BUSINESS DEVELOPMENT STRATEGY FOR THACO BUS OF TRUONG HAI AUTO CORPORATION STAGE 2011 - 2015 G1_00332 CHIẾN LƯỢC PHÁT TRIỂN KINH DOANH DÒNG XE BUÝT THACO CỦA TẬP ĐOÀN Ô TÔ TRƯỜNG HẢI GIAI ĐOẠN 2011 - 2015

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GRIGGS UNIVERSITY

CAPSTONE PROJECT REPORT

BUSINESS DEVELOPMENT STRATEGY

FOR THACO BUS OF TRUONG HAI AUTO

CORPORATION STAGE 2011 - 2015

GROUP No.: 07

e PHAN THI DIEU THAO

e PHAM TUAN ANH

e HA THI NHUNG

e NGUYEN NGOC QUYEN

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GRiGos) Business Development strategy for THACO Bus (2012-2015)

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PRACTICAL REQUIREMENT OF THE RESEARCH 4 1} OVERVIEW OF THEORY OF STRATEGY MANAGEMENT 00000000 4

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2 2 Analysis of Reality of THACO’s Organization of Business Manufacture

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2.2.2 Situation of THACO’s Business Manufacture 28 2.3 Analysis of THACO’s Business Environment 34 2.3.1 Analysis of External Environment 34 2.3.2 Analysis of Internal Environment: mm si92112u6900/G09 830200002488) 49 CHAPTER 3.PLANNING FOR BUSINESS DEVELOPMENT STRATEGY

OF THACO BUS PRODUCT LINE UP TO 2015 AND

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ACKNOWLEDGEMENTS

The Group 7, which comprises following members: Phan Thi Dieu Thao, Pham Tuan Anh, Ha Thi Nhung, Nguyen Ngoc Quyen, would like to show its guarantee in its truthfulness that the final exercise named “Business Development Strategy For Thacu Bus Of Truong Hai Auto Corporation Stage 2011 - 2015” is the joint-implementation research work of Group 7 itself

Although our group has made a lot of effort in studying and researching, this research unavoidably has some mistakes because of the time limitation and the deficient professional knowledge about the products and business field of the Company Our group hopes to receive comments from teachers, THACO Group’s

staff, and those who are concerned

Finally, our group would like to give thanks to THACO’s staff who helped

us to finish this research

Ho Chi Minh City, 11'" July., 2012

Implementing group Group 7 — Class of GAMBA01.C0410

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( BRIGGS

Abbreviations From the Original

AFTA Asean Free Trade Area

ASEAN Association of Southeast Asian Nations

CBU Completely Built Up

CEO Chief of Executive Operation

CKD Completely Knocked Down

CPI Consumer Price Index

CPM Competitive Pictures Matrix

EFE External Factors Evaluation

IFE Internal Factors Evaluation

GDP Gross Domestic Product

R&D Research and Development

Saigon Communications and SAMCO Transportation Mechanic Ltd Company

THACO Truong Hai Automobile Joint stock Company

VAMA Vietnam Automobile Manufacturers’ Association

VINAMOTOR Vietnam Automobile Industrial Head Company

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‘Lable 4: Table Of Some Basic Financial Rats wcccscciicsscssccsescssveoscsccsmenacanmnecemees 32 Table 5:Observing situation of production and consumption of THACO wae Table 6: Power appropriately of relevant sides 2 2222212221222 2x xe 46 Table 7:Table comparing the situation of Thaco’s, Samco’s, and Transinco’s

production, assembling, consumption from 2009-2011 00000 57 Table §:Table of satistical of consumpted production 2009-201]1 58

Table 9: Table of price reference for each car line and Bus market share 2009-2011 62

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Table 16:Table of statistics of automobiles consumed ¡n 2009-2011 - 2 8]

Table 17:Run the statistics describing and predicting x-following-t trend 82

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Griccs) Business Development strategy for THACO Bus (2012-2015)

LIST OF FIGURE, GRAPHS

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‘igure 2.3: Diagram of Ratio of increase and decrease of import and export in 10

latest years (Source: General Statistic Office) 36 Figure 2.4: Diagram of Ratios of increase and decrease of passenger transportation

in 10 years (Source: Genieral Statistic ONGC) ssi sisissescsciissisissvessineyesereccciaves 40 Pamure 2.5 PHACU'Ss Core Premees essicsscccsi ssc ccnsnsnssscansecasmescaresnunuasannikaiow aninatsiieassianiaisaiaes 50 Figure 2.6 Percentage of growth of area market share 2010-2011 - SI

Figure 2 7 THACO”S VALUE CHAIN Q2 222222151211 12 2111211221 2221 12811 xe 52

Figure 2.8 Chart of Transinco’s growth rate of Whole-field market share and Bus

market share 2009-20] l - 2s s + sex s2 7 55

Figure 2.9: Chart of Samco’s growth rate of Whole-field market share 56

and Bus riarket share 2008-01 cccceokaeenoioiiiiddiidauidrcaiikdosaeeGuae 56

Figure 2.10 Chart of consumed products of each car line 2009-2011 59 Figure 2.11 Chart of growth rate of Whole-field market share - - 62

and Bus market share 2009-2011 - 1111112222221 1111112222155 xe 62 [Figure 3.I Chart shown the turnover of 2009-2010-2011 2222222222255: 64

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Figure 3.3 Integrated model of seat space-bed in condition of exploiting ASEAN

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INTRODUCTION

1 The necessity of the research

In any developing countries, the automobile industry not only has an important role in fostering the development of the economy by satisfying the need of transportation, in taking a part in developing commercial manufacture and business, but also an economy bringing high benefits by manufacturing products with supenor value

With the fact that our country annually spends thousands of billions of money to import automobiles, Vietnam has made a lot of efforts to build its own automobile industry with the purpose of manufacture replacing import and gradual progress to export The Vietnamese Government has always affirmed its core role of the automobile industry tn career of economy development and offered advantageous conditions by passing priority policies to encourage domestic and foreign enterprises to invest in manufacturing automobiles and replacement parts

Vietnam, with the area of 331.212km’, with the population of more than 90

million people, only has two million automobiles of all kinds (according to the data of 2011), which shows the great need of traveling and transportation In fact, nowadays, transports are getting overloaded and the price of fuel is highly increasing Especially, as for the central cities, the use of public transportation is perfect and economic solution

Besides, the condition of integrating to AFTA and WTO in a current time

has led to the competitive environment becoming more and more severe; beside that, the economy in the recent years has had unforeseen fluctuations, which causes huge barrier for the enterprises Truong Hai Automobile Joint-Stock Company (THACQO) has gotten certain achievements in their manufacture and business activities for the last time However, facing these barriers, the company needs a both short-term and long-term strategy in order to continue the development Therefore, we carry out this topic, wishing to contribute a small

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GRIG« 3 Business Development strategy for TLHACO Bus (2012-20195)

part in building the Company's Development Strategy in the phase of 2012 -

2015, wishing to witness a Vietnam civilized, modernized, strongly developed, and able to compete with other countries in the area and in the world in future

2 Subject and research scope:

e The subject of this research is THACO

e The research scope includes the issues related to the manufacture industry of Vietnamese automobiles im general and of BUS products of THACO with the reality and the developing orientation in the phase of 2012 -2015

4 Scientific and practical significance of the research:

e Scientific significance: Strategy planning is an effective approach for enterprises to effectively use labor resources, and at the same time identify their correct direction In the current reality, not many Vietnamese enterprises seriously and scientifically progress in planning the development strategy Hence, this topic will present an approaching method to plan the enterprise-developed strategy which will be applied in the specific condition

of THACO, thus contributing the experiences of planning the enterprise- developed strategy in Vietnam

e Practical significance: this research is done based on practical situation of THACO, investigating approaches to come up with feasible solution, hopefully contributing to the strong fostering of, in particular, development

of the Company and of the Vietnam automobile manufacturing industry in general

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Gnlo) Business Development strategy for LHACO Bus (2012-20193)

5 Structure of the research:

TABLE OF CONTENT INTRODUCTION CHAPTERS 1-2-3 CONCLUSION APPENDIXES REFERENCE

—_————————=—.=—.-m=.m=-m=-=-=-==s=

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CHAPTER I

OVERVIEW OF THEORY OF STRATEGY MANAGEMENT, PRACTICAL REQUIREMENT OF THE RESEARCH

OVERVIEW OF THEORY OF STRATEGY MANAGEMENT

1.1.1 Concept and Role of Strategy

Nowadays, there are many different concepts of strategy According to Fred

R David, strategy ts the approaches to achieve a long-term goal

According to Michael FE Porter, business strategy development is development of the competitive position by the competitive advantages

According to Alfred Chandler, strategy 1s recognition of basis and long-term goal of enterprises, choosing method or direction of action and allocation of the necessary resources to achieve those goals

According to Rudolf Grunig and Richard Kuhn (2003), strategy is long-term, management orientation and ensuring long-term accomplishment of the goal and aim of the Company

Although the concepts of strategy are different of verbalization because of

learning from different social economy reality, the strategy includes the following basis contents:

Recognizing short-term and long-term goals of enterprises

Bringing out and choosing the effectuation approaches

Deploying and allocating the resources effectively to achieve defined goals

The importance of planning and carrying out the strategies for the enterprises are presented in the following contents:

- The strategy helps the enterprises seeing their goals and direction to avoid mistakenness of orienting for the future

The strategy is a basis identifying quotas of specific business-manufactured operation and measuring those effectuation results

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- The strategy helps the enterprises allocating effectively the resources, improving internal situations and monitor, examine the process of effectuation mission in defined goals

- The business strategy has a key role of existence and development of the enterprises, helps the enterprises able to face promptly changes of environment

1.1.2 Process of Strategy Management

The Process of Strategy Management is gone through the following three phases:

- Phase of strategy foundation: Strategy foundation is process of setting up

business mission, effectuated researching investigation to determine internal and external defectiveness, defining long-term goals and choosing

replacement strategies

- Phase of strategy enforcement: This is a phase of acting strategic

management, mobilizing the resources to carry out the strategies created The three basis actions of this phase are (1) creating goals, (2) defining policies, and (3) allocating resources This is a most difficult phase in strategy

management

- Phase of strategy evaluation: This is a last phase of strategy management All strategies are depended on changes of the future because of regular changes of internal and external elements The three essential actions of this phase are (1) examining the element is basis of current strategies, (2) measuring achievement, and (3) carrying out adjustment activities Phase of strategy evaluation is necessary because current success does not ensure future

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Gri S3 Business Development strategy for [HACO Bus (2012-2015)

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strength and Ỹ a Fatina |

weakness

Feedback information

Figure 1.1 Model comprehensive strategic management by Fred R David

1.1.3 Strategy Classification and Level:

In any organizations, a strategy exists in different levels, ranging from the entire enterprise to every department, to every personnel working in those departments Therefore, the strategy can be built on three different levels:

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| 1.3.1 Strategy at Company Level (called overall strategy of enterprise):

Being a strategy related to overall goals and sizes of enterprise, helping managers to choose business activities directing to basic long-term goals, hence there are many kinds of strategy at company level, according to Fred R David, there are fourteen (14) kinds of basic strategy at this level, classified into 4 following groups:

“* Group of integrated strategy:

+ Diversifying horizontal activities

+ Diversifying aggregative activities

«* Group of other strategy:

1.1.3.2 Strategy at Business-Units Level

A business strategy unit can be a part of enterprise, a product line or a market area, it can be planned independently A strategy at business-units level related to:

e Choosing competitive approaches

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e Organizing, positioning in the market to gain competitive advantages and different positioning strategies which can be used in situation of the industry

According to Michael E Porter, at business-units level, there are three general competitive strategies:

+ Leading expenditure strategy

+ Product differentiation strategy

+ Centralization strategy

1.1.3.3 Strategy at Functional-Departments Level

Functional level of an organization mentions operational parts Strategy, at this level, is related to operational process of business activities and parts of value chain Strategies at functional marketing, finance, human resource, or research and development directing to development and combination of resources, by that, strategies at business-units level are implemented effectively Strategies at functional-department level of the organization are depended on strategies at higher level At once, it plays a role of an input element of strategy

at business-units level and enterprise strategy

1.2 Overview of the Vietnam automobile manufacturing industry

1.2.1 Features and Role of the Vietnam automobile manufacturing industry

1.2.1.1 General Feature of the automobile manufacturing industry

The automobile manufacturing industry is a field with the following features

** In term of Invested Capital: Taking part in this industry, managers need to invest a very big amount of capital, but the capital-taken-back speed is slower than that of other industries However, the automobile industry 1s a large-scale field and is considered a field bringing super benefits The total product value brought by this field has reached the giant numbers

** In term of Technology: This is a field requiring advanced and modern technology, the technology playing a key role is a special feature of the field, decides the capacity of each of the field’s member, and ts the field’s vital

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principle This industry continuously creates highly valued products with superior features

In term of Manufacture Organization:

Professionalization and Cooperatives Organization in Manufacture:

Usually, the product value made by automobile manufacturers covers about 20%-40% of the total automobile value Nowadays, the world automobile manufacturers still carry out the Ford firm’s producing process including four steps: forging and die casting, soldering, painting, and assembling The most important set of details that all these manufacturers themselves research and make is the tire frames Beside the tire frames, these producers themselves make basic and important details and set of details such as engine, power transferring system, and hanging system The left set of details, such as electricity system, interior and exterior decoration, even raw materials, technology to have the details made by the automobile producers themselves, all is provided by other professionalized manufacturers Therefore, in the automobile manufacturing industry, the producers have self-professionalized and organized into cooperatives with other professional producers

Large scale and centralization tendency are other features of the automobile

industry in the production organization in order to guarantee the economic effect of not producing with small scale This industry has always been attached to the large-scale production since its foundation The scale is shown

by both product quantity and capital of investment and attracting giant human resources The field also has the level of very high concentration The ten current world leading automobile firms are: General Motor, Ford, Toyota,

VW, Nissan, Renault - Volvo, Fiat, Chrysler, Peugort and Honda, which covers approximately 90% of the world annual automobile production

e Products with very high quality:

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For a long time the motor car has no longer been seen a simple means of transportation equipped with other utilities by the producers, which makes it a movable house, a symbol of prosperity

Additional difference on other manufactured products, a motor car is made from a lot of parts — almost 30,000 parts required sophistication in manufacture Because of this characteristic automobile industry become a customer of many other industries

s% In term of Consumption System:

Because of having the feature of high quality, the products need to be often offered after-sale care services such as maintenance and fixing As a result of that, the field has chosen its consumption approach through its agencies, not of

a foundation so that our country will become a modern-orientation industrial

country in 2020.”

In order to ensure the long-term economic development, transportation, especially the by-land transportation, is the first and most important infrastructure, in which the motor car industry is the core part needing to go one step ahead in the growth strategy With the “open” policy to Industrialization and Modernization, the industry is evaluated as one of the key fields fostering the other fields’ growth The field is the biggest customer of other industries of: metals, chemicals, mechanic, electronic, ect Without a developed automobile industry, Vietnam cannot be seen a manufacturing industrial country Moreover,

in the next 25 years, our country has to reach the world average rate of ten

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people per car, meaning there have to be ten million motor cars Hence, it 1s essential to establish this industry

In short, the growth of Vietnam automobile manufacturing industry in the phase of the country’s growth in industrialization and modernization is very necessary, requiring not only the effort of the field itself, but also the support of the Party, the Government, and the other fields

1.2.2 Manufacture and Business Environment:

1.2.2.1 Needs:

In predicting the need of the Vietnam automobile field in the next phase, it is

based on the decision made by the Minister of the Government concerning Strategies and Projects to develop the field in December of 2002 and October of

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Table I:

Business Development strategy for LHACO Bus (2012-2015)

TABLE OF FORESEEN NUMBER OF AUTOMOBILES

(Source: Extract from the Decision No 177/2004/QD-TTG concerning passing

the Projects to develop the Vietnam Automobile Industry up to 2010, vision of

2020)

1.2.2.2 Disadvantages:

“* High Prices: Due to the small size of the markets, it is difficult for the prices to

be decreased, another reason of the high prices is the imported taxes and domestic taxes are relatively high Furthermore, the government intends to remarkably raise the taxes of the domestically produced cars The consumption taxes of those cars were gradually raised from 5% in 2003 to 80% in 2007 This is explained to ensure the fair treat between the domestic products and imported products Based on the view of WTO commercial liberalization and

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negotiation, this goal 1s highly appreciated, but it contributes to the increase of the prices being too high and reduces the producers’ effort of decreasing those prices

** The tax and price policies lack the synchronicity and change continuously

** Dealing with the traffic difficulties: the increase of the number of cars also needs the infrastructure’s synchronic development In Vietnam, the by-land traffic very low in quality slower the economic growth in general and the motor-car industry in particular

1.2.3 Determining Enterprises’ Goals:

The enterprises’ goal or long-term goal is the expected result of the enterprises recommended for a relatively long term This goal is the content specification, the means to their successful carried-out mission It is planned based on their internal and external conditions in each phase and is united with their mission In the process of strategy effectuation to gain the long-term goal,

it can be divided into short-term goals appropriate with each shorter phase

The research of the goals is a premise, a basis to form the strategies The set goals need not to be high, but not to be remote from reality They clearly show the ending points of the strategic tasks and are the basis to determine the priority sequences in distributing resources

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1.2.4 Choosing Appropriate Strategies:

Choosing strategies for enterprises 1s effectuated, based on basis of analysis and evaluation of business environment, on opportunities recognition and on threat of affecting the existence of enterprises, thence determining strategic approaches in order to achieve goals set Forming strategy demandingly creates

a harmonization and combination of principles affecting the strategy On that basis, enterprises choose the high and optimal feasibility of core strategies for the development of enterprises aimed to pursue, effectuate

Through this research, the following strategies are selected in order to analyze because we consider it effective for Truong Hai Automobile Joint-Stock Company

1.2.4.1 Integrated Strategy (Width Connection):

** Characteristics: Finding the possessive right or to increase the control to the competitors through M& A, cooperation, and alliances Allowing the firms to raise the economic characteristics following scales and to enhance the resources and symbiotic capacity passing

“* Suitably applied in the following cases:

e The firms possess exclusive characteristics, without getting any impacts of

CP in term of competition reduction

e The firms doing this business are growing

e The increased economic characteristics following scales create main advantages

e The firms’ capital and capacity are efficient to manage new firms

e The competitors are weak due to the lack of management or the need of resources only possessed by the current firms

1.2.4.2 Intensive Strategies (Product Development):

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e Requiring big costs of researches and development

Suitably applied in the following cases

e The firms’ products are in the “ripe” phase of the life history

e The technology-characterized business changes quickly

e The competitors have the priority products with the same prices

e The firms have to compete in the field having high growth speed

e The firms have the strong R&D capacity

1.3 Devices supporting the Realizing and Choosing Strategies

In scope of study of this research, we only choose some devices considered

suitable and useful for planning development strategy of THACO’s BUS product line

1.3.1 External Factors Evaluation Matrix (EFE)

External Factors Evaluation matrix (EFE) is a tool which enables evaluating level of essential impact of external environment on enterprises EFE matrix is deployed by five (5) steps:

Setting a list of essential external elements

Classifying an importance of each element from 0.0 (least important) to 0.1

(most important) This classification shows a corresponding importance of

elements to success of business line of enterprises

Classifying from | (least response) to 4 (good response) for key elements of success in order to show a way that existing strategy of enterprises responding

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CJRIt 6 Business Development strategy for THACO Bus (2012-20195)

» Advantages: shaping a general picture of external elements which affects competitive capacity of enterprises

» Limitation: scoring each element as well as determining importance level

of each element is subjective

1.3.2 Competitive Pictures Matrix:

Competitive pictures matrix recognizes main competitors and_ their advantages and disadvantages Total of appraisal points of rival competitors are compared to a sample company Matrix has the following effectuation steps:

» Step 1: Ranking the appraisal elements of competitive capacity of industry

>» Step 2: Scoring each element, this point shows the reaction of enterprises (most important point is high rank, least important one 1s low rank), total of elements is equal to 1.0, in there, 4: best reaction, 3: above average, 2: average, |: weak

» Step 3: Taking the important point of elements of each enterprises

» Step 4: Evaluating result Any enterprises has highest total point is corresponding to the rank of industry that has result of competitive capacity

of enterprises who has highest competitive capacity compared to other enterprises in the industry

Through matrix of competitive pictures, it will form a general picture showing competitive capacity of enterprises compared to the rival competitors in the industry

1.3.3 Internal Factors Evaluation Matrix:

Similar to effectuation and grade steps of external factors evaluation matrix,

internal factors evaluation matrix is a tool used to evaluate the strong, weak, and important aspects of the functional departments of enterprises

» Advantages: forming a general picture of internal enterprises with particular strong and weak points which affect the competitive capacity of enterprises

y Limitation: similar to matrix of EFE

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Gri o3 Business Development strategy for THUAC Ó) Buš (2012-2013)

e Main opportunity: are opportunities that product of the impact levels on enterprises when it is used and probability that enterprises can take an advantage of an opportunity is great

e Main threat: are threats that product of the impact levels when thread happens to enterprises and probability of happening threats, has a great value

e Determination of core strengths, weaknesses: enterprises’ process of evaluating and analyzing internal environment shows many elements but the importance is that it must show core factors affecting the competitive position and effectuation of enterprises’ strategies Herein, it is needed considering the

elements as activities of the system and comparing to general standard of the

industry and to main rival competitors

e Connecting the internal elements and external elements: after determined the basic elements of internal and external conditions, applying a process includes the following steps for progressing analysis and setting strategies:

» Step |: listing main elements of internal and external conditions in squares of

SWOT SWOT its abbreviation of Strengths, Weaknesses, Opportunities, and Threats

» Step 2: setting logically combination of each pair Setting up strategies of combination of S/O, S/T, W/O, W/T

# §/O: which strength is used to exploit the most external opportunities?

« S/T: which strength is used to deal with external threats?

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& W/O: which weaknesses should be overcome in order to create good conditions for the use of external opportunities? Which opportunities are needed to exploit to replace on current weaknesses’

& WY/T: which weaknesses are overcome to diminish current threats?

» Step 3: defining a combination of four elements of S+W+O+T This is aim to create a reaction among four elements in order to come up with strategy whereby helping enterprises to use the strengths exploiting well the opportunities, replacing weaknesses, and diminishing threats

» Step 4: generalizing, considering again strategies Grouping and combining strategies becoming a mutually supporting system

Every enterprise is affected by the surrounding where it operates The

variables of SPACE matrix is related to strategic principles of exterior enterprises, for example, conditions of overall the economy, the growth of GDP, inflation, price elasticity, technology, barriers of market penetration, competitive pressure, potential growth of technology, and other

Matrix of SPACE computes an importance of each principle and its position

on X and Y coordinate axis

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Grigcd Business Development strategy for LHACO Bus (2012-2015)

Some interpretations of model are below:

® Definitions and value of CA and IS in SPACE matrix are on X axis

° Value of CA can be in range of -| to -6

® Value of IS can be assigned from +1 to +6

# FS and ES principles of model are on Y axIs

° Value of ES can be in range of -1 to -6

° Value of IS can be assigned from +1 to +6

Method of Building Matrix of SPACE:

SPACE matrix is built by taking the competitive advantage (CA) and the industry strength (1S) on the X axis into account The Y axis includes the elements of the environment stability (ES) and the financial strength (FS) This matrix can be formed by following seven steps:

» Step |: Choose a group of variations for CA, IS, ES, and FS

» Step 2: Assign the variations of each strategy by using a special assigning system Assign CA and IS the values from —6 (worst) to —I(best) Assign ES and FS the values from +1 (worst) to +6 (best)

» Step 3: Calculate the average points for CA, IS, ES, and FS

» Step 4: Appropriately mark the values in step 3 of the SPACE matrix to the axis

>» Step 5: Give extra average points for CA and ES These are your last marking points on the X axis in the SPACE matrix

» Step 6: Add the average points for IS and FS and mark them to the Y axis

>» Step 7: Find the intersection of the two points X and Y Draw a line from the original point of the SPACE matrix to the new intersection This is the displaying line being the strategic kind for the organization

From that, managers need to choose for themselves the strategies of attacking, protecting, or competing, maintaining

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Go Business Development strategy for LHACO Bus (2012-2015)

Figure 1.3 SPACE MATRIX

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Gri 69 Business Development strategy for LHACO Bus (2012-2015)

Enterprise's Short Name : THACO (Truong Hai Auto Company)

Trade Headquarter : 80 Nguyen Van Troi, Ward 8, Phu Nhuan District, Ho Chi

Minh City, Viet Nam

Date of Foundation : April 29", 1997

Type of Enterprise : Joint-Stock Company

2.1.1.2 Business Career of Enterprises

According the Business Certificate No 470000375 issued by the Dong Nai Province Investment Planning Institute

THACO Group ts put in operation concerning 3business areas: Motor cars, real

estate, and investment in developing infrastructure of industrial areas In term of

manufacturing and assembling cars, the company has production parts gathering

at Chu Lai-Truong Hai mechanic industrial area, with factories assembling touring cars, trucks, passenger cars, mechanic processing factories, chemical producing factories In term of distribution, the company has a nationwide

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Gricc> Business Development strategy for LHACO Bus (2012-2015)

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system of 40 Showrooms, 50 Agencies, warranty and maintenance services helping consumers get the cars in the most convenient way

2.1.1.3 History of Foundation and Development

e Foundation of Company:

On April 29", 1997, after the time of making procedures in accordance with the Law, the People’s Committee of Dong Nai Province issued a permission of founding a Company No 003433/GP-TLDN — 02, named

TRUONG HAI AUTOMOBILE LIMITED LIABILITY COMPANY, and on

May 17'", 1997, the Dong Nai Province Investment Planning Institute issued a Certificate of Business Registration No 054148 to the Company, with a regulated total capital of 800 million dong At the time of newly founded, there were a lot of difficulties in the first few years, from capital mobilization to

limited level of management and policy of the Government and to backward

machine equipments, technology, un-imported equipments of foreign country With the initial capital of 800 million dong, and there were only 120 personnel Business Firm mainly imported the used cars renewed to supply to the market, at once, supplied the materials of replacement parts for automobile repair

e 1997 — 2000: there were more and more abundantly competitions of the business firms, the market needs were more and more diversified, the Firm caught up and had a reasonable policy such as leased a place for progress of setting up Representative Offices in Ho Chi Minh City in 1998, in Ha Noi in

1999 for automobile trade in the big two cities of the country

e 2001 — 2003: implemented the policy of encouragement of assembling automobile inland promulgated by the Government The Company had strategies and bravely invested in a factory assembling automobile in form of CKDI in an area of 4 hectare at Bien Hoa II Industrial Zone with a capacity

of 5000 units/a year The manufacturing system, technology were transferred

by Kia Motors Groups, with total capital of 70 billion dong, manufactured- assembling products were light trucks and buses branded Kia (Korea) In

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Gricc> Business Development strategy for LHACO Bus (2012-2015)

September, 2001, a first product of light truck product line was released from factory, branded Truong Hai, and accepted by the market, and ordered largely From that, the Company invested, placed the Branches, Agencies all over the country Then, it was first step affirmed the Company’s position In domestic automobile market It led the sales increased to one thousand billion/a year Thence, it started forming in mind of Vietnamese consumers about brand name of Truong Hai Automobile

In 2001, to expanded automobile consuming market at provinces and cities

of Central Zone and High Land, the Company decided to establish a Branch

of Central Zone in Da Nang in January 22™, 2002

In 2002, the Government promulgated a Resolution No 175/QD-Ttg re:

“Project of Development of Vietnam Automobile Industry up to 2010 — a vision up to 2020” Concurrently, the Government decided to stop manufacturing, assembling automobile in form of CKDI1 for progress of domesticity With the above decision of the Government, the manufactured- assembled automobile factory in Bien Hoa had to be temporarily stopped manufacturing to find another suitable business Through the study of provinces in the country, the Company brought out strategies and decisions to determinedly invest in automobile field The Company bravely invested in a plot of land of the fierce war time, of a Heroic Chu Lai, but still so poor In a center of boundless sea-wind and white sandy area, Truong Hai invested 600

billion dong in building a factory, herein, a modern Manufactured-Assembled

Automobile Factory was built, named CHU LAI — TRUONG HAI with almost 38 hectare, at Chu Lai Opening Economic Zone, Nui Thanh District, Quang Nam Province

e Period of 2004 — 2008: In the end of 2004, the Company was done in building and put into operation the Truong Hai — Chu Lai factory manufactured- assembled automobile with product line of truck and bus Specially, in the factory, there were a most modern system of electrolytic dissociation painting

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GR 69 Business Development strategy for LHACO Bus (2012-2015)

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immerse and road of test drive in Vietnam manufacturing automobile industry nowadays

To aim at strengthening of transferring materials, equipments imported from foreign country to manufacture and assemble automobiles most quickly and proactively Leaders of the Company audaciously decided to establish Chu Lai — Truong Hai Shipping Company, with two ships: Truong Hai Start |

and II with loading capacity of 10,000 ton

In 2005, aimed more and more domesticity, the Joint-Venture Company coordinated with the partners to establish replacement parts factories including Candy Manufacture, Manufacturing Automobile Chair Factory, Electro-mechanics Factory

In 2007, the Company decided to invest 650 billion dong to establish factory manufacturing-assembling kinds of KIA touring cars, at Chu Lai Opening Economic Zone, with an area of 30 hectare In April, 2007, the Company changed from Limited Liability Company to Joint-Stock Company, named Truong Hai Automobile Joint-Stock Company, the regulated capital increased to 680 billion dong At this time, to develop distributing quickly automobiles to customer, the Company invested to upgrade automobile Agencies and to open more Showrooms over the country, raised to more than

50 Agencies, Showrooms including automobile Showrooms, replacement parts stores, large-scale factories of automobile repair, satisfying services of repair, maintenance, warranty, providing spare parts to customers

In 2008, aside from strongly investing in the field of real estate business, development of infrastructure of the Industrial Area, enlargement of Ky Ha Port in Chu Lai Open Economy Zone, Quang Nam Investing in construction

of the New City with total invested capital of 600 billion dong at Tam Phu Ward, Tam Ky City, Quang Nam Province

e Period of 2009 — 2011: on May 15", 2010, the Firm began the construction of factory BUS, concurrently, in order to satisfy services of good transportation,

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Gri 6) Business Development strategy for LHACO Bus (2012-20195)

the Firm also built Tam Hiep Port In this period, the collateral divisions inaugurated at the same time such as mechanics factory and steel factory

In September, 2010, Vina Mazda factory was also in a stage of investment building, this was a joint venture between a long-standing famous brand Mazda and THACO And being in the integrated strategy of Truong Hai Automobile Joint-Venture Company, Truong Hai Vacation College was

established on October 4", 2010

In June, 2011, BUS factory was inaugurated and at once, the Company began construction of Ky Ha Port; technology of the manufacturing engine factory was transferred from Huyndai Group

Nay

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Other short —term assets

Long —term assets

205.664.093 2.826.699 422 2.186.912.880

639 786 542 6.544.105.782

Year 2010

3.971 604.235 122.313.187 885.162.908 2.794.605.766 169.522.374 3.826.580.602 3.120.887.076 705.693.526

7.798.184.837

Business Development strategy for THACO Bus (201 2-2015)

Year 2011 5.266 469 014 188.722.438 860.906.060 3.993.303.184 223.537.332 4.941.643.277 4.272.935.733 668.707.544

10.208.112.291

Liabilities

Short — term liabilities

Long - term liabilities

3.384.863.409 3.246.340.219 138.523.190 4.413.321.428 4.395.658.973 7.798.184.837

5.707.843.527 5.557.247.599 150.595.928 4.500.268.764 4.411.582.373 10.208.112.291

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werervet marty Business Development strategy for LHACO Bus (2012-2015)

Table 3:

Business result (2009-2011)

TARGET Year 2009 _ Year 2010

Sales of goods and services 6.955.597.198 8.870.971.357

The deduction from revenue (361 584 208) (666.002 990)

Enterprise management cost (418.975.902) (492.121.396)

Net income from operations 758.121.718 680.951.349

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Year 2011

12.895.076.550 (1253.885.475) 11.611.191.075

(9.708.386.351)

1.902.804.724 30.999.903 (392.821.897) (837.171.672)

703.811.058

(3.050.646) (1.376.822) 699.392.590

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Go) Business Development strategy for THACO Bus (2012-20135)

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Through the Business Results of THACO within 3 years (2009-2011), by comparison with the original method have the review:

e Sale of goods and services:

Through analysis showed THACO efforts in increasing the consumption of

two years 2010 & 2011, but the situation the economy are suffering the effects of

financial crisis, the management of input costs very difficult especially in the

early stages of the process of technology transfer, THACO also be under pressure and depends heavily on the foreign supply Beside plants THACO BUS has formed and is in operation so the huge expenses initially affect profitability in this period

In the future, to improve Profit after tax and Earnings per share, THACO should focus on measures to improve production costs, increase localization rate

as high, minimizing dependence on foreign supplier applicants

2.2.2.2 Evaluation on THACO’s Business Manufacture Activities

With the correct business strategy the strongly supporting of Local and Central Government, the market had a lot of advantages, together with the stable

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GRIG¢ 3 Business Development strategy for THACO Bus (2012-2015)

financial resource within 10 years, THACO had many great successes In business

In years of 2009 — 2011, commercial motor car market faced a lot of difficulties: such as inflation, CPI index 2011 increased by 18.58% compared to 2010 Policy of Government in accordance with Resolution 11: “restrain inflation, stabilize macro-economy” reduced public investment, reduced governmental expenditure In the economy policy of commercial loan tnterest was high, 21- 24%/year, but it difficultly approached a borrowed interest, USD exchange rate increased by 8.47% compared to 2010, at a rate of 20,500 — 21,SOOVND/USD All of these difficulties made total of consumption of commercial motor car reached 165,000 units, decreased by 5% compared to 2010

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2.2.2.3 The Basic Financial Ratios

- Current payable quotas (Rc) 1.4 1.2 1.0

- Ratio of inventory turnover (Rt) 3.2 2.8 2.9

- Ratio of accounts receivable turnover 8.2 8.2 13.3

- Effect of using of Current assets (Rc) 2.3 2.1 2.5

- Effect of using of fixed assets (Rf) 0.6 2.5 2.6

- Effect of using of assets (Ra) 1.2 1.1 1.3

- Ratio of debt on asset (D/A) 42% 43% 56%

- Ratio of debt on owner’s equity (D/E) 75% 77% 127%

- Ability to pay interest (Rt) 11.6 3.8 1.9

- Ratio of profit on sales (Rp) 10% 8% 5%

- Ratio of basic profitable capacity 13% 8% 5%

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