Building business strategy for Cu Chi bio-chemical fertilizer joint stock company in 2013 - 2018

Page 1 of 73 THE INTERNATIONAL MASTER OF BUSINESS ADMINISTRATION PROGRAM Global Advanced Master of Business Administration CAPSTONE REPORT TOPIC BUILDING BUSINESS STRATEGY FOR CU CHI

Page 1 of 73

THE INTERNATIONAL MASTER OF BUSINESS

ADMINISTRATION PROGRAM Global Advanced Master of Business Administration

CAPSTONE REPORT

TOPIC BUILDING BUSINESS STRATEGY FOR CU CHI BIO-CHEMICAL

FERTILIZER JOINT STOCK COMPANY IN 2013 – 2018

Group 03:

Nguyen Ngoc Khai Luu Xuan An Pham Van Trinh Nguyen Phuoc Viet Dung Huynh Thi Kim Thu Class: GaMBA01.C0311

TP.HCM – 03/2013

COMMITMENT

We, the authors of this Capstone report hereby undertake that the topic “Building

Business Strategy for Cu Chi Bio-Chemical Fertilizer Joint Stock Company in 2013

- 2018” is our own work The information, data used in this report is reliable, objective

and given with the permission of the Company being studied

On this occasion, the members of Group 3 would like to convey our deep gratitude to the professors who have provided valuable guidance, comments and support during our study Our special thanks to the leadership of Cu Chi Bio-chemical JSC for providing us with the data for us to complete this Capstone report We also thank Griggs University, ETC – VNU, the professors involved in teaching in this program, the experts and advisors in the fertilizer industry, our colleagues and class mates of Class Ga.MBA01.C0311 who have together discussed, studied and made critical comments for sharing empirical knowledge as well as theories throughout the training program

Ho Chi Minh City, March 2013

Group 03 – GaMBA01.C0311

TABLE OF CONTENTS

CHAPTER 2 CURRENT SITUATION OF BUSINESSS OF CU CHI

2.1 Introduction to Cu Chi Bio-chemical Fertilizer Joint Stock Company 25

2.1.7 Business results 30

2.3 Analysis of internal environment of the Company 41

CHAPTER 3 BUSINESS PLAN OF CU CHI BIO-CHEMICAL FERTILIZERS JOINT STOCK COMPANY IN THE PERIOD OF 2013 – 2018 56 3.1 Orientation of agricultural production development of Vietnam to the year

3.2 Orientations of fertilizers sector development in the period of 2013 – 2018 58

3.3.1 SWOT 59 3.3.2 Strategic Positioning and Action Evaluation Matrix (SPACE) 61 3.3.3 Preliminary selection of strategic plans 63

FOREWORD

1 The necessity of the research topic:

Agriculture is an important sector of Vietnam as it is an agricultural country with most of the population working in this sector, and agriculture still employs 60% of social workforce and contributes 20% of national GDP After many years of reforming, industrializing and modernizing the country, agriculture is further affirmed its important role It can be said that agriculture serves as the support for Vietnamese economy, especially in such difficult period as in the 1980s and 1990s and in recent years In addition, the liberalization of agricultural production, rice specifically, has helped Vietnam become the world 2nd country in term of rice and coffee production, and the world 1st country in pepper production, etc Other products such as fish, lobsters, ocean tuna, cotton fiber, peanut, rubber, sugar, and tea, etc are growing strongly

In agricultural production, there are many factors affecting on the productivity and production of plants such as soil condition, climate, technical equipments, breeds, fertilizers, and so on Among such factors, fertilizers typically play the decisive role in enhancing productivity, protecting plants, and enhancing the richness of soil conditions Therefore, fertilizers are categorized as a very important strategic commodity in Vietnam Without additional nutrition from fertilizers, agricultural soil will lose its sustainability and human will soon face the threat of an unavoidable famine

As an agricultural country, the demand for fertilizers in Vietnam is very considerable (an annual average of 10.3 million ton per each type - statistics for 2012 from the Ministry of Agriculture and Rural Development (MARD)) But fertilizer industry is still new in Vietnam, and currently, domestic supply is only 7.83 million ton while remaining amount must be imported

Agriculture requires fertilizers for development, however, for many subjective and objective reasons (finance, management bodies, policies, business development strategies, etc.), fertilizer supply in Vietnam is not favorable This leads to instable condition of supply and demand, price, quality, and types of fertilizers in Vietnam causing great difficulties for farmers and agricultural production

Vietnamese economy is integrating more intensively into global economy which offers Vietnamese enterprises both many opportunities and great challenges The most imminent challenge is that in the context of economic liberalization and globalization, business activities become diversified and complex, and by 2014 in particular, Vietnam

is required to open its market to foreign investors in accordance with WTO

commitments, and the import of foreign goods will make competition become more intense and fiercer

To win over competitors and stand firmly and develop in the marketplace, it is necessary that Vietnamese enterprises should take constant effort to enhance their product quality, cost savings, cost price reduction, etc., and more importantly, it is necessary to identify themselves appropriate business strategies with long-term visions Such a strategy must be developed on the basis of analyzing practical situation in Vietnam and global marketplace to identify strengths and weaknesses of the Company as well as to conform to macro-economic conditions of the economy and micro-economic conditions of the company

Like other companies in general, the development of business strategy is an essential needs for Vietnamese companies in fertilizer business as it helps them maintain sustainable competitive advantages and stable growth and development, promote strengths, and correct weaknesses as well as take advantages of opportunities and mitigating potential risks

In view of above current situation and on the basis of knowledge of business administration learnt from Ga.MBA program of Griggs University - the United States, our group, including 04 members and 01 of those is currently working in Cu Chi Bio-chemical Fertilizer Joint Stock Company - HCMC, and 03 remaining members are working in Banking, Post & Telecommunication, and Customs, respectively, decided to

choose the topic: Development of business strategy for the period 2013 - 2018 of Cu

Chi Bio-chemical Fertilizer Joint Stock Company, as our group‟s study topic

2.Research subject and scope:

The principal subject of the study is issues related to strategy planning (strategy development and strategy execution) On the basis of theoretical background analysis and review of current practices of fertilizer industry, a specific business strategy will be developed for Cu Chi Bio-chemical Fertilizer Joint Stock Company for the period 2013 -

2018

Scope of the study focuses on principal business activities of Cu Chi Bio-chemical Fertilizer Joint Stock Company in view of a comparison with business activities of other competitors in the same industry

3 Purposes and objectives of the study:

Purposes of the topic focus on studying steps of strategy development process, systematizing theoretical issues on business strategy planning, and, on that basis, developing an appropriate business strategy for subject of the study The topic shall focus

on following basic issues:

- To consider the concept of strategy and the role of business strategy and business strategic management in activities of a company; To grasp fundamental processes of business strategy development and management;

- To evaluate internal and external environments, current situation of operating activities of Cu Chi Bio-chemical Fertilizer Joint Stock Company, therefrom identifying strengths, weaknesses, opportunities and challenges that affect its business activities;

The final objective of this study is to develop a business strategy for Cu Chi chemical Fertilizer Joint Stock Company in which solutions and proposals shall be made

Bio-to execute its business strategy up Bio-to 2018

4 Methodology of the study:

During the study process, our group has adopted following basic study methods:

- Information collection: Secondary information is collected and summarized mainly from Cu Chi Bio-chemical Fertilizer Joint Stock Company, annual reports of fertilizer industry as published by AgroMonitor.Vn with reference to a number of documents, journals, and magazines on fertilizer topic, and statistics from the General Statistics Office Primary data is collected by conducting interviews and expert method

- Information processing: The methods of modeling, cause-effect analysis, and descriptive statistics are adopted to evaluate operating results in combination with tools

5 Significance of the Topic:

For each fertilizer manufacturing company, favorable and difficult internal conditions will be varied In general theoretical term, however, strategy planning of companies has similarities This topic is not only helpful for business planners of Cu Chi Bio-chemical Fertilizer Joint Stock Company but also useful as a reference for strategy developers in fertilizer companies in general Especially, it is useful for research fellows that are interested in developing strategies for production and trading in fertilizers in the context of global competition and integration of Vietnamese enterprises

6 General structure of the topic:

In addition to the foreword, suggestions and conclusion, appendixes, and list of references, the topic consists of 3 main chapters as follows:

Chapter 1: Theoretical background of business strategy

Chapter 2: Current situation of operating activities of Cu Chi Bio-chemical Fertilizer Joint Stock Company

Chapter 3: Business development strategy of Cu Chi Bio-chemical Fertilizer Joint Stock Company for the period 2013 - 2018

Chapter 1: THEORETICAL FRAMEWORK

1.1 Concept and role of strategy in business

1.1.1 Concept

Strategy is a word that originated in the military field; it's the way to win a war Today there are many different definitions but it can be understood strategy is an action plan, plan of action designed to achieve a specific goal, a combination of long-term goals and measures, the way, the path to reach those goals

(Kenneth, 1965);

“A strategy is the pattern or plan that integrates an organization's major goals, policies, and action sequences into a cohesive whole.”

differentiation, the forces of selection-offs to focus most resources from which to create advantages for businesses, (Michael Porter)

Thus, the authors considered the business strategy as an art to compete on the market and business development

* In view of management category, business strategy is a form of planning

- G Arlleret said that "Strategy is the identification of the way and the means to achieve the goals identified through the policy”

- D.Bizrell and the author group said that "Strategy as general planning guides or directs business to the desired target It is the basis for the elaboration of the operational policies and procedures.”

- Gluecl said: "The strategy is a plan for consistent, comprehensive and integrated design to ensure that the objectives of the business will be done”

* In view of combining agreement:

- “Business Strategy is the art of coordination and control activities in order to achieve long-term goals of the business.”

- Chandler considered strategy involves fixing the basic long-term goals of the business; at the same time choosing the way or course of action and allocation of essential resources and implementation of these objectives

In business “business strategy is an art to design and organize the means to achieve long-term goals of the business and the relationship with the transformation of the business environment and competitiveness."

1.1.2 The role of business strategy

The formulation, implementation of business strategy is important for the survival and development of enterprises The role of business strategy for businesses is shown on the following aspects:

- Business strategy helps businesses get the purpose, its direction as a basis, the guideline for all business activities of the enterprise

- Business strategy helps businesses understand and take advantage of business opportunities, and proactive measures to overcome the risks and threats in the competition market

- Business strategy contributed to improve the efficiency of use of resources, enhance the competitive position of the business to ensure the sustainable development

1.2.1 Analyze business environment

Analysis of the business environment is the process by which the strategists examined and considered different environmental factors The objective of the analysis and business environment judgment stage is to identify opportunities and threats to a business Analysis of the macro environment and micro environment, also known as environmental sector, therefore, when analyzing the business environment, it is usually divided into several levels The interaction between the levels of the environment is illustrated in the diagram 1.1

Figure 1.1 Levels of business environment

1.2.1.1 Macro environmental analysis

a Government, legal and political environment

Factors such as government, law and politics affect businesses in different directions They can create opportunities or obstacles, even the true risk to the enterprise, such as political stability, decisions on taxes and fees, labor law…

b Economic environment

Economic situation and future trends affect the success of a business strategy The major factor is that many businesses often analyze the growth rate of the economy, interest rates, exchange rates and inflation rates …

c Cultural-Social environment

During the medium-and long-term strategy, this could be the biggest change factor Enterprises need to take into account factors such as the import of the new lifestyle, consumer behavior, the change of the old tower, the rate of marriage and childbirth, the emergence of the consumer association, the Interllectual level…

d Technology environment

Technological change, of course, affects the life cycle of a product or a service Moreover, technological change also affects the production methods, raw materials as well as the behavior of workers Since then, require the strategists to be often interested

in the change with the investment in technological progress

e Natural environment

The wisdom strategists are often interested in climate and ecological environment The trend of the natural environment as the gradual depletion of natural resources, increased pollution, global climate change has caused threats to this business, but the opportunity for the another business, this strategy requires strategic managers always have to consider carefully

f Global environment

Regionalization and globalization were, are and will be an inevitable trend that every business, every industry, every government must take into account Today, many strategists have called it the world under the name of "common house" In that context, the international environment is a special case of the general environment outside the enterprise However, the international environment is more complex, more competitive from the point of view of the differences in social, cultural, structural, institutional, and economic policy…

1.2.1.2 Industry environment analysis

The mission of the strategists is to analyze and judge the competitive forces in the industry environment that their company is doing business to identify business opportunities and challenges to their businesses when joining the market

There is a model of 5 competitive forces built by M.Porter to help strategists in this analysis

This model is shown in diagram1.2

Figure 1.2 5 competitive forces model

a Analyze current competitors

The first of the 5 forces force of M.Porter model is competitive scale of a current business industry Competition among firms in an industry often includes key contents such as: industry competitive structure, the status of the industry and exit barriers

b Analyze potential competitors

The second force that is necessary to analyze is potential competitors Potential competitors are the businesses do not have to compete in the same industry, but are able

to compete if they choose and decide to join the industry The ease and difficulty levels

to entry of potential competitors depend largely on the barriers to entry into an industry

c Analyze the pressure of suppliers

Third force in the competitive forces is the bargaining power of suppliers In some ways, the threat from the supplier creates less dependency for enterprises

d Analyze the pressure of customers

This force creates the buyer's bargaining ability Buyers include: end-users, distributors (wholesale and retail) and industrial buyers

e Analysis of substitutes' threats

Final force in M.Porter model is the threat of substitute products Substitute product is a product that can satisfy the needs of consumers Its basic characteristics are usually the dominant product being replaced in separate features The threat from substitute products requires business to analyze, regularly monitor technical progress, technology, which is directly related to technological innovation, product innovation Moreover, the change of market demand is also an important factor creating this threat

Combining parts of the macro-environment and industry environment, we have the diagram 1.3

Figure 1.3 Parts of the macro-environment and industry environment

Analysis of the business environment is extremely important for businesses The goal of the analysis is to judge the environment to identify opportunities and threats, on the basis giving the rational management decisions

1.2.2 Analysis and evaluation of internal business

The objective of the analysis and evaluation of the enterprise is to study what belongs to the business itself, a direct or indirect impact on production and business activities characterized that we often called the strengths and weaknesses of the business Also with the aim of creating the information base for strategic business planning in the strategic management process, but objects of analysis considered here are in the operation and control of business, different from those who belong to the external environment Thus, point out the strengths and weaknesses of each field as a basis for strategic planning

Analyze internal business conducted in a variety of approaches One common approach is to analyze internal business approach in the field of corporate governance

1.2.2.1 Evaluation of Marketing

The marketing term refers to the process, functions, exchanges and other activities aimed at creating value by meeting the needs of individuals Marketing brings customers closer to making a decision to purchase and create favorable conditions for the sale

1.2.2.2 Evaluation of financial and accounting

To form effective strategies it needs to assess the current financial position of the business Financial analysis is the process of reviewing the financial status of the business This helps managers to identify the strengths and weaknesses of the financial business, which set out the strategies needed to improve the status By considering the financial information of the business through the financial statements and financial indicators in comparison with the benchmark index, it will make the necessary assessment

* Analyze the financial status through financial statements

To analyze finance, firstly we need to analyze the financial statements Because analyzing the financial statements relating to the use of the information is able to fully

understand the company Financial statements can be regarded as a most vivid and clear picture of the financial situation of the company

The balance sheet is a financial statement reflecting the assets and funds situation

of the enterprise at a particular time in the course of business activities

- Analyze business results table is a summary of the income of the business during the accounting period (usually a year), it shows the distribution of profits for the stakeholders of the enterprise that is a creditor, state, preference shareholders, our shareholders and all other resources

- Analysis of the cash flow statement is to reflect the impact of business activities

to cash flow in and out in an accounting period In other words, this is the report of revenues and expenditures of funds in an accounting period, it showed the cash position

of the business represented by the amount of money raised and used in the operation of the business, from which showing ending cash balance

* Financial analysis by financial indicators

The aggregated financial statements generalize the financial position of the business from time to time or in a period However, in order to better understand the financial performance and appreciate the power and value of the business, we need to analyze the financial indicators Financial indicators are quantitative metrics established

to evaluate all of the different aspects of financial activities

The objective of financial management is to contribute with other functional activities striving to maximize the value of business Hence, the first question that the analysis needs to answer is profitable or not and at which level? Profitability is the end result of a series of policies and decisions proposed and implemented by the managers This is the target group assessing impact coordination of asset and capital management activities of business

1.2.2.3 Evaluation of business management and administration

Business administration is the process of planning, designing, operating organizations and monitoring production system in order to implement the business objectives set

The task of business management is to design and organize business systems to transform input into output elements after each change process

1.2.2.4 Evaluation of Human Resource Management

Human Resource Management is a system of philosophy, policy and operational functions in attracting, training and development and maintenance of an organization's people to achieve optimal results for both organizations andmembers

We can divide the major activities of human resource management in three major functional groups as follows:

- Group with function to attract Human Resource Functional groups focus on issues to ensure a sufficient number of employees with the right qualities for the job of the business

- The function of training and development This functional group aims to improve the capacity of staff, to ensure that employees in enterprises having the skills, qualification and training needed to complete assigned tasks and facilitate staff maximum development of individual capacities

- The function of maintenance This functional group focused on the maintenance and effective use of human resources in the enterprise Functional group includes two smaller functions to stimulate, motivate employees and maintain and develop good working relationships in business

1.2.3 Analyze and choose strategy

1.2.3.1 Analysis strategy techniques

With the results of analysis of the business environment and internal business analysis, we will definitely come up with various strategic options, forcing businesses to choose the appropriate strategies

a Analysis technology of Strenths - Weaknesses –Opportunities –Threats (SWOT)

SWOT analysis provides a tool in the analysis, formation and strategic options, review the strategy, review and evaluate the position and orientation of a business or of a business plan SWOT analysis can be used for all kinds of decision-making, and the SWOT template enables thinking in a positive way, beyond the framework of habit or instinct This method is very simple, easy to apply and can be used in many areas of activity in the enterprise

b Internal and external factor Evaluation Matrix

This is used as an analysis technique applied in parallel with the SWOT matrix and work against the SWOT matrix Forming IE matrix is often based on the results of

analysis of the business environment and internal enterprise analysis and the establishment of two matrix elements: external factors evaluation matrix (EFE Matrix) and Internal factors evaluation Matrix (IFE Matrix): External factors evaluation Matrix (EFE Matrix) and Internal factors evaluation Matrix (IFE Matrix)

1.2.3.2 External factor evaluation matrix (EFE matrix)

External factor evaluation matrix allows strategists to summarise and evaluate information on economics, society, culture, demography, geography, politics, the Government, legislation, technology and competition There are five steps to develop a matrix to evaluate external factors

Step 1: Gather a list of from ten to twenty main external factors into two groups

of opportunities and threats which play decisive role to the success of enterprises as identified in the process of examining external factors

Step 2: Assign a weight to each factor between 0.0 (not important) and 100 (most

important) This assignment show the corresponding weight of such factor to the success

in business of enterprises The total value of all weights together should equal 1

Step 3: Assign a rating from 1 to 4 to each factor deciding the success Rating

indicates how effective the enterprise‟s current strategies respond to the factor, in which,

4 = superior, 3 = above average, 2 = the response is below average, 1 = the response is poor Such ratings are based on the efficiency of enterprise‟s strategy So, the ratings in this step are company-specific while the weights in step 2 are industry-specific

Step 4: Multiply each factor weight with its rating to determine the weighted

score for each factor

Step 5: Add all weighted scores of all factors to determine the total weighted

scores of the matrix

Total weighted scores will be between 1 and 4 point, regardless of the number of

1.2.3.3 Internal factor evaluation matrix (IFE matrix)

Such tool for setting up strategy summarises and evaluate important strengths and weaknesses of functional business units, and it also provides fundamentals to identify

and assess the relationship among such units IFE matrix may be developed according to

5 steps:

Step 1: Gather a list of from ten to twenty main internal factors into two groups of

strengths and weakneses which influence the development of enterprises

Step 2: Assign a weight to each factor between 0.0 (not important) and 1,0 (most

important) The weight assigned to certain factor shows the corresponding weight of such factor to the success of enterprises in the industry Regardless such key factors are the internal strengths or weaknesses, the factors which seem to be the most influential to the operational achievements of the organisations must be considered as the most important The total value of all weights together should equal 1.0

Step 3: Assign a rating from 1 to 4 to each decisive factor Rating indicates how

effective the enterprise‟s current strategies respond to the factors, in which, 4 = superior,

3 = above average, 2 = the response is below average, 1 = the response is poor Such ratings are based on the efficiency of enterprise‟s strategy So, the ratings in this step are company-specific while the weights in step 2 are industry-specific

Step 4: Multiply each factor weight with its rating to determine the weighted

score for each factor

Step 5: Add all weighted scores of all factors to determine the total weighted

scores of the matrix

Total weighted scores will be between 1 and 4 point, regardless of the number of

of enterprise

1.2.3.4 Competitive Profile Matrix (CPM)

The competitive profile matrix compares the enterprises with the major competitors of the industry based on critical factors to the competitiveness of the enterprises in the industry, which helps strategy managers identify their strong points and weak points relative to their competitors, determine competitive advantages for enterprises and weaknesses that the enterprises should overcome To set up the competitive profile matrix, it is necessary to carry out 5 steps as follows:

Step 1: Gather a list of about ten critical factors which influence on the

competitiveness of enterprises in the industry

Step 2: Assign a weight to each factor between 0.0 (not important) and 1,0 (most

important) The weight assigned to certain factor shows the corresponding weight of such factor to the competitiveness of enterprises in the industry depending on the influence level of such factor The total value of all weights together should equal 1.0

Step 3: Assign a rating from 1 to 4 to each factor The rating of each factor

depends on the capacity of enterprises to each factor, in which 4 represents superior response, 3 represents above average response, 2 represents below average response, and

1 represents poor response

Step 4: Multiply each factor rating with the weight to determine weighted score

value of factors

Step 5: Add all weighted scores of all factors to determine the total weighted

scores of the matrix Compare the total weighted scores of the enterprise with its major competitors in the industry to evaluate the competitiveness of the enterprise

1.2.4 Business strategy choice of the enterprise

Based on the principles and standards set out, business carries out comparing the proposed strategic plan with the mission and strategic goals in order to find a suitable business strategy for implementation Chosen strategy is the optimal strategy or at least is best suited to the conditions and circumstances of the business

as direction of a company, analyze business proposals or any idea with regard to the

interests of the enterprises SWOT analysis is the key to strategy development, help

clarify internal strength of the organisation; weaknesses and opportunities, threats coming from outside

SWOT matrix is used to list all opportunities, threats, strengths and weaknesses within the enterprise, according to appropriate order and position Based on the relation between factors, analysts will make the selection of suitable strategic solutions through

the combinations of: Strength – Opportunity strategy (S_O), Strength - Threat strategy (S_T), Weaknesses – Threat strategy (W_T), Weakness – Opportunity strategy (W_O) Depending on business lines of enterprises, administrators will use one or more SWOT Matrices to do the analysis and selection of solutions SWOT model often renders

4 groups of basic strategies:

S_O: these strategies use the strengths within the company to take advantage of external opportunities

S_T: these strategies use the company's strengths to prevent or mitigate the external threats

W_O: these strategies aim at reducing internal weaknesses to take advantage of external opportunities

W_T: these strategies aim at reducing internal weaknesses to prevent or mitigate external threats

Strategists never consider all feasible strategies useful for the company as there are a variety of feasible solutions as well as various ways to realise them Therefore, just one strategy group which is the most attractive will be selected for development In order

to establish a SWOT Matrix, according to FERD R DAVID (8) eight below steps must

be followed:

1) List external opportunities of the company

2) List crucial external threats of the company

3) List major internal strengths of the company

4) List internal weaknesses of the company

5) Combine internal strengths with external opportunities; write down S_O strategy results in appropriate cell

6) Combine internal weaknesses with external opportunities; write down W_O strategy results in appropriate cell

7) Combine internal strengths with external threats; write down S_T strategy results in appropriate cell

8) Combine internal weaknesses with external threats; write down W_T strategy results in appropriate cell

SWOT Matrix Opportunities (O) Threats (T)

Table 1.1: SWOT Matrix

In the context of globalisation nowadays, the opening and economic and cultural exchange with other countries is unavoidable and risks in the market to enterprises are also not trivial SWOT analysis will help enterprises “scale – weigh - measure - count” accurately before making the decision on penetration into international market

1.2.4.2 QSPM

QSPM is the tool used to re-quantify information analysed in early stages, then it enables administrators to choose the optimal strategy, QSPM according to Fred R David includes 6 basic steps as follows:

Step 1: List external opportunities and threats and internal crucial weaknesses and

strengths of the enterprise

Step 2: Assign a weight to each crucial success internal and external factors, this

is similar to that in EFE matrix and IFE matrix

Step 3: Identify strategy alternatives that will be further evaluated

Step 4: Determine attractiveness score according to each strategy Attractiveness

score indicates the relative attractiveness of each strategy compared to others, the range

of score is between 1 and 4: 1 is not attractive, 2 is somewhat attractive, 3 is reasonably attractive, 4 is highly attractive

Step 5: Calculate the total attractive scores, this is defined as the product of

multiplying the weights (step 2) by the Attractiveness Scores (step 4) in each row The higher the Total Attractiveness Score is, the more attractive strategy is

Step 6: Calculate the Sum Total Attractiveness Score by adding all Total Attractiveness Scores in each strategy column of the QSPM Regarding the difference between the sum total attractiveness score within a group of strategies, the higher scores point is, a more attractive strategy is

STAGE 1: INPUT STAGE

CPM Matrix EFE Matrix IFE Matrix

STAGE 2: COMBINATION STAGE

SWOT Matrix

STAGE 3: DECISION STAGE

QSPM Matrix

CHAPTER 2 CURRENT SITUATION OF BUSINESSS OF CU CHI BIO-CHEMICAL

FERTILIZER JOINT STOCK COMPANY

Figure 2.1: Logo of the Company

2.1 Introduction to Cu Chi Bio-chemical Fertilizer Joint Stock Company 2.1.1 Overview:

Minh City

ensure the available supply of fertilizers to farmers, including:

commune, Cu Chi District, Ho Chi Minh city

District, Lam Dong Province

Iagrai district, Gia Lai Province

- With the logo “red tractor, yellow spike”, the Company aims for highly

productive harvests and rice fields, in which the symbol of a red tractor represents a highly mechanized and modernized field that is comparable to international agriculture

On the other hand, a tractor is also the property that many farmers wish for as it is the symbol of power and richness

- Telephone: 08.38920437 – 08.38924266

- Fax: 7907634

- Company ownership form: Joint-stock Company

- Charter Capital: VND 9,000,000,000, of which: State capital contribution: 20%, Ordinary capital: 80%

- No of employees: 180 employees

2.1.2 History of foundation and development of the Company

- Cu Chi Bio-chemical Fertilizer Joint Stock Company was formerly Cu Chi Peat Exploitation and Processing Plant which was founded in 1986 and managed by the People‟s Committee of Cu Chi District, Ho Chi Minh City

- From 1986 to 1989, it performed its main roles of exploiting peat and selling native peat as burning material By the middle of 1989, due to the shrinkage of peat market, activities of the Company were in an output blockage and business performance was negative Facing such situation, the People‟s Committee of Cu Chi District consolidated the unit in terms of personnel organization, production, finance, etc In

1991, to respond the market demand and perform business effectively as well as help with resolving unemployment issue in place, the Company was forced to transform its business activities In addition to exploiting peat and producing burning materials, the Company also manufactured fertilizers for agricultural production use by manual method

- In 1996, it was invested and equipped with production lines to innovate its manual processes into automatic ones

- In 1997, Cu Chi Peat Exploiting and Processing Plant was changed its name into

Cu Chi Bio-chemical Fertilizer State Owned Factory under Decision No

6278/QD-UB-KT dated November 04, 1997 of the People‟s Committee of Ho Chi Minh City

- On April 11, 2001, to comply with the guidelines to equitalize state enterprises,

Cu Chi Bio-chemical Fertilizer State Owned Factory was officially transformed into Cu Chi Bio-chemical Fertilizer Joint Stock Company under Decision No 8515/QD-UB-KT

of the People‟s Committee of Ho Chi Minh City

As part of its mentioned objectives, Cu Chi Bio-chemical Fertilizer Joint Stock Company has taken bold steps to change its strategy and product quality by investing in appropriate state-of-art production lines, equipments, and technologies to conform to general trends and demand of development It has applied modern production processes and carried out strict control by a skilled engineer force

In 2006, it made an investment of nearly 03 billion VND to set up a state-of-art production line Human resource for production is abundant and especially with many passionate engineers, etc This is a great advantage for Cu Chi Fertilizer to step by step

promote its “Tractor” brand to the farmers by various means, including:

- Holding presentations for comparing fertilizers;

- Organizing fertilizer introduction conferences and seminars with local agriculture encouragement stations to instruct the farmers on how to use fertilizers the most effectively at the lowest costs;

- Frequently participating in exhibitions of agriculture and rural development to

introduce “Tractor-branded fertilizers” to the consumers

Overcoming many difficulties of the national economy and with the constant efforts of the staffs and also thank to the attention and help from local governments, the Company may rapidly grow It has found a position in the market and its products are more and more recognized and gain the customers‟ confidence, which, in turn,

establishes the foundation for its future growth Currently, the Company is aiming at

the motto of “For a Green-Clean-Sustainable Agriculture”

2.1.3 Principal business lines

Manufacturing and trading in fertilizers of all kinds and other fertilizers made of peat; Products manufactured by the Company are categorized as follows:

* Inorganic products: including many kinds of NPK fertilizers (N – Nitro, P – Phosphor, K –Kali) to be used for top dressing, each of which serves its own use (leaves, roots, or fruits, etc.); This category of products accounts for 70% of revenue of the Company, however, its profitability is low, only 3% - 5% of total revenue, and the competition in the industry is high

* Organic products: including such product lines as Biomix-C, BOF, OMF, Saigon Biology, to be used for improving soil quality; these products have similar

ingredients but different contents thereof This category accounts for about 30% of revenue of the Company, however, its profitability is much higher compared to that of inorganic category: from 15% to 20% of total revenue

Products of the Company are specifically provided to perennial, short-term, and industrial crops

Main markets are Southeast provinces (Binh Phuoc, Tay Ninh, Ninh Thuan, Binh Thuan) accounting for 40%, Southwest provinces (Can Tho, Hau Giang, An Giang, Vinh Long, Soc Trang, Tra Vinh) accounting for 40%, and Highland provinces (Gia Lai, Dak Lak, Kontum) accounting for 10% Rural areas surrounding Ho Chi Minh City account for 5% of total revenue

The Company is planning to apply a technology line transferred from CANADA Its production is 12,000 tons per year This technology transferred from Canada is one of main reasons to the competitive advantages and better product quality compared to those

of competitors while relevant cost is low as Canadian partner charges the Company a low price for technology transfer for purpose of introducing this technology to Vietnam

2.1.4 Functions and roles

- Manufacturing and trading in domestic and imported fertilizers; providing chemical organic ingredients for fertilizer manufacturers;

bio Signing jointbio venture agreements and agreements for transfer of fertilizer technologies

- Providing free advice to farmers on how to grow and take care of plants

2.1.5 Organizational Structure

2.1.5.1 Diagram of Management Structure:

Figue 2.2: The company‟s organization chart

2.1.6 Customers and Partners:

2.1.6.1 Customers:

Domestic customers: The Company‟s dealership network spreads from Kontum and Binh Dinh provinces, etc to Bac Lieu, Ca Mau, etc Customers of the Company are mainly Level-1 and Level-2 distributors that distribute the products of the Company and possibly involve other fertilizer manufacturers and even farmers directly This distribution channel accounts for 60% of revenue of the Company In addition, it also sells the products directly to major customers including plantations and rubber companies such as Phu Rieng Rubber Company, Dak Lak Rubber Company, Tay Ninh

Technical

&

Planning Departm‟t

Accounting Departm‟t

Mud coal

workshop

Organic processing workshop

Organic processing workshop

White clay workshop

BOARD OF DIRECTORS

Rubber Company, and so on This direct distribution channel accounts for 40% of revenue of the Company

2.1.6.2 Partners

Partners that supply the Company with quality-assured products for trading activities are: Ca Mau Protein, Phu My Protein, DAP Dinh Vu, Potassium (imported from Russia), imported SA

Suppliers of fertilizer ingredients are: Phuong Thao Export-Import Company, Pacific Export-Import Company, Chau Ngan Export-Import Company (HCMC), and other exploiters of peat from Tam Tan - Cu Chi - HCMC, natural peat and metal ores in Long An, Tay Ninh, and Kien Giang provinces

Such additive as Kaolin, Dolomite, color powder, PP & PE Packages and sewing threads, and so on, are supplied domestically

These supply sources are all stable and meet current and added-value production needs

Tabble 2.5: The company‟s business results in 5 years

2.2 Factors of external environment

2.2.1 Analysis of macro-economic factors affecting on the Company

2.2.1.1 Economic factors

- Labor cost is cheaper than that in the regional countries

- Sources of materials for production of fertilizers such as gas, coal, apatite ore, potat ore, etc are running out in addition to rapid increase of price making fertilizer production more difficult

- International price of fertilizer increases because China (the supplier of 1/4 of world fertilizer production) increases its export tax rate from 35% to 135% to protect domestic production and reserve fertilizers for domestic crops, the gap as a result of which is a good opportunity for the Company to expand its production and take over the market share

- Vietnam has become a member of WTO and trade restrictions are being gradually removed This is a good condition for foreign fertilizers to penetrate in Vietnamese market which will affect on the market share and profitability of the Company

- Adverse changes of world oil price as well as the price of input materials that are imported for manufacturing fertilizers will also result in the increase of input costs of the Company It will have to pay more costs of transport and product distribution High input cost price also means high output price to make sure the profit objective for operations of the Company while most of ordinary farmers cannot afford paying more for fertilizer products

- Vietnamese economy is considered as one of those with the most rapid growth rate together with the industrialization, urbanization, and shift of agricultural structure, i.e land for growing plants is used for constructing factories, industrial zones, and infrastructure instead; consequently, the needs for the period may be reduced

- Economic crisis has a negative impact on macro-scale elements that makes enterprises face with difficulties in their operating activities and increases unemployment rate Unemployed laborers then return to farming-forestry, which shall increase the needs for fertilizers to take care of plants

- As most of input materials of the Company are imported from foreign countries,

a sudden exchange-rate fluctuation may have a great influence on the its import operation and profit performance

- VND interest rate is still high making it difficult for the Company to seek finance, so, it cannot import much

- In monsoon climate of Vietnam with much sunshine and rain, drought and flood are common and affect considerably on agricultural production and the consumption of fertilizers as well

- Spreading from the North to the South with a large area of agricultural land and

a diversity of plants, it is a good condition for the Company to diversify its products to meet various demands of customers

2.2.1.3 Legal and political factors:

- Stable political situation facilitates condition for the business of the Company

- To respond to the domestic increasing demand for fertilizers, the State has adopted many support policies for fertilizer industry to make sure stable supply For production enterprises, the State provides the support in term of input material price For fertilizer importers, they are favored in terms of foreign currency loans for purpose of importing fertilizers But these favorable policies are decreasing in the future

- Fertilizer is one of 14 goods in the list of price stabilization under the Government‟s Ordinance issued on June 09, 2008 Enterprises are not allowed to raise the prices themselves exceeding the frame as stipulated by the State As the costs of input materials and price of imported fertilizers increase rapidly, it will be difficult for enterprises in the industry to maintain their operations and avoid loss of profit

- Fertilizer market in Vietnam is not strictly controlled The standards for establishing fertilizer manufacturing plants and controlling fertilizer retail prices and product quality are loosely managed causing much damage to the final consumers (farmers) and official manufacturers

- Agriculture is a sector that receives much attention and protection in the economy of many countries, including Vietnam, to ensure food security and people lives

In agriculture, fertilizer is an indispensable element The development of agriculture will have a great influence on other enterprises in the industry

- In recent years, the Government has focused on opening the economy and promoting international cooperation which facilitates the Company to expand its production and business beyond the border of Vietnam and generate new income

- Statutory system in Vietnam is not uniform and being improved Therefore, changes of policies or ineffective implementation of laws may significantly affect on business performance of the Company

- The laws and regulations on trademark protection in the territory of Vietnam are loose and firms are highly vulnerable to have their trademarks abused and violated Whereas administrative sanctions on such behaviors as manufacturing defect or fake fertilizers are not strict enough to prevent or deter the situation

2.2.1.4 Technological factor:

- Easy access to and application of modern, automatic technologies in manufacturing activities and ready-made material sources help the Company reduce its costs, enhance productivity, and improve product quality

- Rapid development of information technology and communication helps the Company to be able to access to effective means to promote its products and company image

2.2.2 Industry analysis:

The production of fertilizers in Vietnam has grown rapidly over years thanks to the establishment and operation of factories as well as introduction of new facilities During the period 2009-2012, average annual growth rate in the industry was 8.6% compared to 2009 Specifically, the production was 4 million tons in 2009, 4.3 million tons in 2010, and 4.7 million tons in 2011

Total fertilizer production of Vietnam (according to statistics of the Ministry of Industry and Trade and General Statistics Office) in 2012 was 5.08 million tons, an

increase of nearly 8% compared to that in 2011 The highlight in 2012 was the first commercial product introduced to the market by Ca Mau Protein and Ninh Binh Protein Factories, which was a considerable additional supply to fertilizer market in general and domestic Urea market

In 2012, total fertilizer import of Vietnam was 3.74 million tons with a value of nearly 1.6 billion USD, or an equivalent quantity decrease of 11.36% and value decrease of 9.4% compared to those in 2011

Vietnam is still an importer of fertilizers from over 40 markets in the world, in which China is the largest supplier accounting for 50% of both import quantity and value

According to statistics of the General Statistics Office from 2005 to 2012, industrial indicator of fertilizer production in Vietnam was highly seasonal, i.e rapid increase in 4-5 beginning months, decrease until September, increase again in October and November, and decrease a bit by the end of December

Vietnam is also an exporter of fertilizer with total production of 1.23 million tons,

an export value of 528 million USD, or a quantity increase of 12% and value increase of 11% compared to those in 2011 Principal export markets of Vietnam are Cambodia, Laos, Philippines and Malaysia

Inventory ratio of fertilizer production is always high: e.g it was 134% in January 2012 in relative to December 2011, and during months in 2012, it was always over 100% in relative to previous months and over 130% compared to corresponding period of previous year (2011)

In the following section, 5-force model by Michael Porter will be applied to analyze competitive environment of the Company

2.2.2.1 Pressure from potential competitors:

- Conditions for establishing fertilizer production plants are not high (require only

a mixing machine for establishment) while Vietnamese fertilizer market is very attractive for its highly potential for growth and for the fact that domestic production only meets 50% of total demand; as a result, many parties want to participate in this market

- New companies must spend more time and costs for their brand identity while existing fertilizer brands have affirmed their reputation in the market

- The model of organic fertilizer cooperative society is encouraged by support of capital and technology to ensure sufficient supply and cost savings for farming households

2.2.2.2 Pressure from Customers:

- Distributors of the Company are mainly dealers and traders of fertilizers As the

“tractor” brand of the Company has proven its reputation and is widely recognized by farmers, it is easier for distributors to meet customer demand and they will rely on sales

policies of the Company However, distributors frequently give direct advice to their customers on selecting fertilizer products Since the Company is not the exclusive manufacturer in the market, it has to maintain good relationships with distributors to ensure good consumption

- The attachment of customers with respect to product brand of the Company may

be not high, because the products with the cheaper price are always the first choice for farmers

- For individual customers, the change from products of the Company to those of others doesn‟t cost much time and effort They can easily use products of other companies if the sales policies and product quality of the Company fail to meet their expectation

2.2.2.3 Pressure from Suppliers:

Until now, most of multiple micro-nutrient fertilizers are used as materials for manufacturing fertilizers Currently, however, to reach a breakthrough of fertilizer quality for the Agriculture of Vietnam, most of materials for manufacturing fertilizers are imported from foreign markets and manipulated therefrom

Several of major suppliers of materials for manufacturing fertilizers are Phu My Protein, Ca Mau Protein, DAP Dinh Vu, Potassium (imported from USSR), and many other suppliers from China, India, Indonesia, and so on In the past, the Company imported materials from various suppliers; however, in recent years, it focuses on the supply from above firms and establishes good business relations to make sure a stable supply of materials

The supply of labor force is always abundant during operating activities

The supply of input materials is stable and diversified, and especially, the supply

of peat for manufacturing fertilizers is self-controlled with large domestic reserve

2.2.2.4 Pressure from Substitutes:

Substitutes are inorganic fertilizers (single: Protein, Potassium, mixture, lime), organic fertilizers (cattle fertilizers, waste fertilizers, green fertilizers, micro-organism fertilizers, bio-chemical fertilizers)

Instead of using fertilizers manufactured by the Company, farmers can now produce fertilizers themselves by manual methods However, the quality of manually

made fertilizers fails to meet the standards and sanitary requirements, especially for exported agricultural products

To reduce product time and harvest more products, some growth incentive drugs have been used But the resulting products can cause side effects on consumers, so their use should be limited

With rapid development of science and technology, new products manufactured

by new technologies shall replace those manufactured by old, backward lines For example, fertilizers manufactured by nano-technology, nuclear technology, or green technology will be used; however, this replacement is only partial Therefore, the pressure from substitute products to the Company is not very significant

2.2.2.5 Pressure from existing competitors:

- There are several of thousands of companies and participants in the field of fertilizer production, many of which have potential advantages of finance and brand in the market, which makes competition become harder for the Company

- Defect and low-quality products may impair the reputation and sales of the Company

- Vietnam‟s participation in WTO will facilitate conditions for foreign fertilizers

to enter domestic market and compete harder with domestic fertilizers products including the Company‟s

Fertilizer is a supporting industry of agricultural production and is directly influenced by the demand for agricultural products Currently, Vietnam is still an agricultural country with high percentage of agricultural product export of total export value Thus, fertilizer industry is highly potential to grow in the future in general and in the period of intensive development, in particular, the reliance on fertilizers is essential For that reason, competition in fertilizer industry is very hard The country now has a several thousands of manufactures, exporters and importers of fertilizers of various types It is therefore difficult to identify direct competitors and take over the market In broad view over the fertilizer market, the Company is now ranked among TOP 100 However, in various sub-markets, its market share can vary, for example, in the South, it

is ranked among TOP 30 Particularly, it is ranked among TOP 5 in some provinces such

as Binh Phuoc Province, Tay Ninh, An Giang, Tien Giang, etc Below section will