BUSINESS PLAN OF BACK KHOA  EQUIPMENTS ACCESSORIES CO LTD

Appendix 1: Usage of Prihoda’s textile diffuser in industry Appendix 2: Usage of Precision air conditioning – Uniflair Appendix 3: Information & usage of billing system – DEI 950 Appendi

NGUYEN THI THANH HUONG

BUSINESS PLAN OF BACK KHOA EQUIPMENTS & ACCESSORIES CO., LTD

MASTER PROJECT MASTER IN BUSINESS ADMINISTRATION

(PART – TIME)

Tutor’s name: Dr LE THAI THUONG QUAN

Ho Chi Minh City

(2010)

Ho Chi Minh City, 18 Feb 2011

Nguyen Thi Thanh Huong

My deepest gratitude to my ex-colleague – Mr Giang Cao Tuan, CEO of Back Khoa Equipment & Accessories Company Ltd who spend time with me during thesis period I thank to him for his wholehearted encouragement and supporting I could not find out any word to express my heartfelt thanks to him without whom this project would not have been completed

My heartiest thanks to my classmates who support me during my study at Solvay – OU, especially members of Group 1B who worked closely with me during group discussion, assignment

And my deepest gratitude to all members in my family for which they have done for me

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I confirm that as the supervisor I approve this project for the final presentation

Ho Chi Minh City, 24 Feb 2011

Dr Le Thai Thuong Quan

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TABLE OF CONTENTS

Undertaking ii Acknowledgement iii

bjectives & trading area of the project 4

CHAPTER 2 – LITERATURE REVIEW

2.3 Net Present Value (NPV), Internal Rate of Return (IRR) and Cash Flow 6

CHAPTER 3 – ENVIRONMENT & MARKET ANALYSIS

CHAPTER 4 – BUSINESS PLAN

Appendix 1: Usage of Prihoda’s textile diffuser in industry

Appendix 2: Usage of Precision air conditioning – Uniflair

Appendix 3: Information & usage of billing system – DEI 950

Appendix 4: Company products

Appendix 5: Figure of system (partial) – figure 1 to figure 3

Appendix 6: Table of P&L and Cash flow

Appendix 7: SCB analysis about exchange rate, forecast inflation

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ACRONYM

BKEA Bach Khoa Equipment & Accessories Co., Ltd

BTU British thermal unit

CFM Cubic Feet per Minute

ECC Cooperate with Energy Conservation Center

HVAC Heating, Ventilating, and Air Conditioning

HVACR Heating, Ventilating, Air Conditioning, Refrigeration

LTD Limited

M Million

USD United States Dollar

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LIST OF FIGURES & TABLES

Figure 1-1: Figure of a real HVAC System 3

Figure 3-3: Branch market leaders and local producers for chiller products 14 Figure 3-4: Residential/light commercial market, volume of outdoor units 15 Figure 3-5: Forecast starts for office projects 15

Table 4-2: Hochiminh Overhead expense 29

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EXECUTIVE SUMMARY

Back Khoa Equipment & Accessories Company Ltd is a limited liability company with four members Three of them come from Back Khoa Company Ltd and the other come from Trane air - conditioning company who is leading company in air-conditioning (Commercial & industry sector) Most of them have more than 10 years experience in air conditioning sector Back Khoa Company Ltd would like to diversify their activity in trading equipment & accessories of air-conditioning and Refrigeration so they ask Mr Tuan – Ex-Sale Manager from Trane Company to join them as Executive Director They just have license by Jul 2010 with investment capital 4 billion VND (each member contributes 1 billion VND)

Back Khoa Equipment & Accessories has imported high quality and advanced technology products of different brands from several countries They focus on selling Trane, Emerson, Luvata-Eco, DEI Temp Control Technology and HVACR equipment, spare parts and

refrigeration equipment

The phenomenal growth and modernization of Vietnam creates a greater demand for new and additional solutions for equipment, applications and technology in the HVAC industry The market for air-conditioning systems and its related products and services continues to accelerate and expand at a rapid pace The substantial growth of the food and beverage industry in Vietnam is gearing up on food handling, food processing, packaging and food preserving and cold chain equipment

Vietnam air-conditioning market is about 220 M USD/year We divide market to two parts: residence – 132 M USD/year, Commercial & Industrial (Restaurant, hotel, building and factory): 88 M USD/year with the sale growth rate about 15% We expect our growth rate about 20-25%/ year at this moment When we have office in Hanoi, our growth rate will be 30-35%/year Because we don’t have agency/distributor network so we only focus on commercial & Industrial sector We expect turnover about 2 M USD in this year Our gross profit margin is about 15% This margin also depends on size of client We will apply good

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price (low profit margin) to big clients

The unique service is that we can offer optimized design, complete system from normal air conditioning to industrial type, cold room In addition, we have some unique products such

ZX condenser from Emerson where no one else in the market can produce

Customers are contractors and investors Our strategy is best cost provider We ensure the systems perform as functioned in reliably and economically from day one and for many years to come Furthermore, with extensive experience in heating, air conditioning, geothermal heat pump systems, refrigeration and commercial services, we have the expertise to meet our customers' needs and to exceed their expectations

We deal directly with manufacturer and distribute to the market by ourselves Air conditioning market is strong competition In order to gain more profit, we use niche strategy applied for some products They are Textile air distribution systems – brand name Prihoda & precision air conditioner – brand name Uniflair In addition, we also develop new product of DEI billing control system where not only can calculate how much electricity charge for each users, but also help owner saving energy in most competitive cost

Beside strong competition in air-conditioning, we also face with fake products from China for part segment

We will expand the market to the North with office and warehouse by 2011

Economic growth is being continuous enhanced; GDP exceeds the expectation in almost of the sectors and fields, but the developments in monetary, foreign exchange market shows the risks changing more complicated: increasing inflation and trade gap; GDP grows rapid but not equally between sectors; and there is trend of cooling

in Q.4 2010; exchange rate contains unexpected movements and interest rate will operate according to the market So, in macro policies aiming at stability, there should

be measurements to adjust flexibly and timely to reduce pressure before following stable measurements in long term Macro-economic affects to company activities As well as other small & medium company, BKEA has the same risk in exchange rate & interest rate

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His risk is translation effect We don’t have enough power to deal with bank in FX forward contract He pays in USD and receives in VND Because he signs contract in VND so VND sale price will be USD sale price multiply with exchange rate which is the highest exchange rate in each period He has payment term with Trane 2 months on credit, if the monetary is good management and not much adjust, he is not worry much, and he can manage it This is his risk in short term

To appraise project feasibility, the profit and loss, Cash flow, NPV and IRR are calculated and analyzed The figures show a perspective business of Back Khoa Equipments & Accessories Co., Ltd

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CHAPTER 1 – INTRODUCTION

1.1 Rationale of the project

The Story of Bach Khoa was started as small workshop with passionate engineers from Polytechnic University of Hochiminh City the in last decade of 20th Century With great determination and hard work of our first generation, Bach Khoa Co., Ltd officially founded

on 31 Jan 2000

At the beginning, the company designed, supplied, and installed all kinds of HVAC systems, equipment from small pieces then to complicated systems with the strategy “no order is small” The company, later on, has achieved a great success in the air conditioning and HVAC contracting business Its products, services have been popularized and well received in terms of quality, price and services

He joined Trane Air Conditioning as an authorized dealer since early of 2000 Going

with M&E contracting business, and after few years, we have become No.1 dealer of Trane

in term of sales volume since 2005 and continuously have been awarded as outstanding performance in Trane Dealer network

During the period, the air conditioning industry played a remarkable growth As a result,

in an effort to increase our product lines, the company imported more high quality products, including Trane Air Conditioning, Copeland compressors and other equipment related to air conditioning systems, from countries such as the United States, Europe, Malaysia, and Thailand… The objective was to capitalize on Vietnam’s growing air conditioning and refrigeration industry and to raise its development to the level on a par with those of other well-developed countries

The company decided to expand into the refrigeration business

by applying as Emerson Climate Technologies distributor in

Vietnam Nov 2007; it was one of our big steps to widen our

business range Emerson Climate Technologies products vary

from complete condensing units, scroll compressor, hermetic compressors, semi-hermetic compressors to valves, control and system protections

At this moment, Bach Khoa is distributor of Luvata - Eco – Italian company, a leading global coils & coolers manufacturer; and Prihoda a Textile Air Distribution System

For more than a decade Bach Khoa name has been identified as high quality HVAC products and technology vendor, excellent services and best cost provider in the market

DEI Building Automation Technology Co., Ltd

In addition, with our diversified strategy, to better serve its growing clients across the country, Bach Khoa has expanded its activities by setting up its trading company named Bach Khoa Equipment & Accessories Co., Ltd (BKEA) by mid 2010 Bach Khoa Equipment & Accessories trades HVACR equipment, spare parts and refrigeration equipment that is staffed by a team of well-trained sales, service engineers and technicians

Below figure 1-1 are main equipments to set up HVAC system They are: Chiller, Pumps, Diffuser, Ducting systems, Air handling Unit and Cooling Tower and These products come from Trane and Back Khoa BKEA has not yet traded Cooling Tower & Pump at this period

Figure 1-1: Figure of a real HVAC System

Figure of some equipment will be introduced in Appendix 5 such as: chiller (figure 1), central air handler (figure 2), Fan-coil unit (figure 3) Spare parts in main equipment are come from other company like DEI, Enolgas

Figure of company products will be presented in Appendix 4 such as:

- Trane Products:

Chiller Mini split air conditioners (9 MBH – 120 MBH) Commercial air conditioners (60 MBH – 1000 MBH) Air side product (Air handling Unit CLCP/ Pearl/Low and fan coil unit)

1.2 Opportunity statement

Reports by World HVAC Equipment forecast the demand for HVAC equipment in the Asia Pacific region will continue to grow with an annual rise of nearly 7% Key developing nations like Vietnam are the key to this strong growth with 12% The phenomenal growth and modernization of Vietnam creates a greater demand for new and additional solutions for equipment, applications and technology in the HVAC industry The market for air-conditioning systems and its related products and services continues to accelerate and expand at a rapid pace The substantial growth of the food and beverage industry in Vietnam is gearing up on food handling, food processing, packaging, and food preserving and cold chain equipment The huge demand for facilities, storage and transportation of fresh and processed food has surged rapidly and easily As the food processing industry expands even further, there is excellent potential for growth and investment opportunities

in supplying refrigeration equipment, applications and solutions

1.3 Objectives and trading area of the project

Process of business plan is developed from Back Khoa Company figures and market status BKEA focuses on selling HVAC and refrigeration equipments in Hochiminh & Hanoi area Business is not a gambling game It must be an adventure with foreseeable and controllable risk I have analyzed business opportunity based on calculate NPV, IRR of the project Because this is future figures so I have assumption of sale growth rate, interest and inflation rate

CHAPTER 2 – LITERATURE REVIEW

Figure 2-1: Entrepreneurial process

Source: Jeffry A Timmons – New Venture Creation

2.2 Business Plan Structure

Business plan is “a professional document describing one business opportunity and the way a team will start and manage a new firm in order to demonstrate its feasibility into a given period” The business plan is to prove the quality of the opportunity, to explain the business strategy, to define realistic and measurable targets, to verify the business feasibility, to convince potential partners, to create a benchmark for the management team

in charge of implementing the plan and prove the quality of the entrepreneur who drew the plan

The business plan helps the entrepreneur answer the questions of management, kinds of product, product value, customer, objectives, risk, implementation and development, sales activities, profit

Fits & Gaps

BUSINESS PLAN

Figure 2-2: Business Plan Structure

2.3 Net Present Value (NPV), Internal Rate of return (IRR) and Cash Flow

NPV is a difference between the Present Value of the cash flow generated by the investment and initial amount of money invested If NPV is positive, it is better to make the investment than to put the money on a saving account or is negative, it’s better to put your money on a saving account than to make investment

We use NPV to decide which project we will invest among different project The highest NPV will be selected for investment We can calculate the NPV with following formula:

C0: the initial investment; C1: the cash flow generated after one year, C2 after 2 years, Cj after j years

NPV is useful in terms of selection which project should be invested but we don’t know which project gives the best return on capital employed IRR is the value of the Cost

of Capital bringing the NPV of the project to exactly zero The project with IRR higher than Cost of Capital is financially interesting Or IRR < r, we will not invest this project In general, the decision of investment is based on two factors: NPV > 0 & IRR > r

A revenue or expense streams that changes a cash account over a given period, cash inflows usually arise from one of three activities - financing, operations or investing, cash outflows result from expenses or investment

An accounting statement called the "statement of cash flows", which shows the amount of cash generated and used by a company in a given period It is calculated by adding noncash charges (such as depreciation) to net income after taxes Cash flow can be attributed to a specific project, or to a business as a whole Cash flow can be used as an indication of a company's financial strength

In business, cash flows are essential to solvency They can be presented as a record of something that has happened in the past, such as the sale of a particular product, or forecasted into the future, representing what a business expects to take in and to spend Cash flow is crucial to an entity's survival Having ample cash on hand will ensure that creditors, employees and others can be paid on time

CHAPTER 3 – ENVIRONMENT & MARKET ANALYSIS

3.1 Environment analysis

Higher growth rate for later quarter than prior quarter makes GDP for the early 9 months

of the year reached 6.52%, increasing in comparison with the same period of 2009 Growth rate is recognized quite equally in the fields of industry, agriculture and service

of which service sector has the highest growth rate of 7.24%; export continues reaching high growth rate of 23.3% after 10 months; trade gap tends to grow slower However, the factors ensuring macro stability have not occurred yet while the difficulties still exist; inflation seems increasing; gold price increases with the pressure

of increase in prices of commodities throughout the world, the development of international currencies and the impacts on the main components of GDP such as export and investment The problem of exchange rate is still the major question of Vietnam in medium term as current payment balance is moving to deficit condition, about 3.87 billion USD (for the early 6 months of the year) and may reach 9.1 billion USD by the end of the year According to the latest forecast, foreign currency reserve is still decreasing; According to information from the State Bank on 3rd November, 2010, by Oct 2010,

it can ensure only 6 - 7 weeks of import (≈11 billion USD) instead of 12 weeks as forecasted 3 months before that Especially, the trend of storing up gold of the people increases highly in the late months of the year (partly because of shortage of foreign currency reserve) which makes the Government restricted on tools to stabilize the exchange rate This makes flexible cash resource decreased rapidly in the economy (the status of cash in VND and foreign currencies changes into gold)

Exchange rate still challenges with unexpected movements After a pressured time in the early quarter, exchange rate has been quite stable after the State Bank raised the average exchange rate of inter-banks to 18932 VND/USD on 18/8/2010 However, by the end of quarter III, early of quarter IV, exchange rate of USD tended to break the ceiling price of 19500VND/USD and even developed beyond the forecast when increased by 7% since the middle of October until now The level of 21000 VND/USD and 20750 VND/USD were established in free market and official market on November 04th, and the record of gold price up to 35 million VND per ounce Till now, after the engagement by the Government

to use foreign currencies reserve to intervene to stabilize the prices and foreign exchange market, the issue of exchange rate, according to our assessment, still face unexpected movements making the macro economy disordered in the late months of

the year The reason for the pressure on exchange rate may be:

First, the cause of pressure on exchange rate originates from the strong demand for USD when the loans in USD since the beginning of the year have been matured (short term loans, 6 months – 1 year), and the demand for loans in foreign currencies for importing in quarter IV The make-up for exchange rate difference reached 11% (the difference between 18900 VND in June in comparison with 21000 VND in the early November) along with interest rate of USD making the load of debts on the enterprises seemed not to

be affordable Second, the question of trade gap and the little improvement of foreign currencies sources High trade gap is still deemed the main cause of loss in foreign currencies in the economy According to the data by the General Department of Statistics, export in September reached about 6.1 billion USD, decreasing by 10% in comparison with August while import is still at high level of 7.15 billion USD, accounting for 20% of import value After 4 months of restricting trade gap below 1 billion USD, trade gap of September increased by 1.05 billion USD and continues to increase in October with 1.1 billion USD; this shows the trend of increase in trade gap in the late months of the year Trade gap for the early 10 months of the year, so,

is about 9.5 billion USD, equal to 16.4% of total export value of the same period It is forecasted that by the end of the year, trade gap may reach 11.5 – 12 billion USD (Having been adjusted to be lower than the report for 7 months) Even more important, beside the data which can be calculated, the status of illicit import is very worrying, especially illicit import of gold According to the information that we can estimate, the amount of illicit import of gold within the last 2 months is very big, making the flexibility of current foreign reserve decrease much Third, inflation is increasing till the end of the year: After the period of stability, CPI for September and October suddenly increased by more than 1% (respectively 1.35 and 1.05%) The expectation

of high inflation synonyms with decrease in domestic currency, creating a trend of storing “safe” assets like gold, USD, etc 3/4 of 3 billion USD of overseas national currency moved to the country is remained among the people and the holding of USD makes foreign currencies resource in the country more rare and the issue of exchange rate more serious The intervention in direction of increasing foreign currencies supply brings positive impacts, cooling the issue of foreign currencies in short term as well

as the expectation about increase in exchange rate, and avoid unexpected impacts of

passive domestic currency dumping However, in case the intervention is not strong enough (in September, the State Bank bought 300 million USD to reserve more, but by October, it sold 200 million USD, so the intervention is deemed to be sparing) We suppose that the expectation of cooling in exchange rate only leads to a pause in short term and there will be still a load behind it Along with the increase of inflation, the pressure

of domestic currency dumping becomes bigger The fact shows that the adjustment of exchange rate by 2.09% is not enough to balance the market; the expectation of increase in foreign currencies prices is still clear because of the difference between official market and free market Meanwhile, in regarding the low springy of export with exchange rate after the adjustment of increasing central exchange rate on 17th August,

2010, it is the correlation between supply and demand which is the decisive factor for the proactive by the State Bank, even that such administrative measurement as controlling free market may be a necessary choice for establishing balance in foreign exchange market According to the experience through the years, the demand for holding USD usually decreases pressure by the end of the year, when the enterprises have demand for transferring into VND to pay salaries, bonuses and other costs at the end

of the years, then the market will have a certain regulation on supply-demand after the past “hot” time So, we suppose that by the end of December, the intervention will be clearer on basis of observing and quantities the adjustment of the market itself The ability to restrict the factor of speculating may also be considered by stronger measurements However, we also find that in medium and long term, if the domestic currency continues to be assessed highly, it is highly possible that the domestic currency will be adjusted more, decreasing by 2-5% by the early of quarter I of 2011, exchange rate between USD and VND will range around 20500-21000 VND

Figure 3-1: Exchange rate chart

Interest rate will move marketable The decision on increasing basic interest rate by 9%/year by the State Bank on November 05th is an important step for the interest rate to move according to the market after a time of failure in the attempts to decrease interest rate rapidly in short term

Attempts to decrease interest rate is enhanced but took low effect In details, the amendments of Circular No.13, the capital resource mobilized for loans has been widened without increase in interest cost thanks to the supplementation of a part of call deposit of economic organizations (25%), deposit in the State Treasury and loans of Credit Organizations with term of 3 months or more are admitted to be accounted to capital resource mobilized for loans

Second, debt balance of commercial banks are oblique from guarantee, which might help lower the rate of loan per mobilization

Third, the new connection between market I and market II has been established when the commercial banks have not been restricted by the provision forbidding using more than 20% of capital from the inter-bank market for loans provided that the loans from Credit Organizations have term of 3 months or more Thus, commercial banks which have redundant or shortage of capital may give loans or apply for loans easier

with lower costs

In fact, mobilized interest rate has certain adjustment and the success of the latest issuances of Government bonds (early October) with lower interest rate, wowing positive sign However, the adjustments at commercial banks are still single and formal; mobilizing interest rate still goes along with stricter conditions to apply for loans Besides, the increase of interest rate for USD and gold makes it more difficult to lower interest rate

of domestic currency than expected Interest rate of Government bond in domestic currency is still high (interest rate for Government bonds with term of 5 years is 10.4%), and interest rate for Government bonds in foreign currencies is at high level in comparison with almost of the countries in the region, equal to LIBOR+400 points per cent So, the difficulties for the enterprises have not been released even when the difficulties in supplying capital for the economy of commercial banks are solved

in comparison with the same period of the previous year CPI for October increases by 1.05% in comparison with September and 7.58% including October in comparison with December and increased by 8.75% in comparison with the average of 10 months of 2009 This makes the market unavoidable to be worrying although there have been certain preparation The cause of costs perhaps continues in the two months November and December because of the impacts by natural calamity

Besides, the continuous increase of gold and foreign currencies prices is a huge

threatening to the restriction of inflation below 2 digits The possibility of returning to normal level of inflation is very difficult, the level of about 1%/month is estimated for the 2 last months of the year Adjusted inflation for the whole year is forecasted at 9.5 – 9.7%

Figure 3-2: Inflation forecast

Increase basic interest rate by 1%, interest rate will operate according to the market In fact, the movement of market interest rate shows the engagements

or agreements that interest rate since June until now have not brought practical effect for the related subjects, both the commercial banks, the borrowers and the economy The action of increase interest rate by 1%, along with refinance rate, discount interest rate (7% per year) shows the new positive movement in administering interest rate policies Accordingly, interest rate will operate according to the market instead of following the target of cooling interest rate ineffectively before According to our assessment, this is a necessary step to prevent the risk of high inflation The pressure of cooling is released; the actual interest rate will be adjusted by the supply and demand for loans of commercial banks, the borrowers and the economy, and will become more reasonable to the market In

the relation with exchange rate, the acceptance of a higher interest rate may support

in preventing the increase of exchange rate and recovering the belief in domestic currency

3.2 Market segmentation

Vietnam air-conditioning market is about 220 M USD/year We divide market to two parts: residence – 132 M USD/year, Commercial & Industrial (Restaurant, hotel, building and factory): 88 M USD/year with the sale growth rate about 15% Because we don’t have agency/distributor network so we only focus on commercial & Industrial sector BKEA Company market share is about 2.5%

For the period of 2005-2010, the annual change is about 15.2% This industry is considered

to be one of the fastest growing industries in Vietnam; with the growing hot weather is also

a factor to grow

Figure 3-3: Branch market leaders and local producers for chiller products, by value, 2006

Figure 3.4: Residential/light commercial market, volume of outdoor units

Figure 3-5: Forecast starts for office projects

The market of air conditioning in Vietnam is estimated to grow further in 2010, although there is strong competition between current players in the markets, creating the downward price in the market Compared to other regional markets, the penetration rate of air-conditioning system in Vietnam is relatively small, and there are still market niches to grow further That is one of the reasons why we set the target to grow more 25% - 30% in

2011 onward

î Conclusion: It is a growing industry with good long-term prospect to grow further

in the years to come The market is focusing on the high-technology products, with more

added values Strong competition among current players in the market

3.3 Market trend & need

- Go green with high efficiency product, environment friendly

- Good product with affordable price

3.4 SWOT & Porter analysis

SWOT

Strength

- Get Advantage from Partner

company Back Khoa company -

Reliable local Mechanical &

Electrical Contractor in Vietnam

- Good relationship with Contractors,

Consultants, Owners

- Finance guarantee from Back Khoa

company & Credit line from Trane

- Experienced Sale executive

- Fluctuation in foreign ex rate

- High interest rate of VND

- Smuggle and Fake products

Base on SWOT analysis, we see that BKEA Company has credit line with Trane 200,000

USD with payment term two months so can stock common equipments in his warehouse; this is one of his strong point In additional, BKEA also have finance guarantee from Back Khoa Company for opening letter of credit with bank for big contract value The bank only pledges 10% of contract value

He will grant some accessories to support air conditioning system which enhance performance and durability of sold units such as filter driers, moisture indicators Value added is our advantage in convince customer to sign contract with us This is other his strong point

His threat related to translation effect, He pays in USD and receive in VND, exchange rate this period is complicated fluctuation, the government would like to keep the exchange rate stable but there is huge shortage in currency and the big different between parallel market

& official rate To carry out big contract, they have big risk in exchange rate In additional, they also have loan from bank and interest rate based on market‘s need Current rate is 18%/year It’s fair high rate to company who get loan to do business CEO have to

be careful when he sign contract with big value to prevent risk in exchange rate

Porter Analyses

a Threat of new entrants

The threat of new entrants for air conditioner market is low because we only focus on B2B market, we have contract by relationship with customer, experience & reputation in the market

b Bargaining power of buyers

office) for the year 2011 on ward

- Buyer profits

The air-conditioning market in Vietnam is growing, but with strong competition between distributors which creates the downward pressure on price of air-conditioners This is really benefits for the buyer

- Product differences and brand identity

Local brand name (Reetech, Nakagawa, Funiki ) is cheaper than foreign brand name like Trane, Panasonic, LG, Daikin Based on investor‘s fund and design, contractor will chose suitable brand name

- Impact on quality/performance

The buyer has not much impact on quality, as the quality is standard as industry requirements, with the trend towards high technology products, with less energy consumption

î Conclusion: The bargaining power of buyers is strong

c Bargaining power of suppliers

As a rule of game, we only supply Trane brand name for air-conditioning product We can get best price from Trane however we have to follow up his policy If he changes payment term and credit line, we are in passive status

î Conclusion: The bargaining power of suppliers is strong

d Threat of substitute products

It is fairly high because there are big four suppliers Buyer will choose product based on their knowledge, investment fund

e Industry competitors

Industry growth:

- The market share is big enough for all the existing players, as the rate of air conditioning systems in Vietnam remains relatively low compared to regional countries There is not much official market research about Vietnam market at this moment

Concentration and diversity from competitors

- There are many suppliers in the market We just compare competitors with the same size – SME – we have about 50 companies Our main competitors are less than 10 We classify

them based on brand name which they sell on the market

- Back Khoa Company Ltd

- Hong Quang Company Ltd

- NPT Trading & Services Company Ltd

Yorks

- Hung Tri Refrigeration Industry Joint Stock Company

- Hong Phuc Company Ltd

- Following is Trane analyze about market share & size

Figure 3-6: Product market share

Applied (Chiller) Market Share

Figure 3-7: Product market share

Unitary Market Share

Market Size in M USD

å Conclusion: High degree of competition among existing players in the market

CHAPTER 4 – BUSINESS PLAN

4.1 Strategy

Air conditioning market is strong competition We use niche strategy applied for some products They are Textile air distribution systems – brand name Prihoda & air precision conditioner – brand name Uniflair In addition, we also develop new product called DEI billing control system this product will help building owner calculate how much electricity charge for each users

- Textile air distribution systems - Prihoda product

Instead of using sheet-metal supply duct in factory, building, variability of used textiles and their special treatment enables use of textile air distribution systems (textile diffuser, fabric duct, fabric ducting) in majority of rooms, where it is necessary cooling, heating, humidification and filtration of air and distribute it using fans

Textile air distribution systems are used in following industries: food processing Industry, food stores, low-temperature worksites, Chemical, textile, supermarkets and gathering areas, pools, sports halls and fitness centers, Kitchens, Offices, night clubs, cinemas, etc., temporary installations Detail and picture of this product is presented in Appendix 1

- Precision air conditioning – Uniflair

For areas such as telecommunications, information technology, banking, insurance , the protection of expensive equipment in data centres such as PBX , servers , switches operate in a stable condition continuous operation 24 / 7 is very important These devices should be operating in a comfortable environment and are often cool If the operating environment does not guarantee, PBX, servers, switch cannot operate correctly, restart,

or damaged Data centers are the lifeblood of every company, if a problem occurs; the repair costs and replacement costs as well as losses due to disruption of all business operations of the company are very high

So the data center cooling must always be promptly and ensure equipment is operating in ideal environmental conditions Air conditioning machines normally cannot provide an ideal operating condition Therefore, the machine precision air conditioning should be used

in this case to not only efficient and reliable but also help save energy UNIFLAIR firm,

Italy, has launched an advanced cooling solution based on machine precision air conditioning Leonardo with the following advantages (Detail of these advantages is presented in Appendix 2):

- Billing system – DEI 950

The purpose and significance of billing is to let users pay a fair rate and on the other hand

is to let them use in responsibly way, fairly and save energy Information of this product is introduced in Appendix 4

4.1.1 Objectives

Diversify products related to air-conditioning and refrigeration product to continue

to enlarge turnover & market

4.1.2 Mission

Committed to quality

Nurturing our business relationship

Creating values for shareholders

Recognizing the contribution of employees

Maintaining their integrity

4.1.5 Our commitment

Always giving optimal solutions and bringing the best benefit and trust to

customer

4.2 The Company & Operation plan

This is picture of website of company - http://www.hvac.vn/

BK Equipment & Accessories focuses on selling Trane, Emerson, Luvata-Eco, DEI Temp Control Technology and HVACR equipment and spare parts, refrigeration equipment The company imported high quality and advanced technology products of different brands from several countries The company’s mission is a dramatic growth and become one of the leading operators in the country

At Bach Khoa, we're all about air – cool air, warm air, clean air, cool room parts and equipment As a well-known in air conditioning systems, services and solutions, we control the comfort of the air for people in homes and many of the large factories, buildings And we're applying Trane, Emerson’s expertise in HVACR technology and energy conservation to make a difference in quality and efficiency in our services

4.3 Products

Figure of company products will be presented in Appendix 4 such as:

- Trane Products:

Chiller

Mini split air conditioners (9 MBH – 120 MBH)

Commercial air conditioners (60 MBH – 1000 MBH)

Air side product (Air handling Unit CLCP/ Pearl/Low and fan coil unit)

- DEI Products:

o Temperature Controllers for HVAC

o Temperature Controllers for Refrigerant

o BAS network monitor and control system

o DDC controller/Group controllers

- Emerson Products:

o Condensing units

o Compressors

o System protector & accessories

o Pressure switchs, Cores & filters

- Enolgas Products

o Control ball Valves

o Electric actuators

4.4 Marketing and sale channel

1 Self marketing: Each member in the company with their knowledge, their relationship is also the channel to market company

2 Website: the website is also place to market with all of update product information, solutions In addition, we buy a SEO - Search Engine Optimization from an online marketing company What is SEO? SEO is a service on the internet which helps our website can be pop up on the first page of Google right after the entering of user For

instance, customers want to search for vendor of air conditioning compressor, they go to Google with the search key word as: "May nen lanh", with SEO, our website should be found and listed on 1st page of Google immediately Definitely, users just want to click to the website which are listed on 1st page of the search engine, no one wants to go to 2nd, 3rd of the search results

to go to the market easier

5 Sponsor for Students: This is also very good tool for us to publish our image to fresh engineers

4.5 Management Team

4.5.1 Organizational Structure

We divide sales teams into products group:

- Air Conditioning and Refrigeration

4.6 Risk Analysis

Business risk: there is strong competition between distributors BKEA is distributor of Trane air conditioning so he has to follow Trane policy In addition, he also has problem with fake product from China for spare part segment

Exchange rate risk: BKEA imports products from oversea and pays USD to suppliers; he sells to local buyers and receives VND, so he has to face with exchange rate risk In fact, there is big gap between official exchange rate & parallel market rate, with year of experience in import, so BKEA has applied highest parallel market rate of each period (from one to three months) to charge to buyers BKEA will revise their selling price immediately with new peak rate once it's set up by the market He, however still has risk when he has to order equipments from oversea companies, and there may has fluctuation in

exchange rate from the date he signs contract with local buyers and he pays money to suppliers.

Example: buyer signs contract in Dec 2010, because BKEA signs contract in VND, so exchange rate applied in this case will be calculated as below:

Parallel market

rate

20500 21000 21500 21300

î Cost of goods sold x gross profit margin x 21,500 = A (vnd)

If he has contract in Feb 11, the same calculation as above, exchange rate will be applied for signing contract should be 22,200

î Cost of goods sold x gross profit margin x 22,200 = A (vnd)

4.7 Financial Analysis

There are 3 factors which make company to be risk in this industry They are:

- Sale growth rate

- Interest rate

- Exchange rate

According to me, exchange rate not much effect to company because of following reasons:

- BKEA applies highest parallel market rate in each period when he converts sale price to buyer

- Assume that exchange rate is lift up from 100 – 500, it only equivalent with 1% - 2% loss on exchange (example: exchange rate move up from current rate 22200 to

22700 å exchange rate increases 2%, BKEA will lose about 2% on exchange rate)

In additional, maximum contract value per time is 50,000 USD approximately and