G1_00271 XÂY DỰNG CHIẾN LƯỢC KINH DOANH CỦA CÔNG TY KÍNH NỔI VIGLACERA GIAI ĐOẠN 2012-2015 BUSINESS STRATEGY FORMULATION OF VIGLACERA FLOAT GLASS COMPANY FOR THE PERIOD 2012-2015

G1_00271 XÂY DỰNG CHIẾN LƯỢC KINH DOANH CỦA CÔNG TY KÍNH NỔI VIGLACERA GIAI ĐOẠN 2012-2015 BUSINESS STRATEGY FORMULATION OF VIGLACERA FLOAT GLASS COMPANY FOR THE PERIOD 2012-2015

CAPSTONE PROJECT REPORT

BUSINESS STRATEGY FORMULATION OF VIGLACERA FLOAT GLASS

COMPANY FOR THE PERIOD 2012-2015

nc GPBREESRRENTE® Version

For fulfilling the requirements under Master of Business Administration program,

we submit this final capstone project to Griggs University

In the first words of the Capstone Project, we would like to express our thankfulness to the great many people We would like to thank all professors of Griggs University, who gave us very useful lectures during past two years

For all the support in researching period, we want to express our heartily thanks to our friends in Viglacera Corporation, our classmates and program co-coordinators who gave us good condition and useful information that made me be easier in researching and capstone project completing

We have spent concerned efforts on completing this capstone project, nevertheless, due to limited time and scope of study, this project might be negligent We are looking forwards to receiving feedback from the program’s lecturers and fellow students to complete the project in order to develop sound strategies for the company, and effectively implement these business strategies in the near future

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REMARKS OF VIGLACERA CORPORATION ABOUT DATA OF VIGLACERA FLOAT GLASS COMPANY PDF Compressor Free Version

Viglacera Float Glass Company (VIFG) is a dependent subsidiary of Viglacera Corporation which have been established since 2002

For nearly 10 year of establishment and development, VIFG has affirmed its position, prestige in business market and gained faith in customers inside and outside the country; its revenue and profit of following year has been always higher than previous year, ensuring sufficient work for staffs and officers, fulfilling annual business production plan To maintain and develop, Viglacera Corporation

as well as VIFG always pay much attention in formulating business strategy

Recently members in Group 5, Class GAMBAO1.X0410, Griggs University have come to Viglacera Corporation to collect documents, financial data and study business operation of VIFG to serve for their capstone project with the topic

“Business strategy formulation for Viglacera Float Glass Company to the year 2015” Viglacera Corporation and VIFG have created favorable conditions for them to complete their capstone project We commit that the data involving VIFG

in this capstone project have been supplied and checked by ourselves Contents of their research, their solution and proposals in the capstone project will also be considered as a recommendation in formulating business strategies of VIFG upcoming years

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CHAPTER 1: THEORETICAL BASIS ON BUSINESS STRATEGY

1.1.Nature of business strategy

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2.2.1.6 Global business environment

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_1 Vietnam Float Glass Company (VFG)

.2 Dap Cau Viglacera Glass Company

.3 Ky Anh Glass Company

4 Chu Lai Glass Company

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CHAPTER 3: FLOAT GLASS BUSINESS STRATEGY FORMULATION TO THE

YEAR 2015, RECOMMENDATION AND SOLUTION

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3.2.5 Strategy analyzing, strategy formulation and select the optimal strate

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3.7 Concluslon

PREFERENCES

APPENDIXES

.4.6 Specific solutions for each strategy loccacrstste tec ec canons

3.5 Implementation and execution of strategy

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In this document the abbreviations are understood as follow:

SWOT Strength — Weakness — Opportunities — Threats

QSPM Quantitative Strategic Planning Matrix

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This document includes the following tables:

Table 2.1 Some criteria from 2009 to September 2011 117 —

Table22 — Competitors inhigh quality marketsegmen 32 - 7

' Table 2.3 Competitors in medium quality market segment | 1 | Table 2.4 External Factor Environment Matrix of VIFG 38

Table 2.5 Relative comparisons among existing competitors 42

Table 2.6 Evaluation on competitive advantages of VIFG 430

| Table 2.7 Human resource quality in 2010 45

Table 2.9 Internal Factor Environment Matrix of VIFG 52

Table 2.10 Total revenue of VIFG Company, Dap Cau Glass | 54

Company and Vietnam Float Glass Company (VFG) (2009-2011)

Table 2.11 Competitive Profile Matrix (CPM) 55

‘Table 3.2 Quantitative Strategic Planning Matrix of VIFG 68 -

Table 3.4 Some objectives of the Company period 2011-2015 | 75 |

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Figure 1.1 Strategy formulation analysis | frame | 7

Figure 1.2 PESTmodel =i‘ sé‘ i;”;”OC~*™ 8 |

Figure 1.3 Michael Potter’s Five-Force Model 10

Figure 1.4 Michael Porter’s Value Chain Model KM

Figure 2.1 Organization Structure of VIFG 16

Figure 2.2 Profit growth of VIFG over the years 2009 — 2011 18

Figure 2.3 Revenue growth of VIFG over the years 2009-2011 | 18

Figure 2.4 The chart of GDP growth during the period ‘of 2008 - | 22

2010

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In general, Vietnam’s construction glass industry plays a key role in providing inputs for the construction of the country’s economic infrastructure With a view to meeting local demand for construction glass used for various purposes such as building and developing industrial and refinery zones, residential conurbation and housing areas for urban dwellers as well as countryside people in all regions of Vietnam, exporting goods to contribute to the national budget, offering another source of provision for the state budget, generating jobs for local people, the construction glass industry is currently one of the pivotal areas that the state fosters with its investment

Despite enjoying favorable conditions like having capital and incentives poured from the state, companies in the construction glass industry have to face the challenge of the ever-changing rate of the socio-economic environment and harsh competition within the industry To earn a prestigious position on the market as well

as an enhanced competitiveness in comparison with competitors, companies must have long-term vision and appropriate development strategy formulation

In this context, Viglacera Float Glass Company, a construction glass manufacturing business, has been struggling to survive and develop a strong brand name in a changing environment with technological modernization, product quality

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enhancement, tharket search and development, etc especially during the financial — economic crisis in 2008-2009 and the followed revival period with surging inflationary pressure from the end of 2010 until now Confronted with such adversity, the formulation of a good business strategy aimed at alleviating negative impacts while exploiting its resources and taking chance to stabilize business operation and development is a necessity for the company for the time being Therefore, Group 5-X0410 unanimously selects the topic “Business strategy development for Viglacera Float Glass Company by 2015” as the capstone report for the strategic management course

de The importance of the research

In the previously mentioned economic context, this research on business strategy formulation for Viglacera Float Glass Company by 2015 is useful as it may present an overview of the current situation as well as a suggestion for the company’s future business strategy The results will probably be directly applied to Viglacera Float Glass Company’s operation to seek future business opportunities on the basis of strength intensification and the grab of market prospects, while limit potential threats during operation, direct the development of the company in the right way, earning it the leading position in the construction glass industry

a Objectives and expectations

On the foundation of theoretical research on strategy and business strategy, the analysis of environmental factors affecting Viglacera Float Glass Company is carried out This paper’s objective is to identify opportunities and threats, combine those with internal analysis for the business so that its strengths and weaknesses can

be detected, serving the purpose of laying out visionary goals and proposing business strategy in the near future Then, recommendations and plans are offered to

be effectively implemented selected strategies

The capstone project aims at achieving the following objectives:

- Identify theories of business strategy development that can be applied to the specific field of float glass production of Viglacera Float Glass Company

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- Identify thé current situation to develop business strategies and suggest implementation solutions by 2015 for Viglacera Float Glass Company

4 Research scope and methodology

In the scope of this capstone project, Group 5-X0410 has used the theories of strategic management and business strategy to concentrate on the analysis of main influential factors to the company’s operations and its current situation From that point onward, we develop feasible and effective business strategies for Viglacera Float Glass Company in the field of construction glass production by 2015

Research methodology

With the hope of obtaining prospective results for our research, we have employed a variety of research methods such as systematic methodology, synthetic methodology, deductive methodology, comparative and statistical methodology, etc using both primary and secondary data to analyze and identify the relationship among studied factors, observe their changes in the function of time and space After that, suitable measures to fully exploit opportunities and strengths while minimizing weaknesses and avoiding threats are formed, offering optimal solutions

to problems encountered during the strategy formulation process of the company

5 Structure of the capstone project

Introduction

Chapter |: Theoretical foundation on business strategy

Chapter 2: Analysis of the current situation of Viglacera Float Glass Company (VIFG)

Chapter 3: Developing business strategy for VIFG by 2015, recommendations and solutions

Conclusions

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THEORETICAL FOUNDATIONS ON BUSINESS STRATEGY

1.1 Nature of business strategy

1.1.1 Concept of business strategy

The definition of business strategy has emerged long before and refers to “The science of planning and monitoring activities” (Webster's New World Dictionary) This term stems from the military As the goods economy has become more advanced, the term has been used in the business field There are more than one approach to the understanding of strategy, but they all unite at the point stating that

a strategy must be specific to a particular industry or enterprise, appropriate to existing resources, and feasible

In the modern perspective: “Strategy is a set of complex activities aimed at mobilizing potential resources of an organization to achieve a certain goal.” (GaMBA 2009 - Strategic Management Textbook - Definition of strategy, page !) According to Alfred Chandler (Harvard University), “Strategy includes the determination of the basic long-term goals and the objectives of an enterprise and the adoption of courses of action and the allocation of resources necessary for carrying out these goals” Bruce Henderson argued that “Strategy is a deliberate search for a plan of action that will develop a business’s competitive advantage and compound it The differences between you and your competitors are the basis of your advantage.”

It is clear that all definitions about strategy mention five factors, which are Plan, Ploy, Patter, Position, and Perspective that an enterprise may use to achieve its goals in operation Strategy is the optimal path or approach of an organization to fulfill its objectives and sustainably develop It is the master plan for the future with the process of formulation based on the enterprise’s resources, current situation, and the growth trend of its competitors and the external environment

From the viewpoint of Michael Porter, companies may choose to pursue one, two,

or even three types of strategies:

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- Cost leadership strategy: create a competitive advantage by producing products or services with the lowest costs possible By doing so, cost is perceived as a competitive edge when the enterprise lowers its selling price to dominate and expand its markets, or increases profit thanks to a wide gap between its costs and those of companies in the same industry

- Differentiation strategy: compete by creating distinction with which other companies cannot match Differences may include product quality, delivery time, brand awareness, distribution system, etc that satisfy customer demand

- Focus strategy: Compete by concentrating its resources and strengths on a product

a market niche or a particular group of customers

1.1.2 Roles of business strategy

Business strategy formulation is one of the indispensable tasks of an enterprise’s manager That task is beneficial to the company in the following ways:

- Clearly identify corporate vision and goals in each stage, helping the company find its way to attain targeted objectives in the future

- Help top management of the company recognize external opportunities and threats, internal strengths and weaknesses, foresee future changes to anticipate measures to tackle difficulties and adapt to new business environment

- Assist a business in the full exploitation of its resources, amplifying its strengths

in the development process

- Help administrators make sound, timely decisions; efficiently allocate resources in each development stage; enhance it operation; ensure stable and constantly progressive business values

- Help increase the integrity and consensus among employees and managers in implementing corporate plans

- Help enterprise increase productivity, raise sales revenue and improve administrative efficiency, avoid risks, resulting in a more resistant company when keeping away and dealing with problems

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In conclusion, a business strategy supports an enterprise with a clear determination

of goals and recognition of core abilities, which are quite helpful in creating a sustainable competitive edge

1.1.3 Basic characteristics of business strategy

In terms of characteristics, a strategy comprises three main points:

- Corporate desired goals

- The proposal and selection of solutions to achieve these goals

- The implementation and allocation of resources to achieve these goals

A business strategy of an enterprise is an overall scheme aimed at the achievement

of corporate goals It does not lay out in detail how to attain these objectives as that

is the function of various supporting schemes and other functional strategies It only provides a frame to guide administrators’ thinking and actions

In terms of breadth, in any organization, strategies exist at certain differing levels — ranging from the whole enterprise (or a group of enterprises) to each individual working there

+ Corporate-level strategy is a strategy at the corporate level, aims at the goals and overall scope of the organization, and serves the purpose of meeting shareholders’ expectations

+ Business unit - level strategy is more involved in the way by which an enterprise can successfully compete on a specific market

+ Functional strategy - supports business - level strategy and corporate - level strategy so that they are efficiently carried out using components like resources, procedures, human and required skills

+ Global strategy (international business) - is the choice of confronting international business problems when an enterprise diversify its operations beyond national borders

1.2 Requirement and contents of stages involved in a business strategy

formulation process

To develop a business strategy, a 3-step procedure is described as followed:

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stage: Input Stage

Threats Matrix Evaluation Matrix Matrix

Quantitative Strategic Planning Matrix (QSPM)

"Figure 1.1 Strategy formulation analysis frame”

1.2.1 Input stage

1.2.1.1 External factor evaluation — using External Factor Evaluation

Matrix technique The external environment consists of all factors outside the enterprise that cannot be controlled by managers but is quite influential to the achievement of corporate goals, growth and profitability The analysis of these external factors considerably contributes to an enterprise’s identification of its position, environmental and contemporary characteristics, thus forming basic understanding about external impacts to the company, leading to sound decisions in strategic management

- The general environment (PEST) refers to influential aspects in the society to a specific industry and companies within that business area It comprises economic, technological, demographic, political, legal, and global aspects

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Economic environment: The situation of the economy and its future trends might alter its value and income generation capability Major factors that enterprises usually take into account are GDP growth rate, inflation, interest rate, and macroeconomic policies of the state

Socio-cultural environment: is composed of social attitudes and cultural values Changes in the society also pose threats as well as create opportunities Those factors directly influence specific corporate business operations They determine the success of advertising activities, sales, promotion, etc of companies Those activities may stand a greater chance of being successful if they are positively

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received and are appropriate to the custom and ways of production of targeted residents

Technological environment: Technological advance, through end products of technological process, directly influences and determines quality and prices of products, which are two key elements of marketed goods Changes in technological environment can bring about both opportunities and threats for enterprises Opportunities may include the possibility of improving capability to produce new competitive products; threats may be the direct or indirect decline of product life span The most significant impact of changes in technology is the effect on barrier

of entry and industry restructuration

Demographic environment: accounts for issues related to population, population pyramid, population distribution, ethic groups and income distribution Moreover, it refers to the attitude towards goods consumption and service reception of people in different regions, of different genders, ages, occupations, which are fundamental in the formation of markets and inevitably in corresponding business strategies Lifestyles affect demand for products and services in terms of type, quality, shape, and package The rate of population growth positively influences activities included

in the corporate business strategy

Global environment: The tendency of integration and globalization in a global scale generally and in Vietnam specifically makes it indispensable for enterprises to take into account international factors when planning long-term strategy with high capability to integrate and to stretch both geographically and politically

The purpose of externa! analysis is to spot opportunities and threats outside an organization It is composed of macro- and micro-environment (the environment of the industry in which the enterprise operates) analysis

- Analysis of industry environment:

The industry environment is a series of factors directly affect an enterprise and its competitive actions and responses

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According to Michael Porter, there are 5 competitive forces within an industry,

Figure 1.3: Michael Potter’s Five-Force Model

- Analysis of product life cycle:

Product life cycle describes fluctuations in the number of sold products from the point they are launched to the time they exit the market

Each life cycle of a certain product consists of 4 stages: introduction stage, growth stage, maturity stage, and decline stage Basing on the characteristics of a specific stage, managers will make decisions and formulate strategies to dominate the market, maximize profit, or propose innovation to ensure business safety

From the above analysis, EFE Matrix can be formed for the company

1.5.1.2 Competitive Profile Matrix (CPM)

Of all events and environmental trends that can affect the strategic position of a company, competitive influences are often the most highly regarded This Competitive Profile Matrix detects major competitors and their unique strengths and weaknesses

1.2.1.3 Internal Factor Evaluation (IFE) Matrix

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Internal factors are very important to every business strategy and corporate goals Internal analysis are performed in order to point out the company’s strengths and weaknesses so that we can build an appropriate system of goals and strategies, thus intensifying strengths, turning them into competitive edge, and tackling weaknesses Major factors representing internal ones are the sequence of corporate values and its core abilities, including manufacturing process, marketing activities, administration, financial accounting, research and development, and information system

1.2.2 Matching stage

1.2.2.1 SWOT Matrix

SWOT is an abbreviation of Strengths, Weaknesses, Opportunities, and Threats This tool is extremely useful in analyzing an issue or making decision in organizing, managing and doing business This matrix is used here as a tool to analyze and devise business strategy for VIFG

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SWOT Jnalysis frame can be briefly described as followed:

1.2.3.1 Quantitative Strategic Planning Matrix

In the stage of determining strategies, strategists can use the QSPM - an analysis technique used to evaluate and determine the comparative attractiveness score for

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each feasi de Kratepic alternative based on the identified internal and external

critical success factors

1.2.3.2 Organization and Implementation

Successfully formulating strategies can not ensure the successful implementation of strategies Strategy implementation is a process of managing the working resources with the concentration on performance and efficiency This process requires special leadership and encouragement skills as well as the co-operation between many people

1.2.3.3 Evaluate the effectiveness of the strategy

Strategic planning is based on the analysis of external and external environment to identify opportunities, threats and strengths, weaknesses, combined with the

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identified elements in order to develop and select strategic alternatives Thus, the analysis of internal and external environment, together with the forecast and prediction of strategies will greatly influence the quality of planned strategies Therefore, strategic alternatives need to be examined and evaluated to timely identify changes and inappropriate issues in order to have more appropriate action plans As a result, the defined objectives can be attained

To evaluate strategies, the following basic tasks should be implemented:

- Define the contents to be checked

- Set the assessment standards

- Measure the performance

- Compare the performance with the set standards / targets

- Determine the causes of the deviations

- Find solutions

The above part is the theoretical background, basic terms and concepts underlying the development of business strategies for a company These theories and methods are: the concept of strategy, strategy development steps, evaluation and analysis methods, comprehensive evaluation method, strategy proposal method, and optimal strategy selection method Those theories and methods will be applied to the analysis of business environment and strategy development of Viglacera Float Glass Company to the year 2015

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ANALYZING REAL SITUATION OF VIFG 2.1 VIFG — An Over view introduction

2.1.1 Foundation

Viglacera Float Glass Company (VIFG) is a dependent subsidiary of Viglacera Corporation, being established under the Decision No 1020/QD-BXD dated July 31° 2002 by the Ministry of Construction

Company has its own seal and account and is organized as well as operated under the organizationand operation charter of Viglacera Corporation, the Company's owncharter was approved by the Board members of Viglacera Corporation

Vietnamese Trade name: Công ty kính nổi Viglacera

English Trade name: VIGLACERA FLOAT GLASS COMPANY

- Manufacturing and trading construction glass products, later glass, mirror;

- Improving, interior decorating the civil and industrial projects

After 20 months of construction and installation, on 1*' October 2002, the company officially went into operation with the very first square meter of glass produced on 25" October 2002 The products went into the stability in terms of quality and technology on 28" February 2003 and VIFG has operated stably until now

Production lines of VIFG use the FLOATtechnology invented by Pilkington Brothers This is the most advanced technology of manufacturing

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construction glass nowadays, with the designed capacityof 350tons of

aquatic crystal per day, equivalent to 18 million mí of glass standardized per year

Float glass is produced from fine raw materials strictly controlled on quality

Mixed materials are spread evenly like a carpet on the surface of melting glass at a

temperature of 1600°C in tank furnace From this tank furnace, the fluid glass flows

into tank of tin (for shaping) and forms a glass band at 1100°C, floating on the

surface of melting tin Leaving the tin tank with the temperature of 600°C, the glass

band becomes solid and is transferred to the annealing furnace to remove

elongation The finished glass has the absolute flatness and is cut according to

orders Thanks to the distinct characteristics of float technology, the construction

glass products of VIFG have become the standard for engineering and aesthetics

2.1.2 VIFG‘s organizational structure

Board of Manager

Technical Department

Economics Department

Alkali-vzoodt- spittinhg Plant

Processing Mould Plant Plant

+ Manufacturing construction glass products, glass mirror

+ Interior perfecting and decorating civil and industrial projects

- The available products

+ Various types of construction plate glass

+ Post-glass products: laminated glass, toughened safety glass, glassware, mirrors, insulated glass, decorative glass

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Zid Evaluation of VIFG’s operating result in recent years

2.1.4.1 Achievements:

Right when entering the production, VIFG ha reachedthe volume of 18.6 million m? with various glass types that have the dimension of 3.5 - 5 m, the thickness of 2 — 12m and color diversity The Company’s products are made according to the British technology and meet the standards JIR3202-1996 of Japan Nowadays, VIFG’s various products have been accepted by the market In the first year of production, VIFG has reached the revenue of 302 billion VND and submitted 14 billion VND to the State budget

In recent years, despite the impacts of rising inflation, the financial and monetary volatilities and material price changes in 2008, VIFG has still maintained a stable operation In 2010, the average growth rate was 10 — 15% versus 2009; especially, the business efficiency increased by 22% due to the decision to increase selling price over low-cost inventory; the production sales increased by 8% over the year

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Profit (million dong)

Figure 2.2 Profit growth of VIFG over the years 2009 — 2011

Revenue (million dong)

Figure 2.3 Revenue growth of VIFG over the years 2009 - 2011

The Table 2.1 and Figures 2.2, 2.3 shows that during the last 3 year, the operation

of VIFG has some remarkable achievements:

Production in 2010 increased 11% over the year 2009

Consumption in 2010 increased 8% over the year 2009

Revenue in 2010 increased 12% over the year 2009

Net profit in 2010 increased 22% over the year 2009

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Entering SS ITP tite tighten monetary policy made the real estate market almost frozen and all projects have to cut investments and expand the project schedule Due to those effects, the demand for construction materials has declined, directly affecting VIFG’s consumption during the first 9 months of 2011 In addition, the input prices increased sharply, especially price of energy, fuel which doubled In February (from 17% to 24.5%) and in March (from 10-15%) The price of electricity also rose by 15.3% on average On the other hand, there were fluctuations in the exchange rate VND/ USD; the interest rates in the whole banking system also rose simultaneously The current interest rate on the loans from March 2011 has fluctuated from 22.55 to 23% per annum The increase in the input prices has pushed the production costs up, reducing the business efficiency of the Company

Facing the difficult situation brought by unfavorable market factors which affect badly the operational activities, the Company has followed closely the objectives set out in 2011, being effective in production management and flexible in financial operations The Company has been striving to sell the entire inventory and create financial health, obtaining higher profits than planned at the beginning of 2011 (.e

05 billion VND) and completing the repairing plan for cooling glass furnace

2.1.4.2 Challenges:

To achieve the above results, the Company has to undergo a relatively long time of facing sudden changes in input prices, interest rates and constant fluctuations in exchange rate, which lead to higher costs for the Company Meanwhile, the serenity

of the real estate market in 2010 and the first 9 months of 2011 has made the construction material market in general and the construction glass market specifically experience many difficulties coming from the Government’s monetary policy that aimed at reducing inflation, stopping the disbursement of capital for non-production projects

On the other hand, due to the lack of tight organization and control from the Government on the product quality in the glass market, there has been a severe

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which have low quality, less brittle and bending, smuggled from China through small volume way

2.1.4.3 Shortcomings: Apart from the gained achievements, VIFG also has some shortcomings, limitations in formulation and implementation of business plan In short run, VIFG still can gain some certain efficiency However, in long run, the VIFG needs to boldly make additional investments in equipment to produce post- glass products in order to meet the increasing demand of safety glass in construction Furthermore, the Company also needs to limit as much as possible the products having short life cycle and not high competitiveness

2.1.4.4 Causes of these shortcomings: the periodical production and business plan has not been able to cover all the issues in order to create the sustainable competitive advantages for the Company Therefore, the Company has to create a long — term strategy based on analyzing environmental factors affecting the Company’s development; thus, a new and suitable production and business plan can

be set out, bringing a sustainable growth for the Company in the future

2.2 External environment analysis

2.2.1 VIFG’s general environmental analysis

According to the economic experts, among 10 Southeast Asian countries, Vietnam

is regarded as a nation with the most favorable investment environment in terms of political and social stability

In the report “East Asia & Pacific - Doing Business 2010“ of The World Bank

(WB) released on 10th September 2010, Vietnam was ranked at 92 among 182 economies in terms of ease of business environment Compared to other ASEAN countries, Vietnam has fewer problems relating to religious, ethnic conflicts and terrorism

Regarding to international relations, Vietnam has opened the market to almost all of the nations in the world, being an important member of ASEAN, participating in AFTA and APEC, signing bilateral and multilateral trade agreements and from

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2007 becomin the otficial member of WTO The business environment has been improved in the direction of transparency, ventilation The trade barriers have been removed, leading to the effective mobilization of domestic and foreign resources thus, helping the development

2.2.1.1 Political and Regulatory Environment

In recent years, the legal system has been more complete and uniform The Government has adopted many policies to support enterprises in the implementation

of license, clearance, funding, human resource training for new investment, etc In

2005, the Ministry of Science and Technology issued “Rules of using safety glass group A as glass wall fagade, balcony wall, side walls, partitions, windows and doors in the constructions” The Construction sector also promulgated the system of work quality control

These policies has created positive impacts, pushing the demand for safety glass in households and other buildings, bringing opportunities for construction glass industry to develop

The stability and improvement in the political and legal environment is a good chance for Vietnamese Enterprises to exploit and expand the production activities However, it is also a challenge because a lot of new businesses will be born, becoming potential competitors of them

Besides, there are still many shortcomings in the implementation and observance of laws Some regulations are not clear and reasonable, lacking consistency and synchronization The administrative process improvement 1s still slow, creating many difficulties for businesses

Competition with imported product: In 2011, the Ministry of Industry and Trade has rejected a demand by float glass producers for protection against imports saying the domestic industry faces a threat from rising fuel prices rather than imports It had launched a six-month investigation following a request from the industry to impose higher import tariffs and restrictive import quotas The ministry concluded the float glass industry had been affected by a surge in the price of heavy fuel oil (FO) in Vietnam at a time when international prices were falling and declining demand due

to the economic slump The price of FO, whose costs account for 30-35 percent of

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meandsiuenoini costs had risen in Vietnam from the middle of 2008 until March 2009 But with domestic FO prices coming down in line with international prices and demand for float glass rising with the economic recovery, protective measures are no longer appropriate Viglacera Float Glass Company and Vietnam Float Glass Company had asked the ministry's Competition Administration Department last July to initiate an investigation into float glass imports The investigation, the first by Vietnam since it joined the World Trade Organization three years ago, considered imports from 15 countries and territories, including Malaysia, Indonesia, the Philippines, and Thailand

by 6.7% With this result, the GDP growth rate during the period 2006 — 2010 reached 7%/ year on average and the GDP per capita in 2010 was estimated at 1,160 USD The fast growing economy has created significantly increasing demand for investment in infrastructure and housing; the ability to pay for construction materials, including construction glass products, thus, also increased rapidly

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Assessing the demand of domestic glass market regarding to the GDP growth rate

of Vietnam and forecast of growth rate of Vietnam's construction glass industry through market reports of ASAHI Corp (one of the largest construction glass corporations in the world), up to now, the supply and demand in the domestic glass market has been quite balanced It can be said that along with the development of the economy, the demand for construction glass has increased a lot This is the opportunity for businesses in the industry to expand production

The increase in the customer demand can soften the competition among existing rivals (not to mention the amount of glass that can be exported every year) The rise

in domestic supply will be the chance for the float glass manufacturers using Float technology The reason is that FO oil which accounts for 40% of total costs for glass production using Sheet technology is not subsidized by the State, the company using this technology, thus, will retreat from the industry due to high costs

+ Inflation and prices:

Since 2000, the economic growth of Vietnam has been at the stability of 7% - 8%/ year However, since then , the inflation has continuously increased At the end of

2007, two-digit inflation (12.6%) returned and in 2008, it was 23% In 2010, the inflation was complicated and increased to 19.58% This shows that Vietnam’s economy is on the stage of recovery, facilitating the construction material industry

in general and construction glass industry specifically to develop

+ Exchange rate:

In recent years, the State Bank of Vietnam (SBV) has consistently tried to maintain policies stabilizing the value of Vietnam Dong against US dollar Movements in exchange rate in 2010 was quite complicated Although the SBV adjusted to increase the inter-bank rate twice in February and October, the gap between the official exchange rate and the free — market one was still high The official exchange rate used to be lower than the free — market one by 10% The adjustment

at the beginning of 2/2011 to increase the exchange rate by 9/3% caused a lot of difficulties for businesses Exports, remittances and foreign investment flows

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declined Fompressor Ere tai Oreign currency: the exchange rate VND/ USD always fluctuated at a high level, hurting the business environment The construction glass enterprises who can maintain the export will be affected less than other ones who do not export or whose export declines

2.2.1.3 Business Environment

Taking the advantage of being a member of Viglacera Corporation whose brand has gained high creditability and quality in the market, VIFG Company, from its inception, has occupied a quite convenient position in the construction glass market Currently, there are many construction glass manufacturers However, most of them use the Sheet technology (horizontally or vertically pulled glass plate ) As analyzed above, these manufacturers, in the near future, will have to retreat from the market

or be eliminated because of the high dependence on FO oil, which makes them unable to compete with the companies using Float technology (glass pulled upon the surface of the molten tin) In Vietnam, there are now 4 major manufacturers using this technology: Vietnam Float Glass Co., Ltd (VFG) (a Joint Venture between Vietnam and Japan), Chu Lai Float Glass Company, Vietnam Glass Industry Co Ltd (100% foreign-owned subsidiary of Nippon Sheet Glass Corporation) and VIFG Currently, VFG and VIFG are two leading units, accounting for more than 60% of national market share Although Chu Lai Company has the largest float glass production line in Southeast Asia, they just entered the market at the end of 2010 with the distribution network This 1s the reason why their market share is just less than 10% Their competition in the market, therefore, is rather low

With the present growth of construction industry, construction glass market is now almost exclusively by three major manufacturers using the FLOAT technology 2.2.1.4 Culture-social Environment

In recent years, Vietnam’s economy has developed rapidly and_ sustainably, facilitating people‘s life and intellectual standard to improve and enhance The consumption and investment habits also have had some changes, especially in urban

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areas and new residential areas The migration with the strong urbanization led to the increased amount of buildings, pushing the demand for construction glass This

is the chance for construction glass market in general and VIFG particularly

The quality of human lifeis increasingly improved, people are more and more concerned about the living space, the facilities close to the natural environment Glass and post-glass product is the promising market segment to meet this demand; this is also a great opportunity for VIFG Company to exploit the capabilities of invested equipments and expand the production in this product area

Despite the large population, the GDP per capita is still low, most of labor are unskilled with not high quality This, more or less, has affected VIFG’s ability to develop the human resources, preparing for the development

2.2.1.5 Technological environment

In the context of international economic integration, the company’s modern technology application is a very important factor and a good solution for the need to improve the competitiveness of each enterprise The continuous development of global science and technology and applications of scientific and technological advances into practical productionand life will be great opportunities for investors and the manufacturing enterprises

Among two current lines of construction glass production technology: SHEET and FLOAT, in spite of the high investment requirement, VIFG still chose to invest in production line using FLOAT technology which produces a big gap in terms of quality and costs compared to the SHEET technology

2.2.1.6 Global business environment

Over the past decade, Vietnam has gradually joined the international and regional economic organizations; becoming the member of ASEAN, APEC, implementing the CEPT Scheme, being the co-founder of ASEM, joining AFTA Especially, from 11" January, Vietnam has officially become the 150" member of the World Trade Organization(WTO) The consequence of this process provides opportunities for export enterprises to easily penetrate foreign

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markets However, businesses also have to face the challenges of weak competitiveness while the competition with imported goods is such a difficult problem

In the coming years, competitive pressures are great for VIFG for anumber of reasons: (1) the production capacity of domestic manufacturers has been balanced and in the excess over the domestic demand; decline in import tax (down to only 0- 5% level) according to WTO commitments willcreate favorable conditions for foreign glass imported into Vietnam; (2) the competitiveness issue is quite tough due to the unique characteristic of glass industry which ts the high costs of raw materials that account for up to 40% of production costs and are very susceptible

to changes when the world oil price fluctuates

The world economic situation in 2011 is pretty much uncertainty, faced with high unemployment, debt and budget deficit up to unsustainable levels, in addition to natural disasters recently that impacted many areas of developed economic such as Japan, Thailand This context shows the potential risks of new depression and recurrent crises in the world economy

* Synthesis of external environment affecting VIFG Company

+ Opportunity:

- The political and legal stability, the fact that the country's economy has overcome the crisis and shown signals of recovery since 2009 are the foundation for development from 2010 onwards

- The managing policies of the Government to support exporters on taxes and bank interest rate have made it possible for companies to restore production, enhancing exporting activities

- When the economy recovers, the people’s demand also increases Goods consumption particularly and real estate, construction glass market tend to increase

In addition, increase inthe quality of life making people wish to live closer to the natural environment is also a condition to push up the demand for construction glass

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- The process of migration, urbanization in Vietnam is going strong This promotes the need to develop infrastructure for citizens increase, which increase the need of designing, equipping the office building housing with construction glass

- Production technology in the world and in Vietnam is increasingly focused and has developed rapidly Inheriting the fruits of technology, businesses increasingly are possible to access the technology to produce goods with best quality and cheaper costs

- Vietnam's accession to the international economic institutions and led to the area corridor for Vietnamese products to expand their market Foreign Investment should also develop that makes the domestic businesses have more strategic options related to trends to create joint ventures with other institutions, foreigners invested

- Foreign direct investment, contribute to improving the ability of newcomer to join the industry, creating more potential competitors for the manufacturing industry

- The risk of new depression and recurrent economic crisis and slowing global

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growth rate of Vietnam's economy, freezing the real estate market, which ts the output of construction glass in particular, and many other manufacturing industries

In general

2.2.2 Float Glass industry analysis (Porter’s 5 forces model)

2.2.2.1 Threats from new entrants

VIFG’s potential competitors are divided into 2 groups:

- For flat glass products: Among 4 major construction glass manufacturers using FLOAT technology, there are 2 companies newly entering the industry who are Vietnam Glass Industry Co., Ltd (WGI) with the designed capacity of 30 million m2/ year and Chu Lai Company (of Vietnam Coal and Mineral Corporation) with the capacity of 42 million m2/ year Although these competitors are nascent with low market share due to the thin distribution network, with the serious investment, modern technology, they can be a big challenge affecting the market share of flat glass of the Company in the coming time

- For the post- glass products: as forecasted in the future, there will be a lot of bid customers being able to join in this field However, to invest in high-end product lines, capital requirements should be large and the output market is available This

is Obviously not an easy transition for private enterprises Since 2005, VIFG Company has been interested in investing in the field of glass products in order to diversify the products and find the markets for laminated glass, large horizontal glass, tempered glass used for office and apartment buildings Regarding facilities, the Company has 6000 m2 spacious Zamin framed plant with enough room for placing production line when there is the market; thus, the transition is very fast and less costly On the other hand, during the past time, Viglacera Corporation has worked with a number of foreign partners in the field of making and assembling large glass walls with high quality used for the market segment of office tower, high

—end apartments which are a potential market in the next few years

Evaluation of entry barriers

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The total investment fora float glass production line (capacity of 500 tons

of glass /day, equivalent to30millionm2/ year) currently is Over

400 million USD, while on average; the annual revenue is 62 million USD The sales/ investment ratio is quite low, whereas the output market shows the sign of supply over demand, which is not really attractive

In terms of production technology, the glass manufacturing is a high-tech industry, strictly requiring the qualifications, management and operation experiences It is also an industry with unique characteristic that 1s the high fuel costs, especially the costs of FO oil, leading to the feasibility of being affected by the fluctuations

in oil market prices, influencing directly the product competitiveness

This analysis shows thatthe entry barriersin the short term (3 to 5 years) are relatively high

2.2.2.2 Threats of substitute products

Considering the characteristics of flat glass products which are produced on both lines: Float and Sheet, the products of glass industry (white glass, stained glass, rolled glass, ambetti with the changeable thickness from 2mm to 18mm) don’t have substitutes

For some products such as glass walls, glass doors, glass roofing, the substitutes can

be the mica walls, wooden partitions, wooden doors, plastic doors, metal tile, and gypsum tile However, this product areamustbe consideredin = a comprehensive manner in terms of technical characteristics, performance, use value, space and the aesthetic features of each product It is impossible to replace glass walls by plastic, mica walls, plastic, wooden doors’ in _ office buildings, condominiums because:

- According to the norm of glass use in Vietnam TCVN 7505, it is required to use safety glass group A as front glass wall, the balcony wall, sidewalls, interior partitions and windows of housing and office buildings

- The feature and characteristic of flat glass(white glass, stained glass) is transparent

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