Phu My thermal power business strategy formulation in phase 2010-2015

In order to adapt to the new business pattern of competitive power market, from the self-accounting system of a typical state-owned enterprise with monopolistic competition in electricit

GLOBAL ADVANCED MASTER OF BUSINESS

ADMINISTRATION PROGRAM

CAPSTONE PROJECT REPORT

PHU MY THERMAL POWER BUSINESS

STRATEGY FORMULATION IN PHASE 2010-2015

Class GeMBA01.E04 Group No.: 10

Student’s name: Duong Thanh Dung

Tran Van Luat Thien Thanh Son

Le Van Tai Nguyen Thi Hai Yen (Group Leader)

ACKNOWLEDGEMENTS

First of all, we extremely thank the Management of Phu My Thermal Power Company for belief us and creating good conditions for us to learn, to acquire Business Administration knowledge, and help us to access extremely valuable knowledge

In addition, we also thank to professors and assistant professors for bringing

us invaluable knowledge and experiences It helps us to enhance our awareness; help us to develop and implement our goals to contribute to the Phu My thermal power company in particular and EVN in general

We would like to thank all of the classmates for the solidarity and sharing difficulties with us during learning process

Finally, we greatly appreciate to Hochiminh Electric Power College, managers

of class E04 (mama) and board of E04 class leaders helped us successfully complete the course

Sincerest thanks

Phú Mỹ, 22 nd January, 2010 Group No.10 (PMTP)

TABLE OF CONTENTS

Page

Acknowledgements i

Table of contents ii

List of abbreviations vi

List of tables vii

List of figures, graphs viii

INTRODUCTION 1

Chapter 1 Methodology Of Business Strategy Of The Company 4

1.1 Definition of Strategy and Strategic Management 4

1.1.1 Definition of Strategic Management 4

1.1.2 Benefits of Strategic Management 6

1.1.3 Strategic Management Process 6

1.2 Process of Strategy Formulation and Selection 7

1.2.1 Determining vision, mission and objectives 7

1.2.1.1 Vision 7

1.2.1.2 Mission 7

1.2.1.3 Main objectives 7

1.2.2 Analyzing external environment 7

1.2.2.1 Analytical techniques of external environment 8

1.2.2.2 Marco environment 9

1.2.2.3 Industry environment 12

1.2.2.4 Key factors for success 15

1.2.3 Analyzing internal environment 15

1.2.3.1 Strengths and Weaknesses 16

1.2.3.2 Nature of competitive advantage 17

1.2.3.3 Resources, capabilities and core competences 19

1.2.3.4 Making sustainable competitive advantage 21

1.2.5 Making Strategy 23

1.2.5.1 Business-Level Strategy 23

1.2.5.2 Corporate-level Strategy 26

1.3 Summary 28

Chapter 2 Real Business Situation Analysis in Phu My Thermal Power Company 30

2.1 PMTP’s Overview 30

2.1.1 Background and development 30

2.1.2 Field of Business 31

2.1.3 Technology 31

2.1.4 Power output 32

2.1.5 Electricity selling price 34

2.1.6 Production Business Result 35

2.1.7 Organization 36

2.1.7.1 Organization layout 36

2.1.7.2 Functions and task of each Department: 37

2.1.8 Human resources 39

2.1.9 Operation of MSC 40

2.2 Analyzing Business Environment of Generation 41

2.2.1 External Environment 41

2.2.1.1 Macroenvironment 42

2.2.1.2 Microinvironment 46

2.2.1.3 External Factor Evaluation Matrix 55

2.2.2 Internal Environment 56

2.2.2.1 Human Resources 56

2.2.2.2 Financial Capacity 64

2.2.2.3 Organization 64

2.2.2.4 Technology and production scale 65

2.2.2.5 Inventory Management 67

2.2.2.6 Marketing 67

2.2.2.7 Leadership and management 67

2.2.2.8 Research and Developing Investment 68

2.2.2.9 Electricity Quality 69

2.2.2.10 Trade-mark 71

2.2.2.11 Internal Factor Evaluation Matrix 71

2.2.3 SWOT analysis 73

2.3 Analyzing Business Environment of Maintenance Service 75

2.3.1 External Environment analysis 75

2.3.1.1 Macroenvironment: 75

2.3.1.2 Microenvironment: 77

2.3.2 Internal Environment analysis: 80

2.3.2.1 Human Resources 80

2.3.2.2 Marketing 81

2.3.2.3 Technology 81

2.3.2.4 Sustainable Competitive Advantages 81

2.3.2.5 Core competencies: 82

2.3.3 Competitiveness Evaluation 83

2.3.4 SWOT analysis 84

2.4 Summary: 85

Chapter 3: Phu My Thermal Power Company Business Strategy In 2010 – 2015 Phase 87

3.1 Generation Business Strategy 87

3.1.1 Strategy Formulation 87

3.1.1.1 Mission, vision and objective 87

3.1.1.2 Strategy Selection 88

3.1.2 Business Plan in phase 2010 - 2015 93

3.1.2.1 Labor - Income 93

3.1.2.2 Electricity Production 93

3.1.2.3 Financial Factors: 93

3.2 Maintenance Service Business Strategy 94

3.2.1 Strategy Formulation: 94

3.2.1.1 Mission, vision and objective: 94

3.2.1.2 Strategy selection: 95

3.2.2 Maintenance Service Business Plan 101

3.3 Implement Solution 102

3.3.1 General solutions: 102

3.3.1.1 Re-organization 102

3.3.1.2 Corporate culture creation 103

3.3.1.3 Management 103

3.3.1.4 Human resource management 104

3.3.1.5 Financial solutions 107

3.3.2 Specific solutions: 109

3.3.2.1 To electricity business 109

3.3.2.2 To maintenance services business 111

3.3.2.3 Marketing: 112

3.4 Recommendations 112

3.4.1 To Government 112

3.4.2 To Electricity of Vietnam (EVN) 112

3.4.3 To Phu My Thermal Power Co 113

3.5 Summary 113

CONCLUSION 115

REFERENCES 116

LIST OF ABBREVIATIONS

PMTP Phu My Thermal Power Company Limited

EVN Electricity of Vietnam

CTTP Can Tho Thermal Power Company Limited

Phu My 3 Phu My 3 Power Company

PVPS PetroVietnam Power Service Company

PV POWER PetroVietnam Power Company

PV GAS PetroVietnam Gas Company

Non-OEM Non-Original Equipment Manufacturer

Maintenance works: repair and maintain equipments, machines daily, and

periodical (elementary age or middle age or overhaul)

Main equipments and machines: gas turbine, steam turbine, generators or boilers

LIST OF TABLES

Table 1.1 Analytical techniques of external environment 8

Table 1.2 The General environment: Segments and Elements 12

Table 1.3 Tangible Resources 19

Table 1.4 Intangible Resources 19

Table 1.5 Examples of Firm’s Capabilities 20

Table 1.6 The four Criteria of Sustainable Competitive Advantage 21

Table 1.7 Outcomes from Combinations of the Four Criteria 21

Table 1.8 Outcomes from Combinations of the Criteria for Sustainable Competitive Advantage 22

Table 1.9 SWOT Analysis – What to look for 23

Table 2.1 Price of electricity production PMTP in 2006 - 2009 34

Table 2.2 Some production targets in business of PMTP in 2006 - 2009 35

Table 2.3 Human resources of PMTP from 2006 to 2009 39

Table 2.4 Business activities Results of Maintenance Service Center from 2006 to 2009 41

Table 2.5 Analysis of competitors 52

Table 2.6 External Factor Evaluation Matrix (EFE) 55

Table 2.7 Power production of PMTP in 2006 – 2009 69

Table 2.8 Internal Factor Evaluation Matrix (IFE) 71

Table 2.9 SWOT analysis of Generation Business 73

Table 2.10 Competitiveness evaluation 83

Table 2.11 SWOT analysis of MSC 84

Table 3.1 Strategy Selection 88

Table 3.2 Business plan of electricity production 2010-2015 93

Table 3.3 Maintenance Service Business Plan 101

LIST OF FIGURES, GRAPHS

Figure 1.1 The Strategy-Making, Strategy-Executing Process 5

Figure 1.2 The Strategic management Process 6

Figure 1.3 Components of External Environment 9

Figure 1.4 The Five Forces Model of Competition 14

Figure 1.5 Components of Internal Analysis leading to Competitive Advantage and Strategic Competitiveness 16

Figure 1.6 Internal Building Blocks of Competitive Advantage 18

Figure 1.7 Three Generic Strategies 24

Figure 1.8 Value -Creating Activities Associated with the Cost Leadership Strategy 25

Figure 1.9 Value -Creating Activities Associated with the Differentiation Strategy 26

Figure 2.1 Power output Chart of PMTP from 1997 - 2009 33

Figure 2.2 PMTP organization layout in 2009 37

Figure 2.3 The Components of a Company’s Macro-environment 42

Figure 2.4 The Five Forces Model of Competition 46

Figure 2.5 Price of fuel Gas in 2006 - 2009 48

Figure 2.6 Price of fuel Diesel Oil in 2006 - 2009 49

Figure 2.7 PMTP’s output power in National Power System 66

Figure 2.8 Market share of PMTP in National Power System 66

Figure 2.9 Chart describes the method to meet the mobilization of A0 70

Figure 2.10 Five forces of competition model 77

INTRODUCTION

1 Subject

Phu My Thermal Power Business Strategy Formulation in Phase 2010-2015

2 Requirements

In the state enterprises equitization process, PMTP is standing at the threshold

of competitive power market Whether such past advantages of PMTP as economy

of scale, location, personnel, commercial finance, industrial arts still have an impact

on its competitions in the power market Besides, there are future threats that PMTP will encounter and have to overcome to achieve the goal In order to adapt to the new business pattern of competitive power market, from the self-accounting system

of a typical state-owned enterprise with monopolistic competition in electricity sector, PMTP should have specific strategic objectives, each step in accordance with Vietnam macro environment and electricity sector conditions that will have many changes in the coming years

Therefore, it is necessary to know thoroughly business environment of PMTP,

so that it can take full advantage of opportunities, reduce weaknesses and minimize risks to its own business activities in competitive power market – that PMTP has never had neither any experiences nor figures out how hard business competition will be With the mission is to become a strong development and top grade corporation in South East Asia, PMTP should know thoroughly business environment factors in order to form appropriate business strategy

Proceeding from imperative requirements and the reasons above, therefore we

pick out the subject “Phu My Thermal Power Business Strategy Formulation in

Phase 2010-2015” for our master's thesis of this MBA program, so that we can

apply the learning to where we are working for, PMTP, in future practice

3 Purpose

The purpose of researching the subject is analyzing the state of PMTP, the effect of the business environment to PMTP activities, to be aware of its own strengths and weaknesses as well as business opportunities in comparison with threats impact on PMTP Based on that, we can build appropriate strategies as well

as propose some solutions to make good its shortcomings and improving operational efficiency of PMTP on the journey of sustainable development

4 Scope

There are too many effected factors to the operating environment of PMTP, so the subject should be only focused on studying some basic issues that have great impact on the operation of PMTP Therefore, the object and scope of the research topic is to analyze the impact of the inside and outside environment on the business operations, thence we can propose some suggestions on business strategy applied to PMTP

- Survey situation of PMTP and referring to comments of specialists in functional units of PMTP and consultant experts and customers to review and evaluate external and internal factors effect to operations of PMTP

- Competitiveness evaluation of MSC is also done in same way

6 Theoretical and practical significance of the subject

In the globalization and international integration process, human knowledge is spread over all nations, ethnic groups thanks to worldwide information networks It

is highly important for us to acquire the knowledge of basic business management

of the US economy through this program at the University of Griggs in Vietnam Besides, we need to acquire the academic knowledge applied to such the most-developed economy in the world as US and creatively use it in small businesses of Vietnam economy

Our subject begins with applying scientific knowledge digested in specific business conditions to PMTP where we are working with the hope to find out the internal strengths and weaknesses as well as discover the opportunities, challenges and risks from external environment to advise the leaders in the process-oriented company to achieve the strategic objectives in the long term

During the process of business strategy formulation and application, we hope that our team will collect more practical experiences thence gradually improve strategies to help PMTP stand firm in the competitive electricity market in Vietnam and gradually reaching out global market in the future

7 Contents

Thesis is divided into three chapters as follows:

Chapter 1: Methodology Of Business Strategy Of The Company

Chapter 2: Real Business Situation Analysis in Phu My Thermal Power

Company

Chapter 3: Phu My Thermal Power Company Business Strategy In Phase

2010 – 2015

CHAPTER 1 METHODOLOGY OF BUSINESS STRATEGY OF THE COMPANY

1.1 Definition of Strategy and Strategic Management

There are many definitions of strategy and each definition has more or less differences depending on the conception of each author

Business strategy is a series of commitments and actions that a company uses

to gain a competitive advantages by exploiting core competencies in a certain market

Purpose of the business strategy is to make differentiation between position of

a company in relation to its competitors

1.1.1 Definition of Strategic Management

Strategic management is a set of managerial decisions and actions which determine long-term efficiency of a company It includes consecutive activities such

as: scanning environment (both internal and external environment), formulating strategy, implementing strategy and evaluating strategic performance Thus, strategic research emphasizes on monitoring and evaluating opportunities and threats as well as strengths and weaknesses

Strategic management consists of five phases with closed relation:

Figure 1.1: The Strategy-Making, Strategy-Executing Process

Source: Lesson plan of Jana F Kuzmicki, Ph.D Troy University

Phase 1: Making a strategic vision that describes the future image of a

company and is intended to move the company in that direction This provides the main long-term orientation, points out the image that a company want to achieve and spread purposeful actions to company

Phase 2: Setting objectives to transform a strategic vision into specific

implementary results that a company can be achieve

Phase 3: Developing a strategy to gain desired objectives

Phase 4: Implementing and executing the selected strategy effectively and

efficiently

Phase 5: Evaluating performance and adjusting the vision, long-term

orientation, objectives, strategy or implementation based on experience, changing conditions, ideas and new opportunities

1.1.2 Benefits of Strategic Management

Achieving strategic competitive advantage when a company builds and implements a valuable strategy

Achieving substainable competitive advantage when a company builds a strategy that its competitors can’t do it and creats advantages that both present and potential competitors can’t gain it

Earning profit above average of a industry i.e profit exceeds what investors have expected from other investments with similar risks

1.1.3 Strategic Management Process

Figure 1.2: The Strategic management Process

Source: http://moodle.griggs.edu.vn/course/view.php?id=808

1.2 Process of Strategy Formulation and Selection

1.2.1 Determining vision, mission and objectives

1.2.1.1 Vision

Vision shows overview of the company and the most desired purposes Vision describes the desire of the company about what the company wants to reach According to James Collins and Jerry Porras, structure of vision has two basic components are: core ideology and imagining the future Core ideology is the most stable part of the vision Core ideology reflects things that the company protects or supports, reasons for it to exist and core ideology is core value and core purpose Imagining the future is a change, is a thing that the company aspires to become and

to create images of the future that will require significant changes and progress

1.2.1.3 Main objectives

Company objectives determine what the company must do if it wants to achieve the mission The well-built objectives must be accurate to measure, direct toward key issues, be challenging but reality and determine specific time to achieve They include:

- Maximizing shareholders’ income

- Maximizing annual turnover

- Earning long-term profit

1.2.2 Analyzing external environment

External environment includes general environment - focuses on the future, industry environment - focus on factors and conditions that affect profit of industry, competitor environment - focus on forecasting dynamic level of actions, reactions and intentions from competitors

1.2.2.1 Analytical techniques of external environment

Models that are used to analyze the external environment will provide format for identification of opportunities and threats of the environment The opportunity is

a condition that if the company knows to exploit, it will achieve strategic competitive advantage The challenge is a condition that can restrain the company from gaining competitive advantage and strategic competitive advantage The threat arises when the external environmental conditions endanger the integrity and profitability from bussiness operations in the company The basic techniques to analyze the external environment include Scanning, Monitoring, Forecasting and Assessing

Summary of analytical techniques of external environment in the following table:

Table 1.1: Analytical techniques of external environment

Scanning Early identify signs of changes and environmental trend

Monitoring Find significance through continuous observations of changes and

tenvironmental trend

Forecasting Develop forecast what will happen based on changes and

environmental trend after they were scanned and monitored

Assessing Determine time-limit and importance of changes and environmental

trend for strategies and managemental operations

1.2.2.2 Marco environment

Macro environment consists of six segments such as economic, technological, sociocultural, demographic, political/legal and global segment Changes in the macro environment can directly impact to any forces in an industry Therefore, they alter relative strength to other forces and itself, finally they alter attractiveness of an industry

Figure 1.3: Components of External Environment

Sources: http://moodle.griggs.edu.vn/course/view.php?id=808

(1) Economic environment

Status of the macro economic environment determines healthiness and prosperity in the economy and it always affect companies and industries Therefore, the company must study economic environment to identify changes, trends and strategic implication

Economic environment shows nature and orientation of domestic and global economy in which the company operates Four important factors in the macro

economic environment is growth rate of the economy, interest rate, exchange rate and inflation rate

(2) Technological environment

Technological segment includes institutions, activities involved in creation of new knowledge, shifting the knowledge to outputs, products, processes and new materials Technological change also include creation and destruction as well as opportunities and threats

One of the most important impacts of technological change is the impact on the height of the entrance barrier and reforming structure of the industry to the every roots Knowledges of technology are vitally important Certainly opportunities and threats of technology in the macro environment have an impact on enterprises including purchasing technology from outside or self-creating new technology

(3) Sociocultural environment

Sociocultural segment is related to social attitudes and cultural values Because the cultural values and social attitudes form foundation of society, they often lead changes as well as technological, political/legal, economic and demographic conditions Like technological changes, social changes also create opportunities and threats

Increase of cultural diversity promotes the contribution to benefit the company Changes in management practices and organizational structure should be conducted to avoid the existence of barriers which adverse the organization

(4) Political/legal environment

Political/legal factors also impact level of the opportunities and threats from the environment The primary thing in this segment is the way that companies can influence government as well as government affects them Constantly changes in this segment will affect significant competition

Enterprises must analyze carefully philosophies and new policies involved in state management Antitrust laws, taxation laws, selected industries to adjustment or priority and labor law are fields which state management policies can impact operations and profitability of industry or companies

(5) Global environment

Global segment includes concerned global markets, changing current markets, important international political events, fundamental institutional and cultural features on the global markets Globalization of business markets creates both opportunities and threats Companies can increase opportunities to sell their improvements by penetrating into a new international market The larger the market

is, the more having high incomes from the improvement increases Certainly, enterprise which penetrates into new markets can diffuse new knowledges they have created as well as learn much more from the new markets

In short, the main objective of analyzing macro environment is to identify the

changes and trends expected from the factors of external environment With the focus on the future, analyzing the external environment allows enterprises to identify opportunities and threats Summary of analyzing the macro environment in the following table:

Table 1.2: The General environment: Segments and Elements

Sources: http://moodle.griggs.edu.vn/mod/resource/view.php?id=808

1.2.2.3 Industry environment

(1) Necessity of analyzing industry and competition

Analyzing industry and competition is a set of conceptions and techniques to clarify the key issues as follows:

- The economic characteristics are remarkable in the industry

- Competitive forces with their nature and strength are operating in the industry

- Driving forces and their impact cause change in the industry

- Companies is positioned to be the most powerful and weakest

- Who may make the next move in the industry?

- Critical factors for success or failure in competition

- Attractiveness of the industry in aspect of profitable ability above average

(2) Model of five competitive forces

Michael E Porter, Professor of Business Administration Harvard School set out a framework to help administrators identify the opportunities and threats that enterprises must cope in an industry According to Porter, five competitive oriented forces in the industry, namely: (1) threat of new entrants; (2) Rivalry among existing industry competitors; (3) Bargaining power of buyers; (4) Bargaining power of suppliers; (5) Threat of substitute products

Porter pointed out that the stronger these forces are, the more limited ability of current companies in raising prices and earning higher their profit is Within Porter’s framework, a strong competitive force can be consider as a threat because it would reduce profit The power of five competitive forces can change chronologically when conditions of the industry also change Tasks of administrators are awareness of the opportunities and threats that changes of five forces will bring, then they will build adaptive strategies Moreover, through strategic choice, it is the ability of companies to shift power of one or more competitive forces into advantage for themselves

Analyzing competitors is collecting and analyzing information on all his competitors that the company must competes The understanding of competitive environment will help the company better recognize the information we collected during studying process of industry environment and macro environment

Figure 1.4: The Five Forces Model of Competition

Source: Adapted and reprinted by permission of Harvard Business Review From “How Competitive Forces Shape

Strategy,” by Michael E Porter, Harvard Business Review, March/April 1979 © by the President and Fellows of Harvard

College All rights reserved

Threat of subsstitutes: Threat of subsstitutes is implementation of strategy

“industry entrance barrier” The size advantage is an increase of marginal efficiency when a company raise its size Advantages and disadvantages is involved in entrancing in large-scale and small-scale such as flexibility in pricing and market share, cost related to size advantage, response of competitors Product difference i.e unique product, customer loyalty, products at competitive prices

Bargaining power of suppliers: Power of suppliers will increase in case: The

number of suppliers is not many and they have large-scale; There are few substitute products; Supplier’s product is extremely important in customers’ success in the market; Product change may need high cost; Suppliers have the ability to penetrate

Bargaining power of buyers: Power of buyers will increase in case: The

number of buyers are few and they are large customers; Buyers consume mostly products of industry; Buyers make up large proportion of annual revenue from sellers; Conversion cost of other products is low; Buyers are able to penetrate back industry of sellers; Buyers have full information

Risk of entry by potential competitors: Threat of substitute products increases

in case: Buyers have not to pay high cost when conversing products; Price of substitute product is lower; Quality and effectiveness of substitute product are better product they are using; Special products that are highly appreciated by customers will be less influenced from this threat

Intensity of rivalry among established firms: Industry competition will

increase in case: There are many rivals or competitors have equal powers; The industry growth is slow or declining; Fixed cost or storage cost is high; It is hard to create difference or conversion cost is low; Strategic interest is high; There are more difficulties if a company wants to leave the industry

1.2.2.4 Key factors for success

Key factors for industry success have the most powerful impact on success ability of the members in a industry on the market Those are specific strategical factors, product characteristics, resources, capabilities, competitiveness and business results indicated differences between loss and profit The key factors for success are related to product features, capabilities, competitiveness and market

results which impact directly on the ability of company's profitability

1.2.3 Analyzing internal environment

The main purpose of analyzing internal environment is identifying potential and existing sources to create sustainable competitive advantage of the company

We also identify obstacles in maintaining sustainable competitive advantage Competitive advantage is collection of improvement, efficiency, quality and

weaknesses to identify efficiency, improvement capacity, product quality, and

customer satisfaction Further, we find kernels to develop competition block, that is

resources, capabilities and core competence

Figure 1.5: Components of Internal Analysis leading to Competitive

Advantage and Strategic Competitiveness

Sources: http://moodle.griggs.edu.vn/mod/resource/view.php?id=813

1.2.3.1 Strengths and Weaknesses

A strength is a thing that the company is doing good or features to help it improve competitiveness Strengths may exist in the following kinds:

- A important skill or experience such as manufacturing know-how with low cost, technological know-how, non-defect production, experience of providing good customer service, skills of product improvement, commercial skills for large-scale products, unique promotions

- Valuable tangible assets such as modern factory, attractive location, reserving natural resources, having facilities around the world

- Valuable assets of human resources such as capable and experienced labor force, skilled workers in key sectors, managemental know-how, learning

- Valuable organization assets such as quality control systems, technological property, copyright, exploitation right, customer loyalty, credit value

- Worth intangible assets such as brand image, reputation and customer loyalty

- Competition capabilities such as time for product development and short commercialization, manufacturing capacity, agent network, powerful supplier

- Achievement or influence with putting company into a benefitable position in the market such as low costs, leadership position in the market, having better products

- Alliance or joint venture - cooperate with experienced and capable partners

A weakness is something that companies are lacking, weak or a condition placing them in a unfavorable situation Internal weaknesses of the company can be expressed:

- Shortage of significant skills and competition experiences

- Lack of intangible assets, tangible assets, organizations and personnel being important and competitive

- Lack or weakness of competitive competence in key fields

- Internal weaknesses is defects in the resources of the company A weakness may cause or not cause damage to the company This depends

on level of influence on the market and ability of overcoming with its resources and strength

1.2.3.2 Nature of competitive advantage

A company is considered to have a competitive advantage when the rate of profit is higher than average rate in the industry The company has a sustainable competitive advantage when it can maintain the high rate of profit in a long time

Two basic factors for forming the rate of profit is the amount of value that customers feel about goods or services of the company and its production costs The most basic competitive advantage of a company is the core competence combined with market position of product or service The core competences of a company together with its analysis of general environment, industry environment and competitor environment will be the basis of the company to select strategies for itself

Michael Porter pointed out that low cost and differentiation is two basic strategies to create value and gain competitive advantage in an industry (1) According to Porter, competitive advantage (along with higher benefit) can create superior value To create the superior value is lowering cost and/ or making differentiation so that customers evaluate it higher and they are willing to pay a increased price

Four factors creating competitive advantage is efficiency, quality, improvement and customer responsiveness

Figure 1.6: Internal Building Blocks of Competitive Advantage

Source: Adapted and reprinted by permission of Harvard Business Review From “How Competitive Forces Shape

Strategy,” by Michael E Porter, Harvard Business Review, March/April 1979 © by the President and Fellows of Harvard

1.2.3.3 Resources, capabilities and core competences

(1) Resources

Resources are assets of production input of a company such as equipment capitals, human resources, brand value and financial resources The resources are classified into two types, that are tangible and intangible resources

Table 1.3: Tangible Resources

Sources: http://moodle.griggs.edu.vn/mod/resource/view.php?id=813

Table 1.4: Intangible Resources

Sources: http://moodle.griggs.edu.vn/mod/resource/view.php?id=813

(2) Capabilities

Capabilities is mobilization of resources purposively to achieve final status as expected Foundation of the capabilities are skills, unique knowledge and professional experience of employees in the company Capabilities are often developed in fields of specific functions or part of a specific field

Table 1.5: Examples of Firm’s Capabilities

Source: http://moodle.griggs.edu.vn/mod/resource/view.php?id=813

(3) Core competences

Core competences are resources and capabilities that bring competitive advantage for a company and are superior to competitors Core competences appear chronologically through a process of accumulation and study of the company in mobilizing the different resources and capabilities Core competences create unique values for products and services of the company during a long time

1.2.3.4 Making sustainable competitive advantage

The four Criteria of Sustainable Competitive Advantage

Table 1.6: The four Criteria of Sustainable Competitive Advantage

Source: http://moodle.griggs.edu.vn/mod/resource/view.php?id=813

Table 1.7: Outcomes from Combinations of the Four Criteria

Source: http://moodle.griggs.edu.vn/mod/resource/view.php?id=813

Table 1.8: Outcomes from Combinations of the Criteria for Sustainable

Competitive Advantage

Source: http://moodle.griggs.edu.vn/mod/resource/view.php?id=813

1.2.4 SWOT Analysis

SWOT analysis in building a strategy is developing a clearer understanding of

a company’s resource strengths, resource weaknesses, best opportunities, external threat Thence we draw conclusions about how best to deploy resources in light of the company’s internal and external situation SWOT analysis also give us thinking strategically about how to strengthen the company's resource base for the future

Table 1.9: SWOT Analysis – What to look for

Resource Strengths Resource

2 Obsolete facilities

3 Weak balance sheet; excess debt

4 Higher overall costs than rivals

5 Missing some key skills/competencies

6 Subpar profits…

7 Internal operating problem

8 Falling behind in R&D

9 Too narrow product line

10 Weak marketing skills

1 Serving additional customer groups

2 Expanding to new geographic areas

3 Expanding product line

9 Openings to exploit new technologies

10 Openings to extend brand name/ image

1 Entry of potent new competitors

2 Loss of sales to substitutes

3 Slowing market growth

4 Adverse shifts in exchange rates & trade policies

5 Costly new regulations

6 Vulnerability to business cycle

7 Growing leverage of customers or

Therefore, successful firms need to think of their employees innovating valuable products to customers and their customers be willing to pay for those products

Basic foundation for operating of the company achieved above average level in the long-term is sustainable competitive advantage Whether it has numerous strengths and weaknesses compared to other competitors, it can use two types of competitive advantage such as lower cost and differentiation

Figure 1.7: Three Generic Strategies

Source: Competitive advantage – 1985, Michael E Porter, Page12

(1) Cost Leadership Strategy

Implementing this strategy will make the company to become the lowest cost producer in the industry This strategy is an integrated set of actions taken to produce goods or services with features that are acceptable to customers at the lowest cost, relative to that of competitors with features that customers are acceptable to customers

Cost saving actions include: building efficient scale facilities; tightly controlling production costs and overhead; minimizing costs of sales, R&D and service; monitoring costs of activities by outside; simplify production processes

Figure 1.8 Value -Creating Activities Associated with the Cost Leadership

The company that can obtain and maintain differentiation will be a unit operating over average level in the industry if its price passes its costs that it paid for its uniqueness

Figure 1.9 Value -Creating Activities Associated with the Differentiation

1.2.5.2 Corporate-level Strategy

Corporate-level Strategy determines actions taken by the company to gain competitive advantage by selecting, managing a group of different businesses competing in several industries and product markets

In the global competitive environment at present, senior managers should review their company as an integrated set of core competences when they select new business units and decide how to manage them

(1) Concentrate in single business

Strategy concentrating in single business helps the company focus on physical resources, technological resources, financial resources, general management resources and competitive competences to compete successfully in a field This strategy can be very important in the fast-growing industries because they require the company's resources and then the company will set up a competitive advantage

to bring very high long-term returns

(2) Vertical Integration

Vertical integration Strategy means that the company produces its own inputs (backward vertical integration) or distributes its outputs (forward vertical integration) Vertical integration is the way selected by companies to compete in the stage of the chain from raw materials to customers

Benefits of vertical integration is creating entrant barriers to protect product quality and improve planning Besides, some existing disadvantages of integration are disadvantages of cost, technological change and uncertain demand

There are plans of vertical integration such as short-term contracts and competitive bidding; strategic alliances and long-term contract; establishment of long-term cooperation; exploitation of external strategical resources and virtual companies

(3) Diversification

Diversification Strategy tends to target of value increase Successful diversification strategy will create value for companies by creating the conditions for business units of the company to apply business-level strategies that increase revenue and reduce costs Diversification strategy also increases market power

related to competitors Diversification also expands combination range of business units and reduces risks

1.3 Summary

Business strategy is built and implemented in an specific environment of space and time to maintain over average returns Study of the environment, capture of the trend about industry development, competitors’power and the company’s core competence will create an bussiness advantage and maintain over average returns

To obtain it, companies need to implement business strategies consistently, dynamically and flexibly in the rapidly changing situation of the economy, science and technology in the world at present as well as they are not passive before global business risks such as the global financial crisis in the year 2009

Business environment is an objective entity including all business entities in the market and an integrated set of factors and relationship effecting, controlling all acts of operation from the company Business environment includes internal environment and external environment

Internal environment consists of factors and relationships that companies can control it To master these relationships, companies must understand morphological types of markets as well as its corresponding relationship, then they can predict the situations, risks thay may occur and have methods of settlement In the condition of competition, the success or failure of the business operations depends greatly on the ability of capturing and mastering factors and relationships of the market

External environment consists of factors and relationships that are beyond the control of companies such as economic environment, political environment, legal environment, technological environment, demographic environment, global environment, sociocultural environment Therefore, companies must learn them thoroughly to treat appropriately, especially, they must study and maste the law to perform properly, ensure their rights and responsibilities in their business operations before the law

To succeed in business, companies have to know their core competences as the ability of finance, sales, knowledge, skills and experiences of human resources, the ability of establishing and developing vision Capturing the changes of external environment such as economic environment, legal/potical environment, technological environment,… and the influence of suppliers amd customers will impact on situation of production and business in the company The environmental analysis in both external environment and internal environment will help the company to get the right decision in building business strategies for itself

In short, the feasible planning and implementation of business strategy depends on the process of analyzing and evaluating the existing core competences and on the situation of impacting on factors outside the company

The contents of mentioned theory will be applied to build the business strategy for Phu My Thermal Power Co in the period of the year 2010 - 2015 presented in Chapter 3

CHAPTER 2 REAL BUSINESS SITUATION ANALYSIS IN PHU

MY THERMAL POWER COMPANY

2.1 PMTP’s Overview

2.1.1 Background and development

PMTP - the precursor of the Phu My Power Plant - a dependent accounting enterprise, a subsidiary of Electricity of Vietnam, was established under Decision

No 48 ĐVN/ HĐQT dated February 15, 1997 of Vietnam Electricity Board of Director (now call the Electricity of Vietnam - EVN)

According to Decision No 241/2005/QD-TTg on April 10, 2005 by the Prime Minister about transference from Phu My Power Plant to Phu My Thermal Power One-Member Limited Company, PMTP executes transactions under Charter regulations and operation of PMTP is released based on Decision No 675/QD-EVN-HĐQT on November 30, 2005 by the EVN Board of Director

The following steps are development, expanding production process of PMTP:

- Officially founded on April 1997 PMTP 2 Steam Turbines was operated,

it belongs to Phu My 2.1 Power Plant with capacity of 290MW

- In 1999, PMTP continued synchronizing the first time two gas turbine Phu

My 2.1 extension with capacity of 276MW

- In 2001, commercially operated of 03 Gas Turbines, 03 HRSGs and 01 Steam Turbine Phu My 1 with a capacity of 1090 MW

- In 2003, PMTP commercially operated of the HRSG Phu My 2.1 with capacity of 160MW

- In 2004, PMTP admitted 02 Gas Turbines, 02 HRSGs and 01 Steam Turbine belong Combined Cycle Phu My 4 Project with capacity of 450MW

- In 2006, the HRSG of Phu My 2.1 extension with total capacity of

- In 2007, PMTP invested to Phu My 2.1 and Phu My 2.1 extension to increase the capacity further more 55 MW

- On May 14, 2007 Ministry of Industry released Decision BCN about equitization of Phu My thermal power PMTP are now currently on the way equitisation

No.1647/QĐ-2.1.2 Field of Business

The business of PMTP is operated under the certificate of business registration

No 4904000013 on February 14, 2006 promulgated by Ba Ria - Vung Tau Department of Planning and Investment and was firstly revised on June 29, 2007 The primary bussiness sector of MPTP includes:

- Generating and trading electricity

- Production and business of distilled water, hydrogen

- Services of repair and installation transformer stations and power lines voltages under 110 kV

- Other services: repair, refurbishment of the details of power plant equipments, electrical laboratory, chemical laboratory, editing, measuring the performance of power plants, drying, filtration and oil insulation, keeping household oil, lease tank, pipeline and port lease receiving oil, operation of power plants and some other business activities

2.1.3 Technology

PMTP owns four power plants including 13 units (9 Gas Turbines and Steam Turbines) with a total design capacity of 2.485MW, including:

(1) Phu My 2.1 Power Plant (02 Gas Turbines, 02 Heat Recovery Steam

Generater, 01 Steam Turbine):

- Contractor : ABB ( Alstom) – Switzeland

(2) Phu My 2.1 Extension Power Plant (02 Gas Turbines, 02 Heat

Recovery Steam Generater, 01 Steam Turbine):