G1_00158 FORMULATION OF BUSINESS STRATEGY FOR PETROVIETNAM IN THE FIELD OF OIL AND GAS EXPLORATION AND PRODUCTION FOR THE PERIOD OF 2010 - 2015

G1_00158 FORMULATION OF BUSINESS STRATEGY FOR PETROVIETNAM IN THE FIELD OF OIL AND GAS EXPLORATION AND PRODUCTION FOR THE PERIOD OF 2010 - 2015 XÂY DỰNG CHIẾN LƯỢC KINH DOANH CỦA PETROVIETNAM TRONG LĨNH VỰC THĂM DÒ VÀ KHAI THÁC DẦU KHÍ GIAI ĐOẠN 2010 - 2015

CAPSTONE PROJECT REPORT

Group No: 05 Student’s name:

1 Dang Thu Thuy - Leader

2 Tran Quoc Binh

3 Do Thi Mai Huong

4 Dinh Khac Tung

Class: GaMBA01.N03

HANOI, 2010

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We here by commit that the content of this Capstone Project Report is the outcome of our own research work that has not been submitted to any other training programs

We also commit that the data used in this research work are real Results, analysis and conclusions in this capstone project report (not including quoted parts) are the outcome of our group’s own work

SIGNATURE OF GROUP MEMBERS

1 Dang Thu Thuy

2 Tran Quoc Binh

3 Do Thi Mai Huong

4 Dinh Khac Tung

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We would like to express our sincere thank to the Center for Educational Technology and Career Development — Vietnam National University, lecturers and cadres of the Department for their whole-hearted teaching, guiding and creating conditions for us during our studying in class GaAMBAO1.N03 and finishing the

course

We also own a debt of gratitude to the teachers for their enthusiastic and

responsible teaching and guiding during the process of learning, studying and completing our graduation research paper

We are grateful to PetroVietnam for creating favorable conditions and helping

us carry out this graduation research paper

Thank you very much!

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INTRODUCTION: SG G co Họ Họ ọ Ọg 00.0000 00400800080080.06 080 589990084 1 1l; "THỂ SH EqacdddoiidqdGi4G06008H690338-s044G886xtadxi646sssuảsg l 2; REASONS for CHOOSING Ihe SUDIEN sscssiscccssnnccinnunncunuaieaanmmmeanasiass l S- PDTDGSE 0E TESEHECT ga nggvudoeoaaoodtoeialssdvoibš994514k092440GM4438506439G4REEG24GS942N2Ng8 l 4 COjCCt and SCo pe OF TOSCatG sss cscs cisscscsssssisceussscimemmsiarianwnsnmnanens l S, Methodsof torplerientines TRSCa 000 cxccinsssseniccneninencceniunceneunesnnaneneienennancaanss 2

6 Structure of the SUDJ€C - - Ă S133 0v 39x ng ng 0g 3

CORPORATE STRATEGY FORMULA TIONN o5 G5 5555555552 4 1;] STRATEGY ANDBUSINESS STRATEO qua 4

1.1.1.1: Coœn6epiLidà SH GV coecseccoaiinioiikiogiotsavioodinoeorixdsgy60uás0u/66606642496660/666á6 4 1.1.1.2 Main characteristics of business strat€gY 5< Ă S2 5 I.1.2 Business strategy and strategic sel€CfiOT\ - - - -Ă G5 1 3 vn 6 1.1.3 Significance and role of business strategy .sscsccassscssocsccrsssssssascsssesesonscsees 6 lái TYUEW01 GHŒGEBIESGsouddggtddgdadaoiitesegsisdsbs0040406g18600x2GiGiaic4@(Gi46i0013ã@ s0 7

12 PROCESSORF STIEATEGT EORMULUA TH NN ecaaeanaaoeeoiaeaoaoaoades.y.Zae 8 1.2.1 Mission, vision and stratemie OB CCtiVGS cciséscciics scecccesieescavescssssvsssscnvonsevnssessecarenen 9 2k ‘Strate OD CCH V Os cesscrssnssnccencsanennnancnenionncaasiniennamesmomensneucanssccunmwennnccnaniees 12 1.2.3 Analysis of external environim€nI - - «<< «1s 13

1.2.3.1 Analysis of macro-environment - PEST analysis (Political — Economic — Social ~ Technological) sscssscccinnaniannnmunmnmnananess 14 1.2.3.2 Analysis of micro-environment (industry environment) 18 1.321 Aiilysis:01 irternill@RVHTOHHHEHE coi sceoioobnidtdinSS0014620G4g05866400340036e51488236400/8.02 22 12:5 (J1 HIHEEÍX: so: coinncntnsiskg00na00.02G0Láaa82/8605004a5601E6661/0004i/6061.0/ã468033618650/50543663.50819g440/068 26 1.2.5.1 General theory Of SWOT csacceceeoridiiiiotdiiiiiGLG0100/06001660503615640/066606016644/8606 26

Lá 22 CV K24 TYHEĂTT aeesvesuttbethdiiukgiecbE46/00001-0480003002001004049011195000800944000006010600016010168/042 26

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1.2.6 Quantiflying matrix with GREAT CTIL€TIA 5 2S SH 27 1.2.7 Strat€BØIC ODẨIOTNS - - -Ă Q HH nọ Họ 29

1 2.7.1 COSt ERDEENID SE EŸ ga gato cao S606 guaas 30 1.2.72 Product differentiation SWate sy csssiessicssiccmncsrsncmnnnwncamaness 30 L221 3 POOUW DIPNHOV (ocotoboaynAGbAg0000091000445556666050185691018S5/000941057344520655586012 064646 3l

CHAPTER 2 - BUSINESS PERFORMANCE AND SELECTION OF

EXPLORATION AND PRODUCTION OF PVN FOR THE PERIOD OF BULO=20 TS acsorcccnexnoenersnedsavsanesnannnssentvinstncnithventsttanisnsl shisartove snsssbabasasbennsunbiebsticesesienonieshibe 33 2:1 AN OVYERVIEW OEPVH4@qqqQqQqddttqtqqtutqtiaoaaggsaddssgg 33

2.1.1 Process of formation and developmient Of PVN ssisssssssisscssssisscnscscsvcvecessssccussescsss 33 Jel Lok Gieneral HYOQUCU[OIseocuiccoiiisGEiG00156661646316656366600165044G1038 66050666652 33 2.1.122 Petrovietnami:s DHSIHNS ‹uscooeiniocnnioinnovboepoiaiotiiseoabV0/6666061086696646500100556 35

2.1.2 Preliminary assessment of PVN's production and business outcome 35 2.1.3 Evaluation of the business results of PetroVietnam in the field of oil and gas EXPIOTALION ANG PPODUCHON ssssssscssssscesssccssccsccsescvecavsenasescadeseensavasenuaaenaniaenstemeananebeaeeies 37

2.1.3.1 Brief introduction of oil and gas exploration and production a7

2.1.3.2 The role of the upper phase for the oil industry - - -««« << 39 2.1.3.3 Operations of oil and gas exploration and production - 39 2.2 FORMULATION OF BUSINESS STRATEGY FOR PETROVIETNAM IN THE FIELD OF OIL AND GAS EXPLORATION AND PRODUCTION FOR THE PERIOD OF 2010 - 2015 &qaqddgdgdgaadaaidoaoadoaiattdgadbosiiat@dqaaes 47

22:1; Analysis Of iề extEiiial EfviTOHIHEToegaeaiiogasbdeiosodoiliSi25ascgti0A6661048043s06038 48

2.2.1.1 Analysis of macro environment - PEST Model . - - 48 2.2.1.2 Analysis of industry environment — The model of five forces of CURE Tin Ey OT thuuuaarasarotttritttotrotuitt0041000001061150008g66000f310/6006005000600150084080806046700800060/4 04 68

2.2.1.3 Summary of the results from external environment analysis đc 2.2.2 Internal Environment AnaÌYS1S - - << Ă Ă S313 ngu T7

2.2.2.1.FInancial Ñ€sOUFC€S - - - Q G3003 9 vs 78

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ZAZA TOCHMNCA 'LECHHDIOB soubsooasodoiediida0160621483466345V360385353G000144604635402004686 80

222.5 information and Forcast SYSt0i sccccscscsssscscssccsrsssssccssnsnsssrocsnscsarsssessass 81 2.2.2.6 The structure of organization and managemen( - -«- ««- 82 dxiu6¿/-£SEWITG, TIRTNERNG GOCDORE GUÍHHW sxseedseeeeeoseeoetekooiedeseeeosdtionbiessobbteteesoesie 83 2.2.2.8 Production QQuaÌity - << 3 ng vn 83 2.2.2.9 Sumary of the result from Internal enviroment analysis 84

2235S WOT Mime cssccsccs iG AAAS 88 224: SUES ODUONS wcsccciinnmncmnnmnan 10830640001225201869440934543455846340831004 v86 90

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2.2.4.2 Quantiflying matrix with GREATT crit€ria 5< << s<<<2 90

2.2.4.3 Straf€ØIC ODIOTNS - ĂQ G Ăn vn 9]

STRATE GUESS isicesssciesissasacecsvceisessitavcessachisanennisscustausdissnansinacsssssniasivaviveavaneaniveateioneses 93 3.1.DEVELOPMENT TARGET OF PETROVIETNAM BY 2015 93 3.1,L VIẾWOItEOE DEVEÏGDIDEuoeoeeeoaiekenoiinl02416666100665656686659636696380260056 93

3.1.2 Development targets ciscsnisssescccsssasnssivcennsvensonumiscamnssvuenancaevannnsnsnevaneanesvconannasevens 94 3.1.3 The development Orientation of PVN by 2015 . - ĂĂ sex, 94

NH1 N1 xua áxeaeaiiosoeiGGabis 94 3oi23:2.Á/!) ấNG GGAE FORD touudaaduidrutGoataGGGGegrdilajiigialew@eseasga 94

3.2 SOLUTIONS FOR IMPLEMENTATION OF STRATEGIES 97

3.2.1 Core strategies: raising the level of Science and technology transfer aimed at increasing productivity, increasing the oil and gas exploration coefficient and expansion of market for oil and gas exploration and production abroad 98 3.2.2 The strategy to develop high quality human resources, improve labor

remuneration in order to enhance competitiveness and international integration 100 3.2.3 Strategy 3: To increase financial competence, to attract foreign investment to

survey and exploit oil and gas in the process of international integration Measures

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to enhance financial ability in the field of exploring and exploiting oil and gas are as

THÍ ĐỂ ưa gqgaGGGGUA GGGGG4GH|QGGSIHGGGRSGGQHGNGMNGGIGAQINGGSdR@@sgaAqqanagsg 102

3.2.4 Strategy 4: To improve management structure of the Group in the field of exploring and exploiting to enhance competitiveness Measures for management of petroleum exploring and exploiting Operations: csicissccssssssssssccsssecsescesuverasssenanssossessens 103

3.3 PLAN FOR IMPLEMENTING STRATEG Y .- -ĂĂ S13 seeeeeerxe 104

3.3.1 Route for implementation Of SfrAf€fV - - Ă Ăn ng ng vn 104

TỐ T111 106i 6oGG0GxóasdGiA6sssebsesesosOcesessoosroilg de 104

3.3.3 Risks in the process of implementing strategy and measures to cope with 106

34, TO PETITION SUPPORTING MEASURES siisscsisscccsersacsnmennasonaereaiins 107 3:5 LIMITATIONS OF RESEARCH scssscsssisssssosenssvsessasensegusansecesnesseesnecaivesenseavenssanns 107 3.6 CONCLUSION can tieekiindigigintiiiiiiatio66160156600190006060566756056686600503534008500u89i065 109

RE 111 Go cÀŸaessseas=eseaennanssssaaasnsnssmaeenenaadErssenassouonernanseiin 110

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ASEAN Free Trade Area Asia-Pacific Economic Cooperation

Association of Southeast Asian Nations

The Asia-Europe Meeting Big, Hairy and Audacious Goals Conference of European Posts and Telegraphs

China National Offshore Oil Corp

China National Petroleum Corporation European Community

Gross domestic product Gain, Risk, Expense, Achievable, Time Incremental capital output ratio

Inernaional Monetary Fund Korea National Oil Corp Oil Natural Gas Corp Organization of Petroleum Exporting Countries Petroleos de Venezuela, S A

Political- Economic- Social- Technology Model)

PetroVietnam (Vietnam Oil and Gas Group) Research and development

State Bank of Vietnam China Petroleum & Chemical Corp Competitive Strategies combining Strengths and Weaknesses

of Company (Strengths-Opportunities)

Competitive Strategies combining Strengths and Threats of

Company (Strengths-Threat)

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SWOT Strengths - Weaknesses - Opportunities - Threats Matrix of

Company (Strengths - Weaknesses - Opportunities - Threats)

WO Competitive Strategies combining Weaknesses and

Opportunities of Company (Weaknesses-Opportunities)

Company.( Weaknesses -Threats) WTO World Trade Organization

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LIST OF TABLES AND FIGURES

CHAPTER 1 Figure:1-1: Process of Business Strategy Formulation scisesssssvssssssscenvsnssrevexcssonsavesseversonens 8

Figure 1-2: The model of three-level analysis of external and internal environment 13 Figure 1-3: The five forces of competition model by Michael E Porter 18 EiEiit 1-34: Yalue Chấm NHŨ ao egdudaddadadpesccciocbdboxoosuilidagssaiigg 23

Figure 1-5: Diagram of Crossing-functional targets and the value chain 24 TaDlE I-6: SWO | MINHTEoaeaoaawdaaagduidiotdoseiosagi00101030604434660005814490101181006134683865410Avd642 26

Table 1-7: Quantiflying matrix with GREAT CTIETia cc con c2 2Ÿ ccsee 27

Table 1-8: Summary of options suitable for each strategy .- «<5 <<<<+ 28

CHAPTER 2

Table 2-1: Main targets of production and business activities of PetroVietnam for

thé period OF 2010 — 2005 sccsicsssiinccrannnnnimmmnnicnnmmnaanminennnmmmanauns 35

Table 2-2: Stages of oil and gas search, exploration, production .- 37

Table 2-3: Output of oil and gas exploration in the period of 2001-2005 39 Figure 2-4: Output of oil and gas production in the period of 1986-2005 39

Figure 2-5: Total output of oil and gas production from annual oil and gas contracts 40 Table 2-6: Total revenue of lots of annuaÌ confraCfS - «<< Ă «33x 40

Figure 2-7: The ratio of investment funds/revenue in the period of 2000 — 2007 4]

Table 2-8: Investment in oversea exploration and production of oil and gas in the

POTION GF 200 Le ZOO F tong nagoanooogandaaGiitokisxosss(ays1944034669565483666019756480963599X933601g669 5448 0k6 4]

Figure 2-9: The proportion of investment capital/revenue from exploration and production in foreign: countries by: the end OF.2007 cencncessssnencexssexnonevnveneersmareremnnisencerse 43 Figure 2-10: : Annual implemented investment capital for oil and gas exploration

Table 2 - 11: Results of investment in oil and gas exploration in years of 2008-2009 45 Table 2 - 12: GDP growth rates of Vietnam from 1999 - 2009 - 5+ +<ss «2 50

Figure 2 - 13: Budget deficit in the period of 2005-2009 seissssscssscssssssccscasscsccacassnsserenass 52 Table 2 - 14: Imports-exports turnover of Vietnam in the period of 2006-2009 53

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Table 2 - 15: Classification of the degree of impact by factors on PVN 61 Table 2 - 16: Assessment of Threats to PVN HH HH HH 64

Table 2 - 17: Basic properties of the Bach Ho crude oIÌ .- - «s5 «« «<< >xs 70 Table 2 - 18: Sorting and ranking the strengths and weaknesses of PVN 73 Table 2 - 19: Sumary Analysis of internal environm€r( .- - - - -<- «55s << «<<+ 73

Figuire2520:-S W).} Analy SIS ccsecassaosnnncrnnannascnencnasvcnroncucussreasnesssnnevsnueenmancninesssnnass 75 Table 2 - 21: Matrix of strategic option (GR.EA TT) .- <Ă Ăn ee 77

2 Reasons for choosing the subject

In any enterprise, the designing of operation strategies is aiming at orienting the enterprise to get the soundest step to adjust its operation In the mechanism of the market economy, the formation of a suitable business strategy has an especially sgnificant implication; it helps the enterprise soon achieve business development

goals The effective implementation of business policies and strategies will help the

enterprise develop sustainable

To be prompted by that reality, we have chosen the subject: “Fomulation of business strategy for Petrovietnam in the field of oil and gas exploration and

production for the period of 2010 - 2015”

3 Purpose of research

The subject systematically collects the theoretical bases on business strategies to serve the research and building business strategies for the company Analyzing the impact of business environment on financial trading activities Well recognizing the opportunities and challenges, strengths and weaknesses of the

enterprise

From that, we have mapped out the measures on necessary business

srategies to enhance the effectiveness of specific business strategies for PVN

4, Object and Scope of research

- Object of research is the business strategy of PVN

- The scope of research is the field of petroleum exploration and production for the reriod of 2010 — 2015 As this is a relatively large and complicated field which

r:quires a lot of time and efforts to research and understand, due to limitation of

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time and experience, within the scope of this capstone report, we only focus our research on the activities of crude oil exploration and production at domestic and

overseas oil fields of Vietnam Oil and Gas Group (inputs of products), not going to research the trading activities of crude oil products after being extracted from fields (outputs of products)

5 Methods of implementing research

The subject uses following methods:

- Comparing, analyzing and generalizing: analyzing the data, comparing over periods then generalizing to give comment

- Analyzing SWOT matrix: the technique is used to analyze and process the research’s result on environment, helping the enterprise formulate a strategy scientifically, etc

- Statistical method: collecting statistics from tables and charts and

drawing out conclusion of trends to evaluate the operation situation of the

sector and the enterprise

- Method of survey analysis: using questionnaires in combination with

interviews based on the information in the questionnaire The group has

carried out the survey on five leaders of the PVN Group and its member units, twenty relevant stakeholders including staff, customers, and competitors, foreign contractors in investment or cooperation projects with PVN The assessment is made through comparison points (on the point scale of 1-10), then the arithmetic average method is used to convert into the scale of 10 where the unit getting the highest points is

assigned 10 points and followed by descending order on average The

surveyed experts are 5 leaders/former leaders of PVN and 25 experts being customers, partners of PVN in oil and gas bidding

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6 Structure of the subject

Apart from the introduction, appendix and associated tables, the structure of the subject consists of three chapters:

Chapter 1: Funamental theoretical base for corporate strategy formulation

Chapter 2: Business performance and selection of business strategies in the

filed of oil and gas exploration and production of for the period of 2010-2015

Chapter 3: The measures to implement the selected strategies

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CHAPTER 1: FUNDAMENTAL THEORETICAL BASE FOR

CORPORATE STRATEGY FORMULATION

AacArthur mentioned and written about strategy from different perspectives The

asic theory of strategy is one party can suppress the opponent, even stronger

pponent if they can lead the battle and entice the opponent to the battlefield which

s favourable for the deployment of their capabilities

Since 1960s, strategy has been applied in business area and the term “business

trategy” came into being In business world, opponents compete with each other in

n industry environment toward a targeted market segment and efforts to attract

iustomers The outcome of competition reflects in the achievement of each :pponent in the market where customers acknowledge the success of each ipponent

There are many definitions of strategy which raise some different points based

m various perspectives of each author

According to Alfred Chandler — a professor from Harvard University™ in

962, “Strategy is to define long-term fundamental goals and objectives of a

ompany, the deployment of a series of actions as well as allocation of necessary esources to achieve those goals” (Chandler, A (1962) Strategy and structure

‘ambridge, Massacchusettes MIT Press)

By 1980s when the subject of strategic management had become popular,

ames B Quinn (Quinn, J., B (1980) Strategies for Change: Logical

’ http:// www.news.harvard.edu/gazette/2007/05.17/27-chandler.html (June, 10, 2009)

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Inscrementalism Homewood) from Dartmouth University defines “Strategy as the model or plan of an organization to integrate steering goals, corporate policies and

priority order of actions in a unified entity”

Johnson and Scholes later redefined strategy in an environment of many quick changes: “Strategy is the long-term orientation and scope of an organization to gain competitive advantage for the organization through the identification of its resources in a changing environment in order to meet market demands and satisfy expectations of relevant parties” (Johnson, G., Scholes, K (1999) Exploring corporate Strategy, 5th Ed Prentice Hall Europe)

In addition to these conventional concepts of strategy, many business

organizations view strategy in a new way: Business Strategy is the plan to control

and deploy resources, assets and finance into improving and ensuring essential benefits of an organization According to Brace Henderson, a strategist as well as the founder of Boston Consultant Corporate “Strategy is the prudent search of an action plan to develop and combine with the organization's competitive advantage The difference between you and your opponent is the base for your advantage”

Regardless of the way you define and view the concept of strategy, a strategy

of a company has 3 most common features as below:

- Establishment of long-term goals of the company;

- Establishment of overall action programs;

- Establishment of action plans, action methods and resource allocation in order

to implement goals of the company

1.1.1.2 Main characteristics of business strategy

- A business strategy must clearly define the key goals to be achieved and business orientation in specified periods

- The orientation of a strategy is to ensure the continous and sustainable

development of the business in a constantly changing business environment

- A business strategy must ensure optimal mobilization and full production of

the firm’s resources like manpower, capital, technique and technology; and

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ensure that the firm's advantages are promoted and opportunities are grasped

to gain comparative advantages in the market

- Business trategies must be reflected in a continued process from development

to achievement, assessment and review, and adjustment of the set goals

- Business strategy always aims to attack and win in the business market

- A business strategy is often built for a long period of time (3, 5, 10 years)

1.1.2 Business Strategy and strategic selection

Definition of business strategy: is the orientation of business activities having targets in the long run in parallel with the systems of policies, measures and resource allocation to realize the goals of the enterprise in the same period

Business strategy of an enterprise is a general action program aiming at realizing the enterprise’s goals Business strategy only creates a framework to guide the thought on the orientation to do business and to act

As collected, business strategies can be classified into three groups:

- Group1: Regarding business strategy as an art, for example the art to generate business advantages;

- Group 2: Considering business strategy as a special kind of plan, for example, Some definitions like “business strategy is the route and the mean to reach the goal” or “business strategy is to determine the long-term goals”, etc;

- Group 3: Viewing business strategy both as an art and kind of program to

realize strategic and long-term goals It is the ensemble of policies, programs,

projects and plans

From the above-mentioned definitions, we can see that their common feature

is business strategy of an enterprise needs to have target orientation, long-term

character, initiative thought and needs to be implemented in a systematically

calculated process

1.1.3 Significance and role of business strategy

In the market mechanism, the crafting and executing a business strategy plays an important role in the existence and development of a firm Business

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strategy is viewed in the first phase of firm establishment as the steering wheel that takes the ship to overcome all obstacles to get to the right destination Business strategy can also be compared to the wind that helps the skate fly over and over

The role of business strategy manifests itself in the following aspects:

- Business strategy enables company to clearly identify its business goals and

orientation for the future, directing and guiding all activities of a company

- Business strategy also assists the company to catch and take advantage of business opportunities, and proactively take measures to overcome the risks and threats in the competitive market

- The development of business strategy contributes to improving the efficiency in resources utilization, strengthening competitive position and ensuring the constant and sustainable development of the company

- Business strategy creates the solid base for setting out appropriate policies and decisions on production and business in accordance with the fluctuation of the market It also creates the solid foundation for research and implementation,

investment, training and development of human resources, market expansion and propduct development

The crutial role and significance of business strategy as mentioned above

have emphasized the objective necessity of strategy to general management and to business management in particular in a modern economy The business strategy of

an enterprise is one of the most important factors determining its success or failure 1.1.4 Types of Strategies

Definition of strategies are not only varied in aspects but also in levels The common level-based classification of a strategy is:

- Corporate-level Strategy: formulated for the whole organization to achieve its overall goals and scopes A corporate strategy should give answer to such

questions as: Which type of businesses can maximize the long-term profitability of the corporate? Corporates that are successful in establishment

of a sustainable competitive advantage may come up with the rise of

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resources beyond its investment demand in its main industry With such corporates, the maximization of long-term profitability requires their diversification in to new business areas

- Global-level Strategy: In the context of global market and competition today,

the need to achieve a competitive advantage and maximize the capabilities of

a corporate require more and more the corporate to expand its operation to the areas Outside the country it is located The corporate should thereby pursue

various global strategies In seeking to access to the global market, a

corporate should analyze the cost and benefit of expansion to a global scale

on the basis of four different strategies (multi-national strategy, international strategy, global strategy, trans-national strategy) that corporates can accept to compete in global market

- Business-level Strategy: composed of ways to compete successfully in

specific markets, the way it positions itself in the market to achieve competitive advantage, various positioning strategies can be used in different contexts of each industry They can be cost leadership strategy, differentiation

strategy or focus strategy

- Functional strategies (or operational strategies): are strategies that help to

execute effienciently the corporate and business-level strategies thanks to components of resources, process and necessary skills With functional

strateies, we analyze their roles and the ways through which these strategies

aim at improving efficiency of the company’s operation such as marketing, material management, production development and customer services

Nowadays with the globalization trend, companies are quickly diversifying their operations to beyond the border of the country, global strategy is hence widely chosen as the key to cope with international business issues

Strategy is the outcome of a reasonable and well-done planning process with

careful arrangement The process of strategy planning can be divided into five

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major steps, including: Selecting mission and key goals of the company; analyzing external environment to identify opportunities and threats; analyzing internal environment to identify strength and weakness of the company; Selecting strategies based on available resources; Executing Strategy

Figure I-1: Process of Business Strategy Formulation

1.2.1 Mission, Vision and Strategic Objectives

The first step of the strategy planning process is to identify mission and key

objectives of the organization, which provide a context to formulate strategies

RIGGS) carmaor nos

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is a statement demonstrating the useful role of the company to the society The mission statement of a company should meet the following requirements:

- Ensuring the concensus within the company;

- Establishing the foundation to mobilize resources of the company;

- Creating favourable framework and atmostphere for doing business at the

company;

- Being the centre for orienting the concensus and efforts of company’s members;

- Facilitating the conceretization of objectives and the formulation of

strategies and operational measures for the company

Normally, the mission of a company is determined right at its establishment

I: exists along with the process of company management and can be adjusted or

changed in accordance with the change in functions or duties of the company

A mission statement of a company is usually made up by nine components as

- The company’s interest in the community;

- The company’s consideration extended to its labour force;

A company’s mission statement maintains its value during the whole life of

tie company if there is no change or adjustment However, it should be concretized lito strategic objectives appropriate with each strategic phase

1) Vision

10

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A strategic vision represents the highest and overall desire and aspiration that

a company wish to achive It can be viewed as road map showing the company’s future destination and the route that the company intends to take to get there

Determining and articulating the vision are of special importance as they

help to concentrate expectation of all the members of the company and mobilize all

efforts of the company in order to achieve great objectives, carreer and ideology

According to James Collins and Jerry Porransm (James Collins and Jerry Porransm (1996) “Building Your Company’s Vision’), a vision statement is usually structured by 2 main components:

- Core ideology: determining the long-term properties of the organization, which will be consistent and sustainable along and over the life cycle of

products or markets, techonological breakthrough, management styles and

leader individuals Core ideology includes core values and core objectives Core values are fundamental and sustainable philosophy and principles of the

organization Core objectives represent the rationale for the organisation’s existence

- Envisioned future: represents challenging goals and vivid description of

things that need to be achived Challenging goals are Big, Hairy and Audacious Goals (BHAG for short) Vivid description is a detailed description in an attractive and emotional way about what BHAG aims to

achieve

Following are characteristics of an Effective Strategic Vision Statement:

- Graphic: A well-stated vision should paint a picture of the kind of company

that management is trying to create and the market position the company is striving

to stake out

- Directional: A well-stated vision should say about the company’s

destination and signals the kinds of business and strategic changes that will be forthcoming

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- Focused: A welll-stated vision should be specific enough to provide managers with guidance in making decisions and allocating resources

- Flexible: A well-stated vision is not once-and-for-all-time pronouncement,

it is the visions about a company’s future path and may need to be changed as events unfold and circumstances change

- Feasible: A well-stated vision should be within the realm of what the

company can reasonalbly expect to achieve in due time

- Desirable: A well-stated vision appeals to the long-term interests of

stakeholders, particularly shareowners, employees and customers

- Easy to understand, to memorize and to communicate

1.2.2 Strategic Objectives

Strategic Objectives are milestones, positions that a company wants to reach

in strategic periods The right determination of objectives plays an extremely

important role in the success of a company as they point out the path for

development and provide the yardsticks to measure and evaluate outcomes Following are the characteristics of a well-stated objective:

- Accurate, clear and measurable

- Represent key issues, clear priority order and basis for selection, trade-offs

- Challenging but realistic

- Put into a specific time-line

In short, a well-stated objective should be SMART (S — Specific, M — Measurable, A — Assignable, R — Realistic, T - Timely)

Objectives of a company can be diversified and classified under various norms:

- Time-line of objectives: Long-term, medium-term, short-term objectives;

- Nature of objectives: economic, political or social objectives

- Level of objectives: Coporate-level, business-leve or function-level objectives

- Forms of objectives: quantified or qualified objectives;

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- Growth nature: Objectives of growing or maintaining or reducing the market share

The highest objective of a company is its sustainable development in the market However, it can determine its objectives at various specific levels in light with specific conditions Peter Drucker recommends a system of company’s short-

term to long-term objectives as below:

- Company’s market share;

- Business Philosophy (showed in the company’s mission statement);

- Overall view of the the company’s business environment and capabilities

1.2.3 Analysis of external environment

Along with the development of strategic management theory, analysis of external environment has attracted increasing attention External environment involve elements, forces, institutions operating outside the company’s boundaries, beyond the company’s control but affecting the performance and operation efficiency of the company Analysis of external environment is to identify external

opportunities and threats affecting the company

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The scope and content of external environment analysis include: analysis of macro environment or in other words general environment; analysis of micro environment or in other words industry environment or competition environment

1.2.3.1 Analysis of macro environment - PEST Model (Political - Economic - Social - Technology)

Macro environment is a general environment covering the activities of all

companies, making direct or indirect impact on the operation of all companies

In reality, industries and companies are located in a broad and large macro environment Macroenvironment is the common environment of the whole national economy, made up by macro elements such as economic, technical-technological cultural, social, demographical, political, legal and global conditions

Figure 1-2: The model of three-level analysis of external and internal environment a) Political-legal Environment (P)

Political and legal environment includes the State, laws, and the State’s

operation and governance system It is the system of viewpoints, policies, advocacy,

guidelines of the Government, current legal system, political and diplomatic trends

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of the Government, political developments in the country, region and in the world Elements involved in the political and legal environment include:

I)

2)

3)

Legal System: The perfection of the legal system and the

implementation effectiveness of that system in the economy;

Goverment: The role and economic development strategy of the Party and Government in various areas of social life The adjustment and intervention tendency of the Government into socio-economic activities;

Political and diplomatic trends;

b) Economic environment (E)

The economic environment indicates the nature, level of growth and

development direction of the economy in which the company operates Analysis of economic environment is of great significance as it involves factors affecting the purchasing power and consumption structure, thereby making direct and strong impact on the business operations of the company through fluctuations of marcro-

economic variables as well as the implications of macro economic policies made

through the State’s management instruments Following are the factors need to be

The economic growth rate, manifested in the trend of gross domestic

product (GDP) and gross national product (GNP);

Interest rates and the trend of interest rates in the economy;

Exchange rates and development trend;

Inflation rate;

Export and Import Activities;

FDI attracting activities;

The tendency of real average income per capita;

Taxation system and tarriffs;

Fluctuations in stock market

c) Socio-Cultural Environment (S)

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The socio-cultural environment includes standards and values that have been

widely accepted and appreciated by a particular society or culture The impact of socio-cultural factors tends to be longer and more sophisticated with larger scope than other factors Besides the concept of social culture, we also have the concept of regional and local culture, village and commune culture These category decides the

consumption taste and styles in each different area Following are the variables need

to be considered in analysis of the socio-cultural environment:

1) The system of values (standards, ethics, concept, attitude )

2) Attitude about the quality of life, morality, living style, aesthetics,

jobs

3) Customs, practice, tradition

4) General awareness qualifications, educations in the society

5) Interests and priorities of the society

6) Women in the work force;

As a result of scientific-technological revolution, particularly in the area of

informatic technology, the technological environment has great impact on the

company’s strategy Changes in technology allows the production of massive new products with dominant properties and qualities after one night but also put existing product backward and out of date after one night Changes in technology includes both creation and destruction, bringing about both opportunities and threats

Following are elements that need to be considered in analysis of technological environment:

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The birth of new technologies;

The speed of invention and application of new technologies;

The encouragement and finance of the Government, the industry for research and development activities (R & D);

The Laws of Interllectual Property, Copyright Protection, ; The laws of Technology Transfer;

Pressure and cost for new technology development and transfer;

Current qualifications and and levels of material and technical facilities of the national economy;

The strategy for scientific technology development and resources to

implement this strategy

e) Demographic Environment

Demographic environment is a very important factor affecting other factors

of the macroenvironment, particularly the socio-cultural and economic

environments Information of demographic environment provides important data for managers in strategy planning for product development, market development,

marketing, distribution, advertisement Following are the aspects that need to be

considered in analysis of demographic environment:

Size: Population, workforce;

Population increase rate;

Changes in population structure: age, sex, ethnic groups, regions, areas, ,

religion .;

Life-span, age structure;

Marriage, family structure;

Educational levels;

The trend of population shifting among areas;

Quality: qualifications, interllectual standards, traits

Jobs, income ff) Global Environment

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In the trend of intergration and globalization, no country or company can exist without direct or indirect relations with the world economy These relations

have been developing strongly, variously and sophisticatedly hourly, daily with significant impact on all companies’ activities

Global environment includes the environment of markets relevant to a company Assessment of macro environments of these markets should also analyse

their economic, socio-cultural, _political-legal, natural, — technological environments Changes in global environment will affect strategic decisions of a

company Factors of influence are below:

1) Impact of international politics;

2) Effect of the world economic developments;

3) Impact of international laws and practice;

4) Impact of international technical and technological factors;

5) Influence of international cultural factors

However, the level of research on global environment may vary upon each type of company and its integration extent, being different between the companies

limiting their operations in domestic market or those operating in international

market

To conclude, the main objective of analyzing macroenvironment is to identify

changes and potential tendencies from elements of external environment With

future focus, analysis of external environment enables the company to identify opportunities and threats, thereby adopting responsive measures in order to improve and stimulate better business and production operations

1.2.3.2 Analysis of microenvironment (industry environment)

Microenvironment is the environment directly attaching to each company

Most of the operation and competition activities of a company take place directly in

this environment An industry is a group of companies providing products or services that are close substitutes In competition, companies in the same industry have interaction and inter-influence, they can launch the same or similar products or

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services that can substitute one another Task of strategists is to analyse and predict competition forces in an industry environment to identify opportunities and threats

to their companies

The five forces of competion model by Michael E Porter

Michael E Porter, a famous professor of business strategy of Havard Business Management University has set up a framework to assist managers to identify

opportunities and threats to be faced by a company in an industry environment

(Michael E Porter, Competitive Stratery, New York: Freepress, 1980) According

to Michael E Porter, there are five forces of competition in an industry as shown in

the chart below

Threat of new entrants

Bargaining power of suppliers competing firms Rival ry among [| Bargaining power of ini buyers

| Threat of substitute products or services

Figure 1-3: The five forces of competition model by Michael E Porter

M.Porter points out that the stronger these forces become, the more existing firms are limited in raising prices and getting higher profit The strength of these finve forces of competition may change along with time passing by or due to changes in industry environment

Task of managers is to identify opportunities and threats arisen from changes in the five forces of competition, thereby formulating appropriate strategies Moreover, the selection of an appropriate strategy for a firm also aims at shifting the strength of one or more forces of competion into its own advantage

The competition environment has constant and direct impact on business

operation of a company The analysis of the company’s competition environment should consider the reciprocal relations with the five forces of competion including: a) Threat of new entrants

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The first force of compettion in Michael E Porter’s model is potential entrants or rivals They are companies that are currently not participating in competitive rivalry of the industry but are likely to penetrate into the industry and exercise competition if they decide to enter into the industry Identifying potential opponents that may penetrate to the industry is an important task because these new entrants can threaten the market share of existing firms operating in the industry Existing firms in the industry try to prevent potential opponents to participate into

the industry as the increasing number of firms operating in an industry will create

more pressure of competition on all the firms in the industry

The penetration capacity of potential entrants depends on the industry’s barriers to entry, including:

The bigger the costs for entry, the higher the barriers to entry faced by

b) Rivelry among competing firms

The second force of competition in Michael E Porter’s model is the competition among existing firms in an industry Firms in the same industry are

inter-dependent Actions of a firm often induce the retaliation action of other firms The weaker its its competitors are, the more opportunities the firm will have to increase prices and get higher profits In contrast, the stronger its existing

competitors are, the more serious the price competition is, that may lead to a price

war that limits the profitability of companies as it reduce margin profit

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The nature and the intensity of competition among firms in the same industry depends on many factors Industry competio increases when:

- There are numerous or equally balanced competitors

- Industry growth slows or declines

- There are high fixed costs or high storage costs

- There is a lack of differentiation opportunities or low switching costs

- When the strategic stakes are high

- When high exit barriers prevent competitors from leaving the industry

c Bargaining power of buyers

The third force of competition in Michael E Porter’s model is the bargaining

p»wer of buyers Buyers of a company may be the end-users of its products or firms i: charge of distributing products to end-customers such as whole-saler or retailer

Buyers can be seen as a threat to a firm when they are in the position r:quiring lower price or better products and services In contrast, when the buyers

ae in a weak position, companies can increase price and receive higher profits

Buyers can make request to firms or not depending on their comparative

power in relation with the firms Buyer power increases when:

- Buyers are large and few in number

- Buyers purchase a large and concentrated portion of an industry’s total output

- Buyers’ purchases are a significant portion of a supplier’s annual

revenues

- Products has little differentiation in properties from their substitutes

- Buyers’ switching costs are low

- Buyers can pose threat to integrate backward into the sellers’ industry

- Products of the firm play insignificant role in the quality of buyer’s products

- Buyer has full information

) Bargaining power of suppliers

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The 4° force of competition in Michael E Porter’s model is the bargaining power of suppliers Suppliers may be viewed as a threat if they can raise the price or reduce the quality of products and services provided by them, thus reducing the profitability of companies In contrast, the weak capacity of suppliers may bring opportunities to companies to reduce price and ask for higher quality The extent of request that a supplier can make to the company depends on its comparative power

ir relations with the company Supplier power increases when:

- Suppliers are large and few in number

- Suitable substitute products are not available

- The company is just a small customer of the suppliers

- Suppliers’ goods are critical to the buyers’ input sources

- Suppliers’ products create high switching costs

- Suppliers pose a threat to integrate forward into buyers’ industry

- The products of the suppler have differentiated features and highly appreciated by the company’s customers

e, Threat of subtitute products, services

The final force in M Porter’s model is the threat of substitute products

These are the products of other industries that may satisfy the needs of customers in

tre analysed industry in similar ways The existence of close substitute products represents a threat of competition, limiting the ability to set high price and consequently limiting the profitability of companies

Substitute products are usually the results of innovation or explosion of new

technologies Companies that want to achieve competitive advantage should spend

tleir resources to develop or apply new technology in their business strategies or concentrate on research and development strategy

1 2 4 Analysis of Internal Environment

The ancients often said that: "Having both feet on the ground, winning a hindred battles"

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Studying external environment is just "understanding people", it is necessary fcr enterprise to thoroughly analyze its internal environment for "understanding us"

in order to plan its business strategy scientifically

Internal environment includes all factors and inside systems of enterprise Tie assessment of internal environmental is to determine exactly strengths,

weaknesses, special capabilities of the enterprise and from which to choose

appropriate development strategies

In fact, it is impossible to fully evaluate the internal factors of enterprise

because of their huge quantities

According to Fred R David (2006), similarly to external environmental atalysis, the internal environmental analysis also need have the participation of leaders, performance staff, clients , and must collect adequately secondary and pimary information, processing, analyzing them to identify the most basic strengths

aid weaknesses of the enterprise He supposed the following areas of activity which stould be focused on:

The value which a company creates is measured by the amount buyer willing

t: pay for its products or services The company will have profit if the created value

i: higher than total cost needed to create that value In order to achieve a cmpetitive advantage, enterprises must pursue strategies of low-cost or product

the process of analyzing the value chain

The value chain activities are classified into main and support activities, each activity will increase the value of the product

The main activities are responsible for creating material products, marketing

aad distributing them to purchasers, implementing support and after-sale services

The support activities are functional ones assisting main ones Summary of the

value chain is shown in Figure 1-4

Main Input | Production | > ut Marketing ——

Activities | logistic | /Manufacture P & Sale ealen

Figure 1-4: Value Chain Map

(Michael E Porter, “Competitive Advantage”, New York, Free Press, 1985)

Detailed functions as follows:

Strategic Target

The function of material management: Controlling the material flow through

the value chain from supply to production and distribution This can reduce costs of

ceating and then contribute to increase quality of output and selling price may rise

The function of research and development: implementing the development of rew products and manufacturing technologies Technology development can lower

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manufacturing cost and create more attractive products which could be sold at higher prices This function could affect manufacture and marketing activities and help create value

The function of Human resource management: ensuring the appropriate use skilled workers to implement the value-creating activities effectively

The company’s infrastructure: This is the overall context of the company where all value-creating activities happen Infrastructure consists of organizational structure, control systems and company culture Senior management is also considered as a part of the infrastructure

In order to achieve the supreme targets of efficiency, quality, product

innovation and customer satisfaction, the enterprise must have the strategy of

coordinating the activities which could create different values In fact, these goals

can be viewed as crossing targets between different value-creating sections of the

enterprise The achievement of these goals requires the correspondence between

crossing functions, is shown in Diagram 1-5 below:

The value chain Crossing-functional Targets

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1.2.5 SWOT matrix

1.2.5.1 General Theory of SWOT

SWOT analysis focuses on internal changes related to external factors SWOT is a collection of short words in English: Strengths (S), Weakness (W), Opportunities (O) and Threats (T)

This is an extremely effective tool that helps us find out problem or make

decision in organization and management as well as in business SWOT analysis puts the enterprise’s strengths and weaknesses in a specific situation with its opportunities (to succeed) and challenges (to failure)

Thus, the SWOT analysis is to analyze external environmental factors that an enterprise has to face with (opportunities and risks) as well as internal environment

factors (strengths and weaknesses) This is a difficult work requiring much time,

effort, cost and ability of collecting, analyzing and processing information most

eiterprise can set up combinations to form the four following strategic groups:

- Strength - Opportunity (SO);

- Weakness - Opportunity (WO);

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Table 1-6: SWOT Matrix

assessment report) report)

Strengths (S) (List the most SO Strategy ST Stratege

important strengths from the | Using the enterprise’s| Using the enterprise’s

Weeknesses (W) (List the WO Strategy WT Strategy

mot important weeknesses | Overcoming the enterprise’s | Overcoming the

fron the internal | weeknesses to take | enterprise’s | weeknesses

enironment’s assessment | advantage of _ external | to limit of external threats

vn 2 2

12.6 Quantiflying matrix with GREAT criteria

SWOT analysis just helps to come up with suggestions on possible strategies fir the corporate, that are feasible strategies available for selection but cannot

pint out the optimum strategy that should be adopted for the corporate Other tools

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such as SPACE matrix, BCG matrix, OSPM matrix, quantifying matrix with GREAT

criteria should also be used in efforts to find out the desired strategy for the

Strategies

Assessme | Conversi | Assessme | Conversi Assessme | Converted

nt Marks | on marks | nt Marks | on marks nt Marks marks

Steps for building GREAT matrix

Step 1: Identify main criteria to be analysed, considered, selected and

establish conditions relating to development plans of the corporate to serve as the

basis for analysis (column 1)

Step 2: Use the effect coefficients reflecting the importance and impact of

factors on the selected strategies to evaluate the effects of relevant factors on

overall strategies These effect coefficients run within the range from 0 to I and

always total to 1 (column 2)

Step 3: Evaluate and give assessment marks for the effect of each analysed

factor on each strategy Assessment Marks are evaluated within the range from I to

10 (equivalent to various levels of weak, medium, good medium, quite good, and

good) The assessment marks show the level of strategies applied based on each

analysis factor (column 3)

Step 4: Convert the coeifficients being the products of 2 factors (column 2 and

column 3) of each strategy; Sum up those results to come up with the final result

being the sum of the mentioned above products Mark from | to 3 for the figures

with the highest sum and then lower sum to serve as the basis for selecting

sirategies need to be focused and implemented

approaches to create competitive advantages as follows:

- Cost Leading Strategy

- Product Differentiation Strategy/Strategy of making a difference

- Focus Strategy/Concentration Strategy

These strategies are called as three common ones, because they cover all business activities, industries Each strategy out of them could be considered as the result of the enterprise’s consistently selection of product, market and ability of differentiation, and these options also affect each other

Table 1-8: Summary of options suitable for each strategy

Product Low (mainly by | High (mainly by special | Low to High (price or

Diffirentation price) character) special character)

Market Division

Low (Large scale, volume market)

High (many market divisions)

Low (one or several market divisions)

Distinct Ability

Material Production and Management

R&D, sales and marketing

Any ability which could create diffirence