Development strategies of phumy thermal power company in phase 2011 – 2020

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

MBA Program (GaMBA)

CAPSTONE PROJECT REPORT

Vo Minh Thang

Class GaMBA01.D0109

ACKNOWLEDGEMENTS

First of all, we extremely thank the Management of Phu My Thermal Power Company and Baria Thermal Power Joint stock 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 D0109 (mama) and board of D0109 class leaders helped us successfully complete the course

Sincerest thanks

Ho Chi Minh, 20 th November, 2010

Group No.03

BRIEF OF CONTENTS

Page

CHAPTER 1: THE THEORY BASIS OF BUSINESS STRATEGY OF A

COMPANY 13

1.1 Concept of strategy 13

1.2 Contents of Strategic Management 15

1.3 Summary 29

CHAPTER 2 ANALYSIS OF PHU MY THERMAL POWER’S CURRENT BUSINESS SITUATION AND THEIR STRATEGY ESTABLISHMENT 30

2.1 Panorama of the electricity indusrtry 30

2.2 Overview of PMTP’s business situation 34

2.3 EXTERNAL ENVIRONMENT ANALYSIS 41

2.4 INTERNAL ENVIRONMENT ANALYSIS 50

2.5 ESTABLISHMENT AND CHOICE OF PMTP’S STRATEGY 58

2.5.1 Analysis of PM TP’s SPACE matrix 58

2.5.2 SWOT analysis of PMTP 60

2.5.3 Strategies options 61

2.5.4 Optimal strategic choice of PMTP 63

CHAPTER 3: SOLUTIONS FOR THE IMPLEMENTATION THE STRATEGY OF PMTP 69

3.1 General Solution 69

3.2 Solutions for each specific strategy 76

3.3 Recommendations 94

3.3.1 For Goverment 94

3.3.2 For EVN 94

3.3.3 For PMTP 94

3.4 Summary 95

CONCLUSION 97

TABLE OF CONTENTS

Page

ACKNOWLEDGEMENTS i

CRIEP OF CONTENTS ii

TABLE OF CONTENTS iii

LIST OF ABBREVIATIONS vii

LIST OF TABLES viii

LIST OF FIGURES ix

LIST OF CHARTS ix

INTRODUCTION 10

CHAPTER 1: THE THEORY BASIS OF BUSINESS STRATEGY OF A COMPANY 13

1.1 Concept of strategy and strategic management 13

1.1.1 Benefits of Strategic management 14

1.1.2 Comprehensive strategic management Model 14

1.2 Contents of Strategic Management 15

1.2.1 Defining Vision, Mission 15

1.2.2 Analysis of external environment 15

1.2.2.1 Macroscopic Environment 16

1.2.2.2 Industry Environment 18

1.2.3 Internal Environment Analysis 20

1.2.3.1 Management 21

1.2.3.2 Marketing 21

1.2.3.3 Finance / Accounting 22

1.2.3.4 Production/Operations 22

1.2.3.5 Research and Development (R&D) 23

1.2.3.6 Information System 23

1.2.4 Process formed a stratergy 23

1.2.4.1 Phase 1: Input phase 23

1.2.4.2 Phase 2: Combination phase 23

1.2.4.3 Phase 3: Decision phase 24

1.2.5 Strategies formation and selection tools: 24

1.2.5.1 EFE Matrix 25

1.2.5.2 IFE Matrix 25

1.2.5.3 SPACE Matrix 26

1.2.5.4 SWOT Matrix 27

1.2.5.5 QSPM Matrix 28

1.3 Summary 29

CHAPTER 2 ANALYSIS OF PHU MY THERMAL POWER’S CURRENT BUSINESS SITUATION AND THEIR STRATEGY ESTABLISHMENT 30

2.1 Panorama of the electricity indusrtry 30

2.2 Overview of PMTP’s business situation 34

2.2.1 History of the company 34

2.2.2 Business Scope 34

2.2.3 Technology and manufacturing scale 35

2.2.3.1 Technology 35

2.2.3.2 Manufacturing scale 36

2.2.4 Organization 39

2.2.5 Company’s Mission and Vision 40

2.3 EXTERNAL ENVIRONMENT ANALYSIS 41

2.3.1 Macro-environment 41

2.3.1.1 Economic environment 41

2.3.1.2 Political and legal environment 42

2.3.1.3 Social cultural environment 43

2.3.1.4 Scientific and technological environment 43

2.3.1.5 Natural environment 44

2.3.1.6 Global environment 44

2.3.2 Analysis of the industry environment 45

2.3.2.1 Customers’ power 45

2.3.2.2 Suppliers’ power 46

2.3.2.3 Existing competitors 47

2.3.2.4 Potential competitors 48

2.3.2.5 Threats from substitutions 49

2.3.3 External Factors Evaluation (EFE) 49

2.4 INTERNAL ENVIRONMENT ANALYSIS 50

2.4.1 Management 50

2.4.2 Human resource 51

2.4.3 Marketing 52

2.4.4 Finance/Accounting 53

2.4.5 Manufacturing 55

2.4.6 Internal Factors Evaluation (IFE) 57

2.5 ESTABLISHMENT AND CHOICE OF PMTP’S STRATEGY 58

2.5.1 Analysis of PM TP’s SPACE matrix 58

2.5.2 SWOT analysis of PMTP 60

2.5.3 Strategies options 61

2.5.4 Optimal strategic choice of PMTP 63

CHAPTER 3: SOLUTIONS FOR THE IMPLEMENTATION THE STRATEGY OF PMTP 69

3.1 General Solution 69

3.1.1 Solutions organization 69

3.1.2 Building corporate culture 70

3.1.3 Human Resource Development Solution 70

3.1.4 Financial Solutions 72

3.1.5 Technical management, safety and quality solutions 73

3.1.6 Information technology Solutions 73

3.1.7 Planning implementation general solutions 74

3.2 Solutions for each specific strategy 76

3.2.1 Power production and trading strategy 76

3.2.1.1 Short-term goals 76

3.2.1.2 Long-term goals 77

3.2.1.3 Solutions to implement strategy 79

3.2.2 Services development Strategy 82

3.2.2.1 Short - term goals 82

3.2.2.2 Long-term goals 83

3.2.2.3 Solutions of implement the strategy 83

3.2.3 Investment strategy 90

3.2.3.1 Short term goals 90

3.2.3.2 Long term goals 90

3.2.3.3 The strategic solutions 90

3.3 Recommendations 94

3.3.1 For Goverment 94

3.3.2 For EVN 94

3.3.3 For PMTP 94

3.4 Summary 95

CONCLUSION 97

LIST OF ABBREVIATIONS

PMTP Phu My Thermal Power Company Limited

EVN Electricity of Vietnam

TĐTP Thu Duc Thermal Power Company Limited

CTTP Can Tho Thermal Power Company Limited

MECO Mekong Power Company

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

LIST OF TABLES

Page

Table 1.1: The technique analysis of external environment 16

Table 1.2 SWOT Matrix 28

Table 2.1: Capacity of the power system from 2005 to 2010 31

Table 2.2: Capacity of system according to No.6 power planning 32

Table 2.3: Capacity and market share of existing competitors 47

Table 2.4: Capacity and market share of Potential competitors 48

Table 2.5: External Factors Evaluation (EFE) 49

Table 2.6: Human resource of PMTP for period from 2006-2010 51

Table 2.7: Performance report of PMTP manufacturing 2006-2010 53

Table 2.8: Some basic financial targets of PMTP 2006-2009 53

Table 2.9: Manufacturing price of electric of PMTP 2006-2010 56

Table 2.10: Operational indicators of PMTP period 2006 – 2010 57

Table 2.11: Internal Factors Evaluation (IFE) 58

Table 2.12: SPACE Matrix 61

Table 2.13: QSPM MATRIX OF S – O STRATEGIES 64

Table 2.14: QSPM MATRIX OF S – T STRATEGIES 65

Table 2.15: QSPM MATRIX OF W – O STRATEGIES 66

Table 2.16: QSPM MATRIX OF W – T STRATEGIES 67

Table 3.1: Plans for implementation of general solutions 74

Table 3.2: Plans and targets of power production and trading for period 2011-2020 78

Table 3.3: Implementation of strategy 81

Table 3.4: Implementation plan to service development strategies 87

Table 3.5: Implementation plan to develop investment strategies 92

LIST OF FIGURES

Figure 1.1: Comprehensive strategic management Model 14

Figure 1.2: Michael Porter’s Five Competitive Forces model 19

Figure 1.3: The strategy - formulation analytical framework 24

Figure 2.1: Simplified model of an electricity supply system 31

Figure 2.2: Organizational chart of PMTP 39

LIST OF CHARTS Chart 2.1: Installed Capacity Progress of PMTP 36

Chart 2.2: Annual generated power energy of PMTP 37

Chart 2.3: Ratio capacity of PMTP in national power system 37

Chart 2.4: Market share of PMTP in national power system 38

Chart 2.5: Power energy ratio between PMTP and EVN 38

Chart 2.6: Strategic position of PMTP 59

INTRODUCTION

1 Subject

Development strategies of Phu My Thermal Power Company for the period

2011 – 2020

2 Necessity of the subject

Being a subsidiary of EVN, PMTP is undergoing the equitization process and standing at the threshold of a competitive power market The question is whether or not such advantages PMTP gained in the past as: economy of scale, location, personnel, finance and technology still has an impact on its competitiveness in the market Besides, there are future threats that PMTP will encounter and have to overcome to achieve their goals and missions In order to adapt to the new business pattern of the competitive power market from a self-accounting system of a typical state-owned enterprise in a monopolistic electricity industry, PMTP should have specific strategic objectives and take step by step according to Vietnam macro environment and electricity industry conditions that will have many changes in coming years

With the mission of becoming a sustainably developing and of high quality corporation in South East Asia, PMTP should study thoroughly the business environment factors in order to form an appropriate business strategy

Resulting from the above mentioned reasons and imperative requirements, we

decided to select the subject “Development strategies of Phu My Thermal Power

Company for the period 2011 – 2020” for our master thesis of this MBA program,

in order to apply the knowledge obtained to our company (PMTP) practical situation and also to carry out these strategies in the future

3 Purpose

The purpose of studying the subject is to analyze the operation of PMTP, the effects of the business environment to PMTP activities in order to point out its own strengths and weaknesses as well as the opportunities and threats affecting to PMTP Based on that, we can build appropriate strategies as well as propose some

solutions to make good its shortcomings and improve operational efficiency of PMTP on the journey of sustainable development

4 Object and Scope of strategy

Approaching to internal environment: Analysis of PMTP’s existing resources

to find out the strengths and weaknesses

- Review PMTP activities, statistic data of production and business activities

- Surveys on business situation of PMTP and referring to comments of specialists, consultant experts and customers in functional units of PMTP to review and evaluate external and internal factors’ effects on PMTP’s operations

6 Theoretical and practical significance of the subject

In the globalization and international integration process, the knowledge of mankind is rapidly spreading across all nations and peoples The research topic of our group is applying the knowledge acquired in master business administration of international program – GaMBA Griggs University in Vietnam and the practical experiences over our time working in PMTP and in the electricity industry of Vietnam

Through the process of learning and researching topics, our group obtained the knowledge and valuable experiences from the program and all classmates; this is very useful for all members of the group in current and future daily work

This topic will be presented officially as a document and contributed in advising the leadership in direction, administration and operation of the company The proposals will closely accord to strategic goals in the short and long term of the company so that they will be compliant with regulations, vision and mission of the company

7 Contents

Thesis is divided into three chapters as follow:

Chapter 1: The theory basis of business strategy of a company

Chapter 2: Analysis of Phu My Thermal Power Company’s current

business situation and their strategy establishment Chapter 3: Solutions for the implementation of the strategies of PMTP

CHAPTER 1: THE THEORY BASIS OF BUSINESS STRATEGY OF A

COMPANY 1.1 Concept of strategy and strategic management

- According to Fred R David (2003): Strategy is the means to achieve term goals

long According to Rudolf Grunig và Richard Kuhn (2003): The strategy is long term and it orients the management manner to ensure for completion of long-term goals, the primary purposes of the company

In summary, no matter how you approach, the business strategy also includes the following:

Business strategy is a series of commitments and actions that a company uses to gain a competitive advantage by exploiting the core competence in a certain market The purpose of business strategy is to make the differences between a company's positions in relation to their competitors

Concept of strategic management

Strategic management is a set of management decisions and actions determining the long-term performance of a company Strategic management

includes a set of continuous actions: testing and evaluate the environment (inside and outside); forming strategies, implementing strategies and evaluating strategies Therefore, research the strategy to emphases on monitoring and evaluating the external opportunities and threats in the situation of the internal strengths and weaknesses

1.1.1 Benefits of Strategic management

Achieve strategic competitive advantage This is an advantage when a company has been formulating and implementing a strategy to get value to the conmapy

Achieve stable competitive advantages This is an advantage when a company has been forming a strategy that its competitors could not have been, creating the advantages that the current competitors and other potential competitors could not have been

Achieve above-average sector profits, that are profits exceeding investors’ expectation from other investments that have similar risks

1.1.2 Comprehensive strategic management Model (Ref 2)

Figure 1.1: Comprehensive strategic management Model (Fred R David)

Source: Fred R David, “Strategic Management Concepts & Cases” twelfth edition, chapter 1, page 46.

1.2 Contents of Strategic Management

1.2.1 Defining Vision, Mission

- Vision shows the highest and most general goals of a company Vision describes the company's aspirations about what the company wants to achieve According to James Collins and Jerry Porras, structure of a vision has two basic parts: core thoughts and envisioning for the future The core thoughts is the most stable part in a vision It reflects what the company protects or supports, the reason for the company to exist Those are the core values and core purposes Envisioning about the future is quite changed, is something that the company aspire to become, creating the images of the future is something that will require changes and significant progress to achieve

- Mission describes the company in its business conditions, customers that it serves, the skills needed to develop to meet vision’s requirements

- The scale, resources, existing capacity of a company has created core competencies for the company Core competence is the foundation for competitive advantages

- The main objectives of a company is determining what to do if the company wants to achieve the mission The good goals must be and accurate, measurable, must be targeted to key problems, must be challenging but have

to identify specific time to achieve

1.2.2 Analysis of external environment

External environment are the factors, regulations, regimes, etc That happen beyond the enterprise’s control, but are affecting the enterprise’s operation efficiency

Analysis of external environment’s objective is to find out a “limited” list of opportunities for the enterprise and threats that the enterprise ought to shun

Table 1.1: The technique analysis of external environment

Technique Objective

Scanning Identify early signs of changes and environmental trends

Monitoring Discovered meaning through continuous observations of changes

and trends of environment

Forecasting Develop plans for what will happen based on changes and trends

have been reviewed and monitored

Assessing Determine the duration and importance of the environment changes

and trends for strategies and management activity

Source: Environmental Scanning by James L Morrison (1992) Tallahassee, Florida: The Association for

Institutional Research

1.2.2.1 Macroscopic Environment

(1) Economics environment

This is the key factor and has the most direct impact on enterprise

Economics environment shows the nature and direction of domestic and global economy within which the enterprise is operating

Four vital factors’ in macroscopic economics environment are as follow:

- The growth rate of economy

- The interest rate and the trend of interest rate of economy

- Monetary policy and rate of exchange

- Government plays a major role in macroscopic regulation through economic, financial, monetary policies and its spending programs To take advantage of

opportunities, mitigate threats, enterprises have to capture the point of views, rules, and priorities and establish good relationships in order to create a favorable environment during operation

(3) Socioculture Environment

The impact of cultural - social factors is often long-term and more subtle than the other factors However, the impact range is often very large because it determines how people live, work, produce and consume products and services The variables impacting to Social cultural Environment are as follow:

- System of standard moral values; point of view of life quality

- Level of consciousness, knowledge

- The born of new technologies

- The encouragement, funds available and costs for Research and Development activities

- Intellectural Property and copyright Law; Technology Transfer Law

- Pressure and costs for new technology’s development and transfer

One of the most important impacts of technological change is that it can affect the height of the industry’s entering barriers and reshape to the root of the industry structure In the high-tech technologies, the identification and assessment of critical technological opportunities and threats may be the most important part of the control of external factors in the strategic management activities

(5) Natural Environment

Natural conditions are always an important factor in human life, which in many cases becomes an important element to form the competitive advantage of products and services

Factors need to be studied in this environment:

- Geographical location, natural conditions and climate

- Depletion and scarcity of natural resources, minerals, energy resources

- Environmental pollution; the attention of government and community to environment

- Ecological imbalance

(6) The Global Environment

In condition of integration and globalization, there’s not any business which does not have a relationship directly or indirectly with the world economy, and more and more business are impacted by this effect

Depending on the type and business measure on the international market, the analysis level of the global environment will be different

Globalization of business markets creates both opportunities and threats

In summary, the main goal of the macro-environment analysis is to identify the

changes and trends expected from elements of the external environment With focus

on the future, the analysis of the external environment allows enterprises to recognize the opportunities and threats

1.2.2.2 Industry Environment

(1) The need of the industry analysis

Industry environment analysis is the concepts and techniques to clarify the key issues as follows:

- The highlighted economic characteristics of the industry

- The competitors who are operating in the industry, the essence and strengths

of each competitor

- The motivation causing the changes in the industry and their impacts

- The key factors for success or failure in competition

- The attractiveness of the industry based on the ability to gain profit

(2) Five Competitive Forces Model (Ref 3)

Michael E Porter, Professor of business administration at Harvard University has built a model with five forces affecting to enterprises - also known as Five Competitive Forces Model:

 Power of Buyers:

Notice when analyzing customers:

- To classify the group of customers

- To evaluate the strong of customers’s negotiation: price and quality

 Power of Suppliers:

Should consider these factors as follows:

- The quantity of supplyer

- Characteristics of products and services

- Price, quality and quantity of consumption of products and services

- The ability and cost when changing suppliers

Fig 1.2: Michael Porter’s Five Competitive Forces model

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.

 Current competitor:

Necessary content in order to analyse the competitor:

- Approach ability to distribution channels

- Cost disadvantages independent of scale

 The threat of substitute products:

Substitutes Products are other products which are giving consumers the features and benefits equivalent to the products of the enterprise

Identify Substitutes Products is a sophisticated, sensitive and very difficult work

The substitutes Products are often the result of the improvement or new technology

1.2.3 Internal Environment Analysis

Internal Environment of a business includes all the elements and its internal systems

According to Fred R David, purpose of internal analysis to identified and assessed the strengths and weaknesses in the operation of the enterprise, including

management, marketing, finance / accounting, production / operations, research & development and information systems

Organization: includes all management activities to create the relative between rights and responsibilities The specific tasks are: Organizational design, Job specialization, Job descriptions, Job specifications, Span of control, Unity of command, Coordination, Job design, Job analysis

Promotion: Efforts to include the orientation of human activity, specific

Leadership, Communication, Work groups, Job enrichment, Job satisfaction, Needs fulfillment, Organizational change, Morale

Staffing: Staffing is activities focused on individual managers or human resources management, including Wage & salary admin, Employee benefits, Interviewing, Hiring, Firing, Training, Management, development, Safety, Affirmative action, EEO, Labor relations, Career development, Discipline procedures

Control: relating to all management activities to ensure the results match reality, consistent with planned results The specific tasks are: Quality control, Financial control, Sales control, Inventory control, Expense control, Analysis of variances, Rewards, Sanctions

1.2.3.2 Marketing

According to Joel Evans and Barry Berman, Marketing includes 09 basic functions:

- Customer Analysis

The Basic Financial Indexes can be classified into 05 categories:

obligations

profit shown by returns on sales and investment

the growth of the economy and the industry

- Quality

- The main strengths or weakness of five functions which can mean the success or failure of organization

1.2.3.5 Research and Development (R&D)

In order to evaluation the strengths, weakness of R&D activities, often based on costs for them

There are two kinds of R&D forms: self-control and/or hire researchers or independent organizations to develop individual products

1.2.3.6 Information System

The information links all of the functions in business together and provides the basis for all of management decisions It is the foundation of all organizations Evaluation of the strengths and weakness of information systems inside of the company are important side of internal control process

The criteria for evaluating information system

- Evaluate information intensity: The potential and existing information level

of processes and products of the company

- Determine how the technique of the information system forms a competitive advantage

- Develop plans to take advantage of the technique of information systems

1.2.4 Process formed a stratergy (Ref 2)

In order to form a strategy, a decision-making process includes three phases:

1.2.4.1 Phase 1: Input phase

This phase summary of the basis information has been entered necessary for the formation of strategies

This phase uses tools: EFE matrix, IFE matrix

1.2.4.2 Phase 2: Combination phase

This phase focuses on making feasible strategies may be choices by arrangement, combination the inside and outside important elements

This phase uses tools: SWOT matrix, SPACE matrix

1.2.4.3 Phase 3: Decision phase

This phase uses only one tool, strategic planning matrix can quantify (QSPM) QSPM matrix using input information derived from phase 1 in order to evaluate objectively feasible strategies may be selected in phase 2

Figure 1.3: The strategy formulation framework

Source: Fred R David, “Strategic Management Concepts & Cases” twelfth edition, chapter 6, page 222.

Note: Tools such as SWOT Matrix, SPACE Matrix QSPM and matrix, can

significantly increase the quality of strategic decisions, but should not use them to

control strategies Aspects of formation and selection strategies such as behavior,

culture and politics has always been important issues need to be reviewed and

management Under the pressure of the law by outside groups created, the

administrator must undertake a more active role in the analysis and strategic

choices This is a positive trend in organizations

1.2.5 Strategies formation and selection tools:

Within the scope of this thesis, from the actual production and business situation of PMTP, the appropriate tools for strategic planning are as follows:

1.2.5.1 EFE Matrix

EFE Matrix is set up sequentially in five steps:

- Step 1: To make the list of elements that play a decisive role in the industries that the company is operating, including oppotunities and challanges effectting the company and the company’s business

- Step 2: To evalute importance of each factor on a scale from 0.0 to 1.0 (increasing importance level) with a total score of all the factors of 1 Appropriate classification level are based on comparision between successful businesses with failed enterprice

- Step 3: To scale from 1 to 4 for each factor with score shows the level of business response to such fector Score 4 is a good response Score 3 is an above average resposen Score 2 is an average resposen and Score 1 is a less response These level are based on effectiveness of the company strategies Thus, the classification is based on company, while the classification in Step 2 is based on industry

- Step 4: To multiply importance of each variable with its classification level in oder to determine the importance score (Step 4 = Step 2 multiply by Step 3)

- Step 5: To determine the total importance score of the company by the total number of score gained in Step 3

The highest score is 4 and the lowest is 1 Average score is 2.5 The higher the score

is, the better the enterprise responses to external factors

1.2.5.2 IFE Matrix

IFE Matrix is set up sequentially in five steps:

- Step 1: To list the critical successful factors as defined in the internal control process, including strengths and weaknesses

- Step 2: To set the importance by classcification from 0.0 (unimportant) to 1.0 (most important) for each factor Importance assigned for each of specific factors (regardless of the strengths or weaknesses) shows the relative

importance of such factor for the success of the company in the industry The total of importance levels is 1.0

- Step 3: To classify from 1 to 4 for each element, which will indicate that the element is presenting the biggest weakness (categorized by 1), smallest weakness (classified by 2), the smallest strengths (classified by 3) or the biggest strengths (classified by 4) Thus, classification is based on the company, while the importantce in the Step 2 is based on the industry

- Step 4: To multiply importance of each variable with its classification level in oder to determine the importance score for each variable (Step 4 = Step 2 multiply by Step 3)

- Step 5: To plus all importance scores for each variable to determine the total critical score in the organization

Regardless of how many elements there are in the IFE Matrix, the total importance score may be classified from the lowest of 1.0 to the highest of 4.0 and average score is 2.5 The score of less than 2.5 indicates the company internal weakness and the score of higher than 2.5 indicates the company internal strength

1.2.5.3 SPACE Matrix

The strategic position and action evaluation matrix (SPACE) is an important combined tool in Phase 2 of the strategy formulation process The axes of the SPACE Matrix present two sides within the organization (financial strength [FS]) and competitive advantage [CA]) and two external side of the organization (the Environment Stability [ES]) and Industry Strength [IS]) These four factors are the most important factors for the overall strategic position of the organization

Depending on the type of the organization, there may be many variables present on the elements representing for axes of the SPACE Matrix, e.g: Investment profit, Leverage, Liquidity, Working Capital and Cash Flow, which are often considered as the crucial elements of the financial strength of an organization

The steps to develop a SPACE Matrix

- Step 1: To select a group of variables for Financial Strength (FS), Competitive Advantage (CA), Environment Stability (ES), and Industry Strength (IS)

- Step 2: To set numeric values from: plus 1 (worst) to plus 6 (best) for each variable belonging to the side of ES and CA To set numeric values from: minus

1 (best) to minus 6 (worst) for each variable belonging to the side of FS and IS

- Step 3: To caculate the average score for FS, IS, ES and CA by adding the values assigned to the variables of each side and divide them by the number of variables in the correlative side

- Step 4: To mark the average score of FS, IS, ES and CA in the feasible axis of

the SPACE Matrix

- Step 5: To plus two scores of X axis and marking the result scores on the X axis

To plus two scores in the Y axis and marking the result scores in the Y axis Marking the intersection of two new score on this XY axes

- Step 6: To draw the vector directing from the original point of the SPACE Matrix through the new intersection This vector indicates the type of organization strategy: attacking, competitive, defensive or cautious

1.2.5.4 SWOT Matrix

To establish SWOT matrix there are 08 steps

- Step 1: Step 1: To list the major opportunities outside of the company;

- Step 2: To list the important threats outside of the company;

- Step 3: To list the key strengths within the company

- Step 4: To list the key weaknesses within the company

- Step 5: To combine the internal strengths with external opportunities and record the result of SO strategy in the feasible box;

- Step 6: To combine the internal weakness with the external opportunities and record the result of WO strategy;

- Step 7: To combine the internal strengths with the external threats and record the result of ST strategy

- Step 8: To combine the internal weakness with external threats and record the result of WT strategy

The SWOT Matrix is showed by the following cell:

To list the Threats S-T Strategies W-T Strategies

Table 1.2 SWOT Matrix

1.2.5.5 QSPM Matrix

The Quantitative Strategic planning Matrix ( QSPM) uses information gained from matrix in phase 1 (input phase) and the matrix in phase 2 (combination phase), in order to objectively evaluate which of the alternative strategies is best Like other analytical tools, QSPM Matrix requires a good sense of intuition

The strategies chosen to entered in the QSPM Matrix are not all strategies found in Phase 2

In order to build the QSPM Matrix there are six Steps:

- Step 1: To list the elements S, W, O, T taken from IFE and EFE Matrix

- Step 2: To classify for each inside and outside critical success element for the IFE and EFE Matrix

- Step 3: To study the Matrix in phase 2 and identify possible alternative strategies

- Step 4: To identify the total of attractions score (TAS) for each element: Score are scale from1 to 4, with 1 being not attractive, 2 being little attractive, 3 being quite attractive, 4 being very attractive

- Step 5: To calculate the total of attractions score(TAS) in each row by multiplying the classification scores in Step 2 with a score of AS in Step 4

- Step 6: To calculate the total number of attractions score in each strategy

The most attractive strategy is a strategy which has the highest score in Step 6

1.3 Summary

With desire of success in business, companies need to know their core abilities such as finance, revenue, knowledge, skills and experience of human resources, vision building and development, to capture the changes in the external environment such as economic environment, political - legal environment, technology environment and the influence of suppliers, customers on production and business situation of the company The analysis of internal environment and external environment will help the company make the right decisions in building its business strategy

Business strategy is based on the fundamental targets of the company, based on the analysis of business environments to propose strategic targets to concretize specific actions and solutions Thanks to analysis of the strengths and weaknesses in the internal affairs of the company as well as the opportunities and threats from the external environment, the companies can continue to build and maintain competitive advantage from the strengths, overcome weaknesses, exploit the opportunities and prevent the potential threats

In summary, that the planning and implementation of business strategy is feasible or not depends very much on the process of analyzing and evaluating core ability and on the impact of external factors to the company

The theory basis presented above will be used to establish the business strategy for Phu My Thermal Power Company Limited for the period 2011-2020, which are presented in Chapter 2 below

CHAPTER 2 ANALYSIS OF PHU MY THERMAL POWER’S CURRENT

BUSINESS SITUATION AND THEIR STRATEGY ESTABLISHMENT

2.1 Panorama of the electricity industry

 Electricity industry specialities

- Electricity is a kind of un-storable goods, of which the demand and supply must balanced at one time and that means no supplemental generation for reservation can be carried out Once the unbalance happens, the power system may encounter problem and collapse if a timely recovery is not done

- Investment for an power system including generation, transmission and distribution system is of rather high cost and time-taking, while suffered from input material (fuel) and widely affecting to surrounding environment (including soil, fossil fuel, etc.) That is a huge barrier for investors in this industry

- Electricity has an important impact on economic development, especially with a newly-developing country like Vietnam In developed or developing country, the co-efficient of elasticity between power demand and GDP ranges from 1 to 1.2, while in countries like Vietnam, this co-efficient is nearly 2 (i.e for each 1% of

GDP growth, electricity production has to increase twice, 2%) (Ref 19)

Therefore, the Government always wants to restrain electricity price in the market at a low rate to assure economic development, but that in turn puts a high pressure on electricity output demand This is an existing conflict in the industry and has not been duly solved yet

Fig 2.1: Simplified model of an electricity supply system

(Source: Draw by ourselves )

 Compare the development of power supply to GDP

According to the No.6 power planning of government, to meet the needs of GDP growth rate of 8.5-9% in period 2006 - 2010 and to meet the forecasts

of increase in electricity needs of our country from 17% per annum to 22%

per annum for the period 2006-2015 (Ref 15)

In fact, average GDP growth rate in the 2006-2010 period is 6.9%, while the actual installed power capacity increased to 14.9% per year Thus, power supplies development rate is twice as much as GDP growth rate

Table 2.1: Capacity of the power system from 2005 to 2010

Capacity increased follow No.6 Electricity Planning

Actual Installed capacity increased

Planning Percentage increase

Actual Percentage increase

Source: EVN, annual reports and No.6 Electricity Planning

According to the latest forecast of Ministry of Planning and Investment, in five-year 2011-2015 average GDP increased 7.5-8% per year According to statistics through many experiences in recent years, the coefficient of elasticity is

approximately 2 times (the growth rate of energy production / growth rate of GDP), meaning that the growth rate of power supply to 16% per year On the basis of the development phase from 2011 to 2015 the economy has grown a lot, has great power, so from 2016 to 2020 growth rate not as high as the previous period, but the amount of power is greatly increased Specific No.6 power planning, the supply will

be as follows:

Table 2.2: Capacity of system according to No.6 power planning

Year

Installed capacity of power system (MW)

Installed capacity increased (MW)

Percentage increase (%)

Source: Government, No.6 Electricity Planning

Therefore, with the progress of power development in accordance with No 6 power plan, the total annual power supply will ensure social and economic development

 The problem of fuel scarcity

 On Hydropower: All the Asian countries are located in the Mekong region

with a great potential for exploitation, but there is a fact that the negative impacts of hydropower production are causing widespread flooding and migration Hydropower also depends heavily on water

 On Gas thermal power: gas fuel sources are limited, gas fields are

relatively small, and reservation of each mine is only enough for operating of about 20 to 30 years more

 On Coal thermal power: coal fuel source is not really stable Currently the

Asian countries attending the HAPUA conference on fuel security are reporting that they could only sign contracts with coal suppliers for maximum 3 years

 Targets of electricity industry

- Properly satisfy the power demand for socio-economic development Strive

to reach electricity output of 201 to 250 billions kWh in 2020

- Push up the program of supplying power to rural and highland regions Target to reach 100% of households have electricity in 2020

- Assure a strong financial balance

- Diversify the investment methods and prepare for importing power from neighbors: Laos, Cambodia and China

- Train and educate the staff force of professional and highly responsible people to catch up with the fast growth of electricity industry

- Control and reduce environment contamination in power production activities

 Strategies to develop power sources

a) Give first priority to hydroelectricity power, especially to multi-function projects (water supply, drought – flood prevention, etc.):

Hydroelectric plants are planned to be built almost anywhere possible To

2020, the total capacity of these plants is estimated to reach 13,000 – 15,000

MW

b) Thermo power plants are developed at a reasonable ratio, according to fuel allocation and supply capability

- Coal power: capacity to 2010 is expected to reach 4,400 MW In the period

of 2010 – 2020 there is a need of 4,500 to 5,500 MW more (base scenario),

and 8,000 to 10,000 MW (high scenario) Due to shortage of domestic coal supply, plants using imported coal should be considered

- Gas power: In the period of 2010 – 2020 there is a need of 3,500 MW more (gas supply in base scenario), or even 7,000 MW, in case additional gas supplies are discovered

- Invest in research, surveys and well prepare for establishing the first nuclear power plant in Vietnam with capacity of around 2,000 MW The plant is expected to come into operation after 2015

c) Imported electricity: According to the signed Energy Co-operation Convention, Vietnam will import around 2,000 MW from Laos In the future, power may be imported from Cambodia and China also

d) Develop plants using new energy and recycled energy

2.2 Overview of PMTP’s business situation

2.2.1 History of the company

PMTP is firstly established as Phu My Power Plant, a member of EVN, according to government decree No.48 DVN/HDQT dated 15/02/1997 by EVN Board of Management

Due to decree No.241/2005/QD-TTg dated 04/10/2005 by Government Prime Minister, Phu My Power Plant is transformed into Phu My State-own One member Thermal Power Company Limited

On 14/5/2007 Ministry of Industry issued a decree No.1647/QD-BCN to privatize PMTP Currently PMTP is going under privatization

2.2.2 Business Scope

Business scope of PMTP was executed conform to the business registration license

No 4904000013, which was granted by Ba Ria- Vung Tau Planning and investment Department on February 14th 2006, registered to change the first time on June 29th

2007

Main business fields of PMTP include:

 Electricity generation and trading

 Demineralization water and hydrogen producing and trading

 Maintenance and installation service forelectrical switchyard and power transmission line up to 110kV

Services: Repair, recover, and manufacture parts of power plant equipment, electric experiment, and chemical experiment, equipment adjustment; Power plant efficiency measurement; Dry and filter insulated oil; Lease oil tank, oil pipe line and harbor to transport oil; Hire operators out to other power plants

2.2.3 Technology and manufacturing scale

2.2.3.1 Technology

Currently, PMTP is administrating 4 power plants, including 13 machine units (9 gas turbines and 4 steam turbines) with the total capacity amount is 2.485MW, in which:

(1) Phu My 2.1 power plant (2 gas turbines, 2 Heat Recovery Steam

Generator - HRSG, and 1 steam turbine)

- Capacity: 450 MW

- Manufacturer: ABB (Alstom) – Switzerland)

- Increasing Power System: 27 MW (Alstom) (2) Phu My 2.1 extension power plant (2 gas turbines, 2 HRSGs, and 1 steam turbine)

- Capacity: 440 MW

- Manufacturer: Alstom– Switzerland; Siemens- Germany

- Increasing Power System: 28 MW (Alstom) (3) Phu My 1 power plant (3 gas turbines, 3 HRSGs, and 1 steam turbine)

The main fuel of electricity generation is natural gas D.O oil is used as back-up fuel whenever shortage of gas supply is occurred

PMTP is the owner of power plants which have modern and advanced automatic technology Its facility and technology were equipped modernly, scientifically Working environment at PMTP is green and clean Thus, employees working at PMTP need to follow the industrial manner In addition, they must be always dynamic, creative and keep learning and researching in managing and using facilities and equipments PMTP’s employees also need to perceive of PMTP’s responsibilities and important roles in the national electric system specifically, and

in the national economy generally

2.2.3.2 Manufacturing scale

Electricicy production of PMTP keeps increasing after 10 years of operation From the first amount of production is 1.08 billion kWh in 1997, production of PMTP reached 17.2 billion kWh in 2007, raised 15.92 times

GT PM1

ST PM1

ST PM2.1

PM4

ST PM2.1 Ext. Increasing Power

System

Chart 2.1: Installed Capacity Progress of PMTP (source: PMTP)

1.08 2.08 2.26

3.37 3.45

6.86 9.88 12.55 13.83 15.74 17.22 17.4 16.9

17.5

1.08 3.16 5.42 8.79

12.24 19.1

28.98 41.53 55.36 71.1 88.32 105.72 122.62 140.12

0 20 40 60 80 100 120 140 160

0 2 4 6 8 10 12 14 16 18 20

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Bil kWh

Year

ANNUAL GENERATED POWER ENERGY OF PMTP

Annual Power Energy Accumulated Power Energy

Bil kWh

Estimated

Chart 2.2: Annual generated power energy of PMTP (source: PMTP)

 Electricity production increased drastically from 1997 to 2007 since projects were invested and operated in each period in turn Since 2007, after all invested projects were exploited; annual generated power energy of PMTP has been kept at the level of 17 billion kWh on average

Currently, PMTP has the total capacity of 2,485 MW, occupied 12% of the total capacity of the national power system

Chart 2.2: Ratio capacity of PMTP in national power system (source: PMTP)

2005 2006 2007 2008 2009 2010

Bil kWh

Year ANNUAL POWER ENERGY OF EVN AND PMTP

Annual Power Energy of EVN Annual Power Energy of PMTP

Chart 2.4: Power energy ratio between PMTP and EVN (source: PMTP)

The Chart 2.2 and 2.3 demonstrated that the annual power energy of the power system dramatically increases Within 5 years from 2005 to 2010, PMTP’s market share decreased from 26% to 18.6% because of new power plants construction

- Director Assistant including 4 deputy directors

- Shop division including 4 shops

Office division including 6 departments

Office &

Inspection Security Legal

Finance & Account Dept

General Ordination Dept

Co-Deputy Finance Director

Planning & Logistics Dept

Mechanical Maintenance Dept

Electrical Maintenance Dept

Deputy Maintenance Director

CHAIRMAN CUM DIRECTOR

Deputy Business Director

Supervisor