Development strategy of con river sugarcane joint stock company period 2011 - 2015

3 COMMITMENT The followings are our commitments – this is the study project of the whole group to build up development strategy in Con River Sugarcane Joint Stock Company, which is one

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GRIGGS UNIVERSITY GOLBAL EXECUTIVE MASTER OF BUSINESS ADMINISTRATION

1 Pham Tuyen

2 Nguyen Ngoc Vo

3 Pham Hong Son

4 Nguyen Phuong Thang

Ha Noi, 2010

ON BEHALF OF THE GROUP

Pham Tuyen

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COMMITMENT

The followings are our commitments – this is the study project of the whole group to build up development strategy in Con River Sugarcane Joint Stock Company, which is one production unit within the area of one of our group members All study data and results in this assignment are honest and faithful to reality

ON BEHALF OF THE GROUP

Pham Tuyen

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TABLE OF CONTENTS

Page

ACKNOWLEDGMENT 2

COMMITMENT 3

TABLE OF CONTENTS 4

SYMBOL AND ABBREVIATIONS ……… 7

LIST OF TABLE 8

LIST OFLIST OF FIGURE 9

PREFACE 10

CHAPTER I: BASIS OF THEORY AND PRACTICE ……… 12

1.1 Definition of strategy 12

1.2 Analysis of PEST and five-force model of M.Porter 13

1.2.1 Pest 13

1.2.2 Five-force model of M.Porter 15

1.3 Internal analysis of enterprises 17

1.4 Formation and choice of strategies 18

1.4.1 Matrix for external factor evaluation 18

1.4.2 Competitive Profile Matrix 17

1.4.3 Matrix for internal factor evaluation 19

1.4.4 General matrix for internal and external factors 20

1.4.5 SWOT matrix 21

Conclusion of chapter I 22

CHAPTER II ANALYSIS OF BUSINESS ENVIRONMENT OF CON RIVER SUGARCANE JOINT STOCK COMPANY 23

2.1 General introduction of Con river sugarcane JSC 23

2.1.1 Formation and development 23

2.1.2 Functions and duty 24

2.1.3 Management and organizational structure 25

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2.1.4 Trading activities in recent years 27

2.2 Analysis of business environment 29

2.2.1 General introduction of Vietnamese sugarcane sector 29

2.2.1.1 Reality 29

2.2.1.2 Quantity 30

2.2.1.3 Materials 31

2.2.1.4 Consumption capacity 33

2.2.1.5 Development capacity of Vietnamese sugarcane sector 35

2.2.2 Pest analysis 35

2.2.2.1 Political and legal factors 35

2.2.2.2 Domestic and foreign economic factors 38

2.2.2.3 Natural and geographical factors 40

2.2.2.4.Technical and technological factor 41

2.2.3 Business environment analysis (M.PORTER)………… 43

2.2.3.1 Customers 43

2.2.3.2 Providers 44

2.2.3.3.Current competitive opponents 45

2.2.3.4 Potential competitive opponents 46

2.2.3.5 Replaced products 47

2.2.4 General matrix of external factors evaluation 50

2.2.5 Competitive profile Matrix of SJC 51

2.3 Analyze internal problems of SJC 52

2.3.1 Human resource 52

2.3.2 Finance 53

2.3.2.1 Analysis of capital and capital using 53

2.3.2.2 Analyze financial norms and trading results 56

2.3.2.3 Analysis of financial norms and rate 57

2.3.3 Marketing activities 61

2.3.4 Technology and equipment 63

2.3.5 Material zone 63

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2.3.6 Economic infrastructure 66

2.3.7 General matrix of internal factors evaluation 67

CHAPTER III CHOICE OF BUSINESS STRATEGY FOR SJC PERIOD 2011 – 2015 ……… 69

3.1 Build up strategies via S.W.O.T 69

3.1.1 Strengths and weaknesses 69

3.1.2.Opportuntities and threatens 70

3.2 External and internal factors evaluation 72

3.3 Choice of strategies for SJC during 2011 - 2015 72

3.3.1: Vision and mission 72

3.3.2 Choice of strategies via matrix for defining QPSM .73

3.3.3 Strategy content 77

3.3.3.1 Product diversification 77

3.3.3.1 Development of sugarcane material zone 78

3.4 Some methods to implement strategies during 2010-2015 79

3.4.1 Solution of investment 79

3.4.2 Solution of human resource 80

3.4.3 Solution of raising effect of using capital and asset 81

3.4.4 Solution of science and techniques 83

3.4.5 Solutions to build sustainable relationships with sugarcane farmers 84 3.5 Schedule for implementation of the strategy 84

SUGGESTION AND CONCLUSION………… 85

REFERENCES 88

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LIST OF SYMBOL AND ABBREVIATIONS

No Full form of abbreviation Symbols and

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LIST OF TABLE

1 Table 1.1 Matrix table of external factors

2 Table 1.2 General table of internal factors

3 Table 2.1 Labors in SJC

4 Table 2.2 Data of trading activities of SJC from 2007-2009

5 Table 2.3 Sugarcane output of nations in 2009

6 Table 2.4 Material cost of some nations

7 Table 2.5 Labor productivity (tons sugar/labor)

8 Table 2.6 Development index of Viet Nam during 2000 - 2009

9 Table 2.7 Matrix for external factor evaluation of SJC

10 Table 2.8 Competitive Profile Matrix of SJC

11 Table 2.9 Analysis of capital and capital using of SJC in recent

years

12 Table 2.10 Report on trading results by 31/12 of recent years of SJC

13 Table 2.11 Production results of sugarcane

14 Table 2.12 Matrix of internal factor evaluation

15 Table 3.1 QSPM of SJC according to S/T group

16 Table 3.2 QSPM of SJC according to W/O group

17 Table 3.3 Chemical and physical norms of SJC

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LIST OF FIGURE

1 Figure 1.1 Factors of external environment of enterprise

2 Figure 1.2 Analysis of PEST

3 Figure 1.3 Five-force model of M.Porter

4 Figure 1.4 Internal and external factors of enterprise

5 Figure 1.5 SWOT matrix

6 Figure 2.1 Organizational diagram of SJC

7 Picture 2.2 Organizational diagram of trading activities of SJC

8 Picture 2.3 Vietnamese area of growing sugarcane and annual

growth

9 Picture 2.4 Sugarcane productivity according to ecological area

10 Picture 2.5 Porter model applied to SJC

11 Figure 3.1 SWOT matrix of SJC

12 Figure 3.2 Internal and external factors of SJC

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PREFACE

1 The reason to choose the topic

In front of violent competitive market, each member must have ready preparation with effective strategies for sustainable development and existence An enterprise with right and suitable trading strategies can base on internal resources to make use of opportunities from external environment or avoid risks and limit weaknesses then it can have enough competitiveness to stand tall within the market; Con River Sugarcane Joint Stock Company is a State-owned enterprise which has been transferred into the form of joint stock company then it can get more difficulties and challenges then before without State’s protectionism Con River Sugarcane Joint Stock Company must try its best to keep market share and development; and this is the reason that makes our group decide to choose the topic

“Development strategy in Con River Sugarcane Joint Stock Company for the period

of 2011 to 2015" as the capstone project

2 Purposes and significances of the topic

Purposes: Applying studied theory together with realistic analysis to give effective development strategies for Con River Sugarcane Joint Stock Company from present until 2015

Significances: based on scientific basis, such assignment is made with the expectation to contribute effort to the company’s development within working area

of a group member and the development of Tan Ky district in particular and Nghe

An province in general

3 Study object and scope

Study object: Development strategy of Con River Sugarcane Joint Stock Company for the period of 2011 to 2015

5 Topic structure

Apart from preface, structure of assignment including 3 chapters:

Chapter I: Theoretical and practical basis of business strategy

Chapter II: Analysis of realistic situation of business activities in Con River

Sugarcane Joint Stock Company

Chapter III: Development strategy for Con River Sugarcane Joint Stock

Company from 2011 to 2015 and conclusion

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CHAPTER 1

BASIS OF THEORY AND PRACTICE TO BUILD DEVELOPMENT STRATEGY OF CON RIVER SUGARCANE JOINT STOCK COMPANY

FOR THE PERIOD OF 2011 – 2015

This program has indicated the theory basis for building development strategy for SJC Mentioned theory basis in this program including the following contents:

 Definition of strategy and trading strategy

 Analysis of PEST and five-force model of M Porter

 Internal analysis of enterprise according to function

 General matrix of factors of external and internal environment

 Analysis of SWOT to choose strategy

- According to Alfred Chandler - Harvard University, trading strategy is to define basic targets of an enterprise at the same time draft and choose method, action plan and allocation of necessary resources to implement such targets

- According to M Porter, trading strategy is the art to build up competitive advantage for defenses

- According to G.Arleret, trading strategy is to define methods and medium to reach defined targets via policy

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Then, trading strategy is a collection of targets, policy as well as plans to reach such targets which can show trading strategies that company will implement and which trading sectors that company will implement

In general, definitions of trading strategies can have difference but basically it includes the following contents:

Strategy to collect decisions: targets, methods, policy, resource allocation… and action plan to reach long term targets, promote strengths and weaknesses of organization; help organization to receive opportunities and overcome external risks

in the best way

1.2 Analysis of PEST and five-force model of Michael Porter

1.2.1 PEST analysis

The purpose of analysis of PEST and five-force model of Michael Porter is

to define opportunities and threatens of enterprise

Analysis of PEST and five-force model of Michael Porter is to analyze factors of external environment of enterprise which are expressed in the following model:

Figure 1.1 Factors of external environment of enterprise

Economic factor The whole economic environment Political and legal factors

Internal environmental of sector

Customers Current competitive opponents

Providers Replaced products Potential opponents

Technical and technological factors Social and cultural factors

To analyze national trading environment, in this assignment we use theory of PEST including assessment of politics (P), economics (E), society (S) and

Enterprise

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technology (T) to find out opportunities and threatens for enterprises operating in such trading environment

Economic factors can play the most important role which can impact on

enterprise’s trading; it includes factors such as economic growth rate, exchange rate, inflate rate, interest policy, economic policy…if economic growth is high then exchange rate will increase, inflate rate is stable; suitable interest policy, economic policy can create equal playground for enterprises which will be the opportunity for enterprises On the contrary, such factors will create challenge for enterprises operating in such economy

Figure 1.2 Analysis of PEST

Political and legal factors will be the basis for formation of other factors of

trading environment which means basis for politics and legal environment for

(Political)

Stable politics, labor law, tax policy, legal system and legal environment

Living style Culture, people’s qualification Customs, tradition

(Technological)

Discover new technology Rate of technological transfer Governmental cost for R&D Market of technological products

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business environment; such factors including institution for political and legal system; stable political institution, clear methods can create opportunity for enterprise’s development and vice versa

Social factors can impact slowly on business environment but greatly impact

on market demand but change of customers, tradition and habit of consumption

Technological and technical factors play important and decisive roles in

business environment of enterprise; the world is in revolution of technology; a series of new technology appear which will be connected to products and services; Then we must consider how technological factors impact on trading sectors in term

of technological development rate, governmental investment…

Factor of integration: apart from above factors, when studying influence of

external environment we must consider factor of integration which will become macro factors impacting on sector; nobody can deny trend of globalization which is also the challenge for enterprises in business development

1.2.2 Analysis of five-force model of Michael Porter

To analyze sector’s environment then we can use five-force model of Michael Porter Such model has mentioned 5 forces to bring opportunities or threatens in sector including (1) providers, (2) current competitive opponents, (3) potential competitive opponents, (4) customers, (5) replaced products One of five forces can bear influence from other factors which must be studied to create a full picture of sector’s competition Mutual impact among 5 forces can create opportunities and threatens for enterprises within the sector which is shown in the following diagram:

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Threatens of newly Participated person

Competitive opponents Competitive intensity

Replaced products

Buyers Providers

Figure 1.3 Five-force model of M.Porter

Competitive opponents in the sector:

When mentioning competition among enterprises, we must consider the level

of competition among enterprises in the sector; a sector with high competitive level then capacity to reduce competitive price is very high which can lead to profit reduction threatening to enterprises; factors to decide competitive level of a sector can include sector’s growth rate, quantity of enterprises and their relative scale, the height of sector’s barriers, different products among enterprises

Threatens of newly participated members:

Such threatens are defined by “the height of participation’s barriers”; if participation’s barriers are high then the power to threaten from potential opponents can reduce and more opportunities will be given to enterprises; Decisive factors of participation’s barriers including economic scale, difference of products and faithfulness with label, distribution channels, absolutely advantageous cost

Power of buyers (customers):

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In the correlation between enterprises and customers, if customers are

“weak” then enterprises can increase price to increase profit; on the contrary, customers can be “stronger” than enterprise

Power of providers:

Providers have capacity to require price increase or reduction of product quality which is stronger than enterprise; providers can be stronger in cases when providers do not have many replaced product within market of industrial commodity which forces enterprises to choose them; when trading sector of enterprise is not important to providers; when providers have advantage in specializing products which make enterprises difficult to choose a replaced provider; when providers can join in trading sector of enterprise to compete directly with enterprises

Threatens from replaced products

According to M Porter, replaced products are products of competitive opponents in the trading sectors which can have the same function to meet the similar demand of consumption of customers Existence of products out of product boundary can increase common trend of customers to change into other alternatives such as: trend for buyers to replace; relative price of replaced products; realization level of different products, available products within the market

1.3 Internal analysis of enterprise

Analysis of enterprise can discover strengths and weaknesses of enterprise to build up target system and suitable strategies to make maximum use of strengths and turn them into special capacity as well as limit weaknesses; Author will analyze internal environment on some following fields:

 Production and technology

 Marketing and sale

 Financial analysis

 Human resources analysis

 Material resource analysis

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1.4 Strategy formation and choice

1.4.1 General matrix of factors in external environment

After analyzing opportunities and threatens arisen from external environment we can use matrix to assess external factors evaluation (EFE matrix) to summarize and assess influences of such factors on enterprises; development process of a matrix of external factors including 5 steps:

 Step 1: Make list of decisive factors for enterprise’ success

 Step 2: Define importance from 0 (unimportant) to 1.0 (very important) for each factor Total classification level is 1.0

 Step 3: Classify from 1 to 4 for each factor to see the method that how current strategies of enterprise reflect with such factors, out of which, 4 reactions are good, 3 reactions are above average level, 2 reactions are average and 1 reaction is low

 Step 4: Multiply between two norms of importance of each factor with its classification to define importance

 Step 5: Connect all important points of factors to define total importance point of each enterprise

Main external factors Importance level Classification Importance points

Table 1.1 Matrix table of external factors

The highest total importance point of an enterprise can be 4.0 and lowest is 1.0 Total importance point is 4 which shows that enterprise is reacting well with current opportunities and threatens in environment In other words, strategies that enterprise use can be effective for current opportunities which can minimize threaten and possible negative influence from external threatens Total importance

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point is 1 which shows that strategies that enterprise has given cannot make use of opportunities or avoid external threatens

2.4.2 Competitive Profile Matrix of SJC

Set this matrix to identify the comparative evaluation of companies with major competitors in the industry The comparison is based on the factors affecting the competitiveness of companies in the industry Thereby it gives the Administration recognized the strengths and weaknesses of the company with competitors, identify competitive advantages for the company and weaknesses should be overcome

1.4.3 General matrix of factors in internal environment

Using matrix to assess internal factors to summarize analysis, assessments of strengths and weaknesses of factors which impact on internal activities of enterprise; development process of matrix for internal factor evaluation is similar to EFE matrix which is just different in 3 steps: we can classify 1 as the biggest weakness, 2 as the smallest weakness, 3 as smallest strength and 4 as biggest strength

Main internal factors Importance level Classification Importance level

Table 1.2 General table of internal factors

Regardless of factors of IFE matrix, total importance point can be classified

as the lowest as 1.0 and the highest as 4.0 Total importance point is lower than 2.5 which shows that enterprise is internally weak and higher than 2.5 which shows that enterprise is internally strong

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1.4.4 General matrix of internal and external factors I.E

Figure 1.4 Internal and external factors of enterprise

IFE – Internal factors evaluation

Assessment point of enterprise

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organization be in the position that they can apply SO strategies When a company has a bigger weakness then it will try to overcome to make it become strength When an organization must cope with important threatens then

it will try to avoid it to focus on opportunities

* WO st ra te gie s a re to i mpr o ve i nt er na l w ea kne ss by ma kin g u se

of e xte rn al o pp or tu nit ie s; s o met i mes, ext er nal bi g op po rt uni ti e s a re exi st in g but co mpa ny h as i nt er nal we a kn es s th at c an h ind er i t fr o m exp lo iti n g su ch o pp or tu nit ie s

* ST strategies can use company’s strengths to avoid or reduce influence

of external threatens; this does not mean that a strong organization always cope with external threatens

* WT s t r a t e g i e s a r e d e f e n s e s t r a t e gi e s t o r e d u c e i n t e r n a l

w e a k n e s s e s a n d a v o i d e x t e r n a l t h r e a t e n

To make SWOT matrix we must follow 8 steps:

1- List strengths and weaknesses of company

2- List internal factor of company

3- List big opportunities outside company

4- List important threatens outside company

5- Combine internal strengths with external opportunities and write down results of SO strategies in suitable square

6- Combine internal weaknesses with external opportunitie s and down results of WO strategies

7- Combine internal strengths with external threatens and write down results of ST strategies

8- Combine internal weaknesses with external threatens and write down results of WT strategies

Therefore, this is an important and leading task of all organizations

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CHAPTER 2

ANALYSIS OF BUSINESS ENVIRONMENT

OF CON RIVER SUGARCANE JOINT STOCK COMPANY

2.1 General view of Con River Sugarcane Joint Stock Company (SJC)

Transaction name: SONG CON SUGAR JOINT STOCK COMPANY

2.1.1 History of formation and development

Con River Sugarcane Joint Stock Company whose forerunner is a sugar production enterprise of Lam river sugar factory (Hung Nguyen district, Nghe An province) was established in 1970 Then due to war, it came to Tan Ky district, merged with Tan Ky wine enterprise then established Tan Ky Con River Sugar and Wine Enterprise

Until 2001 its name has been changed into Con River Sugarcane Joint Stock Company which operated according to Decision No 2466/QĐ-UB on 28/12/1992

of Nghe an Provincial people’s committee; business registration certificate No

106713 on 26/12/1993 issued by Nghe an province economic arbitration

On 18/10/2006, Nghe An Provincial people’s committee has made decision

No 3724/QĐ.UBND-ĐMDN on approving privatization to transfer Con River Sugarcane Company into Con River Sugarcane Joint Stock Company

Con River Sugarcane Joint stock Company is located in mountainous area of the West of Nghe An province, with material area spreading three districts of Tan

Ky, Do Luong and Yen Thanh; Land area is large; Bazan soil can be suitable to develop short term industrial trees such as sugarcane Such advantage has created good condition for company to develop sugarcane material area for producing

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sugar; to implement of non-stop renovation in production, in recent years, Company has expanded material area, invested capital for farmers of 3 districts to develop area of growing sugarcane and provide new trees with high productivity and good quality for farmers

Together with development of material area, company has gradually invested

in raising capacity of sugar production line: firstly, capacity was just 15 tons sugarcane/day (mainly sugar-candy) then it reached 30 tons sugarcane/day in 1980 Until 1990 it had built factory with capacity of 100 tons sugarcane/day, in 1995 company continues raising capacity to 2,000 tons sugarcane/day

In 1999 company implemented project to build up production line according

to modern technology with capacity of 1,250 tons sugarcane/day, and comprehensive equipments provided by Spain according to production technology

of Cuba with total invested capital of 230 billion dong This is the provincial main program within program of 1 million ton sugar/year of Government using mixed ODA capital of Spain In 3/2001, the line was assembled which then went on stable production and brought good effect in term of economy and society In 2006, Company had raised capacity of factory to 1650 TMN; in 2009 implementing decision of shareholders’ meeting, company has invested to expand equipment capacity to 2500 TMN With such capacity, annually company has produced 32,000

to 35,000 tons sugar and from 5,000 to 7,000 tons fertilizer

2.1.2 Function and duty

The task of business management of company

Being an enterprise of production and trading, main targets of company are profit and income for labors and then submit to budget fully But to reach such targets then first of all, company must care for social common profits

+ Company has the duty for business registration and trading registered sectors

+ Bear responsibility in front of shareholders and the State on trading results, customers and law on company’s products

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+ Implement report on accounting, periodic trading and unexpected activities according to State’s requirements, Shareholders’ meeting and bear responsibility for the accuracy of this report

+ Company will bear monitoring of State’s agencies ad defined by Law + Implement duty with labors as defined by Labor Ministry

Task of financial management:

+ Well implement regulation and principles of capital, assets, auditing and other regulations as defined by the State

+ Ensure and develop capital

+ Implement receivables and payables in balance sheet of company at the time of establishment

+ Publicize and declare annual financial report; rightly assess on company’s activities

+ Pay tax and State’s budget items

+ Company will bear responsibility on materials for customers in the scope

+ Organize management machine of Con river Sugarcane Joint stock company:

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Figure 2.1: Organizational diagram of Con River Sugarcane Joint Stock Company

Note: leadership relation

Operational relation

Qualification Quantity (members) Structure (%)

University and

Table 2.1 Labors in Con River Sugarcane Joint Stock Company

(Sources: data from annual report of SJC)

Chairman of administration council

Monitoring board

Administration council

Deputy Director of materials

Market office

Accounting office

Farmer office

Organizationa

l and administrative office

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Organization of trading activities

+ Con River Sugarcane Joint Stock Company is a rather big enterprise whose main trading sector is producing sugar; producing microbial fertilizer, foodstuff alcohol, draught beer With regard to factories to bear the whole duty of using technology and equipments as well as human resource company will assign tasks under direct management of company Each factory can have a private distinction, duty and process of production technology; then company has organized trading activities as

2 factories and 2 independent production workshops, as follows:

Picture 2.2 Organizational diagram of trading activities of company

Con River Sugarcane Joint Stock Company

Factory to

produce sugar

Factory to produce microbian fertilizer

Factory to produce alcohol

Factory to produce beer

Production

shift

Production team

Production team

Production team

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2 1.4 Trading activities in recent years

Data of production and trading activities of SJC from 2007 to 2009 is

synthesized in the following table:

Development rate

(%)

Table 2.2 Data of trading activities of SJC from 2007-2009

(Sources: data from annual report of SJC)

Via above data, we can see that production and trading of SJC via recent years have constant growth of revenue, however in assessment of norms, we can realize that:

In term production, in 2008 the output has increased many times compared to

2007 (120.3%), but in 2009 it has reduced (just equal to 81.3% compared to 2008) This is because in 2009, it has the change in sugarcane material; due to bad climate then volume of sugarcane is not enough to provide to factory and sugarcane quality

is not high that make sugar output in 2009 has reduced strongly This is also a warning for company in long term development policy which is the problem of material area

In term of consumption: consumption output has reduced gradually via three recent years which is due to the influence of many reasons including the influence

2.2 Analyse business environnent (external environment)

2.2.1 General overview of Viet Nam Sugarcane

National productivity and quality of sugarcane is lower than international productivity and quality of sugarcane:

Table 2.3 sugarcane output of nations in 2009 Source: FAO

Due to low national output and quality then material cost to produce sugar of our country is much higher than many nations:

Table 2.5 Labor productivity (tons sugar/labor) Source: Ministry of Agriculture and rural development

Then we can see that production cost of sugar in our nation is much higher than other nations then our sugar sector is very difficult in competing with nations within the region and the world

2.2.1.2 - Productivity:

World: sugar productivity in the world has reached 171 million tons in 2009 and it is predicted that by 2011 it will increase to 180 million tons, out of which nations with the highest sugar productivity are Brazil and India

In recent years, sugar quantity of Viet Nam tends to increase; if before 1995, Viet Nam mainly depends on imported sugar then until now domestic production has met above 75% demand of domestic consumption In 2000, for the first time, sugar quantity has exceeded the level of 1 million ton which fulfills the target of program to produce 1 million tons sugar in 2000 In 2001, the quantity has reduction compared to the year 2000, with the reduction of industrial production level of 15% The reason is due to price reduction of sugarcane and sugar from season of 1999-2000 which make sugar factory and sugarcane growers in some places get loss then farmers have reduced area for growing sugarcane to transfer to grow other trees

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In season of 2008/2009, domestic sugar quantity is estimated about 909 thousand tons, reduced approximately 22% compared to season of 2007/2008 Total demand for sugar consumption in 2009 is estimated about 1.2 million tons; average consumption growth is about 5.08%/year Then current produced sugar quantity cannot meet fully demand which must depend on importing to compensate annual loss

- In Nghe An, sugar quantity in season of 2009-2010 has reached about 180 thousand tons, out of which quantity of SJC has reached from 20 to 25 thousand tons/year on average

2.2.1.3 - Materials:

Sugarcane area:

International area for growing sugarcane is currently about 25 million ha with total quantity of 1,734.1 million tons Out of which, 11 leading nations of producing sugarcane include Australia, Brazil, China, Columbia, India, Indonesia, Mexico, Pakistan, Philippines, Southern Africa and Thailand with area of growing sugarcane of 81.56% total international sugarcane area

National area of growing sugarcane in season of 2008/2009 is 260.1 thousand hectares, average sugarcane productivity is about 58.62 tons/ha, which is lower than 1.46% compared to 2008 Sugarcane quantity of the whole country is about 15,246.4 thousand tons which reduces nearly 5.5% compared to 2008

According to report of Ministry of Agriculture and rural development, national area of growing sugarcane in season of 2008/2009 is 260.1 thousand ha, which reduced 4.1% compared to season of 2007/2008 and 11.35% compared to season of 2006/2007 If we compare it with the year of 2000 which is the final year of

“program of one million ton sugar”, national area of sugarcane growing in 2009 has been reduced to 14%; average level within 2000-2009 it has reduced 1.65%/year Current reduction trend shows that income from growing sugarcane has not brought

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economic effect then area of growing sugarcane has been reduced to grow other trees

which can bring higher economic effect

Picture 2.3 Vietnamese area of growing sugarcane and annual growth

Area of growing sugarcane Growth of area for growing sugarcane

Source: Statistical agency, AGROINFO

Sugarcane productivity:

In recent years, thanks to appliance of technical breakthroughs and effort to

invest in material area of sugar factory and locality then sugar productivity has been

improved However, due to influence of climate and limitations of cultivation

condition then in 2009 average productivity of the whole country just reached about

58.62 tons/ha, which is lower than 1.46% compared to 2008 If we compare it with

average sugarcane productivity in the world (about 70 tons/ha) then sugarcane

productivity of Viet Nam is currently lower than 16.3% And we compare it with

some nations of producing sugarcane with high productivity (in 2008 it reached

87.1 tons/ha), Brazil (in 2008 it reached 79.7 tons/ha) or neighboring nations,

Thailand, currently have productivity of about 69.7 tons/ha then Viet Nam must

need a lot of time to reach this level

Mekong River Delta area has highest productivity of sugarcane, which is

about 76.88 tons/ha The Eastern South has the best development potentials of

sugarcane nationwide but current productivity of sugarcane just ranks the second,

about 59.86 tons/ha Tay Nguyen area also has rather stable sugarcane productivity

in many years which reaches about 53.67 tons/ha in 2009

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In term of sugar content (CCS), Vietnamese sugarcane has sugar content of lower than 10 CCS, meanwhile neighboring nations such as Thailand and China, sugarcane has average sugar content of about 13 CCS

Currently, people have met much difficulties in assessing time of ripen sugarcane to harvest then we can harvest unripe or old sugarcane which reduce sugar content; in harvest season, the situation of lacking workers to harvest or factory cannot consume timely can make sugarcane leaved roots in the field and reduce sugar content; Especially, in Mekong river Delta – the second big area of growing sugarcane can provide about ¼ total sugarcane quantity of the whole nation – is located in area of annual flood; then it must harvest sooner than the time

of ripen sugarcane to avoid flood which is also the reason to reduce average sugar content of Vietnamese sugarcane

Picture 2.4 Sugarcane productivity according to ecological area

Hong river delta Northern mountainous area

Northern Central and Central coastline Tay Nguyen

Eastern South Mekong River Delta

The whole country

Source: statistical agency, AGROINFO

2.2.1.4 Consumption capacity:

In recent years, situation of sugar export of nations has got many changes; Brazil has strong sugar export growth rate, especially the period of 95-96 to 98-99 Brazil has occupied the first position of the world with new constant market approach Thailand and Australia are two nations of exporting sugar which tend to increase; five nations/area (Australia, Thailand, Brazil, EU and Cuba) export annually about above 25 million tons sugar, occupying 65% total exported sugar

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worldwide (Data from institute of agricultural economy – Ministry of Agriculture and rural development) Leading nations of sugar import in the world include the

US, Canada, Russia, Japan, China…

In recent years, international sugar production always exceed the demand but until recent years, especially in 2009, demand and supply of international sugar have been balanced and it is predicted that in 2010 the world will lack of about 1 million tons sugar, total sugar demand of the world is estimated about 50 million tons Therefore, currently, the problem of sugar consumption in the world is rather feasible; sugar price in some nations has reached the highest top from previous time till now In Viet Nam, in 2009 national sugar quantity has lacked about 35,000 tons and it is expected that in 2010 demand is still higher than supply Then Vietnamese sugar quantity cannot meet national consumption demand; we must issue sugar import quota of other nations; this is also the opportunities and threatens for enterprises of producing and trading sugar in Viet Nam

Average sugar consumption per capita of Viet Nam in 1999 was 10.4 kg/person/year, in 2009 it was about 16.8 kg/person/year, within period of 1999-

2009 consumption increased about 5.08%/year World sugar consumption in 2009 reached 155,129 million tons, per capita is 25kg/person/year; average consumption rate 2001-2009 period increased 2.09% per year Through which we see in our country sugar consumption is lower than the world average however, the speed of vietnam's sugar consumption increased higher than average level of world, so demand of domestic consumption sugar continues to rise in coming years

Total designed capacity of sugar factory is about 105,750 tons sugarcane /day; with maximum capacity, such factories can produce about

1 million tons sugar while consumption demand in 2009 was estimated about 1.4 million tons Then, domestic sugar quantity cannot fully meet the demand which depends on import to compensate the lack

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According to estimation of Business Monitor International from present till

2013 foodstuff industrial sector of Viet Nam will increase about 29%, out of which cake and candy sector will increase about 28%, bottled foodstuff will increase about 37%, beverage sector is also predicted to have high growth rate in the same period; Then the rate of sugar consumption in processing industry will increase equivalently; this is also the big opportunity and threatens for Vietnamese enterprise of producing sugar

2.2.1.5 – Development capacity of sugarcane sector of Vietnam

Vietnamese sugarcane sector is coping with many challenges in current integration process; Most of factories of producing sugarcane of our country have small scale; backward technological line; area of sugarcane material is located scattered; quality of sugarcane is low, which are the reasons that make sugar quantity of our country low with high price; with the interests via effective Governmental policy, Vietnamese enterprises of producing sugarcane is having the opportunity to stabilize production, raise product quality, reduce production cost, reduce product price to have enough resources for domestic and foreign market

2.2.2 Analysis of economic environment – macro environment (PEST model)

2.2.2.1 Political and legal factors

Viet Nam has continued implementing the policy to stabilize economy to develop trading activities, society and develop sustainably with the policy to promote investment, growth, prevent inflate and ensure financial and banking system This is the favorable condition for domestic and foreign enterprise

macro-to invest and develop trading activities; SJC also receives the similar preferential treatments

Sugarcane is the important sector in development strategy of the nation; therefore Government has been implementing many supporting methods for sugarcane sector especially the following Decisions of Prime Minister: Decision No.80/2002/QĐ-TTg on 24/6/2002 on consuming agricultural products via contract

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In recent time, this decision has promoted actively the connection between sugar factories and farmers which can contribute to the stable development of sugarcane material area for providing to sugarcane factories; However, Government must study the experiences of nations to supplement, increase legality and create more attachment between sugar factories and farmers such as: master plan sugarcane area; fund for preventing risks of natural calamity and flood, storms…; Decision

No 28/2004/QQD-TTg on 4/3/2004 on re-organizing and implementing some solutions for solving problems of some sugar factories and companies as well as farmers growing sugarcane; recently, Prime Minister has promulgated Decision No.26/2007/QĐ-TTg on 15/02/2007 on approving master plan of Vietnamese sugarcane sector development by 2010 and orientation by 2015 with some following targets: until 2010 sugarcane area will reach 300,000 ha, average productivity of 65 tons/ha, average sugar content of 11CCS, sugarcane quantity of 19.5 million tons, total capacity of sugar factory is 105,000 tons sugarcane/day, quantity of produced sugar is 1.5 million tons (out of which industrial sugar is 1,4 million tons) and by 2015 sugar production can fully meet domestic and exported demand; production level is about 2.1 million tons, out of which: refined sugar is 1.5 million tons, white sugar 500,000 tons, unrefined sugar is 100,000 tons; invest

in cultivation on existing sugarcane area; expand area in places with condition according to the following orientation: grow new sugarcane, apply advanced cultivation technology By 2015 total area of sugarcane growing is about 300,000

ha, average sugar productivity is about 80 tons/ha, average sugar content of 12 CCS, sugarcane quantity of 24 million tons; total designed capacity is about 120,000 tons sugarcane/day

Since 2007, according to commitment of WTO, Viet Nam has officially issued import quota of unrefined and refined sugar of 55,000 tons; such number will increase 5% every year and import tax in quota is 25% for unrefined sugar and 60% for refined sugar Import out of quota will not be limited in term of import regulations, but bear high tax, from 80 – 100% Then in spite of opening market door, domestic sugar production can be rather closely protected equal to barriers of

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tax and quota; several years ago, enterprises of sugar sector did not react violently after each period of issuing import quota because at that time, sugar import was few which did not impact much on domestic values; moreover, demand and supply were not in tense level; however, in recent years, sugar quantity in processing soft drink, milk, bakery, households’ using…has been increased strongly then domestic production cannot meet fully the demand then must increase import; However according to CEPT/AFTA commitment within the period of 2009 – 2013, from

2010 onwards, import tax of all kinds of sugar will be 5% Those are big challenges for Vietnamese sugar factories which must cope with competition of imported sugar

Together with governmental policy, Con River Sugarcane company can bear much influence from policy of Nghe An province; Nghe An is one province with many supporting policies for farmers of growing sugarcane such as: supporting new sugarcane cultivation, fertilizer, instructing people in term of planting techniques and sugarcane nurturing; this can create good condition for development and ensuring enough sugarcane material providing to sugar factories; In April, 2009, Nghe An provincial People’s committee has promulgated Decision No 1709/QĐ.UBND-NN on approving development of sugarcane material of Con river sugarcane joint stock company by 2015, and orientation by 2020, which expresses real interest of the province for the company

With such policy, SJC is having many opportunities to invest and raise capacity and sugar quantity, at the same time SJC is also in front of stressed challenges from competitive opponents in which factories with high financial capacity will continue investing in production expansion, increase of quantity and competition in the market to occupy market share, at the same time, SJC must also cope with other challenges in which price of new products are lower than its price because new production line can have lower fuel consumption, modern technology then products will have more preeminent quality

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2.2.2.2 Domestic and foreign economic factors

Vietnamese Government has implemented innovation process since 1986 Such process is aimed to build up multi-sector economy by recognizing and making formula for the role of private sector, expand market for foreign trade and improve preferential treatments for foreign investors Such innovation has reached impressive results; economic index of Viet Nam in the period of 2000-2009 is as follows:

Table 2.6 Development index of Viet Nam during 2000 - 2009 Source: Statistical yearbook in 2010

From the end of the year 2007 till now, Vietnamese economy has fallen into recession due to internal weaknesses and bad influence from global economic crisis; Most of big economy such as the US, EU and Japan have less choice but requiring big State’s companies to adjust current difficulties; such situation can create many problems such as reduction of foreign direct investment resource (FDI), increase commercial deficit and reduction in domestic market; GDP of Viet Nam has reduced within 3 recent years (8.4% in 2007, 6.2% in 2008 and 5.32% in 2009) and

it is predicted that this year will be 6.5% Such things can make national consumption demand of sugar reduced in three recent years but increased again in

2010

Viet Nam is a developing country, then income of people is more and more increased leading to the increase of consumption demand; sugar is the product for producing many consuming products such as milk, bakery, fast-food…Then we can

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see that demand of sugar is also high; according to prediction in 2010, domestic consuming demand of sugar is about 1.3 million tons, while sugar quantity just reached about 1.0 million ton

Viet Nam is gradually integrated into international market; integration into AFTA, WTO will create good condition for enterprises of sugar sector to have some opportunities to expand consumption market, approach human resources and material resources from developed countries, advanced management system in the world… At the same time, WTO also indicates that currently, Vietnamese sugar producers are coping with challenges which are the violent competition from sugar resource of foreign enterprises such as Thailand, Cuba, and EU…

Consuming sugar quantity of Viet Nam has been increased constantly via years with rather high growth rate; if in 2005, average consuming level per capita of Viet Nam was 14.74 kg/person/year then until 2009 this number has increased to 16.82 kg/ person/year

Currently, income of people is more and more improved then consumption demand including sugar demand is more and more increased; According to study of

a Holland Rabbo Bank, elastic level of demand according to income of developing nations is 0.4(1) Viet Nam is in this group then when increasing income, consumption will increase

Sugar demand and supply of households increase; processing industry of Viet Nam according to prediction of Business Monitor International from now till

2013 also increases; out of which bakery sector increases about 28%, bottled foodstuff about 37%, beverage sector is also predicted to have high increase rate in the same period

(1) Elastic level of 0,4 reflects the fact that if income increases 1% then consumption demand will increase 0,4%

In 2009, Vietnamese population is 86 million people; average level during 1999-2009, population growth rate was 1.2%/year Although population growth rate has been controlled but with existing population, in present and future, Vietnamese market is still a potential market for sugarcane sector

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With average growth rate of GDP is about 6%/year, population of 1.2%/year and income per capita is about 4.3%/year then consumption demand of sugar will increase 1.3%/year However, in fact, such demand has increased in high level; the reason for this high increase is originated from low level of Vietnamese sugar consumption; at the beginning of decade 90, due to many difficulties, then consumption level of sugar just reaches 6 kg/person/year When income increases, together with the increase of living standard then sugar demand will increase quickly

Via analysis of main factors which impact on consumption demand of sugar

we can predict Vietnamese consumption demand of sugar in the following years It

is expected in this year, sugar consumption demand of Viet Nam will increase above 4.2%/year With such increase rate, then sugar consumption demand of Viet Nam in 2010 will be 1.51 million tons Meanwhile, current domestic sugar production can just meet about 75% of demand Then, domestic market is also the great potential market of Vietnamese sugarcane sector

2.2.2.3 Geographical and natural factors

Nghe An with area of 16,498.5km2 and population of 3,123,084 people, is a Northern Central province in Viet Nam; bordered with Thanh Hoa province in the North, bordered with Ha Tinh province in the South, bordered with Laos in the West; bordered with Eastern Sea in the East

Terrain of Nghe An province includes mountain, hill and valley; slope is from Eastern North to Western South; river system of the province is dense with coastline of 82 km Mountain and hill occupy 83% natural area of the province; This is the favorable condition and challenge for SJC in development of sugarcane

as well as master plan of material area with higher scale, more concentration which create good condition for company to collect and buy materials

However, in some other localities, sugarcane material area provided to SJC is located in midland and mountainous areas whose traffic and irrigation projects are not invested then bear great risks by drought and storms, flood; this is also a great