G1_00191 BUILDING BUSINESS STRATEGY FOR THAI NGUYEN IRON AND STEEL JOINT STOCK CORPORATION IN PERIOD OF 2012 TO 2016 XÂY DỰNG CHIẾN LƯỢC KINH DOANH CHO CÔNG TY CỔ PHẦN SẮT THÉP THÁI NGUYÊN GIAI ĐOẠN 2012 ĐẾN 2016

G1_00191 BUILDING BUSINESS STRATEGY FOR THAI NGUYEN IRON AND STEEL JOINT STOCK CORPORATION IN PERIOD OF 2012 TO 2016 XÂY DỰNG CHIẾN LƯỢC KINH DOANH CHO CÔNG TY CỔ PHẦN SẮT THÉP THÁI NGUYÊN GIAI ĐOẠN 2012 ĐẾN 2016

GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRA LION PROGRAM

CAPSTONE PROJECT REPORT

BUILDING BUSINESS STRATEGY FOR THAI NGUYEN IRON AND STEEL JOINT STOCK CORPORATION IN PERIOD

OF 2012 TO 2016

Group number: 4 Students’ name: Tran Van Thinh — Group leader

Tran Kim Thanh Doan Truong Nguyen Nguyen ThiHien Diu

HANOI: 2011

ACKNOWLEDGEMENT

In the first words I would like to send my best thankfulness to teachers and professors in Centre for Educational Technology and Career Development — Higher Education — Vietnam National University, America Griggs University for creating the best favorable situation for all trainees during the whole course especially, when we carrying out this capstone project report

Our group also thank to Board of Directors of Thai Nguyen Iron and Steel Joint Stock Corporation and related sections for guiding enthusiastically and providing necessary data for us to complete this capstone project report

Despite of trying our best in studying and collecting data, the capstone project report still have some unavoidable shortcomings We sincerely hope to receive comments of teachers and friends to makes it more meaning full

COMMITMENT

Our group commit that this is our special work Data and figures in this capstone project report are accurate, our analysis and conclusions have not been announced in any other scientific research

Hanoi, November 29, 201 1

Group leader

Tran Van Thinh

\dd) Thameguyen town, Thainguyen Province, Vietnam =

hel (0084) 280 3833563 Fax: (OO84).280.38 3642 | EAN bsite Ww w.usco.com.van E-mail: thinhtisco@ gmail.com (Uvitas e77 }

CONFIRMATION OF

THAI NGUYEN IRON AND STEEL JOINT STOCK CORPORATION (TISCO)

We, Thai Nguyen Iron and Steel Joint Stock Corporation confirm that we agree the research group including the members mentioned below to be allowed to get access

to the internal documents, data as well as contact with the operation fact to study about the strategic orientations of TISCO, serving the research purpose of the group to complete the MBA course:

1 Tran Van Thinh

2 Tran Kim Thanh

3 Doan Truong Nguyen

4 Nguyen Thi Hien Diu

Thai Nguyen, November 28" 2011

Manager of Materials-Export and Import Dept.,

TABLE OF CONTENT ACKNOWLEDGEMENT | e aậãa 1 TABLE OF CONTENT ooo AaẶẶẶa a i LIST OEF FIGURES AND TABLES c2 nhe iil LIST OF ABBREVIATIONS eee cece cneeceneeenteeectteeetieeeetteeeteeenteeeeas lv

h0 on nh (so Fiaaaadđẻốiả4444 9

1.2.4.4 GREAT mALTIX 2t HS 12v ST TT vn TH vn kg 10

1.3.2 Product specIfication StrAf€ØV c c1 22H HS vn SH vn vn Hy nhớ 12 1.3.3 Centralization SIFAf€ØY HS HH HH TH n1 HH vn Hướy 12 1.3.4 Inteprating development StFaf€ĐY c2 S22 n2 nen xe 13

CHAPTER 2: ANAL.YZING BUSINESS ENVIRONMENT OEF THATNGUYEN

HIRON AND STEEEL JOIN STOCK CORPORATION à co eieằe 15

9A Introduction Of TISCO n.ccanononnuacdsiie isis tek ciRIRERGGES RRR tỢ SNEI2ĐDSĐEB EPDEĐPErre 15 2.1.1 Establishment and development history .:ccccccecseeeeteetereeteneeeeenes 1Š 2.1.2 Company's organization and products - -‹ -ccc‡cheeierriee l6 2.1.3 TISCO’s vision, mission ANd COPE VALUES «is cs sioscces ccs see ernaranesesesecenenan sues 18 2.2 Analyzing business environment of TISCO c-cc-c‡cceeeheeree 20 2.2.1 Basics to build business strategy in the period of2012-2016 20 2.2.1.1 Defining necessary of building business strat€gyY ccàệ: 20 2.2.1.2 Basics to build business strat€ÐY -csnnnnhhhhhhhhrrre 20 2.2.2 Analyzing external environmeht . - eect nnehhhhhhrnrrrre 21 2.2.2.1 Macro environment (PETS modeÌ) - - - ch 21 2.2.2.2 Micro environment (Michael Porter`s five forces model]) 23 2.2.2.3 External factors evaluation matrix (EFE) . -++<+c+s+xes 27

2.2.3 Analyzing internal environmenI[ : cccctsssihsehhehhhhererre 29

2.2.3 Analyzing companys valuabe chain cà ằằseehhheerrree 29 2.2.3.2 Financial analysis sscccesssesesseeeeseeesseeesseeessneecneaeesseeensaeeeaeeene 32 2.2.3.3 Company’s prestige and reputation .: cece eee eee eteeteeeeeteeeneey 35 2.2.3.4 Internal factors evaluation matrix (IFE) - - - + ‡‡s‡‡‡eeeeex+ 36

2.2.4 SWOT analysis for TISCO ccc chan etereee 37

2.2.4.1 Strengtfe - - -.k146416134183835848484014480395/01590/ 06.20804001 30-090016 37 2.2/42 VWWGERKIIESSEGB.vv.ec.ce-ce<SSSSSSĂĂ ÌŸ Kê 2, nón bikie ach 08/0981/4/0868303831083331430041000099 990/05 98000P'091% 39 2.2.4.3 pporfiniiieS ss-css2121041314024648T01 58 030250405382004.1301009000798 9 4I D2 AA TR CANS wren rcrcersceynennnnedinananwenmnstinnnnennsihiils sii TGs SSGsiSiiNas WA AAO URCGrEN ES CER ERM 43

CHAPTER 3: CHOOSING STRATEGY FOR TISCO IN THE PERIOD OF 2012

3.1 TISCO’s development orientation in the period of 2012 to 2016 48 3.1.1 Production olbiectfv€ «ái Hà d6 84111: 146 G1201019331 0190079080935 48

3.1.2 Produet đistribution and market shar€ .cccccc -cccc‡‡SSsssssreeese 49 3.2 Choosing business strategy for TISCO in the period of 2012 to 2016 S| 3.2.1 Choosing strategy via SWOT matrix cccccccesseeerteerserteertseeeesneeneeens 51 3.2.2 Choosing business strategy via GREAT matriX -.-. - S3 3.3 Solutions for TISCO to implement business strategy in the period of 2012 to

20 1G co sensvenenoans pews ensonunimecemennnn nun sath 143/81310L3N8NfS800130018 50 018 10-194H150135 T1 HH 1H000/020cee nmsi 54

3.3.1 Production soluliöfi se sua 1á tá 40460000008 280 388 2570007300989 9) 120710019900xcmmree 55 3.3.1.1 Improving mining material aCfÏVILI€S ác cà eehhhhhhrrerrrre 55

3.3.1.2 Improve production capacity and product diversificatlon - 55

3.3.1.3 Human resource †raining - -‹ 4224222221142 100k kg 56 3.3.2 Distribution solutions - 5 <<4 1122220604 14114 05 14.6 k2 8218 0110 57 3.3.3 Marketing SOlutIOnS . - ccccccrnnnhhnhhhhhhhhhhhhhhhhhrdrdrdrng 58 3.3.3.1 Advertising on public communiCatiOn : -ccccccccceeteeteerree 58 3.3.3.2 Advertising on newspaper, agazIn€S ccccccànsenheetrrre 59 3.3.3.3 BI bơard e c- oe <Ă<<cSSễSSSESkACSakAne E34 SiỂg EEU 0532412955 D1 S53 259520558009309°% 59

3.3.3.4 Sponsoring and other advertising methods -: :-+: 59

3.4 Process to apply business strategy for TISCO to 2016 -: -+- 59

CỮNGLUSION, cá 2Ỷ20 nà ng01ả0 phi TĐ16031058040100410 T6900000091000501msnmenee, 61 KEFERENCES ó- 2 Hà na ngang tng10n5)01140p00 9081009150 001921012 0mmmsse 62 APPFENDDEES, ii nnnadaneenddernoatrirrnrnernosirnrerseinisrsesamraseee 64

vi

LIST OF FIGURES AND TABLES

1 List of figures

Figure 1.1 PETS Model .ccsccsccscssssesensssteeeenenseseecsseessesesssseseneneenssesessanesaenens 5 Eigure: 2.2 Michael Porter`s five forces modeÌs : ccccreererrrrrrrrrre 5 Figure 2.1: TISCO’s Organization Structur€ -ccccchhhhhhrrrrrrtrre 17 Figure 2.2: TISCO`s product stFUCfUF€ cà snhhnhhhhhhrHrrrrrrrrrrrrre 18 Figure 2.3: TISCO’s and competitors share in the North of Vietnam (2005-2010) 24 Figure 2.4: Turnover for TISCO’s product in the period of'2007-2010 32

Figure 2.5: Production process for TISCO”s products -. :ccccceirerree 38

Figure 1.1 TISCO’s SWOT matrIX - 5c ScsSsénéhnhhhhhtHrndrrdrrerrerrrrrrn SI Eigure 3.4 TISCO training pFOC€SS - - ác nsnenhhhhhhhhrrrrrrrrrrrrrrre 57 Figure 3.3: TISCO’s strategy applying procedure in the period of 2012-2016 60

2 List of tables

Table 1.1: SWOT Mattrix c:cccccccssssecssssssscessseneecessseeeessneserssaaesersrneseseasesoeens 10 Table 1.2: GREAT matrix .:seccscccsscccscssosrsccessntsassnnstscesssenseseeneasersterssaseesenonns 10

Table 2.2 Factors concerning to reach customer deCISIOnS + 5+ c5: 26

Table: 2.3: Extnernal factors evaluation mafFriX .- -:- + Ss‡nsseeeeeeerreree 28

Table 2.5: TISCOˆs Expenses in the period of 2007 to 2010 - 33

Table 2.6: TISCO’s profit in the period of2007-2010 -. -c + ceeere 34

Table 2.7: Financial indexes in the period of2007-2010 -. - 35

Table2.8: Internal Factor Evaluation matriX . - 5s SĂSsenhhhHeeHe 36

Table 2.9: Total steel cosumption in the period of 2005 to 2009 - 42

Table 2.10: Imported material volum for steel industry -: : -+++: 43

Table 3.1 Improving production plan (2012-2016) : : :+++ecrerrerrere 48 Table 3.2: Product plan in the priod of 2012-2016 - . ccc‡néhhhhrrrre 49

Table 3.3: TISCO's distribution channel in the period of 2012-2016 50 Table 3.4: Choosing key strategy for TISCO - GREAT Matrix - 54

vii

Asia Development Bank

External factors evaluation Food and Agriculture Services Food and Agriculture Organization Free Trade Agreement

Internal factors evaluation International Standard Organization Ministry of Industrial and Trade

Strategic business unit

Thai Nguyen Iron and Steel Joint Stock Corporation Vietnam Steel Association

United Nation Industrial Development Organization United State Department of Agriculture

World Trade Organization

viii

INTRODUCTION

1 Necessity of project

In the period of integration, enterprises are facing to not only many big opportunities to growth and expand their own business but also great deal of challenges To exist and develop enterprise has to build clear orientation and

business strategy on the basic of analyzing external environment and internal

factors Business strategy will help the company to exploit market's opportunities

as well as minimize challenges from external environment and limit company’s weaknesses

Deriving from below situation, building business strategy becomes of the most important activity to a company Business strategy creates a clear business orientation and guides all departments, employees to company’s general goal then avoids localization and decentralization Business environment change quickly, international competition require company always be active and creative to adapt

to these changes

In the process of industrialization and modernization, heavy industry in

general and metallurgical industry in particular plays an important role in deciding the success of this process TISCO is the biggest company in metallurgical industry and the company has created huge contribution to this process As all other companies, TISCO is also facing to many opportunities and challenges So

building business strategy for a particular period becomes the determining factor

to company’s expansion and country industrialization

Realizing the importance of building business strategy for metal companies

in particular and the whole industry in general, there are many significant projects

and studies of domestic and international researchers on this topic Some significant

projects are:

Topic: “Vietnamese steel industry in 2010” Pham Chi Cuong, President of Vietnamese Steel Association The topic shown out observation identifications about recent activities of Vietnamese steel industry in 2010: achievements and limitations

From these identifications, Vietnamese steel industry can limit its weaknesses and promote strengths in production and business

Topic: “Vietnamese steel industry - A period of develop and converse new policy”, Nozomu Kawabata, Tohoku University, Japan The topic raised out general conclusion about business situation of Vietnamese steel industry in the context of industrialization, modernization and integration

Both of below topics have significant practical meaning to development of steel industry, but they are macro research, it needs a more specific and profound project

to apply these conclusion to activity of a particular company From below reasons, researchers choose the topic: “Building business strategy for Thai Nguyen Iron and Steel Joint Stock Corporation in the period of 2012 to 2016” with the objective of giving out a more specific and profound for building business strategy for the biggest steel company in Vietnam

2 Purposes of project

Base on practical understanding about steel industry in general and production and business of TISCO in particular and knowledge of strategic management subject, the project shown out a comprehensive and clear picture about strategic building and business of TISCO in Vietnam market Throughout practical analysis of production and business of TISCO in integration, the project affirmed explicitly the role of building business strategy for Vietnamese company in modern

time

The project not only stopped at practical analysis but also gave out specific solution for each section in each period for TISCO In chapter 3 the project will show out forecast of steel market till 2016 These solutions and forecast will also be guide line for other companies in steel industry

3 Scope and objective of project

The project analyzes production and business of TISCO in Vietnam market From this analysis the project concludes suitable strategies to expand business scale

as well as company profit in both short term and long term

Data and information in this capstone project were collected from actual production and business of TISCO in these 15 years The project also gave out some forecasts about steel market to 2016 and business orientation for TISCO in the

period of 2012 to 2016

4 Methodologies

The project is the combination of a great theory “strategic management” on practical business strategy building of a big corporation To be successful in applying this theory on production and business of TISCO, researchers used both qualitative and quantitative method in studying These methods are:

- Collecting and analyzing method

- Comparative analysis method

- Specialist analysis method

- Economic statistic method

The project also use kinds of models for analyze such as: SWOT matrix,

GREAT matrix, etc

A wide variety of academic researches, market report, journals are utilized to

bring out the best understanding of the subject The sources of data are listed clearly

in the reference

5 Project’s structure

Besides forewords, conclusion and list of table and abbreviation the capstone

project includes three chapters as following:

Chapter1: Overview of strategic planning and strategic management

Chapter 2: Analyzing business environment for TISCO

Chapter 3: Choosing strategy for TISCO in the period of 2012-2016

xi

CHAPTER 1: OVERVIEW OF STRATEGIC BUILDING AND

STRATEGIC MANAGEMENT

1.2 Definition, characteristics and roles of business strategy

1.1.1 Definition of business strategy

“Strategy” isoriginated from military field In the period of Roman, strategies were established and connected closely to empire’s wars After the second world war, strategy was used in economic field According to tradition conception

“Strategy is a united and completed plan which is established to ensure main targets of enterprise will be successfully implemented’ In traditional conception, content and plan are main parts of a strategy, so, company’s strategy is always the

result of forecasted and estimated plan

However, business environment always changes quickly and complicatedly.it makes building business strategy become more and more difficult Building business strategy as programming has not been suitable anymore Then the traditional concept of strategy is step by step replaced by modern concept New definition of “strategy” tries to ensure the nature of strategy and also keep the adaptation to changes of business environment According to United Nation International Development Organization: “Generally, a development strategy can be

described as an outline of developing process to reach intended targets for a period

from 10 to 20 years.it instruct strategic managers in attracting and allocating resources It can be said that, strategy provides a vision for development process

and the consistence for implement solutions Strategy also can be basics for

overview developing plan in long term and short term or can be general awareness

of related people about prospects and willingness and challenges in a specific period”

1.1.2 Characteristics of strategy

Together with the movement economy, strategic ideas are also changing to adapt to business environment However, in any point of view and any period,

strategy always keeps its general characteristics.which reflects the essence of enterprise Most primary characteristics are:

- Business strategy needs to define clearly basic targets of an enterprise in each period Strategy must be grasped thoroughly in every sides, every sections

- Business strategy must ensure maximize mobilizing and optimum promoting all company’s resources (human, capital, technique, technology, etc), promote company’s advantages, catch company’s opportunities get comparative advantage

in market

- Strategy is the tool to establish company’s long-term targets

- Business strategy is always ideally to be successful in market Strategy is established and implemented base on detecting and using company’s opportunities and comparative advantages to reach high economic result

- Strategy clearly shows out company’s competitive sphere

- Business strategy establishes mutual relationships between opportunities and challenges, strengths and weaknesses to create company’s comparative advantages

- Business strategy is a clear definition of economic and noneconomic

distribution of the company to its shareholders In recent years, shareholders definitely distribute an important role to business strategy of each company They are all people who have direct or indirect relationship to company’s profit distribution and the capital contribution to maintain company’s operation

1.1.3 Roles of strategy in modern open economy

Characteristics of business environment have a big affect to existence and development of company They can create new opportunities and challenges for corporation.And the company which wants to exist has to find out a new

management method.it is exactly “strategic management” - strategy is the basis of

this management method In model business environment, strategy becomes more and more important to existence of company These roles are:

- Strategy is the tool that generally shows the long-term goals of the organization or enterprise Enterprise’s goals are special targets it wants to reach

during its operation process Specialization and making documents these targets via strategies will help members of enterprise or organizations when finding the targets which they want to reach so, they will know what they have to do It will help the enterprise easier in reaching its goals

- Strategy connects short-term targets closely in long run conditions In model business situation, every enterprise has to flexibly move to adapt to changing

of environment Sometimes this movement will make the enterprise be separated from its long-term goals In this case, strategy with strategic goals will help managers of enterprise a long run direction So resolving short-term matters in long run conditions can bring enterprise a stable development Long run goals also are

basics for short-term goals

- Strategy helps to ensure unification and make plans for enterprise's activities In existence and development process, strategy provides a comprehensive and logical point of view in resolving problems which arise in business performance.Strategy also helps to associate different sections in a company and orient them to reach to a unit goal,it is enterprise’s goal

- Strategy helps enterprises and organizations to catch up with market opportunities and create comparative position in the market Strategy unifies the

enterprise’s operation process in order to reach to enterprise’s strategic goals It

means that enterprise will have to use its resource in most efficient

way.Soenterprises have to choose fastest way to catch up with market opportunities

and deploy its available abilities to create new comparative advantages

1.2 Procedure to build business strategy

1.2.1 Defining company’s target and vision

It can be thought that, company’s targets are its existence reason.So, strategy

makers’ approaching to object issue will create the direction for establishment of

strategy and have an effect on content of strategy

Generally establishing a mission announcement is a continuous procedure

including 6 basic steps:

Step1:Taking initial shape about business mission

Step 2: Investigating external factors and evaluating internal factors

Step 3:Reestablishing business mission idea

Step 4: Reestablishing company’s business mission

Step 5:Implementing company’s mission announcement

Step 6: Examining and correcting company’s mission announcement

When building company’s mission, strategy makers have to consider company’s holders” and managers needs, they also have to consider all internal and external factors

Beside mission, the company also needs to define its direction and target to follow When establishing company’s object it needs to calculating effect of internal, external factors and company’s social responsibility

1.2.2 Business environment analysis

Every enterprise exists in a certain environment Its existence and

development are much effected by external environment.And these effects can be

positive or negative.Enterprise which wants to exist and develop has to realize the

movement of these factors and adjust to be suitable with these factors

Business environment includes economics conditions or macro conditions and industry conditions or demonstration conditions Industry conditions affect to everyday activities of enterprise and economic conditions affect do not affect

directly to enterprise’s but this affection is in long run and it can create crossroad in

development process of enterprise External conditions which affect to control strategic management include: micro conditions and macro conditions

Macro environment: When analyzing affection of macro conditions to enterprise’s activities we use P.E.S.T model PEST model studies affection of 4 main factors which affect to enterprise’s activities These factors are: Political,

Economic, Social and technological.

Source: Strategic Management: Concepts and Cases (12th Edition) Fred R David

Figure 1.1 PETS Model Microenvironment: They are conditions that tightly concern to enterprise’s activities Factors of micro conditions will decide investment condition, competitive level, and industry’s profit According to Professor Michael Porter, micro

conditions are affected by five competitive forces it called “Michael Porter’s Five

Forces” model Five forces are: The threat of substitute products or services, the

threat of the entry of new competitors, the intensity of competitive rivalry, the

bargaining power of customers, the bargaining power of suppliers

Source: Strategic Management: Concepts and Cases (12th Edition) Fred R David

Figure: 2.2 Michael Porter’s five forces models

1.2.3 Internal environment analysis

Enterprise's ability is one of the most important factors which decide what it can do and whether it can be successful or not To ensure the feasibility of a strategy

we have to evaluate enterprise’s current situation, realize strong points and weak points by that way we can find out its comparative advantages Internal analysis is implemented in these following sides:

Valuable chain analysis

Valuable chain is the sum of enterprise’s activities which can improve its value Organization's valuable chain includes these components:

- Main activities: they are activities which closely connect with company’s products and services For example: purchase and control materials, marketing.and after sale services These activities are evaluated to know whether they are save

cost.increase products’ and services’ quality and satisfy customers’ need or not The

more these activities are highly evaluated the higher company’s valuable chain is

and the company will have comparative advantage

- Supporting activities: Besides main activities, supporting activities will indirectly influence to company’s products and services Supporting activities will help main activities to be implemented better and more efficient These supporting activities are: human resource management, technology improvement.etc

Financial analysis:

Financial situation and financial indexes is the reflection of efficiency and company’s financial ability Company’s financial situation is not only reflects company’s current ability but also indicates its development ability in future Some

indexes which frequently used in financial analysis include: current liquidity (total fixed assets/current debt), leverage factors, liquidity ((current assets —

inventory)/current debt), turnover rate of current assets, indexes indicate profit ability, etc

Organization’s culture and enterprise’s reputation:

Enterprise's reputation is now becoming more and more important for its foundation and development Each enterprise needs to make its employees understand its target and philosophy This will force all members to reach

company’s common goals

Company’s reputation also helps to make its goals be successful Reputation can be achieved in long process A company with famous reputation will easier in approach new market and its products will be easily accepted However creating

reputation is as difficult as maintaining and enforcing it Besides analyzing internal

factorswe also take care of some more factors like: legal in its activity and management culture, etc

After analyzing internal factors, strategic managers will compare them These comparisons indicate the company’s development in comparison with competitors in the same sector

These comparisons are implemented follow three directions:

- Period comparison: This is compare company’s activities in different

period in relationship with its context

- Industry’s standard: Managers will compare company’s standards in comparisons with industry’s standards and main competitors This action will help

to realize company’s position in the whole industry

- Identify essential success of industry: they are some important factors which have deep influence to company’s activities

1.2.4 Supporting tools for defining and choosing strategies

Support for establish and choosing strategy we use some main tools These below models will be some typical examples

1.2.4.1 Internal Factors Evaluation matrix (IFE)

Internal factors evaluation matrix summarizes and evaluates main strong points.weak points of some sections in company or the whole company IFE matrix

is developed through five steps:

First_step: Establish the list of main factors which have determinant functions to competitive ability of a company in an industry (normally the list will have from 10 to 20 factors)

Second step: Defining important level by classifying from 0.0 (no important)

to 1.0 (very important) for each factor Be noted that important level defined for each factor will indicate its relative importance to success of company in doing business So, for all company in an industry important level of all factors in first step are equal

Third step: Classify from | to 4 for each representative factor Biggest weak point equal to 1, smallest weak point equal to 2, smallest strong point equal to 3 and biggest strong point equal to 4.So, they will be score for each factor in comparison

with other competitors in industry

Forth step: Calculate score for each factor by multiplying important level of each factor to its correlative classification score

Fifth step: Calculate total score for all factors in matrix by plus correlative

score of each factor This number will indicate company’s absolute competition ability

So, if total score for all factors in matrix equal to 4 the company will have

highly absolute competition ability If this number is from 2.5 and over, company

will have medium competition ability If it is smaller than 2.5 company’s competition ability will lower than medium

1.2.4.2 External Factors Evaluation (EFE)

External factors evaluation matrix helps to summarize and quantify influence

of external factors to enterprise.It is also the same as IFE matrix analysis to analyze

EFE matrix we will implement through five steps:

First_step: Establish the list of main opportunity and threat factors which will have influence to company’s activities (normally from 10 to 20 factors)

Second step: Defining important level by classifying from 0.0 (no important)

to 1.0 (very important) for each factor Be noted that important level defined for

each factor will indicate its relative importance to success of company in doing business Total important level of all factors is equal to 1

Third step: Classify from | to 4 for each representative factor Biggest weak point equal to 1, smallest weak point equal to 2, smallest strong point equal to 3 and biggest strong point equal to 4.So, they are scores which indicate the reaction of company to opportunities and threats of market

Forth step: Calculate score for each factor by multiplying important level of each factor to its correlative classification score

Fifth step: Calculate total score for all factors in matrix by plus correlative score of each factor

So, if total score for all factors equal to 4 company will have quick reaction

to opportunities and threats of market If total score is from 2.5 and over, company will have reaction level greater than medium If this number is less than 2.5

company’s reaction will be lower than medium

1.2.4.3 SWOT matrix

SWOT matrix is a strategic planning method used to evaluate the Strengths,

Weaknesses, Opportunities, and Threats involved in a project or in a business venture It involves specifying the objective of the business venture or project and identifying the internal and external factors that are favorable and unfavorable to achieving that objective The technique is credited to Albert Humphrey, who led a convention at Stanford University in the 1960s and 1970s using data from Fortune

500 companies SWOT matrix usually gives out four basic strategies: (1) SO (strength — opportunity): strategies which base on company’s strengths to deploy market’s opportunities (2) WO (weaknesses - opportunities): strategies which base

on ability of getting through company’s weaknesses to deploy market's opportunities (3) ST (strengths - threats): company’s strategies to avoid market's threats, (4) WT (weaknesses- threats): company’s strategies to get through

weaknesses and avoid market’s threats.

1.2.4.4 GREAT matrix

Table Error! No text of specified style in document 1: GREAT matrix

Strategies Strategy 1 Strategy 2 | |Strategy n

Base on group of strategies given by combination of strengths - opportunities, strengths- threats, weaknesses — opportunities, weaknesses — threats, using quantitative GREAT to draw basis direction to choose center strategy that the

enterprise can follow

- Step 1: Consider, select and show the factors relevant to the enterprise's development plan to analyze in the first column That is the list of criteria needs to

be analyzed (column 1)

- Step 2: To assess the effect rate of these factors on overall strategies, we use the effect coefficient which presents the importance and influence of these

factors on strategies This coefficient is calculated by giving point from 0 to | and

the total weight is always equal to 1 (column 2) After having the specific variables along with the importance of strategy, continue to move to step 3

- Step 3: In this step, evaluate and give points for each analysis factor with

each strategy Evaluation point is calculated by giving point from 10 to 50, the

lowest 10 the highest 50 (equivalent to levels: weak medium fair- medium - focus fair or good) Evaluation point shows that with each analysis factor, how level the strategy can achieve (column 3)

- Step 4: Converting coefficients is the result of multiplying two columns (Column 2 with Column 3) of each strategy, then add those results to get the last

result is the sum of multiplications above Three strategies with the highest total points should be chosen and implemented

1.2.4.5 Competition profile matrix (CPM)

Competitive profile matrix is an essential strategic management tool to compare the firm with the major players of the industry Competitive profile matrix

shows the clear picture to the firm about their strong points and weak points relative

to their competitors The CPM score is measured on basis of critical success factors, each factor is measured in same scale mean the weight remain same for every firm

only rating varies The best thing about CPM that it includes your firm and also facilitate to add other competitors make easier the comparative analysis

11

IFE matrix only internal factors are evaluated and in EFE matrix external factors are evaluated but CPM include both internal and external factors to evaluate overall position of the firm with respective to their major competitors

1.3 Strategy choosing

1.3.1 Low cost strategy

Low cost strategy aims at the target to become the lowest cost producers with certain quality standard In which, the company will sell its products with industry average’s price to obtain bigger profit and share than competitors

In the case of a “price war” happens, the company still can achieve a certain

profit Meanwhile competitors are all lost Even when there's a confliction in prices,

industry is expanded and price’s down, companies with low production cost still can achieve profit in a long term This strategy is always applied for wide market

Enterprise can base on some main method to obtain advantage in reducing cost such as: improve productivity, search for big material source with low price, utilize comparative advantages between countries or reduce unnecessary expense If the competitors cannot cut the same expense level, the company can keep its comparative advantage by leading in cost reduction

1.3.2 Product specification strategy

This is the strategy in which the company aims at developing products and

services with special and unit characteristic These characteristics are highly appreciated by customers,added value of the product specification allow the

company set a higher price level than competitors When applying this strategy, the

company must evaluate suitable price so that this price gap can cover additional cost

arise in production and distribution Moreover, this additional cost can be transferred to customers because they cannot find the same product to replace

using this strategy can keep customers’ loyalty This loyalty makes others competitors discouraged and they also do not want to compete directly

Because of focusing on a narrow market, enterprises apply this strategy have lower turnover Then it makes them hard in negotiating with suppliers Anyway, the company can transfer this advantage to customers by setting them a higher price level

Enterprises in centralization strategy can change their advantage in product development so that it is suitable for the market segment that they investigate thoroughly and know clearly One of major risk that created by this strategy is the imitation technology of competitors Moreover, producers with leading cost in a major market can easily compete directly to company using centralization strategy Other company with the same strategy also can attach this market segment to take out a number of customers in this narrow market

1.3.4 Integrating development strategy

Company follows this strategy can find the way to produce material or

distribute its products internally Applying integrating development the company

can use reverse integration or positive integration, partly or total integration,

internal or external integration

Integrating development strategy can help the company reduce its expense and market cost, better quality controlling and utilizing business opportunities and

be active in set up production plan This strategy can be applied for companies which have ability to catch up with opportunities which are suitable for company’s vision

1.3.5 Mixed strategy

A company can apply many different strategies in a period The company can pay much attention to development in this area while cut down in others Those activities aim at implementing successfully the company’s general objective during the strategy implementation period

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The strategic choice out of strategies above depends on the company’s capability and related environment factors From the result of analysis of SWOT matrix the company will choose for itself the best business strategy

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CHAPTER 2: ANALYZING BUSINESS ENVIRONMENT OF THAI NGUYEN IRON AND STEEL JOIN STOCK CORPORATION

2.1 Introduction of TISCO

2.1.1 Establishment and development history

Company's name: Thai Nguyen Iron and Steel Join Stock Corporation

Head office: Cam Gia ward, Thai Nguyen city, Thai Nguyen province

After more than 50 years of establishment and development, the company has been continuously growing and expanding Iron productivity reached to 600.000 tons/year and total turnover was VND 7,000 billion in 2010 The production and

distribution system was expanded with 5 branches in

Hanoi.QuangNinh, ThanhHoa.NgheAn, Da Nang, sale agency in Ho Chi Minh city

and distributors network in every province in the country

TISCO’s products are famous in all over the country and they have been used for all most national key projects such as:HoaBinh,Yaly, Son La hydropower.My Dinh stadium,Thang Long and Chuong Duong bridges and many other important projects The company’s products have been exporting to many countries: Canada, Indonesia, Laos, Cambodia, ete TISCO and TISCO’s product have won numerous awards such as: Vietnamese high quality products, Vietnam Gold Star, famous branch to consumers, prestigious branch in Vietnam and many others valuable awards.Because of special contribution to the development of country TISCO horned to be awarded“Hero of the People Armed Forces”,“Second and Third Independence Medal” and many other noble rewards of Party and State

TISCO started the expanding project period 2 to mark an important development on 29"Sep 2007 The project has VND 5.000 billion investment amount with the target of improving company’s production billetand hot roll ability from domestic ore material to 1 million tons/year from 2013 With this target the company can satisfy market demand and become an iron producer with big scale.highquality and modern technology in comparison with both domestic and international competitors then ensure fast and stable development in the context of integration

With more than 50 years of building and development by using major advantage in producing billet and hot rolled iron from domestic ore material modern technology and equipments in hot rolling iron, wide distribution channel and comprehensive development strategy, quality policy “Maximizing customer's benefits” and motto “Quality first, competitive price, diversifying products and services” are main factors which have created company success and also are stable

basics for company’s long term development and stability

2.1.2 Company’s organization and products

Company’s organization is one of the most important factors to each company in setting up its business strategy A clear structure will show out the job description and procedure for each section in implementing any purpose

Company’s structure is also the map for each section in applying its function in

achieve company’s general target and also indicate its independence in each specific

action

To maintain and expand company’s operation in these 50 years, TISCO’s organization chat has got some changes to be adaptable to the country and steel market situation Recently the company has been operated by a structure which can ensure the combination and independence of all sections Company's structure can

be shown as following:

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Facility Section Iron furnace

LuuXa factory

Luuxa rolling factory

Thai Nguyen factory

CocHoa factory

Energy section

Train transport

Engineering

DGM

Engineering section

Quality control

Safty control section

PhuTho factory

Project control

Security section

Sale planning section Hanoi branch

QuangNingbr

ach

ThanhHoaba rch

Nghe An branch

Da Nang

branch

Cultural section

Source: Human resource operation section, TISCO

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Figure 2.1: TISCO’s Organization Structure

To satisfy demand of steel and iron in the context of modernization and industrialization products structure of TISCO has become more and more diversity

and abundance.Some main products can be introduced as:

Flat steel Equal Angle steel | character steel C character steel

Deformed Bar Steel Rebar Steel Cast iron

Source:Sale planning section, TISCO

Figure 2.2: TISCO’s product structure About product structure in 2011:

- Wire steel ©2;@8: 25 + 30%

- Rebar Steel: 60 + 65%, in which: CIII steel holds 8+9%

- Other shapes: 5 + 15%

Product structure can be changed to adapt to market demand

TISCO products are highly appreciated with quality and reputation in market

because the quality investment is always focused in many years TISCO always control quality strictly to follow ISO 9001:2000 (now 9001:2008) in every production process

2.1.3 TISCO’s vision, mission and core values

Vision:

- Affirming TISCO as the top branch of Vietnam steel industry with

international operation scale, in which metallurgy is the main activity in

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combination with investment and diversifying company’s operation to be adapted with general development trend and ensure competitive ability

- Striving to become a corporation in 2015 and group of company in 2020 Mission:

- “Maximizing customers’ needs” with the motto “Best quality, competitive price diversifying products and services”

- TISCO has a professional working environment in which human is the

center technique ability and high technology are motivations of development, maintaining high profit for shareholders, ensuring fast and stable development for

the company in the context of integration

Core values:

- Building company’s culture oriented as: Honesty, responsibility and community.Clearly defining that human is the most valuable asset of the company Company’s principle has to orient to the target of building and training the best human resource and also always attract talent people and support them to become the best in their position

- Creating excellent individuals in a dynamic and unit collective.Building a

team work with talent, independent and active individuals.And they always innovate and improve in every field

- Building innovating and improving culture in everywhere, every time so that the company can have a group of pioneer who always innovate and receive high technology and technique.Continuing innovation in every field to become the better and the best

- Continuing update management skill for board of managers and give change for young employee to train legacy team

- Renovating technique and quality control procedure to catch the target to become the company with best management system and approach the word's

management system

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- Customers” satisfaction is the company’s core objective and motivation.So the company consist the target: 100% products and services are highly appreciated

by customers

Expanding company’s activities together with social responsibility, environment and orient to objective of ensuring stable development and respect for environment

2.2 Analyzing business environment of TISCO

2.2.1 Basics to build business strategy in the period of 2012-2016

2.2.1.1 Defining necessary of building business strategy

To shorter strategy company always build them on conversion cycle such as: quarterly or yearly.But to long term plan which contains orientation and strategy character is usually set up for the period of 5 years or 10 years Oriented and strategic long-term strategies are established on turning times which decide the

development of the company and the industry as well

2.2.1.2 Basics to build business strategy

When building long-term strategy TISCO based on below foundations:

- The industry and country economic orientation development

Base on economic and social orientation of the country and the industry as

well TISCO analyzes changes of demand and Government's support policies Then

the company evaluates trend and development rapid of customers demand and set

up plans to satisfy these needs

- The board of management’s policy

Board of Management and general manager are people who have top responsibility and powers in the company.So all policies from Board of Management and Board of Directors dominant all company’s activities.And when setting up plans for company the investment and planning section always take care

of management policy

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- Analyzing business result in the previous periods

This result shows out market demand and company’s ability to meet this

demand Moreover result from this analysis provides information about efficient of

capital using and company general operation This is also the most basic and

popular foundation to set up the plan for TISCO However this basic contains some

backward factors that may cause the deviation between plan and actual

2.2.2 Analyzing external environment

2.2.2.1 Macro environment (PETS model)

Major factors that influence to the development strategy of TISCO They are the world political issues and policies

Recently, domestic enterprises have to face to strictly competition when the supply excessesthe demand.Number of domestic steel companies is continuously increasing together with increasing of imported steel with cheaper price from China,

Russia and other ASEAN countries According to WTO accession process, besides roadmap of tax cutting protection barriers for reducing imported steel products cannot be taken the advantage Then competition becomes a difficult question for TISCO in the coming year

Current import tariff for ASEAN steel to Vietnam is 5% and others is

8%.However, basing on WTO accession process, import tariff for steel products

will be 10%, billet is 0% and construction steel is 5% in 2015 It will create big challenge for TISCO in the next coming years

Besides, TISCO is also depended on imported billet then the changes of iron

price in the world market will much affect to company’s products price.Mineral draft bill will be passed to reduce exportation of steel, especially processing mineral.And in near future, mineral mining will not satisfy domestic consumption

TISCO will have to import material from others countries

Using PETS model to analyze company’s macro environment the project aims at studying 4 main factors: Political, Social, Technical and Economic

environment These factors can be summarized as below table:

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Political environment

-Stable political environment creates

/advantageous premise for

_ investment and taking technology over

! Legal system and policy are adjusting to ị

be suitable for the country development |

! trend and integration

Sometimes adjustment of policy and |

‘legal system cannot catch up with or |

/ measure all changes from market then |

create difficulty for company in

| production and operation

Social environment

i Development of economy

‘income in most of population then

lives are also

i people’s improved,

consumption increase in the whole

“society

| Consumers have higher and higher

| demand for quality products Social

‘environment has developed on many

ị sides and the company needs to attach |

‘its development to the whole society

In long-term the country is on the way —

of development but consequences from | -the world financial crisis have caused the decreasing of economic growth rate | for some years

economic integration It brings out: many advantages for modernization and | development of economy and society |

with fast growth rate Vietnam joined |

into WTO will bring challenges and |

in |

opportunities for all enterprises

general and for steel industry in |

particular

Pechnology environment Most of steel production technology in | Vietnam is in average level Ballet : technology is much depended on scare i coking coal Specialization is in low |

level and change ability or creating new |

2.2.2.2 Micro environment (Michael Porter’s five forces model)

Intensity of Rivalry

According to evaluation result of Ministry of Industrial and Trade (the Labor Times published on 12.7.2010), there are about 74 steel production projects with productivity over 100,000 tons/year, total investment for these project is more than VND 41.997 billion and USD 20,101 million.Since the development of steel industry has been planned in 2007,there are more than 65 steel production projects with design capacity reached to 100,000 tons/year, in which there are 58 domestic projects, others are FDI Total investment amount for these projects is VND 41,623 Billion and USD 19.878 Total steel production capacity of Vietnam in the period of

2015 to 2020 is: iron production — 2.04 million tons/year, billet production — 16.28 million tons/year and hot rolling steel — 33,575 million tons/year

In comparison with steel demand, to 2015 total demand of the whole country

will be around 15 million tons and to 2020 will be 20 million tons With total capacity of all factories is about 33.29 million tons/years (in which 65% is

construction steel) then supply will 1.5-1.8 times excess the demand

It can be concluded that competition in steel industry has been really strict and strict The market will always be in producer surplus status

With large production scale,TISCO realized its competitions are big producers with modern production line, famous branch and high competitive ability

TISCO’s competitors are HoaPhat Steel (DANI), Vietnam Australia steel (VUC),

Vietnam Korea Steel (VPS), Vietnam Italia Steel (VIS) and Australia Steel (SSE) Competitive factors between producers are:

In the point of competitive factors, TISCO is the company which have comparative advantages with 55-60% domestic material 5 main distribution channels and TISCO branch has been chosen and believed by consumers all over the country

In direct competition point of view, TISCO still the biggest steel provider in

the North of Vietnam Share ration of steel market in this segment can be displayed

as figure 2.3

21.21%

sTISCO #VUC «DANI #VPS «VIS Khác

Source: Steel industry report, Vietnamese Steel Association

Figure 2.3: TISCO’s and competitors share in the North of Vietnam (2005-

2010)

Comparing with recent competitors, TISCO is the company with most comparative advantage Considering main determining factors, TISCO are all more outstanding than others except after sale service, and this problem is the one that need to be study in next business strategy

Threats of new entrants

Vietnam has already joined into WTO, because of commitments with this organization, some tariff barriers will be taken out, this is also the chance for big international steel corporation enter to Vietnam market There are some corporations have already joined into Vietnam such as:Posco - Korea with hot and

cool rolled steel projects Zine platin project with capacity reaches to 3 million tons/year ESSA — India with high quality hot rolled and strip steel projects.capacity

reaches to 2 million tons/year Tata corporation — India invested to Ha Tinh

complex steel area with expected capacity is 4.5 million tons/year By using modern technology and low labor cost, big steel corporation will be strong competitors for

Vietnamese steel company in general and TISCO in particular

On the other hand, because of too much dependence on imported material,

some corporations changed to distributors.But they only stop at distributing scarf steel Recently Hoa Phat is the only company that is investing to build Hai Duong steel complex which will produce steel from domestic iron and coal It will be the direct new entrant competitor to TISCO

Generally, most of the have been deployed this time are projects which focus on producing billet.But there are a very small enterprise that use domestic material for production ThachKhe mine is the only one which has been invested buy mining cost of is very high

In conclusion, it can be said that TISCO’s advantage in billet producing from

reasonable cost for mining iron has very important meaning for the company in

building strategic management in the near future

Customers

There are three main kinds of customers for TISCO: national works,trading

units and households,Factors concerned to their buying decision are different

Recently, customers’ bargaining has been rather strong Because market is in

supply surplus status then customers have many choices to pick up their supplier

When the market status is surplus supply, competitors try many ways to

attract customers then customers have many ways to choose their suitable products

So TISCO needs to define its competitive factors and sale and after sale services are

very important to the company they decide company’s or failure

TISCO’s main customers are: National works, distributions, and households Each type of customers have their own requirement for steel products Below table

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will summarize characteristic of each customers, summarizing customer's opinion about TISCO product is the for company in producing suitable products for each market segment

Table 2.2 Factors concerning to reach customer decisions

Factors National works Trading units Households

| Using frequency Considerable more Many times Less

times

2 The decision Group of people Directors Individual

3 Searching benefit Ensure process Profit Quality

4 Using purpose Construction Goods Private construction

6 Product type All types Unnecessary Some type only

8 Solvency Late payment Diversification Soon payment

10 Deciding factors Quality type Price Prestige products

l | Sale locations - Unimportant Unimportant Impaam: —_|

L2 Unsatisied Cut as required Service Cut as required

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Source: VNSteel evaluation report,in 2010

Supplier

One highlights character of steel industry is depending on imported billet material.Using imported materials makes domestic steel companies are much more depended on foreign suppliers and the fluctuation of exchange rate

To TISCO, the company cannot totally use mining materials, it has to buy from both domestic and foreign suppliers Then TISCO is also much depended on suppliers

Anyway to 2012 after the second stage of expand production project completing the expected billet capacity will reach to 1 million tons/year then the company can totally use its material This is a quite rare advantage that others cannot have

Threats of substitutes

Together with development of technology, there will be many types of plastic materials, compounds, and alloyswhich can substitute for steel products For example, aluminum, alloy, concrete without steel inside etc.In the near future, it can

be said thatsteelproducts cannot be substituted by any other materials

Recently, to developing countries, people still consider the development of steel industry as an important factor, which decides development of a country So iron and steel cannot be replacednot only in construction but also in the whole

economy

2.2.2.3 External factors evaluation matrix (EFE)

From analyzing influence of external factors to Thai Nguyen Iron and Steel

Joint Stock Corporation as well as refer to suggestion of specialists in tea industry

Researchers established a matrix to evaluate impaction of external factors to

operation of TISCO The external factors evaluation matrix was created base on evaluation effect of external factors to the company’s operation Actually, there are many external factors that affected to TISCO’s production and exportation but we chose the ten best important factors These factors have major effect to company’s production and operation in the period of 2012 to 2016 These factors also need to

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