G1_00168 BUILDING BUSINESS STRATEGIES FOR JOINT-STOCK STEEL STRUCTURE PRODUCTION COMPANY - VNECO.SSM DURING THE PERIOD OF 2010-2020 XÂY DỰNG CHIẾN LƯỢC KINH DOANH CHO CÔNG TY CỔ PHẦN SẢN XUẤT KẾT CẤU THÉP - VNECO.SSM GIAI ĐOẠN 2010-2020

G1_00168 BUILDING BUSINESS STRATEGIES FOR JOINT-STOCK STEEL STRUCTURE PRODUCTION COMPANY - VNECO.SSM DURING THE PERIOD OF 2010-2020 XÂY DỰNG CHIẾN LƯỢC KINH DOANH CHO CÔNG TY CỔ PHẦN SẢN XUẤT KẾT CẤU THÉP - VNECO.SSM GIAI ĐOẠN 2010-2020

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GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM

CAPSTONE PROJECT REPORT

BUILDING BUSINESS STRATEGIES FOR JOINT- STOCK STEEL STRUCTURE PRODUCTION

COMPANY - VNECO.SSM DURING THE PERIOD OF 2010-2020

Group No.: 7

Mr Dao Tuan Chung

Mrs Pham Thi Quynh Van

Mrs Doan Thuy Anh Mrs To thi Ngoc Hoa

HANOI, JAN 2010

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Table of Contents

IISug (2/09 1 V

LG TH NI cv paxangieHGG4411660142004014403060133/01.650630018G834488448601/130356606535914000615014304))490/986/00A5 S0: vị biSF GỀ E TH koccácctoiitioisbiia0Gi00266010206443051384845554833464848:31835100918030G5u64361i00140/4004016G0sR9081493104509080086430/60i05N vill ACKNOWEEDGEMENT qua aaagGbgitocot60010002056346010024464646901040(00 2444664 ix INTERODUGTION Ga ưu Ga aQáQGG5Gi084660834Q66i643440161062443134013801a6s4k6: x CHAPTER 1: FUNDAMENTAL THEORETICAL BASE OF THE RESEARCH l l,Ì Conceptand classification: of buiness sHBÍEEY seeeseeseeenrnsdenniieaennanneisresernenee l L.L.k COnCeptOl BUSINESS SIGIEDY cascciasisissscascnsssxacnccrsncavavencessiorectresuseveneenneuriacencussesies l 1.12, ROIS OF BUSINESS SUBS OY qoggaaguaataaaotootiebosgtiisxs8560046654602v046/44(2368 3 1.1.3: Basic features ðGÍ busincss SIEH[CEV so coccco co d c1 060015054 16459ã45031084461613420 sa 3 1.2 Process for developing a business straf€ØY .- - - G Ăn ng n9 và 3 1.2.1 Mission or purpos€ Of COIIDATNV - << HH re „ 1.2.2 Analysis of internal and external Environment .<cccccrerssesossessoonsesersescccesassesvess 5 122.1: Analysis of external Chivitonitient LaCtorsccicccssisssivscesvissescsnssesssaceooercenevns 5 12:22: Aiulysis oCfẩitEtialCtdvdiGHIHIE::iccscccasssssoiii40204454608625556485g5a660%05568 9 1.2.3 Matrix development for choosing business strat€gy csss<<xs<x«2 12

li EIETHHI TRGIOETHNHIẨTHRScGicodduoobdi dd adgilocodlldlaoslgiakxellesi@q 12 1.2.3.2 Internal factOr mafriX s TH vn 12

lv, MINHIX ODUORHDGIHDN HWNBĐĐDNSesoesensenneenoveeonasebissensrrorsvaseereeriaas 13 125,4 SWOT MAIN ¡soseapaoooiỷoobreebibooioiatoraavehdiosodiasog60008008501060363651680304E5á66 14 1:2:Ä8 SEleetii Đi4ïiNgsš SH DU: cvssescscvsz6i66i2650040425 6625415460356252541g,3:4354k462662ã03440/36s20qãdg 17 1.2.5 Oraanization and Iniplenicnon is wiciiiimnnnmnninnamiinnncacnmancns 18 1.2.6 Evaluating the effectiveness Of Strategy ccciscsseoscesoscossissvenncsssscesscessacssonssessonees 19 Conclusion of Chapter [ .cccccssssseeeeesseesseseeeeeeceeeeceeeeeseseeceeuauaeeneeaeeeesaeeeeeeeeeeeeeeuneneeees 20 CHAPTER II: CURRENT SITUATION OF THE STEEL STRUCTURE MANUFACTURE JOINT STOCK COMPANY VN CO SN da acc osuilGi2163ã6sr2sásse 21 2.1 Overall introduction of VNECO.SSM nung nàn 21 2.1.1 Establishment and development of VNECO.SSM LG Ă Hee 21 2:1.2 Organizational structure of the Company; 6 sssciiscincsssivevesaeccisasveacaaigenvesovevees 22

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3.3.4 Solutions related to finance managemen( - - c9 1 1 xe 81 3.4 Recommendations to the higher authorities and the stafe - «5 5S << sex 82 3.4.1 Recommendations to higher management agency, Vietnam General Joint-Stock Electricity and Construction CGIDGHW uc sat du g0dosdgdoexsteaisllbss4egiãdjsfossua 82 3.4.2 Recommendations to the Government and the State management agencies 83 SCTE USCA CITE Fe cones core encanccnnensesenencsnnnecnecnonseneconenmneremncnneeons maneenmenememses 84 CONCLUSION naeeookcieoaeeaseoiiitDiD4180814026t00100A1006610166061406010554600044616668468000940X40)/00.0300946091/3060/.08193/60/ 85 BEPEERENNEEScncoioooniionoookinooGoiaoitGGii60210100055600864860036664660555863566ã30661015066058.6u.601480ả45 87

AT EEND Á dua gguatdddaitdioGGAI00G G3 GGlioisif(GxsstiviGsb4gfiGSssgeiiyidxogsa4iagicige 88 PPP EIU, Bevis cinicinnnsiibesesapsptiinnsvipsab sigs UM A Aine A 90

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Electricity of Vietnam Huyndai-Dong Anh steel tower manufacture company limited

Power Construction Joint Stock Company No | Power Construction Installation Limited Company No 4

Soc Son Mechanic and Steel Structures Joint Stock

Company

Telecommunication antenna mast

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Table 2.1: Results of business activities in 2006, 2007, 2008 and September 2009 24 Table 2.2: Targets of business plan performance ~- 27 Table 2.3: Table of proportion of each product/service in VNECO.SSM’s revenue of

the years of 2006, 2007, 2008 and first 9 months of 2009 30

Table 2.5: Forecasting production capacity and steel consumption ability in the phase

⁄

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Table 3.3: Total power capacity during 2010-2015

Table 3.4: Expanding the transmission and distribution system during 2006-2008 - Table 3.5: Grid transmission and distribution development plan during 2010-2015 -

Table 3.6: SWOT matrix of VNECO.SSM

Table 3.8: GREAT model for selecting strategy

Table 3.9: Galvanized steel pole production costs

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List of Figures

E1@uief 1.1: Ái BUs1SS:RHBDEWÙ ;cosccvoooooceecokcisgLES001462001133656850603/61663663660946866358028869642.6658 l Figure 1.2 Business strategy planniitid Proves scss scsi sesacssscasassussissosvesecsrssassvensnaveass 4 Figure 1.3 MaCt@ CHVIPONINEM « csssccicsseswvccsansvessersssnssvescavnanetiecsacsseniernieamnenemvasens 6 Figiye 1.4 Model Of 1196 (One assis sscscccossurcusscreescssisssesiveasasccascansinwsarsncvaswansssvecssosamens 8 Figures 2.1 Mariagement structure: of VNECO.SSM.sscicsssssscssssssvnvsesccnsssvssseesasesanens 22 Figures 2.2: VNECO.SSM Revenue Structure 2008 seccicsissscesssssocssissssonsessscccssnsovsvoess 24 Figure 2.3: Key VNECO.SSM financial indicators 2006, 2007, 2008 and 3 quarters of

Figure 2.4: Expense structure per revenue 2()Ú - «555 ss+eeeeseeeeeers 26 Figure 2.5: Revenue performance in 2006, 2007, 2008 and 9 months of 2009 28 Figure 2.6: Chart of product/service in accordance with revenue of the years 2006,

2007, 2008 afd: First: 9 MOTths OF 2009 s sicisisusssvesivceceiverscsoversesiiiim nina eveamarnevavcss 30 Figure 2.7! Miguit BES ~ IPE cpsisasssescsercnesisnvasyarctorrnepecvincis tvssens avatemaniveusaewsnss 52 Figure 3.1 Diagram of making zinc-coated steel poÌes -‹-«- 5< «+ ‡<++<++ a Figurté 3.2 Process of steel poles Manulacturing sccssiscisscsicssssisssssissssccssavasssesnseaccasnenss 75 Finite 3:3 Process ưÏ COSHHB SIGBI LƠ WEE Gaaod doc G011066610045 0346456105101 266c2415818s488 75

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ACKNOWLEDGEMENT

To complete the MBA program and this assignment, we have received valuable support and guidance from many people who without them, we cannot achieve the result as today

Firstly, we would like to express our sincere thanks to our lecturers of Ha Noi

National University and University of Griggs, the United States Thanks to their enthusiasm and dedication in teaching, we have gained useful knowledge for the

current work

We also would like to send our deep thanks to all members of the Global Advanced program, including the program directors, academic department, the program management etc With the assistance of the program, we have chance to study in the most favorable learning environment The program has enabled us to complete our jobs at and at the same time, ensure the learning quality

Last but not least, let our thanks go to our families whose encouragement has helped us complete the course without having any difficulties

We have tried to complete the assignment in the best way using our best knowledge and ability However, the shortcomings are inevitable We wish to receive valuable comments from teachers and colleagues

Group 7 members

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INTRODUCTION

1 General context, significance and necessity of the research project

The Socio-economic Development Strategy 2001-2010 of Vietnam has identified the overall goals of bringing the country out of the underdeveloped status, improve the material and spiritual life of the people, creating the foundation for Vietnam to basically become an industrialized country towards modernization by

2020 And, at the 10th Conference of the Party Central Committee that summarized the implementation of the socio-economic development strategy in 10 years (2001- 2010) and developed the socio-economic development strategy for the next 10 years (2011-2020), the Party General Secretary Nong Duc Manh affirmed the direction, overall objectives of the socio-economic development strategy during 2011-2020 which is to continue to promote industrialization and modernization and sustainable development The country will have a political, social stability, democracy and consensus The people’s material and spiritual lives will continuously be improved Its independent sovereignty, unity and territorial integrity is maintained etc

In this context, the mechanical sector has confirmed itself as one of the key industries which plays an important role in economic development and strengthens security and defense of the country The Decision of the Prime Minister on the approval of the mechanical development strategy Vietnam in 2010 and vision to 2020 (Decision No 186/2002/QD-TTg on December 26, 2002) stated: "Focusing on developing key mechanical products to exploit and promote the best potential (natural and human resources) to meet the basic requirements of the country's development Mechanical construction and electrical equipment are two out of 8 key mechanical products that are prioritized for developing in the strategy Thereby, products meet the basic needs of the national economy are those mainly provided for the power sector-a key industry of Vietnam

Therefore, our group decided to study and research mechanical construction and electrical equipment We chose the topic "Developing the Business Strategy by VNECO.SSM from 2010 to 2015” VNECO.SSM has provided construction and

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electrical equipment for nearly 100 of transmission line and transformer stations of Electricity of Vietnam (EVN) And, most recently, the company has won the bid to provide steel columns for line SOOKV Son La-Hoa Binh and Son La-Nho Quan invested by EVN with a contract value of USD 7,809,111

2 Research objectives and scope

Objectives: This research aims to provide a comprehensive evaluation of the existing operation and business situation of VNECO.SSM, to analyze strengths, weaknesses, opportunities and challenges to the company and bases on these factors

to develop the company’s development strategies from 2010 to 2015

The year 2020 was selected as a milestone because Vietnam is targeted to become a modern, industrialized country in economic development strategies of the mechanical sector (as introduced in part 1) It is also the time for completing the electric network

For our group, it is a time for applying theories of company administration learnt in the MBA program for solving practical problems posed by work

Scope of research: This research aims to develop theoretical basic for setting

up the most fundamental business strategy for the company With regard to VNECO.SSM, we only focus on analyzing the most basic factors that affect to the development of its business strategy, thereby building business strategy by 2020 It

consists of main contents as follows:

3 Research method

The research focuses on studying and analyzing secondary information and data collected from mass media and directly from WNECO.SSM for the most basic contents

The research and development of matrices for selecting the strategy is undertaken by expert method, i.e consultation with experts who have in-depth knowledge about the product, the mechanical manufacturing and trading market of mechanical products in Vietnam in order to establish criteria and implement

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evaluation of criteria This method has the advantage of being simple and easy to implement However, it has some drawbacks such as low accuracy compared to actual survey because it depends on the subjective evaluation of experts However this method is good enough to build a good business strategy

4 Structure of Project Report

Beside the preface and conclusion, the report includes three chapters that sumarize the content of each chapter as follows:

Chapter 1: Theoretical base on strategy and business strategy development This chapter introduces the most basic on the concept of business strategy and the procedure in order to develop a business strategy It also introduces matrices for selecting a business strategy

Chapter 2: Existing situation of the business operation of VNECO.SSM This chapter introduces the foundation and development of enterprises, major business products and evaluates the business performance of the Company in recent years analyzing the external business environment, business environment, the strengths, the weaknesses and setting up IFE, EFE’s matrices The conclusion of this chapter will mention to the current performance of plan businesses, the existences and the need of developing business strategy for the period of 2010-2015

Chapter 3: Developing business strategy for some resolution in order to performance business strategy at VNECO.SSM for the period of 2010 — 2015: to

establish targets, visions, missions, core values, proposals and to select business

strategy for the period of 2010 — 2015, the resolutions in order to perform strategy and some proposals for authority government so this will improve the effectiveness of business at VNECO.SSM

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CHAPTER 1: FUNDAMENTAL THEORETICAL BASE OF THE RESEARCH 1.1 Concept and classification of business strategy

1.1.1 Concept of business strategy

According to "Strategic Management" Associate Professor, Dr Le The Gioi- Doctor Nguyen Thanh Liem, Dr Tran Huu Hai, the concept of "strategy" is deprived from the ancient Greek The term is rooted from military, originating from "strategos" which means the role of the generals in the army In human history, there have been many military theorists such as Sun Tzu, Alexander, Clausewitz, Napoleon and Jackson Stonnewal mentioned and written about strategy from different perspectives The basic theory of strategy is one party can suppress the opponent, even stronger opponent if they can lead the battle and entice the opponent to the battlefield which is beneficial to the deployment of their skills

In the present context, the term strategy in military is used in administration sector to refer to as a business strategy The figure below describes the business strategy:

Figuer 1.1: A business strategy

] disc Ver

Apply, Maintain

Overcome

Prevent

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Scholars have different views of business strategy from different perspectives Michael Porter, the well-known strategist of Harvard University said business strategy

is considered as an art in competing in the market and for business development:

"Strategy is the art of building stable competitive advantage for defense” With regard

to the view of the management area, strategic business is a form of plan G Arlleret says that "Strategy is the determination of roads and other means to reach the objectives identified through policies” D Bizrell and colleagues consider "Strategy is

a general plan that leads or orients the enterprise to the desired target It is the basis for the policy setting and operation

According to the combined view, business strategy is an art of coordinating activities and controlling them in order to achieve long-term goals of the company Prof Chandler from Havard University defines “Business strategy is the process of identifying basic and long-term objectives of the company, selecting actions and allocating resources to achieve the objectives” The access to various viewpoints on business strategy helps us understand more clearly because each definition manifests different aspects of strategy

And Finally, Business-Level Strategy defined: “An integrated and coordinated set of commitments and actions the firm uses to gain a competitive advantage by exploiting core competencies in specific product markets” Although there are many definition about Business Strategy, Our group decide to use this definition

There are at least three levels of business strategy, namely at company level which aims at the overall purpose and scope of the organization; at business level which is the summary of commitments and actions helping the industry to obtain the competitive advantage by exploiting its core competencies in the market with specific products and functional strategies which help business and company level in effective implementation of resources, processes, people and necessary skills

With regard to the strategy approach, there is focused strategy which focuses

on the key points playing critical role to the production of the company rather than spread resources Strategy based on the relative advantage in which the strategy

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competitors, find their strengths to make plans based on business strategy Creative attack strategy means the business strategy is based on the new discovery in order to gain advantage before competitors Free strategy does not target at key elements but exploit the factors surrounding the critical factor

1.1.2 Roles of business strategy

Business strategy helps company to identify its business goals, directions guiding the production and business activities of company It 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 sustainable development of 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

1.1.3 Basic features of business strategy

Business strategy clearly defines the objectives and basic business directions

of the company in each period The orientation feature of the business strategy ensures the company to develop continuously and sustainable in an ever changing business environment On the other hand, business strategy ensures maximum mobilization and utilization of current and future resources to promote the advantages and seize the Opportunity to obtain competitive advantages The business strategy is reflected throughout a continuous process, it always aims to attack and win in the business market and is often built for long period from 3, 5, 10 years or beyond

1.2 Process for developing a business strategy

The process of building the business strategy is described in different steps below:

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Figure 1.2 Business strategy planning process

1.2.1 Mission or purpose of company

A company is set up and it often associated with a scenario The scenario outlines the future of the company where the purpose will be achieved Michael Porter explains the need for scenario in the competition "because if people do not have a clear perspective about how to be fully innovative and unique, meeting different requirements of customers in a better way than competitors, they would be swallowed because of fierce competition

Theory and practice indicate that any feasible scenario must manifest the core ideology of the company This is because scenarios are made up by the core values and principles and guiding principles The core purpose is the most basic reason for the existence of the company Company operates and builds their core values

Scenario provides a steady target for the existence of the company However, scenario does not express strategies, steps or methods that the company is pursuing It expresses the task that the company has to handle It is a key task that requires the company to take into the views of relevant parties Mission is the basis for meeting the scenario It is the reference point for assessing the strategic goals of the company,

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then determining the task of the company is to focus on customers and identify and area of business by the company

To implement next steps in creating the mission, company needs to set up key targets Target is the future status that the company is trying to achieve or the ultimate results of planned actions Objective are required to ensure (i) accuracy and measurable so that administrators have criteria for evaluating their implementation; (ii) the direct at important issues; (iii) be both challenging and feasible so that the objectives are realized; (iv) identify a period of time, sometimes accurate time good objectives provide tools for assessing the performance of administrators

And, it is also the first and most important basis to build the build business production strategy

1.2.2 Analysis of internal and external environment

The next step of the strategy planning process is to analyze the internal and external business environment of the company

Administrators can not form a long-term direction or develop a strategy if they

do not understand thoroughly the strategic situation of the company, nature of competitive conditions that the company is facing, the way to create the conformity between the resources and the capabilities Every company or production industry is placed in a certain environment consisting of encompasses both subjective factors (internal environment) and other objective factors (external environment) To analyze the internal and external factors of the environmental, we can use available data or through surveys inside and outside the company

1.2.2.1 Analysis of external environment factors

Experiences of businesses as well as other studies

have shown that the impact of the external environment

affect the growth and profitability of the business By omic Factors focusing on the future and analyzing the external ultural Factors environment, the company can identify opportunities and ~

threats Opportunities are conditions in the external ~ ~~

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environment which, if exploited will help businesses make the innovative value Threat is a condition in the environment that can hinder the efforts of enterprises in creating value The threat arises when the external environmental conditions jeopardize the integrity and profitability of the business Techniques for analyzing the external environment include: reviewing, monitoring, prediction and evaluation

Environmental review required general study of all elements of the external environment Through reviewing the company can identify early signs of potential change in the environment and detect changes taking place clearly Monitoring environment means the observation of changes in the environment to identify important trends arising from signs identified by environmental review Thanks to monitoring, company will prepare better for launching new products or services at appropriate time and gain possible competitive advantage from opportunities Prediction means the development of potential events, the way and speed of its appearance as a result of logical changes and trends have been detected through the review and monitoring Assessment helps redefine business period and the importance

of the impacts that changes in environmental trends that may impact on the strategic

management of companies Thanks to review, monitor and prediction, analysts can

understand the environment and identify implications as understood by the

environment

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Six factors of macro environment are studied by our group Otherwise, there is

no basis for developing the company strategy The economic environment indicates the nature and direction of the economy in which the company operates When decision is made to set up business operations in the field of mechanical products, we have to review, monitor, predict and assess the health of the economy in the country, other countries in the region and the world This is because all activities of the company are not limited to the territory but the national economy is also greatly affected by outside economies Four factors affect the economy are interest rate, foreign exchange rate and inflation rate

The technology environment including the institutions and activities related to creating new knowledge, shifting knowledge to output, products, processes and new materials It creates opportunities and threats Opportunities help new participants to

take part in the challenges and threat old and strong competitors The cultural and

social environment is related to social attitudes and cultural values Because cultural

values and social attitudes create the foundation of society, they often lead changes

and technological conditions, politics-legal, economic and demographic factors The demographic environment is related to population, age structure, geographic distribution, community groups and income distribution The political and legal environment is the way in which companies can affect the government and the government affects them in return Companies must carefully analyze new policies, relevant legal documents on state management because these policies can support and facilitate or hinder the development The global environment includes the global markets which are related to current changing markets, important international political events, the basic institutional and cultural features of the global market

The next factor to be considered in the external environment is the business environment Business environment is a place where a group of companies provide products or services that can be closely replaced i.e products or services satisfy the basic needs of customers in a similar way

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Figure 1.4 Model of five forces

Force 2 is the level of competition between companies within an industry Common tools used in the competition aim at creating value for customers They include price, quality, improvements, and meeting customers If the competition in the sector is weak, companies will have the opportunity to increase prices and receive higher profits In contrast, if the competition is strong, the price competition will lead

to price war that limits the profitability of companies Concerning the ability of the buyer, the buyer can be both the final buyer and supplier to final customer such as wholesaler and retailer Buyers can be a threat when they are in the position requiring

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ower price Br better service (which can lead to increased operation cost) In contrast,

when the buyers are in a weak position, companies can increase price and receive higher profits The 4" force is the bargaining power of suppliers Suppliers can be viewed as a threat if they push to raise price or improve input quality that they provide companies, thereby reducing the profitability of companies If the capacity of suppliers is weak, then they enable companies to reduce price and ask for higher quality The final force is substitute products These are the products of the industry that serve the similar needs of customers in the sector The existence of close substitute products shows a threatening competition, limiting the ability to set high price and consequently limiting the profitability of companies If the product of the companies does not have close substitute products, then companies will have the

opportunity to increase price and gain more profits

Each business sector experiences a life cycle which is clearly defined, from the

foundation to growth, reorganization, saturation, and finally degradation Each stage has different implications about the competition structure in the sector Also each stage generates both opportunities and threats

Companies will not surpass their competitors if they do not monitor the actions

of competitors, understand their strategies and predict their movement Therefore, analysis of competitors has a great importance in order to clearly identify direct competitors, identify and analyze strategies of competitors, evaluate their strengths,

weaknesses, estimate the reaction of competitors, design data bank of information on

competitors and evaluate the correlation among competitors

Finally we must consider the business sector that we are operating to see if it is attractive or not or if it can generate above average profit or not However, the attractiveness is relative and decisive factor lies in the ability of administrators to turn threat into opportunities to success

1.2.2.2 Analysis of internal environment

Internal environment is resources and abilities of companies to reply the question: what are the basic strengths and weaknesses of company? Which resources

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and ability create these strengths and weaknesses? What resources and core competencies help companies maintain sustainable competitive advantage? The purpose of the internal environmental analysis is to identify resources as well as the potential resources to create sustainable competitive advantages of enterprises We also identify obstacles in maintaining sustainable competitive advantage for

companies Also, it helps to be aware of threats in order to maintain sustainable

competitive advantage

Starting with analyzing the current strategy, it helps to answer to the question

"How is the company implementing its current strategies?" Factors will be considered including the market share of the company, its marginal profits compared with its competitors, the net profits, revenue from the investment compared with its competitors, its financial strength, credit rating, sales, image, reputation for customers, product quality and customer satisfaction The stronger the company is, the least requirement to revise its strategy radically If the efficiency and market position of the company is weak, then it needs to question its current strategy

Next, it is necessary to consider the strengths and weaknesses of the business Strengths are things that the company is doing well or they are features helping to improve the competitiveness of the company Strengths can be (1) the skills and important experiences such as lower-cost production, technology know-how, production without defects, experience in providing good customer service, product improvement technique, (ii) valuable physical properties such as a modern factory, and good location; (iii) valuable resource assets such as labor force with good ability

and experience like skilled workers in key areas, administration secrete etc (iv)

valuable intangible assets such as brand name, reputation and customers loyalty, (v) competitiveness etc Basically, a company is considered successful if it has adequate resources that meet demand The key requirement of resources analysis is to have a truthful picture of the company’s resources so that administrators can identify strategic planning to maximize resources

Weakness is what the company is not good at or an unfavorable condition

10

ĐEN by the EEE NET SHOU ac cis can cause damages to the company and

affect the position of the company in the market Internal weaknesses of the company

could be shortages of skills and experience in competition; lack of intangible assets, physical assets, organizations, important and competitive human resources, lack of or weak competition in key sectors

The next factor is the analysis of the competitiveness of the company There are four factors that create competitive advantage including efficiency, quality, improvement and meeting customers’ demand Outstanding efficiency allows company to lower costs; superior quality allows company to lower costs and ask for higher price, the outstanding customer service allows it to reach a higher price, particularly in case of product improvement or lowering cost in case of process improvement To achieve competitive advantage, company needs to pursue business strategies on the basis of existing resources and competencies of the organization It also needs to build strategies based on additional resources and competencies as developing new capabilities

The origin of sustainable competitive advantage is a core competency which creates the difference It is a unique strength that allows businesses to achieve superior performance, quality, innovation and meeting customers’ demand Core competency of the company originates from two sources namely their resources and potential competencies Broadly, resources include a variety of organizational factors,

technical personnel, material and financial factors Resources can be divided into

tangible resources that are quantified as financial resources, physical facilities and technology and intangible resources including personnel and improvement ability and reputation In order to produce the difference, the resources must be unique and worthwhile It means no other company has its feature It is a challenge for administrators to understand the strategic value of the resources and development capabilities to create competitive advantage The second feature of the core competence is the potential ability which is viewed as a source of creating ability Intangible and tangible resources are basic components for competitive advantage

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Potentials are the ability and skills that the company uses and exploits integrated resources in order to achieve a desired objective Competency that creates the difference for the company becomes most powerful when it owns the unique and valuable resources together with resources management competency

1.2.3 Matrix development for choosing business strategy

1.2.3.1External factor matrix

Matrix of external factors aims to evaluate external factors that affect the operation of company including opportunity and threats to the company

e How to develop a matrix:

Make a list of all the external environmental factors that affect the operation of the company, assessing the impact or the importance of each factor by the weighted score, total points weighted of all elements is one or 100% Assessing the company's response to these factors by classifying factors from | to 4, in which four means good reactions while 1 means bad reaction Then the importance of each factor is weighted

by multiplying the score with the corresponding points Then scores are added up to find the total importance score of the company The highest and lowest score is 4 and

1 respectively The average point is 2.5

In case the total score is 4, then the company is having many strengths and can overcome the weaknesses If the total score is one, then the company does not have any strength and is not able to overcome its weaknesses

Table 1.1: External factor matrix

External Important Classification Important

environment factors level (weight)

(list)

1.2.3.2 Internal factor matrix

Matrix of aims to evaluate internal factor that affect the operation of company including opportunity and threats to the company

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e How to develop a matrix:

Make a list of all the internal environmental factors that affect the operation of the company, assessing the impact or the importance of each factor by the weighted score, total points weighted of all elements is one or 100% Assessing the company's response to these factors by classifying factors from | to 4, in which four means good reactions while | means bad reaction Then the importance of each factor is weighted

by multiplying the score with the corresponding points Then scores are added up to find the total importance score of the company The highest and lowest score is 4 and

1 respectively The average point is 2.5

In case the total score is 4, then the company is having many strengths and can overcome the weaknesses If the total score is one, then the company does not have any strength and is not able to overcome its weaknesses

Table 1.2: Internal factor matrix Internal Important Classification Important

environment factors level (weipht) score

(list)

Pg ae IS lau one CO CC CC eS Wr CRD ti eee Stare

1.2.3.3 Matrix of competition images

Among factors in the external environment, the competitive factor is the most important Matrix of competition images helps identify major competitors, their strengths and weaknesses so as to help company to have appropriate strategies accordingly The competition matrix is shown in the below tabie:

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Table 1.3: Matrix of competition image Competitive Competitive Competitive company Ì company2 company 3

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Table 1.4 SWOT matrix table

Internal environment

ist of weaknsses ˆ

External environment eae

advantage of opportunities | taking advantage of

opportunities

S-O strategy: pursue opportunities that best suits the strengths of the company and its business orientations in the market (Attack)

W-O strategy: Overcome weaknesses to pursue opportunities (Compete)

S-T strategy: Clearly define the way the company can use their advantages to reduce damage to the external challenges (Caution)

W-T strategy: Setting up a defense plan to prevent weaknesses of the company from challenges of the external environment (Defense)

On the basis pointed out strategies by combining the strengths - opportunities, strengths - challenges, weaknesses - opportunities, weaknesses - challenges factors and use the GREAT model to define basic features for selecting key business strategy that companies can pursue

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Table 1.5 Selection of strategy

Step 2: To assess the extent of the impact of these factors to the overall strategy, it is possible to use the weight score which indicates the level of importance and impact of factors to the strategy The score is calculated from 0 to | and the total weight is always equal to | (column 2) After having a certain number of these variables together with the importance of strategy, it is possible to move to step 3

Step 3: In this step, conduct a review of points and give scores for each factor analyzed in each strategy Scores are given from 10 to 50 in which 10 is the lowest and 50 is the highest (corresponding to such levels as weak, average, average-focused, good, excellent) The score shows the strategy to be achieved at each level based on the score (column 3)

Step 4: Transfer means weight scores achieved from the analysis in column 2 (Column 2 with Column 3) of each strategy Then results are added up to have the sum of analysis Three strategies with high sum score are selected for implementing

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1Ì GEN Wsincee stia tay"

Business strategy shows the way administrators make up an action plan for using unique resources and capabilities of the company to have competitive advantage over its rivals in market There are many different strategies Basically, there are three basic approaches to build competitive advantage They are cost leadership, product differentiating and focus Companies have to position themselves, based on their objectives, internal and external situation to choose appropriate business strategies Whatever way does the company choose, it has to enable customers to understand the superior value compared to what competitors offer

Strategy is governed by cost, which is overall action to provide product or service with features accepted by customers with lowest cost in the industry This means that the company has taken full use of its advantages to provide products or services with lower cost than its competitors Then, the company gains considerable advantages over other competitors which have the same level or even higher profits Thus, the company has stronger position in the fierce competition in the industry will not be strongly affected by the bargaining powers of suppliers, customers or substitute products as well as the threats of the new entrants These advantages may results from high-tech, preferential treatment in accessing to raw material inputs, good production capacity, appropriate policies etc Besides, in order to produce with low cost, companies have to seek and make full use of resources in order to have cost advantage For example, EVN takes advantage of available power transmission for doing low-cost telecommunications business However, the company has to take into account potential risks such as imitating by competitors In addition, the sensitivity to changes may be reduced in the taste of customers due to focusing on cost reduction

Differentiating strategy means seeking for opportunities to become the supplier

of unique products or services under certain aspects as perceived by the customers The chooser of this strategy will focus their capacities on one or more attributes of the products that are evaluated as important by the buyers Then they are positioned as unique to meet the need of customers The separate price will be matched with this

ng Whe method EF hag also differs in each sector It can be based on the product itself, the distribution systems, marketing methods or large scale factors such as the ability to meet the needs of buyers everywhere and high compatibility between products The differentiating strategy requires companies to select the properties of the goods and making them different compared with competitors As long as the companies can prove they are the unique suppliers, then they can set a price that far exceeds the additional cost in order to have the unique And unique helps the companies to be against their competitors, create barriers for potential competitors, attract the loyalty of customers and is not exposed by substitute products However, companies face with risks such as imitation of competitors

Focus strategy is built on the basis of choosing narrow range of competition in the industry By optimizing the strategy to target at targeted segments, companies with focus strategies seek and gain competitive advantage within the targeted segment, although they generally do not hold any advantage M.E.Porter points out that a focus strategy will be directed at specific market gap that can be identified in terms of geography, customer type or product segment (Competitive Advantage: Creating and Sustainabling Superior Performance, New York: Freepress, 46) Upon selecting a market segment, companies pursue focus strategy using differentiating strategy or low cost strategy With this strategy, the companies create advantages by the differences in efficiency, quality, improvement and meeting customers’ needs However, they also face with the risk of potential competitors or change in the tastes

or technology that will lose the market gaps

1.2.5 Organization and Implementation

Once the business strategy is built, the organization and implementation of the strategy means that administrators have to review strategic objectives and bases for building strategies, setting up annual targets, building policies and implementation plan Additionally, suitable programs, budgets, appropriate procedures, resources allocation (personnel, financial and technical facilities), completing organization structure in accordance with strategy should also be set up The steering committee

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PE COMDE ESS oR HES STOR ommit on the implementation of the strategy, implement the strategy step by step and finally test, control and adjust the coordination during the process of implementing strategies are also needed

When implementing the strategy, companies have to foresee difficulties in the Organization such as requirement of more time as expected, many arising and unforeseen problems, management capacity does not meet the requirements, and ineffective information system that needs to be repaired

1.2.6 Evaluating the effectiveness of strategy

An effective business strategy is a strategy that is consistent with the socio- economic situation, in accordance with the situation of the company and can take advantage of good opportunities to achieve business targets Therefore, it is important

to evaluate the effectiveness of business strategy It is undertaken by the following steps:

Review the suitability of business strategy before actual implementation As mentioned earlier, business strategy is decisive to the success or failure of the

company, therefore, it must be verified carefully

Evaluate the performance of the company in each period of implementing the strategy in order to find out the deficiencies and shortcomings of the strategy in order

to have appropriate adjustment and supplementation

The process of testing and evaluating the effectiveness of the strategy includes determination of the testing and evaluation content, set out standards and criteria for assessments and estimation of results, compare and evaluate the results of strategy implementation strategies and identify causes of the faults in order to find the remedy

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Conclusion of Chapter I

In Chapter 1, we present the basis of theoretical concepts and terminologies as

a basis for the development of business strategy for companies We introduced the concept of business strategy by scholars so as to generate a full overview of business strategies Furthermore, the role and characteristics of the business strategy in order to understand the reason for building business plan by companies are laid down The process of building a business plan is presented including such steps as determining the mission and objectives of the company, analyzing the internal and external environment of the company The methods for setting up matrix for selecting business strategies, how to organize the business strategy; method for implementing the business strategy and finally the evaluation of business strategy implementation was introduced

Our team applied the above theories and methods in analyzing the operational environment and building business strategy for VNECO.SSM Specifically, it is

“Developing business strategy for VNWECO.SSM” in this assignment with an aim to rank the 2" in the field of mechanical power development in Vietnam

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CHAPTER IT: CURRENT SITUATION OF THE STEEL STRUCTURE

MANUFACTURE JOINT STOCK COMPANY (VNECO.SSM)

2.1 Overall introduction of VNECO.SSM

2.1.1 Establishment and development of VNECO.SSM

VNECO.SSM has international trading name of Steel Structure Manufacture Joint Stock Company, which bases in Hoa Khanh Industrial Zone, Lien Chieu District, and Da Nang City

VNECO.SSM is a state enterprise which has been equitized with 43.08% share

of Vietnam Electricity Construction Joint-Stock Corporation (VNECO), specializing mostly in the field of designing and manufacturing of steel structure, steel poles, pre- engineered frames, zinc coatings of mechanical products and zinc coatings services, construction of electricity network system and 500kv transformer stations, power resource projects, industrial and civil projects, transportation and _ electricity equipment import — export

VNECO.SSM, previously Da Nang steel structure manufacture factory (directly under the management of Power Construction Company 3) was established

on August 08, 2001 following Decision No.225/QDQT by the Board of Directors of Vietnam Industrial Construction Corporation

Following Decision No 85/2004/QD — BCN dated October 26, 2004 by the Minister of Industry (now Minister of Industry and Trade), Da Nang steel structure manufacture factory was renamed Da Nang steel structure manufacture joint stock company

On October 26, 2004, Da Nang steel structure manufacture factory officially launched its operation in the form of a joint stock company under the name of Da Nang steel structure manufacture joint stock company with start-up capital of 7.5 billion VND

On January 17, 2006, the Company was officially named VNECO.SSM following Decision No 973 QD/SSM-TCTDHC dated January 17, 2006 by the Board

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of Directors VNECO.SSM increased its charter capital from 7.5 billion VND to 27.5 billion VND of which Vietnam Industrial Construction Corporation possesses 43.08% share

On January 17, 2008, the Company has been officially listed in Hanoi Stock Exchange under stock name of SSM with the total capital of 27.516.640.000VND 2.1.2 Organizational structure of the Company

The current organizational structure of WNECO.SSM consists of 1 headquarter, 3 workshops and | line construction team

| Deputy Sales Manager | | Deputy Technical

aor [

ÿĐF (9190A(fA89EEe§gyersion

= Design and manufacture steel structure, steel poles, pre-engineered frames, and other mechanical products

» Zinc coating service for mechanical products

= Construction of electricity network system and 500kv transformer stations

In addition to such key areas of business, the Company reserves the right to expand its business activities to other legal areas which bring benefits to VNECO SSM and its shareholders

2.1.4 Introduction of Company products

Key products of VNECO.SSM are processing of steel structure manufacture, accessories, zinc coating steel poles from 110kV to 500kV and zinc coating service These products have simple specification and easy to be produced for electricity constructions activities They are processed in modern mechanical and zinc coating chains with high capacity and preciseness, including:

- 2 CNC automatic machinery systems imported from France

- 1 CNC automatic machinery systems for P03 steel processing imported from Italy

Supporting production machines and equipments:

- 02 Japaneses made punch press machines (65 tons va 80 tons) for the 16mm- thick steel the only types of machine being used in Vietnam

- T161 machines; hydraulic steel cutters ; 100 tons hydraulic pressers; Vertical drilling machines; Automatic welding machines (used to manufacture the hydro power pipes)

The current capacity of VNECO.SSM is 10,000 tons/year

The 2008VNECO.SSM Revenue Structure is shown as below:

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VNECO.SSM Revenue Structure 2008

1,50%

41.11% 0.15%

GO manufacture stee! structure

and zinc coating service

o Construction of electricity } network system

Figures 2.2: VNECO.SSM Revenue Structure 2008

In this period of time, the market for mechanics and and heated coatings in Vietnam is under development In cities and provinces nationwide, there are manufacturing factories with wholly imported innovative technology from France and Germany As a big company in mechanics and zinc coating in Central Vietnam, VNECO.SSM has expanded the market share nationwide

2.2 Report on business activities in 2006, 2007, 2008 and September 2009

+ Results of business activities in 2006, 2007, 2008 and September 2009

Table 2.1: Results of business activities in 2006, 2007, 2008 and September 2009

Revenue for 2007 was only 98% of 2006, which decreases by 1.571 billion

VND However, profit of 2007 increased by 684% as compared to 2006, equivalent to

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4.543 billion increases The reason is that VNECO.SSM changed its way to calculate redundant materials in the process of product manufacturing and processing In 2006, VNECO.SSM classified redundant materials as waste and record on selling “waste”

in other revenue category Therefore, wasted material value was high leading to high selling expenses In 2007, VNECO.SSM changed its financial management by selling the redundant materials Therefore, it was able to lower the selling expenses as against that of 2006 In 2008, the spreading global financial crisis negatively affected the whole economy in general anf the company in particular The Government has to conduct a serial of measures such as monetary tightening, raising interest rate, lowering the export taxes etc The production and employment was negatively

KEY FINANCIAL INDICATORS 2006, 2007, 2008 and 3 Quarters

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production development VNECO.SSM is among the organizations gained benefits from this policy when it is supported with lower interest rates to develop its business

As shown in the VNECO.SSM’s statistics at the beginning of September 2009, its net revenue reached 132.686 billion VND, after tax profits reached 11.144 billion VND exceeding the set targets of 2009 This is an impressive business results in the context

of the world economy recession in 2008 that Vietnam has been strongly affected + 2008 Expense structure

| n Cost price of inputs i mF inancial expense — n Sale expense

| n Management expense Other expenses mG Revenue

Figure 2.4: Expense structure per revenue 2008 Looking at the 2008 proportion of expenses, we can see the company’s revenue was strongly affected by the cost price of inputs, management and financial expense However, these have been put under controlled recently illustrated by the lower proportion of these expenses To further improve from that, two following major issues need to be carefully considered: (i) Large proportion of interest expense still proved VNECO.SSM using a large financial leverage which may result in negative risks in the context of tightened monetary supply and increased interest rates; (ii) Selling expenses accounted for a very small proportion of the total revenue (0% of

2007 and 0.32% of 2008) This demonstrated that VNECO.SSM has not paid due attention to the marketing activities, branding and market expansion

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At a larger scale, the total cost of business activities in 2008 accounted for

88.78% of the total revenue in the period, 94.22% in 2007, but 99.2% in 2006 (the

figure 2.4) Thus, although the total revenue in 2007 decreased by 1.61% in comparison to 2006 but the total business costs of VNECO.SSM decreased by 7.2%, more than 4.5 times of the decreased revenue rate Consequently, the VNECO.SSM profit/revenue ratio has increased sharply in 2007 From that point, we can see that the business management of VNECO.SSM was relatively effective in reducing the product price

VNECO.SSM’s production cost is quite competitive due to its modern

facilities for production and business, creative and skilled staffs These are the

positive factors that have contributed to enhance the company’s productivity

VNECO.SSM has made reasonable the arrangement of human resources, facilities and machinery equipment in an attempt to save the cost of production and business The company has also taken full advantage of input materials and abundant raw materials in production, the reasonable arrangement of machines and equipments for construction and installation activities to reduce the movement of the workers in operations

+ Business performance in comparison to the set targets

Table 2.2: Targets of business plan performance

Unit: Million VND

ALL 3(M)8 3/09

1 lumover 80380 93.516 116,34 94556 106, 130.648 132,95 160333 132533 62,66 _ 1.250 778 6224 1315 5.321 40464 4.150 10585 25506 7050 8533 121,04

3 Average

incone per 1.630,00 173000 106132 1,75 223 12743 246 250 10179 300 3,20 10667 capial/month

4.Total volume 6000 6454 107,56 7800 10053 12888 6959 6096 8760 6955 6990 100,50

- Pncessing,

galvanized steel 5.500 5.760 10473 7.200 8935 12409 6.159 4411 7163 6.255 6.550 104,71 structure

~ Gilvanization

(Source: Audited Financial Report of 2006, 2007, 2008 and internal report of 9 months of 2009V NECO.SSM)

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Revenue performance as against the set targets

in 2006, 2007, 2008 and 9 months of 2009 Million VND

Figure 2.5: Revenue performance in 2006, 2007, 2008 and 9 months of 2009

The performance of revenue, profits in 2006, 2007, 2008 and 9 months of 2009 exceeded the planned targets The turnover in the following year was higher than that of the previous year with the growth rates of 0.4% However, the 2007 turnover was 39% higher than that of the 2008 ( see the table 2.6) The sales and profits in the first 9 months

of 2009 exceeded targets

The above results originate from VNECO.SSM continuous expansion of its relationship to win contracts through bidding VNECO.SSM has actively participated in bidding for the various projects (industrial production, construction and installation) In the above three years, the total of galvanized and steel structure processed products was

22,602 tones

Although the volume of steel processed products produced by VNECO.SSM in

2008 was nearly 4,000 tons lower than that in 2007, its revenue in 2008 was still higher than that in 2007 The reasons were: (i) the steel price fluctuations were very large in

2008 The input steel price in 2007 was about 11,000 VND/kg, so the product price was from 18,000 VND/kg to 19,000 VND/kg Whereas, the input steel price in 2008 increased rapidly and fluctuated from 17,000 VND/kg to 18,000 VND/kg and the price of a product

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NH6 0N1652900/ ONDE) a large number of galvanized products (1685 tons products) for industrial zones were done by WNECO.SSM in 2008 VNECO.SSM was selected for the implementation of galvanized structural processing for the Dung Quat Oil Refinery Factory by the TENIC Unit with approximately 700 tons of complex structure with total value of 5.6 billion VND

Such achievements resulted from the fact that VNECO.SSM has made best use

of its advantages of processing technology and especially the zinc-plated chain, regularly maintained and strictly managed product quality and customer services By

so doing, the company has been able to create good reputation as perceived by its customers Accordingly, the reasonable rearrangement of human resource has been done by VNECO.SSM to meet the increasing demand of its customers

In addition to the product management quality, in the recent years, VNECO.SSM has successfully fulfilled its commitments with its customers in term of quality and timeliness VNECO.SSM has initial built its own reputation and trade mark in the processing and heated galvanized product market, enlarged the partnership which will provide favorable conditions for the company in the bidding process and project implementation In 2008 alone, in the field of processing, zinc plated services, construction and installation, the company has been directly contracted to process steel poles, construct and install equipments for the 220kV line,

Se San 4 hydro power plant - Pleiku

+ Revenue structure for each product/service

Each product/service ratio in the total revenues of the years of 2006, 2007,

2008 and first 9 months of 2009 is specified in the following table: