Strategy for mekong jointventure petroleumtransportation corporation for a period till2015

CAPSTONE PROJECT REPORT STRATEGY FOR MEKONG JOINT VENTURE PETROLEUM TRANSPORTATION CORPORATION FOR A PERIOD TILL 2015 Group: # 02 Class: GaMBA.C03 Members of the Group: 1.. GLOBAL ADVAN

CAPSTONE PROJECT REPORT STRATEGY FOR MEKONG JOINT VENTURE PETROLEUM TRANSPORTATION CORPORATION

FOR A PERIOD TILL 2015

Group: # 02 Class: GaMBA.C03 Members of the Group:

1 NGUYEN THI THU HANG

2 HO VAN HOAI

3 NGUYEN ANH

4 TRAN VIET THANG

5 NGUYEN DANG QUYNH NHU

GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION

CAPSTONE PROJECT REPORT

STRATEGY FOR MEKONG JOINT VENTURE PETROLEUM TRANSPORTATION CORPORATION

(MEKONGTRANS) FOR A PERIOD TILL 2015

Group: # 02

Class: GaMBA.C03 Members of the Group:

1 NGUYEN THU HANG

2 HO VAN HOAI

3 NGUYEN ANH

4 TRAN VIET THANG

5 NGUYEN DANG QUYNH NHU

TABLE OF CONTENTS

INTRODUCTION 6

CHAPTER I 8

THEORETICAL FUNDAMENTALS 8

1 CONCEPTS AND CLASSIFICATIONS OF STRATEGY MANAGEMENT 9

1.1 Concept: 9

1.2 Roles of strategy management: 9

1.3 Types of strategies 10

1.4 Strategy management process 11

1.4.1 Analysis on environmental impact in regards to the business 12

1.4.2 The strategic planning matrixes 14

2 ROLES OF PETROLEUM – POWER SECURITY: A TRATEGIC ISSUE OF ALL COUNTRIES 21

3 ROLES OF PETROLEUM TRANSPORTATION AND ITS DIFFICULTIES 23

3.1 Roles of petroleum transportation in Vietnam 23

3.2 Difficulties in Vietnam petroleum transportation 24

CHAPTER II 26

STRATEGY FOR MEKONG JOINT VENTURE PETROLEUM TRANSPORTATION FOR A PERIOD TILL 2015 26

1 ABOUT THE COMPANY 27

1.1 The formation 27

1.2 Mekongtrans’ business status 31

MARKET 34

1.1 International market for petroleum transportation till 2015 34

1.2 Vietnam petroleum transportation market till 2015 35

3 ANALYSIS OF ENVIRONMENTAL FACTORS AFFECTING THE COMPANY'S ACTIVITIES 38

3.1 Macro environment 38

3.1.1 Economic impact 38

3.1.2 Cultural, natural and social factors 39

3.1.3 Political, legal and government influences 40

3.1.4 Technology impact 40

3.2 Micro environment 41

3.2.1 Pressure from the competitors 41

3.2.2 Pressure from customers 42

3.2.3 Pressure from suppliers 43

3.2.4 Pressure from potential competitors: 44

3.2.5 Pressure from substitute products 44

3.3 Opportunities and risks of the company 45

3.3.1 Opportunities 45

3.3.2 Risks for Mekongtrans 47

3.4 The strengths and weaknesses of the Company 50

3.4.1 Strengths 50

3.4.2 Weaknesses 51

4 MATRIXES TO SELECT BUSINESS STRATEGY FOR THE COMPANY 52

5.1 External Factor Evaluation Matrix (EFE) 52

5.6 Quantitative Strategic Planning Matrix (QSPM) 62

5 STRATEGY FOR MEKONGTRANS TILL 2015 66

5.1 Objective 66

5.2 Choices of strategies 66

5.2.1 Developing the fleet 66

5.2.2 Marketing strategy 74

5.2.3 Restructuring the organization 75

CHAPTER 3 77

SOLUTIONS TO IMPLEMENT STRATEGY FOR MEKONGTRANS TILL 2015 77

1 SOLUTIONS TO IMPLEMENT STRATEGY FOR MEKONGTRANS 78 1.1 Strategy to develop multipurpose fleet 78

1.1.1 Research for solutions and develop multipurpose fleet to adapt to the current oil crisis 78

1.1.2 Solutions which rides on the advantages due to the Government’s policies to encourage maritime transport and the Government’s environmental policies comparing with competitors developing Company’s fleet: 78

1.1.3 Increasing capital 79

1.1.4 Solutions to reduce running cost 80

1.1.5 Building good relationships with suppliers 80

1.2 Enhancing Marketing and branding: 81

1.3 Restructuring the organization 82

1.3.1 Restructure the departments 82

1.3.2 Human resources 83

2 RECOMENDATIONS 84

2.2 Recommendations to Mekongtrans 85

CONCLUSION 87

REFENCES 88

FIGURE INDEX Figure 1.1: Model of comprehensive strategic management 12

Figure 1.2 The Five Forces that Shape Industry Competition 13

Figure 1.3: The Strategic Planning Matrixes 14

Figure 1.4: SWOT Matrix 17

Figure 1.5: Grand Strategy Matrix 19

Figure 1.6 Forecast on energy use worldwide by 2025 22

Figure 2.1 Organization Chart 28

Figure 2.1 Forcast on world energy demand from 2007 to 2015 34

TABLE INDEX

Table1: Scope of business 27

Table 2: Mekongtrans Financial Reports In 2009 32

Table 3: Forcast on fuel demand in Vietnam to 2020 : 35

Table 4: General information about vessels of Vietnam on international routes 41

Table 5 Mekongtrans’ External Factor Evaluation (EFE) 52

Table 6: Internal Factor Evaluation Matrix 54

Table 7: Internal-External Factor Evaluation Matrixes 56

Table 8: CPM 57

Table 9: SWOT Analysis: 58

Table 10 : Main strategy matrix 61

Table 11: QSPM (Group Strengths-Opportunities) 62

Table 12: QSPM (Group Weaknesses-Threats) 64

INTRODUCTION

Transport operation in delivery of goods is part of the manufacturing cycle It is indispensable for promoting the export of products and it is the basis for a country's development History has confirmed that the circulation of goods via transportations due to the need for human desires is associated with the development of mankind

Present days, besides the form of transportations such as air and land, whereby the use of airplanes, trucking and trains, shipping has always played an important role

in the transport industry Maritime transport activities typically command a high percentage of the demand for transporting of large quantity of goods Shipping has always out performed other kinds of transportation with many advantages such as lower freight rates, whereby the unit cost on transportation forms a low percentage

of the total product costs, high safety and ease of circulating large quantity of goods

to all corners of the world Among the bulk products, crude oil and oil products remain a large percentage that required sea transportations,

Vietnam has since become the 150th member of World Trade Organization (WTO)

It has also become a member of many international organizations such as AFTA and APEC Trading with neighboring countries with common land boarders are only a small portion of total international trading As Vietnam’s economy grows, trading with other countries becomes more frequent With Vietnam’s natural and geographical conditions which are extremely favorable with the 3,200 km of coastline with many deep-water ports, there is a tremendous opportunity for the development of maritime transport operations

operating in Vietnam's market, our team decided to choose the theme:

STRATEGY FOR MEKONG JOINT VENTURE PETROLEUM

TRANSPORTATION CORPORATION FOR A PERIOD TILL 2015

as our capstone project topic This topic contains three chapters:

CHAPTER I

THEORETICAL FUNDAMENTALS

1 CONCEPTS AND CLASSIFICATIONS OF STRATEGY MANAGEMENT

1.1 Concept:

Strategic Management is a systematic analysis of the factors associated with customers and competitors (the external environment) and the organization itself (the internal environment) for the present and the forecast of the future It is used the tool for planning for the Company’s objectives, proposal, implementation and supervision on the implementation of the decisions so as to achieve them in

the current environment as well as in the future

All business strategy when incubating should be seriously considered because they are the "competitive advantages" of the business Strategy is inevitable in the competition, because the strategy help businesses seek and gain sustainable advantages

1.2 Roles of strategy management:

Strategic management process helps organizations to find their purposes and directions It helps the management to consider and determine the directions and time required to reach certain position Cognitive desired results and goals in the future will enable management and employees to understand the course of actions to achieve them This will encourage them to achieve short term goals and to improve long-term interests of the organization

Business environment often changes These changes often create opportunities and threats Strategic Management helps management to effectively respond to opportunities and threats The planning process includes the expected or predicted environmental conditions in the future Strategic management process requires the management to analyze and predict environmental conditions in the

the opportunities and to overcome the threats related to environmental conditions

The process of strategic management is associated with the decisions with the environmental conditions involved Because of the variation and the complexity

of the environment, decisions are made to attempt to predict the environmental conditions and impacts or changes to achieve business objectives

Most researches showed that companies which apply strategic management are achieving better results than companies that do not use strategic management Strategic Management helps enterprises in handling serious problems and increases the company's ability to take advantage of opportunities in the ever changing environment

b Operation strategy

Operation strategies is the overall scope and direction of a corporation and the direction in which its various business operations work together to achieve particular goals

to a specific industry and is used to back up other corporate and business strategies

1.4 Strategy management process

There three states in planning process:

Figure 1.1: Model of comprehensive strategic management

1.4.1 Analysis on environmental impact in regards to the business

The purpose of analyzing the external environment is to develop a list of environmental opportunities which are benefiting the company and the threats that the company should be avoided to reduce the risks and harm from the external environment The analysis on the external environment is limited to the factors that affect the business

Distributing resources

Redefining business objectives

Internal environmental analysis Identify strengths/weakness

Selecting strategies to implement Providing policies

Planning Implementing Evaluating

Measuring and evaluating the implementati

on of the strategy

Establish long term goals

Establish annual goals

- Political environment and legal system of the Country

- Cultures and sociaty environment

- Population and geography environment

- Technologies environment

- Global environment

Micro environment: Factors or elements in an organization's immediate area of

operations that affect its performance and decision making freedom

Michael E Porter, a business strategy professor of Havard university has given the 5-Forces Model on business competitive in figure 1.2 below:

Figure 1.2

Micro environmental factors of the industry are the external factors for the enterprises These factors determine the nature and extent of competition in the production of such business Five basic factors are:

- Customers,

- Suppliers,

- Potential competitors

- And alternative products

For a successful strategy, it is necessary to analyze each factor Understanding these factors helps businesses identify the strengths and weaknesses related to its opportunities and risks in the industry

1.4.2 The strategic planning matrixes

According to Fred R David, the strategic planning process consists of 3 stages: The input stage, the combination stage and the decision making stage as shown in figure below:

Figure 1.3: THE STRATEGIC PLANNING MATRIXES

State 1: The input stage

External Factor

Evaluation (EFE)

Competitive Profile

Matrix (CPM)

Internal Factor Evaluation

(IFE)

State 2: The combination stage

Matrix

BCG Matrix

IE Matrix

Main strategy Matrix

a External Factor Evaluation Matrix (EFE) :

EFE Matrix evaluates all major external environment factors, synthesizes and summarizes the opportunities and risks which affect the operation of the business With EFE Matrix, the Company assesses the level of the business responses to the opportunities or risks that it should take To build this matrix, there are five steps:

 Step 1: Build a list of 10 to 20 main pros and cons with the current available factors which concern the businesses in the industry and business sectors

 Step 2: Classifing all the factors with a scale of 0(zero) to 10 points (0 – not important, 10 – very important) inaccordance to the degree of importance The classification of importance of these factor depends on the degree of influence on the Company’s businesses After grading all the factors, work out the weightage in percentage (%) for each of them on the degree of influence with the summation of all of the weigtages to be 100%

 Step 3: Identify by weightage on each of the factors on the Company’s response from 1 to 4 They are weak response to best response respectively

 Step 4: Multiply the importance of each factor with its weightages on the degrees of influence and the degree of response to determine the points of the factors

 Step 5: Summation of all the weightages in percentage form Rating: The highest point is 4, the lowest point is 1

o If total score is 4, the Company is responding well to the opportunities and risks

o If total score is 2.5, the Company is responding fairly to the opportunities and risks

o If total score is 1, the Company is responding weak to the

b Internal Factor Evaluation Matrix

The final step in the analysis of the internal situation is to build internal factor evaluation matrix (IFE) This strategy formulation tool summarizes and reviews the strengths and weaknesses of the important parts of the business functions It also provides the basis for determining and assessing the relationships between these components The IFE Matrix can be developed in 5 steps:

 Step 1: Making a list of 10 to 20 factors, including the strengths and weaknesses of the company’s operations which mainly affect the development of the business

 Step 2: Assign the importance from 0.0 (not important) to 1.0 (most important) for each element Importance assigned to each factor showed the weightage of importance for the success of businesses in the industry Whether they are strengths or weaknesses, the elements that are considered to have the greatest impact on the performance of the organization shall be deemed most important Total of all critical levels must be equal to 100%

 Step 3: Classification from 1 to 4 for each element with these indicators represent the greatest weakness (categorized by 1), the smallest weaknesses (classified by 2), the smallest strength (classified by 3) and the biggest strengths (classified by 4) Such classification is based on the enterprise, while the importance of step 2 is based on the industry

 Step 4: Multiply each of the importance of each factor with the the score of its type to determine the importance of each factor

 Step 5: Summing up all the important points of all the factors to determine

c Competitive Profile Matrix (CPM)

Building CPM matrix helps the company to identify the competitors; along with the advantages and disadvantages from which to help the Company to build the business strategy appropriately

This matrix includes the internal and external elements of the business It is important for the success of the business In CPM matrix, the competitors are considered based on scores given Comparing the importances based on the ratings

of these companies with a sample competitor Thereby, more information will be derived for developing business strategy for the Company

d SWOT Matrix

Situation analysis in which internal strengths and weaknesses of an organization, and external opportunities and threats faced by it are closely examined to build business strategies SWOT matrix is described as follows:

Figure 1.4: SWOT Matrix

COMBINING W-T

Overcome internal weaknesses to avoid external threats

- Strengths – Opportunities (S-O):

- Use internal strengths to take advantage of opportunities

- Weaknesses – Opportunities (W-O):

- Overcome internal weaknesses to take advantage of opportunities

- Strengths – Threats (S-T):

- Use internal strengths to overcome external threats

- Weaknesses – Threats: (W-T):

- Overcome internal weaknesses to avoid external threats

e Grand strategy matrix

Main strategy matrix is a tool to establish the strategy with the aim to select the appropriate course of actions All organizations can be classified under the four sections of the square matrix Departments of the Company are also located in the similar position The Main strategy matrix is based on two main aspects to evaluate the competitive positioning and market growth Strategies appropriate for organizations that are listed in order of level of attractiveness in each corner of the square matrix

Figure 1.5: Grand Strategy Matrix

f Quantitative Strategic Planning Matrix (QSPM)

QSPM matrix a tool to evaluate and rank the strategic plan to identify the best strategies for business

This matrix is using all information and data from the matrixes above, including IFE, EFE, SPACE matrix and SWOT Matrix

To develop a QSPM matrix, there are 6 steps as follows:

- Step 1: List the internal strenghs, weaknesses (at least 10) on the right colum and

the external opportunities and threats (at least 10) on the left column These data

is taken from the EFE and IFE matrix

- Step 2: Clasify each important internal and external factor as done in EFE and

- Step 3: Identify possible alternative strategies that organizations should consider

for implementation The strategies are formed and assembled into separate groups

- Step 4: Attractiveness Score is to quantify the relative attractiveness of each

strategy in the strategic group The attractiveness score is determined by considering the degree of influence of the choices of strategies that are being assessed for each important inetrnal/external factor It is assigned to each strategy to demonstrate the relative attractiveness of each strategy compared with other strategies Degree of attractions are as follows: 1 - not attractive, 2 - less attractive, 3 - quite attractive, 4 - very attractive Factors that are not affecting the choice is not scored

- Step 5: Calculation with the total attractiveness score Multiply the TAS with the

atractiveness score in each row Reading in conjunction with the current internal/external influences, TAS shows the realative atractiveness of each strategy The higher the TAS the more attractive is the strategy

- Step 6: Summing up the attractiveness score for each strategy The total

attractiveness score (TAS) shows which strategy is most attractive in each group QSPM matrix has many advantages such as to combine the appropriate internal/external elements into the decision making process The strategic group can

be studied as an isolateded or continuous conditions Unlimited number of strategies can be evaluated However, it has some limitations such as: Implementation matrix PSQM is required for making decisions is based on intuition and experience There may be difference of opinions during the process of analysis by the management

g Experiences on selecting a business strategy

- Appropriate process of constructing business strategy

- The goal must be consistent with the situation of the business and the external environmental factors

- Collect and analyze information to determine the advantages of the business and weaknesses

- Assess opportunities and risks of the business in the market

- Focus on strategies to bring the best performance for the business as well as ensuring consistency between the strategy and the implementation solutions

2 ROLES OF PETROLEUM – POWER SECURITY: A

TRATEGIC ISSUE OF ALL COUNTRIES

Synthesis of research on world energy markets to 2025 showed that petroleum products (including natural gas) have always played an important role and it is the main energy source, the highest among all energy sources used in the world Accordingly over the next 15 years, although there may be effects of policies on natural resources and environment of these countries, oil is still an important energy source This accounts for the largest supply of energy of 39% of world energy demand, followed by gas (24%) and coal (25%) Other energy sources are nuclear (6%) and hydropower (6%)

Figure 1.6 Forecast on energy use worldwide by 2025

Source: BP

Currently, the research in alternative energy source is progressing very slowly while the demand for energy to fuel economic development is increasing rapidly; especially in China and India When U.S developed biofuel and set a target for replacing the total energy consumption with 20% biofuel by 2010, it immediately caused the food crisis in many parts of the world Consumption per capita of gasoline in Asia-Pacific region compared with the rest of the world is still low at only 1/5 of the world average Therefore, the demand for oil worldwide, particularly in Asia-Pacific region will continue to increase

The oil price has risen recently due to the recovery of world economy, severe winter in Europe and the development of China and other factors International Energy Agency (IEA) has warned that if oil prices rised to 100USD/barrel in 2011,

important isue which is the supply of energy resources Despite huge oil reserves, U.S does not fully exploited them They strengthen cooperation to exploit and continue to purchased from other countries U.S has its petroleum reserves strategy and the volatility of this strategy can directly impact the world’s oil prices

In summary, increasing energy supplies is one of the top priority in national energy policies in many countries

3 ROLES OF PETROLEUM TRANSPORTATION AND ITS DIFFICULTIES

3.1 Roles of petroleum transportation in Vietnam

Petroleum transportation sector is a sector in Vietnam that currently has the opportunity for steady growth It has opportunities to compete in the world market With the current growth as well as forecast, East Asia, especially Southeast Asian economic growth is highest in the world Economic growth requires more and more fuel to serve businesses According to the research, growth in energy demand is estimated at 5% per year The demand for petroleum transportation by sea has also increased significantly This is an opportunity for companies to transport oil by sea transport to expand their market share abroad

Vietnam is a developing country and had joined the WTO The demand for energy, especially gasoline to serve the construction and development of the country is increasing Petroleum transportation industry has a special role which is to serve the country's development needs and ensure national energy supply Therefore, the Government has plans to promote the development of the petroleum industry including petroleum transportation Thus, policies are generally more favorable to this business sector

3.2 Difficulties in Vietnam petroleum transportation

1 : The oil price is not stable and remain high Fuel cost accounts for over 40% of

the cost of shipping operation Crude oil prices in the world markets in the first quarter of 2008 increased by 40% compared to average price in 2007 Currently, oil prices fell slightly However, it is predicted that oil prices will be increased to 150 dollars a barrel High fuel prices will cause the world economic growth to slowdown and leads to the decrease in demand for sea transportation This is a major risk that the ship owners worldwide, not just the Vietnam are facing

2: The supply of the Vietnamese shippping crews are limited, weak in skills and

not fluence other languages

3: Another big issue is the quality of the fleets Although the quality of Vietnamese

fleets have been considerable improved, in general, they are still not able to meet the increasing demands of technologies and the requirements of international conventions on maritime This not only causes damages to local ship owners, it also affect the reputation and competitiveness of the national fleets

4: Vietnam has been committed to open domestic market on maritime service after

joining the World Trade Organization WTO In late 2007, Vietnam signed a joint statement on the roadmap for integration of ASEAN maritime transport Vietnam also signed a commitment to turn ASEAN into ASEAN economic community by

2015 Although Vietnam shipping industry has always been regarded as the integration business sector and face international competition earlier than many other economies, however, when the international maritime business presence in

Vietnam, the competition level will be fiercer, far more drastic

Summary of Chapter 1

Above is the rationale for the development of business strategies used in this thematic In the next chapter, this theory will be applied into practice for MEKONG JOINT VENTURE PETROLEUM TRANSPORTATION CORPORATION from the environmental analysis to analyze within the external environment and the internal situation of the corporation to identify strengths, weaknesses, opportunities and threats to form the practical strategies for business

CHAPTER II

STRATEGY FOR

MEKONG JOINT

VENTURE PETROLEUM TRANSPORTATION FOR A PERIOD TILL

2015

1 ABOUT THE COMPANY

- Abbreviated name of the Company: MEKONGTRANS

- Main office address : 56 Street No 8, Phú An Residents, District Cái Răng, Cần Thơ city

Table1: Scope of business

08 Marine consultancy services

09 Provide services to vessels

10 Trading in chemicals and petroleum products

11 Trading brokerage services for rental and sale of the vessel

12 Trading brokerage international and domestic maritime transport

Source : Mekong Trans

countries such as Singapore, Thailand, China and Japan to Vietnam (Nha Trang, Vung Tau, Cat Lai, Can Tho, and Dong Thap) and transportation between countries

in the region such as Singapore, Thailand, Malaysia, Indonesia and Philippines

Figure 2.1 Organization Chart Mekongtrans Organization Chart

Transport Mekong who is an experienced and long-term operation in the fuel business in Vietnam; Oil & Gas Co Ltd Dong Thap, who is the major importer of petroleum products, the import volume is about 600 tons of petroleum per year Mekong Petroleum Joint Stock Company who is also the major importer of petroleum products, import volume of about 500 tons of assorted petroleum products per year; Petroleum Finance Company in Can Tho who is specialized in financing companies in the petroleum sector; a general agent Hung Long petroleum business, supplying oil for thermal power plants such as Can Tho Thermal Power Plant, O Mon Thermal Power Plants and Thu Duc Thermal Power Plant With the business strategies of the shareholders mentioned above, there is a big advantage for Mekongtrans to investment to provide transportation services for petroleum products to shareholders

Currently, Mekongtrans owns two vessels for transporting oil They are: Mekongtrans 01 with DWT is 7,200 tons, Mekongtrans 02 with a DWT is 5,500 tons These vessels are also able to transport the chemicals and have double hull and double bottom Mekongtrans fleets are considered modern, good transportation capacity to meet the requirements of the International Convention on environmental safety and protection of marine life

1.2 Mekongtrans’ business status

Mekongtrans was established by the strategic shareholders mentioned above The members of the Company are large petroleum trading companies and are licensed to import directly from overseas From the above advantages, since

2008, Cty Mekongtrans officially went into operation with a chartered capital of

75 billion, who hired valuers/surveyors to purchase two vessels to provide primarily gasoline transportation services

Although the company has benefited from these strategic shareholders as aforesaid, the company initially faced many difficulties such as surveying and upkeep the vessels, bringing the newly acquired vessels back to Vietnam during deliveries The import procedures and board registration licenses for international transport operators take considerable times and costs (due to the purchases were done from abroad) The preparation of a professional team of crews (from crew to crew chief) for the two vessels took much times and efforts The preparations from signing the contracts when buying the vessels, till the vessels were licensed to go into operation took nearly one year (that was the time when the company had no income and had incurred big spending for initial cost.)

In 2009, two vessels had begun operations and had settled down since then However, global economy recession quickly overwhelm the Company’s operations The fluctuations of crude oil price directly impacted on price of fuel for vessels Couple with domestic credit tightening and rising of interest rates, the costs of the company’s operations were becoming sky rocketing The increased in the exchange rate between VND and USD made the payment of installment of loans became more problematic In addition, the administrative costs were much higher due to the limited experience of executive management, staff and management of marine exploitation In view of all the above,

Table 2: MEKONGTRANS FINANCIAL REPORTS IN 2009

10 Net profit from business activities

25,490,169,547

-23,441,281,077

Source : Mekong Trans

The operations of two vessels have stabilized in 2009 Two vessels had been operated at full capacity and bringing large revenue for the Company However, the Company was still in deficit due to the following reasons:

- The world recession is affecting the Company’s operations Increased in fuel costs which directly affecting on the operation costs

- Domestic credit tightening and rising interest rates Long-term loans formed a

about 9.5% against the U.S dollar in interbank rates, which has created huge financial expenses

- Although business’ operations were good, heavy financial costs caused the businesses not performing well in quarter 4/2009

- In essence, these are only the entries for records of the repayment at the end of the accounting period, they were not the real losses of the business As most Company’s revenue is in U.S dollars, it is used to repay bank loans Therefore, the difference is not as substantial

In 2010, the Company’s business situation was improved significantly However, it was still not profitable because of high interest rates and loses on the exchange rates The Company signed contracts with Mekong Petroleum and Dong Thap Petroleum

to provide transportation services These enabled the Company in expanding market shares and improved corporate reputation at the international level Simultaneously, the Company was planning to invest in purchasing/leasing more vessels for transportation of petroleum from Dung Quat Oil Refinary with a production output expected to be 1,000,000 tons per year to supply to O Mon Power Plant with a demand of 18,000 tons per month in Can Tho

As the current economic situation had changed for the better, we proceeded to rebuild the business strategy of the company from 2011 to 2015 with the aim of restructuring the Company and overcome existing weaknesses and seek for solutions to help the Company to develop sustainability and with a goal to achieve profit in 2011 and subsequently, become one of the largest petroleum transportation company in the Mekong Delta by 2013

2 AN OVERVIEW OF THE PETROLEUM

TRANSPORTATION MARKET

1.1 International market for petroleum transportation till 2015

Based on the research and comprehensive analysis on the development of world economy, world energy organizations (IEA) predicted the three cases on the world energy demand in the near future to 2015 Accordingly in 2015, the world needs a between 91.8 million barrels to 102.6 million barrels per day and averaged 98.2 million barrels a day

Figure 2.1 Forcast on world energy demand from 2007 to 2015

2015 from 55,000 DWT product size to 120,000 DWT of the world will be increased by 200% - 215%

To ensure continuation of energy supply, larger countries are diversifying their supply sources by purchasing oil in the new markets rather than just getting supplies with traditional partners even if the transport distance is a lot farther Typically, China has been striving to reach to countries in West Africa and South America in addition to the supply from the Middle East

Fuel demand and world refinery capacity will continue to increase results in stable increase in demand on transportations It is on this basis of review when the Mekong Joint Venture Petroleum Transportation Corporation decided to participate

in the world oil transportation markets

1.2 Vietnam petroleum transportation market till 2015

Vietnam is a developing country and it has become a member of the WTO The demand for energy, especially gasoline to serve the construction and development

of the country has been increased rapidly

Table 3: Forcast on fuel demand in Vietnam to 2020 :

2010 17.060.000 tons

2015 21.820.000 tons

2020 26.040.000 tons

(Source: Petrol Viet Nam – Ministry of Investment and Planning)

The petroleum transportation industry has a special role in participations when fuel demands are increased rapidly Among others, it is to serve the country's development needs and ensure energy security Government has adopted many

transportation These policies are generally more favorable to the enterprise sector According to the Petroleum Corporation of Vietnam (Petrollimex), national fuel consumption is about 18 million m3/year In the period of 2005 - 2010, gasoline demand in Vietnam increased rapidly at 6% per year Along with the growth of domestic fuel consumption, demand for domestic fuel transport was also increased correspondingly

Through statistics and facts, finished petroleum products are normally imported from Singapore, Thailand, China, Taiwan, Korea, via the ports which can receive vessels of 10,000 tons - 40,000 tons in the Southern and Northern Vietnam They are then transferred by smaller vessels (about 1,000 tons to 5,000 tons) to other ports in Vietnam

The following statistics show the capacity of the transport fleet (fuel) of domestic firms (which can run on international routes) is weak Moreover, demand for transport and distribution products for the Dung Quat oil refinery is huge at about 20 vessels with shipment volume from 5.000 to 20.000 DWT

With the market in Can Tho, O Mon Thermal Power Plant I (330 MW) demands huge amounts of fuel for running the unit I, with specific amounts as follows:

July October November December January

Source: O Mon Power Plant

With strong economic growth rate of Vietnam, accompanied by increase in demand

is essential and it has a huge business opportunity

Generally speaking, the petroleum transportation industries enjoy the opportunity to develop a stable business, ensuring stable revenue sources, and a chance to assert its position in the international arena When considering the potential of this sector of businesses, it is necessary to consider the maintenance and development of the transport fleet This is one of the most important factors to determine the development of strategies for the company

3 ANALYSIS OF ENVIRONMENTAL FACTORS

AFFECTING THE COMPANY'S ACTIVITIES

3.1 Macro environment

3.1.1 Economic impact

When Vietnam became a member of the WTO in late 2006, it was the time to implement its policy of international integration, aimed at developing internal resources, taking advantage of external resources and autonomy in international economic integration results in rapid development, effective and sustainable growth

Along with a stable economic growth of about 8% yearly, the growth of export turnover is between 20% and 25% a year As a result, international trading grew rapidly Such products are mainly transported by sea (about 80% of the total volume of freight) which becomes the important premise in the development of maritime transport sector of Vietnam

import-World economic recession has large impacts on the development of Vietnam economy and indeed a major challenge to the country's economy Economic recession with inflation, reduced purchasing power and slowed down in import and export activities From the first quarter of 2008, banks increased the interest rates They directly affected the business environment, particularly enterprises with many projects Mekong Joint Venture Petroleum Transportation Corporation who exploits

a specific shipping services on international routes have also been directly affected from the economic crisis financially From the fourth quarter of 2008, banks had gradually reduced interest rates, but bank loans were still difficult to approve due to