Grice) Strategic Management
Ta TEE I ES ET EI
GRIGGS UNIVERSITY
GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM
CAPSTONE PROJECT REPORT
BUILDING BUSINESS STRATEGY OF
PHUONG DONG TRADING AND CONSTRUCTION JOINT STOCK COMPANY
| IN THE PERIOD OF 2013 — 2018
Group Number: 3
Student’s name:
Trang 2GRIGGS UNIVERSITY Strategic Management ACKNOWLEDGEMENT Dear Professors!
Dear Sir and Madame!
Getting hold of your enthusiastic teaching and dedicated instruction, the Members of the Group No3 of the Class GaMBA.M0611 have studied together, formec the team work and completed this important capstone project report We would like to express our sincere thanks to our professors and teachers, and the CEO and Mangenent of PHUTRACO for their eager and effective guidance and support for us to complete this capstone
Trang 33l Q69) | GRIGG Strategic Management TABLE OF CONTENTS _CONTENS PAGE _INTRODUCTION ˆ SỐ Ỷ 1 Rationale of the Capstone project report - - 2 Research purpose 7 3 Research methodology 8
4 The structure of this major a assignment report 8
CHAPTER I: THEORETICAL BASIC ˆ 9
1.1 Introduetion to business strategy ; 9
1; 1.1 Concept of business strategy `
1.1.2 Role of business strategy 9
11, Types of business strategy 10
| 1.2 Strategic management process ˆ I1
tc Defining the business vision, mission, objectives of the enterprise 1]
(23, Analysis of external settings ll |
1.2.3 Analysis of internal settings 16
1.2.4 Selecting business strategy i>
Leeks Strategy implementation 22
124, Strategy evaluation ia
CHAPTER II: EVALUATING THE BUSINESS OPERATION OF PHUONG 24 DONG TRADING AND CONSTRUCTION JSC
2.1 Overview of PHUTRACO 24
2.1.1 History of establishment and development 24
Sa Organizational structure 24
2.1.3 Products and services 26
' 2.1.4 Business results of the last 3 years 2010-2012 af
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2.2.1 Macro Environment Analysis 31
2, Analy sis of Industry Environment _ T3856 |
2.2.3 General assessment of external factors — _ 4]
2.3 Internal environment analysis 42
2.3.1 Human resource - 42
Ta Marketing 44
2.33 Finance - Accounting s CB 45
2.3.4 Research and development 51
| 2.3.5 Internal Factors Evaluation Matrix (IFE) 53
CHAPTER III: BUILDING BUSINESS STRATEGY OF PHUONG DONG 54
TRADING AND CONSTRUCTION JOINT STOCK COMPANY IN THE PERIOD 2013 - 2018 "3.1 Developing goals for PHUTRACO by 2018 54 ST Strategic Objective 54 Siz Specific Objectives 54 | 3.2 D Developing strategies 54
3.2.1 Developing strategic plans 54
3.2.2 Strategic Options (QSPM Matrix) 60
3.3 Specific solutions for implementing strategies 63
35 | Management Solutions 63
3.3.2 Marketing Solutions 67
3.3.3 HR Solution 7
3.3.4 Solution of Finance — Accounting 73
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“Table 1.1 EFE matrix OO _ l§
Table 1 2: IFE matrix 18
"Table 1.3 SWOT Matrix S 20
"Table 1.4: QSPM Matrix 21
Table 2.1: Business results of 2010 - 2012 28
| Table 2.2: Some typical projects being implemented by PHUTRACO 2) | Table 2.3: Some general indicators of PHUTRACO’s competitors 39
| Table 2.4: Competitive profile matrix 40
‘Table 2.5: External Factor Evaluation of PHUTRACO (EFE) 4]
Table 2.6: List of personnel PHUTRACO 43
| Table 2.7: The shortened financial statement of PHUTRACO (2010-2012) 45
Table 2.8: Financial indicators of PHUTRACO (2010-2012) 49
Table 2.9: The financial results achieved in 3 years from 2010 to 2012 50 | Table 2.10: Internal Factors Evaluation matrix of PHUTRACO (IFE) 53
Table 3.1: SWOT matrix of PHUTRACO a
' Table 3.2 : QSPM Matrix of PHUTRACO 61
' Table 3.3: Investment roadmap of industrial door and unfired brick production 64 projects
| Table 3.4: The total cost of construction production of 1m2 Door 64 | Table 3.5: The total cost of construction production of 1m2 unfired brick 65 Table 3.6: The route of new investment of construction equipment 66 Table 3.7: Expected selling price of industrial products door and unfired bricks 67
Trang 6Gries) University Strategic Management ¬ LIST OF FIGURES Figure Page
Figure 1.1 Model of five competition forces of Michael FE Porter 13
| Figure 2.1: The model of organizational structure 26
Figure 2.2: The proportion of interest expense / revenue 2) Tigme35 Structure of personne by qualification by Decemver 31" 2012 44
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INTRODUCTION
1 Rationale of the Capstone project report
As for developing countries construction industry 1s always considered as one of the key economic industries playing special important role in economic and social development career of each locality, especially in the period of national industrialization and modernization
As for market economy, competitive laws exist at any business field and sector and construction industry is certainly not out of such laws, therefore, each organization has to find out its own way, make detailed and appropriate business strategy to exist and develop steadily
As an enterprise operating in the construction sector in Hung Yen province, Phuong Dong Trading and Construction JSC has gradually asserted its reputation and position in the provincial construction market However, when facing the international and national economic changes, the most important matter of Phuong Dong Trading and Construction JSC now is to plan the overall development strategy for all
production and business activities that aims at competing and dominating market share
against foreign and domestic enterprises to achieve growth of all aspects in the period of 2013 - 2018, creating condition for its steady development in the coming years This is also the reason why group 3 selects the topic for capstone project that is "Building business strategy of Phuong Dong Trading and Construction JSC in the period of 2013-2018"
2 Research purpose
Based on a system of theoretical issues of strategic corporate governance and analyses and evaluation of business activities of Phuong Dong Trading and Construction JSC in the context of current economy, the authors wish to come up with a recommended business strategy together with some proposed solutions which are believed appropriate for the Company for the period 2013 - 2018
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3 Research methodology
This Capstone Project Report has been prepared using the methods of analysis, comparison and synthesis with data extracted and synthesized from the annual reports or financial statements of 2010, 2011 2012 of Phuong Dong Trading and Construction JSC and enterprises operating in the same industry Apart from that, useful information has been gathered from a number of data sources, books, magazines and specialized teaching materials These sources have also been used as references for the research purposes
4 The structure of this major assignment report
Besides the introduction, conclusion and appendix, the major assignment has three chapters:
- Chapter I: Theoretical basis
- Chapter I]: Evaluating the business operation of Phuong Dong Trading and Construction JSC
- Chapter III: Building business strategy of Phuong Dong Trading and Construction JSC in the period 2013-2018
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CHAPTER I: THEORETICAL BASIC 1.1 Introduction to business strategy
The concept of strategy has been established for a long time, this concept was derived from the military Currently there are many different concepts of strategy:
- Pred R David: "Strategy is the means to reach long-term goals."
- Michael E Porter “Strategy is the art of formulating firm competitive advantages for defence.”
- Alfred Chandler: “Strategy consists of basic and long-term goals of an organization at the same time selects the method or action process, allocates essential resources to implement those goals”
- According to unity-combined view score: “Business strategy is an art of designing and organizing means to reach long-term goals of enterprises and has relationships with the changes of business and competition settings.”
Although concepts are different, all of them have a shared content that is: Business strategy reflects activities of a business unit including the process of settings goals, measures and means used to achieve those goals
1.1.2 Role of business strategy
The role of business strategy includes, but not necessarily limited to, the following:
Helping enterprises clearly realize the orientations in the future, recognize possible opportunities and threats that help them make sound decisions appropriate with the settings thus ensuring the most effective business and production activities
Helping enterprises formulate better business strategies through the use of a system approach, set the basis for enhancing the coherence and the attachment of business administrators in realizing the enterprise’s goals
Coming up with a business strategy that helps raise sales, labor productivity, corporate governance effectiveness, avoid financial risks, enhance the capacity of preventing the enterprise’s difficulties
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Creating firm bases for formulation of sound production and business policies and decisions appropriate with the market's fluctuations
1.1.3 Types of business strategy
There are 3 types of the most common Strategies used by enterprises today: - Company-level strategy: As a long-term strategy related to the mission, the overall goals and the size of enterprise to meet the expectations and wills of the bosses and senior managers of the enterprise The company-level strategy is a long-term one with an overarching view and dominates all other strategies such as business strategy and functional strategies
- Business strategy (SBU): As the business strategy governing how an enterprise can compete successfully in a specific market, involving strategic decisions on product selection, satisfying the customers’ needs, finding competitive advantages compared to its competitors, exploiting and creating new opportunities
- Functional strategy: As operational strategy governing how each section/unit of the enterprise will organize, deploy, and review to implement business strategy and corporate strategy Functional strategy focuses on specific resources and deployment strategy such as: product strategy, pricing strategy, distribution strategy, market entry
Strategy
Some other business strategies:
- Strategy of consolidating market share: As an strategy that aims to strengthen the position and image of the enterprise through improving management model, reviewing and completing the control system, improving the quality of products and services, etc., for attracting and retaining its customers
- Strategy of diversifying products and services: Aims to diversify products and services for best satisfying customers’ needs to develop customers and increase profitss
- Strategy of expanding distribution network: Aims at diversifying and expanding the enterprise’s distribution channels
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- Focus strategy: Defining segments fields, products for which the enterprise can be the most powerful then mobilizing all resources of the enterprise in order to achieve high growth and efficiency
- Differentiation strategy: Identifying and building highlights of the enterprise in term of products, services, distribution channel, marketing policy, etc., compared to its competitors in order to achieve its own goals
1.2 Strategic management process
Strategic management process can be divided into six main steps:
- Step]: Defining the business vision, mission, objectives of the enterprise - Step 2: Analyzing the external settings
- Step 3: Analyzing the internal settings - Step 4: Selecting business strategies - Step 5: Implementing selected strategies - Step 6: Evaluating the selected strategies
1.2.1 Defining the business vision, mission, objectives of the enterprise
The determination of vision and mission aims to identify the positioning of the enterprise in the current context and in the future, and what its long-term goal is Determining the mission, goals is very important in developing strategy becaue this helps strategic planners identify sources of information to be collected, processed and formulate strategies
1.2.2 Analysis of external settings
The goal of analyzing the external settings is to identify opportunities and threats of the enterprise, to find ways of implementing and seizing the opportunities from the settings, simultaneously in order to avoid the unnecessary threats for the enterprise
The scope and content of settingsal analysis include: Analysis of the macro settings (general settings) and analysis of micro settings which is also known as industry settings
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1.2.2.1 Analysis of macro settings
Macro settings is the settings within the entire national economy, including: Economy, technology culture, society, politics and law Changes in the macro settings can directly impact on any certain forces of the industry that therefore can relatively affect other forces and even themselves, ultimately can change the attractiveness of an industry
- Political-legal settings (P): This includes a system of perspectives and policies of the State, of the legal system, especially the laws related to business; the political changes occurring in the country and in the world, the factors relating to politics and law
- Economic settings (E): This is a factor directly and powerfully making impact on the enterprise’s business activities through the volatility of macroeconomic variables as well as the impact of macroeconomic policies through the regulatory tools of the State
- Socio-cultural settings (S): The socio-cultural factors affect the lives and behaviors of human beings, thereby affect the structure of demand, purchasing behavior, consumption trend of consumers
- Technological settings (T): Technical-technological factors decide the creation of new products, establishment of business method/mode, method of satisfying demand that affects the competitiveness and business efficiency of enterprises
1.2.2.2 Analysis of the micro-settings (industry settings)
A narrow manufacturing industry or technical - economic industry including many enterprises can offer the same or similar products and services that can substitue one another The mission of strategists is to analyze and judge the competitive forces of the industry settings in order to identify opportunities and threats for their own
enterprises Michael E Porter, a strategy theorist of Harvard School of Business has
proposed a framework which helps administrators identify the opportunities and
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threats that enterprise must face in an industry (Michael E Porter, Competitive Strategy, New York: Freepress, 1980) The framework established by Michael e Porter is called model of five competitive forces M Porter points out that the stronger these forces are, the more limited the ability of existing firms is in term of raising pricess and getting higher profitss The strength of the five competitive forces can change over time as industry conditions change Potential competitors Risks from new competitors
Suppliers ‘ability Competitors of the Buyers’ ability
of negotiation industry of negotiation Suppliers Customers Ỳ
The competition between
existing enterprises of the industry
Risks from substitute
products and services Substitute products
Figure 1.1 Model of five competition forces of Michael E Porter
- Competitive pressure from existing competitors: The first of five forces of Michael E Porter’s model is the size of competition among the existing enterprises of a production industry The weaker competitors are, the more opportunities the enterprise will have to raise prices and get greater profits Conversely, when the existing Competitors are strong, the competition in terms of prices is significant, and all competitions in terms of prices also lead to damage Competition among enterprises of
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a production industry often includes such main contents as: structure of industry competition, status of demand in the industry and exit barriers
- The risk from potential competitors: Potential competitors are those enterprises which currently do not compete in the same industry, but are able to compete if they choose and decide to join the industry This is a threat for existing enterprises Current enterprises of the same industry should try to prevent potential competitors from joining their industry because the more enterprises there are in the same industry, the fiercer competition is The advantages and disadvantages for potential competitors’ entry depend mostly on barriers of industry penetration
- The power of buyers: Buyers can be considered as a competitive threat when they are in a position which forces enterprises to reduce prices or have demand of higher quality and better service Conversely, enterprises will have the opportunity to raise prices and get greater profitss That buyers can request enterprises or not depends on their relative power to the enterprises
- Power of suppliers: Suppliers can be considered as a threat pressure when they have the ability to raise prices of inputs or reduce quality of products and services that they offer, therefore reduce the profitability of enterprises Conversely, if the suppliers are weak, enterprises will have opportunities to ask for discounts and require high quality The ability of suppliers to require enterprises for so doing depends on relative power between them and enterprises
- Threat of substitute products or services: The last force of M Porter’s model is the threat from substitute products Substitute products are other products that can satisfy the needs of customers Their basic characteristics are that they are often superior to the replaced products by unique characteristics This threat requires enterprises to have frequent analysis, monitoring of the scientific - technical — technological advances, which is directly related to technological innovation and product innovation Moreover, the change in market demand is also an important factor creating this threat
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1.2.2.3 External factors evaluation matrix (EFE):
Table 1.1: IFE matrix The main external factors The importance Weight Score Factor X - s A có u m | Factor Y - B Vv | n | bộ k6 ica Fe d15i0 ses cineca an Factor Z s | _ c t | D —_ Total 7 s | q
External factors evaluation matrix (EFE) helps us summarize and quantify the effects of settingsal factors to the enterprise EFE matrix is developed in five steps:
- Step 1: Making a list of major opportunity and risk factors which have great influence on the company’s success in the business industry (commonly from 10 to 20 factors)
- Step 2: Defining importance by grading from 0.0 (not important) to 1.0 (the most important) for each factor The total importance of listed factors is 1
- Step 3: Grading from | to 4 for each represented factor (actually may make larger range of scores) For the biggest threat as grading by 1, the smallest threat as grading by 2, the smallest opportunity as grading by 3 and the biggest opportunity as grading by 4
- Step 4: Calculating scores for each factor by multiplying the importance level of that factor by the corresponding grading score
- Step 5: Calculating the total scores for all factors given in the matrix by adding up the scores of similar factors and components of each enterprise
Accordingly, if the total score of the entire list of factors put in EFE matrix is 4, the enterprise has good response to opportunities and threats from settings If it is 2.50
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or above, the enterprise’s response is above average In contrast, if the total score of
EFE matrix is smaller than 2.50, its response is lower than the average level 1.2.2.4 Competitive Profile Matrix (CPM)
A Competitive Profile Matrix is built to conduct evaluations and comparison between a particulr enterprise and major competitors operating in the same industry This comparison is based on factors affecting the competitiveness of enterprises of the industry Thereby, the Administrators recognize the enterprise’s strengths and weaknesses in comparison with its competitors, determine the competitive advantages and weaknesses the enterprise needs to strengthen and overcome respectively
To build a Competitive Profile Matrix, it is necessary to follow 05 steps:
- Step 1: Making a list of 10 factors which have important impact on the competitiveness of enterprises of the industry
- Step 2: Grading the importance level from 0.0 (not important) to 1.0 (very important) for each factor The importance of each factor depends on its impact level to the competitiveness ability of enterprise of the industry The total grading levels defined for these factors must be 1.0
- Step 3: Grading from 1 to 4 for each success determinant shows how the enterprise’s current strategies respond to this factor In which, 4 is good reaction, 3 is rather good reaction, 2 is average reaction and 1 is poor reaction These coefficients are determined by expert method which is based on the enterprise’s operational
results
- Step 4: Multiplying the importance of each variable by its grading level to determine the total importance score
- Step 5: Adding the total importance score by variables to determine the total importance score for each enterprise
1.2.3 Analysis of internal settings
The strategist must understand the internal settings in order to know the major strengths and weaknesses of their own organizations This is of paramount importance
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because it will indicate the enterprise's strengths and weaknesses that should be considered when making decision on selecting business strategies
In fact, it is impossible to evaluate all factors of the internal enterprise because of their enormous amount Therefore in order to assess the enterprises’ internal settings, it is necessary to show the main factors whose presence can represent the internal operation situation of enterprises Those factors are the enterprises’ value chain and core competencies
Regarding the content of internal enterprise analysis, it is necessary to consider the following factors:
- The enterprise’s products and business areas - Human resource management of the enterprise - Information system
- Marketing activities - Financial factors
- Brand and reputation of the enterprise
- Business culture of enterprise
Trang 18Gaia) UNIVERSITY Strategic Management | Table 1.2: IFE matrix _ The main internal factors’ | The importance | Weight | Score — FatorX — _[ O1 u om | — FactorY 7B V n | ni EiEng 5 — | = =— | Factor Z | b | t p | Total score | — q
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- The internal factors evaluation matrix (IFE) summarizes and evaluates important strengths and weaknesses of the functional business departments as well as of the entire enterprise The IFE matrix is developed by 5 steps:
+ Step 1: Making a list of factors having decisive role to the enterprises’ competitiveness in the same industry (commonly from about 10 to 20 factors)
+ Step 2: Defining the importance by grading from 0.0 (not important) to 1.0 (the most important) for each factor Thus, as for enterprises of an industry the importance of factors listed in step | are the same
+ Step 3: Grading from 1 to 4 for each represented factor (actually may make larger range of scores) The biggest weakness as graded by 1, the smallest weakness as graded by 2, the smallest strength as classified by 3 and the biggest strength as graded by 4
+ Step 4: Calculating scores for each factor by multiplying its level of importance with the corresponding grading score
+ Step 5: Calculating the total score for all factors given in the matrix by adding up the scores of similar factors and components of each enterprise This total score shows that this is the absolute competitiveness of that enterprise
- Accordingly, if the total score of the entire list of factors put in IFE matrix is 4, that enterprise has absolutely high competitiveness If it is 2.50 or above, that enterprise has absolutely competitive capacity that is above average In contrast, the
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total
score of IFE matrix competitive capacity is low: 1.2.4 Selecting business st 1.2.4.1 Formulating strate Model of SWOT anz a very useful tool to deve weaknesses of an enterprise SWOT Matrix is use an enterprise (or an industr and threats for an enterprise weaknesses Based on the objectives, directions of & establish various combinatic - Opportunity with St - Opportunity with w - Threat with strengtl - Threat with weakne In order to develop design a matrix of factors
Threats matrix (also known ics Global Advanced Master of 6 Gaicc) total score of IFE matrix is below 2.50 showing that the ente Stra
competitive capacity is lower than average level 1.2.4 Selecting business strategy
1.2.4.1 Formulating strategies
Model of SWOT analysis (Strengths - Weaknesses - Opportun a very useful tool to develop strategic options SWOT Analysis s: weaknesses of an enterprise in a clear situation with its opportunities < SWOT Matrix is used to synthesize studies on internal and ex an enterprise (or an industry) Analysis of external settings helps det and threats for an enterprise Analysis of internal settings is to identify weaknesses Based on the analysis of factors in the matrix, ba objectives, directions of business development and resources, th establish various combinations In principle, there are four combinatio
- Opportunity with Strength (OS); - Opportunity with weakness (OW):
- Threat with strength (TS);
- Threat with weakness (TW)
In order to develop strategies based on SWOT analysis, en design a matrix of factors that is called Strengths - Weaknesses - Threats matrix (also known as SWOT matrix) as shown below:
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Table 1.3 SWOT Matrix | SWOT matrix Opportunities (O) lớn liếm am Threats (T) = Dr De : Strengths (S) - SO Strategy Strategy of using the ST Strategy Strategy of using the
Znue enterprise’s strengths to | enterprise’s strengths to
âu take advantage of | respond, avoid external
external opportunities threats (challenges)
Weaknesses (W) WO Strategy WT Strategy
mm Strategy of overcoming | Strategy of overcoming
Dime the enterprise’s | the enteprise’s
- weaknesses to take | weaknesses to reduce
advantage of external | external threats
opportunities (challenges)
In which:
- S-O Strategy: Pursuing opportunities consistent with strengths of enterprises; - W-O Strategy: Overcoming weaknesses to pursue and seize opportunities; - S-T Strategy: Identifying the ways by which a company can use its strengths to reduce the possibility of damage due to external threats;
- W-T Strategy: Forming a defensive plan to prevent the company’s main weaknesses from being damaged by the external threats
1.2.4.2 Selecting strategy
After classifying strategies, it is necessary to establish a table of priorities According to documents, the only one analysis technique adopted to decide the relative attractiveness of feasible replaceable strategies used for choosing business strategy is
QSPM Matrix
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Trang 21GR 6) | Key factors Internal factors be Strategic Management Table 1.4: QSPM Matrix Column | J Strategies Persson mm ===
| Strategy 1 Strategy 2 Strategy n
Classifie | Attractiven Total Attractiv Total Attract Total _ ation ess score ¡ aftractive eness attractive ivenes | attractivenes | ness score ness s score s score score score 2 |) 4=2x3 5 | 6=2x5 j=2xi External factors Total attractiv
- 1: The weakest score; - 2: The least weak score;
- 3: The least strong score; - 4: The strongest score
External factors:
- 1: The enterprise’s action is poor;
- 2: The enterprise’s action is average;
- 3: Response of the enterprise is above average; - 4: Response of the enterprise is very good Strategies considered must be of the same group
There are 6 steps to develop QSPM Matrix as follows:
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- Step 1: Listing big external opportunities/threats and internal strengths/weaknesses
- Step 2: Making classification for each internal and external important successful factor
- Step 3: Studying SWOT matrix and determining replaceable strategies that the the enterprise should consider to implement
- Step 4: Determining the attractiveness score - Step 5: Calculating the total attractiveness score - Step 6: Adding the total attractiveness score
- Evaluation: The higher total attractiveness score a strategy has, the more attractive that strategy is The difference level of the total score of a certain group of Strategies will show the relative attractiveness of this strategy compared to other Strategy
1.2.5 Strategy implementation
Successful strategy formulation does not guarantee successful strategy implementation, It is always more difficult to do something (strategy implementation) than to say you are going to do it (strategy formulation) Implementing strategies requires such action as altering sales territories, adding new departments, closing facilities, hiring new employees, changing an organization’s pricing strategy, developing financial resources and budgets, developing new employee benefits, establishing cost-control procedures, renovating advertising strategies, building new facilities, training new employees, transferring managers among divisions, and building a better management information system
1.2.6 Strategy evaluation
Strategy evaluation is vital to an organization’s well-being; timely evaluations can alert management to problems or potential problems before a situation becomes critical Strategy evaluation includes three basic activities:
- Examining the underlying bases of a firm’s strategy
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- Comparing expected results with actual results
- Taking corrective actions to ensure that performance conforms to plans
Strategy evaluation can be a complex and sensitive undertaking Too much emphasis on evaluating strategies may be expensive and counterproductive No one likes to be evaluated too closely The more managers attempt to evaluate the behavior of others, the less control they have Yet too little or no evaluation can create even worse problems Strategy evaluation is essential to ensure that stated objectives are being achieved
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CHAPTER HI: EVALUATING THE BUSINESS OPERATION OF PHUONG DONG TRADING AND CONSTRUCTION JSC
2.1 Overview of Phuong Dong Trading and Construction JSC 2.1.1 History of establishment and development
Vietnamese name: Phuong Dong Trading and Construction JSC Abbreviated name: PHUTRACO.JSC
English name: Phuong Dong Trading and Construction JSC
Head office: Km 3 Street 196, Phan Dinh Phung commune, My Hao district, Hung Yen province
Telephone: 0321 940008
Hanoi branch: Room 403 — BS Building— My Dinh — Tu Liem — Hanoi City Charter capital: 15.000.000.000 VND
Formerly, the precursor of PHUTRACO was A Dong Construction Co., Ltd
which was established in 1992 in Hanoi By 2005 it was converted into Phuong Dong Trading and Construction JSC PHUTRACO is established under the business license No 0900240540 by the Department of Planning and Investment of Hung Yen province and firstly registered on August 30st, 2005 Registration changed the third time on
January 15, 2009
2.1.2 Organizational structure
Right from its establishment, the company set the top target for its existence that is: Closeness and firmness in organization; effectiveness - quality — reputation in business The company’s core values include:
- Getting business ethics and reputation as important things Always listening to all suggestions for continuous improvement, always having good pursuit and implementation of what the company has committed
- Promoting the interests of customers: Quality of customer service is a prerequisite Benefit of customers is the reason why the company grows
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- Focusing on quality Continuously improving the quality of products and services to meet more of what customers expect Quality is a top priority of all activities and is the responsibility of company’s all members with the spirit "Quality first, customers first"
- Sincerely encouraging the creativity of employee Building a modern , professional working environment of hard-working and _ self-improvement Encouraging employees to think and offer innovative, creative solutions Opportunities of bonuses and promotion are based on achievements, based on fairness and objectivity
To manage the projects closely, the production teams, company organize its apparatus into committees, headed by the Company’s Board of Directors To assist the Board of Directors of the Company, functional departments are organized by business and production requirements, technical management Specifically:
- Chairman cum Director of the company:
- The Deputy Directors: Deputy Technical Director, Deputy Sales Director, Deputy Professional Director
- Chief Accountant; - Supervisors;
- Professional departments:
+ Department of Planning — Investment; + Department of Technique - Construction;
+ Department of Administration Office - Labour Organization;
+ Department of Finance — Accounting - The production and business units:
+ Infrastructure construction team;
+ Transportation — Civil construction teams;
+ Irrigation construction teams;
+ Hanoi branch
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Figure 2.1: The model of organizational structure 2.1.3 Products and services
The company has the following business activities:
- Constructing the civil, industrial works, transport, irrigation, electricity and water installations, leveling;
- Trading in materials, machinery and equipment in the field of civil, industrial, transport, irrigation construction;
- Trading in hotel, restaurants, entertainment and recreation services;
- Leasing services of machinery and equipment; - Interior and exterior decoration;
- Manufacturing and purchasing construction materials;
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- Trading in chemicals and paints (excluding chemicals banned by the State); - Agents of goods buying, selling, consignment;
- Freight services, passenger cars:
- Exporting and importing company’s trading products; - General construction contractors;
- Consulting in construction bid, making construction bid, analyzing and evaluating bids;
- Constructing the post offices, lines and transformer stations, infrastructure
works;
- Consulting in investment and trade promotion;
- Producing and selling various kinds of industrial doors;
- Trading in books, magazines, stationery;
- Agents of books, newspapers, magazines and other publications
In the past few years products bringing the main revenue source for the the company have been mainly construction of civil works, industrial works, transport and irrigation works in Hung Yen province (the main market of the Company)
2.1.4 Business results of the last 3 years 2010-2012
In recent years, PHUTRACO has gained some typical results as follows:
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iT | |
Table 2.1: Business results of 2010 - 2012
Sales of goods & supply Unit: VND 75.367.456.387 | of services | | | In which: export sales _ E _Diduetbi items - E Net revenue of sale and 105.876.980.324 | 102.547.638.910 | 75.367.456.387 _| service supply
'4 | Cost of goods sold 97.406.821.898 ¡92.292.875.019 67.830.710.748 S Gross profit of sale and 8.470.158.426 10.254.763.891 | 7.536.745.639 | service supply — | 6 Revenue from financial 245.342.543 128.765.490 234.572.869 | | activities 7 7 Financial costs 487.659.901 225.987.640 467.542.321 In which: Interest 487.659.901 225.987.640 467.542.321 | | expense 8 _| Cost of sales 2.240.325.647 | 1.098.754.765 301432.) 59 9 Corporate management 1.098.754.538 986.547.321 2.243.567.432 cost 10 | Net profit from business 4.924.750.883 8.702.239.655 | 4.492.731.596 | | activities " —
II | Other income - sci cs _-
|12_ | Other cost - _ AAS 278.659 66.970.984 [13 | Other profit - 113.278.659 66.970.984 14 | Total accounting profit 4.924.750.883 7.958.960.996 4.425.760.612 before tax 15 | Payable corporate lu231„187.721 2.228.509.079 „3012.071 | | income tax 16 | Profit after corporate 7000 10.0 3.730.459.917 3.186.547.640 | | income tax (Source: Financial report Phuong Dong Trading and Construction JSC audited from Revenue: 2010-2012)
- Three consecutive year growth with the average growth of 19% / year that is because the company is increasingly asserted its brand in the field of construction and material production in Hung Yen province Specifically, in 2011 and 2012, the
Trang 29Strategic Management Company signed and implemented a number of major projects with the following customers: Table 2.2 - Some typical projects being implemented by Phuong Dong company _ Contract duration | Total
Contract names - value of — a Partners signing contracts
contract | Started | Finished
Constructing Due Minh— | 55.986 | October | December Tan Quang Tiles | œWfHen 2006 2010 Duc Minh Co., Ltd
Manufacturing company |
š 5 |
—_—— l | 5.364 February May People’s committee of Phan
ne te om million | 2009 2010 Dinh Phung commune
— lan Ate 18.472 | December | December | People’s committee of Minh
P = — Yen y million 2009 2011 Duc commune
Improving road 19 Km7+936 to 43.467 July June People’s committee of Van a 4 ˆ
Km10+977.36 million 2009 2011 Lam district
w Constructing plant T
manufacturing fermented
fruit juice and bottle corks | 4.619 August May Thuan An Import-Export and of all types - Thuan An million 2008 2010 Production Co., Ltd
Import-Export and | _ Production Co., Ltd
Constructing road of Van
Nhue hamlet- Ban Yen 1.028 December | March Hung Yen Department of
Nhan town —My Hao million 2009 2010 Transportation
district - Hung Yen Floor leveling of Minh
Duc primary school — My 1.472 December | March People’s committee of Minh Hao district - Hung Yen million 2009 2010 Duc commune
_ province
xữitDftrristtorirfh 6.672 June January | People’s committee of Minh
Dc unary sell May million 2010 2011 Duc commune
Trang 30GRIc 6) woe Strategic Management Hao district - Hung Yen province | | | | | = ae : ee | Constructing internal road |
| Infrastructure of | ch | March June People’s committee of Van resettlement area ofCuu million 2009 2012 Giang district
_— Cao commune | i _
=ữigtrusttne heh Sia 24.008 | October August People’s committee of Nhu
| EE — Van Lam — Hung Yen OE en | BE ~ 2012 Quynh town y
- Memorial building of the 4.418 June March People’s committee of Van _ Party of Van Lam district | million 2010 2012 Lam district
Constructing road from 53.142 | December July People’s committee of My : ‘ :
ki» on Km8+029,3 million 2010 2012 Hao district
Source: Document of Phuong Dong company
- The basic packages implemented by the Company are average and small package which use funds from the state budget The company’s key customers are administrative units of the State (the People's Committee, schools of districts and communes .) Works include the construction of civil works, transportation works In which revenue from road construction accounts for over 50% of the company’s total revenue
Cost structure:
- Prime cost: Proportion of capital cost / net revenue increased slightly in the past three years, specially from 89% in 2009 to 90% in 2010 and increased up to 92% in 2012
- Interest expense: This is an item of cost accounting for a very small percentage of the revenue (0.006% in 2010, 2011 decreased to 0.002% and 0.0045% in 2012), reflecting that the Company had small financial leverage coefficient, uses relatively small loans for serving business activities In the context of current economic
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downturn, the company has demonstrated its healthy financial ability, unlike other construction companies which are negatively affected business performance due to high and long-term loan interest rate Million dong 130.000 $0 000 60 000 30.000 3010 2011 2012 can mtetes tas 467 325 487 Re cớ 75,367 102.547 105.876
Figure 2.2: The proportion of interest expense / revenue
Source: Audit Report of 2010, 2011, 2012 of Phuong Dong company 2.2 Analysis of the external environment
2.2.1 Macro Environment Analysis 2.2.1.1 Economic Environment
Hung Yen is an agricultural province, located in the central North Delta, with an area of 923.1 km2 and the population of 1.1 million people, including 10 districts, 161 communes, wards and towns Hung Yen has become a bright spot of attracting domestic and foreign investment for economic - social development
According to the Decision No.145/QD-TTg of the Prime Minister in term of socio-economic development direction of the key northern economic regions by 2010 and vision to 2020 that Hung Yen will be one of the provinces located in these key economic regions
Exploiting the advantage of being near Hanoi, abundant resources, convenient transportation in its economic-social development strategy, Hung Yen pays special attention to the attracting of foreign and domestic investment to the development of
3]
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industry and services which is considered as its highlight In the period 2005 - 2010, Hung Yen attracted 450 investment projects (domestic projects: 380, foreign ones: 70), with a total registered capital of 1.658 million dollars, of which approximately 230 projects were put into operations, the value of production increased trillion dongs / year, contributing nearly 70% of annual revenue and creating regular jobs for more than 4 ten thousand workers
In the last three years, GDP of Hung Yen province is higher than the national GDP Specifically, in 2010 the national GDP rose by 6.78% while GDP of Hung Yen province increased by 10.8%, in 2011 the national GDP increased by only 5.89%, GDP of Hung Yen province rose by 11.58% in 2012, the national GDP was 5.03 while GDP of Hung Yen province increased by 7.7%
Scale of development investment quickly increased The total social mobilized capital of 5 years reaches 17,126 billion dongs, in which capital from the State budget accounts for 10%, local budget account for 12.3%, non-state enterprises account for 47.8%, population accounts for 21.2%, the rest is from other sources Attracting 04 ODA projects with the total capital of 17.8 million dollars and 6.2 million EUR
Export continues to maintain high growth rate, average 41.9% / year, export of 2012 reaches 330 million dollars This result is achieved because enterprises actively consolidate traditional market and expand new market by the trend of WTO integration and development, actively innovate production technology, improve quality, lower price success, increase the competitiveness of commodities and products, exported products are mainly traditional goods such as: garment, electronics, footwear and agricultural products Imports are mainly machinery and raw materials which are not produced domestically
Hung Yen province is a fast growing industrial and the most powerful province ot the North Currently, it has many large industrial zones such as Pho Noi A, Pho Noi B (the textile industry), Thang Long Industrial zone II (Mitsutomo Japan), Nhu Quynh industrial zone, Minh Duc industrial zone, small Kim Dong industrial zone, Quan Do
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industrial zone The province's industrial products are textiles footwear, automobiles, motorcycles food industry Structured in the direction of developing the key industrial economy and services
To meet the development needs of industry and service,in the last few years the construction industry of Hung Yen province has also been properly concerned, invested by the relevant agencies A series of industrial zones, new urban are developed as Ecopark urban area (Van Giang) Pho Noi B industrial zone, the overseas Vietnamese zone, the university urban of Pho Hien (Hung Yen city and Tien Lu
district ), Son Nam Palace urban area Besides, the traffic, civil, irrigation works and
projects are constructed such as: investment and upgrading projects of provincial highway 200, Bao Khe pump station headworks, the construction project of An Thi rural roads, student housing project of schools in Hung Yen city, the project of building house of culture in Ngoc Trinh hamlet, Ngoc Long commune
Facing the huge potentials of the construction sector of Hung Yen province, Phuong Dong Trading and Construction JSC in particular and the companies operating in the province in general are having a bright outlook of job source opportunity
The interest rate in and before 2012 in Vietnam is very high compared to the region and the world Customers of the construction industry in general mostly use high loan rate for their investment so the effectiveness of projects is low Especially the construction enterprises specializing in construction projects funded by the state budget Therefore, the interest rate fluctuation in the market always has a direct impact on the enterprise’s current business and production costs At some instances, the interest rate used to rise up to 20% that caused a lot of difficulties for enterprises especially ones operating in the construction sector In 2013, although the State Bank has adjusted down by 12-14%, in fact after adding some costs, the enterprise must pay 17-18% So in the future, if the bank interest rates are not adjusted to reduce that will impact the business and production activities of Phuong Dong company because at this stage the company is investing in projects of producing industrial doors and
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Trang 34GRI Gc) mivensiny Strategic Management
implementing projects of adobe factory construction, these projects require large capital investment and a relatively long payback period
2.2.1.2 Institutional and legal environment
After Bidding Law 2005 came into force, the Government issued Decree $8/ND-CP, Decree 85/ND-CP, Ministry of Planning and Investment issued the sample document, 16 Circulars and guidelines According to the Acts no 164/TTg-KTN on February 10th, 2001, the Prime Minister asked Ministries, sectors and localities to restrict bid assigment and apply the extensive bidding Despite this, it does not affect Phuong Dong Company because this Company is one of the leading experienced units in Hung Yen province in the field of infrastructure, civil, transportation, irrigation construction of small and medium projects
The legal system of fundamental construction, investment management are now fuller, more decentralized, more closely, there are many changes to fit the actual situation Decree No 83/2009/ND-CP dated on October 15th, 2009 on amending some articles of Decree No 12/2009/ND-CP dated on February 12nd, 2009 on the management of construction and investment projects do not allow to adjust the total project investment using state funds for the drift of input prices such as materials, labor so the contract price adjustment for construction contractors gets difficulties This factor directly affects the company’s profit in 2012
2.2.1.3 Cultural - social environment
Sociocultural field of Hung Yen province has many improvements in parallel with the harmonious development of economic growth Education - training continue to grow, step by step implements standardization, modernization and socialization Teachers have basic standard, the standard rate increases annually The quality of education is raised, the rate of encouraging children aged 6 to Grade | reaches 100%, the percentage of students graduating annually reaches over 95%, annually the rate of college and university students and good students winning national award increases highly To date 100% of communes, wards have community learning centers, two
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Trang 35GRic 2) Oniwersity Strategic Management
universities are established and put into operation, in which Chu Van An University 1s the first private university of the country and is a model of high education development and attraction of the Northern delta, planning university area in Hung Yen town A vocational school system is being widely deployed and developed with various training professions, vocationally training for ten thousands of employees to meet the needs of industrial development of the province
Thanks to the widespread development of training professions in the province, PHUTRACO has recruited a team of relatively skilled workers from labor of the province for few recent years that meets the needs of construction the company is undertaking
2.2.1.4 Technology environment
Along with the continuous development of science and technology in the world and the openness of large construction groups into Vietnam that has created a powerful transformation of science and technique in the construction industry, as well as increasingly fierce competition, especially the construction of civil and transportation works A series of modern technological equipment has been applied in the civil construction works in Vietnam such as the technology of auger-cast piles, piles and baret walls, technology of slide Coppha core construction, floor and prestressed steel girder, pre-stretching, post-stretching, Top-down technology, precast concrete, new materials of high intension, reduced weight of works calculation Advanced construction technology can help investors reduce the construction cost, make rapid
construction progress and quality of works that not only satisfies the construction
standards and regulations but also increases bearing capacity and affects natural disasters factors
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2.2.2 Analysis of the industry environment 2.2.2.1 The potential competitors
In addition to direct competitors of the area which are branches of the state construction corporations, joint-stock companies private companies Currently, there are a lot of foreign construction companies making preparation for the company’s establishment, branches of Hung Yen province where PHUTRACO is operating Since 2004 the Korean construction companies have returned Vietnam in which there are large groups such as Daewoo, Posco, Keangnam, Dongil, Kumho Asiana Besides, the Japanese companies in recent years have entered Vietnam such as Forval Company, Marubuni Company, CFS Company
Even in this first half of 2013, a number of foreign construction companies set up companies, branches in Hung Yen that is Posco E & C Construction Company of Vietnam, Dong II Interlining company (Korea), Obayashi Vietnam Corporation (Japan) With its advantages of healthy finance, hundred-of-year experience, the professional skilled team of managers, workers, advanced machinery and technology, the company will certainly face very strong competition from these competitors
2.2.2.2 Bargaining power of customers
As the majority of companies of the construction industry, the company is under much pressure of prices, moreover the company’s customers are not diversified (mainly are administrative units, during the current period of economic recession, market provision is always much greater than demand so customers of the company have more opportunities to choose As for the construction sector, major customers of the company are investors of the project works, then normally the pressure is presented in the lower price of contract construction As investors of projects, works always want the lowest price So in many bidding the company always has providing plans to reduce bid to be able to compete with the participating competitors It can be contirmed that bargaining power of customers in these cases is very high
2.2.2.3 Bargaining power of suppliers
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Trang 37Gploo) tnIversivy Strategic Management : |
Unit working in the construction industry including PHUTRACO always use relatively common inputs such as cement iron steel, stone, sand petroleum, machinery, labor and capital
As for suppliers of material machinery and technology: The general construction companies almost use inputs from external suppliers The number of units entirely active in supplies only accounts for a small percentage compared to the units of the sector As a trading company and construction company, Phuong Dong has extensive experience in the business of construction materials Therefore, the majority of construction materials, the company is active in buying and severving for its construction projects In addition, the unit's reputation, financial strength, payment mechanisms (immediate payment or late payment), the number of sales (more or less) will determine the trading position of two sides Moreover, in the past few years, the suppliers has had multiple stagnant inventory, such as cement, iron, steel so their urgent needs are to release their inventory as quickly as possible Therefore, the status of providers is at weaker extent
As for credit institutions providing capital: Over the years, the company has always had very high self- financing ratio (equity / total capital) so the company mostly does not have to much borrow from the credit institutions providing capital Whereas with other companies, credit institution providing capital for these companies always play the important role, PHUTRACO is hardly affected by the credit institutions
For suppliers of technology, machinery and equipment: As for some specific projects using special machines, the company must buy or lease machines from other suppliers Currently, there are more and more domestical and foreign machinery suppliers and purchase procedures are relatively easy in Vietnam Therefore, the company has many choices and negotiation position, the Company's decisions are often higher than these suppliers
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Trang 38GRic 9 Unvensiry Strategic Management |
In general the power of suppliers to the Company 1s at the average level that is not a big pressure on the company
2.2.2.4 Substitute products
The expected substitute construction products which 1s ready to participate in that market are construction items such as road traffic, high buildings for low-income people, high-tech factories, building drainage system including works of good ODA funds, industrial door products of all types, unfired brick
Understanding that the market demand in this period has the shift to the ultility products, cost savings that does not pollute the environment the company has been investing in a factory manufacturing industrial door of all types (plastic doors, wooden
doors, aluminum doors, rolling doors .) in My Hao district, Hung Yen province, and
the company is also conducting to be licensed for building an unfired brick factory baked to catch the needs and dominate the market in the coming time
2.2.2.5 Competition among industry competitors
The construction industry of Vietnam in the last two decades has had a quite good development and high efficiency because in this period of time, there is relative less number of enterprises involved in the construction market The leading enterprises of industry are state-owned enterprises such as Song Da, HUD, VINACONEX,
LILAMA, until the 2000s when business rules are applied, the construction is
contributed by more private companies in the form of limited companies, joint stock companies, the number of construction enterprises has increased remarkably, along with which there is a fiercer competition among enterprises of the industry
With over twenty year experience in the construction fieid of civil, industrial, transport, irrigation, leveling works and over fifteen years of experience in the production of construction materials, the company has been appreciated by investors, Phuong Dong brand is reputable in Hung Yen province
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Grigc) Strategic Management Currently, in Hung Yen province operating in the field of construction there are direct competitors of PHUTRACO including: Vinaconex 9, Cienco 820, Company 319 (Ministry of Defence) Table 2.3: Some general indicators of PHUTRACO’s competitors
“No Indicators PHUTRACO | Vinaconex9 | Cienco 820 | Company 319
LÍ Charter capital (billion 15 la 20 30
| | dong) ¬
c2 | Total assets (billion dong) | 41.2 "` 53,6 68.7
| 3 Net revenue (billion dong) 105 87 [21 326
4 _| Profit ae 1.4 4.7 23,8
4 Market share of Hung Yen 20% 10% 17% 30%
| rovince
(Source: Financial statement audited and power profile of the companies: Phuong Dong, Vinaconex 9, Cienco 820, Company 319)
On the basis of analysis and comparison of the competitive factors between Phuong Dong company and its competitors and also consulting the assessment of experts in the construction industry on the strengths and weaknesses of each company, our group has made a competitive profile matrix as follows:
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Table 2.4: Competitive profile matrix Strategic Management Cienco 820
| Woihr PHUTRACO | Vinaconex 9 Company 319
Competitive factors TT šẽšẽ - vểốẽẽrn Gam Capital structure 015 1 |015| 1 |015| 03 1045; 3 0.45 Profit §= §§ | ol | 3 {o3/; 1 |01 3 |03| 4 0.4 Qualification and 7 Ñ experience of human resources 0.1 2 2 2 0.2 3 0.3 3 0.3 Relationship between có the State agencies and customers 0.15 3 0.45 | Đa 2 0.3 4 0.6 Research and Development O15 4 0.6 iz 0.3 15 0.05 3 0.45 Leadership 0.1 3 0.3 2 0.1 l 0.05 3 =15 Brand and ă —— communication U1 3 0 45 Z 0.3 Z 0.45 3 0.45 Price Policy 0.05 3 0.1 3 0.3 3 0.15 a 0.2 Total 1 2.55 1.65 eS 3
Comment: In general, competitiveness of PHUTRACO is rather good which is
ranked after company 319 (Ministry of Defence) In 2012, Phuong Dong company was beyond its two competitors which are Vinaconex 9 and Cienco 820 because these two companies could not collect customers’debts, highly rising bad debt led to the decline in a range of resources such as reputation, finance, human resource However, PHUTRACO must also be watchful over these two competitors because these two companies have equivalent resources and the same market segments However, by the common characteristics of construction company, the market development, bidding
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