INTRODUCTION
Rationale of the study
Since the 1960s, the construction industry has contributed a great part to the national economic development; it accounted for 9.0% of GDP annually over the period of 2005
Civil and Structural (C&S) works, along with C&S consultancy, play a crucial role in the success of construction projects, significantly influencing overall project quality Notably, a growing number of major projects with foreign investment are being designed and executed by foreign enterprises, highlighting a trend of increasing reliance on international expertise in the construction industry.
Foreign consultants, including those from C&S, are experiencing losses and exiting the market despite having competitive advantages in skilled manpower, technological expertise, professional experience, and modern equipment The increasing competition has compelled all industry players to improve their competencies and strategically plan for survival and growth.
SCE Consultants (Indo-China) Ltd, founded in 2005 as a subsidiary of Singapore's SCE Consultant (Pte) Ltd, aims to penetrate the Vietnam-Laos-Cambodia market Specializing in C&S consultancy for high-rise buildings, SCE recognizes the growth potential in this sector To thrive amid intense competition, the company must adopt a strategic approach that is both necessary and vital for success.
Problem statement
In recent years, Vietnam has experienced significant inflows of foreign direct investment (FDI), particularly in the real estate sector, creating abundant opportunities for developers, construction firms, and consultants Despite SCE's rapid growth driven by its professional capabilities and the support of SCE Singapore, the Vietnamese branch remains relatively unknown and holds a limited market share Enhancing its market position and leveraging superior opportunities for sustainable long-term development has become a strategic priority for the company.
This thesis develops a competitive strategy recommendation for the company to advance from 2011 to 2015, utilizing Michael Porter's theories on competitive strategy, differentiation management, and customer relationship management (CRM) focused on customer satisfaction The research methodology encompasses qualitative analysis of customer satisfaction alongside an in-depth examination of relevant information.
Objectives
This study targets to find out proper answers to below questions:
1 How is company’s service quality in assessments of SCE’s clients and partners?
2 What should the company do to satisfy expectations of its’s clients?
3 How to improve company’s competitive advantages?
Scope and limitation of study
This study is about the SCE, specifically about C&S consultancy, the main service of the company It focuses on formulate the competitive strategy for the company in the medium term
The effectiveness of this study is influenced by the availability of essential data regarding the Vietnamese economy and the construction sector, particularly concerning SCE Additionally, successful outcomes rely on collaboration with the company while navigating resource limitations.
Methodology and framework of the study
This study will commence with a literature review focusing on the strategic management process, specifically the formulation of strategies It will also incorporate Porter's model to effectively analyze the competitive landscape of the industry.
The framework of this study can be illustrated by figure 1.1
Figure 1.1: Framework of the study
Necessary data for this study were collected from 2 main sources:
GENERATION, EVALUATION, AND SELECTION OF
Strategy formulation process Porter’s industry analysis model
• Primary data: Interviews in-depth with 12 directors and top managers of SCE Vietnam, SCE Singapore, SCE’s clients and partners And other relevant data were also collected
Relevant secondary data regarding the construction industry and the economic landscape of Vietnam will be sourced from the General Statistics Office of Vietnam, the Statistics Office, the Ministry of Construction, and the Ho Chi Minh City Department of Construction, along with information gathered from newspapers, media outlets, and online resources.
Structure of the study
The study is organized as follows:
Chapter 1 provides an introduction including the rationale of the study, identification of the problem, the objectives, the scope and limitations as well as the methodology and framework of the study
Chapter 2 shows the literature review of the topic being considered This will encompass the fundamental ideas on strategy, strategic management and strategy formulation process as well as the Porter’s model for analyzing industry
Chapter 3 provides an analysis of external factors that help indicate the company’s strategic position The main contents of the chapter will deal with the current situation and strategic orientation for the construction industry in the future It also mentions about the structural analysis of the construction industry, the main area of competition of SCE
Chapter 4 deals with the current analysis of SCE in terms of organizational structure, human resource, business activities… The ultimate goal of the chapter is to identify strengths and weaknesses of the company in order to locate its present competitive position
Chapter 5 is devoted to the expected outcome of the study to develop the strategic alternatives based on the analysis from previous parts that will help the company achieve outstanding performance in the coming years
Finally, Chapter 6 deals with practical recommendations on the implementation of the selected strategy.
LITERATURE REVIEW
Competitive advantage
There are not many clear definitions of competitive advantage in textbooks of strategic management
According to Hill and Jones, a company achieves a competitive advantage when its profit rate exceeds the industry average, allowing it to sustain this advantage and maintain elevated profit levels over several years.
Competitive advantage can be defined by the profit rate, indicating a product's superiority in the market A product is considered to have a competitive advantage when a customer selects it after comparing it to similar offerings This definition emphasizes the importance of competition, providing a clearer understanding of what constitutes competitive advantage in a market-driven environment.
Figure 2.1: Value creation to consumer and producer
Competitive advantage is fundamentally rooted in value creation, where the value of a product to consumers (V) must exceed the price (P) the company can charge under competitive pressure, while also considering the production cost (C).
C = Cost of production V-P = Consumer surplus P-C = Profit margin
The profit for Company C is calculated as P-C, while consumer benefit is determined by V-P When comparing two similar products priced equally at P1 = P2, product 1 gains a competitive advantage if its value V1 exceeds that of product 2 (V2) Essentially, product 1 stands out due to the higher value it offers to customers, which will serve as the cornerstone for developing our strategic plan and implementation approach.
2.1.2 Generic building blocks of competitive advantage
Many factors contribute to competitive advantage of a company But in general, they can be classified into four generic categories:
Efficiency measures the ratio of a company's outputs to its inputs, indicating that a more efficient company can generate greater outputs from the same or fewer inputs This efficiency translates into a low-cost competitive advantage, primarily driven by employee productivity When other factors remain constant, a company with higher employee productivity usually enjoys the lowest production costs.
High product quality significantly enhances a company's competitive advantage by fostering positive customer perceptions and increasing preference, allowing for higher pricing Additionally, superior quality is achieved through improved efficiency and a reduced defect rate, which minimizes the time and labor costs associated with rectifying substandard products Together, these factors contribute to a higher profit margin for the company.
Innovation is a crucial factor in a company's competitive advantage, encompassing new methods in product manufacturing, process design, management systems, organizational structures, and business practices As highlighted by Hill and Jones, innovation significantly differentiates a company's offerings, enabling it to command premium prices Notable examples include Apple with the iPhone and Hewlett-Packard with laser printers, both of which pioneered their respective markets Once competitors attempt to imitate these innovations, Apple and HP have already secured their leadership positions and cultivated strong customer loyalty, making it challenging for rivals to penetrate the market.
To remain competitive, companies must prioritize customer responsiveness by identifying and meeting customer needs This involves tailoring product features to align with market demands, which is essential for business success Additionally, the response time—how quickly a company can deliver a product or service—is a critical factor For manufacturing firms, this refers to the time taken to fulfill orders; for banks, it pertains to loan processing times; and for supermarkets, it relates to the wait time at checkout.
Besides, the quality of aftersales service and support also affect customer satisfaction and consequently company competitiveness.
Competitive strategy
Strategy, originally rooted in military operations, has evolved into a pivotal concept in the business world since the latter half of the 20th century In the 1960s and 1970s, many management scholars emphasized planning as a core element of strategy Alfred Chandler (1962) defined strategy as the determination of an enterprise's long-term goals and the allocation of resources necessary to achieve them, highlighting the importance of a rational planning process Similarly, James B Quinn (1980) described strategy as a cohesive plan that integrates an organization’s major goals, policies, and action sequences This evolution underscores the significance of strategic planning in guiding organizations toward their objectives.
Glueck (1980) defined strategy as “a unified, comprehensive, and integrated plan designed to ensure that the basic objectives of the enterprise are achieved” [1]
Critics have challenged traditional definitions of strategy that rely heavily on planning Hill and Jones propose an alternative perspective inspired by Henry Mintzberg, who defines strategy as "a pattern in a stream of decisions or actions." This definition highlights that strategy is shaped not only by intended plans but also by emergent, unplanned strategies Mintzberg's approach emphasizes that effective strategy encompasses more than merely outlining a course of action.
In the 1980s and 1990s, the importance of "strategy" in the business realm grew significantly, attracting considerable attention from various authors Hax and Majluf (1991) described strategy as a multidimensional concept that encompasses all critical activities within a firm, providing unity, direction, and purpose while enabling adaptation to environmental changes Additionally, Johnson and Scholes (1993) outlined the characteristics typically associated with corporate strategy, further defining its nature and significance in strategic decision-making.
In summary, strategy is defined as a cohesive and comprehensive plan that aligns a firm's strategic advantages with environmental challenges, ensuring the achievement of the organization's fundamental objectives through effective execution.
In recent decades, the term "strategy" has gained prominence among managers, leading to widespread adoption of strategic planning in large and medium-sized companies This growing interest stems from the recognition that the business environment is increasingly volatile and unpredictable, making it clear that merely setting objectives is not enough to guide a company's strategic reorientation in response to evolving challenges, threats, and opportunities.
Any firm can consider three levels of strategy: corporate strategy, business or competitive strategy, and functional strategy
Corporate strategy is primarily about the strategic choice of direction for the company as a whole It raises three key issues facing the corporation:
• The firm’s overall strategy toward growth, stability or retrenchment (directional strategy);
• The industries or market in which the firm competes through its products and business unit (portfolio strategy);
• The manner in which management coordinates activities and transfer resource and cultivates capabilities among product lines and business units
Business strategy, also known as competitive strategy, encompasses the actions management takes to leverage a company's resources and unique capabilities to achieve a competitive edge in the market Michael Porter (1985) identified three generic strategies that companies can pursue to surpass their competitors effectively.
A low-cost strategy focuses on designing, producing, and marketing a comparable product more efficiently and at a lower cost than competitors This cost leadership approach targets the mass market and necessitates the establishment of an aggressive low-cost structure, which includes efficient facilities, a strong emphasis on cost reduction, and stringent control over overhead expenses By minimizing costs in areas such as research and development, service, salesforce, and advertising, companies can offer lower prices, enabling them to compete effectively even in highly competitive environments while still achieving reasonable profits.
A differentiation strategy aims to deliver unique and superior value to consumers through exceptional product quality, distinctive features, or enhanced after-sales services This approach targets a broad market by creating products or services that are recognized as unique within the industry, allowing firms to command higher prices The uniqueness can stem from various factors, including brand image, advanced technology, and an effective dealer network Research by Caves and Ghemawat indicates that differentiation can lead to above-average profits, as it establishes higher entry barriers compared to a low-cost strategy.
A focus strategy, which can be either cost focus or differentiation focus, aims to meet the specific needs of a particular market segment Typically adopted by smaller companies targeting niche markets, this strategy allows them to compete effectively against larger firms that dominate the mass market.
Functional strategy operates at the lowest level of an organization and must align with the overarching business strategy It is developed by specific functional areas to achieve corporate objectives by optimizing resource utilization This strategy focuses on cultivating distinctive competencies, which can then be leveraged into the four key building blocks of competitive advantage: quality, innovation, customer responsiveness, and efficiency, ultimately leading to either a low-cost advantage or differentiation in the market.
Process of strategic management
Strategic management involves a series of decisions and actions aimed at formulating effective strategies to meet corporate goals The strategic management process outlines how strategists identify objectives and make informed strategic choices.
Strategic management extends beyond merely overseeing strategic decision-making; it is a continuous process that enables managers to adapt their firms to the ever-changing environment According to Chakravarthy (1986), it involves ensuring long-term organizational adaptation, while Certo and Peter (1990) describe it as an integrative process that aligns the organization with its environment This ongoing nature of strategic management is essential for maintaining organizational relevance and effectiveness.
The process of strategic management involves 3 basic stages as shown in figure 2.2 Based on the context of this study, the focus will be on the strategy formulation process
Strategy formulation process
Strategy formulation, also known as strategic or long-range planning, is an analytical process focused on developing a corporation's vision, mission, objectives, strategies, and policies To effectively create these elements, corporate strategists must analyze both external and internal environments to gather essential information on strategic factors.
A vision clearly defines the desired future state of an organization, while a mission explains its purpose, the beneficiaries it serves, and its key activities For example, Walt Disney's vision illustrates this concept effectively.
“… to be the preeminent leader in the field of family entertainment”; whilst its mission is
Major goals are the long- or medium-term targets that organizations aim to achieve, with profit maximization often prioritized by profit-seeking businesses Other common objectives may include capturing the largest market share within a two-year period or achieving an annual sales growth of 17% It is essential for goals to be specific and measurable within a defined timeframe to ensure clarity and focus.
Aaker (1995) [2] presented a comprehensive framework for analysis external and internal environment for an organization
External analysis involves examining relevant external factors that impact an organization, aiming to identify both current and potential threats and opportunities Opportunities are trends or events that can significantly enhance sales and profits if addressed appropriately, while threats are trends or events that, without strategic action, may lead to a notable decline in sales and profits This analysis encompasses various assessments to provide a comprehensive understanding of the external environment.
1 Customer analysis includes identifying the organization’s customer segments and each customer’s motivations and unmet needs Segment identification defines alternative product markets and thus structure the strategic investment decision (what investment levels assigned to each market segment) The analysis of customer motivation provides information needed to decide whether the firm can and should attempt to gain or maintain sustainable competitive advantage An unmet needs, the need that currently not being met by existing products, can be strategically important because it may represent a way that entrenched competitors can be dislodged
2 Industry analysis, firstly introduced by Michael Porter (1980) [5] with the five- force model, identifies the important impact of five elements to the performance of an enterprise The five forces are: threat of new entrants, rivalry among existing firms, threat of substitute product, bargaining power of buyers and bargaining power of suppliers
The threat of new entrants in an industry poses a significant challenge to established companies, as these newcomers often introduce additional capacity and resources in pursuit of market share The degree of this threat is influenced by the existing entry barriers, which can include factors such as economies of scale, product differentiation, capital requirements, switching costs, access to distribution channels, and government regulations.
In competitive markets, firms are interdependent, meaning that the actions of one company can significantly influence its rivals, often leading to retaliatory measures Michael Porter (1980) identified several factors that contribute to intense rivalry among existing firms, including the number of competitors, the industry's growth rate, product or service characteristics, fixed costs, production capacity, and the level of exit barriers.
Figure 2.3: Porter’s five force model for industry analysis
When developing strategy, Aaker (1995) [2] suggested what we need to understand about the competitors include:
_ Performance: sales, sales growth and profitability signal how healthy and formidable is a competitor?
_ Image and personality: how is the competitor positioned and perceived?
_ Objectives: what does competitor commit resources to, for high growth or differentiation strategy?
_ Current and past strategies, what are the implications for future strategic move?
_ Culture: what is the most important to the organization - cost control, entrepreneurship or the customers?
_ Cost structure: does the competitor have cost advantage?
_ Strength and weakness: is the brand image, distribution or R&D strength or weakness?
The threat of substitute products refers to alternatives that fulfill similar needs despite appearing different, such as tea serving as a substitute for coffee When switching costs are low, these substitutes can significantly impact an industry by imposing a price ceiling on what firms can profitably charge.
The bargaining power of buyers significantly influences a firm's profitability, as they can drive prices down, negotiate for enhanced quality or additional services, and leverage competition among firms Buyers or buyer groups wield considerable power when certain conditions are met, impacting the overall dynamics within the industry.
_ A buyer purchase a large proportion of seller’s product or service,
_ A buyer has the potential to integrate backward by producing the product itself, _ Product is standard and there are plentiful of supplier,
_ Buyer is sensitive to price and service difference, or
_ The purchased product represents high percentage of buyer’s cost so it is worth to shop around for a lower price
The bargaining power of suppliers significantly impacts an industry, as they can influence prices and the quality of goods or services offered A supplier or group of suppliers holds considerable power if they can raise prices or reduce product quality, affecting the overall dynamics of the market.
_ The supplier industry is dominated by a few companies but sell to many,
_ Its product or service is unique or it has built up high switching cost,
_ Substitute products are not readily available,
_ Supplier can go forward and compete directly with current customers (like Intel company can produce computers), or
_ The purchasing industry buys only a small proportion of the supplier group’s goods and services thus unimportant to the supplier
3 Societal environment: the strategists must also be aware of societal factors that do not have short-run impact in firm’s performance but they usually influence firm's long run decision Four important categories of societal are:
• Economic forces that regulate the exchange of material, money, energy and information
• Technological forces that generate problem solving inventions
• Political forces that allocate power and provide constraining and protecting law and regulation
• Socio-cultural forces regulate values, custom of society
Hill and Jones highlight the limitations of Porter’s five forces model, noting that it provides a static view of competition that overlooks the importance of innovation They argue that the model downplays individual company differences while overemphasizing industry structure as the primary determinant of profit rates According to them, innovation and unique company characteristics are crucial factors that significantly influence a company's competitive position and, consequently, its profitability.
The third step in the strategic formulation process is identifying a firm's strengths and weaknesses, which are crucial for assessing business performance through metrics like sales, sales growth, and profitability This analysis focuses on resources and capabilities essential for establishing and maintaining a competitive advantage, encompassing distinctive competencies across various functional departments such as marketing, manufacturing, and employee skills A company's strengths contribute to superior performance in quality, efficiency, innovation, and customer responsiveness, while weaknesses result in inferior performance.
2.4.4 Strategy formulation and strategic choice
The next step is to develop strategic alternatives based on the company's internal strengths and weaknesses, as well as external opportunities and threats Conducting a SWOT analysis helps identify strategies that align with the company's resources and capabilities while meeting market demands From the generated alternatives, managers must select the most suitable strategy to implement.
For business strategy, each of three generic strategies can be pursued given certain resource and capability as described in table 2.1 below
Strategy evaluation having developed alternative strategies, we need to evaluate their suitability and feasibility A strategy can be valued through three criteria dimensions:
EXTERNAL ENVIRONMENT ANALYSIS
Vietnam construction industry overview
Between 2000 and 2010, Vietnam experienced a significant increase in total housing area, rising from 700 million square meters to 1,430 million square meters, with an average annual growth of 58 million square meters, reflecting a compound annual growth rate (CAGR) of 7.2% This period saw new housing construction six times greater than the total supply of the previous decade Looking ahead, housing construction is anticipated to accelerate, particularly in major cities such as Hanoi, Da Nang, and Ho Chi Minh City.
Table 3.1 Top 10 major apartment building projects in HCMC in the period of
No Project Developers No of unit Total Area
1 Saigon Castle (Korean & Vietnam JV.) 2,500 240,000
2 Gia Hoa Gia Hoa Co., Ltd 1,800 172,800
3 Sky Garden Phu My Hung Corp 1,500 144,000
5 Hoa Binh Dai Do Thanh Co 1,020 97,920
6 New Saigon Hoang Anh Gia Lai Group 1,000 96,000
7 Tan Kien 584 high-rise building
9 Tahami Tan Hai Minh Ltd 800 76,800
10 Phu Thanh - Cienco 5 Investment-Construction
Vietnam's infrastructure is severely outdated due to decades of conflict and economic downturn, with only 36% of its road network paved The government recognizes the urgent need for infrastructure investment, particularly as the current power supply is insufficient to support the growing industrial sector Experts warn that without immediate action, Vietnam could face a significant energy shortage in the coming years.
Table 3.2 Top 10 priority projects in the period of 2005-2010
No Project Location Capacity Time frame Total investment (USD mil)
Metallurgy Project Ha Tinh 4.5 mil tons/year 2007-2012 3,437.50
Refinery Plant Quang Ngai 6.5 mil tons/year 2001-2008 2,484.38
4 1-5 Aluminum Plant Dac Nong 1.9 mil tons/year 2006-2009 1,410.81
6 Tycoon Group steel ingots plant
Quang Ngai 5 mil tons/year
Hydroelectric plant Lai Chau 1,200 MW 2007-2014 865.38
Thermoelectric Plant Thanh Hoa 600 MW 2007-2011 627.38
Hanoi prioritizes infrastructure development, with the government reporting a significant increase in Vietnam's road system, which expanded by 105,000 km (52%) from 2005 to 2010, compared to 69,000 km in the previous five years This surge in infrastructure spending is fueled by strong political support and improved project financing, highlighting the urgency of ensuring commercial viability across state policies and various sectors.
Three significant infrastructure projects in Vietnam include the North-South Highway Project, the Ha Noi-Ho Chi Minh Express Railway, and Long Thanh International Airport in Dong Nai Province, collectively estimated to cost around USD 42 billion.
Since the Asian financial crisis, Vietnam's commercial property market has experienced remarkable growth In 2005, office space in Ho Chi Minh City (HCMC) and Hanoi was 439,000 sqm and 118,000 sqm, respectively Currently, HCMC's office supply has surged to 1,249,000 sqm, while Hanoi's has reached nearly 447,000 sqm By 2020, the completion of the Thu Thiem New Urban area in HCMC and the Tay Ho Tay New Urban area in Hanoi is projected to double the total office supply in both cities.
Table 3.3 Top 10 major office developments in HCMC
No Project Developers Total Area (sqm)
5 Saigon Paragon Khaisilk - Thuy Loc 34,000
Since 2005, the retail and industrial construction sectors have experienced significant growth, marked by the development of over 200,000 square meters of retail space and the approval of 33 industrial projects by the Prime Minister, amounting to a total investment of USD 440 million.
Table 3.4 Top 10 major industrial developments in the period of 2007-2010
No Project Location Total area
1 Duc Hoa III Industrial zone Long An 987 123.38
2 My Yen – Tan Buu – Long Hiep
Industrial zone (Ben Luc) Long An 411 51.38
3 Thanh Duc Industrial zone Long An 330 41.25
5 Tan Kim Industrial zone (expansion) Long An 300 37.50
6 Tan Duc Industrial zone (expansion) Long An 296 37.00
7 Soai Rap Industrial zone Tien Giang 289 36.13
8 Binh Minh Industrial zone Vinh Long 162 20.25
9 Tran De Industrial zone Soc Trang 138 17.25
10 Nhat Chanh Industrial zone Long An 122 15.25
Macro environment analysis
Political and legal factors significantly influence the opportunities and threats within Vietnam's environment The country is known for its peaceful and stable political landscape Through the implementation of the "renovation and open door policy," Vietnam has strengthened its political and economic ties with numerous nations Its membership in ASEAN and accession to the WTO as the 150th member in 2007 have further enhanced the country's economic development and international trade This progress not only attracts foreign and domestic investment but also presents both opportunities and challenges for local businesses.
To support the economic liberalization and encourage the private sector, the government has promulgated a series of economic laws such as Law of Foreign
Investment, Company Law, Law of Private Business, etc This has formed a quite positive environment for doing business
The construction industry is experiencing a favorable investment climate for both domestic and foreign investors, thanks to a refined legal system and simplified procedures Improved knowledge among management organizations and investment officers has further enhanced this environment Key legislation, including the Construction Law (2003), Housing Law (2005), and Real Estate Law (2006), has established a clear framework that has driven significant growth in the sector Recent government regulations, such as Decree 71/2010/ND-CP and Circular 16/2010/TT-BXD, are anticipated to positively influence the residential market by increasing transparency and quality, while also mitigating the risks of price bubbles and limiting speculative activities, according to CBRE.
Government policies are set to foster a positive environment for the construction industry, particularly benefiting the real estate sector, which will lead to increased spending in both residential and non-residential segments in the coming years.
Vietnam's economic growth rate significantly influences the opportunities and challenges faced by businesses Despite experiencing a recession last year, the country achieved a robust GDP growth of 6.8%, surpassing the 2010 target of 6.5% With an impressive annual growth rate of 7.3% from 2005 to 2010, Vietnam ranks among the nations with the highest growth rates globally The International Monetary Fund (IMF) forecasts continued strong growth for the Vietnamese economy, with GDP growth expected to range between 7.0% and 8.0% in the coming years.
Figure 3.1 GDP and GDP per capita in the period of 2005-2015
(Source: General Statistics Office of Vietnam, and 2011-2015: IMF forecast)
The robust economic growth and recent infrastructural developments in the country have significantly accelerated the construction industry By 2015, the average GDP per capita was projected to reach USD 1,800, with major cities like Ha Noi and Ho Chi Minh City exceeding USD 4,300 This rising affluence has spurred a heightened demand for residential, commercial, and public infrastructure, contributing to a boom in the national construction and real estate sectors In 2010, the construction industry experienced an impressive growth rate of 23.1%, driven by increased public spending and private sector investments, resulting in a five-year compound annual growth rate (CAGR) of 21%.
It is believed that all of these will definitely create opportunities for the construction industry, a core industry to provide the impetus for growth of the entire economy
Inflation poses a significant threat to economic stability, leading to slower growth, increased interest rates, and unpredictable currency fluctuations A defining feature of inflation is its ability to create uncertainty about the future In Vietnam, inflation has reached double-digit levels, highlighting these economic challenges.
Vietnam's economy, which experienced a growth rate of 23% in 2008 and 11.7% this year, is facing instability despite these high figures The inflationary environment complicates the accurate prediction of business returns, leading to uncertainty that discourages investment Consequently, high inflation poses significant challenges for business owners and developers alike.
Figure 3.2 Inflation in the period of 2005-2015
(Source: General Statistics Office of Vietnam, and 2011-2015: IMF forecast)
High interest rates significantly impact the cost of capital for companies, influencing the feasibility of their strategies Over the past five years, lending rates have exceeded 12%, with a peak interest rate of 14% in 2010, marking it as one of the highest globally Such elevated rates pose challenges for businesses and investors, particularly in the construction sector, where developers and contractors rely on substantial long-term loans to sustain their capital-intensive operations.
In the past five years, Vietnam has experienced a significant influx of foreign direct investment (FDI), with an increase in the ratio of implemented to committed investments A survey by the Asian Business Council ranked Vietnam as the third most attractive destination for investment among Asian countries from 2007 to 2010, following China and India Additionally, in 2011, AFIRE listed Vietnam as the fourth most preferred emerging market for investment, trailing only Brazil, China, and India Reuters highlighted Vietnam as one of three "frontier" markets, and Franklin Templeton expressed intentions to heavily invest in the country in 2011.
Despite the revocation of several large foreign-invested real estate projects due to financial challenges, foreign direct investment (FDI) in both residential and non-residential sectors is expected to rise in the coming years This growth is attributed to the country's political stability, robust GDP growth, enhanced living conditions, and significant market turnover, according to Mr Phan Huu Thang, director of the Center for Foreign Investment Studies (CFIS).
Figure 3.3 FDI in the period of 2005-2015
(Source: General Statistics Office of Vietnam, and 2011-2015: CFIS forecast)
2015f FDI (Committed) 6.8 12.0 21.3 71.7 21.5 22.0 30 pa. FDI (Implemented) 3.3 4.1 8.0 11.7 10.0 11.0 15 pa.
According to the Ministry of Construction's summary report, foreign direct investment (FDI) in the real estate and construction sectors constitutes a minor fraction of total FDI capital and has experienced a slowdown this year Nonetheless, FDI significantly influences the growth of the local construction industry, with project administrators noting that approximately 30%-40% of FDI capital is allocated to construction activities, including communications and public works This investment is believed to create abundant opportunities for both residential and non-residential construction projects.
Figure 3.4 Top 10 FDI investors in the period of 1988-2009
(Source: General Statistics Office of Vietnam)
Singapore has emerged as the leading foreign direct investment (FDI) partner in Vietnam, boasting 88 new projects this year, particularly in the real estate sector, with an investment totaling USD 4.4 million, which is double that of the second-largest investor, Korea, at USD 2.3 million This trend presents significant opportunities for construction companies and consultancies, especially those with Singaporean ownership or proven experience.
Korea Taiwan Malaysia Japan Singapore United States British Virgin Island Hong Kong Caymen Island Thailand
In recent years, there has been a noticeable trend of increasing exchange rates, with the Dong experiencing a 5.0% year-on-year devaluation in 2010, a figure that could be higher if considering the free market rate Mr Michael Porter notes that in an immature market like Vietnam, even minor fluctuations in exchange rates can eliminate competitive advantages Furthermore, the high volatility of exchange rates exerts considerable pressure on the prices of imported raw materials, including construction materials.
Large construction projects that depend on pre-sale launches face significant challenges due to rising construction costs and overhead expenses throughout the construction period The substantial increase in building material prices exerts pressure on profit margins, making it difficult for developers and contractors to raise their prices accordingly.
It can be said that the current depreciation of Dong is generating obstructions to stakeholders in real estate sectors and construction industry as well
Figure 3.5 Exchange rates (at year-end) in the period of 2005-2010
(Source: General Statistics Office of Vietnam)
3.2.3 Social, culture and demographic factors
The same as other young nations, median age at 27 years old, Vietnam owns favorable demographics Since 1990 Vietnam population has kept rising and 75% population is
By 2020, Vietnam is projected to have one of the highest working-age populations in Asia, with an estimated 40 million individuals under 35 years old This young and affordable labor force is creating significant opportunities for the economy, particularly in the construction industry.
(Source: General Statistics Office of Vietnam, and 2020: MPI forecast)
Industry environment analysis
Vietnam's construction and property sector, comprising 3,800 companies—including over 1,100 foreign-invested firms valued at more than USD 3.5 billion—faces intense competition While state-owned enterprises dominate the market and leverage their connections to secure contracts, many are suffering significant losses due to inadequate construction technology expertise and poor management practices New developers encounter substantial entry barriers, including high capital demands and complex licensing processes Each stakeholder in the construction industry navigates unique opportunities and challenges, prompting an industry environment analysis focused on consultancy perspectives, particularly from C&S consultants, to identify SCE's potential prospects and obstacles.
SCE, a consulting firm with a comprehensive business license for building design, is strategically focusing on becoming an expert in civil and structural (C&S) design The board of directors aims to target medium to large-scale projects, both in size and budget, positioning SCE as a professional consultant for high-rise buildings in the coming years.
A consultant is a specialist who provides expert advice, while consulting refers to the business of offering this expertise to clients for a fee, aimed at solving specific problems within a particular area of business.
C&S engineering focuses on the planning and design of buildings, industrial factories, and infrastructure, while also conducting environmental studies to mitigate water and soil contamination during construction C&S consultants typically offer design and analysis services to a diverse clientele, including government entities, corporations, investors, developers, and private homeowners.
A recent interview with SCE clients revealed key criteria for evaluating C&S consultants, highlighting significant barriers that new entrants must overcome to succeed in the high-rise building segment.
C&S consultants are crucial for ensuring the safety and stability of buildings, particularly in high-rise projects where mistakes can lead to significant financial losses and even endanger lives Therefore, a strong reputation and proven track record are essential for assessment Additionally, companies with successful reference projects hold a competitive advantage during the appraisal process.
Consultants working in Vietnam must have a strong local presence, including qualified personnel, effective management techniques, and in-depth local knowledge Regardless of their reputation or the success of their parent companies, the unique context of Vietnam can significantly affect project outcomes Projects typically span 3 to 5 years from the schematic design phase to completion, making the mobilization of an entire foreign team impractical and unrealistic.
Cost and time are critical metrics for project success, as consultants must deliver efficient designs that meet client requirements while minimizing costs and waste, facilitating ease of construction, and reducing construction time Achieving this necessitates a comprehensive blend of expertise and experience in both design and site work.
Local consultants lacking experience, management expertise, and technical knowledge, particularly in international standards, encounter significant challenges Even domestic firms led by individuals trained in reputable companies struggle to compete in large foreign-invested projects, as they must work hard to gain the trust of developers.
Foreign consultancy firms possess several advantages, yet they often encounter significant challenges in the market due to local human resources and informal regulations that can be surprising to outsiders.
Capital investment in the service sector may be relatively low, but the financial burden of design software and staffing costs over the three years leading up to profitability can significantly strain a new company Additionally, the high barriers to entry in the high-rise consultancy segment make it challenging for newcomers to establish themselves in this competitive market.
Vietnam's real estate market, particularly in Ho Chi Minh City (HCMC) and Hanoi, is highly promising, with a remarkable compound annual growth rate (CAGR) of 21% The local government's initiative to transform District 2 into a vibrant urban hub akin to a "Vietnamese Shanghai" is set to attract significant investment, featuring numerous high-rise, premium buildings and enhanced infrastructure.
By 2050, the market resembles a large, enticing cake with numerous competitors vying for a slice, making the competition exceptionally fierce SCE aims to capitalize on opportunities in the high-rise building segment while strategically positioning itself against local rivals, whose prices are often significantly lower, sometimes double or triple that of SCE’s offerings.
SCE's current segment includes approximately 20 foreign consultants, such as Arup, Aurecon Group, and Aecom, along with a few qualified domestic firms like NKC and SLCC The top six foreign competitors are multinational corporations known for their strong reputations, valuable expertise, and established organizational structures While some competitors have yet to gain a foothold in Vietnam, they are preparing for future opportunities As new entrants continue to emerge, competition in the market is intensifying.
In addition to focusing on high-rise projects, SCE is strategically expanding into the infrastructure and industrial sectors This market has traditionally been dominated by local enterprises due to their established relationships As a result, SCE and other foreign companies are encountering strong competition from these local rivals The competitive landscape is undeniably intense among industry players.
INTERNAL ENVIRONMENT ANALYSIS
Introduction of SCE Consultants (Indo-China) Ltd
In 1979, Mr Seow Hong Chiow and an architect co-founded Seow Hong Chiow & Partner Co in Singapore, offering consultancy services in architecture and structural engineering After the architect's departure in 1984, the firm was renamed SC Engineering Consultant Pte Ltd It became ISO certified and was restructured in 1991 as SCE Consultants Pte Ltd Since its corporatization in 2006, SCE Consultants has been delivering a comprehensive range of civil and structural consultancy and accredited checking services.
SCE Consultants (Indo-China) Ltd, established in Ho Chi Minh City in 2005, serves as a strategic entry point for the board of directors into the Vietnam-Laos-Cambodia market Since its inception, the consultancy has expanded its services beyond Vietnam, undertaking projects in Malaysia, Indonesia, Sri Lanka, and China.
No Company name Office location Year
1 Seow Hong Chiow & Partners Singapore 1979
2 SC Engineering Consultants Pte Ltd Singapore 1984
4 SCE Consultants (Indo-China) Co Ltd Vietnam 2005
5 SCE Consultants (Pte) Ltd Singapore 2006
Since its establishment in 1973, the firm has developed a significant pool of engineering expertise, offering consultancy services to both private and public sector clients Their diverse projects include residential, commercial, industrial, institutional, and recreational developments, as well as civil engineering works Led by three directors and supported by a dedicated team of 50 staff, SCE is committed to delivering quality civil and structural (C&S) professional services through innovative and cost-effective designs Recently, SCE Consultant Pte Ltd has been recognized as the third-best local C&S consultant in Singapore.
Although 6 year old SCE has progressively built up its own reputation, made profit and been independent from SCE Singapore, there is still a lot challenges to overcome for its sustainable development.
Company’s Vision, Mission and Core values
Collins and Porras's research highlights that enduring companies such as HP, Walt Disney, and Sony maintain a valuable vision that serves as a guiding force and cohesive element during periods of growth, decentralization, diversification, and global expansion In light of this, the board directors of SCEs have developed a corporate vision that encompasses two key components: mission and core values.
• Vision: To become the Designer of our Age
• Mission: To improve the world in which we live, whilst conserving our environment through excellence in sustainable design
_ Creative – We embrace the freedom to operate creatively and support each other in the quest
_ Responsibility – As we empower each other personal responsibility becomes an exacting and high moral specification for how we behave
_ Ethics – We want to make the world a better place to live, we put people first
We are accountable to our ethical ideals and share the reward that follow
_ Success – Success is not defined by a destination It is gauged by the way we share the journey It is improving the way we live each and every day
_ Teamwork – Teamwork is about working naturally with others with an open mind and share ambition
SCE emphasizes the importance of sustainable development in the face of global warming, urging designers to prioritize practices that benefit future generations The company's commitment to service excellence serves as a guiding principle for educating local firms, particularly focusing on young and inexperienced staff This approach highlights the critical role of customer satisfaction as a key factor for success in any business.
It is believed that the clear, responsible and humanity vision is encouraging staffs to put their hearts into work for a better future of the company and people.
Organizational structure
Figure 4.1 Manpower of SCE (at year-end) in the period of 2005-2010
Founded in Vietnam in 2005, SCE began with a small team consisting of a director and two staff members in a modest office in District 1 Over the years, the company has significantly enhanced its organizational structure, expanding from a single senior engineer to a team of four, enabling the firm to manage four simultaneous projects By 2009, SCE successfully established a functional organizational structure, reflecting its growth and operational capabilities.
In technical enterprises like consultancies, particularly small and medium-sized ones, involving staff in projects from inception to completion is highly beneficial, according to Mr David Chan, general director of SCE This approach not only provides employees with comprehensive knowledge of construction procedures but also fosters a sense of belonging, leading to increased ownership, pride, and dedication in their work As a result, companies experience improved work quality, higher productivity, and enhanced staff loyalty Furthermore, in situations such as tight deadlines or manpower shortages, design managers and project engineers can efficiently rotate staff between projects, boosting overall efficiency and flexibility.
Figure 4.2 SCE’s organizational chart in 2010
Despite its advantages, the model presents certain drawbacks, including a lack of specialized staff in the organizational structure, which could hinder SCE's expansion Additionally, this can lead to disparities between teams, as varying project objectives and expectations may result in some teams being overloaded while others are not To mitigate these issues, it is essential for directors and managers to possess comprehensive knowledge, strong management skills, and adaptable policies.
Human resource management
In the consulting industry, effective human resource management is crucial for the success and growth of a company At SCE, the founder has established a family-oriented management style that complements the company's vision, mission, and core values This approach fosters a supportive environment where senior staff act as mentors, earning the trust and respect of junior employees through their knowledge and professionalism Since the 1980s, this strategy has contributed to high employee retention and a cohesive workplace culture The result is a healthy, friendly, and comfortable atmosphere that promotes teamwork and strengthens the core employee base of the firm.
The recruitment and selection system at SCE closely resembles those of other companies; however, for managerial and higher-level positions, the board of directors invests significant effort in identifying candidates who share the company's core values and purpose This focus is integral to SCE's HR strategy, aimed at attracting and retaining talent to support the company's expansion while safeguarding its long-standing core ideology.
Since 2009, SCE has implemented an annual staff appraisal process to identify skill gaps and adjust salaries accordingly The company also conducts numerous sharing sessions and technical training led by experienced local and foreign senior engineers, providing valuable opportunities for engineers to rapidly enhance their skills and align with international standards.
SCE is grappling with a high staff turnover rate exceeding 20% per annum, primarily attributed to less competitive salaries and the specific challenges of the Vietnamese consultancy market In Vietnam's developing economy, local and newly established foreign companies aggressively pursue high-quality talent, often offering better compensation than SCE Additionally, many Vietnamese employees exhibit impatience and a lack of experience, frequently switching jobs for minor salary increases without recognizing the long-term benefits of staying with their current employer, as noted by Mr David Chan, SCE’s General Director.
This issue is presenting SCE a vital challenge on how to retain employees, specifically high quality staffs, who are definitely creating somehow competitive advantage of the company in long term.
Business activities
Since 2005, SCE has been delivering comprehensive C&S consultancy services across both private and public sectors, engaging in diverse projects that include residential, commercial, industrial, institutional, recreational, and civil engineering works The company offers a specialized service line, referred to as Service Line 1 (SL1), which involves analyzing client requirements and architectural drawings, preparing detailed C&S drawings and specifications, and submitting them for tender purposes During the construction phase, SCE acts as a design auditor, providing clarifications and additional details as needed This operational model aligns with practices adopted by many local and international consulting firms, as outlined in Construction Law.
Figure 4.3 SCE’s service line _ Service line 1 (SL1)
With robust support from SCE Singapore, the Vietnamese branch is now providing an alternative service line, referred to as service line 2 (SL2), to its international clients Operating in various countries, including Singapore and Malaysia, SL2 offers enhanced construction and services (C&S) throughout the construction phase This model presents numerous advantages for project stakeholders, including improved efficiency and streamlined processes.
_ For the duration of tender stage, the consultant can assist client on assessment and recommendation the most appropriate contractor in technical perspective
_ Review Client's design brief and requirements
• _ Advise on neccessarity of site surveys, tests for proper design and construction works
• _ Prepare C&S submission drawings and documents for construction license
• _ Finalize Client's design brief and final requirement
• _ Develop C&S design and detailing in collaboration with Architect and other Consultants
• _ Prepare C&S drawings and calculation for Independent Checker
• _ Provide C&S drawings and specification for finalization of tender document and tender cost estimation
• _ Reply technial queries from the Bidders
• _ Provide clarification to site queries
• _ Furnish addtion details and ammendment drawings if any
• _ Together with Client/Project management (PM), other Consultants and Authority inspect whole project for certificate of statutory completion
The consultant can enhance quality and achieve cost control by proposing value engineering, alternative designs, and substitute materials based on the contractor's capabilities and site conditions, ultimately reducing material costs and minimizing waste.
Typically, project completion spans 3 to 5 years, which means initial usage may evolve over time This model allows clients the opportunity to refine and enhance the design for the project's final implementation.
The consultant's deep understanding of design concepts and drawings enables quick responses and effective solutions to construction problems, minimizing waiting times and material waste Their supervision ensures that the design intent is realized, while also reducing the effort and costs for the project management team through their valuable assistance.
_ During a construction period, the contractor can coordinate with the consultant for alternative designs and materials for reduction of wastage material and facilitation construction work
_ Benefit from close monitoring, the consultant can give timely responses and clarifications that help minimize of waiting time and prevent potential damages from occurring
When a designer is involved in a project from start to finish, it fosters a sense of ownership that enhances both effectiveness and efficiency This continuous engagement allows the designer to evaluate their work against real-world applications, enabling them to identify and rectify mistakes while refining their designs As a result, this hands-on experience significantly improves the designer's practical skills, addressing a common disadvantage faced by local and younger engineers.
_ It can ensure that correct drawings are using and design intent is fulfilled
_ With rounded knowledge gained during construction time, value of designer will be improved
Figure 4.4 SCE’s service line _ Service line 2 (SL2)
Despite its numerous advantages, the SL2 has seen limited implementation in Vietnam, including major cities like Ho Chi Minh City and Hanoi Direct interviews with directors of consulting firms reveal several key reasons for this lack of adoption.
• _ Review Client's design brief and requirements
• _ Advise on neccessarity of site surveys, tests for proper design and construction works
• _ Prepare C&S submission drawings and documents for construction license
• _ Finalize Client's design brief and final requirement
• _ Develop C&S design and detailing in collaboration with Architect and other Consultants
• _ Prepare C&S drawings and calculation for Independent Checker
• _ Provide C&S drawings and specification for finalization of tender document and tender cost estimation
• _ Reply technial queries from the Bidders
• _ Evaluate Bidders and assist Client in tender report & recommendation
• _ Provide clarification to site queries
• _ Furnish addtion details and ammendment drawings if any
• _ Review shopdrawings submitted by the Contactor
• _ Provide value engineering, alternative design if required
• _ Together with Client/PM team supervise, inspect and mornitor construction works and schedule, especially critical ones
• _ Assist Client/PM team on preparation of as-built drawings and documents for final inspection
• _ Together with Client/PM, other Consultants and Authority inspect whole project for certificate of statutory completion
• _ Assist Client/PM team on handover project to final users
From a financial perspective, SL2 typically yields lower profits for companies compared to SL1 Consultants can charge 30% to 50% more for SL2, yet the contract duration is two to three times longer than SL1 This extended timeframe delays fee collection, and coupled with high and unstable inflation, SL2 may not be the most lucrative choice for businesses.
• SL2 is more appropriate to big and complicated projects, design and build contracts in which response time is a key successful factor Such projects, however, are still limited in Vietnam
In the second model, the consultant assumes greater liability during the construction phase, taking partial responsibility for the workmanship and performance of the constructors This increased obligation may deter companies from opting for this model, particularly if they lack strong objectives, as SL2 does not offer the highest potential benefits.
• Although applied many years in Singapore and Malaysia, SL2 procedure is quite new in Vietnam; many local developers and consultants are unaware about it
Developers often favor the SL1 model for its traditional project management approach, while others prefer the first model due to its enhanced authority over approving contractor proposals, encompassing both commercial and technical aspects, which may lead to informal incentives.
SCE is strategically targeting the high-rise building segment in Vietnam, which demands exceptional expertise and experience The company adheres to local codes while also implementing British Standards, a globally recognized benchmark, in its civil and structural design work This approach enables SCE to cater to developers from various countries Despite facing challenges in a competitive market, SCE has achieved success, bolstered by strong technical support from its Singapore office, which boasts over 30 years of experience The firm is currently managing a $115 million project, following the successful completion of The Vista, a $135 million project on a 2.3 ha site, both developed by the same Singaporean investor, alongside several smaller projects.
Young SCE has received a rating of seven plus out of ten for its services, based on direct interviews with clients and partners The successful completion of notable projects has increased awareness among investors and developers, leading to a growing potential customer base Despite facing several challenges ahead, SCE is poised to capitalize on favorable opportunities for expansion.
SCE entered the Vietnamese market in 2005, initially working with local clients in both the public and private sectors However, the company faced significant challenges during its first three years, including a lack of experience that contributed to project failures and unexpected informal practices that surprised the Singapore-based firm As a result, SCE's directors have shifted their focus to providing services primarily to foreign developers, particularly those from Singapore, whom they view as more professional.
SCE's primary clients include two major corporations with established relationships: Chip Eng Seng Corporation, a leading construction and property group in Singapore, and CapitaLand, one of Asia's largest real estate firms In November 2010, a joint venture involving CapitaLand, Mitsubishi Estate Asia, and the Government of Singapore Investment Corporation invested USD 215 million in Vietnam's high-end apartment market in Ho Chi Minh City and Hanoi The anticipated growth of the real estate market and SCE's strong partnerships with these prominent developers are expected to yield positive outcomes for the company.
Despite the profitability of projects developed for core clients, there exists a potential threat to the company due to the significant bargaining power of these large investors Their advantageous position in contract negotiations allows them to pressure SCE into lowering consultant fees while demanding higher quality and additional services Consequently, SCE must continuously enhance its current offerings, while also devising a strategic approach to mitigate this threat effectively.
SWOT analysis
The primary goal of a SWOT analysis is to develop strategies that align an organization's resources and capabilities with the demands of its competitive environment Essentially, the alternatives produced through SWOT analysis aim to leverage the organization's strengths to capitalize on opportunities, mitigate threats, and address weaknesses.
• The stable political environment and favorable regulatory one, particularly new Decrees and Circulars in the real estate segment, provide positive impacts on residential and non residential markets
• The country’s accession to WTO, which opens the door for country’s financial market, an important gateway for foreign investors to participate in the real estate business
The robust economic growth rate of 7.0% to 8.0%, coupled with a high compound annual growth rate (CAGR) of over 20% in the construction industry, is driving significant demand for residential and commercial buildings, as well as public infrastructure This surge in infrastructure development and rising affluence is fueling a boom in the real estate sector.
• High FDI capitals have been pumped into the construction industry and real estate segment Singapore is within top 5 largest FDI, which will give better chances to Singapore based companies
• The young and expanding population, cheap labor force, a high urbanization rate, low housing area per capita and traditional culture values all help drive demand of the residential sector
• Rapid innovation of technology facilitates building design and site management work Standardization of global design codes brings advantages to foreign consultant companies
• New entrants are facing a high barrier to enter the high-rise building segment
• Complicated investment procedures are slowing down and preventing investors from pumping capital into Vietnam
• High inflation, high interest rate and fluctuated exchange rate make the future less predictable then reduce willingness in investment of developers
• Competition in the construction industry in general and consultancies in particular, is becoming fiercer and fiercer
• Core clients are holding significantly high power in contract negotiation
• Established by the third best local firm in Singapore, SCE inherits good reputation and track records from its mother company
• Foreign languages, expertise and experience bring SCE competitive advantages
• Possessing a clear and motivating core ideology provides the company a guidance and organizational glue for a sustainable development
• SCE’s appropriate organizational structure, good HR policies, proper establishment and healthy working environment all help increase effectiveness, efficiency and flexibility of the company
• Providing valuable service lines, especially SL2, brings more options and benefit to clients, which is enhancing customer satisfaction
• Success of large developments gives the company good reference projects for building up SCE’s image
• High staff turnover rate at 20%pa has diluted more or less competitive advantages of the firm
• SCE’s small customer base generates higher power of core clients
• In perspective of local clients, the company’s price is higher than domestic firms’, which diminishes competition chances of the company
With above analysis, the SWOT matrix can be summarized as shown in table 4.2
Table 4.2 SWOT matrix of SCE
• Good reputation and track records from its mother company
• Foreign languages, expertise and experience
• A clear and motivating core ideology
• Appropriate organization structure, good HR policy, proper establishment and healthy working environment
• High staff turnover rate at 20%pa
• High power of core clients
• In perspective of local clients, the company’s price is higher than domestic firms’
• Stable political and favorable regulatory environment
• Accession to WTO, which opens the door for country’s financial market
• Strong economic growth rate at 7.0% to 8.0%, recent infrastructure development and rising affluence
• High CAGR of the construction industry at over 20%
• High FDI capital Better chances to
• Favorable demographics, high urbanization rate, low housing area per capita and traditional culture values
Standardization of global design codes
• High inflation, high interest rate and fluctuated exchange rate
• High bargain power of clients.