Electrical energy business development strategy of Ho Chi Minh City power corporationin the period of 2011-2015, vision 2025

GRIGGS UNIVERSITYGLOBAL ADVANCED MASTER OF BUISINESS ADMINISTRATION PROGRAM CAPSTONE PROJECT REPORT ELECTRICAL ENERGY BUSINESS DEVELOPMENT STRATEGY OF HO CHI MINH CITY POWER CORPORATION

GRIGGS UNIVERSITY

GLOBAL ADVANCED MASTER OF BUISINESS ADMINISTRATION PROGRAM

CAPSTONE PROJECT REPORT

ELECTRICAL ENERGY BUSINESS DEVELOPMENT STRATEGY OF

HO CHI MINH CITY POWER CORPORATION

IN THE PERIOD OF 2011-2015, VISION 2025

Group No 1:

Nguyen Anh Vu Tran Van Toan Pham Chi Nghia Dai Nguyen Vinh

Batch: GaMBA01.D0109

Ho Chi Minh 2010

TABLE OF CONTENTS COVER PAGE

LIST OF ABBREVIATIONS 5

LIST OF TABLES 6

LIST OF FIGURES 6

Chapter 0 INTRODUCTION 7

Chapter 1 ARGUMENT BASIC 9

1.1 THE CONCEPT OF STRATEGIC MANAGEMENT 9

1.1.1 Concept of strategy 9

1.1.2 Strategic management 10

1.1.3 Alternative strategies defined 10

1.2 BASIS FOR FORMULATING BUSINESS STRATEGIES FOR FIRM 11

1.2.1 Analyzing the enterprise’s external environment 11

1.2.1.1 General environment 11

1.2.1.2 Industry environment 12

1.2.2 Analyzing the enterprise’s internal environment 15

1.2.2.1 Personnel 15

1.2.2.2 Finance 15

1.2.2.3 Marketing 15

1.2.2.4 Management 16

1.2.2.5 Information system 16

1.3 TOOLS FOR PLANNING AND CHOOSING STRATEGIES 17

1.3.1 Tools for planning strategies 17

1.3.1.1 Internal Factor Evaluation matrix (IFE) 17

1.3.1.2 Boston Consulting Group matrix (BCG) 18

1.3.1.3 External Factor Evaluation matrix (EFE) 19

1.3.1.4 Competitive Profile Matrix (CPM) 20

1.3.1.5 Strengths-Weaknesses-Opportunities-Threats matrix 21

1.3.2 Tools for choosing strategy – QSPM 22

Chapter 2 ANALYZING THE RECENT STATUS OF HO CHI MINH CITY

POWER CORPORATION 23

2.1 OVERVIEW OF HO CHI MINH CITY POWER CORPORATION 23

2.1.1 Introduction 23

2.1.2 Summarize the situation and business operation results of Ho Chi Minh Power Corporation in stage 2005 - 2009 25

2.1.3 Forecast the demand for power in Ho Chi Minh City in 2011-2015 26

2.1.4 Strategic tasks and objectives of 2011-2015, vision 2025 28

2.1.4.1 Tasks 28

2.1.4.2 Strategic objectives 28

2.2 BUILDING POWER BUSINESS STRATEGY OF HO CHI MINH CITY POWER CORPORATION IN 2011-2015 29

2.2.1 Analyzing external environment 29

2.2.1.1 General environment 29

2.2.1.2 Industry environment 34

2.2.2 Analyzing the internal environment of Ho Chi Minh City Power Corporation 37 2.2.2.1 Human Resources 37

2.2.2.2 Finance 38

2.2.2.3 Marketing 39

2.2.3 Building and choosing business strategies 48

2.2.3.1 SWOT analysis 48

2.2.3.2 The bussiness strategies formed from SWOT matrix 49

2.2.4 Choosing strategies – QSPM 51

2.2.4.1 QSPM (Quantitative Strategic Planning Matrix) 51

2.2.4.2 Choosing strategies 53

Chapter 3 THE SPECIFIC SOLUTIONS TO IMPLEMENT STRATEGIES

54

3.1 SOLUTIONS TO DEVELOP GRID IN 2011-2015, VISION 2025 54

3.1.1 Objectives and requirements 54

3.1.2 Using technology 55

3.1.3 Implementation of the specific content 56

3.1.4 Mobilizing investment capital for renovation and construction of power grid 57 3.2 SOLUTIONS TO IMPROVE THE QUALITY OF SERVICES 57

3.3 SOLUTIONS OF DESIGN TO IMPROVE POWER CONSUMPTION MEASUREMENT SYSTEM 59

3.4 SOLUTION OF DEVELOPING POWER BUSINESS SERVICES 59

3.4.1 Services of maintenance and repairing substations belong to customer's asset 59 3.4.2 Services of consultancy for civil electrical design - using of electricity savings, safety and efficiency 59

3.4.3 Development of electrical mechanics, electrical equipment manufacturing 60

3.5 SOME OPERATION MODEL SHOULD BE CONSIDERED IN THE FUTURE 60

3.5.1 Privatizing the Corporation 60

3.5.2 Operating in a competitive market 61

Chapter 4 CONCLUSION 64

REFERENCES 65

APPENDIES 66

LIST OF ABBREVIATIONS

EVN: Electricity of Vietnam

EVNHCMC: Ho Chi Minh City Power Corporation

EVNSPC: Southern Power Corporation

EVNHANOI: Ha Noi Power Corporation

GDP: Gross domestic product

ODA: Official development assistance

IFE: Internal Factor Evaluation matrix

BCG: Boston Consulting Group matrix

EFE: External Factor Evaluation matrix

CPM: Competitive Profile Matrix

SWOT: strength-weaknesses- opportunities- threats

QSPM: Quantitative Strategic Planning Matrix

AS: Attractiveness Scores

TAS: Total Attractiveness Scores

SAIFI: System Average Interruption Frequency Index

SAIDI: System Average Interruption Duration Index

AMR: Automatic meter reading

AMI: Advanced metering infrastructure

QMS: Queue management system

SCADA: Supervisory Control and Data Acquisition

GIS: Geographic information system

GIS: Gas insulator system

LIST OF TABLES

Table 2.1 Some indicators of business results (unit: million USD) 25

Table 2.2 Estimated power demand each year of 2010-2015 27

Table 2.3 Forecast the power demand of HCM City in 2015, 2020 27

Table 2.4 Coefficient of elasticity of power demand in the period of 2009-2020 by GDP 27

Table 2.5 Competitive Profile Matrix 35

Table 2.6 External Factor Evaluation matrix (EFE) 36

Table 2.7 Power consumption structure throughout the City 41

Table 2 8 Internal Factor Evaluation matrix (IFE) 47

Table 2.9 Matrix of strength-weaknesses- opportunities- threats 48

Table 2.10 Quantitative Strategic Planning Matrix (QSPM) 51

LIST OF FIGURES Figure 1.1 Strategic management process 10

Figure 1.2 The Five forces model of Michael E Porter 13

Figure 2.1 The organization chart of EVNHCMC 24

Figure 2.2 Power loss rate 2000 - 2010 26

Figure 2.3 GDP growth rate 30

Figure 2.4 GDP per capita 32

Figure 2.5 Power supply reliability index 40

Figure 2.6 Point delivery chart 43

Figure 2.7 BCG matrix 46

Chapter 0 INTRODUCTION

 Overview, the necessary and the significance of subject:

Currently, at the end of 2010, Vietnam in general and Ho Chi Minh City in particular are in the process of economic development heading for the trend of global economic integration, in which power is such a vital energy resource to serve the needs of this development

Directly under Electricity of Vietnam (EVN), one of the leading economic corporations in Vietnam, Ho Chi Minh City Power Corporation (EVNHCMC) is currently operating mainly in the electrical energy business, is in charge of distribution and energy sales in the city area, is responsible for ensuring adequate power supply with stable quality for the needs of socio-economic development of the city Since its establishment and development, the Corporation has completed the above tasks

However, with demand for electricity is increasing as the socio-economic development of Vietnam together with the need to provide quality service to customers have become increasingly complete, the Corporation should have appropriate business strategies to meet those needs On the other hand, with the policy of restructuring state enterprises in the direction of equalization and development of competitive retail electricity market in the future, the corporation should also have good preparation in the business strategy in response to fulfill these goals

Therefore, realizing the necessity and importance of a business strategy to meet the above requirements, the group has chosen a research topic: "Electrical energy business development strategy of Ho Chi Minh City Power Corporation in the period of 2011 - 2015, vision 2025”

 Purpose of research and practical possibility:

The research aims to evaluate the Corporation’s operation in 5 recent years and identify the current strengths and weaknesses of the Corporation Since then,

the identification of opportunities and challenges analyzed in the coming time for corporation which enables it to build business strategies accordingly

This is an opportunity for members of group to have further study on strategic management, linked to the knowledge learned from the GaMBA program

of Griggs University – the United States to apply to a specific firm

Members of group are currently working in Ho Chi Minh City Power Corporation, having advantage conditions to collection necessary data so that we will surely have a more accurate analysis The research results will be very close to the orientation of Corporation Therefore, the topic is likely to have practical use for the corporation further

 Research methodology:

Group uses the method: study rationale premise to have base in order to collect statistical data needed to perform analysis, make remarks or evaluation in oder to have appropriate solutions from them

- Chapter 3: Strategies for power trade of Ho Chi Minh City Power Corporation in the period of 2011 – 2015 and vision 2025, based on analysis in Chapter 2 and recommendations for implementation

- Chapter 4: Conclusion

Chapter 1 ARGUMENT BASIC

1.1 THE CONCEPT OF STRATEGIC MANAGEMENT

1.1.1 Concept of strategy

In 1962, strategy was defined as "determining the objectives and purposes of the long-term business and the application of a series of actions as well as the allocation of resources necessary to implement this objective” by Alfred Chandler

Then, Johnson and Scholes defined the strategy of environmental conditions

to have many changes quickly: "Strategy is the direction and scope of an organization over the long-term: which achives advantage for organisation through its configuration of resources within a challenging environment, to meet the needs

of markets and to fulfil stakeholders expectations"

Strategies exist at several levels in any organisation - ranging from the overall business (or group of businesses) through to individuals working in it

- Corporate strategy is concerned with the overall purpose and scope of the business to meet stakeholder expectations This is a crucial level since it is heavily influenced by investors in the business and acts to guide strategic decision-making throughout the business Corporate strategy is often stated explicitly in a "mission statement"

- Business unit strategy is concerned more with how a business competes successfully in a particular market It concerns strategic decisions about choice of products, meeting needs of customers, gaining advantage over competitors, exploiting or creating new opportunities etc

- Functional strategic is concerned with how each part of the business is organised to deliver the corporate and business-unit level strategic direction Functional strategy therefore focuses on issues of resources, processes, people etc

Currently, with the trends of globalization, companies are fast diversifying their activities beyond national borders Since then, global strategy is the choice to confront the problems with international business

1.1.2 Strategic management

Strategic management is the process of study and analyze environment

(internal and external) at present and in the future, planning for the organization’s

missions, implementation and controlling the implementation of decisions,

adjusting in oder to achieve these missions at present and in the future with the aim

to boost the enterprise’s trading position (Prof Lê Văn Bảy’s slides)

In fact, the process of strategic management includes 3 steps described as the

chart bellow (according to Fred R David):

Figure 1.1 Strategic management process 1.1.3 Alternative strategies defined

According to Fred R David (2009): alternative strategies that an enterprise

could pursue can be categorized into 11 actions:

- Forward vertical integration: Gaining ownership or increased control over

Distribute resources

Measure and evaluate results

Conduct internal control to realize strengths and weaknesses

Choose strategic for development

Make policy

Setting long- term goal

Setting annual goal Feedback

Feedback Strategy Formulation Strategy Implementation Strategy Evaluation

Carry out external control to realize threats and opportunities

- Horizontal integration: Seeking ownership or increased control over competitors

- Market penetration: Seeking increased market share for present products or services in present markets through greater marketing efforts

- Market development: Introducing present products or services into new geographic areas

- Product development: Seeking increased sales by improving present products or services or developing new ones

- Related diversification: Adding new, but related products or services

- Unrelated diversification: Adding new, unrelated products or services

- Retrenchment: Regrouping through cost and asset reduction to reverse declining sales and profit

- Divestiture: Selling a division or part of an organization

- Liquidation: Selling all of a company's assets, in parts, for their tangible worth

1.2 BASIS FOR FORMULATING BUSINESS STRATEGIES FOR FIRM 1.2.1 Analyzing the enterprise’s external environment

External environment is a system of complex factors; there are many opportunities and risks affecting the operation of the business in various level Despite the scale of the huge potential resources, businesses also cannot react with all of the environmental movements Therefore, when performing analysis of external factors, managers wishing to develop a portfolio of opportunities in the environment can bring benefits to businesses and the risks or threats that enterprises should take measures to prevent or avoid External environment includes the general environment and industry environment

Economic environment: The environment impacts this nature directly and

more active than some other elements of the general environment The evolution of the macroeconomic environment has always contained the opportunities and threats are different for each enterprise in various sectors, with potential impact to the

business strategy Some basic factors are most interested: the trend gross domestic product (GDP) and gross national product (GNP), interest rate and interest rate trends, international balance of payments, inflation, system of taxes and tariffs…

Political and law environment: Include systems of perspectives, and

policies of the Party and State, the current law system It is also necessary to master the trend of political diplomacy of the government, the political developments at home and abroad These factors affect the formation and development of the business

Natural environment: These businesses with long history of operation

recognized the impact of natural circumstances in their business decisions The effects of natural includes: geographical location, climate, pollution, lack of energy and wasteful use of natural resources and increasing demands on resources provided

by nature

Social and demography environment: Social and demography

environment, including the key factors such as the concept of morality, the notion

of living, customs, concerns and priorities of society, the level of awareness and general social education assembly These factors affect the business strategies Therefore, enterprises should pay attention to these factors when planning a business strategy

Technological environment: The influence of technology creates

opportunities and risks in the process of strategic management for business Technological advances may create new markets, the result is to create new products and making products and services is becoming obsolete This environment, strongly influences the production-related areas such as telecommunications, information technology, information

We apply the five forces model of Michael E Porter (1985) for environmental analysis of the business sector (also known as structural analysis of competition in a sector)

Figure 1.2 The Five forces model of Michael E Porter

(1) Competitors (rivals): Key content to analyze completion is shown in figure 1.4

Figure 1.1 Key content to analyze the rivals [Michael E Porter (1985)]

Some issue to response about the rival

- Does the rival satisfy with the fact?

- The possibility rivals move and transfer strategic trend?

- Weaknesses of the rivals?

- What can help rival to retaliate in the strongest and the most effective way?

(2) Customers: Customers decide the existence of the business The trust of

customers may be the most valuable assets to the business Gained credibility because it knows better way to meet the needs and tastes of customers from competitors Pressure from customers arising from the following conditions: when the amount of people buying large proportion of the volume of goods sold by the seller, when the shift to buy products of others do not cost much, when the buyers give signal credible threat that will integrate backwards (reverse) with the customers

supplied, if the goods that customers buy the kinds of low level of specialization

(3) Suppliers: Provider can assert their power by threatening to increase prices or

reduce product quality and service provision Providers will have the advantage if they have the following conditions: when only a small number of suppliers selling

to a large number of buyers in an industry, when substitutes are not available, when goods or service providers which are essential and have a high level of specialization, when suppliers make the signal credible threat integration is going

forward

(4) Potential competitors: New competitors can participate in the factors that

reduce their profits by putting into operation new production capacities, with the desire to gain market share and the necessary resources Therefore, protecting the competitive position of enterprises, including the maintenance of legal barriers to prevent intrusion from outside The main barrier is the advantage by large-scale production, diversify products, the demand is greater financial resources, cost of goods higher conversion, limited ability to penetrate the channel strong consumption and cost advantages that competitors can not create

(5) Substitute products: These substitute products to reduce the potential profits of

the sectors by imposing a ceiling price that companies in the industry can offer within a profitable limit The most concerning substitute products are: the products are in the tradition of being possible to compete with the product prices are competitive, the industry is highly profitable, the alternative product market

participants schools will be massively increased competition in the industry and create a drop prices or improve quality

1.2.2 Analyzing the enterprise’s internal environment

Analyzing the enterprise’s internal environment as a basis enable businesses

to know it’s strengths and weaknesses compared to competitors, and helps managers to know the ability to capture a competitive advantage in each period Internal factors such as human resource functions, finance, marketing, operations management and information systems

In the business environment are volatile as the current personnel plays a very important role in the process of implementation strategies, determine the success or failure of the business operation If the strategy is properly given, promising, and feasible but people in the organization is not qualified enough to perform given that the strategy did not work The main functions of Human Resources such as recruitment, training, use, treatment, evaluation, encouragement and fire

Financial condition is often considered as method to evaluate the competitive position of the company's best and most attractive conditions for investors Planning effective strategies needs to identify the strengths and weaknesses of the business financially It is shown through the analysis of some basic financial criteria such as liquidity, asset structure, capital structure, rate of profit this will make the company’s development strategies became be more feasible

Do marketing research to identify market opportunities, market segmentation, target market selection and market positioning, and customers analysis, and factors related to planning a marketing strategy to consumer-oriented and competitive marketing through its marketing businesses design, implement and test the product strategy, pricing, distribution network and sales promotion

Well-understand marketing activities, the administrator will specify the duties of this function, the work required to be done in each period

- Organization: includes all management activities to create the structure of the relationship between rights and responsibilities Specifically, organizational design, job specialization, job descriptions, detailed work, control expansion, unified command, coordination arrangements, job design and job analysis

- Leadership: Includes efforts to orient human activity, namely leadership, communication, joint working groups, change activities, authorization, improved work effectively; job satisfaction, organizational change, employees' mental and management

- Control: Relates to all management activities to ensure the results match reality, consistent with the planned results The principal activities: quality control, financial control, sales, inventory, expenses, analyze changes, reward and punishment

Information links all business functions together and provides the basis for all management decisions It is the foundation of all organizations The information shows the disadvantages or major competitive advantage Evaluate the strengths and weaknesses of information systems within the company are important aspects of the implementation of the internal control

Information system is an important strategic resource, monitoring environment changes, identifying competitive threats, and support for the implementation, evaluation and control strategies

1.3 TOOLS FOR PLANNING AND CHOOSING STRATEGIES

1.3.1 Tools for planning strategies

Within this project range, derived from the power trading performance in EVNHCMC, the appropriate tools for planning strategies for the Corporation as follows:

Internal Factor Evaluation matrix (IFE) is a tool used to summarize and evaluate the strengths and weaknesses of the important parts of business functions, and it also provides the basis for determining and evaluating relationships between these components

According to Fred R David, IFE matrix can be developed in five steps:

- Step 1: List key internal factors as identified in the internal-audit process Use a

total of from 10 to 20 internal factors, including both strengths and weaknesses List strengths first and then weaknesses Be as specific as possible, using percentages, ratios and comparative numbers

- Step 2: Assign a weight that ranges from 0.0 (not important) to 1.0 (all

important) to each factor The weight assigned to a given factor indicates the relative importance of the factor to being successful in the firm’s industry Regardless of whether a key factor is an internal strength or weakness, factors considered to have the greatest effect on organizational performance should be assigned the highest weights The sum of all weights must equal 1.0

- Step 3: Assign a 1-to-4 rating to each factor to indicate whether that factor

represents a major weakness (rating = 1), a minor weakness (rating = 2), a minor strength (rating = 3) or a major strength (rating = 4) Note that strengths must receive a 3 or 4 rating and weakness must receive a 1 or 2 rating Ratings are thus company-based, whereas the weights in step 2 are industry-based

- Step 4: Multiply each factor’s weight by its rating to determine a weighted score

for each variable

- Step 5: Sum the weighted scores for each variable to determine the total

weighted score for organization

Regardless of how many factors are included in an IFE matrix, the total weighted score range from a low of 1.0 to a high of 4.0, with the average score being 2.5 Total weighted scores well below 2.5 characterize organizations that are weak internally, whereas scores significantly above 2.5 indicate a strong internal position The weights always sum to 1.0

The BCG Matrix was created by the Boston Consulting Group (BCG) and it became on of the most well-known portfolio management Companies that are large enough to be organized into strategic business units face the challenge of allocating resources among those units Resources are allocated to business units according to where they are situated on the grid as follows:

- Cash Cow - a business unit that has a large market share in a mature, slow

growing industry Cash cows require little investment and generate cash that can be used to invest in other business units

- Star - a business unit that has a large market share in a fast growing industry

Stars may generate cash, but because the market is growing rapidly they require investment to maintain their lead If successful, a star will become a cash cow when its industry matures

- Question Mark (or Problem Child) - a business unit that has a small market

share in a high growth market These business units require resources to grow market share, but whether they will succeed and become stars is unknown

- Dog - a business unit that has a small market share in a mature industry A dog

may not require substantial cash, but it ties up capital that could better be deployed elsewhere Unless a dog has some other strategic purpose, it should be liquidated if there is little prospect for it to gain market share

The BCG matrix provides a framework for allocating resources among different business units and allows one to compare many business units at a glance

1.3.1.3 External Factor Evaluation matrix (EFE)

External Factor Evaluation matrix (EFE) for a summary and evaluation of economic, social, culture, demography, geography, political, government, legal, technology and competition information

According to Fred R David, the EFE matrix can be developed in five steps:

- Step 1: List key external factors as identified in the external-audit process

Include a total of 10 to 20 factors, including both opportunities and threats, that affect the firm and its industry List the opportunities first and then the threats

Be as specific as possible, using percentages, ratios, and comparative numbers whenever possible

- Step 2: Assign to each factor a weight that ranges from 0.0 (not important) to

1.0 (very important) The weight indicates the relative importance of that factor

to being successful in the firm’s industry Opportunities often receive higher weights than threats, but threats can receive high weights if they are especially severe or threatening Appropriate weights can be determined by comparing successful with unsuccessful competitors or by discussing the factor and reaching a group consensus The sum of all weights assigned to the factors must equal 1.0

- Step 3: Assign a rating between 1 and 4 to each key external factor to indicate

how effectively the firm’s current strategies respond to the factor, where 4 = the response is superior, 3 = the response is above average, 2 = the response is average and 1 = the response is poor Ratings are based on effectiveness of the firm’s strategies Ratings are thus company-based, whereas the weights in Step

2 are industry-based It is important to note that both threats and opportunities can receive a 1, 2, 3 or 4

- Step 4: Multiply each factor’s weight by its rating to determine the weighted

score

- Step 5: Sum the weighted scores for each variable to determine the total

weighted score for the organization

Regardless of the number of key opportunities and threats included in an EFE matrix, the highest possible total weighted score for an organization is 4.0 and the lowest possible total weighted score is 1.0 The average total weighted score is 2.5 A total weighted score of 4 indicates that an organization is responding in an outstanding way to existing opportunities and threats in its industry In other words, the firm’s strategies effectively take advantage of existing opportunities and minimize the potential adverse effects of external threats A total score of 1.0 indicates that the firm’s strategies are not capitalizing on opportunities or avoiding external threats

The purpose of building competitive profile matrix (CPM) is to show the clear picture to the Corporation about its strong points and weak points relative to its competitors, then to identify competitive advantages of the Corporation and weaknesses should be overcome CPM was constructed through five steps:

- Step 1: Preparing a list of the main factors that affect critically to the

competitiveness of corporations in the industry

- Step 2: Weighting: Weight attribute indicates the relative importance of factor

to being successful in the Corporation’s industry The weight range from 0.0 means not important and 1.0 means important, sum of all assigned weight to factors must equal to 1.0

- Step 3: Rating the critical success factors ranging from 1 to 4 for each factor,

the rating of each factor depends on the ability of the Corporation with the factors, of which 4 represents superior, 3 represents above average, 2 represents average, 1 represents poor

- Step 4: Weighted score: Multiplying the importance of each factor with its

weight to determine the score of each factor

- Step 5: Total weighted score: Summing all weighted scores to get the total

weighted scores, final value of total weighted score should be between ranges

1.0 (low) to 4.0 (high) The average weighted score for CPM matrix is 2.5 Any company with total weighted score falls below 2.5 will be considered as weak Compare the total score the Corporation with that of the weak competitors in the industry to evaluate the competitive ability of the Corporation The company total weighted score higher then 2.5 consider as strong in position The other dimension of CPM is the firm with higher total weighted score considered as the winner among the competitors

SWOT matrix is an important tool for combination which helps managers develop four types of the following strategies:

- The strategic strengths - opportunities (SO)

- The strategic weaknesses - opportunities (WO)

- The strategic strengths - threats (ST)

- The strategic weaknesses - threats (WT)

According to Fred R David, there are eight steps involved in constructing a SWOT matrix:

- Step 1: List the firm’s key external opportunities

- Step 2: List the firm’s key external threats

- Step 3: List the firm’s key internal strengths

- Step 4: List the firm’s key internal weaknesses

- Step 5: Match internal strengths with external opportunities, and record the

resultant SO strategies in the appropriate cell

- Step 6: Match internal weaknesses with external opportunities, and record the

1.3.2 Tools for choosing strategy – QSPM

According to Fred R David, QSPM (Quantitative Strategic Planning Matrix) uses input from the IFE matrix, EFE matrix and SWOT matrix Six steps are needed

to develop a QSPM:

- Step 1: Make a list of the firm’s key external opportunities/threats and internal

strengths/weaknesses in the left column of the QSPM This information should

be taken directly from the IFE matrix and EFE matrix A minimum of 10 external key success factors and 10 internal key succes factors should be included in the QSPM

- Step 2: Assign weights to each key external and internal factor These weights

are identical to those in the IFE matrix and the EFE matrix

- Step 3: Examine the matching matrices and identify alternative strategies that

the organization should consider implementing Record these strategies in the top row of the QSPM Group the strategies into mutually exclusive sets if possible

- Step 4: Determine the Attractiveness Scores (AS) defined as numerical values

that indicate the relative attractiveness of each strategy in a given set of alternatives Number of attractions are classified from 1 = not attractive, 2 = somewhat attractive, 3 = quite attractive, and 4 = very attractive If the critical success factors had no influence on the choice of strategy; the attractive points

is not marked in this strategic group

- Step 5: Compute the Total Attractiveness Scores (TAS) Total attraction is the

result of the classification score (Step 2) with some attractions (Step 4) in each row

- Step 6: Compute the Sum Total Attractiveness Scores (STAS) That is the sum

total of the attractions in the strategy columns of the QSPM Considering all the factors inside and outside can influence the appropriate strategy is to attract higher score indicates more attractive strategy

Chapter 2 ANALYZING THE RECENT STATUS OF HO

CHI MINH CITY POWER CORPORATION

2.1 OVERVIEW OF HO CHI MINH CITY POWER CORPORATION

2.1.1 Introduction

Ho Chi Minh City Power Corporation is an independent accounting enterprise, belonging to Electricity of Vietnam (EVN)

- Name initials: EVNHCMC

- Address: #35 Ton Duc Thang Street, Ben Nghe Ward, District 1, Ho Chi Minh City Fax: (84.8) 2220.1155 - 2220.1166

On July 08, 1995, Ministry of Energy decided to set up Ho Chi Minh City Power Company – state-owned enterprise, which belongs to Vietnam Power Corporation (now Electricity of Vietnam – EVN) On February 05, 2010, Ministry of Industry and Trade decided to set up Ho Chi Minh City Power Corporation based on Ho Chi Minh City Power Company, acts following model of parent company-subsidiary as the regulation of Business Law Total charter capital of the Corporation is about 114 millions USD, which is holding 100% by Vietnam Electricity

Main target of HCMC Power Corporation includes trading power; managing and delivering power by transmission and distribution network in 24 districts of Ho Chi Minh City; delivering other services such as: investigating, consulting, trading telecommu-nication facilities … and other required mission of Vietnam Electricity

Permanent Deputy

General Director

President – General Director

Deputy General Director of

Manage-Building Project Manage- ment Board

Load Dispatch Centre

High Voltage Power Network Company

Electrical Testing Company

munica- tions & IT Company

Telecom- portation and Ware- house Company

counting and Finance Dept.

Ac-Sales Dept.

Engi- neering Dept.

Safety &

Labour Protec- tion Dept.

Materials

& Import- Export Dept.

ment Manage- ment Dept.

Invest- ment Dept.

Procure- munica- tions & IT Dept.

Telecom- tion Security Dept.

Inspec- lation Dept.

Legis- tional Relation Dept.

Interna-Public Relation Dept.

2.1.2 Summarize the situation and business operation results of Ho Chi Minh Power Corporation in stage 2005 - 2009

Table 2.1 Some indicators of business results (unit: million USD)

With the capacity and installed capacity of electrical current system (Psetup

 4,500MW), Ho Chi Minh City Power Corporation completely ensure stable power supply for the city (Pmax = 2,547MW) and over 30% of the reserved power supply Accordingly, the Corporation has basically met the demand for electricity, contributed to ensuring the growth of the city's annual GDP

In addition, due to the policy of economic reform, social programs and activeness of a big city, many export processing zones, industrial parks, residential zones have developed to raise both quantity and quality of the customers In 1995, commercial electricity reached only 2,815 million kWh, end of 2009, it reached

13,262 million kWh, accounting for about 17% of total electricity production in the country The average commercial electricity has increased by 10% annually compared to the previous years

The total power loss rate reduced significantly (from 7.21% in 2006 to 6.03% in 2009) and capacity utilization factor is maintained at high levels (above 0.95)

7.07

6.18 6.03 6 8.29

10.44 10.1 11.16

7.21 7.26

Figure 2.2 Power loss rate 2000 – 2010 [Source: EVNHCMC annual report]

Together with the electrical energy business, Ho Chi Minh City Power Corporation joins the public telecommunications business since November 2005, as agent for the distribution services of EVNTelecom

Actually more than four years in the telecommunications business, the Corporation has achieved a certain result Subscribers in 2005 just at the number 1,015, the end of 2009 this figure had grown to 105,808 subscribers

2.1.3 Forecast the demand for power in Ho Chi Minh City in 2011-2015

Electrical system development is oriented both in the source and the grid by multi-ring circuit configuration, the application of science and technology in building and managing the urban power grid in the direction of modernization, researching to build grid structure closely linked the HCM City area’s power system with HCM City’s grid, to ensures a continuous, safe, stable and high level of reserves supply of electricity for socio-economic development of the city

Power demand forecasting result of Ho Chi Minh City in 2010, 2015 and

2020 in the following tables: [Source: Statistical Office in Ho Chi Minh City and Socio-Economic Adjusted Planning of Ho Chi Minh City by 2020]

Table 2.2 Estimated power demand each year of 2010-2015

kWh 16,376 18,140 20,286 22,915 26,236 30,069

Table 2.3 Forecast the power demand of HCM City in 2015, 2020

Decreased coefficient of elasticity is due to the economic transition: the GDP

of Trade and Services takes account for increasingly high proportion of the total GDP of the city However, electricity consumption is increased slower than income

in this section Besides the application of energy saving programs in factories, offices and households lead to the decrease of the power consumption Decreased elastic coefficient of electricity consumption in Ho Chi Minh City is in line with declining trend of decreasing elasticity between electricity consumption of the whole country compared with income

2.1.4 Strategic tasks and objectives of 2011-2015, vision 2025

1 Complete the task of supplying best electricity with the quality is higher and higher for demand of citizens and socio-economic development; contribute in increasing competitiveness for the city

2 Intense to develop resources, especially human resources to increase capacity and reputation of the company in the period of international integration

3 Build financial management methods to closely manage and utilize financial strength of the company

3 The number of customers increase at the average of 4.5% per year, by 2015 is 2.2

millions of customers, by 2025 are 3 millions of customers

4 Reduced loss rates an annual average of 0.15%, to 5.4% by 2015, 4% in 2025

5 Improve the reliability of the electrical system, whereby the number of system outages (SAIFI) and duration of system outages (SAIDI) decreased 6-7% per

year, to 2025 SAIFI 15 minutes, SAIDI 0.5 times longer

6 Coefficient of elastic energy maintained at <1, to 2015 at about 0.7, about 0.3 to

to 22 kV) By the end of 2015, the volume of electricity increased by about 160km 110kV power grid, transmission substations 2.800MVA, 2.300km medium voltage lines and distribution substations 5.000MVA

9 Power Companies shall coordinate with local governments in the implementation

of surveys and statistical needs of the customer to maintain the rate of 100% of the city was designed to use electricity directly to the Corporation, particularly workers, students, homemaker

2.2 BUILDING POWER BUSINESS STRATEGY OF HO CHI MINH CITY POWER CORPORATION IN 2011-2015

2.2.1 Analyzing external environment

 Economic environment

The economy of Vietnam had developed strongly and sustainably until 2007; however, since 2008, the economic situation of Vietnam in particular and of the

world in general have had some complication fluctuations The prices of crude oil

as well as many other materials and products on the international market increased significantly in the mid-year, leading to increase price of many commodities in Vietnam, inflation in many countries in the world; global financial crisis resulted in economy recession, which affected the economy of Vietnam

In 2009, the economy of Vietnam encountered a lot of obstacles and challenges The financil crisis of many economies in 2008 put the global economy into recession, limited the market of export, capital, labor and badly affected other socio-economic fields In Vietnam, catastrophes and diseases in the whole country

of Vietnam also afftected production and living standards

Figure 2.3 GDP growth rate [Source: General Statistics Office]

Currently, the global economy is gradually restored and Vietnam economy has positive growth rate with estimated gross domestic product of 6.5%

 Political and legal environment

So far, Vietnam is considered as countries with relatively stable political background This is fundamental for our country to focus on the economic development Legal system is gradually improved with the promulgation of laws, decrees and circulars to unify the management of all aspects of the social economy with strictly legal systems

Electricity Law issued in 2004 and the Enterprise Law in 2005 has shaped legal environment for the operation of the electricity industry, including the Power Corporation of Ho Chi Minh City In addition, the guidelines and regulations on the electricity expertise in the Circular 32/2010 and Decree 68/2009 by the Ministry of Industry and Trade also help orient the professional activities of the Corporation

Power sector has been approved to increase the electricity price since March

01, 2010, and consider raising process of the electricity price in the coming years, partly to reduce pressure on capital, increase financial balance, re-investment in production and business development

 Natural environment

In recent years, global climate change has significantly affected the living and business environment This impact is especially serious for the enterprise whose operation bases on the natural resources including the power sector Vietnam's hydroelectric power accounts for about 34.2% of power source and mainly depends

on the volume of water flow in hydropower reservoirs In the rainy season, if water flow is not enough to be stored for power generation in the dry season, there will be

a seriously insufficient capacity and power output and power will be cut in the large-scale rotation On the other hand, in the dry season, high-temperature environment in major cities with high concentrated loads, demand for electricity is higher for the use of cooling equipment (fans, air conditioning, etc.) and that makes the lack of electricity aggravated

 Social environment, population

In the period of 2005 - 2009, people's living standards was always improved, higher than the last years

Calculating by the late 2009, the minimum wage increased by 20% compared with 2008, form $31.03 per month to $35.20 per month, and the monthly allowance of pensions rose by 5% Monthly average earnings of employees in the state sector in 2009 reached $167.06 on average, increased by 14.2% compared with 2008, in which the labor income of the central was $215.49, increased by

16.1%, and the local is $137.17, increased by 13% The estimated poverty rate in

2009 nationwide is 12.3%, lower than that in 2007 (14.8%) and 2008 (13.4%)

Figure 2.4 GDP per capita (USD/person) [Source: General Statistics Office]

Follow up the national general growth, living standard in Ho Chi Minh City also increased strongly As a result, the demand for electricity also rose strongly

Compensation - clearance for projects to expand electricity capacity has got

a lot of difficulties due to its effect on citizen Compensation - clearance procedures usually have to go through several complicated stages and dramatic changes in compensation cost, which leads to the fact that the clearance often prolonged and impact the project process Compensation for site clearance of lines, transformers is event more difficult, complex, costly etc This progress affects seriously and efficiency of investment projects of the Corporation

 Technology environment

Power industry is one of the industries with the most developed technology

to constantly meet human’s demand In recent years, the impact of climate change and the scarcity of raw material to produce electricity have speeded up the research and application of technological advances in power production and transmission In Vietnam, due to the electricity produced from hydro and thermal power, application

of new technologies for electricity restructuring is inevitable

Using renewable energy

Currently, many countries all over the world which are aware of climate and environmental change have switched the power generation technology through the use of renewable energy Renewable energy has increasingly asserted its position and importance in comparison with traditional energy sources such as coal, gas, oil and nuclear

Renewable energy sources provide 18% power for the planet in 2009 In some countries, renewable energy accounts for a significant part of total energy supply, including heat and traffic The worldwide households use solar water heaters have also increased, estimated 70 million households Investment capital for renewable energy in 2008 and 2009 accounted for over half of the total amount invested in the creation of new energy sources worldwide

Apply smart grid technology to improve the efficiency of electricity use

Along with the use of renewable energy, the application of technology to improve energy use efficiently is essential We supply electricity only based on the purpose of meet the demand by increasing power supplying source Meanwhile, the existing power companies as well as regulatory agencies of the Government do not create strong incentive methods for users And even the companies themselves have

no less difficult to this system with the high efficiency

One of the technologies which can create new ways in the supply and use of energy is smart grid technology (Smart Grid) Vietnam is on the path of development so it needs the current power plants as well as newly-built power plants However, the saved capacity and power thanks to the construction of Smart Grid will be regarded as a source of additional power capacity and power balance Smart Grid can provide solutions to the following acts:

 Improve the performance of power plants

 Optimize to reduce technical losses during power system operation

 Reducing energy use an average value of GDP

 Reducing trading losses

 Reduce the coefficient of elasticity between growth rate in demand for electricity use per GDP growth from two times as current to 1.1 - 1.5 like other countries in the region

With the exciting development of electricity technology in the world, the corporation must research, apply, develop and upgrade the power grid However, the procurement of equipment and technology to select the tender who offers the low price could lead to choosing the wrong technology and equipment

 Competitors

Currently, Ho Chi Minh City Power Corporation provides electrical energy

in HCM City, with the exception of Tan Thuan Export Processing Zone, Hiep Phuoc Industrial Park and Phu My Hung residential area within the scope of the power supply of Hiep Phuoc Power Plant with not greater capacity scale Therefore, the Corporation has no competition in electricity supply

On the other hand, in the electricity-related services, throughout the city, there are about 357 active companies in the field of design, consultancy, construction and electrical repair (Source: Department of Industry and Trade) This

is the sector that the Corporation is planning to enter the market in the period of

2011 - 2015, so these companies are the direct competitors with corporation in the coming period

 Supplier

The Corporation buys power from the Electricity of Vietnam (EVN) with the representative company of electricity trading through 220 kV transmission network This is the only supplier of the Corporation and the Corporation now has to accept the purchase price by EVN according to the annual plan However, in the late of years, EVN reviews the internal price adjustments to profit for the Coordination of Electricity losses This leads to the aestivation of the corporation in the planning of next year as a result of business changes

 Potential competitors

In the period of 2011 - 2015, there are not any potential competitors in Ho Chi Minh area’s power However, when Vietnam will operate the electricity market

in 2022 by the schedule, the Corporation may compete with the Southern Power Corporation and the Hanoi Power Corporation

Competitive Profile Matrix (CPM)

EVNHCMC as well as other electricity distribution corporations in Vietnam now is still state monopoly in power distribution, there is almost no competition in the market of distributing electricity energy Therefore, our Group just builds the CPM matrix to make comparative evaluation between some distribution corporations under EVN like: Southern Power Corporation (EVNSPC), Ha Noi Power Corporation (EVNHANOI)

Table 2.5 Competitive Profile Matrix

ing

Rat- res

Sco- ing

Rat- res

Sco- ing

Rat- res

With comparison result to the above CPM, our group recognized more clearly the strengths and weaknesses of Ho Chi Minh City Power Corporation compared to potential competitors (EVNSPC and EVNHANOI) Since then, in the strategy of stage 2011 - 2015, we build solutions that enhance strengths and overcome weaknesses to prepare for the stage 2020 - 2025, EVNHCMC will compete directly with the EVNSPC and EVNHANOI in electricity business field Also, through CPM, we also found that the EVNHCMC’s strengths chain as using high technology to reduce losses and the link between the quality of the labor force and funding for training

 External Factor Evaluation matrix (EFE)

Table 2.6 External Factor Evaluation matrix (EFE)

importance

cation

Classifi-Mark for Importance

1 1 - Area concentrated of young and qualified

2

2 - The Government gave priority to investing

and developing of power sources and upgrading

the grid to ensure power supply in the city

5 - Demand for consulting and designing

household electrical systems, maintenance and

repairing customers’ voltage transformers arise 0.15 4 0.6

6

1 - The Government manage electrical price so

the market is not governed by the law of supply

and demand

7

2 - Wage mechanism of state enterprises is

difficult to attract qualified labor force, high-risk

of "brain drain"

8

3 – When selecting advanced technology or

procurement of modern equipment, it's easy to

make mistakes

9

4 - Power quality and requirements to ensure

continuous power supply, stable supply situation

in condition that the national electric system are

2.2.2 Analyzing the internal environment of Ho Chi Minh City Power Corporation

To the end of 2009, Ho Chi Minh City Power Corporation has about 7,400 employees Among these, the percentage of 43.73% is of direct workers while the 21.96% is of staffs including university graduates and post-graduated, and the rest is

of other expertised employees [Source from report of EVNHCMC]

Personnel figures of some common teams within 15 Power Companies: