Cement business strategy building of cosevco6.,jsc from 2011 to 2015 and the vision towards 2020

GRIGGS UNIVERSITY GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION CAPSTONE PROJECT REPORT CEMENT BUSINESS STRATEGY BUILDING OF COSEVCO6.,JSC FROM 2011 TO 2015 AND THE VISION TOWARD

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GRIGGS UNIVERSITY

GLOBAL ADVANCED MASTER OF BUSINESS ADMINISTRATION

CAPSTONE PROJECT REPORT CEMENT BUSINESS STRATEGY

BUILDING OF COSEVCO6.,JSC FROM

2011 TO 2015 AND THE VISION TOWARDS 2020

Group number : 11 Student ' name :

Vu Quang Huy

Vu Minh Giang Pham Hung Nguyen Hoang Tuyet Nga Bui Thi Phuong Dung

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Capstone Project Report GaMBA.X0409 Group 11

COMMITMENT

We certify that the content of this capstone project report has not been offered to

any training program We undertake that this report is the effort of the five people in

our group, which is not copied from others’ meanwhile the data and materials used

in the research is true and correct to the original, unless otherwise we may bear full

responsibility

SIGNATURES OF STUDENTS IN GROUP

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Table of contents Page INTRODUCTION 7

CHAPTER 1 THEORETICAL BASE ON BUSINESS STRATEGY 9

1.1 CONCEPT AND THEORETICAL BASE OF BUSINESS STRATEGY 9

1.1.1 CONCEPT AND THEORETICAL BASE OF BUSINESS STRATEGY 9

1.1.2 Strategic administration 10

1.1.3.Roles and meanings of business strategies for enterprises 10

1.1.3.1 Roles of strategic administration 10

1.1.3.2 Meanings of strategic administration 11

1.1.4 Kinds of strategies 11

1.1.4.1 Strategy at the company level 12

1.1.4.2 Business strategy (SBU) 12

1.1.4.3 Functional strategy 12

1.2 PERIODS OF STRATEGIC ADMINISTRATION 12

1.2.1 Researching period 13

1.2.1.1 Analyzing the external environment 13

1.2.1.2 External Factor Evaluation (EFE) 15

1.2.1.3 Competitive profile matrix 15

1.2.1.4 Analyzing internal environment or domestic environment 16

1.2.2 Combining period 17

1.2.3 Decisive period 19

1.2.4 Competitive strategic directions of a product in trading 19

1.2.4.1 Domination strategy on cost 19

1.2.4.2 Differentiation strategy 20

1.2.4.3 Combining strategies of cost and differentiation 20

CHAPTER 2 CEMENT PRODUCTION AND BUSINESS SITUATION ANALYSIS OF COSEVCO6 COMPANY FROM 2006-2010 21

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2.1 THE OPERATION PROCESS OF COSEVCO 6 21

2.1.1 Introduction on Cosevco 6 Company 21

2.1.1.1 Overview of the company 21

2.1.1.2 Main information: 21

2.1.1.3 Achievements: 22

2.1.2 Formation process and organization structure of COSEVCO6 22

2.1.2.1 Formation process 22

2.1.2.2 Organization mechanism of COSEVCO 6 23

2.1.2.3 Description of COSEVCO6 business activities: 24

2.1.3 Internal environment analysis of COSEVCO6 25

2.1.3.1 Product structure of the company and cement product: 25

2.1.3.2 Cement production: 27

2.1.3.3 Consumption condition 28

2.1.3.4 Marketing activity 30

2.1.3.5 Human resources: 35

2.1.3.6 Accounting and finance 39

2.1.3.7 Management 44

2.2 MACRO-ENVIRONMENT ANALYSIS 50

2.2.1Overview of cement activities 50

2.2.1.1 The cement industry in the world 50

2.2.1.2 Cement industry in Vietnam 52

2.2.2 Macro business environment analysis 54

2.2.2.1 Impacts of world economic environment 54

2.2.2.2 Impacts of domestic economic environment 56

2.2.3 Cultural and social factors 59

2.2.4 Law and political factors 60

2.2.5 Technology factors 60

2.2.6 Globalization factors 61

2.3 MICRO ENVIRONMENT ANALYSIS 62

2.3.1 Customer 62

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2.3.2 Supplier 63

2.3.3 Competitor 63

2.3.4 Potential competitors………

2.3.5 External Factor Evaluation (EFE) 64

2.3.6 Competitive profile matrix 66

2.4 General comments 69

CHAPTER 3: BUSINESS STRATEGY BUILDING OF COSEVCO 6 COMPANY IN THE PERIOD 2011 – 2015 68

3.1 VISION AND MISSION OF COSEVCO 6 COMPANY 68

3.1.1 Vision 68

3.2 BUSINESS DEVELOPMENT TARGET OF COSEVCO 6 COMPANY 68

3.2.1 Bases to identify targets 68

3.2.1.1 Forecast on the income structure towards 2015 69

3.2.1.2 Forecast on the market 69

3.2.2 Development target of Cosevco6 company towards 2015 70

3.2.2.1 General target 70

3.2.2.2 Detailed targets 70

3.3 BUSINESS STRATEGY BUILDING OF THE COMPANY 71

3.4 STRATEGY SELECTING 74

3.4.1 Strategy selecting 77

3.4.1.2 Marketing strengthening and market developing strategy 77

3.5 SOLUTIONS TO IMPLEMENT STRATEGIES 78

3.5.1 Human resources 78

3.5.2 Improving the efficiency of using machines and equipments, tools and means to serve the production and business activities 79

3.5.3 Marketing solutions 80

3.5.4 Strengthening relations with customers, gradually broadening the cement consumption market 80

3.5.5 Solutions to mobilize capitals 81

3.6 PETITION 82

3.6.1 For State 82

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3.6.2 For the branch 83

3.6.3 For Cosevco6 Joint Stock Company 83

CONCLUSION……… 84

List of Tables Page Table 1.1: External factor evaluation 15

Table 1.2 Competitive profile matrix 16

Table 1.3 Internal factor evaluation (IFE) 17

Table 2.1: The product structure of the whole company 25

Table 2.2: The cement structure of Company 26

Table 2.3: Consumption output of three competitive companies 29

Table 2.4: Consumption output and market share in 2010 in Quang Binh 29

Table 2.5: Vietnam standard (TCVN) & PCB30 COSEVCO6 specification 31

Table 2.6: Vietnam standard (TCVN) & PCB40 Ang Son specification 31

Table 2.7: Sales discount levels 35

Table 2.8: Summary table of personnel capacities of the company 36

Table 2.9: Labor structure of the company 38

Table 2.10: The business results of the whole company from 2006 – 2010 39

Table 2.11: Asset’s structure from 2006 – 2010 43

Table 2.12: Business results of COSEVCO6 from 2006 – 2010 44

Table 2.13: Internal Factor Evaluation (IFE) 49

Table 2.14: Forecast of cement demand in the whole country 53

Table 2.1.5: Cement demand forecast in the whole country from 2007 to 2012 54

Table 2.16: Output forecast of cement plants in the whole country from 2007 to 2012 54

Table 2.17: Balance of cement demand – supply in the whole country from 2007 – 2012 54

Table 2.18: Growth speed of Vietnam GDP in recent years 57

able 2.19: The inflation rate of our country in recent years Table 2.20: GDP per capita in recent years 57

Table 2.20: GDP per capita in recent years 58

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Table 2.21: External Factor Evaluation 64

Table 2.22: Competitive profile matrix 67

Table 3.1: Basic targets of the company in 2011 and 5 years from 2011 – 2015 70

List of figures Page Picture 1.1: Comprehensive strategic administration model

Picture 1.2: SWOT matrix 18

Picture 2.1: Organization mechanism of COSEVCO6 23

Picture 2.2: Cement production procedure 27

Picture 2.3: Cement distribution model of the company 32

Picture 2.4: Organizing the management machine of Company 45

Picture 3.1: SWOT matrix of Cosevco6 73

Picture 3.2: IE matrix of Cosevco6 76

Picture 3.3 : Quantitative Strategic Planning Matrix of COSEVCO6 77

List of charts

Chart 2.1: Cement consumption market shares of the company in the areas 89

Chart 2.2: Cement market share in Quang Binh market 92

Appendix Appendix 01: Results of operations from the company from 2006 to 2010 87

Appendix 02: Structures on the property from 2006 to 2010 89

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INTRODUCTION

Our world is becoming a world without border with global citizens, global

competitors, global customers, global suppliers, and global distributors The world is

changing and enterprises must adapt to these changes, unless they will face with ruins

Vietnam economy is gradually integrating into the local and world

economies, the business environment of enterprises is broadened, but the

competition also becomes more and more violent It creates the business

opportunities and also holds the potential risks threatening the development of

enterprises

When the market has lots of changes, ignoring the accidental factors, the

decisive problems affecting the success of an enterprise are the selecting an exact

trend, identifying a reasonable and timely business strategy To exist, all

organizations must have a sharp ability to recognize and adjust to changes The

strategic administration process allows organizations to adapt effectively to changes

in long term

Implementing the guideline of State on arranging and innovating the

enterprise, from an enterprise with 100% state capital, it was privatized in 2005,

COSEVCO 6 Joint Stock Company has applied the strategic administration into

building its business strategies in the operation process and having several specific

achievements Cosevco6 Joint Stock Company is a business producer in the

construction field, such as: building civil, industrial, transporting, hydraulic, hydro

electrical, water supply and drainage constructions, urban constructions; processing

and installing machines and equipments to serve building activities; producing and

trading building material products (cement, commercial concrete, tuynen brick,

un-burnt brick, package, and PP plastic); Trading materials and equipments, building

materials; Exploiting kinds of stone, sand, grittier, soil; Transporting and loading

goods, and etc

The researching method: the group uses the application researching method

Basing on theories to give effective solutions, to solve real problems and to support

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administrative decision making The collected information and data are based on the

record storing system of the company The data are originated from many sources,

such as: direct investigating, consulting ideals of experts and people with many

experiences

The structure of thesis includes 3 parts:

 Part I: Several theories on business strategy administration

 Part II: Cement production and business situation of Cosevco6 Joint

Stock Company from 2006 to 2010

 Part III: Cement business strategy building of Cosevco6 Joint Stock

Company from 2011 to 2015 and the vision towards 2020

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CHAPTER 1 THEORETICAL BASE ON BUSINESS STRATEGY

1.1 CONCEPT AND THEORETICAL BASE OF BUSINESS STRATEGY

The current market economy, tendency of internationalizing business activities

and more and more competitive environment are gradually repelling thoughts of

waiting godsends in business activities In stead, successes only come to people

who have knowledge, being able to apply their professional knowledge, knowledge

on managing, planning, and strategic administration clearly

Understanding strategies and applying them effectively into the realities of

production and business activities require that administrators; owners of enterprises

must understand clearly and study carefully traditional and modern concepts on

strategy and strategic administration

Historically, the first strategy was used in the military field Then, strategies

were introduced into other fields of socio-economic activities Nowadays, strategies

have been deployed and applied broadly in the management field And strategies

have been really confirmed as an effective management trend or method What is

strategy? Strategy is “a series of complex activities in order to mobilize all possible

resources of an organization/ individual to reach a specific purpose

Currently there are lots of different definitions on business strategy which

originate from many different approaching ways Fred R David said that “Business

strategies are means to reach long-term targets” According to Alfred Chandler,

Harvard university “Business strategies are identifying basic, long-term targets of

enterprises, simultaneously selecting methods or processes of acting and

distributing necessary resources to implement these targets”,…

In general, although the definitions on business strategy are different in

expression ways, they imply the main contents, as follows:

 Identifying short-term and long-term targets of the organization in each period

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 Orientation of strategies to ensure that the enterprise develops continuously

and stably in the business environment which frequently changes

 The business strategy is depicted during the continuous process

 Business strategy always tends to attack in order to requiring successes in the

business environment

 Proposing and selecting solutions to reach targets

 Deploying and allocating resources to implement these targets, promoting

strengths and catching opportunities to acquire advantages in competition

1.1.2 Strategic administration

Strategic administration can be defined as an art and science to establish,

implement and evaluate decisions related to lots of permitted functions of an

organization in order to achieve the proposed targets As in this definition, the

business administration focuses on unifying the management, marketing, finance

and accounting, production, study and developing activities and information

systems in business fields in order to achieve successes of the organization

1.1.3 Roles and meanings of business strategies for enterprises

1.1.3.1 Roles of strategic administration

 Business strategies help enterprises to recognize clearly their trends, and being

bases, guidelines for all production and business activities of enterprises

 Strategies help enterprises to catch and utilize the business opportunities, at

the same time having methods to overcome threats and risks in the

competitive market

 Business strategies contribute into improving the efficiencies of using

resources, increasing competitive strengths of enterprises in order to ensure

the stable developments of enterprises

 Business strategies create firm bases for proposing policies and decisions on

business and production which are suitable to the market’s changes

 Business strategies are cooperated with functions in an organization

optimally basing on reaching common targets of this organization

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1.1.3.2 Meanings of strategic administration

When there are many complicated displacements, lots of newly arising problems,

many changes which happen fast, to exist and develop, to develop stably and

effectively, each enterprise/ organization must answer the key questions: “Which

product is produced?”, “Which market is are product sold in?”, “Which provision

chain do products participate into and which position in the chain do products

participate into?” and etc For each enterprise/ organization, strategies play an

important role as a wheel of ship, thanks to the wheel of strategic administration

ship; the enterprise can identify its vision, mission and a strategic target system,

policies, solutions to implement targets By identifying exactly trends and steps, the

enterprise will succeed all competitors and confirming its adequate position in the

domestic and world markets Therefore, the strategic administration helps

enterprises to recognize clearly their purposes and roads, so they can uphold in

exact direction and effectively

Strategic administration is originated from analyzing the external environment

to identify opportunities and threats, from analyzing the internal environment to

identify strengths and weaknesses, then combining to find strategies which can help

organizations to uphold their strengths, to overcome threats and to restrict

weaknesses to avoid threats, risks Because of being attached to the environment

and forecasting changes in the environment, being active and creative, the strategic

administration helps organizations to be always active, to catch timely

opportunities, to turn threats into opportunities, to invert situations, to win

competitors, and to develop stably and effectively

The main target of the strategic administration process is to reach knowledge

and to link all managers and employees; the mutual understanding may be the most

important benefit of the strategic administration, after that is the attachment

1.1.4 Kinds of strategies

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There are lots of strategies which are used in the process of production and

business, but generally there are the most common 3 kinds of strategies which are

currently used by enterprises

1.1.4.1 Strategy at the company level

Company strategy is a kind of long-term strategy related to mission, overall

target and scale of the enterprise in order to achieve expectations and wills of

owners, senior administrators in the organization Company strategies are

long-term, with general vision and controlling all other strategies, such as: business

strategy, functional strategy

1.1.4.2 Business strategy (SBU)

Business strategy relates to how enterprises can compete successfully in a

market detailed and related to strategic decisions on selecting products, meeting

customers’ demands, finding competitive advantages in comparison with

competitors, exploiting and creating new opportunities

1.1.4.3 Functional strategy

Function strategy is an operation strategy related to how each part in the

enterprise will organize, deploy, and evaluate in order to implement his

business strategy and company strategy The functional strategy focuses on

problems of resources and detailed deploying strategies, such as: product

strategy, price strategy, distribution strategy, market penetration strategy,

technology strategy, and etc

1.2 PERIODS OF STRATEGIC ADMINISTRATION

Strategic administration includes three main periods with close and complementary

relations:

 Period of forming strategies: includes developing business duties,

identifying opportunities and risks of organizations caused by internal

factors, showing clearly strengths, weaknesses in an organization,

establishing long-term targets, creating alternative strategies and selecting

specific strategies to change

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 Period of implementing strategies: requires that the company must

establish targets in each year, planning policies, encouraging staffs and

allocating resources, so that proposed strategies can be implemented

 Period of evaluating strategies: supervises results of establishing activities

and executing strategies This step includes measuring and identifying

achievements of individuals and organization, at the same time having

necessary adjustments

Three periods above reflect the cycle Plan – Do – Check in the modern

administration, being broadly applied in current activities of managing

enterprises The illustration model in picture 1.1 introduces a definition base

for applying the strategic administration that is applied broadly

With the study scope of topic, the group of authors will only concentrate

into the period of planning strategies The important techniques to form a

strategy can be merged into a decision making process which includes 3

periods: the 1st period is the researching period or input period The 2nd

period is the period of merging intuitively and analyzing to build a strategy or

the combining period and the 3rd period is the period of selecting/ deciding a

strategy

1.2.1 Researching period

The researching period or input period, the tools used for this period

include an external factor evaluation (EFE), a competitive profile matrix and

an internal factor evaluation (IFE)

The environment can be understood as factors, forces, institutions which

exist, affect, and affect the activities and operating results of enterprises The

environment of an enterprise includes external environment and internal

environment, which are divided basing on the available resources criteria

of enterprise

1.2.1.1 Analyzing the external environment

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The external environment includes the macro environment and task

environment/ branch environment

Picture 1.1: Comprehensive strategic administration model

Feedback

Feedback Form Execute Evaluate

strategies

(1) Macro environment: Is means in the broad society and has great impacts

on a branch and companies in this branch The macro environment includes

economic, cultural, geographic, legal, political, policy factors of State, techniques,

technologies and globalization factors

(2) Task environment or branch environment: is a series of factors which

have direct impacts on a company and the competitive activities and competitive

reactions of this company

Review business strategies

Analyze internal factors to know strengths and weaknesses

Establish long-term targets

Select strategies

Establish annual targets

Make policies

Allocate natural resources

Identify and evaluate achievem ents

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The task environment includes: competitors in the branch, customers,

providers, and alternative products, units who are preparing to participate into or to

withdraw from the branch

1.2.1.2 External Factor Evaluation (EFE)

This matrix allows strategists to summarize and evaluate economic, social,

cultural, demographic, geographic, political, legal, technology and competitive

information There are five steps to develop an external factor evaluation

Even the number of main opportunities and threats include in the external

factor evaluation, the sum of the most important points which an organization can

reach is 4.0 and the lowest point is 1.0 The sum of averagely important points is

2.5 The sum of important points is 4.0, which shows that this organization is

reacting well upon the current oppositions and threats in his environment Total

point is 1.0, which shows that proposed strategies of company have not utilized

opportunities or avoided external risks The model of external factor evaluation is

shown in Picture 1.1

Table 1.1: External factor evaluation

Listing external factors

1.2.1.3 Competitive profile matrix

In all environmental events and tendencies which can affect the strategic

position of an enterprise, the effect of competition is usually considered as the most

important factor The competitive profile matrix identifies the main competitors and

their special strengths and weaknesses The competitive profile matrix is a

broadening of the external factor evaluation, in case all of importance, classification

and total important points are meaningful

Total evaluated points of competitive companies is compared with a model

company, special classification levels of competitive companies can be compared

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with the classification levels of model company Analyzing this comparison will

providing important strategic information Picture 1.2 is the model of competitive

profile matrix

Table 1.2 Competitive profile matrix

Importance Model competitive

company

1st competitive company

2nd competitive company Classification Importa

nt point

Classification

Importa

nt point

Classification

Important point Listing factors

Total of important

points

1.00

Factors include: Market share, competitive ability, financial position, product

quality, loyalty of customers, economy, culture, and etc

The classification levels present modes by which the company deals with each

factor: With 4.0 is the best level, 3.0 is over average level, 2.0 is the average level

and 1.0 is the weak level

1.2.1.4 Analyzing internal environment or domestic environment

All organizations have their strengths and weaknesses in business fields There

is not any company with equal strengths and weaknesses in all aspects

The internal environment includes the immanent factors which an enterprise

can control Analyzing internally requires collecting and processing financial,

personal, researching and developing, marketing information and the information

system which shows the core activities of enterprises Controlling strategic

administration on internal activities of the company is necessary for the

organization’s power There are more and more organizations that succeed in using

the internal management method to acquire the competitive advantages before their

competitors

Internal factor evaluation (IFE):

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The internal factor evaluation is a tool which is used to summarize and

evaluate the important strengths and weaknesses of functional business parts and it

also provides the bases to identify and evaluate relations between these parts The

model of internal factor evaluation is shown in the picture 1.3

Table 1.3 Internal factor evaluation (IFE)

Exclusive of factors in the internal factor evaluation, the total of important

points can be classified from the lowest level of 1.0, to the highest level of 4.0, and

the average point of 2.5 The total of important points is lower than 2.5, which

shows that this company is weak in internal organization and the point is higher

than 2.5 shows that the company is strong in internal organization

1.2.2 Combining period

This is the 2nd period, which concentrates into making the feasible strategies

that can be selected by arranging, combining the important internal and external

factors

These strategic methods will be selected, filtered to have the optimal and most

feasible methods The feasibility is a requisition, so it requires that strategies must

be originated from the detailed realities, then applying the processing techniques to

meet the optimality

The techniques used in this period include the Strength – weakness,

opportunity – threat matrix (SWOT), Strategic position & action evaluation

(SPACE), Boston consulting group (BCG), Internal Factor Evaluation and External

Factor Evaluation and Main strategic matrix

Strength – weakness, opportunity – threat matrix (SWOT):

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SWOT matrix is the important combining tool to help administrators develop

04 kinds of strategy, as follows:

- Strategy: Strength – opportunity (SO)

- Strategy:: Weakness – opportunity (WO)

- Strategy:: Strength – threat (ST)

- Strategy:: Weakness – threat (WT)

The combination of internal and external important factors is the most

difficult duty to develop a SWOT matrix, it requires a good judgment, and there is

not any the best simultaneous combination

So strategies use internal strengths of enterprises to utilize external

opportunities Commonly, organizations will pursue WO, ST or WT strategy, so

these organizations can be qualified to apply SO strategy

WO strategies use internal strengths of enterprises to utilize external

opportunities Sometimes there are many big external opportunities, but internal

weaknesses of enterprises prevent them from exploiting these opportunities

Picture 1.2: SWOT matrix O: External opportunities Listing opportunities

(3)

T: Threats Listing threats (4) S: Strengths

Listing strengths

(1)

SO strategies Using strengths to utilize opportunities (1+3)

ST strategies Overcoming threats by utilizing strengths (1+4) W: Weaknesses

Listing weaknesses

(2)

WO strategies Limiting weaknesses to utility opportunities

(2+3)

WT strategies Minimizing weaknesses and avoiding from threats

(2+4)

ST strategies use strengths of enterprises to avoid from or reduce impacts of

external threats

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WT strategies are defensive strategies to reduce the internal weaknesses and

to avoid external threats

The diagram of SWOT matrix includes 9 boxes, as picture 1.2, with 4 boxes

of important factors (S, W, O, T), 4 strategic boxes (SO, ST, WO, WT), 1 blank box

is the right box

The listed factors must be sufficient, exact, showing strengths, weaknesses,

and also threats which the company have met in the process of implementing

strategies This is an important base to select strategies

The targets of each combining tool in the 2nd period are making selective feasible

strategies, instead of selecting or deciding which strategy is the best Therefore, not that

all strategies developed in SWOT matrix will be selected to implement

1.2.3 Decisive period

This is the 3rd period of the strategy forming period, it only includes a

technique Quantitative strategic planning matrix (QSPM) QSPM matrix uses the

input information withdrawn from the 1st period to evaluate objectively the feasible

strategies in order to be selected in the 2nd period QSPM matrix shows the relative

attraction of strategies which can be selected, and thus it provides the objective base

for selecting the individual strategies

All techniques in the strategy forming process require the combination of the

institutive ability and analyzing process

1.2.4 Competitive strategic directions of a product in trading

The strategy planning matrix can determine QSPM, use input factors thanks to

analyses in the 1st period and combination results of analyses in the 2nd period to

determine objectively alternative strategies

The aforesaid steps are the main and basic contents in the process of planning

strategies

However, enterprises can base on their actual conditions to ignore several

steps, so that building strategies will happen faster

1.2.4.1 Domination strategy on cost

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The domination strategy on cost is a series of activities to manufacture

products or services with leading properties on reasonable and lowest cost, equally

to competitors’ costs with properties agreed by customers

Cost saving activities: Building effective equipments in scale, controlling

closely production costs and the total cost, minimizing selling expenses,

researching, developing services, simplifying production, etc

1.2.4.2 Differentiation strategy

The differentiation strategy is a series of necessary actions to produce goods

and services (with a acceptable cost) which customers think that this product is

different and this difference is important for them

Enterprises can create the differentiation by controlling cost factors (if

necessary) and re-structuring the value series to maximize capacity

1.2.4.3 Combining strategies of cost and differentiation

A company succeeding in combining cost & differentiation strategies will have

better position, because: Adjusting faster with environmental changes, studying new

skills and technologies fast, utilizing his potentials when competing with

competitors

Pursuing patiently the flexibility on strategies is necessary to implement the

strategy of combining cost & differentiation strategies

In summary, planning strategies is the most initial and important step of

managing strategies Having the high generality and orientation, the strategic

planning is the necessary condition for the success of a process

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CHAPTER 2:

CEMENT PRODUCTION AND BUSINESS SITUATION ANALYSIS

OF COSEVCO6 COMPANY FROM 2006-2010

2.1 THE OPERATION PROCESS OF COSEVCO 6

2.1.1 Introduction on Cosevco 6 Company

2.1.1.1 Overview of the company

Cosevco6 Joint Stock Company is a producer and trader in the fields:

Construction investment, such as: Civil construction, industry, transportation,

irrigation, hydroelectricity, water supply and drainage, urban structures; processing

and installing machines and equipments to serve construction activities; Producing

and trading construction products and materials, such as: cement, commercial

concrete, tuynel brick, adobe brick, cover and polypropylene; construction materials

and equipments; Exploiting kinds of stone, sand, grittier, soil; Transporting and

loading goods

The headquarters of company is located in Dong Hoi city, Quang Binh province

2.1.1.2 Main information:

The company’s address: No 02 – Huyen Tran Princess street – Dong Hoi city

– Quang Binh province

Tel: (0523) 825030/825031

Fax: (0523) 827466

Website: http://www.cosevco6.com.vn

Number of employees: 1.000

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2.1.1.3 Achievements:

With its achievements, COSEVCO6 Company is honored that it was awarded a

third class labor medal in 2005, a second class labor medal in 2009 He was awarded a

certificate of merit in 2005, 2006, and 2007 and being a leading unit in the emulation

movement in 2007; a Godden cup for enterprise culture in 2008; Vietnam gold star in

2009 and many Certificates of merit, emulation flags and other noble awards, etc

2.1.2 Formation process and organization structure of COSEVCO6

2.1.2.1 Formation process

After Binh Tri Thien province was divided into three provinces: Quang Binh,

Quang Tri, and Thua Thien Hue, successively in three next years, companies which

afterwards related to Cosevco6 were established, such as:

In 1985, Quang Binh Construction Company No 1 and Quang Binh

Construction Company No 2 were established;

In 1990, Ang Son Cement Company was formed and came into operation

In 1994, 1-5 Building Materials Company was established in Quang Binh

According to Decision No 07/1998/QD-UB dated April 11th, 1998 by People’s

Committee of Quang Ninh province, the provincial People’s Committee decided to

merge 4 above companies (Ang Son Cement Company, 1-5 Building Materials

Company, Quang Binh Construction Company No 1, and Quang Binh Construction

Company No 2) into Quang Binh Building Materials and Construction Company

In 2001, 1-5 Building Materials Company was privatized and separated independently

In April 2002, Quang Binh Building Materials and Construction Company was

permitted to merge into Midland Construction Corporation – Ministry of

Construction by Quang Binh province and renamed into Cosevco6 Building

Materials and Construction Company

Implementing the great guideline of Government on arranging and innovating state

enterprises, the company executed to privatize in 2005 The first general shareholders

meeting on 26/11/2005 agreed that Cosevco6 Building Materials and Construction

Company was renamed into COSEVCO 6 JOINT STOCK COMPANY

When the company was newly established, its charter capital was 25 billion

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dongs; State did not hold any control share In which the contribution shareholders

occupied 60.25%, state shareholders was 39.75%

In March 2007, the annual general shareholders meeting No 2 decided to

increase the company’s charter capital into 65 billion dongs Until the end of

December 2010, shareholders contributed only 35 billion dongs, in which State

shareholders occupied 71.43% charter capital

2.1.2.2 Organization mechanism of COSEVCO 6: is shown in Picture 2.1

Picture 2.1: Organization mechanism of COSEVCO6

Civil Engineering Department

Market and Plan Department

Administration Department

Units directly under its control

- Concrete enterprise No 68

- Ang Son Cement plant

- Project management board of Ang Son cement plant

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2.1.2.3 Description of COSEVCO6 business activities:

The company implements the business and production activities through 9

member units, including: the company office; Cosevco61 enterprise; Cosevco63 tuynel

brick enterprise; Cosevco64 mine exploiting enterprise; Cosevco65 construction

enterprise; Cosevco66 cement enterprise; Cosevco67 packaging enterprise; 68

Concrete enterprise and the project management board of Ang Son cement plant The

operation area is located from Nghe An province to Ninh Thuan province

The company office: is responsible for controlling all activities of member

enterprises, presiding over mobilizing capitals and financial trading

Cosevco61 & Cosevco65 construction enterprises: trade in the field of basic

construction, including civil construction, industry, transportation, irrigation,

electricity, hydroelectricity, water supply and drainage, urban structures; processing

and installing machines and equipments to serve building materials and construction

activities The operation area of these units is mainly located in the midland

provinces from Nghe An to Ninh Thuan

Cosevco63 Tuynel brick enterprise: specializes in producing and providing the

market with kinds of tuynel bricks to serve construction, such as: solid bricks,

bricks 2 holes, bricks 4 holes, bricks 6 holes The business area of Enterprise is

mainly located in Quang Binh and Quang Tri provinces The enterprise sells goods

through two forms: direct selling (retailing) and selling to consumption agents

Consevco64 Mine exploiting enterprise: specializes in exploiting and

producing kinds of stone: fence stone, kinds of ballast, base stone, stones for

producing cement and goods transporting service The operation area is mainly

located in Quang Binh province

Cosevco66 cement enterprise: specializes in producing and trading PCB30,

PCB40 cement products The enterprise sells through two forms: retailing and selling

directly to distributors The business area of unit is mainly located in Central provinces

including Quang Binh, Quang Tri, Da Nang, Quang Nam and Quang Ngai

Cosevco67 packaging enterprise: specializes in producing kinds of packages

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and products made from PP plastic to serve the external market and Cosevco66

enterprise The business area is mainly located in Quang Binh province

Cosevco68 Concrete Enterprise: trades in the fields of basic construction,

commercial concrete, producing and trading adobe bricks The forms of consuming

products (commercial concrete and adobe brick) are retailing and selling directly to

basic construction investment projects The business area is mainly located in Central

provinces, such as: Nghe An, Ha Tinh, Quang Binh, Quang Tri, and Ninh Thuan

Project management board: implements the function of deputizing for the

management company to manage the implementation of investment projects of

Company Currently, the board is deploying to implement the project of investing

and constructing the rotary kiln cement plant with capacity of 0.7 million tons/ year

in Quang Binh All rotary cement production chain was inaugurated and became

into trial production in December 2010

2.1.3 Internal environment analysis of COSEVCO6

2.1.3.1 Product structure of the company and cement product:

The structure of product kinds of Cosevco6 Company is shown in Table 2.1

Table 2.1: The product structure of the whole company

unit

2010 5 years from

2006-2010

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The structure of cement product is shown in Table 2.2

Table 2.2: The cement structure of Company

The main products and services of company include:

- Building and installing; Ready mix concrete

- Kinds of building brick and stone: Tuynel solid brick (220 X 105 X 65);

Tuynel brick 2 holes (220 X 105 X 65); Tuynel brick 6 holes (210 X 135 X

100); ashlars and producing cement, ballast for concrete, Base stone, Sup base

stone, Concrete brick paving pavement, Concrete brick building wall, and etc

- Mine exploiting

- Building sand for concrete and plaster mortar

- Cement (combined Portland cement PCB30, PCB40, anti-salt contamination

concrete)

- Cement package

- Goods loading and transpoting services

- Surveying, designing, supervising and building civil and industrial

constructions;

- Investigating and appraising construction investment projects, industrial and

civil designing projects and building materials producing constructions

- Project managing, directing projects and other requirements to serve

activities of managing and directing projects of investors

- Investing, trading and renting: urban technical infrastructure, urban areas,

industrial areas,

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2.1.3.2 Cement production:

Cement of COSEVCO6 Company is produced in the modern technology chain

of Europea, the procedure of production is comprehensive

Cement branch is the production branch basing on available materials in

nature, such as

The cement production procedure is shown in picture 2.2

Picture 2.2: Cement production procedure

Main materials to produce cement are: limestone, clay, iron ore, etc Crashed

addition materials used to produce cement are: gypsum, basalt, black stone, etc

Annually, the company has oriented the basic criteria of business and

production, production maintenance and stabilization plans Organizing and

maintaining well the movements of producing emulation, arts and culture, sports;

Clay store Crashing clay Drying clay

SILO clay 1 SILO clay 2

Crusher Mixing store

SILO limestone SILO iron ore SILO gypsum Material

Crusher SILO mixing Furnace Cooler Additive

Cement crusher SILO cement

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ensuring stable occupations for employees Entrusting kinds of norm, basic steps

reasonably, creating good conditions by which units can produce self-controlled

For recent years, the company has mainly produced and provided the market

with PCB30 cement products according to Vietnam standard (TCVN 6260 :1997

Combined Portland cement – Technical requirements) in the innovated vertical kiln

technology chain of China In 2008, the company invested to build the cement

producing chain by rotary kiln technology of Europe and finished in December

2010, began to produce for trial

The company has built a cement production guideline procedure, which meets

ISO 9001:2000 standards The input and output materials are controlled rather

closely, experimented products reach technical requirements, which have newly

introduced to the market The production chain is operated safely; maintaining

machines and equipments is implemented usually, periodically and quite well The

system of product stores reaches production requirements

The design capacity of cement production chain of vertical kiln is 80,000 tons/

year and of rotary kiln is 700,000 tons/ year The company production capacity

always exceeds the design capacity in recent years However, in the current period,

the prices of input factors as electricity, coal, oil, etc have increased highly, which

has big impact on unit’s production activities

On the other hand, the cement production chain of vertical kiln begins to have

lots of breakdowns, technologies are undeveloped, and it is difficult for them to

meet production requirements and market demands in the next period The company

need stabilize soon and apply the cement production chain of rotary kiln to produce

2.1.3.3 Consumption condition

Although Quang Binh is a poor province, its economy still has many

difficulties, it is trying to change the economic structure from agriculture into

building material and tourist services development thanks for its abundant mineral

resources for Building materials Currently, in Quang Binh province, there are four

cement production plants which are operating, they are: Song Gianh COSEVCO

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cement, Thanh Truong cement, COVESCO6 cement, Anh Son cement of

COSEVCO6 and two plants are building: Van Hoa cement and Truong Son cement

Besides, in Quang Binh province, there are other cement products which

compete with products of above plants, such as: Nghi Son cement, Bim Son cement,

Kim Dinh cement, Hoang Mai cement, Duyen Ha cement, and etc

The business area of COSEVCO6 cement product is mainly in provinces of the

Central Vietnam, such as: Quang Binh, Quang Tri, Da Nang, Quang Nam and

Quang Ngai The consumption output of all kinds of cement from 2008 – 1010 of 3

companies is shown in the table 2.3

Table 2.3: Consumption output of three competitive companies

(Calculation unit: Ton)

(Source: Consumption department of Companies)

The cement consumption share of companies in Quang Binh province in 2010

is shown in Table 2.4

Table 2.4: Consumption output and market share in 2010 in Quang Binh

unit

Consumption output in 2010

Share (%)

(Source: Quang Binh Department of Finance, 2010)

The cement consumption shares of companies in the province in 2010 are

shown in Chart 2.1

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Chart 2.1: Cement consumption market shares of the company in the areas

 Production and consumption (cement and clinker) reach the design capacity

 Maintaining the Quality management system according to ISO 9001:2000

 Applying the standard forms and bases according to the equipment record to

check and maintain the operation stability

 Executing the Internal Evaluation of Quality Management System 6

months/ 1 time

 Evaluating production costs, the efficiency of steps and quality 3 months/ 1 time

 Reaching issued Vietnam standards: Table 2.5 and table 2.6

The PCB 30 products have the advantage that they can satisfy building all

constructions as: civil building, tall building, road and brick, hydroelectric

building, etc with low product price, preventing from erosion in environments,

having high durability, high abundant coefficient, big ductility, and being suitable

with Vietnam climate

Da NangOther provinces

Trang 32

Table 2.5: Vietnam standard (TCVN) & PCB30 COSEVCO6 specification:

Trang 33

The PCB40 products have the advantage that they can satisfy building all

constructions as: road and brick, civil building, tall building, hydroelectric building,

and special buildings, etc., preventing from erosion in environments, having high

durability, high abundant coefficient, high ductility, and high chemical durability

and being suitable with Vietnam climate

 Sales price policy:

With the basic pricing policy for products based on cost, flexible price

adjustment in the product consumption process in order to stimulate consumption is

the concern of enterprises As an important tool to increase the selling ability,

COSEVCO6 Company adjusts its sales price according to each market time and by

discounts based on goods sold to agents, distributors

COSEVCO6 Company applies the price strategy, as follows:

- Stipulating sales prices for distributors/ agents according to each area and

enclosed with discount

- Discounting according to scale, depending on the consumption output in

each month

The sales prices for reference in Quang Binh, Quang Tri, and Ha Tinh, as

follows:

- Ang Son PCB40 cement : 920.000 dongs/ ton

- COSEVCO6 PCB30 cement: 850.000 dongs/ ton

 Policy on distribution channel:

The decisions on selecting distribution channels are one of the most important

and comprehensive decisions which the company must approve It has a significant

impact on product consumption activities Currently the company is selecting to

combine two forms of direct and indirect distribution The model of distribution

channel is shown in Picture 2.3

The company sells goods through Market department, agents, and sole

distributions Besides, the company can also sell directly to big projects

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Picture 2.3: Cement distribution model of the company

SELLING THROUGH MAIN/ SOLE DISTRIBUTOR:

The main distributor model is the selective method in each area or several

individuals, units which reach strategies to become main distributor The main

distributor is the person who buys directly goods of company through

Representative offices or order forms, registering to receive goods can implement

by fax or directly

The prerequisite of Main distributor method is payment before receiving

goods The main distributor is responsible for organizing the retail agents in the

registered area to manage well activities of transporting and preventing from

dumping in each area

The nature of selling model through main distributor is identifying the

harmonious benefits between producers and distributors The model of selling

through main Distributor allows utilizing capacities of society in consuming goods,

saving selling costs, but requires that main Distributor must be really qualified,

especially having financial capacity

Currently, in each province as Ha Tinh, Quang Tri, Da Nang, Quang Nam, the

company delegates its powers to a sole distributor

SELLING THROUGH PROJECT DISTRIBUTOR

To provide timely the big amount of cement for priority civil constructions of

State, the company selects the model of project distributor, in which the company

signs contracts of providing kinds of cement directly with Contractors

The advantage of this method is that cement is provided directly according to

demands of constructions which need consume a big amount of structure materials

as cement, such as hydroelectric constructions, bridges, commercial centers, tall

buildings, and etc

intermediaries

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SELLING TO CONSUMPTION AGENTS

The company applies the model of selling directly to consumption agents only

in Quang Binh province These agents are mostly established by staffs of the

company, and having veteran relations with the company Currently, there are

above 200 consumption agents in Quang Binh transacting with COSEVCO6

Company

 Policy on promoting to sell:

o Advertisement:

The company has advertising products The advertisement forms are mainly

through television, newspaper, magazine, and internet

o Public relations:

 Event organization:

- The company organized to receive the second class and the third class

labor medals awarded by President thanks to its contributions into building

and developing the country

- COSEVCO6 Company organized to receive ISO 9001:2000 certificate

and ISO 9001:2008 version for the quality management system of the

company issued by Vietnam Certification Center (Quacert)

- Organizing annually customer meetings

 Investment and social activities:

The company also pays attention to and usually organizes arts and sport

festivals in order to promote staffs to emulate ardently in production

Organizing to visit, encourage timely wounded soldiers, revolutionary martyrs’

families, veterans

Encouraging laborers to participate actively activities of collecting and

supporting social charity funds mobilized by seniors, usually finishing and

exceeding the stipulated levels Annually collecting to support the flavor

repaying fund, supporting flood victims, supporting funds for the poor,

education funds, commending and rewarding children in the company who

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reach the title of good student, and etc with the amount of thousand million

dongs in each year

Annually, the company has invested to build 2 to 3 “Great unity” house for

poor households and families in preferential treatment policy with especially

difficult conditions, the price of each house is 30 million dongs

o Promotion/ discount:

Discounting according to scale for distributors basing on the consumption

output is currently stipulated, as follows: the outputs of PCB40 Ang Son cement,

Cosevco6 PCB30 cement and kinds of bulk cement are added together to calculate

abatement discount since the first cement ton according to the levels: Table 2.7

describes the discount level:

Table 2.7: Sales discount levels

No Consumption output in month (ton/month) Discount level (dong/ ton)

o Sales force:

Through the Consumption department of the company to control selling of

agents, distributors and studying information from customers

o Direct marketing: Through the website http://www.cosevco6.com.vn/

2.1.3.5 Human resources:

The company agrees to manage all staffs, as recruiting, arranging jobs,

training, promotion, etc through Administration Department All staffs of the

company are described in Table 2.8 Annually, the company organizes the training

programs for staffs to improve their professional skills

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Table 2.8: Summary table of personnel capacities of the company

<5 years <10

years

> 10 years

I UNDERGRADUATE LEVEL : 43

3 Water engineer – Hydro

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The labor structure of the company basing on sex, level and production

relation is shown in Table 2.9

Through these above data, we can see that the human resources have the

characteristics, as follows:

 Diversified, having knowledge and experiences in many fields

Table 2.9: Labor structure of the company (Calculation unit: person)

Amount (person)

Density (%)

Amount (person)

Density (%)

 The number of staffs is great (nearly 1000 people), with diversified ages and

belonging to many different generations, and being skilled in production

 The number of managers with university and college graduate level occupies

5% of total staffs; Staffs with technical school graduate level occupies 9.75% of

total employees; over 85% employees are skilled and unskilled workers

 The management machine is old, having real experiences

 The numbers of staffs in the field of finance and accounting is numerous (58

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people) but most of them are limited in education skill and professional skill

 The quality and quantity of managers and skilled workers satisfy basically

requirements of production and business of the company However, the quality of

human resource is not high; the abilities of accessing new technologies, researching

and developing products to meet market demands are still so limited

2.1.3.6 Accounting and finance

The business accounting system of COSEVCO6 Joint Stock Company is

stipulated as follows: The company records independently, enterprises record

dependently

The business result reports, accounting balances and several criteria to

evaluate activities of the company from 2006 – 2010 are shown in Table 2.10 and

147.375

190.374

174.513

131.715

2

Pretax profit:

Interest (+), Loss (-)

Million dongs

3.911

5.005

5.132

283 -14.368

3 Post tax profit:

Million dongs

3.911

5.005

4.491

5.714

6.884

7.147

6.061

3.613

7

Fixed asset

amortization

Million dongs

8.933

10.243

10.726

10.369

9.687

8

General debt payment

1,28

1,36

1,16

1,06

1,00

9

Current payment

0,95

0,94

0,96

0,65

0,54

10 Fast payment ability Time

0,57

0,46

0,39

0,29

0,18

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