all know price cut is an attempt to receive more orders

to use their idle capacity Factors forming barriers to exit includes: (/) Assets specialization; (2) Fixed costs to exist; (3) The strategic correlation relationship:

(4) Spiritual barriers; (5) Restricted policies of the State

- Pressure from substitutes: Substitutes are products of an industry that

serves customer demand similar to the industry that the company is operating For

example, companies in coffee industry directly compete with companies in tea and

beverage industry These branches all serve the drinking needs of customers

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Pressure from customers: [he fourth force in Porter's five forces ts bargaining power of customers Customers (buyers) can be viewed as a threat as

they are ina position to request a lower price or when they demand better service

(which can lead to increased operating costs) Whereas with weak bargaining of buyers companies can increase prices and gain higher profits Buyers can ask the company or not depending on their relative power to the company According to Porter most powerful buyers include:

e When the industry is made up of many small companies and buyers are few

and large This case allows buyers to overwhelm the suppliers

e When buyers make a purchase in large quantities, buyers can use their purchasing power as a powerful leverage to bargain

e When the industry depends on the buyers, because a large percentage of all

orders are theirs

e When the buyer can switch between suppliers providing low cost, it stimulates companies compete against each other which leads to lower prices

e The buyers can threaten suppliers when they are capable of integrating

vertically afterwards

e The buyer has enough information

e Products of the industry are not important for the buyer

- Pressure from suppliers: Including units providing inputs such as raw materials, machine, equipment, finance human resources When suppliers have advantage they will put disadvantaged pressure on companies such as selling at high prices, short-term payment period

+ Limitation of Five Forces Model: Five forces model is a useful tool for researching and analyzing the nature of competition in an industry to recognize the opportunities and threats Nonetheless when using this tool, administrators need to be aware of limitations of the model namely: (/) Present a static picture of

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competition that underestimates the role of improvements, (23) Ignore the importance of differences in “each individual companies."

bu xu Analyze internal environment using the McKinsey’s 7S model The McKinsey’s 7S model was named after a consulting company, McKinsey and Company which has conducted applied research in business and industry This model! specially addresses the need to build a tight strategic fit between strategy organizational structure and = five additional components of organizational

effectiveness The McKinsey 7S Framework was created as a recognizable and

easily remembered model in business The seven variables all begin with the letter

These seven variables include structure, strategy, systems, skills, style, staff and

shared values Structure is defined as the skeleton of the organization or the organizational chart

Strategy — how the business intends to create a competitive advantage and achieve its overall goals

Structure — the hierarchy of responsibility and accountability within the organization and how the business is organized functionally, geographically or by product-market

Systems — the way activities and processes get the work of the business done effectively and efficiently

Style — the culture of the business and the way the leaders behave towards

customers, employees and other stakeholders What's said is much less important

than what's done

Staff — the personnel within the business and their individual skills abilities and attitudes Different people are right for different organizations

Skills — specialist skills that the business has access to through the combination of

systems and staff — think core competences or distinctive capabilities

Shared values or subordinate goals depending on which version you read — the core

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[he strengths and weaknesses of an organization can be identified by considering the links between each of the Ss None of the S components is the strength or weakness in its own right: it is only its degree of support or otherwise for the other Ss which is relevant Any Ss which harmonize with all the other Ss can be thought of as strengths any dissonances as weaknesses a, Figure 2.5 McKinsev’s 7S Model A Style — ;

ere, ae, ae i gt, (Source:

\ — | X_ nag af /\\ = v7 Siu LẠ 0h ) rs http://differentiateyourbusiness.co.uk/ a7 44 yt \ mckinsey-7-s-framework-for- L Shared X | = a Val — tì áY a ar SN ` strategic-fit) i” ( Structure ⁄ Systems ) "Xu gual all Strategy 7" 1.2.2 Analyze and select the strategy a SWOT Matrix SWOT is the abbreviation of Strengths, Weaknesses Opportunities and ` Threats using to evaluate the “internal” position of the enterprise and the impacts of “external” environment

SWOT analysis is an important tool to check the general strategic points of a enterprise and its environment As long as the important strategies are identified they match with the business objective particularly the marketing objectives

SWOT analysis can be combined with other tools in order to check and analyze such as PEST analysis and Five Force Analysis of Porter

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Table 1.2 SWOT Analysis

Technology skills Lacking important technology skills

Leading trade mark Weak trade mark

Distribution channel Weak distribution capac ity

The relationship and loyal of customers Weak Customer maintainance

The change in customers’ tastes The change in customers’ tastes

Expansion of geo hy market Closing of geography market

Technology advances Technology advances

Change in government's policies Change in government's policies

Tax reduction Tax increase

External

factors

Change in the age structure of population Change in the age structure of ulation

New distribution channel New distribution channel

Combine the points of S W, O and T in order to develop the strategies:

e Strategy of Strengths and Opportunities (SO): use the internal strengths of the company make use of external opportunities Try to overcome when

confronting with the weaknesses to turn it to the strengths Avoid the significant

threats and focus on opportunities

e Stategy of Weaknesses Opportunties: improving the internal weaknesses by

making use of external opportunities Review the weaknesses which prevent exploiting the external opportunities

e Strategy of Strengths - Threats: use the strengths to avoid threats the strong organizations are always threatened from the outside

e Strategy of Weaknesses - Threats: defend to avoid, depreciate the internal weaknesses external threats [hese are bad situations which is difficult to

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Í Proqrarr

Summary the combination in order to develop the strategies can be described inthe Diagram 1.2 as follows:

Diagram 1.2 SWOT Analysis Many Environmental Opportuntiies t

IHI/ Support a I/ Support an turnaround-style aggressive strategy Strategy

Crucial internal Enormous

Weaknesses ‘ Internal

strengths IV/ Support a Il/ Support a

defensive style diversification strategy strategy Ww Grave Environment Threats

a External Factor Evaluation Matrix

The EFE matrix evaluates the external factors, synthesize and summary the

main opportunities and threats of the external environment which impact to the

operation progres of the enterprise From this, the managers will assess the response level of the enterprise to the opportunities, threats and offer comments on the external impact factors being advantage or disadvantage for the company In order to build up this matrix it needs to implement five following steps:

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1 Program

Seip 1: Make a list from 10 to 20 factors of opportunities and threats which

are considered as might impact to the success of the enterprise in the business sector/field

Step 2: Classify the important level based on the barrier from 0.0

(C nimportant) to 1.0 (Very important) for each factor The important level of each factor depends on the influence level of that factor to the field/sector in which the

enterprise 1s implementing The total grade for the importance level of all factors has to equal to 1.0

Step 3: Identify the weight from | to 4 for each factor the weight of each factor depends on the response level of each company to that factor in which 4 is

the hest response level, 3 is the level over the average one, 2 is average response, 1 is weak response

Step 4: Multiply the importance level of each factor with its weight in order to identify the grade for each factor

Step 5: Plus the grade of all factors to determine the total grade of the matrix Evaluation: The total grade of the matrix does not depend on the number of

factors in the matrix, the highest grade is 4 and the lowest one ts 1 If the total grade is 4 that the company is responding well to the opportunities and threats, if the total grade is 2.5 that the company is now responding on average level to the

opportunities and threats; if the total grade is 1, the company is now responding weakly to the opportunities and threats

c Internal Factor Evaluation Matrix

The internal factors are considered as being very important in each business strategy and objectives which the enterprise has set up, after reviewing the internal factors the strategic managers need to make this matrix to consider the response

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d Intermal - external Matrix

Ihe [Tk matrix is used to analyze the conditions and strategic positions of an enterprise The [Ee matrix is an expansion of the [FE and EEE matrix when they are combined into one model :

(1) The grade from IFE matrix is drawn inx axis: (2) The grade from EFF matrix is drawn in y axis Diagram 1.3 IE Matrix EFE A TE matrix score 4.0 strong average weak ¡H high grow and build PPE Tg VI medium 2.46 hold land _ maintain Vũ |VH Ix low harvest or divest >

1.01 4.0 IFE 2.79 1.0 IFE score

(3) In the x axis of IE matrix the total IFE grade from 1.0 to 1.99 expresses the

weak internal position The grade from 2.0 to 2.99 is the average one Grade

from 3.0 to 4.0, the internal position is strong

(4) In the y axix, the total EFE grade from 1.0 to 1.99 is considered as low level

Grade from 2.0 to 2.99 is the medium level Grade from 3.0 to 4.0 is as high one

(5) Inthe IE matrix the horizontal axis (x) and the vertical axis (y) are drawn in 9 cells Following which strategy will depend on the position of the enterprise

which is drawn on it The IE matrix can be devided into 3 core areas having the

different strategic implies

(6) Cells of I, I and HI propose a growth and development strategy This thing mentions about the short term attack and focus strategies These strategies focus on the scooping the market developing the market and the product From

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pr ]ran

the operation prospect using the conversed strategy downwards or horizontal intergral also needs to consider

(7) The cells of LV Vo and VI propose a holding and maintaining strategies In this case the short term strategies should focus on the scooping markets and developing the products

(8) The cells of VIL VII and IX are desbribed by the recovery tactics and given up If the cost for recovering the enterprise is low, then we should try to recover the business By constrast, positive cost management !s a way to play such last game Cells of I, I and II] propose a growth and development strategy [his thing mentions about the short term attack and focus strategies These strategies focus on the scooping the market developing the market and the product From the operation prospect, using the conversed strategy downwards or horizontal

intergral also needs to consider

(9) The cells of IV, V, and VI propose a holding and maintaining strategies In

this case, the short term strategies should focus on the scooping markets and

developing the products

(10)The cells of VII, VIII, and IX are desbribed by the recovery tactics and given

up If the cost for recovering the enterprise is low, then we should try to recover

the business By constrast, positive cost management is a way to play such last

game

e QSPM Matrix

The Quantitative Strategic Planning Matrix is a strategic tool which is used to evaluate alternative set of strategies The QSPM incorporate earlier stage details in an organize way to calculate the score of multiple strategies in order to find the best match strategy for the organization

The QSPM comes under the third stage of strategy formulation which is

called “The Decision Stage” and also the final stage of this process The best thing

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the matching stage Phe input stage is based on Ebb Matrix, IF: Matrix and CPM and stage 2 made up of TOWS matrix SPACE Matrix BCG Matrix, TE Matrix

Grand Strategy Matrix Fhe QSPM combine the intuitive thinking of managers with

the analytical process to decide the best strategy for the organization success Format of Quantitative Strategic Planning Matrix

There are four main columns in QSPM the left column list down the key

internal and external key factors which are same as in EFE and IFE matrix

Adjacent column to key factors is Weight (relative importance of the factor) which holds the numeric value obtained from EFE and IFE matrix weight column The next to weight is AS stands for attractive score assign priority to key factors using the numeric value 4 for most importance and | for least importance and the last column TAS (Total attractive score) is the value calculated by multiplying weight

by AS One thing important to note for each strategy separate AS and TAS value added in the table weight remain same for all set of strategies mentioned in QSPM The topmost shows the strategies are compared in the QSPM matrix, below

mentioned table illustrate the structure of QSPM matrix

Steps to develop Quantitative Strategic Planning Matrix (QSPM)

Step 1 Make a list of the firm’s key external opportunities/threats and

internal strengths/weaknesses in the left column of the QSPM This information should be taken directly from the EFE Matrix and IFE Matrix A minimum of 10

external critical success factors and 10 internal critical success factors should be

included in the QSPM

Step 2 Assign weights to each key external and internal factor These

weights are identical to those in the EFE Matrix and the IFE Matrix The weights

are presented in a straight column just to the right of the external and internal

critical success factors

Step 3 Examine the Stage 2 (matching) matrices and identify alternative

strategies that the organization should consider implementing Record these

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| Global Advanced Master of Business Administration

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strategies in the top row of the QSPM Group the strategies into mutually exclusive

sets if possible

Step 4 Determine the Attractiveness Scores (AS), defined as numerical

values that indicate the relative attractiveness of each strategy in a given set of alternatives Attractiveness Scores are determined by examining each keyexternal or internal factor one at a time and asking the question “Does this factor affect the choice of strategies being made?” If the answer to this question is yes, then the strategies should be compared relative to that key factor Specitically, Attractiveness Scores should be assigned to each strategy to indicate the relative

attractiveness of one strategy over others considering the particular factor The

range for Attractiveness Scores is | = not attractive, 2 = somewhat attractive, 3 =

reasonably attractive, and 4 = highly attractive If the answer to the above question is no, indicating that the respective key factor has no effect upon the specific choice being made, then do not assign Attractiveness Scores to the strategies in that set Use a dash to indicate that the key factor does not affect the choice being made

Note: If you assign an AS score to one strategy then assign AS score(s) to the

other In other words, if one strategy receives a dash, then all others must receive a dash in a given row

Step 5 Compute the Total Attractiveness Scores Total Attractiveness Scores

are defined as the product of multiplying the weights (Step 2) by the Attractiveness

Scores (Step 4) in each row The Total Attractiveness Scores indicate the relative

attractiveness of each alternative strategy, considering only the impact of the

adjacent external or internal critical success factor The higher the Total Attractiveness Score, the more attractive the strategic alternative (considering only

the adjacent critical success factor)

Step 6 Compute the Sum Total Attractiveness Score Add Total

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relevant external and internal factors that could affect the strategic decisions The magnitude of the difference between the Sum [otal Attractiveness Scores in a given set of strategic alternatives indicates the relative desirability of one strategy over

another

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CHAPTER 2 ANALYZING REAL SISTUATION IN MANAGING THE ODA FUNDS FOR WATER SUPPLY PROGRAMS IN VDB

to 1l, — GENERAL INTRODUCTION OF THE VDB

2.1.1 The process of establishment organizational structure and apparatus [he Vietnam Development Bank was established under Decision No 108/2006/QD-IT Tg on May 19 2006 by the Prime Minister to carry out State development investment and export credit in accordance with relations of the

Vietnam Government

According to this Decision, VDB is a legal entity, having its registered

capital its own seal and is allowed to open account at the State bank of Vietnam,

the State Treasury domestic and foreign commercial banks, to participate in the inter-bank settlement system and to provide payment settlement service in

conformity with the laws

VDB operates based on non-profit principle, with compulsion ratio of

reserve equal to 0% (zero percent), and is not required for deposit insurance

VDB is guaranteed by the Government for its solvency, and exempted from

tax and other payments to State Budget as regulated by laws

VDB shall operate for 99 years since the Decision comes into effect Registered capital of VDB is VDN 10,000 billion

Sources of funds for VDB operation: Funds from the State Budget:

- Mobilized funds:

- Trust funds from domestic and foreign organizations:

- Non refundable contributions from individuals, economic, financial credit and socio-political organizations, associations domestic and foreign organizations:

- Trust funds for grant and/or lending from local authorities individuals economic financial, credit and socio-political organizations, associations, local residents and foreigners domestic and foreign organizations:

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Functions and main activities of VDB: Functions:

- Mobilizing and receiving fund from domestic and foreign institutions for the implementation of the State development investment and export credit policies under the Government regulations:

- Implementing State policies on development investment credit and export credit:

- Managing the on-lending ODA delegated by Government:

- Receiving trust fund for grants, and/or investment lending and collecting debts from domestic and foreign institutions via Entrust agreements between VDB and these organizations:

- Entrusting VDB’s credit activities to financial and credit institutions;

- Providing settlement service for clients and taking part in domestic and

international settlement system in favor of VDB’s activities in line with current regulations:

- Promoting international cooperation in the fields of development investment

credit and export credit:

- Undertaking other tasks assigned by the Prime Minister

Main activities:

VDB has been improving its operations as the governmental policy bank and

contributed significantly to mobilize capital from domestic and overseas financial

sources In details its functions include: providing medium and long term capital for

investment production, supporting product export of some economic priority areas, filling the gaps created by the emergent capital market and hesitation of commercial

banks In addition, VDB performs some other activities, such as providing credit guarantee for businesses especially small and medium ones, bid guarantees, guarantee for contract execution and post-invest support In short, the biggest difference between VDB and commercial banks are operational purposes VDB does not focus

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Global Advanced Master of Busimess Administration

on profit but being a Government assistant to implement economic and social growth

policies - as well as enhance the stable and sustainable development on each period

2.1.2 Situation and performance in managing water supply programs in VDB up to June 2012

Currently the whole system of VDB is managing 97 projects or investment, renovation and upgrading programs of pipe networks and water supply plants These projects are financed by investment and development credit of the State and ODA It

can be specified as follows:

Water supply projects are financed by investment and development credit of the State:

VDB has made loans to 35 water supply projects from development credit

source of the State with commitment in credit contracts of 3.696 billion dong As of

30" June 2007, outstanding is 1.650 billion dong For these projects, VDB

implements from appraisal, loan approval to loan recovery It completely takes the risk and simultaneously mobilizes capital for these projects on its own

Water supply projects are financed by ODA capital source:

Conventional ODA projects (VDB does not do appraisal, loan decision, and

not directly make disbursement):

VDB is on-lending 59 projects using bilateral and multilateral ODA as authorized by Ministry of Finance with total committed capital of 5,812.5 billion dong As of 30" June 2007 outstanding is 2.833 billion dong For conventional

ODA projects VDB not only manages on-lending projects under authorization of Ministry of Finance, but also implements from cost control to signing debt agreement recovering debt and receiving on-lending fee of Ministry of Finance In these projects, VDB is not responsible for appraisal and credit risk

Special ODA projects (VDB participates in appraisal; loan approval: directly makes disbursement to these projects):

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