The development strategy of Gia Lai power company from 2013-2018 and vision 2025

26/2006/QD-TTg: "Approving routes, conditions of formation and development of different levels of electricity market in Vietnam" to: a Step-by-step develop the competitive electricity m

Global Advanced Master of Business Administration

THE DEVELOPMENT STRATEGY

OF GIA LAI POWER COMPANY FROM 2013-2018

AND VISION 2025

CLASS: GaMBA01.D0111 Group 1: 1/ MANG DOAN

2/ NGUYEN ANH DIEN 3/ VAN DINH HAU 4/ LE ANH QUANG

HCM City– April /2013

OPENING:

1 The essential of the subject:

In recent years, Vietnam has been intergrating deeper and deeper into regional and international economies, which create favourable conditions for development However, aside from those opportunities, such a votile business environment also causes pressures, which ask Vietnams businesses to have strategies in accordance with the actual situations

Competitiveness of businesses is the base for the competitiveness of the economy After joining the WTO, along with an itinerary to cut down taffifs, the penetration of goods, services and foreign investors increases the competitition in most of the fields of local economy Economy crisis, in addition to corollaries that afftect almost every country, also creates and increases the opportunities to penetrate and control the market of investors with sharp, strong and creative business minds

Facing that situation, Vietnam businesses have to solve the issue: competing successfully in the local market and gradually penetrating international market The only solution to this challenge is to have suitable and strong business strategies to increase their competitiveness

Business strategies must identify operating methods in order to put higher, stronger competitiveness Implement methods to improve the factors that containing the competitiveness of businesses These factors are: the ability to offer products and services, the application of new production technologies, quality's control procedures, marketing, ability of production, human resources Through the theoretic study, it is shows that, there is a close relationship between competitive factors and performances of the businesses

As for the field of producing and commercializing energy in general and electricity in particular, the current trend of globalization and extensive globalization act as a leverage to create momentum for rapid development, satisfying the demand of the economy In Vietnam, due to its own characteristics,

the production and supply of power are still regulated by the Government, through Electricity of Vietnam (EVN)

In other word, the production and commercialization of electricity in Vietnam (except for a few small non-state businesses) are now under monopoly mechanism (the State monopoly) However, with the current trends of intergration and globalization, especially after Vietnam became a member of the World Trade Organization (WTO), Vietnam businesses now have to compete in a market with common rules As a result, the production and commercialization of electricity of the country must operate towards a competitive market

Facing the inevitable demands, on 26.01.2006, the Government issued

Decision No 26/2006/QD-TTg: "Approving routes, conditions of formation and development of different levels of electricity market in Vietnam" to:

a) Step-by-step develop the competitive electricity market stability, elimination of subsidies in the power sector, increases the right of choosing electrical suppliers for electrical customers

b) Attract the investment from all domestic and foreign economic backgrounds to participate in electricity, reducing the State's investment for the electricity sector

c) Strengthen the efficiency of the production and commercialization the power sector, reducing the pressure to increase the price

d) Ensure the power supply is stable, reliable and as well as increase its quality

e) Ensure the sustainability of the development of the electricity sector

As a result, the electricity market in Vietnam will be formed and developed

The most important to businesses which operate in the electricity distribution

field (as Gia lai Power Company - The studying object of the CAPSTONE) be

specified in this decision is starting to format the pilot competitive wholesale electricity market (from 2015 to 2016) by allowing the selection some large distributors and large customers to pilot Allow to take form new wholesale units to enhance the competition in the electricity wholesale process

More importantly, from 2017 to 2022, Vietnam aims to have a complete competitive electricity wholesale market In this period, the Government will allow the electricity distribution companies that currently belong to EVN to convert into independent companies (state or joint-stock companies) to purchase electricity directly from generating units and, vice versa, the generating units can compete to sell electricity to these companies The wholesale units also compete to sell electricity to distribution companies as well as big customers

From 2022 to 2024 will appear pilot competitive electricity retail market through choosing pilot appropriate distribution regions By the consumption of electricity by the National Electricity Regulatory fixed, the customers may select their electricity providers (retail units) Business functions of the retail of distribution companies pilot selected will separated from the function of management and operation of the distribution network; retail units will compete to sell electricity to each customer and compete for buying electricity from the wholesale units

Finally, from 2024, Vietnam will have full and complete electricity retail market Depending on the level of electricity consumption provided by the National Electricity Regulatory, the consumers can choose their electricity suppliers (retail units) or purchase directly from the market Organizations, individuals that meet the requirements of power operation are allowed to establish retail units to compete in the retail market These units can buy electricity from the power units or from the market to resell to customers

A problem arise as Gia Lai Power Company, as well as other companies under EVN, since the beginning and through different stages of developments has operated completely in the subsidizing, central planning and bureaucratic mechanism Consequently, how will the electricity industry intergrates, operates and develops in the market as planned by the Government as the above decision?

As those who are very dedicate to the development of the Vietnam electricity industry in general, and as those who were and have been working, contributing to the development of Gia Lai Power Company in particular, our group decided to apply the knowledge acquired from ANDREW-GRIGGS University to build the development strategy of Gia Lai Power Company period 2013-2018, with vision to

2025, expecting that the company will penetrate sucessfully into a competitve electricity market, continue to affirm, enhance the brand image and position after many years to build

2 Studying objectives:

With this topic, we hope to achieve the following objectives:

- Build the business strategies for Gia lai power Company by analyzing the environment to identify the current strengths and weaknesses as well as the threats and opportunities affecting the development of the company

- Propose solutions to the above strategies

3 Scope of researching:

Focusing on planning strategies for Gia Lai Power Company in a market that

is opening to investors, the research scope is in accordance with the schedule of building a competitive electricity market by the Government However, it will emphasize on the first phase (2013 – 2018) because it is the turning point, deciding

4 Researching methods:

Use the described method, the statistical analysis, synthesis methods, based

on the data and management documents of Gia Lai Power Company, the data of EVN, EVN CPC; The Energy professional journals, economic journals; Intenet

During the research, the following methods are used:

Information collecting methods:

Secondary information from:

- External data: Documents, documentations of the relating authorities; newspapers, radio, statistics, internet

- Internal data of the Company: The documents, statistics, storage, reports, business plans

Primary information from:

- Opinion of leaders and experts of the company

- Opinion of employees and leaders who are retired

Information processing method:

Implementing technical and strategic managements to:

- Analyze business environment to identify opportunities, threats, strengths and weaknesses of the company

- Apply the SWOT analysis to combine the opportunities, threats, strengths and weaknesses in order to set out the strategies for the company

- Use QSPM matrix to compare, evaluate and select the high attractive strategy for implementation

5 Layout:

 Introduction

 Chapter 1: Rationale of the competitive strategy of the company

 Chapter 2: Analysis of current situation

CHAPTER I: RATIONALE ABOUT THE COMPANY STRATEGY

1 The basic concepts of strategy and strategic management

1.1 Concepts:

1.1.1 What is Strategy?

According to Alfred Chandler, strategy is the determination of basic and long-term goals of a business, choose the way or course of action and allocating necessary resources to implement those objectives

Fred R David (2003) said that, strategy is the means to reach long-term goals

Rudolf Grunig and Richard Kuhn (2003) said, strategy is long-term, it orientates to manage and ensure the completion of long-term objectives, the main purposes of the company

In summary, business strategy includes the followings:

- Identify the basic long-term goals of the organization

- Provide general action programs

- Select the action plans, deploy and allocate resources to accomplish that goal

In other words, strategy is a series of operations that established in order to create competitive advantage of the business compared to other competitors The strategy represents a creation of unique value, the selection, the evaluation of competitors in the competition When building business strategy, have to determine where you are, where businesses want to come and how to come

1.1.2 What is Strategic Management?

Fred David pointed out that, Strategic Management is the art and science to

objectives Strategic management focuses on integrated management of all operational fields of the business to achieve success

1.2 The importance of strategic management to enterprises:

Strategic Management enables a company to stay active in responding to the market It allows the company to create and influence (rather that responding) to the environment and thus control its own destiny

Strategic management helps the organization in clarifying its goals and direction It forces the managers to consider and identify how and when the organization can reach its expected position By identifying goals and missions, managers as well as the enterprises understand what needed to be done to achive those norms

2 Classification:

2.1 Company strategy:

It is the pattern of decisions in a company, it is to identify and define the purpose and objectives of the company, identify the business, which the company pursues, create policies and fundamental plans to achieve the goals of the company

In an organization with the diversity of size and level, the company strategy usually applied to the entire enterprise Company strategy set out to identify the business activities in which the company will compete and distribute resources between business activities

2.2 Business-level strategy (SBU-Strategic Business Unit):

"Strategic Business Unit" planned in order to determine the selection of products or markets for private business activities in internal company This strategy determines how each business unit will try to complete its goal to contribute to the completion of the company norms

2.3 Functional-level strategy:

This strategy focuses to support on the allocation of the company's strategy and focus on the fields of operation and business

2.4 Operational-level strategy:

Make more detail for the functional-level strategy and business-level strategy This is the narrow strategy in basic operation management, so should identify clearly the responsibilities of the lowest-level managers in the implementation of strategy

products and services in existing markets through more marketing efforts

+ Market developing strategy: Put the existing products and services into new

areas

+ Product developing strategy: Increase sales by improving or modifying

existing products or services

+ Concentric operation diversification strategy: Add new products or services

that relate to current products or services

+ Operation diversification strategy: Add new products or services, which

have not contact to each other

+ Horizontal-operation diversification strategy: Add to new products or

services to existing customers

+ Joint-venture strategy: Form a separate company form two or more

companies for the purpose of cooperation

4 The basis of the business strategy for company:

4.1 Analysis the external environment:

External environment is a system of complex factors, containing opportunities as well as risks affecting the opration of the business in different levels

Even with huge potential resources, a company could not respond to all that are happening in the market Therefore, when analyzing the external factors, managers need to collect information of opportunities that can bring benefits to the company as well as threats so that company can find solutions to prevent or avoid

External environment includes: General environment and industry environment

4.1.1 General environment

Factors of general environment include economic environment; political and law environment; natural environment; population and social environment; technology environment

+ Economic environment:

The economic environment effects more directly and activity than some other factors of the general environment Changes of the marco-economic environment always contain opportunities and threats to each business in different industries, potential impact to the business strategy

Some basic factors that are most interested by businesses include: the trend

of gross domestic product (GDP) and gross national product (GNP); interest rates and interest rate trends; international balance of payments; inflation; tax system and tax rates

+ The political and legal environment:

Include the system of viewpoints and policies of the Party and State, the current legal system There is also need to understand the political-diplomatic trends

of government, domestic and foreign political evolutions These factors affect the formation and development of the businesses

+ The natural environment:

For a long time, businesses have recognized the impact of the natural circumstances in their business decisions Natural influences includes: geographical location; climate; pollution; lack of energy and wasteful-use of natural resources and the increase in the demands of natural resources, social awareness, education of society These factors affect the business of the enterprises Therefore, enterpriseses should pay attention to these factors when planning business strategies

+ Environmental technology:

Technology creates opportunities and risks to businesses Development in technology can create new markets, resulting in creating new products and making existing products and services become outdated This influences strongly to those

relating to telecommunications, informatic technology, electronic industry

Therefore, businesses operate in electrical and electronic equipments should also pay attention to this factor in the process of negotiating with suppliers of goods in order to create opportunities for themselves

4.1.2 Industry environment:

Applying the 5 resource model of Michael E Porter (1985) to analyze the industry environment of the businesses (also known as the analysis of the competitive structure in an industry), we can see the relationship between these factors are reflected in Figure 1.1

(1) Competitors: The key contents of the competitive analysis presented in

Figure 1.2

Picture 1.2: The principal contents required for competitor analysis

(2) Customers: Customers decide the fate of a business, customer confidence

could be the most precious asset of the business Credibility achieved by satisfying the needs and tastes of customers better than competitors Customer's pressure come

from the following conditions: When the amount of buyer's goods larger the amount

of seller's goods; When the buyers move to purcharse to others but not more costly; When buyers to bring out credible threat signals that would combinate to the rear with suppliers; When the goods that customers buy belong to the low level of specialization

(3) Suppliers: Suppliers may assert their power by threatening to increase

prices or reduce the quality of products and offered services Suppliers will have the advantage if they have the following conditions: when only a small number of vendors selling for a large amount of buyers in an industry; when substitutes are not available, when the goods or services of providers belong to essential goods and high level of specialization; when vendors give credible threat signals of forward integration

(4) The potential competitors: New competitors in the industry reduce profits

because they contribute new production capacity, with the desire to gain market share and the necessary resources Therefore, the protection of company’s position includes maintaining legal barrier to prevent the penetration of new players is very important The main barriers are: the advantage due to large-scale production; products diversity; the requires of large financial resources; high commodity-converted costs; the strong consumption channels and cost advantages that competitors can not create

(5) Replacing goods (products): The substitutes reduces potential

profitability of the industry by imposing a ceiling price compared to current competed price; fields that have high profits; alternative products enter the market massively will increase competition in the industry, create price reduction or

The strength of the five forces can change over time as conditions of the industry changed We need to be aware of the opportunities and risks from changes

in five forces to develop according strategies

4.2 Analysis the internal environment of the business:

Analysis internal environment of the business is the base to help business understand the strengths and weaknesses compared to competitors; to help managers learn the ability to capture competitive advantages in each period Internal factors such as: HR, finance, marketing, operations management, information systems

4.2.1 Human resources: Today, in a volatile business environment,

company’s human resources play a very important role in the process of implementation of the strategies and decide the success or failure of the business Even if the strategies are right, promising and feasible, but the people in the organization are not qualified to perform, those strategies will not succeed The main functions of human resource activities are selecting, recruiting, training, using, treating, evaluating, encouraging, dismissing

4.2.2 Finance: Financial condition is often said to be a factor to evaluate the

competitive position of the company and is the most attractive condition for investors To determine the effectiveness of the strategy is to consider the strengths and weaknesses of the business's finance It shown through analysis of basic financial indicators such as solvency, asset structure, capital structure, profitability ratio this will make the construction of the company's strategy more feasible

4.2.3 Marketing: Marketing research to identify market opportunities,

market segmentation, selects target market and market positioning; implement and test products and price strategies, distribution network and sales promotion

Understand marketing activities, managers will determine specifically tasks

of this function, the jobs should be done in each period

4.2.4 Management operation: Management consists of four basic functions

such as planning, organizing, leading and controlling

- Planning: Include all administrative activities related to the preparation for

future Specifically, forecasting, seting goals, planning strategies, developing policies and creating plans

- Organization: Includes all management activities to create the relationship

between rights and responsibilities Specifically, organization creation, job specialization, job description, work details, extend control, unify commands, coordinate to arrange, design job, analysis and job

- Leadership: Includes efforts to orient human activities, namely leadership,

communication, team working, changes activities, authorization, improvement of job quality, job satisfaction, demand satisfaction, changes in organization, working spirit of employees and managers

- Control: Relate to all management activities to ensure satisfying results,

consistent with the results already planned Major activities are: quality control; financial control; sale; inventory; costs; analyze the changes; reward and punishment

4.2.5 Information systems: Information links all business functions together

and provides the background for all management decisions It is the foundation of all organizations Information expressed major adverses or competitive advantages

Information system is an important basic for strategies, it monitors the changes of the environment, recognizes the threats of competition, supports for the implementation, evaluation and control strategy

5 Tools for planning and strategic choices:

5.1 Tools for strategic planning:

Starting from the actual situation of the Gia Lai Power Company, appropriate

between these divisions

According to Fred R.David, the IFE matrix developed in five steps:

- Step 1: Listing the factors identified in the internal analysis process Use 10

to 20 internal factors, including strengths and weaknesses

- Step 2: Set the importance by sorting from 0.0 (not important) to 1.0 (most important) to each factor Importance assigned to each specific factor shows that the relative importance of those factor for the success of company in the industry Total

of all this critical levels must be equal to 1.0

- Step 3: Classify from 1 to 4 for each factor, which represents the biggest weakness (classified by 1), the smallest weakness (classified by 2), the smallest strengths (classified by 3), the biggest strengths (classified by 4) Thus, these classification will determine important scores for each variable (step 4 = step 2 x step 3)

- Step 4: Multiply each level of importance of each factor with its type to determine the important scores for each variable

- Step 5: Plus all of important scores for each variable to determine the total of important scores of the organization

Regardless of IFE matrix has how many factors, total important scores can classified from the lowest is 1.0 to the highest is 4.0 and the average score is 2.5

If the total of important score is lower than 2.5, it is shows that the company have internal weak and scores higher than 2.5 shows that the company have internal strengths

5.1.2 External factor evaluation matrix (EFE)

External factor evaluation matrix (EFE) allows summarising and evaluating the economic, social, cultural, demographic, geographic, political, governmental, legal, technological and competitive information

According to Fred R.David, developing an EFE matrix consists of five steps:

- Step 1: Make a list of factors that play a decisive role for the success as identified in the inspection process from external factors Use from 10 to 20 factors,

including both opportunities and threats affecting the company and the company's business

- Step 2: Classify the importance from 0.0 (not important) to 1.0 (very important) for each factor This classification shows that the respective importance

of those factors for the success of the company's business The appropriate classification level can be determined by comparing between compete successful businesses with failed competitive businesses or by discussing these factors and achieve consensus of group Total of classification level assigned to these factors must equal 1.0

- Step 3: Classify from 1 to 4 for each factor, which represents the biggest weakness (classified by 1), the smallest weakness (classified by 2), the smallest strengths (classified by 3), the biggest strengths (classified by 4) Thus, these classification will determine important scores for each variable (step 4 = step 2 x step 3)

- Step 4: Multiply the importance of each variable with its type to determine the scores on the importance (steps 4 = 2 x step 3)

- Step 5: Plus total scores of importance for each variable to determine the important scores for the organization

Regardless of the major opportunities and threats included in EFE matrix, the total of the highest important score, which an organization achieved 4.0 and the lowest was 1.0

The total of average important scores is 2.5 Total of the highest important score is 4 shows that the organization is responding very well to the present opportunities and threats in their environment Total of the lowest important score is

assess the suitability of current competitive strategy of the company

Data: Based on the results of the internal environmental analysis, identify the CSFs (Critical Success Factors) and on the basis of the analysing's results of the and

identification of key competitors

5.1.4 Strengths - weaknesses - opportunities - threats matrix (SWOT)

O: Opportunities 1)

2)

T: Threats 1)

W-T: These strategies reduce internal weaknesses in order to prevent or limit the external threats

Set up a SWOT matrix goes through eight steps:

- Step 1: List the major strengths within the company

- Step 2: List the weaknesses within the company

- Step 3: List the major external opportunities the company

- Step 4: List the important threats outside the company

- Step 5: Combine internal strengths with external opportunities and record the results of the S-O strategy in the appropriate box

- Step 6: Combine the internal weaknesses with external opportunities and record the results of W-O strategies in the appropriate box

- Step 7: Combine internal strengths with external threats and record the results

of the S-T strategy in the appropriate box

- Step 8: Combine internal weaknesses with external threats and record the results of the strategy W-T in the appropriate box

5.1.5 SPACE Matrix (Strategic Position & Action Evaluation):

Usage: To evaluate the company's status in the relationship with the internal and external conditions, implication for company in choosing the suitable project selections: Attack, competition, defense or cautious

Data: Form the results of analyzing internal and external environments Internal environment, include: financial strength (FS: Financial Strength); Competitive advantage (CA: Competitive Advantage) and external environment include: environmental stableness (ES: Environment Stableness); strength of industry (IS: Industrial Strength)

5.2.2 Strategy matrix (Main Strategy):

5.2 Strategy selecting tools: Quantitative Strategic Planning Matrix (QSPM)

According to Fred R.David, QSPM matrix using the input information from the IFE matrix, EFE matrix, the competitive profile matrix (CPM) and SWOT matrix Six steps to develop QSPM matrix:

- Step 1: List the external opportunities / threats, the important internal strengths / weaknesses and 10 external important success factors

- Step 2: Classify each external and internal important success factor This classification is the same as the IFE matrix and EFE matrix

- Step 3: Identify the strategies that organization should consider implementing Record these strategies on the first row of QSPM matrix Collect strategies into separate groups if possible

- Step 4: Identify the attractive scores of each strategy (AS) The attractive

score allocate for each strategy denote the relative attractiveness of this strategy compared to other strategies The attractive scores are classified from: 1 = unattractive; 2 = slightly attractive; 3 = quite attractive; and 4 = very attractive If these important success factors have no influence on the choice of strategies, they are not grade attractive scores in this strategic group

- Step 5: Calculate the total attractive scores (TAS) Total attractive scores is a result of the multiply classifying scores (step 2) with attractive scores (step 4) in each row

- Step 6: Calculate the sum of the total attractive scores It is the plus of the sum of total attractive scores in strategic column of QSPM matrix If all appropriate internal and external factors can affect the strategies, the higher the attractive scores indicate more attractive the strategies are

CHAPTER 2 - SITUATION ANALYSIS

1 Gia Lai Power Company summary:

1.1 History and development:

More than a year, after the liberation of the South completely, December 28,

1976, the Ministry of Energy has decision No 3799/QD/TCCB3, about the establishment of the Gia Lai - Kon Tum Electricity Management and Distribution Department, under the Central electricity company (known as Central Power Corporation) on the basis of taking over Pleiku electricity Center and Phu bon electricity center (bequeathed by the former regime)

Along with the separation of the Gia Lai - Kon Tum province into Gia Lai and Kon Tum provinces, on 09/30/1991 Ministry of Energy issued Decision No 491/NL/TCCB-LD, seperates the Gia Lai - Kon Tum Electricity Department into Gia Lai Electricity Department and Kon Tum Electricity Department

To match the operating model and to meet the requirements in new situation,

on 04/14/2010, the Electricity of Vietnam (EVN) issued Decision No EVN, changes name of Gia Lai power into Gia Lai Power Company Headquarter located at 66 Hung Vuong Street, Hoi thuong ward, Pleiku city, Gia Lai province

230/QD-On 09/02/2012, the Electricity of Vietnam issued decision No 63/QD-EVN, ranks for Gia Lai Power Company into Category-I Enterprise

Currently, Gia Lai Power Company is allowed to operate in the following fields:

- Producing and commercializing electricity; managing, operating and repairing diesel generators

- Trade in materials, electrical equipments, electrical accessories, household electrical appliances

- Repairing, overhauling, testing, calibrating, testing electrical equipments up

to a voltage of 35 kV

- Consulting, planning grids up to 35 kV; consulting projects the power grids

up to 35 kV; surveying, designing and supervising power grids up to 35kV

The organizational mechanism of the company consists of 11 functional

departments, 14 power utilities directly supply electricity to all customers of the 17

districts, and the city of Gia Lai province with a total of customers at 31/12/2012 is

306,832 customers

After more than 36 years of development, the Company had volume of grid

assets is relatively large and modern to ensure supply power to 222/222 communes

in 17 districts, towns and a city with more than 95% of households are using

electricity Specifically, by the end of 2012, the company owns and exploits

effectively 3,911 km of 6-35kV lines; 3,644 km of low voltage lines; 2,975

distribution substations with a total capacity of 442,574 kva; sells electricity directly

to 306,832 customers; company's total power output reached 673.426 million kWh;

416,946,626,842

523,391,537,197

750,976,616,647

845,775,217,544

1.1

Electricity

distribution 285,892,506,467

337,038,056,663

407,484,880,738

513,082,394,849

676,816,433,193

831,185,365,213

1.2

Other

production 19,803,861,118

8,748,185,643

9,461,746,104

10,309,142,348

74,160,183,454

14,589,852,331

2

Total of

439,338,823,228

522,703,663,914

695,695,200,038

621,266,877,308

740,848,905,287

3

Total of

345,398,529,821

344,367,140,963

515,934,998,358

769,617,610,154

856,026,317,322

338,364,528,639

509,488,251,542

706,016,994,268

846,597,447,014

3.2 Fuel costs 3,539,594,432

810,929,097

417,498,131

327,057,757

22,351,503

90,631,807

3.3

Material

costs 28,268,344,219

13,122,989,537

14,042,215,342

21,658,498,982

28,755,511,949

32,598,275,875

3.4

Wages and

insurances 30,205,827,677

35,139,374,890

45,097,437,296

53,173,877,119

56,539,720,105

74,685,870,722

3.5 Depreciation 58,695,192,909

59,052,192,491

58,511,979,655

74,445,225,514

77,897,893,667

79,621,250,898

242,110,035,519

324,966,880,472

509,647,209,926

622,819,876,913

3.6.1

From CPC;

EVN 103,995,696,527

152,092,028,636 187,616,630,970

296,903,770,461

507,040,501,718

619,546,329,865

3.6.2 From local 52,824,847,297

53,069,671,306

55,764,687,403

28,063,110,011

2,606,708,208

3,273,547,048

4,635,860,938

5,717,864,847

6,141,650,564

9,387,503,425

3.8 Other costs 8,503,953,679

9,859,303,038

13,306,484,762

15,527,620,133

15,514,183,849

16,539,465,380

3.9

Overhaul

costs 11,643,281,869

12,103,575,741

13,462,138,691

13,671,226,718

11,498,472,705

10,854,571,994

6,002,612,324

6,446,746,816

63,600,615,886

9,428,870,308

4

Profits

387,712,485

18,086,081,330

7,456,538,839 -18,640,993,507 -10,251,099,778

3,594,143,307 -29,200,561,075 -15,412,081,801

4.2

From other

production 2,584,010,487

2,161,623,408

3,459,133,780

3,862,395,532

10,559,567,568

5,160,982,023

Comments: The data demonstrates the results of past five years show that

business growth of the company is very stable However, profit is low, even losses

in some years, mainly electricity prices are fixed by the Government, in order to cross-compensate for other production industries and ensures social security

Electricity business brings primary revenue accounted for 95.7% of total revenue of the company Revenue from other operation although 4.3% of total revenue in 5 years, but these activities are positive profits for the company

Some charts represent the business results of the Company:

- Revenue growth:

- Customer growth:

1.3.2 The implementation of the projects:

From 1998 to now, Gia Lai Power Company has invested large-scale projects as follows:

+ Project "Rural Electrification" by World Bank loans (WB),

implementation progress from 1998 to 2003 with a total project cost of 262.4 billion VND

+ Project "Improve the Pleiku City networks; Bien ho commune electrification; Yama commune electrification" by the Asian Development Bank

Customer growth

Year

Number of customers

loans (ADB), implementation progress from 2000 to 2005, with a total cost of 198 billion VND

+ Project " Supply electricity to the non-electricity villages in Gia Lai"

investment from the State budget and the Electricity of Vietnam, the implementation progress from 2006 to 2009, with a total cost of 357 billion VND

+ Ongoing "Component project of upgrading and expanding rural distribution electricity networks in Gia Lai province" by the Asian Development

Bank loans (ADB); implementation schedule: 2012 - 2015; total investment cost of

2 Analysis of the external environment:

2.1 Macro environment:

2.1.1 Economic environment:

After 20 years of reform and renovation, Vietnam has gained lot of achievements in the socio-economic fields National economy develops rapidly; annual average growth rate of GDP of 7.5%, from 2001 to 2007 Currently, Vietnam has officially joined the World Trade Organization (WTO), therefore the market expansion is relatively large

However, since 2009, the world economy falls into a recession that,

However, with the efforts of managing, searching solutions to overcome difficulties of the Government, the determination of the whole society, Vietnam economy has gradually goes out of recession

According to experts, by 2020, Vietnam will need USD $ 160 billion to develop infrastructures, including traffic systems, bridges, power plants, the water supply systems and waste treatment systems

For energy supply, electricity consumption forecasted to increase at least twice in comparison with GDP growth rate, reaches a minimum of 12% annually The construction of new power plants generally not catch up with demand and leads

to a shortage of supply To solve this problem, Vietnam needs to adjust energy prices to the regional levels In addition, investment in renewable energy should receive higher interest as well as encourage sustainable solutions in the medium and long term Vietnam’s electricity price policy now has gone according to the market prices However, at a higher level, Vietnam should continue to encourage and allow businesses to become more involved in the market and build a fully competitive electricity market in 2015 (instead of than in 2024)

Source: Internet and the Ministry of Industry and Trade

The level ofdevelopmentelectricitymarketis illustratedasfollows:

2.1.2 Political environment, policies and legislations:

In addition to major policies that are oriented tools, manage Economics and Society operation of the State in general, businesses operate in the electricity industry is also supported by the guidelines, policies, the industry's own legal documents such as:

- Power Law

- Decision No 26/2006/QD-TTg dated 26/01/2006 of the Government:

Approving the route, the conditions of formation and development of the power market levels in Vietnam

- Decision No 1208/QD-TTg issued by Prime Minister, in July 21, 2011:

Approving the National Power Development Plan, period 2011-2020, vision 2030 (hereinafter referred to Electricity Planning VII)

2.1.3 Socio-cultural environment:

Although Vietnam's economy today operate under the market machanism with the rigorous demands of globalization, have to meet the requirements of transnational institutions, and joined the WTO, it’s still considered to have not finished the transition period

State's economy plays a key role, but the real power is not strong enough Multinational companies but still benefit from the national preferential policy Employees simply exist in parallel with large production, with the knowledge economy Sequelae of subsidies still affect some economic activities Poverty reduces significantly, even the world is greatly appreciates but the gap between the rich and the poor has increased

In the middle of 2006, NEF, a reputable society research organization in the

Cultural environment in Vietnam has never been as rich, diverse, dynamic, positive, incentive, has many opportunities and challenges as today Abundance and diversity, dynamic and positive rhythms of Vietnamese cultural environment are ready to feed all the good ideas, encourage all the development in innovation and creativity

2.1.4 Population environment:

There are over 90 million people in Vietnam, including about 58 million people in the working ages (from 15 to 64 years), and the country is in the period of

"golden population": two workers feed a dependent in average

In a speech in Hanoi on the occasion of World Population day in 2010, Mrs Urmila Singh, Representative Deputy of the United Nations Population Fund (UNFPA) assessed: "With the changing machanism of the population, Vietnam is

entering "period of golden population mechanism" During this period, on a

dependent age (under 15 or over 60 years of age), there are two or more people in the working age (15-60 years old) This particular period occurs only once in the history of the development of any nation"

Obviously, Vietnam having a "golden opportunity" to use an abundant young

labor force in the economic growth, period 2010-2020

2.1.5 Technological environment:

From the last decade of the 20th century to now, the world has witnessed the storm's development of science and technology Applications, scientific inventions occured in all fields of life and changed fundamentally the quality of life in a key positive way

Especially, in the field of production, technology has contributed significantly to the increase in labor productivity, increase product qualities, friendly with the environment There are many products, and new technologies used widely in production and management

For the electricity business industry, science and technology supported efficiently and contributed significantly to improve production effects Equipments,

technologies have reduced the cost of production equipments using renewable energy (solar, wind) Electronic measuring devices have helped to measure electricity in two-way trade easier This helps increase the efficiency of the investment renewable energy production equipments for electricity customers

Apply smart electrical grid to increase productivity and increase quality of

supplying power to customers

1.6 Overview about the development and investment of power industry at the national scope:

+ Power development structure according to the basic scenario to 2020 as follows:

Table 1: Orient power resources development mechanism according to the basic scenario

Power resources

Year 2020

Capacity (MW)

Rate (%)

Power output (TWh)

Rate (%)

Total of installed capacity; Power output 75,000 100.0 330 100.0

Table 2: Investment volume of the grids

+ Innovating and improving electricity prices in the direction the electricity price is adjusted steps by steps to achieve the long-term marginal cost of the electricity system, equivalent 8-9 US cents on 2020

+ Widely apply and improve the efficiency of the National Target Program

on using electricity sparingly and efficiency The goal is to save 5-8% in 2015 and

save from 8 to 10% on electricity by 2020

Sources: The Ministry of Industry and Trade

2.1.7 Planning of Gia Lai grid development:

Based on the economic development in the area, on 31.05.2012, the Ministry

of Industry and Trade issued Decision No 3005/QD-BCT, approved: "Planning of Gia Lai province grid development in 2011-2015, considered to 2020'' In there,

orient to the distribution grid development in the period 2011-2015, with the volume as follows:

1 Distribution transformer substations MVA 136,8 658 substations

2.1.8 Preferential policies:

- State always affirms the priority of electricity development one step ahead

- The Government approves the programs to support the development of power industry's reform policy in stage 1 and 2 by WB's loan

- Government guarantees ODA's loan to improve and develop the grids on whole country

- Government has policies that encourages to develop clean and renewable energy

2.2 Industrial environment:

2.2.1 Competition in the industry:

With the current model, all power distribution companies are under the Electricity of Vietnam (EVN) and each company manages business in a certain area Therefore, internal competition is not happen However, when the complete power market appears, buyers may choose sellers, and between the power companies happen the competition in holding and developing customer market share that cross between areas

Up to 2016, wholesale companies and power generating plants will be sell electricity directly to large customers (using an average of 100,000 kWh / month),

so Gialai Power Company will have to compete with these rivals

Currently, in the operating area of Gia Lai Power Company has the Gia Lai power Joint Stock Company, this is a company that operates in the fields of electricity generation and electricity distribution with an annual turnover of about

130 billion VND This is a direct competitor of the Company

And now, Gia Lai Power Company is selling electricity to Electricity

2.2.2 The negotiating power of buyers:

As mentioned, there are a lot of sellers and buyers exist in the competitive electricity market Then, the buyers had the right to buy electricity from any electrical distribution company that they believe is most appropriate, regardless of geographical differences It is understood that, the electricity distribution companies may lose their customers at their local business, or conversly, they can find new customers elsewhere, the customers of other companies outside the area

2.2.3 The negotiating power of suppliers:

The main suppliers of electricity companies (including of Gia Lai Power Company) are the electricity trading companies; power generating companies; electrical equipment supplying companies In a certain extent, distribution

companies is "The God" in the business relationship However, with the shortage of

electrical supplying situation such at present, it does not exclude the situation that the power belongs to the power suppliers In other words, they are those have the advantage of making the claims in the negotiation processes

2.2.4 Threats of new entrances:

Along the route of forming the competitive electricity market, it is certain that in the coming years there will appear a lot of new businesses that participate in the potential wholesale electricity market of Vietnam in general, the Gia Lai

province in particular In addition, with the implementation of "red-carpet" policy

to invite investors, the risk of foreign investors with strong resources will be a pressure on the company to keep its traditional market share and expands new markets

2.2.5 Threat of substitutes:

On 29/06/2011, the Prime Minister issued Decision No 37/2011/QD-TTg: Approving the mechanism to support the development of wind power projects in Vietnam

Decision No 1208/2011/QD-TTg dated 21/07/2011 of the Prime Minister:

Approving the National Power Development Plan, period 2011-2020, vision 2030,

which clearly stated: Prioritize the development of electricity from renewable energy sources (wind power, solar power, biomass power, etc.), developing rapidly, gradually increasing the proportion of electricity produced from renewable energy sources

Those are products produce energy instead of traditional methods and will be popularised in the near future The development of renewable energies will contribute to reduce the use of fossil fuels, reduce pollution, and reduce the dependence on traditional power sources On the macro scope, this is a good signal However, the strong development of alternative energies also threatens the business activity of the power companies, because consumers tend to move from traditional power resources to the renewable energy sources that are friendly with environment and with reasonable prices

Using solar energy

2.3 External Factor Evaluation Matrix (EFE) of Gia Lai Power Company:

Based on the collection, analysis, combined discussions with leaders, who

Government has many

preferential policies for the

5

Local government supports to

plan in order to expand the

6

Electricity demand increased

7

Electricity price adjusted

8

The cost of renewable energy

9

Full of potentially in testing

service market of electrical

devices and management and

institutions have advocated for

funding of power sector

projects

12

The creation of a competitive

market will break the current

13

Low electricity prices, do not

reflect the market price and

14

Policies to encourage of using

renewable energy to reduce

electricity demands from the

15

Foreign investors can enter the

market when the time was

Climate change; the depletion

The legal regulations more

From the evaluating results of the above external factor evaluation matrix (EFE) shows that Gia Lai Power Company has total important score is 2.92> 2.5 means that the Gia Lai Power Company reached quite on strategic issues, can responds effectively to external factors

3 Internal environment of company:

3.1 Financial capacity:

Gia Lai Power Company is a subordinate unit of the parent company - Central Power Corporation (EVN CPC) The company has total assets of holding (up to 31/12/2012) is 740.849 billion VND

The financial norms of the company:

ANALYSIS OF FINANCIAL RATIOS

Short term asset / Total assets 16.29% 20.00% 21.98%

Long-term assets / Total assets 83.70% 79.99% 78.00%

Liabilities / Total assets 66.90% 74.00% 73.00%

norms of operational capacity

Profit before tax / Net sales - 1.18% - 2.42% 1.45%

Return before tax / total assets - 1.49% - 2.83% 1.22%

Return after tax / Equity (ROE) - 5.00% - 10.70% 3.80%

Return growth rate (compared with 2010) 166% 149% 100%

Fixed assets growth rate(compared with

Norms of shareholders' investment

Earning per share (EPS)

The price index / earnings (P / E)

Analysis of the above indexs shows that:

Advantages: The company is in the infrastructure investment stage (asset

growths of 118% compared to 2010), payment indexes has been improved, dates of collection shortened to 3.1days, the liabilities of the company are mainly internal debts, accounting for over 90%

Disadvantages: Electricity price regulated by the State in order to subsidize

oriented for the economy, which leads to very low profitability indicators

The graph shows that Company's profit does not increase mainly (even loss) due inadequate electricity price policy of the Government: