Business strategic direction for raw tobacco of ngan son joint stock company to 2025

NATIONAL ECONOMICS UNIVERSITY NEU BUSINESS SCHOOL PHAN LE HOANG LINH Business strategic direction for raw tobacco of Ngan Son Joint Stock Company to 2025 Hanoi 2018 ii NATIONAL ECONOMICS UNIVERSITY NE[.]

PHAN LE HOANG LINH

Business strategic direction for raw tobacco of Ngan Son Joint Stock

Company to 2025

Hanoi - 2018

PHAN LE HOANG LINH

Business strategic direction for raw tobacco of Ngan Son Joint Stock

Company to 2025

Supervisor: PhD LUONG THAI BAO

Hanoi - 2018

School, National Economics University (BSNEU) for giving me knowledge that isused as basement for my thesis I am heartily thankful to my supervisor, PhD.Luong Thai Bao whose precious patience, valuable guidance and support from theinitial to the final level enabled me to develop an understanding of the subject,thereby applying knowledge into real cases throughout my thesis Without hisencouragement and effort, this thesis would not have been completed or written.One simply could not wish for a better or friendlier supervisor

Secondly, I would like to express my big thank to managers and employees

at Ngan Son Joint Stock Company for their persistent support and contribution toput all knowledge into real cases throughout this thesis

Last but not least, I offer my regards and blessings to my family, my friends and all of those who supported me in any respect during the completion of the thesis

Hanoi, December 2018

Phan Le Hoang Linh

TABLE OF CONTENTS

ABBREVIATIONS 1

LIST OF TABLES 2

LIST OF FIGURES 3

EXECUTIVE SUMMARY 4

CHAPTER 1: INTRODUCTION 6

1.1 Rationale 6

1.2 Research objectives 7

1.3 Research questions 7

1.4 Research object and scope 8

1.5 Research methodology 8

1.5.1 Research process 8

1.5.2 Data collection and processing 8

1.6 Research structure 9

CHAPTER 2: THEORETICAL BACKGROUND ON BUSINESS STRATEGY 10

2.1 Definition of business strategy 10

2.2 Relationship between business strategy and other strategies 11

2.2.1 Company strategy 11

2.2.2 Business strategy (Competitive strategy) 12

2.2.3 Function strategy 12

2.3 Process to direct the business strategy 13

2.3.1 Identify the mission of the business 13

2.3.2 Define business goals 13

2.3.3 Analyze internal and external environment 14

2.3.4 Develop business strategy 19

2.3.5 Make solutions to implement business strategy 20

2.3.6 Evaluate the effectiveness of strategy 20

2.4 Factors affecting business strategy 20

2.4.1 Internal environmental factors 20

2.4.2 External environmental factors 21

2.5 Matrices and how to choose a business strategy 22

2.5.1 External Factor Evaluation (EFE) matrix 22

2.5.2 Internal Factor Evaluation (IFE) matrix 23

2.5.3 SWOT matrix 24

2.5.4 QSPM matrix 25

2.6 Some experiences in building business strategy 27

CHAPTER 3: ANALYSIS OF FACTORS AFFECTING BUSINESS STRATEGY FOR RAW TOBACCO OF NGAN SON JSC 28

3.1 Overview of Ngan Son Joint Stock Company 28

3.1.1 History of establishing, construction and development 28

3.1.2 Role of Ngan Son Joint Stock Company in the tobacco industry of Vietnam 29

3.1.3 Organizational structure and functions 30

3.1.4 Process of technology, main products of the company 34

3.2 Business analysis 35

3.2.1 Analysis of external environment 35

3.2.2 Analysis of internal environment of Ngan Son Joint Stock Company 46

3.2.3 Analysis of overall development environment and identify opportunities and challenges 74

3.2.4 Analyzing the SWOT matrix of Ngan Son Joint Stock Company and suggesting the main business strategies for the company 77

CHAPTER 4: BUSINESS STRATEGY DIRECTION FOR RAW TOBACO NGAN SON JOINT STOCK COMPANY 84

4.1 Basic contents of the strategic framework 84

4.1.1 Mission 84

4.1.2 Vision 85

4.1.3 Core values 85

4.1.4 Strategic objectives 86

4.1.5 Business strategy direction 87

4.2 Strategy selection by using QSPM matrix 87

4.3 Specific strategic direction 94

4.3.1 Strategy on restructuring management system and human resources 94

4.3.2 Improving quality and stability of the material growing area strategy 97

4.3.3 Product diversification and recycling of post-processing tobacco waste strategy 98

4.3.4 Strategic pricing 98

4.3.5 Market development strategy 99

4.3.6 Ensuring financial resources strategy 100

4.3.7 Studying and applying scientific and technical advances strategy 101

4.4 Solutions, organization and roadmap to implement the strategic orientations of the company 102

4.4.1 Solutions for restructuring to improve the effectiveness of corporate governance 102

4.4.2 Solutions for development of raw material areas 105

4.4.3 Solutions for product pricing in the direction of enhancing competitiveness .105

4.4.4 Solutions for linking investment in production with consumption of new and breakthrough products 106

4.4.5 Solutions for domestic market development and export 106

4.4.6 Solutions for capital and finance 107

4.4.7 Solutions for research and application of scientific and technological advances 109

4.4.8 Solutions for investments in equipment, new technologies and renovating, upgrading production lines in operation 110

CONCLUSION 111

LIST OF REFERENCES 112

APPENDIX 1: IN-DEPTH INTERVIEWS FOR EXPERTS ON INTERNAL FACTOR EVALUATION 114 APPENDIX 2: IN-DEPTH INTERVIEWS FOR EXPERTS ON EXTERNAL FACTOR EVALUATION 116 APPENDIX 3: SURVEY RESULTS FOR ATTTRACTIVENESS OF EXTERNAL FACTORS 118 APPENDIX 4: SURVEY RESULTS FOR COMPANY’S RESPONSE LEVEL

TO EXTERNAL FACTORS 120 APPENDIX 5: SURVEY RESULTS FOR ATTTRACTIVENESS OF INTERNAL FACTORS 122 APPENDIX 6: SURVEY RESULTS FOR COMPANY’S RESPONSE LEVEL

TO INTERNAL FACTORS 123

ADMIN. : Administration

ASEAN : Association of South East Asian Nations

BAT : British American Tobacco

BSC : Balanced Scorecard System

BSNEU : Business School, National Economics University

DEPT. : Department

GDP : Gross Domestic Product

FDI : Foreign Direct Investment

ISO : International Organization for Standardization

KPI : Key Performance Indicators

NGP : Next Generation Products

PEST : Political, Economic, Socio-cultural, Technological

PMI : Phillip Morris International

R&D : Research & Development

SWOT : Strengths, Weaknesses, Opportunities and Threats

VINATABA : Vietnam National Tobacco Corporation

LIST OF TABLES

Table 2.1: PEST analysis 17

Table 2.2: External factor evaluation matrix 23

Table 2.3: Internal factor evaluation matrix 24

Table 2.4: SWOT matrix 25

Table 2.5: QSPM matrix 26

Table 3.1: External Factor Evaluation of the Company 45

Table 3.2: Real estate status and depreciation of Ngan Son Joint Stock Company 47

Table 3.3: Actual use of capital in production and business 48

Table 3.5: Labor productivity statistics 60

Table 3.6: Profit of the company in the period of 2012 - 2016 63

Table 3.7: Financial indicators in production, business and service activities 64

Table 3.8: Internal Factor Evaluation (IFE) of the Company 73

Table 3.9: SWOT matrix analysis of the company 78

Table 4.1: The QSPM matrix for the SO - WO strategy group 88

Table 4.2: The QSPM matrix for the ST - WT strategy group 92

LIST OF FIGURES

Figure 1.1: Research process 8

Figure 2.1: Business strategic planning process 13

Figure 2.2: Operating environment of the business 14

Figure 2.3: Porter’s five-force model 18

Figure 3.1: Structure of Ngan Son Joint Stock Company 31

Figure 3.2: Production - consumption process of tobacco raw materials 34

Figure 3.3: Vietnam's average GDP for the period of 2015 - 2016 37

Figure 3.4: Ownership of shares by shareholders (January 2017) 50

Figure 3.5: Owner’s equity and charter capital of the company in the period of 2010 – 2016 50

Figure 3.6: Movements of inventory, fixed assets and liabilities 51

Figure 3.7: Investment area and procurement volume 54

Figure 3.8: Profit structure in the period of 2012 - 2016 64

Figure 3.9: Financial indicators 65

EXECUTIVE SUMMARY

At present, the general trend of the society is not encouraging tobaccoconsumption, and the government also has many policies and regulations to limitproduction and reduce the demand for tobacco In addition, the general trend of thetobacco industry in the world (and the Vietnam tobacco industry in the future) is togradually replace traditional tobacco products with new generation tobacco productswith advanced technology, less toxic for the health of users As a result, tobaccobusiness enterprises must have appropriate business strategic direction in order toensure the development and suitability of social requirements

Therefore, I have decided to choose the topic “Business strategic direction

for raw tobacco of Ngan Son Joint Stock Company to 2025” with regards to direct

the business strategy of the company – one of the most famous raw tobacco in theNorth of Vietnam, in the upcoming time

The research aims to get the following objectives:

 To analyze and evaluate internal and external environmental factorsaffecting the production and business activities for raw tobacco of Ngan Son JointStock Company

 To direct the business strategy for raw tobacco of Ngan Son JSC from

To analyze the factors affecting business strategy of the company, the thesiswill use two models: PEST and Porter’s five-force model; and four matrices: EFE,IFE, SWOT and QSPM The most important result that the research get from theaforementioned assessments is the SWOT matrix analysis of the company Thematrix shows that although Ngan Son JSC has been affirmed as a prestigiousenterprise of the tobacco industry in supplying raw materials for tobacco plants inVietnam and is also a leading enterprise for export processing for foreign partners,creating strong brand identity of its own, the company still has to deal with manyweaknesses as well as threats in the coming 5 – 10 years, basically because of thechanging in government’s regulations on tobacco products, changing in the taste ofthe consumers as well as business administration of the company.

From the findings above, the thesis provides some recommendations that canhelp Ngan Son JSC direct appropriate business strategy The company should focus

on human resources development, improving quality and stability of the materialgrowing area, product diversification and recycling of post-processing tobaccowaste, strategic pricing, market development, ensuring financial resources andstudying and applying scientific and technical advances

CHAPTER 1 INTRODUCTION

1.1 Rationale

Tobacco is one of the four raw crops used in the industry (along with cotton,paper and oil crops) As a short-term industrial crop, raw tobacco is a uniquecommodity, bringing high economic efficiency and many benefits to society,especially in hunger elimination and poverty reduction However, when it comes tothe tobacco industry, including cigarette production and the development of rawmaterial areas, it refers to a highly sensitive economic and technical sector that doesnot encourage strong development

Smoking is bad for health and tobacco is not necessity However, smoking inliving is a long-term consumption habit and tobacco is still a consumer goods withgreat demand for many classes of people in our country Today, due to high taxes,the tobacco industry is still considered an important manufacturing industry in manycountries around the world, especially in developing countries It brings huge profits

to many businesses, generates large revenues for the state budget and solves asignificant number of jobs for the society

At present, the general trend of the society is not encouraging tobaccoconsumption, and the government also has many policies and regulations to limitproduction and reduce the demand for tobacco In addition, the general trend of thetobacco industry in the world (and the Vietnam tobacco industry in the future) is togradually replace traditional tobacco products with new generation tobacco productswith advanced technology, less toxic for the health of users Therefore, tobaccobusiness enterprises must have appropriate business strategic direction in order toensure the development and suitability of social requirements

Ngan Son Joint Stock Company is a multidisciplinary business enterprise,including agriculture, industry and service, logistic activities However, the mainoccupation of the company is to invest in growing tobacco and processing rawtobacco to supply to tobacco companies Facing up with the objective reality of the

existence of the tobacco industry, in order to balance economic and social conflicts,between corporate profit and public health, the development strategic direction forthe company is extremely necessary.

1.2 Research objectives

a) General objective

The general research objective of the thesis is to evaluate the overallsituation of production and business activities of Ngan Son Joint Stock Company, tofind advantages, weaknesses, opportunities and threats, then develop strategicdirection for the company's development by 2025

b) Specific objectives

- To review relevant literature and theories related to business strategy

- To analyze and evaluate internal and external environmental factorsaffecting the production and business activities of raw tobacco of Ngan Son JointStock Company

- To direct the strategy for raw tobacco of Ngan Son JSC from 2019 to 2025

- To propose strategic solutions to develop production and business activitiesfor raw tobacco of the company to 2025

- From the assessment of the factors affecting the production and businessactivities of the company, how to direct the business strategy and solutions todevelop the production and business activities for raw tobacco of Ngan Son JointStock Company?

1.4 Research object and scope

- Research object: Investment in planting tobacco crops and processing rawtobacco (supply of tobacco) of Ngan Son Joint Stock Company

- Research scope: The operation of Ngan Son Joint Stock Company’s rawtobacco with being compared and reconciled in relation to the tobacco industry andvision to 2025 in the business strategy of the company

- Secondary data: From production and business reports of the company and

of the tobacco industry (as the tobacco industry is a specialized sector controlling

Direct business

strategy and solutions

suitable for the

company

Analyzing and evaluating external andinternal environment factors affectingbusiness and production activities of the

company

Data collection

- Data from in-depth interviews with company leaders and experts

- Data from industrial reports and Vinataba’s reports

Studyingtheoreticalframeworks,research models

Defining

research

objectives

the quantity of products) related to internal and external factors affecting thebusiness and production performance of the company.

- Chapter 2: Theoretical background on business strategy

- Chapter 3: Analysis of factors affecting business strategy for raw tobacco

of Ngan Son JSC

- Chapter 4: Business strategy direction for raw tobacco by 2025 of Ngan

Son JSC

CHAPTER 2 THEORETICAL BACKGROUND ON BUSINESS

STRATEGY

There are quite a number of research projects on strategic direction oftobacco companies, mainly focusing on the business strategy of Vietnam NationalTobacco Corporation - Vinataba At the same time, most of the research is directed

at companies producing tobacco products, but almost no research topic focused onthe development of business strategic direction for a company investing in tobaccocorps and raw tobacco processing

Thus, the thesis focuses on building business strategic direction for NganSon Joint Stock Company - the company has the main business of supplying rawmaterials for tobacco to businesses producing tobacco products on the market

2.1 Definition of business strategy

In the Harvard Business Essentials, strategy is a military term derived fromGreece that refers to the plan of arraying and distributing forces to achieve warobjectives Today, strategy is used in many areas of society, especially in the

economic sector According to Fred R David (2016), Strategic Management: A Competitive Advantage Approach, Concepts and Cases, Pearson, 17th Edition,South Carolina, strategy is the means to achieve long-term goals

In short, strategy is to plan the direction and the way to achieve objectives.Business strategy: According to Bruce Henderson, strategist and founder ofBoston Consulting Group, “business strategy is a careful search for an action plan todevelop and combine competitive advantages of the organization The differencesbetween you and your competitors are the basis for your advantages” Harvard

Business School professor Alfred Chandler (2013), Strategy and Structure: Chapters in the History of the Industrial Enterprise, Martino Fine Books,

Massachusetts, defines: “Business strategy is the process of defining the long-term

fundamental goals of the business, the choice of direction and allocation ofresources to implement those goals”.

In today's competitive environment, business strategy can be defined asdetermining business objectives, planning and allocating resources to createcompetitive advantages to achieve business objectives in the most effective manner

2.2 Relationship between business strategy and other strategies

A company strategy is usually discussed in three aspects: company strategy,business strategy (competitive strategy), and function strategy

2.2.1 Corporate strategy

A corporate strategy identifies a business sector (or business sectors) the

company is or will be undertaking, how each sector in which the company isexpected to operate (for example, cooperating with other affiliates of the company

or to do business independently, or acquire or invest, which industry to becontinued, what industry to be eliminated, what new industry to be involved) and

how about its relationship to the society In other words, corporate strategy is the selection of business sectors Accordingly, the corporate strategy must set the

direction for the development of single-sector and multi-sector businesses sector businesses limit their activity in one major industry or business, but for multi-sector business units (operating in two or more sectors), they meet morecomplicated tasks than deciding on whether to continue the current business sector,

Single-to evaluate the capabilities of the new secSingle-tor, etc For example, corporate strategyneeds to determine among 20 current domestic under crisis situation, which branchshould be kept, which branch should be closed, which new business sector should

be established, which new contract should be signed, which target should bepursued In other words, company strategy is the identification of financial and non-financial values and goals of the company It focuses on identifying and building oracquiring the resources and potentials needed to make decisions about the businesssectors in which the company will compete and how business activities should beconnected Corporate strategy will determine how the resources are allocated to the

business activities of the company and therefore it determines what the companyshould do and should not do.

2.2.2 Business strategy (Competitive strategy)

A business strategy is the determination of how a company competes in a

predetermined industry or a specific sector For a sustainable development in acertain area the company must establish a competitive advantage over the othercompetitors so business strategy is also considered as competitive strategy Thecompetitive strategy of a company is how the company creates a valuable position

in the industry This includes a foresight (literally and figuratively) about whichcustomers the company will serve and how the company brings value to them But acompetitive strategy is not just a vision; it is a combination of specific activities andprocesses throughout the company, helping it create unique value for theircustomers Thus, the strategy also leads to the harmonization of the company’sactivities so that persistent efforts throughout the company will unite to enhance thepotential advantage in the company's competitive position

Business-level strategy identifies how each company can fulfill its mandate(and thus contribute to the completion of a company strategy) in its field Business-level strategies are equally important for individual business units and individualcompanies in a multi-sector business unit

2.2.3 Function strategy

Function strategy focuses on support for corporate strategy and business

strategy For the single-sector business units and each business unit in the sector business units, function strategy is similar These function strategies providethe basis for other strategies such as marketing strategies, financial strategies,research strategies, and operational strategies that strengthen the company'scompetitive strategy and identify the processes and procedures which the companycan benefit from its competitive edge Linking and analyzing function strategiesdetermines how each of the functions of the business fits into the competitivestrategy while focusing on the linkage and coordination of functions

multi-2.3 Process to direct the business strategy

In the Harvard Business Essentials, the business strategic planning process isillustrated in the figure below

Figure 2.1: Business strategic planning process

Source: Harvard Business Handbook

2.3.1 Identify the mission of the business

Every business has a mission, all activities of the business must be directed

to this mission Therefore, the business strategy must also originate from themission of the business, the mission is the basis for business strategy and thepurpose of the strategy is also to fulfill the mission of the business

Therefore, the first step in the strategic planning process is to determine whatthe mission of the business is

2.3.2 Define business goals

The next step in the process of business strategic planning is to determine thegoals of the business The main goal is the result or target that a business will aimfor, which is the first and most important basis for building a business strategy

EffectivenessevaluationSolutions

Mission

Business goals

environmentExternal

environment

The mission of the business is general, and the goal is to specify the mission

of the business, for example, the mission of a bank is to mobilize capital and loans,then the goal to specialize the mission is to answer the question that how much themobilization and lending is, how long it is, the number and type of customer, etc

The goal is built based on the mission of the business and the internal andexternal environmental factors The goal must be consistent with both objective andsubjective conditions that is to be considered and adjusted on the basis ofenvironmental factors both inside and outside the business

2.3.3 Analyze internal and external environment

A business or business sector is always put into a certain environment,including subjective factors (internal environment) and objective factors (externalenvironment) For the analysis of internal and external environmental factors, wecan use available data or research surveys from inside and outside the business

Figure 2.2: Operating environment of the business

* Analyze internal environmental factors

The internal environmental factors are the subjective factors affecting theproduction and business activities of the business, including factors that havepositive and negative impacts Positive factors are the strengths of the business,such as good and professional staff; modern production lines; abundant financialresources, well-known and prestigious brand, etc.; negative factors are theweaknesses of the business, such as: backward production line; limited financialresources, etc

It can be said that the analysis of internal environmental factors is theanalysis of strengths and weaknesses of the business

To analyze the strengths, we combine all the advantages of the business,analyze, compare with competitors and assess the level of creating businessadvantage for each factor, at the same time point out the factors that bring the mostadvantages for the company which need to be taken advantage of, etc

For analyzing the weaknesses, we aggregate all the factors that are theweaknesses of the business, analyze them, compare them with our competitors, andevaluate how bad each of them affects the company’s business process, at the sametime, point out the factors that have the worst impact on the business which need to

be addressed immediately, etc

The basic internal environmental factors are:

- Human resources and organization: Including the following factors: Humanresources quality, human resources structure, human resources maintenance anddevelopment policy, etc

- Financial resources: Including the following factors: Financial capacity,financial management, accounting system, etc

- Production capacity: Including the following factors: Productiontechnology line, production scale, product quality, production cost, etc

- Management capacity: Including the following factors: Capacities ofproduction management, quality management, business management, humanresources management, materials management, etc.

- Marketing and sales: Including the following factors: Market developmentresearch, distribution channels, after-sales service, etc

* Analyze external environmental factors

The external environment factors are the factors that affect the productionand business activities of enterprises, including factors that have positive andnegative impact Factors that have positive impacts are opportunities for enterprises,such as increased market demand, state support policies, macroeconomicregulations of the State, etc Negative factors are threats to the business, such as:Demand market decline; more new competitors; increased material price, etc

It can be said, analysis of external environmental factors is the analysis ofopportunities and threats of the business

To analyze opportunities, we gather all the factors from the externalenvironment that can provide opportunities for the business, analyze and evaluatethe opportunities provided by those factors, and point out which one that theorganization should grasp right at that time, etc

To analyze threats, we collect all the factors from the external environment

of the business, analyze and evaluate the degree of negative impact on the businessprocess of each of them, at the same time point out which factors that have theworst impact on the business and should be avoided immediately, etc

The external environment can be divided into two types, macro environmentand micro environment

Macro-environment factors: The macro environment affects business

and production situation of the enterprise It includes factors such as economics,politics, science and technology or social – culture It can be measured by PESTanalysis:

Table 2.1: PEST analysis

Political factors

· Issues of ecological environment

· Current and future legal environment

· International legal environment

· Management agency and work

· Factors affecting customers, end users

· Interest rates, exchange rates

· Legal changes that affect the society

· Brand image of the company

· Trends in shopping

· Events and impact

· Ethics issues

Technological factors

· Technology independent or dependent

· Funding for R&D

· Solution to replace technology

· Sophistication level of technologicaladvancements

· Sophistication level and productioncapacity

· Information and communication

· Technology related to purchase

· Legislation related to technology

· Potential for technological innovation

· Intellectual property protection

Source: Strategic Management Textbook – National Economics University

Micro-environment factors: Mainly competitive pressure, in the market

economy, enterprises often face up with competitive pressures A very effective toolfor analyzing competitive pressures is Porter's five-force model

Figure 2.3: Porter’s five-force model

Source: Porter (1985)

According to Porter's five-force model, companies are always subject tocompetitive pressures, including competitive pressure from industry competitors;competitive pressure from new entrants; competitive pressure from buyers;competitive pressure from suppliers and competitive pressure from substitutes

- Intensity of rivalry: In the business sector there are always many businesses

jointly selling the same products, in order to survive and develop, those businessesalways seek to create their own competitive advantages to win the position amongcompetitors Therefore, a company always is under competitive pressure fromindustry competitors

- Bargaining power of buyers: Buyers always require enterprises to meet

their needs both in terms of products and prices, so they always bargain with thebusiness to get the best product at the lowest cost Therefore, the company is underpressure from bargaining power of buyers

- Bargaining power of suppliers: Pressure of input, to conduct business

enterprises always need materials and services from other suppliers Therefore, theyare always under pressure from bargaining power of suppliers

- Threat of new entrants: These are potential competitors that will emerge

and create a competitive pressure on the business

- Threat of substitutes: These products and services will change the demand

in the market, thus affecting the business process of the business

2.3.4 Develop business strategy

Based on the objectives of the business, the situation inside and outside thebusiness, it is able to develop the business strategy includes the following basiccontents:

 Identify and select opportunities that can help the business achieve itsbusiness goals

 Select the target market of the business, which is the market that helpsthe business to take advantage of its opportunities in the best manner

 Select the type of products and services to be provided to the targetmarket

 Develop marketing mix for the market and selected products:

 Product strategy: Identify the type, quantity, quality, cost, size, designand other issues of products to satisfy the requirements of the target market and toachieve the goals of the business

 Price strategy: Establish pricing mechanism in combination withpayment method to meet customer requirements

 Distribution strategy: Organize the distribution channel system to bringproducts to the target market quickly

 Promotion strategy: This is the strategy to support branding, imageenhancement for the business to attract more customers

2.3.5 Make solutions to implement business strategy

These are solutions on manpower, financial resources, business managementorganization, production management, etc to implement established businessstrategies In other words, those solutions are on the arrangement and assignment ofthe company's resources to successfully implement the chosen business strategy:

• Arrange appropriate organizational structure

• Make allocation, maintenance and development of human resources

• Make allocation of financial resources

• Develop a scientific and effective management model

2.3.6 Evaluate the effectiveness of strategy

A business strategy is effective when it suits the socio-economic situation,the business situation and can take advantage of opportunities to achieve businessgoals It is important to evaluate the effectiveness of the business strategy Theassessment of the effectiveness of business strategy is mainly in the following steps:

 Review the appropriateness of the business strategy before it is officiallyimplemented Because as mentioned in the previous section, business strategy iscrucial to the success of the business, so it must be carefully examined

 Evaluate the performance of the business at each stage of the businessstrategy in order to find shortcomings and limitations of the strategy, therebycorrecting and supplementing it in time

2.4 Factors affecting business strategy

2.4.1 Internal environmental factors

These are the factors within the business, including positive factors(strengths) and negative factors (weaknesses), such as financial resources, humanresources, geographic location or technology, etc

- Strengths: These are the strengths of enterprises in production and business,such as: high quality human resources, strong business capital, advancedtechnology, well-known brand, etc To promote their strengths, enterprises need tolist the strengths then evaluate their strengths or core competencies

Core competencies are the foundation for new strategic planning ormodification, which refer to a company's expertise or skills in the major areas of itsbusiness operations This means that the company has its own competitiveadvantages over its competitors, which is highly appreciated by customers.According to David Collis and Cynthia Montgomery, core competencies are valued

in the following areas:

+ Being difficult to be imitated or copied by competitors

+ Long-term survival advantage

+ Suitability

+ Sustainability

+ It is really competitive compared to other competitors

- Weaknesses: Besides the strengths, enterprises always have weaknesses.These are weaknesses that reduce the competitiveness of the business compared toother competitors, such as backward technology, poor management, or limitedcapital As well as strengths, we need to list and assess each weakness to determinewhich is the weakest, which causes the most disadvantage for the business, thenproposing some recommendations

2.4.2 External environmental factors

They are objective factors from the outside of the business environment thatcan negatively or positively affect the business, which poses threats andopportunities for the business

- OPPORTUNITIES: These are favorable factors from the externalenvironment that businesses can take advantage of for development, such asincreasing demands, new policies of the State, scientific and technical advances, etc

- THREATS: These are factors from the external environment that canthreaten the development of enterprises, such as increased competition, changes ingovernment policies, fluctuating raw material prices, etc

Strategies from the SWOT matrix:

 S – O STRATEGY: Promote strengths to take advantage of opportunities

 S – T STRATEGY: Promote strengths to avoid threats

 W – O STRATEGY: Overcome weaknesses to take advantage ofopportunities

 W – T STRATEGY: Overcoming weaknesses to avoid threats

2.5 Matrices and how to choose a business strategy

2.5.1 External Factor Evaluation (EFE) matrix

2.5.1.1 Definition

External factor evaluation matrix is a matrix that evaluates external factorsthat affect the company's operations, including the opportunities and threats to thecompany

2.5.1.2 Matrix development

 Listing of Key External Factors (10-20):

All those factors which can affect External Factor Evaluation matrix arelisted in this step Two points should be kept in mind while listing these keyexternal factors which are the treats & opportunities

 Assigning of Weight to Each (0 to 1.0):

In the second step of preparation of External Factor Evaluation matrix, all theidentified factors are arranged on the basis of their weight age which is according totheir importance intensity This weight age should be represented in percentageterm But the main point of consideration in this step is that all the sum of all thefactors must be equal to one

 Assigning of 1-4 rating to each factor:

Each factor in this step should be assigned some rating which ranges from 1

to 4 These rating are based on the responses of organization to the factors underconsideration

 Multiplication of Weight of Each Factor by its Rating:

In this step the weight assigned to each factor is multiplied to it’s the ratingassigned to it This generates a weighted score

 Summing up of the Weighted Score of Each Factor:

In the last step of External Factor Evaluation matrix the weighted score ofeach factor is summed up in order to ascertain the total weighted score for the entireorganization The organization that has highest possible score is 4.0 & the lowestpossible score is 1.0 while average possible score is 2.5

In case that the total score is 4, the company is best at capturing opportunitiesand controlling external threats If the total score is 1, the company does not capturethe opportunities and cannot control the threats from the external environment

Table 2.2: External factor evaluation matrix

External environment factors Weight Rating Weighted score

List external environment factors

2.5.2.2 Matrix development

Similar to EFE matrix, IFE matrix can be developed in five steps:

 List the key internal factors as identified in the internal audit process,including both strengths and weaknesses

 Assign to each factor a weight that ranges from 0.0 (not important) to 1.0(very important) The weight indicates the relative importance of that factor to beingsuccessful in the firm’s industry Opportunities often receive a higher weight thanthreats The sum of all weighs assigned to the factors must equal 1.0

 Assign a rating between 1 and 4 to each key internal factor to indicatehow effectively the firm’s current strategies respond to the factor, where 4 = theresponse is superior, 3 = the response is above average, 2 = the response is average,

1 = the response is poor

 Multiply each factor’s weight by it rating to determine a weighted score

 Sum the weighted scores for each variable to determine the totalweighted score for the firm

In case that the total score is 4, the company has many strengths and canovercome the weaknesses If the total score is 1, it shows that the company has nostrengths and cannot overcome its weaknesses

Table 2.3: Internal factor evaluation matrix

Internal environment factors Weight Rating Weighted score

List internal environment factors

Table 2.4: SWOT matrix

Source: Management Textbook – National Economics University

2.5.4 QSPM matrix

The Quantitative Strategic Planning Matrix (QSPM) is a quantifiablequantitative tool It expresses the attractiveness of the strategy which can be achoice and thus provides an objective basis for choosing particular strategies

The QSPM matrix uses the information derived from EFE, IFE matrix,SWOT matrix, etc to objectively evaluate alternative strategies The strategiesselected for inclusion in the QSPM matrix are not all strategies identified in Phase2

To build QSPM matrix, it is necessary to perform 6 steps:

Step 1: List the major external threats/threats and important internal

weaknesses in the left column of the QSPM matrix This information should betaken directly from the EFE and IFE matrix The QSPM matrix should include aminimum of 10 important external success factors and 10 important internal successfactors

Table 2.5: QSPM matrix

Basic factors Weight

Attractiveness scores

Total attractiveness scores

Attractiveness scores

Total attractiveness scores

Attractiveness scores

Total attractiveness scores

Internal factors of

the IFE matrix Taken from

the EFEand IFEmatrix

Step 2: Classify each key success factor inside and outside.

Step 3: Study the matrixes in phase 2 (combined) and identify alternative

strategies that the company should consider to implement

Step 4: Determine AS (AT - Attractiveness Scores) for each factor: Rated

from 1 to 4 The scores are from 1 = not attractive, 2 = somewhat attractive, 3 =reasonably attractive, 4 = highly attractive

Step 5: Determine total attractiveness scores (TAS) for each row by

multiplying weights in step 2 by scores in step 4

Step 6: Calculate total attractiveness score of each strategy This is the sum

of all attractiveness scores in the strategic column of QSPM matrix The totalattractiveness score represents the most attractive strategy in each selective strategygroup In terms of all important internal and external success factors that mayinfluence strategic decisions, the higher the score, the more attractive the strategy is

2.6 Some experiences in building business strategy

Business strategy is a vital factor for business organizations, but building abusiness strategy is not easy because it depends on a lot of factors in both past andpresent, as well as future forecasts and characteristics of the business sector to takeappropriate approach

We can draw on the experience for developing a suitable business strategy asfollows:

 First of all, it is necessary to have a process to develop an appropriatebusiness strategy

 The goal set out should be in line with the situation of the unit and itsexternal environment factors, avoiding unrealistic or inadequate goals

 Collect and analyze information to find the strengths of the unit toexploit as well as the weaknesses to overcome

 Accurately assess the opportunities and threats in the market

 Because the resources of the business are limited, focus only on the mosteffective strategies and ensure the consistency of strategies and solutions

CHAPTER 3 ANALYSIS OF FACTORS AFFECTING BUSINESS

STRATEGY FOR RAW TOBACCO OF NGAN SON JSC.

3.1 Overview of Ngan Son Joint Stock Company

3.1.1 History of establishing, construction and development

Bac Tobacco Material Company, the precursor of Ngan Son Joint StockCompany, was established in 1993 on the basis of merging some parts of materialproduction of the factories: Thang Long Tobacco Factory, Bac Son TobaccoFactory and Ha Nam Ninh Tobacco Material Enterprise The company mainlyoperated in the field of tobacco production, processing, trading and export Thecompany made management and investment in small tobacco growing areas as in

Ba Vi, Ha Tay, Soc Son, Hanoi City, Huu Lung, Lang Son Province and Tam Dao,Vinh Phu Province with an area of investment, planting at only 336 hectares.Having implemented the policy of focused unified management and specialization

in the field of tobacco raw material production and processing in the North from

1999 to 2004, the company merged with the raw material factory of Thanh HoaTobacco Factory and Lang Son Tobacco Company In 2000, Vietnam TobaccoCorporation approved the investment project of 2T/h processing line in Bac Ninh onthe basis of handing over the processing line from Nam Tobacco Material Company(now Hoa Viet Joint Stock Company), in July 2004, the line went into operation OnMay 13, 2005, the Minister of Industry signed Decision No 1738/QD-TCCB and

on July 4, 2005, signed Decision No 2203/QD-TCCB amending Clause 4, Article 1

of Decision No 1738/QD-TCCB on approving the plan and transferring BacTobacco Material Company into Ngan Son Joint Stock Company

Ngan Son Joint Stock Company was granted business registration certificate

No 0103009019 issued by Hanoi Department of Planning and Investment for thefirst time on 31st August 2005, 8th September 2006 with chartered capital of VND27.9 billion On 29th December 2006, the company was officially listed on Hanoi

Stock Exchange Ngan Son Joint Stock Company has a head office and a processingfactory located in Tien Son Industrial Park, Bac Ninh Province and has 6 branchesunder management, investment and purchase of tobacco leaves in the Northernprovinces such as Lang Son, Bac Kan, Bac Giang, Thai Nguyen with nearly 400employees (currently, Huu Lung Branch is temporarily closed and assigned to BacGiang Branch) Ngan Son Joint Stock Company has chartered capital of VND 27.9billion As of January 2017, the charter capital was VND 112.02 billion Ngan SonJoint Stock was owned by Vietnam Tobacco Corporation (Vinataba) with 55.7% ofcharter capital, 21.7% owned by Vinataba members, and the remaining 22.6%belongs to other shareholders In September 2012, Ngan Son Joint Stock Companyhas put into operation a production line following European standard tomanufacture tobacco material with a capacity of 5.3 tons per hour (24,000tons/year).

3.1.2 Role of Ngan Son Joint Stock Company in the tobacco industry of Vietnam

Since becoming a public company, listed on the stock market, Ngan SonJoint Stock Company has recorded important and significant position in the field ofproducing and trading tobacco raw materials in Vietnam The company has 6branches under management, investment and purchase of materials located inNorthern provinces such as Lang Son, Huu Lung, Bac Son, Bac Kan, Bac Giang,Thai Nguyen and one enterprise in charge of processing tobacco raw materials inBac Ninh Those branches of the company have promoted the support of farmers toinvest in cultivating tobacco on an area of about 6,000 hectares with an annual yield

of about 10,000 tons of dried leaf material The company has created stable jobs forover 20,000 agricultural workers in these localities, helping to shift the cropstructure and bring about high efficiency in poverty reduction, contributing partially

to bring programs and policies of the resolution issued by the 7th CentralCommittee Session 10 to the life in the field of development of tobacco rawmaterials The company has always placed “social responsibility” in the tobacco

plantation area as a mission to find its own interests This has been demonstrated innearly a quarter of the last century of construction and development, Ngan Son JointStock Company has always linked the implementation of social responsibility intopractice by practical tasks such as: support in building canals, traffic, afforestation,support for social education and social security in the area of raw materials with thevalue of tens of billion For the purpose of environmental protection andbiodiversity in agricultural production in tobacco growing areas, in recent years thecompany has provided support to farmers in tobacco growing areas on 6.3 millionseedlings valued at VND2.2 billion from the company's welfare fund and BAT –VINATABA Tobacco Joint Venture Company In 2014, the company developedand applied ISO 14000 as environmental management standards to better supportproduction and business operation in accordance with green, clean and beautifulcriteria In addition to step by step modernizing the production line of tobaccoprocessing equipment, the company has also applied advanced science andtechnology into agriculture, opening new prospects for stabilization anddevelopment, increasing the value of commodities, supplying all tobacco products

to farmers, ensuring the benefits to contribute to the reduction of poverty, towardssustainable development

3.1.3 Organizational structure and functions

3.1.3.1 Organizational structure

The organizational structure of Ngan Son Joint Stock Company is described

in detail in Figure 3.1

3.1.3.2 Functions and responsibilities

The organizational structure of the company is arranged in an online –functional format including: General Assembly of Shareholders, Board of Directors,Board of Supervisors, Director and Deputy Directors, 08 professional departments,

01 material processing factory and 06 affiliated branches The company's activities,apart from its formal organizational structure, are also organized by the Party andmass organizations (Trade Union, Youth Union) which operate in all units and the

whole company For employees, the company issued the Collective LaborAgreement, which has been applied since 1997, amended and supplementedannually to suit the actual production and business activities of the company.

Cooperation relation

Direction relation

Figure 3.1: Structure of Ngan Son Joint Stock Company

Source: Ngan Son Joint Stock Company

BOARD OF DIRECTORS

R&D

DEPT.

PLANNING – SUPPLIES DEPT.

ENGINEE RING DEPT.

FINANCE – ACCOUNTI

NG DEPT.

ORG – HR DEPT.

ADMIN.

DEPT.

Huu Lung Branch

Tobacco Raw Material Factory

Bac Kan Branch

Thai Nguyen Branch

Bac Son Branch

Bac

Giang

Branch

Lang Son Branch

BOARD OF SUPERVISORS

DIRECTOR AND DEPUTY

DIRECTORS GENERAL ASSEMBLY

OF SHAREHOLDERS

Director and deputy directors are appointed by the Board of Directors tomanage all activities of the company, according to the resolution of the Board ofDirectors Assisting the Director and the Deputy Directors, there have specializedfunctional departments and boards, direct production units in specialized fields:agricultural production; industrial production; business and trade In managementdecentralization, to give initiative and responsibility to heads of units to mobilizeresources in possible conditions, to efficiently deploy production and business tasks.

Organizational structure of the company:

General Assembly of Shareholders: The highest authority of the company,

decides issues related to the long-term development strategy of the company.Matters decided by the General Assembly of Shareholders are usually made throughvoting The resolution is passed when more than 51% of the votes in the GeneralMeeting of Shareholders are agree The General Meeting of Shareholders elects theBoard of Directors and the Board of Supervisors

The Board of Directors: The management body of the company, headed by

the Chairman of the Board of Directors The Board of Directors operates inaccordance with the Law on Enterprises and the Charter of the company

The Board of Supervisors: The Board of Supervisors is elected by the

General Meeting of Shareholders, headed by the Chief of the Board of Supervisors

Director and deputy directors: To run the company's operations.

Professional departments: There are 8 departments

1 Planning and Material Department: Advising, consulting and managing

the following areas: Building and directing the implementation of the plan;Reporting on the production and business situation; Regulation of industrialproduction; Supplying materials for investment and production; Management ofTien Son Warehouse; Management of investment in capital construction, regularrepair work

2 Finance - Accounting Department: Advising, consulting and managing the

following fields: Finance - accounting; Financial management; Cost and price

management; Statistical and analytical works related to finance and accounting;Construction development and investment; Inspection; Preparation of financialstatements and accounting vouchers.

3 Organization and Human Resources Department: Consulting, advising

and managing fields: Human resources management and organization; Recruitmentand training; Labor protection; Labor, wage and policy; Emulation, commendationand discipline

4 Administration Department: Advising, consulting and managing the

following areas: Office administration; Administration management; Internalprotection

5 Engineering Department: Advising, consulting, managing the following

areas: Planting area development planning; Technical management and investment

in production of raw tobacco materials in the planting area

6 Sales Department: Advising, consulting and managing the following

areas: Business consumption of products, import-export work; Marketing; Market

7 Department of Product Quality Control: Quality inspection of products,

equipment, materials, tools; Quality management system

8 Research and Development Department: Researching and developing new

products, improving existing products owned by the company; Evaluating theprocess of producing products, quality of finished products on the processing lineand formulating the formula for each type of product

9 Subsidiaries: 01 processing factory and 06 branches

- Processing factory: Planning and managing the production process ofpreliminary processing of raw tobacco leaves into finished tobacco raw materialsfor domestic production and export according to the production and business plan ofthe company; management of machinery, equipment and processing line;

- Branches: Planning and managing the investment, planting, purchasing,decentralizing of bales of tobacco raw materials; storage of goods at satellitewarehouses