Building business strategies in Minh Hieu Construction and Trading Joint Stock Company for period 2013-2017, with vision to 2020

GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM CAPSTONE PROJECT BUILDING BUSINESS STRATEGIES IN MINH HIEU CONSTRUCTION AND TRADING JOINT STOCK COMPANY FOR

GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS

ADMINISTRATION PROGRAM

CAPSTONE PROJECT BUILDING BUSINESS STRATEGIES IN MINH HIEU CONSTRUCTION AND TRADING JOINT STOCK COMPANY

FOR PERIOD 2013 -2017, WITH VISION TO 2020

Intake Gba.M0310, Group 01 Names of Students:

Building Business Strategies in Minh Hieu Construction and Trading Joint Stock Company

- ETC Management

- Peer Review Council

This is to certify that Group 1, Intake Gba.M0310, the Master of Business Administration Program of Center for Education Technology and Career Development (ETC) - Viet Nam National University and Griggs University - the United States is permitted by Minh Hieu Construction and Trading Joint stock Company to use its materials and data as inputs for the thesis titled “Strategic business planning at Minh Hieu Construction and Trading Joint stock Company in the period 2012-2015”

[Koni July 2012

VN, C "GA

7, coDIRECTOR _

TABLES OF CONTENTS

CHAPTER | THEORIES OF BUSINESS STRATEGIES DEVELOPMENT 8 1,1 DEFINITION AND ROLE OF STRATEGIC MANAGEMENT 8

1.2 STRAREGIC MANAGEMENT AND PLANNING PROCESS 9

Building Business Strategies in Minh Hieu Construction and Trading Joint Stock Company

CHAPTER 2 BUSINESS ENVIRONMENT ANALYSIS OF MINH

2.1.2 Business Areas, Tasks and Functions, and Core Competencies 2)

2.2 THE COMPANY BUSINESS ENVIRONMENT ANALYSIS 24

CHAPTER 3 SELECTION OF STRATEGIES AND MEASURES 47

Service Quality

Building Business Strategies in Minh Hieu Construction and Trading Joint Stock Company

LIST OF TABLES AND FIGURES

Structure

2011

Table 2 GDP Growth Rates and Inflation Kates for 2005-2011

Table 3 - List of technological properties currently used in the Company Table 4 Summary of the Company’s Business Environment

Table 5 The Company’s Competitive Profile Matrix (CPM)

Table 6 The Company’s Opportunities and Threats

10 Table 7 The Company’s EFE Matrix

11 Table 8 The Company’s Completed Projects

12 Table 9 The Company’s Invested Equipment and Machinery as of 30/6/2012

13 Table 10 The Company’s Business Operation Growth Rate for 2009-2011

14 Table 11 List of the Company’s key technical staff and executives

15 Table 12 The Company’s Internal Factor Evaluation (IFE) Matrix

16 Table 13 The Company’s SWOT Matrix

17 Table 14 The Company QSPM Matrix

ACKNOWLEDGEMENTS

We would like to convey our since thanks to lecturers, tutors and staff of the Center for Education Technology and Career Development (ETC) - Viet Nam National University as well as the Management of Minh Hieu Construction and Trading Joint stock Company for their creating favorable conditions to the study and completion of this graduation thesis

Building Business Strategies in Minh Hieu Construction and Trading Joint Stock Company

INTRODUCTION

1 Background and the necessity of the Capstone

1.1 National and global context

In Viet Nam, since the launch of the State’s open-door policy in 1986, marked

by the country’s WTO admission in 2007, the national economy has achieved rapid and substantial pace of growth and integration with the global economy The country’s GDP continuously achieved high and sustainable growth rate of the average 6-8% in 2001-2010 Even during the global early economic recession in

2008, Viet Nam economy sustained its growth rate of 6.5%

Since 2009, however, as the global economic picture has been marked with

varied patterns such as the record high unemployment rate in the US and the public debt crisis in the Euro zone countries, the country economy was pulled into the world-spread recession The country’s economic growth rate for the first half of

2012 stood at modest 4.38% The imports of input materials for the key commodities in the country’s export turnover such as garment, footware declined sharply in the early 2012, which reveals the difficulty in finding markets for the exports in the coming period Notably, the gloomy picture of local firms’ 2012 performance is spreading throughout the country In each locality, the number of firms in various business areas and of different sizes, facing with difficulties, dissolution, temporary holdup in operations or operations without turnover, operations at a loss, bankruptcy, etc is on dramatic increase Many of these firms are

in huge debts and have to downsize their operations with huge inventories while the export markets become narrower and their domestic market shares shrunk It is common that many firms commit tax evasion, or cannot afford to pay taxes and duties, which have cast adverse impact on both the macro and micro socio- economic situation of the country

1.2 The necessity of the Capstone

To overcome such crisis, it is essential that each firm take the correct and appropriate actions in their operations to flexibly adapt to the changing business environment Minh Hieu Construction and Trading Joint Stock Company, a small local private firm is no exception

2 Objective, scope and applicability

The Capstone’s objective is to study and “Build business strategies in Minh Hieu Construction and Trading Joint Stock Company for period 2013-2017” to put forth measures and recommendations to the Company to seiect the best-fit business strategies to overcome the immediate obstacles, and maintain its sustainable operations and growth in medium and long terms

3 Methodology

- Data: use the Company’s financial figures for period 2008-2011;

- Use a methodology mix of analytical, statistical, synthetic, comparative and selective approach

Building Business Strategies in Minh Hieu Construction and Trading Joint Stock Company

CHAPTER 1 THEORIES OF BUSINESS STRATEGIES DEVELOPMENT

1.1 DEFINITION AND ROLE OF STRATEGIC MANAGEMENT

1.1.2 The Role of Strategic Management

Business strategies are vital to the existence and operations of a firm They define the goals to be achieved by mobilizing appropriate short and long-term resources They ensure that the business plans do not deviate from the set direction Well-designed business strategies will gain a Company more profits, sustainable operations, and make it highly responsive to the external business environment

A business strategy is considered a comprehensive and unified plan of a firm that provides long-term development orientation, confirms the firm’s goals, outlines its major resources and suggests measures to tackle the unexpected changes that it may face in the competitive environment Thus, a business strategy is foundation to

determine (identify) and unify resources, and concentrate these resources on the

corporate goals and utilize the firm’s power to achieve them

Competitive strategies enable commercial firms to grasp market opportunities

by utilizing their constraint resources and high outcome to achieve their set goals These strategies also assist firms to select the right direction of their operations Business strategies help firms make better use of the available opportunities, reduce their risks and deter those threats associated with their business environment Business strategies get firms better prepared to tackle and control market developments

1.2 STRATEGIC MANAGEMENT AND PLANNING PROCESS

1.2.1 Strategic Management Process

A strategic planning process of a firm is demonstrated in the chart below:

1.2.2 Business Strategy Classification

1.2.2.1 Overall Corporate Strategy

An overall corporate strategy sets standards for all the decisions made in a firm It defines the purpose, goals and business objectives that the firm is pursuing

It creates key policies and plans to achieve the set goals and objectives

An overall corporate strategy is featured by the followings:

e It steers a firm’s overall goals and tasks, including defining its business objectives, type of business operations that it will deal in, and the approaches to manage and coordinate its different business activities

e It directs a firm’s competition by identifying markets or market segments

in which the firm will compete

Group 1 M0310

Building Business Strategics in Minh Hicu Construction and Trading Joint Stock Company

e It administers individual business activities and their relations: an overall corporate strategy targets developing and exploiting the resonance between these activities by dividing or combining resources of independent units or separate activities

e Business administration practice: Corporate-level strategies allow identifying approaches to manage different units of business or groups of activities A firm can administer its business operations through direct interventions in the centralized approach, or empower its business units in the decentralized approach on the basis of trust

Thus, it is required that a firm create more added values through the portfolio management of all of its business activities, and ensure long-term success of each activity and harmonized synergy of all of them

1.2.2.2 Business Unit Strategies

A strategic business unit can be a component of a firm, a product line or a market segment and is independently planned At this level, it is essential that each unit strives to fulfill its goals to contribute to achieving the overall goal of the firm

1.2.2.3 Divisional or Functional Strategies

The divisional or functional units of a firm or an organization refer to the operational units in it Strategies at this level are associated to the operational procedures of the business activities and units of the chain of values Functional strategies like marketing, financial, human resources or research and development target developing and combining resources through which business unit strategies can be efficiently implemented

Functional strategies are dependent on higher-level strategies in a firm or an organization These strategies are inputs for business unit level strategies and the overall corporate strategy Once higher-level strategies are in place, they will be translated into detailed action plans and implemented by the functional divisions to ensure achieving the overall corporate strategy

1.2.3 Overall Environment Analysis using PEST Model

1.2.3.1 Economic Factors

Economic factors often have direct impact on the business environment and strategies of firms Therefore, it is essential that they attend to both short-term and long-term economic factors and the Government’s interventions:

- Future economic outlooks: the country’s GDP growth rate, the ratio between GDP and invested capital that reflects the pace of growth of the country’s economy, and per capita income These allow forecasts of the market volume of cach industry and market share of each firm

- Factors that influence the economy: interest rates, inflation rate, monetary

market ratio, unemployment trends, etc are those factors that cast direct impacts on the trends of investment and tightening expenditure

- The Government’s economic policies: The Law on base salary, the Government’s economic development strategies, tax policies and other incentives

for the industries

1.2.3.2 Cultural and Social Factors

Each country or territory has its own typical cultural values and social

factors, which decide the features of the local consumers Cultural values formulate

a society and nurture its existence and development Cultural factors, especially mental cultural values, therefore, are tightly and largely protected Apart from

cultural factors, social features are centered to firms’ interest in their market

research Social factors categorize a community into different groups of customers

with various features, sentiment and levels of income and include:

+ Population distribution and typical customs and culture;

+ Average income, and distribution of income;

+ Life style, education, aesthetic viewpoints and psychological style;

+ Living conditions, security and social welfare schemes;

+ Viewpoints on the State investment programs;

Building Business Strategies in Minh Hiecu Construction and Trading Joint Stock Company

1.2.3.3 Political and Legal Factors

These factors influence all the industries in a territory Institutional and legal factors can pose threats to existence and development of any industry When doing business in an administrative unit, firms are obliged to comply with the local legal and institutional regimes In studying these factors, therefore, it is necessary to attend to the following aspects:

+ Stability: it is essential to examine stability of the political and diplomatic conflicts of the local legislative regimes Those highiy stable regimes will be favorable to business operations while those unstable and conflicting will adversely impact business operations in that territory

+ Tax policies: import and export duties, consumption and income taxes, etc will influence firms’ turnover and profits

+ Relevant laws and regulations: Investment Law, Corporate Law, Labour Code, Anti-Monopoly Law and Anti-Dumping Codes, etc are key examples of laws and regulations that firms should study

+ Policies: State policies on areas like commercial, sectoral development, economic development, taxation, competition regulation, and consumer protection also affect firms’ operations They can enable profit generation or pose threats to

firms

1.2.3.4 Global Factors

Globalization is currently a prevailing trend for development worldwide With Viet Nam’s 2007 admission to WTO, such trend creates both opportunities and threats to local firms in their integration, and production and business development Thus in developing business strategies, it is essential for firms to attend to the following issues:

+ Globalization creates competitive pressure from rivals anywhere in the world The integration process will force local firms to adjust themselves to their competitive advantages, and regional and global distribution of labour

+ Trade barriers will be gradually removed in the integration process, and local firms will have opportunities to trade with distanced partners Their customers

are not just limited to those in home markets, but also include those from other

regional global markets

1.2.3.5 Technological Factors

The whole world is undertaking the technological revolution, which has invented a wide range of new technologies already integrated into various products and services In the information technoiogy area in particular, advanced communications technologies have bridged the geographical distance and improved transmission means The effects of technologies help identify opportunities and threats for firms ‘considerations in their business strategies development Technological advances can cast profound impacts on products, services, markets, Suppliers, distributors and firms’ market positions To design effective strategies out

of these factors, it is essential that local firms answer the following questions:

+ Which technologies are being used in their business operations? How important are they to each of their activities?

+ What is the speed, life cycle of the technologies, and percentage of out- dated technologies in their operations?

+ What investments have been made by the firms in the essential technologies over the past time?

+ What are the costs and structure of the added values of the firms’ divisions, units, products and business activities?

+ How attractive is each of their business activities in terms of investment and growth opportunities? How potential are they to increase the firms’ profitability and to dominate the technologies?

+ How does information technology and the internet affect their business operations?

1.2.4 Industry Environment Analysis using Michael Porter’s 5 Forces Model

The industry environment is comprised of those macro factors, forces and institutions external to firms and beyond administrators’ control but have impact on

Building Business Strategies in Minh Hieu Construction and Trading Joint Stock Company

their operations and business performance Industry environment analysis helps firms to assess risks and opportunities that they may face, and define models to pursue and issues to tackle, the key processes essential to their further business successes Risks can affect their achieving the assessed strategic goals and the plans

to be implemented to deal with these risks

Michael Porter’s five forces are: Buyers; Suppliers; Competitors; Potential

Entrants; and Substitute Products or Services

decisions Buyer research, therefore, is vital to help firms get to know their

customers better Issues that need considerations in buyer research are:

- What drives buyers to choose or not choose a firm?

- What scale of targeted customer base to be considered?

- What are the substantial differences between the different groups of buyers?

- How, when and how many products do buyers buy?

- What are the costs of transfers to new buyers?

1.2.4.2 Suppliers

Quantity and scale of suppliers: the number of suppliers decides the degree of competition, their bargaining power to the industry and firms in it If there are a few sizable suppliers in the market, competitive pressure wiil appear and affect the business operations of the whole industry

Possibility of substituting products of suppliers: in this aspect, it is essential to study the possibility of suppliers’ substituting input materials and the costs of transfers to new suppliers

Suppliers’ information: In the contemporary context, information is always the

drive of trade development Information of suppliers largely influences firms’

Choice of suppliers of their production inputs

Suppliers always pose certain pressure on all industries if they have scale, mobilize and own scarce resources Firms should, therefore, choose appropriate suppliers, who are closely connected and market leaders in their supplies

1.2.4.3 Existing Rivals

Rivals are those firms who share the same customer base of a firm Studies of rivals or competitors help a firm identify the degree and nature of existing rivalry, based on which they can take suitable measures to sustain their market position and increase pressure to their competitors The key issues to rival studies include:

- What are the future objectives of their rivals?

- What are their rivals’ current strategies?

- What is the effect of rivalry to the industry?

- What are their rivals’ strengths and weaknesses?

- Their rivals’ possible strategic transfers or transformation?

- What is their rivals’ business performance?

Building Business Strategics in Minh Hieu Construction and Trading Joint Stock Company

a

1.2.4.4 Potential Entrants

Potential or possible entrants are those rivals who currently do not pose any threats to a firm, but may do so in the future These entrants, though yet powerful in the industry, have strong technological or development advantages It is, therefore, advisable that existing firms in the industry study be prepared for rivalry from these entrants Once they enter the industry, they can cause the existing firms’ market shares or profits to shrink, or adversely affect their strategies The existing firms thus need to create barriers to new enirants by:

products

enhancing their capacity and finances

differentiating through their prices and quality advantages

strengthening their prestige to their regular customers

taking lead in their entrance to new markets

1.2.4.5 Substitute Products and Services

Substitutes are outcome of the technological boom and threats to increasing costs and trimming profits of a firm The pressure of substitutes limits profits of each industry by setting ceiling prices at which firms can do profitable business It

is, therefore, essential that business administrators identify their firms’ substitutes

by seeking those products with similar functions to the industry’s products

1.2.5 Corporate Internal Environment Analysis

1.2.5.1 Corporate Culture

Corporate cultural identities are the quintessence drawn from a firm’s managerial and trading practice They are formed and developed along the life and growth and of a firm Strong corporate cultural identities contribute to enhanced image of a firm, and can attract, develop and retain talents for it

Corporate culture significantly influences a firm and every of its members It

is, therefore, essential that firms be well aware of their crosscutting corporate

cultural identities, and ways to maintain and nurture the best ones On such basis,

they can develop their own typical identities and highly appealing images to both their members and customers and partners

1.2.5.2 Productive and Trading Capacity

Production and trading are the key activities of a firm, and associated closely

to the generation of its products and profits They have strong impact on the degree

of success that a firm can achieve In analyzing business operations of a firm, it is essential to take into account their business processes, status of equipment,

unfinished products and inventories, and the labour force involved Some of the

issues to be considered in such analysis include:

- Degree of input supplies, and relations with suppliers;

- Equipment and facilities setups and their efficiency;

- Advantages of production of scales;

- Systems to check inventories, and inventories transfer cycles;

- Measures to check operational performance, to examine equipment, to schedule work progress and control quality;

1.2.5.3 Finance and Accounting Capacity

Finance and accounting are vital functions in a firm Thus, in developing a firm’s business strategy, it is essential to look into its financial strengths and weaknesses Financial factors can alter on-going strategies and the implementation

of other objectives of a firm Analyzing financial indicators is mostly used to identify strengths and weaknesses of a firm’s investing and financing capacity In such analysis, the following aspects should be considered:

- Its capacity to mobilize short and long-term finances;

- The ratio of loans on its overall capital structure;

- Status of its mortgaged loans, and ability to utilize alternative financial

Strategies such as lease, sale or sub-lease;

- Recurrent working capital, and flexibility of investment capital structure;

- Current financial scale of the firm;

- The firm’s capital expenditure compared to that of the whole industry and

its rivals

Building Business Strategies in Minh Hieu Construction and Trading Joint Stock Company

1.2.5.4 Management Capacity

Management is approaches and strategies to help a firm or an organization with limited resources achieve its set objectives Managers are those who well manage resources and time, foresee opportunities and make use of them Management is comprised of four basic functions:

- Planning: includes all the activities that are associated with the future growth

of a firm These activities are assessing resources and organizational structure; setting achievable objectives; formulating action pians to achieve objectives in a set timeframe; proposing plans to make use of available opportunities and limit threats from the external environment

- Arranging: is a management activity to create structures, and connections between authorities and responsibilities in a firm This function includes developing

a favorable internal environment to achieve a firm’s set objectives; establishing an

organizational structure and authorities for divisions, individuals, and matrix

coordination in the organization

- Leadership: is managing the human factor to enable a firm or an organization

to achieve its set objectives Leadership includes assigning the right resources and supplying an effective supporting system Leadership requires advanced communications skills and ability to motivate people One of the decisive factors of effective leadership is to strike balance between human resource requirement and business efficiency of the firm

- Examining: is the function to evaluate quality of performance and identify possible or existing deviations from the organization’s plans This function is aimed

to ensure efficiency while maintaining corporate discipline and a trouble-free environment Examining involves information management It evaluates the efficiency of the achieved outcome, and proposes timely responsive measures

1.2.5.5 Information Systems

Applying information systems in business management and execution to help firms to improve their performance through maximized cut on their costs, and effective informed management decisions An effective information system collects,

codifies, archives, synthesizes and provides the information answerable to the strategic questions Due to increased complexity, and wide-spatial distributions of organizations and firms, the development of efficient and effective information systems is essential

1.2.6 SWOT Matrix

To design business strategies that can bring about practical efficiency for firms

in the future, it is essential that administrators analyze their firms’ past and present strengths and weaknesses, and opportunities and threats

SWOT matrix is an important and useful tool to administrators to select the best-fit strategies for their future business growth To establish a SWOT matrix, one needs to take 8 following steps:

e Step 1: List out the key opportunities offered by the external environment (Ol, O2, etc.)

e Step 2: List out the major threats posed by the external environment (T1,

T2, ete.)

e Step 3: List out the key strengths of the firm (S1, S2, etc.)

e Step 4: List out the major weaknesses of the firm (W1, W2, etc.)

e Step 5: Combine the identified strengths and opportunities for the formulation of strategies (SO)

e Step 6: Combine the identified weaknesses and opportunities for the formulation of strategies ( WO)

e Step 7: Combine the identified strengths and threats to the formulation of strategies ( SO)

e Step 8: Combine the identified weaknesses and threats to the formulation of strategies (WT)

1.2.7 Quantitative Strategic Planning Matrix (QSPM)

QSPM is a tool that allows strategists objectively evaluate the replaceable strategies based on the identified internal and external success factors Like other analytical tools for strategy formulation, QSPM requires sound intuitive forecasts

Building Business Strategies in Minh Hieu Construction and Trading Joint Stock Company

A QSPM is formulated through 6 steps:

vé Step 1: List out the major external opportunities/ threats and internal strengths/ weaknesses of the firm in the left column of the QSPM, which is comprised of a minimum 10 factors This information is extracted from the EFE and IFE matrices

Y Step 2: Categorize internal and external success factors Such categorization

is similar to the practice in the EFE and IFE matrices

v’ Step 3: Study the phase 2 (combined) matrices and identify the replaceable strategies that the firm needs to consider for implementation

v Step 4: Evaluate the attractive score (AS) 1 = weakest, 2 = least weak, 3 = least powerful, 4 = most powerful

Y Step 5: Calculate the total attractive score (TAS) by multiplying the categorization score and the AS

Y Step 6: Sum the ASs The higher the TAS, the more attractive and optimal the studied strategy is

CHAPTER 2 BUSINESS ENVIRONMENT ANALYSIS OF MINH HIEU CONSTRUCTION AND TRADING JOINT STOCK COMPANY

2.1 OVERVIEW OF THE COMPANY

2.1.1 Development History

Minh Hieu Construction and Trading Joint Stock Company (called short the Company) was established by merging Minh Hieu Trading Joint Stock Company and Minh Khanh Construction Joint Stock Company in 2005 The Company currently has a total working capital of VND 51,373 million

In its nearly 7 years of operations, the Company has faced with numerous difficulties and threats from the home economy full of fluctuations and severe competition, specifically:

- Soon after Viet Nam 2007 WTO membership, the country’s economy experienced high inflation and shrunk growth in early 2008

- The national economic recovery did not last long when in late 2010 and early 2011, the country fell again in an economic downturn associated with persistent inflation, and rising interest rates, while the Government started to tighten credits to curb inflation and stabilize the macro-economy, and cut down on public investments

The Company has survived and prospered out of such crisis thanks to its correct and determined orientation, and well-set objectives and strategies By far, the Company’s market share in the province has been scaled up, with prestige enhanced to investment owners It has also attracted a large labour base, and contributed to increasing local per capita incomes

2.1.2 Business Areas, Tasks and Functions, and Core Competencies 2.1.2.1 Business Areas

e Construction of technical infrastructures, site clearance and filling;

e Construction of traffic works, irrigation systems, civil and industrial

works;

Building Business Strategies in Minh Hieu Construction and Trading Joint Stock Company

Urban planning and construction and construction of high-rise apartment buildings;

e Construction of low voltage power structures;

2.1.2.2 On-going Tasks and Functions

e Construction of technical infrastructures, site clearance and filling;

e Construction of traffic works, irrigation systems, civil and industrial

works;

e Urban planning and construction and construction of high-rise apartment buildings;

e Construction of low voltage power structures;

of their subordinates is managed by and accountable to one single manager The Company has a closed organizational structure with the management hierarchy from the top management to units or departments

| Chairman of the Board of Directors

machines and vehicles

Figure 3: Minh Hieu Construction and Trading JSC’s Organizational Structure

2.1.4 The Company’s Business Performance for 2009 — 2 11

After 7 years’ operations and development, with dynamic innovation in the management process, the Company has started and been implementing a number of important projects in Thanh Hoa province, especially in the remote and specially difficult areas It has achieved considerable growth over the past three years:

—{[_[_—=£—Z{Z{[_———Z—{—{_{_———

Building Business Strategies in Minh Hieu Construction and Trading Joint Stock Company

Source: Financial Statements publicized by Minh Hieu Construction and Trading JSC

2.2 THE COMPANY BUSINESS ENVIRONMENT ANALYSIS

2.2.1 Macro Environment (PEST) Analysis

2.2.1.1 Economic Factors

- Economic outlooks: Viet Nam economy has been gravely affected by global economic crises such as the European sovereign debt crisis, economic downturns in the United States, and earthquakes and tsunami in Japan, which have resulted in the decline in economic growth as well as increased inflation and unemployment all over the world Viet Nam’s 2011 economic indices were lower compared to 2010: the GDP growth rate decreased from 6.78% to 5.89%, the CPI increased from 18.13% to 18.58% while the inflation rate rose from 11.75% to

18.13% In 2011, however, Viet Nam saw a breakthrough in exports, which were 32

% higher than the previous year Viet Nam economy, though with early 2012 GDP

growth rate of modest 4.38%, shows certain positive signs Hyper imports dropped

in the first four months of 2012 and stood at USD 176 million, or roughly 0.53% of the country’s total export turnover, a figure much lower than that of the recent years The country’s attracted FDI has been improved in both the quality of the fund (with increased share from developed industrial countries) and content (with growth

in FD] in processing industries and drop in real estate projects) The positive signs

of the national economy has good impact on the Company’s business performance

- Economic factors affecting the Company’s business performance are:

i) Macroeconomic policies: at present, the whole country and Thanh Hoa province, in particular, are implementing Resolution 11/NQ-CP on the key measures to curb inflation, stabilize the country’s macro economy, and ensure social welfare such as tightened fiscal policies, trimmed public investments and reduced State budget deficit Despite these efforts, the local high inflation trends have cast substantial impact on the life quality of the Company’s employees, whose income largely relies on their salary Although the Company has made several salary adjustments to their employees, such moves cannot catch up with the pace of the local currency devaluation Stabilizing life quality for their employees is, therefore,

a big headache for the Company The Government’s trimmed public investments and tightened credit policies does not seem to affect the Company’s performance as most of the Company’s completed and on-going contracts are small and medium in

value, and related to the National Target Programs on education and social welfare,

whose fund has been well committed The Company, thus, always has fund allocated from contract advance, which amounts up to 80% of the contracts’ value

to revolve among its different projects

ii) Government incentives to domestic firms: To support small and medium sized domestic enterprises (SMEs) in line with the goal stated in

Resolution 11/NQ-CP, the Government enacted Decision 21/2011/QD-TTg dated

06/4/2011 on deferred payment of corporate income tax for one year The recent Resolution 13/NQ-CP issued on 10/5/2012 is also aimed at giving support to business, production, and the market by allowing enterprises whose corporate

Building Business Strategies in Minh Hieu Construction and Trading Joint Stock Company

to remove obstacles for normal operations of the whole economy and provide incentives to local firms’ growth, especially the SMEs

As a firm operating mainly in the remote and difficult areas of Thanh Hoa province, the above Government supports are vital to the Company, thus it can:

+ improve its physical capacity and accelerate projects’ implementation progress;

+ attract more free local labour, and help improve income of local community in their operational location, which contributes to ensuring security,

curbing social evils and stabilizing life of local ethnic minority people, in line with

Thanh Hoa’s instructions;

+ afford to improve welfare scheme and life quality for its employees, thus make them feel more secured and loyal to their jobs Examples of these improvements are 10% salary subsidiary, cell phone charge allowance to its key executives, and outstanding engineers and technicians, 15% monthly or quarterly

Source: Reports of General Statistics Office of Viet Nam

2.2.1.2 Political and Legal Factors

Some legal documents such as the Corporate Law, the Construction Code, the Law on Investment, the Bidding Law, and the Competition Law have been enacted to govern trading and construction activities towards eliminating discrimination to create a fair business environment for construction companies The legal system of Viet Nam has been improved and more compatible with the international practices, making the country a more attractive investment destination The open-door diplomatic policy has been proved effective, fostering the improvement of the construction investment situation in Viet Nam Thus, there are more and more large construction investment projects in Viet Nam

The Government enacted Decree 56/2009/ND-CP on June 30, 2009 on

policies on supports and management of supports for SMEs development The Government has enforced 8 key policies on supports for SMEs, including policies

on financial supports, supports of business premises, innovation supports to enhance technological capacity, market expansion supports, participation in government purchase plans and supplying public services; information and consultancy supports, and business incubators

To attract investments and create an enabling business environment for local firms’ development, its has been grasped by Thanh Hoa province that the local business community is an integral player of the province’s socioeconomic growth The province has taken a detailed support action plan to local firms by promulgating the Economic Development Action Strategy No 45/KH-UBND dated 5 August

2011 on the implementation of Resolution 02/NQ-TU dated 27 June 2011 of the provincial Party Committee on improving business and investment environment for penod 2011-2015 and implemented supportive measures to help businesses maintain operations For example, there have been some programs such as trade promotion, market information search, outlet supports, human resource training supports, reduction of costs of market penetration, capital mobilization supports, anc supports for enterprises in tax refunding, tax reduction, and tax deferment

+ Incentives for investments in industrial zones, clusters and handicraft

villages: to attract investments, Thanh Hoa province has planned and invested in

Building Business Strategies in Minh Hieu Construction and Trading Joint Stock Company

physical capacity building for many industrial zones, clusters and handicraft villages Priorities for investments are granted to those firms that can employ from

300 laborers through such incentives as 50% land tax reduction in 5 years, VAT

exemption in 3 years and exempted payment of the physical capacity investment fund

+ Incentives for investments in infrastructural development: Thanh Hoa calls for investments from all firms in and outside the province in its transport and irrigation infrastructure, schoois, clinics through modalities like BOT or PPP, especially investments in the mountainous and extremely difficult areas of the province To motivate firms to invest in these areas, Thanh Hoa has provided supportive legal framework to grant to participating firms preferential loans of up to 75% of the project value, and help them get contracts in the province’s other projects to create their income, which will be reinvested in the infrastructural projects trough BOT, PPP modalities

In summary, the above incentives are foundation for Minh Hieu Company to take active actions in implementing the expanded investment strategy, developing businesses in its target markets, in period 2013-2017

2.2.1.3 Cultural and Social Factors

As a company operating in the field of construction, implementing a number

of projects in relation to social welfare programs in remote, mountainous areas and areas with special difficulties of Thanh Hoa province, the Company has attached importance to the understanding and assessment of cultural factors in the local area

in achieving the Company’s goals In the system of cultural values, spiritual and intangible cultural values have strong effect on the selection of business strategies and target markets and the establishment of overall goals of an enterprise Such cultural values include the level of applying technological innovations; educational level, level of education generalization, language, religious symbols, conceptions towards friendship, psychology, lifestyle, traditions or customs, taboos, and living standards of local people and government investment projects in the locality

2.2.1.4 Technological Factors

In the context of the integration into the World Trade Organization (WTO)

of Viet Nam, technological innovation is of great importance as technology 1s the most powerful weapon for competition Technological innovation will help produce better quality products, improve production efficiency, and minimize production

costs, cutting the prices as a result by minimizing inefficient manual labour Hence,

the competitiveness of the Company in the market will be strengthened

In Minh Hieu Construction and Trading Joint Stock Company, future technological development orientation is a top priority Therefore, information updates, incentives to encourage new ideas, training the human resources to apply new technologies, and investment in technological-innovated equipment for production activities are focused by the Company’s management This is because the Company views that technological innovations not only help improve construction quality, save costs of materials and fuels, improve working conditions for labour and equipment, and reduce negative effects on the environment but also help the Company earn better reputation and more sustainable growth

Table 3 - List of technological properties currently used in the Company

B_ | Key equipment and facilities:

Building Business Strategies in Minh Hieu Construction and Trading Joint Stock Company

trend of global economic integration

Advantages

e The trend of globalization and global or regional integration has created

an advantage in attracting investment, expanding International

cooperation relations in the field of business and production, and

generating jobs to improve income;

types of products are favorable for enterprises to promote and scale up production and investment and improve product quality;

distribution; as a result, production inputs are available while products are stably sold in both domestic and foreign markets;

Disadvantages

e General speaking, the operation capacity of enterprises in the province is still limited and they are in small scale Besides, these enterprises have not developed medium- to long-term business strategies and have lacked

qualified human resources, which are the cause of sluggishness in application of technological innovations;

competing with enterprises in the province and taking their positions in the local market

In response to globalization, enterprises in Thanh Hoa in general and Minh Hieu Company in particular should set appropriate overall goals, encourage employees to

devote attach much importance to talents, build corporate culture, and innovate

leadership to adapt the globalization-driven business environment

Conclusion: Summary of Opportunities and Threats

Table 4: Summary of the Company’s Business Environment Assessment

causing reduced trade deficits, and the government policy on

- Increased per capital income, development area are

transfer to the business areas

demand for construction; and market, which compete

- Decision 21/2011/QD-TTg and | directly with the Company

the prices of input materials

Economic

Government on helping and fuels to gro Ww

enterprises deal with difficulties - Salary and labour cost

- Target programs for the profits to shrink

mountainous areas, specially

disadvantaged areas and programs

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