Developing a business strategy for Hien Duc joint-stock company in the 2013-2018 period

The vision and mission in the business strategy formation process help the firm answer the question “where shall we go”, and are considered as the very first overall orientations for the

COURSE: STRATEGIC MANAGEMENT

Title: Developing a business strategy for Hien Duc Joint-stock company

Ha noi, 12/2012

CONTENTS Page

INTRODUCTION

FORMULATION

1.1 Overview of strategy and strategic management in business

1.1.1 What is a business strategy and what is strategic management?

1.1.2 Process of business strategy formulation

1.1.2.1 Identification of business strategies 1.1.2.2 External Factor Evaluation

1.1.2.3 Assessment of the current situation of the company 1.1.2.4 Analysis and selection of strategies for the company

1.2 Tools for formulating business strateties for a company

1.2.1 Stage 1: Collecting Information

1.2.1.1 External Factor Evaluation Matrix (EFE) 1.2.1.2 Competitive Profile Matrix (CPM) 1.2.1.3 Internal Factor Evaluation Matrix (IFE) 1.2.2 Stage 2: Linking between factors for formulation of business

strategies 1.2.2.1 Strength, Weaknesses, Opportunities and Threats Matrix

(SWOT) 1.2.2.2 Strategic Position and Action Evaluation Matrix

(SPACE) 1.2.2.3 Quantitative Stratetic Planning Matrix (QSPM) 1.2.3 Stage 3: Selecting business strategies, implementing, evaluating and

adjusting business strategies

CONTENTS Page

PART II: ANALYSIS OF THE OBJECTIVES OF BUSINESS STRATEGY

FORMULATION FOR HIEN DUC JOINT-STOCK COMPANY

2.1 Overview of Hien Duc Joint-stock Company

2.1.1 Background information about the company’s establishment and

development 2.1.2 Organisational structure of Hien Duc Joint-stock Company

2.1.3 Areas of business activities

2.1.4 Vision and mission

2.1.5 Business performance in the 2007-2011 period

2.2 Analysis of the business environment of Hien Duc Joint-stock Company

2.2.1 Analysis of factors in the external environment

2.2.1.1 Analysis of the macro-economic environment usinng

PEST model 2.2.1.2 Analysis of competitive environment using M.Porter’s

Five Forces model 2.2.1.3 Analysis of competitiveness using CPM matrix 2.2.1.4 External Factor Evaluation using EFE matrix 2.2.2 Evaluation of internal factors of Hien Duc Joint-stock Company

2.2.2.1 Human resource 2.2.2.2 Market access capacity 2.2.2.3 Organisational structure 2.2.2.4 Financial capacity 2.2.2.5 Research and development capacity 2.2.2.6 Evaluation of internal strengths and weaknesses 2.2.2.7 Analysis using the Internal Factor Evaluation (IFE)

Matrix

2.3 Rationale for developing a business strategy for Hien Duc Joint-stock

Company in the 2013-2018 period

CONTENTS Page

PART III: DEVELOPING A BUSINESS STRATEGY FOR HIEN DUC

JOINT-STOCK COMPANY IN THE 2013-2018 PERIOD AND SOLUTIONS

FOR IMPLEMENTATION

3.1 Business objectives of Hien Duc Joint-stock Company up to 2020

3.1.1 Overall objectives

3.1.2 Specific objectives

3.2 Matrix-based analysis and selection of business strategies

3.2.1 Analysis using SWOT matrix

3.2.2 Analysis using SPACE matrix

3.2.3 Analysis using the QSPM matrix

3.2.4 Selection of a business strategy for Hien Duc Joint-stock Company

3.3 Solutions for implementation

3.3.1 Solutions for human resource development

3.3.2 Solutions for communication and marketing

3.3.3 Technological solutions

3.3.4 Solutions for restructuring

3.3.5 Solutions for developing company culture

ACKNOWLEDGEMENTS

First of all, we would like to express our deepest gratitude to all teachers of MBA program – ETC Center - Hanoi National University, who have provided us with knowledge and skills to be able to complete this paper

Last but not least, we would like to convey our special thanks to all leaders and staffs of Hien Duc Joint Stock Company, who have given us not little support in the process of data collection, survey and analysis of the different situations We do hope what has been presented in this paper could help, to some extent, business management

of the Company in the future

THE COMMITMENT

This paper is an effort of all members of the group 02, class M0111 We, hereby would like to certify that the paper is not copied or shared with others except the group members ourselves to aim at completing the final report All information provided in this paper, including data, drawings, graphs, and enclosing documents are all quoted from official and legal sources All the data of Hien Duc Joint Stock Company are all permitted by the Executive Board of the Company with attached certification

We are committed to take full responsibility toward Hanoi National University, ETC Center and Andrew University of United States for the accuracy, legality and transparency of the contents presented in this paper

Signature of Group Members:

1 Pham Xuan Tung:

2 Nguyen Manh Tuan:

3 Pham Thi Thu Huong:

4 Pham Thi Hong Thuy:

5 Nguyen Kim Toan:

LIST OF ABBREVIATIONS

AS Attractiveness Score

CPM Competitive profile matrix

EFE External Factor Evaluation Matrix

IFE Internal Factor Evaluation Matrix

IE Internal-External Matrix

GDP Gross Domestic Product

SWOT Strengths, Weakness, Opportunities, Threats

PEST Political, Economics, Socio-cultrural, Technological QSPM Quantitative Strategic Planing Matrix

TAS Total Attractiveness Score

Hien Duc JSC has been operating in the real estate business for 8 years The company is currently managing its former construction projects, including: Office for lease HD BUILDING at No 57 Tran Quoc Toan, Hoan Kiem, Hanoi This is a 9-story building, with over 1000m2 floor area for office lease, meeting C standard for office buildings Hien Duc JSC is also managing Dien Bien market in Thanh Hoa city, with

450 kiosks for lease The company is also speeding up construction and will soon put into operation the 5-story, 13.000 m2 floor area HD PLAZA mall in Thanh Hoa With its current managing portfolio, the company’s average revenue for the 2013-2015 period is expected to be at 1 million USD

In the near future, Hien Duc JSC has plans to develop the high-end, serviced apartment, office for lease complex in the best location in Tay Ho Dist., and also in Hanoi It is also undertaking compensation, site clearance work for Phase I (10 hectares) of the Hai Hoa beach resort project in Hai Hoa commune, Tinh Gia Dist., Thanh Hoa province The project will offer products such as: 3-4 star hotels, international conference centers, amusement parks and other high-end services

With this portfolio, Hien Duc JSC’s target market and customer are clearly identified

As an office building developer, Hien Duc JSC targets SMEs wishing to find office space in Hanoi’s Hoan Kiem district In Thanh Hoa, since the Company is currently working on the Dien Bien market and HD PLAZA mall, its target customers are clear, mainly small, individual traders (suitable to market model) and prestigious, well-known domestic brands wishing to expand to Thanh Hoa market

Moreover, for the two future projects: the high-end, serviced apartment, office for lease complex in lot D7 – in Phu Thuong ward, Tay Ho Dist in Hanoi and Hai Hoa beach resort the company is targeting well-to-do Vietnamese and foreigners (for the D7 project); foreign specialist on extended-stays at the Nghi Son refinery, tourists in Thanh Hoa and nearby provinces

Hien Duc JSC establishment and development was during the latter days of the real estate bubble in Viet Nam Entering the market in 2004, only in 2010 did the company’s projects generate revenue like the HD BUILDING at No 57 Tran Quoc Toan, Hoan Kiem, Hanoi; the Dien Bien market and mall project in Thanh Hoa The Company had high hopes for 2 major projects The D7 in Phu Thuong, Tay Ho, Hanoi, and the Hai Hoa beach resort in Hai Hoa commune, Tinh Gia Dist., Thanh Hoa province with total investment of nearly 200 million USD However, as of today (2012), the D7 project have only begun construction of the mall and model replicas, while Hai Hoa beach resort is still in the site clearance, compensation phase

2010 – 2012 saw the bursting of the real estate bubble The global economic crisis, combined with the weak capabilities of the government in managing the economy has left huge consequences for the Vietnamese economy, much more severe than countries in the region Economic recession, inflation, the collapse of securities, real estate markets characterizes this period The slowdown in growth, high inflation and scores of defaulting businesses has quickly reduced the incomes of a large part of the population There have been no optimistic signs of market recovery nor have there been serious governmental efforts to remedy the severe consequences left in the economy

In addition, after 8 years, Hien Duc JSC have not been able to develop a professional business administration team Hien Duc’s operation is typical of an individually-owned, private business Human resource quality is not very high The company does not have a market research division, customer relations have not been given attention and even the most fundamental sketches of the internal control, communication and business processes have not been outlined Investment and construction are wholly outsourced, from concept to deployment, construction and installation Hien Duc’s current operation is simply operation of a simple business unit: management, account balancing and collection of profit (if any)

Based on the collected information and analysis of the factors affecting the company’s businesses, the current situation and development level of the Vietnamese economy and the inherent characteristics of the Company, our Group propose that the business strategy for Hien Duc JSC for 2013 - 2018 be caution and preservation 2013-

2018 will be the weathering the storm period for real estate businesses (including Hien Duc) Since the company will need to strengthen its internal capacities (instead of relying on its own fund), and the situation may go from worse to worst, a strategy of caution and preservation will help the company to endure and develop in the future

PART I: THEORICAL BASIS OF BUSINESS PLANNING

1.1 Overview about strategy and strategic management in business

1.1.1 What is a business strategy and strategic management?

A strategy is a plan of action designed to achieve a specific goal1 As such, a business strategy is a plan of action designed to achieve a specific business goal of a firm during its operation process By nature, the basic business goal of a firm is profit Along with the increasingly fierce competition in the market economy, the profit goal

of enterprises is converted into various goals such as: existence, development of the firm, product development, market development, and obtaining position and status of the firm, etc in the operation process with the ultimate goal of making profit (both in the short and in the long term) to ensure the firm’s existence and development

A business strategy is an overall plan of actions designed and implemented to achieve business goals of a firm in a certain period of time There are different definitions of business strategy depending on the research approaches adopted by different authors Obviously, the development level of the economy under study is considered one of the main basis for formation of the definitions of business strategies given by different authors

According to Chandler (1962), “strategy is the determination of the basic,

long-term goals and objectives of an enterprise, and the adoption of courses of action and allocation of resources necessary for these goals”

According to Quinn (1980), “a strategy is a pattern or plan that integrates major goals, policies and action sequences into a cohesive whole.”

Fred R.David defines strategy as an “art and science of formulating, implementing, and evaluating cross-functional decisions that enable an organization to achieve its objectives”

According to Garry D.Smith, Danny R.Arold and Bobby R.Bizzell, “Strategic planning is a process of studying current and future environment, and defining an organization’s goals; making, implementing and supervising the implementation of decisions so as to achieve such goals in the current and future contexts”

Business strategy management is the combination of management of operations, marketing, finance, accounting, production, research and development and exploitation

1 http://en.wikipedia.org/wiki/Strategy

and use of various of information systems in business aspects to help the firm achieve such goals In different stages and periods, the business goals of a firm may be different but they all ultimately drive towards the firm’s core goal of making profit

1.1.2 Business strategy formation process

According to the modern business managers, the business strategy formation process consists of 3 main steps The first step is to establish the strategy, the second one is to implement the strategy and the final one is to assess and adjust the strategy

Based on its vision and mission, every firm sets up its own goal for each specific stage and period It has to analyze the external environment (macro and industry environments) and internal environment (inside the firm) to identify its own opportunities, challenges, strengths and weaknesses, based on which the firm identifies its strategic goal Upon identification of strategic goals and methodologies as well as action roadmaps to achieve such goals, the firm should implement business strategies and constantly undertake assessment and adjustment of strategy implementation in order to effectively achieve the set goal after a certain period of time In many cases,

by assessing the implementation of strategies, the firm will adjust implementation modalities or even modify the strategic goal in such a way that is relevant to its conditions and context towards the ultimate goal

Figure 1.1 Business strategy formation process

Assessment of implementaion

External environment Internal environment

The business strategy formation process illustrated in Figure 1.1 presents how a firm identifies its business strategy

Firstly, the vision and mission describe the firm’s future business orientations The vision and mission in the business strategy formation process help the firm answer the question “where shall we go”, and are considered as the very first overall orientations for the strategic goal, including:

- The business areas which the firm should penetrate into as well as the position and status in the market which the firm should gain;

- The needs of customers and groups of customers;

- The main achievements the firm should make;

- The future focus of the firm in some aspects such as technology, products or customers, etc;

- The operational model and management modality which the firm should reach;

- And the like

The vision and foresight normally represent ideas of the firm’s senior managers Those managers who have long-term and broad vision and foresight can guess and foresee future trends of the market, which helps the firm identify relevant strategic goals, creating solid foundation for the tremendous growth of the firm in the future Steve Job (1955-2011), Chief Executive Officer of Apple, with his vision and foresight, helped Apple become a leading technology firm with the highest value ever

in the history

Every firm has its own vision or specific mission even when they are not officially informed Normally, leaders or founding members of a firm desire and believe that their firm will have a good reputation in the market and in the customers’ eyes After a period of operation and development, many firm leaders find that they need to redefine their firm’s main goals Most of the statements of vision and mission focus on present business activities of the firm so as to answer such questions as “who are we?”, and “what are we doing?”

Secondly, the firm’s goal is a standardized description of specific tasks which the firm is implementing or moving towards in the process of identification of business strategy The firm’s goal and tasks are aimed at:

- Ensuring consistency of the goals inside the firm;

- Providing basis and criteria to allocate the firm’s resources;

- Establish the common language and main cultural features of the firm;

- Clearly identifying the firm’s goals and transferring these goals into specific tasks in such a way that the firm’s costs, time and other factors can be assessed and managed

1.1.2.2 Evaluation of external factors

The factors belonging to the external environment of a firm are considered as impacts from outside which affect the firm in such a way that the firm can’t adjust or control External factors include factors belonging to the broader environment and the industry environment In the business strategy formation process, it is very important to assess external factors affecting the firm By assessing external environment, the firm can understand and seize business opportunities as well as minimize negative impacts and challenges from the external environment during its operation

1.1.2.3 Evaluation of current situation of the firm

The current situation or internal factors of a firm reflects all the resources, structure as well as internal elements which are under the firm’s control The current situation of a firm represents elements such as the total existing or mobilizable resources, organizational structure, personnel and cooperation between various sections and units within the firm Assessment of the firm’s current status helps identify its strengths and weaknesses so as to identify relevant solutions to take full advantages of strengths as well as to overcome weaknesses of the firm or of each section or each field

to move towards the strategic goal

1.1.2.4 Analysis and selection of business strategies

After analysis and assessment of vision, mission, goals, external and internal environment factors, one or more business strategies will be given for selection In each stage of development, the firm’s goals may be different but the ultimate goal is to make profit Upon listing available business strategies, the firm managers need to select the most appropriate strategy tailored to the firm’s goal in such period as well as

to review foundations for the next development stage development of the firm in the future

1.2 Tools used to formulate the firm’s business strategies

1.2.1 Phase 1: Collection of information

In order to formulate a complete business strategy, the first step a firm should take is to collect related information to form basis for formulation of its business strategy In this phase, the firm normally looks for information related to external factors, information about its competitors and information about its intrinsic situation

by using External Factor Evaluation Matrix (EFE), Competitive Profile Matrix, and Internal Factor Evaluation Matrix (IFE)

1.2.1.1 External Factor Evaluation Matrix – EFE

EFE is designed to evaluate the impacts of external factors affecting the firm’s operation The concept of “external factors” is understood as the impacts of the external environment affecting the firm which are out of expectations and control of the firm External factors include: political context, economy, society, region related impacts, natural factors, changes in technologies or fluctuation of environment and society, etc

An EFE matrix consolidates and summarizes the main opportunities and threats deriving from external factors affecting the firm’s operation process Results of evaluation of EFE Matrix help the firm managers understand to which extent the level

of impacts of external factors affect the firm and if the impacts are advantages or disadvantages It takes 5 steps to construct an EFE matrix

- Step 1: Identify 10 to 20 main opportunities or threats which have important impacts on the firm’s operation in its field of business

- Step 2: Score the factors mentioned in Step 1 in terms of importance using a scale of 0 as not important and 1 as very important The sum of all the weights given to all factors must be equal to 1

- Step 3: Assign a weight of 1 to 4 to each factor The weight indicates the relative response of the firm towards each factor 4 represents the firm’s superior response, 3 represents above average response, 2 represents average response and 1 represents poor response

- Step 4: Calculate the weighted score for each factor by multiplying its weight

by its score

- Step 5: Sum the weighted scores for all factors to identify the total weighted score of the matrix which help strategy makers assess how the firm is able to respond

to opportunities and threats as external factors If the total weighted score of the EFE matrix is 4, it means that the firm can well respond to opportunities and threats, while 2.5 represents average response and 1 represents poor response of the firm to opportunities and threats

1.2.1.2 Competitive Profile Matrix - CPM

CPM is a tool designed to help strategy makers identify the firm’s strengths and weaknesses compared to its competitors in the same industry CPM is constructed by comparing factors affecting the firm’s competitiveness with its main competitors The objective of CPM is to identify competitive advantages as well as weaknesses of the firm It takes 5 steps to construct CPM:

- Step 1: List about 10 main factors affecting the competitiveness of the firms in the same industry

- Step 2:Score the factors mentioned in Step 1 in terms of importance using the scale of 0 – 1, with 0 being not important and 1 being very important The weights given to all factors must sum to 1

- Step 3: Assign a weight to each competitive factor The assigned weight include: 4 (superior), 3 (above average), 2 (average) and 1 (poor)

- Step 4: Calculate weighted score for each factor by multiplying its weight by its score

- Step 5: Sum the weighted scores for all competitive factors to identify the total weighted score of the matrix which reflects the firm’s competitiveness against its competitors 4 represents the firm’s superior competitiveness against its key competitors; 3 means above average; 2 means average; and 1 means poor

1.2.1.3 Internal Factor Evaluation Matrix - IFE

Internal factors are considered very important in the process of management as well as formulation of business strategies Internal factors affect and directly relate to the firm’s results towards its goals and how the firm is achieving its goal, which forms important basis for the business strategy makers to consider and review so as to recommend relevant solutions to implementation of business strategies The firm analyses internal factors by using IFE in order to see its understanding of and response

to its strengths and weaknesses, based on which the firm can take full advantages of

strengths and minimize weaknesses in the operation process It takes 5 steps to construct IFE:

- Step 1: Identify 10 to 20 internal factors of the firm including main strengths and weaknesses which may have important impacts on the firm’s reaching to its goal

- Step 2: Score the factors mentioned in Step 1 in terms of importance, using the scale of 0 (not important) and 1 (very important) The weights given to all factors must sum to 1

- Step 3: Assign a weight to each factor with 4 levels: 4 (strong impact), 3 (quite strong impact), 2 (quite weak impact) and 1 (weak impact)

- Step 4: Calculate the weighted score for each factor by multiplying its weight

by its rating

- Step 5: Calculate the total weighted score of the matrix by summing the weighted scores for all factors calculated in Step 4 If the total weighted score of EFE matrix is below 2.5, it means that the firm is weak in terms of internal factors If the total weighted score of EFE matrix is above 2.5, it means that the firm is strong in terms of internal factors

1.2.2 Stage 2: Linking factors to formulate business strategies

After the first stage, all the information related to external environment, competitors and internal factors of the firm has been analyzed and assessed in terms of their impacts on the firm’s driving towards its goals, then the strategy makers should link all related factors to formulate a specific business strategy for the firm There are 3 tools designed to formulate specific business strategies including: analysis of strengths, weaknesses, opportunities and threats - SWOT Matrix; analysis strategic position and action evaluation of a firm - SPACE Matrix; and analysis of quantitative strategic planning - QSPM Matrix

1.2.2.1 Strengths, Weaknesses, Opportunities and Threats – SWOT matrix

SWOT is a tool designed to identify a firm’s strengths, weaknesses, opportunities and threats during its operation process While strengths and weakness represent the firm’s internal dimensions, opportunities and threats represent its external factors and environment affecting the firm in such a way that is out of the firm’s expectations and control

SWOT tool helps the firm review the opportunities it can seize as well as analyze intrinsic weaknesses in order to improve management and minimize the unforeseen risks during its operation process By comparing the firm’s SWOT matrix with its competitors, strategies to distinguish and deal with competitors in the market can be drafted, helping the firm compete in an effective manner

It takes 8 steps to construct a SWOT matrix:

- Step 1: List the main opportunities from external environment (O1, O2…)

- Step 2: List the main threats from external environment (T1, T2…)

Basis for identification of opportunities and threats from external environment has been analyzed by using EFE Matrix in Stage 1

- Step 3: List the main strengths of the firm (S1, S2…)

- Step 4: List the main weaknesses of the firm (W1, W2…)

Basis for identification of strengths and weaknesses of the firm has been analyzed by using IFE Matrix in Stage 1

- Step 5: Combine strengths and opportunities to formulate strategies that take advantages of opportunities by tapping on the strengths (SO)

- Step 6: Combine weaknesses and opportunities to formulate strategies to take advantages of opportunities by minimizing the weaknesses (WO)

- Step 7: Combine strengths and threats to formulate strategies to take advantages of strengths while overcoming threats (ST)

- Step 8: Combine weaknesses and threats to formulate strategies to minimize weaknesses and overcome threats (WT)

1.2.2.2 Strategic position and action evaluation Matrix - SPACE

SPACE is a tool used to select a firm’s business strategies on the basis of assessment of factors related to financial strength (FS), competitive advantage (CA) of the firm itself, industrial strength (IS) and environmental stability (ES) in the business field which the firm engages in By assessing these 4 factors (FS, IS, CA and ES), the firm can select aggressive, conservative, defensive or competitive strategies depending upon results of assessment of these factors

Figure 1.2: SPACE Matrix

- Ease of exit from the industry

- Risks in doing business

It takes 5 steps to construct a SPACE Matrix

- Step 1: Choose a set of variables to define Financial Strength (FS), Competitive Advantage (CA), Industry Strength (IS), and Environmental Stability (ES),

- Step 2: Assign numerical values to all the variables of FS and IS ranging from +1(worst) to +6 (best) and assign numerical values to all the variables of ES and CA ranging from -1(best) to -6 (worst)

- Step 3: Calculate the average score for FS by summing all values assigned to each factor and then dividing by number of selected factors reflected in FS, and apply the same for IS, ES and CA

- Step 4: Add the scores on the X-axis and plot the resultant point on X Similarly add the two scores on the Y-axis and plot the resultant point on Y, and then plot the intersection of the new XY point

- Step 5: Sketch a directional vector from the origin of the SPACE Matrix through the new intersection point The vector shows the type of strategies recommended for the firm: aggressive, competitive, defensive or conservative

The graph recommends selection of aggressive strategies: The firm is strong in terms of finance and has outstanding competitiveness in the industry

The graph recommends selection of conservative strategies: The firm is disadvantaged in terms of competitiveness and operates in a technologically stable industry The firm’s revenue is decreasing

The graph recommends selection of defensive strategies: The firm is lowly competitive and operates in an industry with stable growth

The graph recommend selection of competitive strategies: The firm is highly competitive and operates in a stable industry

1.2.2.3 Quantitative Strategic Planning Matrix – QSPM

After collecting information and connecting factors to build a business strategy

of the enterprise, we will have a list and description of planned strategies that may be applied to the enterprise The remaining problem is how to find out the best one

Quantitative Strategic Planning Matrix (QSPM) is the tool for evaluating planned strategies QSPM tool uses input factors analyzed in EFE, IFE tools and combined with evaluation results of SWOT tool to mark the planned strategies Final scores represent the feasibility level, attraction and become bases for planners to choose the best strategy for their enterprises

In order to build QSPM matrix, we use an evaluation table of factors that are analyzed from EFE and IFE matrices Each factor will be evaluated on the basis of strategies planned from SWOT tool Score of each factor for each planned strategy will

be multiplied with the weight determined by respective EFE, IFE matrices Feasibility level, attraction of each planned strategy is the total score of all marked factors

1.2.3 Stage 3: Making decision on selection of business strategies, arrangement of implementation, assessment and adjustment

The result gained after the first two stages of information collection and linking factors to formulate the firm’s business strategies is a list of recommended business strategies for selection The strategic managers will consider various comprehensive elements to select the most appropriate business strategies for their firm The final decision is made based on such factors as: financial and human resources, time availability and assessments on the basis of estimations, experience and sensibility of the firm’s chief executive officer

Upon selection of business strategies, a detailed plan of actions is developed to ensure defining specific activities with allocated budget and expected deadline for completion to provide basis for implementation In this detailed action plan for implementation of business strategies, descriptions of supervision and assessment activities are also indicated to ensure timely tracking, recording and evaluation of implementation results

During the process of implementation of the firm’s business strategies, the results, assessments and feedback should be continuously used to evaluate the

performance and adjust the action plan and even to adjust specific objectives in the firm’s business strategies to ensure that the firm’s strategic goals are relevant and achievable

PART II: ANALYSIS OF THE OBJECTIVE OF FORMULATION OF BUSINESS STRATEGIES FOR HIEN DUC JOINT STOCK COMPANY

2.1 Overview of Hien Duc Joint Stock Company

2.1.1 Brief introduction about the Company establishment and development

Hien Duc Joint Stock Company, which was first known as Hien Duc Limited Liability Company, was established by a businessman whose name is Le Ngoc Huong (1960-2009) Le Ngoc Huong was the first Chairperson of the Vietnamese People Association in the Federal Republic of Russia He was a successful Vietnamese businessman in Vom Market - Moscow where a majority of Vietnamese people reside Hien Duc Limited Liability Company was established on 01/11/2004 and was converted into Hien Duc Joint Stock Company on 06/10/2009 as per the Business License no 0103017192 issued by the Department of Planning and Investment of Hanoi City

* Some important milestones of Hien Duc Joint Stock Company:

- 10/05/2007: converted from the Liability Limited Company to the Joint Stock Company

- 04/10/2007: established a branch in Thanh Hoa province

- 19/12/2007: established a branch in Binh Thuan province

- 23/10/2008: established a branch in Ho Chi Minh City

- 11/2008: was voted and awarded the title of “the leading joint stock company

in Vietnam” by VCCI

- 05/2009: increased the charter capital size from VND 300 billion to VND 668 billion

- 06/2012: established Hien Duc Real Estate Exchange

- From 2008 to 2011: established and provided Le Ngoc Huong scholarships (the Company founder’s name) to Tinh Gia Secondary School in Thanh Hoa with a total value of VND 300 million per year

2.1.2 Organizational structure of Hien Duc Joint Stock Company

Figure 2.1: Organizational structure of Hien Duc Joint Stock Company

List of the Company’s management staff:

- Chairperson of the Board of Directors: Le Thi Thom*

- General Director: Le Thi Luan*

- Chief of communication department: Ngo Gia Son*

- Deputy General Director cum Project Manager:

Le Dinh Thuan*

- Manager of Thanh Hoa Branch: Le Van Chi*

- Manager of Sales Department: Nguyen Kim Toan

- Manager of Project Management Department: Pham Hung

- Manager of Finance and Accounting Department: Tran Duc Tam

- Manager of Organization and Administration Department: Nguyen Duc Manh

* Members of Board of Management:

- Le Thi Thom

- Le Thi Luan

- Ngo Gia Son

Executive Deputy General Director

Ho Chi Minh City Branch

Deputy General Director in charge of organization

Binh Thuan Branch

Thanh Hoa Branch

Board of Management

Organization and Administration Department

Project Management Department

Finance and Accounting Department

Board of

Directors

Sales Department

- Air ticket and tourism agency services;

- Provision of real estate valuation and brokery services

Among these, the trading of real estate products inclusive of rental plaza space and offices for rent, resorts, and rental apartments for foreigners is the main line of business of Hien Duc Joint Stock Company

2.1.4 Vision and mission

- Providing high quality real estate products to high-end customers in Vietnam market

- Becoming one of 10 leading real estate trading enterprises in Vietnam by

2018

2.1.5 Business results in the period of 2007-2011

In general, in the period of 2007-2011, Hien Duc Joint Stock Company gained certain positive achievements in product and service sale, which was demonstrated by the Company’s constant increase in annual revenues and gross profit:

Figure 2.2: Some indicators related to revenues and costs of sales and services

1 Revenue from sales

and services 958,321,747 1,115,605,766 2,869,846,220 8,279,075,998 7,904,289,721

2 Costs 769,692,651 1,006,917,947 2,612,409,357 4,494,982,588 1,772,403,341

3 Gross profit from

sales and services 188,629,096 108,687,819 257,436,863 3,784,093,410 6,131,886,380

Indicator (VND) 2007 2008 2009 2010 2011

Annual growth rate (%)

1 Revenue from sales

3 Gross profit from

However, because of the fact that its main business line is high-end real estate which is characterized by long term and large investment, in the period of 2007-2011, Hien Duc Joint Stock Company did not make any profit if full amount of management costs and sales costs was calculated

Figure 2.3: Some indicators related to the profit made by Hien Duc Joint Stock Company for the period of 2007-2011:

Annual growth rate (%)

1 Net profit from

2.2 Analysis of business environment of Hien Duc Joint Stock Company

In order to analyze the factors affecting Hien Duc Joint Stock Company for the purpose of formation of the Company’s business strategy for the period of 2013-2018,

we use the following information collection methodologies:

* For information directly related to Hien Duc Joint Stock Company:

- Collecting information from the Company’s public reports submitted to the state management agencies and mass media;

- Collecting information from the Company’s internal reports;

- Collecting information from the survey sheets and questionnaires specifically designed for the staff of Hien Duc Joint Stock Company;

* For indirectly related information, market information and other types of information:

- Collecting market and economic information from mass media;

- Collecting information from the published academic reports;

- Collecting information from the survey sheets and questionnaires specifically designed for the management staff of Hien Duc Joint Stock Company;

- Sources and verification of information from other sources are clearly indicated

* The factors used to analyzed are those directly and indirectly affect the Company’s main line of business, which is high-end real estate trading

2.2.1 Analysis of external environment factors

2.2.1.1 Analysis of macro-economic environment - PEST model

- Political Factors:

In the area of real estate business, the Government has tightened the regulations

to make the market transparent and to protect consumers in recent years

Firstly, Decree no 69/2009/NĐ-CP dated 13/08/2009 issued by the Government stipulates that the investors have to negotiate themselves with the land owners about the land compensation price This creates very big barriers for investors in the process

of clearance of construction sites because of the complexity of land management situation in our country The significant differences between the prior and post investment periods and the factors related to supply and demand relationship and crowd psychology which had affected the land price for a long period of time also had direct impacts on the time duration of construction site clearance and costs for investment

Secondly, Decree no 71/2010/NĐ-CP dated 23/06/2010 and Circular no 16/2010/TT-BXD dated 01/09/2010 stipulate that the enterprises who construct various types of housing/residential real estate for sales or for rent are only allowed to sign sales contracts upon completion of the foundation framework This requires the investing enterprises to either have adequate financial capacity or accept high costs for capital mobilization which has implications on the costs and financial risks

Thirdly, Resolution no 11 dated 24/12/2011 of the Government on public expenditure tightening measures to control inflation directly affected the real estate business area, i.e decrease in growth rate and percentage of loans for the real estate area This created a lot of difficulties for real estate trading enterprises in accessing loans, which slowed down the project implementation progress or even made some enterprises sell their projects at low prices because of insufficiency of capital for continued implementation

- Economic Factors:

The entire world and Vietnam are facing economic crisis Most of the Governments in the world are now faced with the issue of public debts and have to tighten public expenditures This is the cause of a sharp decrease in growth rate, people’s income and demand

Figure 2.4: Vietnam’s GDP growth rate in the 2010-2011 period

Source: Vietnam’s economy in the 2006-2011 period and prospects for

2012-2015 – Le Xuan Nghia

One economic factor which is closely connected to the real estate business is people’s income In Vietnam, average income per capita has been rising continuously since 2000, yet the gap in income growth rates of Vietnam and of other developing countries in Asia are becoming wider and wider: Vietnam is lagging behind further and further from other developing countries in Asia Another paradox is that Vietnam

ranks 120th in terms of average income per capita, yet the country ranks 20th in terms

A lot of small individual investors are pessimistic, disappointed, worried and lose their trust in the market

The investors (who can afford to buy) and the people who have real demands for buy (and can afford to buy) are worried about the unstable economy and therefore deposit their money in a bank instead of buying houses

The renters/buyers know that they have too many options and are considering whether they should rent/buy or not

Overall, the supply of real estate is bigger than the demand, i.e those who can afford and are willing to buy, in many types of real estate, especially the medium-end

2 A review of Vietnam’s real estate market – www.batdongsan.com.vn

and high-end apartments and project housing land, except for real estate products at low prices or for low income earners/social housing

- Socio-cultural Factors:

Firstly, Vietnamese people have the tendency to follow the crowd in making investments, causing real estate bubbles which push the sales price too far from its actual value

Secondly, Vietnamese people are fond of having the label “high-end” or foreign words attached to the project names because of their xenophile

When the real estate bubbles broke, the projects with “high-end” label and foreign names failed, the investors and consumers turned their backs on real estate products, which caused a sharp decrease in the market and affected the reliable suppliers who provide really good quality products

- Technology Factors:

Along with the development of technical science, the civil work construction technology also witnessed important development Firstly, the Top down construction technology does not require completion of the underground structures but only requires establishment of the ground structure, therefore the construction duration has been significantly shortened The main disadvantage of this technology is to increase the construction costs by 20% to 30% as compared to the conventional technology

Secondly, the light material technology has made revolutionary changes in the area of civil work construction Light materials with better sound and heat insulation and equal load-bearing capacity have contributed to significant reduction of costs for construction work structures In the construction projects invested by Hien Duc Company, light materials have been used and considered as an important factor contributing to improvement of the quality of structures and reduction of costs

Thanh Hoa is in the North Central Coast and far from Hanoi about 150 km toward the South The area of the region is more 11.000 km2; the population is more 3.4 million people The growth of Economics in Thanh Hoa in 2006 – 2010 period is 11.3 In 2010 GDP is about 810 USD; the economic sector is rather comprehensive; the politics is stable; the defense and security are strengthened, safe and order; social welfare is ensured

Thanh Hoa has prospect of developing economy at present and in the future Leading economy is here Nghi Son Economic Zone Nghi Son Economic Zone was established in 2006, with the scale of area being 18.611 hectares in which 12

communes belonging to Tinh Gia, Thanh Hoa – the exploiting position of geographical advantage in National Road 1 A, South-North railway and Nghi Son port system Nghi Son Economic Zone is the multi-disciplinary, multi-sector, general economic region with the focus of heavy and basic industry Refinery - petrochemical industry, advanced steel rolling mills, mechanical engineering, car production and assemble, ship repairment and construction, electric industry, production of material construction, consuming goods, process and import… are the main sector, which is priority to operate in Nghi Son Economic Zone Currently, such zone has up to 18 projects started and constructed with the total investment value of more 4 billion USD Nghi Son Economic Zone is also expected to be invested in Hai Hoa Project by Hien Duc in the next future

Working age population of Thanh Hoa in 2008 is 2,421 million peoples, accounting for 65,5% of total provincial population; the number of laborer in the national sectors is 2,012 million peoples, accounting for 83,4 % of working age laborer; in which the majority is the agricultural and forestry laborers, accounting for 70% of total social laborer In term of human resource quality, a number of trained laborers is evenly increased each year from 19, 6% in 2000 to 27% in 2005; 31,5 % in

2007 and 38 % in 2010

Socio-cultural characteristics of Thanh Hoa people are quite similar to the centre culture of Vietnamese The culture takes bold the local nature, which respects the relationship of lineage Therefore, Hien Duc Company has many advantages in business because the found person cum owner of the company is Thanh Hoa person origin who is regarded as successful and well-known man and contributed to his local

in economic activities as well as charity

The analysis of the macro-economic environment factors using PEST model for the real state business area of Hien Duc Company is summarized below:

Figure 2.6: Analysis of macro-economic factors using PEST model

P Political Protection of consumers,

prevention of speculation, tightening expenditure and reduction of inflation

Increase in costs, construction site clearance duration and risks

E Economic Low growth rate, lower

demand, increase in inflation, interest rates and costs

Lower revenue, appropriation of large amount

of capital, higher costs and financial risks

Factors Description Implications

S

Socio-culture

Herd behavior, sale and purchase based on relationship, unofficial information, xenophile

The establishment of distribution channels and formation of marketing strategies should

be based on people’s preferences, cultural and social characteristics In the strategic

geographical areas of Hanoi and Thanh Hoa, there is a need to focus on relationship in the process of distribution of products

T Technology New materials, advanced

construction technologies, outsourcing

Shortening construction duration, reduction of costs for the work structure and costs,

improvement of product quality Some technologies require strong capital capacity and higher costs as in exchange of time

The main business locations of Hien Duc are Ha Noi City (HD Building in Hoan Kiem District and the ongoing project – D7, in Tay Ho District) and Thanh Hoa province (Dien Bien market, Dien Bien Trade Centre – Thanh Hoa City, and the ongoing project of Hai Hoa beach resort in Tinh Gia District, Thanh Hoa City) In Hanoi, Hien Duc is a small lessor of office space, and its D7 project is not a big investment project as compared to others in the city In Thanh Hoa, Hien Duc is now quite confident about its financial capacity and its relationship with local governments

and local people thanks to its understanding of local characteristics

2.2.1.2 Analysis of the industry environment - M.Porter’s model

According to Michael E.Porter, the industry environment of any firm in the market economy should be analyzed taking into account the following 5 main challenges:

Figure 2.7: Analysis of industry competitive environment using M.Porter’s model:

We use the M.Porter’s model to analyze the main challenges of Hien Duc Joint Stock Company as follows:

i- Analysis of the existing competitors

Hien Duc Company currently has 5 direct competitors Information about these competitors including their strengths, weakness and evaluation of their competitiveness

is summarized below:

Figure 2.8: Analysis of the existing competitors of Hien Duc Company:

1 Hanoi Tai Tam Real Estate

Company (VinaPlasc 39A Ngo Quyen)

Being an investor and broker, experienced in leasing offices;

having a large number of customers; being able to operate and provide good services

Limited financial capacity as a results

of thinly spread investments, use of large loan amount, high costs

STRONG

Hien Duc Hien Đuc

Hien Duc Hien Duc

Potential competitors sors

Existing competitors

Customers

Suppliers

Substitutes

Threat of new entrants

Buyer’s power

Threat of substitutes Supplier’s power

# Location Name of the

2 Hanoi South Thang Long

Urban Area Development Company Ltd (South Thang Long Urban Area)

Having good financial capacity, experienced in investing in urban areas; good quality

infrastructure, professional services; being put into operation and use since 1996

Low quality construction, high price

2-storey market, large business area, located in crowded residential area, good experience

Located in a desirable site, being

in operation and use for 3 years, having good financial capacity, high quality schemes and good ability to put into use

Limited flexibility

in the process of service provision STRONG

Large scale, being in operation and use for 2 years

The beach is not beautiful and far from the national road no 1, narrow entry road, low quality services

STRONG

ii- Analysis of the potential competitors

In this period of crisis, Vietnam’s real estate market is witnessing the dilemmas

of investors According to the reports of the Government and independent consultants, Vietnam’s real estate market will be quiet at least for the next 5-7 years Therefore, at this stage, there is little possibility of new entry in the real estate business area for new companies For this reason, there is a very low possibility that Hien Duc Joint Stock Company has potential competitors, i.e there will be hardly new comers who can enter into real estate market and scramble for market share and customers from Hien Duc Company

iii- Analysis of the buyer’s power

At this stage, those customers who have demands for real estate products are better treated than gods Along with the recessive and gloomy market, the real estate firms are facing a great challenge, that is, the amount of interest payments builds up incrementally over time and there is a requirement for additional capital and higher construction costs for schemes under construction together with the fierce competition between the secondary investors who have unfortunately bought the real estate products at the time of sharp price drops The sales contracts have been signed but the products have not been delivered, and there are even no residents in the completed

buildings More than ever before, the customers who have demands for real estate products have the superior power in the negotiation process They are provided with a lot of incentives varying from discounts, selective options, support to access loans, and loan guarantee, etc

iv- Analysis of the threat of substitutes

The existing products of Hien Duc Company include business space for rent at the HD 57 building on Tran Quoc Toan street in Hanoi, Dien Bien plaza and Dien Bien market in Thanh Hoa The main future products of Hien Duc shall include medium-end and high-end apartments and rental apartments for foreigners at tourist sites and trading centers The fact is that there are too many “high-end” products in the existing real estate market but there exist no clear and specific criteria for the consumers to assess how a product is considered “high-end” Even some consumers think that the concept

of “high-end” products is associated with high operating costs and arguments over the service quality between the management unit and the apartment owners Typical examples are the famous Keanang and FLC Landmark towers

Along with the serious depression of the real estate market, a lot of “high-end” real estate products have been offered at the price of “medium-end” products, or even

at a normal or low price However, once again, there are still a lot ongoing arguments over what is considered normal or cheap prices, which produces a lot of disturbing information and makes it difficult for the majority of customers to understand

On the other hand, the appearance of a variety of apartments for rent at low prices and with flexible contract duration has significantly affected the desires to own housing facilities of a part of customers With low price and long contract duration, the customers are no longer worried about their responsibilities for payment of utilization fees or repair or upgrading costs It is expected that in the coming time, cheap rental apartments shall be important substitutes, which will affect the demands for buying housing facilities of a part of residents

v- Analysis of the supplier’s negotiation power

Since Hien Duc Joint Stock Company is a newly entrant in real estate business area, it does not have much experience in management of investment projects and negotiation Its investment projects are normally divided into small bidding packages with small investment capital size, so its relationship with the suppliers (construction contractors, material suppliers, etc) has not been really closed based on mutual trust Therefore, in the relationship with the suppliers, Hien Duc is in a weaker position This

Capstone Project: Strategic Management Page: 28/67

is demonstrated by its bid offering and sales contracts which always mention the contract performance guarantee elements focusing on timely payment, high interest rate for deferred payment, and delivery progress depending on payment progress

The main challenges of Hien Duc Company according to M Porter’s 5 Five Forces model are summarized in the following figure:

Figure 2.9: Analysis of Hien Duc’s position using M.Porter Five Forces Model:

Hien Duc Hien Duc

Hien Duc Hien Duc

Potential competitors:

Non-existent

WEAK

Existing competitors

- Tai Tam, Thanh Phat, Thanh Hoa Vinaconex, South Thang Long, 126

- Asking the project owners to make commitments to ensure quality, progress and

- Selling some “high-end”

apartments at preferred prices and terms

STRONG

- Demanding on-the-spot payment;

- Charging high interest rate for deferred payment;

- Delivery progress depends on previous payment cycle progress

STRONG

* Hien Duc’s products and target markets

In terms of product, Hien Duc is currently leasing office space at HD building at

No 57 Tran Quoc Toan – Hanoi; business spaces at Dien Bien market and Dien Bien Plaza mall in Thanh Hoa city These have been the main products generating revenue for Hien Duc JSC since 2009

In the near future, Hien Duc JSC expects to provide real estate products which will position itself better in Hanoi and Thanh Hoa These will be the D7 project and the Hai Hoa beach resort in Tinh Gia, Thanh Hoa (or Hai Hoa project) Expected products from these 2 projects include:

- D7 project: Office for lease, high-end, serviced apartments

- Hai Hoa project: Hotel, restaurants, amusement park for tourists and beachside villas

Studying deeply about main business field of Hien Duc, we found out that: Board of Directors of Hien Duc Joint Stock Company determined to focus on real estate investment with 2 specific product lines: real estate products for lease (office, business centre platform, market platform or other real estates) and real estate products for sale (high-quality apartments, seaside resort building…) However, in actual situation of investment of the Company, we realized that main business segment that brought continuous revenue for the Company at that moment and in near future was the real estate products for lease such as: office, business centre platform, market platform…

Hien Duc’s current revenue comes from leasing office space, sales area in Hanoi and Thanh Hoa Its customers are mainly small traders, household businesses and companies with demand for office space

By realizing the D7 project, Hien Duc’s future market will be linked to products such as business space, high-end, serviced apartments from D7 Customers are expected to be foreigners, high-income Vietnamese with demand for housing lease, businesses providing high-end products and entertainment, dining services in the complex, and high-income customers buying high-end apartments for accommodation

Products and markets information may be illustrated as follows:

Figure 2.10: Collected information about products and targeted market of Hien Duc Joint Stock Company

Project Products

- Service

Provision space

Description of customers at targeted market Customers Needs Residential

Enterprise Office leasing Ha Noi City N/A N/A

Enterprise, small trader

Business space leasing

Thanh Hoa City

Business space rental

3 Service

Apartment

Foreigners, high-income persons

House rental Hanoi,

neighboring provinces

N/A High

4 High-end

apartment

High-income persons

House purchasing for residing and investment

30+, married

Tourists Tourism

Thanh Hoa and neighboring provinces

Business space for rent

Amusement, investment

30+, married

High

In order to approach customers at targeted markets, Hien Duc Joint Stock Company has applied the marketing methods:

- Contracting with consultants – advertising – marketing with professional real estate related firms: CBRE, SAVILLS, FAIRWAY;

- Using means of mass media: Advertising on TV, radio, and press;

- On-the-pot advertising banner;

- Direct selling counseling;

- Through festival, social and cultural events;

- Through charity activities

One of critical weaknesses of Hien Duc Joint Stock Company is the customer management At the moment, the Company hasn’t got staff be in charge of customer – relation governance The customer data and information haven’t been stored systematically, and professionally, but managed spontaneously by the sale staff The Company Leaders also establish their own important customers and counterparts, and they manage such relationship in normal way, but don’t share with other leaders or their subordinates Therefore, it’s going to be necessary to manage the customers and counterparts in professional processes to effectively enable the company marketing strategies at present and in the future

In Thanh Hoa city, Hien Duc company is recognized by public, business counterparts, and local authorities as a firm with capital capacity, with business prestige, and as a Government tax-payer This firm is also reputed as an enterprise which has many charitable activities and contributes to the socio-economic development of Thanh Hoa city and province

In Hanoi city, Hien Duc company almost hasn’t got its name known due to its small size and limited service and products consumed in capital market

Hien Duc Company’s market share of business space line at markets and commercial centers of Thanh Hoa city is estimated about 20% This datum is estimated based on the total business spaces available in Thanh Hoa city, in which partially provided by Hien Duc company The inadequacy of data as well as the venue, and the classification of total turnover of business space for rent in Thanh Hoa city is the key

factor to promote our group in applying estimation method instead of more specific and accurate calculation

Figure 2.11: Analysis of revenues in the year 2010, 2011 and the first 9 months of 2012, and the forecasted revenue in the period 2013-2018

Unit - Million VND

1 HD Building - 57 Tran Quoc Toan, Hanoi 4,068 5,677 4,310 5,700 5,700 5,700

2 Dien Bien market project - Thanh Hoa City - 328 5,682 5,600 5,600 5,600

3 Commercial Center project - HD Plaza, Thanh Hoa - - - 8,986 8,986 8,986

6 Other real-estate trading and investments 4,211 1,900 2,564 1,800 1,800 1,800

5 Seaside resort project - Hai Hoa beach - Tinh Gia -

2 Office for Lease 4,068 5,677 4,310 5,700 5,700 5,700

1 HD Building - 57 Tran Quoc Toan, Hanoi 49% 72% 34% 26% 26% 26%

2 Dien Bien market project - Thanh Hoa City 0% 4% 45% 25% 25% 25%

3 Commercial Center project - HD Plaza, Thanh Hoa 41% 41% 41%

6 Other real-estate trading and investments 51% 24% 20% 8% 8% 8%

5

Seaside resort project - Hai Hoa beach - Tinh Gia -

Figure 2.12: Information of ongoing projects:

25-storey floating high- end apartment building, 4- storey basement, total area is 145.000m2 with 350 residential apartments and

200 service apartments

Complete the business centre, and the building design

High-end seaside resort

of 23,5ha : in the

compensation process for land acquisition

Internal budget, loans from the bank, and loans from consumers

2014 2018

Compensating for land acquisition

(Source: Consultant report on D7 Project and Pre-feasibility report on Hai Hoa project, and internal report on the implementation progress of D7 and Hai Hoa projects

of Hien Duc Joint Stock Company)

- Analyzing the crisis of current Vietnam real-estate market:

In Vietnam, the year 2012 has witnessed the most terrible economic crisis, particularly affected the real-estate market All the real-estate products including the land, low to high-end apartments, villas, and houses as well decreased at the same time The price of real-estate products now keeps on decreasing, and the price is continuously estimated to non-stop slow down

So far, there haven’t been official survey data about the number of projects and real-estate products being sold and going to be sold on the market However, the