CAPSTONE PROJECT REPORT DEVELOPING BUSINESS STRATEGY FOR THE VINH SON - SONG HINH HYDROPOWER JOINT STOCK COMPANY BÁO CÁO DỰ ÁN CAPSTONE PHÁT TRIỂN CHIẾN LƯỢC KINH DOANH CHO CÔNG TY CỔ PHẦN THỦY ĐIỆN VĨNH SƠN - SÔNG HINH

CAPSTONE PROJECT REPORT DEVELOPING BUSINESS STRATEGY FOR THE VINH SON - SONG HINH HYDROPOWER JOINT STOCK COMPANY BÁO CÁO DỰ ÁN CAPSTONE PHÁT TRIỂN CHIẾN LƯỢC KINH DOANH CHO CÔNG TY CỔ PHẦN THỦY ĐIỆN VĨNH SƠN - SÔNG HINH

G Global Advanced

MBA Program (0381M)

CAPSTONE PROJECT REPORT

DEVELOPING BUSINESS STRATEGY FOR

THE VINH SON - SONG HINH HYDROPOWER

JOINT STOCK COMPANY

Group No 6:

Student’s name :

1 VG Van Thu (Team leader)

2 Trinh Thuy Quynh

3 Nguyén Hoai Anh

4 Ngô Phú Cường

Class : GeMBA 01.E01

HA NOI 2009

1.4 Scopes of study 2

1.5 Methodology 2

1.6 Significance of the study 2 1.7 Anticipated outcome of the study 3

1.8 Organization of the study 3

Summary for Chapter I 4 CHAPTER I 5 THE THEORETICAL BASIS OF BUSINESS STRATEGY IN

THE MARKET MECHANISM

1.1 Concepts, requirements and contents of business strategic 3

stages

1.1.1 Concepts 5 1.1.2 Requirements of business strategies 6 1.1.3 Steps to develop business strategy 7 1.2 Mission and strategic goals of the enterprise 13 1.2.1 The mission of the enterprise 13 1.2.2 Strategic goals of the company 13 1.3 Macro analysis of the business environment 14 1.3.1 Political-Legal Factors 15 1.3.2 Economic Factors 15 1.3.3 Socio-cultural Factors 16 1.3.4 Technological Factors 17 1.3.5 Integration Factors 18 1.4 An analysis of industrial environment by Michael Porter 20 1.4.1 Analysis of the customer's power 21 1.4.2 Analysis of the suppliers’ power 21 1.4.3 Analysis of the competitors’ power 22 1.4.4 Analysis of potential entrants’ power 23 1.4.5 Analysis of substitutes’ power 24

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3.1.3 Using SWOT matrix to select the business strategy for

VSH

3.2 Implementation solutions

3.2.1 Solution on production management

3.2.2 Solutions in terms of human productivity

3.2.3 Financial solutions

3.2.4 Technical solutions

3.2.5 Solutions to expand technical services and operation of

hydropower plants

3.2.6 Solution to provide energy auditing service

3.2.7 Constructing new hydropower plants

3.2.7.1, Upper Thuong Kon-Tum hydropower plant

3.2.7.2 Vinh Son Hydropower Project 2 3.2.7.3 Vinh Son Hydropower Project 3:

3.2.7.4 Dong Cam hydropower project:

market shares

Therefore, with the knowledge gained, we are aware of our responsibility for

developing business strategies so that the relevant enterprises can refer to them Then,

the long-term and effective business strategies will be worked out Specifically, we would like to develop business strategies for the Vinh Son — Song Hinh Hydro-power Joint-stock Company in the period of 2010-2015 and the following years with a view

to identifying targets or solutions for the company to make the best of advantages and opportunities, and to restrict or address the challenges to survive and develop Those are all the reasons why we came to this thesis

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1.3 Objectives of the study:

- Study and systemize theories of business strategy development, raise the awareness of the company about the important and decisive role of the business strategies in its survival and development Develop the optimal selection procedures of business strategies, helping the company to choose the most suitable ones

- Use the system of theoretical backgrounds and models for analysis, assess the internal and external environments; then develop business strategies for the company

- Make recommendations on the development strategies of the company

1.5 Methodology:

- Qualitative measures: expert and individual interviews

- Jata collection and analysis: Conduct direct interviews with experts Use statistics, specialized information or data Gather data from current and previous plans/reports and the Internet

1.6 Significance of the study:

In the narket economy of fierce competitions, if the company wishes to gain success,

it should formulate its own development strategies to figure out, foresee trends in the market to identify keys to success Then it can make best use of its strengths and be well-avare of its weaknesses It is to understand rivals, customers’ desires, know how

to approach the market Accordingly, the company can make creative decisions on

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whether to downsize production or reconsider performances at a certain time and market segment

1.7 Anticipated outcome of the study:

Although some limitations as mentioned above exist, the content of the study is Closely related to the reality of production and business performances in the Vinh Son

- Song Hinh Hydro-Power Joint-stock Company It is believed that a realistic and scientific analysis of the key matters prescribed in the thesis will have a certain effect

on the fundamental functions of the company during the renewal and global economic

integration process in Vietnam

1.8 Organization of the study:

The study includes the Introduction and three chapters

The Introduction

Chapter I: Theoretical background for developing business strategies for businesses

in the market mechanism

Chapter II: The current business situation of the Vinh Son - Song Hinh Hydro-power Joint-stock Company

Chapter III: Business strategy, conclusion and recommendations

References

Appendixes

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The contents of this chapter will conduct some theoretical study to provide bases of business competitiveness, strategies of choices and process of strategy formulation This process is composed of the analysis, evaluation of external and internal business environment; the determination of strategy objectives, the establishment of strategic plans and the analysis of the most appropriate plan The applied models are: model PEST (the analysis of macro environment), Five-force model by Michael Porter (the analysis of competitive environment), “value chain” model (the analysis of internal business environment) and model SWOT (general results of strategic analysis to choose the optimal strategy)

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Since the mid-century XX, the term “strategy” has been commonly used in the field

of the macro- as well as micro-economy to build the long-term, comprehensive, basic development plans or the main orientation of the industry, sector or territory

Today, the strategy is commonly used and considered as a factor to increase the possibility of success and to minimize failure of the enterprise There currently exist a lot of different concepts of business strategy of which the following are the most

popular concepts

According to Lajred Chandler, the strategies include the fundamental and long-term business objectives, simultaneously, choosing the methods and process of action, the allocation of necessary resources to implement those objectives (Charles, Hill and Gareth, Jones 1995 “Strategic management”, Washington, page 21)

Business strategy is also seen as a collection of long-term goals, policies and solutions

of business production, of finance and human factor to qualitatively promote business

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1.1.2 Requirements of business strategies:

In the fiercely competitive economy, a successful enterprise must have the optimal strategy which must be:

- oriented and opened Accordingly, the changes of business environment need to be monitored and forecasted regularly to adjust timely the implementation of strategies

or to adjust the strategic goals accordingly in order to help the enterprise promote its competitive advantages, develop its market share and strengthen more business

power

- centralized in decision making which enable the Board of Directors or even the head

of the enterprise has a right to decide the important problems of the enterprise

- built on the basis of competitive advantages over the competitors The strategy should allow the enterprises to actively take advantage of the opportunities, strengths

to limit risks and weaknesses to a minimum It should also created favorable comditions for stable, long-term business production and continuous development

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Thus, business strategy plays an important role in the development of the enterprise It

is a basis for building plans of short-term business production, research and development, training and retraining of human resources Business strategy also creates an enterprise basis for the development of the enterprise as oriented in accordance with the fluctuation of market and production conditions, appropriate for its business strengths

1.1.3 Steps to develop business strategy

Strategic management is the process of research and forecasting business environment

as well as internal organization, establishing objectives, making decisions, coordinating the functional activities of the enterprises to carry out and inspect the implementation of the decisions to achieve the goals in the present and future (Charles, Hill and Gareth, Jones 1995 “Strategic management”, Washington, page 24)

* The strategic activities of the enterprise

In the process of building business strategy, firstly we must conduct appropriate activities of the enterprise to cope with the fluctuation of the market, with the competitors; then identify the targets of the enterprise in each stage of the development The establishment of these activities is the indispensable element in the process of the existence and development of the enterprise, especially our country’s economy is in the process of open international economic integration, so it is very important Those activities are described in the following diagram:

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Increase sales, expand

and develop mar

sources of benefit products and

quality the market

N77

Enhance the Cope with

weak points of factors the enterprise

Orient research Merge with Strategical Maintain

m a me at rival ly fields

" KG enterprises to cooperate threatened by

h to ; create with competitors evelopment, sở

* Principles of strategic options for the enterprise

- Resources of the enterprise (finance, human resources, technology )

- Diversification of products

- Product lifecycle

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- Strategies for competitors

- Market demands

* Process of building strategies

To build the feasible strategy for the enterprise, we must identify competitive advantages, strong and weak points of the enterprise Competitive advantage is a key factor to analyze the situation and build the strategy Competitive advantage is the possibility of strategic vision of business leaders, leading capacity, finance capacity, human resources, product research and development, production line and technology, system of sales network, the relationship with partners, and the adaptability to environmental changes etc

Process of building strategies is implemented through the following steps:

Figure 1.2 Process of building strategies for the enterprise

Vision of mission

——¬1 C—

Analyze - ¬¬ Analyze internal

external - Identify objectives environment

environment I - Build strategies - Strong points

- Opportunity —+⁄ - Select strategies - Weak points

- Challenge

When building business strategies, depending on the situation of business production, the enterprises can flexibly adopt different steps of building strategies The targets can

be first identified, and then environmental analysis: or environmental analysis before

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making targets; or environmental analysis and strategic objectives can be carried out simultaneously Depending on the perspective, we can use models of different strategies

* The construction and selection of strategies

Targets of the construction and selection of strategies are the establishment of long- term objectives and replacement strategies, a few of which is selected to pursue The construction and selection of strategies help the enterprises achieve its mission as well

as objectives which it set forth On the basis of current business strategy, target and mission are combined with external and internal environmental analysis to evaluate and generate support strategies

The enterprises cannot choose each alternative strategy in turn because it takes much time and is not efficient Therefore, they need to select a set of strategies supposed as the most optimal to develop It should also carefully consider advantages, disadvantages, costs and benefits which can be brought from this strategy; simultaneously, to master methods and ways of usage, especially the use of models to choose business strategy appropriate for business activities such as: the analysis of strategy in the matrix SWOT

from the outside

We have the following strategies:

- S-O Strategy: Pursue the most appropriate opportunities with strengths of the enterprise in the market (Attack)

- W-O Strategy: Overcome weak points to pursue opportunities (Competition)

- S-T Strategy: Determine how the enterprises can use their advantages to lessen

damages for external challenges (Caution)

- Strategy W-T: Establish a defensive plan to prevent weak points of the enterprise and challenges from external environment (Defense)

On the basis of strategies by a combination of elements such as strong points — Opportunities, strong points — challenges, weak points — opportunities, weak points — challenges, we use the matrix SPQM under the criterion GREAT to outline the basic features for the selection of key business strategies which the enterprises are able to

pursue:

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_ Strategies Strategy | Strategy 2 Strategy 3 | | Strategy n

Step 1: Consider, select and bring out the factors related to the development plan of the enterprise for the analysis in column 1, the list of criteria need to be analyzed (column 1)

Step 2: To evaluate the impact of factors on overall strategies, we use the impact coefficient showing the importance and the influence of factors on strategies, this coefficient is calculated by the score from 0 to 1 and the total weight is always equal

to 1 (column 2) After a certain number of variables and the importance of strategy,

we continue to move to Step 3

Step 3: In this step, we evaluate and score in each analysis factor for each strategy Weighted score range is from 10 to 50, the lowest is 10 and the highest is 50 (corresponding with levels: weak, average, above average — focus, fairly, good) This

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point of evaluation shows that strategy is likely to achieve any level corresponding with each analysis factor (column 3)

Step 4: The conversion of coefficients is the result from the product of 2 columns

(column 2 and 3) of each strategy; next, the addition of those results together and the final result is the sum of the above products We select about 3 strategies with the highest total of point to implement

1.2 Mission and strategic goals of the enterprise

1.2.1 The mission of the enterprise

Each company is established with its own mission The statement of strategic mission indicates the role, nature of the enterprise; the long-term business goals, the difference between the enterprises from the others It claims the reason why the enterprise exists The goals and business philosophy allows the enterprises to build their development orientation and to establish business targets

1.2.2 Strategic goals of the company

A strategic goal is a long-term and fundamental one, identifying orientations for an enterprise It has to be based on the functions and responsibilities of the firm but be more detailed It is important for strategic goals to focus on the following matters:

- Flexible, adjustable to environmental changes in the future However, changes need

to be made within a reasonable limit to maintain the original objectives of the enterprises

- Measurable quantitatively or qualitatively and realistic and challenging at the same time

- Consistent and synchronized

1.3 Macro analysis of the business environment

While the model of five forces by M.Porter introduces an insight analysis of factors in the industry business environment, PEST studies

influential factors of the macro environment such as:

+ Political-Legal Factors omic Factors

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+ Stability: The stability in political and diplomatic conflicts of the legal institutions should be taken into considerations Any institution which remains highly stable will

be able to create good conditions for business performances and vice versa

+ Tax policies: The policies on ex-im tax, consumption tax, income tax, etc will have

a great impact on the revenues and profits of the enterprises

+ Relevant laws: Investment law, business law, labour law, anti-monopoly law, anti- dumping law, etc

+ Policies: State policies will have a dramatic effect on businesses and they can create profits or pose challenges to enterprises Several examples are policies on trade, sectoral development, economic development, tax, competition regulation, consumer protection, etc

1.3.2 Economic factors

It is important for businesses to pay attention 0

economic factors in the short and long terms and

to the state intervention into the economy

Normally, businesses will base on economic ««„

areas and regions ⁄2

+ The economic situation: any economy will have its own cycle In a certain period of the economic cycle, the business will put forwards sound decisions

4 Factors influencing the economy: interest rates, inflation + Economic policies of the government: The law on base salary, economic

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1.3.3 Social and cultural factors

Each country or territory has its own cultural values and social background, which can

The cultural values constitute and develop a society Hence

cultural factors are closely preserved, especially for spiritua

culture It is clear that we cannot deny culture-crossing amon

nations, which will change the customer’s behaviors or livin

styles and create the development prospect for all economic sectors

The cross-culture can be recognized right in Vietnam in the recent time, especially the case of South Korean cultural influence Half of the population uses South Korean shoes, lipsticks and motorbikes Even South Korean sound track music becomes popular around the world

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Besides culture, the social features pose a great concern to businesses when it comes

to market research because they will divide a community into different customer groups with different incomes and psychologies:

+ Life expectancy, health status nutrition and eating regime + Average income, income distribution + Lifestyle, knowledge, aesthetic views, psychology of life + Living conditions

In Germany, many people with high incomes, good living conditions, good abilities and steady jobs prefer living alone and taking no responsibility for family matters or birth-giving Such factors have facilitated the development of services, clubs and goods for the singles

1.3.4 Technological factors

The world has been experiencing the technolog

revolution A series of new technologies are

invented and integrated into products and services

If computers served as a tool for calculations 30

years ago, they today have various functions whic ™

can replace a person working independently Long ™

time ago we used the camera with film-using technology, but now there is no longer any film production company for the camera Especially, modern mass media technology has helped bridge the gap of geography and transmission means

+ The corporate and state investment in research and development activities: In the decades of 60s and 70s, many countries in the world took their hats off to Japan because of its economic breakthrough, especially human factors and new technology Currently, Japan keeps the highest investment level in research in the world The

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+ The impact of information technology and the Internet on business activities:

In addition to the basic elements, presently when doing research on the market, enterprises must turn the elements of globalization into a macro factor affecting the industry

+ Globalization creates competitive’

pressures to all competitors from all the

regions The process of integration will

make the enterprises to adjust suitably

with competitive advantages, labour division in the region and the world + Importantly, in the integration process, trade barriers will gradually be removed

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Enterprises will have the opportunity to trade with partners in the remotest geographica area Their customers are now not limited in the local market but may

come from all over the world

Current P.E.S.T model has been extended into the matrixes P.E.S.L.T (including Legal factors) and S.T.E.E.P.L.E (Social/ Demographic, Technological, Economics, Environmemal, Policy, Legal, Ethical) and increasingly becomes an indispensable complete stendard when studying the external environment of the enterprise

Figure 1.3 PEST Model

Political factors Political stability Labour law Tax policy Legal system Legal environment

Economic factors

GDP change

Economic gowth rate

Interest rate inflation

Unemployment

Cycle of Ecenomy

Social factors Population, Demographics Distribution of national income Lifestyle

People’s intellectual, culture

Customs and practices

Technological factors New technology development Technology transfer

Government investment Market of technological products

Source: weisite: www.saga.vn

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1.4 An analysis of industrial environment by Michael Porter

To analyze the environmental sector, Five-force model by Michael Porter is the best tool to use This model refers to 5 forces which can bring the opportunities or threats

for an enterprise in the sector, including (1) suppliers, (2) current competitor, (3) potential entrants, (4) customers, (5) substitutes The interaction among the five forces

creates the opportunities and threats for the enterprises in the industry Since then, it helps the enterprises develop the competitive strategies This model is shown in Figure 1.4

Figure 1.4 Five-force mode

Supplier’s com petitors Customers’

The competition of

the enterprises in the industry

nico)

Source: Nguyen, Lién Diep and Pham Van Lam 1998 "Strategy and business

policy" Statistics Publisher Page 56

1.4.1 Analysis of the customer’s power

The customer is important for the existence and development of the enterprise All the business activities of the enterprise is to satisfy the needs of the customers In the correlation between customers and enterprises, if the customer is “weak”, the enterprise has the opportunity to increase price, to increase profits For example, Xerox held monopoly of photocopier manufacturing industry during 25 years, therefore the customers had to depend on Xerox On the contrary, the customers will

be “stronger” than the enterprises Specifically, if the customers buy in bulk, and have

a lot of choices, self- supply materials for themselves with the low cost rather than to buy out , the customers can choose the best supplier on the basis of price, response

time, after-sales service etc

Thus, if the power of the customer is low, the seller has a chance to make more profits On the contrary, if the power of the customer is high, the seller has the risk of profit declines

1.4.2 Analysis of the suppliers’ power

In the process of business, the enterprises need to have input materials such as: raw materials, labour, finance etc These suppliers influence profits of the industry through price and quality of goods they supply The suppliers are able to increase price or reduce the product quality, that is, they have power over the enterprise To be more

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specific, when there are not many alternative suppliers in the markets, the enterprises are forced to choose one of them When the business of the enterprise is not important for the supplier or the supplier has the advantage of specialized products, it makes the enterprise difficult to choose another supplier When the supplier can participate into the business of the enterprise to compete directly with the enterprise, the bargaining power of the enterprise is also significant

1.4.3 Analysis of the competitors’ power

The existing enterprises in the industry directly determine the nature and level of competition as well as methods of competition in that industry If a sector has high level of competition, it is much likely to reduce price to compete, leading to reduced profits, that is, the threat to the enterprise The determinants of the competition level includes industry growth, a number of enterprises and their relative size, exit barriers, the differentiation between the enterprises’ products and the customers’ switch cost

If the industry is growing rapidly, each enterprise can develop without the market share of the competitors, which means the competition level in the industry will be less stressful Conversely, if the industry develops slowly or decline, the growth of this enterprise will be the decline of the other enterprise Thus, the competition will

become severer

If the industry is small size and composed of many small-and medium-enterprises operating independently without any market leaders (e.g.: milk, toothpaste), the competition level may be high Therefore, the enterprises mainly compete in price, thus, make low profits This structure will create more risks than opportunities for the enterprises On the contrary, when a large industry has a small number of enterprises,

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value of recovered assets

If the products in the industry are the same and the customers easily switch from this enterprise to another without cost, the customers will be sensitive to price and demand for product are very elastic In such situation, the level of competition is high Conversely, if the enterprises produce significantly different products, and the customers have to pay the cost of moving from this enterprise to other, the demand is less elastic and the competition is less stressful

1.4.4 Analysis of potential entrants’ power

Potential entranis are the ones who may choose to enter the industry This is a threat

to the existing enterprises because the competition may be increasingly fiercer with the shrunken market share When profits are split, enterprises’ status in the industry will be changec This threat is determined by “the difficulty of the entry barriers” If the entry barrier is high, the threat from potential competitors reduces and the enterprises hav: the opportunities The determinants of entry barriers include the economies of scale, the differentiation of the products and loyalty to labels, distribution chainels, and absolute cost advantages

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If the economies of scale are significant, a new enterprise will determine whether it produces at a small scale to bear high price or take risks to produce at large scale, huge investment

If the existing enterprises have been able to develop customers’ loyalty with their products, the new entrants will have to invest into advertising, sales promotion to seize loyalty gradually If the entry fails, the enterprises will lose that investment

If the enterprises have absolute cost advantages, the enterprises in the industry can reduce their price to such an extent that the new entrants cannot survive Some sources of absolute cost advantages are technological monopoly, experiences, patents

or technological secrets because of low input costs and management skills

1.4.5 Analysis of substitutes’ power

In the rapid development of technology nowadays, the product lifecycle is increasingly shorter The risks of substitutes are very high According to Michael Porter, substitutes are the competitors’ products in other business which have the same function to satisfy the customer’s needs For example, the enterprises in coffee sector indirectly compete with the tea and beverage enterprises If substitutes are manufactured in the line of new technology with lower price and better quality, it is really a threat to the enterprises However, if the customers have less effort to seek

substitutes and do not like switch, the threat of the substitutes will decrease

Therefore, if the competition level of the substitutes is low, the enterprises have the opportunity to earn more profits On the contrary, if the competition level is high, the enterprises have risks to reduce profits

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1.5 Analysis of the internal environment

An organization is a unified regime of incorporated sections The enterprise is also constituted by the functional sections with the relation of organic dialectics Due to the relation of organic dialectics, each section has an impact on the success of the enterprise During the process of internal evaluation, the mission of the strategist is to find out strong and weak points in the operation of business sections

The analysis of internal environment is to identify strengths and weaknesses of an enterprise in order to set relevant objectives and appropriate strategies aiming at taking advantage of strengths and turn it into special abilities On the other hand, they

can constrain weaknesses To analyze the internal business environment, Michael

Porter’s analysis techniques of “value chain” are used

Figure 1.5 Model of value chain by Mchael Porter

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1.5.1 Primary activities

* Production process

Production is the process to create products and service for the enterprise This is one

of the key activities which has direct impact on the success of the enterprise in general

as well as the other activities in particular For instance, if the products are manufactured with good quality and lower price, the marketing department will have more chance to sell more, which gradually faster the circulation of capital increases The main factors of production process that need to be analyzed are:

- Production capacity

- Equipments and production technology

- Supply of energy, raw materials, and spare parts

- Rationality in the process of production

- Quality management and quality assurance conditions

* Customer service

The role of customer service in a company is to provide after sales service or support This function can create the awareness of superior value in the mind of customers by solving the customer’s problems and support service: product information; the careful instruction of the product usage etc

1.5.2 Support activities

* The system of collection and information process

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When evaluating information system, we will consider aspects such as sufficiency, reliability, timeliness of information, and advance level of the system Information is currently considered as the blood of the company

* Human resource management

A reasonable organization is an organization with a unified command, leadership, but without overlapping, inconsistency in the order, and disorder in the information system

* Research and development

Research and development (R&D) can make production process more efficient, thus, lower production cost The superior design for products can increase the attractiveness

to customers Therefore, R&D activities in the enterprise are important to create value In the context of the rapid development of technology and science, R& D helps

the enterprises timely grasp the technical advances for business activities

*Inputs management

Inputs management is the management process from purchasing to production and

distribution

* Accounting and Finance

The quality and business efficiency, safety and business stability are reflected through financial targets Therefore, the enterprises must appreciate the analysis of their financial targets Specifically:

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- Debt repayment capacity: Debt repayment capacity is the ability to repay due debts

of the enterprise It reflects the economic efficiency of the enterprises Debt repayment capacity includes the ability to repay short-term and long term debt

- Capital turnover time: Capital turnover time shows what the business capacity, level

of business management, effective use of capital and resources are like The indicators are used to analyze the pace of capital flows, namely, speed of inventory tlows; speed

of selling cash recovery; speed of liquid assets flows, speed of fixed assets flows; speed of the whole property flows

- Business profitability: Profit is an important business objective of the enterprise or

the basis for the survival and development of enterprises It is the issue which business owners, creditors, managers are very interested in Therefore, the analysis of profitability is an important part of finance analysis, the basis of the evaluation of business management level

Therefore, the analysis of internal affairs is to identify competitive advantages of enterprises Simultaneously, we also recognize the difficulties to sustain competitive advantages In other words, the analysis of business internal affairs is to identify strengths and weaknesses of the enterprise On the basis, the enterprise can exploit strong points and overcome weak points in order to increase the enterprises’

competitiveness

1.6 Basic business strategies

As shown above, the enterprise should be able to form its own competitive advantage

If organized reasonably, the enterprise will be allowed to gain top position in attracting customers rather than competitors The stages or the routes of competitive

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advantages implemented by each enterprise are different, for example, the best quality product, the best customer service, the lowest cost, resources focused on market segments etc Whatever to choose, the crucial thing is to help customers feel superior value compared to whatever competitors offer

Although there are many different business strategies, there are 3 basic approaches to create competitive advantages, namely: cost leadership; Differentiation; Focus

To build competitive advantages, the enterprise can choose 3 common strategies, that is: Strategy of Cost leadership; Strategy of Differentiation and Strategy of Focus

Differentiation

management Sales & Marketing

Cost Leadership | Product Differentiation Focus

| Product Low High Low to high difference (mainly by price) (mainly by the unique) (price or the unique)

a Low Low

Market High

Segment (many market segments)

segment) segments) mm" ; Manufacturing Any capacity to

create the differentiation

1.6.] Cost leadership Strategy

The purpose of the enterprise to pursue low cost strategy is to operate better than the competitor by producing goods, service with lower cost There are 2 advantages:

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First, because of lower cost, the enterprises can offer lower price than the cornpetitors but still gain the same profit as the competitor If the competitors in the indiustry reach the same values for their products, the enterprises can gain higher

profit because of its lower cost;

Secondly, if the competition in the industry increases and the competitors begin to compete in price, the enterprises will be able to withstand because of their lower cost adwantage

The enterprises pursuing lower cost strategy will be less affected when the suppliers increase price and when the customers require a discount On the other hand, the enterprises with low-cost often have a large market share, much purchasing power, so the›y have right to bargain with the suppliers

Thee enterprises with low cost create penetration barriers to potential competitors The enterprises complying lower cost strategy will be relatively safe until they are still maintaining its cost advantages

1.6.2 Strategy of differentiation

The purpose of differentiation strategy is to achieve competitive advantages by the cre:ation of sroducts and service perceived as uniqueness by the consumers When the enterprises satisfy the customers’ needs for uniqueness the enterprises can offer higsher price than the industry average Consequently, it will gain higher profit than the: average which the competitors do On the other hand, the creation of products and service wit) different properties bring new value for the consumers Strategy of

differentiation is used when the market is shown as follows:

- The market is less sensitive to price

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- Demands of consumers are different

- It is easy to make the difference for products rather than other products in the market

- When the enterprise avoids confrontation with price leaders

With strategy of differentiation, the enterprise is able to create competitive advantages over the competitors and increase profits

1.6.3 Strategy of Focus

This strategy is different from the above strategies, that is, it is oriented to serve for the demands of a limited consumer group or market segment Pursuing this strategy, the enterprises should attach importance to a particular market segment defined by

territory, customer, or a branch of product line

When the enterprises choose a segment of market for themselves, they can carry out strategy of Focus or Differentiation or Cost leadership

The enterprises pursuing strategy of Focus have impact on a certain segment of market where the enterprises can avoid competitive pressure of other enterprises in the industry because the enterprises in the industry do not pay attention yet or do not want to exploit limited resources or potential of this segment is not really great Moreover, production of small chains allows the enterprises to improve more rapidly

and more efficient

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CHAPTER II

AN ANALYSIS OF CURRENT SITUATION

IN VINH SON-SONG HINH JOINT STOCK

HYDRO POWER COMPANY

2.1 The current situation of Vinh Son - Song Hinh joint stock hydro power

company

2.1.1 Overview of Vinh Son - Song Hinh joint stock hydro power company

* The process of formation and development of Vinh Son - Song Hinh joint stock hydro power company

Joint Stock Company Hydropower, Vinh Son - Song Hinh is the precursor of Vinh Son Hydropower plant belonging Electricity Company No III It was built on September 15, 1991 Factory was put into production and linked to the national grid

on April 12, 1994 With a capacity of 66MW and an annual electricity output of 230 million KWh, Vinh Son - Song Hinh joint stock hydro power company is the first electricity plant which has large scale in the central and Central Highlands, contributing to meet the electricity needs and provide stable quality electricity for the national electricity system By the end of 2000, Vinh Son plant produced 1.880 billion kWh, the average yield reached 310 million K Wh per year, increase more than 35% compared wth the designed capacity Especially in 1999, the production reached 419

K Wh which exceeded all expectations in the design

In 1999, Electricity of Vietnam (EVN) assigned Vinh Son hydropower plant the task of managing and operating Song Hinh hydropower plant in order to improve managemen: efficiency of the electrical system and make full use of the experience accumulatec in electricity plant management by the management team of Vinh Son Plant Since July 2000, Vinh Son Hydropower Plant was renamed as Vinh Son - Song Hinh Joint Stock Hydropower Company It has four operating units providing over

600 million «Wh power to the national grid annually

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Vinh Son - Song Hinh Joint Stock Hydropower Company consists of:

¢ Office: 21 Nguyen Hue - Quy Nhon City, Binh Dinh Province

¢ Vinh Son hydropower, located northwest of Quy Nhon city 120 km, Vinh Son-Vinh Thanh district - Binh Dinh Province

¢ Song Hinh Hydropower located southwest of Tuy Hoa town 45 km, Thanh Son town-Tuy Hoa district- Phu Yen province

- The plant has function of managing the operation, supplying electricity to the national electricity system irrigating for 450 hectares in the iower section of Kon Binh Dinh Province and irrigating 4,000 hectares for the lower section of Tuy Hoa district, Phu Yen province

In November 2003, according to the Decision 219/QD-TTg on October 28, 2003 by the Prime Minister on approving the restructuring of state enterprises, under EVN period 2003 - 2005 and Decision No 2992/QD-TCCB of the Ministry of Industry on privatization of Vinh Son - Song Hinh hydropower plant, Vinh Son - Song Hinh hydropower plant had to be privatized in 2004 On February 12, 2004, the Ministry of Industry issued the Decision No of 151/2004/QD-BCN on transferring Vinh Son - Song Hinh hydropower plant into Vinh Son-Song Hinh Hydropower Joint Stock Company This marked an important transition during the operation of the plant

On May 4, 2005, the plan officially operated in the form of joint stock company with a new name Vinh Son-Song Hinh Hydropower Joint Stock Company under the business registration No 3503000058 issued by Binh Dinh Department of Planning and Investment on May 4, 2005

1 Name and address of company

- Company name: Vinh Son-Song Hinh Hydropower Joint Stock Company

* International transaction name: Vinh Son-Song Hinh Hydropower Joint Stock Company

* Abbreviated name: VSH

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* State shareholder (EVN): 750 billion (accounting for 60%)

* Employees sharehoiders: 62.5 billion (accounting for 5%)

* Outside shareholders: 347.5 billion (accounting for 35%)

¢ Production and trading of electricity

¢ Provide management operation and maintenance of hydropower plants

¢ Provide consultancy in project management and supervision of construction of hydropower plant projects

e Experimental electricity

° Trade materials and equipment in the field of hydropower

¢ Investment in construction of power projects

¢ Real estate

2.1.2 Organization of production and management

* Human resources of Vinh Son-Song Hinh Hydropower Joint Stock Company

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Type of employees — Percentage

male | female | total