improving competitive ability in construction bidding in thanh nam construction and investment join stock comapny

These recommendations concentrate on improving financial strength, staff qualification, technology, bidding documents… The objectives of this report are as follows: Chapter 1: Introducti

NATIONAL ECONOMICS UNIVERSITY

English for Business Department Faculty of English for Economics

Hanoi, May, 2010

NATIONAL ECONOMICS UNIVERSITY English for Business Department Faculty of English for Economics

Field: English for Business Studies

Code: 701

Supervisor : Principal Lecturer, M.A, Ms HÀ THỊ KIM ANH

Hanoi, May, 2010

ACKNOWLEDGEMENT

I would like to specially thank my supervisor, my teacher-Ms Ha Thi Kim Anh, who has supported me with guidance and encouragement, without your instructions I will never accomplish this report

I would like to thank my family; they always are beside me to help me complete this report

I also would like to thank Mr Hoang Duy Khanh-The Deputy chief of project management department of Thanh Nam construction and Investment Company, who fully supplied me with the information in this report

I would like to thank English for Business Department-Faculty of English for Economics

Implementation this report is one of the ways to help us-future businessman (businesswoman) to apply theory into practice However, in fact, there are many things that are beyond my understanding, so I look forward to receiving sympathy from the readers I also would like to thank for your attention

Table of contents

Acknowledgement i

Table of contents……… ii

Executive summary……….vi

Introduction……… vii

Chapter1 introduction…… 1

1 Introduction to Thanh Nam construction and investment joint stock company……….1

2 The problem……… 2

3 Research question, purpose, scope of work, methodology and some basic concepts……… ……… 3

3.1Research question……….……….3

3.2 Purpose ………3

3.3 Scope of work……… 3

3.4 Methodology………3

3.5 Some basic concepts……….4

Chapter2 theoretical framework……… 6

1 Competition conception in construction bidding……… 6

2 Modes of competition in construction bidding……… 8

Chapter 3 analysis and findings………11

I Analysis……… ……… 11

1 Financial resources……… 11

2 Technical ability……… 12

3 Management capability……… 13

4 Reputations……… 14

II Findings……… ……….… 17

1 Advantages……… 17

1.1 Financial resources……… ……… 17

1.2 Technical ability……….17

1.3 Management ability……… 18

1.4 Reputations……… 18

2 Disadvantages 2.1 Financial resources……… ……… 18

2.2 Technical ability……… 18

2.3 Management ability………19

2.4 Reputations……….19

Chapter 4 recommendations……….……… 21

1 Recommendation number 1……… 21

2 Recommendation number 2……… 22

3 Recommendation number 3……… 24

4 Recommendation number 4……… 27

5 Recommendation number 5……… 28

6 Recommendation number 6……… 29

Conclusion……… ……… viii

References……… ……… ix

EXECUTIVE SUMMARY

Competition is now harder than ever everywhere, especially in construction bidding Thanh Nam Construction and Investment Join stock Company is not out of this cycle However, in some recent bids, they lost many important contracts into the rivals’ hands This report aims at analyzing their advantages and disadvantages

in construction bidding to find out the reasons why they did not win those contracts From what has been found, I will try to give some recommendations to this situation of Thanh Nam These recommendations concentrate on improving financial strength, staff qualification, technology, bidding documents…

The objectives of this report are as follows:

Chapter 1: Introduction to Thanh Nam Construction and Investment Join

Stock Company, the problem, the purpose, the scope of work, methodology, and some basic concepts in this report

Chapter 2: Reviewing competition theory and criteria used for contractors

pre-qualification and bid evaluation as stated in the literature

Chapter 3: Analyzing all the facts in Thanh Nam basing on these criteria,

after that I will identify what are the company’s advantages, what are the disadvantages?

Chapter 4: Basing on what I have found, I will give some helpful

recommendations for Thanh Nam’s situation

INTRODUCTION

The research topic of this report is improving competitive ability in construction bidding in Thanh Nam construction and investment join stock

company This topic was implemented based on the theory of competition and the main criteria for choosing a building contractor in construction bidding All the data in this report are provided by the project management department The reseach question is “how to improve competitive ability in construction biding in Thanh Nam Construction and Investment Join Stock Company”.

The research methods selected for this study are qualitative and quantitative approach from both primary data and secondary data

CHAPTER 1

INTRODUCTION

1 Introduction to Thanh Nam Construction and Investment Joint Stock Company

THANH NAM COMPANY

CC5A - Linh Dam - Hoang Liet - Hoang Mai Dist - Ha Noi

Phone: 04.5632763/5632764 Fax: 04.5632762

Email: cotanagroup@fpt.vn Website: www.cotanagroup.vn

Thanh Nam Construction and Investment Joint Stock Company (COTANA., JSC) is operating in according Joint stock company model COTANA.,JSC’s framework of organization include Board of Director, Control Commitee, Board of Managers, 10 departments, 10 enterprises, 2 manufacturing workshops and Ho Chi Minh City Branch

Thanh Nam Construction and Investment Joint Stock Company (COTANA., JSC) was founded in 1993 After many years of development, Thanh Nam becomes

a strong economic group in construction field Due to the demand of developing process, Thanh Nam has established member companies which specialize in investment advice, infrastructure building, building and assembling civil and industrial projects, investing in real estate, engineering construction, manufacturing construction material, interior designing At present, Thanh Nam owns 1 branch in

Ho Chi Minh City and 14 subsidiaries The company has the staff of more than 300 construction engineers with experience and qualification in working (constructing and doing business), and a contigent of skillful blue collar workers who are the big potential for the developing process of the company

COTANAGROUP has now become a well-known contractor in the Vietnamese market and has been trusted by many investors The company has constructed many works, some typical ones of which are: Hoa Binh Hotel in Ly Thuong Kiet street, the system of restaurants, hotels, and services of Kim Lien Tourism Company, Russian Culture Centre, Ruby plaza building, Viglacera

building at no 671 Hoang Hoa Tham street COTANAGROUP also constructed some department buildings in new urban areas in Hanoi City like Dinh Cong, Linh Dam, My Dinh, Viet Hung, Phap Van, Trung Hoa- Nhan Chinh, Dai Kim, and Van Canh In addition, the company has works along the country like: Ho Chi Minh City, Hai Phong city, Quang Ninh, Bac Ninh, Hà Nam, Vũng Tàu, Kiên Giang… COTANAGROUP is not only a prestigious contractor but also is an investment and manufacture company with TSG safety glass and plastic window Especially, the establishment BMS Thanh Nam Joint Venture Company - joint venturing with Korea to manufacture construction steel structure and couple jointing system used in concrete structure- has affirmed the ceaseless development

2 The problem

In some recent bids, the company has lost some important contracts with

great value The more serious problem is their main competitors, Song Hong Construction JSC (INCOMEX) and Song Da Infrastructure Construction Joint Stock Company, obtained these contracts The losing contracts are Thanh Xuan Trade and Services Centre, Xuan La trade centre-super market-office for rent, Ninh Binh Hospital, Mai Chau-Hoa Binh Treasury, Vietnam Trade-union Tourist base The total value of these contracts is about 51.962 billion VN Dong

3 Research question, purpose, scope of work, methodology and some key term definitions

3.1 Research question

The only research question of this report is how to improve competitive ability in construction bidding in Thanh Nam Construction and Investment Join Stock Company.

3.2 Purpose

The purpose of this report is to show all the facts in competitive ability of the company basing on the criteria basing on which to choose the winning contractor like: financial resources, technical ability, management capacity, reputation Analyzing them basing on the fact of Thanh Nam to find out what are their advantages, what are their disadvantages From my findings, I will give out some helpful recommendations

3.3 Scope of work

The company has many workshops and member companies, while this report has some limitation in size so the object in this report only is the mother company: Thanh Nam Construction and Investment Joint Stock Company, and the kind of bid I am studying here is only building and assembling bid in construction

3.4 Methodology

The research methods selected for this study are qualitative and quantitative approaching from both primary data and secondary data Primary data are facts and figures that are directly get from the department of project management Secondary data are collected from books, decree; statute…The data collected was then statistically analyzed in pursuit of an answer to the research question: how to improve competitive ability in Thanh Nam Construction and Investment Joint Stock Company

3.5 Some key term definitions

There are some concepts that are useful in my report:

Term 3, chapter 1 in bidding regulations promulgated with the decree number 88/1999/ND-CP of the government has defined some terminologies:

- Bidding: is process of choosing the investor who can satisfy

requirements of tender inviter

- Bidding consideration: is the process in which the tender

inviter considers, analyzes and evaluates tender documents to choose the investor who wins the contract

- Construction bidding concept: Construction bidding (building

and assembling bidding) is a method to select investor who has the best ability in carrying out work related to building and assembling equipment process of project

or work…to satisfy owner of the project

Basic contents of construction bidding

- Contractors (who want to win the contract) point out their own request and inform investors

- Basing on demands of investors, contractors will present their capacity; give out solution in executing the work

- The investors will consider contractors’ ability and their solution to choose the most suitable contractor

- Contractors are economic organizations who have legal personality to take part in bidding

- Construction bidding forms

Similar to other bidding types, construction bidding is held into two main forms (prescribed at point 4-construction statute)

+ Extensive bidding: this is the bidding form which does not limit the

number of investor who wants to take tender Its advantage is publicity and fair competition so this is the main form is applied in construction bidding

+ Restriction bidding: this is the bidding form in which the tender

inviter only invites some investor (maximum is 5) to take part in bidding The list

of the investors must be approved by authorities

CHAPTER 2

THEORETICAL FRAMEWORK

1 Competition conception in construction bidding

Competition is a fundamental characteristic of market mechanism, however there are many way to define it

“Competition is a constitutive property of a market economy

following immediately from the right of each individual to pursue his or her own interest” (The International Handbook of Competition, Edward Elgar,

2004:1)

Competition (in business) is rival action among manufacturers, businessman in market economy, which is affected by supply and demand relationship to obtain the best production condition, and the best market (Encyclopedia-part 1, 1995:357)

“Competition is the chief selective process in moderneconomic

society, and through it we have the survival of the fit” (The International

Handbook of Competition, Edward Elgar, 2004:20)

Competition in economics is a term that encompasses the notion of individuals and firms striving for a greater share of a market to sell or buy goods and services (Wikipedia, the free encyclopedia)

A market condition in which individual buyers and sellers have no power to affect the market price of a good or service is called perfect competition market (www.yourdictionary.com)

There are maybe many ways to express competition concept, however we can see that these definitions have some points in common:

- There are many kinds of subjects who together take part in competition (construction firm is one of these kinds)

- The direct target of competition is a specific object which firms want to obtain (an opportunity, a work, a project or a potential market, customers…) The last purpose is for high profit

- Competition happens in a concrete environment which has common ties that competitors have to comply with: product features, market, legal conditions, business routine…

- In competition process, firms may use many different ways: competition by product features and quality, competition by price (low price setting policy, high price setting policy, dumping policy…); competition by services, competition by paying forms…

In construction market, there always exist three competition relationships: investors versus contractors, contractor versus contractors and contractors versus suppliers

The hardest race is competition among contractors by means of bidding held by investors This is a special race among constructional firms Constructional firm which wants to win must have the best ability, advantages to satisfy requirements of the investors

Competition among constructional firms in bidding may be understood by two meanings:

- Literal meaning: competition among constructional firms in

bidding is the process, in which the firms give out solutions in technique, finance, equipments, human resources, progress of the project to fully meet with investors’ requirements

This concept only exposes conditions, competitive ability of firm in a specific work, or project, it does not point out competition process of firm in manufacturing and doing business

- Expanding meaning: competition among constructional firms

in bidding is the process which is begun by searching for information, hiving out bidding solutions, signing, performing contract until completing the project, handing over to use and warranting work to satisfy investors’ demands

2 Modes of competition in construction bidding

Pre-qualification and bid evaluation procedures involve different types of criterion to evaluate the overall suitability of contractors such as: General,

technical, managerial, and financial criteria (Hunt et al., 1966); Financial stability, managerial capability and organizational strength, technical expertise and experience of comparable construction (Merna and Smith, 1990); Relevance of experience, size of firm, and safety record (Moselhi and Martinelli, 1990) Hatush and Skitmore (1997a) have identified five main criteria for contractor prequalification and bid evaluation along with the information necessary to assess these criteria as shown in following table:

Financial soundness

Financial stabilityCredit ratingBanking arrangements and bonding

Financial status

Technical ability

ExperiencePlant and equipmentPersonnel

Ability

Management capability

Past performance and qualityProject management

organization

Experience of technical personnel

Management knowledge

Health and safety

SafetyExperience modification rating

Management safety accountability

Reputation Past failures

Length of time in businessPast owner/contractor relationship

Other relationships

(Criteria for contractors’ selection and bid evaluation, Salama, Abd El Aziz, El Sawah and El Samadony, 2006:1)

In 2006 bidding report, Thanh Nam summarized that there were three main competitive modes in Vietnam construction market:

• Mode 1 : Competition by quality of worksQuality of works is the general of targets, economic and technical specifics to fully meet with investors’ requirements such as usage, using time, safety level, effect…

Competition by quality of works is a useful tool in construction bidding This is an unlimited competition Therefore, improving quality and innovating products are vital

Firms must have good human resources, modern equipments, and strong financial resources to apply this competition mode

• Mode 2 : Competition by tender price

In rivalry, tender price is the key factor which decides whether firm wins the contract or not A reasonable tender price not only makes profit for firm, but it also help investors save capital

Tender price list concerns many factors such as level of management, technical staff, making bidding document staff…At the same time, it shows qualities of firm as:

- Organizational skill, managing level

- Construction engineering, ability of applying modern technique

- Business qualityThere must be a flexible price policy basing on: the real ability of firm, bidding target, size, features and place of project…to make bid price has competitive advantages

Normally, contractors usually base on estimated price to conduct bid price Bid price is divided into different levels which relate to targets of profit, jobs or penetrating new market

In short, a firm want to build a reasonable bid price list must base on function of works, human resources, financial resources, equipment…

Mode 3: Competition by progress chart

Progress chart is showed in general arrangement of firm in constructional work, is the promise of quality, safety, and construction time

At the same time, it also is a “window” through which the owner can learn about organizational skill, construction engineering and equipment quality

The ability to mobilize capital of the company is rather good At the same time, the company can raise capital from both affiliated companies and banks Particularly, the company has a close relationship with prestigious banks as Viettinbank, Agribank, Vietcombank… they are ready to support the company with capital At present, the total current assets of the company is about 21 000 billion

VN Dong In 12/1/2009 periodic report on business finance, the total amount of capital as follows:

Name Unit 2007 2008 2009 Gaining

percentage (07/08)

Gaining percentage(08/09)Total

business

capital

Billion

VN Dong

Looking at the table, it can see that the total amount of business capital has risen in recent years In 2008, it increased 10.68% compared to 2007 In comparison with 2008, this growth rate was 10.3% The fixed and current capital increased over the years This is a very outstanding achievement that not every construction company can achieve, especially for young company like Thanh Nam.

2 Technical ability

In construction, machine is very important It is production facility, it also affects to productivity raising and the quality of works If devices are out of date, the execution of works can meet many difficulties, the quality of works decreases, work progress may not meet the deadline, even worse, it may be not safe for the workers

Being a construction firm, the company has specialized devices such as: transporter trucks, lifters, excavators, bulldozers, moderators…Particularly, in recent years, the company pays great attention to buy modern devices to serve building and assembling process This is an effort step to satisfy requirements of big projects

THE DEVICE STRUCTURE CHART

(Source: The Project Management Department, unit: million VN Dong)

6000

ul

12000

3 Transfe

r line

1 Russia Mediu

m maintenance

Mediu

m maintenance