Building business strategy for Petro Viet Nam Nghe An construction joint stock company from 2010 to 2015

1 /74 GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM CAPSTONE PROJEC REPORT BUILIDING BUSINESS STRATEGY FOR PETRO VIET NAM NGHE AN CONSTRUCTION JOINT STOCK COMPANY FROM 20

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GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM

CAPSTONE PROJEC REPORT

BUILIDING BUSINESS STRATEGY FOR PETRO VIET NAM NGHE AN

CONSTRUCTION JOINT STOCK COMPANY

FROM 2010 TO 2015

Group No 7 Student’s name:

1 Phan Hai Trieu

2 Hoang Trung Hung

3 Le Thanh Cao

4 Cao Thi Thanh Long

VINH 2010

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TABLE OF CONTENT

TABLE OF CONTENT 1

LIST OF ABBREVIATION 5

LIST OF TABLE 6

LIST OF FIGURE 7

INTRODUCTION 8

1 The necessity for research 8

2 Research Objectives 9

3 Objects and Scope of Research 9

4 Research Methodology 9

5 Research Structure 9

CHAPTER I: THEORETICAL FOUNADTION FOR BUILDING BUSINESS STRATEGY 10

1 General theory of business strategy 10

1.1 Definition 10

1.2 Roles of business strategy 11

2 Procedures for building business strategy 12

2.1 Defining vision, mission, and objectives of business 12

2.2 Assessing external environment 13

2.2.1 Macro environment 13

2.2.2 Sector environments 15

2.3 Internal Analysis 17

2.3.1 Analysis of finance 17

2.3.2 Analysis of human resource 17

2.3.3 Analysis of physical infrastructure and technology 17

2.3.4 Competitor Analysis 17

2.4 Models of strategy Analysis 17

2.4.1 SWOT Matrix 17

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2.4.2 BCG Matrix 18

2.4.3 McKinsey Matrix- GE (General Electric) 19

2.5 Selection of business strategy 21

2.5.1 Business-level Strategy 21

i Cost leadership strategy 21

ii Differentiation strategy 22

iii Focus strategy 23

2.5.2 Corporate-level strategy 24

2.5.2.1 Integration strategy 24

a Vertical reverse integration link 24

b Vertical integration link 25

c Horizontal integration link 25

2.5.2.2 Diversification strategy 25

a Concentric diversification 25

b Horizontal diversification 26

c Integrative diversification 26

CHAPTER II: ANALYSIS OF PVNC’S BUSINESS PERFORMANCE AND ENVIRONMENT 27

2.1 Introduction to Petro Vietnam Nghe An Construction Joint Stock Company 27

2.1.1 The Formation and Development of PVNC 27

2.1.2 Functions and Tasks 28

2.1.3 Orientation of modern development 29

2.1.3.1 Vision 29

2.1.3.2 Mission 29

2.1.3.3 Objectives 30

2.1.4 Organisation structure 31

2.2 Analysis of the external environment 33

2.2.1 Legal and political environment 33

2.2.2 Economic environment 33

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2.2.3 Demographic and societal environment 34

2.2.4 Technological environment 34

2.3 Key sector environment 34

2.3.1 Suppliers 34

2.3.2 Clients 35

2.3.3 Joining Barriers 35

2.3.4 Replacement Product 36

2.3.5 Competitions 36

2.4 The internal environment of the enterprise 37

2.4.1 The Analysis of PVNC’s resources 37

2.4.1.1 Human Resource 37

2.4.1.2 Business results and financial situation: 37

a) Installation: 38

b) Real estate business 40

2.4.1.3 Physical infrastructure and technology 44

2.4.2 Analysis of the competitiveness of PVNC 45

2.5 SWOT analysis 46

2.5.1 Strengths 47

2.5.2 Weaknesses 47

2.5.3 Opportunities 48

2.5.4 Threats 48

CHAPTER III: BUSINESS STRATAGY AND INPLEMENTATION SOLUTIONS FOR PETROVIETNAM NGHE AN CONSTRUCTION JOINT STOCK COMPAY FROM 2010 TO 2015 50

3.1 Business-level strategy choice 50

3.1.1 The BCG growth-share matrix 50

3.1.2 Assessing levels of attractiveness and competitiveness of each sector by McKinsey matrix model 52

3.2 Selecting business strategy for each sector 56

3.3 Building functional strategies 58

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3.3.1 Restructuring strategy for establishing Nghe An Oil and Gas

Construction Joint Stock Corporation 60

3.3.2 Management strategy complying with Cooperation model 62

3.3.3 Strategy of innovation management policy 64

3.3.4 Marketing Strategy 65

3.3.5 Human resource development strategy 65

3.3.6 Science and Technology Development Strategy 66

3.4 Implementation solutions 66

3.4.1 Service and Product Solution 66

3.4.2 Human resource and framework of organization development solution 67

3.4.3 Solution for the investment in the capital construction and improvement of the machine and equipment operation 69

3.4.4 Solutions for the technological science 70

3.4.5 Solution for mobilization and effective use of capital 71

3.5 Itinerary plan to execute the selected strategies 71

CONCLUSION 73

REFERENCES 74

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LIST OF ABBREVIATION

PVN Petrovietnam Oil and Gas Group

PVC Petrovietnam Construction Joint Stock Corporation

PVNC Petro Vietnam Nghe An Construction Joint Stock Company ADMIN Administration

BCG Matrix Boston Consulting Group Matrix

BIDV Bank for Investment and Development of Vietnam

HNX Hanoi Securities and Exchange

SWOT Strength, Weakness, Opportunity, Threat

McKinsey-GE

Matrix MC.KINSEY – General Electric Matrix

ROA Return On Assets

ROE Return On Equity

SBU Stratergic Business Unit

HSEQ Health, Safety, Environment, and Quality

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LIST OF TABLE

Table 2.1 Financial figures in the period 2007 – 2009

Table 2.2 Some typical construction work operating by the company Table 2.3 Financial report in the year 2009 by PVNC

Table 2.4 Table of Machinery capacity of PVNC

Table 2.5 A comparison between the competitive competences of the

large construction companies in the central part of Vietnam Table 3.2 Attractiveness of the Sector

Table 3.3 Assessment of competition capacity of sectors

Table 3.5 Revenue ratio of key business sectors of PVNC

Table 3.7 List of members of PVNC at the period of September 2010 Table 3.8 List of members of PVNC will planning

Table 3.9 The execution plan for selected strategies

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LIST OF FIGURE

Figure 1.1 BCG Matrix of the market share

Figure 1.2 MC Kinsey Matrix – GE

Figure 1.3 Diagram of the structure of PVNC

Figure 3.1 BCG growth-share matrix of PVNC

Figure 3.4 Mc Kinsey Matrix of PVNC

Figure 3.6 SWOT Matrix of PVNC

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BUILIDING BUSINESS STRATEGY FOR PETRO VIET NAM NGHE AN

CONSTRUCTION JOINT STOCK COMPANY

FROM 2010 TO 2015 INTRODUCTION

1 The necessity for research

In the world of competitive business, we sometimes wonder why some companies are successful while others failed? The answer to this question lies primarily in its capability of building business strategies and maintaining the competitive strength of enterprises Business strategy is a special plan that every business must make a study before going into operation

Vietnamese enterprises were mainly established in a centralized planning economy, are being urged to adopt the rules of the global business environment that

is very varied and intensively competitive They are still looking for the ways of maintaining and of development They also must accept a series of tests that are sometimes at a price equal to the destiny of the business

Petro Vietnam Nghe An Construction Joint-stock Company (PVNC) is one

of the most experienced construction companies of Nghe An province as well as of the central region Since joining Petrovietnam Oil and Gas Group - (PVN) in 2007, the company has gained its new position and power to dominate the market beyond the region With long term vision and strong determination, the board has set out many promising development directions

However, reality has proven that although a business has a strong determination, even with a potential market yet does not have a proper business strategy will fall in “business traps” causing wastes of resources, lose its core business capacity of competitiveness and eventually go to decline and even bankruptcy Therefore, in order to develop sustainably and to adapt the constantly changing business environment, PVNC needs to quickly build up an appropriate business strategy for its own

After studying the situation of production and business activities of PVNC, our group decided to choose the topic "Building the business strategy of the Petro

3 Objects and Scope of Research

The object of this research is a joint stock company Petro Vietnam Nghe An Construction Joint-stock Company, which is part of Petro Vietnam Construction Jointstock Corporation (PVC), whose business activities cover throughout the fields

of construction and installation works, including the high buildings in Central provinces

4 Research Methodology

This study used the synthesis of qualitative research methods such as observation, interview, group discussion from which to synthesize, analyze and compare the primary and secondary data of business environment and the operations of the Petro Vietnam Nghe An Construction Joint-stock Company

Secondary data was collected from various sources such as Petrovietnam Nghe An Construction Joint-stock Company (PVNC), Petrovietnam Construction Jointstock Corporation, Petrovietnam Oil and Gas Group (PVN), Ministry of Construction, Ministry of Industry and Commerce, Ministry of Planning and Investment, Nghe An Statistics Department, newspapers and the Internet

Primary data was collected through workshops, seminars, practical working, and interviews with leading officials in the company for more details about the content not be presented in annual reports, and also consulted with the Company managers about several strategic directions of the Company in subsequent years

5 Research Structure

This assignment includes three chapters

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Chapter 1: The overall rationale of constructing a business strategy

Chapter 2: Analysis of the operation status of Petrovietnam Nghe An Construction Joint-stock Company

Chapter 3: Building the diversification strategy of industries for Petrovietnam Nghe An Construction Joint-stock Company and implement solutions

The term strategy derives from the Greek and was first used in military field

to denote the big, long term plans which were made on the basis of knowing what the enemy’s capability and incapability Usually, people understand strategy as planning and military art

Today, the term strategy is widely used in many different fields In business, there are many approaches to strategy Under the traditional approach, business strategy is seen as a long-term overall plan of an organization in achieving long-term goals

The management historical researcher Alfred D Management Chandler said that "strategy is the identification of the basic long-term goal of a business and the implement the program works with the allocation of resources necessary to achieve that goal."

Thus, his ideas clearly define that strategy is a wise planning process, in which businesses choose their own goals and determine action plans to accomplish those objectives best and find the ways to allocate resources accordingly

Traditional approach has the advantage that helps businesses easily imagine working on strategic planning and to see the benefits of strategy on the aspects of the long-term plans However, in the business environment that is always changing

Modern approach helps the business easily respond flexibly to the changes of business environment and promote the creativity of the members of the business However, it requires qualified leadership and managers who have the ability to predict the conditions for the implementation of strategies and evaluate the strategic value of the mutation

Through the above approach, we can understand that: the business strategy of

a business is an art of building long-term goals and policy direction as well as the implementation to create competitive advantages of enterprises Business strategy is

to analyze, understand and give basic route, outlined in the orbital evolution of production and business activities; that is the comprehensive planning, coordination and calculated uniformity which was forged thorough sanding to lead the business unit to ensure the objectives of the business unit Also, business strategy is to determine the basic objectives of the business unit, selection means and method of action and allocate the resources necessary to implement business objectives

The term "strategy" is often used by three common meanings

Firstly, strategy means the general operation and deployment programs of resources in order to achieve key objectives

Secondly, strategy means the objective programs of the organization, the resources should be used to achieve this goal, the policies operating income, use and allocation of resources

Thirdly, strategy means to determine the long-term goals and choose the way

of activities and to allocate the necessary resources so as to achieve these goals

1.2 Roles of business strategy

on the way to adapt the best to the changes in the long term

Strategic management enables an organization to be more active instead of passive in defining their future It allows an organization to be proactive and influence in the environment it operates and so, apply all of its ability to control and adjust to any changes

Strategic management creates very important awareness in each person Both the management board and the employees understand and commit to implement the objectives of the business Once people in an enterprise understand what the enterprise is doing and the reasons why, they would feel like they are part of the enterprise, they will commit to support all activities of the business

2 Procedures for building business strategy

A complete business strategy includes all the working steps; however within this assignment we would like to mention only from the first step to the steps of analyzing and determining strategy

2.1 Defining vision, mission, and objectives of business

The vision of a business is its statement on their position in the business environment in a certain period of time It is regarded as an action guideline for the company in all time and circumstances

The mission reflects the important tasks of the enterprise toward the business environment and is often expressed through a brief philosophy of the business Mission shows the reason of the foundation and the existence of the business The businesses can change their strategies to implement the mission, but rarely change their reasons to exist

The objective is the final desired result that businesses need to reach The objective indicates the direction for all decisions and forms the criteria for measuring performance in practice

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 The importance of defining the vision, mission and objectives

A business is created with an intention Yet sometimes the tasks are not understood and the work will be carried out without high efficiency as expected Sometimes, because of not understanding the goals and tasks set out, the business may go down the wrong way, doing things that whatever followed would become meaningless Therefore, each enterprise must first know the work that it should follow

Identifying tasks and strategic goals of the enterprise is the beginning stage which is extremely important in implementing business management strategies in accordance with set The objectives are clearly defined and specific is very important to business success

2.2 Assessing external environment

2.2.1 Macro environment

Analysis of macro environment gives us the fundamental answer to the questions: Enterprises are under the influence of what factors from the external environment? There are four main groups of factors of macro environment that businesses have to deal with: social and political factors (Political), economic factors (Economic), socio-cultural factors (Social cultural), and scientific factors technology (Technological) These factors influence the organization independently and can also affect each other

 Legal - Political factors: the factors of the political environment - laws strongly influence the business activities of enterprises Political stability has been identified as one important precondition for the operation of the enterprise’s business The change of political environment can affect beneficially to a business group this but inhibit other business development groups and vice versa A perfect legal system is one of the premises outside of business economics The level of completion and the changes in law enforcement in a certain economy have great influences on the planning and implementation of business strategies of enterprises

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The legal - political environment directly impacts the business performance

of an enterprise because it affects on the products, industries and business methods of the enterprise Moreover, it also affects the costs: production costs, circulation costs, transportation costs, tariff levels Especially, import-export business is also affected by international trade policy, the quota allocated by the State, legal protection for enterprises engaged in the business

In short, the legal - political environment has a strong influence on the improvement of business performance of enterprises by affecting the operation of enterprises through legal system tools and the methods of adjusting the macro economics…

 Economic factors: Economic factors have great affects on the businesses Because these factors are relatively large, the businesses need to selectively identify specific effects which are most directly affected Major influence on the economy generally, including:

- Interest rates: interest rates may affect the demand for products of the enterprise Interest rates are important as consumers often borrow money to pay for the account of their commodity trading The interest rate also determines the cost of capital and therefore investment decisions This cost is a key factor in deciding the feasibility of the strategy

- Exchange rate: exchange rate is a comparison of the value of domestic currency with the currencies of other countries Changes in exchange rates directly affect the competitiveness of products produced by enterprises on the international market Changes in exchange rates also affect the price of the import and export goods of the company

- Inflation rate: Inflation rate may cause disruption to the economy as economic growth slows and the fluctuation of currency is becoming unpredictable Therefore, investment activities become fully work of chance, the market will become more difficult to predict

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- International Exchange Relationships: The changing in international environment offers opportunities to foreign investors but also enhance competition

in the domestic market

 Social factors: all enterprises must analyze the social factors to determine the opportunities and potential threats The social factors often change or evolve slowly so their effects are sometimes difficult to recognize These social factors include: quality of life, lifestyle, the flexibility of the consumer, professional, population, population density, religion

 Technological - technical factors: The advanced technical, technology allow the businesses to proactively improve the quality of goods and labor productivity These factors affect almost all aspects of the product such as product characteristics, product prices, and the competitiveness of the product So that businesses can increase their competitiveness, increasing the rotation of working capital, increase profitability to ensure the expanded reproduction of the business In contrast, the low level of technology not only reduces the competitiveness of enterprises, but also reduces profits, hindering development In short, technical and technological factors allow businesses to improve productivity, product quality thereby increasing competitiveness, increasing the turnover of capital, profits from that increase business efficiency

2.2.2 Sector environments

Besides the macro-scale factors, enterprises are directly affected by the business environment in which it operates There are five key elements of the business model; they are the supplier’s power, buyer’s power, substitute products, competition and the entry barrier

 Negotiation power of the suppliers: the pressure from the suppliers or their bargaining ability are shown in the characteristics: the level of concentration of suppliers, the importance of quantity products for the providers, the difference of suppliers, the impact of inputs on cost or product differentiation, switching costs of firms in the industry, the existence availability of alternative suppliers, the risk of

sensitivity to price, product differentiation, the

level of customers density in the industry,

the availability of substitute goods, the

motivations of our customers

 Entry barriers: According to

Michael Porter, the potential rival is the

organizations which are not currently

available in the industry but may affect the

industry in the future The risk of potential

competitors is reflected in the factors: the absolute cost

advantages, government policies, economies of scale, capital requirements, characteristics of trademarks, the cost of converting industry, access to distribution channels, the possibility of retaliation, and the exclusive products

 Competitive pressure from substitute products: substitute products and services are the products or services which can satisfy the equivalent needs provided by the other products and services in the same industry The risk of substitute products in the conversion cost in using the products, goods is the trend

of using them, the correlation between price and quality of the items substituted

 Internal competitive pressure in the same company: intensity of competition from existing competitors is reflected in: the level of concentration of industry, the difficulty of withdrawal from the sector, fixed costs, value, status strengthening of the sector, surplus capacity, the difference between the products, the conversion costs, characteristics of brand goods, the diversity of the competition

2.3.2 Analysis of human resource

It means to consider the quality of human resources in business, predict the human resources which would be used in the future, arrange the human resources in enterprises and the measures for human resource management and the current capacity

2.3.3 Analysis of physical infrastructure and technology

It means to analyze how efficient the facilities and technologies that enterprises are using in the market, and if they are sufficient to meet the production needs of business and strategic development of business in the future

2.3.4 Competitor Analysis

It means to analyze the competitiveness of enterprises in compare with other competitors through competitive matrix The evaluation factors are: market share growth, competitiveness, financial support from outside, product quality, unit cost, customer loyalty, ability to cope with changes

2.4 Models of strategy Analysis

2.4.1 SWOT Matrix

This model is a matrix analysis basing on the four factors: Strengths, Weaknesses with Opportunities and Threats to which these factors combine together to identify strategies for business Industry:

– Combined S/O: to help businesses take advantage of their strengths to capture opportunities

– Combined S/T: to help businesses use strengths to address the threats – Combined W/O: to help businesses take advantage of opportunities to overcome weaknesses

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– Combined W/T: to help businesses overcome or minimize its weaknesses

to avoid the threats

2.4.2 BCG Matrix

This is a classic model to analyze the portfolio which is represented as a matrix set up by two parameters: the relative market share and market growth Model of BCG (Boston Consulting Group) was developed from the experience curve theory, to analyze the capacity of each area of operation of a multi-sector companies compared with other sectors in the organization, which draws from the War appropriate strategy, also called matrix market share / growth Positioning the Strategic Business Unit (SBU) in the matrix helps us make decisions to allocate resources and review fundamental shift of the SBU in each period

The horizontal axis: relative market share of each strategic business unit (SBU) than the largest competitor (Company sales / turnover of the sector head unit)

Vertical axis: reflecting annual growth of the market

Circle: the position expressed growth / market share of that unit, the circle size proportional to the product sales

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The position of the circle in each square indicates the following:

The group "Star": the business units which have high growth and market share and the ability to invest in maintaining or strengthening their position The strategy can be vertical integration, horizontal, market penetration, market development, product development, joint ventures

Group "Question mark": the business units which have high growth but low market share, often require more money to maintain and increase market share, the board decided to invest to become stars, or you can remove The strategy is to pursue focused strategies: market penetration, market development, product development

Group "Cow": the business units which have low growth but high market share generating credits to support other business units, especially the "dual direction situation" and the research and development Strategy development or diversification of products are applied when a business unit strength or cut spending for major business units

Group "dog": the business units which have very low growth rate and very little market share, and this product group is not profitable or very little profitable Strategies set out are to cut down the costs, liquidation or dissolution

BCG matrix implies the surplus from dairy box should be used to support and nurture the development of the group stars The company should get out of any industry in the dog box The worst question marks should be removed to reduce the resource requirements of the business money

BCG Matrix is built on the basis of data of past business and has taken on a number of factors to predict the expected growth in the future BCG Matrix has disadvantages such as: not giving specific strategies, not being applicable to new businesses If businesses do not have any growth opportunity, the BCG matrix is completely inappropriate

2.4.3 McKinsey Matrix- GE (General Electric)

This matrix is built on two aggregate indicators, they are the market attractiveness and the competitive position, including nine boxes: vertical axis

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represents the level of attractiveness of the market, the horizontal axis indicates competitiveness of each enterprise or business unit, is divided into three levels: strong - medium - weak The factors included in analysis include: market size, growth rate, profit margin, competitive intensity, seasonal nature, cyclical The horizontal axis represents the strength and competitiveness of enterprises, including the relative market share, competitive pricing, product quality, capability to the market

Figure 1.2: MC.KINSEY Matrix- GE

Each circle represents a business unit (in a competitive business sector has only one circle.) Size of the circle indicates the relative size of the sector, the cross

on each circle is the market share of the strategic business unit (SBU)

+ Pattern : 3 square boxes in the left corner, the business units located in this position have favorable growth opportunities and relatively attractive strategy

to enhance investment

+ Pattern : 3 square boxes located in the diagonal, the business units have average level attractive level, therefore the investing decision should be made selectively so as to create income, the market should be maintained rather than increasing or decreasing

Strong Average Weak

High

Average

Low

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+ Pattern : 3 cells in the lower right corner, the business units strategy

in this area does not occupy attractive positions, they should withdraw from the industry

Mc.Kinsey matrix is used to assess the attractiveness of the market and the current competition as well as future prospects of the business However, there is one question is how to evaluate the attractiveness of the market and competitive advantage of working? To do this, each activity is measured by many different variables To assess the two factors competitive position and attractiveness of the market depends on many factors, the influence of each factor depends on the perceptions and experiences of leaders of the dynamics of competition

2.5 Selection of business strategy

After analyzing the external environment and the internal environment, determining the development trends of the economy, the business sector as well as strengths, weaknesses, opportunities and threats, enterprises can choose a proper business strategy and the most appropriate based on the matrix QSPM (Quantitative Strategic Planning Matrix) This model evaluates the importance of each factor in groups of four major factors are the opportunities, threats, strengths, weaknesses and the points of impact of each factor to a specific strategy After calculating the total impact of the four groups of factors to each strategy and business strategy will

be selected at the highest level, i.e the optimal strategy and best suit the specific conditions of this business

2.5.1 Business-level Strategy

In general, the strategies are typically formed in one of three levels - corporate, business unit and functional section – among those, the business unit level is a major segment where the competition takes place in industry For the purposes of resistance in market forces, Michael Porter has identified three general strategies which can be applied at the business unit level so as to create competitive advantage

i Cost leadership strategy

In case the "price war" took place, companies can still maintain a certain level of interest, while the competitors have to bear losses Even when there is no conflict or contradiction in price, this economic development, expand and prices drop, then the company has the ability to keep costs the same, the business can maintain their competitive advantage based on cost-led

The successful enterprises in the application of cost-led strategy often have the following characteristics:

– The ability to access capital to invest in better production equipment

– There is also a barrier that many other companies cannot overcome Product design capability to increase production efficiency, for example, created a small detail with which to shorten the assembly process

– There are high levels of production

– Have effective distribution channels

Any general strategy has the risks hidden, and low-cost strategy is not an exception Risks can occur when competitors are also able to lower production costs Even with the help of modern technology, competitors may have the unexpected break in production, removing the competitive advantage of businesses

is leading the cost In addition, some companies are pursuing strategic re-focus on narrow market, which is not difficult to achieve lower costs than in traditional market segments of them, since that they would create a group with control array control market share many times larger

ii Differentiation strategy

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Differentiation strategy is a series of actions needed to produce goods and services (at a price that is acceptable) with the differences in value for specific target customers

This is a strategy of product or service development of a business, by which the product or service are unique and has its special characteristics, gains the customer’s appreciation and respect than the products of its edge competition Value added by the uniqueness of the product allows this business to set higher prices without fear of buyers boycott They hope that higher prices will not only allow to cover the increased costs in the process of supplying products, but also more than that: thanks to the different characteristics of the product, if suppliers increase prices enterprises can move it to the difference for customers, because customers cannot easily find similar products to replace

The businesses which are successful with product differentiation strategy often have the following advantages:

– Ability to research and access to leading scientific achievements

– The product research and development team (R & D) has the good skills and creativity

– The sales team with the ability to actively communicate the strength of the product to customers successfully

– Reputation for quality and innovation capability of enterprises

The risks associated with product differentiation strategy are they likely to be imitated by the competitors, or major changes in consumer tastes In addition, many companies are pursuing strategic focus can achieve higher level in product differentiation in their market segments

iii Focus strategy

Centralized strategy is a series of actions by which the goods and services are produced in order to focus on serving the needs of a competitive market segments targeted

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A business which uses the Centralized strategy tends to well maintain a high level of customer loyalty and this discourages competition that they did not want or

do not dare confront directly

Because only a regional narrow market is focused on, the businesses pursuing Centralized strategy often have lower sales, so they do not constitute an advantage when bargaining with suppliers However, the pursuit of strategic business focus - personalized products can deliver the higher costs that imposed suppliers to the customers because the customers cannot find replacement products

The successful business in using the centralized strategy can change the advantages of developing a more diverse product range that will be more suitable to the smaller market segments that they have researched and thorough understanding It is necessary to mention a risk of this strategy is to focus and ability to mimic the changes occurred in the target market Moreover, a leading manufacturer of low cost in large markets can easily change their product to compete directly with the application of strategic business focus The other companies pursuing other centralized strategies may attack on a number of objective customers in the target market, causing a loss of a certain amount of customers in the small market share of our observed business

2.5.2 Corporate-level strategy

When a company chooses to diversify beyond a single sector and business operations in many industries, they must use strategy to diversify the company level Level diversification strategy allows companies to use its core competencies

to pursue the opportunities from the external environment

If competitive strategy shows how the business compete, the level strategies help to identify which business sectors will participate in the competition and how to create a competitive advantage from the diversity of the industry

organization-2.5.2.1 Integration strategy

a Vertical reverse integration link

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Vertical reverse integration is a concept in which the businesses searching the growth by enhancing the power or control over inputs (materials, equipment, capital and human resources) so as to be fully active in quantity, quality and production time using for the business

b Vertical integration link

This is a strategy to increase the power or control over the product output of the business through the distribution system When the consumer pressure on the businesses, it causes the slow consumption To solve this problem the business must link together to make sure for the consumption of their products

When implementing this strategic plan, the businesses can set up showrooms, consumer products, or facilities associated with consumption

c Horizontal integration link

This is a strategy searching for the ownership and control on the competitors

of product manufacturing and service supplying Normally each product can be produced and supplied by many production enterprises on the same market, creates competitions among enterprises in the marketing of products, difficulties in production and consumption of products To overcome such a situation, these businesses should make a strategic link integrating horizontally by annexation opponents weak; association agreement with some strong opponents to dominate the market, and control the other competitors

2.5.2.2 Diversification strategy

This is an implementation strategy by which a wide range of products and services are produced and provided on the different markets to increase revenue, increase profitability and growth in production and business activities to enhance the competitive position of enterprises

a Concentric diversification

This strategy aims to put into production new products which are related with existing products, create new products, saving materials and equipment to take advantage of the workforce, create new markets, improving high production efficiency The key to perform concentric diversification is taking advantage of the

c Integrative diversification

This plan aims to put into production in order to provide new products and services which are not related to each other That is directed at new markets and new products and services in terms of technology is not relevant to the current products and services business is manufacturing supply

When implementing the integrative strategy to diversify business must have enough resources and implementation capacity Also the implementation of strategies diversifies the mixture requires a large investment for profit should decline ahead, so they need accurate forecasts would otherwise be passive in doing business

2.1.1 The Formation and Development of PVNC

Petrovietnam Nghe An Construction Joint-stock Company (PVNC) is a member of the Petro Vietnam Construction Jointstock Corporation (PVC), the Petrovietnam Oil and Gas Group (PVN) The company is formerly known as Construction Company No 1 in Nghe An, which was established on 20.04.1961 and was reorganized under the directives number 500/TTG of Prime Minister and the decision number 4495/QD-UB of the Chairman of the People's Committee of Nghe An province This has been one of the leading construction companies of Nghe An

Since 19/01/2005 the company officially has been into operation in the form

of a joint stock company by the decision number: 284/QD-UB-DMDN dated 01/19/2005 of People's Committee of Nghe An province and was renamed the Construction Corporation and Investment No 1 in Nghe An

May 2007, PVN received the company as a member company of the Group

by Decision No.: 2397/QD-DKVN on 04 / 05 / 2007 and was renamed the Petro Vietnam Nghe An Construction Joint-stock Company

26/10/2007 PVN transferred 51% of the shares in the company PVNC to PVC and officially became a member of the PVC

The joining into PVN and become a member of the PVC unit marked an important turning point and opened up great prospects for PVNC On the one hand, the company enhanced financial strength, increased competitiveness, and prestige brands on the market, otherwise the company also has access to the major projects

of the PVN and the other unit members in the Group This is a great opportunity for the company to develop to a new level

On 12/12/2008, PVNC’s shares were officially listed on the Hanoi Securities Trading with transaction code is PVA; PVNC shares are always assessed as a

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fundamental, the potential stock and activities listed in the construction sector We now have stock of PVNC highest rates in the units in the petroleum industry are listed on two exchanges HNX This shows the interest, appreciation and trust in the development of the company's investors for PVNC

The development process of PVNC also reflected in the capital requirements over time, production and business activities consistent with the direction and strategy of the company Since equalization in 2005 until now, has built PVNC capital increase plan is reasonable and efficient use of capital in business activities, current PVNC chartered capital of VND 100 billion, and will increase VND 600 billion in quarter 3 / 2010 It is expected that, in 2013 the charter capital of PVNC will continue to increase to VND 1,000 billion

Since 2008, PVNC strongly shifted to the structure and operation of investment and business real estate, finance, raw materials and services To date the company has invested large projects such as Hoang Mai IZ 289 hectares (VND 812 billion); Reclamation Project Area A Quang Trung - Vinh City 4.3 hectares (VND 1,600 billion); non-baking brick project (VND 81 billion) Cua Lo resort project 27 hectares (VND 1.000 billion ),

2.1.2 Functions and Tasks

– Industrial Construction: Civil and industrial constructions, transport (road and bridge building), irrigation, electricity, infrastructure works

– Business investment in many sectors including industrial, urban, hydropower, civil, industrial, transportation, water works, electric power, infrastructure works

– Advising on construction projects, the design consultants for civil, industrial consultancy bidding management consulting project consultant construction supervision of civil works, industries

– Manufacturing and trading construction materials, interior construction, petroleum business, business travel service, meals, rental office, business equipment electricity, telecommunications equipment, motorcycles, personal

– Management and administration of real estate transactions

– Brokerage, valuation, advertising, management, auctions, business consulting and real estate

In which, the business sectors of the company are mainly in the construction sector, investment; the company has also successfully invested in large projects such as projects and infrastructure construction industry for Hoang Mai district, public Building oil and gas projects in Nghe An, apartment building projects, and the Petroleum housing adjacent in Truong Thi

2.1.3 Orientation of modern development

2.1.3.1 Vision

The company determined its vision: "Becoming a leading multidisciplinary, multi-sector business corporation of the Central Region, General Construction Co and Vietnam Oil and Gas Oil and Gas Group of the National Vietnam and efficient business model, which took the infrastructure construction, infrastructure construction industry, real estate investment, industrial production and exploitation

of raw materials, tourism services as key industries and create the sustainable development process associated with development and urbanization of the Central Region."

2.1.3.2 Mission

From the above mentioned vision, the company determined that the mission

is "Creating the works - the project and core values contribute to the development of industrial infrastructure and civil central region, is the number one unit of the Central construction companies and the major construction company of the Petro

– Aiming to 2015, PVNC will become the key company of the PVC, leading the central region on the implementation of construction high-rise construction, investment, business services, In 2025 to become a key unit in the corporation the Petro Vietnam Oil and Gas Group (developed by the PVC) and compete with other contractors in the area and the territory of Vietnam to gradually expand the market International construction

– Developing and specializing into a construction company, as a major part

of PVC, having the same technical level and with international competitiveness, including activities from construction and investment, business, real estate, industrial and mechanical engineering as a core adopting a prestige and reputation, gained the trust of customers, partners and members of the PVN and PVC

– Improving the competitiveness of countries and regions on the basis of dynamically meet the increasing needs of customers

– Organizing and managing the activities of the Corporation effective model parent company - subsidiary company, maximizing the advantages of enterprise shares, attract partners, investors, service and business development

– Creating a solid foundation associated services, increased competition in the specialized field of construction activities in the field of investment and build the model parent company - subsidiary company

– Cooperating with domestic and foreign partners to develop the strength

to invest in industrial projects, thermal power, hydropower, tourism,

2.1.4 Organisation structure

The company has the organizational structure according to functional departments which limits the duplication while ensuring the cohesion and cooperation between the divisions

The total number of employees of the company now is 802 people

With a large labor force in quantity, and strong in quality PVNC has more advantages than its competitors; and it has tried to be also a prestigious business partner to private clients and investors Besides, its high qualified and experienced engineers in the force staff can fulfill all the missions in the field of construction and construction works Wages paid by job title and basing on the products made, the average salary therefore is increasing and well encouraging, promoting the creativity and dedication of the staff and workers in the company

Below is a diagram of the structure of PVNC

Figure 1.3 Diagram of the Structure of PVNC

IC BIDDING DEPT

MOTORB IKE &

SAFETY EQUIP DEPT

BOARD

OF PROJECT MANAGE MENT

BOARD

OF INVEST AND COMMU NICATIO

N

HÀ TĨNH

- PVNC

REAL ESTATE TRANSA CTIONS PVNC

Factory of

Vehicles &

equipment

Hung Dong constructi

Electricity and Water Factory

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2.2 Analysis of the external environment

2.2.1 Legal and political environment

Credit institutions, in according to the ability of PVNC, especially in 2009 when the government applied stimulus package including loan interest support 4%/year, loan limits applied to PVNC were extended, received from the capital budget for additional sources of equity initiative to facilitate the money to produce more profitable business

Policies to attract foreign direct investment in the State have formed a series

of industrial parks, export processing zones (particularly in Nghe An: Hoang Mai Industrial Zone, Industrial Park East Islamic ), thereby creating more employment opportunities as well as increased investment in equipment capacity of modern technology

The agreement was signed between the State with the international organizations in building infrastructure expansion opportunities for joint venture to access advanced technologies in all areas Kobelco Group currently under appeal by the Government of Vietnam and the Government of Japan is investing heavily in Nghe An province with many large projects: sponge iron factory Kobelco Vietnam, Hoang Mai Industrial Zone, etc

Legal system has become more completes and effective with Company Law, Law on value added tax, enterprise income tax law, insurance law and business law, procurement, construction law created a clear legal framework to secure PVNC business

PVC and PVNC Vietnam, lying on these new laws, signed comprehensive cooperation with Ha Tinh province Facilitating PVNC and PVN have researched and surveyed through many organizations, seizing the opportunities of investing in the projects in the province of Ha Tinh Investment in development of business networks petroleum, fertilizer and gas, developing the financial services, insurance and construction are all being developed

2.2.2 Economic environment

Thanks for the Development of the economy, the investment into infrastructure and industrial and facilitate the construction industry, construction material production, construction and housing construction development are also strengthened.

2.2.3 Demographic and societal environment

Along with the country's economic development, the quality of the material, spirit, cultural lives were respectively significantly improved in the built environment safe and healthy This makes the demand for housing, residential investment real estate business strong Products made increasingly sophisticated, aesthetic and quality increasing, creating more benefits for society, enterprises and consumers

2.2.4 Technological environment

The technology revolution, especially information technology is increasingly

in many place all over the world, affecting all areas - economic and social of all different nationalities, promoting the formation of intellectual economy mode, accelerate economic restructuring, and capital flow cycle technology This requires PVNC always have to adapt to the changes Being aware of the problem PVNC has invested into innovation of modern technological line for the factory: Petroleum Cement factory 12/9; quarry lines, equipment capacity enhancement: 6 new concrete mixers, two new 40 ton tractors, 300 ton piles pressure, NIKON monitoring machines

2.3 Key sector environment

2.3.1 Suppliers

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Suppliers of PVNC including suppliers of machinery and equipment, supply

of construction materials Currently, the PVNC machinery primarily imported from foreign countries such as Russia, Germany, America, Japan, China, Korea They are the exclusive supplier of machinery and equipment So these vendors make a lot of pressure for regular PVNC by raising prices higher education market delivered the machines are not enough quality, was outdated Furthermore, the level

of foreign trade officials should be limited in the import contract conditions are not tight, no strings attached so PVNC providers often suffer unnecessarily

For suppliers of building materials such as business enterprise specializing in sand, stone, gravel or local government where the material exploitation of the pressure they are raising prices or materials may cause problems in the procedures

of PVNC exploitation stage

2.3.2 Clients

Due to the nature of the product that PVNC provides to its customers are very diverse PVNC is therefore currently under pressure from many customers and fields such as construction clients are mainly owners of PVNC works projects such

as, the Local Agency State construction projects, the Investment units in PVN, PVC Also, the pressure from the investors can be included as prices trend lower construction contractor; trends constitute business capital is also pressure for PVNC

by many when works completed but investors have not liquidated contracts by many different reasons

2.3.3 Joining Barriers

In the field of investment of real estate and infrastructure, barriers to entry are relatively high because businesses need to have good relationships with all levels of government land for development and completion of legal procedures project as soon as possible In addition, the cost of high ground clearance is also a major barrier for companies without strong financial capabilities In the construction sector, barriers to entry relatively low in general but for large projects requiring qualified management, technology and modern machinery, barriers to entry are not worrying Ability to manage working capital is

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also a challenge for construction companies Potential rivals, most notably the construction of foreign corporations with strong financial strength, technology, experience This will be a very big threat for PVNC in the global integration of economy of Vietnam The problem is to set out PVNC need solutions to systems joint venture with other businesses to promote their strengths, strengthen capital market is firmly in order to create barriers to the penetration of this rival

2.3.4 Replacement Product

In the construction sector, investors are now projects tend to direct integration into the construction In the field of construction materials, began to appear in a number of new building materials but cannot completely replace traditional materials So PVNC company not under pressure from substitute products and services

2.3.5 Competitions

For such businesses in the fields of real estate, industrial installation, construction of large profits should be subject to fierce competition from large corporations, even private companies, small and medium The province of Nghe An province area and Central, the Company is subject to the competition from larger units; Vinaconex Construction Corporation, Tecco 4, Hoang Anh Gia Lai, Housing Development Corporation of Nghe An, the general publicHanoi Housing Development Company These corporations have strong financial strength, have the seniority and prestige in the field of real estate and business base and build new urban areas

According to experts the current pace of development of construction industry is very high, the construction industry with fixed costs of machinery and equipment is very large withdrawal from the sector is very difficult

So, can see the intensity of competition in the sector is enormous, requiring PVNC must concentrate on analyzing the strengths and weaknesses of competitors from which set out the correct policy decisions, special needs depth analysis of direct competitors