COMPETITIVE STRATEGY FOR ASPHALT CO PETROLIMEX PERIOD 2011 2015

Business situation in Petrolimex Asphalt Co in the recent years ……….. To acknowledge the problem of PAC, our group choose the subject "Building acompetitive strategy for Petrolimex Aspha

Thesis Title COMPETITIVE STRATEGY FOR ASPHALT CO.

PETROLIMEX PERIOD 2011 - 2015

We want to thank the Asphalt Co Petrolimex for giving us permission tocommence this project in the first instance, to do the necessary research work

We are bound to the and all the lecturers for their stimulating support andencouragement

Last but not least, we would like to give our special thanks to our family, ourfriends and colleagues whose patient love enabled us to complete this work

Commitment

We commit that the Capstone Project Report on “COMPETITIVE

STRATEGY FOR ASPHALT CO PETROLIMEX PERIOD 2011 - 2015” is

our own study implementing under the scientific instructions of AssociateProfessor, … Nguyen Thanh Hung This is the result of independent study and hasnot been copied from any part or all of any works Figures and facts herein are trueand extracted from legal and reliable sources Study results in the Capstone ProjectReport have not been made public in any works so far

TABLE OF CONTENTS

Acknowledgement ……… 1

Table of Contents ……… 2

List of Tables ……… 5

List of Figures & Graphs ………5

INTRODUCTION ……… 6

Chapter 1: THE BASIS THEORIES OF STRATEGY AND COMPETITION ……… 9

1.1 Concept of strategy ……… 9

1.2 Overall strategic management process ……….… ………… 9

1.2.1 Concept of strategic management ……….………

9 1.2.2 Strategic Management process ………

10 1.3 Competition and competitive process ………11

1.3.1 What is competition ………

11 1.3.2 Competitive advantages ………

11 1.3.2.1 What are competitive advantages ……… …… 11

1.3.2.2 Factors affect competitive advantage ……… 12

1.3.2.3 The root of competitive advantages ……… 13

1.4 Core competencies of the enterprise ……… 13

1.5 Competitive strategy ……… 14

1.5.1 Command competitive strategy………

14 1.5.2 Competitive strategy ……… ………

14

1.5.2.1 Low cost strategy ……… … 14

1.5.2.2 Product differentiation strategy ……… 15

1.5.2.3 Core strategies……… 15

1.5.2.4 Combining optimal cost strategy and differentiation …… 16

Chapter 2: SUMMARY ABOUT PETROLIMES ASPHALT CO, LTD ……… 17

2.1 Summary about Petrolimex Asphalt Company ……… 17

2.1.1 The establishing and developing ……… 17

2.1.2 Organization structure ……… 18

2.1.3 Key business operation of the Company ……… … 19

2.1.4 Technical facilities ……… 20

2.2 Business situation in Petrolimex Asphalt Co in the recent years ……… 21

2.2.1 The basic data reflects the situation and business results of the Company from 2007 to 2010……… 21

2.2.2 Situation and the capital assets of the Company from 2007-2010……… 23

2.2.3. Market share……… 24

2.3 Situations of Competitive Company ……… 25

2.3.1 Analyze the business environment ……… 25

2.3.1.1 External environment ……… 25

2.3.1.2 Internal environment ……… 31

2.3.2 SWOT of Company………… …….……… 36

2.3.2.1 Opportunities and Threats (O-T) ……… … 36

2.3.2.2 Matrix of external factors evaluation (EFE) ……… 36

2.3.2.3 Strengths - weaknesses (S - W) ……… 37

2.3.2.4 Matrix of internal factors evaluation (IFE) ……… 38 2.3.3 Overall assessment of the competitiveness of the Company ….… 39

2.3.4 The company’s core competencies ……… 42

Chapter 3: SOLUTIONS TO IMPROVE THE COMPETITIVENESS OF THE COMPANY DURING 2011 – 2015 ……… 43

3.1 Strategic objectives of the company in 2011-2015 ……… 43

3.1.1 Basis of the strategic objectives……….…… 43

3.1.2 Vision - Strategic objectives during 2011-2015 ……….… 43

3.1.3 Business plans of the company during 2011-2015 ……… 43

3.2 SWOT Matrix ……….……… 43

3.3 Solutions to implementing strategy ……… ……… 48

3.3.1 Solutions to organizational structure……….…….… 49

3.3.2 Solution to human resources……… 50

3.3.3 Marketing solutions……… 52

3.3.4 Solution to financial resources ……… 55

3.3.5 Solution to technology ……… 56

3.4 Recommendations ……… 57

3.4.1 Recommendations for state management agencies……….…… 57

3.4.2 Proposals to Vietnam Petrolimex Group……… 58

3.4.3 Proposals to the owners ( PLC)……… 59

CONCLUSION ……… 60

LIST OF TABLES

1 2.1.4 Area and storage tank capacity of the Company

2 2.2.1 Business results of the Company from 2007-2010

4 2.2.2.a Property - the capital of the Company

5 2.2.2.b Capital structure in recent years

7 2.3.2.a Business and financial situation over the years

8 2.3.2.b Capital situation and liabilities over the years

10 2.3.3.2 Matrix of external factors evaluation (EFE)

11 2.3.3.4 Matrix of internal factors evaluation (IFE)

12 2.3.4.a Matrix of competing images of Petrolimex Asphalt Co

before the competitors: 03 Appendix attached

LIST OF FIGURES, GRAPHS

Graph No

Figure & Graph’s Name

3 2.3.1.1.2 Market share of asphalt product

4 2.3.2.d Capacity of the Company and its competitors

1 The necessity and importance of the Capstone Project Report

For over two recent decades, Vietnam's economy has transformed fromcentrally planned economy to the market - socialist oriented economy After 20years of innovation, Vietnam has made great achievements Owing to theinnovation, Vietnam has escaped from poverty, economy has developed fast,infrastructure has been strengthened and people’s living standard have beencontinuously improved In the subsidy time, Vietnamese economy had only twomain economic sectors: state and collective All of the economic operationsfollowed the ordinance and were not under any pressure Because at that time,demand was greater than supply, goods on the market were scarce It has changed alot now There have been more economic sectors, in which the State owned sectorkeeps the leading role The collective and private sectors are encouraged to developwithout any restrict The participation of many economic sectors has created acompetitive business environment This new economic mechanism has reallyopened up many opportunities for businesses but also put them under manychallenges

On November 7th, 2006, Vietnam officially became the 150th member of theWorld Trade Organization (WTO) This marked a major turning point in the history

of Vietnam, opening a chance for Vietnam’s development and also challenges ForVietnamese enterprises, this event is also open for them a new era with manyopportunities and challenges Being the member of WTO means that we are playingthe equal games with many competitors; if we want to survive and developbusinesses, we need to find a proper direction to compete with other enterprises(domestic and foreign enterprises) Petrolimex Asphalt Company (PetrolimexAsphalt Co) is not an exception Petrolimex Asphalt Company (PAC) has facedmany difficulties Nowadays, there are six asphalt suppliers in Viet Nam, whichincluded three foreign enterprises:

- ADCo Company of Colas Group

- Caltex Limited Company

- Shell Limited Company

And three local companies:

- Petrolimex Asphalt Company

- ICT Asphalt Company

- Tratimex Joint Stock Company

However, asphalt market is now potential in VietNam so more and moresuppliers want to join It is very significant for PAC to determine an appropriatecompetitive strategy to maintain the advantage and for the sustainable development

To acknowledge the problem of PAC, our group choose the subject "Building acompetitive strategy for Petrolimex Asphalt Company from 2011 to 2015" for ourfinal assignment in Business Administration Program

2 Research purposes and applications

Based on our study about theoretical problems and implement the competitivestrategies in the enterprise, we will apply the theoretical issues in the formulation ofcompetitive strategic of Petrolimex Asphalt Co After evaluating the businesssituation of PAC, we can figure out the shortcomings and causes of limitedimplementation of business strategy and competitive business Besides, we willanalyze factors affecting the business environment in order to develop competitivestrategies for the researched company from 2011 to 2015

3 Methods

Documentation research method: information, documents, articles on theInternet, survey results, research on the competitors, statistics, summary report ofPAC and related topics

Qualitative research method: interviews and viewers of leaders and managers

at all levels of PAC as well as outside experts and managements that haverelationship with PAC The contents of discussions focus on the fundamental issues

of PAC’s strategic management

Statistical method, analysis method, synthesis and comparative method toanalyze the business operations.

The layout of the project: is divided into five sections as follows:

- Introduction

- Chapter 1: The theoretical basis of strategy and competition

- Chapter 2: Reality of Petrolimex Asphalt Co

- Chapter 3: Strategy chosen, solution and recommendations

- Conclusion

CHAPTER 1:

THE BASIS THEORIES OF STRATEGY AND COMPETITION

1.1.Concept of strategy:

There are many definitions of strategy by different authors And overall,strategy is a complex series of actions to mobilize resources of an organization toachieve a certain goal

However, there are many levels of strategy In this Capstone Project Report,

we will mention three main levels of strategy:

- Corporate-level strategy: is toward general purpose and scope of theorganization

- Unit level strategy: is related to competitive success in specific market

- Operational strategy (or functional strategy): that enables corporate leveland unit level to work effectively

1.2.Overall strategic management process

1.2.1.Concept of strategic management

Strategic management is very important to business and it is the guideline forall the activities of an organization According to Fred R Davit "StrategicManagement is an art and science to establish, implement and evaluate decisions fororganizations to achieve those objectives."

1.2.2.Strategic managing process

Quy tr.nhenvironmentInternal

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Source: Strategic Management teaching material – Competitiveness and

Globalization: Concept and cases

1.3.Competition and competitive strategy

1.3.1.What is competition ?

According to economic dictionary, competition is the struggle betweenopposing individuals, groups or nations Competition arises when two parties try towin something that not everyone can win

External environment

Strategy Formulation Strategy Implementation

Cooperative Strategy

Corporate Governance

Structure and Control

Strategic Leadership

Entrepreneurship and Innovation

Strategic Competitiveness Above average Returns

And Michael Porter (1980) sad that: Competition is to win market share Thenature of competition is looking for profit, higher profit than the average profit thatenterprises have Result of the competitive process is: The profitability of theindustry is level and prices can be reduced

Competition plays a very important role and is one of the most powerful forces

to boost production development The producers need to be dynamic, sensitive andwilling to improve skills, motivate technology, so productivity can be improved.The less competition is, the more manifested stagnation and underdevelopment are.Competition is no longer actions of a certain situation or not just the action at apoint; it is the constantly ongoing process, then the business is on the race withother rivals to serve customers best It means that no value can exist forever andonly variation remains

In shortly, the competition makes enterprises serve customers better and better.Any business who satisfy with its position in the market will quickly be left behindand will be eliminated "The world is changing with tremendous speed If We donot run quickly to overcome ourselves, then others will leave us behind with thespeed the we can not have chance to look at their faces " – M.Porter 1980

1.3.2.Competitive advantage

1.3.2.1 What is competitive advantage?

Competitive advantage is the possessing of the particular values that we canused to "seize the opportunity" to gain profit in business When we mentioncompetitive advantage, it refers to an advantage that a country or an enterprise havecomparing to others Competitive advantage is a concept in both the micro meaning(company level) and macro meaning (national level)

According to Michael Porter, "competitive advantage stems essentially fromthe value that an enterprise can create for buyers and it is bigger than the costs ofthe enterprise."

The competitive advantages to be achieved are:

- Strategic competitive advantage: an advantage when a company has beenformulating and implementing a strategy to increase the company’s value.

- Sustainable competitive advantage: an advantage when a company hasdeveloped a strategy that rivals don’t have; Create the advantages that the currentand potential rivals could not have

- Above-average profit: Profit exceeds what investors expect to get from otherinvestments with similar risks

1.3.2.2 Factors that affect competitive advantage

Factors of external environment are market, customers, competitive pressure;Factors of internal environment are internal forces, capabilities of the enterpriseand are factors that affect directly to the competitive advantage

Analyze the external environment to identify challenges, opportunities andthreats for the companies, comparing to rivals in the current and in the future

- Challenge: is one of the conditions in a common environment that can

interfere with a company

- Opportunity: is a necessity in a common environment of that if a

company exploits well, they can achieve strategic competitiveadvantage

- Competitors: Rivals collect and analyze information on rivals,

understanding of the competitive environment will help us understandbetter about information from the research on environment and industryenvironment

Analyze internal environment to identify strengths and weaknesses of theenterprises and then, determine resources, capabilities and core competencies ofthe enterprises

- Resources: Is the main strength of a company There are two types of

resources: tangible resources (financial, material and organizational)and intangible resources (human resources, innovation and reputation)

- Ability: the ability to mobilize resources to achieve the final target;

Ability appears through the process of complex interaction betweenintangible and tangible resources; usually based on building andexchanging information through human resource; Ability is oftendeveloped in specific areas

- Core competency: The activities that a firm is conducting superior to

rivals, activities by which companies create value for all kinds of uniqueproducts and services for a long time

1.3.2.3 The root of competitive advantages

According to Michael Porter, origin of competitive advantage usually comesfrom two sources as follows:

- Resources of the business such as patents, trademarks, tricks oftechnology, customer loyalty, company reputation and brand

- The ability of the company: is the efficient use of the above resources

to create a competitive advantage

1.4 Core competencies of the enterprise

Core competencies are the resources and capabilities of a company that areused as sources of competitive advantage

Core competencies associating with the market position of the product are thebasic competitive advantage of a company Core competencies are the basis for thecompany's strategic choices

Therefore, enterprises need to build the core competencies The corecompetencies must ensure four criteria:

• Valuable: the ability to allow companies to exploit opportunities and

address the threats from the external environment

• Rare: the rare capacity means the ability that rivals may not have or

have a few

• Difficult to imitate: capabilities that rivals do not easily develop it

• Irreplaceable ability: there is no equivalent.

1.5 Competitive strategies

1.5.1 Common competitive strategy

For Professor Michael Porter, competitive strategy is a combination of finalresult that businesses are looking for and the policies by which companies try toachieve their goals These policies include product research, development,production, distribution, consumption, marketing, finance and control

A company can have many business strengths but in general, there are twokinds of competitive advantage that they can have: low cost or differentiation Twotypes of competitive advantage combined with the company’s basic operation willallow creating three competitive strategies In agreement with Michael Porter, thereare three competitive strategies which are: optimal/low cost strategy, differentiationstrategy and focus strategy

Differentiation in acertain market

Figure 1: Models of competitive strategy

Source: Competitive Strategy by M.Porter 1980

1.5.2 Competitive strategies

1.5.2.1 Low cost strategy

This strategy enables company to lower their prices while still remains quality.This strategy requires major conditions such as mass production of large lots, largemarket share; stable input and it is easy to be applied to large companies, themarket leader Companies that have recently participated in the market will havedifficulty to apply this strategy There are advantages and disadvantages whenapplying this strategy:

- Pros: high competitiveness, easily negotiate with powerful suppliers; wellcompete with substitutes; create entry market barriers.

- Risks: The technology to achieve low cost is expensive, risky; easily beimitated Customers’ need are not paid attention to

1.5.2.2 Differentiation strategy

The second strategy is: differentiating the products and services, makingproducts and services to be unique Characteristics of products, services willimpress consumers

Differentiation strategy will enable the company to get higher profit and willcreate a more solid position in the market

Product differentiation helps to deal easily with competitive pressures.Customers have less chance to compare products so there is no pressure to reduceprices However, when applying differentiation strategy, enterprise should note thefollowing points:

- Priority to research - developing, designing products and services; focus onadvertising and marketing

- Applying this strategy, the enterprise will need to invest more on designwork, research the individual characteristics, higher standard technology So thisstrategy rarely accompanies with low-cost strategy

- Pros: The ability to provide unique products or services Understand themarket segment that we serve

- Risks: Have no advantage in dealing with suppliers; high production costs,technology depends on customers’ tastes

1.5.2.4 Combining low cost and differentiation strategy

With the development of technology, companies have found that can easily getthe benefit by both strategies: optimal/low cost and differentiation

When the product reaches the level of high quality, it will help us to eliminatesome costs such as rework, repair, recycling, maintenance, and as a result, theproduct with cost reduced differs from the rivals’ one Thus, companies can demand

a higher price for products, in comparison with the prices in case companies pursuethe low – cost strategy

If a company combines two strategies successfully (called combined strategy),they will have better market position because:

- Adapt quickly to environmental change

- Learn new skills and technologies more quickly

- Make good use of their potential to compete with rivals

Combined strategy is beneficial because it can enhance customers’ satisfaction,lower costs However, the company cannot have lowest price products withdifferentiation

Petrolimex Petrochemical Company (formerly Petroleum Corporation ofVietnam) was established on 1/9/1994, with the main task of doing businesspetrochemical products including three main kinds of product (sector): Oil, asphaltand chemical.

During the innovation process, Viet Nam government has equitized a number

of large enterprises in order to develop Vietnam's economy Petrolimexpetrochemical company was one of those equitized enterprises

By a decision number 1801/2003QD-BTM dated on December, 23rd, 2003 ofthe Minister of Trade on the "equitization of State enterprises," Petrolimexpetrochemical Company was transformed into Petrolimex Petrochemical join –stock Corporation (PLC) and officially come into operation with new model sinceMarch, 1st, 2004

In 2005, due to the organizational restructuring demand of PLC with the aim

of enabling each sector to develop, make the image of PLC on the market as aleading domestic trading petrochemical company, PLC Managing Board decided toestablish 2 subsidiaries with 100% capital owned by PLC, specializing in separateproduct as follows:

- Petrolimex Asphalt Company specializing in Asphalt.

- Petrolmex Chemical Company specializing in chemical.

- The left product managed by PLC.

Petrolimex Asphalt Co (PAC) was established in the process of restructuring

of PLC, inherited the entire technical infrastructure, labor and commodity, market

of the asphalt business of PLC and officially come into operation since 2006 withthe following business fields (according to the business license of PAC):

- Trading, import and export bitumen/asphalt and other products in the field

of asphalt.

- Business services relating to asphalt: Transportation rental, warehouse rental, lease preparation, analysis, testing, consulting and technical implementation services.

Over the past 4 years, Petrolimex Asphalt Co have had remarkableachievement: Productions, sales continuously increased, profit has beenaccumulated, the employees’ income increased and especially, market share andposition of the Company continued to increase compared with rivals.

2.1.2 Organizational structure

PAC is a national scale company, with headquarters in Hanoi, five branchesand five asphalt terminals

- Headquarters at 195 Kham Thien – Hanoi.

- Asphalt HaiPhong branch at Hai Phong.

- Asphalt Danang branch at Da Nang.

- Asphalt Binh dinh branch at Binh Dinh

- Asphalt Sai Gon branch at HCM city.

- Asphalt Can tho branch at Can Tho.

- Thưong Ly terminal – Hai Phong

- Tho Quang termina l– Da Nang

- Quy Nhơn terminal– Binh Dinh.

- Nha Be terminal – HCM City

- Tra Noc terminal – Can Tho.

The headquarter of company plays a key role in finance, directly import goodsfor business, orientates, supports and direct business of all the branches

The Asphalt Branches function as sale - representatives, directly sell asphalt

to the assigned market

Total number of current employees (as of December 31, 2010) is 202, whichincludes:

Model of PAC’s organization are summarized through the following diagram:

Diagram 2.1.2 Organizational chart of the company - Appendix 01 attached.

2.1.3 Key business operation of PAC:

Currently, the main business of PAC is trading and the main tradingcommodity is 60/70 Asphalt (hot liquid) and a number of products derived fromasphalt 60/70, of which:

- 67/70 is standard of needle deflection of asphalt

- Condensed, heat is the existing situation of asphalt Asphalt, beforeconsumed can exist in the form of dense, cold (store in drums with a capacity of

200 liters) and liquid, hot (in storage tanks)

- Derived products (derivative) are the other kinds asphalt with the mainingredient of asphalt 60/70 with some additives The derivatives have a number ofother uses in road construction Asphalt is the main ingredient (45% of the cost and6% by weight) of each ton of finished products) and is irreplaceable in roadconstruction with the current technology Now, Vietnam has not yet been able toproduce asphalt inland so we have to import 100% In addition, investment inbuilding infrastructure and roads is an essential requirement for the development ofeach country So demand for asphalt is now increasing, especially for developingcountries like Vietnam

The technical property of Asphalt 60/70 is as following:

- Asphalt is a binder and it is obtained from petroleum distillation It iscondensed in natural form It consists mainly of high molecular hydrocacbua(CnH2n, CnH2n +2, hydrocacbua aromatic ring and a heterocyclic oxygen, nitrogen andsulfur)

- As for storage condition, asphalt can be classified into two groups: liquidasphalt (stored at temperatures from 100 - 150 C) and asphalt drums (stored at roomtemperature)

- General characteristic of Asphalt is: when it is heated and becomes liquid, itcan used to mix with sand and stone materials, forming the mixture and after a shorttime, it will adhere to the surface of the sand and stone materials to form a mixture

of artificial stone (also known as asphalt concrete) This stone has strength andsustainability in environmental temperature and high stability in water and air

Thus, the business of PAC is included:

- Import 60/70 asphalt, stored in tanks in order to supply to the customers(mostly)

- Pouring 60/70 asphalt into the drums with the capacity of 200 liters to givecustomers as asphalt drum

- Prepare certain derivatives such as asphalt Emulsion, asphalt Polymer

And with the current model of the company, the market of the company ismainly inland and stretches across the country PAC also provides asphalt to someprovinces in Laos and Cambodia, near the border with Vietnam

2.1.4 Facilities.

Due to the nature of the asphalt and current PAC’s business, capacity ofstock/storage (in each terminal) is the most important indicators to assess theproduction capacity Terminal area and storage capacity (until 31th, December,2010) are followed:

Table 2.1.4 Terminal area and storage capacity of PAC:

No Storage’s name Square (m 2 ) Capacity (ton)

Besides, at each terminal, PAC has a warehouse for pouring asphalt with acapacity from 160 to 500 tons per day and a preparing line of asphalt emulsionwith a capacity of 50 tons per hour, a mixing line of polymer with capacity of 25tons per hour, both of which are placed in Thuong Ly Terminal.

2.2 Business situation of Petrolimex Asphalt Co in the recent years

2.2.1 The primary data reflects the situation and business results of PAC from

Source: Financial reports of Petrolimex Asphalt Co.

Looking at the table, we can seen that the business situation of PAC in four yearswith irregular growth in output, but due to inflation and the increased price ofasphalt, level of revenue growth is greater than the level of output increases

PAC's profit also increased over the years In particular, profit in 2009increased sharply compared with 2008, we can say 2009 was the peak year of PACsince its inception One of the reasons is: the Government has made positive moves

to recover the economy after the crisis in 2008, such as a stimulus package, interestrate support (4%) for short-term loans, exemptions, tax expansion to boostproduction With such policies, PAC promptly seizes advantages of theopportunity, so that in 2009, business activity of PAC was remarkably effective.However, in 2010 PAC's profit dropped dramatically to only 40% as in 2009 For

2008 and 2010, the reason of the profit decline is objective factors of the macroeconomy, as follows:

- In 2008, profit is 17 billions, only 68% as in 2007 2008 is marking theunprecedented crisis of the world – economy, worst since the economic crisis of theyear 1929-1930 Vietnam’s economy was not out of this trend As being andeveloping economy, so the consequences of the crisis impacted on businesses havebeen heavier The first months of 2008 was a time of crisis with inflation, and lastmonths marked devastating deflationary period

- 2010 was a year of recovery in Vietnam but was marked by unprecedentedturmoil of financial and monetary markets Exchange rate between U.S dollar andthe VN Dong continued to increase and demonstrated the unprecedenteddevaluation of Vietnam dong In 2010, Vietnam Dong depreciated more than 10%

In 2010, the State Bank of Vietnam has twice adjusted the exchange rate, which hasdirect impacted on the financial performance of enterprises The import businesseswhich include PAC are most affected because they must use U.S dollars to pay forimported products Each time the rate increases, PAC’s accounts payable in foreigncurrency increases

- Especially, in the fourth quarter of 2010, when the official exchange rate ofU.S dollar and VND Dong that businesses have to buy is higher than announced bythe State Bank To buy foreign currency for payment of imports, the importingenterprises must pay a fee of 5-10% of the purchase price, so the financial cost ofdoing business rise If not affected by exchange rate factors, PAC would havehigher profit margins compared to previous years

2.2.2 Situation and the capital assets of PAC from 2007-2010

Table 2.2.2.a Assets - capital of PAC:

Unit: Million dong

ASSETS

A Short- term assets 241,042 501,095 345,987 546,064

I Cash and cash equivalents 41,791 36,546 68,466 168,921

II Short-term financial

Source: Financial Reports of Petrolimex Asphalt Co.

PAC's total assets increased over the years and this is consistent with the growth ofbusiness of PAC

Equity of PAC increased over the years but the growth rate was lower than thegrowth rate of total assets Thus, the equity of PAC was not in comparison to theneeds of growth As introduced above, company is a member of PLC Companywith 100% capital owned by PLC Therefore, annual profits must be transferred toPLC Company PAC are not entitled to raise, mobilize additional capital as well asactively add capital from retained profit

Company has to raise capital from lending and trading liabilities, inevitablyleads to the high rate of liabilities/total asset in 2010 Restructuring capital isnecessary for a sustainable development in the future

Table 2.2.2.b.Capital structure in recent years:

Source: Financial Reports of Petrolimex Asphalt Co.

2.2.3 Market share

Total demand for asphalt in Vietnam increased continuously during the pastyears This is because of Vietnam is a developing country; Vietnamese Governmentare also interested in infrastructure investment , particularly infrastructure of roads.This is a right policy of the Government because efficient investment in roadswould be very convenient premise for the development of sectorial and regionaleconomy

Market share is the most important indicator evaluating PAC's position in themarket Through the years, although the consumption varied year to year (increasedand decreased), market shares of PAC has maintained in high level Hence PAC'sposition has been gradually confirmed, from number three in 2006 to become theleader in 2009 and 2010 (in terms of market share) So far PAC has become theleading asphalt supplier in Vietnam

Table 2.2.3 Asphalt market share over the years

the high – level remaining ratio of liabilities/total assets This has affected thecompetitiveness of PAC presently and in the future.

2.3 Competitive situation of PAC:

2.3.1 Analyze the business environment

2.3.1.1 External environment

2.3.1.1.1 Macro environment:

• Economic environment and Government’s policy

Government policy: In recent years, although the Vietnamese economy hasbeen heavily influenced by the crisis, Government still identifies: transportinvestment is one of the most effective measures to combat economic decline.With the policy of diversifying forms of investment to prioritize capital forinvestment in road, the Government also encourage other forms of investmentsuch as BOT, BT, PPP… with incentives for each project Therefore, a series ofroad projects, especially the highway network, have been deployed This is a greatopportunity for businesses in general and Asphalt Company in particular.Moreover, in recent years, the mechanism and policies, especially fiscal policieshave been improved and accessed to the rules of market economy, helpingbusinesses to be more autonomy in business and to be proactive in prevention ofpossible risks in business

As a result, the demand of Asphalt has been increasing in recent years and it is

a very good chance for the companies who are doing business in Asphalt But theyear of 2011 is considered very difficult for VietNam economy, so the demandwould not bee higher than the year of 2010

The demand of Asphalt from 2007 to 2010 and the expected demand in 2011

Source: Collected by group 3

• Technology environment

Scientific technology is now developing very fast and strongly in almost lifeaspects, especially construction of road Vietnam has begun applying an advancedtechnology in building roads, which using a layer of polymer to spread on thesurface of the roads This is an opportunity for enterprises to improvecompetitiveness, but also a challenge for enterprises who can’t catch the trend ofscience and technology development So these enterprises are in danger of fallingbehind and will certainly lose the advantage over the rivals

2.3.1.1.2 Industry environment

• Diversified customers

The Government decided to diversify forms of investment, so beside thetraditional public construction companies, more private enterprises will take part inroad construction

The Asphalt concrete businessmen, who invest mix station, purchase asphalt toproduce concrete and then sell for road construction companies, have been rapidlydeveloped Nowadays, they are the main target clients for the asphalt companiesand they will get the preferential policies of sales Diversified customers bring morechoices for asphalt firms

The asphalt agents have been the new contributing channel They also havebeen developed so far

• Power of the suppliers

The traditional suppliers for PAC are mainly from Singapore, some are fromSouth Korea and Japan There are few transporters/shippers in the area so theasphalt importers are forced to hire shipment at high price, due to lack of ships

• The intensity of competition in asphalt

There are six major enterprises and some small businesses doing asphaltbusiness in Vietnam and they gain almost 100% market share Level of competition

is continuously ongoing Firms compete on multiple dimensions: price competition

and lower costs, storage competition, customer service competition, credit forbuyers competition as follows:

- Competing on price and cost: This includes the cost of import, storageoperating costs and selling expenses, which leads to price competition

- Competing for storage: The businesses with big storage capacity willpromptly meet the market’s demand at all times

- Competing on quality of service for customers, including delivery service,technical support and after – sale service

- Competing on credit for customers, including balance of the debt and thedeadline of debt

• New rivals

Currently, Vietnam has not been able to produce asphalt so all firms need toimport 100% Asphalt is often imported in two forms: drums of asphalt and hotasphalt (liquid) For hot asphalt, transports need specialized facilities (tanks forshipment, storage and trucks for delivery), storage can keep and raise the asphalttemperature Besides, storage - base must be absolute safety Therefore, forenterprises doing business in hot asphalt, they must have the storage network,specialized means of transportation With such conditions, the entry to market will

be difficult

• Trend of new replaceable products

With current road construction technology, the asphalt is primarily materialand cannot be replaced Related to alternative products, there are two alternativeforms:

- Replace asphalt concrete with cement concrete: In fact, some roads must bemade of concrete and others can use both asphalt and cement In terms ofinvestment cost, cement concrete is more expensive from 2.5 to 5 times than asphaltconcrete In terms of vibration resistance, asphalt concrete has more advantages Sonow, most roads are made of asphalt concrete In the future, people will manage touse cement concrete instead of asphalt concrete in case the asphalt prices are higher

- Replace asphalt with other materials to make asphalt concrete: Currently, wehave not found a replacement for asphalt in road construction technology Thus, itcan be seen that alternative products can be challenging for the asphalt enterprise,but in far future.

• Analyze the current rivals

After doing the questionnaire research about hot and liquid asphalt products,

we make the table of the market share as following:

Table 2.3.1.1.2 Market share of asphalt product

To acknowledge more clearly about PAC’s rivals, we will analyze the sixrivals as follows:

• Shell Bitumen Joint Stock Company:

Shell was formerly a joint venture between Shell Bitumen and Ministry ofTransport In 1999, Shell Bitumen acquired the entire share capital contributed byother partners and become the 100% foreign invested company In 1996, thiscompany (previously a joint venture, since 1999 is 100% foreign capital) begantrading hot asphalt

- Now, Shell Bitumen has two terminals, one in Nghe An province and one inLong Thanh - Dong Nai Province with a total capacity of 8,000 tons

- Shell Bitumen has the advantage of very strong brand, reputation and hightrust from the road constructors They have inherited the business management

experience from the Shell group and have a long history of development and strongfinancial potential.

- Shell Bitumen’s main market focuses on Central and South Vietnam Theyhave flexible price by taking advantage of the brand Promotion policy andsupporting sales policy are mainly overseas trip for visiting facilities, supportingprotected tools for workers at the mixing stations and road works

- They import asphalt from countries in Southeast Asia, where asphaltfactories of Shell corporation are located And this is a huge advantage of Shellbecause they are guaranteed by a very stable source of goods from the Shellcorporation

• ADCo Company:

- Adco used to be a joint venture between a Singapore's asphalt supplier andMinistry of Transport They imported asphalt drums and since 2005, they begandoing business of hot asphalt By 2005, the French firm Collas bought the entirecapital of Vietnam so, now Adco is a 100% foreign invested company

- Adco has a fixed storage tank in Hai Phong and three floating tanks withtotal capacity of 6100 tons Three floating tanks can move along the coast andlocate at the seaport, where asphalt is needed With this advantage, they are able tomeet the needs of asphalt in most economic centers of Vietnam with thecompetitive price by reducing transportation costs from storage tanks to the works

- Sales policy of Adco is quite flexible and focuses on certain key projects.Financial potential are also quite strong Despite the fact that their trademark isfaint, their promotion policy is quite flexible and diverse

- Importing source is from Southeast Asian countries like Taiwan, Thailand,and Singapore Source of asphalt is stainable, but at an average higher price

• Caltex Company:

- Caltex is also a 100% foreign capital company and operated since 1998.Caltex has a strong financial potential

- Caltex has only one fixed storage tank in Haiphong (4,500 tons) and a fixedstorage tank in Ho Chi Minh City with a capacity of 3,000 tons Caltex has varioussale policies; brand has been widely known Promotion policy is also quite diverseand effective.

- Source of asphalt is also imported from other countries in Southeast Asia,with rather high price but also achieved trust from customers

• International Construction Trading Corporation (ICT)

- ICT is a limited joint stock Company of Vietnamese traders ICT has beenselling drum asphalt for many years and has taken part in the business of liquidasphalt since 2003

- ICT has two fixed storage tanks in My Tho, Hai Phong and one mobileterminal in Da Nang with a total capacity of 6,500 tons ICT is doing business inboth North and Central South of Vietnam They have a strong policy to promotesales In addition to lower prices, they also have a policy of promotion in eachproject

However, ICT’s brand is very faint

• Tratimex JSC

- Tratimex, a new established company and officially came into operation inearly 2009 This is a joint stock company between some firms in Hai Phong andsome traders Beside the good ability to access projects; the financial potential is onaverage

2.3.1.2 Internal environmental factors:

• Tangible resources:

- Financial resources:

PAC was established in 2006 with initial capital of 50 billion After 5 years ofbusiness, equity of PAC is 128.66 billion VN Dong in December 2010 Theseincrease in equity does not adapt the demand for venture capital (as analyzedabove), so PAC must seek funding from bank credit Every year, PAC must pay ahuge interest expense Besides that, PAC must import 100% Since early 2009, due