Capstoneprojectreportstrategy of bien hoa sugar joint stock company from 2010 - 2015

GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM CAPSTONE PROJECT REPORT STRATEGY OF BIEN HOA SUGAR JOINT STOCK COMPANY FROM 2010 - 2015 Group 8 Members: 1.

GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION PROGRAM

CAPSTONE PROJECT REPORT

STRATEGY OF BIEN HOA SUGAR JOINT STOCK COMPANY

FROM 2010 - 2015

Group 8 Members:

1 Le Minh Chuong

2 Ho Han Dan

3 Le Ngoc Dung

4 Do Hoai Thu

5 Nguyen Hoang Tuan

6 Nguyen Thi Anh Xuan

Class: GAMBA01.C01

HO CHI MINH 2010

DECLARATION OF AUTHENTICITY

We, all members of Group 8, here undersigned declare that all material presented in this paper is our own work without any copied material In efforts to accomplish this paper, all knowledge obtained from the program was applied together with information and data released in books, magazines, websites which were listed in the bibliopoly of the paper

ACKNOWLEDGEMENTS

First of all, we would like to express our appreciation to all professors and staff

at Central For Educational Technology and Career Development- Nation University Hanoi for giving us chance to obtain knowledge in modern advanced business administration We highly appreciated their support to help us successfully accomplish the whole program of International Business Administration Master held by the Center

We also would like to thank our classmates from GaMBA01.C01 class who always supported and encouraged us while completing this paper

Last but not least, we want to thank Bien Hoa Sugar Joint Stock Company for its provision of relevant data of both sugar industry and the Company

The joint paper could not have been completed without the cooperation and hard work of all members of the Group resulting in deep understanding and high accord when choosing the topic, gathering information and analyzing them

INDEX

Declaration of authenticity 2

Acknowledgements 3

Index 4

List of abbreviation, shortform 8

List of charts, diagrams, graphs 9

Introduction 11

CHAPTER 1: LITERATURE REVIEW 13

1.1 STRATEGY AND STRATEGIC MANAGEMENT OVERVIEW 13

1.1.1 Definition of strategy and strategic management 13

1.1.2 Roles and importance of strategy and strategic management 14

1.2 CONTENTS OF STRATEGIC MANAGEMENT 15

1.2.1 Identifying enterprises‟ vision and mission 16

1.2.2 External environment analysis 17

1.2.2.1 Macro environment analysis 17

1.2.2.2 Industry environment analysis 18

1.2.3 Internal environment analysis 18

1.3 STRATEGY FORMULATION, SELECTION AND IMPLEMENTATION 19

1.3.1 Phase of collecting and organizing data 20

1.3.2 C o m b i n i n g p h a s e 20

1.3.3 D e c i s i o n m a k i n g p h a s e 21

1.4 CONCLUSION 22

CHAPTER 2: PERFORMANCE ANALYSIS FOR BIEN HOA SUGAR

JOINT STOCK COMPANY FROM 2006 - 2010 23

2.1 OVERVIEW ON THE COMPANY AND SUGARCANE INDUSTRY: 23

2.1.1 Company overview 23

2.1.1.1 History 23

2.1.1.2 Business line 24

2.1.1.3 Development history 25

2.1.1.4 Human resource organization 26

2.1.1.5 Determination of mission and vision 27

2.1.2 Sugarcane and sugar industry overview 27

2.1.2.1 Industry value chain 28

2.1.2.2 Industry characteristics 29

2.2 EXTERNAL ENVIRONMENT ANALYSIS 30

2.2.1 Macro environment analysis 30

2.2.1.1 Political factors 30

2.2.1.2 Economic factors 31

2.2.1.3 Sociocultural factors 33

2.2.1.4 Technological factor 35

2.2.1.5 Globalization trend 35

2.2.2 Industry environment analysis 36

2.2.2.1 Potential rivals 37

2.2.2.2 Current rivals 37

2.2.2.3 Power of customers (buyers) 39

2.2.2.4 Power of suppliers 40

2.2.2.5 Threats of substitute products 41

2.2.2.6 The prospect of industry development 41

2.2.3 BHS‟s opportunities and threats evaluation 44

2.2.3.1 Opportunities and opportunity ranking 44

2.2.3.2 Threats and threat ranking 47

2.2.3.3 External factor evaluation (EFE) matrix for BHS 50

2.3 INTERNAL ENVIRONMENT ANALYSIS 52

2.3.1 BHS‟s internal environment analysis, in application of value chain model 52

2.3.1.1 Company’s position in the industry 52

2.3.1.2 Technology 53

2.3.1.3 Materials 53

2.3.1.4 Current production and consumption capacity 55

2.3.1.5 Research and Development (R&D) 56

2.3.1.6 Marketing activities: 58

2.3.1.7 Brand name, trademark and patent registration 58

2.3.1.8 Product quality testing 59

2.3.1.9 Cost production management 60

2.3.1.10 HR quality 61

2.3.1.11 Financial capacity 62

2.3.2 BHS‟s internal environment analysis 64

2.4 BHS’S BUSINESS STRATEGY FORMULATION AND OPTIMAL STRATEGY SELECTION 65

2.4.1 Combined SWOT Matrix 65

2.4.2 BHS‟s optimal strategy selection 69

CHAPTER 3: BUILDING THE STRATEGIES FOR BIEN HOA SUGAR JOINT STOCK COMPANY STAGE 2010 - 2015 AND IMPLEMENTATION

71

3.1 STRATEGY OF PRODUCTION COST REDUCTION 71

3.1.1 The content of strategy 71

3.1.1.1 Short-term target 71

3.1.1.2 Long-term target 72

3.1.2 The solution of strategy 72

3.1.3 Implementation Plan 73

3.2 INCREASE OUTPUT SUGAR CANCEMATERIALS STRATEGY 76

3.2.1 The content of strategy 76

3.2.1.1 Short-term target 76

3.2.1.2 Long term target 78

3.2.2 The strategy solutions 78

3.2.3 Implementation Plan 79

3.3 SEP UP STRATEGY AND DEVELOPMENT COVER DISTRIBUSTION SYSTEM 81

3.3.1 Content of strategy 81

3.3.1.1 Short-term target 81

3.3.1.2 Long term target 82

3.3.2 Strategy solutions 83

3.3.3 Implement plan 83

3.4 SOME RECOMMENDATIONS FOR IMPLEMENTING A SUCCESSFUL STRATEGY 86

3.5 THE LIMITATIONS OF BIG ASSIGNMENTS 87

CONCLUSION AND RECOMMENDATIONS 88

REFERENCE DOCUMENTS 90

LIST OF ABBREVIATION, SHORTFORM

BHS: Bien Hoa Sugar Joint Stock Company

Company: Bien Hoa Sugar Joint Stock Company

TMN: Tons sugar-cane per day

LIST OF FIGURES

Figure 1.3 Diagram of main activities and supporting activities 19

Figure 2.2 Sugarcane - sugar industry value chain 28

Figure 2.5 Five competitive factor model of M Porter 36

Figure 3.1 Step of building covering distribution system 82 Figure 3.2 Step of implement covering distribution strategy 83 Figure 3.3 The Steps of implement marketing strategy 84

LIST OF TABLES

Table 2.1 Financial ratios from 2004 to 2010 of BHS 25

Table 2.2 Forecast of GDP growth rate in some regions and countries in 2009 and

2010 in comparison with the growth rate in recent years 33

Table 2.3 Evaluation of BHS‟s opportunity effects 45

Table 2.7 List of main suppliers for the company 54

Table 2.8 BHS‟s cost structure, in comparison with other companies within the

Table 2.10 In comparison with other HSX-listed companies within the industry 63

Table 2.12 GREAT model for BHS‟s optimal strategy selection 70

Table 3.1 Implementation of strategic plans to reduce production costs 74

Table 3.2 Implementation of strategic plan to increase production of cane raw

INTRODUCTION

1 Thesis: STRATEGY OF BIEN HOA SUGAR JOINT STOCK COMPANY FROM 2010 - 2015

2 Current situation, necessity and application of thesis:

Sugar canes and sugar production have long existed in agriculture-based Vietnam Sugarcane industry, however, has just appeared since the 90s Due to historical and low-efficient characteristics (high cost, lots of risks), the sugarcane industry, mainly dominated by state-owned enterprises, has not drawn much attention from private sector

So far, after 20 years of development, the sugarcane industry of Vietnam has still been small, fragmentary, low-efficient, and protected by quotas and import taxes Nevertheless, under commitments of WTO integration schedule and other regional commitments such as CEPT (AFTA), Vietnam will make the industry competitive soon

Value chain of the Vietnam sugarcane industry is generally equivalent to that

of other sugar-producing countries Still, because domestic production fails to meet its demand, Vietnam has to import sugar annually

As a result, the global sugarcane industry will approach to a same playing field with the same rules, will survive and develop under economic regulations If the local sugar-producing industry in general and Bien Hoa Joint Stock Co., Ltd (“BHS”) fail to improve their competitive capability to meet domestic demand and compete with other external rivals, integration will become threats rather than opportunities

3 Purpose and scope of study:

Study purpose: Studying/ Surveying BHS‟s production and consumption, then

comparing and evaluating the company‟s competitive capability

The purpose is to study strategy formulation background, strategy formulation process and optimal strategy selection to help BHS identify its strategy which is most suited to current conditions and situations Thence, suggestions and solutions are come up with to improve BHS‟s strategy formulation process under current situation and suggest strategy implementation schedule for the 2010-2015 period Increasing BHS‟s competitive capability is the ultimate purpose

Scope of study: Having a thorough study on analyzing, formulating and selecting

BHS‟s solutions and strategy implementation schedule for the 2010-2015 period

4 Implantation method:

- Gathering information, primary and secondary data

- Method of comparison, analysis, combination and generalization

- Data and information are based on figures, information released in the media, websites and data of sugarcane industry provided by BHS

5 Structure of thesis:

The work includes the opening and 03 chapters The main contents of each chapter are as follows:

Chapter 1: Literature review

Chapter 2: BHS‟s performance analysis for the 2006 - 2010 period

Chapter 3: BHS‟s strategy formation for the 2010 - 2015 period and action

plan

Conclusions and recommendations

Bibliography

CHAPTER 1: LITERATURE REVIEW

1.1.1 Definition of strategy and strategic management:

Concept of strategy:

1 Strategy is the determination of basic term goals and objectives of an

enterprise, and the adoption of course of action and the allocation of

resources necessary for carrying out those goals (Alfred Chander)

2 Strategy defines as the pattern or plan that integrates an organization‟s major

goals, policies and action sequences into a cohesive whole (James B Quinn)

3 Professor William J Glueck defines strategy as “a unified, comprehensive

and integrated plan, designed to assure that the basic objectives of the enterprise are achieved.”

4 Michael L Porter, who first introduced competitive advantage theory,

defines strategy as:

 First, strategy is the creation of a unique and valuable position,

involving a different set of activities

 Second, strategy is choosing and making trade-offs in competition

 Third, strategy is to forge fit among the various activities of the

company

Hence, strategy is firstly related to goals of the enterprise Secondly, strategy is the implementation approach of actions and decisions which are in close relation as well as integration method of those actions and decisions The strategy of enterprises must exploit basic strengths (including resources and capacities) and make a consideration on external environment‟s opportunities and threats

Concept of strategic management:

1 Strategic management is a study and analysis process of company‟s internal and external environments, which are existing or potential; and the identification of company‟s objectives, as well as strategy planning, implementing and testing in order to achieve expected goals by utilizing its resources effectively

2 Strategic management process:

Figure 1.1 Process of strategical management

(Source: Textbook - Strategy Management of Griggs University)

1.1.2 Roles and importance of strategy and strategic management:

In part, strategy makes economic organizations more sensitive and active against market‟s forecasts and volatility As a result, their right decisions are made and their business activities are controlled to increase their competitive advantages and gradually assure their strong position in the market regime

 Strategy can be considering “code of conduct” for enterprises and the

ultimate goal for all members to achieve

 Strategy is the represence of enterprise’s value

 Strategy give enterprise leaders planning and vision in the future

 Strategy is the creation in corporate management

 Strategy is the presence of corporate position

In his book of “Competitive strategy”, Michael Porter identified that

“Competitive strategy is in the relation between the company and its market”

As important as it is, an enterprise must build its long-term business strategy necessary for its stable and developed business in the future Nevertheless, due to non-stop volatility of business environment and change of corporate resources in line with each strategic period, enterprise strategy must be flexible and changeable

to fit with current situation

1.2 CONTENTS OF STRATEGIC MANAGEMENT:

Strategy is built from the enterprise‟s missions, which is a base to identify the objectives and jobs-to-be-done for its customers as well as other related partners Based on these missions, the management will set up the objectives These objectives clearly show the corporate missions and are used to develop action plans and process evaluation These objectives are led by real knowledge in both external marketing/ business environment and corporate internal capabilities In common cases, strategic planning starts by thorough research and analysis, and at the same time conducts a process through which the management can figure out the prioritized activities that the corporate need to solve for a long-term success

It is crucial for different departments of the corporate to be involved in strategic planning, given that they have diversified knowledge in terms of capabilities and the competitive environment they are working in, therefore can deliver lucid suggestions for what the corporate should do Furthermore, the departments involved in the strategic planning have better capabilities in supporting and executing the proposed plans Departments are actually the center to execute the plan, they have the leadership, human resources and necessary skills for effective execution

By together executing the predefined process, the management and department managers ensure to establish a suitable plan, which is solid and has high chance of success, no matter if the plan comes from the whole organization or an individual department

The execution of the strategy needs to be in conformity with the processes of the whole organization Both the management and department managers need to have high concentration in executing the strategy, since a perfect strategy could mean nothing if it is not properly executed by the organization management

1.2.1 Identifying enterprises’ vision and mission:

The vision & mission define the desired or intended future state of an organization

or enterprise, the long-term objectives the enterprise aims to, which are the base to build the policies, business plan for short-term

Identifying the vision is to figure out the state that the enterprise wants to achieve The statement figures out future vision when the enterprise achieves its objectives and purposes The statements of vision should identify the final destination of the enterprise

In order to achieve success, Davidson pointed out the 6 crucial elements that a

vision should have, including: Proposing future direction; Focusing on the benefits

of consumers; Being practical; Creating the motivations; Comprehensive communication is crucial; Always supervising & evaluating

A vision statement outlines the values and rules on enterprises, which is a key element in the strategic planning process The mission of the enterprise is the reason for its existence in the market, for what kind of products and services that it will bring to the customers and community The decisions during the process of strategic planning should always be in synergy with the mission statement

The mission statement is the foundation for the vision of an enterprise Mission statement may be a motivation for the enterprise‟s staffs to communicate its purposes and values to the customers and community

1.2.2 External environment analysis:

1.2.2.1 Macro environment analysis:

The PEST model focuses on the research of external environment factors‟ impact on the enterprise Those factors are:

in accordance with those impacts

Nowadays P.E.S.T model has been extended to the S.T.E.E.P.L.E matrix (Social/demographic, Technological, Economics, Environmental, Policy, Legal, Ethical) and been gradually completed as an irreplaceable standard for external environment analysis of enterprises

1.2.2.2 Industry environment analysis:

Industry environment analysis using Michael Porter‟s framework involves 5 forces on enterprises, also called 5 competitive forces, which are: The bargaining power of suppliers, The bargaining power of customers, The threat of new entrants, The threat of substitute products and The existing competitors

Figure 1.2 Michael Porter’s 5 Forces Framework

(Source: Competitive Strategy written by Michael E.Porter

and published by: Hanoi Science and Technology)

1.2.3 Internal environment analysis:

Internal corporate environment is often evaluated based on Functional departments such as: Finance; Human Resources; Operating Management; Organization Structure; Marketing; Research/ development; IT

Competitive Rivalry within

Challenge of substitute products/ services

Bargaining power Bargaining

power

Figure 1.3 Diagram of main activities and supporting activities

(Source: Textbook - Strategy Management of Griggs University)

The analysis of internal corporate environment will enable us to figure out the Strengths (S) and Weaknesses (W) of the organization Thereafter, the chosen business strategies need to maximize the strengths and solve the weaknesses of the enterprise

Similar to the technique of analyzing external factors, “Internal Factor Evaluation” matrix (IFE) is utilized to quantify the internal state of the enterprise

1.3 STRATEGY FORMULATION, SELECTION AND IMPLEMENTATION:

There are 3 phases to formulate the business strategy and each of these utilizes different tools

Phase 1: Phase of collecting and organizing data

This phase summarizes the basic information that has been collected and organized

to formulate the business strategies This phase uses a tool called EFE matrix

Phase 2: Combining phase

This phase selects, arranges and combines external and internal environment factors to figure out the feasible strategies This phase will utilize the tools below: the SWOT matrix – strengths - weaknesses, opportunities - threats (called as

SWOT)

Phase 3: Decision phase

This phase uses the single tool called Quantitative Strategic Planning Matrix (QSPM) QSPM takes the inputs from stage 1 analyses, evaluates them objectively among alternative strategies in phase 2, and then decides what the optimal business strategy for the enterprise is

1.3.1 Phase of collecting and organizing data: Matrix

EFE matrix is established following 5 steps follows:

- Step 1: List down the influential factors in the industry that the company is doing business in, including opportunities and threats

- Step 2: Assign a weight to each factor, using the scores from 0,0 and 1,0 (increasing level of importance) with the sum of the scores adding to 1 The importance level depends on the industry that the enterprise is doing business in

- Step 3: Assign a rating to each factor, using the scales between 1 and 4, indicating how effective the company responds to the factor 4 = superior 3 = above average 2 = the response is below average 1 = the response is poor

- Step 4: Calculating the weighted score for each factor (by multiplying each factor weight with its rating in step 2 & 3)

- Step 5: Calculating total weighted score for the company by using scores in step

4

The total weighted score will be 4 at highest and 1 at lowest Average score is 2.5 The higher the total weighted score is, the better the enterprise responds to the external factors

1.3.2 C o m b i n i n g p h a s e : SWOT Matrix

The SWOT analysis framework is a tool to combine Strengths (S), Weaknesses (W), Opportunities (O) and Threats (T) to formulate 4 types of strategies:

- SO strategies: use the internal strengths to pursue external opportunities

- WO strategies: utilize external opportunities to overcome internal weaknesses

- ST strategies: use corporate‟s strengths to avoid or reduce the external threats

- WT strategies: these are defensive plans to reduce the internal weaknesses and external threats

A SWOT matrix is illustrated by the below figure:

List Threats S-T strategies W-T strategies

Figure 1.4 SWOT Matrix

1.3.3 D e c i s i o n m a k i n g p h a s e :

QSPM utilizes the inputs from phase 1 (information collecting & organizing phase) and the matrix in phase 2 (combining phase), thereafter evaluates objectively the alternative business strategies

The strategies chosen to input into QSPM are not every strategy found in phase

2

To build QSPM, 6 steps below need to be followed as follows:

- Step 1: List down the S, W, O, and T from EFE matrix

- Step 2: Organize each factor to match with EFE matrix

- Step 3: Analyze the matrix in phase 2 and identify the alternative strategies that will be further evaluated

- Step 4: Calculating Attractiveness Scores (AS) for each factor : the scores are between 1 and 4, with 1 = not attractive, 2 = some what attractive, 3 = reasonably attractive, and 4 = highly attractive

- Step 5: Calculate the Total Attractiveness Scores (TAS) by multiplying the weights (step 3) by the Attractiveness Scores (step 4)

- Step 6: Calculate the Sum Total Attractiveness Score for each strategy

The most attractive strategy is the one with highest Sum Total Attractiveness in step

6

Overall, enterprises should always identify their annual and long-term objectives during business process Business strategy is the direction and detailed steps to achieve those objectives

CHAPTER 2: PERFORMANCE ANALYSIS FOR BIEN

HOA SUGAR JOINT STOCK COMPANY

Bien Hoa Sugar Manufacture was officially changed its name into Bien Hoa Sugar Company since 1994

For business expansion, in 1995, Bien Hoa Sugar Company invested to increase its production capacity of refined sugar at Bien Hoa from 200 tons/day to

300 tons/day and started building Tay Ninh Sugar Manufacturer (is now known Bien Hoa – Tay Ninh Manufacturer) After being designed, constructed, and installed for more than 2 year, on 26/03/1998, Tay Ninh Sugar Manufacturer was officially put into operation with a capacity of 2,500 tons sugarcane/day Its capacity reached to 3,500 sugarcane tons/day in 2001 In 1997, Thanh Long sugarcane farm was set up with an area of 960 hectares In November 2007, the Company made an acquisition of Tri An Sugarcane Company to form Bien Hoa – Tri An Sugar Manufacturer

Under Decision No 44/2001/QĐ-TTg of the government president on transferring Bien Hoa Sugar state owned company to a joint stock company on 27/03/2001 Its equalization process was made with an approval from Dong Nai Planning and Investment Department After its business certification was issued on 16/05/2001, Bien Hoa Sugar Joint Stock Company was officially established

The Company’s head office and branches as follows:

 Head office: Bien Hoa 1 Industrial Zone, An Binh Ward, Bien Hoa City, Dong Nai province

 Manufacturers and enterprises: Bien Hoa - Tay Ninh sugar manufacturer; Bien Hoa - Tri An Sugar manufacturer; Thanh Long Agriculture Enterprise

 Branches: Ho Chi Minh city; Da Nang and Can Tho city

 Subsidiaries: Bien Hoa - Thanh Long One Member Co., Ltd; Hai Vi One Member Co., Ltd

2.1.1.2 Business line:

Some main information on the Company:

 Company name: Bien Hoa Joint Stock Company

 English name: Bien Hoa Sugar Joint Stock Company

 Short name: BSJC; Securities code: BHS

 Head office address: Bien Hoa 1 Industrial Zone, An Binh Ward, Bien Hoa City, Dong Nai province

 Website: www.bhs.vn; Email: bsc@hcm.vnn.vn

 Telephone: 061 3836199; Fax: 061 3836213

 Logo:

 Charter capital: VND 185,316,200,000

The Company’s main business activities, including:

 Producing and trading sugarcane products, sugar-using products and products made from by-products and deficient products of sugarcanes; purchasing and selling machines, equipment, sugarcane tools

 Repairing, maintaining and installing equipment for sugarcane industry

 Lending warehouses; Building civil and industrial construction work

 Purchasing, selling, being an agent, consigning agricultural products, industrial food, and materials for sugarcane industry

 Transportation services, F&B (Food and Beverage) services, and wine trading

 Real estate trading; producing and trading alcohol

 Agricultural cultivation and mechanization services

2.1.1.3 Development history:

Performance and business results during many years:

Since its establishment of joint stock company, its business performance has been not stable, mainly due to unsustainable sugarcane and raw sugar materials The sugar market has been very complicated because of being affected by foreign sugar market and illegal import, price fluctuation of agricultural products (rubber, rice) From 2004 until now, indicators of turnover, earnings before tax, equity capital, registered capital as follows:

Table 2.1 Financial ratios from 2004 to 2010 of BHS

(Source: BHS’s financial statement from 2004 - 2010)

In general, the performance of this company guarantee profits at the minimum level with the ratio of benefit over equity capital of 14%/year

The ratio of profit over equity capital accounts for more than 23% The ratio of profit over revenue reaches more than 3.6%

2.1.1.4 Human resource organization:

Figure 2.1 Organization chart of BHS Organization chart includes:

 Board of Shareholders

 Board of Directors

 Supervising board

 Management board: 1 CEO and 4 Deputy CEO

 Production unit: 2 sugar production factories, 1 sugar production agriculture factory and mechanized agricultural service, 1 refined sugar mill, 1 alcohol production factory

 Functional departments: 10

 One member limited company: 2

Human resources

 Total average labors: 998 people

 Average salary per month per person in this year: VND 4,800,000

 Policies of labors: subject to collective labor agreement and labor law

2.1.1.5 Determination of mission and vision:

 Aiming to become the leading company in sugarcane industry in terms of production efficiency, value added and sugar distribution

 Enhancing the benefits for related parties: shareholders, income for sugar planting farmers, labors and partners

 Sustainably developing sugar material area

 Maintaining the leading position in terms of product prestige and refined sugar

 Appropriately organizing and managing production, applying advanced business management rules

 Maintaining the growth rate of 10 - 15% per year

2.1.2 Sugarcane and sugar industry overview:

Not only in Vietnam but also in many countries around the world, sugarcane and sugar industry is one of the sectors combining industry and agriculture which are currently protected by tariff barriers and quotas,…

Economically, sugarcane and sugar industry is generally one of the essential food industries (together with salt) in raw materials to produce many other food-stuff products (spices, confectionery, beverages, ) In addition, many countries in the world have incorporated flexibly sugar and ethanol production Ethanol has been increasingly researched and used as one clean kind of fuel In many modern

factories, a closed production process is applied to take advantage of all the byproducts, and waste products obtained through the sugar and ethanol production Vietnam‟s sugarcane and sugar industry is determined as not only an economic sector with the maximum profit target, but also an economic – social sector because

it has a significant effect on sugarcane farmers‟ life Therefore, in the past years, although the efficiency of sugar factories across the country is very low, or even suffers losses or goes bankrupt, government still maintains this industry and their protection policies such as application of import tariff from 25% to 60% for imported products, credit support and other preferences

2.1.2.1 Industry value chain:

(*) Bee honey is used to produce ethanol, alcohol and sodium glutamate,…

Figure 2.2 Sugarcane - sugar industry value chain

The value chain of sugarcane - sugar industry is, in general, similar to other countries producing sugar However, because domestic production cannot meet the demand, Vietnam still imports sugar annually Another difference is that the proportion of sugarcane raw material value (or value belonging to the sugarcane planting farmers) in the finished product accounts for only about 60%, however in countries such as India and Thailand, this rate is 70% The reason is that backward production technology or the scale; production conditions in Vietnam are unable to apply advanced manufacturing process to help reduce production costs Therefore, the sugarcane purchase price from farmers is difficult to decrease In addition, low

MUD

SUGAR CANE DREGS

SUGAR FACTORY

FERTILIZER FACTOR

(*)

FARMER

agricultural productivity makes farmers less interested in planting sugarcane The second difference is that in large sugar producing countries, sugar factory investment projects are usually associated with ethanol (bio-fuel) material investment in order to flexibly to shift production activities in accordance with market supply and demand and to enhance the effectiveness of the project; as a result, it is possible to develop sustainable sugarcane material areas

2.1.2.2 Industry characteristics:

Sugar is an important material in the food processing industry and also an essential product in daily life Raw materials for processing sugar are diversified including sugarcane, tulip, Thot Not in which the most common material is sugarcane When bio-fuel attracts more attention during current periods, ethanol production has begun to compete with sugar industry in using raw materials Price fluctuation also occurs in the two industries in the market

One of the main characteristics of the sugarcane industry is its seasonal factor, usually from November to April of the next year, so that the sugar factory also operates at its maximum capacity at that time Then the finished product will be stock for distribution in the following time, leading to greater storage costs and lower capacity than other industries

The sugar industry‟s another characteristic is that its factories must be located near the raw material area because after being harvested, sugarcane needs to be put into operation within 24 hours to ensure sugar reservation (reduce maximum waste

of sugarcane), at the same time, to reduce transportation costs for raw materials to achieve more competitive price

On the other hand, although sugar industry does not have advantage of large scale, experts in the industry expect that it should achieve a minimum capacity of 5,000 tons of sugarcane per day to improve its efficiency In some large countries producing sugar, average scale of sugar factories is quite high: in Thailand 12,000 TMN, in Australia 10,000 TMN, in Brazil and Mexico 5,000 TMN, and so on

Besides, many countries especially EU protected local sugar production by using price subsidies and tariff barriers or applying high domestic sugar price policy

to encourage exportation Therefore, the market price does really reflect the real supply and demand

2.2 EXTERNAL ENVIRONMENT ANALYSIS:

2.2.1 Macro environment analysis:

Figure 2.3 PEST analysis model

2.2.1.1 Political factors:

Sugarcane industry has lasted for a long time in Vietnam It, however, has been classified as one of the low competitive industries because of many reasons Some chronic disadvantages of this industry obviously include its small scale, backward methods of sugarcane seed selection and creation which are considered as one of main factors leading to low productivity, incomplete investment in infrastructure such as watering systems and roads for sugarcane delivery, and so on Moreover, inappropriate policies of material area conservation and supporting programs for farmers are also another reason As a result, farmers have not yet put their whole soul in creating stable material areas for the factory If Vietnamese enterprises fail

to take drastic measures to improve their manufacturing and processing technology, management styles, sugarcane farmer supporting schemes, the sugar industry will,

to some extent, suffer certain risks, especially in case of international economic integration

On the other hand, in addition to a large number of sugar imported through regular channels, the local sugar industry also faces a large amount of sugar illegally imported from Thailand, China, and so on If there are no effective management and control policies, the illegal sugar imports will negatively influence the domestic sugar production and consumption

This company is joint stock one subject to Corporation Law, Securities Law and other legal documents on securities and stock market … Vietnamese legal system has been currently unstable and inconsistent Legal documents have also been incomplete, out of date and overlapping The inadequate and inefficient application of law in reality will affect the long-term development strategy schemes

2.2.1.2 Economic factors:

Vietnam is one of the most active developing countries in Asia The average GDP growth rate during 2003-2007 reached a quite high level of 8.04% In 2007, Vietnam achieved the highest record of 8.44% and was ranked third in Asia,

following China (11.3%) and India (9%) (Source: GSO)

As from the 2008 global economic crisis, the international economies including Vietnam had experienced an extremely hard period of slowdown economic growth However, Vietnam was one of the few countries enjoying positive economic growth rate which was though lower than those of previous years In 2009, GDP of Vietnam decreased to 5.32% in comparison with 6.23% in

2008, although this rate was even higher than the number estimated by the National Assembly The growth rates in the third and forth quarter of 2009 (6.04% and 6.9%) were larger than those in the same periods in 2008 (5.98% and 5.89%) Those figures showed that Vietnamese economy has overcome the crisis period thank to its government‟s efforts to accelerate demands and strengthen the economy The GDP growth rate in the first quarter of 2010 was expected to reach 5.83% in

comparison with the figure in the same period of 2009 (Source: GSO) The target

proposed by the Government for the whole year of 2010 is 6.5%

About international trade, the export volume in 2009 was estimated to reach 56.6 billion USD decreasing by 10% in comparison with that of 2008 and the import volume in 2009 was expected to catch 68.8 billion USD declining by 14.4%

in comparison with that of 2008 In 2010, in order to recover the economy, the need for importing goods, especially equipment and machinery, will become higher Besides, the increase in prices of goods will to some extent magnify the import volume and as a result, affect the international payment balance of Vietnam Trying best efforts to decrease the trade deficit and stimulate exportation, the State Bank of Vietnam implemented a lot of policies to evaluate the USD/VND exchange rate In

2009, the exchange rate amplitude was adjusted by the State Bank of Vietnam two times The exchange rate margin was first increased from 3% to 5% in March Then, in the end of that year, it was decreased to 3% At the same time, the average intebank exchange rate was pushed to 17,961 VND/USD from 17,031 VND/USD

On February 11, 2010, the State Bank of Vietnam again adjusted the average intebank exchange rate from 17,941 VND/USD to 18,544 VND/USD On August

17, 2010, it then was changed from 18,544 VND/USD to 18,932 VND/USD

The growth rate of CPI was quite stable in most of the months in 2009 and sustained at the level below 1%, except February and December CPI at the end of

2009 increased to 6.5% in comparison with that of 2008 That could be considered

as the successful effort of one-digit inflation control of the Government The interest rate in 2009 was quite more stable than that of 2008 Until now the State Bank of Vietnam is expected to keep the basic short-term interest rate maintaining

at 8%

In regards to FDI, newly registered FDI in 2009 reached 21.5 billion USD, decreased to 70% in comparison with that of 2008 due to global economic crisis The FDI implementation volume caught only 10 billion USD, in which 45% of the total newly registered FDI was invested in real estate and infrastructure which were deemed as the premises for the economy reconstruction

The overall picture of Vietnamese economy becomes brighter since it is experiencing the phase of recovering and overcoming difficulties resulted from the economic crisis and reaching a new development stage Therefore, the economy recovery will eliminate the risks affecting the business performance of enterprises in general and Bien Hoa Sugar JSC in particular

Table 2.2 Forecast of GDP growth rate in some regions and countries in 2009

and 2010 in comparison with the growth rate in recent years

(Source: based on The Economist issued on July 25 th , 2009 of World

Development Indicators and IMF data center)

2.2.1.3 Socio-cultural factors:

Vietnam‟s geographic location creates favorable conditions for implementing open integration strategies which aim to encourage exchange of experiences and economic relation among countries in the same region and in the whole world

In addition, customers nowadays become more and more expert in buying goods They are willing to purchase the best goods with the most perfect services

This big change in consumption behavior opens new opportunities for large businesses, but is considered as new challenges for small ones

In general, the economic structure movement process in the region and in the whole world extremely affect Vietnamese economy Therefore, opportunities and challenges in the next development phase include:

Vietnamese corporations have no longer been unfairly treated in international trade They are now able to attract more investment, transfer technology, and improve their comparative advantages including young and abundant human resources, open investment environment Particularly, Vietnam have more chances

to enjoy preferable rights offered for developing countries in order to improve its international position and guarantee its national rights Vietnamese Government needs to accelerate the economy restructuring process, administration system rearrangement and build the more sufficient legal system in order to improve its competitive ability

Vietnamese economy has been still in the restructuring process with low competitiveness Therefore, in addition to opportunities, there are also a series of difficulties The process of cutting or lowering tax for a lot of commercial goods also has substantial impact on the Government‟s budget Those challenges require all Vietnamese corporations to well repair in order to avoid being kicked out by the competitive rule of global economy

Sugar is one of the necessary goods in daily menu of each individual According to a survey of US Heart Association, excluding natural sugar absorbed through food-stuff such as fruits, fruit juice and milk, the additional quantity of sugar for an adult (American) per day was 22 teaspoons of sugar (equivalently 88

grams), for a juvenile per day was 34 teaspoons of sugar (136 grams) (Source: The

Associated Press, Americans eat 22 teaspoons of sugar a day,

considered as an essential input material for other food processing industries including cake, candy and beverages industry

Our population, as from 0:00 April 1st 2009, is about 85.8 million people (in which farmers account for 70.4% and citizens account for 29.6%, equivalently

25.37 million people (Source: GSO, 2009) Hence, the demand for sugar

consumption is expected very high

2.2.1.4 Technological factor:

The impacts of technological science and technology revolution together with the trends of construction group‟s extension in the regions and the whole globe are large challenges for Vietnamese firms The demand for newly changing technology, improving or upgrading equipment and machinery is essential because it helps Vietnamese businesses reduce production costs, guarantee quality and diversify goods which are one of the most important competitive factors during the current period Besides, in the recent information society, clients find it very easy to approach a lot of information on new technology and products Therefore, they will become more choosy and that will become a substantial challenge for many corporations

2.2.1.5 Globalization trend:

Globalization is an outstanding trend and covers all aspects of social and economic life of all nations and the whole world The participation in international economic associations and organizations such as WTO, CEPT (AFTA), is one of the factors mostly affecting Vietnamese enterprises in general and Bien Hoa Sugar JSC in particular In the context of globalization and international integration, the company has more chances to approach advanced technology in the world, appropriate technology which can not be produced in local market in order to improve its technologic basis, strengthen its joint venture and extensive investment Subject to the commitments to WTO integration process and others such as CEPT (AFTA), local sugar corporations will actually directly compete with other

international rivals In current context of Vietnamese economy, despite of many advantages in natural conditions and cheap labors, many sugar factories have not yet used the maximum capacity due to their small scale, unwell-organized and unstable material areas and low productivity Therefore, the market price of their goods is still very high and that lowers their competitiveness when integrating in the international economies

The tax commitment for sugar

Product Regular Preferable CEPT

Implementation period Raw

Figure 2.4 Sugar import tariff from 2008

In addition, Vietnam also undertakes to increase its sugar import quota by 5% per year in comparison with 55,000 tons in 2007

2.2.2 Industry environment analysis

Figure 2.5 Five competitive factor model of M Porter

(Source: Competitive Strategy written by Michael E.Porter and published by Hanoi

Science and Technology Publisher)

2.2.2.1 Potential rivals:

Under the Decision No 26/2007/QĐ-TTg dated 15/02/2007 on the sugarcane conservation and development strategy until 2010 and forward to 2020 ratified by

the Prime Minister The scheme focused that “It is not necessary to construct new

sugar factories Sugar plants need to step by step invest intensively, modernize, expand their current capacity appropriately in accordance with material areas and market; improve general restoration productivity, goods’ quality, reduce environment pollution, cost price, increase production efficiency and competitiveness; diversify products such as alcohol, electricity, cake, candy, biology fertilizer, in order to improve production efficiency” Therefore, potential

competitors almost do not appear

2.2.2.2 Current rivals:

As regards to sugar – sugarcane season during 2007-2008, Vietnam‟s sugar – sugarcane industry includes 37 active corporations (in which there are 11 firms in the North, 13 units in the Centre, 13 enterprises in the South), 32 state-owned corporations which were privatized and 5 foreign investment corporations The general capacity is about 96,300 TMN Excluding foreign investment factories, most of local firms have small scale and average capacity of 1,500 TMN Despite of small size, many factories only use about 80% of their total capacity, even only 50% in the past because of lacking synchronization in investment in factory construction and material area development

The total sugar output over years was around 1 million tons per year After strongly decreasing during the season 2005-2006, the total output increased again in the two recent seasons

A sugar factory needs a minimum scale of about 5,000 TMN in order to guarantee the operation efficiency Meanwhile, most of factories have low capacity, backward technology and are not synchronic Those are main reasons which make sugar cost price in Vietnam always higher than that of other countries in the region, such as Thailand

1.2501.150

820930

Figure 2.6 Sugar output in many seasons

(Source: Vietnam Sugarcane Association)

Currently, in Vietnam there are 3 large sugarcane corporations listed on HOSE

 Lam Son Sugarcane Corporation: listed on HOSE since 09/01/2008, stock code: LSS

 Bourbon Tay Ninh Corporation: listed on HOSE since 25/02/2008, stock code: SBT

 Bien Hoa Sugar Corporation: listed on HOSE since 20/12/2006, stock code: BHS

The capacity of sugar factories of 3 above-mentioned corporations:

+ 1 st factory 2,500 TMN

+ 2 nd factory 4,500 TMN

+ Bien Hoa - Tay Ninh 3,500 TMN

+ Bien Hoa - Tri An 1,500 TMN

Thousand tons

Production season

Currently, both LSS and SBT are main direct competitors of the company In the market, there are more than 37 sugar corporations (most of them are small ones) Six high-capacity corporations account for more than 40% of the market share

 Tate & Lyle– (Nghe An - England) 7.6%

 Other sugar corporations 58.6%

However, the company scheduled to establish a plan to implement new strategies of appropriate production and scientific organization structure, became more active in market As a result, it is feasible to guarantee the revenue and profit target

2.2.2.3 Power of customers (buyers):

Its distribution system stretches across the whole country, including above 100 factories using sugar as input materials and more than 130 distributors, agencies, supermarkets as direct wholesalers and retailers in the consumption market Moreover, it also concentrates on exportation development During last years, it exported refined sugar to some countries in ASEAN, China and Iraq

Its distribution system includes 2 channels:

 Distribution channel for the production field: Bien Hoa refined sugar is used

as materials for the production of high-grade food-stuff and pharmaceutical products

 Distribution channel for direct consumption: mainly through the agency

system nationwide and many supermarkets such as Big C, Coopmark, Maximark, Metro, Hanoi Supermarkets,

At this time, Bien Hoa Sugar accounts for nearly 8% of the total sugar outputs consumed in the whole country, in which sugar bags account for 80% of the total outputs in Vietnam

Its customers are diversified involving direct consumers and indirect ones who use other sugar-containing products Together with the strong economic growth rate, customers‟ demand becomes higher and higher, they have more choices and require for better services

In order to create new opportunities, it needs to consolidate its relations with customers who are able to bring more benefits, and has strategies to make them become its loyal clients In addition, it is necessary to differentiate and diversify its product line by redesigning, marketing, combining all activities or applying new technology

Because sugarcane industry has seasonal characteristics and its harvest season falls into November to April of the following year, during this period, sugar factories also operate at the maximum capacity As a result, the inventory of final products for distribution in the next months becomes higher Then, its storage expenditure becomes higher, used capacity of the factories is not as high as other industries Therefore, if the goods are still in stock due to very few purchasing orders and inventory is still not released immediately to recover the invested capital, the company will suffer large amount of inventory costs and low production efficiency

2.2.2.4 Power of suppliers:

Sugarcane suppliers (sugarcane planting farmers): at this time, the costs of

planting and harvesting sugarcane in Vietnam are quite high because of weather, fluctuation in prices of fertilizer, insecticide, labors and delivery costs The sugarcane planting capacity in Vietnam reaches only 50-55 tons/ha (in case of favorable weather, it is expected to catch only 43-45 tons/ha in 2010) which is lower than the average level of the world of 70 tons/ha That pushes the cost of planting sugarcane become higher In addition, irregular fluctuation in sugarcane